Tribunal overturns disallowance of rent expenses under Income Tax Act

The Tribunal allowed the appeal, overturning the disallowance of rent expenses of Rs. 8,80,000 and the disallowance of Rs. 10,000 under section 69C of the Income Tax Act. The Tribunal found that the rented premise was used for business purposes and that the authorities did not provide sufficient evidence to support the disallowances. The order was pronounced on 31-12-2020.

---

---

Issues involved:
1. Disallowance of rent expenses of Rs. 8,80,000
2. Disallowance of Rs. 10,000 under section 69C of the Income Tax Act

Issue 1 - Disallowance of rent expenses of Rs. 8,80,000:
The Assessing Officer disallowed rent expenses claimed by the assessee for a premise in Mumbai, stating it was not proven to be used for business purposes. The CIT(A) upheld this decision. However, during the appeal, the assessee presented evidence including the leave and license agreement, arguing that the property was used as a guest house for directors on business trips. The Tribunal noted that the rented premise was used for business meetings and temporary residential purposes of directors. Considering the minimal expense compared to the revenue and similar expenses allowed in subsequent years, the Tribunal concluded that the disallowance was unjustified and deleted the addition.

Issue 2 - Disallowance of Rs. 10,000 under section 69C:
The Assessing Officer disallowed Rs. 10,000 as unexplained expenses for freight charges on a purchased machine from Surendranagar. The assessee explained that it used its own tempo for transportation, but the Assessing Officer disagreed. The CIT(A) upheld the disallowance. In the appeal, the Tribunal found that the authorities failed to refute the claim that the assessee used its own tempo for delivery. The Tribunal observed that no evidence was presented to invoke section 69C, which requires unexplained expenditures. Relying on precedent, the Tribunal concluded that the addition was made on presumption and directed the Assessing Officer to delete it.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning both the disallowance of rent expenses and the disallowance under section 69C. The order was pronounced on 31-12-2020.

---