Baljeet Singh, New Delhi vs Department Of Income Tax

Date of Hearing : 22.04.2015 Date of Pronouncement : 06.05.2015

ORDER

PER N.K. SAINI, A.M.

These cross appeals by the department and the assessee are directed against the order dated 03.08.2012 of the ld. CIT(A)-XVII, New Delhi.

2. In the departmental appeal following grounds have been raised:

2 ITA Nos. 5100 & 5103/Del/2012 Baljeet Singh

"1. On the facts and on the circumstances of the case, the ld. CIT(A) has erred in law and fact by not appreciating that the section 37(1) deduction is not applicable in this case.

2. On the facts and on the circumstances of the case, the ld. CIT(A) has erred in deleting the payment made by the assessee to MCD for conversion charge of building is an expenditure incurred for the business and being the payment is one time the expenditure should be treated as capital expenditure.

3. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal."

3. And the grounds raised in the assess's appeal read as under:

"1. The learned CIT(Appeals) has erred on facts and in law in not deleting the addition of Rs. 5,46,929.00.

2. The learned CIT(Appeals) has erred on facts and in law by not deleting the addition of Rs. 5,46,929.00 being the payment of mixed land use charges to the Municipal Corporation of Delhi for the year 2006-07. This amount of Rs. 5,46,929.00 paid on 20.04.2007 being in the nature of tax, duty cess or fee paid to the Municipal Corporation of India is clearly allowable u/s 43B of the Income Tax Act, 1961 in the previous year related to assessment year 2008-09.

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3. The learned CIT(Appeals) has erred on facts and in law by not deleting the addition of Rs. 5,46,929.00 being an expenditure paid out wholly and exclusively for the purpose of business and further it is neither a capital expenditure nor a personal expense.

4. The appellant craves leave to add/alter grounds of appeal before or at the time of hearing."

4. From the above grounds it would be clear that the grievance of the department as well as the assessee relates to the deletion/sustenance of the addition made by the AO on account of payment made for conversion charges of building.

5. Facts of the case in brief are that the assessee e-filed his return of income on 23.09.2008 declaring an income of Rs. 5,00,140/-. Subsequently, the case was selected for scrutiny. The AO during the course of assessment proceedings noticed that the assessee has paid total amount of Rs. 24,82,429/- i.e. Rs. 5,46,929/- paid on 20.04.2007 and Rs. 19,35,500/- paid on 28.02.2008 to the MCD as mix land use charges/conversion charges, in respect of building of guest house, A-2/13, Safdarjung Enclave, New Delhi. The AO asked the assessee to explain as to why those expenses should not be disallowed and treated as capital 4 ITA Nos. 5100 & 5103/Del/2012 Baljeet Singh

expenditure. The assessee submitted to the AO that the conversion charges were paid to the MCD in respect of premises on which the business was being carried and the residential property was converted into a commercial property. The AO did not find merit in the submissions of the assessee by observing that the expenses paid were onetime charges and were required to be paid at once at the time of converting the residential building into commercial one. He, therefore, disallowed Rs. 24,82,429/- claimed by the assessee as expenses u/s 37(1) of the Act.

6. Being aggrieved, the assessee carried the matter to the ld. CIT(A) and submitted that similar mix land charges were paid in the previous assessment years 2005-06 and 2006-07 as well. A copy of notification dated 20.11.2006 of Delhi Development Authorities was furnished wherein charges were fixed for mixed use and commercial use of premises. As per the said notification, the mixed use means the provision for permitting the non-residential activities in the residential premises and as per the regulation, the premises under mixed use shall be subject to annual mixed use charges for the period upto which the premises remained/likely to be remained under mixed use. The annual mixed use charges were Rs. 383 per sq. meters as per the 5 ITA Nos. 5100 & 5103/Del/2012 Baljeet Singh

above notification. The assessee furnished the copy of subsequent notification dated 22.06.2007 which had given the owners, an option to make onetime payment of mixed use charges of Rs. 3064 per sq. meters and accordingly the assessee had paid onetime payment of Rs. 19,35,500/- (Rs.3064 × Rs. 631.60 sq. mts.). It was stated that the expenses were allowable u/s 37(1) of the Act.

7. The ld. CIT(A) after considering the submissions of the assessee and observed that the evidence furnished by the assessee revealed that the payment of Rs. 5,46,979/- made on 20.04.2007 was for the previous assessment year 2006- 07 and the balance payment of Rs. 19,35,500/- made on 28.02.2008 was for mix land use charges for fulltime and it was a onetime payment while the annual charges were only Rs. 2,41,903/-. The ld. CIT(A) further observed that the MCD had regularized the guest house in residential premises operated by the assessee for mixed land use regulations vide their order dated 04.12.2001 i.e. the period relevant to the assessment year 2002-03 itself and that the copy of the said order regularizing the use of the guest house was furnished by the assessee. However, the ld. CIT(A) did not accept this contention of the assessee that the payment for mixed land use charges was statutory 6 ITA Nos. 5100 & 5103/Del/2012 Baljeet Singh

payment and allowable u/s 43B of the Act by observing that the payment made to the MCD for using the residential premise for running the guest house could not be considered as tax, duty, fee or cess and thus not allowable on payment basis as a deduction u/s 43B of the Act. However, the balance addition of Rs. 19,35,500/- on the basis of DDA's notification dated 22.06.2007 was considered by the ld. CIT(A) as revenue expenses since it was crystallized during the relevant assessment year and thus was an allowable deduction u/s 37(1) of the Act. Accordingly, the addition of Rs. 5,46,979/- made on 20.04.2007 for the assessment year 2006-07 was sustained and the balance addition of Rs. 19,35,500/- paid on 28.02.2008 for mixed land use charges for fulltime was deleted.

8. Now both the parties are in appeal against the sustenance/deletion of addition. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the mixed land use charges for financial year 2006-07 for different categories of colonies were determined vide notification dated 20.11.2006. The said notification was subsequently modified on June 22, 2007 and new rates for mixed land use charges for financial year 2006-07 were determined.

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Therefore, the difference of mixed use charges for financial year 2006-07 which accrued, arose and paid in financial year 2007-08 cannot be held as prior period expenses. Therefore, the addition sustained by the ld. CIT(A) was not justified. Reliance was placed on the following decision of the ITAT 'C' Bench, New Delhi:

Ø DCIT Vs Haldiram Products Pvt. Ltd. in ITA No. 5158/Del/2012 for the assessment year 2008-09 order dated 08.02.2013

9. In his rival submissions the ld. DR supported the order of the AO.

10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the assessee made the payment on account of mixed land use charges on the basis of notification of Delhi Development Authorities which permitted for non-residential activities in the residential premises. Therefore, the payment made on 28.02.2008 by the assessee during the year relevant to the assessment year under consideration amounting to Rs. 19,35,500/- was allowable as revenue expenditure, the 8 ITA Nos. 5100 & 5103/Del/2012 Baljeet Singh

remaining amount of Rs. 5,46,979/- paid on 20.04.2007 for the previous assessment year 2006-07 was not relating to this year and conversion charges were not in the nature of tax, duty, fee or cess, so those were not allowable on payment basis u/s 43B of the Act. However, it is not clear as to whether the assessee was showing the income by adopting the cash basis method of accounting or accrual basis. If the assessee was showing the income as well as expenses on cash basis then as the liabilities was crystallized during the year and paid in the period relevant to the assessment year under consideration on 20.04.2007, it was allowable in the year under consideration and if the assessee was following the accrual basis method of accounting then these expenses were not allowable because these do not relate to the year under consideration. Therefore, in the absence of clear facts available on record, this limited issue relating to the payment of Rs. 5,46,979 is restored to the AO for verification and the AO is directed to adjudicate the same by keeping in view the aforesaid observation. As regards to the deletion of addition of Rs. 19,35,500/-, we do not see any valid ground to interfere with the findings of the ld. CIT(A).

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11. In the result, appeal of the department is dismissed and that of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 06/05/2015).

Sd/- Sd/- (A. T. Varkey) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 06/05/2015 *Subodh*

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR