2020 (11) TMI 942

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....e or unreasonable by the authorities below by citing any comparable rates. 2. BECAUSE, on the facts and in the circumstances of the case, the impugned order passed by the Ld. CIT (A), confirming the illegal addition made by the AO for Rs. 6,26,811/-, is further unsustainable in law since there is no material cited or brought on record by any of the authorities below that the expenditure incurred by the assessee is not for the purpose of his business. It is judicially settled that Revenue authorities cannot sit in judgment over the business acumen of an assessee s as to decide upon the commercial/business expediency or relevancy of expenditure. The observations made by the AO, as confirmed by the Ld. CIT{A), to the effect that enhanced Rent expenditure is without business expediency and constituting the foundation for the instant addition are extraneous to record, without material and wholly unwarranted. 3. RECAUSE, on the facts and in the Circumstances of the case, the impugned order passed by the Ld. CIT (A), confirming the illegal addition made by the AO for Rs. 6,26,811/-, is further unsustainable in law since the Revenue has itself accepted expenditure under the head "....

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....tion u/s 139(1) of the Income Tax Act on 30.09.2013 declaring total income of Rs. 23,10,440/-. During the course of scrutiny assessment, the AO noted that the assessee has paid rent for various godowns/shops amounting to Rs. 21,00,000/- to the persons specified u/s 40A(2) of the Income Tax Act. The AO has made a disallowance of Rs. 6,26,811/- on account of the excess rent paid to the related party by invoking the provision of section 40A(2)(b) of the of the Income Tax Act. The AO has compared the rent paid by the assessee in the preceding year and found that the rent paid by the assessee for the year under consideration which is more than the reasonable enhancement of 10% is not allowable being excess payment in comparison to the fair market price. The assessee challenged the action of the AO before the CIT(A) but could not succeed. 3. Before the Tribunal, the ld. AR of the assessee has submitted that the details of the rent paid by the assessee during the year are reproduced by the AO in the assessment order and therefore, the recipient at Serial no.(i) and (iii) i.e. Alka Bajaj, sister-in-law and Preeti Bajaj, sister-in-law do not fall in the definition of relative as provided....

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....ke for the year under consideration which is very reasonable and justified. He has relied upon the orders of the authorities below. 5. Having considered the rival submissions as well as the relevant materials on record, it is noted that during the year under consideration the assessee has paid rent to various persons as under: S. No. of the Land Lord Address of thebuilding[Proof w.r.t.Ownership annexed] Use of space in the business Amount TDS deducted TDS returns Annexed] Relation Area in Sq. Feet (approx.) 1 Alka Bajaj 1172/1/778, Mutthiganj, Allahabad Godown 3,00,000=00 30,000=00 Sister-in law 1920 2 Kamla Devi Bajaj 34-A (Old)/36/46 (New),Chak, ZeroRoad, Allahabad Shop and controlling office 4,50,000=00 45,000=00 Mother 2393 3 Preeti Bajaj 667/525, Nai Basti, Kydganj, Allahabad Godown 4,50,000==00 45,000= 00 Sister-in law 3744 4 Rajeev Bajaj 61/32, Ram Bagh, Allahabad Godown 4,50,000=00 45,000=00 Brother 2981 5 Varsha Bajaj 658/517, Nai Basti, Allahabad Godown 4,50,000=00 45,000=00 Wife 2926 6. The ld. counsel for the assessee has ....

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....ct of transaction of payment of rent to Alka Bajaj and Preeti Bajaj who are not falling in the definition in term of 'relative' provided u/s 2(41) of the Income Tax Act. 8. As regards the issue of excess /unreasonable payment to the specified person, it is evident from the assessment order that the AO has made a disallowance on the basis of comparative rent paid by the assessee in the preceding year and in the year under consideration without determining the fair market rent of the properties in question. It is settled proposition of law that in order to make a disallowance u/s 40A(2)(b), the AO has to first determine the fair market value/price and then compare the same with the actual expenditure incurred and payment made by the assessee to the specified person. In case, the payment made by the assessee to the specified person is excessive and unreasonable having regard to the fair market value/price, the amount found to be excess or unreasonable is liable to be disallowed u/s 40A(2) of the Income Tax Act. Therefore it is pre-condition for making the disallowance u/s 40A(2) that the AO has to arrive to the conclusion that the amount paid by the assessee is excessive or unreaso....

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....ct and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate need of the business or profession of the assessee shall be disallowed. 19. In the present case, having regard to the facts and circumstances referred to hereinabove, the Tribunal has arrived to a conclusion that the Assessing Officer has failed to prove by any comparable case or comparison by market rate that the amount paid by the assessee was excessive or unreasonable. The finding of the Tribunal is finding of fact. On the enquiry the Inspector found that the premise was in occupation and use of the assessee and the claim of the rent was not false. The Tribunal found that the assessee has paid the actual rent and reimbursed the actual expenditure incurred by M/s. MRL. We are of the view that the finding of the Tribunal is finding of fact, based on material on record and cannot be said to be perverse. The order of the Tribunal, in this regard, is liable to be upheld." 9. Thus once the transaction of payment of rent is not found to be bogus or inge....