WELLWORTH DEVELOPERS,MUMBAI vs. ASST CIT CEN CIR 23, MUMBAI

The assessee has raised the following grounds of appeal:-

The assessee filed the return of income on 24.09.2011 declaring total income to the tune of Rs.64,41,798/-. The case was selected for scrutiny by issuance of notice u/s. 143(2) of the Income Tax Act, 1961 ( in short “the Act”) on 11.09.2012, which was duly served upon the assessee. Thereafter, further notices u/s.142(1) of the Act were issued on 25.06.2013 and 08.10.2013 which were also duly served upon the assessee. During the course of assessment, it was found that the assessee had paid an amount of Rs.3,61,000/- as penalty or fees to Brihanmumbai Municipal Corporation (BMC) during the year. Since the said penalty was not allowable, therefore the said amount was added to the income of the assessee and subjected to tax. Feeling aggrieved with this order, assessee filed an appeal before learned CIT(A) and the learned CIT(A) also dismissed the appeal of the assessee by upholding the action of the Assessing Officer with regard A.Y.2011-12 to the addition of an amount of Rs.3,61,000/-. Thereafter the assessee filed the present appeal before us.

The assessee has challenged the addition of Rs.3,61,000/- which was paid as penalty. The representative of the assessee has argued that an amount paid to BMC to the tune of Rs.3,61,000/- was compensatory in nature therefore the same is not liable to be treated as penal in nature as per explanation to section 37(1) of the Act. In support of this contention the learned representative of the assessee has also placed reliance upon the order passed in his own case decided by the Income Tax Appellate Tribunal, in dated 15.12.2014 for the A.Y.2009-10. However, on the other hand the learned representative of the department relied upon the order passed by the learned CIT(A). Order dated 15.12.2014 passed by the Income Tax Appellate Tribunal for the A.Y.2009-10 perused in which the Hon’ble ITAT did not consider the said amount penal in nature. Since in the assessee’s own case the co-ordinate bench of the ITAT has taken the view that such kind of payment by the assessee to the BMC is not panel in the nature and does not fall within the purview of section 37(1) of the Act. Therefore in the said circumstances respectfully following the judgment passed by the co-ordinate bench, we are of the view that the said amount has been paid wholly for the business purpose hence liable to be allowed as expenditure.

Accordingly the appeal filed by the assessee is hereby allowed. A.Y.2011-12