2024 (1) TMI 212 - AT - Income Tax

Nature of expenses - land registration charges - revenue or capital expenditure - HELD THAT - It is our considered opinion that the registration charges incurred by the assessee while executing the agreements for taking business premises on rent are revenue expenditure. Because, lease is not a permanent transfer of immovable property. It is for a specific period only and terminable as per terms and conditions of the agreement even before the expiry of the period of the lease by both the parties. Secondly, the assessee has incurred that registration expenses in connection of his business. Assessee needed premises in order to carrying on the business in various places and accordingly, the assessee taken property on rent. The period of the agreement perhaps is more than one year and attracted the compulsory registration of the agreement. The assessee cannot enjoy that property forever under a rent agreement/lease. The assessee may have to vacate that property before efflux of time depending on the business conditions of that particular place. Therefore, we are of the view that the lower authorities erred in treating the registration fees incurred by the assessee as capital expenditure. Accordingly, we decide this issue in favour of the assessee. Payment of service tax - CIT(A) has directed the Ld. AO to verify the claim and allow if found proper. Therefore, the Ld. AO shall comply the direction given by the Ld. CIT(A). Disallowance u/s 14A - AO during the assessment proceeding, CIT(A) confirmed this addition by observing that no submission was made by the assessee to substantiate his claim - HELD THAT - We observe that the assessee failed to participate in the 1st appellate proceedings before the Ld. CIT(A) and therefore, the Ld. CIT(A) disposed of the appeal ex-parte. Secondly, the Ld. AR sought remand of the matter and the Ld. DR also has no objection for remanding of the issue. Accordingly, we set aside the order of the Ld. CIT(A) to the extent of the issue of disallowance u/s 14A of the Act and remand this issue to the Ld. CIT(A) for fresh consideration. It is needless to add here that the Ld. CIT(A) shall provide a reasonable opportunity to the assessee to substantiate his claim on the issue and thereafter dispose of the matter. We, at the same time direct the assessee to substantiate his claim before the Ld. CIT(A) accordingly.

Summary

Issues Involved:
The judgment involves issues related to assessment proceedings, disallowances made by the Assessing Officer, appeal before the Commissioner of Income-Tax (Appeals), and subsequent appeal before the Income-Tax Appellate Tribunal, Chennai.

Assessment Proceedings:
The assessee, engaged in direct multi-level marketing, faced assessment for AY 2008-09 after a survey under section 133A. Despite multiple notices, the assessee failed to file the return of income promptly. The initial assessment under section 143(3) resulted in certain additions/disallowances. Subsequently, the assessment was reopened, leading to further additions. The CIT(A) granted relief on one ground but upheld others. The matter was remitted to the AO by the ITAT for de-novo consideration.

Disallowances by Assessing Officer:
The AO disallowed certain amounts, including land registration charges, service tax, and disallowance under section 14A. The CIT(A) partly allowed the appeal, leading to the present appeal before the Tribunal.

Land Registration Charges Disallowance:
The AO disallowed land registration charges as capital expenditure, but the Tribunal disagreed. It held that such charges, incurred in taking business premises on rent, are revenue expenditure since a lease is not a permanent transfer of property. The Tribunal decided in favor of the assessee on this issue.

Service Tax Payment Disallowance:
The CIT(A) directed the AO to verify the claim of service tax payment and allow if found proper, which the AO was instructed to comply with.

Disallowance under Section 14A:
The CIT(A) confirmed the disallowance under section 14A due to the assessee's non-participation in the proceedings. The Tribunal set aside this order and remanded the issue back to the CIT(A) for fresh consideration, emphasizing the need for the assessee to substantiate their claim.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, setting aside the CIT(A)'s order on the disallowance under section 14A and remanding the issue for reconsideration. The assessee was directed to substantiate their claim before the CIT(A) in this regard.