MIDWEST GRANITE PRIVATE LIMITED,HYDERABAD vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD

The assessee has raised seven grounds in its appeal however, the crux of the issue is that:-

The brief facts of the case are that the assessee is a Private Limited company engaged in the business of manufacturing and sale of Granite / Marble blocks etc., filed its return of income on 2911/2013. Thereafter, the case was taken up for scrutiny and the assessment was completed vide order dated 22/3/2016 wherein the Ld. A.O. made addition of Rs. 63,25,982/- being the disallowance of expenditure incurred towards rent of office premises and office maintenance charges. On appeal, the Ld. CIT(A) partially sustained the addition by estimating the disallowance @ 50% of the total expenditure incurred towards rent paid for office premises and office maintenance expenses. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

During the course of assessment proceedings, it was observed by the Ld. A.O. that the assessee had debited the amount of Rs. 68,53,148/- towards rent for office premises and Rs. 9,85,874/- towards office maintenance charges aggregating to Rs. 78,39,022/-. The Ld. A.O. further observed that the assessee’s 13 sister companies were also operating from the same premises. Therefore, the Ld. A.O. was of the view that the aggregate expenditure incurred towards office rent and office maintenance charges should be apportioned amongst all the companies operating from the same premises. However, the contention of the assessee was that all the assessee’s sister concerns were non- operational and even if there were some activities carried out, they were minimal. It was therefore contended by the assessee that the apportionment of the expenses would not be appropriate. However, the Ld. A.O. rejected the submissions of the Ld. AR and computed the assessee’s share of expenditure at Rs. 5,59,930/-. Accordingly, he disallowed the amount of Rs. 63,25,982/- as allowable expenditure in the hands of the assessee. On appeal, the Ld. CIT(A) was of the view that 50% of the office rent and office maintenance charges has to be allowed as deduction in the case of the assessee by observing as under:-

Before us, the Ld. AR reiterated the submissions made before the Learned Revenue Authorities and argued by stating that all the assessee’s sister concerns were existing only on paper and there were no reasonable activities conducted by those companies during the relevant assessment year. Ld. AR further argued by stating that only the assessee company was conducting its entire business from the rented premises incurring the rental and office maintenance charges aggregating to Rs. 78,39,022/-. Hence, it was pleaded, that the additions made and sustained in the hands of the assessee by the Learned Revenue Authorities may be deleted. The Ld. DR on the other hand vehemently argued in support of the order of the Ld. CIT(A).

We have heard the rival submissions and carefully perused the materials on record. On perusing the orders of the Ld. A.O. and the Ld. CIT(A), We find that they have not come across any material evidence to arrive at the conclusion that the assessee’s sister companies had conducted any significant activities in the rented premises of the assessee company where it is carrying out its activities so as to proportionately absorb the rental and office maintenance expenditure incurred by the assessee company. Further the submissions of the Ld. AR on that regard could not be successfully controverted by the Ld. Revenue Authorities either with any material evidence or from the books of account of the assessee company or from the particulars of the assesse’s subsidiary companies. Therefore, it appears that all the subsidiary companies of the assessee are only existing on paper and not conducting any significant activities. The Ld.CIT(A) has also not brought out any categorical finding to controvert the same in his Order. When all the assesse’s sister companies are only paper companies with no activities conducted during the relevant assessment year it is obvious that the entire expenses incurred towards office rent and office maintenance charges are attributable to the assessee company and therefore these expenses cannot be apportioned to the assesse’s sister companies and if at all apportionable it would be negligible. In this situation, We do not find any merit in the addition made and sustained by the Ld. Revenue Authorities in the hands of the assessee company by disallowing the portion of expenditure incurred by the assessee company towards rent of office premises and office maintenance charges. Hence, We hereby direct the Ld. A.O. to allow the entire amount of Rs. 78,39,022/- as allowable deduction in the hands of the assessee company being the expenditure incurred by it towards rent of office premises and office maintenance charges and accordingly delete the addition made and sustained thereon.

In the result, appeal of the assessee is allowed.