Loss of Security Deposit towards Rented Premises Deductible as Business Loss: ITAT [Read Order]

Currency Loss -ITAT -Taxscan

The Income Tax Appellate Tribunal ( ITAT ) Delhi bench held that the loss of the amount of security deposit paid to landlord towards rented premises is deductible as ‘ Business Loss ’ under the Income Tax Act, 1961.

The assessee Company obtained land on lease for business purpose. Towards this, the Company paid advance rent to the landlord. Due to a major break out in the rented premises, the assessee had to leave the same. As the company was not utilizing the premises due to the fire and there was a dispute between the landlord and assessee company regarding the payment of rent. There was advance rent given to landlord could not be recovered from the landlord due to the dispute.

The assessee contended that since the premises were destroyed in the fire and the assessee had to vacate the said premises, he requested the landlord for the refund of the security deposit. The request was declined and, therefore, the assessee was left with no choice but to write off the said security deposit and the same should be allowed as legitimate business expenditure u/s 37/28 of the Act.

Allowing the above contentions, the Tribunal held that “No doubt, the assessee claimed to write off as bad debt but it is equally true that the assessee did explain the sequence of events which prompted it for the said write off. There is no denying that the assessee does not fulfil the conditions mandated in section 36(2) r.w.s 36(1)(vii) of the Act. It is equally true that the loss of security deposit is business loss in the revenue field because the said security deposit was given in the ordinary course of business of the assessee and since the assessee had to shift the business premises on the wake of the fire, the write off became imminent because the landlord declined to refund the security deposit. In our considered opinion, the write off has to be considered in the light of provisions of section 28 r.w..s 37 of the Act.”

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