2015 (4) TMI 867 - AT - Income Tax

Revenue appeal allowed for fresh adjudication on commission payment & lease rent deletion. Assessee must provide detailed evidence.

The Revenue's appeal was allowed for statistical purposes, with the primary issues of deletion of disallowance of commission payment and addition of lease ... Dis-allowance of commission payment - Dis-allowance of rent on DG set - Held that:- The Revenue had filed an appeal against the order of ld.CIT(A) in AY 2006-07 in ITA No.261/Ahd/2010 [2012 (11) TMI 160 - ITAT, AHMEDABAD], wherein identical ground raised by the Revenue was allowed for statistical purposes by restoring the issue back to the file of AO for decision afresh. The facts are identical in this year as well and the ld.CIT(A) has followed the order of his predecessor which has been set aside by the Coordinate Bench.Therefore, this ground of Revenue’s appeal is also restored to the file of AO to decide it afresh in the light of the direction given by the Coordinate Bench in ITA No.261/Ahd/2010 [2012 (11) TMI 160 - ITAT, AHMEDABAD]. Thus, ground Nos.1 & 1.2 of Revenue’s appeal are allowed for statistical purposes. The Assessing Officer has thought it proper to decide the percentage of disallowance on the basis of the expected annual return on such investment. We, however, clarify that in no circumstance the disallowance as made by the Assessing Officer should be enhanced while we are restoring this ground back to the stage of the Assessing Officer with the direction that the assessee shall place on record the basic requirement of business necessity for taking on hire the impugned DG set. With these remarks this ground is restored back to the file of Assessing Officer for De novo decision. Therefore, for this year also, this issue is also restored to the file of AO for decision afresh. The AO is hereby directed to decide this issue in the light of the direction by the Coordinate Bench in ITA No.261/Ahd/2010 [2012 (11) TMI 160 - ITAT, AHMEDABAD]. Thus, ground Nos.2 & 2.2 of Revenue’s appeal are allowed for statistical purposes. - Decided partly in favour of revenue. Issues Involved:1. Deletion of disallowance of Rs. 27,46,569/- made by the AO on account of commission payment to M/s. Nakoda Enterprises.2. Deletion of addition of Rs. 18,00,000/- made by the AO on account of disallowance of lease rent of DG Set.Issue-wise Detailed Analysis:1. Deletion of Disallowance of Rs. 27,46,569/- on Account of Commission Payment to M/s. Nakoda Enterprises:The Revenue challenged the deletion of disallowance of Rs. 27,46,569/- made by the AO on account of commission payment to M/s. Nakoda Enterprises. The CIT(A) had followed the order of his predecessor for AY 2006-07, which was not accepted by the department and was subjudice before the Tribunal. The CIT(A) had concluded that the commission payment was genuine and for business purposes, based on the evidence provided by the assessee, including statements from Smt. Roopam Mardia and confirmations from purchasing parties. The AO's disallowance was deemed unsupported by evidence.The Tribunal noted that the identical issue was decided in the assessee's favor in AY 2006-07, but the matter was restored to the AO for fresh decision. The Tribunal reiterated the necessity for the assessee to establish the genuineness of the commission payment by providing detailed evidence, such as the actual expenditure, mode and dates of payment, basis of payment, relationship between the principal and agent, and the necessity of the expenditure for business purposes. Consequently, the Tribunal restored the issue to the AO for a fresh decision, following the directions given in the earlier order.2. Deletion of Addition of Rs. 18,00,000/- on Account of Disallowance of Lease Rent of DG Set:The Revenue also contested the deletion of the addition of Rs. 18,00,000/- made by the AO on account of disallowance of lease rent of DG Set. The CIT(A) had followed the decision of his predecessor for AY 2006-07, who had deleted the addition, concluding that the lease rent was justified and incurred for business purposes. The CIT(A) found that the AO had not provided any additional evidence to substantiate the disallowance.The Tribunal observed that the identical issue was raised in AY 2006-07 and restored to the AO for a fresh decision. The Tribunal emphasized the need for the assessee to demonstrate the business necessity for hiring the DG Set, including evidence of electricity failures and the impact on business operations. The Tribunal clarified that the AO's partial disallowance was covered under section 37 of the IT Act, which allows only expenditures wholly and exclusively for business purposes. The Tribunal restored the issue to the AO for a de novo decision, directing the AO to evaluate the business necessity and the fairness of the transaction.General Grounds:Ground Nos. 3 & 4 were deemed general in nature and required no independent adjudication.Conclusion:The appeal of the Revenue was allowed for statistical purposes, with both primary issues being restored to the AO for fresh adjudication following the directions provided by the Tribunal. The order was pronounced in the Court on April 10, 2015, at Ahmedabad.