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2013 (8) TMI 143 - HC - Income TaxDisallowance of rent - CIT allowed expenditure u/s 37 - Tribunal upheld order of A.O. and disallowed expenditure - Held that - as per the agreement dated 13.9.1991, the assessee company was obliged to make payment for godown space which the assessee committed to hire from M/s. Coastal Roadways Ltd irrespective of whether such godowns utilised by the assessee or not - M/s. Coastal Roadways ltd made a false representation in the agreement to the assessee of owning or possessing godowns at four different locations for which it went on charging the assessee company full rent for the entire period of six months without even having acquired such space for a single day during the entire period of six months. Tribunal viewed the entire expenditure not from the angle of prudence but from the question of genuineness thereof. It is true that such genuineness was examined on the basis of normal conduct of a business man and in such context the Tribunal did make some observations with respect to what in the opinion of the Tribunal a prudent business man would do. However, such observations cannot be seen in isolation losing the background in which same was made - assessee was to execute its export contracts latest by 15.2.1992. Assessee however, rented the godown for more than a full month thereafter till 31.3.1993 - No substantial question of law arises - Decided against assessee.
Issues Involved:
1. Disallowance of rent of Rs. 72,48,000/- paid to M/s. Coastal Roadways Ltd. as revenue expenditure. 2. Legality and perversity of the ITAT's order in not considering the reasons and evidence presented by the CIT(A) and the appellant. Issue-wise Detailed Analysis: 1. Disallowance of Rent as Revenue Expenditure: The core issue in this appeal revolves around the disallowance of Rs. 72,48,000/- as revenue expenditure claimed by the assessee for renting godown space from M/s. Coastal Roadways Ltd. The assessee argued that the expenditure was necessary for storing soyabean to fulfill export contracts. However, the Assessing Officer (AO) disallowed the claim on several grounds, including the fact that M/s. Coastal Roadways Ltd. neither owned nor possessed the godowns in question, and there was no evidence of the assessee taking possession or utilizing these godowns. The AO also noted inconsistencies and irregularities in the agreement and billing process, such as the agreement being prepared on stamp paper not intended for this purpose and the absence of signatures on bills by the person who prepared and checked them. 2. Legality and Perversity of the ITAT's Order: The ITAT reversed the CIT(A)'s decision, which had allowed the expenditure, and restored the AO's order. The Tribunal emphasized the genuineness of the expenditure rather than its necessity. It found it implausible that a prudent businessman would enter into an agreement for non-existent godowns and make substantial payments without verifying the service provider's capability. The Tribunal also highlighted discrepancies in the export orders and the period for which the rent was paid, suggesting a lack of genuine business need. The Tribunal concluded that the documents presented by the assessee were self-serving and insufficient to establish the genuineness of the expenditure. Detailed Analysis: Disallowance of Rent: The AO disallowed the rent expenditure on multiple grounds, including: - M/s. Coastal Roadways Ltd. did not own or possess the godowns. - The assessee never took possession of the godowns. - The agreement was made hastily without proper verification. - The stamp paper used for the agreement was purchased by a sister concern of the assessee. - The Regional Manager of M/s. Coastal Roadways Ltd. had not met the Director of the assessee company. - M/s. Coastal Roadways Ltd. was not in the business of hiring godowns. - The bills for the godown rent were irregular and lacked proper verification. - No services were rendered under the agreement. - The vouchers and bills had inconsistencies and corrections. - Payments were delayed and not made as per the agreement. - The assessee's sister concerns had unused godown space. - The expenditure was disproportionate and not supported by evidence of services rendered. CIT(A)'s Reversal: The CIT(A) reversed the AO's decision, viewing the expenditure as incurred during the course of business and therefore allowable. The CIT(A) considered the evidence presented by the assessee and found the expenditure to be genuine. ITAT's Reversal: The ITAT, however, reversed the CIT(A)'s decision, emphasizing the lack of genuineness in the expenditure. The Tribunal noted: - The service provider did not possess the godowns. - The assessee did not verify the availability of the godowns. - The export orders did not align with the period for which rent was paid. - The documents presented were self-serving and insufficient to prove the genuineness of the expenditure. - The agreement falsely claimed ownership or possession of godowns by M/s. Coastal Roadways Ltd. - The Regional Manager's statement confirmed the non-existence of the godowns. - The Tribunal questioned the prudence of the expenditure but focused on its genuineness. Conclusion: The High Court upheld the Tribunal's decision, finding no reason to interfere with the factual findings and conclusions. The Court noted that the Tribunal's observations were based on the genuineness of the expenditure and supported by evidence. The appeal was dismissed, and no question of law was found to arise.
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