9911796707
TMI Blog2021 (12) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... entre, C.G. Road, Navrangpura, Ahmedabad. As per the agreement with the said company, the assessee has to bear fees, taxes and other cost or any other charges. Further, since the assessee was using rented premises, he had paid impact fee of Rs. 5,19,051/- on the property as required by the City Centre Owners Association on behalf of the owner. The assessee has made provision of the above but ultimately he has recovered Rs. 2,40,193/- from the owner and claimed expenditure of Rs. 2,78,858/-. However, the ld. AO did not accept this submission of the assessee. He was of the view that since the assessee was not owner of rental premises and impact fee being penal in nature levied by the municipal authority for regularizing illegal construction, and expenditure being capital in nature, the assessee has no locus to claim benefit of the same. The ld. AO accordingly did not allow the claim of the assessee, and added the same to the total income of the assessee. Dissatisfied with order of the ld. AO, assessee preferred appeal before the ld. first appellate authority, before whom, the assessee filed written submissions, which reads as under: "The order of assessment dated 26/12/2018, is pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses 278858 The Learned AO has disallowed the said expenses observing in Para 7 as follows: Para 7 Impact Fee During the year under consideration on perusal of balance sheet of the Assessee it is observed that the Assessee has credited its balance sheet by an amount of Rs. 519,051/- under the head "Provision of Impact Fee". However on the other side of the balance sheet i.e. is asset the Assessee has not shown any assets owned by the company against which impact fee is to be paid by the Assessee. Therefore the Assessee vide notice dated: 17.12.2018 was issued a Show Cause as to why the provision made under the head of Impact Fee should not be disallowed and be added to your total income. The relevant part is re-produced hereunder; Please find the following and showcause why the same should not be added/disallowed accordingly; 1 Rs. 5,19,051/- Provision of Impact fee The impact fee is born by the owner of the property and there is no corresponding assets shown in the balance sheet of the Prodigy System Software. The same is required to be added under section 68 of the Act. Against the above, the Assessee has replied vide letter dated: 20.12.2018, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply dated: 20/12/2018, the assessee has explained to Learned ITO the nature of expenses alongwith Rent Agreement and Notice of demand from the City Centre Properties Owners Association. The Assessee explained the it was liable to pay expenses related to rented premises under the provisions of Rent Agreement, as tenant. Thus nature of expenses and related Credit is explained, referred to in the Show Cause Notice. Once the nature of credit is explained, the Learned AO, without providing any further opportunity to the Assessee, has passed order presuming and stating that the expenses should be capitalized by the Owner of the Premise and same should be claimed while calculating Capital Gain on Sale/Transfer of the Property. This reasoning and observation of Learned AO for disallowance of expenses claimed by the Assessee, under section 30 of the Act, is entirely irrelevant. The amount is paid by the Assessee for its own business as explained in detailed I the letter dated 20.12.2018. Same is re-produced hereunder for your reference; Reply of Assessee 2 Provision for Impact Fee: In this connection, I would like to submit that I am running the business of software development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance against risk of damage or destruction of the premises. Explanation.-For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure. It is submitted that the Assessee is a tenant and amount of Impact Fee and Parking Charges and Administrative expenses are borne in capacity as Tenant. Thus amount is allowable as Rent under Section 30 of the Act. The Learned AO has grossly erred in considering same as Un-explained expenses and further as capital expenses incurred for an on behalf of the Owner. The Assessee has explained in detail business expediency and reasons for owing the expense and justified the expense for the purpose of the business. The Learned AO, has not considered the claim of Assessee for deduction under section 30 and straight away concluded that these are capital expenses of owner. This indicates the biased and prejudice mind of the AO. The order is vitiated on this ground. The Assessee has incurred only Part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by number of Income tax Appellant Tribunals and difference High Courts. The Hon'ble ITAT Surat has decided the matter in favour of Assessee on identical facts, in the matter of Shree Khodiyar Corporation Surat vs ACIT Circle 3 Surat (Appeal ITAT 1901/Ahd/2009) ITAT 25th September 2009. The copy of the Judgment is enclosed as Annexure 6 on Page Number_11 to 13 of Paper Book for your immediate reference. The decision of the Hon'ble ITAT is based on several other judgments mentioned in the decision. The Hon'ble ITAT has passed order allowing impact fee expenses, following decision of various other Judicial Authorities. The decision of Hon'ble Mumbai ITAT Bench A, in case of ACIT Central Circle 21, Mumbai vs layer Exports P Ltd. Reported in [2017] 88 Taxmann.com 620 (Mumbai ITAT), is also in favour of Assessee. The Hon'ble ITAT Mumbai has passed a details and speaking order in favour of Assessee observing that... The entire amount incurred on the construction of the property was legal, genuine and in accordance with law and therefore, admissible as business expenditure (Refer Annexure 7 on Page Number 14 to 14) Further Hon'ble Delhi High Court, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undersigned and same is true and correct translation of Gujarati Version of the said notices, to the best of my knowledge and belief. These are notices by the Association in Gujarati to the member of the association which was Annexure 2 (Page 5 to 6) of Paper Book of Letter dated: 11th April 2019. Payment of Impact Fee: Audited Annual Report of the Association for the year 2015-16 is enclosed, as Annexure 10 (Page 22 to 26) wherein inter-alia, Payment of Impact Fee Rs. 20,43,385/- (Rupees Twenty Lakh Forty Three Thousand Three Hundred and Eighty Five) is reported on the Expense side by the Association. Hope above is as per your requirements." 5. The ld. CIT(A) has gone through submissions of the assessee, but did not find favour, and rejected the same. 6. In response to the notice of hearing, no one has come present on behalf of the assessee. 7. With the assistance of the ld. DR, we have gone through the record carefully. Municipal authorities have levied an impact fee, and such expenses were to be borne by owner of the assessee's premises. The Revenue was of the view that this expenditure is penal in nature, and therefore, hit by Explanation-1 appended to section 37 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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