ITO, Mangalore V. M/s Shreyus Hotels Pvt. Ltd., Mangalore

ITA 1398/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5352 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-02-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 26-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Wrong claim
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C :BANGALORE BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NOS.1398 & 1399/BANG/2012 (ASSESSMENT YEARS : 2001-02 & 2002-03) INCOME - TAX OFFICER, WARD - 1(1), MANGALORE. APPELLANT VS. M/S.SHREYUS HOTELS PVT.LTD. D NO.14 - 7 - 1045/1, COURT HILL ROAD, MANGALORE. RESPONDENT PAN: AAHCS 6665F DATE OF HEARING : 24 - 02 - 2014 . DATE OF PRONOUNCEMENT 07 - 03 - 2014. O R D E R PER SMT.P.MADHAVI DEVI, JM: THESE ARE REVENUES APPEALS AGAINST THE ORDER OF TH E CIT(A), MYSORE, DATED 8-6-2012 FOR THE ASSESSMENT Y EARS 2001- 02 AND 2002-03. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH FILED ITS RETURNS OF INCOME F OR THE RELEVANT APPELLANT BY : SHRI BIJU M.K. JCIT(DR) RESPONDENT BY : SMT. SHEETAL, ADVOCATE ITA NOS.1398 & 1399/BANG/2012 PAGE 2 OF 10 ASSESSMENT YEARS. THE RETURNS OF INCOME WERE INITIA LLY PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] ACCEPTING THE RETURNED INCOME. THERE AFTER, THE ASSESSMENT WAS REOPENED BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT, AS THE ASSESSEE HAS TREATED RENTAL INCOME AS B USINESS INCOME IN THE RETURNS OF INCOME AND HAD CLAIMED EXP ENSES INCLUDING DEPRECIATION. DURING THE ASSESSMENT PROC EEDINGS U/S 143(3) R.W. SEC.147 OF THE ACT, THE ASSESSING OFFIC ER (AO) OBSERVED THE FOLLOWING FACTS: THE ASSESSEE IS A COMPANY, CONSTITUTED MAINLY WITH THE OBJECT OF RUNNING A HOTEL WITH BOARDING AND LODGING FACILITY AND WAS RUNNING THE HOTEL AT COURT HILL ROAD, MANGALORE BY THE NAME AND STYLE HOTEL HILLTOP DURING THE YEARS 1984 TO1 991. IN THE YEAR 1992, THE ASSESSEE WAS APPROACHED BY M/S.M.V.S HETTY MEMORIAL TRUST FOR PROVIDING ROOMS TO THE STUDENTS OF THEIR GROUP OF INSTITUTIONS. THE ASSESSEE AGREED FOR THE SAME S UBJECT TO VARIOUS TERMS AND CONDITIONS. THE MAJOR CONDITIONS AGREED UPON WERE: I. THE ASSESSEE WILL RAISE BILL ON THE STUDENTS AND TH E TRUST WILL PAY THE SAME IMMEDIATELY WITHIN A WEEK AFTER COLLECTING THE SAME FROM THE STUDENTS. II. THE TRUST SHOULD KEEP INTEREST-FREE DEPOSIT FOR ANY DAMAGES. III. THE STUDENTS MAY USE THEIR HEATERS AND THE ELECTRIC ITY CONSUMPTION CHARGES FOR THE SAME SHOULD BE BORNE BY THEM. IV. THE ARRANGEMENT IS FOR AN INITIAL PERIOD OF 4 YEARS AND IS SUBJECT TO RENEWAL. ITA NOS.1398 & 1399/BANG/2012 PAGE 3 OF 10 3. SUBSEQUENT TO THIS AGREEMENT, THE ASSESSEE LET O UT ALL THE ROOMS IN THE HOTEL TO THE TRUST AND IN ADDITION ALS O LET OUT LOUNGE, TERRACE AND STORAGE AREA