I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 1 of 7 IN INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA Before Shri P.M. Jagtap, Accountant Member I.T .A. No. 1136/KOL/ 2015 Assessment Year: 2012-2013 Income Tax Officer,........................................................................Appellant Ward-30(3 ), Kolkata, Aayakar Bhawan Dakshin, 2, Gari ahat Ro ad So uth, 5 t h Floor, Kolkata-700 068 -Vs.- M/s. Vardant Pro jects,..................................................................Respondent 36/1A, 4 t h Floor, Garcha Road, Kolkata-700 019 [PAN:AAFFV 1602 A] & C.O. No.51/KOL/2015 (in I.T.A. No. 1136/KOL/ 2015 ) Assessment Year: 20 12-2013 M/s. Vardant Pro jects,...............................................................Cross Objec tor 36/1A, 4 t h Floor, Garcha Road, Kolkata-700 019 [PAN:AAFFV 1602 A] -Vs.- Income Tax Officer,......................................................................Respondent Ward-30(3 ), Kolkata, Aayakar Bhawan Dakshin, 2, Gari ahat Ro ad So uth, 5 t h Floor, Kolkata-700 068 Appearances by: Mrs. Sarbari Mukhopadhyay, Addl. CIT, D.R., for Department Shri K.M. Roy, FCA, fo r assessee Date of concluding th e hearing : Au gust 01, 2016 Date of pronouncing order : October 04, 2016 O R D E R This appeal is preferred by Revenue against order of ld. Commissioner of Income Tax (Appeals)-8, Kolkata dated 15.06.2015 and same is being disposed of along with Cross Objection filed by assessee being C.O. No. 51/KOL/2015. I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 2 of 7 2. In Ground No. 1 of its appeal, Revenue has challenged action of ld. CIT(Appeals) in deleting addition of Rs.36,39,053/- made by Assessing Officer by way of disallowance of charges paid by assessee for regularisation of unauthorized construction. 3. assessee in present case is partnership firm (treated as Association of Person by Assessing Officer), which is engaged in business of Builders and Promoters of Real Estate. return of income for year under consideration was filed by it on 28.09.2012 declaring total income of Rs.9,55,472/-. In Profit & Loss Account filed along with said return, sum of Rs.36,39,053/- was debited by assessee on account of charges paid for regularisation of unauthorized construction to Municipal Corporation. Since said amount was paid by assessee for deviation of normal Rules, Assessing Officer treated same to be penal in nature and made disallowance. 4. matter was carried before ld. CIT(Appeals) and after considering submissions made by assessee as well as material available on record, ld. CIT(Appeals) deleted disallowance made by Assessing Officer on account of charges paid to Kolkata Municipal Corporation for unauthorized construction for following reasons given in paragraph no. 4.5 of his impugned order:- 4.5. I find merit in submissions of appellant . I note that reliance placed by AO in Section 400(1) of KMC Act and Rule 25 is misplaced. Section 400(1) only provi des fo r demolition of unauth orized construction which is not present in appellant's case. Inst ead Rule 25 pro vides th at if deviation in sanctioned plan is within prescribed limits then person may get it regul arized by payment of prescribed fees. I therefore not e that KMC Act does not pro vide for payment of any "penalty". On perusal of KMC Act, 1980, I also came across Schedule-VI which lays down penalties fo r violation of provisions of KMC Act. On going th rough said Schedule, I find that no penalty h as been prescribed for deviation in sanctio ned plan of building. Section 400(1) or Rule 25 does not find any mentio n in said Schedule of penalties. I I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 3 of 7 therefo re agree with appellant that th e fees paid to KMC for deviation in sanctioned Plan was not in th e nat ure of penalty. I find th at KMC h as bifurcat ed th e penalties and fees . Th e penalties are prescribed in Schedule VI of KMC Act whereas th e fees are mentioned in Rules. In th e circumst ances I do no t agree with AO' s observation th at fees paid by appellant were penal in nature. In th e facts of present case and taking into consideration specific pro visions of KMC Act and its rules & regulations I concur wit h appellant that t he fees paid to KMC was in course o f business. fees were paid as prescribed in Rules. Furthermo re AO' s argument th at payment of fees decreased th e profit s from sale of building is also irrelevant in present factual matrix. Had fees not been paid appellant would have to demolish transformer which would have rendered building unsaleable in circumst ances even business expediency involved in payment cannot be doubted. I, therefo re, hold that payment of fees to KMC for regularizing deviation from sanctioned plan was not penal but compensato ry in nat ure and therefore regul ar business expenditure. I, accordingly, direct AO to delet e disallowance of Rs.36,39,053/- in full. Ground No . 1 is accordingl y allowed . 5. I have heard arguments of both sides on this issue and also perused relevant material available on record. Though ld. D.R. has relied on order of Assessing Officer in support of revenue s case that amount in question paid by assessee for regularizing unauthorized construction is not allowable as deduction being penal in nature, it is observed that amount in question was paid by assessee to KMC not for regularisation of unauthorized construction but for deviation in Sanctioned Plan, as rightly held by ld. CIT(Appeals) after taking into consideration relevant Rules of KMC Act, 1980. said amount thus was not paid as penalty by assessee for infraction of any law so as to attract disallowance as per Explanation to Section 37 of Act and ld. CIT(Appeals), in my opinion, was fully justified in deleting disallowance made by Assessing Officer on this issue. I, therefore, uphold his impugned order on this issue and dismiss Ground No. 1 of Revenue s appeal. I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 4 of 7 6. In Ground No. 2, Revenue has challenged action of ld. CIT(Appeals) in deleting addition of Rs.20,000/- made by Assessing Officer on account of Architect fees. 7. claim of assessee of having paid Architect fees of Rs.1,00,000/- to M/s. Archison Work, was examined by Assessing Officer during course of assessment proceedings. In this regard, he issued notice under section 133(6) to M/s. Archison Work, who in their reply confirmed of having received sum of Rs.80,000/- from assessee during year under consideration. difference of Rs.20,000/-, therefore, was disallowed by Assessing Officer. On appeal, ld. CIT(Appeals) deleted said disallowance for following reasons given in paragraph no. 5.3 of his impugned order:- 5.3. I have gone through facts of case, submissions of appellant and findings of th e AO. I find that amo unt of Rs.1 ,00,000/- debited in P&L A/c co mprised of advance of Rs.20 ,000/- paid to architect in earl ier FY 2010-11 and further payment of Rs.80,000/- made in t he relevant year in question. architect in his repl y his reply u/s 133(6) had only confirmed transaction of relevant year wherein appellant had paid Rs.80,000/- and deducted TDS of Rs.8,000/- AO never confronted appellant to expl ain its case and alleged difference of Rs.20,000/-. I, ho wever, find th at sum mentioned in t he repl y of architect u/s 133(6) fully reconciled with amount debited in appellant s P&L A/c. difference was o n account of advance of Rs.20,000/- paid by appellant in immediate preceding year which did not find mention in architect s reply. I, therefo re, hold that addit ion of Rs.20 ,000/- u/s. 69C was uncalled for and AO acco rdingly directed to delete same. G round No . 2 is therefo re allowed . 8. I have heard arguments of both sides on this issue and also perused relevant material available on record. As rightly held by ld. CIT(Appeals), disallowance of Rs.20,000/- on account of Architect Fees was made by Assessing Officer mainly relying on confirmation issued by concerned party without giving any I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 5 of 7 opportunity to assessee to offer his explanation in this matter. As clarified by assessee before ld. CIT(Appeals), sum of Rs.20,000/- was paid to concerned party on account of architect fees in earlier year as advance and same, therefore, was not reflected in confirmation received from said party. total payment made to said party on account of architect fees thus was Rs.1,00,000/- and same was rightly claimed by assessee as deduction in year under consideration. I, therefore, find no infirmity in impugned order of ld. CIT(Appeals) giving relief to assessee on this issue and dismiss Ground No. 2 of Revenue s appeal. 9. In solitary ground raised in its Cross Objection, assessee has challenged action of ld. CIT(Appeals) in upholding order of Assessing Officer taking its status as Association of Person instead of partnership firm. 10. During course of assessment proceedings, it was noticed by Assessing Officer that assessee-firm was constituted by two partners who are Hindu Undivided Family. He held that although HUF is person for purpose of Income Tax Act, it is not juristic person for other purposes including Partnership Act. He held that HUF, therefore, cannot enter into valid partnership and accordingly status of assessee-firm was taken by him as Association of Person for purpose of completing assessment for year under consideration. On appeal, ld. CIT(Appeals) upheld order of Assessing Officer on this issue by relying, inter alia, on decision of Hon ble Supreme Court in case of Agarwal & Company vs.- CIT reported in 77 ITR 10, wherein it was held that HUF cannot be partner in firm under Indian Partnership Act, 1932. I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 6 of 7 11. I have heard arguments of both sides and also perused relevant material available on record. ld. counsel for assessee has raised new contention in support of assessee s case on this issue that partners in assesese-firm are not HUF, but Kartas of HUF in their individual capacities. He has contended that no HUF thus is partner in assessee-firm and since Kartas of HUF are partners in their individual capacities, it is valid partnership firm under Partnership Law. Since this stand is taken by assessee for first time before Tribunal, I consider it fair and proper and in interest of justice to give opportunity to Assessing Officer to verify same. I, accordingly, set aside impugned order of ld. CIT(Appeals) on this issue and restore matter to file of Assessing Officer for deciding same afresh in accordance with law after taking into consideration new plea taken by assessee for first time before Tribunal. Cross Objection of assessee is accordingly treated as allowed for statistical purposes. 12. In result, appeal of Revenue is dismissed, while Cross Objection of assessee is treated as allowed for statistical purposes. Order pronounced in open Court on October 04, 2016. Sd/- (P.M. Jagtap) Accountant Member Kolkata, 4 t h day of October, 2016 Copies to : (1) Income Tax Officer, Ward-30(3 ), Kolkata, Aayakar Bhawan Dakshin, 2, Gari ahat Ro ad So uth, 5 t h Floor, Kolkata-700 068 (2 ) M/s. Vardant Pro jects, 36/1A, 4 t h Floor, Garcha Road, Ko lkata-7 00 019 I . T. . N o. 1 1 3 6 / KO L . / 2 0 1 5 Assessment year: 2012-2013 & C . O. N o. 5 1 / KO L / 2 0 1 5 ( i n I TA N o. 1 1 3 6 / KO L / 2 0 1 5 ) s s e s s m e n t Te r : 2 0 1 2 - 2 0 1 3 Page 7 of 7 (3) Commissioner of Income Tax(Appeals)-8, Kolkata; (4) Commissio ner of Income Tax- , (5) Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. Income-tax Officer, Ward-30(3), Kolkata v. M/s. Vardant Project