M/S MORANI CARS PVT. LTD., JAIPUR V. INCOME TAX OFFICER, WARD-6-5, JAIPUR

ITA 178/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4676 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA
• Keywords: TDS

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 178/JP/2019 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S MORANI CARS PVT. LTD. 14, BAJAJ NAGAR, JAIPUR. CUKE VS. THE ITO, WARD-6(5), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAFCM 1226 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : MISS. SUHANI MAHARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI K.C. GUPTA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 04/12/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 21/02/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-1, JODHPUR (CAMP AT JAIPUR) DATED 19.12.201 8 FOR THE ASSESSMENT YEAR 2010-11 WHEREIN THE SOLE GROUND OF APPEAL READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. AO AS WELL AS LD. CIT(A) ERRED IN DISALLOWING THE PAYMENT OF R ENT OF RS. 2,40,000/- WITHOUT CONSIDERING THE SUBMISSIONS OF ASSESSEE, WHICH IS UNJUSTIFIED AND LIABLE TO BE QUASHED. ITA NO. 178/JP/2019 M/S MORNAI CARS PVT. LTD. VS. ITO 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE COMPANY HAS PAID RENT OF RS. 2,40,000/- TO ONE OF ITS DIRECTORS FOR ITS REGISTERED OFFICE AT 14, BAJAJ NAGAR ENCLAV E, BAJAJ NAGAR, JAIPUR PURSUANT TO RENT AGREEMENT DATED 01.04.2008 THE ENQ UIRIES WERE CONDUCTED THROUGH INSPECTOR OF ACIT, CIRECLE-6, JA IPUR AND AS PER THE INSPECTORS REPORT, THE ASSESSEE COMPANY WAS USING THE SAID PREMISES JUST FOR ADDRESS PURPOSES AND NO BUSINESS ACTIVITIE S WERE BEING CARRIED OUT FROM THE SAID PREMISES. ACCORDING, A SHOW CAUSE WAS ISSUED TO THE ASSESSEE-COMPANY AS TO WHY THE RENT PAYMENT SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE COMPANY SUBMI TTED THAT IT IS MAINTAINING ITS REGISTERED OFFICE AT THE SAID PREMI SES AS REQUIRED UNDER THE COMPANY ACT WHERE ALL NECESSARY REGULATORY AND OTHER CORRESPONDENCE CAN BE RECEIVED. IT WAS FURTHER SU BMITTED THAT THE DIRECTOR HAS REPORTED THE RENT RECEIPTS AS PART OF HER TAXABLE INCOME WHEREIN THE TAX HAS BEEN PAID UNDER THE HIGHEST TAX SLAB. 3. THE SUBMISSIONS SO FILED BY THE ASSESSEE WERE CO NSIDERED HOWEVER, NOT FOUND ACCEPTABLE TO THE ASSESSING OFFI CER. AS PER THE ASSESSING OFFICER, IT IS A FACT THAT AS PER THE COM PANY ACT, REGISTERED OFFICE OF THE ASSESSEE COMPANY HAS BEEN DECLARED AT THE SAID PREMISES HOWEVER, AS PER THE FIELD ENQUIRY, IT HAS BEEN FOUN D THAT THE ASSESSEE- COMPANY IS USING THE PREMISES JUST FOR ADDRESS PURP OSE AND NO OFFICE IS BEING RUN AT THE SAID PREMISES. THE SAID PREMISES ARE RESIDENCE OF THE DIRECTORS OF THE ASSESSEE-COMPANY AND EVEN WHERE TH E CONTENTION OF THE ASSESSEE-COMPANY IS ACCEPTED, THE ASSESSEE HAS FAILED TO FURNISH LAY OUT OF THE PREMISES INDICATING THE AREA USED BY THE ASSESSEE ITA NO. 178/JP/2019 M/S MORNAI CARS PVT. LTD. VS. ITO 3 COMPANY AS ITS REGISTERED OFFICE. SINCE RUNNING AN OFFICE IS A COMMERCIAL AFFAIRS, IT REQUIRES SEPARATE ELECTRIC & WATER CONN ECTIONS AND AS PER THE RENT AGREEMENT, THE TENANT HAS TO BEAR THE ADDITION AL EXPENSES ON ELECTRICITY, WATER AND MAINTENANCE EXPENSES. THE AS SESSEE-COMPANY HAS NOT BROUGHT ON RECORD ANY EVIDENCE IN TERMS OF ELECTRIC BILLS & WATER BILLS TO PROVE ITS CONTENTION. IT WAS ACCORDINGLY H ELD THAT THE ASSESSEE- COMPANY HAS PAID EXCESS RENT OF RS. 2,40,000/- WHIC H IS NOT INCLINED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE-COMPANY AND EVEN OTHERWISE, THE SAID PAYMENT IS COVERED UNDER THE PROVISIONS OF 40A(2)(B) OF THE IT ACT AND ACCORDINGLY, THE SAID AMOUNT WAS DISALLOWE D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHICH HAS SINCE SUSTAINED THE SAID A DDITION. AS PER THE LD. CIT(A), THE RENT PAID TO THE DIRECTOR OF THE ASSESS EE WAS UNREASONABLE AS THERE WAS NO SEPARATE ELECTRIC AND WATER CONNECT ION IN THE NAME OF THE ASSESSEE-COMPANY AND AS PER PROVISION OF SECTIO N 40A(2)(B) OF THE ACT, ANY UNREASONABLE EXPENDITURE IS DISALLOWABLE. AGAINST THE SAID FINDINGS, THE ASSESSEE-COMPANY IS IN APPEAL BEFORE US. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ASSESSEE-COMPANY IS AN AUTHORIZED DEALER OF HYUNDAI CARS AND ENGAGED IN THE SALES AND SERVICE OF THE CARS. THE DIRECTORS OF THE ASSESSEE- COMPANY ARE REQUIRED TO SPEND TIME RIGHT FROM EARLY MORNING TO LATE EVENING IN SUCH CIRCUMSTANCES THERE ARE RUNNING THE IR OFFICE FROM RESIDENCE ALSO. FURTHER, THE ASSESSEE COMPANY MAINT AINS THE HEAD OFFICE AND REGISTERED OFFICE AT 14, BAJAJ NAGAR ENC LAVE, BAJAJ NAGAR, ITA NO. 178/JP/2019 M/S MORNAI CARS PVT. LTD. VS. ITO 4 JAIPUR AND ALL THE MEETING OF BOARD OF DIRECTORS AN D SHAREHOLDERS ARE HELD AT THIS PLACE ONLY. ALL THE CORRESPONDENCE FRO M THE INCOME TAX DEPARTMENT AND OTHER AUTHORITIES ARE RECEIVED AT TH IS ADDRESS ONLY. IN SUPPORT OF THE MEETINGS OF BOARD OF DIRECTORS AND T HE ANNUAL GENERAL MEETINGS, COPY OF THE MINUTE BOOKS WAS PLACED ON RE CORD. IT WAS SUBMITTED THAT THE RENT WAS SUBJECT TO TDS AND THE PAYMENT WAS MADE AFTER DEDUCTION OF TDS THEREON. IT WAS FURTHER SUBM ITTED THAT THE RENT WAS PAID TO ONE OF THE DIRECTORS OF THE ASSESSEE-CO MPANY WHO WAS UNDER THE HIGHEST TAX SLAB AND IN SUPPORT, COPY O F HER TAX RETURNS WERE SUBMITTED WHICH PROVES THAT THERE IS NO INTENT ION TO AVOID ANY INCOME TAX LIABILITY. IT WAS FURTHER SUBMITTED THAT THE AO INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND HAS DISALLOWED THE WHOLE OF THE RENT PAYMENT HOWEVER, THE ENTIRE EXPENSES CA NNOT BE CONSIDERED AS EXCESSIVE AND NO COMPARABLE CASE HAS BEEN SUBMIT TED AS TO WHY THE RENT PAYMENT WAS EXCESSIVE. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION SO MADE BY THE AO SHOULD BE DELETED. 6. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED O N THE ORDER OF LOWER AUTHORITIES AND HAS TAKEN US THROUGH ITS FIND INGS OF THE LOWER AUTHORITIES WHICH HAVE BEEN TAKEN NOTE OF AND NOT B EEN REPEATED FOR THE SAKE OF GRAVITY. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS PER THE RENT AGREEMENT DATE D 01.04.2008 ENTERED INTO BETWEEN THE ASSESSEE-COMPANY AND SMT. RESHMA MORANI, ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY AND AL SO THE OWNER OF THE PREMISES SITUATED AT 14, BAJAJ NAGAR ENCLAVE, BAJAJ NAGAR, JAIPUR, THE ITA NO. 178/JP/2019 M/S MORNAI CARS PVT. LTD. VS. ITO 5 ASSESSEE-COMPANY HAS TAKEN THE PREMISES AT THE FIRS T FLOOR CONSISTING OF AN OFFICE ALONG WITH ATTACHED TOILET FOR THE PURPOS E OF ITS BUSINESS FOR THE PERIOD OF 3 YEARS FOR MONTHLY RENT OF RS. 20,00 0/-. THEREFORE, IT IS NOT THE ENTIRE PREMISES WHICH HAVE BEEN TAKEN ON RE NT BY THE ASSESSEE- COMPANY RATHER THE PREMISES SITUATED AT FIRST FLOOR ONLY WHICH HAVE BEEN TAKEN ON RENT BY THE ASSESSEE-COMPANY FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, THE DIRECTOR OF THE ASSESSEE- COMPANY IS STAYING AT THE GROUND FLOOR AND THE FIRST FLOOR HAS BEEN FOR T AKEN ON RENT BY THE ASSESSEE COMPANY WHICH IS CLEARLY SPECIFIED IN THE RENT AGREEMENT. FURTHER, IT IS AN ADMITTED FACT AND WHICH HAS NOT B EEN DISPUTED BY THE REVENUE THAT THE SAID PREMISES ARE USED AS THE REGI STERED OFFICE OF THE ASSESSEE-COMPANY AS THE EVERY COMPANY REGISTERED UN DER THE COMPANY ACT IS STATUTORILY REQUIRED TO HAVE A REGIS TERED OFFICE WITHIN THE JURISDICTIONAL LIMIT OF THE CONCERNED REGISTRAR OF COMPANIES WHERE ALL STATUTORY AND OTHER CORRESPONDENCE CAN BE RECEI VED ON BEHALF OF THE COMPANY. FURTHER, ON PERUSAL OF THE MINUTE BOOKS O F THE ASSESSEE- COMPANY, IT IS NOTED THE MEETINGS OF BOARD OF DIREC TORS AND ALSO OF THE SHAREHOLDERS IN TERMS OF ANNUAL GENERAL MEETINGS AR E REGULARLY HELD AT THIS PLACE. THEREFORE, WE FIND THAT THE SAID OFFIC E PREMISES HAVE BEEN USED FOR THE PURPOSES OF ASSESSEE-COMPANYS BUSINES S AND IT HAS ESTABLISHED THE NECESSARY NEXUS OF THE RENT EXPENSE S BEING INCURRED FOR THE PURPOSE OF ITS BUSINESS. FURTHER, THE AO HAS IN VOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, IN THIS REGARD, IT IS ADMITTED FACT THAT THE RENT PAYMENTS HAVE BEEN MADE BY THE ASSESSEE CO MPANY TO ONE OF ITS DIRECTORS, HOWEVER, MERELY BECAUSE PAYMENT HAS BEEN MADE TO A RELATED PERSON WOULD NOT BE SUFFICIENT TO MAKE THE DISALLOWANCE U/S 40A(2)(B) OF THE ACT. THE ONUS IS ON THE REVENUE TO BRING ON RECORD ITA NO. 178/JP/2019 M/S MORNAI CARS PVT. LTD. VS. ITO 6 COMPARABLE INSTANCES WHEREIN THE RENT PAYMENT FOR S IMILAR PREMISES ARE THE LOWER THAN THE RENT PAID BY THE ASSESSEE-COMPAN Y. HOWEVER, THERE IS NOTHING ON RECORD WHICH HAS BEEN BROUGHT BY THE REVENUE TO HOLD THE PAYMENT AS EXCESSIVE. THEREFORE, IN LIGHT OF T HE AFORESAID DISCUSSION, THE DISALLOWANCE SO MADE BY THE ASSESSI NG OFFICER IS HEREBY DELETED AND THE SOLE GROUND BY THE ASSESSEE-COMPANY IS ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21/02/2020. * SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S MORANI CARS PVT. LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-6(5), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 178/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR.