Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES ‘SMC’ MUMBAI
Before: SHRI A. K. GARODIA.
This is an appeal by the assesse directed against the order of Ld. CIT (A) - 16 Mumbai, dated 26.12.2013 for assessment year 2008-2009.
The grounds raised by the assessee read as under:-
On the facts and circumstances of the case and in law, the learned commissioner of Income Tax (Appeals) has erred in confirming the disallowance made u/s 40 A (2) (b) by the assessing officer amounting to Rs. 6,88,870/- out of machine hire charges paid to the related party.
2 आयकर अपील सं. / Year 2008-09 2. Further without prejudice to the above ground of appeal No.1, the assessing officer has added Rs. 6, 88,870/- to the total income at page 5 of the order towards disallowance made u/s 40A (2) (b) whereas the same was worked out at Rs. 6, 68,870/- at page 4 of the assessment order, hence the AO should be directed to rectify the extra disallowance of Rs. 20,000/-.
Your appellant craves to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, to alter, to amend or to furnish fresh and/ or detailed grounds of appeal.
It was submitted by the Ld AR of the assessee that as per page 3-4 of the Assessment Order, the AO stated that only interest on loan paid by the owner of the machinery in question Shri. Pradeep Nalawade, (Individual) Rs. 345,246/- and depreciation on machinery in question of Rs. 5, 05,884/- are the expenses incurred of Rs. 8, 31,130/- on machinery which is let out to HUF. However, he recovered the rent of Rs. 15Lacs for hiring of the machinery.
3 He further drew my attention to Page no. 3 of the order of the Ld CIT(A), where, it is noted that the original cost of machinery was Rs. 83.98 Lacs plus Rs. 30 Lacs of existing machinery at the time of initial hiring in assessment year 2005-2006. It is also noted by the Ld CIT (A) that machinery where worth of Rs. 1.14crores and rent is only 13.16% of total cost of machinery.
He further submitted that the payment of Interest on loan of Rs. 3,25,246/-and total expenses of Rs. 831.130/- incurred by the owner of the machinery for acquiring the machine were considered by the AO to work out fair market value of the rent but instead of interest on loan only, he should have considered interest on total investment of Rs. 1.14 crores along with depreciation on investment by the owner of machine and if this is done, the payment of rent of Rs. 15 Lacs is neither excessive nor unreasonable. As against the Ld DR of the revenue supported the order of the authorities below.
3 आयकर अपील सं. / Year 2008-09
He also submitted that as per the reply submitted by the assessee before the AO as produced by the AO in para 4 of the assessment order, the payment of rent of Rs. 15Lacs is computed after considering the amount of the repayment of the loan to Saraswat Bank and other private financial institutions. He submitted that the repayments of loan should not be considered for working out fair market value of rent.
I have considered the rival submission. It may be that the basis of calculation of rent paid by the assessee to the owner of machinery may be defective because repayment of loan has been taken into consideration. But that alone cannot be a basis to say that the rent is excessive. I have to see the reasonableness of rent payment. No comparative case has been brought on record by any side. Hence I examine the reasonableness on other basis. I feel that one basis may be that if the machine is purchased by the assessee by borrowing funds, interest is to be paid on entire investment. Second basis may be that full or part may be out of own funds. In that case also, the assessed will loose income on own funds. Hence, in any case, it is fair to consider interest on total investment to see the reasonableness of rent along with depreciation.
Therefore in my considered opinion, the interest calculation should be on the entire amount of the machinery, as it is noted of Rs. 1.14 crores on Page 3 of the order of the Ld CIT (A).
If I consider the total interest on this total investment of Rs. 1.14 crores plus depreciation on machinery accepted by the AO of Rs. 5.05 Lacs, the payment of rent by the assessee of Rs. 15 Lacs is neither excess nor unreasonable and hence no disallowance is justified u/s 40A(2)(b) of the act.
4 आयकर अपील सं. / Year 2008-09
I therefore delete this entire disallowance made by the AO of Rs. 6, 88,870/-
In the result, the appeal filed by the assessee is allowed.