M/S RMP INFOTEC PRIVATE LIMITED,CHENNAI vs. ACIT, CORPORATE CIRCLE-5(2), CHENNAI

The brief facts of the case are that the assessee is engaged in the business of direct multi level marketing of goods and services and derives income from products and services being sales of consumer products like solar heater, suiting lengths, dealing in insurance policies etc. On 27-02-2008, a survey u/s. 133A of the Act was conducted at the business premises of the assessee. During the course of survey proceedings, books and documents were impounded by the survey team. Thereafter, statutory notice u/s. 142(1) of the Act was issued and served upon the assessee on 16-03-2009. As there was no response from the assessee, another notice u/s 142(1) of the Act was issued on 16-03-2009 asking the assessee to file return of Income within 30 days. The assessee in responds sought further time till 01- 09-2009 to file return of income but failed to file return of income.

Thereafter, notice u/s.148 of the Act was issued along with penalty notice u/s 271(1)(b) of the Act, which were served on the assessee on 02-12-2009. The assessee in responds filed its return of income on 07- 01-2010 electronically. The Ld. Assessing Officer completed the assessment u/s. 143(3) of the Act on 30-12-2010 by making additions/disallowances as under:

Aggrieved, the Department filed appeal in Appeal No.2689/Mds/ 2016 before the Income-Tax Appellate Tribunal, Chennai. The ITAT, Chennai vide order dated 15-03-2017 remitted the matter to the Ld. AO for a de-novo consideration. The ld. AO in compliance to that order of the Tribunal completed the assessment vide order dated 31-12- 2018. The ld. A.O disallowed the following amounts and added to the total income of the assessee.

Aggrieved further, the assessee filed the present appeal before the Tribunal. Heard the rival submissions of the parties and perused the materials on record. The Ld. AR submitted that the registration charges incurred by the assessee in executing the agreement ought to be allowed as it was a revenue expenditure. The Ld. AR further submitted that the service tax paid by the assessee also should be allowed.

The Ld. DR, on the other hand, submitted that the assessee did not participate in the 1st appellate proceedings and no submissions were made by him before the Ld. CIT(A). Regarding the issue on disallowance made under section 14A of the Act, the Ld. AR submitted for remand of the matter.

We observe that the order of the Ld. CIT(A) dated 22.05.2023 is an ex-parte order. The assessee failed to appear before the Ld. CIT(A) despite getting of sufficient opportunity to appear and make necessary submissions in support of his case. The Ld. CIT(A) could have dismissed the case of the assessee straightway as discussed by him in the order due to non-participation by the assessee in the 1st appellate proceedings. However, the Ld. CIT(A) has disposed of the appeal of the assessee on merit.

We observe that the Ld. CIT(A) upheld the disallowance of land registration charges of Rs. 26,14,248/- made by the Ld. AO. The Ld. AO observed that the registration fees incurred by the assessee while executing agreements for business premises are capital expenditure not revenue expenditure. However, it is our considered opinion that the registration charges incurred by the assessee while executing the agreements for taking business premises on rent are revenue expenditure. Because, lease is not a permanent transfer of immovable property. It is for a specific period only and terminable as per terms and conditions of the agreement even before the expiry of the period of the lease by both the parties. Secondly, the assessee has incurred that registration expenses in connection of his business. The assessee needed premises in order to carrying on the business in various places and accordingly, the assessee taken property on rent. The period of the agreement perhaps is more than one year and attracted the compulsory registration of the agreement. The assessee cannot enjoy that property forever under a rent agreement/lease. The assessee may have to vacate that property before efflux of time depending on the business conditions of that particular place. Therefore, we are of the view that the lower authorities erred in treating the registration fees incurred by the assessee as capital expenditure. Accordingly, we decide this issue in favour of the assessee.

Regarding the payment of service tax of Rs. 50,00,000/-, the Ld. CIT(A) has directed the Ld. AO to verify the claim and allow if found proper. Therefore, the Ld. AO shall comply the direction given by the Ld. CIT(A).

On the issue of the disallowance of Rs. 2,56,721/- by the Ld. AO during the assessment proceeding, the Ld. CIT(A) confirmed this addition by observing that no submission was made by the assessee to substantiate his claim. We observe that the assessee failed to participate in the 1st appellate proceedings before the Ld. CIT(A) and therefore, the Ld. CIT(A) disposed of the appeal ex-parte. Secondly, the Ld. AR sought remand of the matter and the Ld. DR also has no objection for remanding of the issue. Accordingly, we set aside the order of the Ld. CIT(A) dated 22.05.2023 to the extent of the issue of disallowance u/s 14A of the Act and remand this issue to the Ld. CIT(A) for fresh consideration. It is needless to add here that the Ld. CIT(A) shall provide a reasonable opportunity to the assessee to substantiate his claim on the issue and thereafter dispose of the matter. We, at the same time direct the assessee to substantiate his claim before the Ld. CIT(A) accordingly.

In the result, the appeal of the assessee is partly allowed for statistical purposes.