M/s. VINOD BHANDARI HUF, Indore V. THE ITO 2(2), Indore

ITA 440/IND/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1944 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-08-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MISHRA
• Assessee Lawyers: GIRISH AGRAWALCA
• Keywords: Transfer pricing; Fair market value
• Section: 143(3); 12AA

Judgement Text

VINOD BHANDARI HUF ITA NO.440/IND/2015 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.440/IND/2015 ASSESSMENT YEAR: 2010-11 REVENUE BY SHRI P.K. MISHRA , SR. DR ASSESSEE BY SHRI GIRISH AGRAWAL,CA DATE OF HEARING 28.8.2018 DATE OF PRONOUNCEMENT 30.8.2018 O R D E R PER MANISH BORAD, AM. THIS APPEAL FILED BY THE ASSESSEE PERTAI NING TO THE A.Y. 2010- 11 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONE R OF INCOME-TAX (APPEALS)-I (IN SHORT LD. CIT(A), INDORE DATED 30.0 1.2015 WHICH IS ARISING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT DATED 29.09.2010 PASSED BY ITO-2(2), INDORE. M/ S VINOD BHANDARI HUF, 181, TEXTILE CLERK COLONY, INODRE VS. INCOME TAX OFFICER 2 ( 2 ), INDORE ( APPELLANT ) (RESPONDENT ) PAN NO.AAAHV 6466K VINOD BHANDARI HUF ITA NO.440/IND/2015 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL; THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME-TAX (APPEALS-1), INDORE WAS NOT JUSTIFIED IN 1. IN DISMISSING THE APPEAL AS IT IS UNREASONABLE, UNJ USTIFIED, NOT BASED ON FACTS ON RECORDS AND CONTRARY TO SETTLED POSITIO N OF LAW. 2. DISMISSAL OF GROUND 1(A) OF APPEAL AGAINST DISALLOW ANCE U/S 40A(2)(B) EXCESS OF RENT RS.1259350/- 3. DISMISSAL OF GROUND 1(A) OF APPEAL AGAINST DISALLOW ANCE U/S 40A(2)(B) OF PRACTICAL FEE RS.518692/- 4. IN HOLDING THAT APPELLANT IS REQUIRED TO WHO USE OF EACH ROOM OF THE BUILDING TAKEN ON RENT DESPITE OF RENT BEING PAID A T ARMS LENGTH PRICE. 5. IN APPRECIATING THAT AO HAS NOT DISCHARGED HIS ONUS BY BRINGING ON RECORD ANY INDEPENDENT EVIDENCE OF RENT/SERVICE CHA RGES PAYABLE IN COMPARABLE UNCONTROLLED TRANSACTION, BEFORE SEEKING TO DISALLOW DEDUCTION BY INVOKING SECTION 40A(2) OF THE ACT. 6. IN HOLDING THAT PAYMENTS TO SRI AUROBINDO INSTITUTE OF SCIENCES ( A CHARITABLE ORGANIZATION APPROVED U/S 12AA OF THE AC T) IS COVERED U/S 40A(2)(B) OF THE ACT. 7. IN HOLDING THE ADDITION MADE BY AO AGAINST PAYMENT OF PRACTICAL FEE WITHOUT BRINGING ANY OTHER EVIDENCE ON RECORD COUNT ERING HOW THE PRACTICAL TRAINING FEES OF RS.850/- PER NURSE PER M ONTH WAS NOT CONSIDERED AT ARMS LENGTH PRICE. VINOD BHANDARI HUF ITA NO.440/IND/2015 3 3. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONLY TWO ISSUES WHICH NEEDS ADJUDICATION RELATES TO DISALLOWANCE U/S 40A(2)(B) OF THE ACT FOR EXCESS RENT PAID AT R S.12,59,350/- AND PRACTICAL FEES OF RS.5,18,692/-. 4. BRIEFLY STATED FACTS OF THE CASE AS CULLED OUT FROM THE RECORDS IS THAT THE ASSESSEE IS A HINDU UNDIVIDED FAMILY (HUF) RUNNING A NURSING COLLEGE. RETURN OF INCOME FILED ON 29.09.20 10 DECLARING INCOME OF RS.4,46,250/-. CASE WAS SELECTED FOR SCR UTINY AND NECESSARY NOTICES U/S 143(2) AND 142(1)(II) OF THE ACT WERE ISSUED AND DULY SERVED UPON THE ASSESSEE. LD. ASSESSING O FFICER ON OBSERVING THAT THE ASSESSEE HAS PAID A RENT OF RS.2 5,18,700/- FOR A BUILDING TAKEN FROM A RELATED PARTY BUT THE AREA TA KEN ON RENT IS MUCH MORE THAN WHAT WAS REQUIRED BY THE ASSESSEE FO R THE NUMBER OF STUDENTS STUDYING IN THE NURSING SCHOOL IN THE B HRC SCHOOL OF NURSING. HE ACCORDINGLY MADE LUMP SUM DISALLOWANCE OF 50% OF RS.12,59,350/-. LD.AO FURTHER ON EXAMINING THE PR ACTICAL FEES EXPENSES NOTICED THAT THE ASSESSEE COULD NOT PRODUC E PROPER BASE AND SUPPORTING DOCUMENTS FOR CLAIMING THE PRACTICAL FEES VINOD BHANDARI HUF ITA NO.440/IND/2015 4 EXPENDITURE SHOWN AT RS.9,62,200/- TO A RELATED PAR TY, WHICH WERE BOOKED ON THE LAST DAY OF FINANCIAL YEAR. LD.AO ON THE BASIS OF SUBMISSIONS AND DETAILS MADE DURING THE COURSE OF A SSESSMENT PROCEEDINGS CONCLUDED THE ASSESSMENT BY DISALLOWING THE EXPENDITURE OF RS.5,18,692/- U/S 40A(2)(B). INCOME ASSESSED AT RS.22,24,290/-. 5. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD.CI T(A) BUT FAILED TO SUCCEED. 6. NOW THE ASSESSEE FILED THE APPEAL BEFORE THE TRI BUNAL. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE SUBMISSION S MADE BEFORE THE LOWER AUTHORITIES AND ALSO MADE REFERENCE TO DO CUMENTS PLACED AT PAGE 1 TO PAGE 33 OF THE PAPER BOOK DATED 11.01. 2016 AS WELL AS RELIED ON THE CASE LAWS MENTIONED IN THE PAPER BOOK FROM PAGE 1 TO 33. HE FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS MADE AD- HOC DISALLOWANCE WITHOUT BRINGING ON RECORD ANY DET AIL TO SHOW THAT ANY UNDUE BENEFIT HAS BEEN GIVEN TO THE RELATED PAR TY. 7. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATIV E VEHEMENTLY ARGUED SUPPORTING THE ORDERS OF LOWER AUTHORITIES. HE FURTHER VINOD BHANDARI HUF ITA NO.440/IND/2015 5 REFERRED AND RELIED ON THE JUDGMENT OF HON'BLE GUJA RAT HIGH COURT IN THE CASE OF CORONATION FLOUR MILLS V/S ACIT (2 009)314 ITR1 SUBMITTING THAT IN CASE THE ASSESSEE IS UNABLE TO F ULFILL ANY OF THE THREE REQUIREMENTS PROVIDED IN SECTION 40A(2)(B) OF THE ACT, IF SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO (I) FAIR MARKET VALUE OF THE GOODS, SERVICES AND FACILITIES (II) THE LEGITIMATE NEED OF THE BUSINESS OF THE ASSESSEE AND (III) BENE FITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES THEN THE DISALLOWANCE U/S 40A(2)(B) OF T HE ACT CAN BE MADE. HE SUBMITTED THAT BOTH THE LOWER AUTHORITIES HAVE CLEARLY OBSERVED THAT THE RENT PAID WAS EXCESSIVE LOOKING T O THE LEGITIMATE NEED OF THE BUILDING AREA REQUIRED AND SIMILARLY FO R PRACTICAL FEES THE ASSESSEE COULD NOT PROVE THAT THE BENEFITS WERE ACTUALLY DERIVED FROM SUCH SERVICES. HE REQUESTED FOR SUSTAINING TH E DISALLOWANCE. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE ASSESSEE IS AGGRIEVED WITH THE FIND INGS OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE U/S 40A(2)(B) OF THE ACT FOR EXCESS RENT OF RS.12,59,350/- AND DISALLOWANCE OF PRACTICA L FEES OF RS.5,18,692/-. FROM PERUSAL OF THE ORDERS OF LD.A. O WE FIND THAT VINOD BHANDARI HUF ITA NO.440/IND/2015 6 THE DISALLOWANCE FOR RENT HAS BEEN MADE ON AD-HOC B ASIS. IT IS TRUE THAT THE LD.A.O INITIATED TO MAKE AN ENQUIRY TO EXA MINE THE REASONABLENESS OF THE EXPENDITURE OF RENT CLAIMED B UT WITHOUT REACHING TO THE CONCLUSION WITH PROPER EVIDENCE HE ENDED UP WITH AD-HOC DISALLOWANCE OF 50%. SIMILARLY WHILE DEALIN G WITH THE ISSUE OF PRACTICAL EXPENDITURE ALSO LD.A.O INITIATED THE ENQUIRY BUT COULD NOT CONCLUDE WITH NECESSARY OBSERVATIONS AND MERELY DISALLOWED THE AD-HOC AMOUNT OF PRACTICAL FEES OF RS.5,18,692/ -. THE OBSERVATIONS MADE BY THE LD.A.O CERTAINLY RAISES SO ME DOUBTS ABOUT THE REASONABLENESS OF THE EXPENDITURE CLAIMED TOWARDS RENT AND PRACTICAL FEES BUT IN ABSENCE OF ANY CONCRETE F INDING WE ARE UNABLE TO DECIDE THE ISSUES. WE THEREFORE DEEM IT PROPER TO SET ASIDE ALL ISSUES RAISED IN THIS APPEAL RELATING TO DISALLOWANCE U/S 40A(2)(B) OF THE ACT TO THE FILE OF LD.A.O FOR DENOVO ADJUDICATION AND DIRECT ASSESSING OFFICER TO MAKE PROPER ENQUIRY AND IF REQUIRED SHOULD PROCURE A REPORT THROUGH HIS/HER INSPECTOR T O GET THE ACTUAL DETAILS AND GENUINENESS OF THE CLAIM OF THE ASSESSE E AND BASED ON THE FACTUAL DETAILS AS WELL AS FAIR MARKET VALUE OF THE SERVICES, THE VINOD BHANDARI HUF ITA NO.440/IND/2015 7 LD.A.O SHOULD DECIDE ACCORDINGLY. NEEDLESS TO MENTI ON THAT PROPER OPPORTUNITY BEING HEARD SHOULD BE GIVEN TO THE ASSE SSEE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSE. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.8.20 18. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 30, AUGUST, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE