TRIMODE PROPERTIES PVT. LTD., MUMBAI V. DCIT - 15(3)(1), MUMBAI

ITA 4977/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9199 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 04-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV GUBGOTRA
• Assessee Lawyers: HITESH TRIVEDIARS
• Keywords: Depreciation; Diversion of income; Rule of consistency; Fair market value
• Section: 143(3); 37

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL F BENCH MUMB AI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 3471/MUM/2012 (ASSESSMENT YEAR 2009-10) TRIMODE PROPERTIES PVT. LTD. DGP HOUSE, 3 RD FLOOR, 88C, OLD PRABHADEVI ROAD, MUMBAI-400025 . PAN: AABCT2569F VS. ACIT - 10(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT ITA NO. 4977/MUM/2016 (ASSESSMENT YEAR 2012-13) TRIMODE PROPERTIES PVT. LTD. DGP HOUSE, 3 RD FLOOR, 88C, OLD PRABHADEVI ROAD, MUMBAI- 400025. PAN: AABCT2569F VS. DCIT - 15(3)(1 ) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI PERCY J. PARDIWALLA, SHRI NITESH JOSHI & SHRI HITESH TRIVEDI (ARS) RESPONDENT BY : SHRI RAJIV GUBGOTRA (DR) DATE OF HEARING : 10.05.2019 DATE OF PRONOUNCEMEN T : 26.06.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE TWO APPEALS BY ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME-TAX [CIT(A)]-22, MUMBAI DATE D 27.02.2012 AND LD. CIT(A)-24, MUMBAI DATED 24.06.2016 FOR ASSESSME NT YEAR (AY) FOR ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 2 2009-10 & 2012-13 RESPECTIVELY. IN BOTH THE APPEALS THE ASSESSEE HAS RAISED CERTAIN COMMON GROUNDS OF APPEAL, THEREFORE, BOTH THE APPEALS WERE CLUBBED, HEARD TOGETHER AND ARE DECIDED BY A CONSOL IDATED ORDER. WITH THE CONSENT OF PARTIES APPEAL FOR ASSESSMENT YEAR 2009- 10 WAS TREATED AS LEAD CASE. IN APPEAL FOR ASSESSMENT YEAR 2009-10, THE AS SESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. (A) THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWA NCE OF A SUM OF RS.25,50,000/-, BEING 50% OF DIRECTORS REMUNERATION OF RS.51,00,008/-, UNDER SECTION 40A(2)(B) OF THE ACT, BY TREATING THE SAME AS EXCESSIVE AND NOT HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. (B) THE APPELLANT SUBMITS THAT THE LEARNED COMMISS IONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSE SSING OFFICER IN MAKING DISALLOWANCE OF A SUM OF RS.84,60,000/-, BEING 50% OF RENT PAID ON ACCOMMODATION PROVIDED TO DIRECTOR OF RS. L,69,20,0 00/-, UNDER SECTION 40A(2) OF THE ACT, BY TREATING THE SAME AS EXCESSIV E AND NOT HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. (C) WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, T HE APPELLANT SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING PAYMENT OF RENT FOR ACCOMMODATION PROVIDED TO DIRECTOR AS COVERED UNDER THE PROVISIONS OF SECTION 40A(2) OF THE ACT. THE APPELLANT SUBMITS TH AT SINCE THE SAID PAYMENT WAS NOT MADE TO ANY OF THE PERSONS SPECIFIE D UNDER SECTION 40A(2)(B) OF THE ACT, THE LEARNED COMMISSIONER OF I NCOME- TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN STRETCHING THE PROVISIONS OF THE SECTION 40A(2) OF THE ACT TO THE PAYMENTS INDEPENDENT PARTIES. 2. (A) THE APPELLANT SUBMITS THAT THE LEARNED COMMI SSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSE SSING OFFICER IN DISALLOWING DEPRECIATION CLAIMED ON MOTOR CAR AMOUN TING TO RS.14,15,113/- ON THE GROUND THAT MOTOR CAR HAS BEE N USED FOR THE PERSONAL PURPOSE BY THE DIRECTOR. THE APPELLANT SUBMITS THAT IT BEING A CORPORATE ENTITY, THERE CAN BE NO DISALLOWANCE FOR ANY ALLIED PERSONAL USES OF CAR. ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 3 (B) THE APPELLANT SUBMITS THAT THE CAR WAS USED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS AND DEPRECIATION ON THE SA ID CAR OUGHT TO HAVE BEEN ALLOWED. 3. THE APPELLANT SUBMITS THAT THE LEARNED ASSESSING OFFICER BE DIRECTED: I. TO DELETE DISALLOWANCE OF A SUM OF RS.25,50,000/ - BEING 50% OF DIRECTORS' REMUNERATION; II. TO DELETE DISALLOWANCE OF A SUM OF RS.84,60,000 /- BEING 50% OF RENT PAID ON ACCOMMODATION PROVIDED TO DIRECTOR; III. TO DELETE DISALLOWANCE OF DEPRECIATION ON MOTO R CAR AMOUNTING TO RS.14, 15, 113/-; AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 4. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPEND ENT AND WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF LEASING OF PROPERTY. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009 -10 ON 29.09.2009 DECLARING TOTAL INCOME AT RS. 2,68,00,51/-. THE RET URN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 13.12.2011. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER DISALLOWED RS. 25,50,000/- BEING 50% OF DIRECTORS REMUNERATION BY TREATING THE SAME AS EXCESSIVE AND NOT HAVING INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, DISALL OWED RS. 84,60,000/- BEING 50% OF THE RENT PAID ON ACCOMMODATION PROVIDE D TO ONE OF THE DIRECTOR AS NOT INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS AND DISALLOWED DEPRECIATION ON CAR FOR RS. 14,15,113/- HOLDING THAT MOTORCAR HAS BEEN USED FOR PERSONAL PURPOSE BY THE DIRECTORS. THE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 4 ASSESSING OFFICER WHILE DISALLOWING THE DIRECTORS R EMUNERATION AND ACCOMMODATION OF RENT ALSO TREATED THE SAME AS PAYM ENT MADE TO RELATED PARTIES UNDER SECTION 40A(2). ON APPEAL BEFORE THE LD. CIT(A), ALL THE DISALLOWANCES WERE CONFIRMED. THEREFORE, FURTHER AG GRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPE AL BEFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUN D NO.1(A) (B) & (C) RELATES TO DISALLOWANCE OF 50% OF DIRECTORS REMUNE RATION AND 50% DISALLOWANCE OF RENT PAID FOR ACCOMMODATION PROVIDE D TO ONE OF THE DIRECTOR. THE LD. AR OF THE ASSESSEE SUBMITS THAT O NE OF THE OBJECTS OF THE ASSESSEE-COMPANY IS LEASING OF PROPERTY. THE ASSES SEE HAS SHOWN ITS INCOME FROM RENT AND DIVIDEND ON INVESTMENT ON DEPO SITS. THE ASSESSING OFFICER MADE THE ADDITION ON HIS OBSERVATION THAT A SSESSEE FAILED TO PROVE THE SERVICES RENDERED BY DIRECTORS / DR. GITA PIRAM AL AND MS APARANA PIRAMAL. THE ASSESSING OFFICER TOOK HIS VIEW THAT T HE REMUNERATION PAID TO THE DIRECTORS ARE NOT ONLY EXCESSIVE BUT IS NOT WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT WAS SUBMITTED THAT THE DIRECTORS WERE INVOLVED IN PROCESS OF IDENTIFYING POTENTIAL TENANT FOR LETT ING THE PROPERTY ON RENT. THE DIRECTOR ENTERED INTO NEGOTIATION AND EXECUTED RENT AGREEMENT. THE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 5 CONTINUOUS PROCESS BEGINNING THAT IDENTIFYING POTEN TIAL TENANT, ENTERED INTO NEGOTIATION AND CONTINUOUS REVIEW OF BUSINESS AND T O ATTEND THE OTHER EMERGENCIES THAN EXIGENCY. THE ASSESSING OFFICER FA ILED TO PROVE THAT PAYMENT MADE WAS EXCESSIVE OR UNREASONABLE HAVING R EGARD TO THE MARKET VALUE OF GOODS, SERVICES OR SUCH FACILITIES FOR WHI CH THE PAYMENT IS MADE OR EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE LEGITIMATE NEED OF BUSINESS OR SUCH EXPENDITURE IS EXCESSIVE O R UNREASONABLE HAVING REGARD TO THE BENEFIT DERIVED BY ACCRUING THERE FRO M. IT WAS ARGUED THAT DURING THE ASSESSMENT, THE ASSESSEE WAS ASKED TO JU STIFY THE CLAIM OF EXPENDITURE ON REMUNERATION. THE ASSESSEE VIDE ITS LETTER DATED 08.11.2011 REPLIED THE QUERIES OF ASSESSING OFFICER. THE ASSES SEE CONTENDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SUB-LETTING OF IMMOVABLE PROPERTY AND ACCORDINGLY VARIOUS EXPENDITURE INCURRED OUGHT TO BE ALLOWED. IN THE ASSESSING OFFICERS LETTER/ QUARRIES DATED 28.10.2 011 THERE WAS NO MENTION OF DISALLOWANCE OF EXPENSES UNDER SECTION 40A(2) FO R TREATING THE SAME AS EXCESSIVE, UNJUSTIFIED AND NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE FURNISHED THE COP Y OF APPOINTMENT LETTERS OF DR. GITA PIRAMAL DATED 06.05.2005 ALONG WITH EDU CATIONAL QUALIFICATION. THE LD. AR OF THE ASSESSEE SUBMITS THAT DR. GITA PI RAMAL IS CHAIRMAN & MANAGING DIRECTOR OF THE ASSESSEE-COMPANY WHO IS IN DIAS PREMIER OFFICE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 6 FURNITURE MAKER. SHE IS PIONEER OF MODERN MODULAR F URNITURE IN INDIA. SHE IS ALSO CHAIRMAN OF ERGO INDIAS PREMIUM OFFICE FUR NITURE MAKER. UNDER HER LEADERSHIP IN 2008 ERGO BECAME FIRST OFFICE FUR NITURE MAKER IN ASIA PACIFIC REGION. THE OFFICE OF ERGO IN MUMBAI WHOSE SALES BRANCHES OFFICES ARE LOCATED ACROSS THE COUNTRY AND MANUFACT URING FACILITIES IN NAGPUR AND HIMACHAL PRADESH. IN 2004 BUSINESS TODAY MAGAZINE RECOGNIZED HER AS ONE OF THE INDIAS 25 MOST POWERF UL WOMEN. SHE IS ALSO SERVED AS MEMBER OF VARIOUS ADVISORY BOARDS AND COU NCILS. 4. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT SUB -SECTION (2) OF SECTION 40A WAS INSERTED BY FINANCE ACT 1968 W.E.F. 01.04.1 968. CIRCULAR NO.6-P DATED 06 TH JULY 1968 ISSUED UNDER SUB-SECTION (2) OF SECTIO N 40A, STATES THAT THAT NO DISALLOWANCE IS TO BE MADE IN RESPECT OF PAYMENTS MADE TO RELATIVE AND SISTER CONCERN WHERE THERE IS NO ATTEM PT TO EVADE THE TAX. IT WAS FURTHER CONTENDED THAT REASONABLENESS OF ANY EX PENDITURE IS TO BE JUST HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE OR LEGITIMATE NEED OF THE BUSINESS OR PROFESSION OR BENEFIT DERIVED BY OR ACCRUED TO THE TAX PAYER FROM THE EXPENDITURE. SUCH PORTION OF EXPENDITURE IN THE OPI NION OF INCOME TAX OFFICER/ASSESSING OFFICER IS EXCESSIVE OR UNREASONA BLE ACCRUED TO THESE CRITERIA IS TO BE DISALLOWED IN COMPUTING THE PROFI T OF THE BUSINESS OR ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 7 PROFESSION. IT WAS FURTHER SUBMITTED THAT THE CATE GORIES OF PERSON, PAYMENT TO WHOM FALLS WITHIN THE PURVIEW OF THIS PROVISION COMPRISES INTER ALIA; ANY RELATIVE OF THE TAX PAYER, WHERE THE TAX PAYER IS A COMPANY, FIRM, ASSOCIATION OR PERSON OR HUF, AND DIRECTOR OF THE C OMPANY ETC. THE PURPOSE OF INSERTION OF THESE PROVISIONS IS MEANT T O CHECK EVASION ON TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENT TO RELATI VES AND ASSOCIATE CONCERN AND SHOULD NOT BE APPLIED IN A MANNER WHICH WILL COST HARDSHIP TO BONAFIDE CASE. THE PROVISION OF SECTION 40A(2) IS N OT APPLICABLE IN CASE OF COMPANY IN RESPECT OF EXPENDITURE INCURRED IN SECTI ON 40A(2)(B)(I), I.E. RELATING TO REMUNERATION BENEFIT AND AMENITIES TO D IRECTOR OF COMPANY OR RELATIVE OF SUCH DIRECTOR OR PERSON. THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITS THAT THE OBJECT OF SECTION 40A(2) IS TO PRE VENT DIVERSION OF INCOME AND TO EVADE THE TAX. THE ASSESSEES AS WELL AS THE DIRECTORS ARE TAXED AT THE MARGINAL RATE; THEREFORE, THERE IS NO TAX EVASION. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. V.S. DEMPO & C O. PVT. LTD. 336 ITR 209 (BOM) AND CIT VS. INDO SAUDI SERVICES (TRAV EL) PVT. LTD. 310 ITR 306 (BOM). ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 8 5. THE LD. AR OF THE ASSESSEE FINALLY SUBMITS THAT THE SIMILAR RELIEF WAS ALLOWED TO THE ASSESSEE IN OTHER YEARS EXCEPT ASSES SMENT YEAR 2009-10 & 2012-13 FOR WHICH THE APPEAL ARE PENDING. 6. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE SUBMI TS THAT THE REMUNERATION PAID TO DIRECTORS IS EXCESSIVE AND THE ASSESSEE HAS NOT PROVED THE SERVICES RENDERED BY DIRECTORS OR HER ACTIVE PA RTICIPATION IN THE BUSINESS OF ASSESSEE. THE EXPENSES INCURRED BY ASSE SSEE ON REMUNERATION WERE NOT PROVED AS THAT THE SAME WAS WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS. DURING THE YEAR ONLY ONE PROPE RTY WAS LET OUT BY THE ASSESSEE. FOR THE DISALLOWANCE OF RENT FREE ACCOMM ODATION IT WAS ARGUED BY LD DR THAT NO SUCH ACCOMMODATION WAS PROVIDED TO THE OTHER DIRECTOR. THE RENT FREE ACCOMMODATION EXPENSES WERE SUBSTANTI ALLY INCREASED FROM THE PRECEDING YEAR. NO JUSTIFICATION WAS EXPLAINED BY THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN RENTAL INCOME OF RS. 5,37,82,500/- FROM SUBLETTING. THE ASSESSEE CLAIMED DEDUCTION OF REMU NERATION OF TWO DIRECTORS NAMELY DR. GITA PIRAMAL OF RS. 36 LAKHS A ND MS. APARANA PIRAMAL OF RS.15 LAKHS. FURTHER THE ASSESSEE HAS PR OVIDED RENT FREE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 9 ACCOMMODATION TO DR GITA PIRAMAL, OF WHICH THE ASSE SSEE PAID RS.1.69 CRORE. THE PERQUISITE VALUE TAXED IN THE HANDS OF D IRECTOR IS MERELY OF RS.5,40,000/- ONLY. THE AO ISSUED SHOW CAUSE NOTICE DATED 31.07.2011 TO THE ASSESSEE TO ESTABLISH THE REASONABLE OF THE PAY MENTS MADE TO THE PERSONS. THE AO RECORDED THAT THE ASSESSEE NOT FURN ISHED REPLY. THE ASSESSEE ALONG WITH ITS LETTER DATED 17.08.2011 FUR NISHED THE DETAILS OF THE PROPERTY LET OUT AND THE DATES OF LETTING OF THE PR OPERTY IN THE FOLLOWING MANNER; SR.NO. NAME OF SUB-TENANT DATE OF SUB-LET RENT PM(RS.) 1 M/S. KONE ELEVATORS P. LTD 01.09.2005 3,73,750/- 2 M/S BP ERGO LTD. 27.06.2005 14,00,00/- 3 M/S. TATA MOTORS LTD. 01.01.2006 16,10,000/- 4 M/S BAJAJ ALLIANCE GENERAL INS CO. LTD. 24.04.2008 13,50,000/- 8. ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE , THE AO TOOK HIS VIEW THAT THREE PARTIES WERE ALREADY TENANT ON THE DATE OF APPOINTMENT OF DR. GITA PIRAMAL AS DIRECTOR. THE ROLE OF DR. GITA PIRA MAL IS NOT EXPLAINED BY THE ASSESSEE. THE BUSINESS OF THE ASSESSEE IS TO LE T OUT PROPERTY , DURING THE PREVIOUS YEAR THE ASSESSEE HAS SUB-LET ONLY ONE PRO PERTY AND REMAINING ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 10 THREE PROPERTY WERE ALREADY LET-OUT, THEREFORE SUCH HUGE EXPENSES IS NOT JUSTIFIED. THE AO TREATED THE REMUNERATION TO DIREC TORS AND RENT FREE ACCOMMODATION AS EXCESSIVE AND UNJUSTIFIED AND NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE AO DIS ALLOWED THE 50% OF DIRECTORS REMUNERATION AND ON RENT FREE ACCOMMODAT ION. 9. THE LD. CIT(A) CONFIRMED THE ADDITION/DISALLOWANCE HOLDING THAT ASSESSEE COULD NOT EXPLAIN THE NATURE OF SERVICE RENDERED BY DR. GITA PIRAMAL. THE RENTING OF PROPERTY DOES NOT REQUIRE ANY SPECIFIC S KILL AND THAT DR. GITA PIRAMAL IS DIRECTOR IN BOTH THE COMPANIES I.E. LET OUT AND TO WHOM THE PROPERTY IS LET OUT. THE FREE ACCOMMODATION PROVIDE D TO DR. GITA PIRAMAL HAS GONE UP FROM RS.68,19,194/- TO RS,1,69,20,000/- IN THIS YEAR. NO SUCH RENT FREE ACCOMMODATION IS PROVIDED TO APARANA PIRA MAL. FURTHER, DR. GITA PIRAMAL IS DIRECTOR IN M/S BP ERGO LTD, KEMP & CO B UT NO SUCH SALARY OR RENT FREE ACCOMMODATION IS PROVIDED FROM SUCH ENTIT IES. THE AREA OF QUALIFICATION OF DIRECTOR IN FURNISHING AND FIXTURE S, MEDIA MANAGEMENT AND NOT IN PROPERTY DEALINGS. ON THE BASIS OF HIS A BOVE REFERRED OBSERVATION THE LD CIT(A) CONFIRMED THE DISALLOWANCES ON ACCOUN T OF DIRECTORS REMUNERATION AS WELL AS FOR RENT FREE ACCOMMODATION . 10. FOR APPRECIATION THE PROVISIONS OF SEC. 40A(2)(A) READS AS UNDER:- '40A(2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITUR E IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERS ON REFERRED TO ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 11 IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSIN G OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREA SONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVI CES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEE DS OF THE BUSINESS OR PROFESSION OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THERE FROM, SO MUCH OF THE EXPENDITURE AS IS SO CON SIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWE D AS A DEDUCTION.' 11. THE HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P) LTD (SUPRA), WHILE REFE RRING THE CIRCULAR ISSUED BY CBDT NO. 6-P, DATED 6TH JULY, 1968 HELD THAT NO DISALLOWANCE IS TO BE MADE UNDER SECTION 40(2)(A) IN RESPECT OF PAYMENT M ADE TO RELATED PARTY WHERE THERE IS NO ATTEMPTED TO EVADE THE TAX. 12. THE HONBLE MADRAS HIGH COURT IN CIT V/S NEPC INDIA LTD. (2008) 303 ITR 271 (MAD) HELD THAT SECTION 40A(2)(A) CONTEMPLA TES IS THAT THERE SHOULD BE SOME MATERIAL AVAILABLE BEFORE THE ASSESS ING OFFICER FOR INVOKING SECTION 40A(2)(A) TO INITIATE ACTION TO DI SALLOW OR REFUSE TO DEDUCT THE EXCESSIVE OR UNREASONABLE EXPENDITURE MENTIONED THERE UNDER. BUT, AT THE SAME TIME, BEFORE TAKING ANY FINAL DECISION BY INVOKING THE POWER UNDER SECTION 40A(2)(A), EITHER ALLOWING OR DISALLO WING SUCH EXPENDITURE INCURRED AS EXCESSIVE OR UNREASONABLE, SUCH DECISIO N OF THE ASSESSING OFFICER SHOULD BE BASED ON REASONS WELL- FOUNDED, W HICH ARE JUDICIOUSLY ACCEPTABLE . ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 12 13. NOW TURNING TO THE FACTS OF THE PRESENT CASE, THE RE IS NO DISPUTE THAT THE ASSESSEE DEBITED EXPENSES ON ACCOUNT OF SALARY OF T HE TWO DIRECTORS AND EXPENSES OF RENT FREE ACCOMMODATION OF ONE DIRECTOR . FURTHER, THERE IS NO DISPUTE THAT BOTH THE PERSON FOR WHOM THE ASSESSEE HAS SHOWN EXPENSES ARE PERSONS REFERRED IN SECTION 40A(2)(B) OF THE ACT. T HE ISSUE FOR OUR ADJUDICATION IS WHETHER THE PAYMENTS SO MADE ON ACC OUNT OF SALARY AND THE RENT FREE ACCOMMODATION ARE EXCESSIVE OR UNREASONAB LE HAVING REGARDS TO THE FAIR MARKET VALUE OF THE SERVICES FOR WHICH THE PAYMENTS ARE MADE. IN OUR VIEW THE DISALLOWANCE UNDER SECTION 40A(2)(A) I S NOT ABSOLUTE, BUT SUBJECT TO THE SATISFACTION OF THE CONDITIONS PROVI DED IN THAT SECTION. FURTHER, WHAT IS REQUIRED TO BE DISALLOWED IS THE E XCESSIVE OR UNREASONABLE. WE HAVE NOTED THAT THE AO HAS SIMPLY DISALLOWED THE 50% OF THE SALARY PAID TO THE DIRECTORS AND 50% OF RENT PAID FOR THE ACCOMMODATION OF ONE DIRECTOR HOLDING THAT THE ASSESSEE HAS SUB-LET ONLY ONE PROPERTY AND REMAINING THREE PROPERTY WERE ALREADY LET-OUT, THER EFORE SUCH HUGE EXPENSES IS NOT JUSTIFIED. THE AO HAS NOT BROUGHT A NY CONTRARY MATERIAL TO PROVE THAT THE PAYMENTS MADE WERE EXCESSIVE OR UNRE ASONABLE. NO SUCH DISALLOWANCE WAS MADE BY AO IN EARLIER AYS I.E. IN AY 2006-07, 2007-08 & 2008-09 AS WELL AS SUBSEQUENT YEAR I.E. IN AY 20 11-12 ON SIMILAR SET OF FACTS. ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 13 14. THE LD. AR OF THE ASSESSEE VEHEMENTLY ARGUED BEFORE US THAT THE OBJECT OF SECTION 40A(2) IS TO PREVENT DIVERSION OF INCOME A ND TO EVADE THE TAX. IT WAS CANVASSED THAT THE ASSESSEE AS WELL AS THE DIRE CTORS ARE TAXED AT THE MARGINAL RATE; THEREFORE, THERE IS NO TAX EVASION. THIS FACT IS NOT IN DISPUTE THAT THE ASSESSEE AS WELL AS THE DIRECTORS OF THE A SSESSEE TO WHOM THE PAYMENTS OF SALARY WERE PAID IS TAXED AT MARGINAL R ATE. THE HONBLE BOMBAY HIGH COURT IN CIT VS V.S DEMPO AND CO. P.LTD (SUPRA) HELD THAT THE ASSESSEES AS WELL AS ITS SUBSIDIARY WERE IN THE SAME TAX BRACKET AND PAID THE SAME RATE OF TAX WAS A FACT WHICH ASSUMED IMPOR TANCE. ADMITTEDLY IT WAS NOT A CASE OF TAX EVASION. WE ARE ALSO IN AGREE MENT WITH THE SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE THAT THE SUBSECTION (2) OF SECTION 40A TO CHECK THE EVASION OF TAX THROUGH EXCESSIVE O R UNREASONABLE PAYMENTS TO RELATIVE AND ASSOCIATE AND SHOULD NOT B E APPLIED IN A MANNER WHICH MAY CAUSE HARDSHIP IN BONAFIDE CASES. ADMITT EDLY THE LOWER AUTHORITIES HAVE NOT IDENTIFIED ANY COMPARABLE SALA RY AND FAILED TO ESTABLISH THAT REMUNERATION PAID TO DIRECTORS WERE EXCESSIVE, WHEN IT WAS ALLOWED IN EARLIER ASSESSMENT YEARS. SIMILARLY, WHILE MAKING D ISALLOWANCE OF 50% OF SALARY OF DIRECTORS AND RENT OF ACCOMMODATION ONE O F THE DIRECTOR, THE ASSESSING OFFICER AS WELL AS LD CIT(A) HAS NOT SPEC IFIED THE JUSTIFICATION OF SUCH DISALLOWANCE. CONSIDERING THE ABOVE FACTUAL A ND LEGAL DISCUSSION, WE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 14 ARE OF THE VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MAKING 50% OF DISALLOWANCE OF SALARY OF TWO DIRECTORS AND EXPE NSES OF RENT OF ACCOMMODATION OF ONE OF THE DIRECTOR. HENCE, WE DIR ECT THE AO TO DELETE THE DISALLOWANCE. IN THE RESULT THE GROUND NO. 1(A) TO 1(C) ARE ALLOWED. 15. GROUND NO. 2(A) &(B) RELATES TO DISALLOWANCE OF D EPRICIATION CLAIMED ON MOTOR CAR. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE MOTOR CAR IS IN THE NAME OF THE ASSESSEE AND WAS USED FOR THE PURPOSE O F THE BUSINESS BY THE DIRECTOR OF THE ASSESSEE. THE AO DISALLOWED DEPRIC IATION BY TAKING VIEW THAT CAR IS USED FOR PERSONAL PURPOSE OF DIRECTORS. ALL THE CONDITIONS OF SECTION 37 ARE FULFILLED. THERE WAS NO JUSTIFICATIO N IN DISALLOWING DEPRICIATION ON MOTOR CAR. 16. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF THE AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO DURING THE ASSESSMENT TOOK HIS VIEW THAT THE BUSINESS OF THE ASSESSEE WAS ALREADY SET-UP AND THAT THE ONLY ACTIVITY UNDERTAKEN BY THE ASSESSEE WAS SU BLETTING OF THE PROPERTY. THE CAR HAS NO ROLE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE DEPRICIATION OF RS. 14,1 5,113/-. THE LD CIT(A) CONFIRMED THE ACTION OF AO ON THE BASIS OF HIS VIE W TAKEN FOR CONFIRMING ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 15 THE DISALLOWANCE OF RENT OF ACCOMMODATION AND SALAR Y OF DIRECTORS. WE HAVE NOTED THE LOWER AUTHORITIES HAVE NOT DISPUTED THE CAR IS UNDER THE OWNERSHIP OF ASSESSEE COMPANY. THE ASSESSEE IS CORP ORATE ENTITY AND THERE IS NO SUCH PERSONAL ELEMENT INVOLVED IN SUCH DEDUCT ION. MOREOVER, ON THE BASIS OF WHICH THE LOWER AUTHORITIES BASED THEIR AC TION, HAS BEEN SET-ASIDE BY US. THE DEDUCTION CLAIMED BY THE ASSESSEE IS NO T CAPITAL IN NATURE. THE LOWER AUTHORITIES MADE THE DISALLOWANCE BY ADOPTING UNJUSTIFIABLE REASONS. HENCE, WE DIRECT THE AO TO ALLOW THE DEPRICIATION. IN THE RESULT THESE GROUNDS OF APPEAL ARE ALLOWED. 18. GROUND NO. 3 IS REPETITION OF EARLIER GROUNDS OF A PPEAL, WHICH WE HAVE ALREADY ALLOWED, THUS, THIS GROUND OF APPEAL NEEDS NO SPECIFIC ADJUDICATION. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . ITA NO.4977/M/2016 FOR AY 2012-13 20. GROUND NO. 1 RELATES TO DISALLOWANCE OF DIRECTORS REMUNERATION. AS RECORDED EARLIER THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO. 1(A) IN APPEAL FOR AY 2009-10, WHICH WE HAVE ALLOWED. THERE FORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY THIS GROUND OF APPEAL IS A LLOWED WITH SIMILAR DIRECTION. 21. GROUND NO. 2 RELATES TO DEPRICIATION ON MOTOR CAR. THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO.2 OF THE APPEAL FOR A Y 2009-10, WHICH WE ITA NO. 3471/M/12 & 4977/M/ 16- TRIMODE PROPERTIES PVT. LTD. 16 HAVE ALLOWED. THEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY THIS GROUND OF APPEAL IS ALLOWED WITH SIMILAR DIRECTION. 22. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 26/06/2019. SD/- SD/ - G.S. PANNU PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 26.06.2019 SK COPY OF THE ORDER FORWARDED TO : 1 . ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR F BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI