ACIT,, CIRCLE-21(2), NEW DELHI vs. RIVER BUILDERS (P) LTD., NEW DELHI

Case called twice. None appears at the assessee’s behest. It is accordingly proceeded ex-parte.

The Revenue raises the following substantive grounds in the instant appeal:

Whether in facts and circumstances of the case, the CIT(A) is correct in treating the increase in FAR, which has increased construction pace, to be technical violation and thereafter deleting the addition made by the AO.

Whether in facts and circumstances of the case, the CIT(A) is correct in deleting the addition made by the AO without even calling for copy of the GDA compounding order or inspection report during the appellate proceedings and hence violated the principles as laid down by Hon'ble Delhi Court in the case of CIT vs. Jansampark Advertising & Marketing Pvt. Ltd.

Whether in facts and circumstances of the case, the CIT(A) has erred in deleting the addition made by the AO without examining the underline documents and reasons for the payments made to GDA by the assessee.

Whether in facts and circumstances of the case, the CIT(A) has erred in deleting the addition made on car loan interest and depreciation as the same was offered for taxation by the assessee during the assessment proceedings.”

Learned departmental representative next invites our attention to the CIT(A)’s lower appellate discussion reversing assessment findings disallowing the assessee’s claim of payment of Rs.6,00,00,000/- made against sanctioning of excess FAR and other applicable charges, to the Ghaziabad Development Authority (“GDA”); reading as under:

Delhi High Court in Commissioner of Income Tax v Lok Nath & Co. (Construction) 1994 147 ITR 624 (Del) held the charge is not on gross receipts but on profits and gains property so called. The profits to be assessed are real profits and they must be ascertained on ordinary principles of commercial expediency. The partnership was formed for the purpose of construction of a multi-storied building called as Himalaya House and for the purpose of selling the major portions of the said building in the form of flats of various customers. The assessed got the original building plans sanctioned and commenced the constructions. The assessed had no right to make deviations from the sanctioned plan or to continue the River Builders Pvt. Ltd. 4 construction after the sanction had lapsed. Any constructions thus made would be deemed to have been erected without a proper sanction. The Committee, however, has the power to sanction revised plans so as to regularize the deviations or give ex post facto sanction for the constructions made after the sanction had lapsed by accepting by way of compensation such as it may deem reasonable. It is at that stage that the assessee had to consider the question of payment on the principles of ordinary commercial trading or on grounds of commercial expediency. Seen in the light of the law noticed above, the assessed had the desire to preserve the building and to save a part of it from demolition. The expenditure was for saving of the loss on the alteration of the closing stock of the assessed. Such an expenditure has to be permitted as a deduction made for the purpose of carrying on of business. The question whether a particular expenditure is a revenue expenditure incurred for the purpose of business must be viewed in the larger context of the assessee’s business, necessity or expediency. The expenditure of payment of compensation incurred by the assessee has to be regarded as an integral part of the profit-earning process of the assessee. The portion of the buildings thus saved from alteration of demolition remained as a business stock available for sale flat-wise. The assessed by this outgoing of Rs. 4 lakhs procured the portion of the building by which the assessees made profit. The payment is not in the nature of penalty for infraction of law and is a right in holding that it is a permissible deduction in arriving at the profit of business of construction and sale of building, the outgoing being allowed in one assessment year.

Keerthi State Private Limited v Dy. CIT ITA No. 271/Hyd/2016

The Pune Tribunal in the case of EON hadapsar Infrastructure (P). Ltd. (2016) 159 ITD 0532 (Pune-Trib) held that compounding fee paid for some technical violations without committing any offence is an allowable business expenditure. Even though the said decision is River Builders Pvt. Ltd. 5 not directly on the subject matter, it is equally important while constructing law with respect to compounding fee paid by builders to the municipal corporation for sc technical violations.

Learned departmental representative vehemently argues during the course of hearing that the Assessing Officer had rightly disallowed the assessee’s impugned claim as it had not only failed to prove the same to have been incurred only and exclusively for the purpose of business by filing cogent supportive evidence but also it is an instance of a payment claim which is barred by law u/s 37 r.w. Explanation (1) thereof. River Builders Pvt. Ltd. 6 6. These Revenue’s vehement contentions failed to evoke our concurrence. We see to make it clear that the assessee company herein is engaged in real estate business who had made the impugned payments to the sanctioning authority namely M/s Ghaziabad Development Authority, in the regular course of it’s business i.e. regularization of building plan etc. the assessee’s impugned payment are admittedly not in dispute at all as the Revenue’s endeavour herein is to get same disallowed by quoting section 37(1) of the Act r.w. Explanation (1) thereto. It has further come on record that the learned CIT(A)’s detailed lower appellate discussion has already considered the instant issue at length thereby concluding that the assessee had made the impugned payments in the nature of additional benefits etc. to increase the constructed area leading to consequential higher revenues. There is also no indication in the assessment findings or during the course of hearing that these payments have been made for any purpose which is an offence or prohibited by law; whatsoever, so as to be covered under the above Explanation.

We thus conclude in this factual backdrop that the learned CIT(A) herein has rightly accepted the assessee’ above sole substantive grievance which hardly requires our interference. Rejected accordingly. River Builders Pvt. Ltd. 7 8. This Revenue’s appeal is dismissed. Order Pronounced in the Open Court on 05/05/2025. (Naveen Chandra) (Satbeer Singh Godara) Accountant Member Judicial Member