EASTERN INTERNATIONAL HOTELS LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 2011/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8187 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 30-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RITA DOKANIA
• Keywords: Business income
• Section: 143(3)

Judgement Text

ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI [CORAM : N V VASUDEVAN JM, AND PRAMOD KUMAR AM] ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 EASTERN INTERNATIONAL HOTELS LIMITED .. APPELLANT C/O HOTEL NOVATEL JUHU BALRAJ RAHNI MARG, JUHU MUMBAI 400 049 PAN : AAACE2487L VS. DEPUTY COMMISSIONER OF INCOME TAX ... RES PONDENT CIRCLE 8 (1), MUMBAI R C JAIN, FOR THE APPELLANT RITA DOKANIA, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST CIT(A)S ORDER DATED 7 TH JANUARY 2009, IN THE MATTER OF ASSESSMENT UNDER SE CTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YE AR 2004-05. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE IS AGGRIEVED THAT THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESS ING OFFICER, IN NOT ALLOWING DEDUCTION UNDER SECTION 80 HHD IN RESPECT OF INTEREST INCOME AMOUNTING TO RS 11,05,881. ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 2 OF 7 3. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, INTER ALIA, NOTED THAT THE ASSESSEE HAS CLAIMED DED UCTION UNDER SECTION 80 HHD IN RESPECT OF INTEREST RECEIVED AMOUNTING TO RS 11,05,881. HE WAS OF THE VIEW THAT INTEREST INCOME IS REQUIRED TO BE ASS ESSED AS INCOME FROM OTHER SOURCES AND HE OBSERVED THAT THE ASSESSEE H AS NOT FURNISHED ANY EVIDENCE TO SUBSTANTIATE THE CLAIM THAT ANY OF THE SAID INVESTMENTS OR VARIOUS DEPOSITS WERE ON ACCOUNT OF ITS BUSINESS CO MPULSIONS. IT WAS FOR THIS REASON THAT THE ASSESSING OFFICER TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND DECLINED DEDUCTION UNDER SECTION 80 HHD IN RESPECT OF THE SAME. AS REGARDS ASSESSEES SUBMI SSION THAT THE ISSUE IS COVERED BY CIT(A)S ORDERS IN ASSESSEES OWN CASE, FOR THE ASSESSMENT YEARS 1999-2000 TO 2002-03, THE ASSESSING OFFICER, HOWEVER, NOTED THAT THE FACTS PREVAILING IN CURRENT YEAR ARE THE SAME AS WERE IN THE LAST YEAR BUT DECLINED TO FOLLOW THE ORDER OF THE CIT(A) ON T HE GROUND THAT THE DEPARTMENT HAS FILED FURTHER APPEALS AGAINST THE SA ID APPELLATE ORDER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) BUT THE CIT(A), DEVIATING FROM THE STAND TAKEN FOR THE EARL IER YEARS, DECIDED THE ISSUE AGAINST THE ASSESSE . HE HELD THAT SINCE THE ASSESSEE HAS NOT SUBMITTED CERTIFICATE IN FORM 10CCAE BEFORE THE ASS ESSING OFFICER, DEDUCTION UNDER SECTION 80 HHD CANNOT BE GRANTED IN RESPECT OF INTEREST RECEIPTS. THE ASSESSEE IS NOT SATISFIED AND IS IN F URTHER APPEAL BEFORE US. 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, ARE UNABLE TO APPROVE THE STAND SO TAKE N BY THE CIT(A). THE QUESTION OF FORM 10CCAE WOULD ONLY BE RELEVANT FOR THE PURPOSE OF AMOUNTS RECEIVED FROM SOMEONE ON BEHALF OF A TOURIS T OR GROUP OF TOURISTS, BUT INTEREST RECEIPTS ARE CERTAINLY NOT SUCH RECEIP TS. THE COMPUTATION OF ADMISSIBLE DEDUCTION IS TO BE DONE IN RESPECT OF PR OFITS IN RESPECT OF THE SERVICES RENDERED TO THE TOURISTS AND THE CIT(A) WA S CLEARLY IN ERROR IN READING FORM 10CCAE CERTIFICATION AS A CONDITION PR ECEDENTS FOR AN AMOUNT BEING INCLUDED IN DEDUCTION UNDER SECTION 80 HHD. IN ANY EVENT, ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 3 OF 7 THE ISSUE IN APPEAL IS NOW COVERED BY TRIBUNALS DE CISION, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-99 TO 2002-0 3, ONE OF WHICH IS REPORTED IN 100 ITD 154. WHILE DECIDING THE SAID IS SUE IN FAVOUR OF THE ASSESSEE, THE COORDINATE BENCH HAS, INTER ALIA, OBS ERVED AS FOLLOWS: . .THE QUESTION IS AS TO WHETHER THE INCOME AS DER IVED BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE FROM SERVICES RENDE RED TO FOREIGN TOURISTS IS RELEVANT FOR THE PURPOSE OF SUB-SECTION S (1) AND (2) OF SECTION 80HHD. HOWEVER, SUB-SECTION (3) REFERS TO PROFITS O F THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINES S OR PROFESSION FOR THE PURPOSE OF DETERMINING PROPORTION OF THE PROFIT S WHICH IS ELIGIBLE FOR DEDUCTION UNDER SUB-SECTION (1). ADMITTEDLY, IN THE PRESENT CASE, INTEREST INCOME HAS BEEN ASSESSED UNDER THE HEAD P ROFIT & GAINS OF BUSINESS OR PROFESSION. HAVING DONE THIS, IN OUR V IEW, THE ASSESSING OFFICER IS LEGALLY PRECLUDED FROM TREATING SUCH INT EREST INCOME AS NON- BUSINESS INCOME FOR THE PURPOSES OF SUB-SECTION (3) OF SECTION 80HHD. IN OUR VIEW, THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE AND THEREFORE, HIS ORDER ON THIS ISSUE IS CONFIRMED. 5. IN THE PRESENT ASSESSMENT YEAR, HOWEVER, ON THE SAME SET OF FACTS, THE INTEREST INCOME HAS BEEN TREATED AS INCOME FROM OTHER SOURCES. WE HAVE, HOWEVER, NOTED THAT THIS ISSUE IS ALSO DECIDE D IN FAVOUR OF THE ASSESSEE IN THE ASSESSMENT YEAR 2003-04, WHEREIN A COORDINATE BENCH, VIDE ORDER DATED 14 TH JANUARY 2009, HAS HELD, FOLLOWING HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS INDO SWISS JEWELS LTD (284 ITR 389), THAT INTEREST EARNED ON SHORT TERM DEPOSITS OF THE MONEY KEPT APART FOR THE PURPOSE OF BUSINESS CA NNOT BE TREATED AS INCOME FROM OTHER SOURCES AND HAS TO BE NECESSAR ILY TREATED AS BUSINESS INCOME IN NATURE. AS EVIDENT FROM THE DETA ILS OF INTEREST RECEIVED, AS NOTED IN THE ASSESSMENT ORDER, INTEREST AMOUNTIN G TO RS 9,27,509, OUT OF TOTAL INTEREST RECEIVED OF RS 11,05,881, IS IN R ESPECT OF SHORT TERM BANK DEPOSITS. TO THIS EXTENT, THEREFORE, INTEREST INCOM E IS REQUIRED TO BE TREATED AS BUSINESS INCOME AND DEDUCTION UNDER SECT ION 80 HHD IS TO BE ALLOWED IN RESPECT OF THE SAME. LEARNED COUNSEL FOR THE ASSESSEE, IN RESPONSE TO BENCHS QUESTION, DID NOT PRESS THE CLA IM FOR THE REMAINING ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 4 OF 7 AMOUNT. WE THUS ALLOW THE GRIEVANCE OF THE ASSESSEE TO THE EXTENT OF DEDUCTION UNDER SECTION 80 HHD IN RESPECT OF INTERE ST RECEIPT OF RS 9,27,509. 6. GROUND NO. 1 IS THUS PARTLY ALLOWED IN THE MANNE R INDICATED ABOVE. 7. IN GROUND NO. 2, THE ASSESSEE IS AGGRIEVED OF CI T(A)S CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN EXCLUDING TH E AMOUNT OF RS 22,46,400 RECEIVED FROM KENYA AIRWAYS FOR PROVISION OF HOTEL SERVICES FOR ITS FOREIGN CREW IN INDIA. 8. ONCE AGAIN, THERE IS NO DISPUTE THAT THE ISSUE I S COVERED, IN FAVOUR OF THE ASSESSE, BY TRIBUNALS DECISIONS FOR THE EAR LIER ASSESSMENT YEARS (SUPRA) BUT WHILE THE AO HAS MADE THE DISALLOWANCE TO KEEP THE MATTER ALIVE, THE CIT(A) HAS DISTINGUISHED THE TRIBUNALS DECISIONS ON THE SHORT GROUND THAT THE ASSESSEE HAS NOT FILED CERTIFICATES ON FORM 10CCAE IN RESPECT OF THESE RECEIPTS. HOWEVER, ON THE FACTS OF THIS CASE FORM 10CCAE IS NOT APPLICABLE, AND, THE DISTINCTION MADE OUT BY THE CIT(A) IS, THEREFORE, DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. RESPECTFU LLY FOLLOWING THE STAND CONSISTENTLY TAKEN BY THE COORDINATE BENCHES, WE HO LD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHD IN RESPECT OF PAYMENTS MADE BY KENYA AIRWAYS, IN RESPECT OF HOTEL BILLS FO R ITS FOREIGN CREW MEMBERS. THE ACTION OF THE AUTHORITIES BELOW IS REV ERSED ON THIS ISSUE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 9. GROUND NO. 2 IS THUS ALLOWED. 10. IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED OF C IT(A)S CONFIRMING THE DISALLOWANCE OF RS 41,967 IN RESPECT OF DELAYED PAYMENT OF PROVIDENT FUND DUES, EVEN THOUGH THE PAYMENT WAS MADE WITHIN GRACE PERIOD. ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 5 OF 7 11. LEARNED REPRESENTATIVES FAIRLY AGREE, EVEN AS L EARNED DR RATHER DUTIFULLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW, THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY A SEVERAL DECISIONS OF THE COORDINATE BENCHES WHICH HAVE, FOLLOWING HONBLE DE LHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS AIMIL LTD (321 ITR 5 08), THAT PROVIDENT FUND PAYMENTS EVEN UPTO THE TIME OF FILING OF INCOM E TAX RETURN ARE NOT BY DISALLOWANCE UNDER SECTION 43 B. IN THE PRESENT CAS E, THE PAYMENT IS MADE WITHIN THE GRACE PERIOD ITSELF. IN THIS VIEW OF THE MATTER, AND RESPECTFULLY FOLLOWING THE COORDINATE BENCHES, WE UPHOLD THE GRI EVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICE TO DELETE THE IMPUG NED DISALLOWANCE. 12. GROUND NO. 3 IS THUS ALLOWED. 13. IN GROUND NO. 4, GRIEVANCE OF THE ASSESSEE IS A GAINST CIT(A)S CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPENSE S AMOUNTING TO RS 1,26,302. 14. THE DISALLOWANCE HAS BEEN MADE FOR THE SHORT RE ASON THAT THE EXPENSES PERTAIN TO THE PRIOR YEAR, EVEN THOUGH THE LIABILITY HAS CRYSTALLIZED IN THE PRESENT YEAR, AND, UNDER THE M ERCANTILE METHOD, THE EXPENSES ARE TO BE ALLOWED AS DEDUCTION ONLY IN THE YEAR TO WHICH THEY PERTAIN. THE CIT(A) HAS APPROVED THIS STAND OF THE ASSESSING OFFICER AND HAS ALSO NOTED THAT THE ASSESSEE HIMSELF HAS TERMED THE EXPENSES AS PERTAINING TO PRIOR PERIOD. THE ASSESSEE IS NOT SAT ISFIED AND IS IN FURTHER APPEAL BEFORE US. 15. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE SEE MERITS IN THE PLEA OF THE ASSESSE E. WHAT IS TO BE REALLY EXAMINED IS WHETHER OR NOT THE LIABILITY TO PAY TH E MONEY CRYSTALLIZED IN THE RELEVANT PREVIOUS YEAR, AND THAT IS A CLAIM OF THE ASSESSEE WHICH HAS ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 6 OF 7 REMAINED UNCONTROVERTED. THE CLAIM OF THE ASSESSEE IS NOT REJECTED ON MERITS EITHER. THE ASSESSEE HAS ALSO FILED SUPPORTI NG EVIDENCES FOR THIS EXPENDITURE, AND NO DEFECTS ARE POINTED OUT IN THE SAME. IN THIS VIEW OF THE MATTER, AND ALSO HAVING NOTED THAT THESE AMOUNT S ARE ADMITTEDLY NOT CLAIMED OR ALLOWED IN ANY OTHER YEAR EITHER, WE APP ROVE THE CLAIM OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE. 16. GROUND NO. 4 IS THUS ALLOWED. 17. IN GROUND NO. 5, THE ASSESSEE IS AGGRIEVED OF C IT(A)S CONFIRMING THE DISALLOWANCE OF RS 47,440 MADE UNDER SECTION 14 A. 15. THE IMPUGNED DISALLOWANCE HAS BEEN MADE ON ESTI MATED AND ADHOC BASIS. EVEN THOUGH THERE IS NO FINDING THAT ANY BOR ROWED FUNDS ARE USED, THE ASSESSING OFFICER HAS PROCEEDED TO MAKE THE DIS ALLOWANCE UNDER SECTION 14 A, ON ESTIMATE BASIS IN PROPORTION TO IN VESTMENTS, OUT OF INTEREST EXPENSES. THE CIT(A) HAS APPROVED THIS APP ROACH. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 16. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE ARE UNABLE TO SUSTAIN THE ACTION OF T HE AUTHORITIES BELOW. UNLESS THERE IS A FINDING THAT BORROWED FUNDS ARE U SED IN INVESTMENTS, DISALLOWANCE OF INTEREST EXPENSES UNDER SECTION 14 A IS NOT POSSIBLE. IN OUR CONSIDERED VIEW, EXCEPT FOR SOME ESTIMATED DIS ALLOWANCE, THOUGH ON A REASONABLE AND FAIR BASIS, IN RESPECT OF COSTS INCU RRED IN EARNING INVESTMENT INCOME, DISALLOWANCE OF EXPENSES INCURRE D BY THE ASSESSEE, EVEN WITHOUT ANY LINKAGE TO INVESTMENTS, CANNOT BE MADE. HOWEVER, AS THERE IS NO FINDING ON THIS ASPECT OF THE MATTER, W E DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OF FICER FOR RE-EXAMINING THE MATTER IN ACCORDANCE WITH THE LAW, BY WAY OF A SPEAKING ORDER AND AFTER GIVING A FAIR OPPORTUNITY OF HEARING TO THE A SSESSEE. ITA NO: 2011/MUM/09 ASSESSMENT YEAR: 2004-05 PAGE 7 OF 7 17. GROUND NO. 5 IS THUS ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. 18. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 25 TH DAY OF FEBRUARY, 2011. SD/- SD/- (N V VASUDEVAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 25 TH DAY OF FEBRUARY, 2011. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER - , MUMBAI 4. COMMISSIONER (APPEALS) - , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, I BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC . ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI