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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “D”, BENCH KOLKATA BEFORE SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.144/Kol/2015 (�नधा�रण वष� /Assessment Year:2009-2010) M/s Sormistha Builders & Vs. ACIT/Circle-1/Asansol-713304 Construction (P) Limited, Senreleigh Road, West Apcar Gardens, Asansol-4, Dist-Burdwan-713304 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAICS 8345 K .. (अपीलाथ� /Appellant) (��यथ� / Respondent) Assessee by : Shri R.N.Ram, AR Revenue by : Shri Prabal Choudhury, JCIT सुनवाई क� तार�ख / Date of Hearing : 15/12/2016 घोषणा क� तार�ख/Date of Pronouncement 21/12/2016 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the assessee, pertaining to the Assessment Year 2009-2010, is directed against the order passed by ld. Commissioner of Income Tax (Appeals), Asansol, in Appeal No.234/CIT(A)/Asl/Cir-1/Asl/11-12, dated 01.12.2014, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 11.03.2014. 2. Brief facts of the case qua the assessee are that the assessee company filed its return of income for the assessment year 2009-10 on 12.01.2011 declaring total income of Rs.18,63,098/-. Assessee’s case was selected for scrutiny u/s.143(3) of the Act and the AO has completed the assessment by making various additions.
2 ITA No.144/15 M/s Sormistha Builders & Construction (P) Ltd.
Aggrieved from the order of ld. AO, the assessee filed an appeal
before the ld. CIT(A), who has also confirmed the additions made by the
AO, by observing the followings :-
In section 23 the proviso reads as under :- “Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of the previous year in which such taxes are actually paid by him. Clearly the elements in the demand notice viz.(a) 100% penalty of sanction fees & development fees (b) Fine for deviated area @Rs.70/- per sq.ft.and (c) Development and sanctioned fee are not "taxes levied by any local authority in respect of the property". The municipal tax here is the tax determined payable on annual basis post completion determined in a pre specified manner, generally on basis of national rental value. 6. The appellant argued that Rs.12,66,076/- and Rs.5,20,759/- are fine and not penalty and fine is akin to taxes here. Hence he pleaded that this sum be allowed since the same goes in augmenting profit. 7. The matter is considered. The explanation offered by the appellant does not meet the condition stipulated in law. Here we are computing income from house property which is determined on basis of specific non discretionary deduction and not profits and gains of business and profession. The sums in the two demand notices of Asansol Municipal Corporation are not "taxes levied on the property by local authority" as specified in proviso to section 23(1). They are sums that were to be paid at pre commencement of construction stage and penalty for violation of municipal laws. This is not deductible in accordance with proviso to section 23(1) in computing annual value. Hence decline to accept the plea of appellant. 8. The disallowance of Rs.19,00,772/- made by Assessing Officer is upheld. The grounds 1 to 4 stands dismissed.
Not being satisfied with the order of ld. CIT(A), the Assessee is in
further appeal before us and has taken the following grounds of appeal :-
That on the facts and circumstances of the case Id. CIT(A), Asansol erred in confirming the disallowance of Rs.1900772/- paid
3 ITA No.144/15 M/s Sormistha Builders & Construction (P) Ltd. to Asansol Municipal corporation on account of fees for deviation of building plan whereas such payment is part and parcel of business expenses incurred wholly and exclusively for the purpose of business of the appellant. 02. That on the facts and circumstances of the case Id. CIT(A), Asansol erred in not appreciating the fact that appellant derives income from House Property and also from Business on account of purchase and sale of commercial and residential flats after promoting and constructing the same and consolidated Profit/Loss account is prepared debiting the above sum of Rs.1900772/- wherein both the income from the House Property and income from sale of commercial and residential complexes were credited in the Profit/Loss Account. 03. That on the facts and circumstances of the case Id. CIT(A), Asansol erred in not appreciating the fact that the details were filed before the A.O. and CIT(A) and explained that fees paid to the Municipal Corporation is a part and parcel of the expenditure allowable u/s 28 though not allowable u/s 22. 04. The appellant craves leave to alter, amend and substitute and ground or grounds before or at the time of hearing.
5.Although, in this appeal, the assessee has raised four grounds of
appeal, but at the time of hearing the main grievance of the assessee
has been confined to the issue that ld. CIT(A) did not allow the
penalty paid by the assessee to Municipal Corporation on account of
deviation of building plan.
5.1. Ld. AR for the assessee has submitted that the assessee derives
income from house property and also income from business. Income from
business is mainly on account of purchases and sales of commercial and
residential flats. The assessee prepared a consolidated profit and loss
account, where he has debited the penalty paid to Municipal Corporation
at Rs.19,00,772/-. In the profit and loss account both the income of the
assessee are getting reflected i.e. income from house property and
4 ITA No.144/15 M/s Sormistha Builders & Construction (P) Ltd. income from sale of commercial and residential complex. Ld. AR argued
that penalty paid to the Municipal Corporation is a part and parcel of the
expenditure allowable u/s.28. Since the assessee has two types of
income i.e. income from house property and income from business. The
assessee cannot claim the penalty expenditure under the head income
from house property because there is no any provision to allow penalty
expenditure, therefore, the option available before the assessee is to
claim the penalty paid to Municipal Corporation in the profit and loss
account. The assessee has paid this penalty because of deviation of
building plan. Ld. AR argued that because of deviation of building plan,
the assessee would be able to get more revenue and more carpet area
and, therefore, this way the business income of the assessee is
increasing and, therefore, it is for the purpose of the business. Because of
deviation of building plan the assessee would be able to get more
revenue from the sale of residential flats and commercial flats, therefore,
the penalty paid to the Municipal Corporation on account of deviation of
building plan is business expenditure and should be allowable u/s.37(1) of
the Act.
5.2 On the other hand, Ld. DR for the revenue has primarily reiterated
the stand taken by the CIT(A) and AO, which we have already noted in
our earlier para and the same is not being repeated for the sake of
brevity. The Ld. DR pointed out that penalty paid for violation of any Act
or Law is not allowable u/s 37(1). If the penalty and fines are allowed as a
business expenditure then there would be more crime and unlawful
5 ITA No.144/15 M/s Sormistha Builders & Construction (P) Ltd. activities in the country. Ld. DR has explained before us that the penalty
or the fine paid by the assessee which is prohibited by law should not be
allowed as a business expenditure and Section 37(1) prohibits the same.
Explanation 1 to Section 37(1) reads as follows :-
“Explanation 1- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.”
5.3. Having heard the rival submissions, perused the material available
on record, we are of the view that there is merit in the submissions of ld.
DR for the revenue. Ld. DR of the revenue has explained before us that
penalty expenditure is not a business expenditure and he has rightly
pointed out that Explanation 1 to Section 37(1) of the Act prohibits the
same, therefore, any expenditure incurred by an assessee for any
purpose which is an offence or which is prohibited by law shall not be
deemed to have been incurred for the purpose of business or profession
and no deduction or allowance shall be allowed in respect of such
expenditure. In the case under consideration the assessee has violated
the Municipal Law. Therefore, the penalty fee paid to the Municipal
Corporation on account of deviation of building plan is not allowable
expenditure. This expenditure is neither allowable under the head income
from house property nor under the head business income. Considering
the factual position and the provisions of Section 37(1) of the Act, we do
6 ITA No.144/15 M/s Sormistha Builders & Construction (P) Ltd. not find any infirmity in the order passed by ld. CIT(A). Therefore, we confirm the order of ld. CIT(A). 5.4. In the result, appeal filed by the assessee is dismissed. Order pronounced in the open court on this 21/12/2016.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 21/12/2016 �काश �म�ा/Prakash Mishra,�न.स/ PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant-M/s Sormistha Builders & Const.(P)Ltd 2. ��यथ� / The Respondent.-ACIT/Cir-1/Asansol 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, कोलकाता