Case Law Details
Saurashtra Cement Limited Vs DCIT (ITAT Rajkot)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) in Rajkot heard two appeals filed by Saurashtra Cement Limited concerning the assessment years (AY) 2014-15 and 2015-16. These appeals were directed against separate orders issued by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, which arose from assessment orders passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961.
Both appeals, identified as ITA Nos. 362/Rjt/2023 and 363/Rjt/2023, faced delays in filing—13 days and 12 days respectively. The company submitted a petition requesting the Tribunal to condone this delay, asserting that sufficient cause existed due to disputes regarding legal ownership of a property. The property in question had been under the unauthorized possession of relatives of the company’s former chairman. Initially, the company opted not to pursue an appeal but later decided to do so upon realizing that the ownership issue had been resolved in its favor.
The counsel for Saurashtra Cement argued that the delay occurred as the company was in the process of gathering necessary documentation to support its claim of legal ownership, and thus requested that the delay be condoned in the interest of justice.
However, the Senior Departmental Representative for the Revenue opposed the request, arguing that the company failed to sufficiently explain the delays, suggesting that the appeals should not be allowed.
After considering both arguments, the ITAT decided to condone the delay, admitting both appeals for hearing. Given that the issues presented in both appeals were identical, the Tribunal combined the cases for a consolidated order.
In the lead case of ITA No. 362/Rjt/2023, the central issue revolved around the disallowance of Mumbai guest house maintenance charges amounting to ₹7,71,084 by the Assessing Officer. The AO had noted that the guest house was occupied by relatives of the ex-chairman and that the expenses incurred were not for business purposes. The AO disallowed the expenses, stating they constituted personal expenditures.
Saurashtra Cement, dissatisfied with the AO’s ruling, escalated the matter to the Ld. CIT(A), who upheld the AO’s decision. The CIT(A) reiterated that the expenses were indeed non-business in nature, especially given that the company had lost a legal suit concerning the ownership of the guest house.
The company’s legal counsel countered that the guest house was legally owned by Saurashtra Cement and that maintenance expenses were necessary for its operation, arguing that these expenditures were legitimate business expenses. The counsel cited legal precedents, asserting that businesses are entitled to claim deductions for expenditures incurred to maintain properties they legally own, regardless of occupancy by relatives of former executives.
On the other hand, the Revenue’s representative reaffirmed the stance of the AO, reiterating the reasons for the disallowance of expenses as personal and non-business-related.
After careful deliberation, the ITAT reviewed the evidence and arguments from both parties. The Tribunal emphasized the legal ownership of the guest house by Saurashtra Cement during the assessment years in question, noting that the incurred maintenance costs were justifiable as business expenses.
The ITAT also referenced established legal principles that permit businesses to claim deductions for voluntarily incurred expenses that promote business activities and profitability. Citing a ruling from the Supreme Court in the case of Sasoon J. David and Co. (P) Ltd. vs. CIT, the Tribunal reiterated that such expenses should be allowed when they are incurred for the business.
Consequently, the Tribunal directed the Assessing Officer to allow the expenditure for both AYs 2014-15 and 2015-16, thereby overturning the previous disallowances made by the AO. As a result, the appeals filed by Saurashtra Cement Limited were allowed, marking a significant decision in favor of the company.
The order was publicly announced in the open court on September 9, 2024, highlighting the Tribunal’s acknowledgment of the legitimacy of the company’s claims regarding the maintenance expenses.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned two appeals filed by the assessee, pertaining to assessment years (AYs) 2014-15 and 2015-16, both are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘Ld. CIT(A)/NFAC’], which in turn arise out of separate assessment orders passed by the Assessing Officer (in short, ‘the AO’) u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Both appeals filed by the assessee in ITA Nos.362/Rjt/2023 and 363/Rjt/2023, are barred by limitation by 13 days and 12 days respectively. The assessee moved a petition for condonation of delay, requesting the Bench to condone the delay. The contents of both petitions for condonation of delay are similar and identical.
3. Learned Counsel for the assessee argued that assessee has explained sufficient cause in the petition for condonation of delay, stating that legal ownership of the property was disputed and the unauthorized possession, thereof was with relatives of ex-chairman of the company. The company had initially decided not to file further appeal against the said issue before the Hon’ble ITAT, but it was later noticed and realized that the issue relating to legal ownership of the property has been decided in favour of the assessee company and the said property has been sold by the assessee company during the AY.2015-16. The company after gathering the documents relating to legal ownership, decided to file appeal before the Tribunal and in this process, the delay of 13 days has occurred, which may be condoned in the interests of justice.
4. However, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that assessee has failed to explain the sufficient cause in both the appeals, therefore, the delay should not be condoned.
5. We have heard both the parties on this preliminary issue and noted that assessee has explained the sufficient cause in the petition of condonation of delay as noted above, therefore, having regard to the reasons mentioned in both the petitions for condonation of delay, we condone the delay of 13 days and 12 days in filing these two appeals respectively and admit these two appeals for hearing.
6. Since the issue involved in these two appeals are common and identical; therefore, we have clubbed these two appeals and heard together and a consolidated order is being passed for the sake of convenience and brevity. The grounds of appeal as well as facts narrated in ITA No. 362/Rjt/2023, have been taken into consideration for deciding these two appeals en masse.
7. The grounds of appeal raised by the assessee as per ‘lead case’ in ITA No. 362/Rjt/2023 are as follows:
“1. The learned Assessing Officer has erred in law as well as on facts in making disallowance of Mumbai Guest House Maintenance Charges of Rs.7,71,084/- and the learned CIT(A), NFAC has erred in confirming it.”
8. The facts of the case, which can be stated quite shortly, are as follows: During the assessment proceedings, the AO observed that in the notes to accounts (No.12), the auditor has pointed out that the assessee company has incurred expenses on maintenance etc. for a guest house at Mumbai amounting to Rs.7,71,084/-. The guest house was occupied by relatives of ex-chairman of the company. Therefore, the company has filed suit in the court, however, the company had lost in the suit filed in the court. The expenses incurred by the company are not for business purpose. The AO noted that the benefit of guest house is taken by relatives of ex-chairman. Under the circumstances the amount of Rs. 7,71,084/- was disallowed by AO as personal, non-business expenses.
9. Aggrieved by the order of AO, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of AO. The Ld. CIT(A) observed that the AO disallowed the said expenditure of Rs.7,71,084/- in the assessment order stating them to be non-business/personal expenditure and also pointed out that the company had lost in the suit filed in the court regarding the ownership of the Guest House Mumbai.
10. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.
11. The Ld. Counsel for the assessee pleaded that during the year under consideration, the guest house was occupied by the relative of ex-chairman of the assessee-company, however, the legal owner of the property is the assessee company, therefore the assessee company had to incur the expenditure for maintenance of the guest house, hence, the expenditure incurred on maintenance of guest house to the tune of Rs.7,71,084/- should be allowed, as it is a business expenditure. Thus, Ld. Counsel contended that since the legal ownership of the guest house is with the assessee company and therefore the assessee company has to maintain guest house and hence incurred expenditure for maintenance of guest house to the tune of Rs.7,71,084/-, which should be allowed.
12. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
13. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. 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 to the tune of Rs.7,71,084/-, 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. vs. CIT, 118 ITR 261 (SC) 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 for AY.2014-15, the assessee-company has incurred expenditure to the tune of Rs.7,71,084/- and for AY.2015-16 to the tune of Rs.5,03,091/-, 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. Therefore, we direct the AO to allow the expenditure on maintenance of guest house for AY.2014-15 and for AY.2015-16. Hence, additions made by the AO in AY.2014-15 and 201516 are directed to be deleted.
14. In the result, both the appeals filed by the assessee are allowed.
Order is pronounced in the open court on 09/09/2024
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