PRADEEP K NALAWADE HUF, MUMBAI V. ITO WD 18(2)(1), MUMBAI

ITA 2150/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2309 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: ISHWAR RATHI
• Keywords: Depreciation; Fair market value

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC MUMBAI BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER. . / ITA NO. 2150/MUM/2014 / ASSESSMENT YEAR 2008-09 PRADEEP K. NALAWADE, HUF 80,BHATIA BHAVAN,GOKHALE ROAD, D S BADREKAR MARG, DADAR(W),MUMBAI - 400012 . / VS. THE ITO WARD 18 (2) (1) MUMBAI, PIRAMAL CHAMBERS, PAREL, MUMBAI- 400012. ./ ./ PAN/GIR NO. : AABPA7286R ( / APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY SHRI ISHWAR RATHI RESPONDENT BY : SHRI. B.S.BIST / DATE OF HEARING : 02/12/2015 / DATE OF PRONOUNCEMENT : 04/12/2015 / O R D E R PER A.K.GARODIA, AM: THIS IS AN APPEAL BY THE ASSESSE DIRECTED AGAINST THE ORDER OF LD. CIT (A) - 16 MUMBAI, DATED 26.12.2013 FOR ASSESSMENT YEAR 2 008-2009. THE GROUNDS RAISED BY THE ASSESSEE READ AS UND ER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING TH E DISALLOWANCE MADE U/S 40 A (2) (B) BY THE ASSESSING OFFICER AMOUNTING TO RS. 6,88, 870/- OUT OF MACHINE HIRE CHARGES PAID TO THE RELATED PARTY. . / ITA NO. 2150/MUM/2014 / ASSESSMENT YEAR 2008-09 2 2. FURTHER WITHOUT PREJUDICE TO THE ABOVE GROUND OF APPEAL NO.1, THE ASSESSING OFFICER HAS ADDED RS. 6, 88,870/- TO THE TOTAL INCOME AT PA GE 5 OF THE ORDER TOWARDS DISALLOWANCE MADE U/S 40A (2) (B) WHEREAS THE SAME WAS WORKED OUT AT RS. 6, 68,870/- AT PAGE 4 OF THE ASSESSMENT ORDER, HENCE THE AO SHOULD BE DIRECTED TO RECTIFY THE EXTRA DISALLOWANCE OF RS. 20,000/-. 3. YOUR APPELLANT CRAVES TO CONSIDER EACH OF THE A BOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO FURNISH FRESH AND/ OR DETAILED GROUNDS OF APPEAL. 2. IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT AS PER PAGE 3-4 OF THE ASSESSMENT ORDER, THE AO STATED THAT ONLY INTEREST ON LOAN PAID BY THE OWNER OF THE MACHINERY IN QUESTION SHRI. PRADEEP NALAWADE , (INDIVIDUAL) RS. 345,246/- AND DEPRECIATION ON MACHINERY IN QUESTION OF RS. 5, 05,884/- ARE THE EXPENSES INCURRED OF RS. 8, 31,130/- ON MACHINE RY WHICH IS LET OUT TO HUF. HOWEVER, HE RECOVERED THE RENT OF RS. 15LACS FOR HI RING OF THE MACHINERY. 3 HE FURTHER DREW MY ATTENTION TO PAGE NO. 3 OF TH E ORDER OF THE LD CIT(A), WHERE, IT IS NOTED THAT THE ORIGINAL COST OF MACHI NERY WAS RS. 83.98 LACS PLUS RS. 30 LACS OF EXISTING MACHINERY AT THE TIME OF I NITIAL HIRING IN ASSESSMENT YEAR 2005-2006. IT IS ALSO NOTED BY THE LD CIT (A) THAT MACHINERY WHERE WORTH OF RS. 1.14CRORES AND RENT IS ONLY 13.16% OF TOTAL COST OF MACHINERY. 4. HE FURTHER SUBMITTED THAT THE PAYMENT OF INTER EST ON LOAN OF RS. 3,25,246/-AND TOTAL EXPENSES OF RS. 831.130/- INCUR RED BY THE OWNER OF THE MACHINERY FOR ACQUIRING THE MACHINE WERE CONSIDERED BY THE AO TO WORK OUT FAIR MARKET VALUE OF THE RENT BUT INSTEAD OF INTER EST ON LOAN ONLY, HE SHOULD HAVE CONSIDERED INTEREST ON TOTAL INVESTMENT OF RS . 1.14 CRORES ALONG WITH DEPRECIATION ON INVESTMENT BY THE OWNER OF MACHINE AND IF THIS IS DONE, THE PAYMENT OF RENT OF RS. 15 LACS IS NEITHER EXCESSIVE NOR UNREASONABLE. AS AGAINST THE LD DR OF THE REVENUE SUPPORTED THE ORDE R OF THE AUTHORITIES BELOW. . / ITA NO. 2150/MUM/2014 / ASSESSMENT YEAR 2008-09 3 5. HE ALSO SUBMITTED THAT AS PER THE REPLY SUBMITT ED BY THE ASSESSEE BEFORE THE AO AS PRODUCED BY THE AO IN PARA 4 OF THE ASSES SMENT ORDER, THE PAYMENT OF RENT OF RS. 15LACS IS COMPUTED AFTER CONSIDERIN G THE AMOUNT OF THE REPAYMENT OF THE LOAN TO SARASWAT BANK AND OTHER P RIVATE FINANCIAL INSTITUTIONS. HE SUBMITTED THAT THE REPAYMENTS OF L OAN SHOULD NOT BE CONSIDERED FOR WORKING OUT FAIR MARKET VALUE OF REN T. 6. I HAVE CONSIDERED THE RIVAL SUBMISSION. IT MAY BE THAT THE BASIS OF CALCULATION OF RENT PAID BY THE ASSESSEE TO THE OWN ER OF MACHINERY MAY BE DEFECTIVE BECAUSE REPAYMENT OF LOAN HAS BEEN TAKEN INTO CONSIDERATION. BUT THAT ALONE CANNOT BE A BASIS TO SAY THAT THE RENT I S EXCESSIVE. I HAVE TO SEE THE REASONABLENESS OF RENT PAYMENT. NO COMPARATIVE CASE HAS BEEN BROUGHT ON RECORD BY ANY SIDE. HENCE I EXAMINE THE REASONABLEN ESS ON OTHER BASIS. I FEEL THAT ONE BASIS MAY BE THAT IF THE MACHINE IS PURCHA SED BY THE ASSESSEE BY BORROWING FUNDS, INTEREST IS TO BE PAID ON ENTIRE I NVESTMENT. SECOND BASIS MAY BE THAT FULL OR PART MAY BE OUT OF OWN FUNDS. IN TH AT CASE ALSO, THE ASSESSED WILL LOOSE INCOME ON OWN FUNDS. HENCE, IN ANY CASE, IT I S FAIR TO CONSIDER INTEREST ON TOTAL INVESTMENT TO SEE THE REASONABLENESS OF RENT ALONG WITH DEPRECIATION. 7. THEREFORE IN MY CONSIDERED OPINION, THE INTEREST CALCULATION SHOULD BE ON THE ENTIRE AMOUNT OF THE MACHINERY, AS IT IS NOTED OF R S. 1.14 CRORES ON PAGE 3 OF THE ORDER OF THE LD CIT (A). 8. IF I CONSIDER THE TOTAL INTEREST ON THIS TOTAL INVESTMENT OF RS. 1.14 CRORES PLUS DEPRECIATION ON MACHINERY ACCEPTED BY THE AO OF RS. 5.05 LACS, THE PAYMENT OF RENT BY THE ASSESSEE OF RS. 15 LACS IS NEITHER EXCESS NOR UNREASONABLE AND HENCE NO DISALLOWANCE IS JUSTIFI ED U/S 40A(2)(B) OF THE ACT. . / ITA NO. 2150/MUM/2014 / ASSESSMENT YEAR 2008-09 4 9. I THEREFORE DELETE THIS ENTIRE DISALLOWANCE MAD E BY THE AO OF RS. 6, 88,870/- 10. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/1 2/2015 # $% &' 04/12/2015 SD/- ( A.K.GARODIA) (ACCOUNTANT MEMBER) $ MUMBAI; & DATED :- 04/12/2015 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + ( ) / THE CIT(A)- 4. + / CIT 5. ,- ../0 , /0 , $ / DR, ITAT, MUMBAI 6. 12 / GUARD FILE. / BY ORDER, , . //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI PRAMILA