HOMECARE RETAIL MARTS P.LTD, MUMBAI V. ASST CIT CIR 6(3), MUMBAI

ITA 6484/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2835 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revised return; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI B.R. BASKARAN, AM AND C.N. PR ASAD, JM ITA NO.6484/MUM/2014 (ASSESSMENT YEAR: 2010-11) HOMECARE RETAIL MARTS PVT. LTD. NEW ERA MILLS COMPOUND, MOGUL LANE, MATUNGA (WEST), MUMBAI-400 016. VS. THE ASSTT. COMMISSIONER OF INCOME TAX-6(3), AAYAKAR BHAVAN, MUMBAI-400 020. PAN: AABCH 5538A APPELLANT .. RESPONDENT APPELLANT BY SHRI SANJAY SAWANT RESPONDENT BY SHRI SATYA PAL KUMAR DATE OF HEARING 16 - 05 - 2016 DATE OF PRONOUN CEMENT 22 - 06 - 2016 O R D E R PER C.N.PRASAD, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX-12, MUMBAI DATED 22-08-2 014 FOR ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.43,00,040/- MADE BY THE ASSESSING OFFICER CONSIDERING SUNDRY BALANCES WRITTEN OFF AS FALLING OUTSIDE THE PURVIEW OF SECTION 36(2) R.W.S.36(1)(VII) OF THE AC T AND ALSO NOT ALLOWABLE U/S 37(1) OF THE ACT. 3. THE BRIEF FACTS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF SUPER MARKET/HYPER MARKET FILED ITS ORIGINAL RETURN OF IN COME ON 15.10.2010 ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 2 DECLARING LOSS OF RS.13,87,46,874/- WHICH WAS REVIS ED TO RS.14,20,95,245/- BY FILING REVISED RETURN ON 24.01 .12. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 20.12.2012 DETERMINING THE LOSS AT RS.13,77,94,205/- AND WHILE COMPLETING THE ASSESSME NT THE ASSESSING OFFICER DISALLOWED SUNDRY BALANCES WRITTEN OFF OF R S.43,01,040/-. THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS NOT ICED THAT ASSESSEE HAS DEBITED A SUM OF RS.43,01,040/- IN P&L A/C ON A CCOUNT OF SUNDRY BALANCES WRITTEN OFF. THE AO NOTICED THAT THIS AMOU NT REPRESENTS DEPOSIT GIVEN TO THE LESSOR IN RESPECT OF DEV ARCADE PROPER TY AT AHMEDABAD, WHICH WAS TAKEN ON LEASE BY THE ASSESSEE FOR ITS HY PER MARKET BUSINESS. HE NOTICED THAT THE LESSOR DEVDIP ARCADE (P) LTD. H AS FORFEITED THIS DEPOSITS FROM THE ASSESEE AND WAS OF THE VIEW THAT SINCE SECURITY DEPOSIT GIVEN BY THE ASSESSEE IS NOT REVENUE EXPENDITURE RI GHT OFF OF THIS AMOUNT BY THE ASSESSEE IS NOT AN ALLOWABLE EXPENDITURE. TH E ASSESSEE CONTENDED BEFORE THE AO THAT SINCE IT COULD NOT OBT AIN ALL THE NECESSARY LICENSES REQUIRED FOR RUNNING HYPER MARKET STORE IN THE LEASING PREMISES, IT HAD TO CURTAIL THE AREA FROM WHICH THE BUSINESS WAS TO BE CARRIED ON AND ULTIMATELY IT HAD TO SHUT THE STORE AS PER THE NOTI CE ISSUED BY THE CONCERNED DEPARTMENT TO AVOID PENAL ACTION. ASSESSE E CONTENDED THAT THE LESSOR COMPLETELY IGNORED ITS APPLICATION AND V ARIOUS WARNINGS FROM THE FIRE DEPARTMENT WHICH WAS BROUGHT TO THEIR NOTI CE AND WITH THE RESULT ASSESSEE HAD TO SHOW THAT THE LESSOR DID NOT COMPLY WITH VARIOUS CLAUSES OF THE TERMS AND CONDITIONS OF THE LEASE DEED. IT W AS ALSO CONTENDED THAT ASSESSEE HAS TERMINATED THE LEASE AND DEMANDED COMP ENSATION OF ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 3 RS.3.56 CRORES FORM THE LESSOR. THE ASESSEE CONTEND ED THAT THE DEPOSIT WRITTEN OFF SHOULD BE ALLOWED AS REVENUE EXPENDITUR E. IT WAS FURTHER CONTENDED THAT SECURITY DEPOSIT WAS ADJUSTED AGAINS T THE OUTSTANDING RENT AND OTHER CHARGES THEREFORE SHOULD BE ALLOWED. FURT HER THE ASSESSING OFFICER DISALLOWED THE RIGHT OFF OF SECURITY DEPOSI T HOLDING THAT DEPOSIT WAS GIVEN AGAINST LEASE OF PROPERTY THEREFORE IS CAPITA L DEPOSIT AND IT CANNOT BE REVENUE EXPENDITURE. THE CIT(A) SUSTAIN THE DISA LLOWANCE HOLDING THAT IT IS NOT ALLOWABLE U/S 36(1)(VII) AS BAD DEBT AND FURTHER HELD THAT SINCE IT IS NOT ALLOWABLE AS BAD DEBT THE SAME IS ALSO NOT ALLO WABLE EXPENDITURE U/S 37(1). 4. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE AS SESSEE COMPANY WAS INCORPORATED IN FINANCIAL YEAR 2005 - 06. IT IS ENGAGED IN THE BUSINESS OF RUNNING SUPER MARKET / HYPER MARKET / RETAIL STO RES OF CONSUMER ITEMS SUCH AS GROCERIES, CLOTHES, STATIONERY, MEDICINE, P LASTIC ITEMS, VEGETABLES, ETC. UNDER THE BRAND NAME 'MAGNET'. THE PROFIT MARG IN IN RETAIL BUSINESS IS VERY SMALL. THE BUSINESS REQUIRES PREMISES OF AL L SIZES. SINCE PURCHASING THE PREMISES ON OUTRIGHT BASIS WOULD HAV E ENTAILED A HUGE LOCKING UP OF CAPITAL, THE ASSESSEE HAS TAKEN LEASE D PREMISES FOR BUSINESS. SUCH LEASING REQUIRED MAKING PAYMENT OF D EPOSITS TO THE LICENSORS/OWNERS. 4.1 THE ASSESSEE HAD MADE A HUGE INVESTMENTS IN OPE NING RETAIL OUTLETS AT VARIOUS PLACES SUCH AS KOLHAPUR, PUNE, A HMEDABAD, ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 4 CHANDIGARH, ETC. DUE TO WHICH THE ASSESSEE WAS FACI NG FINANCIAL CRUNCH. DUE TO GLOBAL FINANCIAL CRISIS AND TOTAL COLLAPSE O F SEVERAL NATIONAL AND INTERNATIONAL BUSINESSES AND GENERAL ECONOMIC RECES SION AND SEVERAL OTHER REASONS, THE ASSESSEE WAS NOT ABLE TO RUN THE BUSINESS AT VARIOUS PLACES. THEREFORE, THE APPELLANT WAS FORCED TO CLOS E DOWN THE OUTLETS WHERE THE ASSESSEE WAS NOT DOING GOOD BUSINESS. SOM E OF THE OUTLETS CLOSED ITS OPERATIONS AND TRANSFERRED THE STOCK AND FIXED ASSETS TO OTHER OUTLETS. AT SOME OF THE OUTLETS THE ASSESSEE COLLEC TED THE REFUNDABLE DEPOSIT. BUT HOWEVER THE DEVELOPER AT PALADI, AHMED ABAD BRANCH DID NOT REFUND THE DEPOSIT, IN SPITE OF WRITING VARIOUS LET TERS TO THEM. AFTER CONTINUOUS FOLLOW UP WITH THE DEVELOPER FOR REFUND OF THE SAID DEPOSIT THE ASSESSEE DECIDED TO INVOKE CLAUSE NO.2 OF PAGE 3 OF THE LEASE DEED RELATING TO ADJUSTMENT OF THE DEPOSIT AGAINST OUTST ANDING RENT, TAXES, ETC. IN THIS CONNECTION, COUNSEL SUBMIT, THAT THE A.O. H AS MADE ADDITION OF RS.43,01,040/- CONSIDERING THE SAME AS CAPITAL IN N ATURE WHICH CANNOT PARTAKE THE NATURE OF A REVENUE EXPENDITURE. 4.2 TO WRITE-OFF A DEBT IN THE BOOKS OF ACCOUNT, TH ERE IS A PRE-REQUISITE CONDITION THAT THE SAME AMOUNT SHOULD HAVE BEEN OFF ERED AS INCOME IN THE BOOKS OF ACCOUNT AT SOME POINT OF TIME IN THE P AST. HE ALSO POINTED OUT THAT THE SAID DEPOSIT HAS NOT BEEN OFFERED AS ' INCOME' IN THE PAST, THEREFORE IT CANNOT BE ALLOWED AS A REVENUE EXPENDI TURE. FURTHER THE ASSESSEE HAS SUBMITTED A COPY OF LEASE DEED DATED 7 TH JUNE 2008 AND EXPLAINED THE VARIOUS TERMS OF LEASE DEED. THE SUM TOTAL OF THE RENT FOR ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 5 BASEMENT AND GROUND + THREE FLOORS CAME TO RS.10,75 ,260/- PER MONTH. AS PER CLAUSE 6(8) OF THE AGREEMENT BETWEEN THE LES SOR AND THE LESSEE A LOCK-IN-PERIOD OF FIVE YEARS IS STIPULATED DURING W HICH NO PARTY TO THE AGREEMENT COULD RESCIND THE AGREEMENT. HOWEVER, IT WAS FURTHER STIPULATED THAT IN CASE THE LESSEE WANTED TO RESCIN D IT, IT WAS OBLIGED TO PAY MONTHLY COMPENSATION OF RS.10,89,785/- FOR THE UNEXPIRED PERIOD AS PER THE TERMS OF LEASE AGREEMENT. AS STATED EARLIER , THE ASSESSEE HARDLY USED THE PREMISES FOR THIRTEEN MONTHS FOR ITS BUSIN ESS. THUS, THE REMAINING PERIOD OF LOCK-IN-PERIOD WAS FORTY-SEVEN MONTHS. THE COMPENSATION PAYABLE FOR SUCH UNEXPIRED LOCK-IN-PER IOD WOULD HAVE COME TO RS.5,05,37,220/-. EVEN OTHERWISE ALSO LEASE RENT WERE NOT PAID FOR SEVEN MONTHS VIZ. DECEMBER 2008 TO JUNE 2009 @ RS.1 0,75,260/- TOTAL AGGREGATE TO RS.75,26,820/-. 4.3 COUNSEL SUBMITTED THAT THE LESSOR AND ASSESSEE THEREFORE MADE A COMPROMISE AND DREW A DEED OF CANCELLATION OF LEASE DEED ON 28 TH DAY OF JULY 2009. ACCORDING TO THE AFORESAID CANCELLATI ON OF LEASE DEED, THE LEASE DEED DATED 07.06.2008 EXECUTED BY THE ASSESSE E AND THE LESSOR WAS TERMINATED AND CANCELLED BY THE PARTIES W.E.F. 30.06.2009. AS PER THE TERMS OF AGREEMENT ON PAGE 3, [ITEM NO (2)], THE PA RTIES HAD AGREED THAT THE AMOUNT OF SECURITY DEPOSIT PAID BY THE ASSESSEE WOULD BE ADJUSTED AGAINST THE OUTSTANDING RENT, OUTSTANDING TAXES, CH ARGES, ELECTRICITY BILLS, TELEPHONE BILLS AND OTHER CHARGES/AMOUNTS RELATING TO THE SAID PROPERTY UPTO 30.06.2009 AND THAT THERE WOULD BE NO OUTSTAND ING AMOUNT TO BE ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 6 PAID OR REFUNDED BY EITHER PARTY. A COPY OF LEASE D EED DATED 7TH JUNE 2008 AND CANCELLATION DEED DATED 26 TH JULY 2009 WILL BE SUBMITTED AT THE TIME OF HEARING. THOUGH THE A.O. HAS MENTIONED ALL THE FACTS WHICH HAS BEEN REPRODUCED BY HIM IN PARA 3 OF THE ASSESSMENT ORDER, CONCLUDED THAT NO DETAILS MENTIONED IN THE CANCELLATION DEED REGARDING PERIOD OF RENT, AMOUNT INVOLVED OR THE DETAILS OF OTHER CHARG ES AGAINST WHICH THE SECURITY DEPOSIT IS ADJUSTED. THE ASSESSEE SUBMITS THAT THE SECURITY DEPOSIT HAS BEEN ADJUSTED AGAINST THE EXPENSES SUCH AS RENT, ELECTRIC BILLS, TELEPHONE BILLS, ETC. WHICH ARE INDEED REVEN UE EXPENSES. HENCE, THE SAID ADDITION NEEDS TO BE DELETED. SINCE THE SAID ADVANCES WERE GIVEN FOR BUSINESS PUR POSE TOWARDS COMMERCIAL LEASE DEPOSIT AND NOT TO ACQUIRE ANY CAP ITAL ASSET AND ON TERMINATION THE APPELLANT HAS RIGHTLY CLAIMED AS 'B USINESS EXPENDITURE' AND, THEREFORE, THE DELETION NEEDS TO BE DELETED. 5. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPO RTS THE ORDERS OF AUTHORITIES BELOW AND DISALLOWS THE SECURITY DEPOSI T AS NOT AN ALLOWABLE EXPENDITURE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND DETAILS FURNISHED BY THE ASSE SSEE. THE AO WHILE COMPLETING THE ASSESSMENT DISALLOWED THE WRITE OFF OF SECURITY DEPOSIT TREATING IT AS CAPITAL DEPOSIT AND BY OBSERVING THA T IT CANNOT PARTAKE THE ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 7 NATURE OF REVENUE EXPENDITURE. HE ALSO OBSERVED THA T THIS DEPOSIT WAS NOT OFFERED AS INCOME IN THE BOOKS OF ACCOUNT AND THE T RANSACTION OF PASSING SECURITY DEPOSIT IS A CAPITAL TRANSACTION AND DOES NOT QUALIFY THE BASIC CONDITION THAT IT WAS CREDITED AS INCOME IN THE PAS T. THE AO IGNORED THE CONTENTION OF THE ASSESSEE THAT SECURITY DEPOSIT WA S ADJUSTED AGAINST THE OUTSTANDING RENT AND OTHER CHARGES AND THEREFORE SH OULD BE ALLOWED AS REVENUE EXPENDITURE. LD. CIT(A) SUSTAINED THE DISAL LOWANCE HOLDING THAT IT IS NOT A WRITE OFF BAD DEBT, NOT ALLOWABLE U/S 36(1 )(VII) AND ALSO NOT ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. WE FIND THAT THE ASSESSEE TERMINATED THE LEASE AGREEMENT WHICH WAS ENTERED IN TO BY IT WITH THE LESSOR FOR THE REASON THAT ASSESSEE COULD NOT CONTI NUE THE BUSINESS IN THE SAID PREMISES AS THE LESSEE COULD NOT COMPLY WITH T HE TERMS AND CONDITIONS OF THE LEASE AGREEMENT AND ALSO THE ASSE SSEE COULD NOT OBTAIN NECESSARY PERMISSIONS FROM VARIOUS GOVERNMENT AUTHO RITIES. BOTH LESSOR AND THE ASSESSEE ENTERED INTO DEED OF CANCELLATION OF LEASE DEED ON 20.07.2009 FOR TERMINATION OF THE LEASE DEED ENTERE D INTO ON 07.06.2008 AND AGREED TO TERMINATE AND CANCEL THE LEASE DEED W .E.F.30.06.2009. IN THE CANCELLATION DEED IT WAS SPECIFICALLY AGREED TH AT SECURITY DEPOSIT PAID BY THE ASSESSEE TO THE LESSOR HAS BEEN ADJUSTED TOW ARDS OUTSTANDING RENT, TAXES, CHARGES, ELECTRICITY BILLS, TELEPHONE BILLS, AND OTHER CHARGES UPTO 30 TH JUNE, 2009 AND THERE IS NO OUTSTANDING AMOUNT TO B E PAID OR REFUNDED. THE ASSESSEE HAS ALSO BREAK UP OF RENT OU TSTANDING FOR SEVEN MONTHS I.E. FROM DECEMBER 2008 TO JUNE 2009 AT RS.7 5,26,820/- WHICH IS AT PAGE NO.2 OF THE PAPER BOOK. LD. COUNSEL SUBMITT ED THAT THOUGH THE AO ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 8 HAS MENTIONED THAT THESE DETAILS ARE NOT AVAILABLE THAT WERE SUBMITTED IN THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO IN TH E COURSE OF APPELLATE PROCEEDING BEFORE CIT(A). 7. TAKING THE TOTALITY OF FACTS AND CIRCUMSTANCES I NTO ACCOUNT WE ARE OF THE CONSIDERED VIEW THAT THE SECURITY DEPOSIT HAS T O BE ADJUSTED AGAINST THE RENT PAYABLE BY THE ASSESSEE AND THIS HAS ALREA DY BEEN DONE BY ENTERING INTO CANCELLATION AGREEMENT WHEREIN CLAUSE 2 OF THE CANCELLATION DEED SPECIFICALLY MENTIONED ABOUT ADJUSTMENT OF SEC URITY DEPOSIT AGAINST THE RENT PAYABLE BY THE ASSESSEE. THE DETAILS FILED BY THE ASSESSEE ALSO SUGGEST THAT THE RENT PAYABLE BY THE ASSESSEE FAR E XCEED SECURITY DEPOSIT AND HENCE NO DISALLOWANCE IS REQUIRED TO BE MADE BY THE AO. THUS, WE DIRECTED THE AO TO DELETE THE DISALLOWANCE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/2016. SD/- SD/- (B.R. BASKARAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI , DATED 22/06/2016 ASHWINI/ ASHWINI/ ASHWINI/ ASHWINI/PS PSPS PS ITA NO.6484/MUM/2014 (A.Y.2010-11) HOMECARE RETAIL MARTS PVT. LTD. VS. ACIT 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//