ACIT, New Delhi v. Mira Kulkarni, New Delhi

ITA 5445/DEL/2010 | 2001-2002
Pronouncement Date: 18-03-2011 | Result: Allowed

Appeal Details

RSA Number 544520114 RSA 2010
Assessee PAN AAHPK6365R
Bench Delhi
Appeal Number ITA 5445/DEL/2010
Duration Of Justice 3 month(s) 16 day(s)
Appellant ACIT, New Delhi
Respondent Mira Kulkarni, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted E
Tribunal Order Date 18-03-2011
Date Of Final Hearing 15-02-2011
Next Hearing Date 15-02-2011
Assessment Year 2001-2002
Appeal Filed On 02-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE G.E. VEERABHADRAPPA HON'BLE VICE-PRESIDENT AND SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER I.T.A. NO. 5445/DEL/2010 ASSESSMENT YEAR: 2001-02 ASSISTANT COMMISSIONER OF IT VS. MIRA KULKARNI CIRCLE 23(1) N-126 PANCHSHEEL NEW DELHI. PARK NEW DELHI. (PAN: AAHPK6365R) (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.18/DEL/2011 ( IN I.T.A. NO. 5445/DEL/2010 ) ASSESSMENT YEAR: 2001-02 MIRA KULKARNI VS. ASSISTANT CIT N-126 PANCHSHEEL CIRCLE 23(1) PARK NEW DELHI. NEW DELHI. (CROSS-OBJECTOR) (RESPONDENT) ASSESSEE BY: SH. PEEYUSH SONKA R SR.DR DEPARTMENT BY: SHRI GN GUPTA ADV. ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LEARNED CIT(APPEALS) DATED 29.09.2010 PASSED FOR ASSESSMENT YEAR 2002-03. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL ASSESSEE HAS FILED CROSS-OBJECTION BEARING NO.18/DEL/11. 2 2. THERE ARE ONLY THREE SUBSTANTIAL GROUNDS OF APPE AL TAKEN BY THE REVENUE WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(APPEALS) ERRED IN LAW AND ON THE FACTS IN DELET ING THE ADDITION OF ` 3 91 611 MADE BY THE A.O. ON ACCOUNT OF REPAIR & MAINTENANCE; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(APPEALS) ERRED IN LAW AND ON THE FACTS IN DELET ING THE ADDITION OF ` 3 46 609 MADE BY THE A.O. ON ACCOUNT OF SALARY AND LOCAL CONVEYANCE; & 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(APPEALS) ERRED IN LAW AND ON THE FACTS IN DELET ING THE ADDITION OF `2 94 566 MADE BY THE A.O. ON ACCOUNT OF VEHICLE MAINTENANCE. 3. IN THE CROSS-OBJECTION ASSESSEE HAS TAKEN TWO S UBSTANTIAL GROUNDS WHICH READ AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(APPEALS)-XXIII NEW DELHI HAS ERRED IN DISALLOWING 25% OF THE EXPENDITURE CLAIMED BY THE A SSESSEE ON SALARY & CONVEYANCE; 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(APPEALS)-XXIII NEW DELHI SHOULD HAVE G IVEN A 3 CATEGORICAL FINDING THAT THE EXPENDITURE ON FOREIGN TRAVELLING INCURRED IN RESPECT OF SPA FACILITIES THE INCOME F ROM WHICH STARTED IN A.Y. 2007-08 WAS CAPITAL EXPENDITURE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED HER RETURN OF INCOME ON 28.11.2002 DECLARING INCOME OF ` 9 14 274. IT EMERGES OUT FROM THE ASSESSMENT ORDER THAT AN ASSESSMENT UNDER SEC. 143(3) OF THE INCOME-TAX ACT 1961 WAS FRAMED IN ASSESSMENT YEAR 2003-04 ON 29 .3.2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN ASSESSMENT YEAR 2003-04 ASSESSING OFFICER FOUND THAT ASSESSEE IS OWNER OF A PROPERTY COMPRISING OF AGRICULTURAL LAND AND BUILDING AT VILLAGE LORSI PO :GULAR DOGI ZILA:TEHRI GARWAR (UTTRANCHAL). THIS PROPERTY WAS KNOWN AS ANA ND KASHI FARM. IT WAS ORIGINALLY BELONGED TO MAHARAJA OF TEHRI AND WAS PUR CHASED IN 1982 BY THE FATHER OF THE ASSESSEE SHRI CHANDER PRAKASH JOINTLY WITH SHRI LALIT MOHAN THAPAR. THE ASSESSEE OWNS ABOUT 1.094 HECTARES OF LAND . ON PART OF THIS LAND THERE IS HOTEL BUILDING. THE PROPERTY HAS BEEN RENAMED AS WATERSIDE RETREAT. ACCORDING TO THE ASSESSING OFFICER SHE H AS CLAIMED TO CARRY ON INDIVIDUAL AGRICULTURAL OPERATION ON HER LAND AND R UNNING A HOTEL NAMED AND STYLED AS HOTEL GLASS HOUSE ON THE GANGES IN JOIN T VENTURE WITH NEEMRANA 4 HOTEL (P) LTD. THE ASSESSEE ALSO MAINTAINS A PRIVATE DOUBLE STORY HOME ON THIS PROPERTY. SHE HAD ENTERED INTO AN AGREEMENT WITH NE EMRANA HOTEL (P) LTD. OF IST OF APRIL 1999 WHICH IS VALID UP TO 20.6.2003. THE COPY OF THE AGREEMENT HAS BEEN PLACED ON RECORD AT PAGE NOS. 151 TO 163 OF THE PAPER BOOK. ACCORDING TO THIS AGREEMENT IT WAS AGREED B ETWEEN THE PARTIES THAT NEEMRANA HOTEL (P) LTD. TO RUN TO CONDUCT TO OPERA TE MANAGE MARKET DIRECT AND CONTROL THE OPERATION OF THE HOTEL. THE A SSESSEE WILL GET A MINIMUM GUARANTEE AMOUNT OF ` 90 000 PER QUARTER OR 30% OF THE GROSS OPERATING PROFIT(CALCULATED EVERY QUARTER) WHICHEVE R IS HIGHER AS HER SHARE IN THE PROFIT OF THE BUSINESS. IN ASSESSMENT YEAR 2003 -04 ASSESSEE HAD CLAIMED VARIOUS EXPENSES AGAINST THIS BUSINESS RECE IPT. THE EXPENSES WERE TOWARDS MAINTENANCE AND REPAIR CONVEYANCE TELEPHO NE CHARGES ETC. SOME OF THE EXPENSES WERE DISALLOWED TO THE ASSESSEE IN TOTO AND SOME WERE DISALLOWED PARTLY. ON THE BASIS OF THE FINDINGS REC ORDED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2003-04 HE RECORDED THE REASONS IN THIS ASSESSMENT YEAR THAT INCOME OF THE ASSESSEE HAS ESC APED ASSESSMENT AND ISSUED A NOTICE UNDER SEC. 148 OF THE ACT. 5 5. ASSESSING OFFICER HAS BRIEFLY DISCUSSED THE REAS ONS ON PAGES 3 AND 4 OF THE IMPUGNED ASSESSMENT ORDER. HE ISSUED A SHOW- CAUSE NOTICE UNDER SEC. 148 ON 26.3.2007. ASSESSEE HAD FILED A LETTER D ATED 4.4.2007 STATING THAT THE RETURN OF INCOME ALREADY FILED BE TREATED AS FILED IN RESPONSE TO THE NOTICE RECEIVED UNDER SEC. 148 OF THE INCOME-TAX ACT 1961. ASSESSING OFFICER THEREAFTER HAD ISSUED NOTICE UNDER SEC. 143(2) ON 31 ST JULY 2007. HE HAS CALLED FOR THE DETAILS FROM THE ASSESSEE. THE REPRES ENTATIVES OF THE ASSESSEE SHRI RAJIV MEHRA APPEARED AND SOUGHT COPY OF THE RE ASONS RECORDED BY THE ASSESSING OFFICER. THE HEARING HAD BEEN ADJOURNED ON A NUMBER OF OCCASION AND THE ASSESSEE FAILED TO SUBMIT ANY REPLY BEFORE THE ASSESSING OFFICER. ASSESSING OFFICER MADE AN ADDITION OF ` 12 42 215. THE BREAK UP OF THIS AMOUNT UNDER VARIOUS HEADS HAS BEEN NOTICED BY THE ASSESSING OFFICER ON PAGE 5 WHICH READ AS UNDER: THEREFORE IT IS CLEAR THAT THE ASSESSEE HAS WILLFU LLY NOT FILING THE DETAILS AS CALLED FOR BY THE ORDER SHEET ENTRIES AND ALSO T HE DETAILS ON THE ISSUES WHICH WERE RECORDED FOR REOPENING OF THE CASE AS UN DER: 1. REPAIR & MAINTENANCE ` 3 91 611 2. TRAVELLING AND HALTING ` 93 892 3. SALARY AND LOCAL CONVEYANCE ` 4 62 146 6 4. VEHICLE MAINTEANNCE & TELEPHONE ` 2 94 566 ` 12 42 215 AS THE ASSESSMENT IS OF TIME BARRING IN NATURE. I H AVE LEFT WITH NO ALTERNATIVE BUT TO COMPLETE THE ASSESSMENT AS PER T HE ABOVE REASONS RECORDED AND DISALLOWED THE ABOVE EXPENSES TOTALING TO ` 12 42 215 AS NO DETAILS HAVE BEEN FILED. I AM SATISFIED THAT THE ASS ESSEE HAS DELIBERATELY CLAIMED THE WRONG EXPENSES TO REDUCE ITS TAXABILITY TO THE EXTENT OF ` 12 42 215. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE IN COME-TAX ACT 1961 IS INITIATED. 6. A SIMILAR DISALLOWANCE WAS MADE IN THAT ASSESSME NT YEAR 2003-04 AND THE FACTS CAME TO THE NOTICE OF THE ASSESSING O FFICER DURING THE ASSESSMENT PROCEEDINGS OF 2003-04 PERSUADED THE ASS ESSING OFFICER TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IN THE P RESENT ASSESSMENT YEAR. THE DISPUTE IN ASSESSMENT YEAR 2003-04 TRAVELED UP T O THE ITAT. THEREFORE BEFORE ADVERTING TO THE REASONING GIVEN BY THE LEAR NED CIT(APPEALS) WHILE DELETING THE DISALLOWANCE WE DEEM IT APPROPRIATE T O TAKE NOTE OF THE ITATS ORDER IN ASSESSMENT YEAR 2003-04. THE ITAT HAS NOTICED EXTENSIVELY THE FINDINGS OF THE ASSESSING OFFICER IN 2003-04 AND TH EREAFTER DECIDED THE ISSUES. THE ORDER OF THE ITAT INCLUDING GROUNDS OF APPE AL RAISED BY THE 7 RESPECTIVE PARTIES THE OBSERVATIONS RECORDED BY TH E ASSESSING OFFICER READ AS UNDER: THESE ARE CROSS APPEALS. ASSESSEES APPEAL RAISES FOLLOWING GROUNDS: - 1. THAT THE ORDER PASSED BY THE LD. CIT(A)-XVII IS WR ONG IN LAW AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD. CIT(A)-XVII ERRED IN LAW AND IN FACTS IN UPHOLDING DISALLOWANCE OF RS. 76 032/-INCURRED ON F OREIGN TRAVELING BY HIMSELF GOING BY THE LETTER OF THE AG REEMENT RATHER THAN THE SPIRIT AND NOT APPRECIATING THE EVI DENCE PLACED BEFORE HIM AND NATURE OF BUSINESS AND ITS EXPEDIENCY. 3. THAT THE LD. CIT(APPEALS)-XVII HAS ERRED IN LAW AN D IN FACT IN UPHOLDING THE DISALLOWANCE OF RS. 31 404/- INCURRED ON TRAVELING AND HALTING AS THE EVIDENCE OF IT BEI NG INCURRED FOR THE PURPOSES OF BUSINESS WAS PLACED ON RECORD OF THE LD. CIT(A) WHICH THE LD. CIT(A) FAILED TO C ONSIDER. 4. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW AND IN F ACTS IN RESTRICTING THE DISALLOWANCE TO 25% OF THE EXPENSES OF RS. 5 00 113/- INCURRED ON SALARY AND LOCAL CONVEYANCE EXPENSES ON THE ASSUMPTION OF PARTIAL USE OF THE S TAFF FOR MAINTENANCE OF THE PART OF THE PROPERTY WHICH IS CO NTROL OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT TH E ENTIRE PROPERTY INCLUDING THE HOTEL IS UNDER THE CONTROL O F THE APPELLANT AND THE APPELLANT MAINTAINED SEPARATE STA FF FOR HER AGRICULTURAL ACTIVITIES. 5. THAT THE LD. CIT(A)HAS ERRED IN LAW AND IN FACT IN RESTRICTING THE DISALLOWANCE TO 1/5 TH OF THE EXPENSES OF RS. 2 83 928/- INCURRED ON VEHICLE MAINTENANCE AND TELE PHONE ON MERE PRESUMPTIONS AND ASSUMPTIONS AND WITHOUT 8 APPRECIATING THE SUBMISSIONS AND EVIDENCE PLACED ON HIS RECORD AND THE NATURE AND COURSE OF BUSINESS AND TH E OBJECT BEHIND THE EXPENDITURE. REVENUES APPEAL RAISES FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 483221/- MADE BY THE AO ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENS ES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT DETAILS FILED D URING THE ASSESSMENT PROCEEDINGS CLEARLY SHOWED THAT EXPENSES INCURRED WERE CONSTRUCTION OF A BUILDING AND NOT FO R MINOR REPAIR. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT EXPEN DITURE INCURRED ON REPAIR AND MAINTENANCE WERE DETECTIBLE U/S 37(1) OF THE I.T. ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE INFOR MATION SUBMITTED BY M/S NEEMRANA HOTELS PVT. LTD. THAT REP AIRS AND RENOVATIONS WERE CONDUCTED AT THE PERSONAL PROP ERTY OF THE APPELLANT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING TH E FACT THAT EXPENSES INCURRED ON THE PERSONAL PROPERTY OF THE APPELLANT WERE NOT BUSINESS EXPENDITURE AND THUS W ERE NOT ALLOWABLE U/S 37(1) OF THE I.T. ACT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS. 125029/- OUT OF RS. 250057/- MADE ON ACCOUNT OF SALARY AND LOCAL CONVEYANCE EXPENDITURE. 9 7. ON THE FACTS AND IN THE CIRCUMSTANCES ORDER OF LD. CIT(A) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW. 2. THE BRIEF FACTS ARE THE ASSESSEE IS OWNER OF A P ROPERTY COMPRISING OF AGRICULTURAL LAND AND BUILDINGS AT VI LLAGE LORSI P.O. GULAR DOGI ZILA TEHRI GARHWAL UTTRANCHAL WHICH IS 23 KM FROM RISHIKESH ON THE ROAD TO BADRINATH. THIS PROPERTY KNOWN AS ANAND KASHI FARMS WAS ORIGINALLY BELONGING TO MAH ARAJA OF TEHRI-GARWAL AND WAS PURCHASED IN1982 BY THE FATHER OF ASSESSEE SH. CHANDER PRAKASH JOINTLY WITH SH. LALIT MOHAN THAPAR. ONE-FOURTH SHARE OF THIS PROPERTY WAS THUS INHERITED BY THE ASSESSEE FROM HER FATHER AND HER SISTER INHE RITED THE OTHER ONE-FOURTH SHARE. THUS AT PRESENT ABOUT 1.0 94 HECTARES OF LAND OUT OF TOTAL 4.38 HECTARES IS OWNER BY THE ASSESSEE AND RENAMED AS WATERSIDE RETREAT AND THIS LAND HAS B UILDINGS AND STRUCTURES STANDING ON IT. THE ASSESSEE HAS CLAIME D TO CARRY ON INDIVIDUAL AGRICULTURAL OPERATIONS ON HER LAND AND RUNNING A HOTEL NAMED AND STYLED AS HOTEL GLASS HOUSE ON THE GANGE S IN JOINT VENTURE WITH NEEMRANA HOTELS PVT. LTD. (NHPL) ON TH IS PROPERTY BELONGING TO HER SHARE. THE ASSESSEE MAINTAINS A P RIVATE DOUBLE STOREY HOME IN THIS PROPERTY. 3. THE ASSESSEE ENTERED INTO AN AGREEMENT NHPL ON 01.04.1999 WHICH INTER ALIA STIPULATED THAT A COPY OF WHICH WAS SUBMITTED BY THE ASSESSEE AND IS PLACED ON RECORD. AS PER THE AGREEMENT NHPL WITH THE PERMISSION AND ASSISTANCE O F THE ASSESSEE OBTAINED A LICENCE TO OPERATE WITHIN THE B OUNDARIES OF ASSESSEES PROPERTY WATERSIDE RETREAT SITUATED AT ANAND KASHI FARMS P.O. GULAR DOGI ZILA TEHRI GARHWAL A HOTEL UNDER THE NAME AND STYLE OF THE GLASS HOUSE ON THE GANGES. THE ASSESSEE HAS AS PER THE AGREEMENT OFFERED TO ENGAGE NHPL TO 10 RUN CONDUCT OPERATE MANAGE MARKET DIRECT AND C ONTROL THE OPERATIONS OF THE HOTEL AND NHPL HAS AS PER THE AGR EEMENT AGREED TO DO SO UNDER A BUSINESS ARRANGEMENT WHEREB Y THE ASSESSEE IS ENTITLED TO A MINIMUM GUARANTEED AMOUNT OF RS. 90 000/- PER QUARTER OR 30% OF THE GROSS OPERATING PROFITS (CALCULATED EVERY QUARTER) WHICHEVER IS HIGHER AS H ER SHARE IN THE PROFITS OF THE BUSINESS. THE AGREEMENT IS VALID FO R THE PERIOD 1.4.99 TO 30.6.2003. 4. THUS THE AGREEMENT PROVIDED THAT THE NHPL WILL UNDERTAKE THE MAINTENANCE OF THE SPECIFIC AREA AND OPERATE TH E HOTEL AND BALANCE PROPERTY I.E. LAND AND BUILDING THEREON WAS UNDER HER OCCUPATION. THE AGREEMENT PROVIDED THAT ALL ADMINI STRATIVE PERSONAL EXPENSES INCLUDING SALARIES OPERATION EXPE NSES SELLING AND MARKETING EXPENSES ADVERTISING AND BUSINESS PRO MOTION EXPENSES WERE INCURRED AND CLAIMED BY NHPL. 5. THE ASSESSEE FILED THE RETURN OF INCOME SHOWING RECEIPTS OF RS. 2269711/- AS HER SHARE GROSS OPERATING PROFIT A S REDUCED BY DEDUCTIBLE EXPENSES OF HOTEL AS PER CLAUSE 2.5 OF T HE AGREEMENT. THEREAFTER ASSESSEE FURTHER CLAIMED EXPENSES AND DE CLARED NET PROFIT FROM HOTEL AT RS. 699036/-. THE ASSESSEE EN CLOSED AN ANNEXURE OF EXPENSES QUESTIONS WERE ASKED IN THIS BEHALF ASSESSEES EXPLANATION AND AOS FINDINGS ARE AS UND ER: - A) REPAIR AND MAINTENANCE RS. 483221 /- : ASSESSEE CONTENDED THAT: (I) THAT THE CLAUSES IN THE AGREEMENT WERE NOT THE END OF THE MATTER AND PARTIES USED THEIR MUTUAL CONSENT IN A WAY SUITABLE TO EACH OTHER AND THIS MA Y BE TREATED AS ORALLY AGREED BETWEEN THE PARTIES. 11 (II) THE PROPERTY WAS ON THE BANK OF RIVER GANGES WHICH SWELLED IN RAINY SEASON AND CAUSED DAMAGED TO THE PROPERTY WHICH REQUIRED HEAVY MAINTENANCE THE EXPENSES WAS IN THIS BEHALF. THE AO HOWEVER DID NOT AGREE WITH THE ASSESSEE BY VERIFYING THE FACTS AND HOLDING AS UNDER: - THE SUBMISSIONS OF THE ASSESSEE ARE NOT ACCEPTABLE DUE TO THE FOLLOWING REASONS: - A) AS PER THE AGREEMENT WITH NHPL (CLAUSES 5.2(F) 4.3 & 4.4 & ARTICLE 1.1) THE REPAIRS AND MAINTENANCE EXPENSES WERE TO BE BORNE BY NHPL. THEREFORE ASSESSEE WAS NOT LIABLE TO SPEND ANY MONEY ON REPAIRS AND MAINTENANCE. B) THE ASSESSEE HAS CLAIMED THAT THE REPAIRS IN QUESTION WERE INCURRED ON THE OLD PROPERTY PREMISES INHERITED BY THE ASSESSEE. THAT RISHIKESH RECEIVES A SUBSTANTIAL RAINFALL AND THE WEAR AND TEAR OF OLD STRUCTURES AND CONCRETE WALKAWAYS REQUIRES MAINTENANCE PERIODICALLY TO BE KEPT IN USE FOR BUSINESS. HOWEVER THE PERUSAL OF DETAILS OF REPAIRS AND MAINTENANCE A/C AND THE COPIES OF VOUCHERS FILED BY THE ASSESSEE SHOW THAT THE EXPENSES HAVE BEEN INCURRED ON ITEMS LIKE CEMENT BRICKS WHILE CEMENT IRON SARIA TILES AND OTHER BUILDING MATERIALS IN SUBSTANTIAL QUANTITIES BESIDES ON PLYWOOD SHEESHAM WOOD GLASS SANITARY FITTING ELECTRICAL MATERIALS PAINT ETC. WHICH INTER ALIA SHOWS THAT THESE EXPENSES ARE FOR CONSTRUCTION OF A BUILDING AND NOT FOR MINOR REPAIRS. 12 THE REPAIR AND MAINTENANCE A/C SHOWS CASH PAYMENTS OF RS. 43 755/- MADE TO ONE DAYANAND CONTRACTOR ON 14. 5.02 13.6.02 AND 6.7.02. A BILL FROM DAYANAND CONTRACTO R DATED 13.6.02 WHICH IS PLACED ON THE RECORD HAS THE FOLLO WING NARRATION: PAID TILL LINTEL RS. 15 000/- PREVIOUS PAYMENT RS. 33 000/- TOTAL PAYMENT MADE RS. 48 000/- DAYANAND SINGH BESIDES THERE IS A CREDIT BALANCE OF RS. 50 150/- I N THE LEDGSER A/C OF CARPENTER INDERJEET SINGH WHO HAS BE EN PAID RS. 3500/- ON 18.4.02 FOR WINDOWS. SIMILARLY THERE IS A CREDIT BALANCE OF RS. 69 229/- IN THE LEDGER A/C OF CONTRACTOR MADAN LAL. THE NATURE OF ABOVE ENTRIES OF EXPENSES PAYABLE/PAI D TO CONTRACTORS/CARPENTER ETC. AND QUANTITY OF BUILDING MATERIAL PURCHASED INTER ALIA SHOWS THAT THESE EXPE NSES ARE IN THE NATURE OF CAPITAL EXPENSES INCURRED ON T HE CONSTRUCTION OF SOME BUILDING WHICH SHOULD BE CAPIT ALIZED ONLY IF THE ASSET BUILT IS USED BY THE ASSESSEE FOR THE PURPOSE OF HER BUSINESS. ENQUIRY WAS CONDUCTED FROM NHPL AND THEY WERE ASKED VIDE LETTER DATED 20.2.06 TO SPECIFY THE BUIL DINGS LOCATED IN THE PROPERTY WHICH ARE BEING USED TO RUN THE HOTEL AND WHETHER SOME BUILDINGS/STRUCTURES WERE UN DER THE CONTROL OF THE ASSESSEE FOR HER PERSONAL USER D URING THE VALIDITY OF THE AGREEMENT AND WHETHER ANY RENOV ATION OR MAJOR REPAIR OR NEW CONSTRUCTION WAS MADE IN HOT EL PREMISES OR FOR THE USE OF THE HOTEL DURING F.Y. 20 02-03. M/S NHPL WAS ALSO ASKED WHETHER ANY REIMBURSEMENT W AS MADE BY M/S NHPL TO THE ASSESSEE ON ACCOUNT OF 13 REPAIRS/RENOVATION OR CONSTRUCTION BECAUSE AS PER AGREEMENT NHPL IS LIABLE FOR REPAIRS AND MAINTENANC E OF THE PROPERTY USED FOR HOTEL. VIDE THEIR REPLY DATE D 25.2.06 NHPL HAS STATED THAT THE PROPERTY IS BEING USED JOINTLY BY BOTH THE PARTIES. A SPECIFIC AREA (MARK ED IN THE ENCLOSED MAP ANNEXURE A AS 5 BUILDINGS/STRUCTURES )IS SUED FOR THE HOTEL AND THE BALANCE IS USED BY MRS. MIRA KULKARNI. THE OPEN SPACES ARE USED BY HER TO GROW AGRICULTURAL PRODUCE AND A DOUBLE STOREY STRUCTURE IS UNDER HER OCCUPATION FOR RESIDENTIAL AND OFFICE PUR POSES. REGARDING THE SPECIFIC QUERY OF REPAIRS/RENOVATION/ NEW CONSTRUCTION CARRIED OUT IN THE PREMISES USED AS H OTEL GLASS HOUSE ON THE GANGES WHICH WAS FOR THE USE OF THE HOTEL THE NHPL SUBMITTED THAT ASSESSEE CONDUCTS REPAIRS AND RENOVATION ON HER PART OF THE PROPERTY. NO NEW CONSTRUCTION HAS BEEN MADE DURING F.Y. 02-03 ON THE SAID PREMISES (HOTEL). THE CONTRACTORS AND CARPENT ERS HAVE NOT BEEN PAID/REIMBURSED BY US. THUS NO REPAIRS RENOVATION OR CONSTRUCTION WAS DO NE ON THE HOTEL PREMISES BY THE ASSESSEE. THEREFORE THE DETAILS OF REPAIR AND MAINTENANCE EXPENSES AS DISCU SSED OR IMPROVEMENT OR RESTORATION TO THE PERSONAL BUILDINGS/PROPERTY OF THE ASSESSEE WHICH ARE NOT US ED FOR BUSINESS PURPOSES. THESE EXPENSES HAVE NOT BEEN INCURRED FOR MAINTAINING THE HOTEL PREMISES/STRUCTU RES AND THEREFORE CANNOT BE CURRENT REPAIRS AND BUSINE SS EXPENSES AND ALSO CANNOT BE CAPITALIZED SINCE THEY HAVE BEEN INCURRED ON PERSONAL BUILDING/PROPERTY OF THE ASSESSEE AND ARE NON-BUSINESS EXPENDITURE AND APPROPRIATION OF PROFIT. THIS INFERENCE IS FURTHER SUBSTANTIATED BY THE CLAIM OF THE ASSESSEE VIDE HER REPLY 14 DATED 25.11.05 IN POINT(7) THAT HER HEALTH SPA WAS UNDER DEVELOPMENT DURING THE YEAR. THEREFORE THE REPAIR AND MAINTENANCE EXPENSES TO T HE TUNE OF RS. 4 83 221/- ARE DISALLOWED AND ADDED BAC K TO THE NET PROFIT. THE ASSESSEE HAS FURNISHED A BOGUS CLAIM OF CURRENT EXPENSES ON REPAIRS AND THEREFORE IS LI ABLE FOR PENALTY U/S 271(1)(C) OF FURNISHING INACCURATE PART ICULARS OF INCOME AND CONCEALING HER INCOME. B) FOREIGN TRAVEL EXPENSES : - AOS FINDINGS ARE AS UNDER: THE ASSESSEE HAS DEBITED RS. 76 032/- ON A/C OF FO REIGN TRAVELING EXPENSES. THE DETAILS OF THESE EXPENSES FURNISHED BY THE ASSESSEE SHOW THAT THESE EXPENSES WERE INCURRED FOR PURCHASE OF FOREIGN EXCHANGE. THE ASSESSEE HAS SUB MITTED VIDE REPLY DATED 25.11.05 THAT SHE TRAVELS EXTENSIVELY I NCLUDING FOREIGN TRAVEL TO PROMOTE HER HOTEL AND HEALTH SPA WHICH WAS IN THE PROCESS OF DEVELOPMENT DURING THE YEAR AND TO D EVELOP EXPERTISE AND KNOW-HOW AND TO MEET REPRESENTATIVES OF VARIOUS COMPANIES IN HEALTH SPA INDUSTRY. HOWEVER IT IS EVIDENT FROM CLAUSE 5.2(A) OF THE AGREEMENT THAT ALL CHARGES WIT H REGARD TO RUNNING TO THE HOTEL ADVERTISING MARKETING ETC . SHALL BE BORNE AND PAID BY THE NHPL. THE HOTEL IS MARKETED SOLELY BY NHPL AS A PART OF THEIR 11 HERITAGE HOTELS. THE RE SERVATIONS FOR THE HOTEL ARE DONE AT OFFICE AT NHPL AT NEW DELHI A ND E-MAIL ADDRESS AND WEBSITE FOR THE HOTEL IS MANAGED BY NHP L. THUS THE CLAIM OF THE ASSESSEE THAT SHE TRAVELS ABROAD T O PROMOTE HER HOTEL IS ONLY AN AFTERTHOUGHT. UNDER THE CIRCUMSTA NCES THE EXPENSES INCURRED BY ASSESSEE ON FOREIGN TRAVEL ARE NOT ALLOWABLE AGAINST THE RECEIPTS FROM HOSTEL AS THERE IS NO COM MERCIAL EXPEDIENCY AND IT IS NOT PROVED BY THE ASSESSEE THA T THESE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR T HE PURPOSE OF 15 THE HOTEL BUSINESS. NO INCOME FROM HEALTH SPA BUSI NESS HAS BEEN SHOWN BY ASSESSEE SO SHE CANNOT CLAIM THE EXPE NSES ON THIS ACCOUNT. FURTHER THESE EXPENSES ARE IN THE NATURE OF PURCHASE OF FOREIGN EXCHANGE BY THE ASSESSEE DURING HER TRIP ABROAD WHICH IS HELD NOT TO BE FOR THE PURPOSE OF THE HOTE L BUSINESS. HOTEL FOREIGN TRAVELING EXPENSES OF RS. 76 032/- A RE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE AND AS SESSEE IS HELD TO BE LIABLE FOR PENALTY U/S 271(1)(C) FOR FUR NISHING INACCURATE PARTICULARS OF INCOME ON THIS COUNT TOO. C) TRAVEL & HALTING EXPENSES : - SIMILARLY TRAVEL AND HALTING EXPENSES CLAIMED AT RS. 68 734/- HAVE ITEMS OF EXPENDITURE OF PERSONAL NATURE LIKE RS. 7 000/- PAID FOR BRITISH VISA CHARGES ON 16.8.2 002. RS. 16 444/- PAID VIDE CHEQUE NO. 34781 DATED 27.09 .02. RS. 7 960/- PAID TO SONALI AS PER BILL ON 14.12.02. THESE ITEMS OF EXPENSES AMOUNTING TO RS. 31 404/- ARE BEING DISALLOWED FOR NOT BEING EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. D) SALARY & LOCAL CONVEYANCE EXPENDITURE : - (I) THE ASSESSEE HAS DEBITED RS. 3 90 432/- AS SALARY AND RS. 1 09 681/- AS LOCAL CONVEYANCE A/C AGAINST INCO ME RECEIVED FROM NEEMRANA HOTELS P. LTD. FOR THE HOTEL . SALARY VARYING FROM RS. 2000/- TO RS. 4 268/- PER M ONTH HAS BEEN SHOWN TO BE PAID TO ELEVEN EMPLOYEES AND T HEY HAVE BEEN PAID LOCAL CONVEYANCE AMOUNTING TO RS. 50 0 TO RS. 800 PER HEAD PER MONTH AS PER THE RECORDS PRODU CED BY THE ASSESSEE. (II) HOWEVER IT IS SEEN FROM THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND NEEMRANA HOTELS P. LTD. TH AT AS PER CLAUSE 5.2(A) ALL CHARGES OR TAXES WITH REGA RD TO 16 THE RUNNING OF THE BUSINESS OF THE SAID HOTEL INCLU DING CHARGES FOR SALARIES TELEPHONE ELECTRICITY FOOD PROVISIONS WATER BILLS LICENCE FEE ADVERTISING MARKETING SHALL BE BORNE AND PAID BY THE NEEMRANA HOTELS P. L TD. AFTER THE APPOINTED DATE TILL THE EXPIRY OF THIS AGREEMENT. THE INVOLVEMENT OF THE ASSESSEE IN RUNN ING OF DAY TO DAY BUSINESS OF THE HOTEL IS MINIMAL AND LIMITED TO THE FOLLOWING CLAUSES AS PER THE AGREEMENT. (III) AS PER THE ARTICLE 1.2 IT IS AGREED THAT BOTH PARTI ES SHALL HOLD MEETINGS FROM TIME TO TIME TO TRANSACT NECESSA RY BUSINESS AND TO REVIEW AFFAIRS OF THE HOTEL. THEY SHALL MUTUALLY DECIDE UPON THE APPOINTMENT/ENGAGEMENT OF EXPERTS IN THE FIELD OF HOTEL MANAGEMENT TO RUN CO NDUCT OPERATE MANAGE DIRECT THE OPERATION OF THE HOTEL. (IV) AS PER COVENANT 5.1(G) THE ASSESSEE MAY AT ANY TIME DEPUTE HER AUTHORIZED OFFICERS TO INSPECT THE SAID HOTEL DURING THE PERIOD OF AGREEMENT. THE INSPECTION WOU LD BE CONDUCTED TO EXAMINE THE STATE AND CONDITION OF THE HOTEL BUILDINGS AND OTHER FITTINGS FIXTURES THEREI N AND TO ENSURE THAT NEEMRANA HOTELS P. LTD. IS COMPLYING WI TH THE PROVISIONS OF RELEVANT LAWS AND TERMS OF AGREEM ENT. THE ASSESSEE WOULD ENSURE THAT SUCH INSPECTION WOUL D NOT IN ANY WAY DISTURB OR HINDER THE OPERATIONS OF RUNNING OF THE HOTEL. (V) THE REVENUE SHARING ARRANGEMENT OF 70:30 WHEREBY TH E ASSESSEE THE OWNER OF THE PROPERTY IS ONLY GETTING 30% SHARE OF QUARTERLY PROFITS WHICH FLOW FROM HOTEL BUSINESS ALSO SHOWS THAT THE EXPENSES ON ALL CHARGE S LIKE SALARY ETC. FOR RUNNING THE BUSINESS OF HOTEL WERE BORNE BY NEEMRANA HOTELS P. LTD. AS PER AGREEMENT. THE H OTEL IS A SMALL HERITAGE HOTEL WITH 10-12 SUITES ONLY. THUS 17 SALARY AND CONVEYANCE OF 10-11 EMPLOYEES DEBITED BY ASSESSEE AGAINST HOTEL INCOME RECEIPTS DO NOT APPEA R TO BE ALLOWABLE IN THE LIGHT OF THE FACTS AND CIRCUMST ANCES OF THE CASE. (VI) IN THIS REGARD THE ASSESSEE VIDE REPLIES DTD. 25.11 .05 SUBMITTED THAT THE ASSESSEE AS PER AGREEMENT AND PAST PRACTICE CONDUCTS ACTIVITIES SUCH AS CHECKING QUALITY OF FOO D AND CHANGING MENUS REGULARLY FOR SEASONAL FRUITS AND VEGETABLES AND ALSO QUALITY CONTROL AND MAINTENANCE S OF PREMISES (HOUSE KEEPING) ROOMS ETC. (VII) THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. AS NEEMRANA HOTELS P. LTD. WAS RUNNING OF THE HOTEL AL L CHARGES INCLUDING SALARIES TO HOTEL STAFF WERE THEI R RESPONSIBILITY. THE ASSESSEE WAS ONLY REQUIRED TO HOLD MEETING TO REVIEW THE AFFAIRS OF THE HOTEL FROM TIM E TO TIME AND INSPECT THE HOTEL BUILDING TO EXAMINE THEI R STATE AND CONDITION LIKE ANY LANDLORD AND IT WAS TO BE ENSURED AS PER AGREEMENT THAT SUCH INSPECTION WOULD NOT HINDER THE OPERATIONS OF RUNNING OF HOTEL. TO VERI FY THE CONTENTION OF ASSESSEE NEEMRANA HOTELS P. LTD. WAS ASKED TO PROVIDE DETAILS OF NATURE FREQUENCY AND DURATION OF SUPERVISION/INSPECTION MEETING CARRIED OUT BY ASSESSEE AND TO PROVIDE DETAILS OF SUCH INSPECTION/MEETINGS. NEEMRANA HOTELS P. LTD. WAS A SKED TO SPECIFY WHETHER ANY REPRESENTATIVES OF ASSESSEE WERE EMPLOYED BY HER OF HIS WORK AND WERE THEY INVOLVED IN DAY TO DAY OPERATION/CONDUCT OF HOTEL BUSINESS. (VIII) IN THEIR REPLY DTD. 25.2.06 NEEMRANA HOTELS P. LTD. STATED THAT ASSESSEE REGULARLY VISITS THE HOTEL PRE MISES. SHE CARRIES OUT QUALITY CONTROL SUPERVISION AND 18 INSPECTION OF ROOM QUALITY ETC. NO DETAILS OF INSP ECTIONS WERE PROVIDED. M/S NEEMRANA HOTELS P. LTD. DID NOT SPECIFY IF ANY REPRESENTATIVES OF ASSESSEE WERE EMPLOYED BY HER FOR DAY TO DAY OPERATION OF HOTEL BUSINESS. THEY ONLY STATED THAT THE PROPERTY IS US ED JOINTLY BY BOTH PARTIES A SPECIFIC AREAS IS USED F OR HOTEL AND BALANCE IS USED BY ASSESSEE FOR HER RESIDENCE FOR AGRICULTURAL OPERATIONS AND MAINTENANCE OF A COW SH ED ON THE PREMISES. THE ASSESSEE CONTROLS THE STAFF DIRE CTLY EMPLOYED BY HER AND MAINTAIN THE BUILDINGS AND DOES LANDSCAPING AND CONTROLS AGRICULTURAL OPERATIONS ON THE PREMISES. HER INVOLVEMENT WITH THE PROPERTY IS ON A REGULAR BASIS THROUGH HER EMPLOYEES AS PER HER INSTRUCTIONS. (IX) THUS IT IS EVIDENT THAT STAFF ON WHOSE A/C SALARY AND CONVEYANCE EXPENSES HAVE BEEN DEBITED ARE NOT INVOL VED IN THE DAY TO DAY RUNNING OF HOTEL OPERATIONS FOR W HICH NEEMRANA HOTELS P. LTD. HAS THEIR OWN STAFF. IT IS ALSO BEYOND NORMAL REASON THAT 10-11 EMPLOYEES WILL BE ENGAGED BY THE ASSESSEE WHO IS A PRUDENT BUSINESS WOMAN FOR CARRYING OUT THE WORK OF PERIODIC INSPEC TION OF BUILDINGS ALONE ON HER BEHALF SINCE THE ASSESSEE IS NOT LIABLE FOR INCURRING EXPENDITURE ON SALARY FOR HOTE L EMPLOYEES. NO BUSINESS EXPEDIENCY HAS BEEN MADE OU T NOR THE ASSESSEE HAS GIVEN ANY SATISFACTORY EXPLANA TION OR PROOF THAT THESE EXPENSES WERE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF HOTEL BUSINESS AND I T IS MERELY AN AFTER THOUGH ON THE PART OF THE ASSESSEE TO CLAIM THAT THESE ELEVEN LOW PAID EMPLOYEES WERE CHE CKING QUALITY OF FOOD AND MAINTENANCE OF PREMISES OF A SM ALL 10-12 SUITE PROFESSIONALLY RUN HOTEL ON HER BEHALF SINCE 19 THE NEEMRANA HOTELS P. LTD. ALREADY HAS QUALIFIED S TAFF TO LOOK AFTER HOUSE KEEPING AND QUALITY CONTROL. S IMILARLY NO BUSINESS EXPEDIENCY FOR LOCAL CONVEYANCE CHARGES CLAIMED TO BE PAID IN CASH TO THESE EMPLOYEES HAS B EEN MADE OUT. THUS EXCESSIVE SALARY AND CONVEYANCE EXPENSES HAVE BEEN DEBITED BY THE ASSESSEE FOR WHIC H SATISFACTORY EXPLANATION COULD NOT BE GIVEN BY HER. (X) IT CANNOT BE DENIED THAT THE ASSESSEE HAS PERSONAL INTEREST IN THE PROPERTY AS SHE MAINTAINS HER RESID ENCE THERE BESIDES CARRYING OUT AGRICULTURAL OPERATIONS AND MAINTAINING A COWSHED. IT APPEARS THAT THE SALARIE S TO EMPLOYEES WORKING FOR HER FOR MAINTAINING HER PERSO NAL ESTABLISHMENT ON THE PROPERTY AND RUNNING OF HER PERSONAL AFFAIRS AS ABOVE IN THE SAID PROPERTY HAVE ALSO BEEN DEBITED AGAINST BUSINESS INCOME WHICH IS NOT ALLOWABLE. THEREFORE IT WOULD BE REASONABLE IF 50 % OF SALARY AND CONVEYANCE EXPENSES ARE DISALLOWED FOR N OT BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS AND ONLY THE BALANCE AMOUNT IS DEEMED TO B E INCURRED FOR BUSINESS AND ALLOWED TO THE ASSESSEE. THEREFORE AN ADDITION OF RS. 2 50 057/- IS MADE TO THE NET INCOME OF THE ASSESSE FROM HOTEL ON THIS AC COUNT AND IS HELD LIABLE FOR PENALTY U/S 271(1)(C) FOR FI LE INACCURATE PARTICULARS OF INCOME. E) VEHICLE MAINTENANCE & TELEPHONE EXPENSES : - THE ASSESSEE PURCHASED A BOLERO VEHICLE DURING A. Y. 02-03. DURING THE CURRENT YEAR THE FOLLOWING EXPENSES HAVE BEEN DEBITED TO THE P&L A/C ON THE ACCOUNT OF THIS VEHIC LE: CAR INSURANCE RS. 13 659/- DEPRECIATION RS. 86 397/- INTEREST ON LOAN RS. 43 221/- 20 VEHICLE MAINTENANCE EXPENSES RS. 80 163/- BESIDES TELEPHONE EXPENSES HAVE BEEN CLAIMED AT RS . 43 232/- AND MISC. EXPENSES PAID IN CASH AT RS. 17 256/-. SINCE THE HOTEL BUSINESS OF ASSESSEE IS RUN BY NEE MRANA HOTELS P. LTD. AND ALL DAY TO DAY OPERATIONS OF RUN NING OF HOTEL ADVERTISING MARKETING ETC. ARE DONE BY NEEMRANA HOT ELS P. LTD. WHO ACCORDINGLY KEEP 70% OF GROSS REVENUE AS THEIR SHARE THEREFORE IT IS APPARENT THAT ASSESSEES ROLE IN DA Y TO DAY RUNNING OF HOTEL IS MINIMAL AND RESTRICTED TO OCCASIONAL IN SPECTIONS AND MEETINGS ALONE. THE USE OF VEHICLE AND TELEPHONE/M OBILE FOR PERSONAL USER OF THE ASSESSEE THUS CANNOT BE RULED OUT PARTICULARLY SICNE THE ASSESSEE WHO RESIDES IN DELH I HAS PERSONAL INTEREST AND AGRICULTURAL OPERATIONS GOING ON IN TH E SAME PROPERTY WHERE THE HOSTEL BUSINESS IS IN OPERATION AT TEHRI GARHWAL. UNDER THESE CIRCUMSTANCES IT WOULD BE FAIR AND REAS ONABLE IF 1/4 TH OF THE ABOVE EXPENSES TOTALING TO RS. 2 23 440/- A RE DISALLOWED FOR BEING OF PERSONAL NATURE AND NOT FUL LY AND WHOLLY SPENT FOR THE PURPOSE OF THE BUSINESS. THEREFORE ADDITION OF RS. 70 982/- IS MADE TO THE NET INCOME FROM THE HOTEL O N THIS ACCOUNT. 6. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL WHERE CIT(A) GIVE PART RELIEF ON WHICH BOTH THE PARTIES ARE BEFO RE US. 7. LD. COUNSEL FOR THE ASSESSEE REITERATED THE FACT S AND CONTENDS AS UNDER: - (I) THE AIR TICKET ACCRUED BY THE ASSESSEE BY EARNING MILAGE AS A BENEFIT FROM FREQUENT FLYER SCHEMES. T HE ASSESSEE WAS IN HOTEL BUSINESS OWNING THESE PREMISE S AND WAS DEVELOPING A HEALTH SPA OF INTERNATIONAL STANDA RD 21 AND THEREFORE HAD TO TRAVEL ABROAD TO PROMOTE HIS HOTEL BUSINESS. THEREFORE THE FOREIGN TRAVEL EXPENSES B EING BUSINESS EXPENSES OUGHT TO HAVE BEEN ALLOWED TO THE ASSESSEE. (II) APROPOS TRAVELING AND HALTING EXPENSES ALSO IT WAS CONTENDED THAT THE SAME WAS INCURRED FOR PURCHASE O F STONE/ARTIFACTS FOR MAKING THE HOTEL SURROUNDING BEAUTIFUL THE SAME BEING BUSINESS EXPENDITURE SHOUL D BE ALLOWED. (III) APROPOS SALARY AND LOCAL CONVEYANCE EXPENSES IT WAS CONTENDED THAT AO DISALLOWED 50% OF THE SAME CIT(A) RESTRICTED IT TO 25%. THE EXPENDITURE WAS INCURRED ON STAFF TO LOOK AFTER THE HOTEL PROPERTIES AND TAKE E RRANDS TO BRING MATERIAL ETC. THE SAME WAS ALLOWABLE. ALTERNATIVELY IT WAS CONTENDED THAT THE ORDER OF CI T(A) BEING REASONABLE SHOULD BE ACCEPTED AS THE REVENUE IS AGGRIEVED ON THIS GROUND ALSO. (IV) APROPOS RESTRICTION OF ALLOWANCE ON ACCOUNT OF VEHI CLE MAINTENANCE TELEPHONE IT WAS CONTENDED THAT IT WAS ENTIRELY BUSINESS EXPENDITURE AND DISALLOWANCE OF 2 0% WAS UNJUSTIFIED. THE SAME SHOULD BE ALLOWED. 8. LD. DR IN REPLY CONTENDS AS UNDER: - (I) NO DETAILS HAVE BEEN SUBMITTED BY THE ASSESSEE ABOU T THE PURPOSE OF FOREIGN TRIPS THE ENTIRE AMOUNT IS FOR PURCHASING FOREIGN CURRENCY. IN THE ABSENCE OF DET AILS THE CLAIM OF ASSESSEE COULD NOT BE VERIFIED BESIDES MORE IMPORTANTLY AS PER ASSESSEES OWN CONTENTION THE FO REIGN TRAVELS WERE UNDERTAKING FOR DEVELOPMENT OF HOTEL A ND SPA BUSINESS THEY HAVE NO RELATION TO EXISTING PRO PERTY OF THE ASSESSEE WHICH IS MAINTAINED BY NHPL. THE 22 FOREIGN EXPENSES HAVING BEEN INCURRED FOR COMING UP HOTEL AND SPA BUSINESS CAN AT BEST BE HELD AS PRE- OPERATIVE EXPENSES OF SPA BUSINESS AND HAS NO CONNE CTION WITH THE ASSESSEES PROPERTY MANAGED BY NHPL. (II) A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE WAS DERIVING HUGE INCOME FROM AGRICULTURAL INCOME WHICH IS RETURNED AS NET AGRICULTURAL INCOME OF RS. 262342/- WHICH MEANS HUGE AGRICULTURAL PROPERTY OPERATIONS WERE UNDERTAKEN BY ASSESSEE. APART FROM CARRYING OUT INTENSIVE AGRICULTURAL OPERATIONS THE ASSESSEE WAS DEVELOPING A HEALTH SPA ON THIS PROPER TY. FOR MAINTAINING AGRICULTURAL WORK FORCE AND STAFF A ND THE PROPERTY IN POSSESSION OF THE ASSESSEE THAT I.E. SP A RESIDENTIAL HOUSE ETC. HUGE EXPENSES WERE INCURRED. THE ASSESSEE HAS CLEVERLY DIRECTED EXPENSES PERTAINING TO THESE PURPOSES AS ATTRIBUTABLE TO THE PROPERTY KNOW N AS GLASS HOUSE WHICH IS IN JOINT TO VENTURE WITH NHPL AND SUPPOSED TO BE MAINTAINED UP-KEPT AND MANAGED BY NHPL AND ASSESSEE HAS NO EXPENSE TO BEAR IN THIS BE HALF. REST OF THE PROPERTY IS EITHER UNDER CONSTRUCTION A RE USED FOR RESIDENTIAL AND AGRICULTURAL PURPOSE AND C ANNOT BE CALLED BUSINESS EXPENDITURE. IN THIS BACKDROP FOLLOWING SUBMISSIONS WERE MADE: - (I) THE TRAVELING AND HALTING EXPENSES ARE FOR THE PURPOSE OF PURCHASING STONE AND ARTIFACTS WHICH ITSELF IMPLIES THAT THE SAME WILL BE FOR NEW SPA SINCE THE GLASS HOUSE PROPERTY WAS ALREADY MANAGED BY NHPL WITH NO FURTHER OBLIGATION THE SAME HAS BEEN RIGHTLY DISALLOWED AS BUSINESS EXPENDITURE. 23 (II) APROPOS SALARY AND LOCAL CONVEYANCE EXPENSES LD. DR CONTENDS THAT THE REVENUE IS ALSO IN APPEAL IN A S MUCH AS LD. CIT(A) REDUCE THE 50% DELETION MADE BY AO TO 25%. IT WAS PLEADED THAT AO WAS MORE THAN REASONABLE IN AS MUCH AS FOR MAINTAINING GLASS HOUSE ON GANGES NO SUCH EXPENDITURE WAS REQUIRED. HOWEVER THE AO HAVE TAKEN A LENIENT VIEW IN DISALLOWING 50%. CIT(A) HAS GIVEN THE RELIEF WITHOUT OBJECTIVE REASONS AND SHIFTING UNNECESSARY BURDEN ON AO AS IT WAS THE BURDEN ON THE ASSESSEE TO JUSTIFY THE CLAIM MORE SO WHEN HUGE CONTIGUOUS PROPERTY BELONG TO ASSESSEE WHICH REQUIRED SIMILAR TYPE OF EXPENDITURE FOR NON-BUSINESS USE. IT WAS CONTENDED THAT THE AOS ORDER MAY BE RESTORED. (III) APROPOS VEHICLE MAINTENANCE AND TELEPHONE EXPENSES IT WAS CONTENDED THAT LOOKING AT THE MIXED OPERATIONS OF THE ASSESSEE BEING BUSINESS AND NON-BUSINESS THE DISALLOWANCE WAS MORE THAN JUSTIFIED. (IV) APROPOS REVENUE APPEAL IT IS CONTENDED THAT REVENUE IS AGGRIEVED IN RESPECT OF ALLOWANCE FOR REPAIRS AND MAINTENANCE. IT WAS VEHEMENTLY ARGUED THAT CIT(A) HAS LOST SIGHT OF THE FACTS THAT 30% PROPERTY WAS MANAGED BY NHPL WHICH REQUIRED NO MAINTENANCE. THE SPA OF THE ASSESSEE WAS UNDER CONSTRUCTION BESIDES THE AGRICULTURE PROPERTY AND THE COWSHED ETC. REQUIRED HUGE MAINTENANCE. REFERENCE WAS INVITED TO THE SALARY REGISTER PLACED BY THE ASSESSEE ON PAPER BOOK THE SAME GIVES CLEAR INDICATION THAT THE PERSONS EMPLOYED ARE IN HUGE NUMBER AND ARE GIVEN DAILY SALARY OF LABOURER KIND. 24 FOR GLASS HOUSE ON GANGES NHPL HAS TO MANAGE AND NOT THE ASSESSEE AND DAILY LABOURERS CAN BE EMPLOYED FOR ASSESSEES AGRICULTURE AND OTHER NON- BUSINESS OPERATIONS. THEREFORE CIT(A) HAS GIVEN THE RELIEF WITHOUT LOOKING AT THE FACT THAT ASSESSE E WAS UNDER TAKING MIXED OPERATIONS HUGELY TILTED IN FAVOUR OF NON-BUSINESS NATURE. THE DISALLOWANCE MAY BE RESTORED. LD. COUNSEL IN REPLY TO GROUNDS O F REVENUE CONTENDS THAT CITS ORDER IS JUSTIFIED. (V) APROPOS REVENUES GROUND ABOUT SALARY AND LOCAL CONVEYANCE LD. DR CONTENDS THAT AO WAS MORE THAN REASONABLE IN ALLOWING 50% OF EXPENSES WHICH SHOULD BE RESTORED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS HAVE BEEN NARRATED ABOVE A PERUSAL OF ASSESSMENT ORDER SHOWS THAT ASSESSEE W AS HAVING FOLLOWING INDEPENDENT SOURCES FOR GLASS HOUSE ON GA NGES & CANDLE MANIA SEPARATE P&L ACCOUNTS WERE PREPARED: A) GLASS HOUSE ON GANGES (NHPL) B) CANDLE MANIA C) SHARE OF PROFIT FROM FIRM D) MISCELLANEOUS INCOME IT SHALL BE PERTINENT TO MENTION HERE THAT THE ASSE SSEE HAS CONSCIOUSLY CHOSEN TO DEBIT ALL THESE EXPENSES IN T HE PROFIT & LOSS ACCOUNT OF (A) I.E. GLASS HOUSE ON GANGES AND THE ASSESSEE HAS RETURNED THE SUBSTANTIAL NET AGRICULTURE INCOME OF RS. 262342/-. THE QUESTION WAS ASKED TO THE LD. COUNSE L AS TO DETAILS ABOUT THE AGRICULTURAL INCOME I.E. GROSS IN COME AND DETAILS OF EXPENSES. HOWEVER NO SATISFACTORY REPLY WAS GI VEN. 25 10. BE THAT AS IT MAY COMING TO THE FOREIGN EXPEND ITURE CLAIMED WE FIND MERIT IN THE ARGUMENT OF LD. DR THA T THE ASSESSEE WAS COMING UP WITH A SPA WHICH HAD NOT COM MENCED BESIDES THE ASSESSEE HAD NOT GIVEN PROPER DETAILS A BOUT THE PURPOSE OF VISIT. IN VIEW OF THESE FACTS THE ASSES SEES CLAIM FAILS ON BOTH THE COUNTS I.E. FOR WANT OF DETAILS AS WELL AS EVEN IF THEY ARE INCURRED THEY WILL BE FOR UPCOMING SPA BUSINESS AND NOT FOR GLASS HOUSE ON GANGES THE DISALLOWANCES IS ACCORDIN GLY UPHELD. 11. APROPOS THE ISSUE ABOUT TRAVELING AND HALTING E XPENSES WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN AS MUCH AS THE EXPENDITURE WAS INCURRED FOR STAY FOR PURPOSE OF PU RCHASING STONE AND ARTIFACTS. THE GLASS HOUSE BEING ALREADY SET UP AND PROVIDED TO NHPL THE EXPENSES CANNOT BE HELD AS ATT RIBUTABLE TO THIS PROPERTY. THIS GROUND OF THE ASSESSEE IS DISMI SSED. 12. COMING TO FORTH GROUND OF THE ASSESSEE AND REVE NUES GROUND IN RESPECT OF SALARY AND LOCAL CONVEYANCE EX PENSES WE HAVE ALREADY NOTICED THE FACT THAT THE ASSESSEE HAS DEBITED ALL THESE EXPENSES TO GLASS HOUSE ON GANGES. IT IS ASS ESSEES CLAIM THAT PREMISES AROUND THE HOTEL STRUCTURE IS THE RES PONSIBILITY OF THE ASSESSEE IN SO FAR AS ITS PROFIT UPKEEP AND MAI NTENANCE IS CONCERNED IT SHOULD NOT BE LOST SIGHT OF THE FACT THAT BALANCE PROPERTY IS BEING USED BY THE ASSESSEE FOR RESIDENC E UPCOMING SPA COWSHED. IN VIEW OF ALL THESE FACTS IT WAS TH E BURDEN OF ASSESSEE TO SHOW THAT EQUALLY CORRESPONDING AMOUNT WAS SPENT BY THE ASSESSEE ON UPKEEP OF MAINTENANCE OF BALANCE PR OPERTY THIS HAS NOT BEEN DISCHARGED. IN VIEW OF THESE FACTS AN D LOOKING AT THE PREPONDERANCE OF THE PROBABILITIES AND THE BURD EN OF THE ASSESSEE TO PROVE THE BUSINESS EXPENSES WE UPHOLD T HE ORDER OF AO AND HOLD THAT CIT(A) HAS GIVEN THE RELIEF WITHOU T PROPER 26 JUSTIFICATION. THE ASSESSEE HAS FAILED TO DEMONSTR ATE IN PROPER TERMS THAT THE AGREEMENT WITH NHPL OBLIGED THE ASSE SSEE TO CARRY OUT SUCH REPAIRS AND MAINTENANCE MORE SO WHEN 75% OF THE TOTAL ESTATE/PROPERTY WAS IN POSSESSION OF THE ASSE SSEE. 13. IN VIEW OF THESE FACTS WE DISMISS THE APPEAL FI LED BY THE ASSESSEE AND ALLOW THE APPEAL OF REVENUE. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22.0 6.09 7. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ORDER OF THE ITAT WAS BR OUGHT TO THE NOTICE OF THE LEARNED CIT(APPEALS) ALSO. THE SOLITARY REASON ASSI GNED BY THE LEARNED CIT(APPEALS) FOR NOT FOLLOWING THE ITATS ORDER IS THAT IN ASSESSMENT YEAR 2003-04 WHEN NEEMRANA HOTEL (P) LTD. WAS CONFRONT ED WITH THE FACT THAT HOW MUCH IS THE RESPONSIBILITY OF NEEMRANA HOTEL FO R CARRYING OUT THE REPAIR AND MAINTENANCE. THE NEEMRANA HOTEL HAS MADE A SPEC IFIC ADMISSION TO THE EFFECT THAT HOTEL PREMISES IS NOT LIMITED TO IT BUI LDING BUT HOWEVER EXTENDS TO THE WHOLE OF THE PROPERTY FORMING THE USP (UNIQU E SELLING PRICE ) OF THE HOTEL. IN THIS YEAR ACCORDING TO THE LEARNED COUNS EL FOR THE ASSESSEE A CLARIFICATION WAS SOUGHT FROM THE NEEMRANA HOTEL IN THE REMAND PROCEEDINGS AND NEEMRANA HOTEL HAS DISCLOSED THAT I T IS RESPONSIBLE FOR MAINTENANCE OF INTERNAL ROOMS AND PREMISES HOWEVER THE EXTERNAL SURROUNDING OF THE HOTEL WHICH FORMS INDISPENSABLE PART OF THE HOTEL IS THE 27 RESPONSIBILITY OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN HARPING UPON THIS DEVELOPMENT. HE SUBMITTED THAT FA CTS HAVE NOT BEEN APPRECIATED PROPERLY IN ASSESSMENT YEAR 2003-04. LE ARNED CIT(APPEALS) HAS CONSIDERED THE DETAILS IN THE PRESENT ASSESSMENT YE AR WITH RIGHT PROSPECTIVE. 8. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES WE DO NOT FIND ANY MERIT IN THE CONTENTION OF LEARNED COUNSEL FOR THE ASSESSEE. THERE IS NO DISPARITY ON FACTS. LEARNED FIRST APPELLATE AUTHORI TY HAS FAILED TO CONSIDER THE ORDER OF THE ITAT IN ASSESSMENT YEAR 2003-04. T HE ACCOUNTING PERIOD RELEVANT FOR ASSESSMENT YEAR 2003-04 IS THE SUBSEQU ENT PERIOD. THE AGREEMENT WAS EXECUTED ON IST OF APRIL 1999. IT CAN NOT BE CHANGED WITH RETROSPECTIVE EFFECT FOR CLAIMING THE EXPENSES IN A ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR 2002-03 WHICH IS EARLIER IN TIME THEN THE ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR 2003-04. THE ALL EGED EXPLANATION FROM NEEMRANA HOTEL IS A SELF-SERVING STATEMENT WHICH HA S BEEN GIVEN WITH A VIEW TO GIVE BENEFIT TO THE ASSESSEE ONLY. WE HAVE CONFRONTED THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING TO SHOW US THE CLAUSES FROM THE AGREEMENT WHICH CAN ENABLE THE ASSESSEE TO CLAI M THE MAINTENANCE EXPENSES AGAINST THE ALLEGED HOTEL RECEIPTS. IN ASS ESSMENT YEAR 2003-04 THE ITAT HAS INTERPRETED THE CLAUSES OF THE AGREEMENT A ND ARRIVED AT A 28 CONCLUSION THAT IT IS THE DUTY OF THE NEEMRANA HOTE L TO INCUR EXPENSES FOR REPAIRING AND MAINTENANCE IF THAT BE SO THEN HOW O N THAT VERY CLAUSES LEARNED CIT(APPEALS) CAN SAY THAT IT IS THE RESPONS IBILITY OF THE ASSESSEE TO PAY FOR THE REPAIR AND MAINTENANCE. THE EXPLANATION AT THE END OF THE NEEMRANA HOTEL CANNOT CHANGE THE CLAUSES OF THE AGR EEMENT WHICH IS EARLIER IN TIME. FOR THE CLARITY WE DEEM IT APPROPRIATE TO TAKE NOTE OF SUB-CLAUSE (F) OF CLAUSE 5.2 OF THE AGREEMENT WHICH READS AS UNDER : F. ALL REGULAR MAINTENANCE CHARGES INCLUDING BUT NOT LIMITED TO GENERAL UP KEEP SUCH AS WATERPROOFING PAINTING AN D OTHER REPAIRS DURING THE CONTINUANCE OF THE AGREEMENT ARE TO BE B ORNE BY THE PARTY OF THE SECOND PART. 9. A PLAIN READING OF THIS CLAUSE MAKES IT CLEAR TH AT REPAIRS ARE TO BE BORNE BY THE NEEMRANA HOTEL. LEARNED FIRST APPELLAT E AUTHORITY HAS FAILED TO APPRECIATE THE FACTS IN TRUE PROSPECTIVE. HE HAS JUST REPRODUCE THE SUBMISSIONS OF THE ASSESSEE AND THEN CONCUR WITH TH EM WITHOUT POINTING OUT ANY DISTINGUISHABLE FEATURES. 10. AS FAR AS OTHER GROUNDS OF APPEAL ARE CONCERNED THEY ARE COVERED BY THE ORDER OF THE ITAT. THERE IS NO DISPARITY ON FAC TS IN THE PRESENT ASSESSMENT YEAR. ASSESSING OFFICER SHALL GIVE SAME EFFECT IN THIS YEAR IN RESPECT OF OTHER EXPENSES. 29 11. THE GROUND NO.2 TAKEN IN THE CROSS-OBJECTION ON LY TALKS ABOUT THE FACT THAT LEARNED CIT(APPEALS) HAS FAILED TO GIVE A CATE GORICAL FINDING THAT EXPENDITURE ON FOREIGN TRAVELLING INCURRED IN RESPE CT OF SPA FACILITY WOULD BE CAPITAL IN NATURE. 12. THE ASSESSEE DID NOT SUBMIT ANY DETAILS BEFORE THE ASSESSING OFFICER. BEFORE LEARNED CIT(APPEALS) ALSO SHE HAS JUST RAIS E THE ARGUMENTS HOW THOSE EXPENSES ARE ATTRIBUTABLE TO THE SPA FACILITY IS NOT DISCERNIBLE. THERE IS NO APPLICATION FOR ADDITIONAL EVIDENCE BEFORE THE L EARNED CIT(APPEALS) AND NO ORDER UNDER RULE 46A OF THE INCOME-TAX RULES FOR PERMITTING THE ASSESSEE TO ADDUCE ADDITIONAL EVIDENCE IS DISCERNIBLE IN THE LEARNED CIT(APPEALS)S ORDER. THEREFORE WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL ALSO. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS ALL OWED WHEREAS THE CROSS- OBJECTION OF THE ASSESSEE IS REJECTED. DECISION PRONOUNCED IN THE OPEN COURT ON 18.03.20 11 (G.E. VEERABHADRAPPA ) ( RAJPAL YADAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 18/03/2011 MOHAN LAL 30 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR