2011 (10) TMI 627 - AT - Income Tax

Summary

Issues involved: Appeal against deletion of addition made by AO u/s 143(3) for fine paid under Gujarat Regulation and Unauthorized Development Act, 2001.

The Appellant, a construction firm, filed return of income for AY 2005-06 showing total income of Rs. 9,90,440. AO disallowed Rs. 12,50,000 as fine under Surat Municipal Corporation Rules. CIT(A) deleted the disallowance stating that the payment was compensatory under the Gujarat Regulation and Unauthorized Development Act, 2001 for regularization of unauthorized construction.

The assessee contended that the impact fees paid for additional area covered in construction project are eligible for deduction u/s 37(1) of the Income-tax Act, 1961. CIT(A) agreed and deleted the disallowance, citing precedents where compensatory payments were allowed as deductions.

The CIT(A) held that the contravention was not detected by Surat Municipal Corporation but voluntarily intimated under the Gujarat Regularization of Unauthorized Development Act, 2001. The payment was compensatory in nature and allowable as deduction u/s 37(1) based on precedents.

The Revenue appealed to the Tribunal against the deletion of Rs. 12,50,000 addition. Despite absence of assessee, the Tribunal upheld CIT(A)'s decision, stating that the payment was compensatory in nature similar to previous cases and therefore allowable as deduction u/s 37(1).

The Revenue's appeal was dismissed by the Tribunal, affirming that the payment made by the assessee was compensatory in nature and hence eligible for deduction u/s 37(1) of the Income-tax Act, 1961.