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TMI Blog2023 (10) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the Ld. CIT(A) has erred in deleting the above addition without making proper enquiries and test of reasonableness and excessive claim of the assessee u/s 40A(2)(b) of the I.T. Act. 4. 'On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,15,27,945/- on account of rental expenses aggregating to Rs. 1,15,27,945/- 5. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,81,03,975/- on account of write off of CENVAT tax credit aggregation to Rs. 1,81,03,975/-. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 60,16,402/- on account of finance cost aggregating to Rs. 60,16,402/-." 3. Briefly stated, the assessee is a company engaged in the business of buying and selling, trading, stocking, exporting-importing, auctioning, promoting, exhibiting, hiring and dealing in art including painting, sculpture, antique, artistic value or any other intrinsic value and to promote art and related services like gallery space, valuation, authentication, collection building and custodial servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... q. ft By way of addendum dated April 2, 2012 to the lease agreement dated June 1, 2011. 837 sq. ft. By way of addendum dated August 2, 2012 to the lease agreement dated June 1, 2011. 4.4 Due to continuing losses in previous financial years and in the subject AY, the appellant had, with effect from 01.08.2012, shut down its art gallery and vacated the aforesaid premises except office space admeasuring 837 sq. ft. which was utilised by it as its registered office. The appellant had during the relevant assessment year incurred and paid lease rentals aggregating to Rs 1.79,50,486/- for (a) office space ad-measuring 26,493.57 sq. ft. for the period 01.04.2012 to 31.07.2012 and (b) office space ad- measuring 837 sq. ft for the period 01.08.2012 to 31.03.2013 to REL Infra, calculation of rental payment of Rs. 1,79,50,486/- was submitted as below. Table 3 Month Rent paid for art gallery ad measuring 22,814 sq. ft Rental amount for additional space of 3,679.57 sq. ft Total Reference Apr-12 31,36,915 8,07.187 39.44,102 Sub-lease agreement and addendum dated April 2, 2012 May-12 33,72,194 8,07.187 41,79,381 Jun-12 33,72,194 8,07.187 41,79,381 Jul-12 33,72,194 8,07.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said old annexure was rescinded by both i.e. the appellant and REL Infra and hence, ceased to be a valid lease document. The Appellant vide submission dated 25.09.2017 under the provisions of section 46A of the Act furnished copy of correct annexure to the principal lease agreement as an additional evidence, wherein office space ad-measuring 22,814 sq ft was sub leased. The sub-lease agreement stipulated the amount of monthly lease rentals (amount submitted in Table 2 above) with annual increase of 7.5%. Copy of the additional evidence application was also forward to the AO whose comments are as follows: "The assessee has debited a sum of Rs 1,79.50.486/- on account of payment of rent. During the course of assessment proceeding the assessee was asked for justification, the assessee had submitted as under: "It is submitted that the company, for the purpose of conduction its business operations viz. Buying selling auctioning, promoting exhibiting arts including paintings, sculptures, antiques, artistic value or any other intrinsic value and to promote art and provide art related services like gallery space. valuation, authentication, collection building and custodial services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that this lease agreement has been rescinded by the assessee and REL Infra and hence, ceased to be a valid lease agreement. In view of the above, there is no logic in the facts presented by the assessee that it had inadvertently submitted some old agreement at the time of assessment proceedings. However, the assessee being aggrieved with the addition made the AO, is trying to take the benefit by changing the lease agreement that has different terms and conditions." 4.8 It was submitted that the rental expenditure was incurred by the appellant wholly and exclusively for the purpose of its business and is hence an allowable expenditure u/s 37(1) of the Act. Further, the appellant also submitted that REL Infra had shown the rental receipts of Rs. 1,79,50,486/- from the appellant as rental income in its books of accounts for the subject AY 2013-14. 4.9 Based on the above discussion, it is apparent that the said rental expense of Rs. 1.79.50.486/- crores has been incurred by the Appellant wholly and exclusively for the purpose of its business and hence, is an allowable expenditure u/s 37(1) of the Act. The only confusion was created because of wrong filing of the ol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilised further, is allowable as business expenditure under section 37(1) of the Act Relevant extract of decision is quoted as below 10. Various tests have been laid down by various High Courts and the Apex Court in relation to the allowability of expenditure under section 37(1) of the Act while computing the income from profits and gains of business or profession. In the facts of the present case, the assessee had paid CENVAT on purchase of raw material which was deposited in its PLA account for claiming the benefit of set off against the excise duty payable on the manufactured items i.e. branded yarn The assessee was paying higher rate of excise duty on the raw material purchased by it as against the rate of excise duty applicable on the manufactured items, consequently credit of excise duty was available with the assessee. The said excise duty paid from year to year was not claimed as an expenditure but was carried forward from year to year to be adjusted against the excise duty payable by the assessee on its manufactured items. However, during the year under consideration the assessee closed down its manufacturing unit and consequently the benefit of the CENVAT credit remaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present AY. It was also submitted that the quantum of ICDs borrowed by the appellant at any time during the relevant AY never exceeded Rs. 30.57 crores and consequently never exceeded the appellant's working capital requirement of Rs. 34.67 crores. 7.5 The appellant in this respect relied on various judicial pronouncements wherein allowability of expense as a business expense under section 37 has been discussed One of the key decision to support its claim is that of CIT Vs. Malayalam Plantations Ltd: (1960 53 ITR 140 where the Supreme Court observed that "The expression" for the purpose of the businesses is wider in scope than the expression for the purpose of earning profits. Its range is wide. It may take in not only the day to day running of business but also the rationalisation of its administration and modernisation of its machinery it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile, it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business, it may comprehend many other ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t basis' in the ratio of the office space sub-leased by the assessee for its art gallery to the total area of the branch. The Ld. AO wrongly treated reimbursement as support service expense when no support service expenses were incurred / claimed during the year. It is submitted by the Ld. AR that actual expenses incurred is allocated and recovered by REL Infra on the basis of Cost Allocation Logics Policy for the Religare group. TDS is duly deducted on payment made to REL Infra. The Ld. AO has not doubted the genuineness of expenditure and there is nothing on record to establish that payment is excessive or unreasonable. On careful consideration of the arguments of the parties, we are of the view that the Ld. CIT(A) is perfectly justified in deleting the impugned disallowance. We find that the appeal of the Revenue filed against the CIT(A)'s order for AY 2012-13 stands dismissed by the Tribunal vide order in ITA No. 2770/Del/2017 dated 03.12.2019. We therefore find no reason to sustain the impugned disallowance. These grounds are rejected. 6.2 Ground No. 4 relates to disallowance of Rs. 1,15,27,945/- out of rental expenditure claimed at Rs. 1,79,50,486/-. The Ld. AO has discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Vs. ACIT 27 taxmann.com 332 deleted the disallowance. Before us the Ld. DR submitted that requisite verification has neither been done by the Ld. AO nor by the Ld. CIT(A). It is not an expenditure of this year. It is not allowable on grounds of matching principle. He further submitted that there is no difference between CENVET on capital goods and revenue items. Therefore, verification is called for. However, he did not produce any precedence in support of his submission. The Ld. AR submitted that the assessee has written off the unutilized CENVET Credit of Rs. 1,81,03,975/- and claimed it as business expenditure. The assessee offered the explanation that the possibility of set off of available credit with service tax liability was remote due to closure of art gallery. A number of decisions have been cited in which identical claims have been allowed. We gave careful thought to the submission of the parties. It is not in dispute that the statutory auditors of the assessee company have duly certified the impugned write off in the company's audited financial statements which is on record of the Ld. AO. Therefore, it cannot be said that it is not verifiable. The explanation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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