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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 ..... lar circumstances and not out of any liability arising from invoking of penal provisions of any statute. Thus, the compensation paid by the assessee cannot be held to be penal in nature. Thus we hold the expenditure incurred by the assessee on payment of compensation to the flat owners for delay in possession as allowable. - Decided in favour of assessee - ITA No. 1471/PN/2014 - - - Dated:- 16-9-2016 - Shri R. K. Panda, AM And Shri Vikas Awasthy, JM Assessee by : Shri Vipin Gujrathi Revenue by : Shri P. L. Kureel ORDER Per Vikas Awasthy, JM This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Pune dated 31-01-2014 for the assessment year 2009-10. 2. The brief facts of the case as emanating from records are: The assessee is a promoter, builder and developer. The assessee filed his return of income for the assessment year 2009-10 on 30-10-2009 declaring total income of ₹ 54,75,530/-. The case of the assessee was selected for scrutiny and accordingly first notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was issued to the assessee on 28-09-2010. The assessee develope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handover of the possession of flats on or before 31-05-2008. However, the assessee could not complete the construction up to 2009. A meeting was called with the flat holders on 04-01-2009 wherein the assessee had agreed to pay compensation to the flat owners for delayed possession if the flats were not delivered by 31-03-2009. Thereafter, on 17-01-2009 second meeting of flat owners was called wherein it was reviewed that the assessee by any means could not complete the construction of flats by 31-03-2009. It was mutually agreed that the assessee would pay interim compensation of ₹ 40,000/- to each flat holder. The ld. AR referred to page 28 of the paper book to show the list of flat holders and the amount received from the respective flats holders as on 31-03-2009. The ld. AR contended that the amount paid by the assessee to the flat holders was compensatory in nature and not in the nature of penalty. The authorities below have erred in observing that the compensation paid by the assessee was not in accordance with the terms and conditions of agreement entered into with the flat holders. Although there was no covenant in the agreement for payment of compensation for delay in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MI 251 ITAT Delhi). The ld. AR further placed reliance on the decision of Mumbai Bench of the Tribunal in the case of M/s. Malabar Industries Pvt. Ltd. Vs. ITO in ITA No. 3568/Mum/2006 decided on 18-12-2009 (reported as 2009 (12) TMI 937 ITAT Mumbai) to buttress his argument that the compensation paid was on account of business expediency. 5. Au contraire Shri P.L. Kureel representing the Department strongly defended the findings of Commissioner of Income Tax (Appeals). The ld. DR contended that the assessee has paid the amount to flat holders not out of any contingent liability but out of self assumed liability which is not allowable as per the provisions of Income Tax Act. The ld. DR further submitted that the assessee has not been able to show commercial expediency for the payment of compensation and there is no covenant in the agreement executed between the flat holders and the assessee with respect to the payment of compensation for delay in handing over of possession of flats. The ld. DR contended that another facet of the amount paid by the assessee to the flat owners is that if it is paid under the provisions of Maharashtra Ownership Flat Act, 1963 the amount paid is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant provisions of section 8 of the Maharashtra Ownership Flats Act are reproduced here-in-under : 8. Refund of amount paid with interest for failure to give possession within specified time or further time allowed. If (a) the promoter fails to give possession in accordance with the terms of his agreement of a flat duly completed by the date specified, or any further date or dates agreed to by the parties, or (b) the promoter for reasons beyond his control and of his agents, is unable to give possession of the flat by the date specified, or the further agreed date and a period of three months thereafter, or a further period of three months if those reasons still exist, then, in any such case, the promoter shall be liable on demand (but without prejudice to any other remedies to which he may be liable) to refund the amounts already received by him in respect of the flat (with simple interest at nine per cent per annum from the date he received the sums till the date the amounts and interest thereon is refunded), and the amounts and the interest shall be a charge on the land and the construction if any thereon in which the flat is or was to be constructed, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serious view against the delay in handing over of possession of flats by the builders. The Consumer Courts as well as Civil Courts are directing the builders, promoters to pay heavy compensation to the flat holders for delay in handing over of possession of flats. Recently, the Parliament has enacted the Real Estate (Regulation and Development) Act, 2016 to leash the builders and put on hold the unethical practices followed by developers to harass the consumers. The Real Estate Act also aim to curb the practice of delay in handing over of possession of flats to the flat holders. Section 18 of the Real Estate (Regulation and Development) Act, 2016 provides for the payment of compensation by the developer to the allottees of the flats in case the developer fails to complete or is unable to give possession of the apartment/flat, in accordance with the terms of the agreement on or before the specified date. The relevant extract of the provisions of section 18 are reproduced here-in-under : 18. (1) If the promoter fails to complete or is unable to give possession of an apartment, plot or building,- (a) in accordance with the terms of the agreement for sale or, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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