2022 (10) TMI 975 - AT - Income Tax

Rental deposits written off - allowable revenue expenses u/s 37(1) - HELD THAT - We noted that the assessee company has claimed a sum of Rs.2,89,42,376/- as deposits written off on account of payment of deposits on account of lease rental in term of agreement entered with Mahaveer Safety Glass Co. Pvt. Ltd., dated Feb,2008 for the property at Plot Nos.D-9 D-10 in Sipcot Industrial Park, Irungattukottai. The assessee could not occupy the property since the required permission was not taken by the owner of the land from Sipcot and lease could not be finalized. The assessee has filed recovery proceedings by filing a suit before the Hon ble Madras High Court but that is pending. In the mean time, the assessee had made this claim of rental deposits as write off and claimed as allowable expenditure u/s.37(1). As the issue is exactly identical, respectfully following the Hon ble Madras High Court decision in the case of Pricol Ltd. 2021 (8) TMI 481 - MADRAS HIGH COURT we direct the AO to allow the claim of assessee. Appeals filed by the assessee are allowed.

Summary

Issues:
Delay in filing appeals before the Tribunal, Condonation of delay, Treatment of rental deposits written off as revenue expenditure.

Delay in filing appeals before the Tribunal:
The appeals by the assessee were delayed by 426 days due to various reasons, including the misplacement of the order received by the Chartered Accountant and the impact of the Covid-19 pandemic. The assessee sought condonation of the delay, citing valid reasons for the delay. The Tribunal, considering the circumstances, condoned the delay and admitted the appeals for adjudication.

Condonation of delay:
The delay in filing the appeals was attributed to specific causes, such as misplacement of the order and the impact of the Covid-19 pandemic. The Tribunal, after considering the reasons provided by the assessee and the directions of the Hon'ble Supreme Court regarding the pandemic-related delays, decided to condone the delay and allowed the appeals to proceed for adjudication.

Treatment of rental deposits written off as revenue expenditure:
The main issue in the appeals was the treatment of rental deposits written off by the assessee as revenue expenditure. The assessee had claimed the amount as allowable expenditure under section 37(1) of the Income Tax Act, stating that the deposits were written off due to the failure to finalize a lease agreement. The Assessing Officer had disallowed the claim, considering it a capital loss. The CIT(A) upheld the AO's decision. However, the Tribunal, relying on a similar case decided by the Hon'ble Madras High Court, allowed the claim of the assessee, considering the expenditure as business expenditure. The Tribunal directed the AO to allow the claim in both assessment years, as the facts were identical.

In conclusion, the Tribunal addressed the issues of delay in filing appeals and the treatment of rental deposits written off as revenue expenditure in a detailed manner. The delay was condoned based on valid reasons provided by the assessee and the impact of the Covid-19 pandemic. The Tribunal allowed the appeals by considering the rental deposits as business expenditure, following a precedent set by the Hon'ble Madras High Court in a similar case.