ACIT, CHENNAI V. Sunstar Hotels & Estates Pvt. Ltd., CHENNAI

ITA 2294/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2676 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 13-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D ANAND
• Keywords: Business income; Business expenditure; Set aside
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO.2294/CHNY/2019 / ASSESSMENT YEAR : 2014-15 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6-(OSD), CHENNAI. VS. M/S. SUNSTAR HOTELS & ESTATES PVT. LTD., NO. 16/3, VIDYODAYA 1 ST STREET, T NAGAR, CHENNAI 600 017. [PAN: AALCS 5478E] ( / APPELLANT) ( %&' /RESPONDENT ) '( / APPELLANT BY : SHRI. A R V SREENIVASAN, JCIT %&'( / RESPONDENT BY : SHRI. D. ANAND, ADVOCATE ( /DATE OF HEARING : 19.12.2019 ( /DATE OF PRONOUNCEMENT : 09.03.2020 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, IN ITA NO. 198/18 -19/CIT(A)-15 DATED 31.05.2019 FOR ASSESSMENT YEAR 2016-17. :-2-: ITA NO.2294/CHNY/2019 2. M/S. SUNSTAR HOTELS AND ESTATES PVT. LTD., THE A SSESSEE STARTED IN FINANCIAL YEAR 2005-06 WITH THE MAIN OBJECT ON ENGA GING IN HOTEL BUSINESS. HOWEVER, THIS BUSINESS NEVER TOOK TILL A SSESSMENT YEAR 2010- 11 AND THEREFORE, THERE WAS NO BUSINESS ACTIVITY. IN THE ASSESSMENT YEAR 2012-13, THE ASSESSEE STARTED FINANCE ACTIVITY AND OFFERED NET TAXABLE INCOME AFTER CLAIMING CERTAIN EXPENDITURE TOWARDS I NTEREST ON BORROWED CAPITAL, SALARY TO DIRECTORS ETC. THE AO WHILE MAK ING THE ASSESSMENT FOR ASSESSMENT YEAR 2016-17 DISALLOWED CERTAIN EXPENDIT URE U/S. 37(1). FURTHER, HE HAS DISALLOWED ON ACCOUNT OF FOREIGN TR AVEL EXPENDITURE U/S. 37(1) R.W.S. 57(3) AS DONE IN THE EARLIER ASSESSMEN T YEARS. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). TH E LD. CIT(A) FOLLOWING THIS TRIBUNAL DECISION IN THE ASSESSEES CASE FOR A SSESSMENT YEAR 2012-13 IN ITA NO. 1242/CHNY/2017 DATED 27.08.2018, DIRECTE D THE AO TO ALLOW THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE. 3. AGGRIEVED, THE REVENUE FILED THIS APPEAL WITH TH E FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E OF EXPENDITURE U/S. 36(1)(III) OF THE ACT OF RS. 28.23 LAKHS BY RE LYING ON THE ORDER OF THE HONBLE TRIBUNAL IN ITA NO. 1242/CHNY/2017 DATED 27 .08.2018 FOR ASSESSMENT YEAR 2012-13 IN THE ASSESSEES OWN CASE , DECIDED IN FAVOUR OF THE ASSESSEE. :-3-: ITA NO.2294/CHNY/2019 3. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E OF EXPENDITURE U/S. 37(1) R.W.S. 57(III) OF THE ACT OF RS. 4.93 CR ORES BY RELYING ON THE ORDER OF THE TRIBUNAL IN ITA NO. 1242/CHNY/2017 DAT ED 27.08.2018 FOR ASSESSMENT YEAR 2012-13 IN THE ASSESSEES OWN CASE , DECIDED IN FAVOUR OF THE ASSESSEE. 3.1 THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESS EE BUSINESS WAS OF PROVISION OF FINANCIAL SERVICES AND HENCE HELD THAT THE PRE- COMMENCEMENT EXPENSES WERE ALLOWABLE. 3.2 THE LD. CIT(A) OUGHT NOT TO HAVE ALLOWED ENTIRE BUSINESS EXPENDITURE AGAINST INTEREST INCOME WITHOUT EXAMINI NG THE NATURE OF EXPENSES AS ALSO THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE LD. DR PRESENTED THE CASE ON THE ABOVE LINES AN D ARGUED THE CASE. PER CONTRA, THE LD. AR SUBMITTED THAT THE LD. CIT(A ) FOLLOWING THE ORDER OF THE TRIBUNAL ALLOWED THE ASSESSEES APPEAL. FOL LOWING THE PRINCIPLE OF JUDICIAL DISCIPLINE, THE LD. AR PLEADED THAT THE RE VENUES APPEAL MAY BE DISMISSED. 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. WE FIND THAT THE LD. CIT(A) HAS ALSO TAK EN COGNIZANCE OF THE FACT THAT DURING THE ASSESSMENT YEAR 2016-17, THE ASSESSEE HAS CHANGED THE MAIN OBJECT AS BUSINESS AND REMOVED THE OBJECT OF HOTEL BUSINESS FROM THE MEMORANDUM OF ASSOCIATION. THE RELEVANT P ORTION OF THE ORDER OF THE ITAT RELIED ON BY THE ASSESSEE, SUPRA, IS E XTRACTED AS UNDER: :-4-: ITA NO.2294/CHNY/2019 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS ABUNDANTLY CLEAR THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE W AS ONLY ENGAGED IN THE BUSINESS OF FINANCIAL SERVICES THOUGH THE MAIN OBJECTS IN THE MEMORANDUM OF ASSOCIATION WAS HOTEL BUSINESS. IT IS PERTINENT TO MENTION THAT THE ANCILLARY OBJECTS IN THE MEMORANDU M OF ASSOCIATION ALSO PERMITTED THE ASSESSEE COMPANY TO CARRY ON THE BUSI NESS OF FINANCIAL SERVICES. IN THE PROCESS THE ASSESSEE COMPANY HAD DEPLOYED ITS FUND TOWARDS EARNING INTEREST INCOME BECAUSE DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE COMPANY DID NOT COMMENCED ACTIVIT IES WITH RESPECT TO HOTEL BUSINESS. SINCE THE BUSINESS OF THE ASSESSEE COMPANY DURING THE RELEVANT ASSESSMENT YEAR WAS ONLY FINANCIAL SERVICE S, THE INCOME EARNED DURING THE RELEVANT ASSESSMENT YEAR OUGHT TO BE ASS ESSED AS BUSINESS INCOME AND THE ENTIRE EXPENDITURE INCURRED BY THE A SSESSEE FOR EARNING SUCH INCOME HAS TO BE ALLOWED AS DEDUCTION. NEEDLES TO MENTION, NOTHING ON RECORD IS BEFORE US TO SUGGEST THAT THE ASSESSEE COMPANY WAS INDULGING IN ANY OTHER BUSINESS ACTIVITY DURING THE RELEVANT ASSESSMENT YEAR. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS SALARY FOR RS.1,50 ,00,000/- HAS ALSO TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE BUSINES S INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. ACCORDIN GLY WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION OF RS.1,50,00,000/ - SUSTAINED BY THE LD.CIT(A). 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. SINCE, THERE IS NO SUBSTANTIAL CHANGE IN THE FACTS AND LAW AND LD. CIT(A) HAVING FOLLOWED THE ORDER OF THE ITAT, SUPRA, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND H ENCE, THE REVENUES APPEAL IS DISMISSED. :-5-: ITA NO.2294/CHNY/2019 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON MONDAY, 09 TH MARCH, 2020 AT CHENNAI. SD/- ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 09 TH MARCH, 2020 JPV (%2343 /COPY TO: 1. '/ APPELLANT 2. %&' /RESPONDENT 3. 5 ) (/CIT(A) 4. 5 /CIT 5. 3% /DR 6. /GF