Tourist India Convention & Hotel Private Limited, Hyderabad V. Dy. Commissioner of Income Tax, Central Circle-2, Hyderabad

ITA 1329/Hyd/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7943 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 06-06-2019
• Assessment Year: 2008-2009
• Appeal Filed On: 31-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: AJAY GANDHI
• Keywords: Unexplained investment; Search and seizure
• Section: 133A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH SMC - B ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 1 3 29 / HYD/201 7 ASSESSMENT YEAR: 20 08 - 09 TOURIST INDIA CONVENTION & HOTEL PVT. LTD., HYDERABAD. PAN AA CCT6140P VS. DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 2, HYDERABAD. A PPELLANT RESPONDENT ASSESSEE BY: S H RI AJAY GANDHI REVENUE BY: S HRI NILANJAN DEY DATE OF HEARING: 0 6 / 0 6 / 201 9 DATE OF PRONOUNCEMENT: 26 / 0 6 /201 9 O R D E R T H IS IS AN APPEAL OF THE ASSESSEE FOR THE AY 20 08 - 09 AGAINST THE ORDER OF CIT(A) 1 , GUNTUR, DATED, 11/05/2017 (WITH CAMP OFFICE AT HYDERABAD) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY , ENGAGED IN THE BUSINESS OF RUNNING AND MAINTAINING HOTELS. THERE WAS A SEARCH AND SEIZURE OPERATION U/S 132 OF THE IT ACT IN THE CASE OF SRI PRATAP JADEJA, PROP. M/S NIMANTRAN CATERERS. DURING THE COURSE OF SEARCH, ASSESSEES PREMISES WAS ALSO COVERED U/S 133A OF THE ACT AND CERTAIN DOCUMENTARY EVIDENCE PERTAINING TO UNEXPLAINED INVESTMENT WAS FOUND AND IMPOUNDED. ASSESSEE OFFERED ADDITIONAL INCOME OF RS. 30,00,000/ - DURING THE COURSE OF SEARCH AND SURVEY AND ACCORDINGLY FILED RETURN OF INCOME. I.T.A. NO. 1329 /HYD/1 7 TOURIST INDIA CONVENTION AND HOTEL (P) LTD 2 2.1 DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO PRODUCE BOOKS OF ACCOUNT AND SUPPORTING DOCUMENTS FOR VARIOUS EXPEN S ES CLAIMED IN THE RETURN OF INCOME. AO OBSERVED THAT THE ASSESSEE HAS DISCLOSED AN AMOUNT OF RS. 1,74,36,703/ - AS SALES FOR THE AY 2008 - 0 9 AS AGAINST THE SALES OF RS. 40,24,851/ - FOR AY 2007 - 08. HE ALSO OBSERVED THAT ASSESSEE HAS DISCLOSED ONLY LOSS IN BOTH THE AYS AND THE ADMINISTRATIVE EXPENDITURE WAS NEARLY 69% WITH REFERENCE TO GROSS SALES FOR THE AY 2007 - 08 AS AGAINST 75% FOR THE AY 2008 - 09. HE ALSO OBSERVED THAT GROSS TURNOVER FOR AY 2007 - 08 WAS 15.53% AS AGAINST 22.35% FOR THE AY 2008 - 09. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE HAS SUBSTANTIALLY INFLATED VARIOUS EXPENS ES , PARTICULARLY, SALARIES PAID, HOUSE KEEPING CHARGES , STAFF FOOD ALLOWANCE, REPAIRS AND MAINTENANCE ETC. HE ALSO OBSERVED THAT APART FROM THE REGULAR BUSINESS LOSS, ASSESSEE H AS ADMITTED ADDITIONAL INCOME OF RS. 30,00,000/ - ON ACCOUNT OF SEARCH AND SURVEY. ACCORDING TO THE AO, THE ABOVE FACTS REVEAL THAT T HE ASSESSEE COMPANY COULD HAVE EARNED MORE THAN WHAT THEY HAVE DISCLOSED AND, HENCE, BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE AND THEREFORE, HE REJECTED THE SAME. HE, THEREFORE, ESTIMATED NET INCOME OF THE ASSESSEE AT 10% OF THE GROSS TURNOVER , NET OF DEPRECATION AND AFTER TAKING INTO CONSIDERATION THE ADMITTED INCOME OF RS. 30 LAKHS, HE ASSESSED THE TOTAL INCOME AT RS. 47,43,670/ - AND BROUGHT THE SAME TO TAX. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO GRANTED P ARTIAL RELIEF BY RESTRICTING THE DISALLOWANCE OF EXPENDITURE TO 1/3 RD OF THE EXPENDITURE CLAIMED UNDER THE HEADS PURCHASES, SALARIES AND ADMINISTRATIVE EXPENSES. HE HAS ALSO ALLOWED TELESCOPING OF RS. 30 LAKHS OFFERED BY THE ASSESSEE AGAINST THE DISALL OWANCE I.T.A. NO. 1329 /HYD/1 7 TOURIST INDIA CONVENTION AND HOTEL (P) LTD 3 OF EXPENDITURE MADE BY HIM. AGAINST THIS ORDER OF CIT(A), THE ASSESSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER (APPEALS) OF INCOME TAX IS IN VIOLATION OF THE PROVISIONS OF LAW AND HENCE IS BAD IN LAW. 2. THE COMMISSIONER (APPEALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DISALLOW 1/3RD OF PURCHASES, SALARIES AND OTHER ADMINISTRATIVE EXPENSES CLAIMED. 3. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CIT(A) HAS CONSIDERED ONLY THE FOLLOWING THREE ITEMS ON WHICH THE ASSESSEE COULD HAVE INFLATED THE EXPENDITURE: 1. COST OF SALES (NET PURCHASES) RS. 36,71,026 2. SALARIES RS. 26,60,061 3. OTHER ADMINISTRAT IVE EXPENSES RS. 37,40,354 TOTAL RS.1,00,71,441 =========== HE SUBMITTED THAT PURCHASES WERE MAINLY REGULAR SUPPLIES TO THE HOTELS SUCH AS VEGETABLES AND OTHER ITEMS, WHICH ARE NECESSARY FOR MAKING FOOD IN THE RESTAURANT AND THEY ARE PUR CHASED ON DAILY BASIS AND, THEREFORE, ASSESSEE CANNOT MAINTAIN VOUCHERS AND BILLS FOR THE SAME. HE ALSO SUBMITTED THAT SINCE MOST OF THE PURCHASES ARE FROM VEGETABLE MARKETS FROM SMALL VENDORS AND MOST OF THE PAYMENTS WERE BELOW RS. 20,000/ - , AT A TIME, T HE COMPANY HAD NOT ISSUED CROSSED ACCOUNT - PAYEE CHEQUES. HE SUBMITTED THAT AO DID NOT EXAMINE THE SUPPLIERS AND THEREFORE, THE FINDING OF THE AO THAT THE EXPENSES ARE NOT R ELIABLE, IS NOT SUSTAINABLE. 4.1 AS REGARDS SALARIES ARE CONCERNED, HE SUBMITTED THAT THE ASSESSEE COMPANY IS REGISTERED WITH ESI AUTHORITIES AND I.T.A. NO. 1329 /HYD/1 7 TOURIST INDIA CONVENTION AND HOTEL (P) LTD 4 ITS EMPLOYEE S ARE ENROLLED FOR THE ESI BENEFITS AND UNLESS AN EMPLOYEE EXISTED , IT IS NOT POSSIBLE FOR THE COMPANY TO ENROL THE EMPLOYEE AND THE DETAILS OF PAYMENTS TO ESI INCLUDING SALARY PARTICULARS ARE AVAILABLE AND ASSESSEE HAS ENCLOSED COPY OF THE ESI RETURN FILED FOR THE QUARTER ENDING 31/03/2008. IT WAS ALSO SUBMITTED THAT HOTEL OPERATES 24 HOURS BEING IN THE HOSPITALITY BUSINESS AND, THEREFORE, TO MEET THE SERVICE REQUEST OF THE GUES TS, THE COMPANY ENSURES THAT THE EMPLOYEES ARE AVAILABLE ROUND THE CLOCK ATTENDING TO THE GUESTS AND IN SUCH CIRCUMSTANCES, THE COMPANY HAS TO PROVIDE FOOD AND ALLOWANCES TO THE STAFF. HE SUBMITTED THAT I T IS A COMMON PRACTICE IN THIS LINE OF BUSINESS . HE SUBM ITTED THAT DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENSES IS ALSO WITHOUT ANY BASIS AS THE SAME WERE INCURRED FOR THE PURPOSE OF BUSINESS AND NO DEFECTS HAVE BEEN POINTED OUT EITHER BY THE AO OR CIT(A) TO DISALLOW THE SAME. THEREFORE, HE PRAYED THAT DISALLO WANCE S BE DELETED. 5. LD . DR , ON THE OTHER HAND, SUPPORTED THE ORDERS OF REVENUE AUTHORITIES AND SUBMITTED THAT LD. AR HAS FAILED TO PROVE THAT ALL THE EMPLOYEES TO WHOM SALARIES ARE ALLEGED TO HAVE BEEN PAID BY BEARER CHEQUES WERE EMPLOYED WITH THE ASSESSEE. HE SUBMITTED THAT ASSESS EE HAS NOT BEEN ABLE TO ESTABLISH ALONG WITH NECESSARY EVIDENCE , THE GENUINENESS OF THE EXPENDITURE AND, THEREFORE, DISALLOWANCE OF 1/3 RD OF SUCH EXPENSES BY CIT(A) IS TO BE SUSTAINED. HE PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S SREE RAYA LASEEMA GREEN ENERGY VS. DCIT IN ITA N O. 485/HYD/2012 D ATED 31/07/2012 TO THE EFFECT THAT THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, I FIND THAT THE PURCHA SES ARE OF VEGETABLES FOR THE I.T.A. NO. 1329 /HYD/1 7 TOURIST INDIA CONVENTION AND HOTEL (P) LTD 5 DAILY REQUIREMENT OF THE ASSESSEE COMPANY AND AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, IT IS NOT POSSIBLE TO MAINTAIN VOUCHERS AND BILLS FOR EACH OF THE PURCHASES SUCH AS VEGETABLES, FRUITS ETC. HOWEVER, IN FLATION OF PURCHASES OR EXPENDITURE CANNOT BE RULED OUT AS ASSESSEE ITSELF HAD AGREED FOR THE DISALLOWANCE ON ESTIMATION BASIS AT 10% OF THE TURNOVER. THEREFORE, I AM OF THE VIEW THAT DISALLOWANCE OF 10% OF THE PURCHASES ON ACCOUNT OF POSSIBILITY OF INFLAT ION IS TO BE CONFIRMED. 6.1 AS REGARDS SALARIES ARE CONCERNED, I FIND THAT ASSESSEE COMPANY BEING REGISTERED WITH ESI , CANNOT INFLATE THE EXPENDITURE ON ACCOUNT OF SALARIES BECAUSE N UMBER OF EMPLOYEES AND THE SALARIES CLAIMED BY THE ASSESSEE HAVE TO TALLY WITH THE ESI RETURN S FILED BY THE ASSESSEE. THEREFORE, AO IS DIRECTED TO VERIFY THE SAME AND IF THE CLAIM MADE BY THE ASSESSEE ON NUMBER OF EMPLOYEES TO WHOM SALARY IS ALLEGEDLY PAI D IS MATCHING WITH THE NUMBER OF EMPLOYEES MENTIONED IN ESI RETURN, NO DISALLOWANCE IS TO BE MADE . 6.2 AS REGARDS OTHER ADMINISTRATIVE EXPENSES, I FIND THAT NEITHER THE AO NOR CIT(A) HAVE CALLED FOR DETAILS NOR THE SAME HAVE BEEN FURNISHED BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES. ON THE INSTRUCTIONS OF THIS BENCH, THE DETAILS OF SUCH EXPENDITURE HAS BEEN FILED. THE OTHER ADMINISTRATIVE EXPENSES DISALLOWED BY THE AO ARE AS UNDER: SL.NO. PARTICULARS AMOUNT 1 ADVERTISEMENT 303105 2 STAFF UNIFORMS 53576 3 VEHICLE MAINTENANCE 18818 4 HOUSE KEEPING CHARGES 753177 5 CONVEYANCE CHARGES 5922 6 DISCOUNT 809625 7 GENERAL EXPENSES 80792 8 PRINTING AND STATIONERY CHARGES 235760 I.T.A. NO. 1329 /HYD/1 7 TOURIST INDIA CONVENTION AND HOTEL (P) LTD 6 9 MAGAZINES & NEWSPAPER CHARGES 31875 10 FIRE INSTRUMENTS (GAS REFILLING) 6201 11 TRAVELLING EXPENSES 6120 12 STAFF FOOD ALLOWANCE 433425 13 LAUNDRY CHARGES 233169 14 MISCELLANEOUS CHARGES 7422 15 MR SERVICES 14000 16 RENT CHARGES 162562 17 RECEIPTS & MAINTENANCE CHARGES 584805 3740354 ON PERUSAL OF THE SAME, I FIND THAT ALL SUCH EXPENSES CANNOT BE DISALLOWED @ 10% WITHOUT POINTING OUT THE DEFECTS IN THE BOOKS OF THE ASSESSEE, BUT, INFLATION OF THE EXPENSES ALSO CANNOT BE RULED OUT. THEREFORE, I DIRECT THE AO TO RESTRICT THE DISALLOWANCE ONLY TO 5% OF THE ADMINISTRATIVE EXPENSES OF RS. 37,40,354/ - . 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2019. SD/ - ( (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 26 TH JUNE , 201 9. KV COPY FORWARDED TO: 1. TOURIST I NDIA CONVENTION AND HOTEL (P) LTD., C/O GANDHI & GANDHI, CAS., PAIGAH PLAZA, BASHEERBAGH, HYDERABAD 500 063 . 2 . DC IT, CENTRAL CIRCLE 2, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD . 3 . CIT (A) - 2 , HYDERABAD 4. PR. CIT - 2 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE