Moushumi Bhattacharya, J. - (1.) This is an appeal filed by the Revenue against an order dated 2nd December 2015 passed by the Income Tax Appellate Tribunal in ITA No.1739/Kol/2013 relating to the assessment year 2005-2006. The following substantial questions of law were framed in the appeal which are set out below: "(a) Whether on the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal, 'B' Bench Kolkata erred in law as well as in facts in holding that payment of interest on delayed delivery of plot was not in the nature of interest as defined in Section 2(28A) of the Income Tax Act, 1961 and therefore, the provision of Section 40(a)(ia) of the Income Tax Act, 1961 was not applicable? (b) Whether the impugned order is bad, arbitrary, illegal, perverse and the same is nothing but a total non-application of mind of the Income Tax Appellate Tribunal, Kolkata and the same is liable to be set aside and/or quashed?"
(2.) The appellant (assessee, in this case) is a company engaged in the business of development of land, housing and infrastructural facilities in New Town Projects, Kolkata. The entire shares of the assessee are owned by the Government of West Bengal and all the directors of the assessee are nominated by the Government of West Bengal.
(3.) In the course of assessment proceedings for A.Y. 2005-06, a sum of Rs.9,71,17,977/- was debited in the profit and loss account of the assessee. This sum was claimed as deduction in computing the income of the assessee under the head "income from business". The nature of this expenditure was explained by the assessee before the Assessing Officer (AO) as "compensation for delay, delivery of plots". The explanation given was that as per the offer of allotment of plot of land developed by the assessee, the assessee is under an obligation to hand over physical possession of the plot to the allottees on payment of the entire cost of the land. If possession of handing over of the plot is delayed for more than six months from the scheduled date of possession, the assessee has to pay interest on instalments already paid by the allottee during such extended period at the prevailing fixed term deposit rates for similar period offered by the State Bank of India. The relevant clause in the allotment letter (Clause 7), which was the subject matter of interpretation before the AO, the Commissioner as well as the Tribunal is set out below: "7. Physical possession of the plot would be handed over only after full payment of the land price and registration of sale deed by the competent Authority. If, however, possession of plot is delayed by HIDCO by more than 6 (six) from the schedule date of possession the Corporation shall pay interest on instalments already paid by the allottee during such extended period at the prevailing fixed term deposit rates for similar period offered by the State Bank of India." [The Clause, as reproduced by the Revenue in the appeal does not specify whether the stipulated time is six weeks, six months or six years.];