IN HIGH COURT OF DELHI AT NEW DELHI Decided on: 15th February, 2019. + ITA 159/2019 MAHLE ANAND FILTER SYSTEMS PVT. LTD. (FORMERLY KNOWN AS MAHLE FILTER SYSTEMS PVT. LTD. ..... Petitioner Through: Mr. Ajay Vohra, Sr. Adv. with Mr.Aniket D. Agrawal & Mr.Neeraj Jain, Advs. versus ACIT, CIRCLE-6(1), NEW DELHI ..... Respondents Through: Mr. Sanjay Kumar & Mr. Asheesh Jain, Advs. CORAM: HON BLE MR. JUSTICE S. RAVINDRA BHAT HON BLE MR. JUSTICE PRATEEK JALAN S. RAVINDRA BHAT, J. (OPEN COURT) 1. assessee questions order of Income Tax Appellate Tribunal (ITAT) for A.Y. 2008-09 and submits that question of law arises with respect to disallowance of 5.8crores, made by Revenue and upheld by all Appellate Authorities. 2. assessee inter alia had entered into lease agreement with M/s.Anand Automotive Systems Ltd. As part of lease agreement, it was required to pay 5.8 crores as security deposit. This amount was reflected in its balance sheet and in capital under assets, as receivables . On ITA 159/2019 Page 1 of 5 account of unforeseen circumstances i.e. sealing of premises on account of non-conforming user by directions of Supreme Court through Monitoring Committee, premises could not be used. petitioner, therefore, sought to vacate it; this resulted in dispute between lessor and appellant/lessee. To end dispute, lessee i.e. assessee agreed not to claim security deposit of 5.8 crores. As result, it sought to claim amount as deduction. AO disallowed this holding that such disallowance was impermissible; CIT(A) and ITAT relying upon Commissioner of Income Tax vs. Triveni Engg. & Industries Ltd. 343 ITR 245 (Del.), upheld disallowance. 3. Learned Senior Counsel for assessee urges that ruling in Triveni Engineering is inapplicable because of peculiar facts of that case. It was highlighted that security deposit given by original assesee, was given to one entity which subsequently amalgamated with assessee [Triveni Engineering and Industries Ltd.]. treatment sought to be given by original company, was assessed in hand of assessee in Triveni Engineering (supra). It is submitted that these circumstances mark very important distinguishing factor which ought to persuade this Court not to follow Triveni Engineering. It was furthermore urged that decision of Supreme Court in CIT vs. Madras Auto Services (P.) Ltd. 233 ITR 468 (SC), clearly enunciated law on this aspect. Learned counsel highlighted that in facts of that case, assessee had acquired long lease and was permitted to undertake construction on land. expenditure incurred towards construction was treated to be as allowable deduction. It is argued on behalf of assessee further that amount was paid by way of ITA 159/2019 Page 2 of 5 damages, it was in course of business and therefore, entitled to deduction as claim. 4. This Court in Triveni Engineering (supra) dealt with similar situation as present case and held as follows: 15. Coming to security deposit written off by assessee, moot question is as to whether advances were given for securing capital assets. It is not disputed by Department that payment of security deposit to landlords was for obtaining use of premises for purposes of business against payment of rent. contention of assessee, in this backdrop, is that this payment was clearly in revenue field, viz., for facilitating carrying on of business more profitably and efficiently while leaving fixed capital untouched. Learned counsel for Revenue, however, argues that security deposits were given for obtaining premises on rent and thus, assessee had obtained right to use property, i.e., tenancy right, which is capital asset. 16. In order to appreciate controversy, we may first state true nature of this deposit. When premises were taken on rent by company, payments in form of security deposits were given to land lords. Since Rent Agreement entered into with said landlords has not been produces, which could have shown purpose for which security deposits were made, in absence thereof, we presume that normal practice which is followed in giving such security deposits existed here also. On that premise, it can be inferred that these were refundable security deposits, which were to be given back by landlords to company on conclusion of tenancy period and surrendering of leased premises by company to landlords. Therefore, these security deposits were not in form of rent. question would be when such security deposit has become non- ITA 159/2019 Page 3 of 5 recoverable for some reasons whether it can be allowable as deduction under Section 28 of Act. deposits were not given in ordinary course of business either. These were given for securing premises on rent; albeit for purpose of carrying on business therein. Once we keep in mind this true nature of deposits, we find force in submission of Ms. Bansal, learned counsel for Revenue. 17. We may point out that assessee had relied upon judgment of Supreme Court in case of Commissioner of Income Tax v. Madras Auto Service (P) Ltd. [233 ITR 468]. However, that judgment would not be applicable to facts of present case. expenditure incurred on construction of building of leased property was treated as revenue expenditure by Supreme Court, as assessee was getting business advantage and was acquiring business asset in context of specific Clause in lease deed. Therefore, property was not treated as that of lessor. Further, Supreme Court found that by incurring expenditure of this nature, assesse had taken advantage in form of reduced rent for much longer period. This judgment is, thus, not applicable in present context. 5. distinctions sought to be made by assessee/appellant that Triveni Engineering (supra), was decided in peculiar circumstances of case, since amalgamated company s books were assessed as it were in hands of transferee company [Triveni Engineering], in opinion of this Court, is insubstantial aspect which is not sufficient to distinguish ruling. reasoning in Triveni Engineering (supra) is not limited to such fact situation. Furthermore, this Court notices that decision in Madras Auto Services (P.) Ltd. apart from other judgments were also noticed by this Court in Triveni Engineering (supra). ITA 159/2019 Page 4 of 5 6. This Court is also un-persuaded with argument that amount of 5.8 crores, could be treated as revenue expenditure merely because it was paid in course of dispute. Clearly, character of amount was of capital nature and remained so; all that assessee did was to agree that it would not claim refund out of 10.58 crores, agreeing to forgo 5.8 crores. 7. As result, Court is of opinion that given concurrent nature of findings, no question of law arises. appeal is accordingly dismissed. S. RAVINDRA BHAT, J. PRATEEK JALAN, J. FEBRUARY 15, 2019 pv ITA 159/2019 Page 5 of 5 Mahle Anand Filter Systems Pvt. Ltd. (Formerly Known as Mahle Filter Systems Pvt. Ltd. v. ACIT, Circle-6(1), New Delhi