TaxTMI 
TaxTMI 
2014 (9) TMI 204
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....as a search action u/s. 132 of the Act in the case of the assessee on 2.9.2012. In view of the provisions of section 153A of the Act, notices were issued by the AO to assess/reassess the total income of six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted. In the course of assessment proceedings for the A.Y. 2007-08 to 2010-11, the AO noticed that the assessee had declared income from business, which also included income from letting out of commercial complex at Madivala, which the assessee had taken on lease from BBMP. As already stated, the assessee was in regular business of trading in jewellery. The assessee entered into a lease agreement with BMP on 18.11.2005 in respect of the premises known as Madivala Commercial Plaza, Bangalore. The lease was for a period of 30 years from 18.11.2005. The rents payable for the lease was to be paid in quarterly rests, starting from November, 2005. The rents payable for the period from Nov. 2005 to May, 2007 has some bearing on the case and the same is set out in the lease deed dated 18.11.2005 in Schedule 2 as follows:- Sr.No. Concession payment Concession Payment Amou....
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....p; Assessment Year 2007-08 2008-09 2009-10 2010-11 2011-12 Rent as per original Lease deed 2,86,59,000 3,00,91,950 3,15,56,548 3,31,76,376 3,48,35,194 Rent as per Revised deed 2,93,22,842 3,19,24,476 3,50,91,548 3,66,71,376 3,83,30,194 8. Though the sub-lease of the premises was to commence from 1.3.2006, the payment of rent was to commence only from the month of Apr. 2007. To this effect, there was an agreement between the assessee and KPPL dated 24.3.2006. Therefore, for the A.Y. 2007-08, the assessee did not receive any rent from KPPL from the tenant. 9. The AO after analyzing the transactions found that the rents paid by the assessee to BBMP was much greater than the rent that it received from KPPL for the very same property. In this regard, the AO has drawn the following chart:- A.Y. (1) Concession payment amount payable/paid to BBMP (Rs) (2) Receivable/received from KPPL A.Y. (1) Concession payment amount payable/paid to BBMP (Rs) (2) Receivable/received from KPPL a....
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....22.15 7.8 22.15 7.8 17.12 0.4 22 7.8 17.12 0.04 DCPL - - - - - - 24.69 74.5 - - 24.69 74.5 Total of the above persons 88.60 31.00 88.60 31.00 88.60 31.00 90.71 76.10 88 31.00 90.71 76.10 DJPL: DAVANAM JEWELLERS PRIVATE LTD. KPPL: KAUSTHUBHA PROJECTS PVT LTD. DCPL: DAVANAM CONSTRUCTIONS PRIVATE LTD. 11. From the above share holding pattern, the AO was of the view that the Assessee and the sub-tenant were related parties. The transaction of sub-lease was not at arm's length. The AO also noticed that the total income of KPPL from 2007-08 to 2011-12 was as given below: A.Y. Total Income 2007-08 (-) 565662 2008-09 17610100 2009-10 18372970 2010-11 (-) 9658516 2011-12 Nil The AO observed that except for the Assessment years 2008-09 and 2009- 10, KPPL has reported losses. The losses are on account of various other transactions including huge cost on borrowals which have been used for various other projects/investments. If the lease of Madiw....
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....s. 28 crores. Pursuant to an agreement with Mr D K Shivakumar and Mr D K Kempegowda, the Company has passed on the liabilities to the extent of CTS-2 (69% and 10%) of the respective shares in favour of Mr D K Shivakumar and Mr D Kempegowda respectively on the understanding that the said Demand Loan will be repaid by them. Consequently, the company has accounted interest attributable to its share alone. In the event of the aforesaid parties do not dear the liability, the company is liable to pay the same." This dearly establishes the relationship between the appellant group of cases with Sri D K Shivakumar as asserted by the Assessing Officer. 9. During the course of appeal, the appellant has not been able to contradict the findings of the Assessing Officer. Also. the appellant has not been able to show before me that the Concession Agreement entered into with BBMP was for a business purpose. There is no evidence on record to suggest that after obtaining lease for Madivala Commercial Complex from BBMP, the appellant tried to use the same for its own business or made an effort to further lease it out for profit either through advertisement ....
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....de ought to be quashed. 16. It was pointed out that fixing a sub-tenant on good terms and conditions would involve considerable time which again will result in the Assessee loosing rents for the period interregnum. The rent paid by the sub-tenant was much more than what the Assessee had to pay BMP as rent. It was also pointed out that as per the terms of sub-lease with KPPL, the Assessee was entitled on a year on year basis, increase of 5% on the lease rentals which is at par with the industry norms. It was also pointed out that the Assessee received a security deposit of Rupees four crores from KPPL. In contrast, the Assessee was not required to pay any security deposit to the BMP. Considering the above, it was argued that one could safely conclude that sub-leasing the property to KPPL not only made business sense but was also at par with the industry norms. Therefore, the argument of the Ld. AO that the deed was entered into so as to favour the Assessee's sister concern is not correct and is contrary to facts on record. 17. The ld. DR placed strong reliance on the order of the AO/CIT(A). 18. We have considered the rival submissions. At the outset it needs to be emphasize....
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....ction was commercially not a viable transaction and ought not to have been entered into by the Assessee. Admittedly the rent paid by the sub-tenant was much more than what the Assessee had to pay BMP as rent. Even going by the parameters laid down in Sec.40A(2)(a) of the Act, the rent paid by the Assessee to BMP would be comparable transaction with a third party and since the rent paid by KPPL is much more than the rent paid by the Assessee to BMP, the arm's length price test has to be considered as having been satisfied. As per the terms of sub-lease with KPPL, the Assessee was entitled on a year on year basis, increase of 5% on the lease rentals. The Assessee received a security deposit of Rupees four crores from KPPL. In contrast, the Assessee was not required to pay any security deposit to the BMP. All the above factors have been totally ignored by the Revenue authorities. Considering the above circumstances, it can be said that there is nothing on record to suggest that sub-leasing the property to KPPL did not make business sense. Therefore, the conclusion of the revenue authorities that the deed was entered into so as to favour the Assessee's sister concern is not correct. ....