COMMISSIONER OF INCOME TAX Vs. PRUDENTIAL BUILDERS

JUDGEMENT

(1.) Pursuant to directions given by this Court under Section 256(2) of the Income- tax Act, 1961 (for short the 'Act'), the following questions have been referred by the Income-tax Appellate Tribunal, Delhi Bench 'B' (for short the Tribunal'):

(2.) Background facts in nutshell are as follows. Assessee is a partnership firm. For the previous year relevant to the assessment year 1974-75 assessee had filed a return declaring an income of Rs. 1,57,086.00 For the subsequent year, i.e., assessment year 1975-76, assessee filed its return declaring an income of Rs.2,30,515.00 Income- tax Officer noticed during the course of assessment proceedings that a partner of the assessee firm had misused the business premises situated at G-86 and G-63, Connaught Circus, New Delhi. These premises were to be used as residential premises but partners of the firm used them for commercial purposes. Therefore, assessee had to pay Rs. 13.605.00 and Rs.500.00 respectively for the two assessment years. Assessing Officer was of the view that the expenditure was in the nature of penalty and was not allowable. Matter was carried in appeal by the assessee before the Appellate Assistant Commissioner (in short the 'AAC'). It was submitted that the expenditure was made for business purposes and was as such allowable. AAC did not accept the plea. Matter was carried in further appeals before the Tribunal by the assessee. Tribunal, inter alia, came to the following conclusions:

(3.) We have heard learned counsel for revenue. There is no appearance on behalf of ssessee. Learned counsel for revenue submitted that Tribunal has not noticed the factual position correctly. In fact the partners have clearly indicated that the payments were made as damages to the DDA for unauthorised additions, alterations and misuse of the premises.