2012 (8) TMI 182 - AT - Income Tax

Allowability of rent paid to the owner of the property by the assessee - Assessing Officer rejected the claim of expenditure only on the basis that the investment for the construction is made by the society Held that - In the same building the top floor was rented at Rs. 25 per sq. ft - ground floor which is paying Rs. 35 per sq. ft. since 1995 - charging of rent at Rs. 10 per sq. ft. is very reasonable and there is no basis for the lower authorities to reduce the rent claimed by the assessee. In our opinion, the claim of the assessee is justified and the same has to be allowed - payment of Rs. 10 per sq. ft. is reasonable instead of Rs. 9 per sq. ft. determined by the CIT(A). Whether CIT erred in allowing P-money as petrol expenditure without proper evidence - entry in the seized material wherein P-money was written - Assessing Officer is of the view that P-money stands for pocket money and treated it as undisclosed income of the assessee - According to the assessee P-money indicates money for petrol utilised for vehicles used by the assessee Held that - There was no material on record to show on what basis the Assessing Officer had reached to the conclusion - no conclusive evidence to show that P-money reflects pocket money in the absence of corroborative material to hold that the P-money suggests the pocket money In favor of assessee

Summary

Issues Involved:
1. Allowability of rent paid to the property owner by the assessee.
2. Reasonableness of the rent amount.
3. Treatment of "P-money" as petrol expenditure or pocket money.

Issue-wise Detailed Analysis:

1. Allowability of Rent Paid to the Property Owner by the Assessee:
The assessee claimed an expenditure of Rs. 5,02,80,000 towards rental expenditure paid to Dr. Mohd. Vizarath Rasool Khan and his family members. The property was initially given to the assessee society in 1984 for constructing buildings and running an educational institution for minority students. The land was not transferred to the society, and no rent was demanded until the assessment year under consideration when the owners asked for rent. The assessee society agreed to pay Rs. 10 per sq. ft., totaling Rs. 5,02,80,000 per annum. The Assessing Officer disallowed the transaction, arguing that the society had developed the structures with its own funds and thus should not pay rent. The assessee contended that the rent was reasonable and supported by lease agreements and market comparisons.

2. Reasonableness of the Rent Amount:
The CIT(A) reduced the rent to Rs. 9 per sq. ft., but the assessee argued that Rs. 10 per sq. ft. was reasonable considering the market value of the property, which was around Rs. 80 crores. The society had used the property for over 22 years without paying rent, and the agreed rent was lower than market rates. The Department found lease agreements during a search operation, and the rent paid was subject to TDS, with the recipients declaring it in their returns. The Tribunal noted that adjacent properties had higher rental rates, supporting the assessee's claim. The Tribunal found the rent of Rs. 10 per sq. ft. reasonable and directed the Assessing Officer to allow the claim, disallowing only the municipal tax if paid by the assessee.

3. Treatment of "P-money" as Petrol Expenditure or Pocket Money:
The Assessing Officer treated an entry labeled "P-money" as pocket money and added Rs. 1,50,000 as undisclosed income. The assessee argued that "P-money" referred to petrol money for vehicles. The Tribunal found no conclusive evidence to support the Assessing Officer's interpretation and upheld the CIT(A)'s deletion of the addition, referencing the Delhi High Court's judgment in CIT vs. Girish Chaudhary, which held that ambiguous documents without corroborative evidence could not substantiate additions.

Conclusion:
The Tribunal allowed the assessee's claim for rent at Rs. 10 per sq. ft., disallowing only the municipal tax if paid by the assessee. The addition of Rs. 1,50,000 for "P-money" as pocket money was deleted due to lack of evidence. Both the revenue and assessee appeals were partly allowed.