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TMI Blog2016 (11) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... complete the project by 31-05-2008. The flats were handed over to the allottees in February-March, 2010. The assessee paid compensation of Rs. 8,80,000/- i.e. Rs. 40,000/- to each flat owner for delay in handing over of possession. During the course of scrutiny assessment proceedings the Assessing Officer inter alia made disallowance of compensation paid to flat owners for delayed possession of flats. Aggrieved by the assessment order dated 29-07-2011, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) upheld the finding of Commissioner of Income Tax (Appeals) qua disallowance of payment of compensation to the flat owners. Against the findings of Commissioner of Income Tax (Appeals), the assessee is in second appeal before the Tribunal. 3. The assessee in appeal has assailed the findings of Commissioner of Income Tax (Appeals) on two grounds : i. Disallowance of salary paid to Payal K. Mutha Rs. 84,000/-. ii. Disallowance of payment of compensation to flat owners Rs. 8,80,000/-. 4. Shri Vipin Gujrathi appearing on behalf of the assessee submitted that he is not pressing the first ground raised in the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to reasonable delay (maximum 6 months for the reasons beyond the control of assessee), the assessee was liable to refund the entire amount received from flats owners along with interest @ 9%. The assessee had received a total sum of Rs. 4,27,11,207/- as on 31-03-2009 from various flat owners. If the assessee would have to pay interest to the flat owners the same would be approximately Rs. 38.44 lakhs. In addition to that the assessee would also be liable to refund stamp duty and registration charges which approximately amounts to Rs. 20 lakhs. Whereas, the assessee escaped such liabilities by compensating the flat owners by making the payment of Rs. 8,80,000/- only. The assessee has paid compensation to maintain his goodwill. The ld. AR further submitted that the Assessing Officer has misconstrued the date of completion as 31-03-2009. In the agreement the date of completion of the project has been clearly mentioned as 31-05-2008. The Commissioner of Income Tax (Appeals) has also erred in observing that there was minor delay of few days, therefore, the assessee was not liable to pay any compensation for reasonable delay. In fact, there was delay of 20 months from 31-05-2008 to Feb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the point of view of the assessee and not the Department. 7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the various documents furnished by the assessee in the form of paper book and referred during the course of making submissions. In appeal, the assessee has raised two grounds impugning the order of Commissioner of Income Tax (Appeals). The first ground of appeal relates to disallowance of salary paid to Payal K Mutha. The ld. AR of the assessee stated at the Bar that he is not pressing ground No. 1. Accordingly, ground No. 1 raised in appeal is dismissed as not pressed. 8. The second ground of appeal relates to disallowance of payment of compensation to flat owners for delay in handing over of possession to the flat owners. The authorities below have disallowed the claim of assessee for the following reasons : i. The original agreement executed between the assessee and the flat owners does not contain any covenant with respect to payment of compensation for delay in handing over of possession of flats. ii. The assessee has self assumed the liability of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bound to compensate the flat owners in the case of delay in handing over of possession of the flats beyond a reasonable time. 10. The Mumbai Bench of the Tribunal in the case of M/s. Malabar Industries Pvt. Ltd. Vs. ITO (supra) has upheld the observations made by the Commissioner of Income Tax (Appeals) that even if there was no clause permitting payments of compensation to the original allottees in case of cancellation of bookings, the payment of compensation should be allowed as deduction on the principle of business expediency. It is a well settled proposition that business expediency has to be decided by the assessee and not the Department. The ld. AR of the assessee has shown that under the provisions of Maharashtra Ownership Flat Act, 1963 the assessee would have been liable to refund the amount deposited by the allottees of the flats along with interest @ 9% from the date of deposit for delay in handing over of possession of flats, on the demand of flat owners. In that eventuality the liability of the assessee would have been much more than what has been paid by the assessee as compensation. The assessee was justified in compensating the flat owners as there was delay of mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act: Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed. (2) The promoter shall compensate the allottees in case of any loss caused to him due to defective title of the land, on which the project is being developed or has been developed, in the manner as provided under this Act, and the claim for compensation under this subsection shall not be barred by limitation provided under any law for the time being in force. (3) If the promoter fails to discharge any other obligations imposed on him under this Act or the rules or regulations made thereunder or in accordance with the terms and conditions of the agreement for sale, he shall be liable to pay such compensation to the allottees, in the manner as provided under this Act." T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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