DCIT, New Delhi V. M/s. Lodhi Property Company, New Delhi

ITA 1410/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5544 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYJEET GOYAL
• Keywords: Business expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.1410/DEL/2014 ASSESSMENT YEARS: 2009-10 DCIT, CIRCLE-4(1) NEW DELHI. VS. LODHI PROPERTY COMPANY, (FORMERLY KNOWN AS LODHI HOTELS), LODHI ROAD. NEW DELHI TAN/PAN: AABCH 0299N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. SINGHVI & SATYJEET GOYAL, CA. RESPONDENT BY: SHRI AMIT JAIN, SR.D.R. DATE OF HEARING: 02 04 2018 DATE OF PRONOUNCEMENT: 02 04 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST IMPUGNED ORDER DATED 19.12.2013 PASSED BY L D. CIT(A)-VIII, NEW DELHI FOR THE QUANTUM OF ASSESSMEN T PASSED U/S.143(3) FOR THE ASSESSMENT YEARS 2009-10. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GRO UNDS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDIT ION OF RS.15,23,58,239/- MADE ON ACCOUNT OF DISALLOWANCE O F EXPENDITURE FOR NOT CARRYING OUT ANY BUSINESS ACTIV ITY DURING THE YEAR? I.T.A. NO.1410/DEL/2014 2 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE, MR. R.S. SINGHVI, SUBMITTED THAT PRECISE ISSUE HAD COME UP F OR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2007-08, WHEREIN THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 3. LEARNED DR THOUGH ACCEPTED THAT THE ISSUES INVOL VED ARE COVERED BY THE DECISION OF THE TRIBUNAL FOR THE EAR LIER YEAR; HOWEVER HE STRONGLY RELIED UPON THE ORDER OF THE AS SESSING OFFICER. 4. THE RELEVANT FACTS ARE THAT THE ASSESSING OFFI CER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT A SSESSEE HAS CLAIMED FOLLOWING EXPENDITURE:- SL.NO. EXPENDITURE HEAD AMOUNT 1. PERSONNEL EXPENSES RS.10,00,54,303/- 2. OPERATING & OTHER ADMINISTRATIVE EXPENSES RS.5,51,88,833/- 3. INTEREST AND FINANCE EXPENSES RS.3,49,385/- TOTAL RS.15,55,92,521/- AND OUT THE SAID EXPENSES, ASSESSEE HAS VOLUNTARIL Y DISALLOWED FOLLOWING EXPENSES:- SL. NO. EXPENDITURE HEAD AMOUNT 1. DONATION EXPENSES RS.11,000/- 2. PENALTY CHARGES RS.2,800/- 3. EMPLOYEES CONTRIBUTION FUND DEPOSITED LATE RS.27,47,332/- 4. EXPENSES TO BE DISALLOWED UNDER SECTION 43B RS.1,73,241/- TOTAL RS.29,34,282/- I.T.A. NO.1410/DEL/2014 3 5. AO FURTHER NOTED THAT ASSESSEE HAS NOT SHOWN AN Y RECEIPT FROM THE BUSINESS AND IN RESPONSE TO THE SH OW CAUSE NOTICE, ASSESSEE SUBMITTED THAT THERE WAS TEMPORARI LY SUSPENSION OF ITS BUSINESS, BECAUSE THE ASSESSEE HA S ACQUIRED A RUNNING BUSINESS PURSUANT TO A SCHEME OF ARRANGEMENT OF INDIA TOURISM DEVELOPMENT CORPORATIO N (ITDC) BY WHICH ALL THE PROPERTY, ASSETS, LIABILITI ES, PROFITS, EMPLOYEES, FUNDS