2018 (1) TMI 82 - AT - Income Tax

Disallowance of write off of rental deposit - Held that - When the assessee could not continue with the possession, he claimed the entire amount back which was not given by the landlord, therefore he has filed a Civil Suit in the Civil Court, Bangalore. On account of non-recovery of this amount, he has written it off in the books of account and claimed deduction. Undisputedly, the assessee has given refundable security deposit and on its non-return by the landlord, assessee has filed a Civil Suit and the same is sub judice in the court and therefore the hope of recovery of this refundable security deposit has not been lost. In such circumstances, the business loss claimed by the assessee cannot be allowed in the impugned assessment year. It can only be allowed in that assessment year when the assessee finally fails to recover the said amount. Moreover, it is not a bad debt as it does not fulfill the requisite conditions prescribed u/s. 36(2). Direct the AO to allow the claim of assessee only in that year for which the assessee finally loses the hope of its recovery of the said amount. Deduction in respect of cash theft - Held that - The assessee could not furnish any evidence either before the lower authorities or before me. He has only submitted that there was a cash theft for which information was given to the Police, but no evidence is filed on record. In the absence of any evidence, the claim of assessee in respect of cash theft cannot be entertained. Accordingly, this ground of the assessee is rejected and confirm the order of the CIT(Appeals).

Summary

Issues:
1. Disallowance of write off of rental deposit
2. Disallowance of deduction claimed for cash theft

Analysis:
1. Disallowance of write off of rental deposit:
The appeal was filed against the order of the CIT(A) confirming the disallowance of write off of a rental deposit amounting to ?11,70,000. The assessee contended that the amount was written off as a bad debt due to a dispute with the landlord, and thus, should be allowed as a deduction. However, the AO and CIT(A) disallowed the claim citing the ongoing legal dispute. The Tribunal noted that the assessee had given a refundable security deposit to the landlord and filed a Civil Suit when the amount was not returned. As the matter was sub judice and the hope of recovery was not lost, the deduction was not allowable as a business loss in the current assessment year. The Tribunal directed the AO to allow the claim only in the year when recovery becomes impossible, emphasizing that it did not meet the criteria for a bad debt under section 36(2) of the Act.

2. Disallowance of deduction claimed for cash theft:
The assessee claimed a deduction for cash theft amounting to ?2,38,858 but failed to provide any evidence to support the claim, both before the lower authorities and the Tribunal. The assessee only mentioned the theft report filed with the Police without submitting any documentation. Due to the absence of evidence, the claim for the deduction related to cash theft was rejected, and the order of the CIT(A) was upheld.

In conclusion, the Tribunal dismissed the appeal of the assessee, confirming the disallowances of both the write off of the rental deposit and the deduction claimed for cash theft. The judgment was pronounced on December 15, 2017, by the Tribunal.