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Mema Engineers & Contractors Private Limited Versus ACIT. Circle – 6 (3) , Mumbai

2016 (6) TMI 532 - ITAT MUMBAI

Disallowance of demolition expense - non business expenses - Held that:- The demolition expenses were incurred by the assessee company to remove illegal structure in the portion of the plot of land granted by Collectors office in favour of the assessee company in 1968 as set out in SOF above and in our considered view, this is a normal business expenditure although it is incurred through chartered architect which was reimbursed by the assessee company. Hence, we hold merit in the contentions of .....

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ed by the Revenue against the orders of learned CIT(A) before the Tribunal , and merely because the receipt for demolition expenses for demolishing the illegal structure on the same piece of land is in the name of the architect, the same cannot be held to be non-business expenses and disallowed by the Revenue. - Decided in favour of assessee

Disallowance u/s 43B - Held that:- The Revenue failed to bring on record provisions of any law in force under which this liability of sharing of .....

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se 2(g) of Schedule II of the agreement dated 03-07-194 entered into by the assessee company and Additional Collector of Bombay for grant of land in favour of the assessee company is not hit by provisions of Section 43B of the Act as the liability has not arisen on account of any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force , but the liability has arisen out of the contract between the two contracting parties and .....

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not paid which has accrued and crystallized in favour of the Collector vide agreement dated 03-07-1964 with respect to the sale of reversionary rights in the two plots and hence limited verification is required to be done by the Revenue on the computation of working of ₹ 4,55,422/- which has been produced before us as the authorities below have not accepted the claim of the assessee company of ₹ 4,55,422/- being payable to the Collector and allowed the actual amount of ₹ 64890 .....

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ompany to the tune of ₹ 4,55,422/- in favour of the Collector in accordance with the agreement dated 03-07-1964 . - I.T.A. No. 654/ Mum/ 2011 - Dated:- 13-6-2016 - Shri C. N. Prasad, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri Nishit Gandhi For the Revenue : Shri S. Senthil Kumaran ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the assessee company, being ITA No. 654/Mum/2011, is directed against the order dated 29-10-2010 passed by lea .....

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after called the Tribunal ) read as under:- 1.1 The learned Commissioner of Income - tax (Appeals) - 12, Mumbai, ["Id. CIT (A)"] erred in confirming the action of the Assessing Officer ["the A.O."] in framing the assessment order without affording reasonable and fair opportunity of being heard. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the appellate order was required to be held as bad in law on account of breach of the principles of .....

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is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. The assessee company has raised an additional grounds of appeal as under: 4.1 The Assistant Commissioner of Income tax-6(3),Mumbai, [ the AO ] erred in disallowing ₹ 4,55,422/- paid as Collector s charges under section 43B of the Income tax Act,1961[ the Act ] 4.2 It is submitted that in the facts and the circumstances of the case, and in law, such action of A.O. was bad in la .....

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0,000/- claimed by the assessee company as business expenses , by treating the same as non-business expenses and added the same to the total income of the assessee company vide assessment orders dated 12 December, 2008 passed by the AO u/s 143 (3) of the Act. 4. Aggrieved by the assessment orders dated 12.12.2008 passed by the AO u/s . 143(3) of the Act, the assessee company filed first appeal with the learned CIT(A). 5. The assessee company in statement of facts(SOF) filed before the learned CI .....

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frastructure facilities subject to which it would be entitled for saleable FSI. Subject to the above the appellant has been incurred various expenses since dt of allotment till date and Capitalizing the same till the Year in which it would either develop/Construct any Commercial Property or Sale the available FSI against Surrender of road etc. to the Municipal Authorities. The appellant had prior to 1998 given the plots on Lease to various parties who in turn built their own industry. The appell .....

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ted during the assessment proceedings. The appellant submits that only on handing over of vacant land to BMC the Saleable FSI would be granted & hence the demolition of unauthorized hutments is a genuine Business Expenditure. Also the same has been paid to State Govt. Authorities. ***** ***** With regard to the demolition charges of ₹ 50,000/- disallowed by the AO by treating the same as non business expenses , before the learned CIT(A), the assessee company contended that ₹ 50,0 .....

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and report. The AO objected to the admissions of these additional evidences in remand report proceedings and also contended on merits that these additional evidences does not prove that these demolition charges were business expenses of the assessee company and therefore allowable as business expenses in the hands of the assessee company. The learned CIT(A) admitted the additional evidences in the interest of justice as the AO did not show-caused the assessee company before making disallowances. .....

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rove that while developing the plot of land , the assessee company had to incur expenditure for removing the un-authorized structures and occupants and therefore the said expenditure was rightly claimed by the assessee company. The learned CIT(A) considered the documentary evidences filed by the assessee company and observed that these documents are letters written by one Sh. L R Patker , Chartered Architect to the Municipal Commissioner, BMC and the Chief Engineer of the MCGM informing them abo .....

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ke necessary action. Thus, as per learned CIT(A) , the assessee company was not able to substantiate or establish that the concerned payment of ₹ 50,000/- to BMC was in respect of business carried on by the assessee company and hence the learned CIT(A) upheld the assessment orders dated 12.12.2008 passed by the AO u/s 143(3) of the Act, vide appellate orders dated 29.10.2010. 6. Aggrieved by the appellate orders dated 29.10.2010 of the learned CIT(A), the assessee company filed second appe .....

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has been allowed by the learned CIT(A) , whereas the demolition expenses of the illegal structures from the same property was disallowed by learned CIT(A) on technical grounds that the receipt issued by BMC is in the name of Architect of the assessee company. The learned counsel for the assessee company stated before us that the payment made to the BMC of ₹ 50,000/- through chartered architect was on behalf of the assessee company. 8. The ld. D.R., on the other hand, relied on the order o .....

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ures were removed by the BMC and the expenses of ₹ 50,000/- were paid by the Chartered Architect on behalf of the assessee company to BMC with respect to the demolition expenses of illegal structure on the piece of land , against which the assessee would get FSI on surrender of vacant land to BMC. No appeal has been filed by the Revenue with the Tribunal as confirmed by learned DR during the course of hearing before the Tribunal, against the orders of the learned CIT(A) whereby the learned .....

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nt issued by BMC is in the name of Sh L R Patkar, the architect of the assessee company. It is an undisputed position that the payment has been made through chartered architect. In our considered view, the demolition expenses of ₹ 50,000/- were incurred by the assessee company to remove illegal structure in the portion of the plot of land granted by Collectors office in favour of the assessee company in 1968 as set out in SOF above and in our considered view, this is a normal business expe .....

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the same piece of land was allowed by learned CIT(A) as business expenses , which orders of the learned CIT(A) is not contested by the Revenue as no second appeal is filed by the Revenue against the orders of learned CIT(A) before the Tribunal , and merely because the receipt for demolition expenses for demolishing the illegal structure on the same piece of land is in the name of the architect, the same cannot be held to be non-business expenses and disallowed by the Revenue. We order accordingl .....

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mo of appeal filed with the Tribunal. The assessee company prayed that this ground of appeal being purely legal ground should be admitted as it goes to the root of the matter. The Learned DR objected to the admission of this additional ground. We have considered the rival contentions and we have observed that the assessee company did raised this ground of appeal regarding disallowance of ₹ 4,55,242/- being disallowed by the AO regarding Collector charges payable on sale of plot of land bef .....

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le to the Collector of Mumbai towards sale of two plots of land to M/s Sweet Angel and M/s Supreme Industries. The assessee company has been contesting the payment of dues to the Collector on sale of plots of land and a sum of ₹ 11,76,715/- is payable in respect of sale of plots prior to the Financial year 2001-02. The assessee company has paid a sum of ₹ 64,890/- towards the sale of one of the plots hence the arbitrarily provision of 50% of the sale value of plots of land as payable .....

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ny vide assessment orders dated 12/12/2008 passed by the AO u/s 143(3) of the Act. 12. Aggrieved by the assessment orders dated 12/12/2008 passed by the A.O. u/s 143(3) of the Act, the assessee company filed its first appeal before the learned CIT(A). With respect to the disallowance u/s 43B of the Act, it was submitted by the assessee company that as per the terms and conditions for allotment of land it is permissible to sell the plot of land subject to sharing of 50% of unearned income on sale .....

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ame was not paid and it was for change of user from industrial purpose to commercial purpose. The point of disallowance was not payment , and not any share of taxes, rules or duties payable to the Collector s office. However in respect of the sale of these two plots, the assessee company is not contesting the amount payable but the Collector is not accepting this amount and raised demand of ₹ 119 crores in respect of sale of plots in the earlier years. Thus, the assessee company has prayed .....

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B of the Act and since the assessee company has not made payment of Collectors charges within time stipulated u/s 43B of the Act, the disallowance made by the AO is justified, vide learned CIT(A) appellate orders dated 29.10.2010. 13. Aggrieved by the appellate orders dated 29.10.2010 passed by the learned CIT(A), the assessee company filed second appeal with the Tribunal and raised this ground through additional ground which has already been admitted by the Tribunal as indicated above in preced .....

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rned increment in the event of sale or transfer of the plot. The said clause 2(g) is reproduced below:- That the government will be entitled to half the unearned increment in the event of sale or transfer whether outright or as a result of unredeemed mortgage and that the land so sold or transferred should be used for a purpose approved by the Govt. if it is to be used for a purpose other than approved industrial or commercial purposes. The learned counsel for the assessee company submitted that .....

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s been provided in the books of accounts , the Collector is not accepting this amount and raised demand of ₹ 119 crores in respect of sale of plots in the earlier years from the assessee company. Details of Collector charges of ₹ 4,55,422/- payable are placed in the paper book page 31,37,40,42 and additional working chart filed on the date of hearing on 16th March 2016. The learned Counsel for the assessee company submitted that this payment is not hit by provisions of section 43B of .....

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rued and is a real liability which should be allowed as deduction on matching principles . There is a liability payable by the assessee company keeping in view the matching concept as the income in relation thereto has already been offered to tax in the return of income filed with the Revenue for the impugned assessment year and the said expenses payable should be allowed being accrued and real liability. 15. The ld. D.R., on the other hand, submitted that the case of the assessee company is cov .....

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(supra) license fee/rental payable in respect of purchase of toddy shops payable under the Akbari Act was held to be not hit by the provisions of Section 43B(a) of the Act. 17. We have heard the rival contentions and also perused the material available on record. We have observed that the assessee company has entered into an agreement with Additional Collector of Bombay vide agreement dated 03-07-1964 whereby the assessee company was granted land admeasuring 55 acres as specified in schedule-I .....

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rtgage and that the land so sold or transferred should be used for a purpose approved by the Govt. if it is to be used for a purpose other than approved industrial or commercial purposes. We have observed that there is a condition stipulated in afore-stated clause 2(g) of the agreement dated 03-07-1964, sharing of 50% of unearned increment in the land with the Government in the event of sale or transfer of plot of land , and the liability of the assessee company with respect thereto has arisen f .....

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called, under any law for the time being in force, or] ****** ****** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : [Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the asse .....

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e Government can be crystallized or fastened on the assessee company , rather it is a contractual liability arising from contract between the two contracting parties viz. the assessee company on the one hand and Government on the other hand through Collector. In our considered view, the afore-stated amount of ₹ 4,55,422/- stated to be payable towards unearned increase in the plot of land in the event of sale or transfer vide clause 2(g) of Schedule II of the agreement dated 03-07-194 enter .....

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amount stated to be payable of ₹ 4,55,422/- to Collector towards unearned increase in the land on sale of reversionary rights in the plot is not hit by provisions of Section 43B of the Act. There is another aspect to this issue which also needs to be dealt with is with respect to the verification of the computation of ₹ 4,55,422/- as computed by the assessee company , i.e. whether or not a correct amount of liability albeit not paid which has accrued and crystallized in favour of th .....

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