IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `G' BENCH
BEFORE SHRI A.N. PAHUJA, AM & SHRI C.M. GARG, JM
ITA no.3799/Del/2011
Assessment year: 2007-08
A.C.I.T.,Circle-7(1), V/s . M/s Saks Ancillaries Ltd.,
Room no.312, 3 r d Floor, F-7, Block B-1, MCIE,
C.R. Building, I.P. Estate, Mathura Road,
New Delhi New Delhi
[PAN : AAACS 9091 C ]
(Appellant) (Respondent)
Assessee by Shri Y.K. Sharma,AR
Revenue by Shri Satpal Singh, DR
Date of hearing 12-11-2012
Date of pronouncement 23-11-2012
ORDER
A.N.Pahuja:- This appeal filed on 09.08.2011 by the Revenue against an order
dated 31.05.2011 of the ld. CIT(A)-X, New Delhi, raises the following grounds:-
1. "The learned CIT(A) erred in law and on the facts and
circumstances of the case in deleting the addition of
`56,30,000/- made by the AO on account of disallowance of
rent paid.
2. The appellant craves to amend, modify, alter, add or forego
any ground of appeal at any time before or during the
hearing of this appeal."
2. Facts, in brief, as per relevant orders are that return declaring
income of ``70,41,343/- filed on 23rd October, 2007 by the assessee,
manufacturing wiring harness for automobiles, after being processed u/s 143(1)
of the Income-tax Act, 1961 (hereinafter referred to as the `Act'), was selected for
2 ITA No.3799/Del./2011
scrutiny with the service of a notice u/s 143(2) of the Act, issued on 15.09.2008.
During the course of assessment proceedings, the Assessing Officer (A.O. in
short) noticed that the assessee debited an amount of ``56,30,000/- on account
of rent. To a query by AO, the assessee replied that the rent was paid to M/s
Motherson Sumi Systems Ltd., the principal company of the assessee.In order to
ascertain the genuineness of the claim, the AO deputed his inspector for a status
report. The Inspector after recording statement of accountant of the assessee on
17.11.2009 submitted his report, mentioning that the premises was a three
storeyed building constructed on an approximate area of 40,000 sq. ft. and
appeared to be 10 years' old. The assessee was found in occupation of the first
and second floors on rental basis while the ground floor was occupied by M/s
Motherson Sumi Systems Ltd. As pointed out by the accountant in his
statement, there was no vacant land as claimed in the agreement. Based on the
inspectors' report, the AO observed that there being no shed space,whereon
the assessee carried on manufacturing activities or used for the purpose of
business and the assessee having used 1st & 2nd floor of the building, details in
the rent agreement were wrong. In the light of aforesaid report of the inspector
and averments made in the rent agreement, the AO further observed that a)
there never was any vacant land shed space as mentioned in the agreement and
b) there was no construction or alteration as stated by the accountant.
Accordingly while concluding that no such shed space which was vacant land,
as was referred to in the rent agreement, having been used by the assessee for
its business purposes, and the assessee having claimed that the rent was paid
for the use of the shed/vacant land and instead a three storeyed building was
constructed on the land, the AO disallowed the claim for payment of
``56,30,000/- for use of vacant shed space.
3. On appeal, the ld. CIT(A)after admitting additional evidence in the
light of report of the AO, allowed the claim of the assessee, in the following
terms:
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"2.2 Challenging the aforesaid action of the Assessing Officer,
the ARs have broadly submitted that the inspectors' report was not
confronted to the appellant, nor any show cause notice was issued to the
appellant before making the impugned addition. Hence, appellant filed an
application under rule 46A of the I.T. Rules, furnishing the following
documents in support of its claim that the payment of rent was genuine
and manufacturing operations of the appellant company have been going
on at the given rented premise:
i) Licence to work in the said premises as a factory issued
under Factories Act.
ii) Service Tax Registration certificate issued under Finance
Act, 1994.
iii) Central Excise Registration certificate issued in favour of the
appellant in the light of CBEC's Circular No.662/53/202-CX
dated 17.09.2009.
iv) Trade Tax registration issued under the UP Trade Tax Act,
1948.
v) Letter from the office of Assistant Commissioner Customs
and Central Excise to M/s Motherson Sumi Systems Ltd. to
exclude the area of premises from the registration number
which is used by Saks Ancillaries Ltd.
2.3 The aforesaid additional evidence was forwarded to the
Assessing Officer for comments. In reply, the Assessing Officer has
reiterated that in view of categorical report of the inspector, the additional
evidence now furnished in the form of registration certificates issued by
various authorities favour of the appellant company, showing its
manufacturing operations at the said address, cannot be relied upon.
Adjudication:
2.4 A copy of the said remand report has been made available to the
appellant company for its comments. In response to the same, the
appellant has furnished a written submission. Moreover, some further
details including the originals of various certificates mentioned in para 2.2
of this order, which were called for by .the undersigned, have also been
submitted. After having examined the entire material submitted vide
application under rule 46A and subsequently during the course of hearing
before me and the contents of the inspectors' report and the statement of
the company's accountant, Shri D.S. Rajpurohit, recorded by the
inspectors at the time of their visit, I proceed to determine the issue in the
following paras.
4 ITA No.3799/Del./2011
2.5 The appellant company is engaged in the business of manufacturing of
wiring harness for automobile sector. These items are used both in two
wheelers, three wheelers, cars, lorries etc. it is an OEM Supplier both
directly and through its principal shareholder and landlord M/s Motherson
Sumi Systems Ltd. Since October, 2001, it was having its manufacturing
operations at C-39, Sector 57, Noida wherein they had taken on rent
approx. floor space of 32000 sq. ft. Since the earlier rent agreement was
going to expire in 2006, and the appellant company needed additional
space, it entered into an agreement on 10-03-2006 for taking on lease an
area of approx. 42300 sq. ft. from M/s Motherson Sumi Systems Ltd,
which also happens to be one of the major shareholders of the appellant
company. Since M/s Motherson Sumi Systems Ltd was having some
vacant space in one of its own premises, the appellant company took on
lease 2 floors in the said premise (first and ground floor), covering approx.
42300 sq. ft. for its' manufacturing operations. Since place of
manufacturing got shifted from one premise to another, the appellant
company took fresh registration from the Central Excise Authorities. Vide
letter dated 10-03-2006, the Asstt. Commissioner (Central Excise),"
Division I, Noida has granted registration for the said rented premise (first
and second floor of C-6 & 7, Sector I, Noida). It is also pertinent to note
here that these two floors were earlier registered in the name of the
landlord i.e. M/s Motherson Sumi Systems Ltd with the Central Excise
Authorities and vide an Amendment Order dated 08-03-2006, the Asstt.
Commissioner of Customs & Excise, Noida allowed the landlord to
exclude these 2 floors from its registered premise. The appellant company
has also obtained 'a licence' u/s 6 of the Factories Act, 1948 from Director
of Factories, UP Govt. to operate from the said premises. In the said
licence, the address of the appellant company has been mentioned as 1st
and 2nd Floor, C-6 & 7, Sector I, Noida. Similarly, a registration under
U.P. Trade Tax Act has also been issued in favour of the impugned
address.
2.6. Another point to be kept in view is that payment of rent by the appellant to
M/s Motherson Sumi Systems Ltd is subjected to TDS u/s 194I of the IT.
Act. The appellant has produced a copy of the TDS certificate showing
proof of deduction of ``12,52,152/- from the rent paid by it to M/s
Motherson Sumi Systems Ltd. The credit for this TDS amount has in turn
been claimed and rental income has been offered to tax by the landlord
company. A copy of the return of income of M/s Motherson Sumi Systems
Ltd for A.Y. 2007-08, disclosing returned income of ``94.84 crores has
been filed. From this evidence, it was impressed upon me that when the
landlord company was having returned income more than ``94 crores and
the appellant company was having returned income of more than `70
lacs, there would not be any intention to claim any bogus expense in the
form of rent since both 'companies are liable to pay tax at the same rate.
This argument has merit and in order to examine the genuineness of this
5 ITA No.3799/Del./2011
claim of TDS deduction, Form NO.26AS of the landlord company i.e. M/s
Motherson Sumi Systems Ltd was seen from the Income Tax
Department's website incometaxindiaefiling.gov.in in my presence and it
was found that the appellant company has deducted the TDS and credit
for the same has been taken by the landlord company.
2.7. In the light of this over-whelming evidence, I have weighed the evidentiary
value of the Inspectors' Report, on which heavy reliance has been placed
by the A.O. The Inspectors' Report in turn also relied upon the statement
of Shri D.S. Rajpurohit, the accountant of the appellant company, who was
himself available at the said premise during the time when the place was
visited by the Inspectors of the Department. There is no doubt that Shri
D.S. Rajpurohit in his statement has confirmed that the industrial shed of
43000 sq. ft. located on first and second floors of Plot No. C-6-7, Sector-I,
Noida has indeed been taken on rent for use by the appellant company.
The misunderstanding has been aroused in the minds of the Inspectors
and' consequently in the mind of the Assessing Officer because they
presumed the meaning of the words "shed space lying vacant" to be
"vacant land". This misunderstanding was probably caused because they
went by the literary meaning without looking at the popular usage of the
word by people' in the area', According to the Ld. ARs, the words "shed
space lying vacant" was used in the rent agreement because the place
which was taken on rent was actually an industrial shed, but not a vacant
land. On the face of it, there is no reason to disbelieve the meaning'
assigned to these words by the parties to the agreement. While construing
the meaning of any agreement, the interpretation put on the same by the
parties concerned, has reliance and the fact that both of them acted on the
same agreement, would show that it was indeed an "industrial shed" which
was leased out to the appellant company.
2.8 Further, if we look at the statement of the accountant of the appellant
company recorded during the course of visit by the inspectors, it is evident
that there is a confirmation from his side as well as that appellant
company has taken two floors of the said premise on rent. There is no
denial from his side. The inspectors' report appears to be only indulging in
hair-splitting over the meaning of the words "shed space lying vacant". As
noted earlier, there is a plethora of evidence to prove that there was
vacant industrial shed of 43000 sq. ft. approx. available for letting out.
The other contention of the Assessing Officer that it was a collusive
arrangement to evade tax, has also fallen flat in the light of evidence
available proving that both the companies were paying taxes in the
relevant assessment year and there has been no saving of tax in either
hands. Accordingly, the appellant succeeds on this ground and addition
on account of rent payment made by the Assessing Officer is directed to
be deleted."
6 ITA No.3799/Del./2011
4. The Revenue is now in appeal before us against the aforesaid
findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld.
AR on behalf of the assessee relied upon the findings in the impugned order.
5. We have heard both the parties and gone through the facts of the
case. Indisputably, and as pointed out by the ld. CIT(A), the assessee had its
manufacturing operations in the 1st & 2nd floor of the building on plot C-6 & 7,
Sector-1, Noida in the rented premises having area of about 42,000 sq. ft. of
shed space in terms of an agreement entered on 10-03-2006 with M/s
Motherson Sumi Systems Ltd.. On the basis of registration with the Central
Excise Authorities and license from Director of Factories, UP as also the fact that
the assessee as well as M/s Motherson Sumi Systems Ltd were assessed in the
same tax bracket and the assessee company deducted tax at source , the ld.
CIT(A) observed that the misunderstanding aroused in the minds of the
Inspector and the AO because they presumed the meaning of the words "shed
space lying vacant" to be "vacant land". Since "industrial shed" indeed was
leased out to the assessee company, which was used for the purpose of
business of the assessee, the ld. CIT(A) allowed the claim for deduction of rent.
In view of the foregoing, especially when the Revenue have not placed before us
any material, controverting the aforesaid findings of facts recorded by the ld.
CIT(A),so as to enable us to take a different view in the matter, there is no basis
to interfere. Consequently, ground no.1 in the appeal is dismissed.
6.. No additional ground having been raised in term of residuary
ground no.2 in the appeal, accordingly this ground is also dismissed.
7. No other plea or argument was made before us.
7 ITA No.3799/Del./2011
8. In the result, appeal is dismissed.
Order pronounced in open Court
Sd/- Sd/-
(C.M. GARG) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Assessee
2. A.C.I.T.,Circle-7(1), Room no.312, 3 r d Floor, C.R. Building, I.P.
Estate,New Delhi
3. CIT concerned.
4. CIT(A)-X, New Delhi
5. DR, ITAT, 'G' Bench, New Delhi
6. Guard File.
By Order,
Deputy/Asstt.Registrar
ITAT, Delhi
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