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TMI Blog2019 (6) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... specific adjudication. 4. The brief facts of the issue are that the assessee is a private trust assessed to tax in the capacity of "Association of Persons" (AOP). It is engaged in the retail business of textiles and jewellery. In addition to the business income derived thereon, the assessee had also disclosed income from house property and interest income. 5. The Ld.AO during the course of assessment proceedings on obtaining the details of administrative expenses, noticed that expenses of Rs. 30 lakhs was debited as loss on cancellation of lease. The assessee was asked to explain the same. In response the assessee explained :- "The Assessee M/s. Nalli Trust entered into Lease Deed with Sri. A.C.Venkatarayalu son of Chinnasami and Smt. Santhanalakshmi wife of Kumarakrishnan for leasing the property for setting up a show room at premises at No.213/221, Jawaharlal Nehru Street, Puducherry - 605001. The owner in the process of constructing the building, when the lease deed was entered. Infact, the owner was to construct the* building as per the local authority and also with the suitable modification as requested by M/s. Nalli Trust. However on completion of the building, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by paying the lease deposit of Rs. 60 lakhs. And when there is a loss incurred by the assessee due to irrecoverability of such deposit partially, the same would have to be treated only as capital loss and accordingly prayed for non-interference in the order of the lower authorities. The Ld. DR placed reliance on the decision of the Hon'ble Supreme Court in Hasimara Industries Ltd., vs. CIT reported in 98 Taxman 303 (SC) in support of his contentions. 8. Per contra, the Ld. AR stated that the lease deed was not at all activated by the assessee. The assessee after paying the lease deposit of Rs. 60 lakhs to the landlord was waiting to get possession from the landlord. The construction of the building was to be carried out by the landlord as per the specifications of the assessee and it is clearly mentioned in the lease deed that all necessary regulatory and Governmental approvals were to be obtained by the landlord for the subject mentioned premises taken on lease. It was argued since the assessee could not take over the possession of the property despite being completed due to non-availability of electricity connection from the Government for the subject mentioned premises, and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly the loss arising in thereon of such deposit cannot be held to be on revenue account and cannot be treated as business loss and had to be construed only as capital loss. The facts of the instant case before us are totally different from the facts that were before the Supreme Court supra. In the instant case, the lease deposit was made in the regular course of carrying on the business of textiles and jewellery by the assessee by opening a shop at Puducherry and as per the leave and license agreement, the landlord is supposed to carry out the construction as per the specifications of the assessee and obtain necessary regulatory approvals. The assessee had to terminate the lease due to non-performance of the landlord by getting electricity connection for the subject mentioned lease premises and in that process, the assessee had to forego a regular business deposit of Rs. 30 lakhs and consequently had to write-off the same in its books and claim the same as deduction. This, in our considered opinion, would have to be construed only as a loss incidental to the regular carrying on of normal business by the assessee allowable U/s.28 of the Act. In this regard, we find that the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness? - Whether the Tribunal is correct in concluding that the expenses were capital in nature even though such expenses were incurred for 'possible expansion' of the existing business? - Held that:- The assessee though had entered into arrangement with the banks and co-promoters and took action for acquisition of land, import of machineries, etc., no new venture was established by the assessee. The venture, which was to be taken over by the assessee and operated did not fructify, not on account of the conduct of the assessee, but on account of the decision of the Government of Tamil Nadu. In our considered view, the decision of the Government of Tamil Nadu to sell the project is a very important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature. The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on loans taken by the assessee was 14.5% and accordingly applied 14.5% on the amount shown under advances and deposits to the tune of Rs. 89,51,763/- and disallowed proportionate interest U/s.36(1)(iii) of the Act for the sum of Rs. 12,98,006/- in the assessment. Before the Ld. CIT(A), the assessee explained that the assessee was having sufficient own funds which were much more than the borrowed funds and accordingly it had to be presumed that the said deposit in the form of higher education fees of Ms. Lavanya Ramanathan have been paid out of own funds of the assessee and not out of the borrowed funds. By placing reliance on the various decisions of High Courts and Supreme Court, the assessee pleaded for deletion of disallowance of interest. The Ld. CIT(A) further observed that the assessee was not able to prove that the amount paid to Harvard University were out of its own funds despite being given sufficient opportunities by the Ld. AO. The assessee pleaded before the Ld. CIT(A) that the borrowings made by the assessee are for specific business purposes and Ms. Lavanya Ramanathan was working in Nalli before she went to USA for higher studies and continue to work for Nalli a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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