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2016 (8) TMI 405 - ITAT MUMBAI

2016 (8) TMI 405 - ITAT MUMBAI - TMI - Addition of sundry balances written off as falling outside the purview of section 36(2) r.w.s.36(1)(vii) of the Act and also not allowable u/s 37(1) - Held that:- The security deposit has to be adjusted against the rent payable by the assessee and this has already been done by entering into cancellation agreement wherein clause 2 of the cancellation deed specifically mentioned about adjustment of security deposit against the rent payable by the assessee. Th .....

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ssessee against the order of Commissioner of Income Tax-12, Mumbai dated 22-08-2014 for assessment year 2010-11. 2. The only issue in the appeal of the assessee is that the ld. CIT(A) erred in confirming addition of ₹ 43,00,040/- made by the assessing officer considering sundry balances written off as falling outside the purview of section 36(2) r.w.s.36(1)(vii) of the Act and also not allowable u/s 37(1) of the Act. 3. The brief facts are that assessee engaged in the business of Super Mar .....

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sum of ₹ 43,01,040/- in P&L A/c on account of sundry balances written off. The AO noticed that this amount represents deposit given to the lessor in respect of Dev Arcade Property at Ahmedabad, which was taken on lease by the assessee for its hyper market business. He noticed that the lessor Devdip Arcade (P) Ltd. has forfeited this deposits from the assesee and was of the view that since security deposit given by the assessee is not revenue expenditure right off of this amount by the .....

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tment which was brought to their notice and with the result assessee had to show that the lessor did not comply with various clauses of the terms and conditions of the lease deed. It was also contended that assessee has terminated the lease and demanded compensation of ₹ 3.56 crores form the lessor. The asessee contended that the deposit written off should be allowed as revenue expenditure. It was further contended that security deposit was adjusted against the outstanding rent and other c .....

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ee company was incorporated in financial year 2005 - 06. It is engaged in the business of running Super Market / Hyper Market / Retail stores of consumer items such as groceries, clothes, stationery, medicine, plastic items, vegetables, etc. under the brand name "Magnet". The profit margin in retail business is very small. The business requires premises of all sizes. Since purchasing the premises on outright basis would have entailed a huge locking up of capital, the assessee has taken .....

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ess at various places. Therefore, the appellant was forced to close down the outlets where the assessee was not doing good business. Some of the outlets closed its operations and transferred the stock and fixed assets to other outlets. At some of the outlets the assessee collected the refundable deposit. But however the developer at Paladi, Ahmedabad branch did not refund the deposit, in spite of writing various letters to them. After continuous follow up with the developer for refund of the sai .....

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of account at some point of time in the past. He also pointed out that the said deposit has not been offered as 'Income' in the past, therefore it cannot be allowed as a revenue expenditure. Further the assessee has submitted a copy of Lease Deed dated 7th June 2008 and explained the various terms of Lease Deed. The sum total of the rent for basement and ground + three floors came to ₹ 10,75,260/- per month. As per Clause 6(8) of the Agreement between the lessor and the lessee a l .....

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payable for such unexpired lock-in-period would have come to ₹ 5,05,37,220/-. Even otherwise also lease rent were not paid for seven months viz. December 2008 to June 2009 @ ₹ 1 0,75,260/- total aggregate to ₹ 75,26,820/-. 4.3 Counsel submitted that the lessor and assessee therefore made a compromise and drew a deed of cancellation of Lease Deed on 28th day of July 2009. According to the aforesaid cancellation of Lease Deed, the Lease Deed dated 07.06.2008 executed by the asses .....

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se Deed dated 7th June 2008 and Cancellation Deed dated 26th July 2009 will be submitted at the time of hearing. Though the A.O. has mentioned all the facts which has been reproduced by him in para 3 of the assessment order, concluded that no details mentioned in the Cancellation Deed regarding period of rent, amount involved or the details of other charges against which the security deposit is adjusted. The assessee submits that the security deposit has been adjusted against the expenses such a .....

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urity deposit as not an allowable expenditure. 6. We have heard the rival contentions perused the orders of the authorities below and details furnished by the assessee. The AO while completing the assessment disallowed the write off of security deposit treating it as capital deposit and by observing that it cannot partake the nature of revenue expenditure. He also observed that this deposit was not offered as income in the books of account and the transaction of passing security deposit is a cap .....

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