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TMI Blog2004 (8) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed by the Assessing Officer that there has been substantial increase in certain heads of expenses including operational and maintenance charges as compared to the immediately preceding year i.e., assessment year 1997-98. On examination, he found that the assessee-company has paid Rs. 19,80,000 to M/s. Jagowal Pvt. Ltd. towards operational and maintenance charges in assessment year 1998-99 as against Rs. 12,41,936 paid in the immediately preceding year i.e., assessment year 1997-98. On further examination, he also found that the assessee-company had paid operational and maintenance charges at the rate of Rs. 1 lakh per month to M/s. Jagowal Pvt. Ltd. in assessment year 1997-98 whereas the same has been increased to Rs. 1.65 lakhs per month in assessment year 1998-99. To support and substantiate this payment made to M/s. Jagowal Pvt. Ltd., a copy of agreement dated 19-3-1996 was submitted on behalf of the assessee-company wherein the assessee-company was stated to have entered into an agreement with M/s. Brooke Bond Lipton (I) Ltd. for storage and handling of ice cream and frozen desserts as per their standards and M/s. Jagowal Pvt. Ltd. having ample technical expertise in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the refrigeration industry, it had acquired special knowledge required for manufacturing and storage of ice creams in bulk quantity. It was also submitted that industrial licence for manufacture of ice cream was also obtained by the said concern and for this purpose, even the power load connected was increased from 25 H.P. to 100 H.P. It was further submitted that the assessee-company had obtained the work of storage of ice creams in bulk from M/s. Brooke Bond Lipton (I) Ltd. and in order to execute the same, M/s. Jagowal Pvt. Ltd. having specialized knowledge in the field was assigned the work of operating and maintaining the plant/storage facilities as per the agreement executed on 19-3-1996. It was also explained on behalf of the assessee-company that operational and maintenance charges fixed as per the said agreement at Rs. 1 lakh per month for assessment year 1997-98 were subsequently increased to Rs. 1.65 lakhs per month for assessment year 1998-99 on the basis of enhanced cost required to be incurred by M/s. Jagowal Pvt. Ltd. on electricity as well as labour. 4. The submissions made on behalf of the assessee-company, however, did not find favour with the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, the ld. CIT(A) in his impugned order has grossly erred in sustaining the disallowance of Rs. 24,191 being disallowance out of telephone expenses for alleged personal user by Director(s) of the Company." 6. At the time of hearing before us, the learned counsel for the assessee has not pressed ground Nos. 1 and 3. The same are, therefore, dismissed as not pressed. 7. As regards ground No. 2, the learned counsel for the assessee, at the outset, invited our attention to a copy of agreement between the assessee-company and M/s. Jagowal Pvt. Ltd. placed at page No. 15 of his paper book and pointed out that the assessee-company had lately bagged the contract from M/s. Brooke Bond Lipton (I) Ltd. for storage and handling of ice creams and frozen desserts at 26 degree Celsius as per their standards. He submitted that the assessee-company had no experience of handling such work whereas M/s. Jagowal Pvt. Ltd. was having ample technical expertise in the form of experienced personnel for handling, processing, manufacturing and storing of ice creams and also had a valid municipal licence as well as required power connection. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1998-99, the learned counsel for the assessee submitted that the same was done in proportion to the increase in expenditure incurred by the said concern on electricity as well as on salary and wages and there was no reason for the authorities below to dispute the same merely because no fresh agreement authorizing such increase was entered into by the assessee-company with the said concern. Referring to the copies of bills raised by M/s. Jagowal Pvt. Ltd. for assessment year 1998-99 placed at pages 47 48 of his paper book, he pointed out that the said bills were placed on record by the assessee-company to support its claim for increase in operational and maintenance charges payable to M/s. Jagowal Pvt. Ltd. He also contended that the assessee-company as well as M/s. Jagowal Pvt. Ltd. being assessed to income tax at the same rates, there was no case for diversion of income to reduce the tax liability as alleged by the Revenue authorities. Without prejudice to his aforesaid contentions, the learned counsel for the assessee alternatively submitted that in any case, the net income of M/s. Jagowal Pvt. Ltd. after reducing all the expenditure should have been disallowed or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all, there is nothing on record to show that the said party had ample technical expertise in the form of experienced personnel for handling, processing, manufacture and storage of ice creams as stated in the agreement and the mere fact that the said concern was earlier publishing a magazine, namely, "Climate Control" was not sufficient to establish such technical expertise especially when no such services were rendered by them in the past or even in the years under consideration to any party other than the assessee. Secondly, the said concern was also not having its own infrastructure facilities either to manufacture the ice creams or to store the same and in these circumstances, the licence issued by the local authority for manufacture of ice creams to the said concern by itself is not sufficient to support the assessee s claim. Thirdly, the details of expenditure incurred by M/s. Jagowal Pvt. Ltd. in the years under consideration as placed on record by the learned counsel for the assessee before us show that a substantial expenditure of more than 60% of the operational and maintenance charges received from the assessee was claimed to be incurred by the said concern on providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its plant as well as the consumption of electricity by the assessee against the actual requirement. Ground No. 2 of assessee s appeal for assessment year 1998-99 being ITA No. 4741/Del./2002 is, accordingly, treated as allowed. 12. As regards ground No. 4 relating to disallowance of Rs. 24,191 out of telephone expenses on account of alleged personal use by the directors, it is observed that this issue is squarely covered in favour of the assessee by the decision of Delhi C Bench of ITAT in the case of Delhi Automobiles Ltd. v. Dy. CIT [2001] 79 ITD 511 and respectfully following the same, we direct the Assessing Officer to delete the disallowance made on this count. Ground No. 4 of the assessee s appeal is, accordingly, allowed. 13. Now, we take up assessee s appeal for assessment year 1997-98 being ITA No. 4740/Del./2002, grounds of which read as under : "1.That on the facts and in the circumstances of the case and in law, the impugned order of the ld. CIT(A)-9, New Delhi is completely illegal and void-ab-initio. 2.That on the facts and in the circumstances of the case and in law, the ld. CIT(A) has grossly erred in sustaining the action of the Assessing Offi ..... 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