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2016 (11) TMI 1303 - ITAT PUNE

2016 (11) TMI 1303 - ITAT PUNE - TMI - Disallowance of payment of compensation to flat owners - delay in handing over of possession to the flat owners - Held that:- The assessee was justified in compensating the allottees of the flats for delay in handing over of possession. The amount paid by the assessee was certainly on account of business expediency. - Another reason for disallowing the payment of compensation was that the amount paid by the assessee was in the nature of penalty for Brea .....

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mpensation arose in the course of business of assessee. In the present case the assessee paid compensation to the assessee under similar circumstances and not out of any liability arising from invoking of penal provisions of any statute. Thus, the compensation paid by the assessee cannot be held to be penal in nature. Thus we hold the expenditure incurred by the assessee on payment of compensation to the flat owners for delay in possession as allowable. - Decided in favour of assessee - ITA No. .....

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ent year 2009-10 on 30-10-2009 declaring total income of ₹ 54,75,530/-. The case of the assessee was selected for scrutiny and accordingly first notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was issued to the assessee on 28-09-2010. The assessee developed housing project Kamdhenu Siddhi . As per the terms and conditions of the agreement with the allottees of the flats, the assessee was to handover possession of the flats on or before 31-05-2008. Howev .....

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ssee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) upheld the finding of Commissioner of Income Tax (Appeals) qua disallowance of payment of compensation to the flat owners. Against the findings of Commissioner of Income Tax (Appeals), the assessee is in second appeal before the Tribunal. 3. The assessee in appeal has assailed the findings of Commissioner of Income Tax (Appeals) on two grounds : i. Disallowance of salary paid to Pay .....

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ers in accordance with the meeting between the proprietor of project Kamdhenu Siddhi and flat owners held in January, 2009. The compensation was paid to 22 flat owners by account payee cheques. The assessee produced confirmations from all the flat owners to whom compensation was paid. The ld. AR submitted that the authorities below have erred in not appreciating the fact that the compensation for delayed handing over of possession of flat was paid by the assessee out of commercial expediency. Th .....

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3-2009. Thereafter, on 17-01-2009 second meeting of flat owners was called wherein it was reviewed that the assessee by any means could not complete the construction of flats by 31-03-2009. It was mutually agreed that the assessee would pay interim compensation of ₹ 40,000/- to each flat holder. The ld. AR referred to page 28 of the paper book to show the list of flat holders and the amount received from the respective flats holders as on 31-03-2009. The ld. AR contended that the amount pa .....

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63. As per the provisions of section 8 of the said Act, if the assessee fails to handover the possession of the flats by due date subject to reasonable delay (maximum 6 months for the reasons beyond the control of assessee), the assessee was liable to refund the entire amount received from flats owners along with interest @ 9%. The assessee had received a total sum of ₹ 4,27,11,207/- as on 31-03-2009 from various flat owners. If the assessee would have to pay interest to the flat owners th .....

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In the agreement the date of completion of the project has been clearly mentioned as 31-05-2008. The Commissioner of Income Tax (Appeals) has also erred in observing that there was minor delay of few days, therefore, the assessee was not liable to pay any compensation for reasonable delay. In fact, there was delay of 20 months from 31-05-2008 to February, 2010 in handing over of possession. The provisions of Maharashtra Ownership Flat Act, 1963 gives leverage of only 3 months for delay in compl .....

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contract. The ld. AR in order to counter the observations of the authorities below have placed reliance on the decision of Delhi Bench of the Tribunal in the case of DCIT Vs. M/s. Achiever Builders (P) Ltd. in ITA No. 5113/Del/2013 decided on 23-05-2014 (reported as 2014 (6) TMI 251 - ITAT Delhi). The ld. AR further placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Malabar Industries Pvt. Ltd. Vs. ITO in ITA No. 3568/Mum/2006 decided on 18-12-2009 (reported as .....

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the assessee has not been able to show commercial expediency for the payment of compensation and there is no covenant in the agreement executed between the flat holders and the assessee with respect to the payment of compensation for delay in handing over of possession of flats. The ld. DR contended that another facet of the amount paid by the assessee to the flat owners is that if it is paid under the provisions of Maharashtra Ownership Flat Act, 1963 the amount paid is in nature of penalty, an .....

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by the assessee in the form of paper book and referred during the course of making submissions. In appeal, the assessee has raised two grounds impugning the order of Commissioner of Income Tax (Appeals). The first ground of appeal relates to disallowance of salary paid to Payal K Mutha. The ld. AR of the assessee stated at the Bar that he is not pressing ground No. 1. Accordingly, ground No. 1 raised in appeal is dismissed as not pressed. 8. The second ground of appeal relates to disallowance o .....

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few days and for reasonable delay in handing over of possession of flats no compensation was required to be paid. iii. The assessee could not show commercial expediency for payment of compensation. iv. If at all there was liability to pay it was on account of Breach of contract for which the payment is in the nature of penalty and not compensation. 9. In so far as the objection raised by the Department that there was no covenant in the agreement for payment of compensation is concerned, we obse .....

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o give possession within specified time or further time allowed. If - (a) the promoter fails to give possession in accordance with the terms of his agreement of a flat duly completed by the date specified, or any further date or dates agreed to by the parties, or (b) the promoter for reasons beyond his control and of his agents, is unable to give possession of the flat by the date specified, or the further agreed date and a period of three months thereafter, or a further period of three months i .....

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was to be constructed, to the extent of the amount due, but subject to any prior encumbrances. Thus, a perusal of the above provisions of the said Act clearly show that whether the covenant for payment of compensation for delay in handing over of possession of flat is contained in the agreement or not, the assessee was bound to compensate the flat owners in the case of delay in handing over of possession of the flats beyond a reasonable time. 10. The Mumbai Bench of the Tribunal in the case of .....

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e has shown that under the provisions of Maharashtra Ownership Flat Act, 1963 the assessee would have been liable to refund the amount deposited by the allottees of the flats along with interest @ 9% from the date of deposit for delay in handing over of possession of flats, on the demand of flat owners. In that eventuality the liability of the assessee would have been much more than what has been paid by the assessee as compensation. The assessee was justified in compensating the flat owners as .....

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have got reasonable extension for completing the project. The aforesaid observations made by the Commissioner of Income Tax (Appeals) are against the facts of the case and documents on record. The reasonable extended period for handing over of possession could have been 3 months to 6 months. However, in the present case the delay in handing over of flats was almost 2 years. The Courts are now taking a very serious view against the delay in handing over of possession of flats by the builders. Th .....

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tion 18 of the Real Estate (Regulation and Development) Act, 2016 provides for the payment of compensation by the developer to the allottees of the flats in case the developer fails to complete or is unable to give possession of the apartment/flat, in accordance with the terms of the agreement on or before the specified date. The relevant extract of the provisions of section 18 are reproduced here-in-under : 18. (1) If the promoter fails to complete or is unable to give possession of an apartmen .....

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in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act: Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed. (2) The promoter shall compensate the allottees in case of any loss caused to him .....

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