ACIT, Circle-8(2), Kolkata, Kolkata V. M/s Oberoi Hotels Pvt. Ltd., Kolkata

ITA 2000/KOL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8315 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 17-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: A K GUPTA
• Keywords: Depreciation; Business expenditure; Double taxation relief; Earning of tax free income; Corroborative evidences; Revised return; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NOS. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 ASSISTANT COMMISSIONER OF INCOME TAX,..... .........APPELLANT CIRCLE-8(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. OBEROI HOTELS (P) LIMITED,.................... ...............................RESPONDENT 4, MANGOE LANE, KOLKATA-700 001 [PAN: AAACO 3408 K] APPEARANCES BY: DR. P.K. SRIHARI, CIT (D.R.), FOR THE APPELLANT SHRI A.K. GUPTA, FCA, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 24, 2019 DATE OF PRONOUNCING THE ORDER : APRIL 12, 2019 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KOLKATA ZONE) :- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-12, KO LKATA DATED 30.08.2016. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN HOLDING THAT RULE 8D IS NOT APPLICA BLE IN THE CASE OF THE ASSESSEE AND THEREBY DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF RUNNING HOTELS AND PROVIDING TECHNI CAL SERVICES FOR OPERATING HOTELS. THE RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 2 WAS FILED BY THE ASSESSEE ON 09.10.2010 DECLARING T OTAL INCOME OF RS.5,42,98,180/-. SUBSEQUENTLY A REVISED RETURN WAS FILED BY THE ASSESSEE ON 15.02.2012 DECLARING TOTAL INCOME OF RS.5,43,63, 946/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESEE-COMPANY HAD EARNED DIVIDEND INCOME OF RS.10,88,37,814/- ON THE INVESTMENT MADE IN SHARES AND UNITS OF MUTUAL FUNDS AND THE SAME WAS CLAIMED TO BE EXEMPT FROM TA X. AS NOTICED BY THE ASSESSING OFFICER, THE ASSESSEE-COMPANY HAD DISALLO WED ONLY THE DIRECT EXPENSES AND INDIRECT EXPENSES AS PER RULE 8D READ WITH SECTION 14A OF THE ACT AND NO DISALLOWANCE UNDER RULE 8D(2)(III) C ALCULATED AT THE RATE OF 0.5% OF THE AVERAGE OF THE VALUE OF INVESTMENT W AS MADE BY THE ASSESSEE. HE ACCORDINGLY WORKED OUT SUCH DISALLOWA NCE ON ACCOUNT OF COMMON ADMINISTRATIVE AND MANAGERIAL EXPENSES, WHIC H THE ASSESSEE MIGHT HAVE INCURRED FOR EARNING EXEMPT INCOME AS PE R RULE 8D(2)(III) AT RS.82,81,539/- AND MADE ADDITION TO THE EXTENT TO T HE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 23.03.2013. 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A READ WITH RULE 8D(2)(III) WAS CHALLENGED BY THE ASS ESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDE RING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILA BLE ON RECORD, THE LD. CIT(APPEALS) DELETED THE SAME FOR THE FOLLOWING REA SONS GIVEN IN PARAGRAPH NO. 2.3 OF HIS IMPUGNED ORDER:- 2.3. THE SUBMISSION OF THE APPELLANT ALONG WITH TH E SUPPORTING DETAILS/ EVIDENCES HAVE BEEN CAREFULLY C ONSIDERED AND THE FACTS OF THE CASE PERUSED. THE COMMON ISSUE INVOLVED THESE GROUNDS OF APPEAL IS THE APPLICATION OF RULE 8D OF INCOME TAX RULES, 1962 ('RULES') FOR DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 ('THE ACT'). IN THE RETURN OF INCOME, THE APPELLANT TREATED INTEREST AND DEMAT CHARGES ARE TH E ONLY EXPENSES RELATABLE TO TAX FREE DIVIDEND INCOME AND OFFERED RS.10,90,01,363/- AS EXPENDITURE DISALLOWABLE U/S 1 4A OF THE ACT. FURTHER, DURING THE APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THAT INTEREST INCOME ON BANK DEPOSIT AMOU NTING TO RS.15,49,776/- SHOULD BE NETTED OFF FROM THE INTERE ST ALREADY OFFERED U/S 14A OF THE ACT IN COMPUTATION. THE AO D ID NOT CONSIDER THIS SUBMISSION OF THE APPELLANT. IN THIS REGARD, THE APPELLANT PLACED RELIANCE ON THE DECISION OF THE JU RISDICTIONAL I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 3 ITAT, KOLKATA IN THE CASE OF DCIT VS M/S. TRADE APA RTMENT LTD (ITA NO.1277/KOL/2011). NOW THE ISSUES ARE DEALT HEREIN BELOW ONE BY ONE: 1. SO FAR AS THE APPLICABILITY OF RULE 8D IS CONCER NED, THIS ISSUED HAS BEEN DEALT BY THE ITAT, KOLKATA IN THE C ASE OF THE APPELLANT ITSELF IN ITA NO.1030/KOL/2012 FOR AY 200 8-09. THE RELEVANT PORTION OF THE ITAT ORDER IS REPRODUCED AS FOLLOWS: ''''WE ARE ALSO OF THE VIEW THAT THE PRIMARY OBJECT OF INVESTMENT OF ASSESSEE IS FOR HOLDING CONTROLLING S TAKE IN GROUP CONCERNS AND NOT FOR EARNING OF INCOME OUT OF THAT INVESTMENT, IN BOTH THE EVENTUALITIES, NO DISALLOWANCE CAN BE M ADE U/S 14A OF THE ACT READ WITH RULES 8D OF THE RULES. ACCORDI NGLY, THIS ISSUE OF ASSESSEE'S APPEAL IS ALLOWED. ' CONSIDERING THE DECISION OF ITAT KOLKATA AS MENTION ED ABOVE, I HOLD THAT RULE 8D IS NOT APPLICABLE IN THE CASE OF THE APPELLANT. 2. ONCE IT IS DECIDED THAT RULE 8D IS NOT APPLICABL E, THE OTHER CLAIM OF THE APPELLANT WITH REGARD TO COMPUTATION O F EXPENSE U/S 14A OF THE ACT NEEDS TO BE DISCUSSED. FIRST CLA IM OF THE APPELLANT IS NETTING OFF OF INTEREST EARNED WITH IN TEREST INCURRED. THIS IS ADDITIONAL CLAIM OF THE APPELLANT MADE DURING THE ASSESSMENT PROCEEDINGS. IN EARLIER YEARS, THE R ESPECTIVE CIT(A) HAS ALREADY HELD THAT NET INTEREST (REDUCING INTEREST EARNED FROM GROSS INTEREST PAID) NEEDS TO BE CONSID ERED FOR THE PURPOSE OF SECTION 14A OF THE ACT. ACCORDINGLY, I D IRECT THE AO TO CONSIDER RS.10,72,88,038/- AS INTEREST DISALLOWA BLE U/S 14A OF THE ACT INSTEAD OFRS.10,88,37,814/- AS INTEREST PAID. 3. THE SAME ISSUE AROSE FOR MY CONSIDERATION AS WHE THER FOREIGN INVESTMENT SHOULD BE CONSIDERED OR NOT FOR THE PURPOSE OF CALCULATION OF AVERAGE INVESTMENT AS MENTIONED I N RULE 8D OF THE INCOME TAX RULES 1962. UNDER THE IDENTICAL SET OF FACTS, AS HELD IN MY PREVIOUS ORDER, I AGREE WITH THE APPELLA NT THAT THE INVESTMENTS IN FOREIGN COMPANY SHOULD NOT BE CONSID ERED WHILE COMPUTING THE AVERAGE INVESTMENT FOR THE PURPOSE OF RULE SD. THE APPELLANT HAS TAKEN THIS GROUND AS WITHOUT PREJ UDICE. SINCE IN THE PRECEDING PARAGRAPHS, FOLLOWING THE TRIBUNAL S ORDER IN THE CASE OF THE APPELLANT ITSELF, I HAVE HOLD THAT RULE 8D IS NOT APPLICABLE, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. VIDE GROUND 15 THE APPELLANT HAS CHALLENGED THE APP LICABILITY OF RULE 8D FOR THE PURPOSE OF COMPUTATION OF BOOK P ROFIT UNDER THE MAT PROVISIONS. IN THIS REGARD, THE APPELLANT R ELIED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F CIT -VS.- JAYSHREE TEA & INDUSTRIES LTD. [G.A. NO. 1501 OF 20 14 DATED 19- 11-2014] WHEREIN IT HAS BEEN HELD THAT PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COMPLETE CO DE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SECTION 1 4A OF THE ACT. I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 4 UNDER THE SIMILAR FACTS AND DISCUSSIONS IN THE PREC EDING PARAGRAPHS, I HELD THAT RULE 8D IS NOT APPLICABLE F OR THE PURPOSE OF COMPUTATION OF BOOK PROFIT. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE LD. D.R. HAD CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN HO LDING THAT RULE 8D IS NOT APPLICABLE IN THE ASSESSEES CASE, THE LD. COUN SEL FOR THE ASSESSEE HAS CONTENDED THAT TOTAL DISALLOWANCE OF RS.10,90,01,36 3/- WAS SUO MOTU OFFERED BY THE ASSESSEE UNDER SECTION 14A AND THE S AME BEING MORE THAN THE EXEMPT DIVIDEND INCOME OF RS.10,88,37,814/- REC EIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, A FUR THER DISALLOWANCE MADE BY THE ASSESSING OFFICER WHICH EXCEEDED EVEN T HE EXEMPT DIVIDEND INCOME IS NOT SUSTAINABLE. SINCE THIS CONTENTION RA ISED BY THE LD. COUNSEL FOR THE ASSESSEE IS DULY SUPPORTED BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LI MITED VS.- CIT (372 ITR 694), WE UPHOLD THE IMPUGNED ORDER OF THE LD. C IT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDE R SECTION 14A AS THE SAID DISALLOWANCE RESULTED INTO A TOTAL DISALLOWANC E UNDER SECTION 14A, WHICH WAS MORE THAN THE EXEMPT DIVIDEND INCOME ACTU ALLY EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. GROUN D NO. 1 IS ACCORDINGLY DISMISSED. 6. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN ACCEPTING THE ALV OF THE ASSESSEES HOUSE PROPERTY AT RS.3,60,000/- THEREBY REJECTING THE FAIR MARKET REN T OF RS.1,20,00,000/-. 7. THE BUILDING AT BIJWASAN, NEW DELHI OWNED BY THE ASSESSEE WAS LET OUT DURING THE YEAR UNDER CONSIDERATION ON RENT TO M/S. EIH LIMITED ON A MONTHLY RENT OF RS.30,000/-. THE RENTAL INCOME RECE IVED IN RESPECT OF THE SAID PROPERTY AMOUNTING TO RS.3,60,000/- WAS OFFERE D TO TAX BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AFTER CLAIMING STANDARD DEDUCTION UNDER SECTION 24(A). IN THE EARL IER YEARS RELEVANT TO I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 5 A.YS. 2007-08, 2008-09 AND 2009-10, THE ANNUAL VALU E OF THE SAID PROPERTY WAS TAKEN BY THE AO AT RS.1,20,00,000/- BE ING THE FAIR MARKET RENT FOR WHICH THE PROPERTY WAS EXPECTED TO LET FRO M YEAR TO YEAR. KEEPING IN VIEW THAT THERE WAS NO CHANGE IN THE FAC TUAL POSITION, THE ASSESSING OFFICER ADOPTED THE ANNUAL VALUE OF THE P ROPERTY AT RS.1.20 CRORES BY FOLLOWING THE STAND TAKEN IN THE EARLIER YEARS AND COMPUTED THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AFTER ALLOWING DEDUCTION UNDER SECTION 24(A) AT RS. 84 LAKHS AS AGAINST THE INCOME OF RS.2,52,000/- OFFERED BY THE ASSESSEE, WH ICH RESULTED IN THE ADDITION OF RS.81,48,000/-. 8. THE ADDITION OF RS.81,48,000/- MADE BY THE ASSES SING OFFICER UNDER THE HEAD INCOME FROM HOUSE PROPERTY WAS CHALLENGE D BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AF TER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MAT ERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED THE SAID ADDIT ION FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.2 OF HIS IMPUGNED ORDER:- 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE APPELLANT ALONG WITH THE SUPPORTING EVIDENCES FURNISHED AND PERUSED THE FACTS OF THE CASE. IT IS SEEN THAT THE APPELLANT COMPANY OWNS A PROPERTY AT BIJWASAN, KAPASERA, A SUBURB OF NEW DELHI. VIDE AN AGREEMENT DATED 28-06-2007 WITH AN ASSOCIATED COMPANY, THE APPELLANT HAD LET OUT THE PROPERTY ON RENT AT AN AGREED CONSIDERATION OF RS.30,000/- P.M. HOWEVER, FOLLOWING THE EARLIER YEARS, THE A.O. WHIL E COMPUTING THE INCOME OF THE APPELLANT, HAD CONSIDER ED THE RENT AT RS. 10 LAKH P.M. ACCORDINGLY, THE A.O. REJECTED THE ANNUAL RENT RECEIVED BY THE APPELLANT AS PER THE AGREEMENT, I.E. RS.3,60,000/- AND SUBSTITUT ED IT BY A SUM OF RS.1,20,00,000/-. I FIND THAT THIS ISSUE IS SQUARELY COVERED IN APPEL LANT'S OWN CASE FOR EARLIER ASSESSMENT YEARS I.E. 2006-07, 2007-08 AND 2008-89. IN THE EARLIER ORDER IN APPEAL NO. 246/CIT(A)-VIII/KOL/10-11 AND 187/CIT(A)- VIII/KOL/11-12 FOR ASSESSMENT YEARS 2008-09 AND 2009-10 RESPECTIVELY, IT HAS BEEN HELD THAT THE A.O . CAN NOT DEVIATE FROM HIS POSITION MERELY BASED ON I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 6 ASSUMPTION, SURMISE AND CONJECTURE AND THAT THE ALLEGATION THAT THE APPELLANT MUST HAVE FETCHED MOR E RENTAL VALUE FROM THE SUBJECT PROPERTY HAS NOT BEEN PROVED BY THE A.O. THE A.O. COULD NOT ESTABLISH THA T THE APPELLANT HAD ACTUALLY RECEIVED ANYTHING EXTRA OVER AND ABOVE THE SUM AS AGREED UNDER THE AGREEMENT. IN THIS REGARD, IT IS WORTHWHILE TO MENTION HERE THAT THE ISSUED IS COVERED BY THE DECISION OF IT AT KOLKATA IN CASE OF THE APPELLANT ITSELF IN A. Y. 2007-08, 2008 -09 AND 2009-10. THE HON'BLE KOLKATA TRIBUNAL IN CASE O F THE ASSESSEE ITSELF IN ITA NO.1041/KOL/2012 FOR A.Y.2008-09 (DEPARTMENTAL APPEAL) ALLOWED THE APPEA L IN THE FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT AS MENTIONED IN THE POINT NO.23 OF THE ORDER IS REPROD UCED AS BELOW: 'WE FIND THAT THE AO ERRED IN DETERMINING AN ARBITR ARY ANNUAL VALUE OF PROPERTY BY HOLDING THAT SECTION 23 IS A DEEMING PROVISION AND DETERMINATION OF ANNUAL VALUE DOES NOT DEPEND ON ACTUAL REALIZATION OF RENT . THE AO WHILE APPLYING CLAUSE (A) OF SECTION 1 TO SECTION 23 IN THE ASSESSEE CASE FAILED TO APPRECIAT E THAT IN PRESENT CASE ACTUALLY LET OUT PROPERTY BEIN G A FARM HOUSE IS ON RENT TO EIH LIMITED AND IF A PROPE RTY IS ACTUALLY LET OUT, THEN THE EXPECTATION OF ITS LE TTING OUT BECOMES AN ACTUAL REALITY AND SUCH PROPERTY CANNOT BE EXPECTED TO LET FROM YEAR TO YEAR AT ANY FIGURE HIGHER THAN THE RENT WHICH IS BEING PRODUCED ACTUALLY BY THE PROPERTY IN QUESTION. HENCE, EVEN A S PER THE DEEMING PROVISION OF SECTION 23(1)(A), IN T HE CASE OF LET OUT PROPERTY, ONLY THE ACTUAL RENT RECE IVED WAS REQUIRED TO BE CONSIDERED AS ANNUAL VALUE OF PROPERTY. THE AO FAILED TO APPRECIATE SUCH ESTIMATI ON OF ANNUAL LETABLE VALUE AS PER PROVISION OF SECTION 23(1)(A) WAS CALLED FOR ONLY IN CASE OF VACANT PROP ERTY AND NOT WHERE THE PROPERTY WAS ACTUALLY LET OUT SIN CE IN THE CASE OF LET OUT PROPERTY, THE ASSESSEE WAS N OT ENTITLED TO ANYTHING OVER AND ABOVE THE AGREED RENT . THE SAID ACTION OF THE AO HAS RESULTED IN TAXING NOTIONAL INCOME IN THE HANDS OF THE ASSESSEE, WHICH NEVER ACCRUED AND HENCE CANNOT BE BROUGHT TO TAX. ACCORDINGLY, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND HENCE WE CONFIRM T HE ORDER OF THE CIT(A) ON THIS ISSUE. I ONCE AGAIN HOLD THAT THE A.O. CANNOT IGNORE THE A CTUAL RENT RECEIVED BY THE APPELLANT I.E. RS.30,000/- P.M. AND UNDER THE FACTS OF THE PRESENT CASE, HE CANNOT SUBSTITUTE THE SAID ACTUAL RENT BY ANY OTHER NOTIONAL FIGURE. ACCORDINGLY, THE A.O. IS DIRECTED TO COMPUTE THE INCOME OF THE APPELLANT BY CONSIDERING THE RENTAL INCOME AT RS. 30,000/- P.M. I.E RS.3,60,000/- FOR THE IMMEDIATE PREVIOUS YEAR. THUS , THIS I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 7 GROUND OF APPEAL OF THE APPELLANT IS ALLOWED IN FAV OUR OF THE APPELLANT. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE LD. D.R. HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER IN SUPPORT OF TH E REVENUES CASE ON THIS ISSUE, IT IS OBSERVED THAT THE ADDITION ON THIS ISS UE WAS MADE BY THE ASSESSING OFFICER BY FOLLOWING THE STAND TAKEN IN A SSESSEES OWN CASE FOR THE EARLIER YEARS AND THE LD. CIT(APPEALS) HAS DELE TED THE SAID ADDITION BY RELYING ON THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE ON A SIMILAR ISSUE FOR THE EARLIER YEARS, I.E. A.YS. 2007-08, 20 08-09 AND 2009-10. THE LD. CIT(APPEALS) THUS HAS FOLLOWED THE DECISION OF THE TRIBUNAL ON THE SIMILAR ISSUE RENDERED IN ASSESSEES OWN CASE FOR T HE EARLIER YEARS AND AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE SAID DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE CALCUTTA HI GH COURT. THIS ISSUE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EA RLIER YEARS, WHICH HAS BEEN UPHELD BY THE HONBLE CALCUTTA HIGH COURT AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO. 2 IS ACCORDINGLY DISMISSED. 10. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.5,12,71 ,228/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS EXPENDITURE ALLEGEDLY CLAIMED BY THE ASSESSEE. 11. AS NOTED BY THE ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE-COMPANY HAD EARNED ITS IN COME FROM THE FOLLOWING FOUR HEADS:- GUEST, ACCOMMODATION, RESTAURANTS, BARS & BANQUETS RS.3,57,60,056/ - I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 8 FEES FOR TECHNICAL SERVICES RENDERED RS.4,27,39,076/ - ROYALTY AND MEMBERSHIP FEES RS.10,84,95,779/ - OTHER INCOME (DIVIDEND, INTEREST, RENT ETC.) RS.12,22,99,497/ - TOTAL RS.30,92,94,408/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS REQUIRED BY THE ASSESSING OFFICER TO ALLOCATE THE EXPENDITUR E AGAINST EACH OF THE ABOVE FOUR HEADS OF INCOME. IN REPLY, A DETAILED WO RKING WAS FILED BY THE ASSESSEE AND FROM THE PERUSAL OF THE SAME, IT WAS N OTED BY THE ASSESSING OFFICER THAT NO EXPENDITURE WAS ALLOCATED BY THE AS SESSEE AGAINST THE HEAD ROYALTY AND MEMBERSHIP FEES. HE ALSO NOTED T HAT TOTAL EXPENDITURE WAS RS.21,37,58,604/- OUT OF WHICH EXPENDITURE ONLY TO THE EXTENT OF RS.14,01,83,6-7/- WAS ALLOCATED AGAINST THE DIFFERE NT HEADS OF INCOME OTHER THAN ROYALTY AND MEMBERSHIP FEES. ACCORDING TO THE ASSESSING OFFICER, THE BALANCE EXPENDITURE OF RS.7,35,74,997/ - THUS WAS CLAIMED TO BE INCURRED BY THE ASSESSEE AGAINST THE INCOME EARN ED FROM ROYALTY AND MEMBERSHIP FEES. HE, THEREFORE, ASKED THE ASSESSEE TO ESTABLISH THAT THE EXPENDITURE TO THAT EXTENT WAS INCURRED FOR EARNING THE INCOME FROM ROYALTY AND MEMBERSHIP FEES. IN REPLY, IT WAS SUBMI TTED ON BEHALF OF THE ASSESSEE THAT ACTUAL EXPENDITURE TO THE EXTENT OF R S.49,78,823/- WAS INCURRED RELATING TO THE ROYALTY INCOME. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE-COMPANY THUS HAD CLAIMED AN E XCESS EXPENDITURE OF RS.6,85,96,174/- (RS.7,35,74,997/- MINUS RS.49,78,8 23/-). HE NOTED THAT THE ASSESSEE-COMPANY ON ITS OWN HAD DISALLOWED AN E XPENDITURE OF RS.1,05,14,908/- IN THE COMPUTATION OF TOTAL INCOME . HE ALSO NOTED THAT THERE WAS A DIFFERENCE OF RS.14,71,501/- IN THE DIS ALLOWANCE OFFERED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME ON ACCOUNT OF PRO-RATA EXPENDITURE FOR MANAGEMENT FEES FROM MENA HOUSE OBE ROI, EGYPT. AFTER MAKING ADJUSTMENT OF THESE TWO AMOUNTS AGAINST THE ALLEGED EXCESS EXPENDITURE OF RS.6,85,96,174/-, THE ASSESSING OFFI CER WORKED OUT THE DISALLOWANCE OF EXPENDITURE TO BE MADE AT RS.5,95,5 2,767/- AND SINCE HE I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 9 HAD ALREADY DISALLOWED EXPENDITURE OF RS.82,81,539/ - UNDER SECTION 14A, THE BALANCE AMOUNT OF RS.5,12,71,228/- WAS DISALLOW ED BY HIM. 12. THE DISALLOWANCE OF RS.512,71,228/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE ALLEGED EXCESS EXPENDITURE WAS CH ALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT (A PPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED T HE SAME FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5.2 OF HIS IMPUGNED ORDER:- 5.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT ALONG WITH THE SUPPORTING EVIDENCES FURNISHED AND PERUSED THE FACTS OF THE CASE. IT IS WELL SETTLED LAW THAT ANY EXPENSES INCURRED F OR THE PURPOSE OF EARNING EXEMPT INCOME HAS TO BE DISALLOWED IN COMPU TATION OF INCOME. IT IS SEEN THAT THE APPELLANT HAS CLAIMED DIVIDEND INC OME AS EXEMPT INCOME UNDER SECTION 10(34) OF THE INCOME TAX ACT AND FEES FOR TECHNICAL SERVICES RECEIVED FROM UAR AS EXEMPT UNDER DTAA. SO FAR AS E XPENDITURE FOR DIVIDEND INCOME IS CONCERNED I HAVE ALREADY DISCUSS ED AND DECIDED THE ISSUE. REGARDING EXPENSES FOR EARNING MANAGEMENT FE ES, THERE IS NO DISPUTE. DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT SU BMITTED THE ALLOCATION OF EXPENSES VIDE LETTER DATED MARCH 11, 2013 ON SPE CIFIC QUERY RAISED BY THE AO. DURING THE APPELLATE PROCEEDINGS ALSO, THE APPELLANT FILED THE SAID LETTER ALONG WITH CALCULATION WITH ITS SUBMISSION O N 23RD NOVEMBER 2015. THE ALLOCATION CHART AS PRODUCED DURING ASSESSMENT PROCEEDINGS IS REPRODUCED BELOW:- PARTICULARS AMOUNT AMOUNT AMOUNT TOTAL EXPENDITURE AS PER PROFIT & LOSS ACCOUNT 213,758.604 LESS: EXPENDITURE OF CLARKES HOTEL AS PER UNIT ACCOUNTS CLAIMED AGAINST INCOME FROM HOTEL BUSINESS 28,460,360 EXPENDITURE ALLOCATED AGAINST FOREIGN MANAGEMENT FEES 3,699,403 I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 10 EXPENDITURE CLAIMED AGAINST RENTAL INCOME 169,801 EXPENDITURE U/S.14A RELATABLE TO EXEMPT INCOME 107,854,043 140,183,607 EXPENSES/ITEMS ADDED BACK IN RETURN RENT 508,200 PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS 380,362 GUEST HOUSE MAINTENANCE EXPENSES 4,101,408 CONTRIBUTION TO STAFF WELFARE FUND 1,100 DEPRECIATION AS PER BOOKS OF ACCOUNT 5,456,929 LOSS IN PARTNERSHIP FIRM 66,899 10,514,908 150,698,515 63,060,089 LESS: LEGAL, PROFESSIONAL & CONSULTANCY FEES AS PER ACCOUNTS 48,505,475 SHARE OF COMMON BUSINESS EXPENSES ALLOCABLE AGAINST ROYALTY (A) 14,554,614 I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 11 ADD: LEGAL EXPENSES INCURRED FOR PROTECTING ROYALTY INCOME (*BEING PART OF RS.48,505,475/- _ (B) 4,978,823 TOTAL EXPENSES ALLOCABLE AGAINST ROYALTY INCOME (A + B) 19,533,437 TOTAL EARNINGS FROM ROYALTY 108,495,779 PERCENTAGE EXPENSES TO REVENUE 18.00 NOTE: ITEMS OF COMMON EXPENSES CONSIDERED FOR ALLOC ATION AGAINST ROYALTY INCOME- EMPLOYEES REMUNERATION, RENT, ADVERTISEMENT, TRAVEL LING, POSTAGE & TELEPHONE, PRINTING & STATIONERY, STATUTORY PAYMENT S AND OTHER EXPENSES AS REFLECTED IN THE ANNUAL ACCOUNTS (REFER SCHEDULE S 17 & 19) FROM THE PERUSAL OF THE ASSESSMENT ORDER IT IS NOTI CED THAT THE AO AT PARA NO.4.1 CALCULATED THE EXPENSES AGAINST EACH SO URCE OF INCOME OTHER THAN ROYALTY AND MEMBERSHIP FEES EARNED AT RS.14,01 ,83,607/- BASED ON THE ALLOCATION SUBMITTED BY THE APPELLANT VIDE LETT ER DATED 11.03.2013. THE DETAIL IS AS FOLLOWS: HEAD OF INCOME INCOME AMOUNT EXPENDITURE ALLOCATED BY THE ASSESSEE GUEST, ACCOMMODATION, RESTAURANTS, BARS AND BANQUETS 3,57,60,056 2,84,60,360 FEES FOR TECHNICAL SERVICE 4,27,39,076 36,99,403 RENTAL INCOME 6,33,896 1,69,801 INTEREST INCOME 59,19,787 NIL DIVIDEND 11,57,45,814 10,78,54,043 TOTAL 20,07,98,629 14,01,83,607 THE ABOVE NUMBERS MENTIONED BY THE AO AT PARA 4.1 I S IN AGREEMENT WITH THE ALLOCATION SUBMITTED BY THE APPELLANT DURI NG THE ASSESSMENT PROCEEDINGS WHICH HAS BEEN REPRODUCED FOR THE SAKE OF CONVENIENCE. THE TOTAL EXPENDITURE DURING THE RELEVANT FINANCIAL YEAR AS PER THE PROFIT & LOSS ACCOUNT IS RS.21,37,58,604/- OUT OF W HICH SPECIFIC EXPENDITURE AGAINST THE SOURCES AS MENTIONED ABOVE IS RS.14,01,83,607/- FURTHER, THE APPELLANT DISALLOWED RS. 1,05,14,908/- IN THE COMPUTATION OF INCOME AS PER THE PROVISION OF LAW. ACCORDINGLY, THE RESIDUAL EXPENDITURE COMES AT RS.6,30,60,089/- (21,37,58,604 -14,01,83,607- I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 12 1,05,14,908). OUT OF THIS AMOUNT THE APPELLANT CALC ULATED COMMON EXPENSES FOR ROYALTY INCOME AT RS.49,78,823+RS.L,45 ,54,614 TOTALLING TO RS.L,95,33,437/- BUT ON OVERALL PERUSAL OF RECORDS IT SEEMS THAT THE AO MISSED OUT TO. CONSIDER RS.L,45,54,614/- AND HE CON SIDERED ONLY RS.49,78,823/- SINCE NO COMMENT HAS BEEN MENTIONED BY AO FOR NON CONSIDERING OF RS.1,45,54,614/- . FROM THE DETAILS OF ALLOCATION MADE BY THE APPELLAN T DURING ASSESSMENT STAGE, IT IS CRYSTAL DEAR THAT THE RATIO OF COMMON EXPENSES HAS BEEN CALCULATED FOR THE PURPOSE OF ROYALTY ONLY AS MENTI ONED IN THE NOTE TO THE CALCULATION SHEET SUBMITTED DURING ASSESSMENT S TAGE AND RE SUBMITTED BEFORE ME. THE APPELLANT HAS ALREADY CONS IDERED THE DISALLOWABLE EXPENSES I.E. RS.1,05,14,908/- IN THE COMPUTATION OF TOTAL INCOME WHICH IS ALSO MENTIONED BY THE AO AT PARA 4. 5. FURTHER DISALLOWANCE MADE BY THE AO HAS BEEN DISCUSSED SEPA RATELY IN THE RESPECTIVE GROUNDS TAKEN BY THE APPELLANT. THE AO C ALCULATED THE RESIDUAL AMOUNT AT RS.5,12,71,228/-. THE CALCULATIO N IS AS FOLLOWS: TOTAL EXPENDITURE DEBITED TO PIL ACCOUNT 213,758,604 LESS: SPECIFIC EXPENDITURE AGAINST OTHER SOURCE OTHER THAN ROYALTY AND LESS MEMBERSHIP FEES 140,183,607 73,574,997 LESS: SPECIFIC EXPENDITURE AGAINST ROYALTY INCOME 4,978,823 68,596,174 LESS: EXPENDITURE DISALLOWED FURTHER IN COMPUTATION OF INCOME 10,514,908 58,081,266 ADD: EXPENDITURE FURTHER DISALLOWED BY THE ASSESSEE AT ASSESSMENT STAGE AGAINST FEE FOR TECHNICAL SERVICE 1,471,501 59,552,767 LESS: DISALLOWED IN ASSESSMENT ORDER U/S 14A 8,281,539 51,271,228 FROM THE ABOVE MENTIONED TABLE IT IS TRANSPARENT TH AT THE AO DID NOT CONSIDER THE COMMON EXPENSES ALLCOATED BY THE APPEL LANT I.E. RS.1,45,54,614. DURING THE APPELLATE PROCEEDINGS, T HE APPELLANT SUBMITTED THAT THE ALLOCATION OF COMMON EXPENSES WA S DONE ONLY WITH RESPECT TO ROYALTY INCOME AS REQUIRED BY THE AO. FO R OTHER SOURCES, ONLY SPECIFIC EXPENSES WITH RESPECT TO THAT SOURCE ARE C ONSIDERED. FOR EXAMPLE, THE EXPENSES AGAINST HOTEL OPERATION HAVE BEEN TAKEN FROM AUDITED UNIT ACCOUNTS ONLY WHICH IS SPECIFICALLY MENTIONED BY THE I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 13 APPELLANT IN THE CALCULATION SUBMITTED BEFORE THE A O. IT IS QUITE COMMON IN A CORPORATE LIKE ASSESSEE THAT SOME EXPENSES LIK E FINANCING, LEGAL MATTERS, AUDIT FEES UNDER VARIOUS STATUTES AT HO LE VEL. THEREFORE, THERE IS NO REASON TO DISALLOW FURTHER RS.5,12,71,228/- T REATING THE SAME AS EXCESS EXPENDITURE CLAIMED BY THE APPELLANT MORE SO WHEN THE AO COULD NOT BRING ANY MATERIAL TO THIS EFFECT. BALANCE EXPENSES HAS TO BE CONSIDERED FOR EARNING T AXABLE SOURCE OF INCOME I.E. HOTEL BUSINESS AND ROYALTY INCOME. THE AO HAS ALSO MENTIONED THE SAME THING AT PARA 4.3. THE AO HAS DI SALLOWED RS.5,12,71,228/- ON THE WHIMSICAL GROUND THAT THE A PPELLANT HAS INCURRED EXCESS EXPENDITURE. NEITHER HE DISPUTED TH E ALLOCATION MADE BY THE APPELLANT NOR HE COULD BRING ANY MATERIAL ON RE CORD TO PROVE THAT EXPENSES IS EXCESSIVELY CLAIMED BY THE APPELLANT. A CCORDINGLY, I DIRECT THE AO TO DELETE THE ADDITION ON THIS ACCOUNT. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE LD. D.R. HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER IN SUP PORT OF THE REVENUES CASE ON THIS ISSUE. THE LD. COUNSEL FOR THE ASSESSE E, ON THE OTHER HAND, HAS SUBMITTED THAT AS PER THE WORKING FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, ONLY SPECIFIC EXPENSES WITH RESP ECT TO THE CORRESPONDING SOURCE OF INCOME WERE CONSIDERED AND A SEPARATE WORKING WAS FURNISHED IN RESPECT OF EXPENSES CLAIMED AGAINS T ROYALTY INCOME. HE HAS INVITED OUR ATTENTION TO THE SAID WORKING FURNI SHED AT PAGE NO. 9 OF THE PAPER BOOK AND EXPLAINED THAT OUT OF THE TOTAL EXPENDITURE OF RS.21,37,58,604/- INCURRED BY THE ASSESSEE, SPECIFI C EXPENSES AGAINST DIFFERENT HEADS OF INCOME OTHER THAN ROYALTY INCOME AS WELL AS SPECIFIC EXPENSES INCURRED IN RESPECT OF OTHER INCOME IN THE FORM OF DIVIDEND INCOME WERE TO THE TUNE OF RS.14,01,83,607/- AND OU T OF REMAINING EXPENDITURE OF RS.7,35,74,997/-, A SUM OF RS.4,85,0 5,475/- WAS INCURRED ON ACCOUNT OF COMMON EXPENSES WHICH ARE REQUIRED TO BE INCURRED BY THE CORPORATE ENTITY LIKE ASSESSEE AT HO LEVEL SUCH AS FINANCING, LEGAL MATTERS, AUDIT FEES, ETC. HE HAS SUBMITTED THAT SUCH COMMON EXPENSES WERE NOT ALLOCATED BY THE ASSESSEE AGAINST DIFFERENT HEADS O F INCOME EXCEPT ROYALTY INCOME FOR WHICH A SEPARATE WORKING WAS FURNISHED. HE HAS SUBMITTED THE SHARE OF COMMON BUSINESS EXPENSES ALLOCABLE AGAINST ROYALTY INCOME AS SHOWN IN THE SAID WORKING WAS RS.1,45,54,614/- LEAV ING THE BALANCE I.T.A. NO. 2000/KOL/2016 ASSESSMENT YEAR: 2010-2011 M/S. OBEROI HOTELS (P) LIMITED 14 AMOUNT OF EXPENDITURE AT RS.1,05,14,908/- AND SINCE THE SAME WAS DISALLOWED BY THE ASSESSEE-COMPANY SUO MOTU IN THE COMPUTATION OF TOTAL INCOME, THERE WAS NO EXCESS EXPENDITURE CLAIMED BY THE ASSESSEE AS ALLEGED BY THE ASSESSING OFFICER. AS RIGHTLY CONTEN DED BY THE LD. COUNSEL FOR THE ASSESSEE, IT APPEARS THAT THIS WORKING PREP ARED AND FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS WAS NOT PROPERLY UNDERSTOOD AND APPRECIATED BY THE ASSESSIN G OFFICER AND HE MADE A HUGE DISALLOWANCE WITHOUT RECORDING ANY ADVE RSE FINDING ABOUT THE GENUINENESS OR THE BUSINESS EXPEDIENCY OF THE S AID EXPENDITURE. THE LD. CIT(APPEALS), ON THE OTHER HAND, APPRECIATED TH E WORKING FURNISHED BY THE ASSESSEE IN THE RIGHT PERSPECTIVE AND DELETED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER, WHICH WAS UNSUSTAINABLE A ND UNFOUNDED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIE F TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS GROUN D NO. 3 OF THE REVENUES APPEAL. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 12 TH , 2019. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER VICE -PRESIDENT (KZ) KOLKATA, THE 12 TH DAY OF APRIL, 2019 COPIES TO : (1) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-8(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. OBEROI HOTELS (P) LIMITED, 4, MANGOE LANE, KOLKATA-700 001 (3) COMMISSIONER OF INCOME TAX (APPEALS)-12, KOLKA TA, (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.