The ITO, Ward-3(1),, Surat v. M/s. Yadunandan Corporation, Surat

ITA 92/AHD/2009 | 2005-2006
Pronouncement Date: 30-11-2011 | Result: Dismissed

Appeal Details

RSA Number 9220514 RSA 2009
Assessee PAN AAAFY2524R
Bench Ahmedabad
Appeal Number ITA 92/AHD/2009
Duration Of Justice 2 year(s) 10 month(s) 21 day(s)
Appellant The ITO, Ward-3(1),, Surat
Respondent M/s. Yadunandan Corporation, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 30-11-2011
Date Of Final Hearing 24-11-2011
Next Hearing Date 24-11-2011
Assessment Year 2005-2006
Appeal Filed On 09-01-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI JM AND A.K. GARODIA AM. INCOME TAX OFFICER WARD 3(1) AYAKAR BHAVAN MAJURA GATE SURAT. VS. M/S. YADUNANDAN CORPORATION 148-149 CITY LIGHT ROAD BHAVGATI ASHISH APARTMENT SURAT. (APPELLANT) .. (RESPONDENT) PAN : AAAFY 25 24 R APPELLANT BY :- SHRI B.L. YADAV D.R. RESPONDENT BY:- SHRI RAJESH M. UPADHYAY. DATE OF HEARING : 24/11/2011 DATE OF PRONOUNCEMENT : 30/11/11. O R D E R PER D. K. TYAGI JUDICIAL MEMBER . THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER PASSED BY LD. CIT(A) II SURAT IN APPEAL NO.CAS/II/263/07-08 DAT ED 27-10-2008 FOR THE ASSESSMENT YEAR 2005-06. THE REVENUE RAISED F OLLOWING GROUNDS IN ITS APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) SURAT HAS ERRED IN DELETING THE ADDITI ON OF RS. 13 02 923/- ON ACCOUNT OF IMPACT FEE PAID TO SURAT MUNICIPAL CORPORATION IN VIOLATION AND INFRACTION OF PROVISIO NS OF LAW ITA NO.92/AHD/2009 ASST. YEAR :2005-06 . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 2 2 TO SURAT MUNICIPAL CORPORATION WHICH IS NOT AN ELIG IBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) HAS ERRED IN DELETING DISALLOWANCE OF I NTEREST ON ACCOUNT OF UTILIZATION OF INTEREST BEARING FUNDS IN ADVANCING INTEREST FREE LOANS TO SPECIFIED PERSONS UNDER SEC. 40A(2)(B) OF THE ACT HOLDING THAT NO DIRECT NEXUS IS PROVED B Y THE A.O. IGNORING THE MATERIAL FACTS THAT THE ASSESSEE HAD PAID INTEREST FREE ADVANCES TO SPECIFIED PERSONS THROUGH CHEQUE A ND THE ASSESSEE HAD ALWAYS DEBIT BALANCE IN ITS BANK ACCOU NTS WHICH ITSELF PROVE THAT THE INTEREST BEARING FUNDS HAD UT ILIZED BY THE ASSESSEE IN ADVANCING INTEREST FREE LOANS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER ON THIS ISSUE. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE C IT (A) BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER B E RESTORED. 2. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 3 1-10-2005 DECLARING TOTAL INCOME OF RS.3 75 467/- AND THE ASSESSMENT WA S COMPLETED ON 31- 12-2007 ASSESSING THE TOTAL INCOME AT RS.20 29 350/ - THEREBY MAKING AN ADDITION ON COUNTS:- (1) ON ACCOUNT OF IMPACT FEE RS . 13 02 923/- (2) ON ACCOUNT OF INTEREST PAID ON UNSECURED LOANS. RS. 16 53 883/- 3. THE ASSESSEE FILED APPEAL BEFORE THE CIT (A) AGA INST THE ABOVE ADDITIONS. BEFORE THE CIT (A) THE A.R. OF THE ASSE SSEE SUBMITTED THAT IMPACT FEE AND THE BALCONY COVER CHARGES WERE BUSIN ESS EXPENSES. THEY WERE NEITHER CAPITAL NOR PERSONAL IN NATURE. THE GO VERNMENT OF GUJARAT HAD FRAMED A SCHEME IN THE YEAR 2001 CALLED THE GUJARA T REGULATION OF UNAUTHORISED DEVELOPMENT ACT 2001 UNDER WHICH RUL ES WERE FRAMED FOR REGULARIZING UNAUTHORIZED CONSTRUCTIONS ON THE PAYM ENT OF STIPULATED FEES. . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 3 3 FOR THIS PURPOSE THE CONCERNED AUTHORITIES IN THI S CASE THE SMC WAS TO BE NOTIFIED BY THE CONCERNED PARTIES WANTING TO TAK E ADVANTAGE OF SUCH RULES. THE RULES ALSO SPECIFIED THE FEES TO BE PAID . IT WAS THE ARGUMENT OF THE AR THAT THE PAYMENT MADE TO THE SMC UNDER THE S AID SCHEME WAS AN EXPENDITURE WHICH WAS INCURRED WHOLLY AND EXCLUSIVE LY FOR THE ASSESSEES CONSTRUCTION BUSINESS. THE AR SOUGHT TO DISTINGUISH THE CASE OF MADDI VENKATRAMAN & CO. PVT. LTD. (229 ITR 534) WHICH HAD BEEN RELIED UPON BY THE A.O. ON THE GROUND THAT THE FAC TS OF THE TWO CASES WERE NOT THE SAME. ACCORDING TO THE AR THE VERY NA TURE OF THE EXPENDITURE I.E. OF IMPACT FEES AND BALCONY CHAR GES ITSELF SUGGESTED THAT SUCH PAYMENTS WERE IN THE NATURE OF FEES AND NOT PENALTY. THE AR PLACED RELIANCE ON SEVERAL CASES-LAWS OF HIS OWN A ND SUBMITTED THAT ON SIMILAR SET OF FACTS AND CIRCUMSTANCES THE DCIT CI RCLE-3 SURAT ALLOWED THE ASSESSEES CLAIM OF BALCONY COVER CHARGES OF RS .3 LAKHS IN THE ASSESSMENT YEAR 2004-05. 4. ON APPEAL THE LD. CIT (A) DELETED THE ADDITIONS BY OBSERVING AS UNDER:- 6. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE AO AND THE WRITTEN SUBMISSIONS OF THE AR. FROM THE FACTS O F THE CASE IT IS CLEAR THAT THE IMPACT FEES AND THE BALCONY COVER CH ARGES WERE PAID BY THE ASSESSEE FOR CONTRAVENING THE PLAN ORIG INALLY SANCTIONED IN RESPECT OF THE TWO PROJECTS BHAGWATI ASHISH -1 AND BHAGWATI ASHISH-2 DEVELOPED PROMOTED AND CONSTRUC TED BY THE ASSESSEE. THE CONTRAVENTION WAS OF THE BY-LAWS OF T HE SMC; THIS HAS BEEN ACCEPTED BY THE AO. THE NATURE OF CONTRAVE NTION HAS ALSO BEEN CERTIFIED BY THE EXECUTIVE ENGINEER SOUTH-WES T ZONE (ATHWA) SMC. IN THE CASE OF CIT VS .SYNDICATE BAN K 261 ITR 528 THE HONBLE KARNATAKA HIGH COURT HELD THAT IF A PEN ALTY IS LEVIED FOR INFRACTION OF LAW THEN IT CANNOT BE ALLOWED AS DEDUCTION. HOWEVER IF IT IS IN THE NATURE OF COMPENSATORY PAY MENT IT MAY BE ALLOWED AS DEDUCTION. ON THE BASIS OF SUCH OBSERVAT ION THE HONBLE HIGH COURT SUSTAINED THE PENALTY LEVIED ON THE SAID BANK BY THE RBI U/S.24 OF THE RBI ACT FOR FAILING TO M AINTAIN A . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 4 4 PERCENTAGE OF THE ASSET OF THE BANK IN THE MANNER P ROVIDED THEREIN. HOWEVER IN AN EARLIER CASE OF CIT DELHI IV VS. L OKENATH AND CO. (CONSTRUCTION) THE ASSESSEE HAD VIOLATED THE S ANCTION OF A PLAN FOR CONSTRUCTION OF A BUILDING OF 13 STORIED B Y THE NMDC. ACCORDING TO THE BYE-LAWS OF THE NMDC THE SECOND F LOOR OF THE BUILDING COULD COVER ONLY 35% WHILE THE ASSESSEE H AD COVERED 50% THEREBY EXCEEDING PERMISSIBLE LIMIT LAID DOWN BY THE BYE- LAWS. TIME FOR REVALIDATION OF THE PLAN HAVING EXPI RED THE ASSESSEE APPLIED FOR THE SANCTION OF A REVISED PLAN OF THE B UILDING WITH ONLY 12 STOREY ON THE GROUND THAT THERE HAD BEEN EXCESS CONSTRUCTION IN THE SECOND FLOOR. THE REVISED PLAN WAS SANCTIONED C ONDONING THE ADDITIONAL COVERAGE AND THE OTHER IRREGULARITIES O N THE CONDITION THAT THE ASSESSEE PAID AN ADHOC OF RS. 4 LAKHS. THE HONBLE DELHI HIGH COURT AFFIRMING THE DECISION OF THE ITAT HEL D THAT THE SAID SUM OF RS.4 LAKHS WAS AN ALLOWABLE DEDUCTION. 6.1. THE FACTS OF OUR ASSESSEES CASE ARE ALMOST SI MILAR TO THAT OF M/S. LOKNATH & CO. (SUPRA) AS SEEN FROM THE ORDER O F THE EXECUTIVE ENGINEER DATED 19-10-2005. WHAT WAS UNAUTHORIZED WA S EXTRA USE OF FSI COVERING OF PROJECTIONS AND CHANGE OF USE F ROM RESIDENTIAL TO COMMERCIAL THE TOTAL AREA BEING 1457.44 SQ. MTR S. FOR WHICH THE TOTAL AMOUNT WAS RS. 17 89 959/-. IT IS ALSO CL EARLY MENTIONED IN THE SAID ORDER THAT THE CONTRAVENTION WAS TO THE PERMISSION GRANTED BY THE SMC VIDE THEIR LETTER NO.SWZ/OUT/597 6 DATED 24- 10-2000 AND WHICH WAS NOW REGULARIZED UNDER THE PRO VISIONS OF SUB-SECTION (3) OF SECTION-4 OF THE GUJARAT REGULAR ISATION OF UNAUTHORISED DEVELOPMENT ACT 2001 (GRUDA). THUS TH ERE WAS ONLY A VIOLATION OF THE SANCTION AND NOT ANY INFR ACTION OF ANY LAW. FURTHER IT MUST BE ALSO APPRECIATED THAT THE CONTRAVENTION WAS NOT SOMETHING WHICH THE SMC HAD DETECTED AND HA D LEVIED PENALTY FOR SUCH CONTRAVENTION. IT WAS VOLUNTARILY INTIMATED TO THE SMC UNDER THE GRUDA WHICH WAS A SCHEME FOR REGULARI ZING UNAUTHORIZED CONSTRUCTIONS. THE PAYMENT MADE FOR SU CH REGULARIZATION WAS THEREFORE CLEARLY IN THE NATURE OF A COMPENSATORY PAYMENT AS EXPLAINED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SYNDICATE BANK (SUPRA).UN DER SUCH SCHEME A REVISED PLAN WOULD HAVE TO BE SUBMITTED S HOWING THE EXTRA COVERAGE AND EXTRA USE OF FSI. THE CHARGES BE ING IN NATURE OF IMPACT FEES AND BALCONY COVER CHARGES WERE LEVIE D AT THE TIME OF THE REVISED PLAN BEING SANCTIONED; AS IN THE CAS E OF LOKNATH AND CO. (SUPRA). THEREFORE IT CANNOT BE SAID THAT IT W AS A PENALTY LEVIED FOR THE INFRACTION OF ANY LAW AS IN THE CAS E OF SYNDICATE BANK. BEING IN THE NATURE OF A COMPENSATORY PAYMENT UNDER THE . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 5 5 SCHEME FLOATED BY THE GUJARAT GOVERNMENT THE FEES/ CHARGES PAID BY THE ASSESSEE WERE CLEARLY ALLOWABLE AS PERMISSIB LE DEDUCTIONS. THE A.O. IS DIRECTED TO DELETE THE ADDITION O F RS. 13 02 923/-. 5. AGAINST THIS DELETION OF ADDITION THE REVENUE I S IN APPEAL BEFORE US. AT THE TIME OF HEARING THE DR RELIED ON THE OR DER OF THE ASSESSING OFFICER. WHEREAS THE A.R. RELIED ON THE ORDER OF TH E LD. CIT (A) AND THE TRIBUNALS ORDER IN ITA NOS.968/AHD/2007 & 1029/AHD /2007 ASST. YEAR 2003-04 IN THE CASE OF ACIT CIRCLE-6 SURAT VS. M/S NANAVATI MOTORS & M/S NANAVATI MOTORS VS. ITO WARD 4(1) SURAT. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE LD. CIT(A)S ORDER IS IN CONFORMITY WITH THE OR DER PASSED BY THE TRIBUNAL IN THE CASE OF ACIT CIRCLE-6 SURAT VS. M /S NANAVATI MOTORS & M/S NANAVATI MOTORS VS. ITO WARD 4(1) SURAT (SUPRA ) WHEREIN FOLLOWING WAS HELD :- 16. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED THE FACTS OF THE CASE IN THE LIGHT OF THE DECISION OF RESPECTED CO-O RDINATE BENCH MUMBAI IN THE CASE OF KAIRA CAN CO. LTD. VS. DCIT REPORTED AS 32 DTR 485 (MUM) (TRIB). ON PERUSAL OF THE EXPLANATION TO SECT ION 37(1) IF AN EXPENDITURE IS INCURRED WHICH IS EITHER AN OFFENCE OR PROHIBITED BY THE LAW THEN SHOULD NOT BE ALLOWED. IN THE PRESENT CAS E THE IMPACT FEE DOES NOT APPEAR TO BE LEVIED IN RESPECT OF ANY BREACH OR VIOLATION OF LAW. HOWEVER IT APPEARS THAT A FACILITY WAS PROVIDED BY THE MUNICIPAL CORPORATION TO THE BUILDING OWNERS TO CHANGE THE US AGE OF THE PROPERTY. MOREOVER THE TERM FEES ITSELF DO NOT DEMONSTRATE THAT PRIMA FACIE IT WAS A LEVY OF PENALTY. HOW AND WHY IT WAS CONSIDERED BY THE REVENUE AN INFRACTION OF LAW DID NOT BORNE OUT FROM THE FACTS OF THE CASE. IN VIEW OF THIS WE HEREBY DIRECT TO ALLOW THE CLAIM. IN VIEW OF THE ABOVE THE ORDER OF LD. CIT(A) IS CO NFIRMED. THIS GROUND OF REVENUE IS DISMISSED. . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 6 6 7. AS REGARDS GROUND NO.2 OF THE APPEAL THE A.O. M ADE THE DISALLOWANCE ON ACCOUNT OF INTEREST PAID ON UNSECUR ED LOANS. THE AR OF THE ASSESSEE STATED THAT THE ASSESSEE CLAIMED INTER EST OF RS.3 50 960/- HAVING PAID ONLY ON THE OPENING BALANCES OF THE LOA NS OF THREE PARTIES. ON THE OTHER HAND THE ADVANCES GIVEN WERE ALL NEW EX CEPT TO M/S. PRANAY TRADERS OF RS.7 LAKHS AND A PART OF THE ADVANCE GIV EN TO M/S. JAY AMBE CORPORATION OF RS. 1 27 1210/-. THEREFORE THERE WA S NO DIVERSION OF ANY INTEREST-BEARING FUND FOR NON-BUSINESS PURPOSES. PA YMENTS MADE TO M/S. PRANAY TRADERS AND M/S. JAY AMBE CORPORATION WERE F OR SUPPLY OF BUILDING MATERIALS WHICH HOWEVER SUBSEQUENTLY DID N OT MATERIALIZE AND THE ASSESSEE HAD NOT BEEN ABLE TO RECOVER THE SAID AMOUNTS. THESE PARTIES WERE NOT COVERED U/S. 40A(2)(B). IT HAS BEEN FURTHE R SUBMITTED THAT THE ASSESSEE HAD TOTAL UNSECURED LOANS OF RS.1 06 70 47 7/- OUT OF WHICH ONLY RS.22 49 729/- WAS ON INTEREST AS STATED BY THE AO HIMSELF. IN THE EARLIER YEAR THE INTERESTS ON THE DEPOSITS WERE FULLY ALLO WED ON THE GROUND OF BUSINESS EXPEDIENCY THE AR HAS PLACED RELIANCE ON SEVERAL OTHER CASE- LAWS. THE LD. CIT (A) AFTER CONSIDERING THE SUBMIS SIONS OF THE A.R. HAS DELETED THE ADDITION. AGGRIEVED BY THIS ORDER OF LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING THE LD. DR REITERATED THE CONTENTIONS OF AO WHILE THE LD. AR RELIED ON THE ORDER OF LD. CIT(A). 9. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER :- 10. I FIND THAT THE AO HAD FAILED TO EXAMINE THE I SSUE IN ITS ENTIRETY. SHE ONLY CONFINED HERSELF TO THE INTEREST -BEARING BORROWINGS AND THE INTEREST FREE ADVANCES GIVEN WI THOUT EXAMINING OR BRINGING ON RECORD THE FACT THAT THE A SSESSEE COULD HAVE HAD OTHER FUNDS AT ITS DISPOSAL. FROM THE DETA ILS FURNISHED BY . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 7 7 THE ASSESSEE IT IS CLEAR THAT THE ASSESSEE HAD UNS ECURED LOANS MUCH IN EXCESS OF RS.22 49 729/- WHICH ACCORDING TO THE AO HAD BEEN TAKEN ON INTEREST. SHE ALSO FAILED TO NOTICE THAT T HERE WERE NO BORROWINGS ON INTEREST DURING THE YEAR UNDER CONSID ERATION AND THE INTEREST HAD BEEN PAID ONLY ON THE BROUGHT FORW ARD BALANCE OF THREE PARTIES. FINALLY SHE HAD FAILED TO PROVE A D IRECT NEXUS BETWEEN THE INTEREST BEARING LOANS AND THE INTEREST -FREE ADVANCES GIVEN AND HAD FAILED TO NOTE THAT AT LEAST TWO OF THE PARTIES TO WHOM ADVANCES HAD ALLEGEDLY BEEN GIVEN WERE FIRSTLY NOT COVERED BY THE PROVISIONS OF SECTION 40A(2)(B) AND SECONDLY THE ADVANCES WERE GIVEN FOR SUPPLY OF BUILDING MATERIALS AND NOT SIMPLY FOR EARNING INTEREST. 11. GIVEN SUCH FACTS AND CIRCUMSTANCES OF THE CASE I HAVE NO OTHER OPTION BUT TO DIRECT THE AO TO DELETE THE ADD ITION OF RS.3 50 960/-. SINCE THE ABOVE FINDING OF THE LD. CIT(A) REMAINED UNCONTROVERTED BY THE REVENUE WE FEEL NO NEED TO INTERFERE WITH THE ORDE R PASSED BY HIM AND THE SAME IS HEREBY CONFIRMED. THIS GROUND OF REVENU E IS DISMISSED. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/11/11. SD/- SD/- (A.K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD MAHATA/- . ITA NO.92/AHD/2009 ASST . YEAR 2005-06. 8 8 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-II SURAT. 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD 1.DATE OF DICTATION 24/11/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 28/11/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..