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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI BEFORE SHRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM) Assessment Year: 2009-2010 The D.C.I.T. 1(2)(2), M/s M.C. Retail Pvt. Ltd., R. No. 535, 5th Floor, Office No. 1, Ground Floor, Aayakar Bhavan, M.K. Road, Dhan Cotage, 80, Mumbai – 400020 Vs. Bulls Royce Colony Road, Vakola Bridge, Santacruz, Mumbai PAN: AAECM7597B (Appellant) (Respondent) & Assessment Year: 2009-2010 The D.C.I.T. 1(2)(2), M/s M.K. Retail Pvt. Ltd., R. No. 535, 5th Floor, 4th Floor, Metro Dome, Aayakar Bhavan, M.K. Road, Metro Theatre, M.G. Road, Mumbai – 400020 Vs. Mumbai - 400020 PAN: AAECM7601C (Appellant) (Respondent) Revenue by : Shri Chaitanya Anjaria (DR) Assessee by : Shri Ritesh Singh (AR) Date of Hearing: 10/09/2018 Date of Pronouncement: 28/09/2018
O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the revenue against the two orders dated 27.10.2016 and 15.10.2015 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-2, Mumbai, for the assessment year 2009-10 respectively, in respect of the assessee M/s M.C. Retail Pvt. Ltd. and M/s M.K. Assessment Year: 2009-10
Retail Pvt. Ltd. whereby the Ld. CIT (A) has partly allowed the appeals filed by the said assessees against assessment orders passed by the AO u/s 144 r.w.s. 147 and u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’) respectively. Since, both the assessee’s are being represented by same counsel and the issues involved in both the appeals are identical except the amount of additions, these appeals were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience and brevity. 2. Brief facts of the case are that the assessee engaged in the business of wholesale trading in garments and accessories, filed its return of income for the assessment year 2009-10 declaring the nil income. Since, the case was selected for scrutiny and assessment order u/s 143 (3) read with section 92C of the Act was passed determining the nil income. Later on, it was seen that no disallowance was made u/s 43B in respect of expenses of Rs. 53,67,633/- of VAT and service tax incurred during the year but was not paid on the date of filing of return, (2) The assessee had paid employees contribution to PF of Rs. 4,85,296/- to Govt. account beyond due date, which is liable for disallowance as per the provisions of section 36(1)(va) read with section 2(24)(x) and the assessee had disallowed only Rs. 3,36,723/- (3) the assessee had claimed depreciation on electrical installation of Rs. 3,56,874/- @ 15%. Since, the depreciation on electrical installation is allowed at 10% there was excess claim of depreciation of Rs. 1,18,958/- and (4) the assessee had debited rent of Rs. 1,24,60,804/- paid to M/s Tag Enterprises. It was noticed that the rent agreement has been entered between M/s Tag Enterprises and M/s Brand Marketing and no explanation and details were brought on record during assessment proceedings, the assessment was reopened u/s 147 of the Act. Accordingly, notice u/s 148 of the Act was issued and the assessee submitted that the original return filed by the assessee may be treated as return filed in response to notice u/s 148 of the Act. Assessment Year: 2009-10
Thereafter, the AO issued notice u/s 143 (2) and 142(1) and fixed the date for hearing. Since, the assessee did not appear on the date of hearing the AO adjourned the case fixed for two/three occasions, but the assessee did not turn up nor submitted any reply, the AO proceeded ex-parte and passed assessment order u/s 144 read with section 147 of the Act and determined the total income of the assessee at Rs. 1,81,23,437/- after inter alia making addition of Rs. 1,24,60,804/- on account of disallowance of rent expenses, Rs. 53,67,633/- u/s 43B, on account of CST/ VAT and work contract tax and Rs. 1,48,296/- on account of disallowance u/s 36(1)(va) read with section 2(24)(x). 3. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal filed by the assessee and deleted the aforesaid additions. The revenue is in appeal against the findings of the Ld. CIT (A) 4. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):- i. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition of Rs. 1,24,60,604/- on account of rent payment to M/s Tag Enterprises in absence of Rent agreement?
ii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition of Rs. 53,67,633/- on account of unpaid VAT and Service tax liability on the grounds that the same was not debited to P & L account, although the assessee should have credited these amounts to the P&L account and should have claimed deduction under Section 43B thereafter? iii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is correct in deleting the disallowance of Rs. 1,48,296/- without appreciating the legal position that expenditure on account of employees contribution to PF and ESIC is not covered u/s 43B but is covered u/s 36(1)(va) r.w.s. 2(24)(x) Assessment Year: 2009-10
of the Act whereby such expenditure is allowable only if the said amounts are paid within the due date under the relevant Act and not allowable even if paid before the due date for filing of return of income?” 5. Ground No. 1 of the appeal pertains to the addition of Rs. 1,24,60,604/- made by the AO on account of rent paid to M/s Tag Enterprises. The Ld. DR submitted before us that since M/s Tag Enterprises has not entered into the rent agreement dated 29.06.2007 with the assessee, the AO has rightly made addition. Moreover, the assessee has failed to submit the details on record. Hence, the Ld. CIT (A) has wrongly deleted the addition.
On the other hand, the Ld. counsel for the assessee relying on the order passed by the Ld. CIT (A) submitted that since the office space was shared between the appellant and its group affiliates and the said understanding was covered under clause 14 of the agreement, the Ld. CIT (A) has rightly deleted the addition made by the AO. The Ld. counsel further submitted that the ITAT has decided the identical issue in favour of the assessee in the case of one of its affiliates M/s Murjani Retail P. Ltd. in ITA No. 5846/Mum/2016 for the same assessment year. 7. We have heard the rival submissions and gone through the orders passed by the authorities below and the order of the coordinate Bench passed in the case of M/s Murjani Retail P. Ltd.(supra). The Ld. CIT (A) has decided the said issue in favour of the assessee and directed the AO to delete the addition. The findings of the Ld. CIT (A) are as under:- “Ground No. 2 relates to a disallowance of a sum of Rs. 1,24,60,804/- on account of Rent payment to M/s Tag Enterprises.
In the written submissions, it is stated by the appellant that the aforesaid office space was shared between the appellant and its group affiliates and this understanding was specifically covered under clause 14 of the Agreement on ‘Assignment’ , under this clause, there is an express permission given by the Licensor to the Assessment Year: 2009-10
Licensee to assign it’s (Licensee’s) rights to the listed specific affiliates which includes the appellant i.e. MC Retail Private Limited- copy of this Agreement is placed on record.
8.1 Since the office space was also utilized for the business purpose of the appellant, which is not disputed by the AO, the appellant, pursuant to the Agreement, made payment of Rs. 1,24,60,804/- to the licensor after due deduction of tax at source under section 194I of the I.T. Act. As per the Leave and License agreement dtd. 29.06.2007 entered between M/s Tag Enterprises, Colaba, Mumbai 400005 and M/s Brand Marketing India Pvt. Ltd., Fort, Mumbai 400001, the licensor permitted the licensee M/s Brand Marketing India Pvt. Ltd. the right to assign the premises for the following companies as per clause 14 of the agreement which is reproduced as under:-
“The leave and license agreement was made between M/s Tag Enterprises and M/s Brand Marketing (I) Pvt. Ltd. and not with the assessee. The only part of the agreement where the assessee is mentioned is in para 14: Assignment. The clause states as followed: The Licensor has permitted the Licensee to assign its rights only to the following affiliate/s mentioned below, subject to the representation made by the Licensee that the affiliate/s have a paid up capital of above Rs. 1,00,00,000 (one crores). It is hereby agreed that in the event the authorized capital of any Affiliate/s reduces below Rs. 1,00,00,000 (One Crore) then this agreement shall ipso facto stand terminated. Name of Affiliates 1. Murjani Retail Pvt. Ltd. 2. MK Retain Pvt. Ltd. 3. MC Retain Pvt. Ltd. The Licensee may instruct such Affiliate/s to make payment of the proportionate deposits, Monthly compensation, CAM Taxes, electricity, water and/ or other charges due under this Agreement directly to the Licenser and this shall be adjusted against the Licensee’s obligations to make payments to the Licensor under this Agreement.” Assessment Year: 2009-10
The total rent along with the maintenance and cleaning charges paid was Rs. 4,03,90,578/- which was shared with MK Retail Pvt. Ltd.
The breakup of which is as under: Total Rent Rs. 3,73,55,884/- Add: Maintenance & Cleaning charges Rs. 30,34,694/- Total Rs. 4,03,90,578/-
However, in the assessment order and the remand report dtd. 17 October, 2016, the AO has stick to this opinion that the appellant company i.e. M/s MC Retail Pvt. Ltd. is not at all a signatory for the rent agreement dtd. 29.06.2007 entered between M/s Tag Enterprises and M/s Brand Marketing India Pvt. Ltd. and hence the rent paid is not an allowable expenditure.
8.2 I have gone through the TDS certificates collected for the rent payment for the co-tenants. In case of M/s Murjani Retail India Ltd., a group company of the appellant, the same issue was decided in favour of the appellant vide order No. CIT (A)-2/249/2014-15 DTD. 15.06.2016. The AR of the appellant has explained that the premises Metro Dome, 4th Floor, Metro Theatre, M G Road, Mumbai 400020 is shared by the above two group companies alongwith the appellant and the rent and amenities were also equally shared and hence it is a allowable expenditure and the AO is directed to the delete the addition of Rs. 1,24,60,804/-. Hence, this ground of appeal is allowed”. 8. As pointed out by the Ld. CIT (A), AO has not disputed the fact that the office space was utilized by the assessee for business purpose. It is also not disputed that the assessee has paid Rs. 1,24,60,804/-. We further notice that the Ld.CIT (A) has relied on the case of M/s Murjani Retails Pvt. Ltd. a group company of the assessee in which the Ld. CIT (A) has decided the identical issue in favour of the assessee. The assessee has explained during the appellate proceedings that the premises Metro Dome, 4th Floor, Metro Theatre, M.G. Road, Mumbai was shared by the group company aforesaid and the rent Assessment Year: 2009-10
and amenities were also equally shared. The coordinate Bench has allowed the identical deduction in the case of the group company M/s Murjani Retails Pvt. Ltd. (supra). Since, the coordinate Bench has decided the identical issue in favour of the assessee and since the order of the Ld. CIT (A) is in accordance with the findings of the coordinate Bench, we do not find any reason to interfere with the findings of the Ld.CIT (A). We therefore uphold the findings of the Ld.CIT (A) and dismiss this ground of appeal of the revenue.
Vide Ground No. 2, the revenue has challenged the action of Ld. CIT (A) in deleting the addition of Rs. 53,67,633/- on account of unpaid VAT and service tax liability on the ground that the assessee should have credited these amounts to the P&L account and should have claimed deduction u/s 43B thereafter. Before us, the Ld. DR submitted that since the statutory liability of VAT and service tax of Rs. 53,67,633/- which was incurred in the previous year, but was not paid on the date of filing of return, the assessee is liable for disallowance u/s 43B of the Act. On the other hand, the Ld. counsel for the assessee submitted that the amounts not being debited to the profit and loss account were not claimed as expenditure itself, hence, cannot be added back u/s 43B of the Act. The Ld. counsel further submitted that the assessee had submitted journal vouchers which give the scheme of entries for the statutory liability break up of other liabilities in the balance sheet as on 31.03.2009 which shows the amounts of Central Sales Tax, Delhi VAT, Haryana VAT, Maharashtra VAT and Maharashtra Works Contract. 10. We have gone through the findings of the authorities below in the light of the submissions of the parties. We notice that the Ld. CIT (A) has obtained remand report during the appellate proceedings and on the basis of the report, the Ld.CIT (A) reached at the conclusion that addition in question is not justifiable. The findings of the Ld. CIT (A) read as under: Assessment Year: 2009-10
Ground No. 3 relates to disallowance of a sum of Rs. 53,67,633/- under provisions of section 43B of the I.T. Act on account of CST, VAT and Works Contract Tax even though the same was not passed through Profit and Loss Account.
9.1 In the written submissions, it is stated by the appellant has submitted that the aforesaid amount, not being debited to the Profit and Loss account were not claimed as expenditure itself and hence cannot be added back under section 43B of the I.T. Act. This fact has also been expressly B)(i) & (ii).
9.2 In this case, fact that the aforesaid amounts, not being debited to the Profit and Loss account were not claimed as expenditure itself and hence cannot be added back while computing taxable income of the appellant cannot be ignored.
9.3 To demonstrate the above, the appellant has submitted Journal Vouchers which give the scheme of entries for the statutory liabilities, break-up of other liabilities in the Balance Sheet as at 31 March 2009 which shows the amounts of Central Sales Tax, Delhi VAT, Haryana VAT, Maharashtra VAT and Maharashtra Works Contract. 9.4 The above submissions and the Tax Audit Report, where the independent Auditor has mentioned that the amounts have not passed through the P&LO Account are taken note of.
9.5 Clearly, what has not been claimed as expense, it being a Balance Sheet item, cannot be added back to income of the appellant.
9.6 In this regard, the remand report sent by the AO dated 21.10.2016 is as under:-
“On perusal of the Tax Audit Report, it is seen in Annexure-VII, it is mentioned that the liabilities ‘VAT payable’ and ÇST payable’ were not passed through the Profit and loss account. These liabilities, as given above amount to Rs. 52,86,251/-. On perusal of the Profit and Loss Account, there are no separate entries that relate to VAT payable and service Tax payable. The only ambiguous entry is ‘Misc Expenses’ that amounts to Rs. 11,52,.015/-, the break-up of Assessment Year: 2009-10
which was not given. The assessee has submitted sample Journal Vouchers that indicate that the VAT payable and service tax payable was recorded separately.”
Considering the above facts on record, I am of the considered opinion that addition of Rs. 53,67,633/- is not justifiable and accordingly I direct the AO to delete the addition to the extent of Rs. 53,67,333/- and hence this ground of appellant is allowed.
In our considered opinion, the findings of the Ld. CIT (A) are based on the evidence on record. Since, the assessee has not debited the profit and loss account, the assessee has not claimed the same as expenditure. Therefore, the said amount cannot be added back u/s 43B of the Act. Hence, we do not find any legal or factual infirmity in the findings of the Ld. CIT (A) to interfere with. Hence, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. 12. Ground No. 3 pertains to disallowance of Rs. 1,48,296/- under the provisions of section 36(1)(va) read with section 2(24)(x) of the Act on account of payment of Employees contribution to the Provident Funds beyond the prescribed date under the PF Act. The Ld. DR relied on the findings of the Assessing Officer. On the other hand, the Ld. counsel for the assessee relying on the findings of the Ld. CIT (A) submitted that since the AO has accepted in its report during the appellate proceedings that the contributions were paid before due date of filing of return. The Ld. CIT (A) has rightly directed to AO to delete the addition. 13. We have perused the material on record in the light of the rival submissions. The Ld.CIT (A) has deleted the addition in question holding as under:-
Ground 4 relates to disallowance of a sum of Rs. 1,48,296/- under the provision of Section 36(1)(va) r.w.s 2(24)(x) of the I.T. Act on account of payment of employees contribution to provident fund beyond the prescribed due date under the PF Act without Assessment Year: 2009-10
appreciating the fact that same was actually paid before the due date of filing the return of income under the provisions of Section 43B.
10.1 In this regard, the remand report sent by the AO dated 29.08.2016 is as under:-
“Disallowance u/s 36(1)(va) r.w.s 2(24)(x)- In the assessment order u/s 143 (3) r.w.s. 147, the AO had made a disallowance u/s 36(1)(va) r.w.s 2(24)(x)- for payments of Rs. 1,29,788/- which were paid beyond the due date.
From the Tax Audit report, it can be ascertained the above contributions were paid before due date of filing of return”
10.2 As per the remand report, the AO has accepted that the contributions were paid before due date of filing of return, hence the AO is directed to delete the addition of Rs. 1,48,296/- and hence this ground of appeal is allowed.”
We notice that the AO has admitted in its report that the assessee had paid the amount of contribution in question before the due date of filing of return. Since, the findings of the Ld. CIT (A) are based on the evidence on record and the report submitted by the AO, we do not find any infirmity in the said findings to interfere with the same. We accordingly uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. The facts of the present case are similar to the facts of the appeal of assessee M/s M.C. Retail, an affiliated company for the A.Y. 2009-10 decided above and the issues involved in this case are identical to the issues involved in the appeal of M/s M.C. Retail (supra) except the amount of additions involved. In the present case also, the assessee filed appeal before the Ld. CIT (A) and the Ld. CIT (A) partly allowed the appeal and deleted the additions in question Assessment Year: 2009-10
made by the AO. The revenue is in appeal against the impugned order passed by the Ld. CIT (A). 2. The revenue has raised the following effective ground of appeal against the impugned order passed by the Ld. CIT (A):-
i. “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition of Rs. 1,39,56,301/- on account of rent payment to M/s Tag Enterprises in absence of Rent agreement?
ii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition of Rs. 52,86,251/- on account of unpaid VAT and Service tax liability on the grounds that the same was not debited to P & L account, although the assessee should have credited these amounts to the P&L account and should have claimed deduction under Section 43B thereafter? iii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is correct in deleting the disallowance of Rs. 1,29,788/- without appreciating the legal position that expenditure on account of employees contribution to PF and ESIC is not covered u/s 43B but is covered u/s 36(1)(va) r.w.s.2 (24)(x) of the Act whereby such expenditure is allowable only if the said amounts are paid within the due date under the relevant Act and not allowable even if paid before the due date for filing of return of income?”
All the three grounds raised by the revenue in this appeal are identical to the grounds raised by the revenue in the case of one of the affiliates company M/s M.C. Retail discussed above. Since, there is no change of the facts and the circumstances of the case, we do not find any reason to deviate from the view already taken in the case of M/s M.C. Retails (supra). Hence, consistent with our findings recorded in the case of the M/s M.C. Retails aforesaid, we uphold Assessment Year: 2009-10
the findings of the Ld. CIT (A) for the same reason and dismiss all the three grounds of appeal raised by the revenue. In the result, both the appeals filed by the revenue for assessment year 2009-10 are dismissed. Order pronounced in the open court on 28th September 2018. (R.C. SHARMA) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 28/09/2018
Alindra PS
आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //// उि/सहायक िंजीकार (Dy./Asstt.