DCIT, Circle - 8(1), Kolkata , Kolkata V. M/s. EIH Associated Hotels Limited (Successor in interest to Indus Hotels Corp. Ltd.,), Kolkata

ITA 1433/KOL/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0531 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 03-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: A K GUPTA
• Keywords: Gift; Business expenditure; Earning of tax free income; Source of fund; Proportionate interest; Commercial expediency
• Section: 142(1); 14A

Judgement Text

ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 1 | P A GE , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI J. SUDHAKAR REDDY, AM AND SHRI A. T. VARKEY, JM] I.T.A. NO. 1433/KOL/2018 ASSESSMENT YEAR: 2004-05 DCIT, CIRCLE-8(1), KOLKATA VS. M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTEREST TO INDUS HOTELS CORP. LTD. ) (PAN: AAACI 6454 R) APPELLANT RESPONDENT DATE OF HEARING 09.03.2021 DATE OF PRONOUNCEMENT 15.03.2021 FOR THE APPELLANT SMT. RANU BISWAS, ADDL. CIT FOR THE RESPONDENT SHRI A.K. GUPTA, A.R ORDER PER SHRI A. T. VARKEY, JM: THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF LD. CIT(A)- 8, KOLKATA DATED 29.04.2018 FOR ASSESSMENT YEAR 200 4-05. 2. GROUND NO. 1 IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 90,58,372/- ON ACCO UNT OF PROPORTIONATE INTEREST IN RESPECT OF INVESTMENT IN SHARES. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS TH AT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF RS. 11.35 CRORES FROM WHICH TAX FREE DIVIDEND INCOME WAS EARNED. THEREAFTER THAT THE AO NOTED THAT THE ASSES SEES TOTAL INVESTMENT IN SHARES IS 12% OF THE BORROWED FUNDS, THEREFORE HE DISALLOWED PROPORTIONATE INTEREST @ 12% OF THE TOTAL INTEREST PAID AND DISALLOWED RS. 90,58,37 2/-. 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE SAME. ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 2 | P A GE 5. AGGRIEVED THE REVENUE IS BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. AT THE OUTSET, IT WAS BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE CROPPED UP BEFORE THIS TRIBUNAL IN EARLIER YEARS AND THIS ISSUE IS COVERED IN FAVOUR OF THE AS SESSEE BY ORDER DATED 25.01.2008 IN ITA NOS. 724 &725/KOL/2007 FOR AY 2002-03 & 2003 -04; AND ASSESSMENT ORDER DATED 22.12.2006 FOR AY 2001-02. THE LD. A.R. OF T HE ASSESSEE SHRI A.K. GUPTA BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAS NOT EAR NED ANY EXEMPT INCOME THEREFORE NO DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IS LEGALLY PERMITTED AND FOR THAT PROPOSITION HE RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN CHEM INVEST LTD. VS. CIT REPORT ED IN 378 ITR 33 (DEL). THE LD. A.R DREW OUR ATTENTION TO PAGE 28 OF PB FROM WHICH IT IS NOTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND RELYING ON THE DEC ISION OF HONBLE DELHI HIGH COURT IN CHEM INVEST LTD. (SUPRA) AS WELL AS THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GVK PROJECT & TECHNICA L SERVICES LTD. [2019] 106 TAXMANN.COM 180 (DEL)] WHICH DECISION IN TURN HAS B EEN UPHELD BY THE HONBLE SUPREME COURT REPORTED IN (2019) 106 TAXMANN.COM 18 1 (SC), NO DISALLOWANCE WAS WARRANTED. FURTHER, IT WAS ALSO BROUGHT TO OUR NOTI CE THAT THE LD. CIT(A) HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS MADE INVEST MENT IN SHARES FROM AY 1998-99 AND 1999-2000 AND THE SAID INVESTMENT WAS MADE BY T HE ASSESSEE FROM ITS OWN FUNDS. THE LD. CIT(A) HAS NOTED AFTER PERUSAL OF TH E BALANCE SHEET OF THE ASSESSEE FOR AY 2004-05 THAT THE ASSESSEE HAD OWN FUNDS OF RS. 1 01.25 CRORES WHEREAS INVESTMENT IN SHARES IS ONLY TO THE TUNE OF RS. 11. 35 CRORES WHICH IS ONLY 11% OF THE OWN FUNDS AND THEREFORE WE NOTE THAT NO DISALLOWANC E BASED ON THE REASONING OF AO IS CORRECT. THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF RELIANCE UTILITY AND POWERS LTD. VS. CIT REPORTED IN 313 ITR 340 (BOM) H ELD THAT WHEN THE ASSESSEE POSSESSES MIXED FUNDS WHICH INCLUDE ITS OWN FUNDS I N SUFFICIENT QUANTITY, A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR TH E ADVANCES IS TO BE DRAWN. RELYING ON THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COU RT IN RELIANCE UTILITY AND POWERS LTD. (SUPRA), WE ARE OF THE OPINION THAT IN THE FACTS OF THIS CASE, NO ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 3 | P A GE PROPORTIONATE DISALLOWANCE BASED ON THE AOS REASON ING CANNOT BE ACCEPTED AND THEREFORE WE CONFIRM THE ORDER OF LD. CIT(A) AND DI SMISS THE GROUND NO. 3 RAISED BY THE REVENUE. 7. GROUND NO. 2 IS AGAINST THE ACTION OF LD. CIT(A) IN DELETING RS. 1,96,26,473/- ON ACCOUNT OF AN ADVANCE TO SUBSIDIARIES FROM BORRO WED FUNDS. 8. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS TH AT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES AMOUNTING TO RS. 24,28,00,00 0/- TO SUBSIDIARY COMPANY M/S ISLAND HOTEL MAHARAJA LTD.. THE AO ASKED THE ASSESS EE TO FURNISH THE DETAILS OF SOURCE OF FUNDS, AND PURSUANT TO THE SAME, THE ASSE SSEE FILED A CHART INDICATING THE SOURCES OF FUNDS FOR ADVANCES MADE TO THE SUBSIDIAR Y COMPANY IN DIFFERENT YEARS AND CONTENDED THAT IN THE EARLIER ASSESSMENT YEAR I.E. AY 2003-04 THE ADVANCE WAS GIVEN OUT OF OWN GENERATED FUND; AND IN THIS ASSESSMENT Y EAR ALSO THE ASSESSEE REITERATED THE SAME CONTENTION. THE AO DID NOT ACCEPT THE SAME BY NOTING THAT IN THE IMMEDIATE PRECEDING ASSESSMENT, THE INTEREST FREE A DVANCE WERE GIVEN OUT OF BORROWED FUNDS AND HE OBSERVED THAT THE ASSESSEE HA D UTILIZED ONLY 26% OF THE BORROWED AND CASH CREDIT FACILITY FUNDS OF RS. 93, 34,32,584/- BY WAY OF GIVING INTEREST FREE ADVANCES TO ITS SUBSIDIARY COMPANY ON WHICH THE ASSESSEE HAD PAID INTEREST OF RS. 7,54,86,434/- ON THE ENTIRE BORROWE D FUND. ACCORDINGLY, PROPORTIONATE INTEREST ON INTEREST FREE ADVANCES WAS COMPUTED BY AO AT RS. 1,96,26,473/- BEING 26% OF THE TOTAL INTEREST PAID ON BORROWED AND CASH CREDIT ACCOUNT AND THIS AMOUNT WAS DISALLOWED. 9. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE SAME. 10. AGGRIEVED THE REVENUE IS BEFORE US. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. AT THE OUTSET, THE LD. A.R OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS AL SO COVERED IN FAVOUR OF THE ASSESSEE ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 4 | P A GE BY THE TRIBUNALS ORDER FOR AY 2002-03 AND AY 2003 -04 WHICH IS DISCERNIBLE FROM PAPER BOOK PG NOS. 10 TO 15 AND 17 RESPECTIVELY. WE NOTE THAT THE LD. CIT(A) HAS NOTED THAT THE ADVANCE WERE OUT OF ITS OWN FUNDS AN D IT WAS GIVEN TO ITS OWN