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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI INTURI RAMA RAO
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -11, dated 09.05.2016 and pertains to assessment year 2011-12.
There was a delay of 3 days in filing this appeal by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. Departmental Representative and the Ld.counsel for the assessee. Ld. D.R. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.
Shri N. Gopikrishna, the Ld. Departmental Representative, submitted that the Assessing Officer levied penalty under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act') in respect of compensation disallowed. According to the Ld. D.R., there was no reference about the payment of compensation in the agreement other than referring the dispute to arbitrator. According to the Ld. D.R., both the assessee and M/s Prince Foundations Ltd. decided the dispute themselves. The assessee claims to have paid compensation.
Therefore, according to the Ld. D.R., the expenditure said to be claimed by the assessee for payment of compensation cannot be allowed as business expenditure. Moreover, the payment was admittedly made on 30.11.2009 which falls in the assessment year 2010-11. Therefore, according to the Ld. D.R., the same cannot be allowed as business expenditure. Since the assessee claims the same as business expenditure, the Assessing Officer levied penalty under Section 271(1)(c) of the Act. Therefore, according to the Ld. D.R., the CIT(Appeals) is not justified in deleting the penalty levied by the Assessing Officer.
On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee-company entered into a joint venture agreement with M/s Prince Foundation Ltd. Subsequently, the joint venture agreement entered with M/s Prince Foundation Ltd. was terminated on payment of compensation. According to the Ld. counsel, a fresh joint venture agreement was executed with M/s VGN Developers Pvt. Ltd. along with respective land owners. The compensation paid to M/s Prince Foundation Ltd. was claimed as business expenditure.
According to the Ld. counsel, there was a clause for reference to the arbitrator. It does not mean that the dispute could not be settled between the parties. In case the difference could not be resolved among the parties, the matter may be referred to the arbitrator. Therefore, according to the Ld. counsel, the contention of the Ld. D.R. that without reference to the arbitrator, the parties decided to pay compensation has no merit at all. The parties are entitled to settle the dispute amicably either on payment of compensation or otherwise without any reference to the arbitrator. The matter would be referred to the arbitrator in case the dispute could not be resolved amicably between the parties. In this case, according to the Ld. counsel, the parties came to an understand and the dispute was resolved and for cancellation of agreement, the assessee has paid compensation. Therefore, according to the Ld. counsel, it is an expenditure in the course of business activity, hence, the assessee claims as business expenditure. According to the Ld. counsel, a mere claim in the return of income as business expenditure cannot be a basis for making addition in view of the judgment of Apex Court in CIT Vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158. Referring to the assessment order, the Ld.counsel submitted that the only objection of the Assessing Officer is that the assessee has not followed the matching principle in treatment of income and expenditure. According to the Ld. counsel, the assessee, in fact, paid the compensation and claimed the same as revenue expenditure. Merely because the assessee could not substantiate the claim that cannot be a reason for levy of penalty.
We have considered the rival submissions on either side and perused the relevant material available on record. The fact that the assessee entered into an agreement with M/s Prince Foundation Ltd. is not in dispute. The agreement with M/s Prince Foundation Ltd. for joint development was also cancelled on payment of compensation. The assessee admittedly entered into another agreement with M/s VGN Developers Pvt. Ltd. The only contention of the Ld. D.R. is that there was a clause in the agreement with M/s Prince Foundation Ltd. for reference to the arbitrator in order to resolve the dispute. Since the compensation was paid without any reference to arbitrator, the Ld. D.R. contends that the same cannot be allowed as revenue expenditure.
According to the Ld. counsel, even though there was a provision in the agreement for referring the matter to the arbitrator, it does not mean that the assessee or the other party is bound to refer the matter to the arbitrator. Reference to the arbitrator or moving to the competent court is for resolving the dispute in case it cannot be amicably settled between the parties. Since the assessee and M/s Prince Foundation Ltd. amicably settled the matter between themselves on payment of compensation, it does not mean that the payment cannot be claimed without reference to the arbitrator. There is no mandatory requirement for referring the matter to the arbitrator when both the parties amicably settled the issue.
The next contention of the Ld. D.R. is that the payment was made on 30.11.2009 which falls in the assessment year 2010-11, therefore, the claim cannot be allowed during the year under deduction. This Tribunal is of the considered opinion that when a claim was made in the return of income as revenue expenditure in respect of payment of compensation and the same was pertaining to assessment year 2010-11, that alone cannot be a reason for levy of penalty, especially, when the payment of compensation is not in dispute. What is disputed is the year of payment.
An inadvertent error in claiming the expenditure as revenue expenditure for the year under consideration cannot be a reason for levy of penalty either for concealment of income or inaccurate particulars of income in view of the judgment of Apex Court in Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012) 348 ITR 306. In view of the above, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the penalty, hence the same is confirmed.
In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the court on 18th July, 2019 at Chennai.