ATE P.LTD, MUMBAI V. DCIT RG 2(1), MUMBAI

ITA 5959/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1163 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 25-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Depreciation; Business expenditure
• Section: 37

Judgement Text

INCOME-TAX APP ELLATE TRIBUNAL ABENCH MUMBAI , , BEFORE S/SHRI JOGINDER SINGH,JUDI CIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./I.T.A./5959/MUM/2011 , /ASSESSMENT YEAR: 2008-09 ATE PRIVATE LIMITED 43, DR. V.B. GANDHI MARG FORT, MUMBAI-400 023. PAN:AAACA 4481 G VS. DCIT-RANGE-2(1) AAYAKAR BHAVAN, M.K. MARG MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI RAJESH KUMAR YADAV ASSESSEE BY: SHRI NITESH JOSHI / DATE OF HEARING: 12.04.2017 / DATE OF PRONOUNCEMENT: 12.04.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER, DATED 01/07/2011, OF THE CIT (A) 4, MUMBAI, THE ASSESSEE HAS FILED PRESENT APPEAL.ASSESSEE- COMPANY, ENGAGED IN THE BU SINESS OF MONITORING GROWTH OF ITS PORTFOLIO INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES COMP ANIES, FILED ITS RETURN OF INCOME ON 22/ 09/2008, DECLARING TOTAL INCOME OF RS. 2.59 CRORES. THE ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT U/S. 143 (3) OF THE ACT, ON 20/12/2010, DETERMINING ITS INCOME AT RS. 5.43 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT CONFIRMING THE ADDI TION OF RS. 1.15 LAKHS, BEING DIFFERENCE BETWEEN ROYALTY INCOME AS PER THE BOOKS AND AS PER TAX DEDUCTED AT SOURCE CERTIFICATES. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THERE WAS DIFFERENCE IN THE AMOUNT OF TAX DEDUCTED AT SOURCE. HE DIRECTED THE ASSESSEE TO REC ONCILE THE DIFFERENCE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT ASSESS EE COULD RECONCILE THE DIFFERENCE TO THE EXTENT OF RS. 14.85 LAKHS OUT OF THE TOTAL DIFFERENCE OF R S.15.02 LAKHS, THAT IT HAD NOT DISCLOSED INCOME OF RS.1.5 LAKHS ON ACCOUNT OF ROYALTY WHEREAS IT HA D CLAIMED THE TAX DEDUCTED AT SOURCE ON THE SAME,THE ASSESSEE HAD NOT FORWARD WITH ANY EXPLANAT ION IN THAT REGARD. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, IT WAS ARGUED THAT THE RE WAS NO DIFFERENCE IN THE BOOKS OF ACCOUNTS AND THE TAX DEDUCTED AT SOURCE CERTIFICATES. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, HE HELD THAT THE ASSESSEE HAD NOT FILED ANY CONFIRMATI ON/RECONCILIATION FROM THE SISTER CONCERN/PAYER COMPANY ABOUT THE ACTUAL AMOUNT OF THE ROYALTY. 5959/M/11(08-09) ATE PVT.LTD. 2 2.2. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) REFER RED TO PAGE NUMBER 7 OF THE PAPER BOOK AND STATED THAT THE SISTER CONCERN HEAD INITIALLY A CCOUNTED RS.1.32 CRORES INCLUSIVE OF TAXES AS ROYALTY PAYABLE TO THE ASSESSEE AND HAD ACCORDINGLY ISSUED THE TAX DEDUCTED AT SOURCE CERTIFICATE, THAT ON FINALISATION OF AUDITED ACCOUNTS IT WAS FOU ND THAT THERE WAS EXCESS PROVISION OF ROYALTY PAYABLE TO THE ASSESSEE TO THE EXTENT OF RS.1.5 LAK HS, THAT ACCORDINGLY THE SISTER CONCERN REVERSED SUCH EXCESSIVE PROVISION.THE DEPARTMENTAL REPRESENT ATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 2.3. WE FIND THAT THE ASSESSEE IN ITS SUBMISSIONS, FILED BEFORE THE FAA, HAD FURNISHED A TABLE AND HAD TRIED TO RECONCILE THE DIFFERENCE. IT APPEARS T HAT THE SUBMISSIONS MADE BY THE ASSESSEE HAVE NOT BEEN CONSIDERED PROPERLY. THEREFORE, WE ARE OF THE OPINION, THAT IN THE INTEREST OF JUSTICE, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A O FOR FRESH ADJUDICATION. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE, WHO WOULD SUBMIT ALL THE NECESSARY PAPERS BEFORE THE AO WITH REGARD TO ROYALTY RECEIVE D. ACCORDINGLY, FIRST GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. 3. NEXT GROUND IS ABOUT DISALLOWANCE OF RS.23 155 LAK HS MADE U/S. 36(1)(II) OF THE ACT, BEING COMMISSION PAID TO ONE OF THE DIRECTORS.THE AO FOUN D THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS.47,10,386/- TO ITS DIRECTOR AS COMMISSION, THAT BOTH THE DIRECTORS WERE PAID RS.23.55 LAKHS EACH, THAT ONE OF THE DIRECTORS WAS A MAJOR STAKE H OLDER IN THE COMPANY. HE ASKED THE ASSESSEE AS TO WHY COMMISSION PAID TO SH.ATUL BHAGWATI(AB) SHOU LD NOT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 36(1)(II) OF THE ACT. IN ITS REPLY,THE ASSESSEE STATED THAT AMOUNT WAS PAID AS PER THE BOARD RESOLUTION AND AS PER PROVISIONS OF T HE COMPANIES ACT. THE AO HELD THAT COMMISSION PAID TO AB AMOUNTING TO RS.23.55 LAKHS W AS TO BE DISALLOWED AND HAD TO ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE ARGU ED THAT AB HAD SUFFICIENT EXPERIENCE AND QUALIFICATION TO BE PAID COMMISSION.AFTER CONSIDERI NG THE AVAILABLE MATERIAL THE FAA HELD THAT THE ASSESSEE HAD NOT FILED/PRODUCED ANY DOCUMENTS SHOWING SERVICES RENDERED BY AB, THAT IT WAS NOT PROVED THAT COMMISSION HAD NOT BEEN PAID FOR SE RVICES RENDERED,THAT IN THE EARLIER YEARS, SIMILAR COMMISSION PAYMENTS WERE ALLOWED. HE FURTHE R OBSERVED THAT THE AO HAD MADE ENQUIRIES IN THE YEAR UNDER CONSIDERATION, THAT SAME MIGHT NO T BE THE CASE IN THE EARLIER YEAR, THAT THERE WAS NO JUSTIFICATION TO DISTURB THE ORDER OF THE AO. 5959/M/11(08-09) ATE PVT.LTD. 3 3.2. BEFORE US, THE AR ARGUED THAT COMMISSION WAS PAID I N EARLIER YEARS AND WAS ALLOWED BY AO. COMMISSION WAS PAID FOR BUSINESS PURPOSES, THAT IT WAS PAID AS PER BOARD RESOLUTION PASSED ON 21/09/2007, THAT AB HAD PAID TAXES ON COMMISSION RE CEIVED BY HIM, HE REFERRED TO FORM NO.16 ISSUED TO AB AND THE RETURN FILED BY HIM. THE DR SU PPORTED THE ORDER OF FAA AND STATED THAT NO SERVICES WERE RENDERED BY THE SAID DIRECTOR. 3.3. WE FIND THAT THE FAA HAD UPHELD THE DISALLOWANCE ON THE GROUND THAT THE DIRECTORS HAD NOT RENDERED SERVICES TO THE COMPANY.IT IS PERTINENT TO NOTE THAT THE COMMISSION WAS PAID AS PER THE BOARD RESOLUTION, THAT IN THE EARLIER YEAR SIMILAR EXPENDITURE WAS ALLOWED BY THE AO, THAT THE DIRECTOR HAD PAID TAXES ON THE COMMISSION RECEIVED, THAT THE HIGHER SLAB OF TAX RATE WAS APPLICABLE IN BOTH THE CASES.CONSIDERING THESE FACT S, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA CANNOT BE ENDORSED. GROUND NO.2, IS DECIDED, IN FAVOUR OF THE ASSESSEE. 4. LAST EFFECTIVE GROUND OF APPEAL (GOA3 -4)DEALS WITH DISALLOWANCE ON ACCOUNT OF DEPRECIATION AND REPAIR AND MAINTENANCE OF RS.4.45 LAKHS AND RS. 1.15 LAKHS RESPECTIVELY. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT, THE ASSE SSEE HAD CREDITED AN AMOUNT OF RS.50.31 LAKHS AS RENTAL INCOME FOR THE YEAR ENDED ON 31/03/ 2008, THAT IT HAD TREATED RS.46.34 LAKHS OUT OF THE ENTIRE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THAT IT HAD CLAIMED DEDUC - TION U/S. 24 OF THE ACT,THAT IT HAD CLAIMED EXPENSE S U/S. 37 ALSO IN RESPECT OF RENTAL INCOME. ACCORDINGLY,HE ISSUED A SHOW CAUSE NOTICE TO THE AS SESSEE STATING AS TO WHY SAME SHOULD NOT BE DISALLOWED AS BUSINESS EXPENSES.AS PER THE AO,THE A SSESSEE DID NOT FILE ANY EXPLANATION IN THAT REGARD.FINALLY, HE HELD ONLY STANDARD DEDUCTION WOU LD BE ALLOWED IN CASE OF RENTAL INCOME, THAT EXPENSES CLAIMED BY IT U/S.37 WERE TO BE DISALLOWED . 4.1. BEFORE THE FAA, THE ASSESSEE MADE SUBMISSIONS AND S TATED THAT ONE OF THE PROPERTY IN FORT, MUMBAI WAS ITS CORPORATE OFFICE, THAT IT HAD CLAIME D DEPRECIATION ON IT, THAT IT HAD INCURRED REPAIRS AND MAINTENANCE EXPENSE OF RS.1.51 LAKHS FO R THE SAME BUILDING, THAT AO HAD WRONGLY TAKEN FIGURE OF RS.3.45 LAKHS FOR DISALLOWANCE AS R ATES AND TAXES, THAT ONLY RS.75,287/- WERE CLAIMED AS ADMINISTRATIVE AND OTHER EXPENSES.HE DIR ECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND RESTRICT IT TO RS.75,287/-, IF THE CL AIM WAS FOUND TO BE CORRECT AND IF THE EXPENSES PERTAINED TO CARRYING ON OF BUSINESS. 4.2. BEFORE US, THE AR ARGUED THAT ASSETS WERE PURCHASED IN THE EARLIER YEARS, THAT SAME WERE PART OF WORK-IN-PROGRESS FOR THAT YEAR AND DEPRECIATION WAS REGULARLY ALLOWED TO THE ASSESSEE, THAT IT 5959/M/11(08-09) ATE PVT.LTD. 4 WAS CORPORATE OFFICE OF THE ASSESSEE AND WAS A BUSI NESS ASSET, THAT EXPENDITURE UNDER THE HEAD REPAIR WORK WAS ALSO INCURRED FOR THE SAME BUILDING , THAT BOTH THE EXPENSES CLAIMED BY ASSESSEE WERE DEDUCTIBLE.HE REFERRED TO PAGES-36(1)(II) AND 45 OF THE PB. THE DR SUPPORTED THE ORDER OF THE FAA. 4.3. WE FIND THAT THE FAA HAD SPECIFICALLY MENTIONED THA T THE ASSESSEE HAD NOT FILED THE FULL AUDIT REPORT DURING THE APPELLATE PROCEEDINGS, THAT THE A SSESSEE WAS USING ITS MUMBAI PROPERTY AS COMMERCIAL ASSET,IN ABSENCE OF CORRECT AND FULL DET AILS THE AO AND FAA HAD MADE AND UPHELD THE DISALLOWANCE.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE AND DECIDE THE CASE ACCORDINGLY.BOTH THE GROUNDS ARE DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT, APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL,2017. 12 , 2017 SD/- SD/- ( /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED : 12.04.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.