M/s Shrinivas Engineering Works, Pune V. Addl CIT, Pune

ITA 2257/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79913 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SUNITA RAO
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.2257/PN/2012 (ASSESSMENT YEAR : 2009-10) M/S SHRINIWAS ENGINEERING WORKS, S 205, M.I.D.C., BHOSARI, PUNE 411 026. PAN : AAEFS0463K . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE- 8, PUNE. . RESPONDENT ASSESSEE BY : MR. SUNIL GANOO DEPARTMENT BY : MRS. SUNITA RAO DATE OF HEARING : 18-06-2014 DATE OF PRONOUNCEMENT : 20-06-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DA TED 17.09.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 29.12.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, ALTHOUGH ASSESSEE HAS RAISED MUL TIPLE GROUNDS OF APPEAL BUT THE SOLITARY DISPUTE RELATES TO A DISALL OWANCE OF RS.7,80,453,/- SUSTAINED BY THE CIT(A) ON ACCOUNT OF INTEREST EXPE NDITURE. 3. IN BRIEF, THE FACTS RELEVANT TO CONTROVERSY ARE AS FOLLOWS. THE APPELLANT IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND JOB WORK OF AUTOMOBILE PARTS. IN THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE FIRM HAD TAKE N ON RENT FACTORY SHEDS FROM PERSONS WHO ARE COVERED U/S 40A(2)(B) OF THE A CT. THE ASSESSING OFFICER ITA NO.2257/PN/2012 A.Y. 2009-10 ALSO NOTED THAT AS PER THE TERMS OF THE RENT AGREEM ENTS, ASSESSEE HAD GIVEN INTEREST-FREE DEPOSITS TO THE SAID PERSONS OF RS.90 ,75,000/-. THE ASSESSING OFFICER NOTED THAT ASSESSEE WAS PAYING INTEREST ON LOANS RAISED FROM PERSONS COVERED U/S 40A(2)(B) OF THE ACT WHILE IT WAS NOT C HARGING ANY INTEREST ON SUCH DEPOSITS. AS PER THE ASSESSING OFFICER, THE ASSESS EE HAD FAILED TO ESTABLISH ANY COMMERCIAL EXPEDIENCY FOR ADVANCING SUCH DEPOSI TS AND THEREFORE HE HELD THAT SUCH INTEREST-FREE ADVANCES WERE NOT JUSTIFIED . THE ASSESSING OFFICER CALCULATED INTEREST AT THE 12.75% ON SUCH DEPOSITS WHICH CAME TO RS.11,34,375/- AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE CIT(A) NOTED THAT THE ASSESSEE FIRM HAD GIVE N 10 MONTHS RENT AS INTEREST-FREE DEPOSITS TO PARTNERS AS WELL AS THE P ERSONS COVERED U/S 40A(2)(B) OF THE ACT. THE ASSESSEE FIRM HAD TAKEN ON RENT TH E TALAWADE SHED AND MAVAL SHED FROM SUCH PERSONS. ACCORDING TO THE CIT (A), THE NORMAL PRACTICE IS TO GIVE DEPOSIT OF 3 MONTHS RENT AND THEREFORE HE HELD THAT DEPOSIT EQUIVALENT TO 3 MONTHS RENT AMOUNTING TO RS.29,53, 800/- WAS JUSTIFIED AS AGAINST THE DEPOSIT OF 10 MONTHS RENT AMOUNTING TO RS.90,75,000/- GIVEN BY THE ASSESSEE. THE CIT(A) CALCULATED INTEREST ON SU CH EXCESS DEPOSIT, WHICH CAME TO RS.7,80,453/-; AND, ACCORDINGLY HE RETAINED THE DISALLOWANCE TO THE SAID EXTENT AND ALLOWED RELIEF OF RS.3,53,922/-. N OT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE HAD FURN ISHED A NOTE EXPLAINING THE TERMS AND CONDITIONS OF RENTAL AGREEMENT WITH T HE OWNERS, A COPY OF WHICH HAS BEEN PLACED AT PAGE 48 OF THE PAPER BOOK. IT I S FURTHER POINTED OUT THAT THE CIT(A) WAS WRONG IN IMPUTING HIS PERSONAL KNOWL EDGE THAT DEPOSIT OF 3 MONTHS RENT IS JUSTIFIED AND NOT 10 MONTHS RENT G IVEN BY THE ASSESSEE. ACCORDING TO THE LEARNED COUNSEL, PERSONAL KNOWLEDG E CANNOT BE A SUBSTITUTE FOR THE WRITTEN AGREEMENT WHICH HAS BEEN PLACED ON RECORD BY THE ASSESSEE IN ITA NO.2257/PN/2012 A.Y. 2009-10 TERMS OF WHICH ASSESSEE HAD ADVANCED 10 MONTHS REN T AS DEPOSIT FOR TAKING ON RENT THE FACTORY SHEDS. IT IS FURTHER POINTED O UT THAT THE RENTAL ARRANGEMENT IS SIMILAR TO WHAT WAS EXISTING IN THE PRIOR PERIOD S AND IN THAT CONTEXT A REFERENCE HAS BEEN MADE TO THE ASSESSMENT ORDERS PA SSED U/S 143(3) OF THE ACT FOR ASSESSMENT YEARS 2006-07 AND 2008-09 VIDE O RDER DATED 24.11.2008 AND 14.12.2010 RESPECTIVELY WHEREIN NO SUCH DISALLO WANCE HAS BEEN MADE. COPIES OF SUCH ASSESSMENT ORDERS HAVE BEEN PLACED O N RECORD. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS DEFENDED THE ORDER OF THE CIT(A ) BY POINTING OUT THAT THE RENT DEPOSIT MADE BY THE ASSESSEE EQUIVALENT TO 10 MONTHS RENT WAS EXCESSIVE AND CONSIDERING THAT ASSESSEE WAS PAYING INTEREST ON DEPOSITS RAISED FROM INTERESTED PARTIES, THE GIVING OF EXCES SIVE INTEREST-FREE DEPOSIT EQUIVALENT TO 10 MONTHS RENT, IS UNJUSTIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. FACTUALLY SPEAKING, THE INTEREST-FREE DEPOSITS IN QUESTION HA VE BEEN GIVEN BY THE ASSESSEE TO PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT IN TERMS OF A RENTAL ARRANGEMENT. THE ASSESSEE FIRM HAS TAKEN ON RENT F ACTORY SHEDS FROM SUCH PERSONS. EVIDENTLY, THE REVENUE HAS NOT DISPUTED T HAT THE DEPOSITS HAVE BEEN MADE IN LIEU OF TAKING ON RENT THE FACTORY SHE DS. THEREFORE, IT IS NOT A CASE WHERE DEPOSITS HAVE BEEN ADVANCED TO INTERESTE D PARTIES WITHOUT ANY CONSIDERATION. THE CONSIDERATION IN THE PRESENT CA SE IS THE RENTING OF THE FACTORY SHEDS. THE DISPUTE RAISED BY THE REVENUE I S THAT THE DEPOSITS ARE EXCESSIVE, BECAUSE THEY ARE EQUIVALENT TO 10 MONTH S RENT. IN OUR CONSIDERED OPINION, ADEQUACY OR OTHERWISE OF THE CONSIDERATION HAS TO BE JUDGED IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF EACH CASE. IT WAS IMPERATIVE ON THE PART OF THE REVENUE TO ESTABLISH THAT THE TERMS AND CONDITIONS OF THE RENT AGREEMENT, INCLUDING THAT OF GIVING INTEREST-FREE D EPOSITS, WAS NOT IN CONSONANCE WITH THE MARKET PRACTICES. NOTABLY, THE COMMERCIAL EXPEDIENCY OF ITA NO.2257/PN/2012 A.Y. 2009-10 THE IMPUGNED TRANSACTION HAS BEEN NEGATED BY THE AS SESSING OFFICER AS WELL AS BY THE CIT(A) MERELY ON SURMISES AND CONJECTURES WITHOUT ESTABLISHING AS TO HOW SUCH TERMS AND CONDITIONS WERE INFERIOR QUA THE ASSESSEE IN COMPARISON TO THE MARKET PRACTICES. THEREFORE, IN THE ABSENCE OF ANY MATERIAL OR EVIDENCE BROUGHT ON RECORD BY THE REVENUE, WE AR E UNABLE TO UPHOLD THE APPROACH OF THE INCOME-TAX AUTHORITIES TO DOUBT THE COMMERCIAL EXPEDIENCY OF THE IMPUGNED TRANSACTION. MOREOVER, SIMILAR ARRANG EMENT IN THE PAST ASSESSMENT YEARS OF 2006-07 AND 2008-09 HAVE NOT BE EN FROWNED UPON BY THE ASSESSING OFFICER WHILE MAKING SCRUTINY ASSESSM ENTS U/S 143(3) OF THE ACT, AS BROUGHT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. CONSIDERING THE ENTIRE SET OF FACTS AND CIRCUMSTANCES OF THE PRESEN T CASE, WE FIND NO REASON TO UPHOLD THE ADDITION SUSTAINED BY THE CIT(A) ON ACCO UNT OF INTEREST. WE, THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO DELETE THE ENTIRE ADDITION MADE ON ACCOUNT OF INTER EST. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 20 TH JUNE, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE