2016 (7) TMI 1178 - AT - Income Tax

Disallowance of Interest on borrowings - Held that - The assessee s borrowing was for the purposes of business as the same were utilised for advancing security deposit of 2, 00, 00, 000/- for taking on leave and license basis shop on monthly license fee by the assessee for setting up jewellery outlet as an expansion of the existing business of dealing in gold and diamond jewellery and interest of 7, 23, 050/- incurred on the said borrowings is incurred wholly and exclusively for the purposes of business as per the facts emerging from records is an allowable revenue expenditure. We therefore order the deletion of addition of 7, 23, 000/- made to the income of the assessee by the AO as confirmed by the CIT(A). - Decided in favour of assessee Addition on account of rent - Held that - The assessee has not made provisions of rent in the books of accounts as per terms of agreement and the issue is also not referred to Courts as per terms in the leave and license agreement the assessee having coming forward with an explanation that no rent is payable as the licensor has not fulfilled the terms of leave and license agreement by delaying the construction of the layout structure of the shop but it not conclusive enough to fasten tax liability on the assessee. It was starting point for the authorities below to start an enquiry to prove that payments have been made by the assesssee out of books and to disprove the contentions of the assessee and to fasten the liability on the assessee but no such enquiry has been conducted by the revenue and the assessee has also not brought on record clinching evidences to support and substantiate its contentions. Hence we are of the considered view based on the facts and circumstances of the case that the matter need to be set aside and restored to the file of the AO for de-novo examination and adjudication of the issue on merits after granting opportunity of being heard to the assessee in accordance with the principles of natural justice and in accordance with law. - Decided in favour of assessee for statistical purposes. Addition on account of expenses such as stamp duty registration fees and other miscellaneous charges - Held that - no enquiry has been made by the Revenue and only estimation has been made on ad-hoc basis. The stamp duty charges as appearing in the leave and license agreement being cost of stamp paper are only 2000/- and the stamp paper was purchased on 28.05.2004 for 2000/- as per records no other evidence/details are appearing on record regarding incurring of any further expenses by the assessee and the AO has estimated the same on ad-hoc basis without any working or basis of the same to come to conclusion that the expenses of 50, 000/- are incurred by the assessee. In our considered view suspicion cannot take the place of proof. No enquiry has been conducted by the AO to disprove the contentions of the assessee nor the assessee has brought on record any evidences to support his contention that the expenses have been incurred by the licensor by way of confirmation from licensor etc. In our considered view the matter need to be set aside and restored to the file of the AO for de-novo examination and adjudication of the issue by the AO - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of interest on borrowings.
2. Addition on account of rent.
3. Addition on account of stamp duty and registration charges.

Issue-wise Detailed Analysis:

1. Disallowance of Interest on Borrowings:
The assessee contested the disallowance of interest amounting to ?7,23,050/- on borrowings used for a shop deposit of ?2 crores. The assessee argued that the borrowing was for business purposes, and the interest should be allowed as a business expenditure. However, the CIT(A) upheld the AO's decision, stating that since the asset was not put to use, the interest claim was invalid. The Tribunal observed that the assessee was already engaged in the jewellery business and had taken the premises on a leave and license basis for business expansion. The Tribunal concluded that the borrowings were for business purposes, making the interest expenditure of ?7,23,050/- an allowable business expenditure. Consequently, the Tribunal ordered the deletion of the addition made by the AO.

2. Addition on Account of Rent:
The AO added ?4,00,000/- to the assessee's income, assuming that the rent for four months (December 2004 to March 2005) was paid but not accounted for. The assessee claimed that due to the licensor's non-compliance with the agreement terms, no rent was paid, and thus, it was not debited to the profit and loss account. The CIT(A) upheld the AO's addition, citing the lack of evidence for non-payment and the absence of any dispute resolution as per the agreement. The Tribunal noted that while the assessee provided a plausible explanation, no further enquiry was conducted by the AO to verify the claims. Therefore, the Tribunal set aside the matter and remanded it to the AO for a de-novo examination, allowing the assessee to present evidence to support their claims.

3. Addition on Account of Stamp Duty and Registration Charges:
The AO added ?50,000/- to the assessee's income on an estimated basis for stamp duty, registration fees, and other miscellaneous charges, as per the leave and license agreement. The assessee argued that these expenses were borne by the licensor, not the assessee. The CIT(A) rejected this contention. The Tribunal observed that while the assessee's explanation was plausible, no evidence was provided to support it, and the AO made the addition on an ad-hoc basis without conducting any enquiry. The Tribunal set aside this issue as well, remanding it to the AO for a fresh examination and allowing the assessee to submit supporting evidence.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, setting aside the issues related to rent and stamp duty/registration charges for re-examination by the AO, while deleting the addition related to the disallowance of interest on borrowings. The order was pronounced on 27th April 2016.