M/s Akash Inn , Shimoga V. The Deputy Commissioner of Income Tax Central Circle-2 , Mangalore

ITA 244/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8586 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-08-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 11-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 13

Judgement Text

ITA NO.244/BANG/2019 M/S. AKASH INN, SHIMOGGA IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.244/BANG/2019 ASSESSMENT YEAR: 2015-16 M/S. AKASH INN OPP BJP OFFICE MRM ROAD DURGIGUDU SHIMOGGA PAN NO : AAXFA0839J VS. DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 MANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI A.R. VIVEK, A.R. RESPONDENT BY : SMT. SUPRIYA RAO, D.R. DATE OF H EARING : 12.08.2021 DATE OF PRONOUNCEMENT : 13.08.2021 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 27.11.2018 PASSED BY LD. CIT(A)-2, PANAJI AND IT RE LATES TO ASSESSMENT YEAR 2015-16. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWAN CE OF EXPENDITURE OF RS.6,99,270/- RELATING TO LIQUOR SECTION AND ALS O IN NOT FULLY DELETING THE DISALLOWANCE OF EXPENSES MADE OUT OTHE R EXPENSES. 2. THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM RUNNING A HOTEL BUSINESS UNDER THE NAME AAKASH INN. IT HAD 3 DIVISIONS NAMELY R ESTAURANT ITA NO.244/BANG/2019 M/S. AKASH INN, SHIMOGGA PAGE 2 OF 4 WING, BAR WING AND LODGING WING. THE ASSESSEE ENTE RED INTO A MEMORANDUM OF UNDERSTANDING (MOU) ON 1.2.2014 WITH A CONCERN NAMED M/S. GREEN LEAVES INC. FOR MANAGING RESTAURAN T & LODGING WINGS. THE CLAUSE 8 OF MOU READ AS UNDER: 8. THE LICENSE TO RUN THE BAR AND RESTAURANT ETC I N THE RESTAURANT WING SHALL BE IN THE NAME OF THE 1 ST PARTY BUT THE EXPENSES OF LICENSE FEE AND RENEWAL FEE, RESTAURANT TAXES, SERVICE TAX, INCOME TAX, EXCISE TAX, LUXURY TAX ETC., WITH RESPECT TO RESTAURANT WING SHALL BE PAID BY THE 2 ND PARTY, IN ALL THE 2 ND PARTY SHALL MAKE PAYMENT OF ALL EXPENSES/FEES TAXES TO RU N THE RESTAURANT WING BUSINESS RESTAURANT WING IS DESCRIBED AS UNDER IN THE MOU: WHEREAS THE ABOVE SAID HOTEL IS HAVING ONE COFFEE S HOP, ONE RESTAURANT, WITH FULL FLEDGED KITCHEN AND A BANQUET HALL, THE SAME ARE HEREIN AFTER CALLED AS RESTAURANT WING. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED SALARY, LICEN SE FEE & OTHER EXPENSES IN RESPECT OF LIQUOR WING. THE AO TOOK TH E VIEW THAT THE SAID EXPENSES ARE TO BE BORNE BY THE LESSEE M/S GRE EN LEAVES INC AND HENCE THEY ARE NOT ALLOWABLE AS DEDUCTION, SINC E AS PER MOU THE ASSESSEE IS ELIGIBLE FOR CLAIMING EXPENSES TOWA RDS MAINTENANCE OF LODGING SECTION ONLY. ACCORDINGLY, HE DISALLOWE D SALARY, LICENSE FEE AND EXPENSES RELATING TO LIQUOR WING AGGREGATIN G TO RS.6,99,270/-. THE A.O. ALSO DISALLOWED 25% OF SAL ARY AND OTHER EXPENSES CLAIMED IN THE HOTEL WHICH WORKED OUT TO R S.3,76,438/-. 4. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS. 6,99,270/- AND REDUCED THE DISALLOWANCE TO 10% IN RESPECT OF O THER DISALLOWANCE REFERRED ABOVE. AGGRIEVED, THE ASSESS EE HAS FILED THIS APPEAL BEFORE US. ITA NO.244/BANG/2019 M/S. AKASH INN, SHIMOGGA PAGE 3 OF 4 5. AT THE TIME OF HEARING, THE LD. A.R. RESTRICTED HIS ARGUMENT WITH REGARD TO THE DISALLOWANCE OF RS.6,99,270/- MA DE OUT OF RELATING TO LIQUOR WING. INVITING OUR ATTENTION TO CLAUSE 8 OF THE MOU, WHICH IS EXTRACTED ABOVE, THE LD. A.R. SUBMITT ED THAT CLAUSE 8 CLEARLY STATES THAT THE LICENSE TO RUN THE BAR AND RESTAURANT SHALL BE IN THE NAME OF FIRST PARTY BUT THE EXPENSES RELATIN G TO RESTAURANT WING SHALL BE PAID BY THE SECOND PARTY. HE FURTHE R SUBMITTED THAT THE ASSESSEE HAS GIVEN LICENSE TO M/S. GREEN LEAVES INC. TO RUN RESTAURANT & LODGING WING ALONE AND THE ASSESSEE IS RUNNING LIQUOR WING. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE A.O. WAS NOT JUSTIFIED IN TAKING THE VIEW THAT THE EXPENSES RELA TING TO LIQUOR WING SHALL BE BORNE BY THE LESSEE M/S. GREEN LEAVES INC. HE SUBMITTED THAT LD. CIT(A) HAS ALSO CONFIRMED THE DISALLOWANCE WITHOUT APPRECIATING THE CORRECT FACTS. 6. THE LD. D.R. ON THE CONTRARY SUPPORTED THE ORDER PASSED BY LD. CIT(A). 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND MERI T IN THE SUBMISSIONS MADE BY LD. A.R. THE CLAUSE-8 OF MOU, WHICH WAS RELIED ON BY THE TAX AUTHORITIES TO DISALLOW THE AB OVE SAID EXPENDITURE REFERRED TO RESTAURANT WING ONLY. FU RTHER RESTAURANT WING HAS BEEN DESCRIBED IN THE MOU ITS ELF. BOTH THE CLAUSES HAVE BEEN EXTRACTED BY US IN THE EARLIER PA RAGRAPH. HENCE, IT IS CLEAR THAT LIQUOR WING WAS NOT LEASE D OUT TO M/S GREEN LEAVES INC. ACCORDINGLY, THERE IS NO REASON TO EXT END THE CONDITIONS MENTIONED IN CLAUSE 8 OF MOU TO LIQUOR WING. ACCOR DINGLY, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE DISALLOWA NCE OF RS.6,99,270/- MADE BY A.O. AND CONFIRMED BY LD. CIT (A). ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. C IT(A) ON THIS ISSUE AND DIRECT THE A.O. TO DELETE THIS DISALLOWAN CE. ITA NO.244/BANG/2019 M/S. AKASH INN, SHIMOGGA PAGE 4 OF 4 8. SINCE THE LD. A.R. DID NOT ADVANCE HIS ARGUMENTS WITH REGARD TO THE NEXT DISALLOWANCE, WE DO NOT FIND IT NECESSA RY TO ADJUDICATE THE SAME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUG, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 13 TH AUG, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.