DY.CIT-3(2)(1), MUMBAI V. M/S.MARSHALL PRODUCE BROKERS CO.PVT.LTD., MUMBAI

ITA 7177/MUM/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9084 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 19-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S E DASTUR
• Keywords: Deemed owner of house property; Depreciation; Principle of natural justice; Deemed to accrue or arise in india
• Section: 13; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.7177/M/2017 ASSESSMENT YEAR: 2014-15 DCIT 3(2)(1), ROOM NO.608, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 400020 VS. M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD., 22/23, JOLLY MAKER CHAMBER NO.2, NARIMAN POINT, MUMBAI 400 021 PAN: AAACM7312G (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI S.E. DASTUR, A.R. REVENUE BY : SHRI JOTHILAKSHMI NAYAK, D.R. DATE OF HEARING : 06.11.2019 DATE OF PRONOUNCEMENT : 19.12.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 08.09.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2014-15. 2. IN THE FIRST THREE GROUNDS OF APPEAL, THE REVENU E HAS CHALLENGED THE ORDER OF LD. CIT(A) WHEREIN THE LD. CIT(A) HAS DIRECTED THE AO TO COMPUTE AND ALLOW THE DEPRECIATI ON ON THE PORTION OF PROPERTY RENTED OUT IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 38(2) OF THE ACT. ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 2 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF BROKERAGE BUSINESS AND IT EARNS BROKERA GE INCOME BY ARRANGING CHARTERS VESSELS/TANKERS SAILING IN TH E INTERNATIONAL WATERS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS DEBITED RS.7 6,67,500/- ON ACCOUNT OF DEPRECIATION ON COMMERCIAL PREMISES A T BUSINESS SQUARE A WING, 4 TH FLOOR, CHAKALA, ANDHERI KURLA ROAD AND ACCORDINGLY ASKED THE ASSESSEE TO JUSTIFY THE USE O F PROPERTY FOR BUSINESS PURPOSE AND THE CLAIM OF THE DEPRECIATION THEREON WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 28.11.2016 STATING THAT THE SAID PROPERTY AT ANDHERI, MUMBAI W AS ACQUIRED DURING THE YEAR WITH THE INTENTION OF CARRYING ON B USINESS. THE ASSESSEE ALSO SUBMITTED THAT THE TOTAL PROPERTY MEA SURED AT 3745.2 SQ. FT. OUT OF WHICH A PART MEASURING 1500 SQ. FT. HAS BEEN GIVEN ON RENT TO M/S. DYNACOM TANKERS MANAGEME NT PVT. LTD. AND THUS THE AREA UNDER UTILISATION OF THE COM PANY IS 60% OF THE TOTAL AREA OF THE PREMISES. THE ASSESSEE SU BMITTED BEFORE THE AO THAT THE MAIN INTENTION BEHIND PURCHASE OF T HE SAID PROPERTY IN ANDHERI WAS TO USE FOR THE PURPOSE OF B USINESS AND NOT FOR RENTING OUT. SINCE THE PLAN OF THE COMPANY DID NOT MATERIALIZE, A PART OF THE PROPERTY WAS GIVEN ON RE NT. HOWEVER, THE CONTENTIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND THE AO CAME TO CONCLUSION THAT ASSESSEE HAS CLA IMED DEPRECIATION EVEN ON THAT PORTION OF THE PROPERTY W HICH WAS LET OUT DURING THE PART OF THE YEAR. THE ASSESSEES CO NTENTION WOULD HAVE BEEN CORRECT IF THE INCOME RECEIVED BY WAY OF RENTING HAD BEEN OFFERED TO TAX UNDER THE HEAD INCOME FROM BUSI NESS OR PROFESSION. THE AO REJECTED THE CLAIM OF THE ASSES SEE QUA DEPRECIATION OF RS.76,67,500/- ON GROUND THAT PART OF THE ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 3 PROPERTY WAS RENT OUT AND THE REMAINING PORTION OF THE PROPERTY WAS NOT USED FOR THE PURPOSE OF BUSINESS AND THUS A DDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S AND CONTENTIONS OF THE ASSESSEE, DURING THE COURSE OF A PPELLANT PROCEEDINGS, PARTLY ALLOWED THE APPEAL OF THE ASSES SEE BY DIRECTING THE AO AS UNDER: THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO V ERIFY AND COMPUTE DEPRECIATION ON THE IMPUGNED PREMISES ON BASIS OF THE PORTION NOT R ENTED OUT IN ACCORDANCE WITH PROVISIONS OF SECTION 38(2) OF THE ACT. THE ALTERN ATIVE PLEA OF THE APPELLANT IS ACCORDINGLY ALLOWED. THESE GROUNDS ARE PARTLY ALLO WED. THE LD. CIT(A) WHILE ALLOWING THE APPEAL OF THE ASS ESSEE ON ALTERNATIVE GROUND CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON PART OF THE BUILDING WH ICH IS USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE IN TERM S OF PROVISIONS OF SECTION 38(2) OF THE ACT. 5. THE LD. D.R. SUBMITTED BEFORE THE BENCH THAT THE ORDER OF LD. CIT(A) IS WRONG AND AGAINST THE FACTS OF THE CA SE AS THE LD. CIT(A) HAS NOT GONE INTO THE FACT THAT WHETHER THE 60% OF THE PORTION OF THE PROPERTY WHICH WAS IN THE OCCUPATION OF THE ASSESSEE WAS NOT USED FOR THE PURPOSE OF BUSINESS, SO THE DEPRECIATION WAS WRONGLY DIRECTED TO BE ALLOWED IN TERMS OF PROVISIONS OF SECTION 38(3) OF THE ACT AND THEREFOR E THE ORDER OF LD. CIT(A) MAY KINDLY BE REVERSED ON THIS ISSUE AND THAT OF THE AO BE RESTORED. 6. THE LD. A.R., ON THE OTHER HAND, STRONGLY OPPOSE D THE ARGUMENTS OF THE LD. D.R. BY SUBMITTING THAT THE AS SESSEE HAS NOT BEEN GRANTED FULL RELIEF AS THE LD. CIT(A) HAS DIRECTED THE AO ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 4 TO ALLOW DEPRECIATION ON 60% PORTION OF THE PREMISE S WHEREAS AS A MATTER OF FACT EVEN CONSIDERING THE FACT THAT THE 40% AREA WHICH WAS RENTED OUT IN A PART OF THE AREA, THE ASS ESSEE SHOULD BE ALLOWED DEPRECIATION IN RESPECT OF THAT PERIOD D URING WHICH THE PREMISES REMAINED VACANT WITH THE ASSESSEE. TH E LD. A.R. SUBMITTED THAT IT HAS BEEN ARGUED BEFORE THE APPELL ATE AUTHORITY THAT THE PREMISES WERE PRIMARILY ACQUIRED WITH INTE NTION TO USE SAME FOR THE PURPOSE OF BUSINESS ,HOWEVER, WHEN THE PLANNING AS ENVISAGED BY THE ASSESSEE DID NOT GET THROUGH, A PART WAS LEASED OUT OF COMMERCIAL CONSIDERATION AND AS PRUD ENT BUSINESSMAN. THE LD. A.R. SUBMITTED THAT THE SAID ASSET FORMED PART OF THE BLOCK OF ASSETS AND THE PROVISIO NS OF SECTION 32 MANDATE FOR PROVIDING OF DEPRECIATION ON THE BLO CK OF ASSETS. THEREFORE, THE DEPRECIATION SHOULD BE ALLOWED ON TH E ENTIRE ASSET. THE LD. A.R. SUBMITTED BEFORE THE BENCH THA T A CONJOINT READING OF PARA 5.1.5 AND 5.2.1 IN THE APPELLATE OR DER SHOWS THAT THE 60% OF THE PREMISES REMAINED IN THE POSSESSION OF THE ASSESSEE. THE LD. AR CONTENDED THAT ACCORDINGLY TH E LD. CIT(A) HAS UNEQUIVOCALLY RECORDED A FINDING OF THE FACT TH AT THE 60% OF THE AREA WAS USED FOR THE PURPOSE OF BUSINESS, THER EFORE THERE IS NO FORCE IN THE ARGUMENTS OF THE LD. D.R. THAT THE ASSET HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS. THE LD. A.R ., THEREFORE, PRAYED THAT THE ORDER OF LD. CIT(A) MAY BE MODIFIED TO ALLOW DEPRECIATION EVEN IN RESPECT OF 40% OF THE PREMISES WHICH WERE LET OUT BUT WAS IN THE POSSESSION OF THE ASSESSEE F OR PART OF THE YEAR AND WAS USED BY THE ASSESSEE. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE ACQUIRED A PRO PERTY DURING ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 5 THE YEAR AT ANDHERI FOR THE PURPOSE OF USING THE SA ME FOR HIS BUSINESS. HOWEVER, DURING THE YEAR A PART OF THE P ROPERTY ACCOUNTING FOR 40% WAS LEASED OUT FOR FEW MONTHS D URING THE YEAR. THE ASSESSEE CLAIMED DEPRECIATION ON THE ENT IRE PROPERTY ON THE GROUND THAT THE ASSET WAS ACQUIRED WITH THE INTENTION TO USE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND IN FACT WAS USED AND ONLY LET OUT PARTLY DURING THE YEAR. THE ARGUMENTS OF THE LD. A.R. OF THE ASSESSEE WERE MAINLY THAT SINCE IT FORMED PART OF BLOCK OF ASSETS, THEREFORE DEPRECIATION HAS TO BE ALLOWED IN TERMS OF SECTION 38(2) OF THE ACT. AFTER TAKIN G INTO CONSIDERATION THE FACTS OF THE CASE AND RIVAL CONTE NTIONS, WE OBSERVE THAT LD. CIT(A) HAS DIRECTED THE AO TO ALLO W DEPRECIATION IN TERMS OF PROVISIONS OF SECTION 38(2) OF THE ACT ONLY IN RESPECT OF 60% OF THE PROPERTY WHICH WAS STATED TO BE USED BY THE ASSESSEE DURING THE YEAR. WE NOTE THAT EVEN THE LD. CIT(A) HAS GIVEN A FINDING THAT 60% OF THE PROPERTY WAS USED F OR THE PURPOSE OF BUSINESS IN PARA 5.2.1. OF THE APPELLATE ORDER. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LD. CIT(A) AND ACCORDINGLY UPHELD THE SAME BY DISMI SSING THE GROUND RAISED BY THE REVENUE. BEFORE PARTING ,WE W OULD LIKE TO STATE THAT THE PRAYER OF THE ASSESSEE FOR MODIFICAT ION OF THE ORDER OF LD. CIT(A) IN ORDER TO ALLOW DEPRECIATION TO THE ASSESSEE IN RESPECT OF REMAINING 40% OF THE PROPERTY CAN NOT BE CONSIDERED AS THE ASSESSEE IS IN APPEAL BEFORE US. THE GROUND IS DISMISSED AS THE ASSESSEE IS NOT IN APPEAL BEFORE US AGAINST THE ORDER OF LD CIT(A). 8. THE ISSUE RAISED IN GROUND NO.4 & 5 IS AGAINST T HE DELETION OF ADDITION OF RS.25,84,450/- BY LD. CIT(A) AS MADE BY THE AO ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 6 ON ACCOUNT OF DEEMED INCOME UNDER THE HEAD HOUSE P ROPERTY IN RESPECT OF PART OF THE PREMISES WHICH WAS IN THE POSSESSION OF THE ASSESSEE ON THE GROUND THAT SAME WAS NOT PUT TO USE IN ENTIRETY FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E. 9. THE FACTS IN BRIEF ARE THAT THE ASSESSEE PURCHAS ED COMMERCIAL PREMISES IN ANDHERI IN MAY 2013 MEASURIN G 3745.2 SQ. FT. OUT OF THIS PROPERTY, THE ASSESSEE LEASED O UT 15,00 SQ. FT. IN OCTOBER 2013 AND ACCORDINGLY OFFERED THE SAME TO TAX. ACCORDING TO THE AO, THE PROPERTY WAS USABLE FROM T HE DATE OF PURCHASE AS THE ASSESSEE TAKEN THE POSSESSION OF TH E PROPERTY AND ACCORDINGLY CAME TO THE CONCLUSION THAT THE INC OME FROM THE SAID PROPERTY FOR THE PERIOD COMMENCING FROM TH E DATE OF PURCHASE TO THE DATE OF ACTUAL LETTING OUT IS TAXA BLE AND CALCULATED THE DEEMED RENT AT RS.37,45,200/- AND AF TER ALLOWING A DEDUCTION OF 30% AND MUNICIPAL TAX OF RS.37,190/- , ADDED RS.25,84,450/- UNDER THE HEAD HOUSE PROPERTY. 10. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DE LETED THE ADDITION MADE BY THE AO ON ACCOUNT OF DEEMED LET OU T VALUE COMPUTED UNDER SECTION 23(I) READ WITH SECTION 22 O F THE ACT BY OBSERVING AND HOLDING AS UNDER: 5.2.1 THIS GROUND RELATES TO ADDITION OF RS. 25,84 ,4507- ON ACCOUNT OF DEEMED LET OUT VALUE AS COMPUTED U7S 23(1) R.W. SECTION 22 OF THE ACT. AS DISCUSSED UNDER GROUND NO. 1 ABOVE, THE APPELLANT HAS LET OUT 40% O F THE IMPUGNED PROPERTY AND 60% OF THE PROPERTY HAS REMAINED IN POSSESSION OF T HE APPELLANT DURING THE YEAR. THE ASSESSING OFFICER HAS COMPUTED 'DEEMED LET OUT' JS IN ACCORDANCE WITH PROVISIONS OF SECTION 23(1). 5.2.1 UNDER GROUND NO. 1 ABOVE, IT HAS BEEN HELD TH AT THE SAID 60% OF THE IMPUGNED NOT LET OUT HAS TO BE CONSIDERED AS USED F OR BUSINESS AND ELIGIBLE DEPRECIATION HAS TO BE ALLOWED THEREON IN ACCORDANC E WITH PROVISIONS OF SECTION 38(2) OF THE ACT. THIS BEING THE CASE, PROVISIONS O F SECTION 22 & 23(1) WILL NOT APPLY TO THE SAID PORTION OF THE IMPUGNED PROPERTY. THERE FORE, ADDITION OF RS.25,84,450/- ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 7 ON ACCOUNT OF DEEMED LET OUT VALUE COMPUTED U/S. 23 (1) R.W. SECTION 22 OF THE ACT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 11. THE LD. D.R. ARGUED BEFORE US THAT THE AO HAS R IGHTLY COMPUTED THE DEEMED LET OUT VALUE OF THE PROPERTY A S THE ASSESSEE HAS TAKEN POSSESSION IMMEDIATELY ON THE PU RCHASE ON MAY 2013 AND THE PROPERTY WAS LETABLE ON THE 1 ST DAY OF PURCHASE AND THEREFORE THE DEEMED RENT WAS RIGHTLY APPLIED BY THE AO, HOWEVER, LEFT THE ISSUE TO THE DISCRETION O F THE BENCH AS TO HOW THE RENT IS TO BE CALCULATED AS THE DEEMED R ENT WAS CALCULATED ON THE ENTIRE PROPERTY. 12. THE LD. A.R., ON THE OTHER HAND SUBMITTED BEFOR E THE BENCH THAT ASSESSEE HAS DULY OFFERED TO TAX THE REN T RECEIVED OF RS.7,50,000/- UNDER THE HEAD HOUSE PROPERTY AND A N ET INCOME OF RS.5,25,000/- WAS DECLARED UNDER THE HEAD HOUSE PROPERTY IN RESPECT OF 1500 SQ. FT. WHICH ACCOUNTS FOR 40% OF T HE TOTAL PROPERTY. THE LD. A.R. FILED CALCULATION OF FIRST ADDITION MADE BY THE AO IN RESPECT OF THE HOUSE PROPERTY BY BIFURCAT ING THE PROPERTY INTO 40% AND 60% AND THUS ARGUED THAT THE ADDITION WAS MADE IN RESPECT OF THE ENTIRE PROPERTY BY IGNOR ING THE FACT THAT THE ASSESSEE HAS SUO-MOTO RETURNED INCOME OF RS.5,25,000/- UNDER THE HEAD HOUSE PROPERTY IN RE SPECT OF 1500 SQ. FT. AREA LET OUT DURING THE YEAR. THE LD. A.R. ARGUED THAT THE AO HAS WRONGLY MADE THE ADDITION IN RESPEC T OF THE PROPERTY WHICH ACCOUNTS FOR 60% OF THE TOTAL PROPER TY AND WAS IN OCCUPATION OF THE ASSESSEE FOR BUSINESS USE AS H AS BEEN OBSERVED BY LD. CIT(A) DURING THE COURSE OF APPELLA TE PROCEEDINGS. THEREFORE, THE LD. A.R. PRAYED BEFORE THE BENCH THAT THE ADDITION ON ACCOUNT OF DEEMED LETTING VALU E WAS RIGHTLY DELETED BY LD. CIT(A) AFTER APPRECIATING THE FACT T HAT THE ASSESSEE ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 8 HAS ALREADY RETURNED THE INCOME IN RESPECT OF THE L ET OUT AREA WHILE THE REMAINING AREA WHICH WAS EQUAL TO 60% OF THE TOTAL AREA WAS USED BY THE ASSESSEE FOR ITS BUSINESS. TH E LD. A.R., THEREFORE, STRONGLY DEFENDED THE ORDER PASSED BY TH E LD. CIT(A) AND PRAYED BEFORE THE BENCH THAT THE SAME MAY KINDL Y BE UPHELD. 13. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ASSESSEE H AS LET OUT THE PART OF THE PROPERTY WHICH IS 40% OF THE TOTAL PROP ERTY AND AFTER CLAIMING STANDARD DEDUCTION EQUAL TO 30% OF THE TOT AL RENT RETURNED RS.5,25,000/- AS INCOME UNDER THE HEAD HO USE PROPERTY. THE REMAINING PROPERTY MEASURING 2245.2 SQ. FT. WHICH ACCOUNTS FOR 60% OF THE TOTAL PROPERTY WAS IN THE POSSESSION OF THE ASSESSEE AND WAS USED FOR THE PUR POSE OF BUSINESS. WE ARE QUITE CONVINCED WITH THE ARGUMENT S PUT FORWARD BEFORE US BY THE LD. COUNSEL THAT WHATEVER RENT WAS RECEIVED STANDS ALREADY OFFERED TO TAX UNDER THE HE AD HOUSE PROPERTY AND THEREFORE THE AO HAS WRONGLY MADE THE ADDITION. WE FIND MERIT IN THE CONTENTIONS OF THE LD. A.R. TH AT LD. CIT(A) HAS APPLIED THE PROVISIONS OF SECTION 23(1)(C) AND THUS DELETED THE ADDITION. CLAUSE (C) TO SUB SECTION (I) TO SEC TION 23 OF THE INCOME TAX ACT PROVIDES THAT WHERE THE PART OF THE PROPERTY IS LET OUT AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED ON RECEIVABLE BY THE OWNER IN RESPECT THER EOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A) THEN THE ANN UAL VALUE OF THE SUCH PROPERTY SHALL BE EQUAL TO RENT RECEIVED O R RECEIVABLE. THE CLAUSE (A) TO SUB SECTION (I) TO SECTION 23 OF THE INCOME TAX ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 9 ACT PROVIDES THAT THE ALV SHALL BE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGHT BE REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. A CONJOINT READING OF THE ABOVE TWO SUB CLAUSES SHOWS THAT THE LD. CIT(A) HAS RIGHTLY APPLI ED THE PROVISIONS OF SECTION 23(I)(C) AND DELETED THE ADDI TION MADE BY THE AO ON ACCOUNT OF DEEMED RENTAL VALUE. UNDER TH ESE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO UPHOLD THE OR DER OF LD. CIT(A) BY DISMISSING THE GROUND RAISED BY THE REVEN UE. 14. THE ISSUE RAISED IN GROUND NO.6 IS AGAINST THE DELETION OF ADDITION OF RS.1,51,58,515/- OF LD. CIT(A) AS MADE BY THE AO UNDER SECTION 40A(2)(A) OF THE ACT AND THE ISSUE RA ISED IN GROUND NO.7 IS WITHOUT PREJUDICE TO GROUND NO.6. 15. THE FACTS IN BRIEF ARE THAT THE AO OBSERVED FRO M THE PROFIT & LOSS ACCOUNT THAT ASSESSEE HAS PAID RS.1,89,48,1 44/- AS INCENTIVE TO SHRI ASHOK TREHAN, DIRECTOR OF THE ASS ESSEE COMPANY AS REMUNERATION AND OTHER BENEFITS. THE TO TAL INCENTIVE CHARGED TO THE P&L ACCOUNT WAS RS.3,49,68 ,993/- OUT OF WHICH RS.1,89,48,144/- WAS TOWARDS DIRECTORS IN CENTIVES WHICH ACCOUNTS FOR 54.18% OF THE TOTAL EXPENSES CL AIMED UNDER THE HEAD INCENTIVES. THE AO FURTHER OBSERVED THAT THE SAID INCENTIVE WAS CALCULATED @ 10% ON THE TOTAL TURNOVE R, THE CALCULATION WHEREOF IS GIVEN IN PARA 6.2 OF THE ASS ESSMENT ORDER. ACCORDINGLY, THE ASSESSEE WAS CALLED UPON TO JUSTIF Y THE PAYMENT OF SUCH INCENTIVES TO THE DIRECTOR WHICH WAS REPLIE D BY THE ASSESSEE VIDE LETTER DATED 28.11.2016 WHEREIN THE A SSESSEE ALSO SUBMITTED THE DETAILS OF RECIPIENTWISE INCENTIVE WH ICH AGGREGATED TO RS.1,60,20,849/- AND IS REPRODUCED BY THE AO IN PAGE NO.7 & 8 OF THE ASSESSMENT ORDER. THE AO OBSERVED THAT TH E INCENTIVE ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 10 PAID TO ANOTHER DIRECTOR WAS CALCULATED @ 0.1% OF T HE TOTAL TURNOVER AND THUS A SUM OF RS.1,32,000/- WAS PAID. IN VIEW OF THAT THE AO NOTED THAT THE PAYMENT MADE TO SHRI ASH OK TREHAN WAS EXCESSIVE AND UNREASONABLE AND THUS ALLOWED THE INCENTIVE @ 2% THEREBY DISALLOWING RS.1,51,58,515/- OUT OF TH E INCENTIVES TO DIRECTORS AND ADDED BACK TO THE INCOME OF THE AS SESSEE. 16. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AL LOWED THE APPEAL OF THE ASSESSEE AFTER TAKING INTO ACCOUNT TH E BOARDS CIRCULAR NO.6P DATED 06.07.1968 WHICH DEALS WITH TH E ISSUE OF DISALLOWANCE OF EXCESSIVE OR UNREASONABLE EXPENSES OR PAYMENT TO RELATIVES. THE LD. CIT(A) FURTHER OBSERVED AND HELD AS UNDER: 5.3.4 THE SCOPE OF SECTION 40A(2) AS EXPLAINED BY CBDT IN CIRCULAR NO. 6P, DATED 6TH JULY, 1968 CLARIFIED THAT WHILE EXAMINING THE R EASONABLENESS OF EXPENDITURE, THE ASSESSING OFFICER IS EXPECTED TO EXERCISE HIS JUDGM ENT IN A REASONABLE AND FAIR MANNER. IT SHOULD BE BORNE IN MIND THAT THE PROVISI ON IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO R ELATIVES AND ASSOCIATE CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHIC H WILL CAUSE HARDSHIP IN BONA FIDE CASES. 17. THE LD. D.R. VEHEMENTLY SUBMITTED BEFORE US THA T THE ASSESSEE HAS NOT FURNISHED ANY COMPLETE DETAILS/INF ORMATION QUA THE COMMISSION PAID AND RATE AT WHICH THE SAME WAS PAID BEFORE THE AO WHEREAS THE SAME DETAILS WERE AVAILAB LE BEFORE THE LD. CIT(A). MOREOVER, THE LD. D.R. SUBMITTED THAT THE AGREEMENT DATED 20.03.2009 ON THE BASIS ON WHICH THE INCENTIV E AND COMMISSION WAS PAID TO THE DIRECTOR WAS NOT PRODUCE D BEFORE THE AO AT ALL. FURTHER, THE FACTS AS STATED IN THE STATEMENT OF FACTS FILED ALONG WITH THE FORM NO.35, THE MEMORAND UM OF APPEAL BEFORE THE LD. CIT(A) WERE NOT BEFORE THE A O AND THUS VIOLATION OF NATURAL JUSTICE HAS TAKEN PLACE. THE LD. D.R. THEREFORE PRAYED THAT THE COMMISSION PAID TO THE DI RECTOR SHRI ASHOK TREHAN WAS EXCESSIVE AND UNREASONABLE IN VIEW OF THE ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 11 FACT THAT THE COMMISSION TO ANOTHER DIRECTOR WAS PA ID @ 0.1% WHICH WORKED OUT TO RS.1,32,000/-. THE LD. D.R., T HEREFORE, PRAYED THAT THE ORDER OF LD. CIT(A) IS WRONG AND MA Y KINDLY BE REVERSED ON THIS ISSUE. 18. THE LD. A.R., ON THE OTHER HAND, STRONGLY RELIE D ON THE ORDER OF THE LD. CIT(A) BY SUBMITTING THAT THE LD. CIT(A) HAS RELIED ON THE CIRCULAR OF THE BOARD WHEREIN IT HAS BEEN PROVIDED THAT WHILE DEALING WITH THE ISSUE OF EXCESSIVE AND UNREASONABLE PAYMENTS TO THE RELATIVE ,THE INCOME TAX AUTHORITY SHOULD BEAR IN MIND THAT THESE PROVISIONS ARE MEANT TO CHECK TH E TAX EVASION THROUGH THE EXCESSIVE AND UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATED CONCERNS AND SHOULD NOT BE APPLIED I N A MANNER WHICH WILL CAUSE HARDSHIPS IN THE BONAFIDE CASES. THE LD. A.R. ALSO FILED BEFORE US A COPY OF LETTER DATED 28.11.2 016 FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE AO ACCOMPANYING THERE WITH COPY OF ACKNOWLEDGEMENT OF INCOME TAX RETURNS OF SHRI ASHOK TREHAN FOR A.Y. 2014-15 W HICH SHOWS THAT THE GROSS INCOME WAS RS.2,98,70,654/- AND THE NET TAXABLE INCOME WAS RS.2,97,60,650/- WHICH PROVED BEYOND DOU BT THAT THE RATE OF TAX APPLICABLE TO BOTH THE RELATED PART IES I.E. PAYER AND PAYEE WERE AT MAXIMUM RATE AND THEREFORE THERE IS NO QUESTION OF TAX EVASION AND THE LD. CIT(A) HAS PASS ED A VERY REASONED ORDER. THE LD. A.R. ALSO RELIED ON THE OR DER OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. IN DO SOUTH SERVICES TRAVEL PVT. LTD. (2008) 219 CTR 562 (BOM.) WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHERE THE S ISTER CONCERN WAS PAYING TAX AT A HIGHER RATE THEN THE DI SALLOWANCE OF EXCESSIVE COMMISSION PAID TO SISTER CONCERN WAS NOT JUSTIFIED AS ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 12 THERE WAS NO TAX EVASION. THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN FOLLOWED IN ANOTHER DECI SION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. V.S. DEMPO & CO . PVT. LTD. (2011) 196 TAXMAN 193 (BOM.) WHEREIN IT HAS BE EN HELD THAT SINCE THE ASSESSEE AS WELL AS ITS SUBSIDIARY W ERE UNDER THE SAME TAX BRACKET,THERE WAS NO QUESTION OF DIVERSION OF FUNDS BY PAYING HIGHER RATE TO THE SUBSIDIARY COMPANY BEING PAID INCENTIVE @ 10% WHICH WAS CALCULATED ON THE BASIS O F TURNOVER OF THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT THE SAID PAYMENT OF INCENTIVE TO DIRECTOR HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST EVEN IN THE ASSESSMENT PROCEEDI NGS AS IS APPARENT FROM THE ASSESSMENT ORDER FILED FOR A.Y. 2 009-10 BEFORE THE BENCH DURING THE COURSE OF HEARING. THE LD. AR THEREFORE PRAYED BEFORE THE BENCH THAT THE ORDER OF LD. CIT(A ) MAY KINDLY BE UPHELD. 19. WE NOTE IN THIS CASE THE DISALLOWANCE WAS MADE BY THE AO ON THE GROUND THAT THE COMMISSION WAS EXCESSIVE AND UNREASONABLE BY COMPARING THE SAME TO THE INCENTIVE PAID TO ANOTHER DIRECTOR @ 0.1% AND THUS DISALLOWED 8% OF T HE COMMISSION PAID TO SHRI ASHOK TREHAN. WE FURTHER FI ND THAT THE RATE APPLICABLE TO THE ASSESSEE AND SHRI ASHOK TREH AN WAS SAME AND THEREFORE THERE IS NO QUESTION OF TAX EVASION. THE LD. CIT(A) HAS FOLLOWED THE BOARDS CIRCULAR NO.6P DATED 06.07 .1968 WHICH CLEARLY STATED IN PARA NO.74 THAT THE DISALLOWANCE IS TO BE MADE ONLY WHERE THIS PAYMENT TO THE RELATED PARTY RESULT S IN TAX EVASION BUT IN THE PRESENT CASE THERE IS NO TAX EVA SION AS THE RATE APPLICABLE TO BOTH THE PARTIES IS SAME. THE C ASE OF THE ASSESSEE IS SUPPORTED BY THE RATIO LAID DOWN IN TWO DECISIONS ITA NO.7177/M/2017 M/S. MARSHALL PRODUCE BROKERS COMPANY PVT. LTD. 13 NAMELY - CIT VS. INDO SOUTH SERVICES TRAVEL PVT. LT D. (SUPRA) AND CIT VS. V.S. DEMPO & CO. PVT. LTD. (SUPRA). UNDER T HESE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO DISMISS GROUN D NO.6 & 7 RAISED BY THE REVENUE BY UPHOLDING THE ORDER OF LD. CIT(A). 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.2019. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19.12.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.