M/s Neemrana Hotels Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2893/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91251 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 24-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: SANAT KAPOOR ADV S
• Keywords: Business income; Depreciation; Principle of natural justice; Retrospective amendment; Question of law; Cost of acquisition; Difference of opinion; Valuation report
• Section: 234B; 80IB; 194C; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. G. C. GUPTA , VICE PRESIDENT AND SH. N. K. SAINI, AM ITA NO. 3134 /DEL/2013 : ASSTT. YEAR : 200 8 - 09 DCIT, CIRCLE 13(1), NEW DELHI VS M/S N EEMRANA HOTEL PVT. LTD. A - 58, NIZAMUDDIN EAST NEW DELHI - 110013 (APPELLANT) (RESPONDENT) ITA NO. 2893 /DEL/2013 : ASSTT. YEAR : 2008 - 09 M/S NEEMRANA HOTEL PVT. LTD. A - 58, NIZAMUDDIN EAST NEW DELHI - 110013 VS ADDL. CIT, RANGE - 13 , NEW DELHI (APPELLANT ) (RESPONDENT) PAN NO. AA ACN0674J ASSESSEE BY : SH. SALIL KAPOOR & SANAT KAPOOR , ADV S . REVENUE BY : SH. P. DAM KANUNJN A , SR. DR DATE OF HEARING : 2 4 .0 3 .2015 DATE OF PRONOUNCEMENT : 19 .06 .2015 ORDER PER N. K . SAINI, AM: THESE CROSS APPEALS BY THE DEPARTMENT AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 28.02.2013 OF LD. CIT(A) - XVI, DELHI. 2 . IN THE DEPARTMENTAL APPEAL IN ITA NO. 3134/DEL/2013 FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN REDUCING THE DISALLOWANCE FROM RS. 1,24,49,495/ - TO ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 2 RS. 21,60,000/ - MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT; 1.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIVING THE RELIEF TO THE ASSESSEE ON THE ABOV E ISSUE WITHOUT CONSIDERING THE DETAILED REASONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER; 1.2 THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN IGNORING THE CONTENTS OF CBDT S CIRCULAR NO.715 DATED 08.08.1995 WHEREIN IT HAS BEEN LAID THAT PROVIS IONS OF SECTION 194I OF THE ACT DO NOT DEPEND UPON ANY SPECIFIC NOMENCLATURE; 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN REDUCING THE SHORT TERM CAPITAL GAIN TO RS. 44,64,266/ - FROM RS. 63,83,256/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE F AILED TO FURNISH AUTHENTICATED PROOF REGARDING APPORTIONMENT OF LAND AND BUILDING; 2.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE COST OF TRANSFER WAS ALREADY ALLOWED TO THE ASSESSEE WHILE CALCULATION DURING THE ASS ESSMENT PROCEEDINGS; 3. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 3. THE GROUNDS RAISED IN THE ASSESSEE S APPEAL ARE AS UNDER: 1. THE CIT(APPEALS) HAS IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN UPHOLDING ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 3 DISALLOWANCE OF THE EXPENDITURE OF RS. 21,60,000/ - U/S 40(A)(IA) ON ACCOUNT OF LICENSE FEES TO SRK TRAVELS & TOURS PVT. LTD. 2. THE CIT (APPEALS) HAS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS ERRED AND IN LAW AND ON FACTS IN UPHOLDING THAT THERE IS A SHORT DEDUCTION OF TAX BY THE ASSESSEE/APPELLANT ON THE AMOUNT OF RS. 21,60,000/ - AND ERRED IN UPHOLDING THE DISALLOWANCE OF THE SAME. 3. THE CIT (APPEALS) HAS IN VIEW OF THE FACTS A ND CIRCUMSTANCES OF THE CASE, ERRED IN INTERPRETING THE CONTACT ASSESSEE HAD WITH SRK TRAVELS & TOURS PVT. LTD. TO WHOM LICENSE FEES IS PAID. THE SAME IS INTERPRETED IN AN ILLEGAL, ARBITRARY AND INJUDICIOUS MANNER. 4. THE CIT (APPEALS) HAS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN HOLDING AND INTERPRETING THAT DISALLOWANCE CAN BE MADE U/S 40(A)(IA) EVEN IF THERE IS A SHORTFALL IN THE DEDUCTION OF TAX AT SOURCE BY THE APPELLANT. 5. WITHOUT PREJUDICE TO THE ABOVE, THE DISALLOWANCE, IF ANY , SHOULD BE RESTRICTED TO RS. 18,00,000/ - . 6. THE CIT (APPEALS) HAS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN UPHOLDING THE ADDITION OF RS. 4,73,881/ - ON ACCOUNT OF SHORT TERM CAPITAL GAIN. 7. THAT THE VARIOUS OBSERVATIONS MADE BY THE AO AND CIT(APPEALS) IN HIS ORDER ARE ILLEGAL AND BAD IN LAW, BASED ON SURMISES AND CONJECTURES AND GUESSWORK AND CONTRARY TO FACTS ON RECORD. 8. THE DISALLOWANCE MADE AND THE OBSERVATIONS MADE ARE UNJUST, UNLAWFUL AND BASED ON MERE SURMISES AND CONJECTURE S. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 4 THE ADDITIONS/DISALLOWANCE MADE CANNOT BE JUSTIFIED BY ANY MATERIAL ON RECORD AND IN ANY CASE THEY ARE EXCESSIVE. 9. THE EXPLANATION GIVEN AND THE EVIDENCE PRODUCED, MATERIAL PLACED AND AVAILABLE ON RECORD HAS NOT BEEN PROPERLY CONSIDERED AND JUDICIALL Y INTERPRETED AND THE ADDITIONS MADE CANNOT BE JUSTIFIED IN VIEW OF THE SAID MATERIAL AND EXPLANATION. 10. THAT THE AO HAS ERRED IN FACTS AND ON LAW IN CHARGING INTEREST U/S 234A, 234B AND 234C AND 234D OF THE ACT. THE AO HAS FAILED TO APPRECIATE THAT THE ASSESSEE COULD HAVE NEVER FORESEEN THESE ADDITIONS BEING MADE AGAINST THE ASSESSEE. 4. FROM THE ABOVE GROUNDS IT WOULD BE CLEAR THAT THE GRIEVANCE OF THE DEPARTMENT VIDE GROUND NOS. 1 TO 1.2 AND THE ASSESSEE VIDE GROUND NOS. 1 TO 5 RELATES TO THE DELET ION/SUSTENANCE OF THE ADDITION MADE BY THE AO U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 5. FACTS OF THE CASE RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED E - RETURN ON 24.09.2008 DECLARING AN INCOME OF RS. 4,28,30,390/ - . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID LICENCE FEES AMOUNTING TO RS. 2,87,49,591/ - TO VARIOUS PARTIES AS PER FOLLOWING DETAILS: DETAILS OF LICENCE FEE PAID DURING THE F.Y. 2007 - 08 AMOUNT TDS - DEPOSIT 1 DELHI WAREHOUSING PVT. LTD. 13,701,000.00 3,104,648.00 2 OTHER 500.00 - 3 ASHOK JAIN 41,660.00 858.00 4 SUDHIR MULJI 637,305.00 13,128.00 ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 5 5 FRANCIS WACZIARG 4,357,502.00 98,742.00 6 SHEELA NAT H 81,830.00 1,686.00 7 METHESON BOSANQUET ENT LTD 303,676.00 6,881.00 8 SMT. VIDYALATHA REDDY 708,696.00 160,590.00 9 SMT. RAMA REDDY 354,347.00 80,295.00 10 SMT. SRILATTA REDDY 354.347.00 80,295.00 11 MEERA KULKARNI 6,153,504.00 139,438.00 12 MOUNTA IN VALLEY SPRING IND. PVT. LTD. 212,909.49 4,825.00 13 AT CHENGAPA 14,105.00 291.00 14 SAGARI DALIA CHANGAPA 14,105.00 291.00 15 POONAMA ROMANA AOOANNA 14,105.00 291.00 16 SRK TRAVEL AND TOUR 1,800,000.00 40,788.00 TOTAL 28,749,591.49 3,733,047.00 6 . ON THE BASIS OF ABOVE DETAILS THE AO ASKED THE ASSESSEE TO CLARIFY AS TO WHY TDS WAS DEDUCTED AT DIFFERENT RATES WHEN NATURE OF PAYMENT WAS ESSENTI ALLY IN THE FORM OF LICENSE FEE AND TDS SHOULD HAVE BEEN MADE AS PER THE PROVISIONS OF SECTION 194 I OF TH E ACT AND NOT AS PER SECTION 194C OF THE ACT AS WAS MADE BY THE ASSESSEE IN SEVERAL CASE S . IN RESPONSE , THE ASSESSEE FURNISHED ANOTHER TABLE CONTAINING DETAILS OF LICENSE FEES PAID VIDE LETTER DATE D 09.12.2010 AS UNDER: DETAILS OF LICENCE