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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 16-03-2016 घोषणा क� तार�ख /Date of Pronouncement : 13-06-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being 29-10-2010 passed by learned Commissioner of Income Tax (Appeals)- 12, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 12-12-2008 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 654/Mum/2011 2
The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1.1 The learned Commissioner of Income - tax (Appeals) - 12, Mumbai, ["Id. CIT (A)"] erred in confirming the action of the Assessing Officer ["the A.O."] in framing the assessment order without affording reasonable and fair opportunity of being heard.
1.2 It is submitted that in the facts and the circumstances of the case, and in law, the appellate order was required to be held as bad in law on account of breach of the principles of natural justice.
WITHOUT PREJUDICE TO THE ABOVE:
2.1 The Id. CIT (A) erred in confirming the action of the A.O. in disallowing of 50,000/-, being the business deduction claimed by the Appellant as demolition charges, by holding the same as non business expenses.
2.2 While doing so, the A.O. erred in:
(i) Basing his action only on surmises, suspicion and conjecture;
(ii) Taking into account irrelevant and extraneous considerations; and (iii) Ignoring relevant material and considerations.
2.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for.”
The assessee company has raised an additional grounds of appeal as under:
“4.1 The Assistant Commissioner of Income tax-6(3),Mumbai, [ “the AO”] erred in disallowing Rs.4,55,422/- paid as Collector’s charges under section 43B of the Income tax Act,1961[ “the Act”]
4.2 It is submitted that in the facts and the circumstances of the case, and in law, such action of A.O. was bad in law and hence the disallowance is liable to be deleted.”
The brief facts of the case are that the assessee company is engaged in the business of real estate, construction, development and elevation and desilting of water drains.
ITA 654/Mum/2011 3 The assessee company has paid demolition charges of Rs. 50,000/-to BMC for which details were asked by the A.O. The assessee company did not submit any details in respect of demolition charges before the AO, and the A.O. disallowed the demolition charges of Rs.50,000/- claimed by the assessee company as business expenses , by treating the same as non-business expenses and added the same to the total income of the assessee company vide assessment orders dated 12 December, 2008 passed by the AO u/s 143 (3) of the Act.
Aggrieved by the assessment orders dated 12.12.2008 passed by the AO u/s . 143(3) of the Act, the assessee company filed first appeal with the learned CIT(A).
The assessee company in statement of facts(SOF) filed before the learned CIT(A) stated as under:
“ The appellant is a Private Limited Company in the business of Real Estate Construction/Development , Desilting of water Drains etc..
The appellant was granted 55 Acres of Maharashtra Land vide letter dt 15th June 1968 from the Collector’s office BSA, Old Custom House, Fort, Bombay. With certain Terms and Conditions on which the Land was allotted & Later on amended by the BMC authorities. The appellant was required to incur expenses for development of Road & other infrastructure facilities subject to which it would be entitled for saleable FSI. Subject to the above the appellant has been incurred various expenses since dt of allotment till date and Capitalizing the same till the Year in which it would either develop/Construct any Commercial Property or Sale the available FSI against Surrender of road etc. to the Municipal Authorities.
ITA 654/Mum/2011 4
The appellant had prior to 1998 given the plots on Lease to various parties who in turn built their own industry. The appellant have sold the above plots on various date to the existing Lessee since they were the occupant of the plots since Last several years & had offered the same as business income. ***** Grounds of Appeal s ***** *****
4. Demolition Expenses Rs.50,000/- The ACIT erred in disallowing demolition charges of Rs.50,000/- as non Business Expenses.
The appellant submits that the above Expenses have been paid to BMC i.e. Bombay Municipal Corporation and the Receipt of the same had been submitted during the assessment proceedings.
The appellant submits that only on handing over of vacant land to BMC the Saleable FSI would be granted & hence the demolition of unauthorized hutments is a genuine Business Expenditure. Also the same has been paid to State Govt. Authorities. ***** *****”
With regard to the demolition charges of Rs.50,000/- disallowed by the AO by treating the same as non business expenses , before the learned CIT(A), the assessee company contended that Rs. 50,000/- was paid to the BMC and the receipt was submitted before the AO during the assessment proceedings . The assessee company submitted as an additional evidences before learned ITA 654/Mum/2011 5 CIT(A) , correspondence and letters which included letter from Assistant Commissioner K/west to Sh. L.R.Patkar stating that if client of Sh. L.R.Patkar is ready to pay an amount of Rs.50,000/- towards demolition of unauthorized stalls.
These additional evidences were forwarded by the learned CIT(A) to the AO for remand report.
The AO objected to the admissions of these additional evidences in remand report proceedings and also contended on merits that these additional evidences does not prove that these demolition charges were business expenses of the assessee company and therefore allowable as business expenses in the hands of the assessee company.
The learned CIT(A) admitted the additional evidences in the interest of justice as the AO did not show-caused the assessee company before making disallowances.
The assessee company was forwarded by the learned CIT(A) the remand report of the AO and the assessee company submitted that these additional evidences are letters written by Mr L R Patkar , Architect on behalf of the assessee company to the Municipal Commissioner in respect of unauthorized structures and occupants on the road developed by the assessee company and the response of the Municipal Commissioner to the letter from Mr L R Patkar , Architect . These additional evidences were filed to prove that while developing the plot of land , the assessee company had to incur expenditure for removing the un-authorized structures and occupants and therefore the said expenditure was rightly claimed by the assessee company.
ITA 654/Mum/2011 6 The learned CIT(A) considered the documentary evidences filed by the assessee company and observed that these documents are letters written by one Sh. L R Patker , Chartered Architect to the Municipal Commissioner, BMC and the Chief Engineer of the MCGM informing them about the unauthorized structures on a piece of land and that immediate action should be taken for demolishing the same. Along with the said letter a copy of receipt of MCGM to Shri L.R.Patkar showing an amount of Rs.50,000/- as payment made for demolition charge has been furnished by the assessee company. However, the involvement of the assessee company was not clear . It was also held by the learned CIT(A) that at no point of time has the assessee company authorized the Chief Architect to take necessary action. Thus, as per learned CIT(A) , the assessee company was not able to substantiate or establish that the concerned payment of Rs.50,000/- to BMC was in respect of business carried on by the assessee company and hence the learned CIT(A) upheld the assessment orders dated 12.12.2008 passed by the AO u/s 143(3) of the Act, vide appellate orders dated 29.10.2010.
6.Aggrieved by the appellate orders dated 29.10.2010 of the learned CIT(A), the assessee company filed second appeal before the Tribunal.
The ld. Counsel for the assessee company submitted before the Tribunal that the assessee company has incurred demolition expenses of Rs. 50,000/- for which the disallowance has been confirmed by the learned CIT(A). The learned Counsel submitted that the development expenses with respect to the same property and evacuation expenses for removal of illegal occupants from the same property granted to the assessee company by the Collector in 1968 as set out in SOF above has been allowed by the learned CIT(A) , whereas the demolition expenses of the illegal structures from the same property was disallowed by learned CIT(A) on technical grounds that the receipt issued by BMC is in the name of Architect of the assessee company.
ITA 654/Mum/2011 7 The learned counsel for the assessee company stated before us that the payment made to the BMC of Rs. 50,000/- through chartered architect was on behalf of the assessee company.
The ld. D.R., on the other hand, relied on the order of the learned CIT(A) and submitted that the payment of Rs.50,000/- has been made to BMC by the Architect and not by the assessee company .
We have heard the rival contention and also perused the material available on record. We have observed that the assessee company has incurred demolition expenses of Rs.50,000/- for removal of illegal structures on the piece of land granted to the assessee company by the Collector’s office in 1968 as per SOF as detailed above, which illegal structures were removed by the BMC and the expenses of Rs.50,000/- were paid by the Chartered Architect on behalf of the assessee company to BMC with respect to the demolition expenses of illegal structure on the piece of land , against which the assessee would get FSI on surrender of vacant land to BMC. No appeal has been filed by the Revenue with the Tribunal as confirmed by learned DR during the course of hearing before the Tribunal, against the orders of the learned CIT(A) whereby the learned CIT(A) allowed the development expenses with respect to same land and excavation expenses incurred by the assessee company for eviction of illegal tenants occupying the portions of the same land both as business expenses. The amount of Rs. 50,000/- was paid by the assessee company through its Architect to the BMC and the copy of the receipt has been furnished by the assessee company towards demolition charges of the illegal structures, which is placed in paper book. The said receipt of amount issued by BMC is in the name of Sh L R Patkar, the architect of the assessee company. It is an undisputed position that the payment has been made through chartered architect. In our considered view, the demolition expenses of Rs.50,000/- were incurred by the assessee ITA 654/Mum/2011 8 company to remove illegal structure in the portion of the plot of land granted by Collectors office in favour of the assessee company in 1968 as set out in SOF above and in our considered view, this is a normal business expenditure although it is incurred through chartered architect which was reimbursed by the assessee company. Hence, we hold merit in the contentions of the assessee company and allow the expenses of Rs.50,000/- incurred by the assessee company as business expenses through its architect paid to BMC towards demolition of illegal structure on its plot of land. We donot find any merit in the contentions of the Revenue as on the one hand development expenses and evacuation expenses with respect to the same piece of land was allowed by learned CIT(A) as business expenses , which orders of the learned CIT(A) is not contested by the Revenue as no second appeal is filed by the Revenue against the orders of learned CIT(A) before the Tribunal , and merely because the receipt for demolition expenses for demolishing the illegal structure on the same piece of land is in the name of the architect, the same cannot be held to be non-business expenses and disallowed by the Revenue. We order accordingly.
