Monthly Rent paid by Company cannot be Allowed as Expenditure as Flat was Never Used for Business Purpose: ITAT

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By Fathima Karama A.M – On March 9, 2023 12:45 pm – 2 mins read

The Pune Bench of Income Tax Appellate Tribunal (ITAT) has held that the monthly rent paid by the company could not be allowed as expenditure, finding that the flats were never used for business purposes.

During the assessment proceedings, the Assessing Officer noticed that the assessee Chandukaka Saraf & Sons P. Ltd had debited in its P & L account as rent for the flat no. 201, Runwal Regency, Sadhu Vasvani Chowk, Camp Pune. The Assessing Officer noticed that the rent for above flat was disallowed in earlier assessment years for the fact that the said flat was not being used for the business purposes of the assessee-company. 

During the search operation, it was found that the said flat no. 201 was exclusively being used by the family of the director of assessee company for family functions and family get together. At that time no evidence in the form of any visitor book or any document suggesting that the said flat no. 201 was ever used for the business purpose of the company produced by the company. 

During the assessment proceedings for A.Y. 2018-19, the assessee filed a copy of agreement with Sangeeta Shah evidencing the payment of monthly rent for flat no. 201.The Assessing Officer noticed that these were signed only by the director and not by any other person. The Assessing Officer held that all these documents are self-serving documents and had been created only to complete the paperwork and made a disallowance.

R.D. Doshi appeared for the assessee and Ramnath P. Murkunde appeared for the revenue.

The Division Bench of Inturi Rama Rao, (Accountant Member) And Partha Sarathi Chaudhury, (Judicial Member) dismissed the appeal observing that the flats were never used for business purpose.

“It has been clearly brought out that this flat was never used for any business purposes of the assessee-company and whatever evidences have been produced in the form of leave and licence agreement, minutes of Board meeting, etc. fall in the category of self-serving documents. Even before us also, the ld. A.R for the assessee could not substantiate through evidence as to how the flat was used for the business purpose,” the Bench observed.

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Chandukaka Saraf & Sons P. Ltd. vs The Asstt. C.I.T

Counsel for Appellant:   Shri R.D. Doshi

Counsel for Respondent:   Shri Ramnath P. Murkunde


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