TaxTMI 
TaxTMI 
2012 (10) TMI 783
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.... addition made by Assessing Officer for Rs.4,67,950/-, towards payment made to MCD and considered by him, in the nature of capital expenditure. 5. On the facts and in circumstances of the case ld. CIT(A)- XXVIII, has erred in confirming disallowance of Rs.23,404/-, being 1/5th of conveyance expenses, made by the Assessing Officer on estimated basis. 6. On the facts and in circumstances of the case ld. CIT(A)- XXVIII, has erred in confirming disallowance of Rs.5,431/-, being 1/5th of vehicle maintenance expenses, made by the Assessing Officer on estimate basis. 7. On the facts and in circumstances of the case ld. CIT(A)- XXVIII, has erred in confirming disallowance of Rs.7,639/-, being 1/5th of telephone expenses, made by the Assessing Officer on estimate basis. 8. The appellant craves leave to add, alter, amend or forgo any of the grounds of appeal at the time of hearing." 2. Adverting first to ground no. 2 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.16,14,980/- filed on 12.09.2008 by the assessee, trading in iron and steel works, in the name and style of M/s Shyam Sunder Arun Kumar, was selected for scrutiny with the service o....
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....ase laws, CIT Vs. Abhishek Industries Ltd. 286 ITR 001 and Elmer Havell Electricals Vs. CIT, 227 ITR 549, S.A. Builders Ltd. Vs. CIT (2004) 269 ITR 535. I agree with the contention of the Assessing Officer, he has rightly disallowed interest amounting to Rs.47,650/-, I sustain the addition. Appeal on this ground is dismissed." 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld.AR on behalf of the assessee while reiterating their submissions before the ld. CIT(A) contended that the ld. CIT(A) was not justified in upholding the disallowance. Inter alia, the ld. AR relied upon decision in CIT vs. Century Flour Mills Ltd., 334 ITR 377(Mad.).On the other hand, the ld. DR supported the findings of the ld. CIT(A). 5. We have heard both the parties and gone through the facts of the case as also the decision relied upon by the ld. AR. As is apparent from the aforesaid facts, the AO disallowed interest of Rs.47,650/- @12% per annum on the amount of Rs.3,97,078/- paid to aforesaid three relatives on loan taken by the assessee on the ground that the assessee paid interest to the bank and on unsecured loans. Neither the date of advances nor the ....
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....ischarged the onus laid down upon them that borrowed funds had indeed been utilized for the purpose of its business so as to entitle it to claim deduction u/s 36(1)(iii) of the Act. In case the assessee had some surplus amount which, according to him, could not be repaid prematurely to its creditors, still the same were either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that these were diverted towards associate or sister concerns free of interest. This would result in not presenting the true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the associate or sister concerns/persons would be enjoying the benefits thereof. It cannot be held that the funds to the extent diverted to associate persons without charging any interest, were required by the assessee for the purpose of its business and loans to that extent were required to be raised. Unless the interest free loan goes to advance business interest of the assessee, there cannot be any commercial expediency. 5.1 In the instant case, the assessee failed to establish that the interest free adv....
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....en made in view of notification published by MCD on 5th September, 2009 in various newspapers in pursuance to judgment in the Supreme Court, M.C. Mehta Vs. Union of India and others CWP No.4677/1985 dated 16.2.2006. Accordingly, the assessee pleaded that the expenditure was incurred towards municipal charges and no new asset or enduring benefit had been obtained and, therefore, amount be allowed as revenue expenditure.. In response to another show cause notice dated 30th November, 2010, the assessee replied that charges paid to MCD could not be treated as capital nature. Inter alia, the assessee relied upon decisions in CIT Vs. K.K. Industries Pvt. Ltd. (1980) 125 ITR 218 (Calcutta) and CIT Vs. Suri Sons (1989) 177 ITR 406 (P&H). However, the AO did not accept the submissions of the assessee on the ground that the aforesaid charges were paid for violation of municipal laws. Therefore, invoking explanation to sec. 37(1) of the Act, the AO disallowed the amount of Rs.4,67,950/- while distinguishing the decisions relied upon by the assessee and allowed depreciation on the aforesaid amount, treated as capital in nature. 7. On appeal, the learned CIT(A) upheld the disallowance in the f....
