2020 (2) TMI 1268 - AT - Income Tax

Addition of rent expenses - lower authorities have denied the claim of the assessee on the ground that some of group concerns were situated in the same premises, and therefore, the claim of the assessee was bogus, and accordingly rejected - HELD THAT - We find that lower authorities have not disputed the quantum of rent paid by the assessee nor business requirement of the assessee. Addition made by the Department on the assumption that some of the group of concerns of the assessee also situated in that premises, and therefore, it was a diversion of funds and as such a bogus claim. Before both the authorities, the assessee has explained the business exigency for hiring such premises and payment of rent. Today s competitive business environment easy accessability is one of the prime factors required for attracting customers, and therefore, reasoning given by the assessee for incurring such rental incomes cannot be simply brushed aside. While denying the claim of the assessee, Revenue has not factored in the business exigencies as explained by the assessee. We are not convinced with narrow consideration of the Revenue authorities in rejecting claim of the assessee. Therefore, we delete the impugned addition incurred by the assessee towards rental expenses, and allow claim of the assessee. Unexplained cash credit - HELD THAT - Reasons assigned by the ld.CIT(A) are not justifiable. Once assessee has demonstrated genuineness of the transaction, credit-worthiness of the creditors and identified creditors for substantial amount of ₹ 66 lakhs, then to disbelieve ₹ 28,000/- on ground that equal amount was found to be deposited in the account of creditors in cash is a very erroneous reasoning. Therefore, we are of the view that the ld.CIT(A) was not justified to partially confirm the cash credit from the alleged creditors. We allow this ground of appeal, and delete addition of ₹ 59,000/-. - Appeal of the assessee is allowed.

Summary

Issues involved:
1. Addition of rent expenses of ?4,50,000
2. Addition of ?59,000 in respect of certain parties

Analysis:

Issue 1: Addition of rent expenses of ?4,50,000

The assessee, a real-estate developer, appealed against the addition of rent expenses of ?4,50,000 for premises hired at a specific location. The assessing officer assumed the expenses were bogus to reduce income due to group concerns operating from the premises. The assessee explained the necessity of the location for attracting investors and customers. The Tribunal noted that the lower authorities did not dispute the rent amount or business requirement. The Revenue's assumption of diversion of funds was deemed unjustified. The Tribunal considered the business exigencies and allowed the claim, deleting the addition of ?4,50,000 towards rental expenses.

Issue 2: Addition of ?59,000 in respect of certain parties

The assessee received substantial amounts from various trusts. The CIT(A) confirmed an addition of ?59,000, citing cash deposits in the creditors' accounts. The Tribunal found the CIT(A)'s reasoning unjustifiable, as the assessee had demonstrated transaction genuineness and creditors' credit-worthiness. Disbelieving a portion of the credit due to cash deposits was deemed erroneous. The Tribunal allowed the appeal, deleting the addition of ?59,000.

In conclusion, the Tribunal allowed the assessee's appeal in both issues, deleting the additions made by the Revenue authorities. The order was pronounced on 21st January 2020 at Ahmedabad.