Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax ... vs Hemchand Murji Gada, Mumbai on 11 October, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "E" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER)
ITA No. 2118/MUM/2023
Assessment Year: 2014-15
DCIT, Circle-1, Thane, Room Shri Hemchand Murji Gada,
No. 22, B-Wing 6th floor, Ashar B-2, Laxman Nagar Near
IT Park, Wagle Industrial Vs. Aradhana Cinema Panch
Estate, Thane(W)-400604 Pakhadi Kaju Pada,
Thane(W)-400602.
PAN No. AACPG 2047 B
Appellant Respondent
Assessee by : Mr. Satya Prakash Singh
Revenue by : Mr. P.D. Chogule, CIT-DR
Date of Hearing : 04/10/2023
Date of pronouncement : 11/10/2023
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 27.03.2023 passed by the Ld. Commissioner of Income-tax (Appeals) - National Faceless Appeal Centre, Delhi [in short 'the Ld. CIT(A)'] for assessment year 2014-15, raising following grounds:
1. On the facts and circumstances of the case, the Id. CIT (A) has erred in not appreciating the fact that "even if the assessee's contention that the warehousing space is provided to various chemical/petroleum logistics companies is considered, even then the rental payments made to the related Shri Hemchand Murji Gada 2 ITA Nos. 2118/Mum/2023 parties are way beyond any reasonableness and beyond commercial ommercial prudence".
2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the related party has claimed rental income under the head Income from house property' and thus benefitted by standard deduction and tax slab benefits available to Individual.
3. On the facts and circumstances of the case, the Ld. CIT (A) has erred In not appreciating the fact that the assessee has not provided no such bifurcation of warehouses as discussed by Ld. CIT (A) in Para 5 5.5 .5 of his order during assessment proceedings before Assessing Officer.
4. On the facts and circumstances of the case, the Ld. CIT (A) has erred in not appreciating the fact that the assessee has neither provided opportunity of bearing heard nor called for remand report/factual report as not such photographs of different types of godowns as stated by Ld. CIT (A) in Para 5.6 of his order.
2. Briefly stated, facts of the case are that the assessee was engaged in the business of providing warehousing services to various companies dealing in chemical, petroleum, food, logistics etc. For the provision of those services, the assessee took warehouses on lease from related as well as unrelated parties. For the assessee filed return the assessment year under consideration, the of income on 03.11.2014 declaring total income of Rs.68,86,260/-.
Rs.68,86,260/ The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income Income-tax tax Act, 1961 (in short 'the Assessing Office Act') were issued and complied with. The Assessing Officer observed that the assessee had made lease/rent payment for rent from 25 parties. The warehouses/godowns taken on lease/rent Assessing Officer has produced a list of those parties along with Shri Hemchand Murji Gada 3 ITA Nos. 2118/Mum/2023 f annual rent paid, area of the warehouse/godown in square feet and rent per square feet from the chart produced in para 4 of the assessment order. The Assessing Officer noticed that rent paid to 3 related parties namely Daxa H Gada, Hemchand M Gada HUF and Vandan H Gada was excessive as compared to the rent paid to t other non-related related parties. Accordingly, the Assessing Officer asked the assessee as why the excess rent paid to related parties might not be disallowed invoking section 40A(2)(b) of the Act. The assessee explained that there was no straight jacket formul formula for charging rent. Itt was submitted that the warehouses/godowns taken on lease from the related party were constructed and used for storage of petroleum/chemicals and hazardous nature which required licenses/permissions from various authorities including Pollution Panchayat' etc. The Board, Fire Brigade and local body i.e. 'Gram Panchayat Assessing Officer however rejected the contention of the assessee and estimated average rent per square feet annually at the rate of @ Rs. 150 and disallowed the excess rent paid by the assessee, assessee observing as under:
The contentions of the assessee have been carefully perused. The same is not acceptable for the reasons discussed hereunder.
The assessee has given an example of Smt Daxaben H.Gada with a breakup of how the monthly rent of Rs.22,00,000/-.
Rs.22,00,000/ On perusal of the rent agreement copy, dated 01/04/2013 between Smt Daxaben H.Gada and the assessee no such bifurcation is seen. Further, in the initial submission made during the course of assessment proceedings.
proceedings. dated 13/08/2016 in which the details of godown rent paid were furnished, it is seen that the rented premises is shown at Shri Hemchand Murji Gada 4 ITA Nos. 2118/Mum/2023 42150 sq.ft. On perusal of the rental agreement copy with Smt Daxaben H.Gada, it is seen that the rented area is not d whereas on persal of the rent agreements in respect specified of all the unrelated parties, the area is mentioned clearly. Further in the assessee's submission dated 13/10/2016 the rented area is shown at 162800 sq.feet. Thus, there are discrepancies in the submis submissions sions of the assessee. Even if the assessee's contention that the warehousing space is provided to yarions chemical/petroleum logistics companies is considered, even then the rental payments made to the related parties are way beyond any reasonableness. Ke eping in view Keeping the above facts, it is clear that the assessee has made excess rental payments to related parties. After duly considering the contentions of the assessee with respect to the nature of goods stored, the required licences procured and the monop monopoly business contention, the excess rental payments to related parties is re-worked worked as under:
under S.No. Paid to Amount Sq. Feet as Rent per Avg. Rate per Reasonable Disallowance debited in per Sq. Ft. per Sq. Ft. after amount u/s 40A(2B) P&L assessee's year reconsideration worked out account Rs. initial at submission dated 13.08.2016 3 Daxa H 26400000 42150 626 150 6322500 20077500 Gada 8 H M Gada 2160000 8500 254 150 1275000 885000 HUF 24 Vandana H 840000 4400 191 150 660000 180000 Gada Total Disallowance u/s 40A(2B) 21142500 Ironically, if the reconsidered average annual rent at Rs. 150/-
150/ per sq.ft is observed, the monthly average rent works out to Rs. 13/- per sq.ft (Rs.150 / 12 months) which is in accordance with the contention of the assessee dated 13/10/2006 wherein it is submitted that the average rent charged per square feet is approx Rs.13.5/-
Rs.13.5/ in the case of Smt Daxa u/s.40A(2B) of the H.Gada. Accordingly, the disallowance u/s.40A(2B) I.T.Act, 1961 is made at Rs.2,11,42,500/ Rs.2,11,42,500/- as above."
3. On further appeal, the assessee submitted before the Ld. CIT(A) that warehouses taken on lease by the assessee were of the four categories, the warehouses of the three categories were constructed structed warehouses, warehouses whereas 4th category were mainly industrial shades. The assessee submitted that the Ld. Assessing Shri Hemchand Murji Gada 5 ITA Nos. 2118/Mum/2023 Officer while working out the rent per square feet in respect of properties from the Daxa S Gada has not considered open area available along with the constructed area. He submitted that if the open area available with the property is also taken into consideration then the rent payment was justified and in the range of the rent payment made to the unrelated unrelated parties. The T assessee also filed photos of the various types of the warehouses before the warehouses Ld. CIT(A) athough hough the Ld. CIT(A) has specifically mentioned in the evidences were filed by the impugned order that no additional evidence assessee. After considering the submission of the assessee, assessee the Ld. CIT(A) deleted the disallowance of excess rent made by the Firstly, there is a Assessing Officer mainly for the three reasons. Firstly big difference between the different type types of warehouses taken on lease by the assessee and the Assessing Officer simply disallowed disallow the rent by comparing the average rent paid in case of unrelated parties. Secondly in the case of warehouse taken on lease from M/s Daxa H Gada, the open space was not taken into consideration and had the same considered, considered there would not have been much difference. Thirdly, the parties to whom lease/rent payment was made by the assessee were in the same tax bracket and therefore, there was no occasion of the evasion of the tax liability liability.
4. Before us, the Ld. Counsel of the assessee has filed a Paper k containing pages 1 to 109 which contains copy of the lease Book agreement for different types of warehouses by the assessee.
Shri Hemchand Murji Gada 6 ITA Nos. 2118/Mum/2023
5. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In the case case, the he assessee has taken on lease warehouses/godown from related as well as unrelated parties. The Assessing Officer from the list of assessee observed that lease the lease rent payments paid by the assessee, rent paid to the three related parties namely Daxa H Gada, Hemchand M Gada HUF and Vandan H Gada was found to be excessive as compared to the lease rent to the unrelated parties. The Assessing Officer on comparing the lease rent paid to the unrelated parties allowed lease rent @ 150 per square ft. per annum and excessive cessive rent was disallowed which amount amounted to CIT(A)) has deleted the addition on the Rs.25,60,550/-.. The Ld. CIT(A ground that firstly, the Assessing Officer has not compared the fair market value of similar kind of warehouses/godowns. Secondly, Secondly the open area of the warehouse in the case of M/s Daxa H Gada was not taken into consideration and thirdly the persons to whom payments were made also fell into same tax bracket.
5.1 The issue in dispute in the case of the assessee is therefore, whether the rent paid by the assessee to three related parties is excessive or unreasonable having regard to the fair market value of the lease rent of the similar kind of properties in the vicinity area.
area The excessive or unreasonable lease rent paid has been disallowed essing Officer invoking section 40A(2)(b) of the Act. Before by the Assessing us, the Ld. Departmental Representative (DR) submitted that before Shri Hemchand Murji Gada 7 ITA Nos. 2118/Mum/2023 the Ld. CIT(A) assessee has filed photographs of the different kind of the warehouses which were in the nature of the additional evidence and no remand report has been called for from the Assessing Officer. He submitted that those photographs being clearly in the nature of the additional evidence. However, the Ld. CIT(A) has not vi considered as same additional evidence which is in violation of the Income tax Rules, 1962 (in short 'the Rules'). rules 46A of the Income-tax Further we find that before the Ld. CIT(A), the assessee has categorized all the warehouses in four categories which are reproduced as under:
TYPE 1 - These warehouses are well constructed having heights of 15 to 18 feetaccording to regulatory requirements. The first type of warehouse is used forstorage of inflammable/hazardous chemical petrochemical products. Theaforesaid 1st type of warehouse gets various Licenses, NOC's and Certifications to carry out the said operations, viz., License from Petroleum Explosive Safety Organization (PESO), Pollution Board Consent сору for storage of PetroleumProducts, NOCs from local governing bodies, fire briga de dept etc. The brigade Appellant had taken first type of warehouse on rent from Ms. Daxa H Gada. These types ofwarehouses must have necessary fire fighting equipment's like sprinklers, fire fire-fighting extinguishers, epoxy coated flooring etc. TYPE 2 - These warehouses are well constructed having heights of 15 to 18 feetaccording to regulatory requirements. The second type of warehouse is used forstorage of Foods products. The FDA approval for storage is obtained for 2nd type ofwarehouse. The Appellant had taken second type of warehouse on rent TYPE 3 - These warehouses are well constructed having heights of 15 to 18 feetaccording to regulatory requirements. The 3rd type of warehouse is used for TYPE 4 - These types of warehouses are in the form of sets store normal products which does not which are used to store Shri Hemchand Murji Gada 8 ITA Nos. 2118/Mum/2023 require permission or extra facility. TheAppellant had procured the above-mentioned mentioned warehouses from various number ofunrelated parties.
parties."
5.2 Before us, the Ld. Counsel of the assessee submitted that warehouse taken of lease from M/x Daxa H Gada was of type one (I) category i.e. having Petroleum Explosive Safety Organization (PESO) ( approved, NA approved land for warehouse, Fire NOC, automated water sprinkler for safely, Gram Panchayat NOC, having height of 18 feet , PEB structure ture . The other warehouses taken on lease from category i.e. RCC the two related parties were of the type two (II )category structure warehouse with automated water sprinkler for safely, Gram panchayat NOC and height of 15 feet and type three (III) category i.e. RCC structure with Gram Panchayat NOC and height of 15 feet , respectively . The b balance alance warehouses taken from non-
non related parties were stated of type IV category i.e. basic 12 feet warehouse. The contention of the assesse height 'patra' (iron sheet) warehouse. assessee is therefore, that comparison made by the Ld. Assessing Officer for determination of the fair market value of the lease rent of warehouses taken from related parties was not appropriate. However, we find that the Ld. CIT(A) has also not carried out an exercise for exact quantification of the fair market value of godowns taken from the related parties . We note that there was no other godown on lease from unrelated parties in the category of type I to III for internal comparison and the ld CIT(A) has merely merel relied estimate and presumption that inclusion of open area for the purpose of the estimation of the rent would make the lease rent Shri Hemchand Murji Gada 9 ITA Nos. 2118/Mum/2023 comparable to non--related parties, whereas hereas in the case of the Officer/CIT(A) was required to compare assessee, the Assessing Officer compa with the lease rent of the type one (I) category of the warehouse with any other type one I warehouse taken on lease from unrelated party or any comparison of lease rent paid by other parties for similar kind of warehouse.. We further noted that before us u the assessee has submitted that type one(I) one category warehouses required require regulatory requirement licenses NOC's and certificates from the various authorities including license from Petroleum Explosive Safety Organization, Pollution Board Consent copy for storage of Petroleum Products, NOC's from local governing bodies, fire brigade dept. etc. On perusal of the permissions/certificates filed in paper book before us, we find that different authorities thorities have issued permission to the assessee and not to the owner of the warehouse. On perusal of the lease agreement with M/s Daxa M Gada available on page age 19 to 24 of the Paper Book, we we find that there is no mention of any specific facility for storing any chemical/explosive except that at the property was constructed constructed. Iff the licenses or permission etc. have been taken by the assessee itself, then no extra inbuilt advantage is available to the assessee in respect of type one category of the warehouse and the excessive lease rent elated party is not justified. In our opinion neither the paid to related Assessing Officer not the Ld. CIT(A) has carried out proper comparison of the fair market value of the lease rent of type of warehouses taken on lease rent from related parties. We find that Shri Hemchand Murji Gada 10 ITA Nos. 2118/Mum/2023 Hon'ble Delhi High Court in order dated 11/03/2015 in the case of CIT vs Jansampark advertising and marketing p ltd in ITA 525/2014 held that ld CIT(A) should himself carry out enquiries if AO has failed in doing so. The relevant finding of Hon'ble High Court is reproduced as under:
"42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter llowing the appeal and deleting the additions made. It was also simply by allowing the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the power under Section 250(4).
250(4) This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld."
5.3 Further, the ITAT being final fact finding authority, autho discovery of true facts is necessary for application of law on the facts of the case and matter cannot be shut due to incomplete facts on record. Therefore, we set aside the finding of the lower authorities and Assessing Officer for making proper restore the matter back to the Assessing comparison of the lease rent of the type of warehouse taken on lease from related parties. The grounds of appeal of the Revenue are accordingly allowed for statistical purposes.
Shri Hemchand Murji Gada 11 ITA Nos. 2118/Mum/2023
6. In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced nounced in the open Court o /10/2023.
on 11/10/2023.
Sd/-
Sd/ Sd/
Sd/-
(RAHUL
RAHUL CHAUDHARY
CHAUDHARY) (OM
OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 11/10/2023
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai