ITO, New Delhi V. M/s Arrow Developers Pvt. Ltd., New Delhi

ITA 581/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4276 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE BEFORE BEFORE BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, J SHRI C.L.SETHI, J SHRI C.L.SETHI, J SHRI C.L.SETHI, JUDICIAL MEMBER UDICIAL MEMBER UDICIAL MEMBER UDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.581/DEL/2011 581/DEL/2011 581/DEL/2011 581/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007- -- -08 0808 08 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -2(1), 2(1), 2(1), 2(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S ARROW M/S ARROW M/S ARROW M/S ARROW DEVELOPERS PVT.LTD., DEVELOPERS PVT.LTD., DEVELOPERS PVT.LTD., DEVELOPERS PVT.LTD., F FF F- -- -7, MAHARANI BAGH, 7, MAHARANI BAGH, 7, MAHARANI BAGH, 7, MAHARANI BAGH, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 065. 110 065. 110 065. 110 065. PAN NO. PAN NO. PAN NO. PAN NO.AABCA0329G. AABCA0329G. AABCA0329G. AABCA0329G. (APPELLANT) (RESPONDENT) APPELLANT BY : MRS.ANUSHA KHURANA, SR.DR RESPONDENT BY : SHRI SURESH ANANTHARAMAN, CA. ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI, J , J, J , JM : M : M : M : THE ONLY GROUND IN THIS APPEAL, FILED BY THE REVEN UE AGAINST THE ORDER DATED 16.11.2010 OF LEARNED CIT(A) PERTAINING TO THE AY 2007-08, IS AS UNDER:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD .CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.6,43,706/- MADE U/S 40A(2)(B) OF THE I.T.ACT WIT HOUT APPRECIATING FACTS OF THE CASE AND ALSO ENTERTAININ G ADDITIONAL DOCUMENTS (I.E. DESCRIPTION OF AREA OF 1 617 SQ.FT. AT F-3, SECTOR-18, NOIDA AS BASEMENT, GROUND FLOOR, MEZZANINE, FIRST FLOOR) CONTRARY TO FACTS AVAILABLE ON RECORD (THE UNDATED AGREEMENT BETWEEN ASSESSEE AND ITS SIS TER CONCERN M/S AKASH GANGA PORTFOLIO P.LTD. MENTIONS O NLY FRONT AREA AND SOME OF THE COVERED AREA AT F-3, S ECTOR- 18, NOIDA) AND DULY RECORDED IN THE ASSESSMENT ORDE R, WITHOUT REMANDING THE MATTER TO THE AO FOR EXAMINAT ION AS PER THE PROVISIONS OF RULE 46A. 2. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT ASSESSEE HAS CLAIMED THE EXPENSES OF COMMIS SION OF `9,43,706/- PAID TO SISTER CONCERN OF THE ASSESSEE, NAMELY M/S AKASH GANGA PORTFOLIO PVT.LTD. IN SUPPORT OF THE CLAIM O F COMMISSION PAID TO ITA-581/DEL/2011 2 M/S AKASH GANGA PORTFOLIO PVT.LTD., THE ASSESSEE PR ODUCED AN AGREEMENT ENTERED INTO WITH M/S AKASH GANGA PORTFOL IO PVT.LTD. IN THE AGREEMENT, IT WAS MENTIONED THAT THE BUSINESS OF RU NNING RESTAURANT SHALL BE CARRIED ON BY THE ASSESSEE, AND M/S AKASH GANGA PORTFOLIO PVT.LTD. WILL HAVE NO OBJECTION FOR USE OF FRONT AR EA AND SOME OF THE COVERED AREA AT F-3, SECTOR-18, NOIDA FOR THE PURPO SE OF BUSINESS. IN CONSIDERATION THEREOF, M/S AKASH GANGA PORTFOLIO PV T.LTD. WAS ENTITLED TO RECEIVE AN AMOUNT CALCULATED AT THE RATE OF 4% O F THE NET RECEIPT FROM THE BUSINESS OF RESTAURANT CARRIED ON AT THE P REMISES F-2 & F-3, SECTOR-18, NOIDA. THE SAID AGREEMENT WAS PERUSED B Y THE AO. THE AO STATED THAT NO DATE OF THE AGREEMENT WAS MENTIONED. HE FURTHER STATED THAT EFFECTIVE DATE OF THE AGREEMENT WAS ALS O NOT MENTIONED. AO FURTHER POINTED OUT THAT BOTH THE PARTIES SIGNIN G THE AGREEMENT DID NOT PUT THE DATE ON WHICH THE AGREEMENT WAS PURPORT EDLY SIGNED. IT WAS FURTHER NOTED BY THE AO THAT SUM OF `2,70,000/- WAS PAID AS RENT BY LIC FOR USING FIRST FLOOR OF THE PREMISES OF F-2 , SECTOR-18, NOIDA. THE AO FURTHER MENTIONED THAT PLOT F-3, SECTOR-18 WAS A DJOINING PROPERTY EXACTLY SIMILAR IN NATURE TO THAT OF THE PREMISES A T F-2. HE, THEREFORE, FOUND THAT THE PAYMENT OF COMMISSION OF `9,43,706/- TO M/S AKASH GANGA PORTFOLIO PVT.LTD. WAS NOT REASONABLE IN THE LIGHT OF THE FACT THAT ONLY AN AMOUNT OF `2,70,000/- WAS PAID BY LIC FOR U SE OF THE SAME AREA. AO WAS OF THE VIEW THAT THE PAYMENT WAS THUS HIT BY THE PROVISIONS OF SECTION 40A(2)(B). AO, THEREFORE, ES TIMATED THE AMOUNT PAYABLE BY THE ASSESSEE TO THE SISTER CONCERN FOR U SING ITS GROUND FLOOR AS WELL AS ITS FRONT AREA AT `3,00,000/- AND THE DI FFERENCE OF `6,43,706/- WAS DISALLOWED U/S 40A(2)(B) OF THE ACT. 3. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). ITA-581/DEL/2011 3 4. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITTE D, AMONGST OTHERS, THAT THE AREA LEASED OUT TO LIC HOUSING & F INANCE CO.LTD. WAS ONLY 469 SQ.FT. THOUGH THE AREA FOR USE IN BUSINESS PURPOSE WAS ABOUT 1617.35 SQ.FT. AND THEREFORE, BOTH WERE NOT COMPARA BLE. THE ASSESSEE ALSO SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE P AYMENT OF COMMISSION WAS PAID TO M/S AKASH GANGA PORTFOLIO PV T.LTD. NOT ONLY FOR THE USE OF PREMISES BUT ALSO ACTIVELY SUPERVISING T HE BUSINESS ACTIVITIES OF THE RESTAURANT BUSINESS. IT WAS FURTHER CLARIFI ED THAT COMMISSION WAS PAID TO M/S AKASH GANGA PORTFOLIO PVT.LTD. IN C ONSIDERATION OF THE JOINT BUSINESS BEING CARRIED ON FROM THE JOINT PROP ERTIES UNDER THE JOINT SUPERVISION AND CONTROL OF BOTH THE PARTIES. IT WA S FURTHER SUBMITTED THAT THE IDENTICAL CLAIM OF PAYMENT OF COMMISSION I N EARLIER ASSESSMENT YEARS I.E. AY 2005-06 & 2006-07 WERE DUL Y ALLOWED BY THE AO IN THE ASSESSMENT MADE U/S 143(3) OF THE ACT. 5. AFTER CONSIDERING THE AOS ORDER AND ASSESSEES SUBMISSION, THE LEARNED CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ASSTT.ORDER AS WEL L AS THE WRITTEN SUBMISSION FILED BY THE APPELLANT. THE AO HAS STATED IN HIS ORDER THAT THE AREA RENTED OUT TO LIC IS ALMOST EXACTLY SIMILAR TO THE AREA BEING USED FOR BUSINESS . HOWEVER THE ASSESSEE HAS SUBMITTED THAT THE AREA RE NTED OUT TO LIC IS ONLY 469 SQ FT AND THE TOTAL AREA USE D FOR BUSINESS IS 1617 SQ FT AND COMPARING THE TWO IS NOT JUSTIFIED. IT IS NOT CLEAR FROM THE ORDER HOW THE AO HAS FOUND THIS TO BE OF EXACTLY SIMILAR NATURE, THERE H AS BEEN NO SPOT VERIFICATION. THEREFORE THE BASIS TO ARRIV E AT THE CONCLUSION THAT THE PAYMENT BEING MADE IS EXCESSIVE IS FLAWED BY COMPARING THE TWO WHOSE AREA IS NO WHERE COMPARABLE. I ALSO FIND THAT THE AGREEMENT WHICH H AS NOT BEEN GIVEN COGNIZANCE BY THE AO BEING UNDATED AS WE LL AS NOT BEARING RELEVANT DATES HAVE BEEN FOUND TO BE AC TED UPON BY BOTH THE PARTIES AND IT IS SEEN THAT IN THE EARLIER YEARS ALSO, COMMISSION WAS PAID TO AKASH GANGA (P) LTD. IN CONSIDERATION OF THE JOINT BUSINESS CARRIED ON FROM THE ITA-581/DEL/2011 4 COMBINED PROPERTY UNDER COMBINED SUPERVISION AND TH E SAME HAS BEEN ALLOWED IN ASSTS COMPLETED UNDER SECT ION 143(3). ON THE SAME FACTS, WITHOUT BRINGING ANY FU RTHER MATERIAL, TO CONCLUDE THAT THE AGREEMENT WAS ONLY S ELF SERVING DOCUMENT AND THE TRANSACTION IS A COLORABLE DEVICE IS NOT JUSTIFIED. ON TOTAL CONSIDERATION OF THE FA CTS AND ALSO THAT BOTH THE PARTIES CONCERNED ARE PROFIT MAKING C O PAYING THE SAME RATE OF TAX, THE FINDING THAT THE TRANSACTION IS A COLORABLE DEVICE TO REDUCE TAX LIA BILITY DOES NOT HAVE MUCH RELEVANCE. IN VIEW OF THE ABOVE THE ADDITION MADE BY THE AO OF RS.6,43,706/- U/S 40(A)( 2)(B) IS DIRECTED TO BE DELETED. 6. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 7. IN THE GROUND TAKEN BY THE DEPARTMENT, THE DEPAR TMENT HAS TAKEN A PLEA THAT CIT(A) HAS DELETED THE ADDITION A FTER ADMITTING SOME ADDITIONAL DOCUMENTS WITHOUT REMANDING THE MATTER T O THE AO FOR HIS EXAMINATION AS PER THE PROVISIONS OF RULE 46A OF TH E ACT. THE LEARNED DR SUBMITTED THAT THE AO HAS DELETED THE ADDITION A FTER CONSIDERING THE ADDITIONAL EVIDENCE TO THE EFFECT THAT THE TOTA L AREA USED FOR THE PURPOSE OF BUSINESS WAS 1617.35 SQ.FT. THOUGH IN TH E AGREEMENT, IT WAS CLEARLY MENTIONED THAT FRONT AREA AND SOME OF T HE COVERED AREA SHALL BE USED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, STATED THAT THE PAYMENT HAS BEEN MADE NOT MERELY FOR USING THE PREMISES BUT ALSO FOR LOOKING AFTER THE BUSINESS ACTIVITIES AS SO STATED IN THE AGREEMENT ITSELF AND THEREFORE, THE PAYMENT OF COMM ISSION PAID TO M/S AKASH GANGA PORTFOLIO PVT.LTD. CANNOT BE SAID TO BE UNREASONABLE WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT. 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF AUTHORITIES BELOW. ITA-581/DEL/2011 5 10. THE FACT THAT THE PAYMENT OF COMMISSION WAS ALS O MADE IN CONSIDERATION OF LOOKING AFTER THE BUSINESS JOINTLY BY BOTH THE PARTIES HAS NOT BEEN DISPUTED. THEREFORE, THE PAYMENT OF C OMMISSION BY THE ASSESSEE TO M/S AKASH GANGA PORTFOLIO PVT.LTD. WAS NOT MERELY ON ACCOUNT OF USE OF AREA OF THE PREMISES BUT ALSO FOR LOOKING AFTER THE BUSINESS ACTIVITIES. THEREFORE, QUESTION OF MERELY COMPARING THE AREA IS NOT RELEVANT AND SOLE CRITERIA TO DECIDE THE ISS UE. IN THE LIGHT OF THE FACT THAT THE BUSINESS WAS BEING MANAGED JOINTLY BY BOTH THE PARTIES AND IN CONSIDERATION OF M/S AKASH GANGA PORTFOLIO P VT.LTD. LOOKING AFTER BUSINESS ACTIVITIES, THE PAYMENT OF COMMISSION AT 4 % CANNOT BE SAID TO BE EXCESSIVE EVEN IF ONE DOES NOT TAKE INTO ACCO UNT THE AREA OF THE PREMISES. WE, THEREFORE, UPHOLD THE ORDER OF LEARN ED CIT(A). 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL, 2011. SD/- SD/- (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 08.04.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA-581/DEL/2011 6