TMI Blog2018 (7) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... COUNTANT MEMBER For The Appellant : Dr. Rakesh Gupta Sh. Somil Agarwal, Adv. For The Respondent : Sh. Atiq Ahmed, Sr.DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 11/11/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-7, New Delhi, [in short the Ld. CIT(A) ] for assessment year 2011-12, raising following grounds: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of ₹ 26,93,019/- on account of sundry balances written off u/s 36(l)(vii) and that too without observing the principle of natural justice. 2. That in any view of the matter and in any case, the' action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of ₹ 26,93,019/- on account of sundry balances written off u/s 36(l)(vii) is bad in law and against the facts and circumstances of the case. 3. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were in the nature of a business loss allowable to the assessee. The Ld. CIT(A), however relying on the decision of the Hon ble Delhi High Court dated 14/09/2010 in the case of CIT Vs Triveni Engineering industries limited in ITA No.56 of 2009, held the sundry balances written off for security deposits as in the nature of the capital and accordingly disallowed observing as under: 5.6. I have carefully considered the assessment order, written submissions, Remand Report and the Rejoinder thereto. The additional evidence furnished are rent agreements regarding payment of security deposits and is admitted for adjudication of appeal. The Ld. AR has stated that the amount written off by the appellant represents security deposits or part thereof which could not be recovered from the landlords, in spite of every effort made to get the refund. He has stated that since the amount of security deposit given, was for business purpose writing off of the same should be treated as a business loss which is allowable as per provisions of Section 37(1) of the Act. He has relied on a number of case laws to support his contention. Facts in most of the case laws are distinguishable as the forfei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in the form of rent. The question would be when such a security deposit has become non-recoverable for some reasons whether it can be allowable as deduction under Section 28 of the Act. The deposits were not given in the ordinary course of business either. These were given for securing the premises on rent; albeit for the purpose of carrying on business therein. Once we keep in mind this true nature of deposits, we find force in the submission of Ms. Bansat, learned counsel for the Revenue. 17. We may point out that the assessee had relied upon the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Madras Auto Service (P) Ltd. [233 ITR 468], However, that judgment would not be applicable to the facts of the present case. The expenditure incurred on the construction of building on a leased property was treated as revenue expenditure by the Supreme Court, as the assessee was getting business advantage and was acquiring the business asset in the context of specific Clause in the lease deed. Therefore, the property was not treated as that of the lessor. Further, the Supreme Court found that by incurring the expenditure of this nature, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities and therefore if required the issue may be sent back for verification . 5. The Ld. DR relied on the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has followed order of the jurisdictional High Court in the case of Triveni Engineering Industries Ltd. (supra) and, thus, say might be upheld, however, he did not object for verification of the claim of the Ld. counsel that part of the security deposits were already adjusted against the rent and allowable as revenue expenditure. 6. We have heard the rival submission and perused the relevant material on record. In the case of Fab India Overseas Pvt. Ltd (supra), the Tribunal in para 18 of the order observed as under: 18. On this factual matrix the issue before us is whether the loss of security deposit in question is a business loss in the revenue field . In our considered opinion the above loss is a business loss; for the reason that the assessee has taken on lease many premised spread over many part of the country, and this act of taking this show room on lease is in the normal course of business. In fact 84 show rooms are taken on lease at various places. Six months rent was given as secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in the capital field is concerned, we do not find any error in the order of the Ld. CIT(A). However, before us the Ld. counsel has submitted that part of the security deposits were adjusted toward pending rent and therefore, same would fall in the nature of business expenditure. We find that this issue has not been verified by the lower authorities and before coming at conclusion that the security deposits written off are not allowable as revenue expenditure, it is essential to examine the factual position, whether part of such security deposits were adjusted against outstanding rent. In view of the above facts and circumstances, we feel it appropriate to restore this issue to the file of the Ld. CIT(A) for verification of the claim of the assessee as mentioned above and decide in accordance with law. The assessee is directed to produce all the necessary documents in support of its claim for verification by the Ld. CIT(A), within one month of receipt of this order. Both the parties shall be afforded adequate and reasonable opportunity of being heard. The grounds of appeal are accordingly allowed for statistical purposes. 9. In the result, the appeal of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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