The next ground is regarding disallowance of Rs.4,55,422/- u/s 43B of the Act. The assessee company has raised this ground of appeal
before the Tribunal vide additional ground of appeal . It is submitted that the learned CIT(A) has disposed of this ground in a cryptic manner without any discussions. The assessee company submitted that due to inadvertent omission, the assessee company did not raised this ground of appeal before the Tribunal in the grounds of appeal filed along with memo of appeal filed with the Tribunal. The assessee company prayed that this ground of appeal being purely legal ground should be admitted as it goes to the root of the matter. The Learned DR objected to the admission of this additional ground. We have considered the rival contentions and we have observed that the assessee company did raised this ground of appeal regarding disallowance of ITA 654/Mum/2011
9. Rs.4,55,242/- being disallowed by the AO regarding Collector charges payable on sale of plot of land before the learned CIT(A) and the same was dismissed by learned CIT(A). The assessee company did not raise this ground in grounds of appeal filed with memo of appeal filed with the Tribunal but raised this additional ground of appeal during the course of hearing and in our considered view and in the interest of justice , the ground being purely legal is allowed to be admitted and is adjudicated on merits.
11. The assessee company has claimed Collector’s charges of Rs. 4,55,422/- as amount payable to the Collector of Mumbai towards sale of two plots of land to M/s Sweet Angel and M/s Supreme Industries. The assessee company has been contesting the payment of dues to the Collector on sale of plots of land and a sum of Rs. 11,76,715/- is payable in respect of sale of plots prior to the Financial year 2001-02. The assessee company has paid a sum of Rs. 64,890/- towards the sale of one of the plots hence the arbitrarily provision of 50% of the sale value of plots of land as payable to the Collector is not justified, as per the AO. In addition , as per the A.O. any sum payable to the Collector is covered under the provisions of section 43B of the Act. Further, the assessee company itself has previously treated the liability of Rs. 45 lacs payable to the Collector as covered u/s 43B of the Act in the assessment year 1998-99. Thus, this amount of Rs. 4,55,422/- payable to Collector of Mumbai was disallowed by the AO and added to the total income of the assessee company vide assessment orders dated 12/12/2008 passed by the AO u/s 143(3) of the Act.
12.Aggrieved by the assessment orders dated 12/12/2008 passed by the A.O. u/s 143(3) of the Act, the assessee company filed its first appeal before the learned CIT(A). With respect to the disallowance u/s 43B of the Act, it was submitted by the assessee company that as per the terms and conditions for allotment of land it is permissible to sell the plot of land subject to sharing of ITA 654/Mum/2011 10 50% of unearned income on sale of plot i.e. profit earned by the assessee company with the Collector . It was submitted that the Government of Maharashtra and the assessee company are co-owners of the plot sharing equally in the case of sale of plots. The amount is payable to Collector’s office only. The A.O. in his assessment order for the assessment year 1998-99 stated that the assessee company had disallowed Rs. 45 lacs u/s 43B of the Act. The assessee company submitted that the above amount was disallowed since the same was not paid and it was for change of user from industrial purpose to commercial purpose. The point of disallowance was not payment , and not any share of taxes, rules or duties payable to the Collector’s office. However in respect of the sale of these two plots, the assessee company is not contesting the amount payable but the Collector is not accepting this amount and raised demand of Rs. 119 crores in respect of sale of plots in the earlier years. Thus, the assessee company has prayed that the above disallowance should be deleted. The learned CIT(A) considered the submission of the assessee company and observed that the A.O. has clearly followed the provisions of section 43B of the Act and as such he declined to interfere with the addition made by the A.O. and the learned CIT(A) confirmed the assessment orders dated 12/12/2008 passed by the AO u/s 143(3) of the Act on this issue and sustained the additions made by the AO on the grounds that the said payment is covered u/s 43B of the Act and since the assessee company has not made payment of Collectors charges within time stipulated u/s 43B of the Act, the disallowance made by the AO is justified, vide learned CIT(A) appellate orders dated 29.10.2010.
Aggrieved by the appellate orders dated 29.10.2010 passed by the learned CIT(A), the assessee company filed second appeal with the Tribunal and raised this ground through additional ground which has already been admitted by the Tribunal as indicated above in preceding para’s of this order.
ITA 654/Mum/2011 11
The learned Counsel for the assessee company submitted that there were two plots of land which were sold by the assessee company. These plots of land were granted by Additional Collector of Bombay in favour of the assessee company vide agreement dated 03-07-1964. The agreement to this effect is placed at paper book page 46 to 48 filed with the Tribunal. As per clause 2(g) of Schedule –II to the afore-stated agreement, the government will be entitled to half the unearned increment in the event of sale or transfer of the plot. The said clause 2(g) is reproduced below:-
“That the government will be entitled to half the unearned increment in the event of sale or transfer whether outright or as a result of unredeemed mortgage and that the land so sold or transferred should be used for a purpose approved by the Govt. if it is to be used for a purpose other than approved industrial or commercial purposes.”
The learned counsel for the assessee company submitted that the income received from sale of reversionary rights with respect to these plot of land have been offered for taxation in the return of income filed with the Revenue for the impugned assessment year. An amount of Rs. 64,890/- has been paid towards un-earned income vide working of the Architect in page 44-45 of the paper book filed with the Tribunal which is also allowed by the AO . But the balance amount payable of Rs. 4,55,422/- towards unearned income payable to the Collector which has been provided in the books of accounts , the Collector is not accepting this amount and raised demand of Rs. 119 crores in respect of sale of plots in the earlier years from the assessee company. Details of Collector charges of Rs.4,55,422/- payable are placed in the paper book page 31,37,40,42 and additional working chart filed on the date of hearing on 16th March 2016. The learned Counsel for the assessee company submitted that this payment is not hit by provisions of section 43B of the Act. The assessee company relied upon the decision of Hon’ble Supreme Court in the case of CIT v. McDowell & Co. Ltd. [2009] 314 ITR 0167 (SC) and the decision of Hon’ble Kerala High Court in the case of CIT v. G. Soman [2011] 241 CTR ITA 654/Mum/2011 12 0082 (Ker.). The assessee company also relied upon the decisions of Hon’ble Supreme court in the case of CIT v. Excel Industries Limited (2013) 258 ITR 295(SC) and Bharat Earth Movers v. CIT (2000) 112 Taxman 61(SC) and submitted that the liability has accrued and is a real liability which should be allowed as deduction on matching principles . There is a liability payable by the assessee company keeping in view the matching concept as the income in relation thereto has already been offered to tax in the return of income filed with the Revenue for the impugned assessment year and the said expenses payable should be allowed being accrued and real liability.
The ld. D.R., on the other hand, submitted that the case of the assessee company is covered u/s 43B of the Act and since the assessee company has not made the payment by time stipulated u/s 43B of the Act, the said amount was rightly disallowed by the authorities below. The assessee comapny has made provision for the same but the amount of Rs.4,55,422/- was not paid by the assessee company and as such hit by provisions of Section 43B of the Act.
In the rejoinder, the ld. Counsel submitted that as per the decision of Hon’ble Kerala High Court in the case of CIT v. G. Soman (supra) license fee/rental payable in respect of purchase of toddy shops payable under the Akbari Act was held to be not hit by the provisions of Section 43B(a) of the Act.
We have heard the rival contentions and also perused the material available on record. We have observed that the assessee company has entered into an agreement with Additional Collector of Bombay vide agreement dated 03-07-1964 whereby the assessee company was granted land admeasuring 55 acres as specified in schedule-I to the agreement dated 03-07-1964 on the terms and conditions as contained in the agreement dated ITA 654/Mum/2011 13 03-07-1964. Under the afore-stated agreement, 50% of the unearned increment in the event of sale or transfer of property is payable to the government as per clause 2(g) of the Schedule –II of said agreement dated 03- 07-1964 which is reproduced below :
“That the government will be entitled to half the unearned increment in the event of sale or transfer whether outright or as a result of unredeemed mortgage and that the land so sold or transferred should be used for a purpose approved by the Govt. if it is to be used for a purpose other than approved industrial or commercial purposes.”
We have observed that there is a condition stipulated in afore-stated clause 2(g) of the agreement dated 03-07-1964, sharing of 50% of unearned increment in the land with the Government in the event of sale or transfer of plot of land , and the liability of the assessee company with respect thereto has arisen from the agreement dated 03-07-1964 rather than arising out of any law in force which is the essential requirement to be made liable to be covered under the provision of Section 43B(a) of the Act which is reproduced below :
“ [Certain deductions to be only on actual payment6. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—
[(a) any sum payable by the assessee by way of tax6, duty, cess or fee, by whatever name called, under any law for the time being in force, or]
****** ****** shall be allowed (irrespective of the previous year in which the liability ITA 654/Mum/2011 14 to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
[Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. [***]] ***** *****”
The Revenue failed to bring on record provisions of any law in force under which this liability of sharing of 50% unearned increase in the land on sale or transfer with the Government can be crystallized or fastened on the assessee company , rather it is a contractual liability arising from contract between the two contracting parties viz. the assessee company on the one hand and Government on the other hand through Collector. In our considered view, the afore-stated amount of Rs.4,55,422/- stated to be payable towards unearned increase in the plot of land in the event of sale or transfer vide clause 2(g) of Schedule II of the agreement dated 03-07-194 entered into by the assessee company and Additional Collector of Bombay for grant of land in favour of ITA 654/Mum/2011 15 the assessee company is not hit by provisions of Section 43B of the Act as the liability has not arisen on account of any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force , but the liability has arisen out of the contract between the two contracting parties and not arising out of any law in force. Thus, we hold that this amount stated to be payable of Rs.4,55,422/- to Collector towards unearned increase in the land on sale of reversionary rights in the plot is not hit by provisions of Section 43B of the Act. There is another aspect to this issue which also needs to be dealt with is with respect to the verification of the computation of Rs.4,55,422/- as computed by the assessee company , i.e. whether or not a correct amount of liability albeit not paid which has accrued and crystallized in favour of the Collector vide agreement dated 03-07-1964 with respect to the sale of reversionary rights in the two plots and hence limited verification is required to be done by the Revenue on the computation of working of Rs.4,55,422/- which has been produced before us as the authorities below have not accepted the claim of the assessee company of Rs.4,55,422/- being payable to the Collector and allowed the actual amount of Rs.64890/- paid to the Collector which was computed by the Architect vide working enclosed in paper book page 44-45 filed with the Tribunal . Accordingly, we set aside and restore this issue to the file of the A.O. with limited direction to verify the computation of the working of the unearned increment of Rs.4,55,422/- made by the assesseee company with respect to the sale of the reversionary rights in the two plots by the assessee company and corresponding existence of liability of the assessee company to the tune of Rs.4,55,422/- in favour of the Collector in accordance with the agreement dated 03-07-1964 . The AO shall accordingly there-after verification allow the amount payable to the Collector in accordance with the terms of agreement dated 03-07-1964 . Our directions are only limited to the checking of the computational working of the amount as claimed by the assessee company stated to be payable to the Collector in accordance with the agreement dated ITA 654/Mum/2011 16 03-07-1964 being unearned increment on sale of the reversionary rights in two plots of land. The assessee company is directed to appear before the learned AO and produce and justify the computation of working of Collector charges stated to have accrued and payable to the Collector to the tune of Rs.4,55,422/- towards unearned increment in the land on the sale of reversionary rights in two plots in accordance and in terms of agreement dated 03-07-1964 . Needless to say proper and adequate opportunity of being heard will be provided by the AO to the assessee company in accordance with the principles of natural justice in accordance with the law. The AO shall allow and admit the relevant evidences and explanation submitted by the assessee company to support and substantiate its claim in its defense. We order accordingly.
In the result, the appeal filed by the assessee company in ITA N0. 654/Mum/2011 for the assessment year 2006-07 is partly allowed for statistical purpose.
Order pronounced in the open court on 13th June , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 13-06-2016 को क� गई ।