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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Saktijit Dey & Shri G. MANJUNATHA,
आदेश / O R D E R Per G. Manjunatha, Accountant Member These two appeals filed by the Revenue are directed against separate, but identical order of Ld. CIT(A)-2, Mumbai, dated 15/02/2017 u/s 250(1) of the Income Tax Act, 1961 (hereinafter ‘the Act’) and also rectification order u/s 154 of the Act, dated 12/07/2017 for
2 M/s Agrima Consultant International Ltd., Assessment Year 2012-13. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order.
2. The Revenue has filed following grounds of appeal
Whether on facts and circumstances of the case and in law the Ld. CIT(A) was correct in allowing rent compensation for the use of the premise of Rs. 77,00,000/- relating to years earlier to the relevant assessment years, on the ground that such an expenses crystalised in the current year by ignoring facts available on record showing that the premise was in his use and rent was not only accepted to be payable before the small causes court but part of it was even paid during litigation, establishing that the liability had accrued and arisen in earlier Assessment years?
The brief facts of the case are that the assessee company is engaged in the business of consultancy, transportation and business centre etc, filed its return of income for Assessment Year 2012-13 on 28/09/2012, declaring total income at Rs.1,37,43,658/-.
The case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act, were issued. In response to notices, the Authorised Representative of the assessee appeared from time to time and filed various details as called for. During the course of assessment proceedings, the AO noted that the assessee had debited rent expenses (including compensation) of Rs.1,00,52,880/- into profit & loss account, therefore, called upon the assessee to furnish necessary details in respect of rent expenses. In response, the assessee has filed various details including orders of Court of Small Causes in Suit No.483/720 of 2009 and argued that as per Court order, it has paid arrears of rent in respect of premises taken on lease to Shir Brihad Bhartiay Samaj (hereinafter ‘SBBS’) of Rs.77 lakhs and such compensation has been paid during the current year and accordingly,
3 M/s Agrima Consultant International Ltd., claimed as business expenditure. The AO after considering relevant submissions of the assessee and also taken note of order of court of small causes in Suit No.483/720 of 2009 observed that the amount paid by the assessee to SBBS is in the nature of penalty for unauthorised occupation of building, therefore, the same cannot be allowed as deduction u/s 37(1) of the Act. He, further observed that moreover sound accounting practice demands that the assessee should have provided for this contingent liability in its books, starting 2009, when the suit was filed. It would only then have been prudent on the assessee to claim these expenses in this year. Without provision, such an expense is not allowable and accordingly, disallowed arrears of rent paid as per court order and added back to the total income of the assessee amounting to Rs.86,87,838/-. The relevant observations of the AO are as under:-
5.3 The assessee filed letter dated 11.02.2015, wherein it reiterated that payment was made on the orders of the Court of Small Causes, in Suit No 483/720 of 2009, to SBBS. The assessee has also stated that it had not made any provisions in the balance sheet in earlier years for this contingent liability. The submissions of the assessee and the arguments of the AR have been considered. But they are not found to be acceptable in law. 5.4 The award of the Court of Small Causes, in Suit No 483/720 of 2009, to SBBS, is in the nature of penalty. The dispute between the assessee and the SBBS has led to this award, against the assessee. Such an expense is not allowable under section 37 of the Income Tax Act, 1961. Moreover, sound accounting practice demands that the assessee should have provided for this contingent liability in its books, starting 2009, when the suit was filed. It wouldonly then have been prudent on the assessee to claim this expense in this year. Without provision, such an expense is not allowable. Further, the award of the court is penal in nature. The award of the court of small causes is a criminal award. It is expressly disallowable u/s 37.
4 M/s Agrima Consultant International Ltd., 5.5 In addition to the above argument, the award includes rental of earlier years, which are not related to income of this year. Hence also, the award of the court is not allowable as a business expense. 5.6 Thus the amount of compensation paid by the assessee is not allowable on three grounds:- Criminal Award No provision made in the balance sheet in the earlier years. Not related to the income of this year 5.7 The compensation of Rs. 86,87,838/- paid to SBBS is disallowed as not being an allowable expense. Penalty proceedings u/s. 271(1)(c) are initiate for furnishing of inaccurate particulars of income and thereby concealment.
Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the ld. CIT(A), the assessee has filed additional ground to argue that the Ld AO was wrongly considered an amount of Rs.86.87 lakhs as compensation paid to land lord in spite of an amount of Rs.77 lakh which is actually paid to the land lord. The assessee has also filed elaborate written submission on the issue and argued that how such expenses claimed under the head rent expenses is allowable as business expenses u/s 37(1) of the Act. The detailed written submission filed by the assessee are reproduced at para 3.2 on pages 3 to 12 of the Ld. CIT(A)’s order. The Ld. CIT(A) after considering the submissions of the assessee and also taken note of the order of Court of Small Causes dated 16/09/2011 in Suit No.483/720 of 2009 held that amount paid to SBBS towards arrears of rent is an allowable expenses u/s 37(1) of the Act, and accordingly, deleted addition of Rs.77 lakhs out of total additions made by the AO of Rs.86,87,828/- and thus, balance amount of Rs.9,87,838/- has been confirmed. The relevant findings of the Ld. CIT(A) are as under:-
5 M/s Agrima Consultant International Ltd., 3.2. The AO has added a sum of Rs. Rs. 86,87,838/- as per para 5.7. of the assessment order dated 16.02.2016 payment pertaining to compensation of Rs. paid along with the returned income of Rs. (-) 1,37,43,658/- and finally arrived at loss at Rs. (-) 50,55,820/- stating the reason that the appellant company debited rent expenses of Rs. l,00,52,880/-including the compensation of Rs. 86,87,838/-. The AO also further stated that the compensation paid as per the award of Court of Small causes, in Suit No. 483/720 of 2009, to SBBS (Brihad Bhartiya Samaj) is not allowable expenditure u/s. 37 as the appellant company has not provided the provision in the year in which the case was filed. I have gone through the order of the Court of Small Causes at Bombay dated 16.09.2011 where they have directed the appellant to pay compensation of Rs. 77 lakhs. The relevant portion is as under : "As per the consent terms the defendants have agreed to be in arrears of Rs. 77,00,000/- (Rs. Seventy Seven Lacs only) out of which 13.02,821/- had already been deposited and it has been mutually agreed by them that plaintiffs would withdraw that amount and balance amount of Rs. 63,97,173/- would be paid by the defendants to plantiffs on or before 31.12.2011, failing which the suit premises will be vacated and vacant possession will be handed over to the plantiffs. Hence, the suit stands dismissed in terms of consent terms with no order as to costs. Decree be drawn accordingly." In view of the decision of Hon'ble Court of small causes at Mumbai cited above, the loss claimed by the appellant of the expenditure of Rs. 77 lakhs is allowable expenditure and therefore, the balance of Rs.9,87,838/- is confirmed. The appellant gets a relief of Rs.77 lakhs. This ground of appeal is partly allowed.”
4. Thereafter, the assessee has filed a petition for rectification of appellate order vide its application dated 30/06/2017 and requested the Ld. CIT(A) to rectify the mistake apparent on record in respect of amount sustained towards additions made on account of rent compensation paid to SBBS. The Ld. CIT(A) after considering the contents of rectification application filed by the assessee held that the AO while disallowing amount paid to SBBS has wrongly considered an amount of Rs.16,27,561/- paid to Gujarat Sidhee Cement Ltd., therefore, as per order of Court of Small Causes dated 16/09/2011, the AO
6 M/s Agrima Consultant International Ltd., ought to have disallowed an amount of Rs.77 lakhs only which is paid to SBBS, but the Ld.
AO has wrongly disallowed amount paid to Gujarat Sidhee Cement Ltd. and accordingly deleted additions sustained in its appellate order amounting to Rs.9,87,838/-. The relevant findings of the Ld. CIT(A) in its order u/s 154 of the Act are as under:-
“The Rectification petition filed on 30.06.2017 is against the Appellate order no. CIT(A)-2/IT-320/2014-15 dated 15.02.2017 passed by the undersigned claiming that the Ld. AO has mistakenly taken Rs. 86.87 lakhs as compensation paid to Shri Brihad Bhartiya Samaj instead of Rs. 77 lakhs as allotted by the Small Causes Court vide order dated 16.09.2011 with the Consent Terms. In CIT(A)'s order Page no. 12, para no. 3.2, it has been discussed how the relief was given of Rs. 77 lakhs and the balance of Rs.9,87,838/- was confirmed, again by mistake only. During the course of rectification u/s. 154, the AR explained vide Annexure B as under:-
Journal Register Details of JVs having value more that Rs.5 lakhs. 1-Apr-2011 to 31-Mar-2012
From the above Annexure, the AO arrived at Rs. 86,87,838/- by considering Rs.57,57,456/-, Rs. 16,27,561/- and Rs. 13,02,821/- being
7 M/s Agrima Consultant International Ltd., the net TDS amount. The net of TDS sum of Rs. 16,27,561/- is not found to be pertaining to amount paid to Shri Brihad Bharatiya Samaj but paid to Gujarat Sidhee Cement Ltd. as per the Small Causes Court order dated 16.09.2011 and accordingly AR prays for necessary rectification and full relief against the addition made by the AO of Rs. 86,87,838/- and inadvertently the relief given in the appellate order of Rs.77 lakh only. The AR's argument is found to be correct that the addition should have been limited to Rs.77 lakhs instead of Rs.86,87,838/- and therefore, the appellant deserves to have further relief of Rs.9,87,838/- which is originally confirmed by me inadvertently and therefore, now I direct the AO to give further relief of Rs.9,87,838/- as discussed above. So the appellant get full relief.
Aggrieved by the Ld. CIT(A)’ order, the Revenue is in appeal before us and filed separate appeal against order of the Ld. CIT(A) passed u/s 250(1) of the Act, and also order u/s 154 of the Act. The Ld. AR for the assessee, at the time of hearing submitted that although the Revenue has filed separate appeal against orders of the Ld. CIT(A), but while filing grounds of appeal by inadvertent error, similar ground has been taken in both appeals, therefore, the Revenue may be allowed to file revised ground amending its ground of appeal in respect of appeal filed against order of the Ld. CIT(A) u/s 154 of the Act. We find that the whole issue revolves around disallowance of rent compensation from two appeal filed by the Revenue and hence, we are of the considered view that there is no need to file separate grounds of appeal, amending grounds of appeal filed by the revenue in their appeal filed against order of the Ld. CIT(A) u/s 154 of the Act and hence, we proceed to dispose of appeals of the Revenue on the basis of arguments advanced by both parties.
8 M/s Agrima Consultant International Ltd., 6. The Ld. DR submitted that the Ld. CIT(A) was erred in deleting additions made by the AO towards rent compensation of Rs.77 lakhs without appreciating the fact that the said arrears of rent has been paid for earlier years without making provisions in the books of accounts, therefore, the same cannot be allowed as deduction u/s 37(1) of the Act for the year under consideration. The Ld. DR further submitted that the AO has brought out clear facts in the light of order of Court of Small Causes in Suit No. 483/720 of 2009, as per which what was paid by the assessee is a compensation which is in the nature of penalty, but not arrears of rent and hence, the same is not allowable as expenditure wholly and exclusively incurred for the purpose of business in order to give benefit to the assessee. The Ld. CIT(A) without appreciating these facts simply deleted additions made by the AO towards rent compensation.
The Ld. AR for the assessee, on the other hand, strongly supported the order of the ld. CIT(A) and submitted that the assessee has filed various details to prove that said amount has been paid to SBBS on the basis of Order of Court Small Causes dated 16/09/2011 where both parties have reached to settlement for payment of arrears of rent in respect of premises taken on lease and accordingly, the assessee has paid rent arrears on the basis of Order of Court and said liability is crystallized for year under consideration. The Ld. AR further submitted that there is no merit in the findings of the AO that assessee ought to have made provisions in books of account, when the Suit was filed, because, the assessee was not accepted the liability when the suit was filed before the Court, therefore, the same was in the nature of contingent liability and hence, there is no requirement of making provisions in the books of accounts. Further, when amount has been actually paid
9 M/s Agrima Consultant International Ltd., on the basis of Order of Court of Small Causes, the same has been crystallized in the year under consideration and accordingly the assessee has rightly claimed deduction towards rent compensation in its books of accounts. The Ld. CIT(A) after appraising the facts has rightly deleted the additions made by the AO and its order should be upheld.
In so far as, appeal filed by the Revenue against rectification order passed by the Ld. CIT(A) u/s 154 of the Act , the Ld. AR submitted that the AO has wrongly made addition of Rs.86.87 lakhs instead of Rs.77 lakhs by considering the amount of Rs.16,27,561/- paid to Gujarat Sidhee Cement Ltd. therefore, the Ld. CIT(A) after considering the relevant submissions and facts has rightly rectified his appellate order and allowed relief to the assessee, because such payments is not made to SBBS as per Order of Court of Small Causes.
We have heard both parties, perused the material available on record and gone through the orders of authorities below. We find that the Ld. CIT(A) has allowed relief in respect of amount paid to SBBS amounting to Rs.77 lakhs on the basis of order of Court of Small Causes dated 16/09/2011 in Suit No. 483/720 of 2009 , where the Court observed that as per consent terms, the dependent have agreed to be in arrears of Rs.77 lakhs and the same has been deposited. Further, it has been mutually agreed by them that plaintiff would withdraw the amount paid by the dependent on or before 31/12/2011 and accordingly stated that the Suit stands dismissed in terms of consent. The Ld. CIT(A) further observed that the amount paid to SBBS is on account of arrears of rent as per order of Court of Small Causes but not payment of compensation which is in the nature of penalty as observed by the Ld. AO, therefore, he opined that amount paid to SBBS amounting to Rs.77 lakhs has 10 M/s Agrima Consultant International Ltd., been rightly claimed as rent expenses allowable u/s 37(1) of the Act. Facts remain unchanged. The Ld. DR appeared for the Revenue failed to controvert the findings of the facts recorded by the Ld. CIT(A) with any evidences. Therefore, we are of the considered view that there is no error in the findings recorded by the Ld. CIT(A) while deleting the additions made by the AO towards rent compensation amounting to Rs.77 lakhs and hence we are inclined to uphold the findings of the Ld. CIT(A) and dismissed the appeal filed by the Revenue.
Coming to second appeal filed by the Revenue against the order of the Ld. CIT(A) u/s 154 of the Act dated 12/07/2017. We find that the Ld. CIT(A) has recorded categorical findings to the effect that the AO ought to have limited additions towards rent payment to SBBS to Rs.77 lakhs instead of Rs.86,87,838/- and therefore, the assessee deserves to have further relief of rs.9,87,838/- which is originally confirmed in earlier order dated 15/12/2017. The Ld. CIT(A) further observed that as per details filed by the assessee, the AO has inadvertently considered the amount of Rs.16,27,561/- which is not paid to SBBS on account of order of Court of Small Causes. In fact, as per order of Court Small Causes dated 16/09/2011, the assessee has paid an amount of Rs.77 lakhs only, therefore, the reconciliation filed by the assessee explaining the mistake committed in working out disallowance by the AO is correct and accordingly allowed relief of rs.9,87,838/- which was originally confirmed in appellate proceedings, we find that the Ld. DR failed to bring on record any evidences to controvert the findings of facts recorded by the Ld. CIT(A) while allowing further relief of Rs.9,87,838/-. Therefore, we are of the considered view that there
11 M/s Agrima Consultant International Ltd., is no error in the order of the Ld. CIT(A) and hence we are inclined to uphold the findings of the Ld. CIT(A) and dismissed appeal filed by the assessee.
In the result, both appeals filed by the Revenue are dismissed.