2023 (4) TMI 293 - AT - Income Tax

Disallowance of expenditure on account of accumulated service tax of rent - Addition on the ground that the reply of the assessee found to be not satisfactory - HELD THAT - The service tax is an indirect tax wherein the supplier of the services collects the tax from the recipient of the services and deposits the same with Revenue authorities. Even the levy on the renting of immovable property wherein the service tax has to be borne by the lessee but the same has to be collected by the landlord who is under obligation to perform the function of facilities or wherein he collect the tax and deposits the same with the Revenue authorities. Liability of service tax on the rent is always passed on the recipient of the service. The reasoning given by the Revenue authorities in the present case are grossly erroneous. The allow-ability of rent paid for the purpose of business of assessee is covered under section 30 of the act. As regards service tax of rent, the same takes the character of the rent itself, as a result, the same should be allowed under section 30. Considering documents produced by the assessee before us, we deem it fit to remand the issue to the file of the AO and examine the submission and the documents produced thereon and pass appropriate order in accordance with law after providing adequate opportunity of being heard to the assessee. Ground No. 1 of the assessee is allowed, for statistical purposes. Disallowance of payment of rent - no lease agreement and the assessee has not submitted any document to prove that the said premises has been used for business purpose - assessee entered into lease agreement in writing and the same has been renewed orally - HELD THAT - Though the lease agreement need not be in writing and the tenancy can be oral, but to prove the tenancy the assessee could have produced the owner before the Assessing Officer in support of his claim and the burden cast upon the assessee to substantiate the claim that the premises has been used for Business Purposes . We deem it fit to remand the matter to the file of the AO with a direction to the assessee to prove the oral tenancy and also to prove that the premises has been used for the business purpose and the AO is directed to decide the matter afresh after providing adequate opportunity of hearing to the assessee. Ground of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of expenditure on accumulated service tax on rent
2. Disallowance of rent paid amount

Summary:

Issue 1: Disallowance of expenditure on accumulated service tax on rent
The assessee filed an appeal against the order of the ld. Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The appeal raised grounds related to the disallowance of expenditure on accumulated service tax on rent and disallowance of rent paid amount. The assessee claimed that the service tax on renting of property was levied by the legislature, and subsequent amendments made the liability applicable retrospectively. The assessee argued that the disallowance made by the Revenue authorities should be quashed. However, the CIT (Appeals) upheld the disallowance stating that the liability of service tax on rent was not of the appellant but of the property owner as per the lease deeds. The Tribunal remanded the issue to the Assessing Officer for further examination based on the submissions and documents provided by the assessee.

Issue 2: Disallowance of rent paid amount
Regarding the disallowance of rent paid to Ms. Manju Gosai, the Assessing Officer and the CIT (Appeals) rejected the claim due to the absence of a written lease agreement and lack of proof that the premises were used for business purposes. The assessee contended that there was an initial lease deed dated 01.02.2009, which was later renewed orally. The Tribunal decided to remand the matter to the Assessing Officer for the assessee to prove the oral tenancy and the usage of the premises for business purposes. The Assessing Officer was directed to reexamine the issue after providing an opportunity for the assessee to be heard. As a result, the appeal by the assessee was partly allowed for statistical purposes.