DCIT, Ludhiana V. M/s EBI Cremica Food Coatings (P) Ltd., Ludhiana

ITA 1189/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77045 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-04-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 27-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.1189/CHD/2013 ASSESSMENT YEAR: 2010-11 THE DCIT, VS. M/S EBI CREMICA FOOD COATINGS (P) L TD., C-III, LUDHIANA LUDHIANA PAN NO. AAACE3690D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.S. NAGAR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 21.04.2014 DATE OF PRONOUNCEMENT : 24.04.2014 ORDER PER SANJAY GARG, JM THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF LD. CIT(A) DATED 1.10.2013 RELATING TO ASSESSMENT YEAR 2010-11. 2. THE REVENUE HAS AGITATED THE DELETION OF ADDITIO N OF RS. 25,14,840/- WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF ENHANCED RENT PAID. 3. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE DURING THE YEAR HAD CLAIMED THE PAYMENT OF RENT OF RS. 36,69,000/- TO M/S CREMICA INDUSTRIES PVT. LTD IN COMPARISON TO RS . 8,85,000/- PAID LAST YEAR. WHEN ASKED FOR AN EXPLANATION IN THIS RESPECT, THE ASSESSEE EXPLAINED THAT THE RENT WAS PAID TO CREMICA INDUSTRIES LTD FOR USE OF BUILDING @ RS. 2.50 LAKHS PER MONTH FOR THE PERIOD FROM 1.4.2009 TO 31.3.2010 FOR A TOTAL APPROX. AREA OF 9650 SQUARE FEET. THE RENT WAS PAID AS PER THE AGREEMEN T BETWEEN THE PARTIES AND ALSO AS PER THE BOARDS RESOLUTION OF THE ASSESSEE COMPANY. THE ASSESSING 2 OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVE N BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAD BEEN CONTINUOUSLY IN CREASING THE RENT OF THE PREMISES IN DISPROPORTION TO THE REASONABLE APPRECI ATION IN RENAL VALUE OF THE PROPERTY. HE OBSERVED THAT THE RENT WAS INCREASED FROM RS. 9000/- PER MONTH TO RS. 26,000/- FROM 1.4.2001 WHICH WAS INCREASED RETR OSPECTIVELY VIDE MINUTES OF MEETING DATED 7.2.2007. THE RENT WAS INCREASED TO 3 0,000/- PER MONTH RETROSPECTIVELY BY THE SAME MINUTES OF THE MEETING FROM 01.04.2004. A LEASE DEED BETWEEN CREMICA INDUSTRIES PRIVATE LIMITED AND EBI CREMICA FOOD COATING PVT. LTD. WAS SIGNED ON 01.12.2008 FIXING M ONTHLY RENT AT RS. 1,50,000/-. HE NOTICED THAT THE RENT WAS BEING INCR EASED WITHOUT ANY COMMERCIAL EXPEDIENCY. MOREOVER THE PARTIES IN RENT AGREEMENT WERE ASSOCIATE CONCERNS. HE OBSERVED THAT THERE WAS NO REASON FOR INCREASE IN R ENT WITHIN TWO YEARS TO THE EXTENT OF APPROX. EIGHT TIMES ( FROM 30000/- P.M. T O 250000/- P.M.). HE FURTHER NOTICED THAT SINCE THE ASSESSEE HAD CLAIMED THAT T HERE WAS INCREASE IN AREA TAKEN ON LEASE DURING ASSESSMENT YEAR 2009-10, THE RENT @ RS. 60,000/-+ SERVICE TAX PER MONTH WAS ALLOWED BY THE ASSESSING OFFICER FOR A.Y. 2009-10. HE ACCORDINGLY, ASSESSED THE RENT FOR THE YEAR UNDER C ONSIDERATION I.E. FOR THE PERIOD FROM 01.04.2009 TO 31.03.2010 AT RS. 7,94,160/- (RS . 7,20,000/-+ SERVICE TAX). HENCE, RENT IN EXCESS OF RS. 7,94,160/- I.E. RS. 25 ,14,840/- (RS. 33,09,000/- RS. 7,94,160/-) WAS DISALLOWED BY THE ASSESSING OFFICER APPLYING PROVISIONS OF SECTION 40 A (2)(B) OF THE I.T. ACT AS THE LESSEE W AS AN ASSOCIATE CONCERN. 4. THE LD. CIT(A) DELETED THE ADDITION SO MADE BY T HE ASSESSING OFFICER OBSERVING THAT THE RENT WAS INCREASED BY THE ASSESS EE OUT OF COMMERCIAL EXPEDIENCY AND FURTHER THAT THE AREA OF THE RENTED PROPERTY WAS ALSO INCREASED. HE ALSO OBSERVED THAT SECTION 40A(2) WAS NOT APPLIC ABLE AS THE ASSESSEE COMPANY WAS NOT THE ASSOCIATE CONCERN OF THE LESSOR COMPANY M/S CREMICA INDUSTRIES PVT LTD. EVEN SHRI AJAY BECTOR, DIRECTO R OF THE COMPANY WAS HAVING ONLY 6.28% SHARE IN THE ASSESSEE COMPANY AND 7.13% SHARE IN THE LESSOR COMPANY, HENCE, SECTION 40A(2) WAS NOT ATTRACTED. HE THEREFORE, DELETED THE 3 ADDITIONS SO MADE BY THE ASSESSING OFFICER. THE RE VENUE IS THUS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE LD. REPRESENTATIVE OF THE PART IES AND ALSO GONE THROUGH THE RECORDS. 6. THE LD. AR OF THE ASSESSEE FAIRLY STATED THAT TH E IDENTICAL ISSUE IN THE CASE OF THE ASSESSEE ITSELF, HAD COME UP FOR CONSIDERAT ION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL PERTAINING TO IMMEDIATELY PR ECEDING ASSESSMENT YEAR I.E. A.Y. 2009-10. THE ASSESSEE FOR THE SAID YEAR HAD CL AIMED THAT THE RENT WAS INCREASE IN RENT ON ACCOUNT OF INCREASE IN THE REN TED AREA OF THE PROPERTY.. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. REPRESENTATI VES OF THE PARTIES, THE COORDINATE BENCH OF THE TRIBUNAL OBSERVED THAT THE ACTUAL AREA WHICH WAS ON RENT WITH THE ASSESSEE WAS NOT MENTIONED IN THE LEA SE DEED. THE ISSUE WAS THEREFORE SET ASIDE TO THE ASSESSING OFFICER WITH A DIRECTION TO GIVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLA IM THAT HOW MUCH AREA HAD BEEN TAKEN ON LEASE BY PRODUCING RELEVANT EVIDENCE AND THEREAFTER TO DECIDE THE SAME ACCORDINGLY. 7. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE H AS CLAIMED FURTHER INCREASE IN RENT FROM RS.1.5 LAKH PER MONTH TO RS.2 .5 LAKHS PER MONTH. IT IS NOT THE CLAIM OF THE ASSESSEE THAT THERE IS ANY INCREAS E IN THE RENTED AREA FOR THIS YEAR. THE CONTINUOUS SHARP INCREASE IN THE RENTAL, ON THE FACE OF IT, DOES NOT SEEM TO BE JUSTIFIED TO US. EVEN THE OBSERVATION OF THE CIT(A) THAT SECTION 40A(2) IS NOT ATTRACTED IS ALSO WRONG. THIS IS AN ADMITTED FACT THAT BOTH THE LESSOR AND LESSEE COMPANY HAVE COMMON DIRECTORS AND EVEN FROM THE FACTS IT IS ESTABLISHED THAT THE ASSESSEE COMPANY IS A GROUP/AS SOCIATE COMPANY OF M/S CREMICA INDUSTRIES PVT. LTD. EVEN THE OBSERVATION O F THE CIT(A) THAT THE RENT WAS INCREASED OUT OF COMMERCIAL EXPEDIENCY IS ALSO WRONG AS NO SUCH EVIDENCE REGARDING COMMERCIAL EXPEDIENCY HAS BEEN GIVEN BY T HE ASSESSEE COMPANY. 4 HOWEVER, THE FACT WHICH MAY BE NOTED THAT THE ASSES SING OFFICER WHILE DISALLOWING THE CLAIM OF THE ASSESSEE HAS NOT TAKEN INTO CONSIDERATION THE ANNUAL LETTING VALUE, FAIR MARKET RENTAL VALUE OF THE PROP ERTY OR RATEABLE MUNICIPAL VALUE OF THE PROPERTY. WITH THE PASSAGE OF TIME, CE RTAIN NOMINAL INCREASE AS PER THE INDEX INFLATION IN THE VALUE OF PROPERTY ETC IS QUITE JUSTIFIABLE. THE ISSUE FOR THE IMMEDIATE PRECEDING YEAR HAS ALREADY BEEN SET A SIDE BY THE COORDINATE BENCH OF THE TRIBUNAL TO THE ASSESSING OFFICER. TA KING INTO CONSIDERATION THE OVERALL FACTS AND CIRCUMSTANCES, THE IMPUGNED ORDE R OF THE CIT(A) IS HERBY SET ASIDE. THE ISSUE IS REMANDED BACK TO THE FILE OF TH E ASSESSING OFFICER FOR FRESH ADJUDICATION WITH A DIRECTION TO ASCERTAIN THE ANNU AL LETTING VALUE OF THE PROPERTY TAKING INTO CONSIDERATION THE PAST RENT, T HE POSSIBLE INCREASE IN THE RENTAL VALUE OF THE PROPERTY WITH THE PASSAGE OF TI ME, THE ANNUAL FAIR RENTAL VALUE OF THE PROPERTY AS WELL AS MUNICIPAL RETEABLE VALUE OF THE PROPERTY AND THEREAFTER TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW. NEEDLE SS TO SAY THAT ASSESSING OFFICER WILL GIVE PROPER OPPORTUNITY TO THE ASSESSE E TO REPRESENT ITS CASE AND TO FURNISH EVIDENCES, IF ANY, IN SUPPORT OF CLAIM OF T HE RENTAL VALUE OF THE PROPERTY. 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24.04.20 14 SD/- SD/- (T.R.SOOD) (SANJAY GARG) ACCOUNTANT MEMER JUDICIAL MEMBER DATED : 24 TH APRIL, 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSTT REGISTRAR ITAT, CHANDIGARH 5