1987 (2) TMI 115 - AT - Income Tax

Summary

Issues:
1. Disallowance of general expenses, miscellaneous expenses, and guide expenses.
2. Disallowance of white-washing and painting expenses.

Analysis:

Issue 1: Disallowance of General, Miscellaneous, and Guide Expenses
The assessee appealed against the disallowances made by the ITO and confirmed by the CIT(A) regarding general expenses, miscellaneous expenses, and guide expenses. The ITO disallowed these expenses due to lack of details, unconnectedness with business, and absence of evidence of payments, respectively. However, the Appellate Tribunal found that these disallowances lacked a proper basis and were not supported by specific reasons or evidence. The Tribunal emphasized that disallowances must be made based on the facts of each year's case and supported by material on record. Consequently, all three disallowances were deleted.

Issue 2: Disallowance of White-Washing and Painting Expenses
The disallowance of Rs. 7,000 out of a claim of Rs. 27,607 for white-washing and painting expenses was based on the reasoning that the ultimate benefit of the expenditure was for the landlords, who were close relatives of the firm's partners. The ITO treated this expenditure as capital expenditure, leading to the disallowance. However, the Appellate Tribunal disagreed with this reasoning. The Tribunal noted that the expenditure on repair, even if capital in nature, should be allowed as a revenue expenditure if it is related to the commercial activity of the assessee. Citing a previous case, the Tribunal highlighted that expenditure by a tenant towards repairs should be considered allowable expenditure under the Income Tax Act. As the white-washing and painting expenses were part of routine maintenance for the hotel business, the disallowance was unjustified. Therefore, the disallowance of white-washing and painting expenses was also deleted.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, deleting all the disallowances made by the lower authorities. The judgment emphasized the importance of making disallowances based on specific reasons and evidence, and highlighted the distinction between capital and revenue expenditures in determining the allowability of expenses related to the commercial activity of the assessee.