2013 (12) TMI 828 - AT - Income Tax

Tribunal decisions on rent, commission, and deemed income additions emphasize fair hearings and proper investigations.

M/s. Deltronix India Limited Versus Asstt. Commissioner of Income Tax

M/s. Deltronix India Limited Versus Asstt. Commissioner of Income Tax - TMI Issues Involved:1. Disallowance of rent paid for guest house.2. Addition on account of commission paid.3. Addition on account of deemed income under section 2(22)(e) of the I.T. Act.Issue-Wise Detailed Analysis:1. Disallowance of Rent Paid for Guest House:The assessee company paid Rs. 36 lacs as rent to M/s Sonia & Co. Pvt. Ltd. for a guest house. The AO disallowed the entire amount, citing inadequate evidence of business use and potential personal use by the directors. The Ld. CIT(A) reduced the disallowance to 50%, allowing Rs. 18 lacs, based on the inadequacy of the AO's findings and the lack of a proper enquiry. The Tribunal found merit in the CIT(A)'s observation that the AO's reliance on an Inspector's report, which was based on hearsay, was insufficient. However, the Tribunal noted that the CIT(A) also did not conduct a proper enquiry. Consequently, the Tribunal remitted the matter back to the AO for fresh consideration, emphasizing the need for a thorough investigation and adequate opportunity for the assessee to be heard.2. Addition on Account of Commission Paid:The AO disallowed Rs. 46,90,790/- out of Rs. 1,17,26,976/- paid as commission to M/s Kayser India Pvt. Ltd., deeming it excessive. The Ld. CIT(A) deleted the addition, noting the long-standing business arrangement and the tripartite agreement involving technical and commercial services. The Tribunal upheld the CIT(A)'s decision, highlighting that the payments were consistent with the business arrangement and that both companies were in the same tax bracket, negating any revenue loss. The Tribunal found no basis for the AO's arbitrary 40% disallowance and affirmed the CIT(A)'s order.3. Addition on Account of Deemed Income Under Section 2(22)(e):The AO added Rs. 33,50,000/- as deemed dividend, arguing that the assessee received this amount from M/s Sonia & Co. Pvt. Ltd., where the directors held substantial shares. The Ld. CIT(A) deleted the addition, citing the lack of accumulated profits and the commercial nature of the advance. Additionally, the CIT(A) noted that the assessee was not a shareholder in the payor company, aligning with judicial precedents that deemed dividends can only be taxed if the recipient is a registered shareholder. The Tribunal upheld the CIT(A)'s decision, referencing the legal requirement for the recipient to be a shareholder for section 2(22)(e) to apply.Conclusion:The Tribunal allowed the assessee's appeal for statistical purposes and partly allowed the Revenue's appeal for statistical purposes, remanding the issue of rent disallowance for fresh consideration and upholding the CIT(A)'s decisions on commission payment and deemed income.