Rs. 20k Incremental Rent Paid to Related Party Disallowed as Excess u/s 40A(2)(b): ITAT Remits for Documentary Verification [Read Order]
ITAT remitted the disallowance of Rs. 20,000 incremental rent paid by Deluxe Recycling India Pvt. Ltd. to its Director, Shri Lakhamshi Malshi Shah, to the AO for verification of documentary evidence and reasonableness under Section 40A(2)(b). The AO had treated the incremental rent as excess without independent verification.
The Mumbai bench of Income Tax Appellate Tribunal remitted a matter of disallowance of incremental rent paid under Section 40(2)(b) to the related party for documentary verification.
The assessee, Deluxe Recycling India Private Limited, had booked a flat bearing No. A-2, 3212 at India Bulls Sky Forest, Mumbai, in the year 2014 for a consideration of Rs 8,01,61,000/-. The sale agreement for this was registered on 27.09.2019.
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Three grounds of appeal were brought in the instant case, of which two of the appeals were of assesses and one appeal was that of revenues. The assessee in the instant case challenged the addition made towards disallowance of rent paid of Rs.20,000/- by invoking provisions of section 40A(2)(b).
The assessee had been paying yearly rent of Rs 1 lakh to its Director, Shri Lakhamshi Malshi Shah. In the year under consideration, a supplementary agreement was entered into to increase the payment of rent from Rs 1 lakh to Rs.1,20,000/- as claimed by the assessee. This incremental rent of Rs. 20,000/- was disallowed by the AO by treating it as excess rent paid vis-à-vis the old agreement which was confirmed by the CIT(A). Aggrieved of this order the assessee filed an appeal before the Tribunal.
The Tribunal noted that there was nothing brought on record to demonstrate that the rent paid has been in excess as required under Section 40A(2)(b) without making any independent examination/verification by the AO.
The two-member bench of Sandeep Gosain (Judicial Member) and Girish Agrawal (Accountant Member) held that it was appropriate to remit the matter back to the AO for the limited purpose of verification of documentary evidence, to objectively arrive at any excess payment of rent under Section 40A(2)(b).
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