ACIT, CHENNAI v. M/s. RK Swamy BBDO Advertising Pvt Ltd., CHENNAI

ITA 1249/CHNY/2010 | 2005-2006
Pronouncement Date: 21-02-2012 | Result: Dismissed

Appeal Details

RSA Number 124921714 RSA 2010
Assessee PAN AAACR3551L
Bench Chennai
Appeal Number ITA 1249/CHNY/2010
Duration Of Justice 1 year(s) 6 month(s) 18 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. RK Swamy BBDO Advertising Pvt Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 21-02-2012
Date Of Final Hearing 21-02-2012
Next Hearing Date 21-02-2012
Assessment Year 2005-2006
Appeal Filed On 03-08-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI N.S. SAINI AM AND SHRI GEORGE MATHAN J.M. I.T.A. NO. 1 249 & 1 250 /MDS/2 0 1 0 [ASSESSMENT YEARS 2005-06 & 2006-07] THE ASSTT. CIT COMPANY CIRCLE V(4) FOURTH FLOOR MAIN BUILDING CHENNAI M/S R.K. SWAMY BBDO ADVERTISING 604 MOUNT ROAD CHENNAI 600 006. PAN NO: AAACR 3551 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. SRIDHAR DEPARTMENT BY : SHRI SHAJI P. JACOB SR. DR DATE OF HEARING : 21.02.2012 DATE OF PRONOUNCEMENT : 21.02 .2012 O R D E R PER N.S. SAINI A.M. :- THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AGA INST THE ORDERS PASSED BY THE CIT(A)-V CHENNAI DATED 10 .05.2010 AND 21.6.2010 FOR ASSESSMENT YEARS 2005-06 AND 2006 -07. 2 2. THE LD. D.R. SHRI SHAJI P. JACOB SUBMITTED THAT BOTH THE APPEALS ARE FILED BY THE REVENUE AND THERE ARE COMM ON GROUNDS OF APPEAL IN BOTH THE APPEALS. THE FIRST COMMON GR OUND OF APPEAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 56 05 558/- MADE U/S 40(A)(2) OF THE ACT IN RESPECT OF RENT PAID TO A GROUP CONCERN. THE OTHER COMMON GROUND OF APP EAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 4 61 523/- ON ACCOUNT OF DISALLOWANCE OF INTEREST ON INTEREST FRE E DEPOSITS MADE TO THE GROUP CONCERN. HE FURTHER SUBMITTED TH AT BOTH THE GROUNDS HAVE BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEARS AND THE LD. CIT(A) HA S FOLLOWED THOSE ORDERS AND ALLOWED THE APPEALS OF THE ASSESSE E. THE GRIEVANCE OF THE REVENUE IS THAT THE REVENUE HAS NO T ACCEPTED THE ORDER OF THE TRIBUNAL PASSED IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS AND HAS FILED APPEAL THEREAGAINST TO THE HON'BLE MADRAS HIGH COURT WHICH IS PENDING AND THE REFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE APPEAL S OF THE ASSESSEE BY FOLLOWING THE ORDERS OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS. 3. ON THE OTHER HAND THE LD. A.R. SHRI S. SRIDHAR HAS SUPPORTED THE ORDERS OF THE LD. CIT(A). 3 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE RELEVANT MA TERIAL ON RECORD. THE LD. CIT(A) HAS DECIDED BOTH THE GROUND S OF APPEAL BY OBSERVING AS UNDER: P RO PERT Y P A RTICULARS A ND RENT PAID PER INTEREST - FREE DEPOSIT LOCA TION ANNUM PAID FOR THE PROPERTY ANA N D ES TATES FLAT NOS . 12 12B 13 . 14A L4B AND RS.25 56 000 / - RS . 90 00 000 / - 1 5 NO . 189 A SANE GURUJI MARG CHINCHPOKLI MA H A L A K S HMI MUMB A I - 13 (COMMERCI A L AREA 3 525 SQ .F T . E L P HIN S TON E C R ICKET CLUB 17 MURZBAN ROAD 4TH R S. 90 00 000/ - RS. 1 50 00 000/ - F L OOR F ORT MUMBAI - L (COMMERCIAL PROPERT Y) - AREA 5 000 S Q .F T . US H A SA D A N FLAT NO.9 A BLO C K COLABA MUMBAI RS. 1 20 000/ - RS. 30 00 000 / - (RES ID E NTI A L PROPERTY ) - ARE A 2 000 SQ.FT .. F L A T NO. 1 2 I ' FLOOR 47 NAPEAN SEA ROAD RS . 1 80 000 / - RS . 80 00 000 / - MUM B A I - 400 006 - AR E A 1 700 SQ.FT . D E LHI PROPERTY : INT E RE S T-FREE DEPOSIT PAID FOR THE PROPERTY RENT PAID ANNUM 17 PU SA RO A D NEW DELHI - I 10 O 17 - AREA RS . 43 56 000 / - RS. 75 00 000 /- 8 9 00 S Q . FT . 4 THE A.O HAD THE OCCASION TO EXAMINE THE TAX AUDIT R EPORT IN FORM NO. 3CD ANNEXED TO THE RETURN OF INCOME AND FOUND THAT THE DIRECTORS AND SHAREHOLDERS OF THE APPELLANT COMPANY WERE SUBSTANT IALLY INTERESTED IN M/S. TIPL WHICH HAD LET OUT FIVE PROPERTIES IN MUMBAI AN D DELHI TO THE APPELLANT . THE A . O THEREFORE OPINED THAT RENT PAID TO M/S. TIPL FE LL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 40 A(2) OF THE I.T. AC T . WITH A VIEW TO DECIDING AS TO WHETHER THE RENT PAID WAS REASONABLE OR EXCESSIV E HAVING REGARD TO THE MARKET VA L UE OF THE FACILITIES AND THE LEGITIMATE NEEDS OF TH E APPELLANT'S BUSINESS TH E A.O HAD RELIED UPON THE DEPARTMENTAL ENQUIRIES COND UCTED AT MUMBAI AND DELHI IN THE COURSE OF ASSESSMENT PROCEE DINGS FOR THE A.Y. 2002- 03. IN THE COURSE OF THE SAID DE PARTMENTAL ENQUIRY PROCEEDING SO-CALLED SIMILAR PROPERTIES LOCATED AT MUMBAI AND . DELHI WERE TAKEN INTO ACCOUNT AND VARIOUS RELEVANT FACTORS WERE EXAMINED IN RELATION TO TH E RENT PAID IN RESPECT OF THOSE SIMILAR PROPERTIES. IN THE ASSESSMENT ORDE R THE ADDL . CIT HAS ELABORATELY DISCUSSED THE RELEVANT ISSUES BEFORE AR RIVING AT THE REASONABLE RE NT WHICH OUGHT TO HAVE BEEN PAID BY THE . THE ADDL . CIT IS FOUND TO HAVE BASICALLY FOLLOWED THE STAND TAKEN BY THE A.O IN TH E APPELLANT'S CASE IN EARLIER ASSESSMENT YEARS. IN RESPECT OF THE RENT P AID BY THE APPELLANT. IN RELATION TO THE FOUR MUMBAI PROPERTIES AND ONE DELH I PROPERTY THE ADDL. CIT HAS OBSERVED THAT THE PROPERTIES LOCATED IN MUMBAI WERE GOVERNED BY THE PROVISIONS OF THE RENT CONTROL L E GISLATION. WHILE DWELLING UPON THE PROVISIONS OF THE RENT CONTROL LEGISLATION ADDL . CIT H A S PLACED RELIANCE ON THE JUDGEMENT OF THE HON'BLE APEX COURT IN THE FOLLOWIN G CASES FOR THE PURPOSE OF DETERMINING THE REASONABLE ANNUAL VALUE OF THE P ROPERTIES GOVERNED BY THE SAID PROVISIONS: - (A) DEWAN DAULAT RAI KAPUR VS. NEW DELHI MUNICIPAL CORP ORATION AND ANOTHER 122 ITR 700 (SC). (B) CORPO R ATION OF CALCUTTA VS. SMT . PADMA DEVI AIR 1962 S.C 5 151 . (C) SHEILA KAUSHIK VS. CIT (1981) 7 TAXMAN 1 (S.C) (D) AMOLAK RAM KHOSIA VS. CIT (1981) 7 TAXMAN 51 (S.C) (E) DR. BALBIR SINGH VS. MCD (1985) 152 1TR 388 (S. C) THE ADDL . CIT HAS INFERRED FROM THE RATIO LAID DOWN BY THE HO N'BLE APEX COURT IN THE AFORE CITED CASES THAT THE RENT CONTRO L ACT PROV I DES FOR FIXATION OF A STANDARD RENT AND THAT A LANDLORD CAN NOT CHARGE A HIGHER RENT FROM THE TENANT IN BREACH OF THE RENT CONTROL LEGIS LATION. THE ADDL . CIT WENT ON OBSERVING THAT THE RENT CONTROL LEGISLATION RECOGNIZED 8.5% RETURN ON INVESTMENT AS A MEASURE OF THE STANDARD RENT . IN THIS REGARD THE ADDL . CIT PLACED RELIANCE ON THE JUDGEMENT OF THE HON'BLE LT. A.T MUMBAI BENCH IN THE CASE OF ITO VS. M/S. CHEM MECH PRIVATE LIMITED 82 ITD 427 (MUM.). IN THE INSTANT CASE THE LANDLORD I . E. M/S. TIPL WAS FOUND BY THE ADDL . CIT TO HAVE SHOWN AN INVESTMENT OF RS. 15 70 52 835/- IN R ESPECT OF THE IMPUGNED LET OUT PROPERTIES. 8.5% THEREOF WORKED OUT TO RS. 1 33 49 490/- WHICH ACCORDING TO THE ADDL . CIT CONSTITUTED THE STANDARD RENT . SINCE THE APPELLANT WAS FOUND TO HAVE PAID AN AGGREGATE RENT OF RS. 1 62 12 000/- THE EXCESS RENT PAID IN THIS REGARD WAS COMPUTED BY THE ADDL . CIT AT RS. 28 03 51 0/ -. AT THE SAME TIME THE ADDL . CIT ALSO ENDEAVOURED TO FIND OUT THE FAIR MARKET RENT OF THE IMPUGNED PROPERTIES. IN THIS CONNECTION THE ADDL . CIT AGAIN RELIED UPON THE ENQUIRIES CONDUCTED BY THE DEPARTME NT IN MUMBAI AND DELHI . THE COMPARABLE CASE SELECTED BY THE DEPARTMENT AT M UMBAI WAS THAT OF . M/S. HANSA VISION PRIVATE LIMITED WHICH ALSO HAPPEN ED TO BE A GROUP CONCERN OF THE APPELLANT . IN DELHI M/S A . M.D. PLAST PRIVATE LIMITED WAS TAKEN UP BY THE DEPARTMENT AS A REFERENCE CASE FOR COMPARISON . THE 6 DETAILED WORKING ON THE BASIS OF THE DATA AVAILABLE FROM THESE TWO COMPARABLE CASES HAS BEEN GIVEN BY THE ADDL . CIT IN THE BODY OF THE ASSESSMENT ORDER . THE FACTS MENTIONED THEREIN ARE FOUND TO BE IDENTIC AL WITH THOSE PERTAINING TO THE EARLIER ASSESSMENT YEA RS. ON THE BASIS OF THE SAID WORKINGS THE ADDL . CIT WORKED OUT THE EXCESS RENT PAID BY THE APPELLANT AT RS. 56 05 558/- (RS. 28 51 558/- IN RE SPECT OF THE MUMBAI PROPERTIES AND RS.27 54 OOO/- IN RESPECT OF THE DEL HI PROPERTY). THE ADDDL. CIT FINALLY CHOSE THIS FIGURE FOR THE DISALL OWANCE UNDER THIS HEAD THEREBY IGNORING THE EX C E SS RENT OF RS. 28 03 510/- ARRIVED AT ON THE BASIS OF THE S TANDARD RENT FIXED UNDER T HE RENT CONTROL LEGISLATION. 4 .1 . 2. IN THE COURSE OF THE APPELLATE PROCEEDING THE LE ARNED A . R. HAVE VEHEMENTLY RE BUTTED 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 CA PITAL EXCEED I NG RS. 1 CRORE. THE WRITTEN SUBMISSIONS FILED BY TH E LEARNED A.R. IN THIS R E GARD ARE FOUND TO BE IDENTICAL WITH THOSE FILED IN THE COURSE OF THE APPELLATE PR O CE EDINGS FOR THE A.YS. 2001-02 2002-03 2003-04 AND 2004-2005. THE LEARNED A.R. H A V E ALSO FURNISHED COPIES OF RELEVANT DOCUMENTS INCLUDING THE PHOTOGRAPHS OF THE P R EMISES TAKEN ON RENT BY THE COMPARABLE COMPANIES IN SUPPORT OF HIS REBUTTAL . ON THE B A SIS OF THE EVIDENCES FILED THE LEARNED A.R. HAVE SOUGHT TO PR OVE THAT NO TWO P R OP E RTIES CAN BE COMPARED WITH EACH OTHER UN L ESS THEY ARE IDENTICAL IN RESPECT OF THE L O C ATION THE FACILITIES AVAILABLE AND THE PERIOD OF T ENANCY ETC . HE POINTED OUT THAT THE P R OP E RTIES SELECTED BY THE DEPARTMENT IN MUMBAI AND DELHI FOR THE SAKE OF COMPARISON W E R E NOT AT ALL AT PAR WITH THE PROPER T IES TAKEN ON RENT BY THE APPELLANT FROM M/S. TIPL B E CAUSE THEY DIFFERED SIGNIFICANTLY ON VARIOUS COUNTS. 7 4.1.3 THE ARGUMENTS PUT FORWARD BY THE LEARNED A.R. HAVE CAREFULLY BEEN EXAMINED V IS- A-VIS THE CONTENTION RAISED BY THE ADDL . CIT IN THE ASSESSMENT ORDER. ALL THE FACTS AN D FIGURES AND EVIDENCES TENDERED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS OF TH E EARLIER YEARS HAVE BEEN EXAMINED BY MY PREDECESSOR IN DETAIL . MY PREDECESSOR'S H A V E FOUND FORCE IN THE APPELLANT'S ARGUMENTS AND ACCORDINGLY HELD T HAT THE RENT PAID BY TH E APPELLANT COMPANY IN RESPECT OF ALL THE FIVE PROPER TIES WERE REASONABLE THEREBY WAR R A NTING NO DISALLOWANCE. SINCE THE FACTS IN THIS ASSESSMENT YEAR REMAIN UNCHANGED F IND NO REASON FOR DEVIATING FROM THE STAND TAKEN IN THE APPELLATE PROCEEDINGS OF EAR LI E R ASSESSMENT YEARS. 4.1 . 4. FURTHER APPELLANT HAS GIVEN DOCUMENTARY EV I DENCE THAT HANSA VISION HAS VAC AT E D THE PREMISES IN MARCH 2007. 4.1 . 5. THIS MATTER OF DISALLOWANCE HAS BEEN GOING ON FR OM ASSESSMENT YEAR 199 6 -1 997 ONWARDS . THE ITAT HAS A L SO ALLOWED FROM 1996-1997 TO 2003-2004 IN LINE WIT H CIT ORDER AND REJECTED THE DEPARTMENT'S APPEAL AGAINST MY PREDECESSOR'S ORDER. IN OTH E R WORDS BY FOLLOWING THE EARLIER YEARS' APPELLATE ORDERS AND ALSO CONSIDERING THE ITAT ORDER I DELETE THE ADDITION O F RS. 56 05 558/- MADE BY THE ASSESSING OFFICER. THE GROUNDS OF THE APPELLANT IN THIS REGARD THUS SUCCEED. 2 . GROUND CHALLENGING THE DISALLOWANCE OF INTEREST AMO UNTING TO RS. 3 25 918: 4.2 . 1 IN THE COURSE OF THE ASSESSMENT PROCEEDING THE ADDL . CIT FOUND THAT THE 8 APPE LLA N T APA R T FROM PAYING SUBSTANTIAL RENT ON THE LET OUT PROPE RTIES HAD KEPT HUGE INTERE ST - FREE RENT DEPOSITS WITH M/S.TIPL. THE AGGREGATE DEP OSIT FOR THE RELEVANT ACCOU NTING YEAR S T OOD AT RSA 25 00 000/-. SINCE THE INVESTMENT OF M/S.TIPL IN THOSE PR O PER TIES WAS RS . 15 70 52 835/- THE JCIT OPINED THAT THE RENT DEPOSIT PAID BY THE APPE LLANT EXCEEDED 27% OF THE OWNER'S INVESTMENT . ON PERUSAL OF THE APPELLANT'S BALA N C E SHEET THE JCIT OBSERVED THAT THE APPELLANT DID NOT HAVE LIQUID FUNDS/RESERVES FOR M A KING THE INTEREST-FREE RENTAL ADVANCE OF RSA . 25 CRORE TO M/S. TIPL. AT 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 JCI T MENTIONED THAT THE APPELLANT FAILED TO FURNISH ANY EVIDENCE TO SHOW THAT THE BO R ROWE D FUND/ INTEREST-BEARING FUND WAS NOT AT ALL UTILIS ED BY IT FOR MAKING THE ADVANCE TO M /S. TIPL . BY RELYING ON THE JUDGEMENT OF THE HON'BLE KERALA HIGH COU R T IN THE CASE OF CI T VS . M/S. V.L . BABY & COMPANY 254 ITR 248 (KER.) AND THAT OF HON'BLE PUNJAB A ND H AR YANA HIGH COURT IN THE CASE OF CIT VS. M/S. ABHISH ~ K INDUSTRIES LIMITED 286 ITR . 1 (P & H) THE JCIT OPINED THAT THE BORROWINGS MADE BY THE APPELLANT FROM THE BANK W AS NOT FOR BUSINESS PURPOSE BECAUSE THE SAME STOOD DIVERTED TO A SISTER CONCERN W ITHO UT ANY ACTUAL BENEFIT ACCRUING TO THE APPELLANT . IN ORDER TO WORK OUT THE INTEREST A TTRIBUTA BLE TO THE BORROWED FUND NOT UTILISED FOR BUSINESS PURPOSE TH E JCIT HAD F O L L O WE D THE METHOD ADOPTED BY THE A.O IN THE ASSESSMENT PROCEED ING FOR THE A.Y . 20 02-03 . WHILE DOING SO THE JCIT HAD AGAIN REFERRED TO THE COMPARABLE CASES OF M/S. H AN S A VIS I ON PRIVATE LIMITED AND M/S. A . M.D. PLAST PRIVATE LIMITED IN RELATION TO THE M UMBA I A ND DELHI P R OPERTIES. BY RELYING UPON THE FIGURES OF ADVA N CES GIVEN BY THE MU MBAI AND DELHI-BASED COMPARABL E COMPANIES THE JCIT COMPUTED THE E X CESS IN TE R E S T -FREE DEPOSIT MADE BY THE APPELLANT COMPANY WITH M/S. TIPL IN RELATION TO THE L E T OUT P ROPERTIES AND CALCULATED THE INTEREST THEREON AT THE RATE OF 12% PER ANNUM . T H E DETAI LED WORKING HAS BEEN PROVIDED BY THE JCIT IN THE BODY OF THE ORDER . AS PER TH E SAID CALCULATION THE 9 DISALLOWABLE INTE R EST WORKED OUT TO RS. 28 40 983/- [ R S .26 95 075/- FOR THE MUMBAI PROPERTIES + RS. 1 45 908/- FOR THE DELHI PR OP E RTY] WH I C H WAS HOWEVER RESTRICTED TO THE ACTUAL AMOUNT OF INTERES T PAID BY THE APP E LLANT D UR I NG T H E R E LEVANT ACCOUNTING YEAR I . E. RS. 1 4 48 265/- WHICH THUS REPRESENTED THE D IS A L L O W AN CE MADE BY THE JCIT UNDER THIS H E AD . 4.2.2. IN THE COURSE OF THE APPELLATE PROCEEDING T HE LEARNED A.R. HAVE SUBMITTED THE FOLLOWING: 'THE DEPOSITS PAID BY THE APPELLANT COMPANY ARE IN TUNE WITH THE MARKET REALITY . IT MAY KINDLY BE APPRECIATED THAT WHEREVER THE DEPOSITS ARE SLIGHTLY HIGH THE EXTENT OF RENT PAID IS LOW AND WHEREVER THE RENT IS HIGH THE DEPOSIT HAS BEEN LOW . IN MUMBAI WHERE THE PAGADI SYSTEM IS PREVALENT PREVALENT RE NTS AND DEPOSITS ALWAYS WORK IN PROPORTION TO EACH OTHER. THE A. 0 HAS CONSIDERED ONLY ONE YEAR'S DEPOSIT IRRESPECTIVE OF THE AMOUNT OF RENT PAID. THE APPELLANT AS A PRUDENT ENTERPRISE THOUGHT IT FIT TO PAY RENTAL DEPOSITS AT A REASONABLE LEVEL AFTER TAKING INTO AC COUNT THE ADVANTAGES FLOWING OUT OF THE BUSINESS PREMISES OCC UPIED BY IT AT VANTAGE PRIME LOCALITIES IN MUMBAI AND DELHI. THE A .O HAS IGNORED THE FACT THAT THE RENT AND DEPOSITS WERE BASED ON U TILITY VALUE LOCATION AND AVAILABILITY OF INFRASTRUCTURE ETC . THE A.O HAD MISTAKENLY PRESUMED THAT THE APPELLANT HAD DEPLOYED THE ENTIRE BORROWED FUNDS FOR THE PURPOSE OF PAYMENT OF RENTAL DEPOSITS TO T- T/S . TIPL . T.[LE APPELLANT IS A LEADING ADVERTISING COMPANY HA VING HUGE VOLUME OF BUSINESS AND AS AN ADVERTISING AGENC Y IT IS SUBJECTED TO ACCREDITATION RULES OF INDIAN NEWSPAPER SOCIETY ALL INDIA RADIO DOORDARSHAN ETC. AND HAS THEREFORE TO PAY THESE MEDIA IN TIME. THE BANK OVERDRAFT HAS ACTUALLY BEEN USED FOR BUSIN ESS PURPOSE ONLY 10 FOR PAYING THE VARIOUS MEDIA IN TIME. SINCE THE BOR ROWED FUNDS WERE NOT AT ALL DIVERTED FOR THE PURPOSE OF PAYING RENT- DEPOSITS TO THIS TIPL THE DISALLOWANCE OF INTEREST OF RS. 3 25 918 WAS NO T AT ALL WARRANTED. ' 4.2 . 3. THE ARGUMENTS PUT FORWARD BY THE LEARNED A.R. HA VE CAREFULLY BEEN EXAMINED VIS-A-VIS THE CONTENTIONS RAISED BY THE JC IT ' IN THE ASSESSMENT ORDER. THE ISSUE RELATING TO THE INTEREST-FREE RENT DEPOSIT HAS BEEN ADJUDICATED BY MY PREDECESSOR IN GREAT DETAIL IN TH E 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 MU MBAI THE RENT PAID AND THE CORRESPONDING DEPOSITS GIVEN TO THE GROUP C OMPANY WERE LESS COMPARED TO THE PREVALENT MARKET RATE. THUS HE OPI NED THAT IN RESPECT OF T HE SAID PROPERTIES NO DISALLOWANCE OF INTEREST ON D EPOSITS WAS CALLED FOR. I ALSO FIND NO REASON IN DIFFERING FROM THE SAID VI EW OF MY PREDECESSOR . IN RESPECT OF THE PROPERTIES AT MAHALAKSHMI FORT (BO TH IN MUMBAI) AND PUSA ROAD NEW DELHI MY PREDECESSOR HAD HELD THAT THOUG H RENT PAID BY THE APPELLANT COMPANY IN RESPECT OF THESE THREE PROPERT IES WERE FAIR AND REASONABLE THERE WAS NO NECESSITY ON ITS PART TO P AY 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 THE EXCESS RENTAL DEPOSITS AND COMPU TED THE DISALLOWABLE INTEREST AT THE RATE OF 12% THEREON. A LSO FIND NO INFIRMITY IN THE SAID FINDING OF MY PREDECESSOR-IN-OFFICE AND ACCORDINGLY THE EXCESS RENT DEPOSITS IN RESPECT OF THE ABOVE MENTIONED THREE PR OPERTIES ARE COMPUTED AS UNDER):- 11 (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' R ENT (RS.90 00 000/-) = RS. 60 00 000/-. (C) PUSA ROAD PROPERTY NEW DELHI:- EXCESS RENT DEPOSIT = THE DEPOSIT MADE BY THE APPELLANT (RS.75 00 000/-) -12 MONTHS' RENT (RS . 43 56 000/-) = RS. 31 44 000/-. THUS THE AGGREGATE EXCESS DEPOSIT WORKS OUT TO RS. 1 55 88 000/-. THE INTEREST AT THE R ATE OF 12% PER ANNUM ON THE SAID EXCESS DEPOSIT WORKS OUT TO RS. 18 70 560/-. MY PREDECESSOR HAS DISALLOWED THIS INTEREST AMOUNT IN PRIOR ASSESSMENT YEARS AND THE APPELLANT HAS APPEALED AGAINST MY PRE DECESSOR'S ORDER AND OBTAINED FAVOURABLE ORDER FROM THE JURISDICTIONAL A PPELLANT TRIBUNAL > FOR THE ASSESSMENT YEARS 2001-2002 TO 2003-2004. 5. I HAVE CONSIDERED THE FACTS OF THE CASE THE CON TENTION OF THE A.R. AND I FIND THAT THERE IS A FORCE IN THEIR ARGUMENT . I HAVE ALSO PERUSED THE INCOME TAX APPELLATE TRIBUNAL' CHENNAI ORDER IN THE ASSESS EE COMPANY'S OWN CASE 12 FOR THE EARLIER YEARS. THE APPELLATE TRIBUNAL HAS F ULLY AGREED WITH THE ASSESSEE COMPANY'S ARGUMENT/CONTENTION AND HAS REND ERED A FAVOURABLE DECISION IN FAVOUR OF IT . RESPECTFULLY FOLLOWING MY PREDECESSOR OR AND THE INCOME TAX APPELLATE TRIBUNAL ORDER AS WELL I DELE TE THE ADDITION OF RS. 4 61 526/- MADE BY THE ASSESSING OFFICER. THE GROU NDS OF THE APPELLANT IN THIS REGARD THUS SUCCEED. 5. BEFORE US THE LD. D.R. HAS SUBMITTED THAT THE L D. CIT(A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN THE CASE OF T HE ASSESSEE ITSELF FOR EARLIER YEARS AND ALLOWED THE APPEAL OF THE ASSESSE E WHICH HAS NOT BECOME FINAL AS THE DEPARTMENT IS IN APPEAL THEREAG AINST BEFORE THE HON'BLE MADRAS HIGH COURT. THE LD. D.R. COULD NOT FILE ANY MATERIAL BEFORE US TO SHOW THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS WERE VARIED IN APPEAL BY ANY HIGHER AUTHORITY OR THAT THE OPERATION OF THE ORDER WAS ST AYED. WE FIND THAT THE TRIBUNAL VIDE ITS CONSOLIDATED ORDER DATED 9.1.200 9 PASSED IN ITA NOS.2262 & 2340/MDS/2007 FOR ASSESSMENT YEAR 2004-0 5 HAS HELD AS UNDER: 2. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSE SSEE AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT RECORD. WE NOTE THAT THE COMMISSIONER (A) HAS FOLLOWED THE EAR LIER ORDERS FOR THE ASSESSMENT YEARS 2001-02 2002-03 & 2003-04 WHILE D ECIDING THESE ISSUES. WE FURTHER NOTE THAT THIS TRIBUNAL HAS CONSIDERED AND DECIDED THESE TWO ISSUES 13 RAISED BY THE ASSESSEE AS WELL AS REVENUE IN ASSESS EE'S OWN CASE FOR THE ASSESSMENT YEARS 1996-97 1997-98 2001-02 & 2002-0 3 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 TRIBUNA L HAS HELD IN PARAGRAPH 2 & 3 OF THE ORDER DATED 30 TH NOV.2007 AS UNDER: 2. ITA NOS.1554 1555 1556 & 2093/MDS/06: IN THES E APPEALS THE ASSESSEE HAS TAKEN THE ABOVE COMMON GROUNDS. AFTER HEARING BOTH THE PARTIES WE FIND THAT IDENTICAL ISSUES HAVE COME UP FOR CONSIDE RATION BEFORE THIS TRIBUNAL IN THE CASE OF THE SAME ASSESSEE IN ITA NOS.283/MDS ./04 965 2804/MDS./05 & 392/06 AND 438/04 1810/05 167 & 519/06 FOR THE ASST. YEARS 1996-97 2001-02 2002-03 & 1997-98 AND THIS TRIBUNAL BY ITS ORDER DATED 30 TH NOVEMBER 2007 HAS ELABORATELY DEALT WITH THE ISSUE S IN PARAS 23 TO 31 OF ABOVE ORDER. FOR BETTER APPRECIATION WE REPRODUCE HERE BELOW PARAS 23 TO 31 OF THE ABOVE ORDER:- 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CARE FULLY IN THE LIGHT OF THE MATERIAL ON RECORD. WE FIND THAT DURING THE AS ST. YEAR 2001-02 THOUGH RENT WAS FOUND TO BE REASONABLE BUT THE DEPO SITS WERE HELD TO BE UNREASONABLE BY THE ASSESSING OFFICER AND PART O F WHICH WAS ALLOWED BY THE C.I.T.(APPEALS) AND SOME PARTS WERE CONFIRME D BY THE C.I.T.(APPEALS). HOWEVER THE ASSESSING OFFICER HA S PROCEEDED TO DETERMINE THE EXCESSIVE DEPOSIT MAINLY ON THE BASIS OF HISTORICAL COST OF PROPERTIES WHICH IS NOT FAIR. THE RENT VALUE OF TH E PROPERTY WOULD DEPEND ON THE DATE ON WHICH SUCH PREMISES ARE TAKE N ON RENT AND NOT ON THE ACTUAL COST OF THE PROPERTY. IN THE ASST. Y EAR 2002-03 THE ASSESSING OFFICER HAS TAKEN TWO INSTANCES WHERE TH E RENT WAS FOUND TO BE EXCESSIVE AND DEPOSIT WAS ALSO FOUND TO BE EXCES SIVE. BUT ON PERUSAL OF THE ASSESSMENT ORDER WOULD CLEARLY SHOW THAT INS TANCES COLLECTED BY THE ASSESSING OFFICER ARE NOT COMPARABLE. FOR EXAM PLE IN THE CASE OF 14 MUMBAI PROPERTY IT WAS CLEARLY POINTED OUT THAT OUT OF A TOTAL AREA OF 2437 SQ.FT. TAKEN ON RENT BY ONE OF THE SISTER CONC ERNS HVIL 600 SQ.FT. WAS ON TERRACE. NATURALLY THE TERRACE AREA CANNOT BE USED FOR ANY OFFICE PURPOSE. FURTHER THE ASSESSEE HAD CLEARLY POINTED OUT THAT THIS PREMISES WAS TAKEN ON RENT FOR A PERIOD OF THREE YE ARS AND THEREFORE WHATEVER EXPENDITURE WAS INCURRED TO MAKE THE PREMI SES FIT FOR OCCUPATION IS ALSO TO BE CONSIDERED. EVEN IF WE AG REE WITH THE FINDINGS OF THE ASSESSING OFFICER THAT OUT OF THE SUM OF `34 LAKHS INCURRED FOR MAKING THE PREMISES FIT FOR OCCUPATION A SUM OF `1 9.40 LAKHS WAS INCURRED TOWARDS CABINS PARTITIONS ETC. SUCH CABI NS PARTITIONS ETC. WILL HAVE NO USE AFTER THE LAPSE OF THREE YEARS. W HEN THE PROPERTY IS TAKEN FOR A LONGER PERIOD OF LEASE SUCH EXPENDITUR E ALSO WILL HAVE LONGER BENEFIT FOR THE OCCUPANT OF THE PROPERTY. S IMILARLY IN THE CASE OF DELHI PROPERTY IF ONE PROPERTY IS LOCATED ON TH E MAIN ROAD IN A CORNER BUILDING AND THE PROPERTY QUOTED BY THE DEPA RTMENT IS LOCATED ON AN INSIDE LANE OF 30 FT WIDE THEN THESE TWO PRO PERTIES ARE NOT COMPARABLE. 29. WE FURTHER FIND THAT MAJORITY OF THE SHARE HOLD ING AMOUNTING TO 50.1% OF THE ASSESSEE COMPANY IS VESTED IN A MULTI NATIONAL COMPANY KNOWN AS BBDO ASIA PACIFIC WHICH MEANS THAT DECISIO N REGARDING DIVERSION OF MONEY COULD NOT BE TAKEN WITHOUT THE C ONSENT 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 T O 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 BUSINES S TRANSACTION FROM THE POINT OF VIEW OF THE DEPARTMENT. IT ALWAYS HAS TO BE SEEN FROM THE ANGLE OF THE ASSESSEE. 15 30. THE CHART GIVEN BY THE C.I.T.(APPEALS) AS ANNEX URE-I READS AS UNDER:- RENT AND RATE OF RETURN WORKING APRIL 20 01 TO MARCH 2002 SL. NO . PROPERTY PARTICULARS SQ.FT OCCU PIED RENT PER MONTH RENT PER ANNUM RE NT PER MO NTH PER SQ. FT. DEPOSIT AMOUNT 12 MONTHS RENT PER DEPOSIT INTEREST ON EXCESS DEPOSIT @ 12% RENT PER SQ.FT INCLU DING INTRE ST ON DEPO SIT RENT AS PER THE MARKET RATES 1 TIPL(ANAND ESTATES FLAT NO.15 NO.189 A SANE GURUJI MARG CHINCHPOKLI MUMBAI-13 MAHALAKSHMI 3525 213000 2556000 60 12000000 2556000 1133280 87 65 - 85 2. TIPL (ELPHINSTONE CRICKET CLUB NO.17 M URZBAN ROAD FOURTH FLOOR FORT MUMBAI-1)- FORT 5000 617500 7410000 124 30000000 7410000 2710800 169 140 - 180 3. TIPL (USHA SADAN FLAT NO.9 A BLOCK COLOBA BOMBAY COLOBA 2000 10000 120000 5 3000000 120000 345600 19 40 - 8 4. TIPL(KSHITIJ FLAT NO.12 FIRST FLOOR 47 NAPEAN SEA ROAD MUMBAI-6 NAPEAN SEA ROAD 1700 15000 180000 9 8000000 180000 938400 55 16 5. TIPL (17 PUSA ROAD NEW DELHI 17) 8900 357500 4290000 40 10000000 4290000 685200 47 TOTAL 2112 5 121300 0 14556000 57 63000000 14556000 5813280 THIS CHART DEARLY SHOWS THAT EVEN WHEN INTEREST ON DEPOSIT TAKEN AT 12% IS CONSIDERED THEN RENT FOR VARIOUS PROPERTIES WORK S OUT TO RS. 87 169 19 55 AND RS.47 PER SQ. FT THIS IS COMPARABLE TO THE PREVAILING MARKET RATES AS REPORTED BY TWO INDEPEND ENT REAL ESTATE AGENTS AND SHOWN IN LAST COLUMN OF THE ABOVE CHART WHICH HAS NOT BEEN CONTROVERTED BEFORE US END THEREFORE THE DEPOSIT CANNOT BE HELD TO BE EXCESSIVE 31 . IN ANY CASE THE HON'BLE SUPREME COURT IN THE CASE O F S.A. BUILDERS (SUPRA) HAS OBSERVED AS UNDER :- TO CONSIDER WHETHER ONE SHOULD ALLOW DEDUCTION U/S 36(1)(III) OF INTEREST PAID BY THE ASSESSEE ON AMOUNTS BORROWED B Y IT FOR ADVANCING TO A SISTER CONCERN THE AUTHORITIES AND THE COURTS SHOULD EXAMINE THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY AND WHAT THE SISTER CONCERN DID WITH THE MONEY. TH AT THE BORROWED AMOUNT IS NOT UTILISED BY THE ASSESSEE IN ITS OWN BUSINESS BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN IS NOT RELEVANT. WHAT IS RELEVANT IS WHETHER THE AMOU NT WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPEDIENCY AND NOT FROM THE 17 POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR E ARNING PROFITS. ONCE IT IS ESTABLISHED THAT THERE WAS NEXU S BETWEEN THE EXPENDITURE AND PURPOSE OF BUSINESS [WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF] THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND AS SUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE C OMPELLED TO MAXIMIZE HIS PROFITS. IN THIS CASE CLEARLY DEPOSITS WERE MADE FOR TAKING THE PREMISES ON RENT WHICH MEANS THAT THE SAME WAS FOR BUSINESS EXPEDIEN CY 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(APPEAL S) ON THIS ISSUE AND DELETE THE DISALLOWANCE OF INTEREST ' 3. WE FIND THAT FOR THE YEARS BEFORE US ALSO THE F ACTS ARE IDENTICAL. THEREFORE RESPECTFULLY FOLLOWING THE OR DER OF THE TRIBUNAL CITED SUPRA WHEREIN THE TRIBUNAL HAS DELE TED THE DISALLOWANCE OF INTEREST FOR THESE YEARS ALSO WE DELETE THE DISALLOWANCE OF INTEREST HOLDING THAT THE DEPOSITS WERE MADE FOR 18 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 OF THE SE ACCOMMODATION. ACCORDINGLY WE UP HOLD THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE. HOWEVER AS REGARD SUST ENANCE OF PART OF DISALLOWANCE BY THE CIT(APPEALS) ON INTEREST TOWARD SO CALLED EXCESSIVE DEPOSIT WE ARE OF THE VIEW THAT THE SAME IS NOT JUSTIFIED. HENCE WE SET ASIDE THE ORDER OF THE CIT (APPEALS) ON THIS ISSUE AND DELETE THE DISALLOWANCE OF - INTEREST.' 3. ACCORDINGLY RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DECIDE BOTH THE ISSUES IN THE CROSS AP PEALS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . THE ORDER OF THE COMMISSIONER ' CA) QUA ISSUE RAISED IN THE APPEAL BY THE ASSESSEE IS S ET ASIDE AND THE ORDER OF THE COMMISSIONER ' CA) QUA ISSUED RAISED IN THE APPEAL BY THE REVENUE IS UPHELD. 6. RESPECTFULLY FOLLOWING THE ABOVE QUOTED ORDER OF THE TRIBUNAL WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS BOT H THE GROUNDS OF APPEAL OF THE REVENUE. 19 7. IN THE RESULT BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IMMEDIATELY AFT ER THE CONCLUSION OF HEARING ON 21 ST FEBRUARY 2012. SD/- SD/- ( GEORGE MATHAN ) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 21 ST FEBRUARY 2011. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE