Case Law Details
Peerless General Finance & Investment Co. Ltd. Vs DCIT (ITAT Kolkata)
Conclusion: Amount paid as compensation by assessee to related company in respect of vacation of property occupied by that company was made after much negotiation and it was thus in accordance with business of assessee and therefore, the same was allowable.
Held: During the assessment proceedings, AO noted that assessee, in its profit and loss account had debited an amount under sub head ‘other expenditure’. The party wise details were sought. On perusals of which it was noted by AO that assessee had paid Rs.11,00,000/ on account of compensation paid to tenant. AO also noticed that it was paid to M/s. Conforms (P) Ltd, to whom assessee company let out a portion of its office premises and the compensation was paid to vacate the premise. On examination of the annual report and accounts of the assessee company it was noted by AO that M/s Conform (P) Ltd was a related party in terms of section 40A(2b). In spite of allowing adequate opportunity and time the assessee could not produce the copy of agreement or any evidence which showed that failing to vacate the said premise, assessee company had to pay compensation to M/s. Conforms (P) Ltd. Therefore, the said amount of compensation of Rs. 11,00,000/ was disallowed under the provision of section 40A(2b). It was held that in respect of disallowance of Rs.11,00,000/ being compensation paid by it to M/s. Conforms (P) Ltd, a related company u/s 40A(2)(a) & (b), AO had nowhere brought on record the fair market value (F.M.V.) of the compensation so paid in terms of section 40A(2)(a) & (b), to prove the excess so paid by assessee to such company. The payment was made in respect of vacation of the property so occupied by such company. Even if the agreement was not there but relevant correspondences duly prove that the payment was for the vacation of the impugned premises which was vacated by the said company. Hence, it was in accordance with the business of assessee and the same was allowable.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned three appeals filed by the Assessee and Revenue, pertaining to assessment year 2010-11, are directed against the separate orders passed by the Commissioner of Income tax (Appeals),19 Kolkata, in Appeal Nos. 185/CIT(A)19/Kol/2015-16, 1895/CIT(A)1/Circle3(1)/2015-16, dated 14-03-2018 and 28-03-2018 which in turn arise out of separate assessment orders passed by the Assessing Officer u/s. 143(3)/263 of the Income Tax Act, 1961 (in short, the ‘Act’).
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