Appeal details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 6368 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 1 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-12-2021
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
DB-B
Assessment Year
2015-2016
Appeal Filed On
15-10-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH-A, HYDERABAD (Through Virtual Hearing) BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO.323/Hyd/2018 AY: 2014-15 Arka Hotels Private Limited, Hyderabad-500 034. PAN: AABCA 7646 N Vs. ACIT, Central Circle-1(1), Hyderabad. (Appellant) (Respondent) ITA NO.2053/Hyd/2018 AY: 2015-16 Arka Hotels Private Limited, Hyderabad-500 034. PAN: AABCA 7646 N Vs. DCIT, Central Circle-1(1), Hyderabad. (Appellant) (Respondent) Assessee by: Sri S. Rama Rao Revenue by: Sri T. Sunil Goutham, DR Date of hearing: 12/10/2021 Date of pronouncement: 15/12/2021 ORDER PER A. MOHAN ALANKAMONY, AM These appeals are filed by the assessee for the AY 2014-15 and 2015-16 against the order of the Ld. CIT (A)-1, Hyderabad in appeal Nos. 0338 & 0017/CIT(A)-1/Hyd/2016-17 & 2017-18 and 2017-18 & 2 2018-19, dated 8/11/2017 and 11/07/2018 passed U/s. 143(3) r.w.s 250(6) of the Act for the AY 2014-15 and 2015-16 respectively. 2. The assessee has raised several grounds in both the appeals however the cruxes of the issues are that: - (i) The Ld. CIT (A) has erred in upholding the order of the Ld. AO who has assessed the revenue received from the hotel building of the assessee under the head income from house property as against business income for both the assessment years. (ii) The Ld. CIT (A) has erred in upholding the order of the Ld. AO who had disallowed the amount of Rs. 25,88,055/- being the Municipal Taxes accrued to the assessee as allowable deduction for the AY 2014-15. (iii) The Ld. CIT (A) has erred in upholding the order of the Ld. AO who had made addition of Rs. 45 lakhs with respect to contract receipt by treating it as income from undisclosed sources for the AY 2014-15. (iv) The Ld. CIT (A) has erred in upholding the order of the Ld. AO who had made addition of Rs. 41,09,114/- under the head income from undisclosed sources for the AY 2015-16. 3. The brief facts of the case are that the assessee is a limited company filed its return of income for the AY 2014-15 and 2015-16 on 27/09/2014 and 24/09/2015 declaring loss of Rs. 31,64,066/- and Rs. 3 1,07,51,156/- respectively. Initially both the returns were processed U/s. 143(1) of the Act and subsequently, they were selected for scrutiny under CASS and finally assessment orders were passed on 29/09/2016 and 28/02/2017 respectively wherein the above mentioned additions were made which were sustained by the Ld. CIT (A). Aggrieved by the orders of the Ld. Revenue Authorities the assessee is now in appeal before us. 4. Ground No.1: Revenue received from hotel building assessed under the head income from house property for the AY 2014-15 and 2015-16. 5. Facts with respect to the issue emanating from the orders of the Ld. Revenue Authorities are that the assessee-company was incorporated on 31/3/1987 and its main object was to be engaged in hotel business. The assessee-company owned a building in Road No.1, Banjara Hills, Hyderabad and on that building there were 36 rooms located on the second and third floor which was utilised for the assessee’s hotel business. Apart from the building the assessee owned another building which was given on short term lease to M/s. Sai Balaji Hotel wherein the lessee was running a hotel by name “Tabala”. The assessee had also leased out few shops in his building. The assessee was paying municipal taxes for all the properties and also paying electricity charges for the common areas in the building. The security 4 of the premises was also undertaken by the assessee for which the assessee had incurred expenses. Since, the assessee could not profitably run the hotel business, it leased out its premises viz., the 36 rooms of the building to M/s. Sri Sai Sadguru Hotels by executing a lease deed dated 17/1/2013. These facts are not in dispute. Now the contention of the assessee is that though the assessee has leased out its premises the assessee continued to employ its administrative staff and incurred overhead expenditure which should be allowed as deduction as business expenditure and the lease rental income should be treated as business income. It was further stated that the assessee has also incurred electricity expenses for the common areas and also incurred expenditure for maintaining security service which should be treated as business expenditure. With regard to the expenditures incurred by the assessee, it was observed by the Ld. AO as well as by the Ld. CIT (A) that the assessee could not produce any evidence. The Ld. Revenue officers also observed that the assessee had discontinued its hotel business/business hence there is no scope to claim the expenditure incurred by the assessee as allowable deduction. Further since the assessee had leased out its premises during both the relevant assessment years the Ld. Revenue Authorities treated the lease rent received by the assessee as its income chargeable under the head “income from house property”. 5 6. Before us, the Ld. AR submitted that the assessee continued to be in the hotel business and therefore the revenue (lease rent received) from the building should be treated as business income and the expenses incurred by the assessee towards the maintenance of the building as revenue expenditure. Hence it was pleaded, that the addition made by the Ld. Revenue Authorities may be deleted. The Ld. DR on the other hand, relied on the orders of the Ld. Revenue Authorities. 7. We have heard the rival submissions and carefully perused the materials on record. Provisions of section 22 of the Act stipulates as under: “Section 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property". 8. From the observations of the Revenue and the submissions of the assessee it is evident that the assessee had leased out its premises to M/s. Sri Sai Sadguru Hotels vide lease deed dated 17/1/2013 and thus discontinued its hotel business conducted on the premises. Therefore, the order of the Ld. Revenue Authorities to treat the lease rent received by the assessee from the premises owned by the assessee as income chargeable under the head “income from house property” is 6 appropriate. Hence, with respect to the lease rent income earned by the assessee the assessee will be only entitled to claim deductions stipulated u/s. 24 of the Act and all the provisions relating to section 22 to 27 of the Act will be applicable. It is also evident from the orders of the Ld. Revenue Authorities that the assessee has not produced any evidence to establish the genuineness of the expenditure incurred by the assessee. No such evidence is even produced before us. Further there is nothing on record to suggest that the assessee is continuing his hotel business more so when the assessee has leased out its premises. In this situation, we do not find it necessary to interfere with the orders of the Ld. Revenue Authorities on this issue. 9. Ground No.:2: Disallowance of Municipal Taxes accrued for the AY 2014-15. 10. From the orders of the Ld. Revenue Authorities it is apparent that the assessee has not paid the property tax to the Government Authorities though it was accrued. Even before us, the assessee has not produced any evidence to prove that it had paid the property taxes amounting to Rs. 25,88,055/- for the relevant assessment year. Provisions of section 43B of the Act is very clear that with respect to any sum payable by the assessee by way of tax, cess or fee etc., under any law for the time being in force which is entitled for deduction as per the provisions of the Act shall be allowed as deduction only on actual 7 payment. Since the assessee had failed to pay the property tax during the relevant assessment year which is in violation of Section 43B of the Act, We do not find it necessary to interfere with the orders of the Ld. Revenue Authorities on this issue. 11. Ground No.3: addition of Rs. 45 lakhs with respect to contract receipt by treating it as income from undisclosed sources for the AY 2014-15. 12. During the course of scrutiny assessment proceedings, it was observed by the Ld. AO that the assessee has alleged to have received contract receipt of Rs. 45 lakhs and claimed it as business income. However, he failed to produce any evidence to show that the amount received was towards execution of contract. The assessee had also stated to have incurred certain expenses towards the execution of the contract work but failed to produce any evidence for having incurred such expenditure. Hence, the Ld. AO treated the amount of Rs.45 lakhs as the undisclosed income of the assessee. Even before the Ld. CIT (A) the assessee had failed to adduce any evidence to establish that it had earned income by executing contract work. Therefore, the Ld. CIT (A) confirmed the order of the Ld. AO. Even before us, the assessee has not produced any cogent documentary evidence to establish the fact that the assessee had executed contract work and earned revenue out of the same and incurred expenditure thereon. The assessee has produced a 8 paper book consisting of 1 to 75 pages i.e., (1) copy of the return of income along with detailed schedules for the assessment year 2014-15 (Pages 1-41); (2) Copy of assessment orders passed by the Assistant Commissioner of Income Tax, Central Circle-1(1), Hyderabad passed U/s. 143(3) of the IT Act (Pages 42-49); (3) Copy of Form No. 35 along with statement of facts and Grounds of appeal filed before Commissioner of Income Tax (Appeals)-1, Hyderabad 28-10-2016 (Pages 50-54); (4) Copy of the written submissions before Commissioner of Income Tax (Appeals)-1, Hyderabad on 02/11/2017 (pages 55-63) and (5) copy of orders passed by the Commissioner of Income Tax (Appeals)-1, Hyderabad passed U/s. 143(3) of the IT Act (Pages 64-71), however, no clinching evidence are emanating from the paper book filed by the assessee to substantiate its claim. Hence, we do not find it necessary to interfere with the orders of the Ld. Revenue Authorities on this issue. 13. Ground No.4: Addition of Rs. 41,09,114/- under the head income from undisclosed sources for the AY 2015-16. 14. During the course of scrutiny assessment proceedings, it was observed by the Ld. AO that in Note-9 to the audited accounts the assessee has specified that other income of Rs. 41,09,114/- is relating to interest on deposits. The Ld. AO in his order extracted the Note-9 in his order as under: 9 As at 31/03/2015 Amount in Rs. As at 31/03/2014 Amount in Rs. Note-9 Other income Interest on deposits 41,09,114 71,380 Chit dividends _____-____ 3,12,960 Total 41,09,114 3,84,340 14.1. With the above observation and without any further finding, the Ld. AO added the amount of Rs. 41,09,114/- as the assessee’s income from undisclosed sources. On appeal the Ld. CIT (A) confirmed the addition by stating that the appellant in his written submissions dated 2/11/2017 has stated that the ground is not pressed and the assessee had not submitted any clarification with respect to the addition. 15. At the outset, we do not find any merits in the orders of the Ld. Revenue Authorities for making addition of Rs. 41,09,114/- under the head income from undisclosed sources. From the Notes to the Financial Statements, it is apparent that the assessee has disclosed the amount of Rs. 41,09,114/- as its interest income. However, it appears that in the computation statement while computing the total income of the assessee it is not brought to tax under the head “income from other source”. Therefore, we hereby direct the Ld. AO to delete the addition made for Rs. 41,09,114/- in the hands of the assessee as undisclosed income and further direct to assess the interest income of Rs. 41,09,114/- under the head “income from other source”. It is ordered accordingly. 10 16. In the result, appeal of the assessee is partly allowed as indicated herein above. Order pronounced in the open court on the 15 th December, 2021. Sd/- Sd/- (CHANDRA MOHAN GARG) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad dated 15 th December, 2021. OKK Copy to: 1 Arka Hotels Private Limited, 6-3-248/1/1A, 4 th Floor, Bhaskar Plaza, Road No.1, Banjara Hills, Hyderabad-500 034. 2 Asst. Commissioner of Income Tax, Central Circle-1(1), Hyderabad. (ii) Asst. Commissioner of Income Tax, Central Circle-1(1), IT Towers, AC Guards, Hyderabad. 3 The Commissioner of Income Tax (Appeals)-1, Hyderabad. 4 The Principal Commissioner of Income Tax-1, Hyderabad. 5 The CIT-DR, ITAT, Hyderabad. 6 Guard File By Order
