KAMAT HOTELS (INDIA) LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

CO 119/MUM/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6652 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 01-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PA RTHASARATHI NAIR
• Assessee Lawyers: R C JAIN
• Keywords: Commercial expediency; Revenue expenditure
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, ( JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.5832/MUM/ ASSESSMENT YEAR : 2002-03 DY. COMMISSIONER OF INCOME TAX -8(2) ROOM NO.209, AAYAKAR BHAVAN M.K. ROAD MUMBAI-20. ..( APPELLANT ) VS. M/S. KAMAT HOTELS (INDIA) LTD. 70C NEHRU ROAD VILE PARLE (E) MUMBAI-400 072. ..( RESPONDENT ) P.A. NO. (AAACK 2912 L) C.O. NO.119/MUM/2010 ARISING FROM ITA NO.5832/MUM/ ASSESSMENT YEAR : 2002-03 M/S. KAMAT HOTELS (INDIA) LTD. MUMBAI-400 072. ..( CROSS OBJECTOR) VS. DY. COMMISSIONER OF INCOME TAX -8(2) MUMBAI-20. ..( APPELLANT IN APPEAL ) DEPARTMENT BY : SHRI PA RTHASARATHI NAIR ASSESSEE BY : SHRI R .C. JAIN DATE OF HEARING : 25.10.2011 DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2011 ITA NO.5832 & CO-119 A.Y:02-03 2 O R D E R PER RAJENDRA SINGH (AM). THE APPEAL OF THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 20.4.2010 OF CIT(A ) FOR THE ASSESSMENT YEAR 2002-03. THESE APPEALS WHICH WERE HEARD TOGETHER A RE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENI ENCE. ITA NO.5832/MUM/2010 (APPEAL BY REVENUE ): 2. THE ONLY DISPUTE RAISED BY THE REVENUE IS REGARD ING DISALLOWANCE OF ALLOCATED AMOUNT PAID BY THE ASSESSEE FOR PRE-TERMI NATION OF LOAN. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE FOR THE ASSESSMENT YEAR 2002- 03 HAD FILED RETURN ON 30.10.2002 CLAIMING LOSS OF RS.8,26,17,053/-. THE ASSESSMENT UNDER SECTION 143(3) HAD BEEN COMPLETED ON 31.3.2005. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE UNDER SECTION 148 ON 21.2.2007 ON THE GROUND THAT THE ASSESSEE H AD CLAIMED DEDUCTION OF RS.1,17,26,030/- ON ACCOUNT OF PAYMENT TO IDBI BANK FOR PRE-PAYMENT OF LOAN WHICH WAS NOT ALLOWABLE, AS THE SAME WAS OF TH E NATURE OF PENALTY. DURING THE FRESH ASSESSMENT PROCEEDINGS, THE ASSESS EE SUBMITTED THAT IT WAS RUNNING A FIVE STAR HOTEL IN THE NAME AND STYLE OF T HE ORCHID SITUATED AT VILE PARLE. LOAN HAD BEEN TAKEN FOR SETTING UP OF THE HO TEL WHICH HAD BEEN COMPLETED IN 1997. THE INTEREST ON LOAN AFTER COMP LETION OF THE HOTEL WAS ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 36(1 )(III). IN FACT, THE INTEREST IN EARLIER YEARS HAD ALREADY BEEN ALLOWED AS DEDUCTION. THE AO WAS HOWEVER NOT SATISFIED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT ITA NO.5832 & CO-119 A.Y:02-03 3 THE CONSUMER DISPUTES REDRESSAL FORUM IN CASE OF MA NPREET SINGH VS. CITIBANK HAD HELD THAT THE BANK COULD NOT CLAIM MO RE INTEREST IF THE LOAN WAS PAID BEFORE DUE DATE. THEREFORE, THE PAYMENT MADE BY ASSESSEE FOR PRE- PAYMENT OF LOAN WAS PENAL IN NATURE. AO THEREFORE DISALLOWED THE CLAIM AND ADDED RS.1,17,26,030/- TO THE TOTAL INCOME. ASSESS EE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT ASSESSEE HA D TAKEN LOAN ON A VERY HIGH RATE OF 18% WHICH HAD ADVERSE EFFECT ON ITS PR OFITABILITY. THE ASSESSEE THEREFORE NEGOTIATED FOR PRE-PAYMENT OF THE LOAN AN D PRE- PAYMENT CHARGES WERE ALSO REDUCED BY BANK BY 50%. ASSESSEE PRE-PA ID THE ENTIRE AMOUNT ALONGWITH PRE-PAYMENT CHARGES OF RS.1,17,26,030/-. THE DEDUCTION WAS THEREFORE ALLOWABLE . CIT(A) WAS SATISFIED BY THE EXPLANATION GIVEN AND DELETED THE ADDITION AGGRIEVED BY WHICH REVENUE IS IN APPEAL. 2.1 BEFORE US THE LD. AR REITERATED RE-ITERATED THE SUBMISSIONS MADE BEFORE CIT(A) WHEREAS THE LD. DR PLACED RELIANCE ON THE FINDING OF THE ASSESSMENT ORDER. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THERE IS NO DISPUTE THAT THE LOAN HAD BEEN TAKEN BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS OF RUNNING THE HOTEL AND INTERE ST ON SUCH LOANS HAD ALREADY BEEN ALLOWED AS DEDUCTION IN THE EARLIER YE ARS AS THE HOTEL HAD BECOME OPERATIONAL IN THE YEAR 1997. THE DISPUTE I S ONLY REGARDING PRE- PAYMENT CHARGES OF RS.1,17,26,030/- PAID TO THE BA NK FOR PRE-PAYMENT OF THE LOAN. PRE-PAYMENT CHARGES IN OUR VIEW CANNOT B E CONSIDERED AS PENALTY FOR INFRINGEMENT OF LAW. THE LOAN HAD BEEN TAKEN A T A VERY HIGH INTEREST RATE ITA NO.5832 & CO-119 A.Y:02-03 4 OF 18%. ASSESSEE THEREFORE WANTED TO PRE-PAY LOAN FOR MORE PROFITABLE WORKING OF THE HOTEL. THE PRE-PAYMENT OF LOAN UNDE R THE CIRCUMSTANCES HAS TO BE CONSIDERED ON COMMERCIAL EXPEDIENCY AND FOR M ORE PROFITABLE WORKING OF THE HOTEL. IT HAS TO BE ALLOWED AS BUSINESS EXP ENDITURE UNDER THE PROVISIONS OF SECTION 37(1). WE, THEREFORE SEE NO INFIRMITY IN THE ORDER BY CIT(A) IN ALLOWING THE CLAIM AND THE SAME IS, THERE FORE, UPHELD. C.O. NO.119/MUM/2011 (BY THE ASSESSEE ): 3. IN THE CROSS OBJECTION THE ASSESSEE HAS CHALLENG ED THE DECISION OF CIT(A) IN UPHOLDING THE LEGAL VALIDITY OF RE-OPENIN G OF THE ASSESSMENT. HOWEVER AT THE TIME OF HEARING OF THE APPEAL THE C.O . WAS NOT PRESSED. WE, THEREFORE, DISMISS THE CROSS OBJECTION AS NOT PRESS ED. 4. IN THE RESULT APPEAL OF THE REVENUE AS WELL AS C ROSS OBJECTION BY THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.10.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.