2024 (9) TMI 580 - AT - Income Tax

Disallowance of Mumbai Guest House Maintenance Charges - expenses incurred by the company are not for business purpose - guest house was occupied by relatives of ex-chairman of the company - HELD THAT - We find that legal ownership of the guest house was with the assessee company during the assessment year, and the assessee company has incurred expenditure towards maintenance of guest house, during the assessment year under consideration which is for the purpose of the business, hence, it should be allowed. It is also a settled principle that ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his business. The Hon ble Apex Court in the case of Sasoon J. David and Co. (P) Ltd. 1979 (5) TMI 3 - SUPREME COURT held that expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction for the same. Therefore, we find that both the expenditure incurred in both the assessment years are for business purpose, and hence it should be allowed to the assessee company. We direct the AO to allow the expenditure on maintenance of guest house. Hence, additions made are directed to be deleted. Decided in favour of assessee.

Summary

Issues:
- Condonation of delay in filing appeals
- Disallowance of Mumbai Guest House Maintenance Charges

Condonation of delay in filing appeals:
The Appellate Tribunal ITAT Rajkot heard two appeals filed by the assessee regarding assessment years 2014-15 and 2015-16, challenging orders passed by the Commissioner of Income Tax (Appeals) arising from assessment orders by the Assessing Officer under the Income-tax Act, 1961. The appeals were initially barred by limitation by 13 days and 12 days, respectively. The assessee sought condonation of delay, explaining that the delay was due to the realization that the legal ownership of a property was in favor of the company, leading to the decision to file appeals. The Senior Departmental Representative for the Revenue opposed the condonation, claiming insufficient cause. After considering both parties' arguments, the Tribunal condoned the delay and admitted the appeals for hearing.

Disallowance of Mumbai Guest House Maintenance Charges:
The primary issue in the appeals was the disallowance of Mumbai Guest House Maintenance Charges totaling Rs. 7,71,084 by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals). The AO disallowed the expenses as personal, non-business expenses since the guest house was used by relatives of the ex-chairman. The assessee contended that the legal ownership of the guest house belonged to the company, justifying the maintenance expenses as business-related. The Tribunal noted that the legal ownership was indeed with the company during the assessment years, and the expenses were incurred for business purposes. Citing the principle that business expenses incurred for promoting business and earning profits are deductible, the Tribunal directed the AO to allow the maintenance expenses for both assessment years, leading to the deletion of the additions made by the AO. Consequently, both appeals filed by the assessee were allowed, and the orders were pronounced in favor of the assessee on 09/09/2024.