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TMI Blog2017 (8) TMI 1672X X X X Extracts X X X X X X X X Extracts X X X X ..... whole project cannot be approved by the approving authorities, as the same is subject matter of public safety. The penalty can be classified as two types; one charged for violation of law in the nature of offence, which cannot be pardoned by compounding and the second is charged for violation of certain rules which are not in the nature of offences and can be cured by compounding. In the case of housing/commercial projects, the corporation aware that there will be certain deviations at the time of approval and no project can be completed without any deviation. The question is, the extent of deviation. In case it is within the permissible limits, the approving authorities, allow with compounding the deviation by levying compounding fees. In the given case, the project was completed and the deviations are within the limits, for which the Bangalore Mahanagar Palike has approved the project by compounding fees, which is not in the nature of offence nor prohibition of any law. Hence, it is allowable u/s 37(1) of the Act. Adjustment proposed by the CIT will have impact on the tax credit available to the assessee in the subsequent AY. Hence, this ground is dismissed. Since there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax payable was accordingly determined at Rs. 1,27,01,189/-. Even if the said amount of Rs. 86,60,482/- were to be added to the total income determined under the normal provisions, the tax payable would work out to Rs. 65,54,047/- which is much below the tax determined u/s.115JB. As such the order passed by the AO without making the said disallowance was not prejudicial to the interests of revenue. In support of his contentions, the Ld. A.R. has cited the decision of Hon'ble Delhi High Court in the case of CIT Vs. Loknath Co., reported in 147 ITR 624, wherein it was held that the fee paid against the deviations in the approved building plan is an allowable deduction u/s.37 of the I.T. Act. It was further stated by him that the decision taken by the AO was based on the decision of the Delhi High Court which was in favour of the assessee and which should be followed as laid down by the Supreme Court in the case of CIT Vs. Vegetable Products Ltd., reported in 88 ITR 192. 4. After considering the contentions raised by the counsel with reference to the facts of the case and the relevant provisions of the Act, the CIT observed that the decision of the Hon'ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned assessment order was much more than the tax that would be payable under the normal provisions even after disallowance and adding of the said amount of Rs. 86,60,482/- is correct but still the impugned order is prejudicial to the interests of revenue since the correct assessment of the total income under the normal provisions by disallowing the said amount of compounding fine will have an effect of altering the tax credit under MAT provisions in the subsequent years. 4.2 In view of the above observations, the CIT held that the impugned order passed by the AO is not only erroneous but also prejudicial to the interests of revenue and accordingly, the impugned assessment order was revised u/s.263 and the AO is directed to disallow and add the amount of compounding fine of Rs. 86,60,482/- to the income determined and issue a revised computation accordingly. 5. Aggrieved by the order of the CIT, the assessee is in appeal before us raising the following grounds of appeal: 1. The order of the learned Commissioner of Income-Tax is erroneous both on facts and in law. 2. The learned Commissioner of Income-Tax erred in holding that there is an error in the order passed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the rules in the Motor Vehicle Act, it cannot be stated that assessee's payments of compounding fees is in violation of law. Since assessee is engaged in transporting of over dimensional capacities in its transport business, it is necessary business expense wholly for the purpose of Shri Bharat C. Gandhi business. Therefore, the same is allowable under section 37(1). CIT(A)'s order on this is confirmed. 7. Ld. DR, on the other hand, relied on the orders of revenue authorities and also relied on the following case law: 1. Modi Builders Vs. JCIT, [2015] 60 Taxmann.com 54 (Pune Trib.). The Tribunal held that compounding fee paid by the assessee, a land developer to the Municipal Corporation on account of deviations from original sanctioned plan was in the nature of penalty and therefore would not be allowable as deduction in view of provisions of Explanation to section 37(1). 2. CIT Vs. Mamta Enterprises, [2004] 266 ITR 356 (Kar.). The High Court has observed as under: The Finance (No.2) Act of 1998has inserted an Explanation to section 37 of the Income-tax Act, 1961, with retrospective effect from April 1, 1962. The Explanation makes it clear that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the nature of the amount paid on account of infraction of law as there was violation in the building plan of the assessee. Further, Finance (No.2) Act, 1998 has incorporated Explanation to section 37(12) which was made retrospectively with effect from 01/04/1962. According to the Explanation, expenditure incurred for any purpose which is an offence or which is prohibited by law, is not entitled for deduction. Thus, the amount paid by assessee to Municipal Corporation on account of compounding fee as compensation for condoning deviations from original sanctioned plan in view of the Explanation to section 37(1) would not be admissible. 8. Considered the rival submissions and perused the material facts on record as well as gone through the decisions cited at bar. The assessee has paid compounding fine to regularise the building plan. The payment of such compounding fine is penalty in the nature of an offence or which is prohibited by law. We have noticed that the decision on this count is divided among the various courts. The Hon ble High Courts Karnataka and P H have held the same as penalty in the nature of an offence. The other ITAT benches have given divergent views ..... X X X X Extracts X X X X X X X X Extracts X X X X
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