Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 84255 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-11-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Next Hearing Date
25-11-2014
Assessment Year
2009-2010
Appeal Filed On
09-11-2012
Judgement Text
, INCOME TAX APPELLATE TRIBUNAL,M UMBAI - I BENCH. , , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMB ER & VIVEK VARMA, JUDICIAL MEMBER /. ITA NO.6584/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2009-10 ITO WARD 8(2)(1), R.NO. 212, 2ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 V/S. M/S INFOWAVZ INTERNATIONAL PVT. LTD., 3RD FLOOR, EVEREST HOUSE, 6 SUREN ROAD, ANDHERI (E),MUMBAI-400093 # # # # . . . /PAN: AAACI6687A /. ITA NO.6896/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2009-10 M/S INFOWAVZ INTERNATIONAL PVT.LTD., 7TH FLOOR, MAXUS MALL, FATAK ROAD, NEAR TIMBA HOSPITAL, BHAYANDER (W), MUMBAI-401101 # # # # . . . /PAN: AAACI6687A V/S. ITO WARD 8(2)(1), R.NO. 212, 2ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( #$ / APPELLANT) ( %&#$ / RESPONDENT) ' ( / REVENUE BY : SHRI SACCHIDANAND DUBEY !)* !)* !)* !)* ( ( ( ( / ASSESSEE BY : SHRI DHANESH BAFNA & ALIASGER RA MPURAWALA. ! ! ! ! ' '' ' *+ *+ *+ *+ / DATE OF HEARING : 25-11-2014 ,-' ' *+ / DATE OF PRONOUNCEMENT : 25-11-2014 ! ! ! ! , 1961 ' '' ' 254 )1 ( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! : CHALLENGING THE ORDER DT.09.08.2012 OF THE CIT(A)-3 ,MUMBAI,ASSESSEE-COMPANY AND THE ASSESSING OFFICER (AO) HAVE FILED CROSS APPEALS FOR THE YEAR UNDER CONSIDERATION.GROUNDS OF APPEAL,FILED BY THE AO READ AS UNDER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S.10AA WITHOUT SETTING OFF THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION WITHOUT APPRECIATING THAT IN VIEW OF T HE AMENDMENT W.E.F. 01.04.2001.SEC.10A/10B PROVIDES FOR DEDUCTION AND NOT EXEMPTION AND HE NCE, THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED AS STIPULATED IN S 2(45) OF THE ACT. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S10AA WITHOUT SETTING OFF THE BROUGHT F ORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION BY PLACING RELIANCE UPON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS YAKOGAWA INDIA P LTD (KAR) 341 ITR 385 IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE RATIO LAID DOWN IN THE SAID CASE AND P REFERRED A SLP AGAINST THE SAID DECISION. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10AA WITHOUT SETTING OFF THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION BY PLACING RELIANCE UPON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS BLACK & VEATCH CONSULTING P LTD.20 TAXMANN.COM727 ( BOM) IGNORING THE FACT THAT THE DEPARTMENT HAS NOT ACCEPTED THE RATIO LAID DOWN IN THE SAID CASE, THOUGH NO SLP HAS BEEN PREFERRED DUE TO LOW TAX EFFECT. 4.