M/S. Autofin Ltd, Hyderabad vs Assessee

This appeal by assessee is directed against the Order of Ld. CIT(A)-II, Hyderabad dated 23.10.2013. The issue in this appeal is with reference to the disallowance made by the A.O. invoking the provisions of section 40A(2) on the rent paid by the company to the Directors, as confirmed by the Ld. CIT(A).

2. Assessee is an authorised dealer for sales and service of Tata cars. In the course of scrutiny assessment, the A.O. noticed that the company had taken land belonging to three Directors and paid rent of Rs.79,23,600 in the year. All the Directors fall under the category of specified persons under section 40A(2)(b). A.O. noticed that for a total of Rs.2820 sq. yards leased by the assessee, they were paid an amount of Rs.79,23,600 @ Rs.230 per sq. yard. On local enquiries, A.O. 2 ITA.No.57/Hyd/2014 M/s. Autofin Ltd., Secunderabad

concluded that the rental value of adjacent area was around Rs.100 per sq. yard per month and therefore, he restricted the fair value of lease rent per annum to Rs.33,84,000 and excess rent of Rs.45,39,600 was disallowed.

3. Before the Ld. CIT(A), assessee contended that the property is on the main highway and rent per sq. feet works out to Rs.23 which is fair and reasonable based on the present value of the land at Rs.5000 per sq. feet. It was further contended that A.O. has not given any authentic information about the fair rent in the locality at Rs.100 per sq. yard and therefore, without giving an opportunity to the assessee has restricted the amount. The Ld. CIT(A), however, noticed that enquiry report as made out by Inspector of Income Tax ("ITI") noted that M/s. Malik Motors paid Rs.6,00,000 per month for 6000 sq. yards whereas, M/s. Modi Hyundai paid Rs.9,00,000 for 6000 sq. feet and for building also. Based on the Inspector's report, the Ld. CIT(A) concurred with A.O. and confirmed the disallowance.

4. Before us, Ld. Counsel filed additional evidences in the form of sale deed to submit that A.O. has taken the area of leased land from Mr. Gowtham Chand Jain at 400 sq. yards whereas, the total area leased out by Mr. Gowtham Chand Jain was 833 sq. yards and in support filed lease deed dated 20th April, 2008. It was further submitted that the report of ITI was not provided to assessee and no opportunity was given either by the A.O. or by the Ld. CIT(A), while accepting comparable prices. It was further submitted that neither the assessee nor the individual Directors have got any benefit as the lease rent paid to the land was not assessed as income from house property. The entire rent was offered as income in 3 ITA.No.57/Hyd/2014 M/s. Autofin Ltd., Secunderabad

the individual hands which was also taxed at the same tax rate. In view of this, it was submitted that disallowance under section 40A(2) does not arise in the facts of the case. It was further submitted that assessee is widely benefited by acquiring Director's land and adding its own land located adjacent to the lease land to construct building with cellar + ground floor + two floors for business use and this aspect was not considered by the A.O.

5. Learned D.R. however, relied on the orders of the revenue authorities and submitted that it was assessee who submitted the area of lease and therefore, the mistake if any, cannot be attributed to the A.O. He supported the orders of A.O. and Ld. CIT(A) in invoking the provisions of section 40A on the transaction.

6. We have considered the rival contentions and examined the record. There is no dispute with reference to the fact that assessee has taken lease of total 3253 sq. yards as against 2820 sq. yards recorded by the A.O. in arriving at the disallowance. Assessee has filed an affidavit mentioning area leased out and also sale deeds to submit that area of 833 sq. yards given by Mr. Gowtham Chand Jain was wrongly noted as 400 sq. yards before the A.O. which mistake carried being in the order of the Ld. CIT(A). Assessee filed additional evidence which require examination by the A.O.

7. Coming to the issue of adopting the fair rental value it is not clear from the ITI report how he arrived at the rental values. Except his report there is no supporting evidence in the form of lease deeds or area maps so as to examine whether lease rents recorded by him are reasonable 4 ITA.No.57/Hyd/2014 M/s. Autofin Ltd., Secunderabad

or represent fair rent of the area. In fact, the Inspector's report extracted by the Ld. CIT(A) in the order does not even indicate whether there is any similarity or dissimilarity between assessee's property and the property's values he has enquired. Moreover, it is also contention that assessee was not given any opportunity during the assessment proceedings nor there is any opportunity by the Ld. CIT(A). In view of this, we are of the opinion that whole exercise conducted by the A.O. requires re- adjudication. A.O. should examine the extent of land leased and then establish that the rent paid by assessee is fair rent or not. Moreover, A.O. also should give due opportunity to the assessee if any enquires are caused by him in this regard. With these observations, we set aside the order of the A.O. and Ld. CIT(A) and restore the matter to the file of the A.O. to consider the additional evidence filed before us and also to give an opportunity to the assessee to justify the claims made therein.

8. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in open Court on 25.03.2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER Hyderabad, Dated 25th March, 2015 VBP/- Copy to : 1. M/s. Autofin Ltd., Secunderabad.

C/o. Ch. Parthasarathy & Co., 1-1-298/2/B/3, 1st Floor, Sowbhagya Avenue, Street No.1, Ashoknagar, Hyderabad - 500 020.

2. The Income Tax Officer, Ward 1(1), Hyderabad

3. CIT(A)-II, Hyderabad.

4. CIT-I, Hyderabad.

5. D.R. ITAT 'B' Bench, Hyderabad

6. Guard File