TMI Blog2006 (1) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... soak pit and, therefore, expenditure involved in the above construction was capital in nature. The deduction claimed was accordingly disallowed. 4. On appeal, the assessee submitted before the CIT(A) that payment in question was made to Bombay Municipal Corporation ( BMC for short) as contribution towards proper charges for laying sewerage along with portion on D.P. Road. BMC had construction septic tank and soak pit and had improved sewerage and drainage facility on portion of D.P. Road and all the factories situated on the said road were called upon to make proportionate contribution of getting better sewerage and drainage facility. Soak pit, septic tank etc., constructed by BMC remained its property. No new asset was acquired by the assessee. After consideration of relevant material and in the light of the case law discussed by the learned CIT(A) in para 3.1 of the impugned order, the claim of the assessee that expenditure involved was of revenue nature was accepted. The disallowance made was accordingly deleted. 5. The revenue being aggrieved brought the issue in appeal before the Tribunal. It was reiterated that assessee constructed septic tank and soak pit and thus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unauthorisedly without obtaining approval from M.C.G.M." The contents of above letter leave no amount of doubt that expenditure was nothing but penalty to regularize unauthorized construction carried out without obtaining approval from BMC. It is difficult to accept that no infraction of law was involved in the impugned expenditure. The argument advanced by Shri Joshi that it was of compensatory nature is of no avail in the light of above clear and categorical evidence. The expenditure claimed was clearly hit by Explanation to section 37(1) of the I.T. Act. That apart, payment made to BMC is part of cost of the addition to the existing factory premises. Such cost, other than expenditure in dispute, has been capitalized by the assessee in its books of account. The learned counsel for the assessee could not explain as to how payment for regularizing construction of capital nature could be treated as revenue expenditure and not part and parcel of cost of construction. In the light of above discussion, we uphold the impugned order of the CIT(A) and reject this ground raised by the assessee. 9. The other ground of appeal raised by the assessee relates to disallowance of Rs. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of provision relating to open space in the existing structure. He, therefore, confirmed the disallowance in the hands of the assessee. For adopting above course, the learned CIT(A) relied upon decision of Hon ble Supreme Court in the case of Maharashtra Sugar Mills v. CIT 124 ITR 429 ( sic ). 11. The assessee being aggrieved, has brought the issue in appeal before the Tribunal. The learned counsel for the assessee submitted that the learned CIT(A) was wrong in holding that amount of Rs. 21.84 lakhs was paid as penalty to BMC. The learned CIT(A) failed to appreciate that factory building was already in existence and there was division of the same between the assessee and others as per the award of arbitrator and decree of Hon ble High Court. The assessee had no choice in the matter, but to accept the property at the direction of the arbitrator and Hon ble High Court. However, the property as awarded to the assessee suffered from deficiency in the open space which was regularized by the BMC Commissioner by exercising his discretionary power under regulation 64( b ) of BMC Regulations. The amount was paid as compensation for getting above regularization. The same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The expenditure was for saving of the loss of the alteration of the closing stock of the assessee. The expenses incurred were to preserve or, in other words, to save kit from extinction. A portion of the building was saved from alteration or demolition and remained as business stock available for sale flat-wise. The payment was not in the nature of penalty for infraction of law and was a permissible deduction in arriving at the business profits of the assessee." Like in the above cited case, the assessee in the present case paid compensation to BMC to preserve and protect and regularize property allotted to the assessee. The learned counsel for the assessee also relied on the decision of Hon ble Delhi High Court in CIT v. New Garage Ltd. [1981] 129 ITR 122 where payment for protection of tenancy right was held to be business expenditure. The learned Departmental Representative opposed above submissions. 12. We have given careful thought to the submissions of the parties and facts of the case on record. We have no quarrel with the proposition laid down in the impugned order for determining whether expenditure is permissible deduction or not, its nature under the impost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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