TMI Blog1989 (9) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1961? 2. In this proceeding the assessment year involved is 1976-77 for which the relevant accounting year is the year ended on 31-3-1976. 3. The first question relates to the assessee's claim for deduction of ₹ 4,19,910 on account of expenditure of a new project. The Commissioner (Appeals) observed that the facts are that the appellant wanted to start a new project, namely, Methyl Methacrylate Monomer Project and incurred the expenses in connection with the project. After sometime the appellant could not proceed further with the implementation of the project and surrendered the Letter of Intent to the Central Government. The assessee claimed that the expenses were incurred in the ordinary course of business and did not result in the acquisition of any asset or advantage of an enduring nature. The details of the expenses written off to profit and loss account were ₹ 3,97,409 - (incurred in earlier years), ₹ 22,501 (incurred in this year) totalling ₹ 4,19,910. The expenses to the extent of ₹ 3,97,409 were incurred earlier and did not pertain to the present accounting period. The appellant could not proceed with the new project a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Therefore, the payment of these sums was not being made off or away irretrievably and as such did not amount to expenditure at all. Consequently, the deduction could not be allowed. 6. The Tribunal further held that: ... a perusal of the accounts furnished by the assessee himself would show that the money had actually been spent during the earlier accounting years except to the tune of ₹ 22,500 spent in this year. The same had irretrievably gone out of the assessee's pocket. It was an altogether separate thing that if a new project had materialised, it could have been treated as the assessee's capital expenditure for the new project but so far as the assessee is concerned the money had been spent and could not be got back by it under any circumstances whatsoever. Even the balance sheet as on 31-2-1976 from which support was sought to be drawn by the representative of the assessee to persuade us to conclude that this was only a money set apart for the new project does not help him in this behalf. The heading regarding the amount of ₹ 3,97,409 at page 19 of the Annual Report for the relevant year is miscellaneous expenditure, which shows that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the alleged guest house expenses. The ITO found on test check that the expenses included items like beer, whisky, rum, costly cigarettes, etc. The total claim in this behalf was ₹ 30,195 and the assessee could not explain as to how and on what basis part of the expenses had been transferred to different heads of accounts. The ITO, therefore, allowed only ₹ 5,000 out of ₹ 17,552 claimed on account of the employees and disallowed ₹ 12,552 and also ₹ 11,805, i.e., in all ₹ 24,357. The Commissioner (Appeals) allowed the entire amount of ₹ 17,552 transferred to other heads as according to him they were incurred for the assessee's employees but upheld the disallowance of ₹ 11,805 as according to him, they were obviously guest house expenses and as such disallowable under section 37(4). It was pointed out that this matter had been considered earlier by the Tribunal in IT Appeal Nos. 4476 and 5422 (Cal.) of 1976-77, 25 (Cal.) of 1977-78 and 4474 (Cal.) of 1976-77 in the assessee's own case relating to the years 1973-74, 1972-73 and 1972-73 (sic). According to the Tribunal although the expenses were termed as guest house expenses the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this was not done. The Tribunal has pointed out that even before the ITO and the Commissioner (Appeals) no claim was made that this was a new business. 7. Mr. K. Roy, appearing for the assessee, drew our attention to the observation of the Tribunal and argued that even if that was the finding of the Tribunal, then this case should have been remanded back to the income-tax authority for examining this aspect of the matter. I am unable to uphold this contention of Mr. Roy. If a dispute has not been raised before the income-tax authority and the assessee does not demand that this aspect of the matter should be examined, then I fail to see, how the Tribunal erred in not remanding the case back to the ITO or the Commissioner (Appeals) for examination of the factual aspect. The point was not raised by the assessee at all. It was not claimed before the Tribunal on behalf of the assessee that the new project was really a part of the same business which was being carried on by the assessee. 8. Moreover, an expenditure can be claimed as a deduction only in the year in which the expenditure had been incurred or the liability had arisen. In this case, the entire expenditure had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been claimed as business expenditure. The ITO found that out of this amount, ₹ 17,552 had been transferred to various other revenue heads. For example, ₹ 2,732 has been transferred to sales promotion expenses, ₹ 7,816 to repairs to plant and machinery, ₹ 1,804 to general expenses, ₹ 2,000 to travelling expenses, ₹ 1,080 to the Head Office account. It was not explained how and on what basis the expenses had been allocated under different heads. In the absence of complete details disallowable items under rule 6D of the Income-tax Rules, 1962 could not be determined. Further, in order to ascertain the true nature of the expenses, a test check was made and the following particulars were given : Paid to Azad Bahadur ₹ 70.00 Beer ₹ 38.00 Beer ₹ 88.00 Whisky ₹ 83.50 Whisky ₹ 18.00 Beer [[ ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termed as guest house expenses they were actually on account of arrangement for the stay of customers because there was no other arrangement in the vicinity of the assessee's factory. The Tribunal allowed the entire claim. Not only this even the reference applications against this decision numbered as 932 to 935 of 1979 were dismissed by the order of the Tribunal dated 7-12-1979. Although the matter has already been considered by the Tribunal at length earlier the discussion in this behalf seems to be rather incomplete. It only reveals that the guest house or the rest house was situated more than 100 miles away from the railway head and, therefore, the same were incurred wholly and exclusively for the purpose of the business. The question as to how far they were inadmissible because of the provisions of section 37(4) does not appear to have been gone through the Bench and our difficulty is enhanced by the fact that there is a categorical observation by the Commissioner that the expenses included beer, whisky, rum, costly cigarettes, etc. This is confirmed from a perusal of the order of ITO itself. Moreover, there is a blanket ban contained in sub-section (4) of section 37 in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guest' has been defined to mean in the aforesaid dictionary: 1. A stranger. 2. A person entertained in one's house or at one's table; a visitor entertained without pay; hence, a person to whom the hospitality of a home, club, etc. is extended. 3. Any person who lodges, boards, or receives refreshment, for pay, at a hotel, boarding house, restaurant, or the like, whether permanently or transiently; a patron. 4. Specific, law, a traveller who as a visitor takes for pay refreshment for himself or his beasts at an inn or hotel, without reference to the length of his stay so long as he retains his character of a traveller or transient visitor; distinguished from a boarder. Maintenance of a guest house, therefore, will include provisions for food, drinks, and also lodging. If a company's guest house provides residential accommodation and also food, drinks and other amenities, these expenditures will come within the mischief of the phrase maintenance of any residential accommodation in the nature of a guest house. 16. In that view of the matter, we are of the view that the Tribunal has taken a correct decision on the question No. 2. 17. So far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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