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’).
2. Since these three appeals pertain to same assessee, same assessment years, common and identical issues are involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
3. Although, these appeals filed by the Revenue and Assessee contain multiple grounds of appeal. However, at the time of hearing, we have carefully perused all the grounds raised by the Assessee as well as Revenue. We find that most of the grounds raised by the Assessee as well as Revenue are either academic in nature or contentions in nature. However, to meet the ends of justice, we confine ourselves to the core of the controversy and main grievance of Assessee and the Revenue as well. With this back ground, we summarize and concise the grounds raised by the Revenue as well as Assessee as follows.
(1). Ground No. 1 raised by the assessee in ITA No. 937/Kol/2018, for A.Y 2010-11 and Ground nos. 1 and 2 raised by the Revenue in ITA No. 1439/Kol/2018 for A.Y 2010-11 are common and identical and relate to disallowance u/s. 14A r.w.r 8D(2)(ii) and 8D(2)(iii ) of the Income Tax Rules, 1962.
(2). Ground No. 3 raised by the Assessee in ITA No. 937/Kol/2018, for A.Y 2010-11, relates to disallowance of Rs. 4,06,847/ holding that the same to be in the nature of prior period expenses.
Note: Ground No. 2 raised by the assesse in ITA No. 937/Kol/2018, for A.Y 2010-11, has not been pressed by the Assessee, therefore, it does not require adjudication.
(3). Ground No. 3 raised by the Revenue in ITA No. 1439/Kol/2018, for A.Y 2010-11, relates to deletion of addition of notional interest of Rs. 82,78,301/.
(4). Ground No. 4 raised by the Revenue in ITA No. 1439/Kol/2018, relates to disallowance of compensation of Rs. 11,00,000/ paid to M/s. Conforms Pvt. Ltd, a related company u/s. 40A(2)(b) of the Act without calling for Remand Report.
(5). Grounds raised by the assesse in ITA No. 938/Kol/2018, for A.Y 201011, relates to action of the Assessing Officer in treating Government securities within the meaning of “Bonds” for the purpose of third proviso to section 48 of the Act, and erred in dismissing the assessee’s claim for indexed loss of Rs. 31,49,09,561/.
(6). Additional ground raised by the assessee in ITA No.937/Kol/2018 for A.Y.201011 reads as under:
“That on the facts and in the circumstances of the case, the authorities below erred in not allowing deduction U/s 37(1) of the Income Tax Act, 1961, on account of Education Cesses paid by the assessee while arriving at the assessed income for the year under appeal.”
4. First, we shall take up the Revenue’s appeal in ITA No. 1439/Kol/2018, for the A.Y 2010-11.
5. The appeal filed by the Revenue in ITA No. 1439/Kol/2018, for the A.Y 2010-11, is barred by limitation by 24 days. The Revenue filed a petition for condonation of delay. Having regard to the reasons given in the petition for condonation of delay, we condone the delay and admit the appeal of Revenue for hearing.
6. We shall take summarized and concise ground No.1, which reads as follows:
(1). Ground No. 1 raised by the assessee in ITA No. 937/Kol/2018, for A.Y 201011 and Ground nos. 1 and 2 raised by the Revenue in ITA No. 1439/Kol/2018, for A.Y 2010-11 are common and identical and relate to disallowance u/s. 14A r.w.r 8D(2)(ii) and 8D(2)(iii ) of the Income Tax Rules, 1962.
Note: To adjudicate this summarized and concise ground No.1, we take lead case of revenue`s appeal in ITA No.1439/Kol/2018, for A.Y.2010-11.
7. The brief facts qua the issue are that on verification of the accounts of the assessee, it was noted by AO that the assessee company earned interest from Tax free bonds (exempt income) of Rs. 1,32,09,652/, and dividend income of Rs. 5,13,16,782/. In its computation of income, the assessee company has suomotto offered an amount of Rs.91,07,352/, as disallowance under said section. The computation of disallowance U/s. 14A r.w.r. 8D, as offered by the assessee company is reproduced hereunder for the sake of clarity and convenience.
