ACIT, New Delhi V. M/s. Saks Ancillaries Ltd., New Delhi

ITA 3799/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65886 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 12-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: Y K SHARMAAR
• Keywords: Additional evidence
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM ITA NO.3799/DEL/2011 ASSESSMENT YEAR: 2007-08 A.C.I.T.,CIRCLE-7(1), ROOM NO.312, 3 RD FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI V/S . M/S SAKS ANCILLARIES LTD., F-7, BLOCK B-1, MCIE, MATHURA ROAD, NEW DELHI [PAN : AAACS 9091 C ] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI Y.K. SHARMA,AR REVENUE BY SHRI SATPAL SINGH, DR DATE OF HEARING 12-11-2012 DATE OF PRONOUNCEMENT 23-11-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 09.08.2011 BY THE REVENUE AGA INST AN ORDER DATED 31.05.2011 OF THE LD. CIT(A)-X, NEW DELHI, RA ISES THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF ` 56,30,000/- MADE BY THE AO ON ACCOUNT OF DISALLOWAN CE OF RENT PAID. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, AD D OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING INCOME OF ` `70,41,343/- FILED ON 23 RD OCTOBER, 2007 BY THE ASSESSEE, MANUFACTURING WIRING HARNESS FOR AUTOMOBILES, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT), WAS SELECTED FOR ITA N O.3799 /DEL./2011 2 SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT, ISSUED ON 15.09.2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE DEBITED AN AMOUNT OF ` ` 56,30,000/- ON ACCOUNT OF RENT. TO A QUERY BY AO, THE ASSESSEE REPLIED TH AT THE RENT WAS PAID TO M/S MOTHERSON SUMI SYSTEMS LTD., THE PRINCIPAL COMPANY OF THE ASSESSEE.IN ORDER TO ASCERTAIN THE GENUINENESS OF THE CLAIM, THE AO DEPU TED HIS INSPECTOR FOR A STATUS REPORT. THE INSPECTOR AFTER RECORDING STATEMENT OF ACCOUNTANT OF THE ASSESSEE ON 17.11.2009 SUBMITTED HIS REPORT, MENTIONING THAT T HE PREMISES WAS A THREE STOREYED BUILDING CONSTRUCTED ON AN APPROXIMATE ARE A OF 40,000 SQ. FT. AND APPEARED TO BE 10 YEARS OLD. THE ASSESSEE WAS FOU ND IN OCCUPATION OF THE FIRST AND SECOND FLOORS ON RENTAL BASIS WHILE THE GROUND FLOOR WAS OCCUPIED BY M/S MOTHERSON SUMI SYSTEMS LTD. AS POINTED OUT BY THE ACCOUNTANT IN HIS STATEMENT, THERE WAS NO VACANT LAND AS CLAIMED IN T HE AGREEMENT. BASED ON THE INSPECTORS REPORT, THE AO OBSERVED THAT THERE BE ING NO SHED SPACE,WHEREON THE ASSESSEE CARRIED ON MANUFACTURING ACTIVITIES O R USED FOR THE PURPOSE OF BUSINESS AND THE ASSESSEE HAVING USED 1 ST & 2ND FLOOR OF THE BUILDING, DETAILS IN THE RENT AGREEMENT WERE WRONG. IN THE LIGHT OF AFO RESAID REPORT OF THE INSPECTOR AND AVERMENTS MADE IN THE RENT AGREEMENT, THE AO FU RTHER OBSERVED THAT A) THERE NEVER WAS ANY VACANT LAND SHED SPACE AS MENTI ONED IN THE AGREEMENT AND B) THERE WAS NO CONSTRUCTION OR ALTERATION AS STATE D BY THE ACCOUNTANT. ACCORDINGLY WHILE CONCLUDING THAT NO SUCH SHED SPA CE WHICH WAS VACANT LAND, AS WAS REFERRED TO IN THE RENT AGREEMENT, HAVING BE EN USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES, AND THE ASSESSEE HAVING CLAI MED THAT THE RENT WAS PAID FOR THE USE OF THE SHED/VACANT LAND AND INSTEAD A T HREE STOREYED BUILDING WAS CONSTRUCTED ON THE LAND, THE AO DISALLOWED THE CLAI M FOR PAYMENT OF ` `56,30,000/- FOR USE OF VACANT SHED SPACE. 3. ON APPEAL, THE LD. CIT(A)AFTER ADMITTING ADDITI ONAL EVIDENCE IN THE LIGHT OF REPORT OF THE AO, ALLOWED THE CLAIM OF THE ASSESSEE, IN THE FOLLOWING TERMS: ITA N O.3799 /DEL./2011 3 2.2 CHALLENGING THE AFORESAID ACTION OF THE ASSES SING OFFICER, THE ARS HAVE BROADLY SUBMITTED THAT THE INSPECTORS REPORT WAS NOT CONFRONTED TO THE APPELLANT, NOR ANY SHOW CAUSE NOT ICE WAS ISSUED TO THE APPELLANT BEFORE MAKING THE IMPUGNED ADDITION. HEN CE, APPELLANT FILED AN APPLICATION UNDER RULE 46A OF THE I.T. RULES, FURNI SHING THE FOLLOWING DOCUMENTS IN SUPPORT OF ITS CLAIM THAT THE PAYMENT OF RENT WAS GENUINE AND MANUFACTURING OPERATIONS OF THE APPELLANT COMPA NY HAVE BEEN GOING ON AT THE GIVEN RENTED PREMISE: I) LICENCE TO WORK IN THE SAID PREMISES AS A FACTOR Y ISSUED UNDER FACTORIES ACT. II) SERVICE TAX REGISTRATION CERTIFICATE ISSUED UND ER FINANCE ACT, 1994. III) CENTRAL EXCISE REGISTRATION CERTIFICATE ISSUED IN FAVOUR OF THE APPELLANT IN THE LIGHT OF CBECS CIRCULAR NO.662/53 /202-CX DATED 17.09.2009. IV) TRADE TAX REGISTRATION ISSUED UNDER THE UP TRAD E TAX ACT, 1948. V) LETTER FROM THE OFFICE OF ASSISTANT COMMISSIONER CUSTOMS AND CENTRAL EXCISE TO M/S MOTHERSON SUMI SYSTEMS LT D. TO EXCLUDE THE AREA OF PREMISES FROM THE REGISTRATION NUMBER WHICH IS USED BY SAKS ANCILLARIES LTD. 2.3 THE AFORESAID ADDITIONAL EVIDENCE WAS FORWA RDED TO THE ASSESSING OFFICER FOR COMMENTS. IN REPLY, THE ASS ESSING OFFICER HAS REITERATED THAT IN VIEW OF CATEGORICAL REPORT OF TH E INSPECTOR, THE ADDITIONAL EVIDENCE NOW FURNISHED IN THE FORM OF REGISTRATION CERTIFICATES ISSUED BY VARIOUS AUTHORITIES FAVOUR OF THE APPELLANT COMPANY , SHOWING ITS MANUFACTURING OPERATIONS AT THE SAID ADDRESS, CANNO T BE RELIED UPON. ADJUDICATION: 2.4 A COPY OF THE SAID REMAND REPORT HAS BEEN MADE AVAILABLE TO THE APPELLANT COMPANY FOR ITS COMMENTS. IN RESPONSE TO THE SAME, THE APPELLANT HAS FURNISHED A WRITTEN SUBMISSION. MORE OVER, SOME FURTHER DETAILS INCLUDING THE ORIGINALS OF VARIOUS CERTIFIC ATES MENTIONED IN PARA 2.2 OF THIS ORDER, WHICH WERE CALLED FOR BY .THE UNDERS IGNED, HAVE ALSO BEEN SUBMITTED. AFTER HAVING EXAMINED THE ENTIRE MATERI AL SUBMITTED VIDE APPLICATION UNDER RULE 46A AND SUBSEQUENTLY DURING THE COURSE OF HEARING BEFORE ME AND THE CONTENTS OF THE INSPECTORS REPOR T AND THE STATEMENT OF THE COMPANYS ACCOUNTANT, SHRI D.S. RAJPUROHIT, REC ORDED BY THE INSPECTORS AT THE TIME OF THEIR VISIT, I PROCEED TO DETERMINE THE ISSUE IN THE FOLLOWING PARAS. ITA N O.3799 /DEL./2011 4 2.5 THE APPELLANT COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURING OF WIRING HARNESS FOR AUTOMOBILE SECTOR. THESE ITEMS ARE USED BOTH IN TWO WHEELERS, THREE WHEELERS, CARS, LORRIES ETC. IT IS AN OEM SUPPLIER BOTH DIRECTLY AND THROUGH ITS PRINCIPAL SHAREHOLDER AND LANDLORD M/S MOTHERSON SUMI SYSTEMS LTD. SINCE OCTOBER, 2001, IT WAS HAVIN G ITS MANUFACTURING OPERATIONS AT C-39, SECTOR 57, NOIDA WHEREIN THEY H AD TAKEN ON RENT APPROX. FLOOR SPACE OF 32000 SQ. FT. SINCE THE EARL IER RENT AGREEMENT WAS GOING TO EXPIRE IN 2006, AND THE APPELLANT COMPANY NEEDED ADDITIONAL SPACE, IT ENTERED INTO AN AGREEMENT ON 10-03-2006 F OR TAKING ON LEASE AN AREA OF APPROX. 42300 SQ. FT. FROM M/S MOTHERSON SU MI SYSTEMS LTD, WHICH ALSO HAPPENS TO BE ONE OF THE MAJOR SHAREHOLD ERS OF THE APPELLANT COMPANY. SINCE M/S MOTHERSON SUMI SYSTEMS LTD WAS H AVING SOME VACANT SPACE IN ONE OF ITS OWN PREMISES, THE APPELL ANT COMPANY TOOK ON LEASE 2 FLOORS IN THE SAID PREMISE (FIRST AND GROUN D FLOOR), COVERING APPROX. 42300 SQ. FT. FOR ITS' MANUFACTURING OPERATIONS. SI NCE PLACE OF MANUFACTURING GOT SHIFTED FROM ONE PREMISE TO ANOTH ER, THE APPELLANT COMPANY TOOK FRESH REGISTRATION FROM THE CENTRAL EX CISE AUTHORITIES. VIDE LETTER DATED 10-03-2006, THE ASSTT. COMMISSIONER (C ENTRAL EXCISE),' DIVISION I, NOIDA HAS GRANTED REGISTRATION FOR THE SAID RENTED PREMISE (FIRST AND SECOND FLOOR OF C-6 & 7, SECTOR I, NOIDA). IT I S ALSO PERTINENT TO NOTE HERE THAT THESE TWO FLOORS WERE EARLIER REGISTERED IN THE NAME OF THE LANDLORD I.E. M/S MOTHERSON SUMI SYSTEMS LTD WITH T HE CENTRAL EXCISE AUTHORITIES AND VIDE AN AMENDMENT ORDER DATED 08-03 -2006, THE ASSTT. COMMISSIONER OF CUSTOMS & EXCISE, NOIDA ALLOWED TH E LANDLORD TO EXCLUDE THESE 2 FLOORS FROM ITS REGISTERED PREMISE. THE APPELLANT COMPANY HAS ALSO OBTAINED 'A LICENCE' U/S 6 OF THE FACTORIE S ACT, 1948 FROM DIRECTOR OF FACTORIES, UP GOVT. TO OPERATE FROM THE SAID PRE MISES. IN THE SAID LICENCE, THE ADDRESS OF THE APPELLANT COMPANY HAS B EEN MENTIONED AS 1ST AND 2ND FLOOR, C-6 & 7, SECTOR I, NOIDA. SIMILARLY, A REGISTRATION UNDER U.P. TRADE TAX ACT HAS ALSO BEEN ISSUED IN FAVOUR O F THE IMPUGNED ADDRESS. 2.6. ANOTHER POINT TO BE KEPT IN VIEW IS THAT PAYM ENT OF RENT BY THE APPELLANT TO M/S MOTHERSON SUMI SYSTEMS LTD IS SUBJECTED TO TDS U/S 194I OF THE IT. ACT. THE APPELLANT HAS PRODUCED A COPY OF THE TDS C ERTIFICATE SHOWING PROOF OF DEDUCTION OF ` `12,52,152/- FROM THE RENT PAID BY IT TO M/S MOTHERSON SUMI SYSTEMS LTD. THE CREDIT FOR THIS TDS AMOUNT HAS IN TURN BEEN CLAIMED AND RENTAL INCOME HAS BEEN OFFERED TO TAX BY THE LANDLORD COMPANY. A COPY OF THE RETURN OF INCOME OF M/S MOTH ERSON SUMI SYSTEMS LTD FOR A.Y. 2007-08, DISCLOSING RETURNED INCOME OF ` `94.84 CRORES HAS BEEN FILED. FROM THIS EVIDENCE, IT WAS IMPRESSED UP ON ME THAT WHEN THE LANDLORD COMPANY WAS HAVING RETURNED INCOME MORE TH AN ` `94 CRORES AND THE APPELLANT COMPANY WAS HAVING RETURNED INCOME OF MORE THAN `70 LACS, THERE WOULD NOT BE ANY INTENTION TO CLAIM ANY BOGUS EXPENSE IN THE FORM OF RENT SINCE BOTH 'COMPANIES ARE LIABLE TO PA Y TAX AT THE SAME RATE. THIS ARGUMENT HAS MERIT AND IN ORDER TO EXAMINE THE GENUINENESS OF THIS ITA N O.3799 /DEL./2011 5 CLAIM OF TDS DEDUCTION, FORM NO.26AS OF THE LANDLOR D COMPANY I.E. M/S MOTHERSON SUMI SYSTEMS LTD WAS SEEN FROM THE INCOME TAX DEPARTMENT'S WEBSITE INCOMETAXINDIAEFILING.GOV.IN I N MY PRESENCE AND IT WAS FOUND THAT THE APPELLANT COMPANY HAS DEDUCTED T HE TDS AND CREDIT FOR THE SAME HAS BEEN TAKEN BY THE LANDLORD COMPANY . 2.7. IN THE LIGHT OF THIS OVER-WHELMING EVIDENCE, I HAVE WEIGHED THE EVIDENTIARY VALUE OF THE INSPECTORS' REPORT, ON WHICH HEAVY REL IANCE HAS BEEN PLACED BY THE A.O. THE INSPECTORS' REPORT IN TURN ALSO REL IED UPON THE STATEMENT OF SHRI D.S. RAJPUROHIT, THE ACCOUNTANT OF THE APPE LLANT COMPANY, WHO WAS HIMSELF AVAILABLE AT THE SAID PREMISE DURING THE TI ME WHEN THE PLACE WAS VISITED BY THE INSPECTORS OF THE DEPARTMENT. THERE IS NO DOUBT THAT SHRI D.S. RAJPUROHIT IN HIS STATEMENT HAS CONFIRMED THAT THE INDUSTRIAL SHED OF 43000 SQ. FT. LOCATED ON FIRST AND SECOND FLOORS OF PLOT NO. C-6-7, SECTOR-I, NOIDA HAS INDEED BEEN TAKEN ON RENT FOR USE BY THE APPELLANT COMPANY. THE MISUNDERSTANDING HAS BEEN AROUSED IN THE MINDS OF THE INSPECTORS AND' CONSEQUENTLY IN THE MIND OF THE ASSESSING OFFI CER BECAUSE THEY PRESUMED THE MEANING OF THE WORDS 'SHED SPACE LYING VACANT' TO BE 'VACANT LAND'. THIS MISUNDERSTANDING WAS PROBABLY C AUSED BECAUSE THEY WENT BY THE LITERARY MEANING WITHOUT LOOKING AT THE POPULAR USAGE OF THE WORD BY PEOPLE' IN THE AREA', ACCORDING TO THE LD. ARS, THE WORDS 'SHED SPACE LYING VACANT' WAS USED IN THE RENT AGREEMENT BECAUSE THE PLACE WHICH WAS TAKEN ON RENT WAS ACTUALLY AN INDUSTRIAL SHED, BUT NOT A VACANT LAND. ON THE FACE OF IT, THERE IS NO REASON TO DISB ELIEVE THE MEANING' ASSIGNED TO THESE WORDS BY THE PARTIES TO THE AGREE MENT. WHILE CONSTRUING THE MEANING OF ANY AGREEMENT, THE INTERPRETATION PU T ON THE SAME BY THE PARTIES CONCERNED, HAS RELIANCE AND THE FACT THAT B OTH OF THEM ACTED ON THE SAME AGREEMENT, WOULD SHOW THAT IT WAS INDEED AN I NDUSTRIAL SHED WHICH WAS LEASED OUT TO THE APPELLANT COMPANY. 2.8 FURTHER, IF WE LOOK AT THE STATEMENT OF THE ACC OUNTANT OF THE APPELLANT COMPANY RECORDED DURING THE COURSE OF VISIT BY THE INSPECTORS, IT IS EVIDENT THAT THERE IS A CONFIRMATION FROM HIS SIDE AS WELL AS THAT APPELLANT COMPANY HAS TAKEN TWO FLOORS OF THE SAID PREMISE ON RENT. THERE IS NO DENIAL FROM HIS SIDE. THE INSPECTORS REPORT APPEAR S TO BE ONLY INDULGING IN HAIR-SPLITTING OVER THE MEANING OF THE WORDS SHED SPACE LYING VACANT. AS NOTED EARLIER, THERE IS A PLETHORA OF EVIDENCE TO P ROVE THAT THERE WAS VACANT INDUSTRIAL SHED OF 43000 SQ. FT. APPROX. AVA ILABLE FOR LETTING OUT. THE OTHER CONTENTION OF THE ASSESSING OFFICER THAT IT WAS A COLLUSIVE ARRANGEMENT TO EVADE TAX, HAS ALSO FALLEN FLAT IN T HE LIGHT OF EVIDENCE AVAILABLE PROVING THAT BOTH THE COMPANIES WERE PAYI NG TAXES IN THE RELEVANT ASSESSMENT YEAR AND THERE HAS BEEN NO SAVI NG OF TAX IN EITHER HANDS. ACCORDINGLY, THE APPELLANT SUCCEEDS ON THIS GROUND AND ADDITION ON ACCOUNT OF RENT PAYMENT MADE BY THE ASSESSING OF FICER IS DIRECTED TO BE DELETED. ITA N O.3799 /DEL./2011 6 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED T HE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS IN THE IMPUGNED ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND G ONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, AND AS POINTED OUT BY THE LD. CIT(A), THE ASSESSEE HAD ITS MANUFACTURING OPERATIONS IN THE 1 ST & 2 ND FLOOR OF THE BUILDING ON PLOT C-6 & 7, SECTOR-1, NOIDA IN THE RENTED PREMISES HAVING AREA OF ABOUT 42,000 SQ. FT. OF SHED SPACE IN TERMS OF AN AGREEMENT ENTERED ON 10- 03-2006 WITH M/S MOTHERSON SUMI SYSTEMS LTD.. ON THE BASIS OF REGIST RATION WITH THE CENTRAL EXCISE AUTHORITIES AND LICENSE FROM DIRECTOR OF FAC TORIES, UP AS ALSO THE FACT THAT THE ASSESSEE AS WELL AS M/S MOTHERSON SUMI SYSTEMS LTD WERE ASSESSED IN THE SAME TAX BRACKET AND THE ASSESSEE COMPANY DEDUCTED TAX AT SOURCE , THE LD. CIT(A) OBSERVED THAT THE MISUNDERSTANDING AROUSED IN THE MINDS OF THE INSPECTOR AND THE AO BECAUSE THEY PRESUMED THE MEAN ING OF THE WORDS 'SHED SPACE LYING VACANT' TO BE 'VACANT LAND'. SINCE IND USTRIAL SHED INDEED WAS LEASED OUT TO THE ASSESSEE COMPANY, WHICH WAS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THE LD. CIT(A) ALLOWED TH E CLAIM FOR DEDUCTION OF RENT. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE REVE NUE HAVE NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LD. CIT(A),SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, THERE IS NO BASIS TO INTERFERE. CONSEQUENTLY, GROUND NO.1 IN THE APP EAL IS DISMISSED. 6.. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TER M OF RESIDUARY GROUND NO.2 IN THE APPEAL, ACCORDINGLY THIS GROUND IS ALSO DISMISSED. 7. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. ITA N O.3799 /DEL./2011 7 8. IN THE RESULT, APPEAL IS DISMISSED. SD/- SD/- (C.M. GARG) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. A.C.I.T.,CIRCLE-7(1), ROOM NO.312, 3 RD FLOOR, C.R. BUILDING, I.P. ESTATE,NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-X, NEW DELHI 5. DR, ITAT, G BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT