TMI Blog2013 (9) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... -2013 - Shri I. C. Sudhir, J.M. And Shri J. Sudhakar Reddy, A.M.,JJ. For the Appellant : Sh. Rajan Bhatia, Adv. For the Respondent : Ms. Y. Kakkar, Sr. D.R. ORDER Per J. Sudhakar Reddy, AM. These are Cross Appeals directed against the order of Ld.Commissioner of Income Tax (Appeals)-XIII, New Delhi dt. 25.11.2011 pertaining to the Assessment Year 2008-09. 2. Facts in brief:- The assessee is a company engaged in the export and local trading of various handloom products including readymade garments. It filed its return of income for the Assessment Year 2008-09 on 22.9.2008 declaring total income of Rs.30,02,34,760/-. The Assessing Officer passed an order u/s 143(3) on 25.11.2010 assessing the total income at Rs.32,96,58,880/-, inter alia disallowing the claim of depreciation on intangible assets and disallowing a claim of write off of debit balance for an amount of Rs.22,10,200/- being advance rent and security deposit. 3. Aggrieved the assessee carried the matter in appeal without success. 4. Further aggrieved the assessee is before us on the following grounds. "1. That the order of the Ld.CIT(A) is bad both in law and on the facts of the case. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 2. KB Mall Management Ahmedabad Branch 140250 140250 3. ESI payment 12965 12965 4. Rounding off difference written off 276746 276746 Total 2640361 736800 1903561 The amount of Rs.21,10,400/- consisting of Rs.7,36,800 as advance rent of 3 months and a Rs.14,73,600/- as security deposit was paid by the appellant in pursuance to the lease agreement entered by the appellant with lessor for premises in Mahalaxmi plaza, Sector 3, Vaishali, Ghaziabad for 9 year at rental charges of Rs.2,45,600 p.m. On account of certain unavoidable circumstances, the agreement was not finalized and concluded. No refund whatsoever was given by the lessor to the appellant in spite of various remaindered and demand. Since the amount could not be recovered, it was written off in the books of accounts and claimed the same as allowable revenue expenditure. The LdAO allowed deduction in respect of only Rs.736800/- in respect of loss of advance rent but similar claim in respect of security deposit was rejected. (a) The amount of Rs.1,40,520 was the security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugar Co.Ltd. reported in 46 ITR 649 (S.C.) (d) CIT vs. Nainital Bank Ltd. Reported in 55 ITR 707 (S.C.) 10.2. He further submitted that money in question, was given in the course of trade and was lost in the course of trade and that the assessee had not acquired any asset of enduring nature and hence was an expenditure in the revenue field and that the assessee had, to curtail losses by taking this particular business decision 10.3. On the issue whether the assessee has an enduring benefit or not, he relied on the following case laws:- (a) Empire Jute Co.Ltd. vs CIT (1980) 124 ITR 1 (SC) (b) Madras Industrial Investment Corp.Ltd. vs CIT (1997) 225 ITR 802(SC) 10.4. He further submitted that the amount was given as a security deposit for taking on lease, the properties under registered agreement and the fact that the registered lease deed was cancelled, does not change the character of the payment from that of a payment for lease. For this proposition, he relied on the decision in the case of Universal Radiation vs. CIT, 201 ITR 800 (S.C.). 11. On ground no.3 which is on the issue of quantification of disallowance u/s.14A he submitted that the Ld.Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess loss. 13. We now consider the Revenue's appeal for the A.Y. 2008-09. The grounds of Revenue are as follows. "1. On the facts and circumstances of the case and in law, the Ld.Commissioner of Income Tax (Appeals) has erred in restricting the addition of Rs.19,03,561/- to the extent of Rs.16,26,815/- made on account of debit balances written off. 2. On the facts and circumstances of the case and in law, the Ld.Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs.1,80,00,000/- made on account of treatment of repair and maintenance expenses as capital in nature." 13.1. The Ld.D.R. relied on para 1.4 of the assessment order and submitted that the AO has test checked the bills and vouchers submitted that the major portion of the expenditure related to furniture fixtures, making of cupboards where saleable items are stored and electricity fittings. She pointed out that the assessee has 84 sales outlets all over the country and most of them are being run in rented premises, which are taken on lease for a period of 5 to 9 years. She submitted that the Ld.CIT(A) without verifying the facts has granted relief. No bifurcation was found. On a query from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly rent was fixed at Rs.2,45,600/- which shall be increased by 15% after every 3 years. A copy of the lease agreement is at pages 49 to 55 of the paper book. The lease shall have a lock-in period of 18 months and the lessee shall not be able to terminate the agreement during the period. The lessee was required to pay 3 months rent in advance. The lessee was also required to pay six months rent as interest free refundable security deposit, which was refundable at the time of vacation of the premises. 17. On 6th October, 2006 the assessee wrote to Ghaziabad Real Estate P.Ltd. stating that due to certain unforeseen circumstances they have decided not to go for the said lease. It had also taken a stand that there is no concluded/binding agreement between the assessee and Ghaziabad Real Estate P.Ltd. for the reason that the lease deed was not registered. In reply M/s Ghaziabad Real Estate P.Ltd. rejected the claim of the assessee by pointing out that the possession was given to the assessee on 10.9.2006 and that the responsibility of getting the lease agreement registered was on both the parties (joint responsibility) and that the lease deed stands finalized and concluded and only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a clear indication that the Tribunal was empowered to deal with the issue of allowability of the said amount of Rs.14.79 lakhs and as to whether the assessee was entitled to claim it as a bad debt or as an expenditure u/s 37(1) " 20. Applying the propositions laid down in this case law to the facts of the case we uphold the contentions of the assessee that the expenditure in question can be allowed as a business loss by the Tribunal, though originally it was claimed as a bad debt. The amount in question was given, not for acquiring of any asset giving enduring benefit and was incurred in the course of trade and hence is in the revenue filed. The Hon'ble Supreme Court in the case of Empire Jute Co.Ltd. vs. CIT 124 ITR p.1 (SC) has held as follows. "BY THE COURT: (i) It is not universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. (ii) There may be cases where expenditure, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed as expenditure, for the reason that these are small outstanding balances from customers, which arose due to the fact that the amounts due from the customers were rounded off, and collected. The odd amounts remained outstanding after rounding off and as there is no possibility of collecting such odd amounts, due to business considerations, the assessee has written off the same. These are bad debts written off and allowable as such on write off. Hence this ground of the assessee is allowed. 25. In the result the assessee's appeal is allowed in part. 26. We now take up the Revenue's appeal. Ground no.1 of the Revenue's appeal is corresponding to ground no.3 of the assessee's appeal. The Revenue challenges the part relief given by the Ld.CIT(A). As we have allowed the grounds of the assessee on this issue, this ground of Revenue does not survive. As the reasons given while allowing the assessee's appeal, applies here also. In the result this ground of Revenue is dismissed. 27. Ground no.2 of the Revenue is against the deletion of an adhoc disallowance made by the AO from out of repairs and maintenance expenditure claimed by the assessee. At para 8.3, the First Appe ..... 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