FOR THE USE OF THE STUDENT S AND HALL CHARGES HAVE BEEN COLLECTED. THE AO FOUND THAT THE ASSESSEE WAS RECEIVING RENT FROM THE TRUST IRRESPECTIVE OF T HE ACTUAL OCCUPANCY BY THE STUDENTS AND ELECTRICITY BILL IS A LSO PAID BY THE TRUST DEPENDING UPON THE ACTUAL USAGE BY THE STUDEN TS. HE ALSO FOUND THAT A WARDEN APPOINTED BY THE TRUST IN THE H OTEL PREMISES ITSELF WAS SUPERVISING THE ACTIVITIES OF THE STUDEN TS AND NO ROOMS WERE ALLOTTED TO THE GENERAL PUBLIC. HE FOUND THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.4 LAKHS AS SECURITY DEPOSI T AND HAS ALSO RECEIVED A SUM OF RS.12,81,165/- AS ROOM RENT WHICH ALSO INCLUDES ELECTRICITY CHARGES PAID BY THE TRUST. IN THE RETURN OF INCOME, THE ASSESSEE HAD ALSO CLAIMED OTHER RECEIPT S OF RS.3,01,966/- WHICH INCLUDES HALL CHARGES OF RS.88, 550/-, RENT OF RS.1,80,600/- RECEIVED FROM MS/ SHRI GURU ENTERPRIS ES WITH RESPECT TO RESTAURANT AND RENT FROM XEROX OUTLET AN D TELEPHONE CHARGES OF RS.7230/- AND MISCELLANEOUS OF RS.14,070 /- ETC. IN THE ASSESSMENT ORDER, THE AO CONSIDERED THE JUDICIA L PRECEDENTS IN THE CASE OF M/S.SHAMBHU INVESTMENT PVT. LTD., AN D M/S.SHREYAS HOTELS PVT.LTD., RENDERED BY THE HONBL E SUPREME COURT AND HELD THAT THE INCOME FROM THE TRUST IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AGGRI EVED, ASSESSEE PREFERRED AN APPEAL TO THE CIT(A) WHO DIRE CTED THE AO ITA NOS.1398 & 1399/BANG/2012 PAGE 4 OF 10 TO TREAT THE INCOME AS INCOME FROM OTHER SOURCES. MEAN WHILE THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 4. DURING THE COURSE OF PENALTY PROCEEDINGS, THE AO HAS BROUGHT OUT IN DETAIL THAT THE CLAIM OF EXPENSES MA DE BY THE ASSESSEE TOWARDS REPAIRS AND MAINTENANCE, VEHICLE M AINTENANCE, WATER CHARGES, LINENS AND CONSUMABLES, SALARIES, TE LEPHONE AND POSTAGE CHARGES AND ADDITION TO CAPITAL ASSET ARE A LL BOGUS OR ARE NOT PERTAINING TO THE ASSESSEE. SINCE THE ASSES SEE DID NOT OFFER ANY EXPLANATION FOR THE EXPENSES DISALLOWED B Y THE AO NOR DID IT PROVE THE BONAFIDES OF THE CLAIM OF EXPENSES , THE AO LEVIED PENALTY OF RS.4,11,100/- FOR THE ASSESSMENT YEAR 20 01-02 AND RS.3,50,000/- FOR THE ASSESSMENT YEAR 2002-03. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A) WHO DELETED THE SAME HO LDING THAT THE AO HAS DISALLOWED THE EXPENSES FOR VARIOUS REAS ONS MENTIONED IN THE ASSESSMENT ORDER AND THOSE REASONS ARE ENOUGH TO MAKE THE DISALLOWANCE BUT THEY ARE NOT SU FFICIENT TO LEVY PENALTY. HE HELD THAT CONCEALMENT HAS TO BE D ETECTED OR THERE SHOULD BE FURNISHING OF INACCURATE PARTICULAR S ON THE PART OF THE ASSESSEE FOR LEVY OF PENALTY U/S 271(1)(C) OF T HE ACT. AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN A PPEAL BEFORE US. ITA NOS.1398 & 1399/BANG/2012 PAGE 5 OF 10 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SHRI BIJ U, WHILE SUPPORTING THE ORDER OF THE AO, HAS DRAWN OUR PARTI CULAR ATTENTION TO THE FINDINGS OF THE AO ON EACH OF THE EXPENDITURE DISALLOWED BY THE AO AND AS TO HOW IT WAS A BOGUS C LAIM. HE SUBMITTED THAT THE ASSESSEE, IN ORDER TO MAINTAIN I TS CLAIM THAT IT WAS CARRYING ON BUSINESS AND THAT THE INCOME FROM T HE TRUST WAS ITS BUSINESS INCOME, HAD CREATED THE BOGUS CLAIM OF EXPENSES WHICH HAS BEEN BROUGHT OUT BY THE AO IN HIS ASSESSM ENT ORDER AS WELL AS THE PENALTY ORDER AND THUS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND PENALTY IS CLE ARLY LEVIABLE. HE PLACED RELIANCE UPON THE DECISION OF THE TRIBUNA L AT KOLKATA IN THE CASE OF ACIT VS. MCLEOD RUSSEL (I) LTD.( 2006)(101 ITR 39) WHEREIN IT HAS BEEN HELD THAT ANY ITEM OF EXPENDITU RE IF IT IS CLAIMED FRAUDULENTLY, IT AMOUNTS TO CONCEALMENT OF PARTICULARS OF INCOME AS WELL AS FURNISHING OF INACCURATE PARTICUL ARS OF INCOME AND PENALTY U/S 271(1)(C) CAN BE IMPOSED. 7. THE LEARNED COUNSEL FOR ASSESSEE SMT.SHEETAL, ON THE OTHER HAND, REITERATED THE SUBMISSION MADE BEFORE T HE AUTHORITIES BELOW AND SUPPORTED THE ORDER OF THE CI T(A) AND ALSO PLACED RELIANCE UPON THE DECISION OF THE TRIBUNAL A T MUMBAI IN THE CASE OF ITO VS. OASIS SECURITIES LTD. (2010) 37 SOT 63(MUM). COPIES OF THE SAID ORDERS ARE PLACED BEFOR E US. ITA NOS.1398 & 1399/BANG/2012 PAGE 6 OF 10 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FI ND THAT THE AO HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME IN R ESPECT OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE AS BUSINES S EXPENDITURE. THE EXPENSES ARE FOUND TO BE NOT ALLO WABLE AND ALSO BOGUS AS UNDER FOR ASSESSMENT YEAR 2001-02: (I) REPAIRS AND MAINTENANCE RS.1,96,720/- OUT OF THIS, TOTAL EXPENSES OF RS.1,58,630/- WAS FOUND TO BE DEBITED ON THE LAST DAY OF THE ACCOUNTING YEAR I.E. ON 31-3-20 01 ON ACCOUNT OF BUILDING MAINTENANCE CARRIED OUT BY M/S.WELCOME DRAPE. THE AO HAS BROUGHT OUT THAT M/S.WELCOME DRAPE IS A SIST ER CONCERN OF THE ASSESSEE AND THAT IT WAS DEALING IN CURTAINS , FURNISHING AND CARPETS AND THEREFORE IT COULD NOT HAVE CARRIED OUT BUILDING MAINTENANCE WORK OF THE ASSESSEE-COMPANY. IT WAS A LSO BROUGHT OUT THAT THE AR WAS UNABLE TO PRODUCE DETAILS OF TH E WORK CARRIED OUT BY M/S.WELCOME DRAPE AND THAT NO BILLS WERE AVA ILABLE FOR THE WORK DONE BY THEM. SIMILARLY, THE ASSESSEE HAD PRODUCED A BILL FROM M/S.NARAYAN ELECTRICALS FOR A SUM OF RS.8 000/- WHICH WAS FOUND TO BE ACTUALLY RAISED IN THE NAME OF M/S. AFCO ENTERPRISES. HE ALSO FOUND THAT THERE WAS ANOTHER BILL FROM M/S.STEEL HOUSE WHEREIN THERE IS A CORRECTION IN TH E NAME OF THE PURCHASER AND FURTHER THAT THE MATERIAL PURCHASED W AS USED FOR CIVIL CONSTRUCTION AND THAT TOO FOR CONSTRUCTING SL ABS WHEREAS NO SUCH ADDITION IS SEEN TO HAVE BEEN MADE TO THE BUIL DING. THUS, ITA NOS.1398 & 1399/BANG/2012 PAGE 7 OF 10 HE HAD CLEARLY BROUGHT OUT THAT THE ASSESSEE HAS MA DE BOGUS CLAIM OF THESE EXPENSES. (II) VEHICLE MAINTENANCE: THE AO FOUND THAT A SUM OF RS.66,873/- HAS BEEN SHOWN AS EXPENSES FOR CAR AND MOPED MAINTENANCE AND THAT THE ASSESSEE HAS NOT PRODUCED ANY BILLS IN RESPECT OF THESE EXPENSES AND THAT ENTRIES HAVE BEE N MADE IN PENCIL IN THE DAY BOOK AND THE LEDGER ACCOUNT WAS D EBITED ON THE LAST DAY OF THE ACCOUNTING YEAR I.E. 31-3-2001. THE ASSESSEE HAS NEITHER BROUGHT OUT ANY EVIDENCE BEFORE THE AO TO S HOW THE GENUINENESS OF THE EXPENDITURE NOR DID HE PROVIDE A NY EVIDENCE TO SHOW THAT IT REALLY OWNED THE CAR AND THE MOPED FOR WHICH SOME MAINTENANCE IS, IN FACT, NECESSARY. (III) WATER CHARGES- RS.16,323/- : THE ASSESSEE HAD CLAIMED THIS EXPENDITURE FOR THE ENTIRE PREMISES WH EREAS THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO A LEASE DE ED WITH M/S.GURU ENTERPRISES FOR LEASE OF THE RESTAURANT PR EMISES AND ONE OF THE CONDITIONS OF LEASE WAS THAT THE LESSEE SHALL REIMBURSE 50% OF THE CONSUMPTION CHARGES AND WATER CHARGES FR OM CIVIC SUPPLY WHEREAS THE ASSESSEE HAS CLAIMED THE ENTIRE AMOUNT IN ITS STATEMENT OF ACCOUNT. THE ASSESSEE HAD NO EXPLANAT ION TO OFFER FOR THIS OBSERVATION OF THE AO. (IV) LINEN AND CONSUMABLES RS.1,15,000/- : THIS EXPENDITURE IS CLAIMED ON ACCOUNT OF PURCHASE OF BE D-SHEETS, CURTAIN SET AND DOOR MATS FROM M/S.WELCOME DRAPE, S ISTER CONCERN OF THE ASSESSEE AND THE BILL IS DATED 31-3- 2001. THE ITA NOS.1398 & 1399/BANG/2012 PAGE 8 OF 10 FALSEHOOD OF THIS CLAIM HAS BEEN BROUGHT OUT BY THE AO TO THE EFFECT THAT M.V.SHETTY MEMORIAL TRUST HAD CONFIRMED BY LETTER DATED 31-12-2008 THAT BED SHEETS, PILLOW COVERS ETC ., WERE PURCHASED BY THE STUDENTS WHILE COMING TO THE ROOMS AND THE WASHING CHARGES FOR THESE BED SHEETS, CURTAINS ETC. , WAS DIRECTLY MET BY THE INMATES OR STUDENTS. THE AO HAS ALSO BR OUGHT OUT THAT THESE ENTRIES IN THE LEDGER ARE MADE ON THE LA ST DAY OF THE ACCOUNTING YEAR AND ARE MADE IN PENCIL AND NO BILLS FOR THE SAME WERE AVAILABLE WITH THE ASSESSEE. (V) SALARY RS.1,74,600 : THE ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE IN RESPECT OF THESE PAYMENTS. THE AO HAS BROUGHT OUT THAT NEITHER SALARY/WAGES REGISTER HAS BEEN MAINTAINED NOR ANY RELEVANT VOUCHERS ARE AVAILABLE ON RECORD. (VI) TELEPHONE AND POSTAGE CHARGES RS.40,266: THE AO HAS BROUGHT OUT THAT TELEPHONE BILLS PERTAIN TO DIFFERENT PERSONS OTHER THAN THE ASSESSEE. (VII) ADDITION TO CAPITAL ASSET : THE AO FOUND THAT THE ASSESSEE HAD MADE ADDITION TO CAPITAL ASSETS OF A V OLTAGE STABILIZER WHICH IS UTILIZED FOR THE REFRIGERATOR B UT THERE IS NO REFRIGERATOR AVAILABLE IN THE LIST OF CAPITAL ASSET S HELD BY THE COMPANY. THUS, HE HAS CLEARLY BROUGHT OUT THAT THI S PURCHASE DOES NOT PERTAIN TO THE ASSESSEE AT ALL. 8. FROM THE ABOVE FINDINGS OF THE AO, IT IS CLEAR T HAT THE AO HAS BROUGHT OUT IN DETAIL THE REASONS FOR DISALLOWI NG THE ITA NOS.1398 & 1399/BANG/2012 PAGE 9 OF 10 EXPENDITURE AND ALSO AS TO HOW THE EXPENSES ARE BOG US AND NOT PERTAINING TO THE ASSESSEE AT ALL. THE CIT(A) HAS SUMMARILY ACCEPTED THE ASSESSEES CONTENTION WHILE DELETING T HE PENALTY. IT IS WORTHY TO NOTE THAT THERE IS NO EXPLANATION OFFE RED BY THE ASSESSEE WITH REGARD TO CLAIM OF EXPENDITURE DURING THE PENALTY PROCEEDINGS BEFORE THE AO. EXPLANATION 1 TO SEC.27 1(1)(C) CLEARLY PROVIDES THAT WHERE A PERSON FAILS TO OFFER AN EXPLANATION IN RESPECT OF ANY FACT WHICH IS MATERIAL TO THE COM PUTATION OF TOTAL INCOME, THEN THE AMOUNT ADDED OR DISALLOWED I N COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF , SHALL, FOR THE PURPOSE OF CLAUSE (C) OF SUB-SEC.(1) OF SEC.271 BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. THEREFORE, TO AVOID THE LEVY OF PENALTY , THE ASSESSEE HAS TO GIVE AN EXPLANATION BEFORE THE AO AND AO CAN LEVY PENALTY IF NO EXPLANATION IS OFFERED OR IF THE EXPL ANATION OFFERED IS FOUND TO BE FALSE OR IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE AND PROVE THAT SUCH EXPLANATION IS BONAFIDE AND THA T ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N HAVE BEEN DISCLOSED BY HIM/IT. IN THE CASE BEFORE US, THE AS SESSEE HAS FAILED TO OFFER ANY EXPLANATION BEFORE THE AO. EVE N BEFORE THE CIT(A), THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTI ATE ITS CLAIM WITH ANY EVIDENCE. IT HAS ONLY STATED THAT IT HAS N OT FURNISHED ANY INACCURATE PARTICULARS OF INCOME OR CONCEALED A NY INCOME AND HAS RELIED UPON VARIOUS JUDICIAL PRECEDENTS IN SUPPORT OF ITS CLAIM. THE CIT(A) WITHOUT DEALING WITH THE FINDING S OF THE AO ITA NOS.1398 & 1399/BANG/2012 PAGE 10 OF 10 WITH REGARD TO THE BOGUS CLAIMS OF EXPENDITURE HAS DELETED THE PENALTY. THE CIT(A) SEEMS TO HAVE OVERLOOKED THE F ACTS OF THE CASE AS WELL AS THE PROVISIONS OF LAW WHILE DELETIN G THE PENALTY. SIMILAR ARE THE FACTS FOR THE AY 02-03. IN VIEW OF THE SAME, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE CIT(A) A ND CONFIRM THE PENALTY LEVIED BY THE AO FOR BOTH THE ASSESSMENT YE ARS. HOWEVER, THE AO IS DIRECTED TO RECOMPUTE THE PENALT Y AFTER TAKING INTO CONSIDERATION THE RELIEF GIVEN, IF ANY, BY THE CIT(A) IN THE APPEAL PENDING BEFORE HIM AGAINST THE ORDER OF THE AO GIVING EFFECT TO THE CIT(A) ORDER. 9. IN THE RESULT, THE REVENUES APPEALS ARE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2014 SD/- SD/- ( JASON P.BO AZ ) ( SMT. P.MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY IN COME-TAX APPELLATE TRIBUNAL BANGALORE