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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: HON’BLE SHRI MAHAVIR SINGH, VP & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकरअपील सं./ (िनधा�रण वष� / Assessment Year: 2015-16) Rochem Separation Systems DCIT CC-2(4) (India) Pvt. Ltd. Old CGO Bldg (Annex), बनाम/ R. No. 802, 8th floor 101, HDIL Tower Vs. Anant Kanekar Marg M. K. Road Bandra (East),Mumbai-400 051 Mumbai-400 020 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AABCR-1955-P (अपीलाथ�/Appellant) (��थ� / Respondent) : Assessee by : Shri Gaurav Bansal, Ld. AR Revenue by : Shri Bharat Andhale, Ld. Sr. DR सुनवाई की तारीख/ : 01/06/2021 Date of Hearing घोषणा की तारीख / : 28/06/2021 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2015-16 arises out of the order of learned Commissioner of Income-Tax (Appeals)-48, Mumbai [CIT(A)], dated 31/10/2019 in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 143(3) on 22/12/2017. The grounds raised by the assessee read as under:-
Rochem Separation Systems (India) Pvt. Ltd. Assessment Year: 2015-16 Ground No. 1: Payment of Rent to OPC Assets Solutions Private Limited 1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in disallowing an amount equal to INR 40,19,520 towards lease rent paid to OPC Asset Solutions Private Limited on the ground that the payment needs to be equally distributed over the entire duration of the agreement without appreciating the fact that the arrangement entered into by the Appellant was to achieve commercial expediency.
2. Without prejudice to the above, and on the facts and circumstances of the case and in law, the learned CIT(A) has erred in enhancing the disallowance made by the learned AO amounting to INR 49,26,033.
3. The Appellant prays that the expenses incurred are wholly and exclusively for the purpose of the business of the appellant. Accordingly, the disallowance made the learned AO ought to be deleted. Disallowance of Professional Fees paid to Ms. Namrata Goel and Ms. Nidhi Goel 4. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in disallowing professional fees paid to Ms. Namrata Goel of INR 5,94,000 and to Ms. Nidhi Goel of INR 5,94,000 for providing financial consultancy and human resource consultancy services respectively, on the grounds that the transaction with the said party is not genuine without appreciating the fact that supporting documents evidencing work undertaken were provided. As evident, the assessee is aggrieved by confirmation of disallowance of rental expenses and disallowance of professional fees.
Having heard rival submissions and after going through material on record, our adjudication to the appeal would be as under.
The assessee being resident corporate assessee stated to be engaged in manufacturing activities was assessed for the year under consideration in scrutiny assessment u/s 143(3) on 22/12/2017.
Disallowance of Rent 4.1 It transpired that the assessee paid rent of Rs.120.19 Lacs to an entity namely M/s OPC Asset Solutions Private Limited. The payment was in the nature of lease rent for office furniture etc. Upon perusal of relevant agreements, Ld. AO noted that the assessee was paying higher rent for initial years whereas for 4th and 5th year, it was paying nominal rent of Rs.4/- per quarter or Rs.16/- per year. The rent paying pattern indicated that the assessee was postponing its Income tax liability. It was Rochem Separation Systems (India) Pvt. Ltd. Assessment Year: 2015-16 noted that the hired furniture mostly consisted of wooden furniture like chairs, table counters, electrical fittings and Air conditioners etc. The cost of all these items was Rs.290.89 Lacs against which the assessee was paying rent of Rs.120.19 Lacs for the first three years which was on the higher side considering bank borrowing rate of 15%, deprecation rate of 15% and profit on investment of 10%. The aggregate of all these i.e. 40% of cost of Rs.290.89 Lacs would work out to Rs.116.25 Lacs. Therefore, there was excess payment to the extent of Rs3.83 Lacs which was ultimately disallowed u/s 37(1). 4.2 Upon further appeal, Ld. CIT(A) chose to rely upon its own order for AY 2014-15 wherein it was observed that average rent per month for entire tenure of 61 months starting from 01/10/2012 to 31/12/2017 was Rs.5.91 Lacs which would translate into yearly rent of Rs.70.93 Lacs. Therefore, the allowable rent would be Rs.70.93 Lacs and not Rs.120.19 Lacs as claimed by the assessee during the year. Taking the same view, the disallowance of Rs.3.83 Lacs as made by Ld. AO was enhanced to Rs.49.26 Lacs. Aggrieved, the assessee is in further appeal before us. 4.3 Upon careful consideration of material fact, we find that the assessee has taken on lease office equipment, furniture & fixtures for a period of 5 years pursuant to certain agreements between the assessee and M/s OPC Asset Solutions Private Ltd. As per the terms of agreements, the assessee is required to pay yearly lease rent of Rs.120.19 Lacs for a period of first three years. Thereafter, it is required to pay yearly lease rent of Rs.16/- for the remaining two years. Undisputedly, the assessee has paid the said amount to the lessor pursuant to the terms of agreement after due compliances and claimed Rochem Separation Systems (India) Pvt. Ltd. Assessment Year: 2015-16 the deduction of the same during the year. The lessor is unrelated party to the assessee. The agreements between the two parties have not been held to be non-genuine and it is also not the case that the expenditure was not incurred wholly and exclusively for the purpose of assessee’s business. This being so, in our considered opinion, it is not open for revenue authority to sit on the armchair of a businessman so as to ascertain the quantum of deduction allowable to the assessee as held by Hon’ble Apex Court in CIT Vs. Walchand & Co. Pvt Ltd (1967; 65 ITR 381); J.K. Woollen Manufacturers Vs. CIT (1969; 72 ITR 612) and also in Hero Cycles (P) Ltd. Vs. CIT (2015; 63 Taxmann.com 308). Another pertinent fact is that while framing assessment for AY 2013-14 (which is the first year of payment of rent), the lease rent paid the assessee as per the agreements has not been disturbed by Ld. AO. Therefore, on the facts & circumstances of the case, the revenue authorities were not justified in tinkering with the claim made by the assessee. Therefore, we delete the disallowance as made by Ld. CIT(A) in the impugned order and allow this ground of appeal
5. Disallowance of Professional Fees 5.1 The assessee paid professional expenses of Rs.5.94 Lacs each to Mrs. Namrata Goel and Mrs. Nidhi Goel. In support, the assessee furnished copies of qualification certificates, TDS certificates and copies of invoices issued by them. It was submitted that two employees were appointed as financial consultant and corporate relation consultant on retainer-ship basis to provide financial input / advisory and to assist the assessee to maintain and develop corporate relations with existing and potential clients. Smt. Namrata Goel was stated to be Masters in Rochem Separation Systems (India) Pvt. Ltd. Assessment Year: 2015-16 Management Studies whereas Mrs. Nidhi Goel was stated to be Bachelor in Mass Media. However, Ld. AO opined that the assessee did not furnish any evidence showing the nature of services rendered by each of them which has resulted into an increase in business of assessee. Both these employees were wives of the directors of Assessee Company and the transactions were nothing but accommodation entries for claiming expenses. Moreover similar disallowance was confirmed by Ld. DRP in AY 2013-14. Finally, the aggregate payment of Rs.11.88 Lacs was disallowed and added to the income of the assessee. 5.2 The Ld. CIT(A) observed that the assessee had paid the said amount to the payees but it failed to establish that the expenditure was laid wholly and exclusively for the purpose of business. The assessee could not place on record any evidence that the services were rendered by these two parties. Another pertinent fact was that the Tribunal in AY 2011-12, dated 17/12/2018 had upheld the similar disallowance as confirmed by Ld. DRP. 5.3 The Ld. AR sought distinction in the fact of this year by submitting that in AY 2011-12, the disallowance was confirmed by Tribunal by observing that the assessee could not produce evidence to establish that the services of Smt. Namrata Goel and Smt. Nidhi Goel were availed by the assessee. Further, the assessee did not place on record any evidence to explain the nature of services rendered by each of them. Therefore, since the assessee failed to establish that the expenditure was laid out wholly and exclusively for the purpose of the business, the disallowance was confirmed. As against this, in this year, the assessee