ACIT, Bangalore V. M/s KHT Agencies Private Limited, Bangalore

ITA 776/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51373 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE JT
• Assessee Lawyers: H V GOWTHAMA
• Keywords: Opportunity of being heard; Question of law; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.776/BANG/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE. VS. M/S. KHT AGENCIES PVT. LTD., NO.10, PALLAVI COMPLEX, SUBBAIAH CIRCLE, MISSION ROAD, BANGALORE 560 027. PAN: AAACK 7822R APPELLANT RESPONDENT APPELLANT BY : SHRI SMT. SUSAN THOMAS JOSE, JT.CIT (DR) RESPONDENT BY : SHRI H.V. GOWTHAMA, C.A. DATE OF HEARING : 17.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE O RDER DATED 8.3.2010 OF THE CIT(APPEALS)I, BANGALORE. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL: ITA NO.776/BANG/10 PAGE 2 OF 10 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS I T IS PREJUDICIAL TO THE REVENUE, IS OPPOSED TO LAW AND F ACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT HAS ERRED IN ALLOWING ASSESSEE S CLAIM OF PAYMENT OF COMMISSION TO DIRECTORS AND OTHER RELATE D CONCERNS, WHICH WAS DISALLOWED ADDED U/S 40A(2)(A) OF THE I.T .ACT, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES STATED IN THE ASSESSMENT ORDER. 3. THE LEARNED CIT (A) HAS ERRED IN DELETING THE A DDITION MADE ON ACCOUNT OF DISALLOWANCE OF RENT TO MRS. HAR SHIDA K. MORZARIA, A DIRECTOR OF THE ASSESSEE COMPANY, WITHO UT APPRECIATING THE FACTS AND CIRCUMSTANCES UNDER WHIC H THE RENT WAS DISALLOWED. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) BE SET ASIDE IN SO FAR AS IT RELATES TO THE ABOVE ISSUE AND THAT OF THE AO BE RESTORED. 3. GROUNDS NO.1 AND 4 ARE GENERAL IN NATURE, SO DO NOT REQUIRE ANY COMMENTS ON OUR PART. 4. VIDE GROUND NO.2, THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE PAYMENT OF COMMISSION TO THE DIRECTORS AND OTHER RE LATED CONCERNS, WHICH HAS BEEN DIRECTED BY THE LD. CIT(A) TO BE ALLOWED, WHILE THE AO HAD DISALLOWED THE SAME. 5. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE WAS AN AUTHORIZED DEALER AND SERVICE AGENT FOR SWARAJ MAZD A VEHICLE AND HAD FILED RETURN OF INCOME ON 27.10.2005 DECLARING AN INCOME OF RS.47,34,288. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE THE FOLLOWI NG ADDITIONS ON ACCOUNT OF COMMISSION PAID U/S. 40A(2)(A) OF THE IN COME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] :- (I) COMMISSION PAID TO PBP ASSOCIATES RS.12,78,0 00 (II) COMMISSION PAID TO KIRIT MORZARIA RS. 4,19,50 0 ITA NO.776/BANG/10 PAGE 3 OF 10 (III) COMMISSION PAID TO ADIT MORZARIA RS.7,64,500 (IV) COMMISSION PAID TO SMT. HARSHIDA K. MORZARIA RS.4,82,000 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND THE SUBMISSIONS MADE BEFORE HIM AS INCORPORATED IN PARA 4.1 OF THE IMPUGNED ORDER ARE REPRODUCED VERBATIM, WHICH READ AS UNDER: - 4.1. FOR THESE GROUNDS, THE A.R. SUBMITTED AS UNDE R: A) COMMISSION PAID TO DIRECTORS : BOTH HARSIDA MORZARIA AND ADIT MORZARIA ARE WORKING DIRECTORS OF THE COMPANY, DRAWING MONTHLY REMUNERATION WHICH HAS BEEN ALLOWED BY THE LEARNED ASSESSING OFFICER. APART FRO M THE SALARY PAID, THE DIRECTORS HAVE BEEN PAID COMMISSION FOR T HE BUSINESS SUPPORTED THEM TO THE COMPANY. THE GROSS PACKAGE BY REMUNERATION PAID TO THEM EVER SINCE THEY WERE EMPL OYED WAS PARTLY BY MONTHLY REMUNERATION AND PARTLY BY SALES COMMISSION. THE GROSS COMMISSION PAID INCLUDING COMMISSION PAID TO PBP ASSOCIATES, A PARTNERSHIP FIRM, MR.KIRIT MORZARIA, RELATIVE OF A DIRECTOR AS WELL AS OTHER COMMISSION PAID TO SOME O F THE EMPLOYEES, WORKS OUT TO HARDLY 1.40% OF THE SALES A S AGAINST 1.46% PAID DURING THE ASST. YEAR 2004-05, WHICH IS DETAILED AS HEREUNDER: ASST.YEAR 2004-05 ASST.YEAR 2005-06 GROSS REVENUE 19.12 CRORES 33.91 CRORES COMMISSION PAID 28.01 LACS 47.70 CRORES PERCENTAGE 1.46% 1.40% THE TRADE IN WHICH THE APPELLANT COMPANY IS DEALING IN, IS COMPETITIVE AND IN THIS NATURE OF TRADE, PAYMENT OF COMMISSION IS COMMON. THE APPELLANT COMPANY EVEN FOR OTHER SENIOR EMPLOYEES OF THE COMPANY PAY BOTH SALARY AS WELL AS COMMISSION WHICH HAS BEEN ALLOWED AS REVENUE EXPENS ES. DETAILS OF THE COMMISSION PAID DURING THE YEAR, INCLUDING T HEIR PAN, WHEREVER AVAILABLE ARE ENCLOSED AS ANNEXURE. IT MAY BE OBSERVED THAT, ALL THE PERSONS TO WHOM COMMISSIONS ARE PAID, ARE REGULARLY ITA NO.776/BANG/10 PAGE 4 OF 10 ASSESSED TO INCOME TAX. THE ONLY REASON WHY THE ASS ESSING OFFICER HAS CONSIDERED THAT THE PAYMENTS OF COMMISS ION ARE NOT GENUINE IS FOR THE DIRECTORS AND THEIR RELATIVES, C OMMISSIONS ARE PAID THROUGH JOURNAL ENTRIES AND THE SAME IS NOT PU T THROUGH THE BANK ACCOUNTS. IN THIS CONNECTION, WE WOULD LIKE TO SUBMIT THAT THE ABOVE PARTIES TO WHOM COMMISSIONS ARE PAID, NAM ELY, PBP ASSOCIATES, DIRECTORS AND THEIR RELATIVES ARE HAVE RUNNING ACCOUNT WITH THE COMPANY WHEREIN ALL THEIR DRAWINGS HAVE BE EN DEBITED. THERE ARE REGULAR PAYMENTS BY CHEQUES WHICH ARE DEB ITED TO THEIR ACCOUNT. THE COMMISSION ENTRIES ARE FINALIZED ONLY AFTER THE END OF THE ACCOUNTING YEAR, DEPENDING ON THE TURNOVER A ND THE NUMBER OF PARTIES INTRODUCED BY THE RESPECTIVE DIRE CTORS AND THEIR RELATIVES, THEREFORE THE SAME IS CREDITED THROUGH J OURNAL VOUCHERS. THE LIST OF PARTIES WHO HAVE BEEN INTRODU CED BY THE RESPECTIVE EMPLOYEES, DIRECTORS AND THEIR RELATIVES IS ENCLOSED HEREWITH. THE PARTIES WHO HAVE BEEN INTRODUCED BY T HE ABOVE PERSONS HAVE PURCHASED BULK NUMBER OF VEHICLES. THE RE IS NO STANDARD PERCENTAGE OF COMMISSION, BUT THE PAYMENT OF COMMISSION AS ALREADY MENTIONED TO THE LEARNED ASSE SSING OFFICER, DEPENDING UPON SALE OF VEHICLES WITHOUT DI SCOUNTS. SOMETIMES, THE APPELLANT COMPANY OFFER DISCOUNTS TO PURCHASER OF THE VEHICLES. IF THE EMPLOYEE OR DIRECTOR IS ABL E TO REDUCE THE DISCOUNT PAYABLE TO THE PURCHASERS, THEY ARE OFFERE D HIGHER COMMISSION. IN THE CASE WHERE HIGHER DISCOUNTS HAVE BEEN ALLOWED TO THE PURCHASERS, THE COMMISSION GIVEN TO THE DIRECTOR OR EMPLOYEE WILL BE LESS. THIS HAS BEEN ALREADY SUB MITTED TO THE LEARNED ASSESSING OFFICER. B) SO FAR AS PAYMENT OF COMMISSION TO MR. KIRIT MORZAR IA IS CONCERNED, THE LEARNED ASSESSING OFFICER HAS DISALL OWED 50% OF THE COMMISSION PAID TO MR. KIRIT MORZARIA, AMOUNTIN G TO RS.4,19,500/-. IN THIS CONNECTION, WE WRITE TO SUBM IT THAT MR. KIRIT MORZARIA IS NOT AN EMPLOYEE OF THE COMPANY, H E DOES NOT DRAW ANY SALARY. WHATEVER PAYMENTS ARE MADE TO HIM ARE ONLY IN THE NATURE OF COMMISSION, AMOUNTING TO RS.8,67,000/ -. HE IS WORKING FOR WHOLE DAY BOTH IN THE SALES OFFICE AS W ELL AS WORKSHOP. HE INTRODUCES THE PARTIES AND SITS FOR NE GOTIATION FOR BOOKING THE ORDERS ALONG WITH THE DIRECTORS AS WELL AS OTHER EMPLOYEES OF THE COMPANY. HE IS HIGHLY EXPERIENCED PERSON AND PAYMENT OF RS.8.67 LACS FOR THE EFFORTS IS MUCH LES S THAN THE MARKET CONDITION. EVEN FOR THIS COMMISSION, THE LEA RNED ASSESSING OFFICER HAS MENTIONED THAT THE PAYMENTS A RE THROUGH JOURNAL VOUCHERS. AS STATED ABOVE, THERE IS A RUNNI NG ACCOUNT FOR MR. KIRIT MORZARIA AND THE AMOUNT DRAWN HAVE BEEN D EBITED TO THE ACCOUNT AND COMMISSION ENTRY IS MADE THROUGH JO URNAL VOUCHERS. ITA NO.776/BANG/10 PAGE 5 OF 10 C. PAYMENTS MADE TO PBP ASSOCIATES : PBP ASSOCIATES IS A PARTNERSHIP FIRM, CONSISTING OF THE ASSESSEE COMPANY AND TWO DIRECTORS SMT. HARSIDA MORZARIA AS WELL AS SRI ADIT MORZARIA AS PARTNERS. THE LEARNED ASSESSING OF FICER HAS DISALLOWED THE ENTIRE COMMISSION PAID TO PBP ASSOCI ATES AS NOT GENUINE AND THE COMMISSION ENTRIES HAVE BEEN MADE T HROUGH JOURNAL VOUCHERS. EVEN THIS COMMISSION IS BASED ON CERTAIN EMPLOYEES OF THE PBP ASSOCIATES BOOKING THE ORDERS. EVEN PRESUMING, BUT NOT ADMITTING, THAT THE COMMISSION I S REQUIRED TO BE DISALLOWED THE EXPENSES INCURRED BY PBP ASSOCIAT ES AGAINST EARNING OF THE COMMISSION WHICH AMOUNTS TO RS.11,89 ,048/- SHOULD HAVE BEEN ALLOWED AS EXPENDITURE OF THE APPE LLANT COMPANY. BUT, THE ASSESSING OFFICER HAS ONLY DISALL OWED THE COMMISSION PAID IGNORING THE EXPENDITURE INCURRED B Y SAID FIRM. THE HONBLE HIGH COURT OF DELHI IN. THE CASE OF CIT VS DR. R.N. GOEL (177 TAXMAN, PAGE 374) HAS HELD THAT THE TRIB UNAL HAD COME TO THE CONCLUSION THAT HAVING REGARD TO THE NA TURE AND SCOPE OF THE SERVICE RENDERED BY CIL, IT WAS BOUND TO HAV E FAVOURABLE EFFECT ON THE OVERALL SALES OF THE ASSESSEE, AS WAS EVIDENT FROM THE TURNOVER AND FIGURES REFERRED TO BY THE ASSESSEE. T HE TRIBUNAL HAD CONCLUDED THAT THE SERVICE CHARGES PAID TO CIL AT T HE RATE OF 8 PERCENT WERE NEITHER EXCESSIVE NOR UNREASONABLE. TH E TRIBUNAL ALSO NOTED THAT THE INCOME EARNED BY CIL IN THE FOR M OF SERVICE CHARGES AND COMMISSION WAS DULY REFLECTED IN THE PR OFIT AND LOSS ACCOUNT AND RETURN OF INCOME FILED BY CIL (PARA 6) WHETHER OR NOT AN EXPENDITURE IS UNREASONABLE AND M ERITS DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40A, I S ESSENTIALLY A QUESTION OF FACT. THERE WAS NO PERVERSITY IN THE FI NDINGS RETURNED BY THE TRIBUNAL IN THE IMPUGNED JUDGMENT. NO SUBSTA NTIAL QUESTION OF LAW AROSE. THEREFORE, THE APPEAL WAS TO BE DISMISSED. FURTHER THE HONBLE HIGH COURT OF DELHI HAS HELD IN THE CASE OF CIT VS DEVAYHI BEVERAGES LTD. (296 ITR, PAGE 41) TH AT REASONABLENESS OF EXPENSES COULD BE GONE INTO FOR THE PURPOSE OF DETERMINING WHETHER IN FACT THE AMOUNT WAS SPENT . BUT, IF THERE IS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS, THE REVENUE CANNOT BE ALLOWED TO SUBSTITU TE ITS OPINION FOR THAT OF THE ASSESSEE, AS IF THE REVENUE WERE IT SELF THE BUSINESSMAN. FURTHER, HONBLE HIGH COURT OF MADRAS, IN THE CASE OF CIT VS PRINT SYSTEMS & PRODUCTS (285 ITR 337) HAS HELD THA T HELD, DISMISSING THE APPEAL, (I) THAT THE TRIBUNAL AFTER CONSIDERING THE RELEVANT MATERIALS CAME TO THE CONCLUSION THAT THE COMMISSION ITA NO.776/BANG/10 PAGE 6 OF 10 PAYMENT WAS NOT FOUND TO BE UNREASONABLE AND FURTHE R THAT THE COMMISSION PAYMENT WHEN COMPARED WITH THE COMMISSIO N OFFERED BY OTHER ASSESSES IN SIMILAR BUSINESS AT 5 PERCENT, COULD NOT BE SAID TO BE EXCESSIVE. NO FURTHER EVIDENCE OR MATERIAL WAS PRODUCED BY THE REVENUE TO SHOW THAT THE ORDER OF T HE TRIBUNAL WAS UNREASONABLE AND UNJUST. THE TRIBUNAL WAS RIGHT IN LAW IN DELETING THE ADDITION IN RESPECT OF COMMISSION PAID TO THE SISTER CONCERN UNDER SECTION 40A(2) OF THE INCOME TAX ACT, 1961. TAKING SUPPORT FROM THE ABOVE DECISION, THE APPELLA NT COMPANY SUBMITS THAT PAYMENT OF COMMISSION TO THE ABOVE PER SONS ARE REASONABLE, CONSIDERING THE EFFORTS PUT IN BY THEM IN INCREASING THE SALES TURNOVER, WE RESPECTFULLY SUBMIT THE HON BLE COMMISSIONER TO ALLOW THE ENTIRE COMMISSION PAID AS REVENUE EXPENDITURE. 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE AOS ACTION OF HOLDING SUCH TRANS ACTIONS NON-GENUINE INTENDED TO REDUCE THE PROFIT AND EVADE TAX THEREON SEEMS CORRECT BECAUSE THE ASSESSEE HAD NOT DISPUTED THE FACT THAT SUCH PA YMENT ARE ONLY JOURNAL ENTRIES. HE FURTHER OBSERVED THAT THE PAYMENTS HAD BEEN MADE U/S. 40A(2)(A) OF THE ACT, WHICH DEMONSTRATED THAT IN PR ACTICE, THE AO TREATED SUCH PAYMENTS GENUINE BUT EXCESSIVE AND UNREASONABL E. THE LD. CIT(A) WAS OF THE VIEW THAT THE ASSESSEE WITH COGENT ARGUM ENTS HAD BEEN ABLE TO PROVE THAT THE PAYMENT OF COMMISSION WAS PERFORMANC E RELATED AND HENCE REASONABLE AND LESS THAN THE PRECEDING YEAR PERCENT AGE-WISE, COULD NOT BE CONSIDERED AS EXCESSIVE. ACCORDINGLY, THE ADDITION MADE BY THE AO WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 8. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE A SSESSING OFFICER AND FURTHER SUBMITTED THAT THE LD. CIT(APPEALS) HAD PAS SED A NON-SPEAKING ORDER AND DID NOT CONSIDER THE SPECIFIC OBSERVATION S MADE BY THE AO. SHE FURTHER SUBMITTED THAT THE LD. CIT(A) HAD NOT GIVEN THE REASONS AS TO HOW ITA NO.776/BANG/10 PAGE 7 OF 10 AND IN WHAT MANNER THE ARGUMENTS OF THE ASSESSEE HA D BEEN ABLE TO PROVE THAT THE PAYMENT OF COMMISSION WERE REASONABLE. SH E THEREFORE PRAYED TO RESTORE THE ADDITION MADE BY THE AO. 9. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). THE LD. COUNSEL FOR T HE ASSESSEE ALSO FURNISHED STATEMENT OF NUMBER OF BUSES AND TRUCKS SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND IN THE PRECEDING YEAR. IT WAS STATED THAT THE SAID STATEMENT WAS TO PROVE THE NUMBER OF VEHICLES SOLD BY THE DIRECTOR AND OTHER EMPLOYEES, FOR WHOM THE COMMISSION HAD BE EN PAID. IT WAS ADMITTED THAT THE INFORMATIONS FURNISHED AT THIS ST AGE ARE NEW INFORMATIONS AND WERE NOT ON THE INCOME-TAX RECORDS. IT WAS EXP LAINED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE DETAILS OF TH E PAYMENT OF COMMISSION HAD BEEN GIVEN, BUT THE NUMBER OF BUSES AND TRUCKS SOLD WAS NOT GIVEN. THE LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE COMMISSION HAD BEEN PAID ONLY FOR THE SALES MADE THROUGH DIREC TORS AND OTHER EMPLOYEES, THEREFORE THE COMMISSION WAS GENUINE AND THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE P RESENT CASE, IT IS NOTICED THAT THE LD. CIT(APPEALS), ON THE ONE HAND OBSERVED THAT THE ACTION OF THE AO IN HOLDING SUCH TRANSACTIONS NON-GENUINE INTENDE D TO REDUCE THE PROFIT AND EVADE TAX THEREON SEEMS CORRECT BECAUSE THE ASS ESSEE HAD NOT DISPUTED THE ACT THAT SUCH PAYMENTS WERE ONLY JOURN AL ENTRIES, ON THE OTHER HAND HE DELETED THE ADDITION BY OBSERVING THAT THE ADDITION HAD BEEN MADE ITA NO.776/BANG/10 PAGE 8 OF 10 U/S. 40(A)(2)(A) OF THE ACT WHICH DEMONSTRATED THAT IN PRACTICE THE AO HAD TREATED SUCH PAYMENTS GENUINE. THOSE TWO OBSERVATI ONS ARE CONTRARY TO EACH OTHER. IN THE PRESENT CASE, THE LD. CIT(A) WH ILE DELETING THE ADDITION HAD STATED THAT THE ASSESSEE WITH COGENT ARGUMENTS HAD BEEN ABLE TO PROVE THAT PAYMENT OF COMMISSION WAS PERFORMANCE RE LATED AND HENCE REASONABLE, ON THE CONTRARY, THE LD. COUNSEL FOR TH E ASSESSEE DURING THE COURSE OF HEARING FURNISHED A STATEMENT OF NUMBER O F BUSES AND TRUCKS SOLD AND STATED THAT THIS INFORMATION WAS NOT EARLI ER GIVEN TO THE DEPARTMENT. THEREFORE, IT IS NOT UNDERSTOOD HOW AN D IN WHAT MANNER THE LD. CIT(A) CONSIDERED THE COMMISSION AS REASONABLE. WE THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, ARE OF THE V IEW THAT THERE IS CONTRADICTION IN THE OBSERVATIONS OF THE LD. CIT(A) AND THE ASSESSEE HAD FURNISHED NEW INFORMATION WHICH WAS NOT AVAILABLE T O THE AUTHORITIES BELOW FOR THEIR CONSIDERATION, DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE LD. CIT(APPEALS), TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW, AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. THE NEXT ISSUE VIDE GROUND NO.3 RELATES TO THE DELETION OF ADDITION MADE BEFORE THE AO ON ACCOUNT OF DISALLOWANCE OF RE NT TO MRS. HARSHIDA K. MORZARIA, A DIRECTOR OF THE ASSESSEE COMPANY. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DISALLOWED THE RENT PAID TO SMT. HARSHIDA MORZARIA (DIRECTOR) BY OBSERVING THAT THE ASSESSEE WAS ALSO PAYING RENT OF RS.3,15,500 FOR THE PREMISES AT VADODARA AND THE SA ME PREMISES WAS OCCUPIED BY M/S. MORZARIA MOTORS. ITA NO.776/BANG/10 PAGE 9 OF 10 12. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE HIM IS MENTIONED IN PARA 5.2 OF THE IMPUGNED ORDER, WHICH READS AS UNDER: DISALLOWANCE OF RENT PAID : AS STATED EARLIER, THE APPELLANT COMPANY RUNS A WOR KSHOP FOR CARRYING OUT REPAIRS AND MAINTENANCE OF SWARAJ MAZD A VEHICLES IN BARODA. THE LEARNED ASSESSING OFFICER HAS OBSERV ED IN PARA 7, PG.5 OF THE ORDER THAT THE ASSESSEE COMPANY IS THE ONLY AUTHORIZED DEALER FOR SWARAJ MAZDA IN BANGALORE. F OR REPAIRS & MAINTENANCE OF SWARAJ MAZDA VEHICLES, THE APPELLA NT COMPANY HIRED ONE WORKSHOP AT A-1, 987/12, GIDC SHE D, MAKARPURA, VADODARA, WHICH IS OWNED BY SMT.HARSIDA MORZARIA, WHO HAD TAKEN THE WORKSHOP BUILDING OFF 30,000 SFT. FOR 99 YEARS LEASE FROM GOVT. OF GUJARAT. PART OF THIS, APPROX. 15000 SFT. WAS RENTED OUT BY SMT. HARSIDA MORZARIA TO THE ASSESSEE COMPANY ON A MONTHLY RENT OF RS.26,500/-, WHICH APPROX. WORKS OUT TO RS.1.77 PS PER SFT. IN AN INDUSTRIAL TOWN, HIRING W ORKSHOP AT SUCH A SMALL AMOUNT OF RENT CANNOT BE CONSIDERED AS UNRE ASONABLE. THE LEARNED ASSESSING OFFICERS VIEW THAT THE APPELLANT COMPANY IS ONLY AUTHORISED DEALER FOR BANGALORE CANNOT BE THE REASON FOR DISALLOWANCE OF RENT. THE APPELLANT COMPANY IS NOT PREVENTED FROM OPENING BRANCHES ANYWHERE IN INDIA SINCE A VAC ANT SHED WAS AVAILABLE AT BARODA FOR A REASONABLE RENT, A SE RVICE UNIT WAS OPENED IN BARODA. COPY OF LEASE AGREEMENT ENTERED B ETWEEN APPELLANT AND SMT. HARSIDA IS ENCLOSED HEREWITH. 13. THE LD. CIT(APPEALS) DELETED THE ADDITION BY OB SERVING IN PARA 5.4 OF THE IMPUGNED ORDER AS UNDER: 5.4 I FIND MERIT AND STRENGTH IN THE ABOVE ARGUMEN TS OF A.R. AND THEREFORE DELETE THE ADDITION ALLOWING THE GROU ND OF APPEAL. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS CR YSTAL CLEAR THAT THE LD. CIT(A) HAS NOT GIVEN ANY REASON WHILE DELETING THE ADDITION MADE BY THE AO. HE SIMPLY STATED THAT HE FOUND MERIT AND STREN GTH IN THE ARGUMENTS OF ITA NO.776/BANG/10 PAGE 10 OF 10 THE A.R., BUT DID NOT NARRATE HOW AND IN WHAT MANNE R THERE WAS MERIT AND STRENGTH IN THE ARGUMENTS OF THE ASSESSEE. WE THER EFORE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE ALSO BACK TO TH E FILE OF THE LD. CIT(APPEALS) AND DIRECT HIM TO PASS A WELL-REASONED AND SPEAKING ORDER, AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. 15. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF NOVEMBER, 2011. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 25 TH NOVEMBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.