TMI Blog2021 (12) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... missions noted above. Therefore, it is not justifiable at the end of the AO to make an addition of ₹ 5,19,051/- as against claim of ₹ 2,78,858/-. In the present case, the assessee was under obligation to bear the expenditure as per the tenancy agreement. Therefore, we are of the view that the ld. CIT(A) has erred in disallowing claim of the assessee. We allow this ground and delete the impugned addition - Decided in favour of assessee. - ITA No. 1138/Ahd/2019 - - - Dated:- 8-12-2021 - Rajpal Yadav, Vice President and Waseem Ahmed, Member (A) Assessee by : None Revenue by : Shri Kamlesh Makana, Sr.DR ORDER Per Rajpal Yadav, Vice President Assessee is in appeal against order of the ld. CIT(A)-5, Ahmedabad dated 31.5.2019 passed for the Asstt. Year 2016-17. 2. Assessee has raised seven grounds of appeal. However, sole issue for adjudication arises from the above grounds is that the ld. CIT(A) has erred in confirming finding of the ld. AO that the impact fee levied by the municipal authority of ₹ 5,19,051/- is penal in nature, and accordingly denied as expenditure and added the same to the total income of the assessee. 3. Brief facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are enclosed as Annexure 2 on Page_Number_05_to 06 of Paper Book for your immediate reference. The Assessee has accounted for the said expenses in its books of account to the tune of ₹ 519,051/-, However the Assessee has claimed and also recovered ₹ 240,193/- from the owner of the premises and balance of ₹ 278,858/- is claimed the said as a revenue expense under Section 30 of the Income tax Act. The statement of impact fee and other expenses are set out in Annexure 3 on Page Number 07 to 07 of Paper Book for your immediate reference. The table is also produced hereunder for ready reference; Statement of Impact Fee and Other Expenses for Office GF 31 and UGF 36 at City Centre for the Previous Year 2015-16 Particulars Total Payable Already Paid Balance Impact Fee 4000 4000 0 Parking Fee 182930 45375 137555 Administrative charge 18693 5445 13248 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part is re-produced hereunder; Please find the following and showcause why the same should not be added/disallowed accordingly; 1 ₹ 5,19,051/- Provision of Impact fee The impact fee is born by the owner of the property and there is no corresponding assets shown in the balance sheet of the Prodigy System Software. The same is required to be added under section 68 of the Act. Against the above, the Assessee has replied vide letter dated: 20.12.2018, which is put on record. The reply of the Assessee has been gone through judicially but the same is not acceptable. The Assessee vide submission had stated that he had been using rental premises for his business and he had paid impact fee on the property as per the Rent Agreement. This contention of the assessee has been found completely baseless and unjustified due to following reasons:- 1. Impact fee is levied by the Municipal Authority or the competent authority on the owner of the property whenever they do not follow the prescribed rules/laws/parameters set up by the authorities looking after regulation of construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed by the Owner of the Premise and same should be claimed while calculating Capital Gain on Sale/Transfer of the Property. This reasoning and observation of Learned AO for disallowance of expenses claimed by the Assessee, under section 30 of the Act, is entirely irrelevant. The amount is paid by the Assessee for its own business as explained in detailed I the letter dated 20.12.2018. Same is re-produced hereunder for your reference; Reply of Assessee 2 Provision for Impact Fee: In this connection, I would like to submit that I am running the business of software development and for that business I have kept office owned by Weather Crafts Limited at UGF 36, City Centre, C.G. Road, Navrangpura, Ahmedabad for monthly rent of ₹ 75, OOO/-. Since I am developing software on behalf of US clients, I have to keep office open almost 24 hours and that is the reason why.... a. I have hired office in heart of the city so that my staff commuting time gets reduced. b. I have committed rental tenure of nearly 3 years so that I can work uninterruptedly as I have to focus on delivering timely service to my foreign clients. c. I have agreed to bear all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount is allowable as Rent under Section 30 of the Act. The Learned AO has grossly erred in considering same as Un-explained expenses and further as capital expenses incurred for an on behalf of the Owner. The Assessee has explained in detail business expediency and reasons for owing the expense and justified the expense for the purpose of the business. The Learned AO, has not considered the claim of Assessee for deduction under section 30 and straight away concluded that these are capital expenses of owner. This indicates the biased and prejudice mind of the AO. The order is vitiated on this ground. The Assessee has incurred only Part of the Total Expense of ₹ 519,051/-. It is evident that the Assessee has claimed ₹ 273,858/- i.e. Part of Impact fee of ₹ 8000/-, Part of Parking Charges of ₹ 475,399/- and Part of Administrative Charges of ₹ 46120/- in capacity of Tenant under the Rent Agreement with Owner of the Premises. In the Profit and Loss Account of the Assessee, assessee has claimed ₹ 278,858/- only and not ₹ 519,051/-, as disallowed by the Learned/TO. Part of the said expense ₹ 240,193/- is borne by the Owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al other judgments mentioned in the decision. The Hon'ble ITAT has passed order allowing impact fee expenses, following decision of various other Judicial Authorities. The decision of Hon'ble Mumbai ITAT Bench A, in case of ACIT Central Circle 21, Mumbai vs layer Exports P Ltd. Reported in [2017] 88 Taxmann.com 620 (Mumbai ITAT), is also in favour of Assessee. The Hon'ble ITAT Mumbai has passed a details and speaking order in favour of Assessee observing that... The entire amount incurred on the construction of the property was legal, genuine and in accordance with law and therefore, admissible as business expenditure (Refer Annexure 7 on Page Number 14 to 14) Further Hon'ble Delhi High Court, in the matter of Commissioner of Income tax Delhi -IV vs Hi Lines Pens Private Ltd. reported in [2008] 175 Taxman 132 (Delhi), on identical facts, decided the matter in favour of Assessee. Refer Annexure 8 on Page Number 15 to 19. Thus it is clear and settled law that Impact fee is an allowable business expenses and not illegal expense or an expense in relation to offence committed by the Assessee. In the present matter before us, it is also evident th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association for the year 2015-16 is enclosed, as Annexure 10 (Page 22 to 26) wherein inter-alia, Payment of Impact Fee ₹ 20,43,385/- (Rupees Twenty Lakh Forty Three Thousand Three Hundred and Eighty Five) is reported on the Expense side by the Association. Hope above is as per your requirements. 5. The ld. CIT(A) has gone through submissions of the assessee, but did not find favour, and rejected the same. 6. In response to the notice of hearing, no one has come present on behalf of the assessee. 7. With the assistance of the ld. DR, we have gone through the record carefully. Municipal authorities have levied an impact fee, and such expenses were to be borne by owner of the assessee's premises. The Revenue was of the view that this expenditure is penal in nature, and therefore, hit by Explanation-1 appended to section 37 of the Act. On the other hand, explanation of the assessee is that in order to run business, it was a necessary expenditure linked with the tenancy agreement. Hence, it is allowable under section 30 of the Act. It was also contended that impact fee is not a penal in nature, it is a compensatory. The assessee has made reference to decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
