The Income Tax Appellate Tribunal (ITAT), Mumbai Bench deleted the disallowance and ruled that no disallowance to be made on Interest of Security Deposit as Bungalow on Lease used for housing Assessee’s staff, Business guests.
The assessee company, M/s. Chandri Papers and Allied Products Pvt. Ltd is engaged in the business of manufacturing and importing various petroleum products like process oils, waxes, and the trading of PVC resins, petrochemicals and base oils. The return of income for the A.Y.2014-15 was filed by the assessee declaring a total income of Rs.47,09,087/- under normal provisions of the Act and book profit of Rs.34,53,011/- under section 115JB of the Act. During the course of assessment proceedings, various details in respect of the claim of expenditure made in the accounts had been called for and examined by the AO.
The AO observed that the assessee has paid a sum of Rs.28,89,000/- as rent to Shweta Rasiwasia, wife of director Shri Aditya Rasiwasia in respect of a guest house belonging to Smt. Shweta Rasiwasia was taken on lease by the assessee company for its business purposes. The assessee furnished the copy of the registered lease agreement entered into with the wife of the director in support of the rent payment and also submitted that the bungalow belonging to the wife of the director situated at Lonavala was used as the guest house for staff and customers of the assessee company and since the said property had been used for the purpose of business, the rent paid amounting of Rs.28,89,000/- would be an allowable deduction. The assessee also pointed out that the lease agreement is for a period of 55 months.
The AO observed that since the bungalow is owned by the director’s wife, there is all possibility of utilisation of the same for their personal use and accordingly, proceeded to disallow the entire expenditure of Rs.28,89,000/- towards rent as not for the purpose of business.
The AO observed that since the property per se is not utilised for the purpose of business of the assessee, there is no business expediency to pay security deposit of Rs.91.50 lakhs to the wife of director to the said property. The AO observed that since the assessee had interest bearing funds in its financial statements, he proceeded to disallow the 12% interest on a proportionate basis to the extent of security deposit of Rs. 91.50 lakhs treating it to be for non- business purposes. Accordingly, a sum of Rs.10,98,000/- was sought to be disallowed towards interest expenditure as not meant for the purpose of business.
The coram of Judicial Member C.N.Prasad and Accountant Member, M.Balaganesh noted that the assessee had taken the property on lease for the purpose of its business. The said property is situated at Lonavala. The said property belongs to the wife of the director of the assessee company. The property has been taken on lease based on a registered lease agreement entered into with the wife of the director of the assessee company.
The ITAT found that Smt. Shweta Rasiwasia had retained some portion of the property for her personal use and had leased out the remaining portion to the assessee company and had derived lease rental income thereon. The said property had been taken on lease by the assessee for housing its staff and business guests who visit Lonavala and which inturn had increased the morale of the employees and assessee was benefited with good business relations with the customers of the assessee company.
“Hence, the business nexus of taking that property on lease and using it for the purpose of utilization by its staff and customers of the assessee had been proved and hence cannot be held to be for non-business purposes. However, the ld. AR before us agreed for an Adhoc disallowance of 20% that could be made for the purpose of personal usage in view of common facilities that could be attributed for both personal as well as business purposes. Accordingly, we deem it fit to disallow only 20% of Rs.28,89,000/- on account of rent,” the ITAT ruled.
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