2021 (7) TMI 269 - AT - Income Tax

Disallowance of Rent - Payment of Rent to OPC Assets Solutions Private Limited - disallowance made on the ground that the payment needs to be equally distributed over the entire duration of the agreement - whether the arrangement entered into by the Appellant was to achieve commercial expediency? - HELD THAT - We find that the assessee has taken on lease office equipment, furniture fixtures for a period of 5 years pursuant to certain agreements between 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 for a period of first three years.Undisputedly, the assessee has paid the said amount to the lessor pursuant to the terms of agreement after due compliances and claimed the deduction of the same during the year. The lessor is unrelated party to the assessee. The agreements between the two parties 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 purpose of assessee's business. This being so, in our considered opinion, it is not open for revenue authority to sit on the armchair of a businessman so as to ascertain the quantum of deduction allowable to the assessee, Another pertinent fact is that while framing assessment for AY 2013-14 (which is the first year of payment of rent), the lease rent paid the assessee as per the agreements has not been disturbed by Ld. AO. Therefore, on the facts circumstances of the case, the revenue authorities were not justified in tinkering with the 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 appeal. Disallowance of Professional Fees - allowable business expenditure or not? - HELD THAT - Since the assessee failed to establish that the expenditure was laid out wholly and exclusively for the purpose of the business, the disallowance was confirmed. As against this, in this year, the assessee 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 were 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 questioning the appointment letter of both the persons, questioned the genuineness of the transaction. We deem it fit to provide another opportunity to the assessee to substantiate its claim before lower authorities. Therefore, the matter of this disallowance stand remitted back to the file of Ld. AO for fresh adjudication.

Summary

Issues:
1. Disallowance of rent payment to OPC Asset Solutions Private Limited.
2. Disallowance of professional fees paid to Ms. Namrata Goel and Ms. Nidhi Goel.

Issue 1: Disallowance of Rent Payment to OPC Asset Solutions Private Limited:
The appellant contested the disallowance of INR 40,19,520 towards lease rent paid to OPC Asset Solutions Private Limited. The Assessing Officer noted that the rent payment pattern indicated a postponement of income tax liability. The CIT(A) enhanced the disallowance to INR 49,26,033 based on previous year's average rent calculation. However, the ITAT found the rent payments were genuine and for business purposes. Citing legal precedents, the ITAT held that the revenue authority cannot determine the deduction amount. The ITAT overturned the disallowance, stating the revenue authorities were unjustified in altering the claim.

Issue 2: Disallowance of Professional Fees:
The appellant disputed the disallowance of professional fees paid to Ms. Namrata Goel and Ms. Nidhi Goel. The Assessing Officer contended that the services' nature and impact on the business were not proven. The CIT(A) upheld the disallowance, citing lack of evidence of services rendered. The appellant argued that the employees were qualified professionals working on a retainer basis for business benefits. The ITAT, considering natural justice, remitted the matter back to the AO for further substantiation by the appellant. The ITAT allowed the ground for statistical purposes, providing the appellant with another opportunity to support their claim.

In conclusion, the ITAT partially allowed the appeal, overturning the disallowance of rent payment and remitting the professional fees issue back to the AO for further examination. The order was pronounced on 28th June 2021.