ITO 1(2)(2), MUMBAI V. KILACHAND DEVCHAND & CO. P.LTD, MUMBAI

ITA 4424/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4206 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 01-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MADANAPAA RAGHUVEER
• Assessee Lawyers: D J SHUKLA
• Keywords: Non-deduction of tax

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI , , BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./ ITA NO.4424/M/2011 ( / ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER 1(2)(2), R.NO.527, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 / VS. M/S. KILACHAND DEVCHAND & CO. PVT. LTD., ORIENTAL HOUSE, 5 TH FLOOR, 7 JAMSHEDJI TATA ROAD, CHURCHGATE, MUMBAI 400 020 PAN: AABCK9303Q ( / APPELLANT) ( !' /RESPONDENT) ./ CO NO. 111/M/2012 (ARISING OUT OF ITA NO.4424/M/2011) ( / ASSESSMENT YEAR: 2007-08) M/S. KILACHAND DEVCHAND & CO. PVT. LTD., ORIENTAL HOUSE, 5 TH FLOOR, 7 JAMSHEDJI TATA ROAD, CHURCHGATE, MUMBAI 400 020 PAN: AABCK9303Q / VS. INCOME TAX OFFICER 1(2)(2), R.NO.527, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 ( / APPELLANT) ( !' /RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI D.J. SHUKLA, A.R. REVENUE BY : SHRI MADANAPAA RAGHUVEER, SR. D.R. / DATE OF HEARING : 12.02.2016 / DATE OF PRONOUNCEMENT : 07.04.2016 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED CROSS APPEALS ARE BY THE REVENUE A ND THE OTHER BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 2 TAX APPEALS [HEREINAFTER REFERRED TO AS THE CIT (A) ]. SINCE THE FACTS AND ISSUES INVOLVED THEREIN ARE IDENTICAL IN NATURE, HENCE THE SAME ARE TAKEN TOGETHER FOR DISPOSAL BY THIS COMMON ORDER. FIRST WE TAKE UP TH E APPEAL OF THE REVENUE. THE REVENUE IN THIS APPEAL HAS TAKEN THREE EFFECTIV E GROUNDS OF APPEAL. GROUNDS NOS. 1& 2 2. GROUND NUMBER 1 IS IN RELATION TO THE ADDITION M ADE BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) ON ACCO UNT OF ACCRUAL OF RENT OF RS.32,19,515/- WHEREAS GROUND NO. 2 IS IN RELATION TO THE DISALLOWANCE MADE BY THE AO FOR NON DEDUCTION OF TAX AT SOURCE IN RES PECT OF RENT PAYABLE. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSE SSEE HAD ACQUIRED OFFICE SPACE ON LEASE FROM NEW GREAT INSURANCE COMPANY WHICH SUB SEQUENTLY MERGED WITH ORIENTAL INSURANCE COMPANY. THE ASSESSEE SUBLETTED A PART OF THE BUILDING TO OTHER ASSOCIATE COMPANIES. AS PER THE TERMS OF THE LEASE DEED, THE ASSESSEE WAS ALLOWED TO SUBLET THE OFFICE PREMISES IN ITS POSSES SION WITHOUT CHARGING ANY HIGHER RENT, WHICH MEANS THAT THE ASSESSEE COULD SU BLET THE PREMISES AT THE SAME RATE OF RENT, WHICH THE ASSESSEE PAID TO THE L ESSOR INSURANCE COMPANY. THE LEASE DEED ENTERED INTO BY THE ASSESSEE WITH THE LE SSOR INSURANCE COMPANY EXPIRED IN THE YEAR 1987. HOWEVER THE LESSOR REFUSE D TO RENEW THE LEASE DEED. SINCE THERE AROSE A DISPUTE BETWEEN THE LESSOR AND THE ASSESSEE, THE ASSESSEE STOPPED PAYING RENT TO THE INSURANCE COMPANY FROM T HE YEAR 2000 ONWARDS. THE ASSESSEE ALSO DID NOT CHARGE OR RECEIVE ANY REN T FROM THE SUBLETTEE COMPANIES. THE AO OBSERVED THAT THE ASSESSEE HAD NO T CREDITED THE RENT RECEIVABLE IN THE PROFIT AND LOSS ACCOUNT AND HAD N OT OFFERED ANY INCOME IN THIS RESPECT. HE WAS OF THE VIEW THAT THE RENTAL INCOME HAD ACCRUED TO THE ASSESSEE. THE ASSESSEE EXPLAINED THAT NO ELEMENT OF INCOME WA S INVOLVED IN RENTING OUT OF THE PREMISES. THE ASSESSEE HAD TO PAY THE SAME R ENT AS WAS RECEIVED OR RECEIVABLE FROM THE SUBLETTEES. SINCE THERE WAS A D ISPUTE GOING ON AND THE ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 3 LESSOR COMPANY HAD ALSO FILED A PETITION FOR EVICTI ON AGAINST THE ASSESSEE AND THE SUBLETTEES UNDER THE PUBLIC PREMISES (EVICTION OF AUTHORIZED OCCUPANTS) ACT, 1971, HENCE NEITHER THE SUBLETTEES HAD PAID AN Y RENT TO THE ASSESSEE NOR THE ASSESSEE PAID THE SAME TO THE LESSOR INSURANCE COMP ANY. THE ASSESSEE NEITHER CREDITED NOR DEBITED INTO PROFIT AND LOSS ACCOUNT A NY SUCH RENT EITHER AS RECEIVABLE OR PAYABLE. HOWEVER TO COMPUTE THE ASSES SEES OWN LIABILITY FOR RENT PAYABLE TO THE LESSOR COMPANY IN RELATION TO THE PR EMISES OCCUPIED BY THE ASSESSEE ITSELF, THE ASSESSEE HAD CALCULATED THE SA ME AND CLAIMED THE SAME AS A DEDUCTION. THE AO, HOWEVER, OBSERVED THAT THE RENTA L INCOME HAD ACCRUED TO THE ASSESSEE PAYABLE BY THE SUBLETTEES AND THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE IN RELATION TO THE AMOUNT OF RENT PAY ABLE BY THE ASSESSEE TO THE LESSOR INSURANCE COMPANY. HE THEREFORE NOT ONLY DIS ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE IN RELATION TO THE RENT PAY ABLE BY THE ASSESSEE OF THE PREMISES OCCUPIED BY ITSELF BUT HE ALSO MADE ADDITI ONS OF THE RENT PAYABLE BY THE SUBLETTEES TO THE ASSESSEE WHICH WAS TO BE REMI TTED BY THE ASSESSEE TO THE INSURANCE COMPANY. BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A). 3. THE LD. CIT (A) OBSERVED THAT THE ORIGINAL LEASE AGREEMENT HAD NOT BEEN EXTENDED AND THERE WAS A DISPUTE GOING ON SINCE LON G. THE ASSESSEE HAD NOT BEEN PAYING ANY RENT TO THE LESSOR AND HE WAS NOT S UPPOSED TO RECEIVE ANY RENT FROM THE SUBLETTEES COMPANIES. THE LESSOR COMPANY H AD ALREADY FILED THE PETITION FOR A EVICTION OF THE ASSESSEE AND THE SUB LETTEES. EVEN THERE WAS NO ELEMENT OF INCOME INVOLVED AS THE ASSESSEE WAS SUPP OSED TO REMIT THE SAME RENT TO THE LESSOR COMPANY, WHICH HE WAS SUPPOSED T O RECEIVE FROM THE SUBLETTEES. SINCE THE DISPUTE WAS GOING ON AND THER E WAS NO CERTAINTY OF RENT BEING RECEIVABLE OR PAYABLE, HENCE THERE WAS NO QUE STION OF ANY ACCRUAL OF RENTAL INCOME TO THE ASSESSEE. HE THEREFORE HELD TH AT UNDER THE CIRCUMSTANCES, ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 4 NEITHER ANY RENTAL INCOME HAD ACCRUED TO THE ASSESS EE NOR ANY RENT WAS PAYABLE BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. H E ACCORDINGLY DELETED THE ADDITION IN RESPECT OF THE RENT WHICH ACCORDING TO THE AO HAD BEEN DEEMED TO ACCRUE TO THE ASSESSEE FROM THE SUBLETTEES. SO FAR AS THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF RENT OF RS.3,88,003/- IN RELATION TO THE PREMISES OCCUPIED BY THE ASSESSEE ITSELF, THE LD. CIT(A) ON THE SAME FOOTING HELD THAT SINCE THERE WAS NO ELEMENT OF CERTAINTY INVOLVED, H ENCE, THE SAID DEDUCTION WAS NOT ALLOWABLE. HE ALSO OBSERVED THAT EVEN OTHERWIS E TO CLAIM THE DEDUCTION, THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX AT SOURCE O N THE SAID AMOUNT UNDER SECTION 40(A)(IA) OF THE ACT. 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE LD. CI T(A), THE REVENUE HAS COME IN APPEAL AGITATING THE ACTION OF THE LD. CITA IN DELETING THE ADDITION MADE BY THE AO IN RELATION TO THE RENT RECEIVABLE F ROM THE SUBLETTEES AND ALSO IN RELATION TO THE RENT PAYABLE BY THE ASSESSEE TO THE LESSOR INSURANCE COMPANY BECAUSE OF NON-DEDUCTION OF TAX AT SOURCE UNDER SEC TION 40(A)(IA). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE UN DISPUTED FACT IS THAT THE LITIGATION IS GOING ON BETWEEN THE LESSOR COMPA NY AND THE ASSESSEE SINCE LONG. THE ASSESSEE HAS NOT BEEN PAYING ANY RENT TO THE LESSOR COMPANY AND THE LESSOR COMPANY HAS ALSO FILED A PETITION FOR EVICTI ON OF THE ASSESSEE AND THE OTHER SUBLETTEES. THE ASSESSEE, SINCE LONG, HAS NEI THER BEEN RECEIVING ANY RENT FROM THE SUBLETTEES NOR HAS BEEN PAYING ANY RENT TO THE LESSOR COMPANY. THEREFORE THE LEARNED CIT(A), IN OUR VIEW, HAS RIGH TLY HELD THAT ADDITIONS IN THIS RESPECT, FOR THE YEAR UNDER CONSIDERATION, WER E NOT WARRANTED ON ACCRUAL BASIS. EVEN, SINCE THE ASSESSEE HAD NOT CLAIMED ANY DEDUCTION IN RESPECT OF ANY RENT REMITTED TO THE LESSOR COMPANY, THEREFORE THER E WAS NO QUESTION OF ANY DISALLOWANCE OF THE SAME. SO FAR AS THE CLAIM OF DE DUCTION BY THE ASSESSEE IN RESPECT TO THE RENT PAYABLE BY IT FOR THE PREMISES OCCUPIED BY ASSESSEE ITSELF IS ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 5 CONCERNED, WE FIND THAT ON THE SAME FOOTING AS IN T HE CASE OF SUBTENANTS, THERE WAS NO ASCERTAINED LIABILITY OF THE ASSESSEE TO PAY SUCH RENT. EVEN OTHERWISE, THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE IN RESP ECT TO THE SAID CLAIM OF EXPENDITURE PAYABLE AS RENT. WE THEREFORE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUES. GROUND NUMBE R 1 AND 2 OF THE REVENUES APPEAL ARE THEREFORE DISMISSED. 6. GROUND NO.3 THE REVENUE IN THIS GROUND HAS CONTESTED THE ACTION OF THE LD. CITA IN DELETING THE DISALLOWANCE OF RS.74000/- OUT OF LEGA L AND PROFESSIONAL CHARGES. THE LD. CIT(A) WHILE DELETING THE SAID DISALLOWANCE HAS OBSERVED THAT THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR PROTEC TING ASSESSEE-COMPANYS REPUTATION AND GOOD NAME AND THAT OF THE ASSESSEE W AS REQUIRED TO DEFEND ITSELF AS SUCH MATTERS GO TO THE ROOT OF THE EXISTENCE OF CORPORATE ENTITIES AND EVEN MAY RESULT IN SEVERE CONSEQUENCES WHICH MAY AFFECT THE BUSINESS PROSPECTS OF THE COMPANY. WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. CIT(A) IN THIS RESPECT. THIS GROUND OF THE REVENUES APPEAL I S ALSO DISMISSED. 7. NOW COMING TO THE APPEAL OF THE ASSESSEE; THE AS SESSEE HAS TAKEN TWO EFFECTIVE GROUND OF APPEAL. GROUND NO.1 : 8. THE ASSESSEE IN THIS GROUND HAS AGITATED THE ACT ION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RENT CLAIMED BY THE ASSESSEE PAYABLE TO THE LESSOR COMPANY IN RELATION TO THE PREMISES OCCUPIED BY IT. THIS ISSUE HAS ALREADY BEEN DISCUSSED ABOVE. IN VIEW OF OUR OBSERV ATIONS MADE ABOVE, THE LD. CIT HAS RIGHTLY UPHELD THE DISALLOWANCE MADE BY THE AO IN THIS RESPECT. THIS GROUND OF THE ASSESSEES APPEAL IS HEREBY DISMISSED . ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 6 GROUND NO.2: 9. THE ASSESSEE IN THIS GROUND HAS AGITATED THE ADD ITION MADE BY THE AO OF ACCRUED INTEREST ON FIXED DEPOSITS. THE ASSESSEE HA S EXPLAINED THAT SOME YEARS BACK, THE ASSESSEE HAD SOLD ITS SHAREHOLDING IN ITS SUBSIDIARY. IN ACCORDANCE WITH THE AGREEMENT WITH THE PURCHASER, RS.50 LAKHS OUT OF THE TOTAL SALE PROCEEDS WAS PLACED IN ESCROW FUND WITH THE ASSESSE ES SOLICITORS. SINCE THE FUND WAS LYING DEPOSITED IN THE NAME OF SOLICITORS HENCE, THE INTEREST ACCRUED THEREUPON COULD NOT BE ACCOUNTED IN THE BOOKS OF TH E ASSESSEE. THE SAME WAS ACCOUNTED IN THE BOOKS ONLY WHEN THE ACCRUAL OF INT EREST WAS INFORMED BY ITS SOLICITORS TO THE ASSESSEE. THE LD. AR HAS EXPLAINE D THAT THE SUCH INTEREST INCOME HAS ALREADY BEEN INCLUDED IN THE TAXABLE INC OME FOR THE SUBSEQUENT ASSESSMENT YEAR 2008-09. IN VIEW OF THE ABOVE EXPLA NATION OFFERED BY THE LD. AR AND SINCE THE INTEREST INCOME HAS ALREADY BEEN O FFERED IN THE SUBSEQUENT YEAR, WE DO NOT FIND ANY JUSTIFICATION FOR SUSTAINI NG THE ADDITIONS FOR THE YEAR UNDER CONSIDERATION AS THE SAME WOULD RESULT IN TO DOUBLE TAXATION OF THE SAME INCOME. THIS GROUND OF THE ASSESSEES APPEAL IS THEREFORE A LLOWED. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED WHEREAS THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.04.2016. , - 07.04.2016 SD/- SD/- ( / RAJENDRA) ( / SANJAY GARG) / ACCOUNTANT MEMBER / JUDICIAL MEMBER /MUMBAI ; / DATED 07 .04. 2016 * KISHORE ./ ITA NO.4424/M/2011 CO NO. 111/M/2012 M/S. KILACHAND DEVCHAND & CO. PVT. LTD. 7 !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #J ( ) / THE CIT(A)- 4. #J / CIT 5. Q !&$R , R , / DR, ITAT, MUMBAI 6. S T / GUARD FILE. / BY ORDER, '& !& //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI