2018 (7) TMI 50 - HC - Income Tax

Omission of the 2nd proviso to Sec.43B as deemed to have retrospective effect - Held that - It is squarely covered by the decision of the Hon ble Supreme Court in Commissioner of Income Tax Vs. Alom Extrustions Ltd., reported in 2009 (11) TMI 27 - SUPREME COURT in which the Hon ble Supreme Court has held that omission of second proviso to s. 43B and the amendment of first proviso by Finance Act, 2003 bringing about uniformity in payment of tax, duty, cess and fee on one hand and contributions to employees welfare funds on the other are curative in nature and thus effective retrospectively w.e.f. 1st April, 1988 i.e., the date of insertion to first proviso. According question No.1 is answered holding that the omission of the second proviso to Section 43B is effective retrospecting w.e.f. 1st April, 1988. Liquidated damages paid by the assessee to the developer - Held that - The liability has been quantified and the same has been recorded in the supplementary MOU, as noted by the Tribunal. That apart, the fact that the possession of the land in question was not handed over in terms agreed to MOU is evident from the order passed by CIT(A), which has admitted that the possession of the property was handed over sometime in the year 2001. That apart, this fact has also been noted by the Assessing Officer, while completing the assessment for the Assessment Year 2004-2005 Vide order dated 28.12.2006. We respectfully agree with the view of the High Court of Delhi in the case of Kaushalya Devi V. Commissioner of Income-tax 2018 (4) TMI 1137 - DELHI HIGH COURT . We are required to accept the discretion exercised by the assessee, who has incurred the expenditure and if any inference is made by the Court without reference to the factual matrix or on subjective basis, it will lead to absurd results, which are not called for. Answer question No.3 against the Revenue and in favour of the Assessee. Fair market value for computing the market value on sale of land - capital gain computation - Held that - Schedule A of the sale deed is in conformity with the submission made by the assessee and also the fact that demolition has not taken place during the relevant previous year, the vacant possession was handed over only during 2001. The Assessing Officer was directed to exclude the sale consideration relating to the building while computing the capital gain. As against this portion of the order where CIT(A) had directed the exclusion of sale consideration related to the building, while computing the capital gains, the assessee went on appeal before ITAT. No question arise much less the substantial question of law with regard to the fair market value for computing the market value on sale of land. - Decided against the Revenue and in favour of the Assessee.

Issues Involved:
1. Retrospective effect of the omission of the 2nd proviso to Section 43B.
2. Deductibility of belated payments to Provident Fund under Section 43B.
3. Allowability of liquidated damages paid to the developer.
4. Deletion of interest amount disallowed in respect of advances and investments to sister concerns.
5. Arriving at the fair market value for computing capital gain on sale of land.

Detailed Analysis:

1. Retrospective Effect of the Omission of the 2nd Proviso to Section 43B:
The court acknowledged that the first question is covered by the Supreme Court's decision in Commissioner of Income Tax Vs. Alom Extrusions Ltd., which held that the omission of the second proviso to Section 43B is effective retrospectively from April 1, 1988. Therefore, the omission of the second proviso to Section 43B is deemed to have retrospective effect.

2. Deductibility of Belated Payments to Provident Fund under Section 43B:
The court examined the disallowance of payments towards Provident Fund and Employees State Insurance. The disallowance under Section 43B was contested on the grounds that payments were made after the due date. The court noted that the Assessing Officer and CIT(A) disallowed the claim under Section 43B, not under Section 36(1)(va). The Tribunal allowed the appeal, setting aside the disallowance, as the payments were made within the grace period and before filing the returns. The court found no error in the Tribunal's decision, concluding that the question of law as framed does not arise for consideration.

3. Allowability of Liquidated Damages Paid to the Developer:
The court considered whether the Tribunal was right in allowing the claim for liquidated damages paid to the developer. The Tribunal noted the supplementary agreement between the assessee and the developer, which quantified the liquidated damages. The court referred to the Supreme Court's decision in Bharat Earth Movers Vs. Commissioner of Income-tax, which held that a liability is not contingent if it is certain and capable of being estimated with reasonable certainty. The court found that the liability was quantified and recorded in the supplementary agreement, and thus, the Tribunal's decision was upheld.

4. Deletion of Interest Amount Disallowed in Respect of Advances and Investments to Sister Concerns:
The court examined whether the Tribunal was right in deleting the interest amount disallowed in respect of advances and investments to sister concerns. The Tribunal considered the factual position and accepted the assessee's case, noting that the advances were backed by a Board Resolution and there was no nexus between the borrowed funds and the interest-free funds. The court found that the issue was purely factual and no substantial question of law arose for consideration.

5. Arriving at the Fair Market Value for Computing Capital Gain on Sale of Land:
The court noted that the issue of fair market value for computing capital gain on the sale of land did not arise as the sale had not taken place and the issue related to the exclusion of the sale consideration relating to the building. The CIT(A) directed the exclusion of the sale consideration related to the building while computing the capital gains, and the Tribunal upheld this decision. The court concluded that no substantial question of law arose for consideration.

Conclusion:
The appeal was dismissed, and the questions of law were answered in favor of the assessee and against the Revenue. The court upheld the Tribunal's decisions on all issues, finding no errors in the Tribunal's reasoning and conclusions.

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