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TMI Blog2012 (12) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... man, Advocate ORDER PER N.S. SAINI, ACCOUNTANT MEMBER This is an appeal filed by the Revenue against the order of the CIT(A)-V, Chennai, dated 1.12.2010. 2. The first issue of this appeal of the Revenue is that the CIT(A) erred in deleting the addition of Rs. 54,85,558/- being excess rent paid in respect of the properties occupied by the assessee and belonging to one of the group concerns M/s Tiruvengadam Investments Pvt. Ltd (M/s TIPL). The second issue of this appeal is that the CIT(A) erred in deleting the addition of Rs.1,84,302/- on account of interest free rental deposit/advance made to M/s TIPL. 3. Both the parties before us agreed that the issues involved in this appeal are covered in favour of the assessee and against the Revenue by the order of this Tribunal in assessee s own case in I.T.A.Nos.1249 1250/Mds/2010, in assessment years 2005-06 and 2006-07, consolidated order dated 21.2.2012. 4. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The CIT(A) has decided both the issues of this appeal by observing as under: 4.1 Ground challenging the disallowance of Rs. 54,85,558/- on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s before arriving at the reasonable rent which ought to have been paid by the appellant company. The Addl. CIT is found to have basically followed the stand taken by the A.O in the appellant's case in earlier assessment years. In respect of the rent paid by the appellant, in relation to the four Mumbai properties and one Delhi property, the Addl. CIT has observed that the properties located in Mumbai were governed by the provisions of the Rent Control Legislation. While dwelling upon the provisions of the Rent Control Legislation, Addl.CIT has placed reliance on the judgement of the Hon'ble Apex Court in the following cases for the purpose of determining the reasonable annual value of the properties governed by the said provisions:- (a) Dewan Daulat Rai Kapur Vs. New Delhi Municipal Corporation and another 122 ITR 700 (SC). (b) Corporation of Calcutta Vs. Smt. Padma Devi AIR 1962 S.C 151. (c) Sheila Kaushik Vs. CIT (d) Amolak Ram Khosia Vs. CIT (e) Dr. Balbir Singh Vs. MCD (1985) 152 1TR 388 (S.C) The Addl.CIT has inferred from the ratio laid down by the Hon'ble Apex Court in the afore cited cases that the Rent Control Act provides for fixation of a standard rent and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty share capital exceeding Rs. 1 crore. The written submissions filed by the learned A.R. in this regard are found to be identical with those filed in the course of the appellate proceedings for the A.Ys. 2001-02, 2002-03,2003-04 and 2004-2005, 2205-06 and 2007-08. The learned A.R. have also furnished copies of relevant documents including the photographs of the premises taken on rent by the comparable companies in support of his rebuttal. On the basis of the evidences filed, the learned A.R. have sought to prove that no two properties can be compared with each other, unless they are identical in respect of the location, the facilities available and the period of tenancy, etc. He pointed out that the properties selected by the department in Mumbai and Delhi for the sake of comparison were not at all at par with the properties taken on rent by the appellant from M/s. TIPL, because they differed significantly on various counts. 4.1.3 The arguments put forward by the learned A.R. have carefully been examined vis-a-vis the contention raised by the Addl.CIT in the assessment order. All the facts and figures and evidences tendered by the appellant during the appellate proceedings of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 (P H), the JCIT opined that the borrowings made by the appellant from the bank was not for business purpose, because the same stood diverted to a sister concern without any actual benefit accruing to the appellant. In order to work out the interest attributable to the borrowed fund not utilised for business purpose, the JCIT had followed the method adopted by the A.O in the assessment proceeding for the A.Y. 2002-03. While doing so, the JCIT had again referred to the comparable cases of M/s. Hansa Vision Private Limited and M/s. A.M.D. Plast Private Limited in relation to the Mumbai and Delhi properties. By relying upon the figures of advances given by the Mumbai and Delhi-based comparable companies, the JCIT computed the excess interest-free deposit made by the appellant company with M/s. TIPL in relation to the let out properties and calculated the interest thereon at the rate of 12% per annum. The detailed working has been provided by the JCIT in the body of the order. As per the said calculation, the disallowable interest worked out to Rs. 28,40,983/- [Rs.26,95,075/- for the Mumbai properties + Rs. 1,45,908/- for the Delhi property] which was, however, restricted to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said properties no disallowance of interest on deposits was called for. I also find no reason in differing from the said view of my predecessor. In respect of the properties at Mahalakshmi, Fort (both in Mumbai) and Pusa Road, New Delhi, my predecessor had held that though rent paid by the appellant company in respect of these three properties were fair and reasonable, there was no necessity on its part to pay rental deposits to its group concern exceeding 12 months' rent. Accordingly, in the appellate proceedings for the AYs. 2001-02, 2002-03, 2003-2004,2005-06 and 2006-07, my predecessor had worked out the excess rental deposits and computed the disallowable interest at the rate of 12% thereon. also find no infirmity in the said finding of my predecessor-inoffice and accordingly, the excess rent deposits in respect of the above mentioned three properties are computed as under):- (a) Mahalakshmi Property. Mumbai:- Excess rent deposit = The deposit made by the appellant (Rs.90,00,000/-) - 12 months' rent (Rs.25,56,000/-) = Rs. 64,44,000/- (b) Fort Property, Mumbai:- Excess rent deposit = The deposit made by the appellant (Rs.1,50,00,000) - 12 months' rent (Rs.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the rent paid was reasonable or excessive having regard to the market value of the facilities and the legitimate needs of the appellant's business, the A.O had relied upon the departmental enquiries conducted at Mumbai and Delhi in the course of assessment proceedings for the A.Y. 2002-03. In the course of the said departmental enquiry proceeding so-called similar properties located at Mumbai and. Delhi were taken into account and various relevant factors were examined in relation to the rent paid in respect of those similar properties. In the assessment order the Addl. CIT has elaborately discussed the relevant issues before arriving at the reasonable rent which ought to have been paid by the appellant company. The Addl. CIT is found to have basically followed the stand taken by the A.O in the appellant's case in earlier assessment years. In respect of the rent paid by the appellant, in relation to the four Mumbai properties and one Delhi property, the Addl. CIT has observed that the properties located in Mumbai were governed by the provisions of the Rent Control Legislation. While dwelling upon the provisions of the Rent Control Legislation, Addl.CIT has placed relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the Mumbai properties and Rs.27,54,OOO/- in respect of the DelhiB property). The Adddl. CIT finally chose this figure for the disallowance under this head, thereby ignoring the excess rent of Rs. 28,03,510/- arrived at on the basis of the standard rent fixed under the Rent Control Legislation. 4.1.2. In the course of the appellate proceeding the learned A.R. have vehemently rebutted the contentions raised by the Addl.CIT while working out the disallowances. At the very outset, he pointed out that the impugned let out properties did not come under the purview of the Rent Control Act, because the appellant company had equity share capital exceeding Rs. 1 crore. The written submissions filed by the learned A.R. in this regard are found to be identical with those filed in the course of the appellate proceedings for the A.Ys. 2001-02, 2002-03,2003-04 and 2004-2005. The learned A.R. have also furnished copies of relevant documents including the photographs of the premises taken on rent by the comparable companies in support of his rebuttal. On the basis of the evidences filed, the learned A.R. have sought to prove that no two properties can be compared with each other, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time, the appellant was also found to have availed itself of the overdraft facilities from banks in relation to which the interest burden during the year stood at Rs. 3,25,918 The JCIT mentioned that the appellant failed to furnish any evidence to show that the borrowed fund/ interestbearing fund was not at all utilised by it for making the advance to M/s. TIPL. By relying on the judgement of the Hon'ble Kerala High Court in the case of CIT Vs. M/s. V.L. Baby Company 254 ITR 248 (Ker.) and that of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. M/s. Abhishek Industries Limited 286 ITR . 1 (P H), the JCIT opined that the borrowings made by the appellant from the bank was not for business purpose, because the same stood diverted to a sister concern without any actual benefit accruing to the appellant. In order to work out the interest attributable to the borrowed fund not utilised for business purpose, the JCIT had followed the method adopted by the A.O in the assessment proceeding for the A.Y. 2002-03. While doing so, the JCIT had again referred to the comparable cases of M/s. Hansa Vision Private Limited and M/s. A.M.D. Plast Private Limited in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at all warranted. " 4.2.3. The arguments put forward by the learned A.R. have carefully been examined vis-a-vis the contentions raised by the JCIT 'in the assessment order. The issue relating to the interest-free rent deposit has been adjudicated by my predecessor in great detail in the appellate proceedings for the A.Ys. 2001-02,2002-03 and 2003-2004. He had held that in respect of the properties at Colaba and Napean Sea Road, Mumbai, the rent paid and the corresponding deposits given to the group company were less compared to the prevalent market rate. Thus, he opined that in respect of the said properties no disallowance of interest on deposits was called for. I also find no reason in differing from the said view of my predecessor. In respect of the properties at Mahalakshmi, Fort (both in Mumbai) and Pusa Road, New Delhi, my predecessor had held that though rent paid by the appellant company in respect of these three properties were fair and reasonable, there was no necessity on its part to pay rental deposits to its group concern exceeding 12 months' rent. Accordingly, in the appellate proceedings for the AYs. 2001-02, 2002-03 and 2003- 2004, my predecessor had worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsolidated order dated 9.1.2009 passed in ITA Nos.2262 2340/Mds/2007 for Assessment Year 2004-05 has held as under: 2. We have heard the learned counsel for the assessee as well as the learned Departmental Representative and considered the relevant record. We note that the Commissioner (A) has followed the earlier orders for the assessment years 2001-02, 2002-03 2003-04 while deciding these issues. We further note that this Tribunal has considered and decided these two issues raised by the assessee as well as Revenue in assessee's own case for the assessment years 1996-97, 1997-98, 2001-02 2002-03 in ITA Nos.284/04, 965,2804/05, 392/06 which has been followed by this Tribunal in the subsequent case of the assessee for the assessment years 1998-99 to 2000-01 2003-04 in ITA Nos.1554 to 1556 2093/06 wherein this Tribunal has held in paragraph 2 3 of the order dated 30th Nov.2007 as under: 2. ITA Nos.1554,1555,1556 2093/Mds/06: In these appeals, the Assessee has taken the above common grounds. After hearing both the parties we find that identical issues have come up for consideration before this Tribunal in the case of the same Assessee in ITA Nos.283/Mds./04, 965, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not comparable. 29. We further find that majority of the share holding amounting to 50.1% of the Assessee company is vested in a Multi National Company known as BBDO Asia Pacific which means that decision regarding diversion of money could not be taken without the consent of the major partner and there is no reason to believe that such major partner would allow the Assessee company to pass on the benefit to its own relatives etc. In fact, the Department has no right to step into the shoes of the assessee and find the reasonableness of the business transaction from the point of view of the Department. It always has to be seen from the angle of the Assessee. 30. The chart given by the C.I.T.(Appeals) as Annexure-I reads as under:- Rent and Rate of Return Working April 2001 to March 2002 Sl. No Property particulars Sq.ft occupied Rent per month Rent per annum Rent per mont h per sq.ft Deposit amount 12 months rent per deposit Interest on excess deposit @ 12% Rent per sq.ft includi ng intrest on deposit Rent as per the market rates 1. TIPL(Anand Estates,Flat No.15,No.189A,Sa ne Guruji Marg, Chinchpokli, Mumbai-13 Mahalaks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case clearly deposits were made for taking the premises on rent which means that the same was for business expediency and are based on market rent. Hence, it cannot be said that excessive deposits were made by the Assessee. In view ,of this discussion, we are of the view that the CIT(Appeals) has correctly held that rent paid was reasonable and as far as the disallowance of interest on excessive deposit made by the Assessing Officer and part of which has been sustained by the CIT(Appeals) is concerned the same is not justified.' Therefore, we set aside the order of the CIT(Appeals) on this issue and delete the disallowance of interest " 3. We find that for the years before us also, the facts are identical. Therefore, respectfully following the order of the Tribunal cited supra, wherein the Tribunal has deleted the disallowance of interest, for these years also, we delete the disallowance of interest, holding that the deposits were made for taking the premises on rent which was necessitated by business expediency and' are based on marked rent. Hence, we decline to agree with the contention of the Id. Departmental Representative that excessive deposits were made for hiring o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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