2012 (7) TMI 951 - AT - Income Tax

Summary

Issues: Appeal against CIT(A) order regarding deletion of addition of rent payment u/s.40A(2)(b) and reasonableness of the payment.

Issue 1: Deletion of addition of rent payment u/s.40A(2)(b)
The appellant, an individual conducting business, rented property from his father for conducting Mangal Karyalayas. The Assessing Officer disallowed 50% of the rent as excessive and unreasonable under section 40A(2)(b) of the Act. The CIT(A) ruled in favor of the assessee, stating that the rent paid was reasonable. The Departmental Representative contested this decision, arguing that the addition should not have been deleted. However, the Authorized Representative supported the CIT(A)'s decision.

Issue 2: Reasonableness of the payment u/s.40A(2)(b)
The Assessing Officer found the rent paid by the appellant to be excessive and unreasonable, leading to a disallowance of 50%. The appellant argued that the rent was paid at market rates and both parties were in the same tax bracket, negating any tax-saving motive. The ITAT noted that the appellant and his father were paying taxes at higher slabs, indicating no tax avoidance scheme. Citing a relevant case law, the ITAT upheld the CIT(A)'s decision to delete the addition of rent payment made u/s.40A(2)(b) by the Assessing Officer.

In conclusion, the ITAT dismissed the appeal filed by the Revenue, affirming the CIT(A)'s decision to delete the addition of rent payment u/s.40A(2)(b) as reasonable in the given circumstances.