2000 (7) TMI 917 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening proceedings under section 147.
2. Allowability of rent payment as business expenditure under sections 30 and 37(1) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening Proceedings under Section 147:

The assessments for the assessment years 1992-93 to 1995-96 were reopened based on a survey conducted under section 133A, which revealed that the assessee had claimed rent for a property not used for business purposes. The Commissioner of Income-tax (Appeals) upheld the reopening, stating it was not a case of mere change of opinion, but rather a discovery of new facts not known during the original assessment. The appellate tribunal concurred, noting that the Assessing Officer could form a reasonable belief that income had escaped assessment due to the wrongful allowance of rent, justifying the reopening under the amended provisions of section 147.

2. Allowability of Rent Payment as Business Expenditure:

The core dispute revolved around whether the rent payment of Rs. 3,78,000 for a godown was allowable as a business expenditure. The Assessing Officer disallowed the rent, relying on the deposition of Sri S. K. Agarwal, who stated the godown was never used for business purposes. The Commissioner of Income-tax (Appeals) upheld this disallowance, citing lack of evidence of actual use of the godown for business and referencing the Madhya Pradesh High Court decision in Noshirwan and Co. Pvt. Ltd. v. CIT [1970] 77 ITR 822.

Before the tribunal, the assessee argued that the godown was rented with the expectation of business expansion and was maintained for potential use, even if not actively utilized. The tribunal noted that the rent was paid through account payee cheques and there was no evidence of subletting or non-business use. The tribunal distinguished the present case from Noshirwan and Co. Pvt. Ltd., where the rented property was under construction and not usable. Instead, it found the facts aligned with the Gujarat High Court's decision in CIT v. R. Tolat and Co. [1980] 126 ITR 551, which allowed rent deduction for premises acquired for business purposes even if not actively used.

The tribunal concluded that the godown was rented in the business interest of the assessee and for business purposes, thus qualifying the rent payment as an allowable expenditure under section 30. Alternatively, it held that even if section 30 did not apply, the expenditure would be allowable under the omnibus provisions of section 37(1), as it was incurred wholly and exclusively for business purposes. The tribunal also referenced the Supreme Court's judgment in Sassoon J. David and Co. Pvt. Ltd. v. CIT [1979] 118 ITR 261, affirming that business expenditure need not be necessarily incurred but could be voluntary if for business promotion.

Therefore, the tribunal reversed the disallowances and allowed the rent payments as deductible business expenses for all the years under consideration.

Conclusion:

The appeals for the assessment years 1992-93 to 1995-96 were partially allowed, and the appeal for the assessment year 1996-97 was fully allowed, with the tribunal deleting the disallowances of rent claims amounting to Rs. 3,78,000 for each year.