M/s Jain Furnishing P. Ltd., Chandigarh V. ACIT, Chandigarh

ITA 695/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90230 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NOS. 694 & 695/CHD/2014 A.Y: 2006-07 & 2007-08 M/S JAIN FURNISHING P.LTD., VS THE ACIT, SCO 16, SECTOR 7, CENTRAL CIRCLE-I, CHANDIGARH. CHANDIGARH. PAN: AAACJ3894Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINEET KRISHA N RESPONDENT BY : SHRI S.K.MITTAL DATE OF HEARING : 30.06.2015 DATE OF PRONOUNCEMENT : 02.07.2015 O R D E R PER BHAVNESH SAINI,JM BOTH APPEALS BY THE ASSESSEE ARE DIRECTED A GAINST DIFFERENT ORDERS OF LD. CIT(APPEALS) (CENTRAL) GURG AON DATED 20.05.2014 FOR ASSESSMENT YEAR 2006-07 AND 2007-08. 2. IT IS STATED THAT GROUNDS OF APPEAL ARE SAME IN BOTH THE APPEALS AND BOTH PARTIES MAINLY ARGUED IN ASSES SMENT YEAR 2006-07 AND STATED THAT ORDER IN THAT CASE COU LD BE FOLLOWED IN ASSESSMENT YEAR 2007-07. 3. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 2 ITA 694/2014 (A.Y. 2006-07) 4. THE ASSESSEE IN THIS APPEAL CHALLENGED THE ADDIT ION OF RS. 15,609/- ON ACCOUNT OF MUNICIPAL TAXES AND ADDI TION OF RS. 4,80,000/- DISALLOWING PART OF THE RENT. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT SEARCH UN DER SECTION 132(1) OF THE INCOME TAX ACT WAS INITIATED ON JAIN SONS GROUP OF CASES ON 28.11.2007 BY INVESTIGATION WING (INCOME TAX) CHANDIGARH AND MANY PERSONS WERE SUBJE CT TO SEARCH INCLUDING THE ASSESSEE COMPANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RETAIL AND WHOLESALE TRA DE OF FURNISHING FABRICS, CARPETS AND ACCESSORIES. ON GO ING THROUGH THE PROFIT & LOSS ACCOUNT, IT WAS SEEN THAT ASSESSEE HAS CLAIMED RS. 15,609/- ON ACCOUNT OF MUN ICIPAL TAXES. THE PREMISES FROM WHERE BUSINESS IS BEING C ARRIED OUT, BELONGS TO FAMILY MEMBERS OF THE DIRECTORS. T HE RENT HAS ALSO BEEN INCREASED FROM RS. 1 LAC PER MONTH TO RS. 1.50 LACS PER MONTH. NO EVIDENCE/REASONS HAVE BEEN PLACED ON RECORD TO JUSTIFY THE INCREASE IN RENT OR THE PAYMENT OF MUNICIPAL TAXES. THE ASSESSEE HAS NOT PRODUCED ANY COPY OF THE RENT AGREEMENT IN SUPPORT OF ITS CLAIM. THE ASSESSING OFFICER NOTED THAT NORMAL PRA CTICE IN THE MARKET/TRADE IS THAT AN INCREASE OF 10% IN RENT IS MADE AFTER EVERY TWO OR THREE YEARS. BUT IN THE CA SE OF THE ASSESSEE, IN ASSESSMENT YEAR 2005-06, RENT WAS INCR EASED FROM RS. 80,000/- PER MONTH TO RS. 1.00 LAC PER MON TH. THUS, THE RENT HAS BEEN INCREASED TO ALMOST DOUBLE IN TWO YEARS WHICH IS UNREASONABLE. THE ASSESSING OFFICER NOTED 3 THAT INCREASE IN RENT IS MADE ONLY TO REDUCE THE PR OFIT OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER, THERE FORE, CONSIDERED INCREASE IN RENT OF 10% AS REASONABLE AN D ACCORDINGLY, BALANCE OF RS.4.80 LACS WAS DISALLOWED . FURTHER, IT WAS NOTED THAT AS PER PRACTICE, THE MUN ICIPAL TAXES ARE BEING PAID BY THE LANDLORD. THEREFORE, I N THE ABSENCE OF ANY EVIDENCE ON RECORD, RS.15,609/- PAID AS MUNICIPAL TAX WAS ALSO DISALLOWED. 