FEES DURING THE FINANCIAL YEAR 2007 - 08 SL. NO. NATURE NAME LOCATION AMOUNT TDS STATUTORY RATE 1 HOTEL PURPO SE DELHI WAREHOUSING PVT. LTD. NEEMRANA FORT PLACE 13,701,000.00 3,104,648.00 22.66% 2 HOTEL PURPO SE ASHOK JAIN RAMGRAH 41,660.00 858.00 0.00% 3 HOTEL PURPO SE SU DHIR MULJI BUNGLAOW ON THE BEAC H 637,305.00 13,128.00 2.06% SHARING OF REVENUE AG. 4 HOTEL PURPO SE FRANCIS WACZIARG HOTEL DL ORIENT 4,357,502.00 98,742.00 2.27% SHARING OF REVENUE AG. 5 HOTEL PURPO SE SHEELA NATH RAMGRAH 81,830.00 1,686.00 0.00% 6 HOTEL METHESON WALLWOOD 303,676.00 6,881.00 2.27% SHARING ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 6 PURPO SE BOSANQUET ENT LTD GARDEN OF REVENUE AG. 7 HOTEL PURPO SE SMT. VIDYALATHA REDDY VILLAPOTTIPATI 708,696.00 160,590.00 22.66% 8 HOTEL PURPO SE SMT. RAMA REDDY VILLAPOTTIPATI 354,347.00 80,295.00 22.6 6% 9 HOTEL PURPO SE SMT. SRILATTA REDDY VILLAPOTTIPATI 354.347.00 80,295.00 22.66% 10 HOTEL PURPO SE MEERA KULKARNI GLASS HOUSE 6,153,504.00 139,438.00 2.27% SHARING OF REVENUE AG. 11 HOTEL PURPO SE MOUNTAIN VALLEY SPRING IND. PVT. LTD. GLASS HOUSE 212,909 .49 4,825.00 2.27% SHARING OF REVENUE AG. 12 HOTEL PURPO SE AT CHENGAPA GREEN HILL ESTATE 14,105.00 291.00 0.00% 13 HOTEL PURPO SE SAGARI DALIA CHANGAPA GREEN HILL ESTATE 14,105.00 291.00 0.00% 14 HOTEL PURPO SE POONAMA ROMANA AOOANNA GREEN HILL ESTATE 14, 105.00 291.00 0.00% 15 HOTEL PURPO SE SRK TRAVEL AND TOUR PATAUDI PLACE 1,800,000.00 40,788.00 2.27% SHARING OF REVENUE AG. 16 HOTEL PURPO SE OTHER MISC 500.00 - 0.00% TOTAL 28,749,591.49 3,733,047.00 7. THE ASSESSEE ALSO FILED COPIES OF AGREEMENTS IN RESPECT OF MRS. MEERA KULKARNI, M/S SRK TRAVEL & TOURS PVT. LTD., M/S DELHI WAREHOUSING PVT. LTD. AND MR. FRANCIS WACZIARG. THE AO REPRODUCED THE MATERIAL CLAUSES OF THOSE AGREEMENTS AT PARA 4.4 OF THE ASSESSMENT ORDER DATED 28.12. 2010 , FOR THE COST OF REPETITION, THE SAME ARE NOT REPRODUCED HEREIN. THE AO OBSERVED THAT THE DETAILS AND CLAUSES OF AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THE AFORESAID PARTIES ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 7 REVEALED THAT IN ALL CASES THE ASSESSEE HAD ACQUIRED THE RIGHT TO USE PROPERTY VIDE ALL THE A GREEMENTS ENTERED INTO WITH EACH PARTY , AND THAT THE MODEL, MANNER AND CLAUSES OF EACH AND EVERY AGREEMENT ON RECORD ARE THE SAME. HE ALSO OBSERVED THAT THE REVENUE SHARING CLAUSE WAS SAME IN THE LICENSE AGREEMENT ENTERED INTO WITH THE ABOVE SAID PARTIES. THE AO ALSO NOTED THAT IN SOME CASES VIZ. DELHI WAREHOUSING PVT. LTD. , T HE ASSESSEE DEDUCTED TDS U/S 194 I OF THE ACT AND IN SOME OTHER CASES VIZ. MS. MEERA KULKARNI, M/S SRK TOURS & TRAVELS PVT. LTD. AND MR. FRANCIS WACZIARG, TDS WAS DEDUCTED U/S 194C OF THE ACT. THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASON FOR DIFFERENTIATION BETWEEN THE TDS RATES AS THE APPLICABLE RATES SHOULD HAVE BEEN U/S 194 I OF THE ACT , WHEREAS THE ASSESSEE HAD DEDUCTED TDS U/S 194C OF THE ACT. THE ASSESSEE VIDE LETTER DATED 09.1 2.2010 EXPLAINED THAT TDS HAD BEEN MADE U/S 194C WHERE AGREEMENTS ENTERED WERE REVENUE SHARING AGREEMENT BEING PURELY CONTRACTUAL IN NATURE AS IN THE CASE OF MS. MEERA KULKARNI, M/S SRK TOURS & TRAVELS, MR. FRANCIS WACZIARG WHEREAS WHERE THE AGREEMENT WAS ONLY FOR USAGE OF SPACE, THE RATES APPLIED WERE AS PER SECTION 194 I OF THE ACT AS IN THE CASE OF M/S DELHI WAREHOUSING PVT. LTD. THE AO