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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 ..... and prejudicial to the interests of revenue as the AO while passing the impugned order has not disallowed the amount of Rs. 86.60 lakhs which was paid by the assessee towards 'Compounding Fine' and penalty to the Bangalore Mahanagar Palike and claimed it as an allowable expenditure in its profit & loss account under the name "Building Approval Fees". The CIT, therefore, was of the view that as this amount represented the compounding fine and penalty, it is not allowable for a deduction as per explanation below sec. 37(1) of the I.T. Act, 1961. Accordingly, a show cause notice dt. 16.02.2015 was issued proposing to revise the assessment. 3. In response to the show cause notice issued, the ld. AR of the Assessee attended on 17.03.2015 & 20.11.2015 and filed written submissions seeking to drop the proposed action. In the written submissions, the A.R. has given the following reasons against the proposed action: "(a) The said payment was made for regularization of a deviation in the building plan which was within the permissible limits and it was not in respect of an offence. Hence, explanation (1) to sec. 37(1) has no application to the facts of its case. (b) For the A.Y u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October, 2003 i.e. after the incorporation of the explanation below sec. 37(1) of the I.T. Act. In fact the decision in the case of Loknath & Co. was referred in the judgment of the Hon'ble Karnataka High Court in the case of Mamta Enterprises and was distinguished. Further the decision of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., quoted by the A.R. is applicable when two different High Courts take totally divergent views on the same issue and in the same facts. However, in the present case, the Hon'ble High Courts at Delhi & Karnataka have decided the issue under different statutory Provisions namely one before the incorporation of the explanation below sec. 37(1) and the other after the incorporation of the said explanation. Therefore, the CIT opined that the applicable law in the facts of the assessee's case is that of the decision rendered by the Hon'ble Karnataka High Court in the case of Mamta Enterprises, which is against the assessee. Therefore, he held that the assessment order passed by the DCIT, Circle-2(1), Hyderabad, under sec. 143(3) dt. 13.03.2014 is erroneous. 4.1 Further, the CIT observed that though the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture (P) Ltd., [2016] 71 Taxmann.com 115 (Pune). In this case it has been observed as under: "Now, coming to the stand of authorities below that such payment is covered by Explanation to section 37(1). The said stand of Commissioner (Appeals) has no merit. The Explanation to section 37(1) was inserted in respect of any expenditure incurred for any purpose which was an offence or which was prohibited by law. The Circular of Reserve Bank of India itself provided that where the assessee had committed an irregularity while dealing in foreign earnings or expenditure outgoes, then such an action of applicant could be compounded as per Rules and Regulations provided in the said Circular. It is not a case where the assessee has been held to have committed an offence or the amount has been paid for purpose, which was prohibited in law, hence the provisions of Explanation to section 37(1) are not attracted. In view thereof, the assessee is entitled to the claim of deduction under section 37(1)." 2. DCIT Vs. Bharat C. Gandhi, [2011 10 Taxmann.com 256 (Mum.). The bench has held in this case as under: "9. In view of the legal principles established above and also noticing that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the municipal corporation is a penalty and is not deductible u/s 37." 3. Millennia Devleopers (P) Ltd., Vs. DCIT, [2010] 188 Taxmann 38 (Kar.) "In this case, the Hon'ble High Court held that the so called regularisation fee in terms of the bye-law 6.0 of the Bangalore Mahanagara Palike Bye-laws is a provision made for regularizing the deviations/violations as enabled under section 483(b) of the Karnataka Municipal Corporation Act, 1976. The language of section 483(b) leaves one with no doubt as to the nature of the expenditure, as it is only an amount paid for compounding an offence. The amount paid for compounding an offence is inevitably a penalty in terms of section 483 itself and the mere fact that it has been described as compounding fee cannot, in any way, alter the character of the payment which payment is in the nature of penalty. As it was in the nature of penalty, the law too is well-settled to hold that it could never be an amount in the nature of an expenditure which would qualify for deduction u/s 37 and, therefore, the appeal was to be dismissed." 3. Nahar Spinning Mills Ltd., Vs. CIT, [2014] 49 Taxmann.com 565 (P&H). In this case, the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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