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TMI Blog2012 (4) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... ennai Metropolitan Development Authority (CMDA) in constructing the said hospital building. Meanwhile, the Government of Tamil Nadu issued an Ordinance to add a new section 113A into the Tamil Nadu Town and Country Planning Act, 1971, whereby the State Government may regularize deviations made in constructing buildings. In the light of that Ordinance and the newly brought in section, the assessee opted for regularization of the violation. The violation alleged in the hands of the assessee in constructing the hospital building was thus regularized on payment of Rs. 18,41,787/- to CMDA as regularization fee. This amount was paid by the assessee in the previous year 2003-04, relevant to the assessment year 2004-05. 3. The return filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, found that the assessee is relying on the judgment of the Hon'ble Madras High Court in the case of CIT v. N.M. Parthasarathy, 212 ITR 105 as well as the judgment of the Hon'ble Delhi High Court rendered in the case of CIT v. Loke Nath & Co. (Construction), 147 ITR 624, in the light of which the assessee contended that even if the payment was construed as penalty, it was still allowable as an expenditure. The learned Judicial Member further observed that the Revenue is relying on the judgment of the Hon'ble Karnataka High Court rendered in the case of CIT v. Mamta Enterprises, 266 ITR 356, wherein the Court has characterized such payment as in the nature of penalty. 5. In the light of the above arguments, the Hon'ble Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of construction of the building. The judgment of the Hon'ble Karnataka high Court was delivered in the context of section 37 and not in the context of section 32. Therefore, he held that the said judgment of the Hon'ble Karnataka High Court is not applicable to the present case. 8. The learned Accountant Member accepted the contention of the assessee and held that the assessee is eligible for depreciation on the amount of regularization fee, as permissible under section 32. He allowed the appeals of the assessee on merit. As the issue has been decided on merit in favour of the assessee, the learned Accountant Member did not proceed further to decide the validity of the reopening of the assessment for the assessment year 2004-05, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to depreciation under section 32 of the Act in respect of the entire cost of hospital building including the payment made to CMDA, which was used by it for its business purpose or not?" 12. The Hon'ble President nominated me as the Third Member to resolve the issue in the light of the two sets of points of difference referred by the Hon'ble Members. It is how the issue has been placed before me. 13. I heard Shri R. Mugunthan, the learned chartered accountant appearing for the assessee and Shri K.E.B. Rengarajan, the learned standing counsel appearing for the Revenue. 14. There is no dispute on the facts of the case. The assessee had violated certain provisions of CMDA Regulations while constructing his hospital building. Later on, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the present case in hand. The Hon'ble Karnataka High Court was in fact examining the deductibility of penalty expenses under section 37 of the Income-tax Act, 1961. In the present case, the assessee has not made any such claim of deduction under section 37. Therefore, that decision does not apply to the case. 16. The case of the assessee is that as the amount paid by the assessee as regularization fee formed part of the cost of construction of the building, the same should be considered for granting depreciation allowance under section 32. Section 43(1) of the Income-tax Act, 1961 provides for computing cost of acquisition of assets. The regularization fee paid by the assessee has a direct nexus to the construction of the hospital bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arization Fee. Such a step taken by the State Government has been held to be unconstitutional by the Hon'ble Jurisdictional High Court. But even then, the Hon'ble High Court has not directed to repay the amount to the defaulters. Therefore, the payment made by the assessee has become final. That payment has been made directly in connection with the construction of the hospital building, which is an asset used by the assessee in carrying on his business or profession. As far as the assessee is concerned, it was not an unlawful payment. It cannot be held that the payment could not be booked anywhere in the business accounts of the assessee. The assessee has rightly booked the payment under the cost of construction of the hospital building. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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