TMI Blog2023 (10) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... perfectly justified in deleting the impugned disallowance. We find that the appeal of the Revenue filed against the CIT(A) s order for AY 2012-13 stands dismissed by the Tribunal [ 2019 (12) TMI 1662 - ITAT DELHI] - We therefore find no reason to sustain the impugned disallowance. These grounds are rejected. Disallowance of rental expenditure claimed - On the basis of old rent agreement the AO computed rent payable and disallowed amount for not being for the purpose of assessee s business out of the total rental expenditure claimed - Owing to continuous losses in the operation of art gallery business, the assessee shut down its art gallery and vacated the premises taken on lease except for area of 837 sq. ft. which was retained for functioning of registered office, thus revised rent agreement made - CIT(A) deleted addition - HELD THAT:- AR supported the order of the Ld. CIT(A) who deleted the impugned disallowance after considering the correct revised rent agreement holding that the expenditure was incurred for the purposes of business. On consideration of the facts and circumstances of the case, we observe that the impugned disallowance has been made by the AO due to ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. ASTHA CHANDRA, JUDICIAL MEMBER For the Assessee by: Shri Rohit Jain, Advocate Ms. Somya Jain, CA For the Department by: Shri Rohit Garg, CIT- DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the Revenue is directed against the order dated 17.09.2018 of the Ld. Commissioner of Income Tax,(Appeals)-7, New Delhi ( CIT(A) ) pertaining to Assessment Year ( AY ) 2013-14. 2. The Revenue has raised the following grounds:- 1. That on facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,01,799/-/ on account of reimbursement/support charges, without determining the fair market value of the services rendered and what is claimed by the assessee. 2. That on facts and circumstances of the case, the LD. CIT(A) has erred in allowing the additional evidence submitted by the assessee without calling for the counter comments of the assessing officer under Rule 46A of the IT. Act, 1961. 3. On the casts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the above addition without making proper enquiries and test of reasonableness and excessive claim of the assessee u/s 40A(2)(b) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther submitted before the AO that it had sub-leased office space ad- measuring 26,494 sq. ft. from REL Infra Facilities Ltd. The Appellant for substantiating the rental expense incurred by it, furnished copies of lease agreement entered into with REL Infra and amendments ( addendums ) made thereto. However, while framing the order, the AO determined the rental expense incurred by the Appellant at Rs. 64,22,541/- as an allowable expense under section 37 of the Act and disallowed the balance amount of Rs. 1,15,27,945 being the difference between rent expense of Rs 1,79,50,486 debited by the Appellant x x x x x x x x x x xx 4.3 During the assessment year, the appellant was running an art gallery located at D3, P3B. District Centre, Saket, New Delhi 110 017 ad measuring 26,494 sq. ft. which was taken on sub-lease from REL Infra vide the following lease agreement/addendum to the lease agreement Table 2 Area Agreement/addendum 22,814 sq. ft. By way of agreement dated June 1, 2011. 3,679.57 sq. ft By way of addendum dated April 2, 2012 to the lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,83,613 Feb-13 [837 sq.ft. xRs 219.37] 1,83,613 Mar-13 [837 sq.ft. xRs 219.37] 1,83,613 Sub Total (B) 14.68.902 Total (A+B) 1,79,51,147 Amount claimed by Appellant as rental expense is Rs. 1,79,50,486 4.5 The appellant had deducted TDS @10% on all the above payments under section 1941 of the Act and deposited the same to the account of exchequer. Copy of Form 16A evidencing deduction of TDS on lease rental paid to REL Infra was also filed. The aforesaid rental payments of Rs. 1.79.51,147/- is paid in accordance with rent agreements submitted. The old agreement which the AO had used for disallowance has been rescinded by the addendum to the lease agreement submitted by the Appellant and REL Infra. 4.6 It was also submitted that: Further, we submit that the similar disallowance of the rental expenditure made by the learned predecessor Assessing Officer was deleted by the hon ble Commissioner of Income-tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (now known as Religare Support Services Limited) at D3, P38, District Centre, Saket, New Delhi. The said space was primarily taken for running Company's art gallery vide which the Company would exhibit and sell art work to individuals/corporate. W.e.f August, 2012, the Company shut down its art gallery and vacated the aforesaid spaced leased by it except office space ad measuring 837 sq. ft. utilized by it for the purpose if its registered office The Company for the said premises has incurred and paid rent aggregating to Rs 18,156,536 comprising lease rental of Rs. 17,950,486 and rates and taxes of Rs. 2.06.050/- to REL Infra. The company thus, wishes to submit that as the aforesaid lease rental expense has been incurred wholly and exclusively for the purpose of running its art gallery for exhibiting, purchase and sale of art work and for its registered office, the said rental expense of Rs. 18,156,536/- is allowable as a deductible expense under section 37 of the Act The AO made the addition after considering the reply of the assessee and the sub lease agreement with the Group Company M/S REL Infra facilities Ltd. dated 01.06.2011 observing as under. Vide sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as an afterthought. The ground of appeal is therefore, ruled in favour of the appellant. 4.1 The disallowance out of reimbursement/support services has also been deleted by the Ld. CIT(A) by observing in para 5.2 and 5.3 of his order as follows: 5.2 I have carefully considered the assessment order and written submissions furnished by the Ld. AR. The appellant vide submission dated 14.08.2017 submitted that during the subject AY, the appellant had incurred repair and maintenance expense of Rs. 32.07.199/- and had not incurred any support service expense which can be evidenced in its audited Financial Statements for the period ended March 31, 2013. The AO however, disallowed a sum Rs 8,01,799/- (being 25% of aforesaid repair and maintenance expense) treating the same as support service expense. It was submitted that the disallowance made by the AO was not based on correct fact. 5.3. The appellant further submitted that in AY 2012-13, similar ad-hoc of Re 1,31,23,328/ - (being 25 % of rental expense incurred by the Appellant during the said year) as support service expense, even though no support service expense had been incurred by the Appellant during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly the benefit of CENVAT credit not availed of against the excise duty payable on manufactured items, cannot be utilized by the assessee and the said write off of CENVAT credit, is allowable as an expenditure in the year under consideration on the closure of the business. The write off of CENVAT credit by the assessee in its books of account is thus allowable as business expenditure under the provisions of section 37(1) of the Act relatable to the year in which the manufacturing activities are closed down by the x x x x x x x Assessing Officer to allow the claim of the assessee in respect of write off of CENVAT credit of Rs. 35,94,577/-. Ground No 1 raised by the assessee is thus allowed. 6.6 In view of the above facts and judicial position, the disallowance of Rs. 1,81,03,975/- made by the AO is directed to be deleted. This ground of appeal is ruled in favour of the appellant. 4.3 The disallowance on account of finance cost has also been deleted by the Ld. CIT(A) by observing in para 7.2 to 7.7 as under: 7.2 I have carefully considered the assessment order and written submissions furnished by the Ld. AR The AQ disallowed Rs. 60,16,402 on adhoc basis being 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and property from expropriation, coercive process or assertion of hostile, it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business, it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, that expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It can not include sum spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory.................. 7.6 Reference was also drawn to: - Allahabad High Court in the case of Seth Banarsi Das Gupta v. CIT [1977] 106 ITR 559; - State of Madras v. G.J. Coelho [1964] 53 ITR 186 (SC); - Bombay Steam Navigation Co. P. Ltd. v. Commissioner of Income-tax [1965] 56 ITR 52 (SC); - Supreme Court in CIT Vs. Birla Cotton Spinning Weaving Mills Ltd. (82 ITR 166); and - S. A. Builders Ltd. Vs. CIT (288 ITR 1) 7.7. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA No. 2770/Del/2017 dated 03.12.2019. We therefore find no reason to sustain the impugned disallowance. These grounds are rejected. 6.2 Ground No. 4 relates to disallowance of Rs. 1,15,27,945/- out of rental expenditure claimed at Rs. 1,79,50,486/-. The Ld. AO has discussed this issue in para 3 to 3.2 of his order. On the basis of old rent agreement the Ld. AO computed rent payable at Rs. 64,22,541/- and disallowed Rs. 1,15,27,945/- for not being for the purpose of assessee s business out of the total rental expenditure claimed. During appellate proceedings, the assessee submitted Addendum dated 02.08.2012 effective from 01.08.2012 and submitted that the assessee had taken office space 22,814 sq. ft. vide Agreement dated 01.06.2011 and additional space of 3679.5 sq. ft. vide Addendum dated 02.04.2012 on sub-lease from REL Infra. However, owing to continuous losses in the operation of art gallery business, the assessee, w.e.f. 01.08.2012 shut down its art gallery and vacated the premises taken on lease except for area of 837 sq. ft. which was retained for functioning of registered office vide Addendum dated 02.08.2012. The Ld. CIT(A) called for the remand report from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties. It is not in dispute that the statutory auditors of the assessee company have duly certified the impugned write off in the company s audited financial statements which is on record of the Ld. AO. Therefore, it cannot be said that it is not verifiable. The explanation of the assessee for write off has not been accepted by the Ld. AO without any cogent and valid reasons. The judicial consensus is that write off of CENVAT Credit is an allowable deduction under section 37(1) of the Act in the year it has been debited to the books of account. Following decisions hold similar view:- i. M/s. Federal Mogul TPR (India) Ltd. vs. JCIT ITA No. 509/Del/2017 (Delhi Trib.) ii. NCS Distilleries P. Ltd. vs. ITO (ITA No. 699/Hyd/2012 (Hyd-Trib) iii. ACIT vs. Rangoli Industries Pvt. Ltd. (ITA No. 1936/Ahd/2010 (Ahd. Trib) iv. PCIT vs. Kaleesuwari Refinery Pvt. Ltd. TCA No. 282 of 2018 (Mad High Court) v. M/s. NEC Technologies India P. Ltd. vs. ACIT ITA No. 6982/Del/2019 (Delhi Trib) Accordingly, following the decisions (supra) we find no substance in this ground of the Revenue which we reject. 6.4 Ground No. 6 relates to disallowance of Rs. 60,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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