No Disallowance of Expenditure on Account of Accumulated Service Tax of Rent: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that no disallowance can be made on expenditure on account of accumulated service tax of rent.

Assessee Ultimate Fashion Maker Ltd. filed its return of income declaring total income of Rs.1,06,38,650.-

After completing the scrutiny the assessment order passed under section 143(3) of the Income Tax Act, 1961.The AO disallowed the expenditure on account of accumulated service tax of rent .

As against the assessment order the assessee preferred an appeal before the CIT (Appeals).

The CIT(A) disallowed expenditure claimed on account of accumulated service tax on rent amounting to Rs.26,53,750/- paid by the assessee and further confirmed the disallowance of rent paid amounting to Rs.6,64,000/- on the ground that the assessee has not prove the existence of tenancy and also usage of the premises for business purpose.

Aggrieved, the order of the CIT(A) assessee filed a second appeal before the tribunal.

Before the bench Gunjan Jain, counsel for the assessee submitted that , assessee is a lessee in the premises of carrying the business of manufacturing readymade garments.

The assessee had been tenant of the said premises right from 05.03.2011 and paying the rent and the same has been allowed as deduction.

Further, assessee contended that the expense for the purpose of business of assessee’ is covered by Section 30 of the Income Tax Act.

Rajesh Kumar Dhanesta, counsel for the revenue, supported the decision of the CIT(A).

The tribunal while considering the submission of the parties observed that the AO disallowed the amount of service tax paid on the rent on the ground that the ‘reply of the assessee found to be not satisfactory’.

The service tax is an indirect tax wherein the supplier of the ‘services’ collects the tax from the recipient of the services and deposits the same with Revenue authorities.

Thereafter the two member bench of the B.R.R. Kumar, (Accountant Member)   and Yogesh Kumar U.S (Judicial Member) observed that rent paid for the purpose of business of assessee is covered under Section 30 of the Income Tax Act and allowed the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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