Business expenditure

The expenditure incurred on maintenance and repair on the personal property cannot be set-off and allowed as business expenditure under s 37, as held by DelHC in Mira Kulkarni v ACIT — In favour of: The revenue; ITA 199/2010.

Where the assessee failed to show that expenses incurred were wholly and exclusively for the purposes of the hotel business, the same cannot be allowed under s 37(1).

Personal expenses cannot be allowed as an expense and have to be specifically excluded, as they are not deductible.

The appellant is an individual and a part owner of a property situated at Anand Kashi Farms, a portion of which is being used as a hotel, pursuant to an agreement with Neemrana Hotels Private Limited. The assessee alleged that it had incurred expenditure which was relevant for the maintenance and running of the hotel and claimed a deduction under s 37.

The assessee could not produce evidence and material to substantiate her claim that she had incurred expenditure which was relevant for the maintenance and running of the hotel. The Tribunal has specifically recorded that 75% of the property was in the personal use of the appellant and the expenditure incurred on maintenance and repair on the personal property cannot be set-off and allowed as business expenditure under s 37 of the Act. Further, the reply given by M/s Neemrana Hotels Private Limited (NHPL), the other party to the agreement, clearly and categorically stated that as per the agreement, they were liable to carry out repair and maintenance of the property used for the hotel, the property was jointly used by both parties, as per the enclosed map, and open spaces were used by the appellant to grow agricultural produce. It was further stated that no new construction was carried out during the financial year 2002–2003, which is relevant to the assessment in question. In case the appellant wanted to take a contrary stand and explain the said reply, it could have obtained necessary clarification from NHPL and filed it before the authorities. NHPL is the business partner of the appellant. Thus, the Tribunal was justified in disallowing the assessee’s claim of business expenditure.

Decided on: 16 December 2011.