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Judgment
Per Satbeer Singh Godara, Judicial Member:
This Revenue’s appeal for Assessment Year 2018-19, arise s against the CIT(A)/NFAC, Delhi’s DIN & order No. ITBA/NFAC/S/250/2023-24/1058271952(1) dated 28.11.2023, in proceedings u/s 143(3) of the Income Tax Act, 1961.
Heard both the parties at length. Case file perused.
The Revenue raises the following substantive grounds in the instant appeal:
”1. Whethe r on the facts and circumstances o f the case, the ld. CIT(A) was right in deleting the addition on account of under reporting o f rental income amounting to Rs.2,10,25,610/- made by the AO?
2.Whether on the facts and circumstances o f the case, the ld. CIT(A) was right in deleting the disallowance of interest charges claimed as de duction amounting to Rs.4,53,597/- without appreci ating the fact that the assessee failed to clarify that whether the internet facility was used for so lely and entire ly for the busine ss’s operations o r no t?
3.Whether on the facts and circumstances o f the case, the ld. CIT(A) was right in dele ting the disallowances of legal & professional charges amounting to Rs.8,77,712/-without appreciating the fact that the assessee failed to provide documentary evide nces in support of le gal & professional charges to the extent of Rs.1,34,444/- and regarding to the prior period expenses on account of legal & pro fessional charges of Rs.7,42,668/-?”
We advert to the first and foremost issue herein as the Revenue seeks to revive the Assessing Officer’s action alleging under reporting of rental income amounting to Rs.2,10,25,610/-at the assessee’s behest which stands deleted in the CIT(A)’s lower appellate discussion reading as under:
“5.4During the course o f the appeal procee dings, the Appellant company contended that it had entere d into a lease agreement on 11/ 12/2017 with the lessee (Sh. Navin Jindal) vide registration no . 15032 in Book No. 1, Volume No. 6549 on pages 58-65 in the office of the Sub-Registrar VII, New Delhi for a period of 05 years commencing from 01/11/2017 to 31/10/ 2022 for an agree d monthly re ntal/ le ase value of Rs.20,00,000/- per month and a co py of the lease de ed is also submitted during the appe al as well as assessment proceedings. On perus al of the same, it is observe d that the rental amo unt declared by the appellant is at par with the agreement of the le ase deed cited supra and no contr ary claim has been observed.
5.5It is further submitted by the appellant that o ut o f total area o f 3.85 Acre which is equal to 1,67,706 sq. ft., the actual covere d area fo r the dwe lling unit (building) is 1566.3 sq. mtrs i.e. 16,860 sq. ft.( approximate ly) as per the NDMC sanctio ned building plan and the rental r ate adopted by the AO according to the online portal is only for the co vered area and as such it is the claim of the appe llant that the rental rate of the appellant’s pro perty as pe r the AO’s value @ Rs. 37/- per sq. ft. stands at Rs.6,23,820/- (Rs. 37/- x 16860) per month, whereas, the appellant has charged Rs .20,00,000/- per mo nth which is much mo re than the value as pe r the rate sown in the online portal. The appe llant further submitte d that during the course of the assessment procee dings, in response to the show cause notice dated 23/ 03/2021, it had submitte d its reply to the AO vide letter dated 30/03/ 2021, wherein, followings wer e claimed:
“Vide Para 4.2 (i) and (ii) , you have mentioned that the assessee has failed to provide documentary evide nce in suppo rt of it’s claim regarding the covered area. In this context, we wish to clarify that on earlier occasion, we had categor ically stated that the total co vere d are a is 1566.3 sq mtrs i.e . 16860 sq ft. (approx) . We are her eby enclosing the relevant extract of the Building Plan duly sanctione d by NDMC. You will observe that there are two floors – one Ground Floor (having cove red area admeasuring 1129.18 sq mtrs) and ano the r First Floor (having covered area admeasuring 437.12 sq mtrs). For your ready reference, we he reby summarize the details/data, as extracted out of the Sanctio ned Building Plan-
Particulars Sanctioned Area (In sq mtrs) Total A rea (In sq mtrs) Ground Floor 1129.586 1129.18 First F loor 443.732 437.12 Total 1573.318 1566.300 Vide Para 4.2 (iii), you have mentioned “In abse nce of such documentar y evidence the area of the residential prope rty is he reby treated as 3.85 Acre (Appro x. 1,67,706 sq ft.) as mentio ned in the rent agreement ”. In this context, we wish to clarify that the area o f the total land, on which the building is constructe d, is 3.85 Acre . It will be inco rrect to tre at the to tal covere d are a of the building is 1,67,706 s q. ft. appro x. As a matter o f fact, the total covered area on the Ground Floor and the First Floor is 1566.300 sq mtrs i.e . 16860 sq. ft. F urther, since the documentary evidence in suppo rt of our claim that the total covered are a is 1566.300 sq. mtrs. i .e. 16860 sq. ft., yo ur pro posal to treat the total area as 3.85 Acres is liable to be droppe d.
On perusal of the abo ve, I am inclined to agree with the contention o f the appellant. First of all, I o pine that the AO has misinterpre ted the area of the land with the actual co vered area of the building. In suppo rt of its contention, the appellant company furnished the co py of building plan w herein it is clearly mentio ned that the covered area was only 1566.300 S q. Mete rs. It is also seen that dur ing the course of the assessm ent proceedings, the appellant company had strongly objected the proposal and stand taken by the AO; however , the same was ne gated. Further , on pe rusal o f the assessm ent order and the arguments backe d with the evidences brought o n reco rd, it is seen that other than re lying on the online po rtal, the AO had no other material evidences prio r to ado pting the rental value of Rs.37/- pe r square foot o n entire land of the property. The AO arrived at the rate o f Rs.37/- per square feet only on the o pinion of rent receive d from pro perty broke r firms and o nline websites.
T he Appellant company has duly audited its book s of accounts and as per the ITR and Form 26AS, the r ental income was declared/received @ Rs.1,00,00,000/- , also it is observed that the AO had not po inted out any de fects in the books of accounts no r did he bring on reco rd any other mate rial fac ts in support of the estimation of the rental income other than the reli ance on the online portal.
Further the AO in para 4.3 of the assessment o rder mentioned as under:
“4.3Witho ut prej udice to the above, if the contentio n of the assessee is accepted in any appellate proceedings for the rental income only fo r the cover ed are a o f 1566.3 sq. mtrs i.e. 16860 sq. ft. (approx) as claimed by the assessee, then the claim of depreciation by the asse ssee company will also requires modific ation.”
It is further held by the AO that the appellant had capitalized Rs.3,42,12,19,775/- and claimed depreciation of Rs.8,55,30,494/- on the entire proper ty and since the appe llant claimed the rental income only on the covere d area o f 16,860 sq. ft., hence t he depreciatio n was required to be restricted to that extent only which stands @ Rs. 85,95,815/- (Total area of the prope rty worked out @ 10.05% , de preciation to be allo wed 10% o f Rs. 8,55,30,494/-) . In this re gard, the appellant claimed that it had char ged depreciation on the cost of the building valued @ Rs.3,42,12,19,775/- which is substantiate d from the financials for the ye ar ende d March 31, 2018. F urther on perusal o f the details o f the fixed asse ts in the computation sheet, it is apparent that depreciatio n of Rs.8,55,30,494/- was c laimed at the rate of 2.5% on the value of the building declared of Rs.3,42,12,19,775/- as it was put to use for less than 180 days, which is in my conside red opinio n is as per the permissible limit prescribed under the provisions of the Act and re quires no alte ration. Thus, conside ring the totality of the facts of the case and discussions made abo ve, I find no reason to agree with the computatio n of the rental income estimated by the AO based on the info rmation gathe re d from the o nline portal witho ut br inging in any mate rial facts on record. I n vie w of this, the rental income shown by the appellant is upheld and the AO is directed to de lete the additio n of Rs.2,10,25,610/- on account of estimated rental income. Accordingly, Ground No. 5 & 6 are allo wed.
5.7.Ground No. 7 pe rtains to the issue o f addition of Rs.4,53,597/- on account of disallo wance of internet char ges and the same is adj udicated as under:
5.8AO’s Obse rvatio n:- The rele vant portion of the assessment order is repro duce d as under:
“5.Fur ther, on perusal of the de tails submitted by the assessee it is se en that the assessee has de bited Rs. 4,53,597/- o n account o f interne t charges. On pe rusal of the internet charges bills it is see n that the same was paid fo r the reside ntial property which has been given for rent for the ye ar under co nsideration. However, no thing has been mentioned in rent agreement regarding inte rnet char ges. The refo re, the assesse e was requested to provide as to why the i nte rnet charges of Rs . 4,53,597/-should not be disallowed. In response to the same vide its submission dated 16.03.2021 the assessee has submitte d as under:
“For the sake o f providing security to the building, internet facility was felt to be provide d. Hence , the expenses in connectio n with internet charges were incurre d for the purpose of business.”
From the submission of the assessee company it is not clear whether the assessee company has used the inte rnet or the tenant used the same. I t is no t clear that the providing inte rnet facility to tenant how the bui lding was provide d security.
5.1In this case Show Cause Notice (SCN) alongwi th Draft Assessment O rde r and Draft Computation Shee t o f Tax was issued to the assessee on 23.03.2021 propo sing disallo wance of internet expenses. In response to the same, the assesse e has submitted its reply to the SCN on 30.03.2021. T he relevant part of the same is re pro duced as under:
“Vide Para 5, you have proposed to disallo w who le of the deductio n claimed on account of Internet Charges amounting to Rs. 4,53,597/- . In this context, we wish to state that without providing Internet, the surveillance would no t have be en possible. Such expenditure deser ves to be allo wed.”
5.2The reply of the assessee has been care fully conside red but found not to be acceptable. F rom the reply submitted by the assessee it is not cle ar whe ther the assessee company has use d the interne t o r the tenant used the same. Further, no documentary evidence has provide d by the assessee in support of its claim that such huge amount is requi red to be spe nt on sur veillance of the building.
In view o f the abo ve discussio n, the claim of the assessee for de bited internet charge is he re by disallowe d and Rs. 4,53,597/- is her eby added back to the total income of the assessee for the year under consideration.”
Suffice to say, the Revenue/appellant could hardly dispute the clinching fact that what all the learned Assessing O fficer had done was to go by an online portal namely property.sulekha.com’s rates to conclude that the assessee had “under-reported” it’s rental income to the tune of Rs.2,10,25,610/-. There is admittedly no other mater ial to justify the impugned addition. That being the case, we are of the considere d view that the le arned CIT(A) has rightly deleted the impugned alleged under reported rental inco me addition in the given facts which is hereby affirmed.
Next comes the second substantive issue o f disallowance of internet charges payment of Rs.4,53,597/- made by the Assessing Officer and deleted in the lower appellate proceedings.
Learned departmental representative’s case is that the assessee could not ple ad and prove the relevant nexus be tween it’s business and the said internet char ges. We make it clear that there is hardly any quarrel betwee n the parties that the assessee had indeed installed the corresponding internet facility at it’s business premises. That being the case, we hereby find merit in the learned CIT(A)’s detailed discussion deleting the impugned internet charges payment disallowance since the same had been found to be incurred wholly and exclusive ly for the purpose of business.
Lastly co mes the third issue of prior period expenses on account of legal and professional charges of Rs.7,42,668/-wherein the Revenue alleges that the same ought to have been claimed and allowed in the lower appellate order. We are of the considered view that given the fact that the assessee has all along has bee n assessed at the maximum marginal rate, it is a revenue neutral expenditure instance; and, more particularly, when the same has crystallized in the relevant financial year only. We accordingly reject the Revenue’s instant third instant substantive ground as well.
This Revenue’s appeal is dismissed.