TMI Blog2010 (4) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... t Airways India Pvt. Ltd. and M/s Star India Pvt. Ltd. 3. We may take up the appeal of the Department in ITA No: 2795/Mum/2007 relating to the assessment year 2003-04 first. The ground of the Department is that the CIT(A) erred in directing the Assessing Officer to delete the disallowance of 50% of the expenses claimed by the assessee under the heads Repairs and maintenance , Telephone expenses and Business promotion expenses . While completing the assessment under section 143(3) of the Income Tax Act, 1961, by order dated 24th March 2006, the Assessing Officer noticed that the assessee had claimed ₹ 19,72,785/- as repairs and maintenance. He called upon the assessee to furnish the relevant details but they were not forthcoming. He noticed that the assessee was neither the owner of the property in relation to which the expenditure so claimed nor was the tenant. He, therefore, held that the claim of repairs and maintenance expenditure was not admissible. He also noted that the owner of the building, namely, Litolier Properties Pvt. Ltd. was claiming standard deduction of 30% against the rental income from the property. He accordingly held that the assessee or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed in the hands of the owner of the building while computing the income under the head Income from house property . It was also pointed out that the 10% disallowance made by the Assessing Officer was accepted by the assessee in the assessment year 2002-03. 7. On the other hand, the learned counsel for the assessee pointed out that the owner of the Litolier building was in receipt of rent from the property under leave and license agreements which is assessable under the head Income from house property , whereas the assessee was assessable on the maintenance charges received from the two tenants of the building as business receipts since it has undertaken the activity of maintaining the Litolier building. Thus, the nature of the income received by the assessee and the owner of the building is distinct and so is the nature of the claim for expenditure. It was submitted by him that the expenditure was allowable as business expenditure incurred wholly and exclusively for the purpose of the assessee s business. Attention was also drawn to the amenities and service agreements compiled in the Paper Book, which clearly imposed an obligation on the assessee to render services in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer has not disputed that the services charges are assessable as the business income. The claim of repairs and maintenance expenses falls under section 37(1) of the Act as expenditure incurred wholly and exclusively for the purpose of the assessee s business. In clause 4 of the Amenities and Service Agreement dated 5th September 2000, the following services have been listed out to be provided by the assessee: - 4. Services to be provided by LIPL LIPL agrees to provide NTVI the following Services amongst other services: 4.1 Maintenance of infrastructure and amenities at Litolier Building, especially 4th, 5th and 6th floors in occupation of NTVI. 4.2 Maintenance of amenities provided in the premises of Litolier Building including garden maintenance, cleanliness. 4.3 Period prompt maintenance of electric supply, lights in the compound of Litolier Building. 4.4 Provide electricity through generator, whenever there is a failure of electricity by BSES. 4.5 Periodic maintenance of Litolier Building wherever and whenever required. 4.6 Payment of Society charges, if any, to be borne by LIPL. 4.7 Provide security in the Litolier Buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 2003-04. There is a delay of almost 32 months in the filing of the cross objection. In support of the application for condonation of the delay, an affidavit from Vikram Mittal, Director of the assessee, has been filed. It is stated therein that the work relating to the filing of the cross objection was given to one Santosh Bhoir as soon as the grounds of appeal filed by the Department were received on 4th August 2007, but he failed to inter-act with the Chartered Accountants in the matter of filing the Cross Objections. He has also left the company and it was only when the assessee s Advocate advised the assessee to file the cross objections, that they were filed on 12th April 2010, which has entailed a delay of 31 months and 12 days. It is prayed that the delay is due to negligence on the part of the assessee s employee and it was not deliberate and hence should be condoned. The decisions of the Supreme Court in the case of Collector Land Acquisition vs. Mst Katiji Ors (1987)167 ITR 471 (SC) and Vedabai Alias Vaijayanatabai Baburao Patil vs. Shantaram Baburao Patil Ors (2002) 253 ITR 798 (SC) are relied upon. 12. We have carefully considered the affid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that company. In order to verify the assessee s claim, the Assessing Officer examined the amenities and service agreement under which the assessee rendered maintenance services with respect of Litolier building, but did not find any clause therein which obliged the assessee company to provide the boat for the entertainment or other purposes to Jet Airways India Pvt. Ltd. The agreement with Star India Pvt. Ltd. was also perused by the Assessing Officer but again he found no stipulation therein to the effect that the assessee was bound to provide the boat to that company. The Assessing Officer further found that the assessee was in receipt of only ₹ 22,57,500/- as service charges from Jet Airways India Pvt. Ltd. and that no prudent man would incur an expenditure, including depreciation, of around ₹ 15.00 lakhs for entertaining the VVIP guests. He also found that no expenditure on boat was claimed against the income of ₹ 88.20 lakhs received from Star India Pvt. Ltd. He accordingly disallowed the expenditure as well as depreciation against which the assessee went in appeal before the CIT(A). The CIT(A) upheld the finding of the Assessing Officer in the following word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow that the assessee had concealed its income or furnished inaccurate particulars thereof. It is submitted that the claim was made by the assessee in an open and bona fide manner and it was also shown separately in the Profit and Loss Account as boat operating expenses and even the depreciation on the boat was separately shown in the Fixed Assets Schedule and thus there was no intention to keep away from the Assessing Officer the nature of the expenses. It was contended that the boat was maintained in the interest of cordial relations with the executives of Jet Airways India Pvt. Ltd., who were using the Litolier building, the maintenance of which was undertaken by the assessee company. The assessee did it free of cost and did not charge anything from Jet Airways India Pvt. Ltd. for the use of the boat but that was only in the interest of the business so that the assessee continued to have the patronage of Jet Airways India Pvt. Ltd. It was submitted that the pilots, cabin crew and other senior executives of Jet Airways India Pvt. Ltd. sometimes used the boat for their entertainment purposes and the assessee allowed them to do so without any consideration and that was only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provision to the effect that the assessee was to provide the boat free of cost for the use of these two companies. By claiming the expenses and the depreciation in the Profit and Loss Account and by filing the agreements for the perusal of the Assessing Officer, the assessee acted bona fide and did not intend to keep away any particulars from the Assessing Officer. However, the assessee raised an argument, which it was entitled to do, before the Assessing Officer that the boat was used for the entertainment of the VVIP guests and top executives of Jet Airways India Pvt. Ltd., at its request, and thus the expenditure was allowable as business expenditure incurred in the interest of the business and to maintain cordial relations with Jet Airways India Pvt. Ltd. The claim was not acceptable to the Assessing Officer and he was entitled to take a different view regarding the admissibility of the claim. But in our humble opinion, it cannot be said that the claim was frivolous or was so outrageous that it can never be said that there was a nexus between the expenditure and the business of the assessee. It seems to us that, as rightly pointed out by the learned counsel for the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refused to admit the assessee s cross objection on the ground of delay. However, we have noted the assessee s justification for claiming the expenses and depreciation relating to the boat while deciding the assessee s appeal against the penalty imposed under section 271(1)(c) in respect of the assessment year 2003-04. We do not see how the expenses can be held allowable against the income received by the assessee by way of service charges from the tenants occupying Litolier building. The assessee s business is to maintain the building and we have earlier listed out the assessee s duties in this regard for which the service charges are received. The expenses on operating the boat and the depreciation thereon, in our humble opinion, cannot be considered as expenditure incurred wholly and exclusively for the purpose of the aforesaid business of the assessee. It has been stated before us that the expenditure was incurred voluntarily on grounds of commercial expediency and was therefore allowable as per the ratio of the judgment of the Supreme Court in the case of Sassoon J David Co. P. Ltd. vs. CIT (1979) 118 ITR 261 (SC). Having given careful consideration to the argument, we find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. The ground is partly allowed. 24. Ground No.3 is directed against the disallowance of the labour charges of ₹ 1,65,338/-. From the details of the labour charges filed by the assessee before the Tax authorities, it is seen that most of these charges were incurred towards repairing of walls, compound walls, bathrooms and fixing of tiles. The objection is that the assessee was not the owner of the premises. In our humble opinion, this is not a relevant consideration and what is required to be seen is whether the expenditure is covered by the agreements entered into between the assessee on the one hand; and Star India Pvt. Ltd. Jet Airways India Pvt. Ltd. on the other hand. We have already noticed the assessee s obligations under the amenities and service agreements. The agreements clearly provide for the maintenance and repairs of the building called Litolier building, the amenities provided in the building, etc. The labour charges incurred by the assessee appear to be covered by the assessee s obligations under the agreements. The disallowance of 50% of the labour charges thus appears to be not justified. The same is deleted and the ground is allowed. 25. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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