Rent Paid for Unlicensed Business Premises Not Deductible Until Statutory Permission Granted

The assessee, Adarsh Journal Pvt. Ltd., engaged in liquor trading, operated from licensed premises at Omaxe Square, Jasola, New Delhi. During AY 2016-17, it took an additional shop in the same complex on rent, paying Rs. 23.20 lakh, with the stated intention of shifting its liquor business and opening an eatery.

Although the assessee intimated the Excise Department of its intent to shift the L-10 licence by letter dated 03.09.2015, the formal application was filed only on 26.07.2016, and the licence for the new premises was granted in AY 2017-18.

The Assessing Officer disallowed the rent expenditure for AY 2016-17 on the ground that no liquor business could be legally carried on from the new premises without a valid excise license. The disallowance was upheld by the CIT(A) and the ITAT, leading to an appeal before the High Court.

Main Issue: Whether rent paid for new premises is deductible when the statutory excise licence permitting business operations from those premises was granted only in the later assessment year.

HC Ruled: The Delhi High Court dismissed the appeal and upheld the disallowance. It held that the liquor trade is a regulated activity requiring a valid license for the specific premises. In the absence of statutory permission during AY 2016-17, the premises could not be said to have been “used” for business purposes. Thus, rent paid for the new premises in AY 2016-17 was not allowable as a deduction.

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