×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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07-06-2019, Nalli Trust, Section 10(2)(xi), 28, 36(1)(iii), Tribunal Chennai
This appeal of the assessee arise out of the order of the Ld. Commissioner of ncome Tax (Appeals)-2, Chennai vide proceedings in ITA No.35/CIT(A)-2/2016-17 dated 31.07.2017 for the assessment year 2013-14 against the of assessment passed by the Ld. ACIT, Non-Corporate Circle – 1(1), Chennai (herein after referred to as Ld. AO) u/s. 143(3) of the Income Tax Act,1961 (herein after referred to as the Act).
2. The first issue to be decided in this appeal is to whether the Ld.CIT(A) was justifying in upholding the disallowance of claim of business loss to the tune of Rs.30 lakhs on cancellation of lease deposit in the facts and circumstance of the case.
3. The ground Nos.1 &11 raised by the assessee are general in nature and does not require any 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 owner could not obtain the power connection for the building. The owner asked the assessee to commence the business with self generator power and pay the rent. The assessee is engaged in the business where lot of customers are particularly women. The assessee did not want to commence the showroom without a proper power connection and generator as a backup. Besides running a business with a generator will not be
economical and the assessee will incure heavy loss.
The Assessee paid a advance of Rs.60 Lakhs. In order to avoid a protracted litigation and legal expens s time and money, the assessee reached a compromise with owner of the property and received back Rs.30 Lakhs out of the advance paid Rs.60 Lakhs. Hence the balance 30 Lakhs is treated as business expenses and written off.”
6. The Ld. AO after going through the reply of the assessee and on perusal of the deed for surrender of lease, observed that the assessee was planning to take the property on lease for 27 years as per the original lease deed and that the amount of lease deposit provided shall be returned back after adjusting the expenditure incurred by the landlord which was fixed at Rs.30 lakhs. Accordingly, the Ld. AO concluded that the remaining balance of Rs.30 lakhs which was irrecoverable and not recovered by the assessee would lead to loss arising on capital account transaction and accordingly not allowable as business loss. The Ld. AO furthered his contention by placing reliance on the fact that the lease deed also provide for construction of showroom building by the landlord in accordance with the specifications provided by the assessee therein. Based on this, the Ld. AO concluded that the entire transaction was on capital account and any loss arising on write-off of such capital deposit would result only in capital loss and hence not allowable as revenue loss in the hands of the assessee AOP. Accordingly the Ld. AO disallowed the sum of Rs.30 lakhs in the assessment. This action of the Ld. AO was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us.
7. We have heard the rival submissions. The primary facts stated herein above remain undisputed and hence the same are not reiterated for the sake of brevity. The Ld. DR before us stated that the assessee had entered into lease deed for 27 years which itself proves that there is an enduring benefit to the assessee 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