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. ITA/6896-6584/MUM/2012/I I P L-2009-10 2 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA/6896/MUM/2012-AY.2009-10: ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. DISALLOWANCE ON ACCOUNT OF RENT 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) (THE LEARNED CIT(A)) ERRED IN CONFIRMING THE DISALLOWANCE OF PART OF EXPENDITURE INCURRED TOWARDS RENT AMOUNTING TO RS.2 ,07,51 372 OUT OF THE TOTAL RENT INCURRED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE RENT PAID BY THE APPEL LANT BE HELD TO BE BUSINESS EXPENDITURE AND ACCORDINGLY BE ALLOWED AS DEDUCTION. 1.2 WITHOUT PREJUDICE TO ABOVE GROUND NO. 1.1 ABOV E, THE LEARNED CIT(A) ERRED IN ENHANCING THE AFORESAID DISALLOWANCE BY RS.28,23148. THE APPELLANT PRAYS THAT THE ADDITIONAL DISALLOWANC E BY THE LEARNED CIT(A) BE DELETED AND THE ASSESSING OFFICER BE DIRECTED ACCORDINGLY. 1.3 WITHOUT PREJUDICE TO ABOVE GROUND NOS. 1.1 AND 1.2 ABOVE, THE APPELLANT PRAYS THAT IN CASE IT IS HELD THAT PART OF PREMISES IS HELD BY STREAM, IT SHOULD BE ALLOWED TO CLAIM DEDUCTION (TO THE EXTENT DISALLOWED IN HANDS OF THE APPELLANT) AN D THE ASSESSING OFFICER OF ITS HOLDING COMPANY STREAM INTERNATIONAL SERVICES PRIVATE LIMIT ED BE DIRECTED TO ALLOW THE DEDUCTION IN RESPECT OF THE SAME. 2. ADJUSTMENT OF BROUGHT FORWARD BUSINESS LOSSES OR UNABSORBED DEPRECIATION FOR THE PURPOSES OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE INCOME-TAX ACT, 1961 (THE ACT) 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN IGNORING THE BROUGHT FORWARD OR UNABSORBED DEPRECIA TION UNDER SECTION 1 15JB OF THE ACT AS CLAIMED IN THE RETURN OF INCOME. THE LEARNED CIT(A) HAS ERRED IN IGNORING THE EXPLANATION MADE BY THE APPELLANT IN THIS REGARD. THE APPELLANT PRAYS THAT THE ASSESSING OFFICER BE D IRECTED TO CONSIDER THE FIGURE AS CLAIMED BY THE APPELLANT. THAT APPELLANT CRAVES LEAVE TO ADD TO, TO AMEND, TO SUBSTITUTE, TO WITHDRAW, TO MODIFY, TO ALTER AND/OR RE-INSTATE THE FOREGOING GROUNDS OF THE APPE AL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF PROVIDI NG TECHNICAL SUPPORT AND CUSTOMER SERVICES,FILED ITS RETURN OF INCOME ON 29.09.2009,D ECLARING TOTAL INCOME OF RS.5.20 LAKHS. ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT U/S.1 43(3) OF THE ACT,ON 16.12.2011,DETERMINING ITS TOTAL INCOME AT RS.5,20,070 UNDER NORMAL PROVIS IONS AND AT RS.1.35 CORES UNDER SECTION 115JB OF THE ACT. ITA/6854/MUM/2012-AY.2009-10: 3. THE ONLY GROUND OF APPEAL FILED BY THE AO PERTAINS TO DEDUCTION CLAIMED U/S.10AA OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 10AA,AMOUNTING TO RS.3,58,43,389/-,IN ITS COMP UTATION OF INCOME,THAT THE DEDUCTION HAD BEEN COMPUTED WITHOUT CONSIDERING BROUGHT FORWARD B USINESS LOSSES AND DEPRECIATION.THE AO HELD THAT THE METHODOLOGY OF THE ASSESSEE WAS CONTR ARY TO THE PROVISIONS OF LAW KEEPING IN VIEW THE RATIO OF THE DECISIONS OF HIMATASINGIKE SEIDE L TD.(285 ITR 255) PATSPIN INDIA LTD.(245CTR97)AND HINDUSTAN UNILEVER LTD.(325ITR102 ).THE AO THEREFORE HELD THAT DEDUCTION U/S. 10A WOULD HAVE TO BE COMPUTED ONLY AFTER DETER MINING THE GROSS TOTAL INCOME AND AFTER SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORB ED DEPRECIATION.AS THE BROUGHT LOSSES AND UNABSORBED DEPRECIATION WAS GREATER THAN THE PROFIT S OF THE ELIGIBLE UNITS, THE AO HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR ANY DEDUCTION U/S.10A .HE FURTHER HELD THAT THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD WAS NOT APPLICABLE TO THE FACTS OF THE CASE SINCE THE LOSSES IN THAT CASE PERTAINED TO SOM E OTHER UNIT BELONGING TO THE ASSESSEE AND WERE ITA/6896-6584/MUM/2012/I I P L-2009-10 3 SOUGHT TO BE SET OFF AGAINST THE PROFITS OF THE ELI GIBLE UNIT, WHEREAS, IN THE INSTANT CASE THE LOSSES SOUGHT TO BE SET OFF WERE OF THE ELIGIBLE UNIT ITSE LF. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE EXTENSIVE SUBMISSIONS.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE,THE FAA HELD THAT THE A O HAD SET OFF THE BROUGHT FORWARD LOSSES END UNABSORBED DEPRECIATION PRIOR TO COMPUTING THE TOTA L INCOME OF THE ELIGIBLE UNIT, FOR THE PURPOSES OF 10A DEDUCTION, RELYING UPON THE ORDER OF THE BOM BAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD.(SUPRA),THAT THE AO HAD HELD THAT IN T HE SAID ORDER THE COURT HAD HELD THAT AFTER THE AMENDMENT OF SECTION 10A BY FINANCE ACT, 2000, THE NATURE OF BENEFIT U/S. 10B WAS A DEDUCTION AND NOT AN EXEMPTION, THAT THE BENEFIT U/S.10A WOUL D HAVE TO BE COMPUTED ONLY AFTER COMPUTING THE GROSS TOTAL INCOME, THAT THE AO HAD NOT FULLY A PPRECIATED THE ABOVE CITED JUDGMENT,THAT THE JUDGMENT WAS SQUARELY IN FAVOUR OF THE ASSESSEE.HE REPRODUCED THE RELEVANT PORTION OF THE ORDER OF THE HONBLE COURT THAT READ AS UNDER: SECTION 10B AS IT STANDS IS NOT A PRO-VISION IN TH E NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINAN CE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EAR LIER PROVISION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 PER CENT. E XPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION, THEREFORE, AS IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 PER CENT. EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BE CAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSME NT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DED UCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOUR TH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTI ON 10B. HE HELD THAT PERUSAL OF THE ABOVE JUDGMENT MADE IT CLEAR THAT THE PROFITS OF THE UNIT ELIGIBLE OF 10B DEDUCTION WOULD HAVE TO BE COMPUTED WITHOUT SET TING OFF THE LOSSES OF THE OTHER UNITS.HE ALSO DISCUSSED THE JUDGMENT OF YOKAGAWA INDIA LTD., DELIVERED BY THE HONBLE KARNATAKA HIGH COURT AND HELD THAT DEDUCTION U/S.10A WAS TO BE GIV EN WITHOUT SETTING OFF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION.THE FAA RELIED U PON THE DECISION OF HONBLE BOMBAY HIGH COURT DELIVERED IN THE MATTER OF BLACK & VEATCH CON SULTING P.LTD.(20 TAXMANN.COM.727) AND HELD THAT SECTION 10A DEDUCTION HAD TO BE COMPUTED BEFORE COMPUTING THE GROSS TOTAL INCOME,THAT BROUGHT FORWARD LOSSES AND UNABSORBED D EPRECIATION COULD NOT HE SET OFF AGAINST THE TOTAL INCOME WHILE COMPUTING THE DEDUCTION U/S.10A OF THE ACT. 5. BEFORE US THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE AO.WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE H ONBLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE CONCLUSIVELY IN THE CASE OF BLACK & VEATC H CONSULTING P. LTD. (SUPRA) IN THE FOLLOWING MANNER: SECTION 10A IS A PROVISION WHICH IS IN THE NATURE O F A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A DIVISION BENCH OF THI S COURT, WHILE CONSTRUING THE PROVISIONS OF SECTION 10B, IN HINDUSTAN UNILEVER LTD. V. DEPUTY C IT [2010] 325 ITR 102 (BOM) AT PARAGRAPH 24. THE SUBMISSION OF THE REVENUE PLACED ITS RELIAN CE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, HAS ITA/6896-6584/MUM/2012/I I P L-2009-10 4 TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 WHI CH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULAT ES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOT AL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE CHAPTER, THE DEDUCTIONS SPECI FIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A 'GROSS TOT AL INCOME' TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, BEFOR E MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO T ELESCOPE THE PROVISIONS OF CHAPTER VI-A IN THE CONTEXT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER S ECTION 10A, WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFEC T WERE TO BE MADE. IN THE ABSENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCE S, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT T HE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS AR E COMPUTED IN THE FIRST INSTANCE. RESPECFULLY FOLLOWING THE ABOVE DECISIONS,WE CONFIR M THE ORDER OF THE FAA.EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. ITA/6896/MUM/2012: 6.DURING THE COURSE OF HEARING BEFORE US,THE AUTHOR ISED REPRESENTATIVE(AR)DID NOT PRESS GROUND NO.2 CONSIDERING SMALLNESS OF TAX EFFECT,HENCE SA ME STANDS DISMISSED. IT LEAVES US WITH THE GROUND NO.1 AND IT PERTAINS T O DISALLOWANCE OF PART OF EXPENDITURE INCURRED TOWARDS RENT,AMOUNTING TO RS.2,07,51,372/-.DURING T HE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSES HAD CLAIMED RENTAL EXPENDITURE OF RS.3,87,00,360/- IN ITS BOOKS OF ACCOUNTS WITH REGARD TO RENT PAID TO M/S.PANKAJ SHAWLS P. LT D.(PSPL). ON PERUSAL OF THE LEASE DEED,THE AO NOTED THAT THE SAID PREMISES WAS BEING SHARED BY ITS SISTER CONCERN M/S. STREAM INTERNATIONAL SERVICES P.LTD.(SISPL).FURTHER THE AO ALSO NOTED ,F ROM FORM 16A,THAT THE ACTUAL RENT PAID WAS RS.3,58,97,9761-,AND NOT RS. 3,87,00,360/-.AFTER CO NSIDERING THE COPIES OF THE BOARDS RESOLUTION PASSED BY THE BOARD OF PSPL AND SISPL,TH E AO CONCLUDED THAT 50% OF THE SAID PREMISES WAS BEING USED BY SISPL.THEREFORE, THE AO HELD THAT 50% OF THE RENTAL,AMOUNTING TO RS.1,79,48,988/-,WAS FOR THE BUSINESS OF SISTER COM PANY AND WAS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE.HENCE,THE AO ALLOWED A SUM OF RS.2,07, 51,3721- (3,87,00,360 -1,79,48,988/-). 7. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA). IN THE COURSE OF THE APPELLATE PROCEEDINGS,T HE ASSESSEE SUBMITTED THAT THE PARENT COMPANY OF THE ASSESSEE I.E.SISPL HAD TAKEN 3 RD ,FLOOR AND PART OF 4 TH FLOOR IN EVEREST HOUSE, ANDHERI (EAST) FROM PSPL,VIDE THE LEASE AGREEMENT D ATED 20 MARCH 2006,FOR THE USE OF THE ASSESSEE,THAT THE PREMISES WERE TAKEN ON LEASE FOR THE PERIOD OF 2 YEARS,THAT THE LEASE AGREEMENT WAS PUT FOR RENEWAL,THAT SUBSEQUENTLY A FRESH LEASE AGREEMENT DATED 30 JUNE, 2008 WAS EXECUTED BETWEEN SISPL AND PSPLFOR THE AFORESAID PREMISES,TH AT THE ASSESSEE HAD OCCUPIED THE AFORESAID PREMISES(VIZ. 3 RD FLOOR AND PART OF 4 TH FLOOR) FOR CARRYING OUT ITS BUSINESS DURING THE YE AR UNDER CONSIDERATION,THAT THE ENTIRE RENT OF RS.3,87,00,36 0 WAS DIRECTLY PAID BY THE ASSESSEE AND THE EXPENSES WERE DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT,THAT SISPL HAD NEITHER DEBITED THE AFORESAID RENT IN THE PROFIT AND LOSS A CCOUNT NOR CLAIMED THE SAME AS A DEDUCTION IN ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON, THAT THE ASSESSEE HAD DIRECTLY PAID THE RENT TO PSPL AFTER COMPLYING WITH THE TDS PREVISIONS, TH AT PAN AND TAN OF THE ASSESSEE HAD BEEN OBTAINED ON THE AFORESAID PREMISES,THAT STPI WAS RE GISTRATION WAS GRANTED FOR THE PREMISES IN QUESTION,THAT THE PREMISES WERE FULLY OCCUPIED BY T HE ASSESSEE,THAT DURING THE YEAR UNDER CONSIDERATION,THAT THE BUSINESS OF SISPL CARRIED OU T FROM LOWER PAREL,THAT THE AFORESAID RENT WAS RIGHTLY CLAIMED AS A DEDUCTION BY IT FOR THE YE AR UNDER CONSIDERATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER HE HELD THAT THE LEASE AGREEMENT, DATED 22.3.2006,CLEARLY SHOWED THAT SISP L WAS IN CONSTRUCTIVE POSSESSION OF THE ITA/6896-6584/MUM/2012/I I P L-2009-10 5 PREMISES,THAT SSIPL WAS NOT AUTHORISED TO ASSIGN OR TRANSFER THE BENEFITS OF TO ANY OTHER PERSON ON ANY BASIS WHATSOEVER,THAT AS PER AGREEMENT IT CO ULD ALLOW ANY ONE COMPANY TO USE THE PREMISES JOINTLY,THAT THE CLAIM MADE BY THE ASSESSE E ABOUT EXCLUSIVE USE OF THE PREMISES WAS CONTRARY TO THE TERMS AND CONDITIONS OF THE LEASE A GREEMENT,THAT THE NAME OF THE ASSESSEE DID NOT OCCUR IN THE LEASE AGREEMENT,THAT T BY VIRTUE OF BO ARD RESOLUTION PASSED BYPPSL AND SSIPL THE ASSESSEE WAS ENTITLED TO USE THE SAID PREMISES,THAT NONE OF THE DOCUMENTS STIPULATED THAT SSIPL WOULD NOT BE USING THE LEASED PREMISES.HE UPHELD TH E ORDER OF THE AO. 8. BEFORE US,AUTHORISED REPRESENTATIVE(AR) STATED THAT THE ASSESSEE WAS IN CONSTRUCTIVE POSSESSION OF THE PREMISES,THAT AS PER THE AGREEMEN T PARENT COMPANY COULD RENT OUT THE PREMISES TO GROUP COMPANY,THAT THE LAND LORD WANTED THE AGRE EMENT TO BE ENTERED BY THE PARENT COMPANY, THAT THE ASSESSEE WAS A LOSS MAKING ENTITY WHEREAS THE PARENT COMPANY WAS PAYING TAXES, THAT THE ASSESSEE WAS AVAILING BENEFIT TO SECTION 10A OF THE ACT,THAT THE PARENT COMPANY WAS PAYING TAXES IN THE HIGHEST BRACKET,THAT PARENT COMPANY HA D NO BUSINESS ACTIVITY IN THE PREMISES IN QUESTION,THAT DURING THE PERIOD IT WAS CARRYING OUT BUSINESS FROM OTHER PREMISES AT DIFFERENT LOCATION,THAT THE ASSESSEE HAD PAID SECURITY DEPOSI T,THAT THE ASSESSEE HAD EVIDENCES TO PROVE THAT THE PARENT COMPANY WAS WORKING FROM OTHER PLACE. DE PARTMENTAL REPRESENTATIVE (DR) ARGUED THAT THE TDS CERTIFICATE SHOWED THAT THE TAX WAS DE DUCTED BY THE ASSESSEE WHEREAS THE PREMISES WAS LEASED TO PARENT COMPANY. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AGREEMENT TO PAY RENT FOR THE PREMISES WAS ENTERED IN TO BETWEEN PSPL AND SISPL,THAT THERE WAS BOARD RESOLUTION WITH REGARD TO RENT IT TO ONE OF THE GROUP COMPANIES OF SISPL,THAT THE RENT WAS PAID BY THE ASSESSEE AND THE AO HAD ALLOWED ONL Y 50% OF THE RENT PAID AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE.IT IS A FACT T HAT WHILE DECIDING THE ISSUE A VERY IMPORTANT ISSUE REMAINED TO BE INVESTIGATED.THE ASSESSEE HAD CLAIMED THAT SISPL WAS WORKING FROM ANOTHER PREMISES AND NOT WORKED EVEN FOR A SINGLE D AY FROM THE PREMISES OCCUPIED BY THE ASSESSEE.IN OUR OPINION,TO ARRIVE AT THE FINAL CONC LUSION THIS HAD TO BE INVESTIGATED.IT IS A FACT THA T THERE IS AN AGREEMENT,BUT THE AGREEMENTS ALONE CANN OT PROVE CERTAIN FACTS THAT COULD BE PROVED BY REFERRING TO OTHER EVIDNCEC.IF WE TAKE IN TO CON SIDERATION THE FACT;THAT THE ASSESSEE IS A LOSS MAKING COMPANY AND IS ALLOWED EXEMPTION U/S.10A OF THE ACT AS AGAINST THE PARENT COMPANY THAT IS MAKING PROFIT;WE FIND SOME FORCE IN THE ARG UMENT ADVANCED BY THE AR THAT THERE WAS NO BENEFIT TO THE GROUP AS A WHOLE TO CLAIM THE RENT EXPENDITURE IN THE HANDS OF THE ASSESSEE.IT IS ALSO A FACT THAT SSIPL WAS ENTITLED TO LEASE THE PR EMISES TO ONE OF ITS GROUP COMPANIES IN CERTAIN CIRCUMSTANCES.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION IN THE INTEREST OF JUSTICE THE MATTER SHOULD BE REMANDED BACK TO THE FILE OF THE AO TO FI ND OUT AS TO WHETHER THE PARENT COMPANY WAS WORKING FROM OTHER PREMISES DURING THE YEAR UNDER C ONSIDERATION.HE WOULD AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND THE ASSE SSEE WOULD PRODUCE ALL THE RELEVANT DOCUMENTS BEFORE THE AO.THE AO SHOULD ALSO VERIFY F ROM THE RECORDS OF THE ARENT COMPANY AS TO WHETHER IT HAD CLAIMED PAYMENT OF RENT TO PSPL F OR THE PREMISES IN QUESTION FOR THE YEAR UNDER CONSIDERATION.IF THE DOCUMENTARY EVIDENCE PRO VE THAT THE PARENT COMPANY WAS ACTUALLY WORKING FROM OTHER LOCATION,THE ADDITION UPHELD BY THE FAA SHOULD BE DELETED. GROUND NO.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,THE APPEAL FILED BY THE AO STANDS DISMI SSED AND THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. 0*1 !)* + 3 4 DH XBZ DH XBZ DH XBZ DH XBZ !5 VKSJ VKSJVKSJ VKSJ !)* 3 4 DH XBZ DH XBZ DH XBZ DH XBZ /*1 5 ' * 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH ,NOVEMBER 2014 . ITA/6896-6584/MUM/2012/I I P L-2009-10 6 / ' ,-' 8 9! 25 ! , 201 4 - ' . : SD/ SD/- ( / VIVEK VARMA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE: 25.11 . 2014. / / / / ' '' ' %* %* %* %* ; '* ; '* ; '* ; '* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >. %*! , . . . 6. GUARD FILE/ . 0 & * & * & * & * %* %*%* %* //TRUE COPY// /! / BY ORDER, ? / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI
