DCIT 9(2)(2), MUMBAI vs. M/S CONNECT RESIDUARY PVT LTD., MUMBAI

Brief facts of the case shows that assessee is engaged in the business of equipment renting based on Residual management capabilities. It filed its return of income on 11/11/2014 declaring a total income of ₹ 3,71,679/– . This return was picked up for scrutiny by issue of notice. Subsequently the assessment order under section 143 (3) of the act was passed on 30/12/2016 determining total income at ₹ 373,792,940/–. Substantial addition was made on account of mismatch between the income reported under form number 26AS and income recorded in

During course of assessment proceedings, it was found that assessee has claimed tax deduction at source of ₹ 3,409,817/- whereas AO was of the view that assessee has offered income tax which is attributable to tax deducted at source is not matching. Therefore verification was made.

It was found that assessee has credited sum of ₹ 25,023,767/- to profit and loss account against the income and receipts shown in form number 26AS of ₹ 388,716,533/-. This discrepancy was noted and informed to the assessee by issue of notice and assessee was asked to furnish party -wise reconciliation of TDS and respective income.

Assessee explained its business and stated that Assessee is engaged in the business of Residuary. Assessee is approached by the customers who wanted to use the equipments for their business on rent. Assessee enters in to master Rental Agreement. Assessee in turn finds a lender who can pay to the seller for the equipments. To the lender, assessee sales the outstanding rent receivable on discounted basis. Gross rental receivables are discounted with various lenders on no recourse basis. Customers pay then Rental to the lender. As the master

Assessee aggrieved with that addition preferred an appeal before the learned CIT – A. Assessee explained the business that it is engaged in the business of acquiring and dealing in the guarantee residuary interest in assets rented to the customers. According to the agreement with the customers Master Rental Agreement is entered into. According to that the assets are rented out to the customer for a mutually agreed contract. The agreement only comes in to effect if and when the assessee finds a funding agency that is willing to accept the rentals for the contract term from assessee by way of assignment. The funding agencies in this case would be a bank, and nonbanking financial Institute etc. The assignment of the rental is documented by a deed of assignment which is entered between assessee and the funding agency at the inception of the transaction on a non-recourse basis. On the assignment of the rental a deed of assignment is entered in to, fund pays assessee the discounted value of

The learned departmental representative supported the order of the learned AO.

We have carefully considered the rival contentions and perused the orders of the lower authorities. To reach at a conclusion, whether the assessee has offered correct income or not, it is necessary to understand business model of the assessee. Any customer who would like to have certain equipments will contact the assessee for purchase of those assets. Based on the requirement, lease of assets is entered into between Customer and assessee by a Master Rental Agreement fixing rental schedules. Assessee solicits the financier who can finance the purchase of the assets to be rented out. Such financier subsequently pays to the assessee and in turn assessee assigns the lease rentals receivable from the customer to

Co no 29/M/2020 filed by the assessee is on alternative grounds. In view of our decision in Appeal of the LD AO, CO becomes infructous and hence dismissed.

In the result appeal of the ld AO and CO of The Assessee are dismissed.