2023 (5) TMI 463 - AT - Income Tax

Addition on account of Tenancy Vacancy Charges - HELD THAT - As out of five parties, three have responded to the notices issued u/s 133(6) of the Act and admitted to have received the tenancy vacancy charges and only two do not respond. Since the assessee is a private limited company and following mercantile system of accounting, so the assessee has to be allowed these tenancy vacancy charges on accrual basis. The both the authorities below have not complied with the directions given by the Tribunal and simply made the addition on the ground that these payments could not be verified. In our considered view this is in complete violation of direction given by the tribunal vide order dated 23.05.2013. Non service of notice us 133(6) of the Act can not be a ground for non compliance of the tribunal direction. As examined the agreements with the tenants and also the suits filed by the purchaser in the court against the assessee. Therefore order we reverse the order of CIT(A) and direct the AO to allow tenancy vacancy charges to the assessee. Appeal of the assessee is allowed.

Summary

Issues Involved:
The only issue raised in the appeal is against the confirmation of addition of Rs. 1,23,40,000/- by Ld. CIT(A) as made by the AO in the assessment framed u/s 143(3)/254/143(3) of the Act dated 11.03.2015 on account of "Tenancy Vacancy Charges".

Comprehensive Details:

Issue 1: Addition of Tenancy Vacancy Charges
In the first round of appeal, the Tribunal directed the AO to verify the agreements entered into by the assessee with the tenants for payment of compensation for vacating the property. The AO disallowed the claim of tenancy vacation charges on the ground that the same were contingent in nature. However, the Tribunal found that the agreements clearly showed that the assessee was obligated to provide vacant possession to the purchasers by a specific date. The Tribunal held that the charges paid or payable in respect of the vacation of the tenants were legitimate expenditures associated with the sale of the property. The Tribunal observed that the AO did not comply with the directions given by the Tribunal in the previous order and made the addition without proper verification. The Tribunal, after examining the agreements and suits filed by the purchaser, reversed the order of Ld. CIT(A) and directed the AO to allow the tenancy vacancy charges to the assessee on accrual basis.

Conclusion:
The Tribunal allowed the appeal of the assessee and directed the AO to allow the tenancy vacancy charges of Rs. 1,23,40,000/- to the assessee.