M/s.P.V.Raphel Enterprises, Alappuzha V. The ITO, Alappuzha

ITA 48/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90773 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 16-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Keywords: Business expenditure

Judgement Text

1 ITA NO .48/COCH/2015 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI V DURGA RAO, JM AND SHRI B.R. BASKARAN, AM I.T.A. NO. 48/COCH/2015 (ASSESSMENT YEAR : 2006-07) M/S P.V. RAPHEL ENTERPRISES VS ITO, WD.3 EZHUPUNNA ALLEPPEY ERAMALLOOR PAN : AAEFP1514B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R SREENIVASAN RESPONDENT BY : SHRI K.K. JOHN DATE OF HEARING : 05-05-2015 DATE OF PRONOUNCEMENT : 08-05-2015 O R D E R PER SHRI V DURGA RAO, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-V, KOCHI FOR THE ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE ARISE FOR CONSIDERATION IN THIS A PPEAL IS DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 3. BRIEFLY STATED, THE FACT ARE THAT THE ASSESSING OFFICER NOTICED THAT AN AMOUNT OF RS.2,49,736 BEING RENT PAID WAS DEBITED T O THE PROFIT & LOSS ACCOUNT. HE ALSO NOTICED THAT THE ASSESSEE CONTRAVENED THE P ROVISIONS OF SECTION 194I OF THE ACT AS NO TAX AS STIPULATED WAS DEDUCTED WHILE MAKING THE PAYMENT. 2 ITA NO .48/COCH/2015 THEREFORE, THE ASSESSING OFFICER DISALLOWED AN AMOU NT OF RS. 2,59,736 U/S 40(A)(IA) OF THE ACT. THE ASSESSEE EXPLAINED BEFOR E THE CIT(A) THAT THE RENT HAS BEEN MADE TO THREE PERSONS, VIZ. (I) MRS. CECELLA A NTHRAPER, (II) SANDYA ANTHRAPER; AND (III) RUPA THARAYIL AS THEY WERE THE CO-OWNERS OF THE BUILDING WHICH THE ASSESSEE TOOK ON HIRE. ON THIS BASIS, TH E ASSESSEE CLAIMED NO INDIVIDUAL PAYMENTS EXCEEDS THE PRESCRIBED LIMIT OF RS. 1,20,000 THEREFORE, PROVISIONS OF SECTION 194-I ARE NOT ATTRACTED. 4. THE ABOVE SUBMISSIONS OF THE ASSESSEE DID NOT FI ND FAVOUR WITH THE CIT(A). HE NOTICED FROM THE RENT AGREEMENT ENTERED AS ON 01-04-2004 THAT MONTHLY LICENCE FEE OF THE SCHEDULED PROPERTY WAS A GREED AT RS.16,000 PM. THE LICENCE DEPOSIT OF RS.25,000 AS PER CLAUSE 4 OF THE AGREEMENT AND ADVANCE OF RS.1 LAKH ALSO INDICATED A COMMON PAYMENT. AND THA T THE OTHER TERMS AND CONDITIONS IN RESPECT OF PROVIDING ELECTRIC CONNECT ION AND WATER ARRANGEMENTS, THE ENTITY HAS BEEN TREATED AS ONE ENTRAPPER INDUST RY, WHICH IS REPRESENTED BY 3 PERSONS. THE CIT(A) FURTHER FOUND THAT THOUGH THE AGREEMENT GIVEN BY THE ASSESSEE PERTAINED TO EARLIER PERIOD, THE AGREEMENT IS TO BE RENEWED ON YEARLY BASIS, BECAUSE THIS AGREEMENT IN FORCE IS ONLY FOR A PERIOD 11 MONTHS, THE CONTEST OF THE RENEWED AGREEMENT IS SAME. THE LD.CIT(A) OB SERVED THAT IRRESPECTIVE OF THE ACTUAL AMOUNT OF RENT PAYMENT WHICH IS STATED T O HAVE CHANGED FOR THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , GOING BY INTENT AS WELL AS THE CONTENT OF THE AGREEMENT THE ENTIRE PROPERTY SE EMS TO BE IMPARTIBLE AND, THE PAYMENT OF RENT, ADVANCE, ETC. ALSO APPEARS TO BE A COMMON PAYMENT. FURTHER, 3 ITA NO .48/COCH/2015 THE APPELLANT HAS NOT FILED ANY SUPPORT EVIDENCE AS TO WHETHER THE CO-OWNERS HAVE FILED THEIR RETURNS. IN THIS VIEW OF THE MATT ER, THE LD.CIT(A) OBSERVED THAT IT WAS DIFFICULT TO BUY THE LOGIC THAT THE PAYMENT WAS MADE TO THE CO-OWNERS AND THE AMOUNT BEING LESS THAN RS.1,20,000, THE PROVISI ONS OF SECTION 194I WAS NOT APPLICABLE. ACCORDINGLY HE HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THE RENT PAID. HENCE, HE UPHELD THE DISA LLOWANCE OF RS.2,49,736 MADE U/S 40(A)(IA) OF THE ACT. 5. BEFORE US, THE LD.REPRESENTATIVE FOR THE ASSESSE E AGAIN PUT EMPHASIS ON THE AVERMENT THAT THE RENT WAS PAID TO THREE INDIVI DUAL CO-OWNERS UNDER A COMMON ENTITY VIZ. ENTRAPPER INDUSTRY, WHICH HAS BE EN FOUND BY THE LD.CIT(A) HIMSELF ON PAGE 3 OF HIS ORDER. FURTHER, AS HAS BE EN EXPLAINED BEFORE THE LOWER AUTHORITIES, PAYMENT HAS BEEN MADE BY WAY OF CROSSE D DEMAND DRAFTS IN THE NAME OF THE CO-OWNERS SEPARATELY. THEREFORE, NO IN DIVIDUAL PAYMENT EXCEEDED THE LIMIT PRESCRIBED IN SECTION 194-I OF THE ACT SO AS TO ATTRACT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE LD.REPRESENTATIV E SUBMITTED THAT THESE FACTS STAND UNCONTROVERTED EVEN BEFORE THE TRIBUNAL. THE REFORE, ACCORDINGLY TO THE LD.REPRESENTATIVE, PROVISIONS OF SECTION 194I ARE N OT ATTRACTED IN THIS CASE; HENCE, THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISAL LOWANCE OF RS.2,49,726. 6. THE LD.DR ON THE OTHER HAND, RELIED UPON THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THOUGH THE PROPERTY IS OWN ED BY THREE JOINT OWNERS, THE AGREEMENT WAS EXECUTED WITH ONE ENTITY, VIZ. ENTRAP PER INDUSTRY, THEREFORE, 4 ITA NO .48/COCH/2015 PROVISIONS OF SECTION 194-I WAS VERY MUCH ATTRACTED . SINCE THE ASSESSEE HAS CONTRAVENED THE PROVISIONS OF SECTION 194-I, THE CI T(A) IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S BEFORE US AS ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ENTI RE LENGTH AND BREADTH OF THE ORDER OF THE CIT(A) IT IS NOWHERE MENTIONED THAT TH E PROPERTY WAS NOT OWNED BY THREE INDEPENDENT CO-OWNERS UNDER A COMMON UMBRELLA KNOWN AS ENTRAPPER INDUSTRY. IT ALSO STANDS UNCONTROVERTED BEFORE US THAT THE PAYMENTS WERE MADE TO THREE INDIVIDUAL CO-OWNERS, WHO ARE CONSTITUENTS OF THE COMMON ENTITY ENTRAPPER INDUSTRY. IN OUR OPINION THE LD.CIT(A ) IS TOO MUCH MARRIED WITH THE FACT THAT THE PROPERTY IS IMPARTIBLE, RENT, ADVANCE , ETC. APPEARED TO HIM AS A COMMON PAYMENT AND THAT IT WAS NOT ON RECORD WHETHE R THE THREE CO-OWNERS FILED THEIR RETURNS OF INCOME. WE FIND THAT THESE ARE AL L TOO GENERALIZED OBSERVATIONS IN THE SENSE THAT A PROPERTY MAY BE OWNED SEVERAL PERS ONS, BUT THE PROPERTY REMAINS AS IMPARTIBLE; WHETHER THE CO-OWNERS FILED THEIR RETURNS OF INCOME, COULD HAVE BEEN CALLED FOR; AND THAT A COMMON RECEIPT BY A COMMON ENTITY DOES NOT MEAN THAT WHICH CANNOT BE SPLIT INTO THREE AND PAID TO THE RESPECTIVE CO-OWNERS. THE ASSESSEE CONTRADICTS THIS STATEMENT BY SAYING T HAT THE PAYMENTS WERE MADE IN THE NAME OF CO-OWNERS BY WAY DEMAND DRAFT, WHICH , AGAIN COULD HAVE BEEN VERY WELL VERIFIED BY THE AUTHORITIES BELOW. IT IS NOT UNDER DISPUTE THAT BUT FOR PROVISIONS OF SECTION 40(A(IA), THE RENT PAID IS A BUSINESS EXPENDITURE ALLOWABLE U/S 30 OF THE I.T. ACT. THEREFORE, WE ARE OF THE C ONSIDERED OPINION THAT THE CIT(A) 5 ITA NO .48/COCH/2015 IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. PROVISIONS OF SECTION 194-I IS NOT ATTRACTED IN TH E INSTANT CASE FOR THE REASONS THAT THE PAYMENTS MADE TO THREE CO-OWNERS INDIVIDUA LLY DO NOT EXCEED THE PRESCRIBED LIMIT OF RS.1,20,000. THEREFORE, THE PR OVISIONS OF SECTION 40A(IA) ARE NOT APPLICABLE. THE DISALLOWANCE OF RS. 2,49,736 I S HEREBY DELETED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, 08 TH DAY OF MAY, 2015. SD/- SD/- ( B.R. BASKARAN) ( V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 08 TH MAY, 2015 PKJ/- COPY TO: 1. M/S P.V. RAPHEL ENTERPRISES, EZHUPUNNA, ERAMALLO OR 2. THE ITO, WD.3, ALLEPPEY 3. THE CIT(A)-V, KOCHI 4. THE CIT, KOTTAYAM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, COCHIN BENCH