Rent of Flat not Used for Business Purpose is not allowable

Chandukaka Saraf & Sons P. Ltd. Vs ACIT (ITAT Pune)

 In this case, the assessee had debited in its P & L a/c an amount of Rs. 6,30,000/- as rent for a flat at Camp area, Pune. The A.O noticed that the rent for the said flat was even disallowed in the earlier assessment years for the fact that the said flat was not used for business purposes of the assessee­ There was a search conducted on the assessee-company on 27-11- 2014 and during the search operation, it was found that the flat in question was exclusively used by the family members of Shri Atul Shah, Director of the assessee-company, for family functions and family get-together. No evidences were produced to demonstrate that flat was used for business purposes. In fact in the statement recorded u/s 132(4) of the Act, Shri Atul Shah admitted that the said flat was exclusively used by the family members of Shri Atul Shah for family functions and get-together. In the orders of the A.O and the ld. CIT(A) it has been clearly brought out that this flat was never used for any business purposes of the assessee-company and whatever evidences have been produced in the form of leave and licence agreement, minutes of Board meeting, etc. fall in the category of self-serving documents. Even before us also, the ld. A.R for the assessee could not substantiate through evidence as to how the flat was used for the business purpose. In fact, he was unable to refute the facts placed on record. Therefore, undoubtedly the said flat was never used for business purposes of the assessee-company. We do not find any reason to interfere with the findings of the ld. CIT(A) and the same is upheld. The grounds of appeal are dismissed.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal preferred by the assessee emanates from order of ld. CIT(A)-1 1, Pune, dated 12-08-2022 for A.Y. 2018-19, on the following grounds:

“On the facts and circumstances of the case and in law,

1) The learned Principal CIT (A), Pune- 11 Pune erred both on facts as well as in law in upholding the disallowance of rent of Rs. 6,30,0001-.

2) On the facts and circumstances of the case and in law, the CIT(A), Pune- 11 erred in upholding the disallowance of rent of Rs. 6,30,0001- without considering the submission of the appellant specifically the submission of the assessee against the finding of the assessing officer that minute books were signed only by Atul J. Shah. The named CIT(A), Pune- 11 failed to appreciate Assessee’s submission that what was submitted before assessing officer was certified copies of the resolution passed and not the minute book itself. The learned CIT(A), Pune- 11 further erred in holding that, the leave and License Agreement which is not registered with any ‘state registration Authority’ does not have much evidentiary value because it falls in the category of a self-serving document.

3) Learned CIT(A), Pune- 11 has erred both in facts and in law in considering the Application under Vivad se Vishwas as a basis for dismissing the ground of appeal of Assessee not withstanding CBDT for earlier years stand as clarified in Answer to Question No. 52 of FAQs issued by CBDT vide circular No.9 of 2020 Dated 22-04-2020 clarifying the provisions of Vivad se Vishwas Act for ready reference.

Question No. 52 & answer thereto are reproduced.

4. The appellant craves leave to add, alter, amend or delete any of the
grounds of appeal.”

2. The relevant facts in this case are that during the assessment proceedings, the Assessing Officer noticed that the assessee has debited in its P & L a/c an amount of Rs. 6,30,000/- as rent for the flat no. 201, Runwal Regency, Sadhu Vasvani Chowk, Camp Pune. The Assessing Officer noticed that the rent for above flat was disallowed in earlier assessment years for the fact that the said flat was not being used for the business purposes of the assessee-company. The Assessing Officer noticed that a search was conducted on the assessee company on 27/11/2014, wherein, statement of Shri Atul Shah, Director of the assessee company was recorded on 27/11/2014. Shri Atul Shah is staying in Flat no. 301 of the same building. During the search operation, it was found that the said flat no. 201 was exclusively being used by the family of Shri Atul Shah for family functions and family get together. At that time no evidence in the form of any visitor book or any document suggesting that the said flat no. 201 was ever used for the business purpose of the company was produced by the company. These facts were admitted by Shri Atul Shah in the statement recorded u/s 132(4) of the Act. The Assessing Officer has reproduced the relevant portion of the said statement in the assessment order. During the assessment proceedings for A.Y. 2018-1 9, the assessee filed a copy of agreement with Ms. Sangeeta Shah evidencing the payment of monthly rent of Rs. 52,500/- for flat no. 201, Runwal Regency. The assessee also produced copies of resolutions suggesting that board meetings were held at flat no. 201, Runwal Regency, Pune. The Assessing Officer perused these resolutions and Minutes of Board meetings and noticed that these were signed only by Shri Atul Shah and not by any other person. In such situation, the Assessing Officer held that all these documents are self-serving documents and have been created only to complete the paper work. Accordingly, the Assessing Officer made a disallowance of Rs. 6,30,000/.

3. Before the ld. CIT(A) the assessee made submissions which were considered and after also considering the assessment order, the ld. CIT(A) held as follows:

7. I have perused the facts of the case and the submissions made by the appellant. At the outset, it may be mentioned that the rent is being paid to Mrs. San geeta Atul Shah who is wife of Shri Atul Shah, the Director of the appellant company. Therefore, the Leave and License Agreement which is not registered with any ‘State Registration Authority’ does not have much evidentiary value because it falls in the category of a self-serving document. Further, the Assessing Officer has given a finding that the minutes of board meeting are signed only by Mr. Atul Shah and by no other board of director or any other person. This finding of the Assessing Officer has not been rebutted by the appellant. In such situation, effectively, there is no change in factual position from earlier assessment years. It is also seen that for A. Y. 2017-18, the appellant opted for Vivad Se Vish was Scheme, 2020 and his appeal was dismissed by my predecessor vide order dated 23/10/2020. Considering the totality of facts of the case, I am of the considered opinion that monthly rent of Rs. 52,500/- is being paid to the spouse of the director of the appellant company for the flat which is exclusively being used by the family of the director and the company has failed to substantiate that the said flat was used for any business purpose. Accordingly, the addition of Rs. 6,30,000/- made by the Assessing Officer is upheld. The grounds no. 1 to 3 raised by the appellant are Ll PL PPLLl”

4. We have heard the rival submissions, considered the documents/materials available on record, analyzed the facts and circumstances in this case. In this case, the assessee had debited in its P & L a/c an amount of Rs. 6,30,000/- as rent for a flat at Camp area, Pune. The A.O noticed that the rent for the said flat was even disallowed in the earlier assessment years for the fact that the said flat was not used for business purposes of the assessee­ There was a search conducted on the assessee-company on 27-11- 2014 and during the search operation, it was found that the flat in question was exclusively used by the family members of Shri Atul Shah, Director of the assessee-company, for family functions and family get-together. No evidences were produced to demonstrate that flat was used for business purposes. In fact in the statement recorded u/s 132(4) of the Act, Shri Atul Shah admitted that the said flat was exclusively used by the family members of Shri Atul Shah for family functions and get-together. In the orders of the A.O and the ld. CIT(A) it has been clearly brought out that this flat was never used for any business purposes of the assessee-company and whatever evidences have been produced in the form of leave and licence agreement, minutes of Board meeting, etc. fall in the category of self-serving documents. Even before us also, the ld. A.R for the assessee could not substantiate through evidence as to how the flat was used for the business purpose. In fact, he was unable to refute the facts placed on record. Therefore, undoubtedly the said flat was never used for business purposes of the assessee-company. We do not find any reason to interfere with the findings of the ld. CIT(A) and the same is upheld. The grounds of appeal are dismissed.

5. In the result, appeal of the assessee is dismissed.

Order pronounced in the open Court on this 14^th day of February 2023.