TMI Blog2020 (11) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be applied in respect of provisions of section 40A(2) when a general definition of term relative is provided u/s 2(41) of the Act. Hence, the provisions of section 40A(2) cannot be invoked in respect of transaction of payment of rent to Alka Bajaj and Preeti Bajaj who are not falling in the definition in term of relative provided u/s 2(41) . Excess /unreasonable payment to the specified person - Quantum of rent cannot be considered in absolute terms as to whether it is excess or unreasonable without considering the rate of rent paid by the assessee in terms of per square feet or per square meter. Further the comparison of the rent paid by the assessee is also depends upon various factors being the locality of the each property if the same are not situated at one place and therefore there cannot be a standard criteria of fair market rent to be applied for all the properties without considering the criteria such as locality, nature of property and other advantage or disadvantage attached to a particular property. Hence, the fair market rent required to be determined by considering all these factors and by bringing on record the comparable cases for each of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the commercial/business expediency or relevancy of expenditure. The observations made by the AO, as confirmed by the Ld. CIT{A), to the effect that enhanced Rent expenditure is without business expediency and constituting the foundation for the instant addition are extraneous to record, without material and wholly unwarranted. 3. RECAUSE, on the facts and in the Circumstances of the case, the impugned order passed by the Ld. CIT (A), confirming the illegal addition made by the AO for ₹ 6,26,811/-, is further unsustainable in law since the Revenue has itself accepted expenditure under the head Rent in the previous assessment year and the business turnover of the instant assessee has increased from ₹ 5.90,76,404/- to 14,69,28,769/- during the current assessment year and hence there is enough evidence to demonstrate the business expediency in incurring the additional rent. Further, the authorities have not considered the explanation furnished by the assessee, i.e. 1. The proximity of the shop from home. 2. The need for a nearby bank and food establishment 3. The nearness of the target market, the cost of delivering the goods, the nature of product tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for the year under consideration which is more than the reasonable enhancement of 10% is not allowable being excess payment in comparison to the fair market price. The assessee challenged the action of the AO before the CIT(A) but could not succeed. 3. Before the Tribunal, the ld. AR of the assessee has submitted that the details of the rent paid by the assessee during the year are reproduced by the AO in the assessment order and therefore, the recipient at Serial no.(i) and (iii) i.e. Alka Bajaj, sister-in-law and Preeti Bajaj, sister-in-law do not fall in the definition of relative as provided u/s 2(41) of the Income Tax Act and hence the provision of section 40A(2) cannot be invoked in respect of the rent paid by the assessee to these two parties. The ld. AR has further submitted that the AO has not taken up the matter to determine the fair market rent of the properties in question so as the arrive at the conclusion that the rent paid by the assessee to the related parties falling under the provisions of section 40A(2)(b) is more than the fair market rent. Thus the disallowance made by the AO is highly arbitrary and in contravention of the provisions of section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Relation Area in Sq. Feet (approx.) 1 Alka Bajaj 1172/1/778, Mutthiganj, Allahabad Godown 3,00,000=00 30,000=00 Sister-in law 1920 2 Kamla Devi Bajaj 34-A (Old)/36/46 (New),Chak, ZeroRoad, Allahabad Shop and controlling office 4,50,000=00 45,000=00 Mother 2393 3 Preeti Bajaj 667/525, Nai Basti, Kydganj, Allahabad Godown 4,50,000==00 45,000= 00 Sister-in law 3744 4 Rajeev Bajaj 61/32, Ram Bagh, Allahabad Godown 4,50,000=00 45,000=00 Brother 2981 5 Varsha Bajaj 658/517, Nai Basti, Allahabad God ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relative is provided u/s 2(41) of the Act. Hence, the provisions of section 40A(2) cannot be invoked in respect of transaction of payment of rent to Alka Bajaj and Preeti Bajaj who are not falling in the definition in term of relative provided u/s 2(41) of the Income Tax Act. 8. As regards the issue of excess /unreasonable payment to the specified person, it is evident from the assessment order that the AO has made a disallowance on the basis of comparative rent paid by the assessee in the preceding year and in the year under consideration without determining the fair market rent of the properties in question. It is settled proposition of law that in order to make a disallowance u/s 40A(2)(b), the AO has to first determine the fair market value/price and then compare the same with the actual expenditure incurred and payment made by the assessee to the specified person. In case, the payment made by the assessee to the specified person is excessive and unreasonable having regard to the fair market value/price, the amount found to be excess or unreasonable is liable to be disallowed u/s 40A(2) of the Income Tax Act. Therefore it is pre-condition for making the disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed in case if the payment is made to the persons referred to in clause (b) of section 40A(2) of the Act and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate need of the business or profession of the assessee shall be disallowed. 19. In the present case, having regard to the facts and circumstances referred to hereinabove, the Tribunal has arrived to a conclusion that the Assessing Officer has failed to prove by any comparable case or comparison by market rate that the amount paid by the assessee was excessive or unreasonable. The finding of the Tribunal is finding of fact. On the enquiry the Inspector found that the premise was in occupation and use of the assessee and the claim of the rent was not false. The Tribunal found that the assessee has paid the actual rent and reimbursed the actual expenditure incurred by M/s. MRL. We are of the view that the finding of the Tribunal is finding of fact, based on material on record and cannot be said to be perverse. The order of the Tribunal, in this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red loans are without any security, hence, the lender always carries the risk of not being able to recover the money. Therefore, the rate of interest is always little higher compared to the rate of bank interest. The decisions cited by the learned Authorised Representative also support this view. Therefore, in the facts of the present case, in our considered opinion, the payment of interest @ 15% per annum on unsecured loans availed from related parties cannot be considered to be excessive on unreasonable to invoke the provisions of section 40A(2)(b) of the Act. Accordingly, we delete the disallowances made by the Assessing Officer in all the assessment years under appeal. Grounds are allowed. 10. A similar view has taken by this Tribunal in a series of decisions including the decision relied upon by the ld. AR of the assessee. No contrary decision has been brought to the notice of the Tribunal. Accordingly, in the facts and circumstances of the case, when the AO has not conducted any enquiry to determine the fair market rent so as to hold that the payment made by the assessee on account godown/shop rent is excessive or unreasonable, the disallowance made by the AO is contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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