ITO 9(1)(4), MUMBAI V. FRESH BREW COMMUNICATION P. LTD, MUMBAI

ITA 5814/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93157 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 11-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 20-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI A.D. JAIN, JM AND SHRI N.K. BILLAIYA, A M .. , . . , ./ I.T.A. NO. 5814 /MUM/2012 ( / ASSESSMENT YEAR : 2009-10 INCOME TAX OFFICER 9(1)(4), ROOM NO. 224, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI- 400 020. / VS. M/S FRESH BREW COMMUNICATION PVT. LTD., 4-1, CORINTHIAN, 370 LINKING ROAD, KHAR (W), MUMBAI 400 052. ./ PAN : AAACF 8530 D ( ! / APPELLANT ) .. ( '# ! / RESPONDENT ) A PPELLANT BY SHRI PAWAN KUMAR BEERLA, R E SPONDENT BY : SHRI N.R. RAO $ % & ' ( ) / DATE OF HEARING : 08-07-2015 *+,- ' ( ) / DATE OF PRONOUNCEMENT : 08-07-2015 [ . / O R D E R PER A.D. JAIN, J.M . : .. , THIS IS DEPARTMENTS APPEAL FOR A.Y. 2009-10, CHALL ENGING THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 22,2 9,528/-, MADE BY THE A.O. U/S 40A(2)(B) OF THE INCOME TAX ACT, 1961. 2. THE A.O. NOTICED THAT THE ASSESSEE COMPANY HAD P AID RENT AT THE RATE OF RS. 1,85,794/-, TOTAL AMOUNTING TO RS. 22,29,528/- TO MR. VENU NAIR, DIRECTOR OF THE ASSESSEE COMPANY. THIS RENT WAS WITH REGARD TO A FLAT, WHICH WAS OWNED BY MR. VENU NAIR. ON QUERY, THE ASSESSEE COMP ANY FURNISHED A COPY OF THE RELEVANT RENT AGREEMENT. THE A.O. OBSERVED THAT THE AGREEMENT WAS NOT ITA 5814/M/12 2 REGISTERED WITH LOCAL AUTHORITY AND NO STAMP DUTY H AD BEEN PAID THEREON. FURTHER, THE CONCERNED HOUSING SOCIETY INFORMED THE A.O. THAT AS PER THEIR RECORD, THE FLAT HAD NOT BEEN RENTED OUT TO ANYONE ON LEAVE AND LICENSE, OR OTHERWISE, AND THAT THEY HAD NOT ISSUED ANY NO OBJE CTION CERTIFICATE TO MR. VENU NAIR FOR GIVING THE SAME ON HIRE. THE ASSESSEE COMPANY SUBMITTED BEFORE THE A.O. THAT THE FLAT WAS USED AS A GUEST H OUSE FOR THE COMPANY. THE A.O. RECORDED THE STATEMENT OF MR. ARUN SHANKAR, WH O HAD SIGNED THE RENT AGREEMENT ON BEHALF OF THE ASSESSEE COMPANY, IN THE PRESENCE OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPANY. HE STATED, INTER ALIA, THAT THE FLAT WAS USED AS A GUEST HOUSE FOR THE DIRECTOR S/MEMBERS/DELEGATES OF THE ASSESSEE COMPANY AND M/S WORLD SPORT GROUP (IND IA) PVT. LTD.; THAT A LOG BOOK WAS MAINTAINED FOR THE GUEST HOUSE; AND TH AT HE COULD PRODUCE THE TWO PERSONS, WHO WERE MAINTAINING THE LOG BOOK. THE SE PERSONS, HOWEVER, WERE NOT PRODUCED BEFORE THE A.O. THE ASSESSEE SUBM ITTED BEFORE THE A.O. THAT THE FLAT HAD BEEN TAKEN ON RENT FOR BUSINESS P URPOSE, TO PROVIDE ACCOMMODATION TO BUSINESS ASSOCIATES AND CUSTOMERS OF THE ASSESSEE COMPANY, WHO WERE VISITING FOR BUSINESS PURPOSE; TH AT THE PREMISES WERE USED FOR MEETINGS WITH THE EMPLOYEES OF THE CUSTOME R AND OTHER VISITORS; THAT THE COMPANY HAD PAID RENT EXCLUSIVELY FOR ITS BUSIN ESS PURPOSE; THAT AN AGREEMENT HAD BEEN ENTERED INTO BY THE ASSESSEE COM PANY FOR RENTING THE PREMISES; THAT THE ASSESSEE COMPANY HAD PAID RENT I N CHEQUE AFTER DEDUCTING THE REQUISITE TDS; THAT THE RECIPIENT OF THE RENT H AD DECLARED THE INCOME IN HIS INCOME TAX RETURN FOR THE YEAR AND HAD PAID DUE TAXES ON THE SAME AND SO, THERE HAD BEEN NO LOSS TO THE REVENUE; AND THAT , THEREFORE, THE CLAIM BE ALLOWED. 3 THE A.O. OBSERVED THAT THE ASSESSEES CLAIM THAT THE RECIPIENT OF THE RENT HAD DECLARED THE RENTAL INCOME IN HIS RETURN O F INCOME AND HAD PAID THE TAXES THEREON WAS INCORRECT AND THAT IN THE COMPUTA TION OF INCOME FOR A.Y. 2009-10, MR. VENU NAIR HAD DECLARED A LOSS OF RS. 4 ,59,789/- UNDER INCOME ITA 5814/M/12 3 FROM HOUSE PROPERTY. THE LOSS HAD BEEN ARRIVED AT A FTER DEDUCTING RENTAL INCOME WITH INTEREST FROM BORROWINGS AND DEDUCTION U/S 24 OF THE I.T. ACT. THE A.O. OBSERVED THAT NIL TAX HAVING THUS BEEN P AID BY THE DIRECTOR OF THE COMPANY, MR. VENU NAIR, CLEARLY, THE RENT AGREEMENT WAS A SHAM AGREEMENT ENTERED INTO IN ORDER TO REDUCE THE TAX LIABILITY O F THE COMPANY. THE A.O. OBSERVED THAT THE ASSESSEE HAD BEEN CONFRONTED WITH EVIDENCE BY WAY OF STATEMENTS OF THE DIRECTOR OF THE COMPANY, AS CONFI RMED BY THE SOCIETY, WHICH SHOWED THAT THE FLAT HAD NEVER BEEN USED BY ANY EMP LOYEE OF THE COMPANY, DISPROVING THE CLAIM OF USER OF THE FLAT FOR BUSINE SS PURPOSES. THE A.O. OBSERVED THAT PAYMENT HAD BEEN MADE TO A DIRECTOR O F THE ASSESSEE COMPANY, WHO WAS A PERSON COVERED UNDER THE PROVISI ONS SECTION 40A(2)(B) OF THE ACT AND THAT THE ASSESSEE HAD REMAINED UNABLE T O ESTABLISH ITS CASE WITH CONCRETE EVIDENCE. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION. 5. CHALLENGING THE IMPUGNED ORDER, THE LD. D.R. HAS CONTENDED THAT THE LD. CIT(A) ERRONEOUSLY DELETED THE ADDITION CORRECTLY M ADE BY THE A.O.; AND THAT THE LD. CIT(A) FAILED TO CONSIDER THAT THE PROVISIO NS OF SECTION 40A OF THE ACT ARE SQUARELY MET IN THIS CASE AND, THEREFORE, THE P AYMENT HAVING BEEN MADE TO A DIRECTOR OF THE COMPANY, THE ADDITION DID NOT CALL FOR DELETION. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE HAS CONTENDED THAT THE ADDITION WAS WRONGLY MADE AND THE SAME HAS BEEN CORRECTLY DELETED BY THE LD. CIT(A). THE ASSESSEE IS IN THE BUSINESS OF EVENT MANAGEMENT. THIS BEING A SHOW BUSINESS, IT REQUIRES PROPER PRESENTAT ION AND THE AMBIENCE AND THE PRODUCTS/SERVICES NEED TO BE PACKED IN A PRESEN TABLE MANNER TO ENABLE THE ASSESSEE TO SUSTAIN IN THE BUSINESS. THE CUSTOM ER IS A FOREIGN ENTITY AND THE VISITORS WERE FROM ABROAD. THE FLAT IN QUESTION WAS IDEALLY SUITED FOR THE PURPOSE AND IT WAS DUE TO THIS REASON, THAT IT WAS TAKEN ON RENT, THOUGH IT BELONGED TO ONE OF THE DIRECTORS OF THE COMPANY. T HE RENTAL INCOME HAD BEEN ITA 5814/M/12 4 OFFERED TO TAX BY THE DIRECTOR/OWNER. EVEN IF THE P REMISES WERE OWNED BY SOMEONE ELSE, IT WOULD HAVE BEEN TAKEN ON RENT. THI S IS SO, SINCE THE FLAT IS LOCATED IN A SOCIETY, I.E., BANDRA ASHIYANA CO-OPER ATIVE HOUSING SOCIETY, IN BANDRA, IN CLOSE PROXIMITY TO THE AIR PORT AND ALSO TO CENTRAL MUMBAI. IT BEING AN INTERNAL ARRANGEMENT, THE REGISTRATION WAS NOT GOT DONE AND THE SOCIETY WAS NOT COMMUNICATED ABOUT THE LETTING. IT IS CONTENDED THAT THE LD. CIT(A) HAS DULY TAKEN INTO CONSIDERATION ALL THE AT TENDING FACTS AND CIRCUMSTANCES WHILE CORRECTLY DELETING THE ADDITION WRONGLY MADE BY THE A.O. 8. WE HAVE HEARD THE PARTIES AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. THE A.O. HELD THAT THE ASSESSEE HAD NOT BE EN ABLE TO PROVE THAT THE FLAT IN QUESTION WAS EVER USED AS A GUEST HOUSE, FO R THE BUSINESS PURPOSES OF THE ASSESSEE. THIS MATTER WAS ELABORATELY DEALT WIT H BY THE A.O. AND IT WAS HELD THAT THE STAND TAKEN BY THE ASSESSEE THAT THE RECIPIENT OF THE RENT HAD DECLARED IT IN HIS RETURN OF INCOME AND HAD PAID TA XES THEREON, WAS INCORRECT, SINCE IT WAS A LOSS WHICH HAD BEEN DECLARED AS INC OME FROM HOUSE PROPERTY AND SUCH LOSS HAD ARISEN AFTER DEDUCTING THE RENTAL INCOME WITH INTEREST ON BORROWINGS AND DEDUCTION U/S 24 OF THE ACT AND THAT , THEREFORE, NO TAX HAD BEEN PAID BY THE DIRECTOR OF THE ASSESSEE COMPANY, LEADING TO THE CONCLUSION THAT THE RENT AGREEMENT BETWEEN THE ASSESSEE COMPAN Y AND THE DIRECTOR HAD BEEN ENTERED INTO MERELY TO REDUCE THE TAX LIABILIT Y OF THE ASSESSEE COMPANY. THE A.O. FURTHER OBSERVED THAT THE PERSON WHO HAD S IGNED THE AGREEMENT ON BEHALF OF THE ASSESSEE, REMAINED UNABLE TO PRODUCE THE TWO PERSONS WHO ALLEGEDLY KEPT THE LOG BOOK OF THE GUEST HOUSE. IT WAS ALSO OBSERVED THAT THE SOCIETY IN WHICH THE FLAT WAS LOCATED SPECIFICALLY STATED VIDE LETTER DATED 6-8-2011, THAT AS PER THEIR RECORD, THE FLAT WAS NO T RENTED OUT TO ANYONE, EITHER ON LEAVE AND LICENCE, OR OTHERWISE, AND THAT THEY HAD NOT ISSUE ANY NOC FOR GIVING THE FLAT ON HIRE. THE A.O. ALSO OBSE RVED THAT THE RENT AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE DIRE CTOR/OWNER OF THE FLAT ITA 5814/M/12 5 HAD BEEN REGISTERED WITH THE LOCAL AUTHORITIES AND NO STAMP DUTY HAD BEEN PAID THEREON. 9. THE LD. CIT(A), IT IS SEEN, HAS NOT TAKEN INTO C ONSIDERATION, MUCH LESS ADJUDICATED ON, ANY OF THESE OBSERVATIONS MADE BY T HE A.O. THOUGH, IT IS SEEN THAT THE A.O. HAS STATED TO HAVE INVOKED THE PROVIS IONS OF SECTION 40A(2)(A) OF THE ACT AND HAS ADDED A SUM OF RS. 22,29,528/- THER E UNDER, AND THE LD. CIT(A) HAS DELETED SUCH ADDITION, READING THE ASSES SMENT ORDER IN ITS ENTIRETY SHOWS, AS DISCUSSED HEREINABOVE, THAT THE A.O. HAD IN FACT, HELD THAT THE FLAT HAD NEVER BEEN USED AS A GUEST HOUSE. NOW, THAT BE ING SO, THE LD. CIT(A) OUGHT TO HAVE DEALT WITH THIS ISSUE AT THE OUTSET, WHICH HAS NOT BEEN DONE. IT IS ONLY IN CASE THE STAND OF THE ASSESSEE, THAT THE FLAT WAS USED AS A GUEST HOUSE, IS ACCEPTED, THAT THE QUESTION OF DISALLOWAN CE, OR OTHERWISE, UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT WOULD AR ISE. HENCE, THE MATTER NEEDS TO BE REMITTED TO THE FILE OF THE LD. CIT(A), TO BE DECIDED AFRESH, IN ACCORDANCE WITH LAW QUA THE ISSUE AS TO WHETHER THE A.O. HAS CORRECTLY HELD THE FLAT AS NOT HAVING EVEN BEEN USED AS A GUEST HO USE. THE LD. CIT(A) SHALL ADJUDICATE ON THE ELABORATE FINDING RECORDED BY THE A.O. IN THIS REGARD. THE ASSESSEE, OBVIOUSLY, WILL BE OFFERED DUE OPPORTUNIT Y OF HEARING TO PRESENT ITS CASE IN THIS REGARD. THE ASSESSEE, ON ITS PART, WIL L COOPERATE IN THE REMAND PROCEEDINGS. IT IS ON THE BASIS OF THE FINDING TO BE ARRIVED ON THIS ISSUE, THAT THE LD. CIT(A) SHALL ADJUDICATE THE ISSUE OF DISALL OWANCE, OR OTHERWISE, UNDER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. WE ORDER ACCORDINGLY. ITA 5814/M/12 6 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JULY, 2015. . ' *+,- $ /0 1 2 08-07-2015. + ' 3& SD/- SD/- (N.K. BILLAIYA) (A.D. JAIN ) ACCOUNTANT MEMBER /J UDICIAL MEMBER / $ & MUMBAI ; 1 DATED 22-7-15 [ %.../ R.K. R.K. R.K. R.K. , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $ D( () / THE CIT(A)-19, MUMBAI 4. $ D( / CIT -9, MUMBAI 5. G%H 3 '(IJ , ) IJ- , / $ & / DR, ITAT, MUMBAI F BENCH 6. 3 K L & / GUARD FILE. ! ( / BY ORDER, # G( '( //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , / $ & / ITAT, MUMBAI