6. BOTH THE ADDITIONS WERE CHALLENGED BEFORE LD. CIT(APPEALS). THE WRITTEN SUBMISSION OF THE ASSESS EE IS REPRODUCED IN THE APPELLATE ORDER IN WHICH THE ASSE SSEE BRIEFLY EXPLAINED THAT THE ASSESSEE COMPANY PAID TO TAL RENT OF RS. 18 LACS IN RESPECT OF TWO PROPERTIES AND NO EFFORTS HAVE BEEN MADE BY THE ASSESSING OFFICER TO ENQUIRE THE FAIR MARKET RENT OF THE PREMISES IN QUESTION OR OTHER COMMERCIAL PROPERTIES IN THE AREA CONCERNED. THE P REMISES OF THE ASSESSEE IS AT MADHYA MARG, CHANDIGARH WHICH IS THE MOST PRIME ROAD FOR COMMERCIAL PURPOSES. M/S A PEX RESTAURANTS PVT. LTD. HAS TAKEN ON LEASE PREMISES S CO NO. 7, SECTOR 26, CHANDIGARH ON A MONTHLY RENT OF RS. 1,25,000/-. COPY OF THE RENT DEED WAS FILED WHEREA S ASSESSEE HAS TAKEN ONE PREMISES AT SCO 45, SECTOR 2 6, CHANDIGARH ON A MONTHLY RENT OF RS. 50,000/- ONLY. THE OTHER SHOWROOM AT SCO 16, SECTOR 7, MADHYA MARG WAS TAKEN ON LEASE BY THE ASSESSEE FOR RS. 1 LAC WHICH IS SITUATED AT MADHYA MARG, WHICH IS VERY BETTER COMME RCIAL POINT. THE ASSESSEE ALSO SUBMITTED THAT IN ASSESSM ENT YEAR 2010-11, SCO NO. 1 SECTOR 7-C, CHANDIGARH WAS TAKEN 4 ON LEASE BY M/S IMPRESARIO ENTERTAINMENT & HOSPITAL ITY PVT. LTD. FOR MONTHLY RENT OF RS. 7,50,000/- WOULD SHOW THAT THERE WAS INCREASE IN THE RENT IN THE CONCERNE D AREA. THE ASSESSEE RELIED UPON CERTAIN DECISIONS IN SUPPO RT OF THE CONTENTION THAT ITO SHOULD MAKE ENQUIRY INTO TH E MATTER AND IT WAS, THEREFORE, SUBMITTED THAT ADDITI ON WAS WHOLLY UNJUSTIFIED. 7. THE LD. CIT(APPEALS) CONSIDERING THE EXPLANATION OF THE ASSESSEE NOTED THAT ASSESSEE HAS NOT FILED COPY OF RENT AGREEMENT AND ALSO DID NOT FILE ANY EVIDENCE FOR PA YMENT OF MUNICIPAL TAXES. IT WAS NOTED THAT ASSESSEE HAS NO T FILED ANY SUPPORTING EVIDENCE FOR INCREASE IN THE RENT, T HEREFORE, ADDITION WAS MAINTAINED. AS REGARDS THE PAYMENT OF MUNICIPAL TAX, IT WAS NOTED THAT NO SPECIFIC PROVIS ION OR RULE WAS BROUGHT TO HIS NOTICE FROM ANY ACT FOR PAY MENT OF MUNICIPAL TAX BY THE TENANT. THE LD. CIT(APPEALS) ALSO NOTED THAT THE MUNICIPAL PROPERTY TAX IS LEVIED ON THE TITLE OF THE OWNERSHIP AND IT WAS LIABILITY OF THE OWNER, THEREFORE ADDITION OF MUNICIPAL TAXES ALLEGEDLY PAID BY THE A SSESSEE WAS ALSO CONFIRMED AND APPEAL OF THE ASSESSEE WAS DISMISSED. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW ADDITION ON ACCOUNT OF INCREASE IN RENT IS EXCESSIVE IN NATURE. IT IS NOT IN DISPUTE THAT ASS ESSEE HAS TAKEN TWO PROPERTIES ON RENT I.E. SCO NO. 16 SECTOR 7-C, MADHYA MARG AND SCO 45 SECTOR 26, CHANDIGARH. IT IS ALSO NOT IN DISPUTE THAT RENT WAS INCREASE IN PRECEDING 5 ASSESSMENT YEAR 2005-06 FROM RS. 80,000/- PER MONTH TO RS. 1 LAC PER MONTH. IT IS NOT DENYING FACT THAT C OMMERCIAL ESTABLISHMENT SITUATED AT MADHYA MARG IS HAVING BET TER COMMERCIAL LOCATION AS AGAINST OTHER PLACES IN CHAN DIGARH. THE ASSESSING OFFICER DID NOT DISPUTE INCREASE OF T HE RENT IN PRECEDING ASSESSMENT YEAR 2005-06. IT IS ALSO A FACT THAT ASSESSEE HAS NOT PLACED ANY RENT AGREEMENT ON RECORD TO JUSTIFY HEAVY INCREASE IN THE RENT IN ASSESSMENT YEAR UNDER APPEAL PARTICULARLY WHEN LANDLORD OF THE PROP ERTY IS THE FAMILY MEMBER OF THE DIRECTOR OF THE ASSESSEE C OMPANY. IT IS WELL SETTLED LAW THAT WHEN ASSESSEE CLAIMED D EDUCTION OF THE EXPENDITURE, BURDEN WOULD BE UPON ASSESSEE T O PROVE THAT EXPENSES WERE WHOLLY AND EXCLUSIVELY INC URRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO JUSTIFY HEAVY INCREASE IN THE RENT IN ASSESSMENT YEAR UNDER APPEAL. AS NOTED ABOVE, S INCE IN THE PRECEDING ASSESSMENT YEAR 2005-06, RENT WAS ALS O INCREASED AND ASSESSING OFFICER HAS ALSO ALLOWED IN CREASE IN THE RENT OF 10% THEREFORE, WOULD INDICATE THAT T HERE WAS SOME JUSTIFICATION FOR INCREASE IN THE RENT BECAUSE IT WAS ALSO CONSIDERED AND ALLOWED BY THE ASSESSING OFFICE R HIMSELF. THE LD. COUNSEL FOR THE ASSESSEE, DURING THE COURSE OF ARGUMENTS REFERRED TO RENT AGREEMENT IN T HE CASE OF M/S APEX RESTAURANTS PVT. LTD. (PB-97) WHICH WA S ENTERED INTO IN MAY, 2005 IN RESPECT OF LEASED PREM ISES SCO-7, SECTOR 26 IN WHICH RENT WAS SETTLED AT RS. 1,25,000/- IN THE YEAR 2005 AND THE DETAILS NOTED I N THE LEASE DEED SHOW THAT IT HAS INCREASED TIME TO TIME. ONE OF 6 THE LEASED PROPERTY OF THE ASSESSEE IS ALSO SITUATE D IN SECTOR 26. THEREFORE, CONSIDERING THE PAST HISTORY OF THE ASSESSEE, COMPARABLE CASE CITED BY LD. COUNSEL FOR THE ASSESSEE TO JUSTIFY INCREASE IN THE RENT, AND CONSI DERING THAT ASSESSING OFFICER HIMSELF HAS ALLOWED INCREASE IN THE RENT BY 10%, WOULD CLEARLY INDICATE THAT ADDITION M ADE BY THE ASSESSING OFFICER WAS EXCESSIVE AND UNREASONABL E IN NATURE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES FIND JUSTIFICATION FOR INCREASE I N THE RENT BY 25% AS AGAINST PAYMENT MADE BY THE ASSESSEE . 9. KEEPING IN VIEW THE ABOVE DISCUSSION, INCREASE I N THE RENT OF 25%, IN OUR CONSIDERED VIEW IS REASONABLE A S AGAINST 10% RESTRICTED BY THE AUTHORITIES BELOW. TH E ORDERS OF THE AUTHORITIES BELOW TO THAT EXTENT ARE MODIFIE D AND ASSESSING OFFICER IS DIRECTED TO ALLOW INCREASE IN RENT OF 25% AS AGAINST 10% MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO GIVE APPEAL EFFECT ACCORDINGLY IN THE RATIO IN WHICH HE HAS ALLOWED PA RT RELIEF TO ASSESSEE. 10. HOWEVER, AS REGARDS THE DISALLOWANCE OF RS. 15, 609/- ON ACCOUNT OF MUNICIPAL TAX PAID BY THE ASSESSEE, N O EVIDENCE WAS PRODUCED BEFORE THE AUTHORITIES BELOW WITH REGARD TO THE PAYMENT OF MUNICIPAL TAX BY ASSESSEE. EVEN BEFORE US, NO SUCH EVIDENCE HAS BEEN PRODUCED. FUR THER, THE MUNICIPAL PROPERTY TAX IS LEVIED ON THE TITLE O F THE PROPERTY AND IT IS THE DUTY OF THE OWNER TO PAY THE SAME. THE ASSESSEE EXPLAINED BEFORE THE LD. CIT(APPEALS) THAT 7 HOUSE TAX PROVISION WAS BROUGHT BY CHANDIGARH ADMINISTRATION IN ASSESSMENT YEAR 2004-05 AND THE LANDLORD ASKED THE ASSESSEE TO PAY THIS TAX. HOWEVE R, NO EVIDENCE WAS PRODUCED TO SUPPORT THIS CONTENTION. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AN D CIRCUMSTANCES AND THAT NO EVIDENCE WAS PRODUCED IN SUPPORT OF THE CONTENTION RAISED BY THE ASSESSEE, I T IS DIFFICULT TO BELIEVE THE EXPLANATION OF THE ASSESSE E REGARDING PAYMENT OF MUNICIPAL TAX AND SEEKING DEDU CTION FOR THE SAME. THE ADDITION OF RS. 15,609/- IS ACCO RDINGLY, CONFIRMED. 11. NO OTHER POINT IS ARGUED OR PRESSED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA 695/2014 ( A.Y. 2007-08) 13. IN THIS APPEAL ALSO, ASSESSEE CHALLENGED THE AD DITION OF RS. 31,795/- ON ACCOUNT OF MUNICIPAL TAX PAID AN D ADDITION OF RS. 9,48,000/- DISALLOWING PART OF THE RENT PAID BY THE ASSESSEE. THE FACTS ARE IDENTICAL AS HAVE B EEN CONSIDERED IN ASSESSMENT YEAR 2006-07 ABOVE. IN TH IS YEAR, ASSESSEE ALLEGEDLY PAID MUNICIPAL TAX OF RS.3 1,795/-. THE RENT WAS INCREASED FROM RS.1.50 LACS PER MONTH TO RS. 2 LACS PER MONTH. THE ASSESSING OFFICER ALLOWED IN CREASE IN RENT AT 10% AND MADE ADDITION OF RS. 9,48,000/-. THE ASSESSING OFFICER ALSO DISALLOWED PAYMENT OF MUNICI PAL TAX OF RS.31,765/-. THE LD. CIT(APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE. 8 14. IT IS STATED BY BOTH THE PARTIES THAT ISSUE IS SAME AS HAVE BEEN CONSIDERED IN ASSESSMENT YEAR 2006-07. FOLLOWING THE REASONS FOR DECISION IN ASSESSMENT YE AR 2006-07 (SUPRA), WE MODIFY THE ORDERS OF THE AUTHOR ITIES BELOW AND DIRECT THE ASSESSING OFFICER TO ALLOW INC REASE IN RENT OF 25% AS AGAINST 10% RESTRICTED BY THE ASSESS ING OFFICER. THE ADDITION OF RS. 31,765/- IS CONFIRMED . THE ASSESSING OFFICER IS DIRECTED TO GIVE APPEAL EFFECT ACCORDINGLY AS DIRECTED IN ASSESSMENT YEAR 2006-07. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JULY,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND JULY,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH