HOTEL IMPERIAL PALACE (I), MUMBAI V. ACIT 20(1), MUMBAI

CO 175/MUM/2011

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9437 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 21-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI .. , . . . . BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM ./ I.T.A. NO.6613 /MUM/2010 ( / ASSESSMENT YEAR : 2007-2008 THE ASSTT. COMM.OF INCOME TAX 20(1), R NO. 603, 6 TH FLOOR, PIRAMAL CHAMBERS, MUMBAI 400 012. / VS. M/S HOTEL IMPERIAL PALACE (1), 45, TELLY PARK ROAD, ANDHERI (E), MUMBAI 400 069. . / PAN :AAAFH0803J ( % / APPELLANT ) .. ( &'% / RESPONDENT ) &' /C.O. NO. 175/MUM/20 11 ARISING OUT OF ITA NO. 6613/MUM/20 10 ( / ASSESSMENT YEAR : 2007-08) M/S H OTEL IMPERIAL PALACE (1), 45, TELLY PARK ROAD, ANDHERI (E), MUMBAI 400 069. / VS. THE ASSTT. COMM.OF INCOME TAX 20(1), R NO. 603, 6 TH FLOOR, PIRAMAL CHAMBERS, MUMBAI 400 012. ./ PAN : AAAFH0803J CROSS OBJECTOR .. ( &'% / RESPONDENT ) REVENUE BY SHRI PITAMBER DAS ASSESSEE B Y : SHRI DR. K. SHIVRAM & SHRI RAHUL HAKANI B / DATE OF HEARING : 29-1-2014 B / DATE OF PRONOUNCEMENT : 21-03-2014 [ ITA NO. 6613/M/10 & CO 175/M/11 2 / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - 31, MUMBAI DATED 6-7-2010 AND THE SAME IS BEING DIS POSED OF ALONG WITH C.O. FILED BY THE ASSESSEE BEING C.O. NO. 175/MUM/2 011. 2. GROUND NO. 1 OF THE REVENUES APPEAL AND GROUND NO. 1 OF THE C.O. OF THE ASSESSEE INVOLVE A COMMON ISSUE RELATING TO THE ADDITION OF RS. 36,63,394/- MADE BY THE A.O. ON ACCOUNT OF SUPPRESS ED SALES WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A) TO THE EXTENT OF R S. 6,12,143/-. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN HOTEL BUSINESS. IT IS RUNNING TWO HOTELS, ONE AT 45, TELLY PARK ROAD, ANDHERI (E), MUMBAI AND ANOTHER AT 163, SHER-E-PUNJ AB, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI WITH 25 AND 35 ROOMS RESP ECTIVELY. THE HOTEL UNIT AT 45, TELLY PARK ROAD, ANDHERI (E) IS ALSO HAVING RESTAURANT AND BAR FACILITY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY THE ASSESSEE ON 27-8-2007 DECLARING TOTAL INCOME OF RS. 24,57,276/-. IN THE P&L ACCOUNT FILED ALONG WITH THE SAID RETURN, RECEIPTS FROM RESTAURANT AND BAR WERE SHOWN BY THE ASSESSEE AT RS. 57,54,962/- AND C ORRESPONDING PURCHASES AGAINST THE SAME WERE SHOWN AT RS. 38,21,457/-. ON ANALYSIS OF THE OTHER EXPENSES CLAIMED BY THE ASSESSEE, THE A.O. FOUND TH AT THE EXPENSES EXCLUSIVELY PERTAINING TO RESTAURANT AND BAR WERE T O THE TUNE OF RS. 21,68,507/- WHILE THE OTHER COMMON EXPENSES DEBITED IN THE P&L ACCOUNT WERE TO EXTENT OF RS. 95,26,749/-. ACCORDING TO HIM , EVEN IF 20% OF SUCH COMMON EXPENSES ARE ATTRIBUTED TO THE RESTAURANT AN D BAR ON CONSERVATIVE BASIS, THERE WOULD BE SUBSTANTIAL LOSS AS SHOWN BY THE ASSESSEE FROM ITS RESTAURANT AND BAR. SINCE THE BUSINESS OF RESTAURAN T AND BAR, ACCORDING TO THE A.O., WAS HIGHLY PROFITABLE BUSINESS, THE ASSES SEE WAS CALLED UPON BY HIM ITA NO. 6613/M/10 & CO 175/M/11 3 TO FURNISH THE DETAILS OF DAILY BILLS RAISED ON THE CUSTOMERS FOR FOOD AND LIQUOR AS WELL AS OTHER RELEVANT DETAILS. ON EXAMINATION O F THESE DETAILS, THE A.O. WAS OF THE OPINION THAT THE SALE OF FOOD SHOWN BY T HE ASSESSEE AT RS. 42,97,173/- AS AGAINST PURCHASES OF RAW MATERIAL FO R FOOD AT RS. 31,85,027/- WAS VERY LOW AS THE SELLING RATES OF FOOD ITEMS GEN ERALLY REMAIN ALMOST 4 TO 5 TIMES OF ITS COST. HE, THEREFORE, REQUIRED THE ASSE SSEE TO PRODUCE ALL THE CASH MEMOS/BILLS ON THE BASIS OF WHICH SALE OF FOOD WAS RECORDED IN THE BOOKS OF ACCOUNT. ALTHOUGH, THE ASSESSEE PRODUCED ONLY FEW S AMPLE BILLS/CASH MEMOS, THE DETAILS OF BILL-WISE SALE OF