SUBSIDIARY COMPANY WHICH IS IN THE SAME LINE OF HOT EL BUSINESS. ACCORDING TO ASSESSEE, ADVANCES TO ITS SUBSIDIARY WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY AND WHICH FACT WAS ACCEPTED BY THE LD C IT(A) AND WE NOTE THAT THE LD. CIT(A) HAS GIVEN THE DECISION IN FAVOUR OF THE ASSE SSEE BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN S.A. BUILDERS VS. CIT (200 6) 158 TAXMAN 74. THE LD. CIT(A)S DECISION COULD NOT BE CONTROVERTED BY THE REVENUE AND WE NOTE THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 AND 2003-04 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER: 19. IN THIS CASE, THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES AGAINST ISSUE OF SHARE CAPITAL AGGREGATING TO RS. 19,81,50,000/- IN FAVOUR OF ITS SUBSIDIARY COMPANY, ISLAND HOTEL MAHARAJ LTD. IN RESPONSE TO A QUERY FR OM THE A.O. REGARDING THE SOURCE OF FINANCE OF THE SAID ADVANCE, THE ASSESSEE HAD SU BMITTED DETAILS RELATING TO RS. 1,47,50,000/-, WHICH WAS INTRODUCED DURING THE RELE VANT PREVIOUS YEAR. THE SAID FUND WAS RECEIVED OUT OF THE PROCEEDS FROM REDEMPTION OF IDBI MUTUAL FUND. THE A.O. HAD .ASSUMED THAT THE BALANCE AMOUNT OF RS. 18,34,00,00 0/- I.E. THE OPENING BALANCE WAS PARTLY FINANCED OUT OF INTEREST BEARING LOANS. THE A.O. HAD FURTHER ASSUMED THAT 46% OF THE SAID OPENING BALANCE WAS OUT OF BORROWED FUN D AND HE HAD APPLIED INTEREST @ 5.95% ON SUCH AMOUNT, WHICH WAS CONSIDERED AS BORRO WED FUND. IN THE PROCESS, THE A.O. HAD DISALLOWED RS.50,19,658/- OUT OF THE TOTAL INTEREST CLAIM OF THE ASSESSEE. THE LD.CIT(A) HAD CONFIRMED THE DISALLOWANCE MADE BY TH E A.O. 20. THE AR DURING THE COURSE OF THE HEARING HAD ARG UED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS IN ITS SUBSIDIARY COMP ANY IN THE EARLIER YEARS ONLY OUT OF ITS OWN FUND. HE HAD SUBMITTED THAT THE CONCLUSI ON OF THE A.O. IS NOT BASED ON ANY COGENT FINDINGS BUT ON ASSUMPTIONS. THE LEARNED AR HAD ALSO RELIED ON A RECENT DECISION OF THE JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE OF CIT -VS-BRITANNIA INDUSTRIES LTD. REPORTED IN 280 ITR 525 (CAL). AT P AGE 533, THE HONBLE HIGH COURT HAS NOTED IF THERE IS SURPLUS AND THE ADVANCE IS M ADE OUT OF THE MIXED FUNDS, IN THAT EVENT, IT CANNOT BE SAID THAT THE AMOUNT BORROWED A S CAPITAL FROM THE BANK WAS ADVANCED, IN ORDER TO DENY THE BENEFIT OF SECTION 3 6(1 )(III). IN THE PRESENT CASE, IF IT IS ESTABLISHED THAT THE PAYMENT WAS MADE FROM THE MIXE D ACCOUNTS AND THE ASSESSEE HAD SUFFICIENT FUNDS, THEN IT IS TO BE PRESUMED THAT TH E PAYMENT WAS MADE OUT OF ASSESSEES OWN FUND AND THAT THE BORROWED CAPITAL WAS NOT SIPH ONED OUT. IN FACT THE JURISDICTIONAL HIGH COURT HAS HELD THAT EVEN IF THE OVERDRAFT ACCOUNT HAD A DEBIT BALANCE, THE EARLIER CONCLUSION SHOULD NOT HAVE BEE N DIFFERENT. IN COMING TO THIS CONCLUSION, THE HONBLE HIGH COURT HAD RELIED ON A PLETHORA OF DECISIONS HELD BY THE SAME COURT EARLIER, SUCH AS, IN 132 ITR 219, 135 IT R 698, 147 ITR 392 & 161 ITR 820. IT WAS ARGUED BY THE AR THAT THE ADVANCES WERE MADE OUT OF MIXED BANK ACCOUNTS WHERE THE RECEIPTS OUT OF CURRENT SALES WERE CREDIT ED. THE AR HAD ALSO SUBMITTED THAT APART FROM SHOWING THE YEARS IN WHICH THE ADVANCES WERE MADE, WHICH WERE EARLIER TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL IT WAS SUBMITTED THAT SUCH ADVANCES WERE MADE OUT OF OWN FUNDS. IN FACT T HE REVENUE NEVER RAISED THIS ISSUE IN THE PAST WHILE HOLDING THAT THE OPENING BALANCE HAS BEEN FUNDED OUT OF THE ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 5 | P A GE BORROWED FUNDS AND THAT TOO WITHOUT ANY ANALYSIS AN D IGNORING THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT.' HENCE, FOLLOWING T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE AR ARGUED THAT THE A DVANCE AGAINST SHARE CAPITAL MADE TO THE SISTER CONCERN DID NOT CALL FOR ANY DISALLOW ANCE OUT OF THE TOTAL INTEREST CLAIM OF THE ASSESSEE. 21. AT THE TIME OF HEARING, THE AR OF THE ASSESSEE COMPANY HAD FURTHER CONTENDED THAT THE AMOUNT ADVANCED WAS TO A SUBSIDIARY COMPAN Y OF THE ASSESSEE AND SUCH ADVANCE WAS MADE AGAINST THE ISSUE OF SHARE CAPITAL . HE HAD ALSO CONFIRMED THAT THE SUBSIDIARY COMPANY, TO WHOM SUCH ADVANCE WAS MADE, HAD ACTUALLY ISSUED THE SHARE CAPITAL IN A SUBSEQUENT YEAR. THE NECESSARY DETAILS RELATING TO SUCH SHARE ISSUE IN FAVOUR OF THE APPELLANT I.E. EXTRACT FROM THE BOARD MEETING OF THE SUBSIDIARY COMPANY ALLOTTING SHARES TO THE ASSESSEE COMPANY WERE ALSO FILED BEFORE THE HONBLE BENCH. THE AR HAD CONTENDED THAT IT WAS NOT A CASE OF A NO RMAL LOAN BUT AN INTRODUCTION OF SHARE CAPITAL TO ITS SUBSIDIARY COMPANY. CONSEQUENT LY, THE ASSESSEE DID NOT CHARGE ANY INTEREST FROM THE SUBSIDIARY COMPANY, SINCE IT HAD CONTRIBUTED TOWARDS ITS SHARE CAPITAL. 22. THE AR OF THE ASSESSEE COMPANY HAD ALSO CONTEND ED THAT THE ASSESSEE COMPANY HAD INTRODUCED FUNDS TO ITS SUBSIDIARY COMP ANY FROM TIME TO TIME TO PROTECT ITS ORIGINAL INVESTMENT. THE SUBSIDIARY COMPANY WAS NOT DOING WELL COMMERCIALLY DURING THAT, PERIOD AND NEEDED FINANCIAL SUPPORT FR OM THE PARENT COMPANY, WHICH, IS ALSO EVIDENT FROM THE ANNUAL ACCOUNTS OF THE SUBSID IARY COMPANY, WHICH FORM PART OF THE PAPER BOOK FILED BY THE ASSESSEE COMPANY. HE FU RTHER RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS L TD. -VS- CIT REPORTED IN 288 ITR 1 (SC), WHEREIN THE HONBLE SUPREME COURT HAD HELD THAT IN CASE AN AMOUNT IS ADVANCED TO A SISTER CONCERN AS A MEASURE OF COMMER CIAL EXPEDIENCY, THE CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST CANNOT BE DENIED M ERELY BECAUSE SUCH ADVANCE WAS MADE OUT OF BORROWED FUND. THE HONBLE APEX COURT H AD FURTHER HELD THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPEND ITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINES S OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN T HE ARM CHAIR OF THE BUSINESS MAN OR IN THE POSITION OF BOARD OF DIRECTORS AND ASSUME TH E ROLE TO DECIDE HOWEVER WHICH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCE OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT . THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER BE FORE THEIR OWN POINT OF VIEW BUT THAT OF A PRUDENT BUSINESSMAN. ACCORDING TO THE HONBLE COURT, ONE SHOULD SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY FROM THE POINT OF VIEW WHETHE R THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. ACCORDING TO THE AR, THE ASSESSEE COMPANY HAD ADVANCED THE MONEY OUT OF BORROWED FUNDS BUT FROM ITS OWN SOURCES FOR WHICH NO INTEREST WAS CLAIMED AS A DEDUCTION. EVEN ASSUMING BUT NOT ADMITTING THAT A P ART OF THE ADVANCE AGAINST THE SHARE CAPITAL WAS MADE OUT OF BORROWED FUNDS, IT IS BEYOND DOUBT THAT SUCH INTRODUCTION OF FUNDS WERE MADE OUT OF COMMERCIAL E XPEDIENCY AND FOLLOWING THE DECISION OF THE SUPREME COURT, NO DISALLOWANCE OUT OF THE INTEREST CLAIM SHOULD BE CALLED FOR. 23. AT THIS POINT, THE HONBLE BENCH HAD DIRECTED T HE AR TO PROVE THAT THE ADVANCE WAS MADE AS A MEASURE OF COMMERCIAL EXPEDIENCY, SIN CE, IN THE SAID DECISION, THE HONBLE SUPREME COURT HAD ALSO SAID THAT IT IS NOT THE CASE THAT IN EACH & EVERY ISSUE, INTEREST ON BORROWED LOAN SHOULD BE ALLOWED, IF ADV ANCES ARE MADE TO A SISTER CONCERN. FOR INSTANCE, IF DIRECTORS OF A SISTER CON CERN UTILIZED THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVI OUSLY, IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPED IENCY. THE AR OF THE ASSESSEE ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 6 | P A GE HAD AGAIN RELIED ON THE SAID DECISION OF THE SUPREM E COURT, WHEREIN IT IS STATED HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPAN Y HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANC ES THE BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY F OR SOME BUSINESS PURPOSES, THE ASSESSEE WOULD IN OUR OPINION, ORDINARILY BE ENTITL ED TO DEDUCTION OF INTEREST ON ITS BORROWED MONIES. THE AR FURTHER RELIED ON THE ANNU AL ACCOUNTS OF THE SISTER CONCERN I.E. ISLAND HOTEL MAHARAJ LTD, WHICH WAS PL ACED ON RECORD AND FORM PART OF THE PAPER BOOK. IT WAS NOTED BY HONBLE BENCH THAT THE SUBSIDIARY COMPANY HAD AN ACCUMULATED LOSS OF RS. 17,97,33,271/- TILL 31ST MA RCH, 20021 I.E. THE LAST DAY OF THE RELEVANT PREVIOUS YEAR. ON A SCRUTINY OF THE LOANS & ADVANCES, APPEARING IN ITS ANNUAL ACCOUNTS, IT WAS ALSO APPARENT THAT ADVANCES WERE M AINLY GIVEN FOR RUNNING THE BUSINESS, SECURITY DEPOSITS AND INCOME TAX PAYMENTS . IT IS NOTED FROM THE AUDIT REPORT (PAGE 26 OF THE PAPER BOOK) THAT NO LOAN OR ADVANCE WAS GIVEN TO ANY OF THE DIRECTORS OR TO ANY COMPANY/FIRM, IN WHICH THE DIRECTORS WERE INTERESTED, WHICH IS PREJUDICIAL TO THE INTEREST OF THE COMPANY. ON A QUERY FROM THE BE NCH IT WAS CLARIFIED THAT THE ASSESSEE COMPANY WAS HOLDING APPROXIMATELY 88% SHAR ES IN THE SISTER CONCERN TO WHICH THE ADVANCES WERE MADE. 24. HENCE ACCORDING TO THE AR, THE ADVANCE AGAINST SHARE CAPITAL WAS MADE TO SAFEGUARD ITS ORIGINAL INVESTMENT, SINCE THE SUBSID IARY COMPANY WAS NOT DOING WELL COMMERCIALLY AND THE FUNDS INTRODUCED WERE UTILIZED BY THE SUBSIDIARY COMPANY TO CARRY ON ITS DAY-TO-DAY OPERATIONS ARID SERVICING O F ITS INTEREST LIABILITY. 25. ON THE OTHER HAND, THE LD. REPRESENTATIVE FOR T HE REVENUE HAD CONTENDED THAT THE JUDGMENTS RELIED UPON BY THE AR OF THE ASSESSEE CAN NOT BE APPLIED, SINCE THE FACTS OF THE ASSESSEES CASE APPEARS TO BE DIFFERENT. 26. HAVING CAREFULLY CONSIDERING THE ARGUMENTS OF B OTH SIDES AND GOING THROUGH THE WRITTEN SUBMISSIONS FILED FROM TIME TO TIME, IT IS NOTED THAT THE ASSESSEE COMPANY HAD, IN FACT, INTRODUCED THE FUNDS TO ITS SUBSIDIARY COM PANY FROM TIME TO TIME ACCORDING TO ITS REQUIREMENTS. MOREOVER, THE ASSESSES COMPANY HE LD APPROXIMATELY 88% SHARES OF THE SAID SUBSIDIARY COMPANY. THE AMOUNT INVESTED BY THE ASSESSES COMPANY TILL 31ST MARCH, 2002 WAS RS.11.35 CRORES. IT IS ALSO NOTED T HAT FROM THE ANNUAL ACCOUNTS OF THE SUBSIDIARY COMPANY THAT TILL 31 ST MARCH, 2002 (PAGE 39 OF THE PAPER BOOK) THE FINANCIAL FIGURES WERE AS UNDER : POSITION OF MOBILIZATION AND DEPLOYMENT OF FUNDS (A MOUNT IN RS.000) TOTAL LIABILITIES 687.062 TOTAL ASSETS 687.062 SOURCES OF FUNDS PAID UP CAPITAL 128,500 ADVANCE AGAINST ISSUE OF SHARES 198,150 RESERVE & SURPLUS 15,273 SECURED LOANS 314,944 APPLICATIONS OF FUNDS NET FIXED ASSETS 453.626 INVESTMENTS NIL NET CURRENT ASSETS 453.626 INVESTMENTS NIL NET CURRENT ASSETS 23,508 MISCELLANEOUS EXPENDITURE NIL ACCUMULATED LOSSES 179,733 ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 7 | P A GE 27. ON A PERUSAL, IT IS APPARENT THAT THE SISTER CO NCERN TO WHICH THE FUNDS WERE INTRODUCED HAD HUGE ACCUMULATED LOSS AND WAS DEPEND ENT ON THE HOLDING COMPANY FOR ITS DAY TO DAY OPERATIONS AND TO PAY INTEREST ON SU BSTANTIAL AMOUNT OF SECURED LOANS. 28. CONSIDERING THE SIZEABLE INVESTMENTS MADE, THE ASSESSEE COMPANY HAD NOT OTHER OPTION BUT TO MAKE ADDITIONAL INVESTMENT IN ORDER T O PROTECT ITS FINANCIAL INTEREST. THERE IS NO FINDING BY THE LOWER AUTHORITIES THAT A NY FUND WAS SIPHONED OFF BY THE SISTER CONCERN. MOREOVER, FROM THE ANNUAL ACCOUNTS OF THE SISTER CONCERN, IT IS EVIDENT THAT NO LOAN WAS GIVEN TO ANY OF THE DIRECTORS OR T O ANY FIRM/COMPANY IN WHICH SUCH DIRECTOR WAS INTERESTED. IN FACT, IT WAS REPORTED B Y THE AUDITORS OF THAT THE RECIPIENT COMPANY, I.E. ISLAND HOTEL MAHARAJ LTD., THAT IT DI D NOT ADVANCE ANY SUM TO ANY -OF ITS DIRECTOR OR ANY OTHER FIRM /COMPANY IN WHICH SUCH D IRECTOR IF INTERESTED. HAVING SAID THIS AND, RELYING ON THE DECISION OF S.A. BUILDERS LTD (SUPRA), WE ARE AGREE WITH THE AR THAT THE ADVANCE IN QUESTION WAS TOWARDS EQUITY AND GIVEN FROM TIME TO TIME OUT OF PURE COMMERCIAL EXPEDIENCY AND TO PROTECT ITS OWN F INANCIAL INTEREST. 29. EVEN OTHERWISE, WE NOTE THAT THE ADVANCES GIVEN BY THE ASSESSEE COMPANY FROM TIME TO TIME WAS AGAINST THE ISSUE OF SHARE CA PITAL. IT HAS BEEN PLACED ON RECORD THAT THE ASSESSEE WAS ACTUALLY ALLOTTED SHARES IN A SUBSEQUENT YEAR OUT OF THE ADVANCES PAID. HENCE IT IS NOT THE CASE THAT THE FUNDING WAS FOR A TEMPORARY ADJUSTMENT AND HENCE SHOULD NOT BE EQUATED WITH A NORMAL LOAN. IF THAT BE SO, THERE SHOULD NOT BE ANY QUESTION OF INTEREST PAYABLE ON A PERMANENT FUND IN TRODUCED BY THE ASSESSEE COMPANY FORMING PART OF THE CAPITAL OF THE SISTER CONCERN. IN THE BALANCE SHEET OF THE .SISTER CONCERN ALSO, THE AMOUNT HAS BEEN SHOWN AS FORMING PART OF THE SHAREHOLDERS FUND. 30. EVEN REGARDING THE SOURCE OF FUNDS, WE DISAGREE THAT THE ACTION OF THE A.O. WHO HAS MADE AN AD-HOC ALLOCATION AND CAME TO A CON CLUSION THAT PART OF THE TOTAL ADVANCES WAS FUNDED OUT OF BORROWED CAPITAL AND IGN ORING THE DECISION OF JURISDICTIONAL CALCUTTA HIGH COURT IN THE CASE BIL (SUPRA). 31. HAVING CONSIDERED ALL THESE FACTORS, WE ARE OF THE VIEW, THAT THE DISALLOWANCE MADE BY THE A.O HAD NO REASONABLE BASIS AND SHOULD BE DELETED IN FULL. 12. SINCE THE REVENUE COULD NOT POINT OUT ANY CHANG E IN FACTS OR LAW ON THIS ISSUE FROM THAT OF THE AY 2002-03, WE ARE INCLINED TO FO LLOW THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03 AND 2003-04, SO WE CONFIRM THE ACTION OF LD. CIT(A) AND DISMISS THE GROUND NO.2 RAISED BY THE RE VENUE. 13. GROUND NO. 3 IS AGAINST THE ACTION OF LD. CIT(A ) IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 8,98,027/- ON ACCOUNT OF AD VERTISEMENT EXPENSES. 14. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS T HAT DESPITE REQUESTING THE ASSESSEE TO FURNISH DETAILS OF EXPENDITURE OF ADVERTISEMENT IN A FORMAT PRESCRIBED IN THE NOTICE U/S 142(1) OF THE ACT, THE ASSESSEE ONLY FURNISHED DETAILS IN RESPECT OF THE AGRA AND UDAIPUR UNIT, BUT NO DETAILS HAVE BEEN FURNISHED IN RESPECT OF JAIPUR UNIT. ACCORDING ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 8 | P A GE TO AO, THE ASSESSEE HAS DEBITED RS. 89,80,273/- UND ER THIS HEAD. AND SINCE THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS AS CALL ED FOR, THE AO WAS PLEASED TO MAKE DISALLOWANCE OF 10% OF TOTAL EXPENDITURE CREDI TED AND DISALLOWED RS. 8,98,027/-. 15. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE SAME. 16. AGGRIEVED THE REVENUE IS BEFORE US. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. AT THE OUTSET IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE TRIBUNAL IN ASS ESSEES OWN CASE FOR AY 2002-03 HAS RESTRICTED THE DISALLOWANCE AT 2% OF THE ESTI MATE. WE NOTE THAT IN ASSESSEES OWN CASE FOR AY 2003-04 THE TRIBUNAL HAS DECIDED TH E ISSUE AS UNDER: 38. IN THIS GROUND THE ASSESSEE HAD CHALLENGED THE AD HOC DISALLOWANCE OF RS. 7,78,744/- BEING 10% ON ADVERTISING EXPENSES. THIS GROUND IS MORE OR LESS SIMILAR TO THE GROUND NO. 8 OF THE EARLIER YEAR, I.E. ITA NO. 724/KOL/2007. THE AO HAD MADE THE DISALLOWANCE ON THE ALLEGATION THAT FULL DETAILS WE RE NOT PROVIDED BY THE ASSESSEE WHILE A.R HAD CONTENDED THAT DETAILS WERE FILED THOUGH NO T IN THE SAME FORMAT AS DIRECTED BY THE AO. WE HAD ALREADY HELD IN THE ORDER FOR THE EA RLIER YEAR THAT NON BUSINESS EXPENSES CANNOT BE TOTALLY RULED OUT AND HAD HELD T HE ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. HOWEVER, IN THAT YEAR THE AO HAD MADE THE AD HOC DISALLOWANCE @ 2%, WHILE THIS YEAR WITHOUT ANY ADDITIONAL REASON HAD INCREASED THE DISALLOWANCE TO 10%. FOLLOWING THE ORDER FOR AY 2002-03, WE HOLD TH E ISSUE IN FAVOUR OF THE REVENUE. HOWEVER, THE DISALLOWANCE SHOULD BE RESTRICTED TO 2 % OF THE ADVERTISING EXPENSES. 18. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION IN ASSESSEES OWN CASE WE RESTRICT THE DISALLOWANCE AT 2% OF THE ADVERTISING EXPENSES THUS, REVENUES GROUND NO. 3 IS PARTLY ALLOWED. 19. GROUND NO. 4 IS AGAINST THE ACTION OF LD. CIT(A ) IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 6,20,487/- ON ACCOUNT OF STAFF WELFARE EXPENSES. 20. BRIEF FACTS OF THE CASE AS NOTED BY THE AO IS THAT THE ASSESSEE HAS DEBITED RS. 63,01,109/- UNDER THE HEAD STAFF WELFARE EXPENSES . THE AO ASKED THE ASSESSEE BY RAISING QUESTION NO. 9 IN THE NOTICE DATED 21 ST AUGUST, 2006. FROM THE DETAILS ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 9 | P A GE FURNISHED IN THIS RESPECT, THE AO NOTED THAT SUBST ANTIAL PART OF THE EXPENSES WERE BOOKED BY DIFFERENT UNITS OF THE ASSESSEE-COMPANY R ELATES TO EMPLOYEES MEALS ON DUTY, MEDICAL EXPENSES, MEDI-CLAIM INSURANCE, UNIFO RM EXPENSES, RECRUITMENT EXPENSES, EMPLOYEES RELATION EXPENSES. ACCORDING T O AO, RECRUITMENT EXPENSES AT TRIDENT, JAIPUR WAS CLAIMED AT RS. 2,42,245/- AND EMPLOYEES RELATION EXPENSES AT TRIDENT, JAIPUR AT RS. 1,85,650/- AND RS. 1,92,592/ - AT TRIDENT, UDAIPUR HAVE BEEN INCLUDED UNDER THIS HEAD. THE AFORESAID EXPENSES AC CORDING TO AO DO NOT RELATE TO STAFF WELFARE. ACCORDING TO AO, IN THE EARLIER ASS ESSMENT YEARS, EXPENSES ON ACCOUNT OF FESTIVAL GIFT, DIWALI SWEETS, ETC. HAD B EEN SHOWN BY THE ASSESSEE AS INCURRED ON STAFF WELFARE WHICH HAD BEEN DISALLOWE D AS NOT BEING RELATED TO STAFF WELFARE OF THE ASSESSEE-COMPANY. FOR THIS ASSESSMEN T YEAR ALSO, THE ASSESSEE HAD CLAIMED SUCH EXPENSES WHICH ARE AGAIN DISALLOWABLE. THEREFORE, RS. 6,20,487/- WAS DISALLOWED OUT OF THE PURPORTED STAFF WELFARE EXPEN SES AND ADDED BACK TO THE TOTAL INCOME OF THE YEAR. 21. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER: 7.3.1. THESE AMOUNTS PERTAIN TO EMPLOYEE MEALS ON DUTY, MEDICAL EXPENSES, MEDICAL INSURANCE, UNIFORM EXPENSES, RECRUITMENT EXPENSES, EMPLOYEES RELATION- THESE ARE ALL EXPENSES INCIDENTAL TO CARRYING ON OF THE BUSINESS. IN THE HOTEL INDUSTRY, PERSONNEL/EMPLOYEES ARE CRUCIAL. THESE EXPENSES ARE LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND THUS ARE ALLOWABLE U/S 37(1). DCIT, AOS OTHER MENTION THAT SOME SUCH EXPENSES WE RE DISALLOWED IN EARLIER AY ASSESSMENT, IS NO REASON TO NOT ALLOW HERE IN APPEA L. 22. AGGRIEVED THE REVENUE IS BEFORE US. 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE NOTE THAT THE BREAK-UP OF THE AMOUNT DISALLOWED IS AS UNDER: (I) STAFF RECRUITMENT EXPENSES AT TRIDENT, JAIPUR RS. 2,42,245/- (II) EMPLOYEES RELATION EXPENSES AT TRIDENT, JAIPU R RS. 1,86,650/- (III) EMPLOYEES RELATION EXPENSES AT TRIDENT, UDAIP UR RS. 1,92,592/- TOTAL RS. 6,20,487/- ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 10 | P A GE IT IS NOTED THAT THE STAFF RECRUITMENT EXPENSES WER E INCURRED ONLY EXCLUSIVE FOR THE PURPOSE OF BUSINESS AND HENCE ALLOWABLE EXPENDITURE . WE NOTE THAT THE EXPENSES ON ACCOUNT OF EMPLOYEES RELATION EXPENSES TO THE TUNE OF RS. 3,78,242/- WAS INCURRED FOR EFFICIENT FUNCTIONING OF THE BUSINESS WHICH PER TAINS TO EMPLOYEES MEALS ON DUTIES, MEDICAL EXPENSES, MEDICAL INSURANCE, UNIFORM EXPENS ES ETC. AND THESE EXPENSES ARE INCIDENTAL TO CARRYING ON THE BUSINESS WHICH IS CRU CIAL IN THE HOTEL INDUSTRY. THEREFORE, IT SATISFIES THE CONDITION THAT IT WAS E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THUS ALLOWABLE U/S 37(1 ) OF THE ACT. THEREFORE, WE CONFIRM THE ORDER OF LD. CIT(A) AND THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2021. SD/- SD/- (J.S. REDDY) (A. T . VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15.03.2021 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- DCIT, CIRCLE-8(1), KOLKATA 2. RESPONDENT M/S EIH ASSOCIATED HOTELS LTD. (SUCCES SOR IN INTEREST TO INDUS HOTELS CORP. LTD.) 4, MANGOE LANE, KOLKATA-700001. 3. THE CIT(A)- 8, KOLKATA (SENT THROUGH E-MAIL) 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES, KOLKATA ITA NO.1433/KOL/2018 M/S EIH ASSOCIATED HOTELS LTD. (SUCCESSOR IN INTERE ST TO INDUS HOTELS CORP. LTD.) A.Y. 2004-05 11 | P A GE