Rent & ad expenses disallowed by ITAT Chennai due to lack of valid agreements. Appeal dismissed.

The ITAT Chennai upheld the disallowance of rent paid to M/s. DRS Industries Ltd. and advertisement expenses incurred by the appellant due to the absence of valid agreements for the transactions to materialize. The appellant's claims were dismissed as the agreements were not in their name, and the intended business transactions did not materialize. The disallowances were deemed justified, leading to the dismissal of the appeal on 07th December 2022 in Chennai.

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Issues:
1. Disallowance of rent paid to M/s. DRS Industries Ltd.
2. Disallowance of advertisement expenses paid to M/s. DRS Industries Ltd.

Issue 1: Disallowance of Rent Paid to M/s. DRS Industries Ltd.:
The appellant contested the disallowance of rent paid to M/s. DRS Industries Ltd., stating that the rent was paid in accordance with an agreement dated 30.06.2010. The appellant argued that despite the agreement not materializing due to unforeseen circumstances, they had incurred various expenses, including rent payment to the landowner. However, the AO disallowed the rent payment, emphasizing that the agreement was not in the appellant's name. The ITAT Chennai upheld the disallowance, noting that the dealership of Skoda cars was not transferred to the appellant as per the agreement, and the rent agreement was between M/s. DRS Industries Ltd. and the landowner. As there was no agreement for the appellant to pay rent directly to the landowner, the disallowance was justified.

Issue 2: Disallowance of Advertisement Expenses Paid to M/s. DRS Industries Ltd.:
Regarding the disallowance of advertisement expenses paid to M/s. DRS Industries Ltd., the appellant claimed to have incurred these expenses while preparing to take over the dealership business. The AO disallowed the expenses citing the absence of a valid agreement between the appellant and M/s. DRS Industries Ltd. The ITAT Chennai affirmed the disallowance, stating that since there was no valid agreement for the takeover of the dealership and the agreement was not acted upon, the appellant's claim for advertisement expenses was unfounded. The ITAT upheld the CIT(A)'s decision to sustain the net advertisement expenditure debited to the profit and loss account, amounting to Rs. 13,62,695.

In conclusion, the ITAT Chennai dismissed the appeal filed by the assessee, upholding the disallowances of rent paid to M/s. DRS Industries Ltd. and advertisement expenses incurred, based on the absence of valid agreements and materialization of the intended business transactions. The judgment was pronounced on 07th December 2022 in Chennai.

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