ITO 5(1)(3), MUMBAI V. DEVYANG REALTY HOLDINGS P.LTD, MUMBAI

ITA 231/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7772 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 03-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Court: TRIBUNAL
• Assessee Lawyers: M V RAJGURU
• Keywords: Depreciation; Maximum Marginal Rate; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & RAVISH SOOD (JM) I.T.A. NO. 231 /MUM/20 13 (ASSESSMENT YEAR 20 09 - 10 ) DCIT 5(1) ROOM NO. 568 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. DEVYANG REAL TY HOLDINGS PVT. LTD. 21 - A, PRITHVI APARTMENTS ANSTEY ROAD MUMBAI - 400 026. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 4203/MUM/2016 (ASSESSMENT YEAR 2010 - 11) C.O.NO. 55/MUM/2014 (ASSESSMENT YEAR 2009 - 10) M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 21 - A, PRITHVI APARTMENTS ANSTEY ROAD MUMBAI - 400 026. VS. DCIT 5(1) ROOM NO. 568 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AACCD5756B ASSESSEE BY SHRI M.V. RAJGURU DEPARTMENT BY S HRI NITESH JOSHI DATE OF HEARING 3 .2 . 201 7 DATE OF PRONOUNCEMENT 20 .3 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE C ROSS APPEALS FILED BY THE PARTIES FOR A.Y. 2009 - 10 AND THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2010 - 11 ARE DIRECTED AGAINST THE ORDER S PASSED BY THE L EARNED CI T(A) - 9, MUMBAI. ALL THESE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 2 2. THE ASSESSING OFFICER DISALLOWED THE RENT EXPENDITURE OF ` 72 LAKHS CLAIMED BY THE ASSESSEE IN RESPECT OF A FL AT LOCATED AT ALTAMOUNT ROAD AND ALSO DISALLOWED DEPRECIATION AND OTHER EXPENSES CLAIMED IN RESPECT OF THE ABOVE SAID FLATS IN BOTH THE YEARS UNDER CONSIDERATION. THE LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO 50% IN BOTH THE YEARS. THE ASSESSEE HAS FIL ED THESE AP PEALS CHALLENGING THE DECISION O F LEARNED CIT(A) IN NOT GRANTING FULL RELIEF IN BOTH THE YEARS UNDER CONSIDERATION. THE REVENUE HAS FILED THE APPEAL CHALLENGING THE RELIEF GRANTED BY THE LEARNED CIT(A) IN A.Y.2009 - 10. DETAILS OF APPEAL , IF ANY, FILED BY THE REVENUE FOR A.Y. 2010 - 11 COULD NOT BE FURNISHED BY BOTH PARTIES AND THE REGISTRY ALSO COULD NOT FIND ANY SUCH APPEAL FILED BY THE REVENUE . HENCE WE ARE DISPOSING THESE APPEALS BY THIS ORDER. 3. FACTS RELATING TO THE CASE ARE STATED IN BRIEF . THE ASSESSEE - COMPANY WAS FORMED WITH THE OBJECTIVE TO CARRY OUT THE BUSINESS OF ESTATE DEVELOPERS, PROMOTERS, BUILDERS, CONSTRUCTORS , TO UNDERTAKE CONSTRUCTION ACTIVITIES ETC. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF ` 7 2 LAK HS TOWARDS RENT PAID BY IT FOR A FLAT LOCATED AT A - 1 - 21, PRITHVI APARTMENTS, ALTAMOUNT ROAD, MUMBAI. THE AO NOTICED THAT THE RENT AGREEMENT WAS ENTERED WITH SHRI VISWAJIT RANE, ONE OF THE SPECIFIED PERSONS LISTED IN SEC. 40A(2)(B) OF THE ACT. THE AO NOTIC ED THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY EMPLOYEES AND ITS DIRECTORS WERE RESIDING IN GOA. HENCE THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF BUSINESS ACTIVITIES CARRIED ON BY IT. HE ALSO ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT IN TERMS OF SEC. 40A(2)(A) OF THE ACT. IN RESPONSE THERETO, THE ASSESSEE SUBMITTED THAT IT HAS GIVEN THE DETAILS OF RENT PAYMENT TO THE AO IN THE PROCEEDINGS RELATING TO AY 2008 - 09. THE ASSESSEE DID NOT GIVE ANY EXPLANATION WITH REGARD TO APPLICABILITY OF SEC. 40A(2) (A) OF THE ACT. 4. THE ASSESSING OFFICER NOTICED THAT THE IDENTICAL CLAIM TOWARDS PAYMENT OF RENT MADE BY THE ASSESSEE IN A.Y. 2008 - 09 WAS DISALLOWED ON THE REASONING THAT THE ASSESSEE HAS NOT USED THE ABOVE SAID PREMISES FOR THE PURPOSE OF ITS BUSIN ESS. T HE ASSESSING OFFICER HAS FURTHER STATED THAT THE ASSESSEE HAS M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 3 ACCEPTED THE ADDITION AND DID NOT FILE APPEAL FOR A.Y. 2008 - 09. ( HOWEVER, THE LD A.R SUBMITTED THAT THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A) BELATEDLY AND THE LD CIT(A) DISMISS ED THE APPEAL IN LIMINE BY NOT CONDONING THE DELAY . THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS CHALLENGED THE DECISION RENDERED BY LD CIT(A) BY FILING APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL, VIDE ITS ORDER DATED 24 - 08 - 2016 PASSED IN ITA NO.71 06/MUM/2013, HAS CONDONED THE DELAY AND RESTORED THE MATTER BACK TO THE FILE OF LD CIT(A). ACCORDINGLY THE LD A.R SUBMITTED THAT THE OBSERVATION MADE BY THE AO TO THE EFFECT THAT THE ASSESSEE HAS ACCEPTED THE ADDITION IN AY 2008 - 09 IS NOT CORRECT ) . ACCOR DINGLY THE AO DISALLOWED THE ENTIRE AMOUNT OF RS.72.00 LAKHS RELATING TO RENT EXPENDITURE CLAIMED BY THE ASSESSEE BY HOLDING THAT THE ASSESSEE COULD NOT PROVE THAT THE SAME WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE AO ALSO DISALLOWED IDEN TICAL CLAIM OF RENT EXPENDITURE MADE IN AY 2010 - 11 ALSO. IN BOTH THE YEARS, T HE ASSESSING OFFICER ALSO DISALLOWED RENT EXPENDITURE ON THE ALTERNATIVE PLEA THAT THE SAME IS EXCESSIVE IN NAT URE IN TERMS OF SECTION 40A(2)(A ) OF THE ACT. IN THIS REGARD, THE AO HAS COMPARED THE RENTAL VALUE PREVAILING IN THAT APARTMENT. FURTHER, T HE ASSESSING OFFICER ALSO DISALLOWED EXPENDITURE CLAIMED IN RESPECT OF THE ABOVE SAID FLAT , VIZ., DEPRECIATION CLAIMED ON THE ADDITIONS MADE TO THE FLAT, ELECTRICITY CHARGES AND REPA IRS AND MAINTENANCE IN BOTH THE YEARS UNDER CONSIDERATION. 5 . IN THE APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED BEFORE LEARNED CIT(A) THAT THE DIRECTO R S OF THE ASSESSEE COMPANY, WHO ARE RESIDING IN GOA, ARE USING THE FLAT WHENEVER THEY COME TO MUMBAI ; THAT THE BUSINESS MEETINGS ARE HELD IN THE FLAT; THAT ALL THE COMPLIANCES WITH VARIOUS GOVERNMENT DEPARTMENTS HAVE BEEN CARRIED OUT FROM THE FLAT; THAT BOARD MEETINGS ARE CONDUCTED THEREIN AT REGULAR INTERVALS; THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY OTHER PLACE OF BUSINESS; THAT THE ASSESSEE HAS BEEN NEGOTIATING WITH SOME DEVELOPERS TO CARRY OUT ITS OBJECTS ETC . THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION RENDER ED BY ITAT (SPECIAL BENCH) (DELHI) IN THE CASE OF CENTURY IRON & STEEL LTD. VS. ITO ( 1990) 3 1 I T D 117 (DEL)(SB) TO SUBMIT THAT THE ASSESSEE THEREIN HAD BEEN USING A PREMISES AS REGISTERED OFFICE AS WELL AS ITS GUEST HOUSE. AT M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 4 THE RELEVANT POINT OF TIME, THE GUEST HOUSE EXPENDITURE WAS RESTRICTED U/S 37(4)/(5) OF THE ACT. UNDER THESE SET O F FACTS, THE SPECIAL BENCH RESTRICTED THE DISALLOWANCE TO 50% OF THE RENT CLAIMED BY THE ASSESSEE. WITH REGARD TO APPLICABILITY OF SEC. 40A(2)(A), THE ASSESSEE SUBMITTED THAT THE RECIPIENT IS ALSO PAYING TAX AT MAXIMUM MARGINAL RATE AND HENCE THERE IS NO LOSS OF REVENUE. 6. THE LD CIT(A), BY FOLLOWING THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF CENTURY IRON & STEEL LTD (SUPRA), RESTRICTED THE DISALLOWANCE TO 50% OF RENT EXPENDITURE. IN SIMILAR MANNER, THE LEARNED CIT(A) RESTRICTED THE D ISALLOWANCE OF DEPRECIATION, ELECTRICITY AND REPAIRS EXPENSES ALSO TO 50%. IDENTICAL VIEW WAS TAKEN BY THE LEARNED CIT(A) IN A.Y. 2010 - 11 ALSO. WITH REGARD TO THE ALTERNATIVE GROUND OF DISALLOWING THE RENT EXPENDITURE U/S 40A(2)(A) OF THE ACT, THE LD CIT( A) ANALYSED THE RENTAL VALUE LEVELS QUOTED BY THE AO AND CAME TO THE CONCLUSION THAT THE RENT EXPENDITURE IS EXCESSIVE BY 50%. 7 . LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE REGISTERED OFFICE OF THE COMPANY IS LOCATED IN THE ABOVE SAID F LAT ONLY . T HE ADDRESS IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ADDRESS IN THE BANK ACCOUNT MENTIONS THE ADDRESS OF THE FLAT ONLY. THE DIRECTORS ARE RESIDING IN GOA AND THE COMPANY ALSO DOES NOT HAVE ANY OTHER ADDRESS. ALL THE BOARD MEETINGS AND BUSINESS MEETINGS ARE HELD IN THIS ADDRESS ONLY. ACCORDINGLY HE SUBMITTED THAT FLAT WAS FULLY USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE COMPANY ONLY. HE SUBMITTED THAT THE AO WAS NOT CORRECT IN OBSERVING THAT THE FLAT WAS NOT USED FOR THE PURPOS ES OF BUSINESS OF THE ASSESSEE COMPANY. HE SUBMITTED THAT THE ASSESSEE HAS RAISED CAPITAL AND HAS ALSO AVAILED UNSECURED LOANS. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS GIVEN ADVANCES TO SUMER BUILDERS IN RESPECT OF TWO PROPERTIES. THE ASSESSEE HAS ALSO INCURRED ADMINISTRATIVE EXPENSES WHICH ARE REQUIRED TO BE INCURRED IN RESPECT OF LIMITED COMPANIES AND HAS ALSO INCURRED OTHER EXPENSES IN CONNECTION WITH THE BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE. LEARNED AR ALSO REFERRED TO THE AGREEMEN T PLACED AT PAGE NO. 72 OF THE PAPER BOOK AND ALSO BOARD RESOLUTION M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 5 PLACED AT PAGE NO. 108 OF THE PAPER BOOKS TO SHOW THAT THE ASSESSEE HAS BEEN CARRYING ON BUSINESS ACTIVITIES OF THE ABOVE SAID ADDRESS ONLY. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS GIV EN DETAILED REPLY BEFORE THE TAX AUTHORITIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ABOVE SAID FLAT WAS NOT USED FOR THE PERSONAL BENEFIT OF THE DIRECTORS. ACCORDINGLY, HE SUBMITTED THAT THE FLAT WAS USED VERY MUCH FOR THE PURPOSE OF BUSINESS ONLY AND HENCE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING ENTIRE AMOUNT OF RENT EXPENDITURE AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE SAME TO 50%. 8 . WITH REGARD TO THE DISALLOWANCE MADE U/S. 40A(2)( A ) OF THE ACT, LEARNED A R SUBMITTED THA T PROVISIONS OF SECTION 40A(2)(A ) SHALL APPLY ONLY TO THE PERSONS SPECIFIED IN SECTION 40A(2)(B) OF THE ACT . HE SUBMITTED THAT SHRI VISHWAJEET RANE IS NOT A SPECIFIED PERSON FALLING IN THE LIST PROVIDED UNDER SECTION 40A(2)(B) , I.E., H E IS N EITHER A DIRECTOR NOR A SHAREHOLDER IN THE ASSESSEE - COMPANY. HE IS ONLY A BENEFICIARY AS WELL AS TRUSTEE OF A TRUST NAMED A&A FAMILY TRUST, WHICH HELD 98.04% OF SHARES IN THE ASSESSEE - COMPANY. HE SUBMITTED THAT TRUSTEE/BENEFICIARY OF THE TRUST HOLDING SHAR ES OF THE ASSESSEE - COMPANY SHALL NOT FALL IN THE CATEGORY OF SPECIFIED PERSON UNDER SECTION 40A(2)(B) OF THE ACT. IN THE ALTERNATIVE, LEARNED AR SUBMITTED THAT A RECIPIENT OF THE RENT SHRI NARAYAN RANE IS ALSO SUBJECTED TO TAX AT THE HIGHEST SLAB OF 30% IN RESPECT OF RENT RECEIVED FROM THE COMPANY AND HENCE THERE IS NO TAX AVOIDANCE. BY PLACING RELIANCE ON THE DECISION RENDERED BY HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. V.S. DEMPO & CO. PVT. LTD. (336 ITR 209), LEARNED AR SUBMITTED T HA T PROVISIONS OF SECTION 40A(2)(A ) OF THE ACT WAS HELD TO BE NOT ATTRACTED WHEN THERE IS NO TAX EVASION. ACCORDINGLY, HE SUBMITTED THAT PROVISIONS OF SECTION 40A(2)( A ) H AS BEEN WRONGLY INVOKED BY THE TAX AUTHORITIES IN THE INSTANT CASE. 9 . ON THE CONTRAR Y, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT EMPLOYED ANY STAFF FOR CARRYING OUT ITS ACTIVITIES AND THERE IS NO EVIDENCE A VAILABLE TO SHOW THAT THE ASSESSEE HAS PURCHASED ANY ASSET IN M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 6 THE NAME OF THE COMPANY. THE FINANCIAL STA TEMENT SHOWS THAT THE ASSESSEE HAS INVESTED ITS FUNDS MAINLY IN MUTUAL FUNDS; ACCORDINGLY, HE SUBMITTED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS ACTIVITIES. ACCORDINGLY, HE SUBMITTED THAT THE LEARN ED CIT(A) WAS NOT JUSTIFIED IN GRANTING RELIEF TO 50% TO THE ASSESSEE. WITH REGARD TO THE DISALLOW ANCE MADE UNDER SECTION 40A(2)(A ) OF THE ACT, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE IMPUGNED RENT PAYMENT WAS REPORTED AS TRANSACTIONS FALLI NG UNDER SECTION 40A(2)(B) OF THE ACT BY THE TAX AUDITOR IN THE TAX AUDIT REPORT. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAS DISALLOWED THE RENTAL PAYMENTS AND THE E XPENSES INCURRED ON THE FLAT ON THE REASONING THAT THE SAID FLAT WAS NOT USED FOR THE PURPOSES OF BUSINESS. ALTERNATIVELY, THE AO HAS TAKEN THE VIEW THAT THE RENTAL PAYMENT IS IN EXCESS OF THE FAIR MARKET VALUE IN TERMS OF SEC. 40A(2)(A) OF THE ACT. 11. BEFORE US, THE LD A.R DEMONSTRATED BEFORE US THAT THE REGISTERED OFFICE OF THE COMPANY IS LOCATED AT THE SAME FLAT ONLY. FURTHER THE VERY SAME ADDRESS HAS BEEN USED FOR FILING INCOME TAX RETURNS AS WELL AS FOR OPENING THE BANK ACCOUNTS. IT IS AN ADMI TTED FACT NEITHER THE DIRECTORS OF THE ASSESSEE COMPANY NOR THE ASSESSEE ITSELF DOES NOT HAVE ANY OTHER FLAT IN THE CITY OF MUMBAI, I.E., NEITHER THEY HAVE PURCHASED OR RENTED ANY OTHER PREMISES. HENCE, THERE IS MERIT IN THE SUBMISSION OF THE ASSESSEE THA T FOR ALL PRACTICAL PURPOSES, THE FLAT HAS BEEN USED FOR THE PURPOSE OF BUSINESS. IT CANNOT BE DISPUTED THAT THE ASSESSEE, BEING A PRIVATE LIMITED COMPANY, HAS TO HOLD ITS BOARD MEETINGS AND THE ANNUAL GENERAL MEETING THROUGHOUT THE YEAR AT FIXED INTERVAL S. THE ASSESSEE HAS SUBMITTED THAT THOSE MEETINGS HAVE BEEN HELD AT THE REGISTERED OFFICE ONLY. IT WAS FURTHER SUBMITTED THAT OTHER BUSINESS MEETINGS HAVE ALSO BEEN HELD IN THE REGISTERED OFFICE ONLY. THE LD A.R SUBMITTED, BY BRINGING OUR ATTENTION TO T HE FINANCIAL STATEMENTS, THAT THE ASSESSEE HAS BORROWED LOANS, RAISED CAPITAL, MADE INVESTMENTS IN MUTUAL FUNDS AND ALSO ENGAGED A M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 7 DEVELOPER IN RESPECT OF TWO PROPERTIES. HE SUBMITTED THAT THE DIRECTORS ARE RESIDING IN GOA AND HENCE ALL THE BUSINESS DECIS IONS COULD BE TAKEN AT THE REGISTERED OFFICE ONLY. BESIDES THE ABOVE, THE DIRECTORS ALSO USE THE VERY SAME FLAT WHENEVER THEY GO TO MUMBAI FOR BUSINESS PURPOSES OF THE ASSESSEE COMPANY. WITH REGARD TO THE RELIANCE PLACED UPON BY THE LD CIT(A) ON THE SPEC IAL BENCH DECISION OF ITAT, THE LD A.R SUBMITTED THAT THE SPECIAL BENCH HAS RESTRICTED THE DEDUCTION TO 50%, SINCE THE PREMISES WAS USED FOR GUEST HOUSE PURPOSES ALSO AND THERE WAS RESTRICTION FOR ALLOWING GUEST HOUSE EXPENSES AT THE RELEVANT POINT OF TIME . HE SUBMITTED THAT THERE IS NO SUCH RESTRICTION NOW PROVIDED FOR INCURRING GUEST HOUSE EXPENSES. BESIDES THE ABOVE, IT WAS SUBMITTED THAT THE ROUTINE EXPENSES THAT ARE REQUIRED TO BE INCURRED IN RESPECT OF A COMPANY HAVE BEEN INCURRED. HE SUBMITTED THAT THE BUSINESS OF THE ASSESSEE HAS ALREADY BEEN SET UP. ACCORDINGLY HE CONTENDED THAT THE VIEW OF THE AO THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS IS AGAINST THE FACTS. 12. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE. FROM THE DETAILS FURN ISHED BY THE ASSESSEE, IN OUR VIEW, THE ASSESSEE HAS SUFFICIENTLY DEMONSTRATED THAT IT HAS ALREADY SET UP THE BUSINESS. ONCE THE BUSINESS IS SET UP, IT IS A SETTLED PROPOSITION THAT ALL THE EXPENSES INCURRED FOR THE PURPOSES OF BUSINESS HAVE TO BE ALLOWED . THE AO HAS TAKEN THE VIEW THAT THE FLAT, FOR WHICH RENT WAS PAID, CANNOT BE CONSIDERED AS HAVING USED FOR THE PURPOSES OF BUSINESS. BUT THE FACTS AVAILABLE ON RECORD SHOW OTHERWISE. THE DIRECTORS OF THE ASSESSEE AS WELL AS THE ASSESSEE DOES NOT HAVE A NY OTHER PREMISES OR ADDRESS IN MUMBAI. THE IMPUGNED FLAT HAS BEEN USED AS REGISTERED OFFICE OF THE ASSESSEE COMPANY AND ALL MEETINGS INCLUDING BUSINESS MEETINGS HAVE BEEN CLAIMED TO HAVE TAKEN PLACE AT THIS ADDRESS ONLY. ANOTHER IMPORTANT POINT IS THAT THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE IMPUGNED FLAT WAS USED FOR ANY OTHER PURPOSES. ON THE CONTRARY, THE ASSESSEE HAS SHOWN THAT THE FLAT WAS USED FOR THE PURPOSES OF BUSINESS. WE NOTICE THAT THE AO HAS DRAWN ADVERSE INFERENCE M AINLY ON THE FACT THAT THE ASSESSEE HAS NOT CARRY OUT ITS BUSINESS ACTIVITIES IN A FULL - FLEDGED MANNER. M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 8 HOWEVER, WE HAVE NOTICED THAT THE ASSESSEE HAS BEEN USING THE FLAT FOR CARRYING ON ITS ACTIVITIES ONLY. HENCE WE ARE OF THE VIEW THAT THERE IS NO REAS ON TO TAKE ADVERSE INFERENCE ON THIS MATTER. ACCORDINGLY WE ARE OF THE VIEW THAT THERE IS NO REASON TO RESTRICT THE ALLOWANCE TO 50% OF THE CLAIM MADE BY THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO ALLOW THE RENT EXPENDITURE FULLY. SINCE WE HAVE HELD THAT THE FLAT HAS BEEN USED FOR THE PURPOSES OF BUSINESS, THE DEPRECIATION AND OTHER EXPENDITURE CLAIMED THEREON ALSO SHOULD BE ALLOWED FULLY. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO ALLOW THOSE EXPENSES ALSO FULLY. 13. WITH REGARD TO THE APPLICATION OF PROVISIONS OF SEC. 40A(2)(A), THE LD A.R HAS DEMONSTRATED THAT THE RECIPIENT OF RENT IS ALSO PAYING TAX AT MAXIMUM MARGINAL RATE. HENCE, THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF V.S. DEMPO AND CO. P LTD (SUPRA) SHALL DIRECTLY APPLY TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND AO ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND CO ARE ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 20 . 3 .201 7. SD/ - SD/ - (RAVISH SOOD ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 20 / 3 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI M/S. DEVYANG REALTY HOLDINGS PVT. LTD. 9 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI