DCIT, Chandigarh V. M/s SRBS Entertainment, Chandigarh

ITA 237/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8446 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business income
• Section: 37; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.237/CHD/2015 ASSESSMENT YEAR:2010-11 THE DCIT, VS. SRBS ENTERTAINMENT CIRCLE1(1) H.NO. 89 CHANDIGARH SECTOR 8-A CHANDIGARH PAN NO. AABFE7527M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : NONE DATE OF HEARING : 02/12/2015 DATE OF PRONOUNCEMENT :04/03/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER PASSED BY THE LD. CIT(A)-1 CHANDIGARH, DT. 31.12.2014. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS & C ONTRARY TO FACTS & LAW. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 72,00,000/- MADE ON ACCOUNT OF THE CLAIM OF PAYMENT OF LEASE RENTAL BY THE ASSESSEE WITH RESPECT TO A SHED AT INDUSTRIAL . AREA, PHASE-II, MOHALI WH ICH HAD NO APPARENT BUSINESS RELATION WITH THE AFFAIRS OF THE ASSESSEE. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 72,00,000/- MADE ON ACCOUNT OF THE CLAIM OF PAYMENT OF LEASE RENTAL BY THE ASSESSEE WITH RESPECT TO A SHED AT INDUSTRIAL . AREA, PHASE-II, MOHALI, B Y IGNORING THE FINDINGS OF THE AO AT PARA 2.4 OF THE ASSESSMENT ORDER THAT THE SAID A MOUNT WAS NOT ALLOWABLE IN ANY PROVISIONS OF THE INCOME TAX ACT NEITHER U/S 28 -36 OF THE I.T. ACT NOR U/S 37 OF THE I.T. ACT, 1961. 4. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT DURING ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAD CLAIMED EXPENSES OF RS. 72,00,000/- BEING LEASE RENT PAID. ON BEING QUESTIONED ABOUT THE NECE SSITY AND GENUINENESS OF 2 THE SAME, THE ASSESSEE STATED THAT IT HAD PAID LEAS E RENT FOR LAND AT MOHALI TAKEN FOR EXPANDING ITS CURRENT BUSINESS ACTIVITY O F RUNNING A CLUB, TO CATERING AND BANQUETING ACTIVITY. THE ASSESSEE STATED THAT T HE LAND WAS LEASED FOR KEEPING SOFA, CHAIRS, FAN, AND OTHER BULKY TENT AND CATERING EQUIPMENTS. THE ASSESSEE ALSO STATED THAT IT HAD APPLIED FOR ELECTR ICITY CONNECTION AT THE PREMISES WHICH WAS DELAYED BY EIGHT MONTHS. IN THE MEANWHILE THE PARTNERS OF THE ASSESSEE FIRMS HAD LEFT FOR ENGLAND AND COULD N OT RETURN IN TIME, THEREFORE NO BUSINESS ACTIVITY WAS COMMENCED ON THE LAND. THE AS SESSEE FURTHER STATED THAT TO REDUCE LOSSES, THE LAND WAS RENTED OUT TO ONE M S. MADHU AHUJA AT A MONTHLY RETURN OF RS. 1,20,995/-. THE ASSESSEE FURTHER STAT ED THAT THE LEASE RENT HAD BEEN PAID BY CHEQUE & TDS HAD BEEN DEDUCTED THEREON. DET AIL OF THE SAME WAS ALSO FILED. LD. AO REJECTED THE ASSESSEE CONTENTION AND HELD THAT THE BUSINESS USE OF THE LAND HAD NOT BEEN ESTABLISHED AND THE EX PENDITURE WAS NOT RELATED TO THE ASSESSEE BUSINESS. THE AO THEREFORE DISALLOW ED THE EXPENDITURE BY HOLDING AT PARA 2.3 OF HIS ORDER AS FOLLOWS: 2.3 THE ASSESSEE HAS NEITHER SUBMIT NOR PRODUCE A NY PROOFS REGARDING THE BUSINESS USE OF THIS PREMISE, SO THE GENUINENESS OF THIS RENT PAID IS DOUBTFUL AND NOT ALLOWABLE. THIS EXPENDITURE IS NOT RELATED THE FIRM BUSINESS. FIRM HAS BEEN CREATED BY PARTNER FOR RUNNING THE RICHMOND CLUB IN THE PREMISES OF SILVERCITY GROUP IN ZIRAKPUR. BUT ASSESSEE HAS GIVEN RENT TO S HED B-125, PHASE III, INDUSTRIAL AREA, MOHALI, WHICH IS NOT RELATED WITH BUSINESS. A SSESSEE HAS FAILED TO PROVE THE BUSINESS USE OF THIS PREMISES, SO U/S 40A2(A) OF TH E I.T. ACT, 1961 THE EXPENDITURE IS DISALLOWED AND NOT ALLOWABLE IN THE ANY PROVISION O F THE I.T. ACT, 1961. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHO ALLOWED THE ASSESSEE APPEAL BY HOLDING AS FOLLOWS: 3.3 I HAVE CONSIDERED FACTS OF THE ISSUE. THE APPE LLANT FIRM HAD TAKEN THE PREMISES AT MOHALI ON RENT (FOR WHICH LEASE RENTAL OF RS. 72,00 ,000/- HAS BEEN CLAIMED) WITH A VIEW TO GENERATE REVENUE THROUGH CATERING AND BANQUETING TO MAINTAIN AND RUN THE COMMUNITY CENTRE AND TO EXPAND BUSINESS. THE APPELLANT HAD TA KEN THESE PREMISES ON RENT TO KEEP ITS FURNITURE AND OTHER BULKY TENTAGE AND CATERING EQUI PMENTS. TWO OF THE PARTNERS OF THE FIRM HAD GONE TO ENGLAND AND THEY COULD NOT RETURN BACK IN TIME BECAUSE OF WHICH BUSINESS DID NOT TAKE OFF ADEQUATELY. ACCORDING TO THE APPEL LANT, IT GOT ELECTRICITY CONNECTION ALMOST AFTER EIGHT MONTHS FROM THE DATE OF SIGNING OF AGREEMENT, WHICH WAS THE MAIN REASON FOR DELAY AND GOING BACK OF PARTNERS FOR SOM ETIME TO ENGLAND. THE ASSESSING OFFICER DISALLOWED THE AMOUNT FOR THE REASON THAT T HE APPELLANT DID NOT SUBMIT ANY DOCUMENTARY EVIDENCE TO SUPPORT ITS REPLY AND DID N OT GIVE ANY EVIDENCE REGARDING BUSINESS USE OF THE PREMISES. THE AMOUNT OF LEASE R ENTAL WAS PAID THROUGH CHEQUES ON WHICH TAX HAD BEEN DULY DEDUCTED AT SOURCE. THE FAC T OF DELAY IN GETTING THE ELECTRICITY CONNECTION CANNOT BE DENIED, WHICH ALSO COULD HAVE BEEN THE REASON FOR BEING NOT ABLE TO START THE BUSINESS, SINCE IT IS NOT POSSIBLE TO CARRY ON THE BUSINESS WITHOUT ELECTRICITY. IN 3 ORDER TO REDUCE LOSSES, THE APPELLANT HAD GIVEN A P ART OF PREMISES ON RENT TO MS. MADHU AHUJA AT THE END OF THE YEAR AND THIS ALSO PROVES T HE GENUINENESS OF APPELLANTS CASE ON THE ISSUE. IT IS, THEREFORE, HELD THAT THE ASSESSIN G OFFICER WAS NOT RIGHT IN DISALLOWING THE AMOUNT OF LEASE RENTAL. IT MAY ALSO BE MENTIONED TH AT THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT U/S 40A(2)(A) OF THE ACT, BUT THE AMOUNT WAS NOT PAID TO ANY PERSON COVERED U/S 40A(2)(B) AND SO THE OBSERVATION OF THE ASSESSI NG OFFICER IN THIS REGARD IS NOT CORRECT. IN ANY CASE, SINCE I HAVE HELD THAT THE APPELLANT IS E LIGIBLE FOR DEDUCTION OF THIS AMOUNT, THIS FINDING OF THE ASSESSING OFFICER IS NOT MATERIAL. T HE GROUND OF APPEAL TAKEN AGAINST THE ADDITION MADE IS ACCORDINGLY ALLOWED. 5. AGGRIEVED BY THE SAME, THE REVENUE FILED THE PRE SENT APPEAL BEFORE US. 6. THE DR RELIED UPON THE ORDER OF THE AO. NONE APP EARED FOR ASSESSEE DESPITE NOTIFYING DATE OF HEARING. 7. WE HAVE HEARD THE SUBMISSION CAREFULLY AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. 8. THE ISSUE BEFORE US IS THE ALLOWABILITY OF THE L EASE RENT EXPENSES INCURRED BY THE ASSESSEE WHICH HAS BEEN DISPUTED FOR THE REA SON THAT NEITHER THE GENUINENESS NOR BUSINESS EXPEDIENCY OF THE SAME WAS ESTABLISHED. 9. WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE A SSESSEE HAD CONTENDED THAT THE LEASE RENT HAD BEEN PAID FOR LAND, WHICH W AS REQUIRED BY THE ASSESSEE TO EXPAND ITS BUSINESS TO CATERING AND BANQUET. THE ASSESSEE HAD ALSO SUBMITTED THAT THE LEASE BUT HAD BEEN PAID BY CHEQU E & TDS HAD BEEN DEDUCTED ON THE SAME. DETAILS OF THE CHEQUES & TDS PAYMENT HAD ALSO BEEN FURNISHED TO THE AO. THE ASSESSEE HAD FURTHER STATE D THAT NO BUSINESS HAD BEEN COMMENCED ON THE SAME, SINCE ELECTRICITY CONNECTION HAD BEEN DELAYED. ALL THESE FACTS WERE THERE BEFORE THE AO AND HAVE NOT C ONTROVERTED BY HIM. WE FIND THAT THE GENUINENESS & BUSINESS EXPEDIENCY OF THE LEASE RENT PAID STANDS ESTABLISHED. FURTHER, IT IS AN ADMITTED FACT THAT THE PROPERTY T AKEN ON LEASE HAD BEEN RENTED OUT FURTHER, AND RENTAL INCOME FROM THE SAME HAD BE EN ASSESSED TO TAX AS BUSINESS INCOME. IN SUCH CIRCUMSTANCES, WHEN THE RE NTAL INCOME RECEIVED FROM THE IMPUGNED LAND HAS BEEN ASSESSED AS BUSINESS INC OME, IT CANNOT NOW BE 4 CONTENDED THAT THE LEASE RENT PAID FOR THE SAME WAS NOT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 10. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THEREFORE UPHOLD THE ORDER OF THE LD. CIT(A), DELETING THE AD DITION MADE ON ACCOUNT OF DISALLOWANCE OF LEASE RENT OF RS. 72,00,000/-. 11. THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 04/03/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR