2021 (10) TMI 1257 - AT - Income Tax

Disallowance of rental expenses - expenses relating to earlier year were not admissible - HELD THAT - The assessee society was required to pay rent and delayed interest which was paid by the assessee on 29th August, 2009. On the basis of this payment the district collector, Surendranagar has passed an order on 8th Sep, 2008 renewing the lease of the petrol pump land for further period of 15 years. CIT(A) has incorrectly stated in his finding that assessee has only claimed the interest component and not claimed the rental expenses of earlier year, after perusal of the material on record, we find that amount as comprised of lease rent and interest pertaining to lease rent and interest for the period 2003 to 2008. On perusal of material on record, it is categorically demonstrated that impugned expenses were crystallized during the year under consideration. There is no doubt about the genuineness of the expenditure. Having considered the material on record, we do not find any justification for the disallowance of the claim of the assessee without considering the relevant material fact that the impugned liability was crystallized during the year under consideration. Appeal of the assessee is allowed.

Summary

Issues Involved:
Confirming the disallowance of rental expenses of ?13,11,244.

Analysis:
The appeal pertains to the assessment year 2010-11, with the sole issue being the confirmation of the disallowance of rental expenses amounting to ?13,11,244. The assessee, engaged in trading seeds, fertilizer, and running a petrol pump, had claimed these expenses under the head of petrol pump income, including lease rent of earlier years and delayed interest. The Assessing Officer disallowed the claim, stating that the expenses were not allowable as business expenditure under the mercantile system. The CIT(A) dismissed the appeal, mentioning that only the interest component was claimed, not rental expenses.

During the appellate proceedings, the assessee contended that the dispute regarding the extension of the lease period for government land, settled during the relevant assessment year, justified the expenses. Documents supporting the payment of rent and interest were provided, with the collector renewing the lease for a further 15 years. The Tribunal noted that the expenses were crystallized during the relevant year, comprising lease rent and interest from 2003 to 2008. The genuineness of the expenditure was established, and it was found that the liability was crystallized during the assessment year. Consequently, the claim of the assessee was allowed, overturning the disallowance.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the disallowance was unjustified as the expenses were legitimate and crystallized during the assessment year. The decision highlighted the importance of considering relevant material facts and the genuineness of expenses in determining the allowability of claims related to rental expenses.