M/S STYL RITE OPTICAL INDUSTRIES , MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE 18(3), MUMBAI

ITA 3223/MUM/2022

AI Insights

The case involves STYL Rite Optical Industries, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, concerning the quantum of assessment for the assessment year 2015-16. The primary issue was the addition of notional interest amounting to Rs.10,20,000, calculated as 12% of interest on security deposits made for renting business premises. The Tribunal noted that a similar issue had been remanded to the Assessing Officer in A.Y. 2013-14 for verification of the assessee's claim that the security deposit was made from interest-free funds. The Tribunal decided to remand the current issue back to the Assessing Officer, directing a verification of the evidence regarding the source of the funds used for the security deposit.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302533 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 31-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 21-12-2022
• Other Referred Cases: ITA No.1925/Mum/2022
• Laws Referred To: Section 143(3), Section 40A (2)(b)
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘SMC ‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3223/Mum/2022 (Assessment Year :2015-16) M/s. STYL Rite Optical Industries Pattani House 425, Kalbadevi Road Kalbadevi, Mumbai-400 002 Vs. Asst. Commissioner of Income Tax, Circle 18(3) 6 th Floor, Earnest House Nariman Point Mumbai – 400 021 PAN/GIR No.AACFS3919G (Appellant) .. (Respondent) Assessee by Shri Shashank Mehta Revenue by Shri Minal Kamble Date of Hearing 01/02/2023 Date of Pronouncement 31/03/2023 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 04/07/2022 passed by NFAC, Delhi for the quantum of assessment passed u/s. 143(3) for the A.Y.2015-16. ITA No.3223/Mum/2022 STYL Rite Optical Industries 2 2. The only issue raised is with regard to addition of notional interest amounting to Rs.10,20,000/- being 12% of interest deposits for acquiring the premises on rent. Before us, the ld. Counsel had submitted that this Tribunal in A.Y.2013-14 had set aside this issue to the AO for verification. 3. The facts in brief are that the assessee has acquired business premises of 14,000 sq.ft area on a yearly rent of Rs.24,56,640/- from M/s. Patni Ventures Pvt. Ltd. For acquiring the space, assessee has given interest free security deposits of Rs.85,00,000/-. It has been noted in the assessment order that M/s. Patni Ventures Pvt. Ltd, is the sister concern of assessee firm within the meaning of Section 40A (2)(b) of the Act. The AO noted that assessee was having substantial amount of loan funds on which it has incurred total interest expenditure of Rs. 1,00,41,992/- and on the other hand, assessee advanced security deposit of Rs.85,00,000 for sister concern without charging any interest. In response to show-cause notice, assessee submitted detailed reply and one of the key issues raised was that, as per the rent agreement with M/s. Patni Ventures Pvt. Ltd. rent payable was Rs.2,00,000/- per month which was much lower than the market rates. The deposit was given from the capital account of the partners and reduced by the partners in the previous years and not from any loan on which interest has been paid. Therefore, there was no direct co- relation between loan taken and deposit given. Alternatively it was stated that if notional interest of 9% is added and the deposit given, then rent paid would come to Rs.2,63,750/- which ITA No.3223/Mum/2022 STYL Rite Optical Industries 3 would be Rs.18.90 per sq.ft as compared to @ Rs.14.25/- per sq.ft. However, the Assessing Officer rejected the assessee’s contention and accordingly applied notional rent of 12% on the security deposit of Rs. 85,00,000/- and added Rs.10,20,000/-. 3.1 The ld. CIT A) has confirmed the action of the AO. We find that this Tribunal in assessee’s own case in ITA No.1925/Mum/2022 dated 08/11/2022 for A.Y.2013-14 had made the following observations:- 6. So far as question of addition of Rs.10,20,000/- on account of notional interest being 12% of the interest on security deposit made by the Assessing Officer is concerned, the assessee, though claimed that it was having own surplus interest free funds which were utilized for depositing the security of Rs.85 lakhs with M/s Patni Ventures Pvt Ltd. but strangely enough, assessee has not brought on record any evidence to prove this fact before Ld.Assessing Officer as well as Ld.CIT(A). 7. However, during the course of argument, Ld.AR for the assessee filed balance-sheet and P&L Account showing surplus interest free funds at its disposal to meet with the expenses of deposing Rs.85 lakhs with M/s Patni Ventures Ltd, which have never been verified by the Assessing Officer. So the issue is required to be sent back to the Assessing Officer to verify the evidence brought on record by the assessee and allow the same, if found correct. Consequently, this ground is allowed for statistical purpose. Resultantly, appeal filed by the assessee is partly allowed. 4. Thus, in view of the direction given by the Tribunal in the earlier year, we also remand back the issue to the file of the ld. AO on similar lines. Accordingly, the appeal of the assessee is allowed for statistical purposes. ITA No.3223/Mum/2022 STYL Rite Optical Industries 4 5. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 31 st March, 2023 Sd/- (S. RIFAUR RAHMAN) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 31/ 03/2023 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//