AND BUSINESS OF THE LODHI HOTEL UN IT WERE DEMERGED FROM ITDC AND MERGED WITH THE ASSESSEE AS A GOING CONCERN BASIS. THE PHYSICAL POSSESSION AND THE OPERATION OF LODHI HOTEL WERE GIVEN ON 11 TH MARCH, 2002. ASSESSEE RAN THE BUSINESS TILL OCTOBER 2002, BUT WA S UNABLE TO RUN THE HOTEL ON PROFITABLE BASIS AS HOTEL BUILD ING WAS VERY OLD AND WAS IN A DILAPIDATED CONDITION AND THEREFOR E, HUGE RENOVATION WORKED HAD STARTED. DUE TO THIS FACT THE RE WAS A TEMPORARILY SUSPENSION AND CLOSURE OF THE HOTEL BUS INESS FOR CARRYING OUT SUCH EXTENSIVE RENOVATION. AFTER DEMOL ITION OF THE OLD STRUCTURE, THE BUILDING WORK WAS GIVEN TO A CON TRACTOR ON 1 ST JULY, 2005, WHO AS PER THE AGREEMENT WAS TO COMPLE TE WITHIN EIGHTEEN MONTHS I.E. BY DECEMBER, 2006. BUT AFTER COMPLETION ALSO SOME REPAIRS AND SMALL CHANGES HAD TO BE CARRIED OUT AND THESE REPAIR GOT COMPLETED BY JUNE, 2007 AND COMPLETION CERTIFICATE WAS APPLIED TO MCD IN JULY, 2007 WHICH WAS RECEIVED IN JANUARY, 2009. THEREAFTER THE COMMERCIAL OPERATION OF THE HOTEL WAS RESUMED IN FU LL-FLEDGED MANNER IN APRIL, 2009. HOWEVER, ASSESSING OFFICER D ISALLOWED THE EXPENSES AFTER FOLLOWING OBSERVATIONS:- I.T.A. NO.1410/DEL/2014 4 A. THE SUBMISSION OF THE ASSESSEE COMPANY CLEARLY REVEALS THAT THERE WAS STOPPAGE OF BUSINESS SINCE FINANCIAL YEAR 2002- 03 AND THE CLOSURE OF BUSINESS ACTIVITY CONTINUED TILL THE REL EVANT FINANCIAL YEAR. B. EFFECTIVELY THERE WAS NO BUSINESS ACTIVITY IN TH E RELEVANT FINANCIAL YEAR 2008-09 AND UNDER ANY STRETCH OF IMA GINATION, THIS CANNOT BE CONSTRUED AS TEMPORARY SUSPENSION OF BUSI NESS ACTIVITY. C. THE VERY DEFINITION OF THE BUSINESS SUGGESTS THA T IT IS A CONTINUOUS PROCESS AND THE PROCESS CANNOT BE DISCON TINUED FOR SUCH A LONG PERIOD AS IN THE INSTANT CASE. D. THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED BY T HE APPELLATE AUTHORITIES IN THE EARLIER ASSESSMENT YEARS. THE DE TAILS ARE AS PER THE TABLE GIVEN BELOW: - ASSESSMENT YEAR DECISION OF THE LD. CIT (A) DECISION OF THE HONBLE ITAT 1. 2004-05 UPHELD THE DECISION OF THE ASSESSING OFFICER TO DISAILOW EXPENSES AS THERE WAS NO BUSINESS ACTIVITY. UPHELD THE DECISION OF THE LD. CIT (A). 2. 2005-06 UPHELD THE DECISION OF THE ASSESSING OFFICER TO DISALLOW EXPENSES AS THERE WAS NO BUSINESS ACTIVITY. UPHELD THE DECISION OF THE LD. CIT (A). 3. 2006-07 UPHELD THE DECISION OF THE ASSESSING OFFICER TO DISALLOW EXPENSES AS THERE WAS NO BUSINESS ACTIVITY. UPHELD THE DECISION OF THE LD. CIT (A). AFTER DISCUSSING THE VARIOUS JUDGMENTS, HE DISALLOWE D EXPENDITURE OF RS.15,26,58,239/-. 6. LD. CIT (A) AFTER DISCUSSING THE ENTIRE FACTS, M ATERIAL ON RECORD AND VARIOUS LEGAL SUBMISSIONS HAD ALLOWED TH E EXPENDITURE AFTER OBSERVING AND HOLDING AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER, GROUNDS OF AP PEALS, WRITTEN SUBMISSIONS AND DISCUSSED THE MATTER WITH T HE AR OF THE I.T.A. NO.1410/DEL/2014 5 APPELLANT COMPANY. IT IS NOTICED THAT THE APPELLANT COMPANY ACQUIRED THE LODHI HOTEL FROM INDIA TOURISM DEVELOP MENT CORPORATION IN FEBRUARY 22, 2002 ON A GOING CONCERN BASIS. THE HOTEL BUILDING OF LODHI HOTEL WAS OLD AND DILAPIDAT ED, THEREFORE, THE APPELLANT COMPANY WAS NOT ABLE TO RUN THE BUSINESS PROFITABLY. THEREFORE, IT DECIDED TO RENOVATE AND REDEVELOP THE HOTEL PROPERTY AND THEREFORE THE HOTEL OPERATIONS OF THE LODHI HOT EL WERE TEMPORARILY SUSPENDED. THE HOTEL BUILDING WAS RECON STRUCTED AND RENOVATED AND THE CONSTRUCTION HAS BEEN COMPLETED I N THE YEAR UNDER APPEAL. THE APPELLANT HAS FILED A COPY OF COM PLETION CERTIFICATE ISSUED BY MUNICIPAL CORPORATION OF DELH I. IT IS SEEN THAT THE APPELLANT HAD FILED AN APPLICATION FOR ISSUE OF COMPLETION CERTIFICATE ON 30, JULY, 2007 AND THE CERTIFICATE H AD BEEN ISSUED ON 12, JANUARY, 2009. AS MENTIONED IN THE COMPARATIVE CHART THE BUILDING WAS COMPLETE DURING THE YEAR, THE APPELLAN T GOT CONSENT FROM THE DELHI POLLUTION CONTROL COMMITTEE AND ENVI RONMENT CLEARANCE FOR REDEVELOPMENT OF OLD LODHI HOTEL. THE APPELLANT HAS HIGHLIGHTED VARIOUS EXPENSES AND ITEMS OF THE BALAN CE SHEET TO SHOW THAT THE HOTEL WAS OPERATIONAL. IT IS STATED T HAT THERE WAS QUANTUM JUMP IN THE MAN POWER COST FROM 284.06 LACS TO 1000.54 LACS DURING THE YEAR. IT HAS ALSO STATED THAT THE D ETAILS OF THE SUNDRY CREDITORS WILL SHOW THAT THE CREDITORS WERE MAINLY FOR THE SUPPLIES RELATING TO THE HOTEL VIS. FOOD AND BEVERA GES, LIQUOR ETC. FURTHER IT IS STATED THAT IT HAD BUILT UP INVENTORY OF VARIOUS FOOD ITEMS AND HAS COLLECTED AND PAID LUXURY TAX, SALES TAX ETC. DURING THE YEAR WHICH SHOW THAT THE HOTEL WAS OPERATIONAL. THE APPELLANT WAS ASKED TO JUSTIFY THE PERSONNEL CO ST CLAIMED AT RS.10 CRORES. THE APPELLANT HAS FILED THE BREAKUP O F THE PERSONNEL COST AND HAS STATED THAT THE OPERATION OF A LUXURY HOTEL CANNOT BE STARTED OVERNIGHT. A LARGE NUMBER OF MANEGERIAL/HOU SE KEEPING/ADMINISTRATIVE AND RESTAURANT STAFF HAS TO BE RECRUITED AND TRAINED. THIS CANNOT BE POSTPONED TILL THE OCCU PANCY OF ALL THE I.T.A. NO.1410/DEL/2014 6 ROOMS START. IT HAS BEEN STATED THAT IT IS A FIVE S TAR LUXURY HOTEL AND HAS AROUND 70 ROOMS. TO MANAGE AND OPERATE THIS WOR LD CLASS HOTEL, TRAINED EMPLOYEES WITH PROFESSIONAL BACKGROU ND ARE REQUIRED. I HAVE GONE THROUGH THE ORDER OF THE ITAT AND HONB LE HIGH COURT OF DELHI FILED BY THE APPELLANT. IT IS SEEN THAT THE A PPELLANT HAS RUN THE HOTEL FOR SOMETIME AFTER TAKING THIS PROPERTY FROM ITDC BUT LATER ON IT WAS SUSPENDED AND RESTARTED DURING THE YEAR UNDE R APPEAL. THE ASSESSING OFFICER HAS FOLLOWED VARIOUS JUDGMENT S. APPLYING THE SAME RATIO DECIDED IN THESE CASES, IT HAS BEEN HELD THAT ONLY WHEN THE HOTEL PROPERTY IS READY TO RECEIVE CLIENTS THEN ONLY IT WOULD AMOUNT TO COMMENCEMENT OF BUSINESS. AS PER THE DETAILS FILED BY THE APPELLANT, IT IS SE EN THAT THE AFOREMENTIONED DETAILS WERE AVAILABLE BEFORE THE AS SESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AP PELLANT HAD STATED THAT THERE WAS SPECIFIC QUESTION REGARDING T HE RECEIPT FROM THE HOTEL BUSINESS AND THE DETAILS WERE FILED DURIN G ASSESSMENT PROCEEDINGS. THE OBSERVATION MADE BY THE ASSESSING OFFICER THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR APPE ARS TO BE ERRONEOUS. THE DETAILS AND DOCUMENTS ON RECORD SHOW THAT THE H OTEL PROPERTY WAS IN A POSITION TO RECEIVE THE CLIENTS AND HAS AL SO RECEIVED THE GUESTS AS PER THE DETAILS FILED BY THE APPELLANT. F URTHER, THE BUILT UP OF INVENTORY BY THE APPELLANT, DETAILS OF SUNDRY CR EDITORS FOR SUPPLY OF HOTEL ESSENTIALS, RETURNS OF VAT AND DETAILS OF LUXURY TAX COLLECTION AND PAYMENT THEREOF SHOW THAT THE BUSINE SS OF HOTEL COMMENCED DURING THE YEAR AND THEREFORE, THERE IS N O REASON AS TO WHY THE ROUTINE BUSINESS EXPENSES SHOULD NOT BE ALL OWED. 7. WE FIND THAT THIS PRECISE ISSUE HAS COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR THE ASSESSME NT YEAR I.T.A. NO.1410/DEL/2014 7 2007-08 WHEREIN THE TRIBUNAL AFTER RECORDING THE EN TIRE FACTS AND MATERIAL ON RECORD ALLOWING THE EXPENDITURE AFT ER OBSERVING AND HOLDING AS UNDER: 19. ACCORDING TO THE ASSESSEE, THERE IS TEMPORARY SUSPENSION OF THE BUSINESS BETWEEN NOVEMBER 2002 AN D IT ACTUALLY RESUMED COMMERCIAL OPERATIONS IN APRIL 200 9. ADMITTEDLY, ASSESSEE RESUMED BUSINESS IN APRIL 2009 . IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOW B EEN DOING A DIFFERENT BUSINESS AND THEY HAD ABANDONED THE HOT EL BUSINESS. THE ASSESSEE IS ACCOUNTING THE PERIOD OF SUSPENSION BY STATING THAT THE CONTRACT FOR THE BUILDING WORK WAS GIVEN TO THE CONTRACTOR ON 1.7.2005, CONSTRUCTION WAS COMPLE TED DURING THE FY 2006-07, SMALL CHANGES TOOK PLACE TILL JUNE 2007, HOTEL PROPERTY WAS OPERATIONAL IN JUNE 2007, APPLICATION FOR COMPLETION CERTIFICATE WAS MADE IN JULY2007, COMPLE TION CERTIFICATE WAS ISSUED IN JANUARY 2009 AND ULTIMATE LY COMMERCIAL OPERATIONS OF THE HOTEL RESUMED IN APRIL 2009. FURTHER, LEARNED CIT(A) ALSO, VIDE PARA 5.2 OF HIS ORDER, CLEARLY HELD THAT THERE IS NO DISPUTE OVER THE FACT THAT TH E HOTEL ACTIVITY WAS TEMPORARILY IN SUSPENSION. IT, THEREFO RE, MAKES THE THINGS AMPLY CLEAR THAT THE INTENTION OF THE AS SESSEE WAS TO TEMPORARILY SUSPEND THE BUSINESS AND NOT TO BRIN G THE BUSINESS TO A CLOSE. 20. IN THESE CIRCUMSTANCES, WE FIND IT DIFFICULT TO AG REE WITH THE FINDINGS OF THE LEARNED AO THAT INASMUCH AS DUR ING THE FINANCIAL YEAR 2006-07 THE ASSESSEE WAS UNABLE TO C ATER THE NEEDS OF THE CUSTOMERS, THE BUSINESS WAS NOT YET CO MMENCED. WE ALSO DO NOT AGREE WITH THE THEORY OF ESTOPPEL PR OPOSED BY I.T.A. NO.1410/DEL/2014 8 THE LEARNED CIT(A) THAT SINCE THE ASSESSEE DID NOT CLAIM THE EXPENSES RELATABLE TO ASSTT. YEAR 2002-03 FOR THE P ERIOD SUBSEQUENT TO 31.10.2002, BY THEIR OWN CONDUCT THEY ARE ESTOPPED FROM CLAIMING THE SAME FOR ANY PERIOD SUBS EQUENT THERETO. AS A MATTER OF FACT, THE ASSESSEE PURCHASE D THE BUSINESS THAT HAD ALREADY BEEN COMMENCED AND CONDUC TED BUSINESS OPERATIONS TILL 31.10.2002, FROM WHICH DAT E THE ASSESSEE SUSPENDED THE BUSINESS OPERATIONS TILL APR IL 2009 FOR RENOVATION OF THE HOTEL BUILDING. THE PERIOD BETWEE N NOVEMBER 2002 AND APRIL 2009 IS ONLY THE TEMPORARY SUSPENSIO N OF THE LODHI HOTEL BUSINESS OF THE ASSESSEE, BUT AS A MATT ER OF FACT, AS A BUSINESS ENTITY, THE ASSESSEE DID NOT CEASE TO EXIST OR PERMANENTLY SHUT DOWN THE BUSINESS. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN VIKRAM COTTON MILLS CASE (SUPRA), WE FIND THAT MERELY BECAUSE THERE WAS A TEMPORARY LULL IN THE BUSINESS FOR SOME PERIOD, IT CANNOT BE SAID THAT THE ASSESSEE ABANDON ED THE BUSINESS REQUIRING THEM TO RESET UP IT AGAIN. NO SE T UP IS REQUIRED IN THIS CASE. WHILE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN M/S KALYANJI MAVJI (SU PRA) WE FURTHER HOLD THAT THE ASSESSEES CLAIM OF EXPENDITU RE INCURRED DURING THE PERIOD OF TEMPORARY SUSPENSION OF BUSINE SS HAS TO BE ALLOWED. HOWEVER, THE QUANTUM OF EXPENDITURE NEE DS TO BE VERIFIED AT THE END OF THE AO. FOR THIS PURPOSE OF VERIFICATION OF THE QUANTUM, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION THAT AFTER VERIFICATION AND IF THE CLAI M IS FOUND TO BE GENUINE, THE AO WILL ALLOW THE SAME. CONSEQUENTLY W E FIND THAT THE ORDER OF THE LD. CIT(A) ON THIS ASPECT CAN NOT BE SUSTAINED. REVENUE GROUNDS ARE DISMISSED AND THE I.T.A. NO.1410/DEL/2014 9 ASSESSEES GROUNDS ARE ALLOWED. 8. THUS RESPECTFULLY FOLLOWING THE EARLIER ORDER PR ECEDENCE, WHICH IS APPLICABLE MUTATIS MUTANDIS FOR THIS YEAR ALSO, WE UPHOLD THE DELETION OF DISALLOWANCE MADE BY THE LEA RNED CIT (A). 9. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND APRIL, 2018. SD/- SD/- [J.S. REDDY] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND APRIL, 2018 PKK: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR