SJA LOGISOL INDIA PRIVATE LIMITED,901/902/903 CENTRUM WAGLE ESTATE vs. COMMISSIONER OF INCOME-TAX (APPEALS), AAYAKAR BHAWAN

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ITA 3745/MUM/2026Status: DisposedITAT Mumbai23 July 202611 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal restored the matter to the Assessing Officer for fresh examination, allowing the assessee to produce additional evidence regarding the business use of the rented premises.

What were the facts?

The assessee claimed rental expenditure for seven residential flats owned by its directors, stating they were used for business purposes. The Assessing Officer disallowed this, finding insufficient evidence of business use and questioning commercial expediency.

What were the issues?

Whether the rental expenditure incurred for residential flats owned by directors was for business purposes and commercially expedient, and whether sufficient evidence was provided to substantiate the claim.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI PAWAN SINGH

For Appellant: Shri Mahesh Madkholkar, CA
For Respondent: Shri Rajgopal Parthasarathi – SR
Hearing: 21/07/2026Pronounced: 23/07/2026

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA No. 3745 /MUM/2026 Assessment Year: 2022-23

SJA Logisol India Private Commissioner of Income Tax, Limited, 901/902/903, Mum – W – (103)(96), Aayakar Centrum Wagle Estate, Thane, Vs. Bhavan, Mumbai – 400020. Mumbai – 400604, Maharashtra.

PAN NO. ABACS7690 E Appellant Respondent

Assessee by : Shri Mahesh Madkholkar, CA.

Revenue by : Shri Rajgopal Parthasarathi – SR DR.

Date of Hearing : 21/07/2026 Date of pronouncement : 23/07/2026

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 21.01.2026, passed by the learned Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short, ‘the Ld. CIT(A)’], for Assessment Year (in short ‘A.Y’), 2022-23, raising the following grounds:-

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“1. The learned Commissioner of Income Tax (Appeals) [“CIT(A)”] has erred in law and on facts in confirming the assessment order passed under section 143(3) of the Income Tax Act, 1961, without properly appreciating the facts, submissions, and evidences placed on record. 2. The disallowance has been made merely on presumptions and is contrary to settled judicial precedents and hence liable to be deleted. 3. The learned CIT(A) has erred in dismissing the appeal without properly appreciating the detailed submissions and evidences filed by the Appellant. 4. The order passed is in violation of principles of natural justice as the submissions and documentary evidences have not been properly considered. 5. The learned CIT(A) has erred in confirming excessive additions resulting in assessed income of ₹3,52,47,020/- as against returned income of ₹3,14,44,820/- .”

2.

Briefly stated, the facts of the case are that the assessee filed its return of income for the year under consideration on 16.11.2022 declaring a total income of ₹3,14,44,820/-. The return was selected for scrutiny and the statutory notices issued under the Income-tax Act, 1961 (hereinafter referred to as "the Act") were duly served. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed rental expenditure of ₹38,02,200/- in respect of seven residential flats owned by its directors.

2.1 The assessee explained that the said premises were utilized for various business purposes including meetings with customers and business associates, business presentations, training and orientation programmes, documentation and compliance work, temporary accommodation for business delegates, and other operational activities connected with its shipping and logistics

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business. According to the assessee, the premises were taken on rent having regard to commercial expediency and formed part of its asset-light business model.

2.2 The Assessing Officer, however, was not satisfied with the explanation furnished. According to him, the assessee had failed to establish that the expenditure was incurred wholly and exclusively for the purposes of business. The Assessing Officer observed, inter alia, that (i) the assessee had only a nominal total annual salary expenditure of Rs. 2,90,874/- as per the ITR indicating a negligible workforce; (ii) the premises were residential flats situated in housing societies; (iii) Fixed Asset Schedule shows that the assessee did not possess furniture or office infrastructure commensurate with the alleged business use and the rent agreement does not carry any mention of premises being furnished ; and (iv) no convincing material was produced to demonstrate the business necessity of hiring seven separate residential flats. He further held that deduction of tax at source and disclosure of rental income by the recipients merely established the genuineness of the payment and not its business expediency. Consequently, invoking section 37(1) of the Act, the Assessing Officer disallowed the rental expenditure of ₹38,02,200/- .

2.3 The Assessing Officer further examined the claim of repair and maintenance expenditure amounting to ₹23,29,000/-. On verification, he noticed that the assessee owned fixed assets having

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a written down value of only ₹48,969/- and did not own any motor vehicles. Nevertheless, a substantial part of the expenditure represented repair and maintenance of motor cars, including servicing and purchase of tyres, aggregating to ₹22,51,051/-, besides a payment of ₹61,200/- to one Shri Akshay Y. Kapdoskar, the nature of which remained unexplained. As the assessee neither owned nor had taken any vehicles on lease or hire and failed to establish the business purpose of the expenditure, the Assessing Officer held that the expenditure did not satisfy the conditions of section 37(1) of the Act and accordingly disallowed ₹23,22,251/-. Penalty proceedings under section 270A were also initiated in respect of the said disallowance.

2.4 Insofar as the staff welfare expenditure of ₹6,03,100/- was concerned, the assessee explained that the expenditure mainly related to refreshments and incidental expenses incurred during meetings with customers, visitors and business associates, though accounted for under the head "Staff Welfare". The explanation was accepted by the Assessing Officer and no disallowance was made on this issue.

3.

Aggrieved, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A), after considering the assessment order, the written submissions of the assessee and the material available on record, upheld the disallowance. The learned CIT(A) noted that the assessee had contended that the rental expenditure

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of ₹38,02,200/- incurred in respect of seven residential premises owned by its directors was dictated by commercial expediency and that the premises were utilized for various business purposes, including meetings with customers, business presentations, employee training programmes and temporary accommodation for business delegates. It was further submitted that the arrangement was economically more viable than hiring commercial premises or hotel accommodation, that the rental income had been duly offered to tax by the respective owners, and that the transactions had been subjected to statutory audit.

3.1 The learned CIT(A), however, was not persuaded by the aforesaid submissions. Referring to the provisions of sections 37(1) and 40A(2)(b) of the Act, he observed that the burden squarely rested upon the assessee to establish, by cogent and contemporaneous evidence, not only the genuineness of the expenditure but also that it had been incurred wholly and exclusively for the purposes of business and that the payment was commercially justified. The learned CIT(A) further observed that, despite adequate opportunities, the assessee had failed to produce any reliable contemporaneous evidence demonstrating the actual business use of the seven residential premises. According to him, no documentary material, such as attendance records, visitor registers, evidence of meetings or training programmes, or any other contemporaneous record, was produced to substantiate the

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claim that the premises were regularly utilized for business purposes. He also noted that the leave and licence agreements described the premises as residential units and that the scale of hiring seven residential flats appeared disproportionate to the size of the assessee's business operations and employee strength during the relevant year. The learned CIT(A) was further of the view that the fact that the recipients had disclosed the rental income in their respective returns of income or that the accounts had been subjected to statutory audit did not, by itself, establish the allowability of the expenditure under section 37(1) of the Act. He also distinguished the decisions relied upon by the assessee on the ground that, in those cases, the business use of the premises stood duly established on facts, whereas, in the present case, the assessee had failed to discharge the burden cast upon it under the Act. The ld CIT(A) relied on the decision in the case of CIT v. Calcutta Agency Ltd. 19 ITR 191 (SC) and decision of Hon’ble Bombay High Court in the case of PCIT v. Prahlad Manoharrao Phadke 81 taxmann.com 190 (Bom)

3.2 On the aforesaid reasoning, the learned CIT(A) concluded that the assessee had failed to establish that the impugned rental expenditure had been incurred wholly and exclusively for the purposes of business or that the payments satisfied the test of commercial expediency. He, therefore, upheld the disallowance of

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₹38,02,200/- made by the Assessing Officer. The relevant finding of ld CIT(A) is reproduced as under:

“ DECISION AND DETERMINATION

5.

I have carefully considered the assessment order passed by the Assessing Officer, the grounds of appeal raised by the assessee, the written submissions filed during appellate proceedings including replies dated 15.04.2025 and 15.05.2025, and the material available on record. The order passed by the Assessing Officer under Section 143(3) is factually well-founded and legally sustainable, and the same is hereby upheld. 6. Section 37(1) of the Act permits deduction of any expenditure laid out or expended wholly and exclusively for the purposes of business or profession, provided it is not capital or personal in nature. However, under Section 40A(2)(b), any payment made to a relative or director exceeding fair market value or deemed unreasonable having regard to business nature is to be disallowed in computing taxable income. The onus squarely lies upon the assessee to discharge the twin requirements of establishing (i) actual incurrence and genuineness of the expenditure, and (ii) its commercial expediency through cogent contemporaneous evidence, failing which the claim merits rejection. 7. The Hon’ble Supreme Court in CIT v. Calcutta Agency Ltd. 19 ITR 191 (SC) laid down the cardinal test for commercial expediency; The question whether a particular expenditure is commercially expedient cannot be answered merely by reference to what the assessee chooses to say. It has to be decided by the application of sound and businesslike principles... The reasonableness of the expenditure has to be determined from the point of view of the businessman and not of the taxing authority. The Hon’ble Bombay High Court in PCIT v. Prahlad Manoharrao Phadke 81 taxmann.com 190 (Bom) rejected a similar claim for rent paid to relatives for residential premises; Theassessee has failed to discharge the onus that the payment was reasonable and for business purposes. Merely stating that residential premises were used for business without supporting evidence like utility bills, attendance registers or fixed asset details cannot convert personal arrangement into deductible business expense under Sections 37 and 40A(2)(b). 8. Applying the aforesaid judicial tests, the assessee's claim fails on multiple counts. Despite statutory notices under Sections 142(1) and 143(2), no contemporaneous documents such as electricity bills in company name, attendance registers evidencing meetings/trainings, visitor logs, or fixed asset registers for alleged furniture/projectors were furnished, rendering the alleged business use unsubstantiated. The scale of renting seven residential flats owned by directors stands grossly disproportionate to the lean salary expenditure and nascent employee strength, belying commercial prudence especially when the assessee's core logistics operations require no such extensive physical spaces.

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The leave and licence agreements produced confirm purely residential character with no stipulation for business use. While owners reported rental income, this proves no expediency or genuineness of deductibility. The assessee's reliance on Acuity Holdings and Stuish Capital is distinguished as those involved verified administrative use with records, absent here. The statutory audit's silence does not absolve the primary onus under Section 37. Viewed holistically, the arrangement appears colorable to siphon funds to directors under garb of business expense, squarely attracting disallowance under Section 40A(2)(b). The Assessing Officer's findings align perfectly with sound business principles mandated by the Honorable Supreme Court. 9. In view of the aforesaid discussion, statutory provisions, and binding judicial precedents, I am satisfied that the assessee has failed to prove the rental expenditure as wholly and exclusively for business or reasonable under Section 40A(2)(b). The disallowance of Rs. 38,02,200 made by the Assessing Officer stands confirmed.”

4.

We have carefully considered the rival submissions and perused the material available on record. We have also gone through the orders of the Assessing Officer and the learned CIT(A). Both the lower authorities have concurrently held that the assessee failed to substantiate, by contemporaneous documentary evidence, that the seven residential premises taken on rent from its directors were actually utilized wholly and exclusively for the purposes of its business and, consequently, disallowed the rental expenditure claimed under section 37(1) of the Act. The learned CIT(A), while affirming the assessment order, also observed that the assessee had not discharged the onus cast upon it to establish the commercial expediency of the expenditure by producing reliable supporting evidence.

4.1 Before us, the learned counsel for the assessee submitted that although certain documents had been furnished during the

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assessment as well as appellate proceedings, the assessee is now in possession of further contemporaneous evidence which, according to him, would demonstrate the actual business use of the impugned premises. It was, therefore, pleaded that one final opportunity may be granted to the assessee to place the entire evidentiary material on record. The learned Departmental Representative, on the other hand, relied upon the orders of the authorities below.

4.2 Having given our thoughtful consideration to the rival submissions, we find that the controversy essentially turns upon appreciation of factual evidence relating to the actual user of the rented premises and the commercial expediency of the expenditure. Since the assessee has expressed its willingness to produce additional contemporaneous evidence in support of its claim, and considering that the allowability of the expenditure under section 37(1) of the Act can be appropriately adjudicated only after examining such evidence, we are of the considered opinion that the ends of substantial justice would be served by restoring the matter to the file of the Assessing Officer for fresh examination.

4.3 We accordingly set aside the orders of the authorities below on this issue and restore the matter to the file of the Assessing Officer. The Assessing Officer shall examine all the documentary evidence that may be produced by the assessee, verify the actual nature and extent of business use of the premises, consider the applicability of sections 37(1) and 40A(2)(b) of the Act, wherever relevant, and

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thereafter decide the issue afresh by passing a reasoned order in accordance with law. The assessee shall extend full cooperation and furnish all supporting evidence on which it seeks to rely. It is made clear that, since we have restored the matter for fresh adjudication, we have not expressed any opinion on the merits of the rival contentions, and all issues are left open for consideration by the Assessing Officer.

5.

Since Ground Nos. 1 and 4 have been restored to the file of the Assessing Officer for fresh adjudication, the remaining grounds, being either consequential or academic at this stage, do not call for separate adjudication and are left open, wherever necessary.

6.

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

Order pronounced in the open Court on 23/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 23/07/2026 M. Ranganath Vittal , Sr. P.S.

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Copy of the Order forwarded to :

1.

The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai

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