M/s. Sunair Hotels Ltd., New Delhi V. ACIT, New Delhi

ITA 2695/DEL/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6898 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Assessee Lawyers: RINKU SHARMA
• Keywords: Depreciation; Block assessment; Set aside
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL DELHI BENCH G: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.2695/DEL/2016 (ASSESSMENT YEAR 2006-07) M/S SUNAIR HOTELS LTD. A-7, FIRST FLOOR, GEETANJALI ENCLAVE, NEW DELHI-110 017 PAN AAACS 1463L VS. A CIT, CIRCLE-24(1), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.3864/DEL/2016 (ASSESSMENT YEAR 2006-07) D CIT, CIRCLE-24(2), NEW DELHI. VS. M/S SUNAIR HOTELS LTD. A-7, FIRST FLOOR, GEETANJALI ENCLAVE, NEW DELHI-110 017. PAN AAACS 1463L (APPELLANT) (RESPONDENT) APPELLANT BY SH. VINOD KUMAR BINDAL, CA & MS. RINKU SHARMA, CA RESPONDENT BY SH. PRAKASH DUBEY, SR. DR DATE OF HEARING 27.01.2021 DATE OF PRONOUNCEMENT 29.01.2021 2 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT ORDER PER SUDHANSHU SRIVASTAVA, JM: ITA NO.2695/DEL/2016 IS THE APPEAL OF THE AS SESSEE AGAINST ORDER DATED 29.02.2016 PASSED BY THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS)-2, NEW DELHI { CIT (A)} FOR ASSESSMENT YEAR 2006-07, WHEREAS ITA NO.3864/DEL/201 6 IS THE DEPARTMENTS CROSS APPEAL FOR THE SAME YEAR. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE RUNNING OF A FIVE STAR HOTEL IN D ELHI AND IS ALSO CARRYING ON INVESTMENT AND CONSULTANCY BUSINESS. DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY ALSO HAS INCOME FROM HOUSE PROPERTY. THE RETURN OF INCOME WAS FILED DECLA RING THE NET TAXABLE INCOME AT NIL. THE ASSESSEES CASE WAS PICKE D UP FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE H AD SHOWN GROSS RENT FROM HOUSE PROPERTY AT RS. 5,10,67,771/- AND H AD CLAIMED DEDUCTION FOR REPAIRS AT THE RATE 30% AMOUNTING TO RS.1,53,20,331/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO A SERVICE AGREEMENT WITH MITSUI & COMPA NY LTD. VIDE 3 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT AGREEMENT DATED 29.10.1997 FOR LETTING OUT OF A CO MMERCIAL CENTER AT BANGLA SAHIB ROAD, NEW DELHI. THE ASSESSING OFFIC ER FURTHER NOTED THAT THE AGREEMENT INCLUDED SERVICE CHARGES A LSO AND THAT THE BENEFIT OF 30% OF DEDUCTION WAS ALLOWABLE ONLY IN RES PECT OF RENTAL RECEIPTS. THE ASSESSING OFFICER FURTHER NOTED THAT IDENTICAL ISSUE HAD COME UP IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR ALSO AND IN THAT ASSESSMENT YEAR ALSO THE ASSESSING OFFI CER HAD HELD THAT THE BENEFIT OF DEDUCTION WOULD NOT BE AVAILABL E IN RESPECT OF SERVICE CHARGES. FOLLOWING THE SAME REASONING, THE A SSESSING OFFICER MADE A DISALLOWANCE OF RS.69,88,677/-. FURTHER, THE ASSESSING OFFICER ALSO NOTED THAT AN AMOUNT OF RS.75,67,763/- HAD BEEN DEBITED UNDER LEGAL AND PROFESSIONAL CHARGES AND TH E ASSESSEE WAS ASKED TO PROVIDE DETAILS/VOUCHERS OF THE SAME. THE ASSESSING OFFICER NOTED THAT AN AMOUNT OF RS.37,62,006/- HAD BEEN PAID TOWARDS LITIGATION CHARGES AND PROFESSIONAL FEES WHIC H COULD NOT BE SAID TO BE INCURRED WHOLLY FOR THE PURPOSES OF THE B USINESS OF THE ASSESSEE. THE ASSESSING OFFICER PROCEEDED TO DISALL OW THIS AMOUNT OF RS.37,62,006/- BEING PROFESSIONAL FEES FOR DEFEN DING VARIOUS CASES FILED BY M/S. VLS FINANCE LTD. AND OTHERS. TH E ASSESSING 4 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT OFFICER ALSO PROCEEDED TO WITHDRAW DEPRECIATION AMOUN T OF RS.92,79,120/- BY OBSERVING THAT THIS WAS EXCESS DEP RECIATION IN VIEW OF THE BLOCK ASSESSMENT ORDER PASSED U/S 158-BC OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) VIDE ORDER DATED 29.11.2002. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE L D. FIRST APPELLATE AUTHORITY CHALLENGING THESE DISALLOWANCES. THE LD. CIT (A) UPHELD THE DISALLOWANCE PERTAINING TO RENTAL INCOME AMOUNTING TO RS.69,88,677/- AS WELL AS THE DISALLOWANCE PERTAINING TO LEGAL AND PROFESSIONAL CHARGES. HOWEVER, THE LD. CIT (A) DELE TED THE DISALLOWANCE PERTAINING TO DEPRECIATION. 2.2 AGGRIEVED BY THE ORDER OF THE LD. CIT (A) NOW B OTH THE ASSESSEE AS WELL AS DEPARTMENT IS IN APPEAL BEFORE THIS TRIBUNAL AND THE RESPECTIVE GROUNDS RAISED BY THEM ARE AS UN DER: GROUNDS OF APPEAL BY THE ASSESSEE IN ITA NO.2695/DE L/2016 1. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE OF 30% DEDUCTION FOR REPAIRS U/S 24 AM OUNTING TO RS. 65,27,520/- ON RENTAL INCOME RECEIVED BY THE AP PELLANT BY HOLDING THAT THE RELEVANT INCOME WAS SERVICE CHARGE S AND NOT RENT SINCE THERE WAS A SEPARATE SERVICE AGREEMENT B ETWEEN THE APPELLANT AND THE TENANT, WHILE IGNORING THE LAWFUL EXPLANATION OF THE APPELLANT THAT THE IMPUGNED SERVICE AGREEMEN T WAS A PART OF THE RENT AGREEMENT ONLY. THUS, THE LAWFUL D EDUCTION 5 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT CLAIMED BY THE APPELLANT SHOULD BE ALLOWED BY FOLLO WING THE APPELLATE ORDER FOR THE PRECEDING ASSESSMENT YEARS BY THE HONBLE ITAT. 2. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS BY DIRECTING THE AO TO ADD U/S 69C OF THE ACT THE AMOUNT OF EXPE NSES INCURRED IN PROVIDING SOME SERVICES TO THE TENANT T HOUGH NO SUCH SUM WAS SPENT AND WITHOUT GIVING ANY SHOW CAUS E NOTICE TO THE APPELLANT TO EXPLAIN THE SAME. THUS, THE SAI D DIRECTION SHOULD BE REVERSED. 3. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN DISALLOWING LITIGATION FEES OF RS. 19,59,861/- BY STATING THAT THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WHILE IGNORING THE FACTS AND LAWFUL EXPLANATION OF THE APPELLANT THAT THE SAID LITIGATION EXPENSES WERE INCURRED FOR DEFENDING CASES FILED AGAINST THE APPELLANT COMPANY CHALLENGI NG ITS OPERATIONS AND, THUS, INTERFERING IN THE FUNCTIONIN G OF ITS BUSINESS. THUS, THE LITIGATION EXPENSES WERE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE OF THE APP ELLANT COMPANY AND SHOULD BE ALLOWED FULLY. 4. THE APPELLANT CRAVES THE LEAVE TO ADD, SUBSTITU TE, MODIFY, DELETE OR AMEND ALL OR ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. GROUNDS OF APPEAL BY THE REVENUE IN ITA NO.3864/DEL /2016 1. WHETHER THE LD. CIT (A) WAS JUSTIFIED IN DELETI NG THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION. 2. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, A DD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 3.0 AT THE OUTSET, THE LD. AUTHORIZED REPRESEN TATIVE (AR) SUBMITTED THAT ALL THE DISALLOWANCES ARE COVERED BY THE ORDER OF THE 6 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSME NT YEARS. HE DREW OUR ATTENTION TO ORDERS OF THE TRIBUNAL IN ASSE SSEES OWN CASE FOR EARLIER ASSESSMENT YEARS 2001-02, 2002-03, 2003 -04, 2004-05, 2005-06 AND 2007-08, 2008-09, 2009-10, 2010-11, 20 11-12 AND 2012-13 AND SUBMITTED THAT THESE ISSUES WERE RECURR ING ISSUE AND HAD BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE V ARIOUS ORDERS OF THE TRIBUNAL AS AFORESAID. 4.0 PER CONTRA, THE LD. SR. DEPARTMENTAL REPRESENT ATIVE (DR) VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT (A) O N THE ISSUE OF DISALLOWANCES PERTAINING TO RENTAL INCOME AND LEGAL AND PROFESSIONAL CHARGES AS UPHELD BY THE CIT (A) AND P LACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN RESPECT TO THE DISALLOWANCE OF DEPRECIATION BUT DELETED BY THE LD. CIT (A). THE LD. SR. DR ALSO FAIRLY ACCEPTED THAT THE DEPARTMENTAL APPEAL WAS LIA BLE TO BE DISMISSED IN LIMINE IN VIEW OF IT BEING BELOW THE MONETARY LIMIT FOR FILING OF APPEALS BEFORE THE TRIBUNAL. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE A LSO PERUSED THE MATERIAL ON RECORD. AS FAR AS THE ISSUE PERTAINING TO DISALLOWANCE OF DEDUCTION OF 30% WITH RESPECT TO INCO ME FROM 7 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT HOUSE PROPERTY IS CONCERNED. IT IS SEEN THAT THIS I SSUE HAS BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL IN ASSESSMENT YEAR 2007-08 IN ITA NO.2729/DEL/2010 VIDE ORDER DAT ED 20.08.2010. WE ALSO NOTE THAT THIS ORDER WAS LATER FOLLOWED BY THIS TRIBUNAL IN ASSESSMENT YEARS 2009-10 AND 2010-11 IN ITA NOS.4450 & 4451/DEL/2012 RESPECTIVELY. THE ISSUE UN DER CONSIDERATION IN RESPECT OF THE DISALLOWANCE PERTAI NING TO INCOME FROM HOUSE PROPERTY IS IDENTICAL TO EARLIER ASSESSM ENT YEARS AND THERE BEING NO CHANGE IN FACTS AND CIRCUMSTANCES, W E SEE NO REASON TO UPHOLD THE DISALLOWANCE AS UPHELD BY THE LD. CIT (A). WE ALSO NOTE THAT THE IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE IN EARLIER ORDERS OF THE TR IBUNAL IN ITA NO.3737, 3738 & 3739/DEL/2006 FOR ASSESSMENT YEARS 2001-02, 2002-03 & 2003-04 VIDE ORDER DATED 27.06.2008. THE COPIES OF ALL THESE ORDERS HAVE BEEN PLACED BEFORE US AND NO CONT RARY MATERIAL OR ANY HIGHER COURTS ORDERS HAVE BEEN PLACED ON RECOR D TO SHOW THAT SUCH EARLIER ORDERS OF THE TRIBUNAL HAVE BEEN REVER SED BY ANY HIGHER FORUM. THEREFORE, FOLLOWING THE PRECEDENTS AS CITIED ABOVE IN ASSESSEES OWN CASE, WE SET ASIDE THE ORDER OF THE L D. CIT (A) ON THE 8 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT ISSUE AND DIRECT THE DELETION OF DISALLOWANCE AMOUN TING TO RS.69,88,677/-. 5.1 COMING TO THE SECOND ISSUE UNDER CHALLENGE BY THE ASSESSEE I.E., PERTAINING TO DISALLOWANCE OF LEGAL A ND PROFESSIONAL FEES, WE NOTE THAT THIS ISSUE IS ALSO COVERED IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY ORDERS OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2001-02, 2002-03 & 200 3-04 IN ITA NOS.3737, 3738 & 3739/DEL/2016 VIDE ORDER DATED 27. 06.2006. THIS ORDER OF THE TRIBUNAL WAS LATER FOLLOWED BY OTH ER CO-ORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSMENT YEARS 2004-0 5, 2005-06, 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012- 13, THE COPIES OF WHICH HAVE BEEN FILED IN THE PAPER BOOK SU BMITTED BY THE ASSESSEE. ON THIS ISSUE ALSO THE ORDERS OF THE TRIB UNAL HAVE ATTAINED FINALITY IN AS MUCH AS NO ORDER OF HIGHER JUDICIAL FORUM REVERSING THESE ORDERS OF THE TRIBUNAL HAS BEEN BRO UGHT TO OUR NOTICE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE ORDE R OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS AS AFORESAID IN ASSESSE ES OWN CASE AND ON IDENTICAL FACTS, WE SET ASIDE THE ORDER OF THE LD . CIT (A) ON THE 9 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT ISSUE OF DISALLOWANCE OF LEGAL AND PROFESSIONAL CHA RGES AND DIRECT THE DELETION OF THE SAME. 6.0 COMING TO THE DEPARTMENTS APPEAL CHALLENGIN G THE DELETION OF DISALLOWANCE OF DEPRECIATION BY THE LD. CIT (A), WE NOTE THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. THE ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE RIGHT FROM ASSESSMENT YEARS 2001-02 TO ASSESSMENT YEARS 2012-13 AND ON THIS ISSUE ALSO THERE HAS BEEN NO REVERSAL OF THE ORDER OF THE TRIBUNAL BY ANY HIGHER JUDICIAL FO RUM. THUS, THIS ISSUE HAS ALSO ATTAINED FINALITY. RESPECTFULLY FOLL OWING THE SAME, WE UPHOLD THAT ACTION OF THE LD. CIT (A) IN DELETING T HIS DISALLOWANCE OF DEPRECATION AMOUNTING TO RS.92,79,120/-. WE FURTHER NOTE THAT THE APPEAL OF THE DEPARTMENT IS LIABLE TO BE DISMISSED OTHERWISE ALSO AS THE DISPUTED TAX IS MUCH BELOW THE PRESCRIBED MONETA RY LIMIT FOR FILING OF APPEALS BEFORE THE TRIBUNAL. ACCORDINGLY , THE DEPARTMENTS APPEAL STANDS DISMISSED. 10 ITA NOS.2695 & 3864/DEL/2016 SUNAIR HOTELS LTD. VS. ACIT 7.0 IN THE FINAL RESULT, THE APPEAL OF THE ASS ESSEE STANDS ALLOWED AND THE APPEAL OF THE DEPARTMENT STANDS DISMISSED. ORDER PRONOUNCED ON 29 TH JANUARY, 2021 SD/- SD/- (DR.B.R.R. KUMAR) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/01/2021 PK/PS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI