M/S. C 1 INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

Brief facts of the case shows that assessee is a company, filed return of income declaring income of INR 3 727359/– on 30/09/2011. The case of the assessee company was selected for scrutiny under CASS of the act. As addition was made in the income of the assessee for earlier years for non- payment of service tax same was also made for the current year. The assessee also claimed bad debts of 723607/–, the assessee was asked to Page | 1 show that admissible of the same along with the details that in which year the same was recognized as income. It was further noted that assessee has claimed advance written off amounting to INR 2 136704/– and assessee was asked to submit a note about the justification for deductible at of the same. Reply was received and therefore the same was added. Consequently the total income of the assessee was assessed at INR 6 866021 against the total income returned of INR 3 727359/– by passing an assessment order u/s 143 (3) of the act vide order dated 7/3/2014.

The assessee preferred an appeal before the learned CIT – A, New Delhi who passed an order dated 12/6/2015 wherein most of the claim of the assessee were decided however he confirmed the disallowance of INR 1,000,000 out of the write off of security deposit for taking property on rent which was forfeited during the course of the business. Therefore assessee is in appeal before us. 5. The learned authorised representative submitted that appellant company deals in empowering the clients across the industry to automate the manual procurement process through technological expert eyes, deep process knowledge and innovation. With the diverse portfolio of the product the appellant is pioneer in providing a procurement services. It was stated that during the year under consideration the appellant company had decided to take the premises on lease at Hyderabad from M/s KG drugs private limited for the purpose of setting of its branch office there. As per the lease agreement executed between the parties the premises was leased out to the appellant from 01/10/2010 for a monthly rent of INR 18 3333 on refundable security deposit of INR 1,100,000. The assessee deposited the same as a security deposit however on account of Lake of business opportunity and selection of inappropriate location and unexpected growth in that market and certain other reasons the company could not set up its branch office in Hyderabad and did not occupy the premises taken on lease even for the single day. As per the clause 19 of the lease agreement there was also a lock in period of 6 months during which both the parties could not terminate the agreement in the lease was required to pay the rent of the lock in period even if the premises remained vacant. As the property was not occupied even for the lock in period as per clause 19 of the agreement, the failure on account of the assessee resulted into the forfeiture of the security deposit is a rent of the lock in period. The learned CIT – A has confirmed the disallowance of claim made by the learned assessing officer stating that it is not deductible revenue expenditure. However she submitted that the learned CIT – A also referred that it is the money which has been lost by the appellant. She reiterated the submissions made before the lower authorities and further relied upon the decision of the coordinate bench in case of home care retail Marts private limited in ITA number 6484/MUM/2014 where on the similar facts the deduction was allowed. Therefore she submitted that the issue squarely covered in favour of the assessee. She further relied upon the decision of the Fab India overseas private limited in ITA number 199/del/2012 where on the identical facts and circumstances security deposit forfeited was held to be revenue expenditure allowable under section 28 of the income tax act. She further relied upon the decision of the coordinate bench in AT&T Communication services India private limited 91 taxmann.com 58. She further submitted that even otherwise it is not a capital expenditure is no capital asset has come into existence. She relied on 102 taxmann 206 for the above proposition. She further relied on the decision of the coordinate bench in case of outworks solutions private limited vs. joint Commissioner of income tax (ITA number 4234/del/2015) wherein the above expenditure of the forfeiture of security deposit is allowed as a deduction.

The learned senior departmental representative vehemently submitted that the forfeiture of security deposit cannot be said to be and expenditure incurred by the assessee. She further stated that such expenditure cannot be held to be revenue expenditure. She further stated that it is not a bad that as claimed by the assessee. Therefore she submitted that the above disallowance made by the lower authorities may be upheld.

We have carefully considered the rival contention and perused the orders of the lower authorities. We have also produced the several decisions relied upon by the learned authorised representative. Admitt up edly the assessee was to take the premises on rent and for which the security deposit was paid by the assessee. Later on for some reasons the assessee could not occupy the above premises and therefore in terms of the agreement entered