2023 (2) TMI 200 - AT - Income Tax

Tribunal limits tax to excess rent, not entire surplus income. Consistency with past assessments upheld.

The Tribunal partly allowed the Assessee's appeal, directing the AO to tax only the excess rent of Rs. 3,57,074/- and not the entire surplus income. The ... Exemption u/s 11 - invoking the provisions of section 13(1)(d) was that the interest free security deposit was given to the family trust along-with lease rent paid for land taken on lease for the family trust - HELD THAT:- In A.Y. 2014-15[2019 (10) TMI 1545 - ITAT CHANDIGARH].and A.Y. 2015-16 & 2016-17 [2021 (9) TMI 1472 - ITAT CHANDIGARH] we find that under identical facts and circumstances of the case, the AO has determined the impugned transaction of payment of rent to M/s. Lala Daswandi Ram Family Trust as covered under section 13(1)(c) r/w 13(3) of the Act and has worked out excess rent and the same has only been brought to tax. During the course of hearing, AR has also raised alternate contention that the aforesaid findings of the AO for A.Y. 2014-15 and A.Y. 2015-16, which are not under challenge by either of the parties, may be followed for the impugned assessment year and only excess rent may be brought to tax in the hands of the assessee and whole of the surplus cannot be brought to tax. As submitted by the Ld. AR that the same is acceptable to the assessee and the assessee has no objection where the same is directed to be followed for the impugned assessment year.DR has also not raised any objection where the said findings are followed in the instant case. Therefore, AO is directed to tax the excess rent so computed and bring the same to tax as per provisions of section 13(1)(c) r/w 13(3) of the Act and the remaining addition is hereby directed to be deleted. Appeal of the assessee is partly allowed. Issues Involved:1. Validity of the orders of the Ld. CIT(A) and Ld. DCIT.2. Denial of exemption under section 11 of the Income Tax Act, 1961.3. Justification of rent and security deposit payments to the family trust.4. Application of provisions of section 13(1)(c) read with section 13(3) of the IT Act, 1961.5. Taxability of the surplus income of Rs. 1,84,88,454/-.6. Consistency with past assessments and market rate considerations.7. Applicability of section 164(2) for taxing disallowed amounts.Detailed Analysis:1. Validity of Orders:The Assessee contended that the orders of the Ld. CIT(A) and Ld. DCIT were against the facts of the case and untenable under the law. The Ld. CIT(A) was criticized for merely relying on the DCIT's order without independent reasoning, making the order liable to be canceled as bad in the eyes of the law.2. Denial of Exemption under Section 11:The Assessee argued that the exemption under section 11 was wrongly denied by the Ld. DCIT(E) and confirmed by the Ld. CIT(A). The Assessee society, engaged in educational activities and registered under section 12A, claimed that the denial was unjustified.3. Justification of Rent and Security Deposit Payments:The Assessee provided a comparative chart showing that the rent and security deposit paid to the family trust were reasonable and consistent with past history. The market value of the leased land was significantly higher than the rent paid, supported by a registered valuer's certificate. The Assessee argued that the payments were below the market rate and reasonable for such a prime location.4. Application of Provisions of Section 13(1)(c) and 13(3):The Assessee contended that the provisions of section 13(1)(c) read with section 13(3) were not applicable, citing the Gujarat High Court decision in CIT vs. Bholaram Educational Society, which was upheld by the Supreme Court. The Assessee also referenced similar cases where the ITAT, Chandigarh Bench had ruled in favor of the Assessee under similar circumstances.5. Taxability of Surplus Income:The Assessee argued that the entire surplus of Rs. 1,84,88,454/- should not be taxed. Instead, if any disallowance was to be made, only the excess payment should be taxed at the maximum marginal rate as per section 164(2). The Assessee cited past assessment orders where only the excess rent was disallowed and taxed, not the entire surplus.6. Consistency with Past Assessments and Market Rate Considerations:The Assessee provided historical data showing consistent rent payments over the years, which were accepted by the department in several assessment years. The Assessee argued that the rent increases were reasonable and in line with market rates, and any excess payment should be treated similarly to past assessments.7. Applicability of Section 164(2):The Assessee argued that if any disallowance was made, it should be limited to the excess payment, which should be taxed at the maximum marginal rate under section 164(2). The Assessee emphasized that the entire surplus should not be added back to the income.Tribunal's Decision:The Tribunal noted that in previous assessment years (2014-15 and 2015-16), the AO had determined excess rent and only brought that excess to tax, not the entire surplus. The Assessee agreed to follow the same approach for the current year. The Tribunal directed the AO to tax the excess rent of Rs. 3,57,074/- as per section 13(1)(c) read with section 13(3) and delete the remaining addition.Conclusion:The appeal of the Assessee was partly allowed, with the Tribunal directing the AO to tax only the excess rent and not the entire surplus income. The decision emphasized consistency with past assessments and reasonable application of the law.