TMI Blog2012 (4) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment under the cost of construction of the hospital building - appeals are to be allowed - IT Appeal NOS. 493 TO 495 (MDS.) of 2010 - - - Dated:- 15-2-2012 - DR. O.K. NARAYANAN, J. ORDER Dr. O.K. Narayanan, Vice-President (As a Third Member) There are three appeals. These appeals relate to the assessment years 2004-05, 2005-06 and 2006-07. The appeals are filed by Dr. K. Senthilnathan, the assessee. They are directed against the orders of the Commissioner of Income-tax (Appeals)-XII at Chennai, all dated 28-1-2010. 2. The assessee had constructed a hospital building. It was later found out that the assessee had violated certain regulations of Chennai Metropolitan Development Authority (CMDA) in constructing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty, the same cannot be allowed to be added to the cost of the building. So much so, the assessing authority held that the assessee was not entitled for depreciation on that additional amount capitalized by the assessee. Therefore, the assessing authority reopened the assessment for the assessment year 2004-05 and disallowed the differential amount of depreciation. Consequently, he disallowed the differential depreciation for the assessment years 2005-06 and 2006-07 as well. In first appeals, the above orders were confirmed by the Commissioner of Income-tax (Appeals). 4. The assessee came in second appeals before the Tribunal. The learned Judicial Member, who authored the order, found that the assessee is relying on the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expenditure is not in doubt and expenditure was in fact incurred and, therefore, it formed part of the cost of construction of the hospital building, which is used by the assessee for carrying on his business. 7. The learned Accountant Member thereafter referred to the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Mamta Enterprises , 266 ITR 356. He found that the Court was examining the deductibility of a penalty paid by the assessee under section 37. The learned Accountant Member observed that in the present case the assessee was not claiming the regularization fee paid by him as a deduction under section 37. He is claiming only depreciation under section 32 as part of the cost of construction of the bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 31 of 2000, 17 of 2001 and 7 of 2002) which was declared ultra vires and struck down by the Hon'ble Jurisdictional High Court, in the given facts and circumstances of the case or not?" 11. The learned Accountant Member framed different points as under and referred to the Hon'ble President of the Tribunal:- "1. Whether the payment of Rs. 18,41,787/- made to CMDA under the provisions of Section 133A of the Tamil Nadu Town and Country Planning Act, 1971 (as amended vide amending Acts 31 of 2000, 17 of 2001 and 7 of 2002), which was not refundable to the assessee forms part of the cost of hospital building to the assessee or not under section 43(1) of the Act? 2. Whether, the assessee was entitled to depreciation under section 32 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the Government of Tamil Nadu, as far as the assessee is concerned, the amount paid by him as regularization fee is paid for once and all and the same will not be refunded to the assessee. Therefore, as a matter of fact, the said amount of regularization fee paid by the assessee forms part of the cost of construction of the hospital building. 15. Now, the question is whether such regularization fee paid by the assessee could be added to the cost of construction of the building for the purpose of claiming depreciation under section 32. The Revenue has relied on the judgment of the Hon'ble Karnataka High Court rendered in the case of CIT v. Mamta Enterprises , 266 ITR 356. The said decision is not applicable to the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in the light of the facts of the case as well as in the light of the provisions of law stated in section 43(1), read with section 32, the assessee is entitled for depreciation. 17. Now the question is whether the regularization fee paid by the assessee partakes the character of a penalty and if so, whether the same can be booked at all anywhere in the business accounts of the assessee. It is to be seen that there was no penalty on the person of the assessee. There were certain violations as far as the building rules were concerned. As a matter of public policy, the State Government decided to regularize such buildings and exonerate the defaulters from the consequences of the violation of the regulation, on paying Regularization Fee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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