TMI Blog2016 (7) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... with an explanation that no rent is payable as the licensor has not fulfilled the terms of leave and license agreement by delaying the construction of the layout structure of the shop , but it not conclusive enough to fasten tax liability on the assessee. It was starting point for the authorities below to start an enquiry to prove that payments have been made by the assesssee out of books and to disprove the contentions of the assessee and to fasten the liability on the assessee but no such enquiry has been conducted by the revenue and the assessee has also not brought on record clinching evidences to support and substantiate its contentions. Hence, we are of the considered view based on the facts and circumstances of the case that the matter need to be set aside and restored to the file of the AO for de-novo examination and adjudication of the issue on merits after granting opportunity of being heard to the assessee in accordance with the principles of natural justice and in accordance with law. - Decided in favour of assessee for statistical purposes. Addition on account of expenses such as stamp duty, registration fees and other miscellaneous charges - Held that:- no enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit of ₹ 2 crores. Thus, interest paid on borrowings is for the purpose of business. (c) The Learned Commissioner of Income Tax (Appeals) erred in observing that if the very asset was not put to use then appellant is not entitled for claim of such interest. (d) Without prejudice to above, the Learned Commissioner of Income Tax (Appeals) failed to appreciate that for disallowance of interest, shop does not exist and for making addition of licence fees shop exist. 2(a) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of ₹ 4,00,000/- on account of rent. The same may therefore be deleted. (b) The Learned Commissioner of Income Tax (Appeals) failed to appreciate that there has no liability to pay the rent and appellant has not paid any rent. (c) The Learned Commissioner of Income Tax (Appeals) erred in observing that not much of credence can be given to appellant s claim that no rent was paid by him. The addition may, therefore, be deleted. 3(a) The Learned Commissioner of Income Tax (Appeals) erred in confirming the above addition of ₹ 50,000/- on account of Stamp Duty and Registration charges. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the said portion for which the licensor agreed to bear the cost of constructing the said lay out for the said shop premises against which the assessee has given the deposit and claimed interest of ₹ 7,23,000/- on borrowings made for giving said deposit of ₹ 2 crores. The AO disallowed interest expenditure of ₹ 7,23,000/- due to the fact that the asset which is supposed to be used for business does not exist and hence the question for being used for business does not arise. Thus, the claim of the assessee that the interest paid has been utilized for acquiring the asset being used for business purposes is not correct and hence the amount of interest expenditure of ₹ 7,23,000/- was disallowed by the AO and added back to the income of the assessee vide assessment orders dated 24-12-2007 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment orders dated 24-12-2007 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal with the CIT(A) and submitted that the assessee has only obtained the shop premises on leave and license basis and the security deposit of ₹ 2 crores has been given for which borrowed funds has been u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lishing the new jewellery outlet, the assessee has taken the premises on leave and license basis on monthly license fee of ₹ 1,00,000/- , for which necessary security deposit of ₹ 2 crores was given to the licensor. The said leave and license agreement is placed in the paper-book filed with the Tribunal at pages 28-46. Thus, the said premises, which was taken on leave and license basis was not acquired on ownership basis by the assessee rather it was taken by the assessee on leave and license basis on monthly license fee of ₹ 1,00,000/-. The premises is taken on leave and license basis for expansion of the existing business of dealing in gold and diamond jewellery for setting up new jewellery outlet and other lawful business ancillary to it , whereby the assessee intends to set up new jewellery outlet , for which the steps for renovation were taken to set up the said jewellery outlet .The cost of constructing the layout structure for the said shop premises to be built upon and for which plans have already been sanctioned by Municipal Corporation , as per clauses in the agreement is to be borne by the licensor and not by the assessee and hence the said cost of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act] in respect of the total income of the previous year [* * *] of every person : Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act. Section 4 of the Act is a charging section which stipulates that the income shall be charged to tax in respect of the assessment year on prescribed rates in accordance with and subject to provisions of the Act in respect of the total income of the previous year of every person. While previous year is defined to be financial year immediately preceding assessment year and in case of a business or profession newly set up or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession , or as the case may be, the date on which the source of income newly comes into existence and ending with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry strongly relied on a judgment of Mr. Justice Rowlatt reported in Birmingham and District Cattle By-products Co. Ltd. v. Commissioners of Inland Revenue [1919] 12 Tax Cas 92. In that case the assessee company was incorporated on the 20th of June, 1913, and between that date and the 6th of October, 1913, the directors arranged for the erection of works and the purchase of plant and machinery, and entered into agreements relating to the purchase of products to be used in the business and to the sale of finished products. On the 6th of October, 1913, the installation of plant and machinery being completed, the company commenced to receive raw materials for the purpose of manufacture into finished products. For the purposes of excess profits tax a question arose as to the computation of average amount of capital employed by the company during the accounting period and the company contended that it commenced business on the date of its incorporation, viz., on the 20th of June, 1913, and that the pre-war standard should be based on the profits shown by revised accounts for the period 20th June, 1913, to 30th June, 1914, and Mr. Justice Rowlatt held, upholding the view of the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st of November 1946, when it purchased a ground-nut oil mill and was in a position to crush ground-nuts and produce oil. But prior to this there was a period when the business could be said to have been set up and the company was ready to commence business, and in the view of the Tribunal one of the main factors was the purchase of raw materials from which an inference could be drawn that the company had set up its business; but that is not the only factor that the Tribunal taken into consideration. The Tribunal has as pointed out in the statement of the case, scrutinised the various details of the expenses given in the order of the Appellate Assistant Commissioner and having scrutinised those expenses the Tribunal has come to the conclusion even on an interpretation more favorable to the assessee than the one we are giving to the expression setting up that these expenses do not show that the business was set up prior to the 1st of September, 1946. In our opinion, it would be difficult to say that the decision of the Tribunal is based upon a total absence of any evidence. As we have often said we are not concerned with the sufficiency of evidence on a reference. It is only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d license basis on monthly license fee of ₹ 1 lac for use and occupation , consisting of bungalow consisting of ground plus two upper floors, situated at 157, Waterfield Road, CTS No. F/923,Plot no.107 of TPS IV, Bandra (W), Mumbai- 400 050. The said leave and license agreement is placed at paper book page 28-46. It was observed by the AO that the said amount of license fee has not been debited to the profit and loss account for the period December 2004 to March 2005. The assessee submitted that due to noncompliance of requirement from lesser as per the terms of the leave and license agreement , the assessee has not paid rent from December 2004 to March 2005 and, therefore, had not debited the amount to profit and loss account. However, the AO rejected the contention of the assessee and held that since the assessee is following mercantile system of accounting, the rent payable by the assessee should be reflected as liability in the balance sheet. The AO held that perusal of the financial statement shows that there is no such liability outstanding in the balance sheet. The AO therefore assumed it safe to conclude that the assessee has paid the rent but not accounted for it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r terms of the agreement. The AO has made additions based on suspicion without bringing on record any cogent incriminating material. The assessee has not paid rent and has also not claimed deduction in the books of account. The learned DR relied on the orders of the authorities below and submitted that had the rent not been paid, as per clause 29 of the agreement dispute, if any, has to be referred to the court of jurisdiction at Mumbai. As no such reference has been made, it can be safely presumed that the assessee has paid rent but not shown it in the books of account. Ld DR relied upon the orders of the authorities below. 13. We have considered rival contentions and perused the material on record. We have observed that the assessee has entered into a leave and license agreement dated 18.06.2004 for the above stated premises for which the license fee is to be paid by the assessee to the licensor @Rs.1,00,000/- per month. As per said the agreement the licensor has taken the obligation to bear the cost of construction of the layout structure of the premises for which plan has already been sanctioned by the BMC. It is the contention of the assessee that he had not made any pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in terms of the clauses in the agreement , as the parties to the agreement may also first endeavour to resolve the dispute or differences amicably and peacefully inter-se through other modes such as discussions, deliberations, arbitration, conciliation, mediation etc. and arrive at amicable settlement whether oral or written , despite existence of the strict clauses in the agreement that dispute and differences between the parties shall be referred to Courts. This could be a point to start an enquiry by the AO that the assessee has not made provisions of rent in the books of accounts as per terms of agreement and the issue is also not referred to Courts as per terms in the leave and license agreement , the assessee having coming forward with an explanation that no rent is payable as the licensor has not fulfilled the terms of leave and license agreement by delaying the construction of the layout structure of the shop , but it not conclusive enough to fasten tax liability on the assessee. It was starting point for the authorities below to start an enquiry to prove that payments have been made by the assesssee out of books and to disprove the contentions of the assessee and to fast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and registration charges. The learned DR relied upon the orders of the authorities below. 18. We have considered the rival contentions and perused the material on records. We have observed that as per clause 27 of the agreement registration, stamp duty others and other miscellaneous expenses are to be borne by the licensee i.e. the assessee. The assessee has denied to have incurred the expenses and stated that the same were in-fact borne by the licensor which is a plausible and bona-fide explanation but the assessee has not brought on record any evidences to support his contentions such as confirmation from the licensor. On the other hand , no enquiry has been made by the Revenue and only estimation has been made on ad-hoc basis. The stamp duty charges as appearing in the leave and license agreement being cost of stamp paper are only ₹ 2000/- and the stamp paper was purchased on 28.05.2004 for ₹ 2000/- as per records, no other evidence/details are appearing on record regarding incurring of any further expenses by the assessee and the AO has estimated the same on ad-hoc basis without any working or basis of the same to come to conclusion that the expenses of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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