2021 (1) TMI 200 - AT - Income Tax

Disallowance of rent expenses - Not been established by assessee that the premise used for business purpose - assessee explained that due to expansion of the business operation of the company it had taken the premise on rent to carry out business and holding meetings with brokers/parties as staying in the hotel was costly and more expensive - HELD THAT - Looking to the revenue from operation of the assessee company to the amount of ₹ 1,33,38,36,680/- for assessment year 2012-13, the impugned expenses of ₹ 8,80,000/- was only 0.05% of the total revenue from operation and there was increased in the revenue from operation from ₹ 1,33,38,36,680/- for assessment year 2012-13 to ₹ 1,76,28,64,861/- for assessment year 2013-14 which demonstrate expansion in the business operation of the assessee company. It is also undisputed fact that similar rent expenses were incurred by the assessee in respect of same property in subsequent year 2014-15 and 2015-16 and the Assessing Officer had allowed the same while framing scrutiny assessment year u/s. 143(3) of the Act. In the light of the above facts and circumstances, we consider that the action of Assessing Officer in disallowing the rent expenses in the year under consideration is not justified - Decided in favour of assessee. Disallowance u/s. 69C - assessee had purchased cutting machine but no freight has been accounted - assessee explained that it had obtained the delivery of the said machine in its own tempo, therefore, no separate expenditure towards freight was accounted - HELD THAT - It is observed that Assessing Officer has not brought any evidence before invoking section 69C of the act that assessee has incurred any unexplained expenditure - revenue authorities have not brought any evidence on record to show that the assessee has actually incurred any expenditure and the entire addition has been made on presumption basis. We consider that such addition on presumption basis is not justified, therefore, we direct the Assessing Officer to delete the impugned addition. Accordingly, this ground of appeal of the assessee is allowed.

Summary

Issues involved:
1. Disallowance of rent expenses of ?8,80,000
2. Disallowance of ?10,000 under section 69C of the Income Tax Act

Issue 1 - Disallowance of rent expenses of ?8,80,000:
The Assessing Officer disallowed rent expenses claimed by the assessee for a premise in Mumbai, stating it was not proven to be used for business purposes. The CIT(A) upheld this decision. However, during the appeal, the assessee presented evidence including the leave and license agreement, arguing that the property was used as a guest house for directors on business trips. The Tribunal noted that the rented premise was used for business meetings and temporary residential purposes of directors. Considering the minimal expense compared to the revenue and similar expenses allowed in subsequent years, the Tribunal concluded that the disallowance was unjustified and deleted the addition.

Issue 2 - Disallowance of ?10,000 under section 69C:
The Assessing Officer disallowed ?10,000 as unexplained expenses for freight charges on a purchased machine from Surendranagar. The assessee explained that it used its own tempo for transportation, but the Assessing Officer disagreed. The CIT(A) upheld the disallowance. In the appeal, the Tribunal found that the authorities failed to refute the claim that the assessee used its own tempo for delivery. The Tribunal observed that no evidence was presented to invoke section 69C, which requires unexplained expenditures. Relying on precedent, the Tribunal concluded that the addition was made on presumption and directed the Assessing Officer to delete it.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning both the disallowance of rent expenses and the disallowance under section 69C. The order was pronounced on 31-12-2020.