FOOD RECORDED IN T HE SEPARATE REGISTER WERE FURNISHED BY THE ASSESSEE. KEEPING IN VIEW THE SITT ING CAPACITY OF THE ASSESSEES RESTAURANT OF 60 PERSONS AND THE RATES C HARGED BY IT FOR FOOD ITEMS AS REFLECTED IN THE MENU, THE A.O. ARRIVED AT A CON CLUSION THAT ALL THE SALES OF FOOD ITEMS MADE IN CASH WERE NOT CORRECTLY ACCOUNTE D FOR BY THE ASSESSEE. HE ALSO RECORDED THE STATEMENT OF MAIN CHEF OF THE ASS ESSEES RESTAURANT SHRI RAJENDRA BINDRA WHICH, ACCORDING TO THE A.O. REVEAL ED THAT THE COST OF RAW MATERIAL OF ANY ITEMS IN THE RESTAURANT HAVING GOOD STATUS IS HARDLY 25% OF THE SALES VALUE. KEEPING IN VIEW ALL THESE FINDINGS /OBSERVATIONS, THE A.O. HELD THAT THE SALE OF RESTAURANT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN ATLEST 2.5 TIMES OF THE RAW MATERI AL CONSUMED AMOUNTING TO RS. 31,85,027/-. ACCORDINGLY, HE ESTIMATED THE SAL E OF RESTAURANT OF THE ASSESSEE AT RS. 79,62,567/- AS AGAINST 42,97,173/- SHOWN BY THE ASSESSEE AND THE DIFFERENCE OF RS. 36,63,394/- WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SUPPRESSION OF RESTAURAN T SALES OF FOOD ITEMS. 4. THE ADDITION MADE BY THE A.O. ON ACCOUNT OF ALLE GED SUPPRESSION OF RESTAURANT SALES WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A). IT WAS SUBMITTED ON BEHALF OF THE ASSES SEE BEFORE THE LD. CIT(A) THAT THE A.O. WAS WRONG TO START WITH THE PRESUMPTION TH AT RESTAURANT BUSINESS IS HIGHLY PROFITABLE ONE IGNORING THE SUBMISSION OF TH E ASSESSEE MADE SPECIFICALLY IN THE WRITTEN SUBMISSION DATED 13-7-2 009 THAT THE RESTAURANT ITA NO. 6613/M/10 & CO 175/M/11 4 BUSINESS WAS RUNNING INTO LOSS. IT WAS SUBMITTED T HAT THE A.O. ALSO IGNORED THE FACT THAT THE VALUE ADDITION IN FOOD ITEMS DEPE NDS ON NUMBER OF FACTORS. IT WAS EXPLAINED THAT THE RESTAURANT OF THE ASSESSE E WAS BASICALLY SERVING PROPER INDIAN FOOD HAVING LOW MARGIN OF PROFIT AND THERE WERE CERTAIN ITEMS SOLD ON FREE SLIPS TO NUMBER OF PEOPLE. IT WAS POIN TED OUT THAT THE FOOD ITEMS ARE INHERENTLY PERISHABLE IN NATURE WHICH ALSO ADDE D TO THE COST OF FOOD ITEMS. AS REGARDS THE RELIANCE PLACED BY THE A.O. ON THE S TATEMENT OF SHRI RAJENDRA BINDRA, MAIN CHEF OF THE RESTAURANT, IT WAS SUBMITT ED BY THE ASSESSEE THAT THE SAID CHEF HAD JOINED IN THE ASSESSEES RESTAURA NT ONLY IN OCTOBER, 2009 WHEREAS THE YEAR UNDER ASSESSMENT WAS A.Y. 2007-08. IT WAS SUBMITTED THAT THE SAID DEPONENT IN ANY CASE HAD SPECIFICALLY STAT ED THAT THE MATERIAL COST ALONE IN RESTAURANT BUSINESS IS 40% TO 50% WITHOUT TAKING INTO CONSIDERATION THE WASTAGE OF FOOD ITEMS AND FREE SALE OF FOODS. I T WAS ALSO CONTENDED ON BEHALF OF THE ASSESSEE THAT NO MATERIAL OR SPECIFIC DEFECTS WERE POINTED OUT BY THE A.O. IN THE BOOKS OF ACCOUNT AND OTHER RECORDS MAINTAINED FOR THE RESTAURANT BUSINESS AND IN THE ABSENCE OF THE SAME AS WELL AS ANY CLEAR CUT FINDING GIVEN BY THE A.O. REJECTING THE BOOKS OF AC COUNT, THE ADDITION TO THE TRADING RESULTS MADE BY HIM ON ACCOUNT OF ALLEGED S UPPRESSED SALES WAS NOT JUSTIFIED. IT WAS ALSO CONTENDED THAT THE AVERAGE G P PERCENTAGE OF THE RESTAURANT BUSINESS OF THE ASSESSEE FOR THE IMMEDIA TELY PRECEDING THREE YEARS WAS 35.9% AS AGAINST THE GP RATIO OF 31.8% SHOWN BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND THEREFORE THE TRADING ADDITION AT THE MOST COULD BE MADE ONLY TO THE EXTENT OF RS. 2,36,000/- BEING 4.1% OF RS. 57,54,962/-. 5. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND PERUSING THE RELEVANT MATERIAL AVAIL ABLE ON RECORD, THE LD. CIT(A) HELD FOR THE FOLLOWING REASONS THAT THE BOOK S OF ACCOUNT OF THE ASSESSEE WERE NOT RELIABLE TO DEDUCE THE CORRECT PROFITS AND THE SAME THEREFORE WERE LIABLE TO BE REJECTED:- ITA NO. 6613/M/10 & CO 175/M/11 5 I. THE APPELLANT HAS NO DETAILS AND PRIMARY EVIDEN CES FOR ITS DISCLOSURE OF BAR AND RESTAURANT SALES I.E. NO BILL S/VOUCHERS ARE AVAILABLE, II. QUANTITATIVE DETAILS OF RAW MATERIALS PURCHASED AND ITEMS PREPARED THEREOF IN ITS RESTAURANT AND BAR BUSINESS ARE MAINTAINED BY THE APPELLANT, II. THE COSTING OF THE VARIOUS INGREDIENTS REQUIRED FOR THE PREPARATION OF DIFFERENT MENU ITEMS CERTIFIED AND A DMITTED BY THE APPELLANT RANGES FROM 40% TO 50% OF ITS SALE PRICE SHOWN IN THE MENU CARD; WHEREAS, AS PER THE BOOKS OF ACCOUNT THE SAME IS DISCLOSED AT 68.22% OF ITS SALE VALUE, IV. THE AR, IN HIS WRITTEN SUBMISSION FILED HAS ADM ITTED THE G.P. RATIO DISCLOSED FOR THE RELEVANT ASSESSMENT YEAR IS ONLY 31.77% AS AGAINST AVERAGE G.P RATIO OF 33.46% SHOWN IN ITS RE TURNS OF INCOME FILED FOR THE AYRS. 2001-02 TO 2009-10. THEREFORE, THE CO ST PERCENTAGE WORKS OUT TO 68.33% (100-31.77) OF ITS SALE PRICE, WHICH CONSIDERING THE COSTING DONE BY ITS MAIN CHEF AND DULY RELIED ON BY THE APPELLANT, IS COMPLETELY OPPOSITE TO OR IN CONTRADICTION TO THE T RADING RESULTS SHOWN BY THE APPELLANT IN ITS HOOKS OF ACCOUNT ON THIS AC COUNT, V. THE VARIOUS CASH EXPENSES ARE CLAIMED IN ITS P&L ACCOUNT ON AD- HOC BASIS FOR WHICH NEITHER ANY EVIDENCES ARE AVAIL ABLE NOR ANY PARTICULARS OF THE PERSON OR PARTY TO WHOM THESE PA YMENTS ARE MADE, ARE AVAILABLE WITH THE APPELLANT. IT HAS ALSO NO DE TAILS OF THE ITEMS PURCHASED OR SERVICES RECEIVED AGAINST SUCH CASH PA YMENTS, AND VI. FROM THE VERIFICATION OF THE COST PERCENTAGE WO RKED OUT AS PER COST SHEET PREPARED BASED ON THE VARIOUS INGREDIENT S OF A PARTICULAR ITEM OF RECIPE VIS--VIS SALE PRICE FROM THE MENU R ATES OF THE RELEVANT PERIOD AND ITS COMPARISON TO THE COST PERCENTAGE SH OWN BY THE APPELLANT IN ITS BOOKS OF ACCOUNT PROVES THAT THE C OST PERCENTAGE DISCLOSED BY THE APPELLANT IN ITS BOOKS OF ACCOUNT IS HIGHLY INFLATED. OR IN OTHER WORDS THE RESTAURANT AND BAR SALES DISCLOS ED ARE GROSSLY SUPPRESSED. 6. AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSE SSEE, THE LD. CIT(A) PROCEEDED TO CONSIDER THE ISSUE RELATING THE QUANTU M OF ADDITION TO BE MADE ON ACCOUNT OF ALLEGED SUPPRESSED SALE OF RESTAURANT . IN THIS REGARD, HE FOUND FROM THE AVERAGE COST PERCENTAGE OF 23 ITEMS GIVEN BY THE CHEF THAT IT WAS 56.23% AS AGAINST 68.33% SHOWN BY THE ASSESSEE. HE HELD THAT THIS WAS SUFFICIENT TO SHOW THAT THE ENTIRE SALES OF BAR AND RESTAURANT WERE NOT ITA NO. 6613/M/10 & CO 175/M/11 6 RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. HE HELD THAT THE ESTIMATION OF FOOD SALES MADE BY THE A.O. AT 2.5 TIMES OF ITS COST, HOWEVER, WAS NOT JUSTIFIED IN THE FACTS OF THE CASE AND THE SAME WAS ON THE HIGHER SIDE. HE FOUND THAT THE AVERAGE G.P. RATIO SHOWN BY THE ASSE SSEE FOR FIVE IMMEDIATELY PRECEDING YEARS I.E. ASSESSMENT YEARS 2002-03 TO 20 06-07 WAS 39.56% AS AGAINST THE GP RATIO OF 31.77% SHOWN IN THE YEAR UN DER CONSIDERATION. ACCORDINGLY, APPLYING THE AVERAGE G.P. RATIO OF 39. 56%, HE ESTIMATED THE RESTAURANT SALES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT RS. 64,05,120/- AS AGAINST RS. 57,24,962/- DISCLOSED BY THE ASSESSEE AND AFTER REDUCING 10% OF DIFFERENCE AMOUNT OF RS. 6,80,158/- , THE SUPPRESSED SALES FROM THE RESTAURANT WAS WORKED OUT BY THE LD. CIT(A ) AT RS. 6,12,143/-. THE ADDITION OF RS. 36,63,394/- MADE BY THE A.O. ON THI S ISSUE WAS ACCORDINGLY RESTRICTED BY HIM TO RS. 6,12,143/-. 7. THE LD. D.R. SUBMITTED THAT THE FINDINGS OF THE A.O. REGARDING THE SUPPRESSION OF RESTAURANT SALES BY THE ASSESSEE WAS ACCEPTED BY THE LD. CIT(A) AND EVEN THE BOOKS OF ACCOUNT OF THE ASSESSE E WERE FOUND TO BE NOT RELIABLE BY HIM. HE CONTENDED THAT THE LD. CIT(A), HOWEVER, STILL ESTIMATED THE ADDITION TO BE MADE ON ACCOUNT OF SUCH SUPPRESSED S ALE ON THE BASIS OF BOOKS OF ACCOUNT WHICH WERE FOUND TO BE UNRELIABLE BY HIM. HE CONTENDED THAT THE BASIS ADOPTED BY THE A.O. TO WORK OUT THE AMOUNT OF SUPPRESSED SALE, ON THE OTHER HAND, WAS MORE SOUND AND REASONA BLE AND THE SAME SHOULD BE UPHELD IN THE FACTS OF THE CASE. 8. THE LD. COUNSEL FOR THE ASSESSE, ON THE OTHER HA ND, SUBMITTED THAT THE ADDITION ON ACCOUNT OF SUPPRESSED SALES WAS MADE BY THE A.O. WITHOUT SPECIFICALLY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ALTHOUGH THE LD. CIT(A) HAS HELD THAT THE SAID BOOKS OF ACCOUNT ARE NOT RELIABLE, REASONS GIVEN BY HIM ARE NOT SUFFICIENT TO REJECT THE BOOKS OF AC COUNT. HE CONTENDED THAT EVEN IF REJECTION OF THE BOOKS OF ACCOUNT IS UPHELD , THE ESTIMATE MADE BY THE ITA NO. 6613/M/10 & CO 175/M/11 7 LD. CIT(A) FOR THE PURPOSE OF DETERMINING THE SUPPR ESSED SALES OF RESTAURANT ON THE BASIS OF PAST HISTORY IS MORE REASONABLE AND THE SAME MAY BE UPHELD. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE HELD TO BE UNRELIABLE BY THE LD. CIT(A ) TO DEDUCE THE CORRECT PROFITS ON THE BASIS OF SPECIFIC DEFECTS ENUMERATED BY HIM IN HIS IMPUGNED ORDER AND GOING BY THE SAID DEFECTS, WHICH HAVE BEE N REPRODUCED IN THE FOREGOING PORTION OF THIS ORDER, WE FIND THAT THE S AME ARE MATERIAL ENOUGH TO JUSTIFY THE REJECTION OF BOOKS OF ACCOUNT OF THE AS SESSEE. AS REGARDS DETERMINATION OF QUANTUM OF SUPPRESSED SALES, IT IS OBSERVED THAT THE COST OF FOOD ITEMS CLAIMED BY THE ASSESSEE AT 68.33% WAS FO UND TO BE HIGHER BY THE AUTHORITIES BELOW CLEARLY INDICATING SUPPRESSION OF RESTAURANT SALES BY THE ASSESSEE AND THE ASSESSEE COULD NOT REBUT/CONTROVER T THIS FINDING BY PRODUCING THE BILLS/VOUCHERS FOR RESTAURANT SALE. AS RIGHTLY HELD BY THE LD. CIT(A), THE ESTIMATION OF SALE MADE BY THE A.O. AT 2.5 TIMES OF THE COST OF MATERIAL CONSUMED, HOWEVER, WAS WITHOUT ANY BASIS A ND THE SAME WAS CERTAINLY ON THE HIGHER SIDE KEEPING IN VIEW OF THE FACTS OF THE CASE INCLUDING ESPECIALLY THE FACT THAT THE COST OF RAW MATERIAL OF FOOD ITEMS ON THE BASIS OF DETAILS GIVEN BY THE CHEF WORKED OUT TO BE 56.24%. IN OUR OPINION, THE QUANTUM OF SUPPRESSED SALE OF RESTAURANT DETERMINED BY THE LD. CIT(A) BY APPLYING THE AVERAGE G.P. RATIO OF THE LAST FIVE YE ARS, ON THE OTHER HAND, WAS QUITE FAIR AND REASONABLE IN THE FACTS AND CIRCUMST ANCES OF THE CASE AND WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WIT H THE SAME. ACCORDINGLY, THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS U PHELD DISMISSING GROUND NO. 1 OF THE REVENUES APPEAL AS WELL AS GROUND NO. 1 OF THE ASSESSEES C.O. 10. GROUND NO. 2 OF THE REVENUES APPEAL AND GROUND NO. 2 OF THE ASSESSEES C.O. INVOLVE A COMMON ISSUE RELATING TO THE DISALLOWANCE OF RS. 2,27,065/- MADE BY THE A.O. AND DELETED BY THE LD. CIT(A) ON ACCOUNT OF LEGAL ITA NO. 6613/M/10 & CO 175/M/11 8 AND PROFESSIONAL CHARGES AND DISALLOWANCE OF RS. 1, 95,000/- MADE BY THE A.O. ON ACCOUNT OF COMMISSION PAID WHICH IS SUSTAIN ED BY THE LD. CIT(A) TO THE EXTENT OF RS. 1,55,902/-. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE U NDER THE HEAD LEGAL AND PROFESSIONAL CHARGES WAS INCLUSIVE OF A SUM OF RS. 2,27,065/- PAID TO MR. M.A. KULKARNI. MR. M.A. KULKARNI WAS NOT ON PAY RO LL OF THE ASSESSEE AND THE PAYMENT WAS CLAIMED TO BE MADE BY THE ASSESSEE FOR HIS ADVICE IN INCREASING THE SALES. ACCORDING TO THE A.O, THE ASSESSEE HOWE VER, FAILED TO FURNISH ANY SATISFACTORY EXPLANATION FOR THE PAYMENT MADE TO MR . M.A. KULKARNI AND HE THEREFORE DISALLOWED THE PROFESSIONAL AND LEGAL CHA RGES AMOUNTING TO RS. 2,27,065/- PAID TO MR. M.A. KULKARNI. ON APPEAL, TH E LD. CIT(A) DELETED THIS ADDITION MADE BY THE A.O. AFTER HAVING FOUND THAT T HE PAYMENT WAS MADE BY THE ASSESSEE TO MR. M.A. KULKARNI, RESTAURANT MANAG ER ON ACCOUNT OF MONTHLY MANAGERIAL REMUNERATION TO LOOK AFTER THE D AY-TO-DAY AFFAIRS OF THE RESTAURANT. HE ALSO FOUND THAT NO SEPARATE EXPENDIT URE UNDER THE HEAD SALARY WAS CLAIMED BY THE ASSESSEE AND PAYMENT WA S MADE TO MR. M.A. KULKARNI BY CHEQUE AFTER DEDUCTING THE TAX AT SOURC E. 12. AS REGARDS THE EXPENDITURE CLAIMED BY THE ASSES SEE ON ACCOUNT OF COMMISSION, THE A.O. FOUND THAT THE COMMISSION OF R S. 1,95,000/- WAS PAID BY THE ASSESSEE TO ONE MR. KUNAL SHUKLA IN CASH EXC EPT ON ONE OCCASION WHEN AN AMOUNT OF RS. 13,860/- WAS MADE BY CHEQUE. SINCE THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION AS REG ARDS THE SERVICES RENDERED BY MR. KUNAL SHUKLA TO JUSTIFY THE PAYMENT OF COMMI SSION, THE A.O. DISALLOWED THE COMMISSION OF RS. 1,95,000/- PAID TO MR. KUNAL SHUKLA. BEFORE THE LD. CIT(A), IT WAS SUBMITTED ON BEHALF O F THE ASSESSEE THAT THE COMMISSION OF RS. 13,860/- WAS PAID TO MR. KUNAL SH UKLA BY CHEQUE FOR GROUP BOOKING OF ROOMS AFTER DEDUCTING TAX AT SOUR CE WHILE THE BALANCE ITA NO. 6613/M/10 & CO 175/M/11 9 PAYMENT WAS MADE ON ACCOUNT OF COMMISSION TO VARIOU S RIKSHAWALLAS AND TAXIWALLAS IN CASH TO BRING THE CUSTOMERS TO THE HO TELS OF THE ASSESSEE FROM NEARBY RAILWAY STATIONS AND AIR PORT. ACCORDING TO THE LD. CIT(A), THE PRACTICE OF PAYING SUCH COMMISSION TO RICKSHAWALLAS AND TAXI WALLAS IS PREVALENT IN THE HOTEL BUSINESS. HE, HOWEVER, FOUND FROM THE RELEVAN T DETAILS THAT THE MAJOR AMOUNT OF COMMISSION WAS PAID BY THE ASSESSEE IN TH E MONTHS OF DECEMBER, 2006 TO MARCH, 2007 AND DURING THIS PERIOD, THERE W AS ACTUALLY DECREASE IN THE RECEIPTS OF ROOM RENT. HE ALSO FOUND THAT NO D ETAILS WERE MAINTAINED BY THE ASSESSEE IN RESPECT OF BOOKINGS OF ROOMS THROUG H RICKSWALLAS AND TAXIWALLAS. TAKING INTO CONSIDERATION ALL THESE AS PECTS OF THE MATTER, THE LD. CIT(A) HELD THAT OCCUPANCY OF THE HOTEL ROOMS TO TH E EXTENT OF 20% SHOULD BE TREATED AS DONE THROUGH RICKSHAWALLAS AND TAXIWALLA S AND ACCORDINGLY THE ROOM RENT GENERATED THROUGH THIS SOURCE WAS ESTIMAT ED BY HIM AT RS. 3,90,987/- I.E. 20% OF THE ROOM RENT RECEIPTS OF LA ST THREE MONTHS AND COMMISSION @10% OF THE SAID AMOUNT I.E. RS. 39,098/ - WAS ALLOWED BY HIM AS COMMISSION PAID BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS THE PROFESSIONAL CHARGES OF RS. 2,27,065/- PAID TO MR. M.A. KULKARNI, IT IS OBS ERVED THAT THE SAID PAYMENT WAS FOUND BY THE LD. CIT(A) TO HAVE BEEN MA DE TO THE RESTAURANT MANAGER ON ACCOUNT OF MONTHLY MANAGERIAL REMUNERATI ON TO LOOK AFTER THE DAY-TO-DAY AFFAIRS OF THE RESTAURANT. AS FURTHER FO UND BY THE LD. CIT(A), NO SEPERATE EXPENDITURE WAS CLAIMED BY THE ASSESSEE UN DER THE HEAD SALARY AND THE PAYMENT WAS MADE TO MR. M.A. KULKARNI BY CH EQUE AFTER DEDUCTING THE TAX AT SOURCE. AT THE TIME OF HEARING BEFORE U S, THE LD. D.R. HAS NOT BEEN ABLE TO REBUT/CONTROVERT THIS FINDING OF FACT RECOR DED BY THE LD. CIT(A). WE, THEREFORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. O N ACCOUNT OF PROFESSIONAL CHARGES PAID BY THE ASSESSEE TO ITS RESTAURANT MANA GER MR. M.A. KULKARNI. ITA NO. 6613/M/10 & CO 175/M/11 10 14. AS REGARDS THE DISALLOWANCE MADE ON ACCOUNT OF COMMISSION PAID, WE FIND THAT THE LD. CIT(A) HAS PASSED A WELL CONSIDER ED AND WELL DISCUSSED ORDER ON THIS ISSUE AFTER TAKING INTO CONSIDERATION ALL T HE RELEVANT FACTS OF THE CASE BEFORE FINALLY ALLOWING THE CLAIM OF THE ASSESSEE O N ACCOUNT OF COMMISSION PAID TO THE EXTENT OF RS. 39,098/-. IN OUR OPINION, THE QUANTIFICATION OF COMMISSION ALLOWABLE TO THE ASSESSEE AS MADE BY THE LD. CIT(A) IS QUITE FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF TH E CASE AND THE SAME DESERVES TO BE UPHELD. ACCORDINGLY, WE DISMISS GRO UND NO. 2 OF THE REVENUES APPEAL AS WELL AS GROUND NO. 2 OF THE ASSESSEES C. O. 15. GROUND NO. 3 OF THE REVENUES APPEAL AND GROUND NO. 3 OF THE ASSESSEES C.O. INVOLVE A COMMON ISSUE RELATING TO THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF VARIOUS EXPENSES AND SUSTAIN ED BY THE LD. CIT(A) TO THE FOLLOWING EXTENT:- HEAD OF EXPENDITURE DISALLOWANCE MADE BY THE A.O. (RS.) DISALLOWANCE SUSTAINED BY THE LD. CIT(A) (RS.) REPAIRS AND MAINTENANCE 3,24,700/- 2,59,760/- UNIFORM CHARGES 1,95,400/- 1,56,320/- KITCHEN EXPENSES 2,67,000/- 2,13,600/- CROCKERY EXPENSES 2,38,500/- 1,90,800/- 16. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. FOUND THAT THE EXPENDITURE ON REPAIRS AND MAINTENANCE WAS INCURRED BY THE ASSESSEE TO THE EXTENT OF RS. 3,24,700/- IN CASH. THE ASSESSEE COU LD NOT FURNISH THE RELEVANT DETAILS TO SHOW THE NATURE OF WORK UNDERTAKEN AS WE LL AS THE NAMES OF THE PERSONS TO WHOM THE PAYMENTS WERE MADE. HE THEREFO RE DISALLOWED THE ENTIRE REPAIRS AND MAINTENANCE EXPENDITURE OF RS. 3,24,700 /- CLAIMED TO BE INCURRED BY THE ASSESSEE IN CASH. SIMILARLY, THE A. O. FOUND THAT UNIFORM EXPENSES OF RS. 1,95,400/-, KITCHEN EXPENSES OF RS. 2,67,000/- AND CROCKERY EXPENSES OF RS. 2,38,500/- WERE INCURRED BY THE ASS ESSEE IN CASH FOR WHICH ITA NO. 6613/M/10 & CO 175/M/11 11 THE RELEVANT DETAILS TO JUSTIFY ITS CLAIM COULD NOT BE PRODUCED BY THE ASSESSEE. HE THEREFORE DISALLOWED THESE EXPENSES CLAIMED BY T HE ASSESSEE. 17. ON APPEAL, THE LD. CIT(A), FOUND THAT THE ENTIR E EXPENDITURE CLAIMED TO BE INCURRED BY THE ASSESSEE IN CASH INVOLVED PAYMEN TS IN THE RANGE OF RS. 19,000/- TO RS. 19,900/-. HE ALSO FOUND THAT OTHER EXPENSES INCURRED BY THE ASSESSEE UNDER THESE HEADS WERE PAID BY CHEQUES EVE N THOUGH THE AMOUNTS INVOLVED WERE SMALL. HE FURTHER FOUND THAT IN RESPE CT OF SUCH OTHER EXPENDITURE, SUPPORTING VOUCHERS AND DETAILS WERE M AINTAINED BY THE ASSESSEE WHEREAS NO SUCH DETAILS OR VOUCHERS WERE M AINTAINED IN RESPECT OF PAYMENTS MADE IN CASH. HAVING REGARD TO ALL THESE FACTS OF THE CASE, THE LD. CIT(A) FOUND HIMSELF IN AGREEMENT WITH THE A.O. THA T THE EXPENDITURE UNDER THESE HEADS WAS INFLATED BY THE ASSESSEE. HOWEVER, KEEPING IN VIEW THE NATURE OF THE BUSINESS OF THE ASSESSEE AS WELL AS A LL THE FACTS OF THE CASE, HE HELD THAT IT WOULD MEET THE END OF JUSTICE IF 20% O F THE CASH EXPENSES CLAIMED BY THE ASSESSEE ARE CONSIDERED AS GENUINE. ACCORDI NGLY THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF VARIOUS CASH EXPENSE S WAS SUSTAINED BY HIM TO THE EXTENT OF 80%. 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT THE ALLEGATION OF THE A.O. AS REGARDS THE EXPENSES HAVING BEEN INFLATED B Y THE ASSESSEE WAS UPHELD BY THE LD. CIT(A) AFTER HAVING FOUND THAT THE PAYM ENTS IN CASH AGAINST CORRESPONDING EXPENSES WERE MADE IN THE RANGE OF RS . 19,000/- TO 19,900/- AND NO DETAILS AND DOCUMENTS WERE MAINTAINED BY THE ASSESSEE IN SUPPORT OF THESE CASH EXPENDITURE WHEREAS THE OTHER EXPENSES C LAIMED UNDER THE RESPECTIVE HEADS WERE PAID BY CHEQUES EVEN THOUGH T HE AMOUNTS INVOLVED WERE SMALL AND THE SUPPORTING BILLS/VOUCHERS FOR TH E SAME WERE DULY MAINTAINED BY THE ASSESSEE. KEEPING IN VIEW THIS FI NDING RECORDED BY THE LD. CIT(A) WHICH HAS REMAINED UN-CONTROVERTED BEFORE US , WE ARE OF THE VIEW THAT ITA NO. 6613/M/10 & CO 175/M/11 12 THE LD. CIT(A) WAS FAIR AND REASONABLE IN SUSTAININ G THE DISALLOWANCE OF CASH EXPENSES MADE BY THE A.O. TO THE EXTENT OF 80% THER EBY ALLOWING THE RELIEF OF 20% TO THE ASSESSEE KEEPING IN VIEW THE NATURE OF B USINESS AS WELL AS THE NATURE OF EXPENSES. WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) AND UPHOLDING THE SAME ON THIS ISSUE , WE DISMISS GROUND NO. 3 OF THE REVENUES APPEAL AS WELL AS GROUND NO. 3 OF THE ASSESSEES C.O. 19. THE ISSUE RAISED IN GROUND NO. 4 OF THE REVENUE S APPEAL RELATES TO THE DISALLOWANCE OF RS. 45,000/- MADE BY THE A.O. ON AC COUNT OF SOUND SYSTEM HIRE CHARGES WHICH HAS BEEN DELETED BY THE LD. CIT( A). 20. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS NOTICED BY THE A.O. THAT THE EXPENDITURE OF RS. 1,15,000/- CLAIMED BY T HE ASSESSEE ON ACCOUNT OF SOUND SYSTEM HIRE CHARGES WAS INCLUSIVE OF A SUM O F RS. 45,000/- PAID IN CASH TO BHUPENDRA SAKPAL. ACCORDING TO THE A.O., T HIS EXPENDITURE INCURRED IN CASH WAS NOT PROPERLY SUBSTANTIATED BY THE ASSES SEE AND THEREFORE A DISALLOWANCE OF RS. 45,000/- WAS MADE BY HIM. ON A PPEAL, THE LD. CIT(A) DELETED THE SAID DISALLOWANCE MADE BY THE A.O. AFTE R HAVING FOUND THAT THE PAYMENT OF RS. 45,000/- IN QUESTION WAS MADE BY THE ASSESSEE TO D.J. BHUPENDRA SAKPAL TOWARDS HIRE CHARGES OF SOUND SYST EM AND OTHER STUFF BROUGHT BY HIM ON PARTICULAR DAYS IN THE HOTEL FIXE D FOR THIS PURPOSE. THE LD. CIT(A) ALSO FOUND THAT THE PAYMENTS MADE WERE SUPPO RTED BY RELEVANT VOUCHERS/BILLS ISSUED BY D.J. SHRI BUPENDRA SAKPAL . 21. AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING THE RELEVANT MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE DISA LLOWANCE OF RS. 45,000/- MADE BY THE A.O. ON ACCOUNT OF SOUND SYSTEM HIRE CH ARGES MERELY BECAUSE THE SAID EXPENDITURE WAS INCURRED IN CASH WAS NOT S USTAINABLE AND THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE SAME AFT ER HAVING FOUND THAT THE SAID PAYMENT WAS MADE TO DJ SHRI BHUPENDRA SAKPAL FOR T HE PURPOSE OF ITA NO. 6613/M/10 & CO 175/M/11 13 ASSESSEES BUSINESS AND IT WAS DULY SUPPORTED BY BI LLS ISSUED BY D.J. SHRI BHUPENDRA SAKPAL. WE THEREFORE FIND NO INFIRMITY I N THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THI S ISSUE AND UPHOLDING THE SAME, WE DISMISS GROUND NO. 4 OF THE REVENUES APPE AL. 22. IN GROUND NO. 7 OF ITS C.O., THE ASSESSEE HAS D ISPUTED THE DISALLOWANCE OF RS. 4,47,000/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF WATER EXPENSES. 23. OUT OF THE TOTAL EXPENDITURE OF RS. 6,64,000/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF WATER EXPENSES, A SUM OF RS. 4,47,000 /- WAS INCURRED IN CASH DURING THE PERIOD 16-11-2006 TO 30-3-2007. THE EXP LANATION OFFERED BY THE ASSESSEE IN SUPPORT OF THIS CASH EXPENDITURE BEFORE THE A.O. WAS THAT THERE WAS SHORTAGE OF WATER IN THE MONTH OF JANUARY TO MA RCH, 2007 AND THEREFORE WATER WAS PROCURED FROM OUTSIDE BY MAKING PAYMENTS IN CASH TO THE WATER TANKER OWNERS. THE A.O., HOWEVER, FOUND THAT THE O CCUPANCY IN THE HOTEL OF THE ASSESSEE DURING THIS PERIOD WAS JUST HALF THAN THE AVERAGE OCCUPANCY OF THE REMAINING MONTHS. HE ALSO FOUND THAT THE CLAIM OF THE ASSESSEE OF HAVING MADE THE CASH PAYMENT TO WATER TANKER OWNERS WAS NO T SUPPORTED BY PROPER BILLS. HE THEREFORE DISALLOWED THE WATER EXPENSES OF RS. 4,47,000/- INCURRED BY THE ASSESSEE IN CASH. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE AFTER HAVING FOUND T HAT THE WATER EXPENSES INCURRED BY THE ASSESSEE WERE NOT SUPPORTED BY RELE VANT DETAILS AND DOCUMENTS WHILE THE OTHER WATER CHARGES CLAIMED BY IT WERE PAID BY CHEQUE AND DULY SUPPORTED BY RELEVANT DETAILS AND DOCUMENT S. HE ALSO FOUND THAT THE CLAIM OF THE ASSESSEE FOR EXTRA WATER CHARGES C LAIMED IN THE MONTH OF JANUARY TO MARCH, 2007 WAS DISPROPORTIONATE TO THE RECEIPTS FROM ROOM RENT DURING THAT PERIOD. ITA NO. 6613/M/10 & CO 175/M/11 14 24. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS FOUND BY THE A.O. AS WELL AS THE LD. CIT(A), THE WATER EXPENSES OF RS. 4,47,000/- CLAIME D TO BE INCURRED BY THE ASSESSEE IN CASH INVOLVED THE PAYMENTS IN THE RANGE OF RS. 19,000/- TO 19,900/- AND THE SAME WERE NOT DULY SUPPORTED BY TH E RELEVANT BILLS OR DETAILS. ON THE OTHER HAND, OTHER WATER EXPENSES I NCURRED BY THE ASSESSEE INVOLVING EVEN SMALL AMOUNTS WERE PAID BY CHEQUES A ND THE SAME WERE DULY SUPPORTED BY RELEVANT DETAILS AND BILLS/DOCUMENTS. WHATEVER EXPLANATION WAS OFFERED BY THE ASSESSEE IN RESPECT OF THESE EXT RA WATER EXPENSES CLAIMED DURING THE PERIOD FROM JANUARY TO MARCH, 2007 AS WA TER PROCURED THROUGH WATER TANKERS DUE TO SHORTAGE WAS ALSO NOT FOUND TO BE ACCEPTABLE BY THE A.O. AS WELL AS BY THE LD. CIT(A) SPECIFICALLY BECAUSE T HE OCCUPANCY OF HOTEL ROOMS DURING THIS PERIOD WAS ALMOST 50% THAN THE NORMAL O CCUPANCY. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR TH E ASSESSEE HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO REBUT THE BASIS /FINDINGS GIVEN BY THE AUTHORITIES BELOW TO JUSTIFY THE DISALLOWANCE MADE ON ACCOUNT OF WATER EXPENSES INCURRED IN CASH. WE, THEREFORE, FIND NO MERIT IN GROUND NO. 7 RAISED BY THE ASSESSEE IN ITS C.O. AND DISMISS THE SAME. 25. THE ISSUE INVOLVED IN GROUND NO. 8 OF THE ASSES SEES C.O. RELATES TO THE DISALLOWANCE OF RS. 85,000/- MADE BY THE A.O. AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF CAR EXPENSES. 26. OUT OF THE TOTAL CAR EXPENSES OF RS. 1,08,469/- , A SUM OF RS. 85,000/- WAS INCURRED IN CASH IN THE MONTH OF MARCH, 2007. S INCE THE RELEVANT DOCUMENTARY EVIDENCE TO JUSTIFY THIS EXPENDITURE CO ULD NOT BE FILED BY THE ASSESSEE ALONG WITH THE NECESSARY DETAILS, THE CAR EXPENDITURE INCURRED IN CASH OF RS. 85,000/- WAS DISALLOWED BY THE A.O. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE AFTER HAVING FOUND THAT CAR EXPENSES INCURRED BY THE ASSESSEE IN CASH INVOLVED PAYMENT IN THE ITA NO. 6613/M/10 & CO 175/M/11 15 RANGE OF RS. 19,000/- TO RS. 19,900/- AND THE SAME WERE NOT SUPPORTED BY RELEVANT BILLS/VOUCHERS WHEREAS THE OTHER CAR EXPEN SES INCURRED BY THE ASSESSEE INVOLVING EVEN SMALLER AMOUNTS WERE PAID B Y CHEQUES AND WERE DULY SUPPORTED BY RELEVANT BILLS/VOUCHERS. 27. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT T HE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF CAR EXPENSES CLAIMED TO BE INCUR RED BY THE ASSESSEE IN CASH WAS CONFIRMED BY THE LD. CIT(A) AFTER HAVING F OUND THAT THE SAME WAS NOT DULY SUPPORTED BY SUPPORTING BILLS OR THE REQUI RED DETAILS. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO REBUT OR CONTROVERT THIS FIND ING GIVEN BY THE LD. CIT(A). WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDE R OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACC OUNT OF CAR EXPENSES INCURRED IN CASH AND UPHOLDING THE SAME, WE DISMISS GROUND NO. 8 OF THE ASSESSEES C.O. 28. IN THE RESULT, THE APPEAL OF THE REVENUE AND C. O. OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2014. . B H I 21-03-2014 B SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; I DATED 21-03-2014 [ ITA NO. 6613/M/10 & CO 175/M/11 16 .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. L () / THE CIT(A)31, MUMBAI. 4. L / CIT 20 MUMBAI 5. O &Q , Q , / DR, ITAT, MUMBAI H BENCH 6. S / GUARD FILE. / BY ORDER, 'O & //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI