Income Tax Appellate Tribunal - Bangalore
M/S Prestige Estates Projects Pvt. ... vs Department Of Income Tax on 7 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA No.572/Bang/2012
Assessment year : 2008-09
Prestige Estate Projects Ltd., Vs. The Deputy Commissioner of
The Falcon House, Income Tax,
No.1, Main Guard Cross Central Circle 1(1),
Road, Bangalore.
Bangalore - 560 001.
PAN : AABCP 8096K
APPELLANT RESPONDENT
ITA No.802/Bang/2012
Assessment year : 2008-09
The Assistant Commissioner of Vs. Prestige Estate Projects Ltd.,
Income Tax, The Falcon House,
Central Circle 1(1), No.1, Main Guard Cross Road,
Bangalore. Bangalore - 560 001.
PAN : AABCP 8096K
APPELLANT RESPONDENT
Assessee by : Shri Padamchand Khincha, C.A.
Revenue by : Shri Harsha Prakash, CIT-I(DR)
Date of hearing : 07.02.2013
Date of Pronouncement : 07.02.2013
ITA No.572 & 802/Bang/2012
Page 2 of 11
ORDER
Per Bench ITA 572/12 is an appeal by the assessee, while ITA 802/12 is an appeal by the revenue.
2. Both these appeals are directed against the order dated 28.03.2012 of the CIT(Appeals)-VI, Bangalore relating to assessment year 2008-09.
3. The only issue raised by the assessee in its appeal is with regard to action of the revenue authorities in disallowing the claim of the assessee for deduction while computing total income of a sum of Rs.2,50,18,816 paid by the assessee to Bangalore Mahanagara Palike towards compounding fees for regularization of construction in excess of sanctioned plan, which according to the assessee, was within the curable limits. The revenue authorities disallowed the claim of the assessee for deduction for the reason that the claim fell within Explanation to section 37(1) of the Act viz., expenses incurred which is prohibited by law or which is an offence.
4. Before us, it was fairly admitted by the parties that similar issue had been considered by the Hon'ble ITAT in ITA No.962 & 1204/Bang/2011 in assessee's own case for the AY 2007-08 and this Tribunal vide order dated 14.09.2012 upheld the view taken by the revenue authorities. The following were the relevant observations of the Tribunal :-
"2. In this appeal, the assessee is aggrieved by the order of the CIT(A) in confirming the disallowance of compounding fees of Rs.5,02,570/- paid by the assessee to B.M.P holding it to be prohibited by law and thus not allowable.
ITA No.572 & 802/Bang/2012 Page 3 of 11
3. At the time of hearing, the learned counsel for the assesee fairly admitted that this issue is covered against the assesee by the decision of the Tribunal in the assesee's own case for the assessment years 2001-02, 2003-04. The copy of the said order is filed before us.
4. The learned DR also confirmed that the issue is covered against the assessee.
5. Having heard both the parties and having considered the rival contentions and the relevant materials on record, we find that the Tribunal at para 3.16 to 3.18 has held as under :
"3.16 The issue before us has been considered by the Karnataka High Court in the case of Mamta Enterprises (supra). The question of law referred to the jurisdictional High Court was as under:-
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the payment of the compounding fees is not a penalty for infraction of law and hence allowable".
At page 361, the Hon'ble High Court has referred to the order issued in the case of Mamta Enterprises. In the instant case also, the order which has been issued by the Commissioner while granting occupancy certificate, is that the assessee has paid the compounding fine. Before the Hon'ble High Court it was contended by the appellant's counsel that construction of a building in violation of the sanctioned plan cannot be treated as a violation of a serious nature, which is prohibited by law or amounting to commission of an offence. The Hon'ble jurisdictional High Court after observing as under held that byelaws empower the Commissioner to compound the violation or deviation of the sanctioned plan by a person who constructs a building:-
"Having elaborately heard learned counsel appearing for the parties, while we find considerable force in the submission of Sri Seshachala, we are unable to accede to the submission of Sri Kulkarni. We are unable to agree with the submission of Sri Kulkarni that since the provision in clause (b) of section 483 of the Corporation Act permits compounding of the offence, once the violation is compounded, there was no offence committed in the eye of law; and the offence committed is wiped out. Section 300 of the Corporation Act prohibits commencement of the construction or reconstruction of a building, without there being a permission granted by the Corporation ITA No.572 & 802/Bang/2012 Page 4 of 11 for the execution of the work. Section 303 of the said Act sets out the grounds on which approval of a site for construction or reconstruction of a building may be refused by the Commissioner. Since 308 of the Act confers power on the Commissioner to direct alteration of construction work commenced by the owner of a site. Section 321 of the Act confers power on the Commissioner to make an order for demolition of the building after complying with the procedure set out in the said provision, if he is satisfied that the construction or reconstruction of a building has been commenced without obtaining the permission or being carried on or has been completed otherwise than in accordance with the plans or particulars on which such permission or order was based. Section 436 of the Act, among other things, provides that if the construction or reconstruction of any building is commenced without the permission of the Commissioner; or is carried on or completed otherwise than in accordance with the particulars on which such permission was based ; or is carried on or completed in contravention of any lawful order or breach of any provision of the Act or any rule or byelaw made under it, or of any direction or requisition lawfully given or made, the owner of the building who puts up such construction shall be liable on conviction to pay a fine prescribed under the said provision. However, clause (b) of section 483 of the Corporation Act empowers the Commissioner to compound any offence committed in breach of the provisions of the Act, rules, byelaws or regulations which may by rules made by the Government be declared compoundable. Therefore, from the scheme of the several provisions in the Act referred to above, it is clear that nobody can put up any new construction or proceed to reconstruct the existing building without there being a sanctioned plan or permission granted by the Commissioner on that behalf, the putting up any construction without there being a sanctioned plan is made an offence under the Act and it is treated as an act prohibited by law. No doubt, as noticed by us earlier, clause
(b) of section 483 of the Corporation Act empowers the Commissioner to compound the offence. Byelaw 5.6 framed by the Corporation in exercise of the power conferred under it under section 428 of the Act enables the Commissioner to set out the circumstances under which he could compound an offence. It is useful to refer to the said byelaw which reads as hereunder:
"5.6.1 Whether any construction is in violation/deviation of the sanctioned plan, the Commissioner may, if he considers that the violation/deviations are minor viz., only when the deviations/violations is within 5% of (1) the minimum set back to be left around the building ITA No.572 & 802/Bang/2012 Page 5 of 11 (2) the maximum plot coverage (3) permissible floor area ratio and maximum height of the building and that the demolition under Chapter XV of the act is not feasible without affecting the structural stability, then he may regularize such violations/deviations by sanctioning of a modified plan with a levy of a suitable fee to be prescribed. The Commissioner shall come to such conclusion only after recording detailed reasons for the same. Violations/ deviations under the provision shall not include the buildings which are constructed without obtaining any sanctioned plan whatsoever and also the violations/ deviations which are made inspite of the same being specifically deleted or rejected in the sanctioned plan".
The byelaws referred to above, read along with clause (b) of section 483, empowers the Commissioner to compound the violation or deviation of the sanctioned plan done by a person who constructs a building".
After holding that the amount paid is compounding of an offence, the Hon'ble jurisdictional High Court held that such an expenditure is not to be deemed to have been incurred for the purpose of business or profession and no deduction or allowance can be made in respect of such an expenditure. Thus, the decision of jurisdictional High Court is squarely applicable in the instant case.
3.17 The Hon'ble M.P. High Court in the case of National Textile Corporation Ltd. v CIT 286 ITR 496 had an occasion to consider as to whether the Tribunal could comment on the decision of the High Court and having done so, whether judicial proprietary permitted the Tribunal to ignore the decision and take its own view are question of law which have to be referred to the High Court. While allowing the matter to be referred, the Hon'ble MP High Court observed at page 498 as under:-
"In our considered opinion the manner in which the Tribunal has dealt with the issue so far as precedents of judicial propriety in following decisions of the High Court are concerned, the same should have been referred to this Court for examination. It is, in our humble opinion, on issue which the High Court alone has to decide and not for the Tribunal to decide. We have our own reservations as to whether the Tribunal could make a comment on the decision of the High Court and having done so, whether judicial propriety permitted the Tribunal to ignore the decision and take its own view. All these issues need ITA No.572 & 802/Bang/2012 Page 6 of 11 to be decided by the High Court in a reference under section 256(1) ibid".
3.18 Hence, when a similar issue has been decided by the jurisdictional High Court, then that decision is binding on us and that is to be followed in order to abide with the judicial discipline. Hence, we hold that the amounts paid as compounding fine for regularization of violation/ deviation are not allowable expenditure. We also uphold the finding of the learned CIT(A) that in case the compounding fine/penalty paid for regularization of violation/deviation is ultimately held as fees then provision of section 43B will be applicable and the amount will be deductible as per the provisions of section 43B. This disposes of appeal for the assessment year 2001- 02".
6. Respectfully following the decision of the co-ordinate bench which is in the consonance with the decision of the jurisdictional High Court, this appeal of the assessee is dismissed."
5. Respectfully following the decision of the Tribunal in assessee's own case, we uphold the order of the CIT(Appeals) and dismiss the appeal by the assessee.
6. As far as the appeal of the revenue is concerned, the only issue raised by the revenue in its appeal is as to whether the CIT(Appeals) was right in assessing the rental receipts from Forum Mall and Eva Mall under the head 'profits & gains of business or profession' as against the case of the AO that the said receipts should be assessed under the head 'income from house property'. It was fairly conceded by the parties before us that this issue was also considered by the Tribunal in assessee's own case for the A.Y. 2007-08 in ITA No.962 & 1024/Bang/2011 (supra) and on an identical issue, it was held as follows:-
ITA No.572 & 802/Bang/2012 Page 7 of 11
"7. In this appeal, the Revenue is aggrieved by the order of the CIT(A) in giving relief to the assessee by raising the following grounds:
"i. The ld. CIT(A) erred in deleting the addition the addition made on protective basis as income from other sources.
ii. The ld. CIT(A) erred in directing the AO to assess the rental receipt from Forum Mall and Eva Mall as income from Profits and Gains from Business/Professions and the CIT(A) has erred in ignoring the fact that the sample agreement in respect of the rental receipt clearly establishes a typical land lord tenant relationship between the assessee company and tenants and therefore the income received as rental receipts should be treated as income from House Property only.
iii) The ld. CIT(A) erred in directing the AO to assess the Hire Charges in respect of fit-outs that were laid out to tenants as Income from other sources.
iv) For these and such other grounds that may be urged at the time of hearing the orders of ld. CIT(A) may be set aside and that of assessing officer may be restored."
8. At the time of hearing, the learned counsel for the assessee has filed a chart showing that all the issues are covered by the decision of the Tribunal in the assessee's own case for the earlier assessment years.
9. The learned DR also confirmed the same.
10. As regards addition on protective basis is concerned, the issue is covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for the assessment year 2006-
07. The Tribunal at para 12.1 of its order held as under :
(i) The brief contention of the Revenue was that the CIT(A) erred in deleting the addition of Rs.7.33 crores made on protective basis as income from 'other sources'.
(ii) On a glimpse of the impugned assessment order, we find that there was no discussion at all in the body of the order, however, as pointed out by the CIT(A), in the computation, it was mentioned as 'Income from other sources: Income assessed in the A.Y 2005-06 on protective basis as discussed in Para ............ Rs.7,33,13,640."
(iii) The background of the issue, in brief, was that in the assessment order for the AY 2005-06, an addition of ITA No.572 & 802/Bang/2012 Page 8 of 11 Rs.7,33,13,640/- to the business income was made as admitted by the assessee, on the premise that the assessee should have followed percentage completion method [PCM] of recognizing revenues in respect of real estate activities.
When the issue finally reached before the Tribunal, the Hon'ble Tribunal in its finding cited supra directed 'the AO to accept the project completion method of accounting for the year under reference".
(iv) Extensively quoting the Hon'ble Tribunal's finding referred supra, the ld. CIT(A) had, in his impugned order under dispute (for the AY 2006-07), observed thus -
"3.3.................Thus, the finding is limited to assessment year 2005-06, however, in the assessment year under appeal, the assessing officer has treated that income offered by the appellant to the above extent on the basis of the project completion method under the head 'income from other sources' on protective basis. Considering the fact that the said addition has been deleted by the Hon'ble ITAT in assessment year 2005-06, the income has to be assessed on substantive basis in assessment year 2006- 07 as offered by the appellant. After deletion of the income by the ITAT, in assessment year 2005-06, there is no question of double taxation in the assessment year 2006-07 where the appellant himself (sic) itself offered the income for taxation.
In view of the above, reduction of income of Rs.7,33,13,640/- under the head 'profit and gains from business or profession' in the computation of income by the assessing officer does not arise. Once the income is taxed under the head 'profit and gains of business or profession', the income assessed under the head 'income from other sources' on protective basisis hereby deleted...."
(v) The gamut of the issue, to our mind, is that when the AO restored to conclude the impugned order under dispute precisely, on 31.12.2008, the assessment order for the AY 2005-06 was under appeal before the Hon'ble Tribunal for adjudication which must have influenced the AO to add the income of Rs.7.33 crores assessed for the AY 2005-06 on a protective basis. In the assessment order under dispute, while adding a whopping sum of Rs.7.33 croes as income from other sources the AO should have taken proper care to mention in the body of the order ITA No.572 & 802/Bang/2012 Page 9 of 11 the reason for taxing the said sum even on a 'protective basis.
(vi) In the meanwhile, the Hon'ble Tribunal in its finding cited supra (on 11.9.2009) directed the AO to accept the project completion method of accounting for the year under reference. Thus, in our considered view, the taxability of the sum of Rs.7,33,13,640/- had reached a finality on a specific direction of the Hon'ble Tribunal cited above for the AY 2005-06. Therefore, the CIT(A) was justified in his stand on this point. It is ordered accordingly."
11. Respectfully following the same, this ground of appeal of Revenue is dismissed.
12. Coming to the ground No.3 relating to treating the rental income from Forum Mall and Eva Mall as 'income from profits and gains from business', we find that Tribunal at sub para 2 to para 12 has held as under :
(i) The Revenue's submission was very blunt to the effect that the CIT(A) erred in directing the AO to assess the rental receipt from Forum Mall and Eva Mall as income from 'profits and Gains from business; and that the CIT(A) grossly erred by ignoring the fact that the sample agreement in respect of the rental receipt clearly establishes a typical landlord - tenant relationship between the assessee and tenants and, therefore, the income received as rental receipts should have been ordered to be treated as income from 'house property'.
(ii) At the out-set, we would like to point that an identical issue had cropped up before the Hon'ble Tribunal for the AY 2005-06 in the assessee's own case wherein the Hon'ble Tribunal had, after hearing the arguments of rival parties, analyzing the issue at length, extensively quoting, chiefly, the rulings of the Hon'ble Apex Court as well as the jurisdictional Hon'ble High Court in a number of cases on a similar issue, observed thus -
"5.1 We had discussed this issue while considering the ratio of law as laid down by the Hon'ble Apex Court in the case of Sultan Brothers (surpa). The Hon'ble Apex Court has held that there should be no consideration of primary and secondary lettings in constructing the section 12(4) of 1922, which has analogy to 56(iii) of I.T Act of 1961. In this case, the letting of building is along with letting machinery, plant or furniture required for ancillaries services and, therefore, we hold that the alternative plea of the appellant that in case the income is not to be assessed under the head 'income from the ITA No.572 & 802/Bang/2012 Page 10 of 11 house property' then it is required to be assessed under the head 'income from other sources'. This is without prejudice to our basic finding that in the instant case, the income from Mall is assessable under the head 'income from business'.
(iii) In conformity with the finding of the Hon'ble Tribunal referred above, we direct the AO to assess the income from Mall under the head 'income from business'. It is ordered accordingly.
13. Respectfully following the same, this ground of appeal of the Revenue is also rejected.
14. Regarding ground No.4, treating the hire charges in respect of fit-outs that were let out to tenants as 'income from other sources'. We find that this issue is covered by sub para 3 of para 12 of ITAT order which is as under :
(i) Nevertheless, the Revenue's brief submission was that the CIT(A) had grossly erred in directing the AO to assess the hire charges in respect of fit outs which were laid out to tenants as income from 'other sources'.
(ii) Yet again, we find a solace from the finding of the Hon'ble Tribunal in the assessee's own case for the AY 2005-06 on similar issue wherein the Hon'ble Tribunal was pleased to observe that -
"6.1. This issue has been decided by this Tribunal in the case of the assessee for the asst. year 2004-05. The Tribunal vide orders dated : 29th May, 2009 in ITA No.851/Bang/2008 vide para 14 of the order held that "the facts and circumstances brought on record by the assessing authorities and the learned counsel indicate that the intention of the assessee for rendering the same as income from other sources ought not to have been disturbed as in earlier years'. Hence, the receipts on letting of it is to be taxed under the head 'income from other sources' on the basis of the decisions of the Tribunal in the earlier year and also on the basis of he principal of consistency. Once the rental income on letting out is taxed under the head 'income from other sources depreciation."
iii) As the issue before us is similar which has been decided by the Hon'ble Tribunal referred supra in the assessee's own case for the preceding assessment year, we have no hesitation in directing the AO to treat the hire charges in respect of fit-outs let-out to the tenants as income from 'other sources'. It is ordered accordingly."
ITA No.572 & 802/Bang/2012 Page 11 of 11
15. Respectfully following the same, this ground of appeal is also rejected."
7. Respectfully following the decision of the Tribunal referred to above, we dismiss the grounds raised by the revenue in its appeal.
8. In the result, both the appeals are dismissed.
Pronounced in the open court on this 07th day of February, 2013.
Sd/- Sd/-
( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN )
Vice President Judicial Member
Bangalore,
Dated, the 07th February, 2013.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.