Sri Srujana Educational Society, , Visakhapatnam V. The Income Tax Officer, Exemptions, Visakhapatnam

ITA 157/VIZ/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0287 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 05-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: C.R. HEMANTH KUMAR
• Keywords: TDS; Set aside; Bogus
• Section: 133A; 37(1); 201; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO S . 157 / VIZ /201 9 (ASST. YEAR : 20 15 - 16 ) M/S. SRI SRUJANA EDUCATIONAL SOCIETY , 7 - 11, SRUJANA LAYOUT, P . M . PALEM, VISAKHAPATNAM . V S . ITO (EXEMPTIONS), VISAKHAPATNAM PAN NO. AA C A S 2228 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C .R. HEMANTH KUMAR, FC A DEPARTMENT BY : SMT. SUMAN MALIK SR. DR DATE OF HEARING : 06 / 0 9 /201 9 . DATE OF PRONOUNCEMENT : 25 / 0 9 /201 9 . O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 6 , HYDERABAD , DATED 13 /0 2 /201 9 FOR THE ASSESSMENT YEAR 20 15 - 16 . 2. ALL THE GROUNDS RAISED IN THIS APPEAL ARE RELATED TO THE DISALLOWANCE OF RENT PAID TO SMT.S.N.ANURADHA AMOUNTING TO RS.9.30 LAKHS TOWARDS THE LEASE OF PREMISES BY THE ASSESSING OFFICER. 2 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) 3 . IN THIS CASE, A SURVEY U/SEC. 133 A WAS CONDUCTED ON 08/08/2007 IN THE PREMISES OF THE ASSESSEE AND FOUND CERTAIN INCRIMINATING MATERIAL TO SH OW THAT THE ASSESSEE - SOCIETY HAD SUPPRESSED THE RECEIPTS OF THE INSTITUTION . FURTHER, THE ASSESSING OFFICER A L S O FOUND THAT THE ASSESSEE HAS THE PAID THE RE N T OF RS. 19.80 LAKHS FOR THE IMPUGNED ASSESSMENT YEAR TO SMT. ANURADHA WHO IS ALSO THE SECRETARY AND CORRESPONDENT OF THE SOCIETY . AN AGREEMENT DATED 03/02/2014 WAS FOUND DURING THE SURVEY ACCORDING TO WHICH THE RENT PAYABLE WAS ONLY RS. 10.50 LAKHS , HENCE T HE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE BALANCE AMOUNT OF RS. 9.30 LAKHS PAID OVER AND ABOVE THE REGISTERED AGREEMENT SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE INCOME . I N RESPONSE TO WHICH, THE ASSESSEE FILED EXPLANATION OBJECTING FOR THE PROPOSED DISALLOWANCE. NO T BEING IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE THE ASSESSING OFFICER HELD THAT THE RENT PAID OVER AND A BOVE THE AGREEMENT DATED 03/02/2014 WAS EXCESSIVE AND ACCORDINGLY DISALLOWED THE SUM OF RS. 9.30 LAKHS AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4 . AGAINST THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) , BUT NONE APPEARED BEFORE HIM . THE LD. CIT(A) DECIDED THE APPEAL EXPARTE ON MERITS. THE LD.C IT(A) HELD THAT THE ASSESSEE HAD CLAIMED THE ADDITIONAL 3 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) EXPENDITURE TOWARDS RENT OVER AND ABOVE THE ACTUAL AMOUNT PAYABLE AS PER THE REGISTERED AGREEMENT TO THE EXT ENT OF RS. 9.30 LAKHS AND THEREFORE THE SAME I S NOT ALLOWABLE U/SEC. 37(1) OF THE ACT. ACCORDINGLY, CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE RELEVANT PART OF THE ORDER OF THE LD. CIT(A) WHICH READS AS UNDER: - 7.2.4 I HAVE CAREFULLY CONSIDERED THE GROUNDS OF APPEAL AND CONTENTIONS OF THE ASSESSEE. IT IS AN ADMITTED FACT THAT, DURING THE COURSE OF SURVEY PROCEEDINGS, ORIGINAL DOCUMENTARY EVIDENCE WAS FOUND IN THE FORM OF REGISTERED RENTAL AGREEMENT DATED 03.02.2014 (SUPRA) ENTERED INTO BETWEEN THE ASSESSEE SOCIETY AND SMT.AURADHA WHEREIN IT IS CLEARLY STATED THAT THE ANNUAL RENT PAYABLE TO SMT.ANURADHA IS ONLY RS.10,50,000/ WITH EFFECT FROM FY 2014 - 15 RELEVANT TO THE IMPUGNED AY 2015 - 16. ON THE OTHER HAND, THE ASSESSEE HAS PAID AND CLAIMED RENTAL EXPENDITURE OF RS. 19,80,000/ - IN THE RETURN OF INCOME FILED. 7.2.5 AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT THE OWNER OF THE PROPERTY IS NONE OTHER THAN THE SECRETARY AND CORRESPONDENT OF T HE ASSESSEE SOCIETY, BEING A RELATED PARTY WITHIN THE MEANING OF SECTION 40A OF THE ACT. AS FAR AS THE ASSESSEE'S CONTENTION THAT THE EFFECTIVE DATE OF RENTAL AGREEMENT HAS BEEN INADVERTENTLY TYPED AS FY 2014 - 15 RATHER THAN FY 2015 - 16, THE SAME APPEARS TO BE AN AFTERTHOUGHT INASMUCH AS THE ASSESSEE CAME UP WITH THE EXPLANATION SUBSEQUENT TO UNEARTHING THE ORIGINAL EVIDENCE BY THE DEPARTMENT IN THE FORM OF REGISTERED RENTAL AGREEMENT DATED 03.02.2014 (SUPRA) DURING THE COURSE OF SURVEY CONDUCTED U/S 133A OF THE ACT. OTHERWISE, THE ASSESSEE SHOULD HAVE EITHER EXPLAINED THE SAME TO THE AO DURING THE COURSE OF PENDING ASSESSMENT PROCEEDINGS, OR SUO MOTU RECTIFIED THE MISTAKE IN THE EFFECTIVE DATE OF RENTAL AGREEMENT, IF ANY, BEFORE THE DATE OF UNDERTAKING THE SU RVEY ACTION BY THE DEPARTMENT. FURTHER, THE ASSESSEE HAS NOT ADDUCED ANY OTHER EVIDENCE OF WHATSOEVER IN NATURE TO SUBSTANTIATE ITS CLAIM THAT THERE WAS A GENUINE MISTAKE IN TYPING THE EFFECTIVE DATE OF RENTAL AGREEMENT. 7.2.6 AT THIS JUNCTURE, IT IS ALSO INTERESTING TO NOTE THAT THE ASSESSEE IS TRYING TO INDICATE THAT THERE WAS ONE MORE RENTAL AGREEMENT APPLICABLE FOR THE FY 2014 - 15 RELEVANT TO 4 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) IMPUGNED AY 2015 - 16 WHICH IS OLDER THAN THE PRESENT ONE I.E. REGISTERED RENTAL AGREE MENT DATED 03.02.2014 (SUPRA), AND, AS PER SUCH AGREEMENT, THE RENT PAYABLE IS EXACTLY RS. 19,80,000/ - . HOWEVER, THE ASSESSEE HAS NOT ONLY FURNISHED DETAILS OF DATE OF ENTERING INTO SUCH RENTAL AGREEMENT, BUT ALSO FAILED TO PRODUCE COPY OF SUCH AGREEMENT F OR VERIFICATION DURING THE COURSE OF APPELLATE PROCEEDINGS. ALSO, IT IS AN ADMITTED FACT THAT, DURING THE COURSE OF SURVEY PROCEEDINGS, NO SUCH EVIDENCE OR OLD RENTAL AGREEMENT WAS FOUND BY THE DEPARTMENT. 7.2.7 FOR ARGUMENT SAKE, EVEN AFTER PRESUMING, BUT NOT ADMITTING, THAT THERE WAS AN OLD RENTAL AGREEMENT APPLICABLE FOR FY 2014 - 15 RELEVANT TO THE IMPUGNED AY 2015 - 16, IT IS NOT POSSIBLE TO BELIEVE THAT THE RENT PAYABLE DURING THE FY 2014 - 15 IS HIGHER THAN RENT PAYABLE DURING THE FY 2015 - 16. TO BE PRECISE, AS PER THE ASSESSEE'S VERSION, THE RENT PAYABLE FOR THE FY 2014 - 15 IS RS.19,80,000/ - WHEREAS RENT PAYABLE FOR SUBSEQUENT FY 2015 - 16 IS RS.10,50,000/ - . AS SUCH, THERE IS A REDUCTION IN THE RENTAL VALUE TO THE EXTENT OF RS.9,30,000/ - WITHIN A SPAN O F ONE YEAR, THAT TOO, WITHOUT THERE BEING ANY CHANGE IN THE TOTAL EXTENT OF PREMISES TAKEN ON RENT, WHICH IS UNBELIEVABLE BY ANY STRETCH OF IMAGINATION. 7.2.8 IN VIEW OF THE ABOVE, IT IS CLEARLY EVIDENT THAT THE ASSESSEE HAS DIVERTED ITS FUNDS TO THE SEC RETARY AND CORRESPONDENT OF THE ASSESSEE SOCIETY, BEING THE OWNER OF THE PROPERTY, IN THE GUISE OF RENTAL EXPENDITURE, THAT TOO, INFLATING THE SAME TO THE EXTENT OF RS.9,30,000/ - . UNDER THE CIRCUMSTANCES, I AM OF THE CONSIDERED OPINION THAT THE ASSESSEE HA S CLAIMED ADDITIONAL EXPENDITURE TOWARDS RENT, OVER AND ABOVE THE ACTUAL AMOUNT PAYABLE AS PER THE REGISTERED RENTAL AGREEMENT (SUPRA), TO THE EXTENT OF RS.9,30,000I - , AND, THEREFORE, THE SAME IS NOT ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT, AND ALSO TH E SAME IS CONSIDERED AS EXCESSIVE EXPENDITURE AND NOT ALLOWABLE IN TERMS OF THE PROVISIONS OF SECTION 40A OF THE ACT. THUS, THE GROUND OF APPEAL RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED. 5. DURING THE APPEAL HEARING, LD.AR SUBMITTED THAT THE ASSESSEE HAD TAKEN THE PREMISES ON LEASE FROM SMT. ANURADHA ON PAYMENT OF RENT OF RS.1,65,000/ - PER MONTH. SHE IS ALSO THE 5 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) SECRETARY AND CORRESPONDENT OF THE ASSESSEE - SOCIETY . A CCORDINGLY, FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D PAID THE SUM OF RS. 19.80 LAKHS AND THE SAME WAS CLAIMED AS DEDUCTION. THE LD.A.R. FURTHER SU B MITTED THAT T HE ASSESSEE HAS TAKEN THE VAST AREA OF 16000 SQ.FT OF BUILDING IN PLOT NO .1&2 (D NO.7 - 11) , SHRUJANA L AYOUT, BAKKANNA P ALEM, VISAKHAPATNAM AND THE RENT PAID TO THE OWNER IS REASONABLE . T HE ASSESSEE HAD ENTERED INTO REGISTERED RENT AGREEMENT ON 03/02/2014 FOR A SUM OF RS.75,000/ - P.M. HOWEVER, SUBSEQUENTLY, BOTH THE PARTIES HAVE AGREE D TO MAKE THE PAYMENT OF RENT @ 1.65 LAKHS P.M. AND ACCORD INGLY RENT IS BEING PAID TO THE OWNER @ 1. 65 LAKHS P.M. LD.AR FURTHER SUBMITTED THAT THE REGISTERED AGREEMENT WAS ENTERED INTO FOR RS. 75,000/ - P.M. FOR REDUCING THE STAMP DUTY AND THE SAID RENT OF RS. 19.80 LAKHS WAS PAID FOR THE YEAR WAS AS PER THE PREVAILING MARKET RATE IN AND AROUND THE A REA. ON THE LEASED PREMISES OF 16000 SQ.FT. , THE RENT PAID WORKS OUT TO RS.11 / - SQ.FT. WHICH IS REASONABLE AND THERE IS NO EXCESS RENT INVOLVED IN THIS CASE TO INVOKE PROVISIONS OF SECTION 40A OF THE INCOME TAX ACT . LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HA D PAID THE REN T ON WHICH TDS WAS A LSO DEDUCTED AS PER SECTION 194 - I OF THE ACT. IN SUPPORT, THE ASSESSEE FURNISHED THE COPY OF FORM NO . 26AS EVIDE NCING THE DEDUCTION OF TAX AT SOURCE O N 6 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) RS.1.65 LAKHS . T HE ASSESSEE ALSO FUR NISHED THE RETURNS OF INCOME FILED BY SMT. ANURADHA ADMITTING THE RENTAL INCOME OF RS.19.80 LAKHS FOR THE YEAR UNDER CONSIDERATION IN HER HANDS . THE LD.AR ARGUED THAT THE ASSESSEE HA D PAID THE RENT AS PER PREVAILING MARKET RATE AND THERE IS NO EXCESS , THEREFORE REQUESTED TO SE T ASIDE THE ORDERS OF LOWER AUTHORITIES AND ALLOW THE DEDUCTION. 6 . ON THE OTHER HAND, LD.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND ARGUED THAT SINCE , TH E RENTAL AGREEMENT SHOWS THE PAYMENT OF RENT OF RS. 75,000/ - P.M. THE RENT PAID OVER AND ABOVE THE REGISTERED VALUE , REQUIRED TO BE DISALLOWED AND ADDED BACK TO THE ASSESSEES INCOME A ND ACCORDINGLY REQUESTED TO UPHOLD THE ORDER OF THE LD. CIT(A). 7 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL PLACED ON RECORD. 8 . IN THE INSTANT CASE, A SURVEY U/SEC. 133 A WAS CONDUCTED AND D URING THE COURSE OF SURVEY, THE ASSESSING OFFICER FOUND RENTAL AGREEMENT EVIDENCING THE AGREED RENT OF RS. 75,000/ - P.M. FOR SCHOOL BUILDING. A S PER THE RENTAL AGREEMENT, RENT P AYABLE FOR THE YEAR UNDER CONSIDERATION WORKED OUT TO RS.9.00 LAKHS , HOWEVER THE AO ALLOWED A SUM OF RS.10.50 LACS AND DISALLOWE D THE BALANCE AMOUNT OF RS. 9.30 LAKHS. THE LD.AR SUBMITTED THAT THOUGH THE RENTAL AGREEMENT WAS ENTERED FOR A SUM OF RS. 75,000/ - P.M. , THE 7 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) ASSESSEE WAS PAYING THE RENT @ 1.65 LAKHS P.M. AS PER THE PREVAILING MARKET RATES IN AND AROUND THE AREA. THE SAID PAYMENT WAS AGREED BETWEEN BOTH THE PARTIES. THE ASSESSEE HAS TAKEN THE SCHOOL BUILDING OF 16000 SQ.FT. FOR WHICH THE REASONABLE RENT WOULD BE MORE THAN 1.65 LAKHS P.M. , HOWEVER, KEEPING IN VIEW OF THE FACT THAT THE OWNER BEING A SECRETARY AND CORRESPOND ENT OF THE ASSESSEE - SO CIE TY, IT WAS TAKEN FOR RS. 1.65 LAKHS P.M. W H I C H I S L E S S T H A N T H E MARKET R A T E . THE LD.AR FURTHER SUBMITTED THAT IN THE EARLIER YEAR ALSO THE RENT PAID WAS RS. 19.8 0 LAKHS FOR THE YEAR ENDED 31/03/201 4 WH I CH WAS ALLOWED BY THE ASSESSING OFFICER. SIMILARLY FOR THE YEAR ENDED 31/03/2012 AND 31/03/201 3 ASSESSEE HAD PAID RENT S OF RS.18.00 LAKHS PER YEAR WHICH WAS ALLOWED BY THE ASSESSING OFFICER. T HE ASSESSING OFFICER HAS ALLOWED THE PAYMENT OF RENT OF RS. 1. 50 LAKHS P.M. FOR APRIL AND MAY AND RESTRICTED THE RENT O F RS.75,000/ - P.M. FRO M JUNE TO MARCH, WHICH ESTABLISHES THE GENUINENESS AND PREVAILING OF THE MARKET RENT . 11 . WE HAVE GONE THROUGH THE RETURNS OF INCOME FILED BY THE ASSESSEE AS WELL AS THE RECIPIENT SMT. ANURADHA AND FIND THAT THE ASSESSEE PAID RENT OF RS. 19.8 0 LAKHS WHICH WAS ACKNOWLEDGED BY THE OWNER AND RECIPIENT SMT. ANURADHA AND THE SAME WAS ADMITTED TO TAX. IN THE EARLIER YEARS ALSO THE ASSESSEE HAS CLAIMED THE PAYMENT OF RENT OF RS . 19.80 LAKHS WHICH WAS 8 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) ALLOWED BY THE DEPARTMENT. THE ASSESSEE DEDUCTED THE TDS WHICH WAS EVIDENCED FROM FORM N O . 26AS ON THE ENTIRE RENT PAID TO THE OWNER. THE EVIDENCES PLACED BEFORE US ESTABLISHES THAT THE ASSESSEE H AD PAID THE RENT OF RS. 19.80 LAKHS WHICH WAS ADMITTED BY THE OWNER . IN THE EARLIER YEARS ALSO THE ASSESSEE HAS PAID THE RENTS @ 18.00 LAKHS PER ANNUM FOR THE YEAR ENDED 31/03/2012 & 31/03/2013 . THE LD. CIT(A) WAS OF THE VIEW THAT RENT PAID BY THE ASSESSEE WAS EXCESSIVE AS PER SECTION 40 A(2) OF THE ACT, BUT NO EVIDENCE OR MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE RENT PAID WAS EXCESSIVE FOR MAKING THE DISALLOWANCE U/SEC. 40A(2) OF THE ACT. NO COMPARABLE CASE OR COMPARABLE PREVAILING MARKET RATE S IN THE VICINITY OF SCHOOL BUILDING WAS BROUGHT ON RECORD . AS PER T HE RENT AGREEMENT, THE ASSESSEE HAS TAKEN THE BUILDING ON LEASE TO THE EXTENT OF 16000 SQ.FT. AND THE RENTAL VALUE WORKS OUT APPROXIMATELY TO RS. 11 .00 PER SQ.FT. APPEARS TO BE REASONABLE . THE ASSESSEE AND THE OWNER GOT REGISTERED THE LEASE AGREEMENT FOR RS. 75,000/ - PER MONTH AND AS STATED BY THE LD.AR IN THE RENT AGREEMENT RENT AL VALUE WAS UNDERSTATED TO AVOID THE STAMP DUTY. SUCH PRACTICE IS UNETHICAL, WHICH REQUI R ES TO BE ADDRESSED UNDER THE STAMPS & REGISTRATION ACT. A S PER THE EVIDENCE S PLACED BEFORE US, THE ASSESSEE IS PAYING THE RENT A T RS. 1.65 LAKH P.M. W ITHOUT HAVING BROUGHT ANY CORROBORATIVE EVIDENCE TO SHOW THAT 9 ITA NO. 157/VIZ/2019 ( M/S. SRI SRUJANA EDUCATIONAL SOCIETY ) THE RENT PAID WAS EXCESSIVE OR THE CLAIM OF THE ASSESSEE IS BOGUS, DISALLOWANCE IS NOT JUSTIFIED . FROM THE MATERIAL PL ACED BEFORE US WE FIND THAT THE CLAIM OF THE ASSESSEE FOR PAYMENT OF RENT OF 19.80 LAKHS IS ESTABLISHED WITH EVIDENCE AND NO DISALLOWANCE IS REQUIRED . ACCORDINGLY, WE, HOLD THAT THERE IS NO CASE FOR MAKING THE ADDITION AND WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. THUS, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. 12 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 2 5 T H DAY OF SEPT . , 201 9 . S D / - S D / - (V. DURGA RAO) ( D.S. SUNDER SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 5 T H SEPTEMBER , 201 9 . VR/ - COPY TO: 1. THE ASSESSEE M/S. S RI SRUJANA EDUCATIONAL SOCIETY, 7 - 11, SRUJANA LAYOUT, P.M. PALEM, VISAKHAPATNAM. 2. THE REVENUE ITO (EXEMPTIONS), VISAKHAPATNAM 3. THE CIT (EXEMPTIONS), HYDERABAD. 4. THE CIT(A) - 6, HYDERABAD. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM .