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Income Tax Appellate Tribunal - Delhi

Setron India Pvt. Ltd., New Delhi vs Assessee on 27 May, 2011

         IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH 'G' DELHI
     BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL

                           ITA No. 3519(Del)/2010
                          Assessment year: 2007-08

Setron India Pvt. Ltd.,                     Assistant Commissioner of
E-282, Greater Kailash-I,       Vs.         Income-tax, Circle 8(1),
New Delhi.                                  New Delhi.
PAN-AAACS4088F

   (Appellant)                                 (Respondent)


                         Appellant by : Shri Ashok Khurana, C.A.
                         Respondent by : Ms. Srujani Mohanty, Sr. DR

                                      ORDER

PER K.G. BANSAL : AM Ground no. 1 is that the ld. CIT(Appeals) erred in sustaining disallowance of Rs. 1,12,816/- in respect of sundry balances written off, being in the nature of bad debts debited in the books of account. The finding of the ld. CIT(Appeals) is that as per Assessing Officer no document in support of the claim was filed before him. However, the case of the assessee is that the details were filed. Some details have been filed in the course of appellate proceedings. However, it has been held that proper forum to file the details is the Assessing Officer. Therefore, the disallowance was sustained.

1.1 Before us, the ld. counsel referred to page no. 4 of the paper book, which gives the details of the balances written off in respect of four parties. Apart from that, other items aggregating to Rs. 21,001/- has also been written off. Page no. 5 of the paper book shows that the amount of Rs. 1,12,816/- has been debited to profit and loss account under the head "personnel, administrative and selling expenses". It is submitted that the amounts were in respect of sales and a part of sale proceeds was not received. Accordingly, the amount was written off from the books of account. The ld. DR supported the orders of lower authorities by submitting that it has not been shown before the lower authorities that the amounts had been taken into consideration in the profit of this or any other earlier year.

1.2 Having considered the rival submissions, we think it fit to restore the matter to the file of the AO for examining whether the amounts were taken into consideration in the income of this or any other earlier year. If it is so, then the assessee cannot be asked to prove that the debts have become bad in this year, and the assessee will be entitled to deduction 3 ITA No. 3519(Del)/2010 of the amount in computing the income. Accordingly, this ground is treated as allowed for statistical purposes.

2. Ground no. 2 is in respect of disallowance u/s 40A(2)(b) from the rent paid to the director. In this connection, it is mentioned in the impugned order that the assessee paid rent to its own director for using a portion of his house at Greater Kailash-I, New Delhi and office at Greater Kailash Enclave-I, New Delhi. The AO has observed that the rent has increased significantly from last year. It has been further observed that the assessee has diverted its profit to the director as in his assessment deduction u/s 24 @ 30% of the rent is admissible. On the other hand, the case of the assessee is that a company and its director are two separate entities. It has been held that undoubtedly the assessee and director are two separate persons. However, the question here is whether the rent paid to the director is excessive having regard to the fair market rent and whether provision u/s 40A(2)(b) is applicable. The rent has been abruptly increased for which no reason has been given. No comparative instance has also been furnished. Therefore, the action of the AO has been upheld.

2.1 The only submission made before us is that the AO has not brought any evidence on record to show that the rent paid to the director was excessive having regard to the fair market rent, the burden of which was on him. On the other hand, the case of the ld. DR is that abrupt increase in the rent shows that excessive rent has been paid to the director. 2.2 We have considered the facts of the case and submissions made before us. Page no. 7 of the paper book contains the details of rent paid for various years. An amount of Rs. 5,58,929/- was paid in financial year 2004-05. The rent paid in financial year 2005-06 amounted to Rs. 3,84,000/-. As against the aforesaid, the rent paid in financial year 2006- 07 amounts to Rs. 7,68,000/-. The rent in respect of Greater Kailash and Greater Kailash Enclave property has increased significantly in this year vis-à-vis the last year. Therefore, there is an internal data regarding rent paid to the director in three years. There is no explanation regarding sudden increase in the rent in this year. Nonetheless, this by itself may not lead to a conclusion that the rent paid in this year is more than the fair rental value of the property. Therefore, we think it fit to restore this matter also to the file of the AO for obtaining comparative rent and thereafter consider the applicability of section 40A(2)(b) de-novo 5 ITA No. 3519(Del)/2010 after hearing the assessee. Thus, this ground is also treated as allowed for statistical purposes.

3. Ground nos. 3 and 4 are in respect of disallowance of expenses amounting to Rs. 1,61,616/- and Rs. 1,69,272/- as capital expenses. In this connection, the finding of the ld. CIT(Appeals) is that on the facts major expenses are of capital nature. Therefore, he allowed some relief and capitalized the rest of the expenses.

3.1 Before us, the ld. counsel referred to the details of the expenses placed in paper book at page nos.8 and 9. Page no. 8 shows expenses in respect of repair and maintenance of building. It is seen that expenditure has been incurred on re-doing the flooring, painting, carpentry and varnishing. Similarly, other repairs and maintenance are in respect of painting of old furniture, furnishing, water proofing, replacing upholstery of sofas, chairs etc. Having considered these expenses, we are of the view that they do not bring into existence any asset of capital nature. The expenses are properly repairs and maintenance expenses deductible u/s 37(1) of the Act. Thus, ground nos. 3 and 4 are allowed.

4. No appeal lies against initiation of penalty proceedings u/s 271(1)(c) of the Act. Thus, ground no. 5 is dismissed.

5. In the result, the appeal is treated as partly allowed for statistical purposes.

This order was pronounced in the open court on 27 May, 2011.

 Sd/-                                                        sd/-

(Rajpal Yadav)                                          (K.G. Bansal)
Judicial Member                                    Accountant Member
Date of order: 27th May, 2011.
SP Satia
Copy of the order forwarded to:-
Setron India Pvt. Ltd., New Delhi.
ACIT, Circle 8(1), New Delhi.
CIT
CIT(A),
The DR, ITAT, New Delhi.                            Assistant Registrar.