ROCHEM SEPARATION SYSTEMS (INDIA) PVT LTD. , MUMBAI V. DY CIT CC 2 (4) , MUMBAI

ITA 7940/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2512 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 24-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Accommodation entries; Commercial expediency; TDS
• Section: 143(3); 72

Judgement Text

ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.7940/MUM/2019 ( / ASSESSMENT YEAR: 2015-16) ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. 101, HDIL TOWER ANANT KANEKAR MARG BANDRA (EAST),MUMBAI-400 051 / VS. DCIT CC - 2(4) OLD CGO BLDG (ANNEX), R. NO. 802, 8 TH FLOOR M. K. ROAD MUMBAI-400 020 ! ./ ./PAN/GIR NO. AABCR-1955-P ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : SHRI GAURAV BANSAL, LD. AR REVENUE BY : SHRI BHARAT ANDHALE, LD. SR. DR / DATE OF HEARING : 01/06/2021 / DATE OF PRONOUNCEMENT : 28/06/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 2015-16 ARISES OUT OF THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-48, MUMBAI [CIT(A)], DATED 31/10/2019 IN THE MATTER OF ASSESSMENT FRAMED BY LD. ASSESSING OFFICER (AO) U/S 143(3) ON 22/12/2017. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 2 GROUND NO. 1: PAYMENT OF RENT TO OPC ASSETS SOLUTIO NS PRIVATE LIMITED 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING AN AMOUNT EQUAL TO INR 40,19,520 TOWARD S LEASE RENT PAID TO OPC ASSET SOLUTIONS PRIVATE LIMITED ON THE GROUND THAT THE PA YMENT NEEDS TO BE EQUALLY DISTRIBUTED OVER THE ENTIRE DURATION OF THE AGREEME NT WITHOUT APPRECIATING THE FACT THAT THE ARRANGEMENT ENTERED INTO BY THE APPELLANT WAS T O ACHIEVE COMMERCIAL EXPEDIENCY. 2. WITHOUT PREJUDICE TO THE ABOVE, AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ENHANCING THE DISALLOWANCE MADE BY THE LEARNED AO AMOUNTING TO INR 49,26,033. 3. THE APPELLANT PRAYS THAT THE EXPENSES INCURRED A RE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. ACCORDING LY, THE DISALLOWANCE MADE THE LEARNED AO OUGHT TO BE DELETED. DISALLOWANCE OF PROFESSIONAL FEES PAID TO MS. NAMRA TA GOEL AND MS. NIDHI GOEL 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING PROFESSIONAL FEES PAID TO MS. NAMRATA G OEL OF INR 5,94,000 AND TO MS. NIDHI GOEL OF INR 5,94,000 FOR PROVIDING FINANCIAL CONSULTANCY AND HUMAN RESOURCE CONSULTANCY SERVICES RESPECTIVELY, ON THE GROUNDS T HAT THE TRANSACTION WITH THE SAID PARTY IS NOT GENUINE WITHOUT APPRECIATING THE FACT THAT SUPPORTING DOCUMENTS EVIDENCING WORK UNDERTAKEN WERE PROVIDED. AS EVIDENT, THE ASSESSEE IS AGGRIEVED BY CONFIRMATI ON OF DISALLOWANCE OF RENTAL EXPENSES AND DISALLOWANCE OF PROFESSIONAL FE ES. 2. HAVING HEARD RIVAL SUBMISSIONS AND AFTER GOING T HROUGH MATERIAL ON RECORD, OUR ADJUDICATION TO THE APPEAL WOULD BE AS UNDER. 3. THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE S TATED TO BE ENGAGED IN MANUFACTURING ACTIVITIES WAS ASSESSED FO R THE YEAR UNDER CONSIDERATION IN SCRUTINY ASSESSMENT U/S 143(3) ON 22/12/2017. 4. DISALLOWANCE OF RENT 4.1 IT TRANSPIRED THAT THE ASSESSEE PAID RENT OF RS .120.19 LACS TO AN ENTITY NAMELY M/S OPC ASSET SOLUTIONS PRIVATE LIMIT ED. THE PAYMENT WAS IN THE NATURE OF LEASE RENT FOR OFFICE FURNITUR E ETC. UPON PERUSAL OF RELEVANT AGREEMENTS, LD. AO NOTED THAT THE ASSESSEE WAS PAYING HIGHER RENT FOR INITIAL YEARS WHEREAS FOR 4 TH AND 5 TH YEAR, IT WAS PAYING NOMINAL RENT OF RS.4/- PER QUARTER OR RS.16/- PER YEAR. THE RENT PAYING PATTERN INDICATED THAT THE ASSESSEE WAS POSTPONING ITS INCO ME TAX LIABILITY. IT WAS ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 3 NOTED THAT THE HIRED FURNITURE MOSTLY CONSISTED OF WOODEN FURNITURE LIKE CHAIRS, TABLE COUNTERS, ELECTRICAL FITTINGS AND AIR CONDITIONERS ETC. THE COST OF ALL THESE ITEMS WAS RS.290.89 LACS AGAINST WHICH THE ASSESSEE WAS PAYING RENT OF RS.120.19 LACS FOR THE FIRST THREE Y EARS WHICH WAS ON THE HIGHER SIDE CONSIDERING BANK BORROWING RATE OF 15%, DEPRECATION RATE OF 15% AND PROFIT ON INVESTMENT OF 10%. THE AGGREGATE OF ALL THESE I.E. 40% OF COST OF RS.290.89 LACS WOULD WORK OUT TO RS. 116.25 LACS. THEREFORE, THERE WAS EXCESS PAYMENT TO THE EXTENT O F RS3.83 LACS WHICH WAS ULTIMATELY DISALLOWED U/S 37(1). 4.2 UPON FURTHER APPEAL, LD. CIT(A) CHOSE TO RELY U PON ITS OWN ORDER FOR AY 2014-15 WHEREIN IT WAS OBSERVED THAT AVERAGE REN T PER MONTH FOR ENTIRE TENURE OF 61 MONTHS STARTING FROM 01/10/2012 TO 31/12/2017 WAS RS.5.91 LACS WHICH WOULD TRANSLATE INTO YEARLY RENT OF RS.70.93 LACS. THEREFORE, THE ALLOWABLE RENT WOULD BE RS.70.93 LAC S AND NOT RS.120.19 LACS AS CLAIMED BY THE ASSESSEE DURING THE YEAR. TA KING THE SAME VIEW, THE DISALLOWANCE OF RS.3.83 LACS AS MADE BY LD. AO WAS ENHANCED TO RS.49.26 LACS. AGGRIEVED, THE ASSESSEE IS IN FURTHE R APPEAL BEFORE US. 4.3 UPON CAREFUL CONSIDERATION OF MATERIAL FACT, WE FIND THAT THE ASSESSEE HAS TAKEN ON LEASE OFFICE EQUIPMENT, FURNI TURE & FIXTURES FOR A PERIOD OF 5 YEARS PURSUANT TO CERTAIN AGREEMENTS BE TWEEN THE ASSESSEE AND M/S OPC ASSET SOLUTIONS PRIVATE LTD. AS PER THE TERMS OF AGREEMENTS, THE ASSESSEE IS REQUIRED TO PAY YEARLY LEASE RENT OF RS.120.19 LACS FOR A PERIOD OF FIRST THREE YEARS. T HEREAFTER, IT IS REQUIRED TO PAY YEARLY LEASE RENT OF RS.16/- FOR THE REMAINI NG TWO YEARS. UNDISPUTEDLY, THE ASSESSEE HAS PAID THE SAID AMOUNT TO THE LESSOR PURSUANT TO THE TERMS OF AGREEMENT AFTER DUE COMPLI ANCES AND CLAIMED ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 4 THE DEDUCTION OF THE SAME DURING THE YEAR. THE LESS OR IS UNRELATED PARTY TO THE ASSESSEE. THE AGREEMENTS BETWEEN THE TWO PAR TIES HAVE NOT BEEN HELD TO BE NON-GENUINE AND IT IS ALSO NOT THE CASE THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF ASSESSEES BUSINESS. THIS BEING SO, IN OUR CONSIDERED OPINION, IT IS NOT OPEN FOR REVENUE AUTHORITY TO SIT ON THE ARMCHAIR OF A BUSIN ESSMAN SO AS TO ASCERTAIN THE QUANTUM OF DEDUCTION ALLOWABLE TO THE ASSESSEE AS HELD BY HONBLE APEX COURT IN CIT VS. WALCHAND & CO. PVT LTD (1967; 65 ITR 381); J.K. WOOLLEN MANUFACTURERS VS. CIT (1969; 72 ITR 612) AND ALSO IN HERO CYCLES (P) LTD. VS. CIT (2015; 63 TAXMANN.COM 308). ANOTHER PERTINENT FACT IS THAT WHILE FRAMING ASSESS MENT FOR AY 2013-14 (WHICH IS THE FIRST YEAR OF PAYMENT OF RENT), THE L EASE RENT PAID THE ASSESSEE AS PER THE AGREEMENTS HAS NOT BEEN DISTURB ED BY LD. AO. THEREFORE, ON THE FACTS & CIRCUMSTANCES OF THE CASE , THE REVENUE AUTHORITIES WERE NOT JUSTIFIED IN TINKERING WITH TH E CLAIM MADE BY THE ASSESSEE. THEREFORE, WE DELETE THE DISALLOWANCE AS MADE BY LD. CIT(A) IN THE IMPUGNED ORDER AND ALLOW THIS GROUND OF APPE AL. 5. DISALLOWANCE OF PROFESSIONAL FEES 5.1 THE ASSESSEE PAID PROFESSIONAL EXPENSES OF RS.5 .94 LACS EACH TO MRS. NAMRATA GOEL AND MRS. NIDHI GOEL. IN SUPPORT, THE ASSESSEE FURNISHED COPIES OF QUALIFICATION CERTIFICATES, TDS CERTIFICATES AND COPIES OF INVOICES ISSUED BY THEM. IT WAS SUBMITTED THAT T WO EMPLOYEES WERE APPOINTED AS FINANCIAL CONSULTANT AND CORPORATE REL ATION CONSULTANT ON RETAINER-SHIP BASIS TO PROVIDE FINANCIAL INPUT / AD VISORY AND TO ASSIST THE ASSESSEE TO MAINTAIN AND DEVELOP CORPORATE RELATION S WITH EXISTING AND POTENTIAL CLIENTS. SMT. NAMRATA GOEL WAS STATED TO BE MASTERS IN ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 5 MANAGEMENT STUDIES WHEREAS MRS. NIDHI GOEL WAS STAT ED TO BE BACHELOR IN MASS MEDIA. HOWEVER, LD. AO OPINED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE SHOWING THE NATURE OF SERV ICES RENDERED BY EACH OF THEM WHICH HAS RESULTED INTO AN INCREASE IN BUSINESS OF ASSESSEE. BOTH THESE EMPLOYEES WERE WIVES OF THE DI RECTORS OF ASSESSEE COMPANY AND THE TRANSACTIONS WERE NOTHING BUT ACCOMMODATION ENTRIES FOR CLAIMING EXPENSES. MOREOV ER SIMILAR DISALLOWANCE WAS CONFIRMED BY LD. DRP IN AY 2013-14 . FINALLY, THE AGGREGATE PAYMENT OF RS.11.88 LACS WAS DISALLOWED A ND ADDED TO THE INCOME OF THE ASSESSEE. 5.2 THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD P AID THE SAID AMOUNT TO THE PAYEES BUT IT FAILED TO ESTABLISH THA T THE EXPENDITURE WAS LAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS. THE ASSESSEE COULD NOT PLACE ON RECORD ANY EVIDENCE THAT THE SER VICES WERE RENDERED BY THESE TWO PARTIES. ANOTHER PERTINENT FACT WAS TH AT THE TRIBUNAL IN AY 2011-12, ITA NO.1282/MUM/2016 DATED 17/12/2018 HAD UPHELD THE SIMILAR DISALLOWANCE AS CONFIRMED BY LD. DRP. 5.3 THE LD. AR SOUGHT DISTINCTION IN THE FACT OF TH IS YEAR BY SUBMITTING THAT IN AY 2011-12, THE DISALLOWANCE WAS CONFIRMED BY TRIBUNAL BY OBSERVING THAT THE ASSESSEE COULD NOT PRODUCE EVIDE NCE TO ESTABLISH THAT THE SERVICES OF SMT. NAMRATA GOEL AND SMT. NIDHI GO EL WERE AVAILED BY THE ASSESSEE. FURTHER, THE ASSESSEE DID NOT PLACE O N RECORD ANY EVIDENCE TO EXPLAIN THE NATURE OF SERVICES RENDERED BY EACH OF THEM. THEREFORE, SINCE THE ASSESSEE FAILED TO ESTABLISH T HAT THE EXPENDITURE WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, THE DISALLOWANCE WAS CONFIRMED. AS AGAINST THIS, IN THI S YEAR, THE ASSESSEE ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 6 HAS FURNISHED THE COPY OF THE APPOINTMENT LETTER OF BOTH THE EMPLOYEES WHICH ELABORATE THE NATURE OF WORK ASSIGNED TO THEM . THE COPIES OF THE QUALIFICATION CERTIFICATES ALONG WITH COPIES OF TDS CERTIFICATES HAVE ALSO BEEN FURNISHED. THE CLAIM OF THE APPELLANT REST ON THE GROUND THAT BOTH THE EMPLOYEES WORKED ON RETAINER-SHIP BASIS AND WER E QUALIFIED PROFESSIONAL. THE APPOINTMENT OF BOTH THE EMPLOYEES WAS PURELY A COMMERCIAL DECISION KEEPING IN MIND THE BENEFIT OF THE BUSINESS AS A WHOLE AS IT WOULD BE VERY IMPORTANT THAT THE FAMILY PERSONS SHOULD BE EMPLOYED IN THE OWN FAMILY BUSINESS TO CONTROL THE MANAGEMENT, OPERATIONS, STAFF ETC. SO THAT THERE SHOULD NOT BE ANY DIFFICULTY IN RUNNING THE BUSINESS. THE LOWER AUTHORITIES, WITHOUT QUESTI ONING THE APPOINTMENT LETTER OF BOTH THE PERSONS, QUESTIONED THE GENUINEN ESS OF THE TRANSACTION. 5.4 AFTER DUE CONSIDERATION OF SUBMISSIONS MADE BEF ORE US AND KEEPING IN MIND THE PRINCIPLE OF NATURAL JUSTICE, T HE BENCH DEEM IT FIT TO PROVIDE ANOTHER OPPORTUNITY TO THE ASSESSEE TO SUBS TANTIATE ITS CLAIM BEFORE LOWER AUTHORITIES. THEREFORE, THE MATTER OF THIS DISALLOWANCE STAND REMITTED BACK TO THE FILE OF LD. AO FOR FRESH ADJUD ICATION WITH A DIRECTION TO THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. THE GROU ND STAND ALLOWED FOR STATISTICAL PURPOSES. CONCLUSION 6. THE APPEAL STAND PARTLY ALLOWED IN TERMS OF OUR ORDER. ORDER PRONOUNCED ON 28 TH JUNE, 2021 SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER ITA NO. 7940/MUM/2019 ROCHEM SEPARATION SYSTEMS (INDIA) PVT. LTD. ASSESSMENT YEAR: 2015-16 7 MUMBAI; DATED : 28/06/2021 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. -.$'/ , / , / DR, ITAT, MUMBAI 6. .01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.