DY CIT Vs. HINDUJA GROUP INDIA LTD
LAWS(IT)-2008-1-29
INCOME TAX APPELLATE TRIBUNAL
Decided on January 30,2008

Appellant
VERSUS
Respondents

JUDGEMENT

A.K. Garodia, A.M. - (1.) THIS is an appeal by the revenue and cross-objection by the assessee directed against the order of learned Commissioner (Appeals)-XXVI, Mumbai dated 30-8-2004 for assessment year 2001-02. For the sake of convenience, both are being disposed off by this common order.
(2.) Briefly stated, the facts are that the assessee is in the business of management consultancy and is a part of the Hinduja Group of Companies. During this assessment year, the assessee has paid Rs. 1,39,83,840 to M/s. Aasia Management & Consultancy Pvt. Ltd. and M/s. Aasia Corporation being the rent and compensation for 12 months for an area of 4980 square feet. The total payment to Aasia Management & Consultancy Pvt. Ltd. was at the rate of Rs. 209 per square feet per month for occupied area of 2000 square feet; and the payment to Aasia Corporation was at the rate of Rs. 207 per square feet per month for occupied area of 2980 square feet. It is noted by the assessing officer in the assessment order that the two companies ie. Aasia Management & Consultancy Pvt. Ltd. and Aasia Corporation to which, rent was paid are the sister concerns of the assessee within the meaning of Section 40A(2)(b). Enquiries were conducted by the assessing officer during the assessment proceedings for assessment year 1998-99 in order to ascertain the correct market rate in the area of Dr. Annie Besant Road, Worli. Enquiries revealed that the market rate of rent in the area of assessee building varied from Rs. 25 to Rs. 90 per square feet per month. During the assessment year 1998-99, the assessing officer after detailed reason accepted the fair value of rent at Rs. 160 per square feet and disallowed the rent at the rate of Rs. 49 per square feet per month. The said disallowances have been upheld by learned Commissioner (Appeals) and the Tribunal also in that year. During the assessment proceedings for the current year also, the assessing officer felt that the rent was excessive and unreasonable and the assessee was asked that, why not the excess amount be disallowed. It was submitted by the assessee before the assessing officer that in assessment year 1998-99, the assessing officer followed the rate given by the assessee on the basis of comparable rate in the building 'Sarjan Plaza' of Rs. 153 per square feet, which is adjacent to the building of the assessee at Worli. It is also submitted that the assessing officer in that year, allowed rent payment of Rs. 160 per square feet per month and disallowed the balance of Rs. 49 per square feet per month. It was also submitted that, however, the assessing officer did not give the assessee any benefit for the fact that the assessee has not paid any deposit for taking the premises and did not accept the contention that interest factor on the deposit not paid by the assessee should be taken into account while fixing the rate at which the rent paid by the assessee should be reasonable. Various other contentions were raised; but the assessing officer decided the issue against the assessee. It is noted by the assessing officer on page Nos. 3 and 4 of the assessment order that the assessee's case can also be compared with the agreement dated 8-8-2000 between M/s. Musheer Finlease and Investments Pvt. Ltd. and M/s. Turner International India Pvt. Ltd., which has been called for during the assessment proceedings of M/s. Musheer Finlease and Investments Pvt. Ltd. for assessment year 2001-02. It is noted by the assessing officer that the case was assessed by the same assessing officer and as per this agreement, M/s. Musheer Finlease and Investments Pvt. Ltd. has leased out the premises on second floor of the same 'Sarjan Plaza' at the rate of Rs. 160 per square feet per month. The assessing officer came to the conclusion that the fair market value of rent was of Rs. 160 per square feet per month; and accordingly, he disallowed the excess rent payment to M/s. Aasia Management & Consultancy P. Ltd. at the rate of Rs. 49 per square feet per month and at the rate of Rs. 47 per square feet per month for the rent paid to M/s. Aasia Corporation. 2.1 The assessee carried the matter in appeal before learned Commissioner (Appeals), who decided the issue partly in favour of the assessee and it was held by him that the rent paid at the rate of Rs. 193 per square feet per month should be considered as fair market value of rent and accordingly, he confirmed the disallowance to the extent of Rs. 8,84,630 as against the disallowance made by the assessing officer of Rs. 28,46,720. 2.2 Now, the assessee is in appeal by way of cross-objection against the disallowance upheld by learned Commissioner (Appeals) and the revenue is in appeal against the disallowance deleted by learned Commissioner (Appeals). It is submitted by learned Departmental Representative of the revenue that in assessment year 1998-99, similar issue is decided against the assessee by the Tribunal as per ITA No. 298/Mum./2002, dated 9-11-2004, copy of which is appearing on page Nos. 17 to 19 of the paper book. It is submitted that since, similar issue was decided by the Tribunal against the assessee, in the present year also, the order of learned Commissioner (Appeals) should be set aside and the order of the assessing officer should be restored. It is also submitted by him that learned Commissioner (Appeals) has decided the issue partly in favour of the assessee on the basis of newspaper cutting of the paper 'Economic Times' as appearing on page No. 14 of the paper book, in which, it is reported that prevailing rate of rent in the building 'Sarjan Plaza' at Worli is Rs. 193 per square feet per month. It is submitted that there is no date mentioned in this newspaper cutting; and hence, it is not clear as to whether the rate referred to by this newspaper cutting is for the relevant period of financial year 2000-01 or for the period when this newspaper cutting was furnished to the assessing officer in the year, 2003. It is submitted that in the absence of date in this newspaper, the same cannot be relied upon; and hence, order of the assessing officer should be upheld.
(3.) AS against this, it is submitted by learned Authorised Representative of the assessee that apart from comparable rate in other nearby building, other factors should also be taken into account while deciding the issue as to what should be fair rent in the present case. It is submitted by him that this is a group building and only concerns of Hinduja Group are provided the space in this building and there is no outsider in this building. It is submitted that this is very big plus point for the assessee-company to have office in this building because it is easy to operate from this building because offices of all group concerns are in the same building. It is also submitted by him that this building is well maintained and having various facilities; and therefore, rent is bound to be higher. It is also submitted that merely because the Tribunal has decided the issue against the assessee in assessment year 1998-99, in the present year also, the issue cannot be decided on that basis alone and it has to be examined afresh as to whether rent paid by the assessee in the present year is higher than the fair market value in the similar building because rent is being paid by the assessee at the same rate, ie. Rs. 207/209 per square feet per month; whereas, market rate of rent has gone up during this period. It was also submitted that the legitimate need of the business is also an aspect to be considered while determining as to whether the rent paid by the assessee is in excess of fair market value of rent. It is also submitted that in the written submission filed before learned Commissioner (Appeals) as appearing on page Nos. 1 to 8 of the paper book, it was pointed out that CBDT Circular dated 6-7-1968 should also be considered. Our attention was drawn to page No. 5 of the paper book, where it is submitted before learned Commissioner (Appeals) that as per this Board Circular dated 6-7-1968, when provisions of Section 40A(2) are invoked, the authority is expected to exercise his Judgement in a reasonable and fair manner bearing in mind that the provisions are meant to check evasion of tax, and should not be applied in a manner which will cause hardship in bona fide cases. It is pointed that in the present case, rent is being paid by the assessee-company to two group concerns and both these concerns are paying taxes at the same rate i e. at the rate of 35 per cent plus surcharge at the rate of 13 per cent. It is submitted that the assessment order for assessment year 2001-02 in the case of M/s. Aasia Management & Consultancy Pvt. Ltd. is appearing on page No. 22 of the paper book and as per the same, total assessed income of this company is Rs. 403.34 lakhs, on which, tax of Rs. 159.52 lakhs was paid. Regarding the other concern le. M/s. Aasia Corporation, it is submitted that there was taxable income of Rs. 81.15 lakhs during this year before set off of brought forward loss; and hence, it cannot be said that any high rent was paid by the assessee-company for tax evasion. It is also submitted that the same rent was paid by the other group company and there is no disallowance in that case ie. Hinduja TMT Ltd. (formerly known as Hinduja Finance Corporation Ltd.). He submitted a copy of the assessment order dated 12-3-2004 of that company for the same assessment year; and it was pointed out that there was no disallowance under Section 40A(2)(&) in that case. It is also submitted that in the present year also, the assessing officer has relied on instance of rent in the case of M/s. Musheer Finlease and Investments Pvt. Ltd. and M/s. Turner International India Pvt. Ltd.; but the assessing officer has not provided the assessee, a copy of agreement in this case to show that whether any deposit was given by that party. Reliance was placed on the Tribunal Judgment in the case of S.K. Engg. v. Jt. CIT(2006 j 103 ITD 97 (Bang) in support of this contention that the onus lies upon the assessing officer to prove that the payment is excessive or unreasonable having regard to fair market value of goods or legitimate needs of business. It is also submitted that, in this Tribunal order, the Tribunal has held that the reasonableness of any expenditure is to be seen from the point of view of the businessman and not from the view point of the revenue authorities.;


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