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TMI Blog2022 (3) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA. No. 31/Del/2017 for the A.Y. 2011-12 vide order dated 30.08.2019 is as under: "6. Challenging the said deletion of the addition, Revenue is in appeal before us. It is the argument of the Ld. DR that the Ld. CIT(A) committed error in deleting the adjustment on account of expatriate cost holding that there was no meaningful analysis/evidence produced by TPO to hold that the entire royalty payment should be reduced to zero and consequently deleting the addition of Rs. 13,74,48,935/- made on this point. 7. Ld. AR submitted that while deleting the impugned addition, Ld. CIT(A) made factual verification of the observations made by the learned Assessing Officer and reached a factual finding that the assessee could not have conducted their business with the trademark of 'Benetton' without making the impugned payments and as a matter of fact the assessee had been using the technical know-how developed by the associated enterprise in its manufacturing activities on account of use of trademark and technical know-how. Further Ld. CIT(A) followed the decision of the Tribunal in assessee's own case for the Assessment Year 2006-07 which was followed by the Ld. CIT(A) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in assessee's own case for the Assessment Years 2006-07 to 2009- 10, we hold that the impugned addition cannot be sustained and there was no illegality or irregularity in the findings of the Ld. CIT(A). We, therefore, while upholding the findings of the Ld. CIT(A) find the appeal of Revenue as devoid of merits and accordingly dismissed the same." 6. Since, the matter squarely covered by the order of the Tribunal, the vehement arguments of the ld. DR have been duly considered. However, in the absence of any material change in the factual matrix and legal proposition, we decline to interfere with the order of the ld. CIT(A). Security deposit written off: 7. During the year, the assessee has entered into a letter of intent for obtaining shops on lease. As per this letter, the assessee was required to pay security deposits at the time of executing this letter of intent. As per the termination clause of the letter, in case the lease has been terminated by the lessee, the entire amount of security deposit shall be forfeited by the lessor. 8. The advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises which were taken on lease by the assessee. The Assessing Officer observed that the assessee submitted a list of 38 such premises alongwith name of the landlords, but no supporting documents to justify the claim made by the assessee, were filed by the assessee. According to the Assessing Officer, writing off of security deposit of 38 landlords in a single year was unexplainable and suspicious as normally the tenant is at liberty to adjust the security deposit against last month rental before vacating the premises. The Ld. Assessing Officer also held that said written off was not allowable under section 36(1)(vii) of the Act as the said amount was not in the nature of trading liability and not declared as income in any of the previous years. In view of the observations, he disallowed the claim of the assessee and added the amount of Rs. 26,93,019/- to the loss declared by the assessee. Aggrieved, the assessee filed appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee filed copy of rent agreements entered into between the assessee and the landlords of premises as additional evidences for admission under Rule 46A of Income-tax Rules, 1962 (in short 'the Rules& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In any case, the amounts written off cannot be treated as a business loss, as the same is in the nature of capital loss. The Hon'ble High Court of Delhi in the case of CIT vs. Triveni Engineering Industries Ltd. in ITA No. 56 of 2009 in dated 14.09.2010 held as under: ................................................................................... 15. Coming to the security deposit written off by the assessee, the moot question is as to whether the advances were given for securing the capital assets. It is not disputed by the Department that the payment of security deposit to landlords was for obtaining use of premises for the purposes of business against the payment of rent. The contention of the assessee, in this backdrop, is that this payment was clearly in the revenue field, viz., for facilitating carrying on of business more profitably and efficiently while leaving the fixed capital untouched. Learned counsel for the Revenue, however, argues that the security deposits were given for obtaining the premises on rent and thus, the ass essee had obtained a right to use the property, i.e., tenancy right, which is a capital asset. 16. In order to appreciate the contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property, i.e., tenancy right, which is a capital asset. In view thereof and in the light of judicial pronouncement reproduced above, writing off of the impugned security deposits claimed by the appellant as a business loss is not allowable as the same is in the capital field and not allowable as a revenue expenditure as per section 37(1) of the Act. The action of the AO in disallowing the claim of write off of security deposit of Rs. 26,93,019/- is therefore, upheld and the addition is confirmed. These grounds of appeal are ruled against the appellant." 2.1 Aggrieved with the above finding of the Ld. CIT(A), the assessee in appeal before the Tribunal raising the grounds as reproduced above. 3. Before us, the Ld. counsel filed a paper book containing pages 1 to 394 and referred page 41 to 314, which are copy of various rent agreement in respect of the premises taken on lease. The Ld. counsel relied on the decision of the Tribunal, Delhi Benches in the case of Fab India Private Limited Vs. ACIT in ITA No. 119/Del/2012 and 672/Del/2012 for assessment year 2008- 09, wherein the loss of security deposit has been held as business loss in the revenue field. The Ld. counsel also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is not a bad debt. It is not a case where "lease premium" is paid for a long term lease as in the case of Kribco (supra). It is a deposit in the usual course of taking show rooms on lease." 7. Similarly, the Tribunal in the case of Social Media India (supra) observed as under: "11. We have considered the rival contentions and perused the orders of the CIT(A). Following the principles relied upon in earlier ground, Ld. CIT(A) in this case also held that advances are not revenue expenses and the liability to incur expenses has not accrued until the time liability arises the advance remains in capital field, written off of such amounts was not allowed as revenue loss. On considering the principles on the issue and the decision relied upon, we are of the view that the acquisition of premises on lease was not ordinarily be in the capital field as the monies are advanced for the purpose of running business. Thus, advances even if crystallized would not result in any capital asset. Since these advances are made in the course of assessee's business on which assessee did earn incomes, premature closure of lease agreements resulted in forfeiture of deposits. Since the rentals pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by the company to the landlords. Therefore, these security deposits were 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. Bansal, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a plain case of business loss, it would certainly be allowable to be deducted under the provisions of Section 37 of the Act." 13. We have also gone through the judgment of Hon'ble Supreme Court in the case of Badridas Daga vs. CIT (34 ITR 10) Calcutta Co. Ltd. vs. CIT (37 ITR 1) wherein it was held that "the profit to be assessed are the real profits and they must be ascertained on ordinary principles of commercial training and commercial accounting. The profit should be computed after deducting losses and expenditure incurred for the purposes of business unless such losses or expenditure are expressly, or by necessary implication, disallowed by the Act." 14. The Hon'ble Supreme Court in the case of CIT vs. Nainital Bank Ltd., 55 ITR 707 (SC) wherein it was held that "under section 28, the trading loss of a business is deductible in computing the profits earned by a business. However, every loss is not deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Whether loss is incidental to the operation of a business or not, is a question of fact to be decided on facts of each case, having regard to the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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