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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV, HON’BLE & SHRI WASEEM AHMED HON’BLE
आदेश/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER
Assessee is in appeal before the Tribunal against order of ld.CIT(A)-2, Vadodara dated 27.12.2017 passed for the assessment year 2014-15.
Assessee has taken mainly two grounds. In the first ground of appeal, assessee agitates addition of rent expenses of Rs.4,50,000/-.
2 3. Brief facts of the case are that the assessee is a real-estate developer. It has e-filed its return of income on 25.9.2014 declaring total income at Rs.NIL. The case of the assessee was selected for scrutiny assessment by issuance of notice under section 143(2) on 1.9.2015. During the scrutiny assessment proceedings, it was noticed by the assessing officer that the assessee has paid Rs.4.50 lakhs to three companies viz. Gokul organizers P.Ltd., Shreeji Arcade P.Ltd., and Shridhar Reality P.Ltd. of Rs.1.50 lakhs each as rent expenses for the premises hired at “Vashu Nivas”, Alkapuri Road, Baroda. On verification of details, it was assumed by the AO that there were some group concerns of the assessee operating from that premises, and therefore, expenses incurred was bogus to reduce its income. The ld.AO issued show cause notice to the assessee to explain the same with supporting details. It was explained by the assessee that the assessee is undertaking project in large scale, and since it requires to attract prospective middle class and high-end investors, it was necessary for the assessee to set up an idle office premises in the posh area of the city, and therefore, for administrative and marketing necessity space at “Vasu Niwas” Alkapuri was hired at Rs.37,500/- per month. This was for business necessity and therefore the expenses required to be allowed. The explanation of the assessee did not find favour from the AO. He made the impugned addition. Before the first appellate authority also, the assessee did not succeed, hence, the present appeal before the Tribunal.
Before us, the ld.counsel for the assessee contended that there is no dispute that rented premises was not occupied by the assessee, nor such premises capable of fetching such amount of rent. Revenue authorities have also not disputed necessity of such location looking to the size of project undertaken by the assessee company. Therefore, addition made by the 3 Revenue is not justified. On the other hand, the ld.DR supported orders of the Revenue authorities.
We have heard both the parties and gone through the record carefully. The case of the assessee is that the project undertaken by it was on large scale, and in order to attract prospective customers and investors, it required a prime location in posh areas, and therefore, it had to look for such location which is idly suited for its business activities. The premises in question was found to be proper and the assessee hired the same and incurred the rental expenses. The lower authorities have denied the claim of the assessee on the ground that some of group concerns were situated in the same premises, and therefore, the claim of the assessee was bogus, and accordingly rejected. We find that lower authorities have not disputed the quantum of rent paid by the assessee nor business requirement of the assessee. Addition made by the Department on the assumption that some of the group of concerns of the assessee also situated in that premises, and therefore, it was a diversion of funds and as such a bogus claim. Before both the authorities, the assessee has explained the business exigency for hiring such premises and payment of rent. Today’s competitive business environment easy accessability is one of the prime factors required for attracting customers, and therefore, reasoning given by the assessee for incurring such rental incomes cannot be simply brushed aside. While denying the claim of the assessee, Revenue has not factored in the business exigencies as explained by the assessee. We are not convinced with narrow consideration of the Revenue authorities in rejecting claim of the assessee. Therefore, we delete the impugned addition of Rs.4,50,000/- incurred by the assessee towards rental expenses, and allow claim of the assessee.
4 6. Ground No.2: In this ground, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.59,000/- in respect of the following parties: i) Shri Badrinarayan Trust : Rs.5000/- ii) Shri Balkrishnan Trust : Rs.16,000/- iii) Balaji Trust : Rs.28,000/- iv) Shree Ganga Family Trust : Rs.10,000/-
With the assistance of the ld.representatives, we have gone through the record carefully. It emerges out from the record that the assessee took substantial amounts from these trusts. For example, in the case of Balaji Trust, the assessee has shown fresh loan of Rs.66,05,000/- from this party. The assessee has shown complete details as required under section 68 of the Act. The ld.CIT(A) has accepted the explanation of the assessee except Rs.28,000/-. This addition of Rs.28,000/- has been confirmed on the ground that a sum of Rs.25,000/- was found to be deposited in cash in the account of Balaji Trust on 7.1.2014. Therefore, the ld.CIT(A) construed that this cash must have been given by the assessee, which has been introduced in this trust. Similar is the finding with regard to other creditors; for example from Shree Ganga Family Trust, assessee has received fresh loan of Rs.7,12,000/-. The ld.CIT(A) disbelieved explanation of the assessee qua only Rs.10,000/-. After considering order of the ld.CIT(A) we are of the view that reasons assigned by the ld.CIT(A) are not justifiable. Once assessee has demonstrated genuineness of the transaction, credit-worthiness of the creditors and identified creditors for substantial amount of Rs.66 lakhs, then to disbelieve Rs.28,000/- on ground that equal amount was found to be deposited in the account of creditors in cash is a very erroneous reasoning. Therefore, we are of the view that the ld.CIT(A) was not justified to partially confirm the cash
5 credit from the alleged creditors. We allow this ground of appeal, and delete addition of Rs.59,000/-.
In the result, appeal of the assessee is allowed. Order pronounced in the Court on 21st January, 2020 at Ahmedabad.