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.... municipal laws and direction from Hon'ble Supreme Court came to make the payments. So facts of the present case are different from the case quoted by the appellant. In the case of CIT Vs. Suri Sons (1989) 177 ITR 0406, a plot of land was purchased to construct a building and municipal taxes paid on the land, were claimed as revenue expenditure. But in the present case no land was purchased to construct any building. In the quoted case, municipal taxes has been paid on land. But in the present case, payment has been made for shop. Therefore, facts of the quoted case are different from the present case. The appellant has further placed reliance on Full Bench judgment by Hon'ble Delhi High Court, in the case of Airport Authority of India Vs. CIT (Delhi). I have considered the submission of the appellant in this regard. The facts of the present case are different and distinguishable from the facts of the case of Airport Authority of India. The Assessing Officer disallowed the charges paid to MCD and claimed as revenue expenditure. The Assessing Officer further gave a finding that payments of these expenses resulted in the benefits of enduring and lasting nature. As such no new asse....
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....rect demolition and/or sealing of the properties being misused. Regarding residential properties used illegally for commercial purposes, Hon'ble Apex Court directed: "1. MCD shall within 10 days give wide publicity in the leading newspapers directing major violations on main roads (some instances of such violators and roads have been noted hereinbefore) to stop misuser on their own, within the period of 30 days. 2. It shall be the responsibility of the owner/occupier to file within 30 days an affidavit with Commissioner of MCD stating that the misuser has been stopped. 3. In case misuser is not stopped, sealing of the premises shall commence after 30 days, from the date of public notice, first taking up the violations on roads which are 80 ft. wide and more. All authorities are directed to render full assistance and cooperation. After expiry of 30 days from the date of public notice, electricity and water supply shall be disconnected. 4. Details of the Roads and the violations shall also be placed on the website by the MCD and copies also sent to Resident Welfare Associations of the area which should be involved in the process of sealing of misuser. The Commissioner of MCD shal....
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.... light of decision of Hon'ble Apex Court in MC Mehta(supra) ,finding violations of various laws including Municipal Laws, Master Plan and other plans as also Environmental laws. Apparently, as a result of public notice issued by MCD, violations of various municipal laws and Master Plan has been compounded and the assessee paid the aforesaid charges. The explanation appended to S.37(1) of the Act, invoked by the AO, was inserted by the Finance (No.2) Act, 1998 with retrospective effect from 1.4.1962 and reads as under: "37(1): Any expenditure (not being expenditure of the nature described in sections 30 to 36) and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'." Explanation: For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance....
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....rlier cases, summarised the position thus : "The nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be, necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business." The test laid down in Travancore Titanium Product's case [1966] 60 ITR 277 (SC) was modified in Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735 (SC), to the extent that" if the expenditure is laid out by the asseseee as owner-cumtrader, and the expenditure is really incidental to the carrying on of his business, it must be treated to have been laid out by him as a trader and as incidental to his business. In the instant case, amount was paid to the MCD to avoid sealing of premises i.e. to protect the asset in....
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....compounding fee as fine. A similar view was taken in Millennia Develops (P) Ltd. Vs. DCIT (2010) (Kar.). Here it may be pointed out that in Haji Aziz & Abdul Shakoor Brothers (1961) 41 ITR 350 (SC) relied upon by the Hon'ble Karnataka High Court in aforesaid decision in Mamta Enterprises (supra), their Lordships of the Hon'ble Supreme Court held that infraction of law is not a normal incident of business thus, proceedings launched against an assessee for an infraction of law cannot be called a commercial loss. Expenses which are permitted as deductions are such as are made for the purpose of carrying on the business and if a sum is paid by an assessee conducting his business because in conducting it he has acted in a manner which has rendered him liable to penalty for breach of laws, it cannot be claimed as a deductible expense. The assessee is expected to carry on the business in accordance with law. If the assessee contravenes the provisions of law to cut down the losses or to make larger profits while carrying on the business it was only to be expected that proceedings will be taken against the assessee for violation of the Act. The evasion of law cannot be a trade pursuit. In ....