HOWEVER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE CLAUSES OF EACH AGREEMENT WER E IDENTICALLY WORDED IN SO FAR AS REVENUE SHARING OF GROSS OPERATING PROFIT FROM RIGHT TO USE AND RUNNING OF THE BUSINESS THEREFROM WAS CONCERNED. HE ALSO OBSERVED THAT THE PAYMENTS MADE BY THE ASSESSEE BEING ESSENTIALLY IN THE NATURE OF ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 8 LICENSE FEE LIABLE TO TDS AS PE R SECTION 194 I OF THE ACT BUT THE TDS HAD BEEN MADE AS PER SECTION 194C UNDER THE GARB OF CONTRACTUAL PAYMENTS. THE AO ACCORDINGLY WORKED OUT THE SHORT DEDUCTION OF TDS AS UNDER: NAME AMOUNT OF LICENCE FEES TDS DEDUCTED TDS DEDUCTIBLE SHORTFALL LICENCE F EES IN RELATION TO SHORT DEDUCTION RS RS RS RS RS SUDHIR MULJEE 637305 13128 108310 95182 560059 FRANCIS WACZIARG 4357502 98742 740557 641815 3776496 MATHESON BOSANQUET ENT LTD. 303676 6881 68813 61932 364413 MEERA KULKARNI 6153504 139438 1045788 906 350 5333039 MOUNTAIN VALLEY SPRING INDIA P. LTD. 212909 4825 48245 43420 255488 SRK TRAVELS & TOURS PVT. LTD. 1800000 40788 407880 367092 2160000 12449495 ACCORDINGLY, THE ADDITION OF RS. 1,24,29,495/ - WAS MADE BY INVOKING THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT. 8. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: THE APPELLANT IS CARRYING ON BUSINESS OF RUNNING OF HOTELS AT VARIOUS LOCATIONS IN INDIA. IT ENTERED INTO BUSINESS/COMMERCIAL ARRANGEME NTS WITH VARIOUS PARTIES TO MARKET, SUPERVISE AND MANAGE THE OPERATIONS OF THE HOTEL IN THEIR HOTEL PREMISES OWNED BY THEM. IN TERMS OF AGREEMENT, THE APPELLANT HAS PAID RS. 2,87,49,591/ - TO VARIOUS PARTIES AND ALSO DEDUCTED TAX AT SOURCE ON THESE PAYMENTS , BUT AT DIFFERENT RATES. DISALLOWANCE HAS BEEN MADE BY THE LD. ASSESSING OFFICER U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 (THE ACT) ON THE PLEA THAT THE TDS SHOULD BE MADE ON THE PAYMENT SO MADE BY THE APPELLANT AS PER PROVISIONS OF SECTION ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 9 194 I (RENT) AND NOT AS PER SECTION 194C (PAYMENT TO CONTRACTORS). DETAIL OF VARIOUS PAYMENTS MADE AS LICENCE FEES AND TAX DEDUCTED THEREON IS GIVEN HEREUNDER: NAME OF THE PARTIES TO WHOM PAYMENT MADE LICENCE FEES PAID (RS.) TDS DEDUCTED (RS.) RATE OF TDS (IN % ) DELHI WAREHOUSING PVT. LTD. 1,37,01,0001/ - 31,04,6481/ - 22.66 FRANCIS WACZIARG 43,57,502/ - 98,742/ - 2.27 MEERA KULKARNI 61,53,504/ - 1,39,438/ - 2.27 SRK TRAVELS & TOURS PVT. LTD. 18,00,000/ - 40,788/ - 2.27 ASHOK JAIN 41,660/ - 858/ - 2.06 SUDHIR MULJI 6,37,305/ - 13,128/ - 2.06 SHEELA NATH 81,830/ - 1,686/ - 2.06 MATHESONS BOSANQUET ENT. LTD. 3,03,6761 - 6,881/ - 2.27 SMT. VIDYALATHA REDDY 7,08,696/ - 160,590/ - 22.66 SMT. RAMA REDDY 3,54,347/ - 80,295/ - 22.66 SMT. SRILATTA REDDY 3,54, 347/ - 80,295/ - 22.66 MOUNTAIN VALLEY SPRING IND. PVT. LTD. 2,12,909/ - 4,825/ - 2.27 A T CHANGAPA 14,105/ - 291/ - 2.06 SAGARI DALIA CHANGAPA 14,105/ - 291/ - 2.06 POONAMA ROMANA AOOANNA 14,105/ - 291/ - 2.06 THE APPELLANT WHO IS HAVING EXPERTISE IN MARKETING, SUPERVISING AND RUNNING OF HOTELS, ENTERED INTO BUSINESS ARRANGEMENTS WITH; AMONG OTHER. (A) DELHI WAREHOUSING PRIVATE LIMITED, NEW DELHI (IN SHORT DWPL) - OWNER OF NEEMRANA FORT PALACE - A HERITAGE HOTEL AT VILLAGE NEEMRANA, RAJA STHAN: DWPL IS RUNNING THE SAME PALACE AS HOTEL IN THE NAME & STYLE OF NEEMRANA FORT PALACE (IN SHORT PALACE) AND ALSO GOT THE APPROVAL OF RUNNING THE SAME AS 'A HERITAGE HOTEL' ON ITS OWN SINCE 1992. DWPL HAS GOT THE APPROVAL FROM ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 10 DIRECTOR GENERAL OF INCO ME TAX (EXEMPTION), CALCUTTA IN TERMS OF PROVISIONS OF CLAUSE (III) SUB - SECTION (4) OF THE EARLIER SECTION 80IA OF THE INCOME TAX ACT, 1961 (THE ACT) (PRIOR TO 1.4.2000) READ WITH RULE 18BBC (2) OF THE I T RULES, 1962 WITH RETROSPECTIVE EFFECT FROM 07 - 02 - 1992 RELEVANT TO ASSESSMENT YEAR 1993 - 94 (ORDER NO. 11/25 - 04 - 2000). IT PROVIDES DEDUCTION TO THE DWPL @ 50% U/S 80IB (7)(A) (EARLIER UNDER 80IA(5)(II)) OF THE ACT. DWPL IS GETTING DEDUCTIONS REGULARLY U/S 80IB OF THE ACT SINCE IT GOT APPROVAL. AS DWPL W AS FACING DIFFICULTIES IN MANAGING THE AFFAIRS OF ITS PALACE AS HOTEL ON ITS OWN WITHOUT THE TEAM OF MARKETING PERSONNEL ETC, THE APPELLANT, ON DWPL'S BEHALF, WITH ITS FULL TEAM AND HAVING A LOT OF EXPERIENCE IN MANAGING HOTELS, HAS STARTED CARRYING OUT AL L MARKETING FUNCTIONS AND MANAGING THE AFFAIRS OF THE SAID PALACE AS HOTEL. THE APPELLANT HAS STARTED MANAGING THE AFFAIRS OF MARKETING/SUPERVISION ETC. OF THE SAID PALACE AS HOTEL SINCE 2002 ONLY. IT ENTERED INTO AGREEMENT WITH DWPL WHEREIN DWPL HAS PER MITTED THE APPELLANT TO MARKET, MANGE AND SUPERVISE ETC. THE OPERATIONS OF THE SAID PALACE AS HOTEL. THE APPELLANT IS NOT THE TENANT OF DWPL AND IS ALSO NOT USING THE PALACE FOR THEIR OWN USE AND ALSO HAS NOT TAKEN THE PROPERTY ON LEASE FROM DWPL. NEITHE R DWPL HAS GIVEN THE PALACE ON LEASE TO THE APPELLANT. THE APPELLANT IS SHARING THE REVENUE FROM THE HOTEL OPERATIONS LIKE A PROFIT SHARING AGREEMENT WHICH IS PURELY A BUSINESS ARRANGEMENT. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 11 FURTHER DWPL IS ALSO NOT THE CONTRACTOR OF THE APPELLANT. ON THE CONTRARY, THE APPELLANT IS CARRYING OUT THE VARIOUS OPERATIONS OF RUNNING THE PALACE AS HOTEL OWNED BY DWPL. DWPL IS THE OWNER OF THE PALACE WHICH IS ALREADY BEING RUN AS HOTEL BY THEM. THE APPELLANT HAS GOT ALL THE ROOMS FROM DWPL READY TO BE USED AS H OTELS. ALL ROOMS ARE FULLY FURNISHED AND HAVING ALL FACILITIES FOR THE PURPOSE OF RUNNING THEM AS HOTEL INCLUDING AIR CONDITIONERS, GENERATORS, CROCKERY, EPABX MACHINES, FAX MACHINES, REFRIGERATOR, TELEPHONE FACILITIES, COMPUTERS, TELEVISIONS, BED SHEETS, BLANKETS, BATH TOWELS, FACE TOWELS, MEALS/BEVERAGES ETC. ETC. THESE ARE BEING USED FOR RUNNING THE PROPERTY AS A HOTEL. IT MAY BE NOTED THAT DWPL IS AN ASSOCIATE CONCERN OF THE APPELLANT. DIRECTORS OF THE APPELLANT ARE ALSO THE DIRECTORS IN DWPL. (B) FRAN CIS WACZIARG, NEW DELHI (IN SHORT FW) - OWNER OF (A) THE VERANDAH IN THE FOREST, BARR HOUSE, MATHERAN 410102, DISTRICT RAIGARH, MAHARASHTRA, (B) TWO PROPERTIES AT RAMGARH, IN THE NAME & STYLE OF THE RAMGARH BUNGALOWS, RAMGARH MALLA, KUMAON HILLS, DISTRICT NAINITAL 263 137, UTTARANCHAL, AND (C) HOTEL DE L 'ORIENT, 17, RUE ROMAIN ROLLAND, PONDICHERRY 605001. WHILE FW IS RUNNING THE MATHERAN PROPERTY AS HOTEL ON ITS OWN, THE OTHER TWO PROPERTIES ARE GIVEN BY HIM TO THE APPELLANT FOR SUPERVISING/RUNNING/OPERAT ING THEM AS HOTELS. HERE ALSO THE APPELLANT HAS GOT ALL THE ROOMS FROM FW READY TO BE USED AS HOTELS. HERE ALSO ALL ROOMS ARE FULLY FURNISHED AND HAVING ALL FACILITIES FOR THE PURPOSE OF RUNNING THEM AS HOTEL INCLUDING AIR CONDITIONERS, GENERATORS, CROCKER Y, EPABX MACHINES, FAX MACHINES, REFRIGERATOR, TELEPHONE FACILITIES, COMPUTERS, TELEVISIONS, BED SHEETS, BLANKETS, BATH TOWELS, FACE TOWELS, MEALS/BEVERAGES ETC. ETC. THESE ARE BEING USED FOR RUNNING THE PROPERTIES AS HOTELS. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 12 HERE ALSO THE APPELLANT IS NO T THE TENANT OF FW AND IS NOT USING THESE PROPERTIES FOR THEIR OWN USE AND ALSO HAS NOT TAKEN THESE PROPERTIES ON LEASE FROM FW NEITHER FW HAS GIVEN THESE PROPERTIES ON LEASE TO THE APPELLANT. SIMILARLY, HERE ALSO, THE APPELLANT IS SHARING THE REVENUE FROM THE SAID HOTELS LIKE A PROFIT SHARING AGREEMENT WHICH IS PURELY A BUSINESS ARRANGEMENT. FURTHER FW IS NOT THE CONTRACTOR OF THE APPELLANT. ON THE CONTRARY, THE APPELLANT IS CARRYING OUT VARIOUS OPERATIONS OF RUNNING THE PROPERTIES AS HOTELS WHICH ARE OW NED BY FW IT MAY BE NOTED THAT FW IS HOLDING THE POSITION AS DIRECTOR IN NEEMRANA HOTELS PVT. LTD., THE APPELLANT. (C) MRS. MEERA KULKARNI (IN SHORT MK) - OWNER OF WATERSIDE RETREAT, ZILA TEHRI GARHWAL BEING USED AS HOTEL IN THE NAME & STYLE OF GLASS HOU SE OF GANGES. SHE HAS ENTERED INTO BUSINESS AGREEMENT FOR SHARING OF REVENUE WITH THE APPELLANT AS PER AGREEMENT AND ALLOWED THE APPELLANT TO MARKET AND MANAGE THE AFFAIRS OF THE HOTEL FROM THE SAID PROPERTY. ALL FACTS ARE SIMILAR TO THE FACTS GIVEN IN AB OVE CASES (A) AND (B) ABOVE WITH REGARD TO RUNNING THE ROOMS OF THE PROPERTY AS HOTEL AND ALSO SHARING OF REVENUE. MK IS ALSO NOT THE CONTRACTOR OF THE APPELLANT. AS STATED HEREIN ABOVE IN OTHER CASES THE APPELLANT IS CARRYING OUT BUSINESS OPERATIONS OF RU NNING THE PROPERTY AS HOTEL WHICH IS OWNED BY MK. (D) SRK TRAVEL & TOURS PVT. LTD., NEW DELHI (IN SHORT SRK): HAVING AUTHORITY TO USE THE PORTION OF PROPERTY OF IBRAHIM MAHAL AND NAFEAS MANZIL, SITUATED AT PATAUDI DISTRICT GURGAON, ENTERED INTO BUSINESS AGREEMENT WITH THE APPELLANT AND ALLOWED THE APPELLANT TO OPERATE AND MANAGE THE OPERATIONS OF THE HOTEL IN THE SAID PROPERTY. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 13 HERE ALSO ALL FACTS ARE SIMILAR TO THE FACTS GIVEN IN ABOVE CASES WITH REGARD TO RUNNING OF ROOMS OF THE PROPERTY AS HOTEL AND S HARING OF REVENUE. SRK IS NOT THE CONTRACTOR OF THE APPELLANT BUT AS STATED IN EARLIER CASE ALSO, THE APPELLANT IS CARRYING OUT OPERATIONS OF RUNNING THE PROPERTY OWNED BY SRK AS HOTEL. IT CAN BE SEEN THAT THE AGREEMENTS WITH DIFFERENT PARTIES ARE FOR SH ARING OF REVENUE AND ARE COMMERCIAL IN NATURE. FOR INSTANCE: (A) IN CASE OF AGREEMENT WITH DWPL, DWPL WILL BE PAID 15% OF GROSS OPERATING PROFITS, WHICH IS CALCULATED AS PER SPECIFIED FORMULA AS SPECIFIED IN THE AGREEMENT; (B) IN CASE OF MRS. MEERA KUL KARNI, SHE IS ENTITLED TO MINIMUM GUARANTEED AMOUNT OF RS.1,50,000/ - OR 30% OF GROSS OPERATING PROFITS, TO BE CALCULATED EVERY QUARTER, WHICHEVER IS HIGHER; (C) IN CASE OF SRK TRAVEL & TOURS PVT. LTD., SRK SHALL GET FOR THE FIRST THREE YEARS, A MINIMUM G UARANTEED AMOUNT OF RS.12 LAKHS OR 15% OF THE GROSS OPERATING PROFITS WHICHEVER IS MORE SUBJECT TO MAXIMUM OF RS.18 LAKHS PER YEAR, FOR THE FOLLOWING 4 YEARS - A MINIMUM GUARANTEED AMOUNT OF RS.18 LAKHS OR 17.5% OF THE GROSS OPERATING PROFITS, WHICHEVER IS M ORE SUBJECT TO MAXIMUM OF RS.24 LAKHS AND FOR THE SUBSEQUENT 5 YEARS - FOR THE FIRST THREE YEARS, A MINIMUM GUARANTEED AMOUNT OF RS.24 LAKHS OR 19.5% OF THE GROSS OPERATING PROFITS WHICHEVER IS MORE SUBJECT TO 33 LAKHS ETC. IT IS IMPORTANT TO SEE THAT THE C ALCULATIONS FOR REVENUE SHARING ARE MORE OR LESS SIMILAR IN NATURES IN ALL AGREEMENTS. AS A SAMPLE WE ARE PRODUCING THE CLAUSE ON REVENUE SHARING AS PER AGREEMENT WITH MRS. MEERA KULKARNI: ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 14 2. 'BOOKS OF ACCOUNTS & REVENUE SHARING' 2.1 IT IS AGREED THAT ' THE PARTY OF THE SECOND PART' SHALL KEEP AND MAINTAIN ALL NECESSARY STATUTORY RECORDS AND FINANCIAL BOOKS OF ACCOUNTS WHEREIN TRUE, ACCURATE AND REGULAR ACCOUNTS OF RECEIPTS AND PAYMENTS OF THE HOTEL EXPENDITURE AS WELL AS OF ALL THE ASSETS, INVESTMENTS AN D LIABILITIES OF THE SAID HOTEL ARE RECORDED. THE ACCOUNTING YEAR FOR THE SAID HOTEL UNDER THE AGREEMENT SHALL BE FINANCIAL YEAR WHICH STARTS FROM THE 1 ST DAY OF APRIL AND ENDS ON 31 ST DAY OF MARCH EACH YEAR. 2.2 IT HAS BEEN EXPRESSLY AGREED BETWEEN THE PARTIES, THAT THE 'THE PARTY OF THE FIRST PART IS ENTITLES TO MINIMUM GUARANTEED AMOUNT OF RS.1,50,000/ - (RUPEES ONE LAKH FIFTY THOUSAND ONLY) OR 30% (THIRTY PERCENT) OF GROSS OPERATING PROFITS (CALCULATED EVERY QUARTER) IN TERMS OF CLAUSE NOS. 2.3 TO 2.6 OF THIS AGREEMENT), WHICHEVER IS HIGHER AS HER SHARE IN PROFITS FROM THE BUSINESS. THIS SHALL BE CALCULATED FOR EVERY QUARTER AND BE PAYABLE BY THE PARTY OF THE SECOND PART ON A QUARTERLY BASIS. 'THE PART OF THE SECOND PART' SHALL RETAIN THE BALANCE PROF ITS. 2.3 GROSS OPERATING PROFITS: 'GROSS OPERATING PROFITS' SHALL MEAN THE AMOUNT BY WHICH THE 'GROSS TURNOVER' OF THE SAID HOTEL FOR EACH YEAR EXCEEDS THE 'DEDUCTIBLE EXPENSES' OF THE HOTEL FOR THE SAID QUARTER: 2.4 GROSS INCOME 'GROSS INCOME' SHA LL MEAN ALL REVENUES ACCRUED AND EARNED FROM THE OPERATIONS OF THE HOTEL AND ITS FACILITIES INCLUDING: (A) ROOM RECEIPTS FROM REALIZATION OF THE ROOM OCCUPANCY CHARGES; ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 15 (B) SALE OF FOOD, BEVERAGES, LIQUOR AND SMOKES FROM THE RESTAURANT BARS; (C) INCO ME IN RESPECT OF ALL THE TELEPHONES, LAUNDRY AND PROVIDING OTHER SERVICES AND FACILITIES. 2.5 DEDUCTIBLE EXPENSES: 'DEDUCTIBLE EXPENSES' SHALL MEAN AND INCLUDE ALL COSTS PERTAINING TO: I) COMMISSIONS AND/OR DISCOUNT GIVEN OR ALLOWED OR PAYABLE TO TRA VEL AGENTS, TOUR OPERATORS AND TOUR LEADERS OR ANY OTHER AGENCIES FOR BOOKING OF ROOMS OR FACILITIES IN THE SAID HOTEL OR GIVEN BY THE 'THE PARTY OF THE SECOND PART' IN THE COURSE OF BUSINESS. II) TAXES AND SALES/SERVICES OF FOOD, BEVERAGES, LIQUOR AND SM OKES AND OTHER ITEMS/ SERVED/SOLD/LUXURY TAXES, HOTEL RECEIPTS TAXES PERTAINING TO THE BUSINESS OF THE SAID HOTELS LEVIED OR LEVIABLE BY THE CENTRAL GOVERNMENT, STATE GOVERNMENT OR ANY LOCAL AUTHORITY, NOW OR IN FUTURE TO THE EXTENT INCLUDED IN SALES. 2. 6 QUARTER 'QUARTER' SHALL MEAN THE PERIOD OF THREE MONTHS COMMENCING FROM APRIL 1 ST OF EACH YEAR AND ENDING ON JUNE 30 TH AND THE SUBSEQUENT EVEN PERIODS. THE AFORESAID CALCULATION IS BASED ON BUSINESS PROPOSITION AND TOTALLY BASED ON PROFITS OF THE BUS INESS. THE CALCULATION IS TO BE CERTIFIED BY A QUALIFIED CHARTERED ACCOUNTANT AND HAS NOTHING TO DO WITH ANY RENTAL PAYMENT. FIXED SUM IN SOME OF THE AGREEMENTS AS MENTIONED IN THIS AGREEMENT IS MADE TO ENSURE THAT EVEN IF THERE IS NO/LESS RECEIPT IN ANY Q UARTER, A ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 16 MINIMUM SUM IS PAID TO ENSURE TO MAJOR REPAIR/ MAINTENANCE, ADDITION IN ROOMS/SERVICES ETC. SHOULD NOT SUFFER FOR SMOOTH RUNNING OF THE HOTEL AS THESE ARE TO BE CARRIED OUT BY THE OWNERS OF THE PROPERTIES. IT IS NOTED THAT ALL THE AGREEMENTS WI TH DIFFERENT PARTIES ARE FOR DIFFERENT REVENUE SHARE DEPENDING ON LOCATION, POTENTIAL ETC OF THE PROPERTIES. THE AMOUNT PAID IN TERMS OF THESE AGREEMENTS IS DEBITED TO 'LICENCE FEES' ACCOUNT. THE AMOUNT PAID IN TERMS OF THESE AGREEMENTS FOR VARIOUS PERIO DS IS NOT A FIXED SUM OF MONEY AS IN THE CASE OF INCOME FROM HOUSE PROPERTY. ALL THESE ARE BUSINESS CONTRACTS AND PAYMENT IS BEING MADE AS SHARE OF REVENUE AND THUS PROVISIONS OF TAX DEDUCTION AT SOURCE (TDS) AS CONTAINED IN CHAPTER XVII OF THE ACT ARE N OT APPLICABLE ON THE PAYMENTS MADE BY THE APPELLANT TO VARIOUS PARTIES. IT IS NEITHER COVERED U/S 194C NOR U/S 194 I OF THE ACT. IT IS CLEAR THAT NONE OF THE OWNER OF PROPERTIES IS A CONTRACTOR OF THE APPELLANT AND ON THE CONTRARY THE APPELLANT IS PUTTING ITS EFFORTS INCLUDING MANAGING THE AFFAIRS AND RUNNING THEIR PROPERTIES AS HOTELS BASED ON THE PROFESSIONAL EXPERTISE OF THE APPELLANT. THE TRANSACTIONS THUS ARE NOT COVERED U/S 194C OF THE ACT. THUS APPELLANT NEED NOT DEDUCT THE TAX AT SOURCE U/S 194C FO R THE PAYMENT MADE TO THEM IN TERMS OF AGREEMENT FOR SHARING OF REVENUE. IT IS ALSO NOT COVERED U/S 194 I OF THE ACT AS THE OWNERS OF THE PROPERTIES HAVE NOT LET OUT THEIR PROPERTIES ON RENT TO THE APPELLANT NOR THE APPELLANT HAS TAKEN THE PROPERTIES ON RENT FROM THE OWNERS OF THE PROPERTIES. THE INTENTION OF THE PARTIES IS TO SHARE THE REVENUE AND NOT TO MAKE PAYMENT OF A FIXED SUM OF RENT AS COVERED U/S 194 I OF THE ACT. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 17 THE APPELLANT IS NOT USING THE LAND OR ANY BUILDING OR FURNITURE/FIXTURES ETC. FO R ITS OWN USE. THE ROOMS OF THE PROPERTIES ARE BEING USING FOR SALE AS A HOTEL, WHEREIN BEVERAGES AND MEALS ETC. ARE ALSO SERVED TO MULTIPLE CLIENTS/CUSTOMERS. THUS WHEN THE PROVISIONS COVERED UNDER CHAPTER XVII IS NOT APPLICABLE TO THE APPELLANT FOR THESE PAYMENTS, PROVISIONS CONTAINED U/S 40(I)(IA) IS ALSO NOT APPLICABLE TO THE APPELLANT. 9. THE ASSESSEE ALSO DREW THE ATTENTION OF THE LD. CIT(A) TOWARDS VARIOUS PROVISION CONTAINED IN SECTION 194C & 194 I OF THE ACT WHICH ARE REPRODUCED IN PARAS 13 TO 1 6 OF THE IMPUGNED ORDER , FOR THE COST OF REPETITION, THE SAME ARE NOT REPRODUCED HEREIN. THE ASSESSEE FURTHER SUBMITTED TO THE LD. CIT(A) AS UNDER: IT CAN BE SEEN THAT THE APPELLANT HAS NOT ENTERED INTO ANY LEASE OR RENTAL AGREEMENT WITH ANY OF THE PARTI ES WHEREIN IT IS LIABLE FOR DEDUCTING TAX AT SOURCE U/S 194 I OF THE ACT. SIMILARLY PAYMENT IS NOT COVERED UNDER U/S 194C AS THE OWNERS OF THE PROPERTIES ARE NOT CONTRACTORS. WHEN BOTH PROVISIONS OF THE ACT ARE NOT APPLICABLE, THEN PROVISIONS U/S 40(A)(IA) OF THE ACT IS ALSO NOT APPLICABLE TO THE APPELLANT. FURTHER IT CAN ALSO BE SEEN THAT THE INTENTION OF PARTIES IS ALSO NOT TO GIVE OR TAKE THE PROPERTY ON RENT OR ON LEASE. IT HAS ALREADY BEEN SETTLED THAT THE TRANSACTIONS BETWEEN THE APPELLANT AND OTHER PARTIES ARE BUSINESS TRANSACTIONS AND INCOME THERE FROM CANNOT BE TAXED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' IN THE HANDS OF THE RECIPIENT. IN THIS REGARD, IN THE MATTER OF M/S FRANCIS WACZIARG, HON'BLE C1T(A) - XXVI, NEW DELHI VIDE THEIR ORDER DATED 18 - 01 - 2008 IN APPEAL NO. 187/06 - 07 FOR ASSESSMENT YEAR 2003 - 04, IT HAS BEEN HELD THAT LICENCE FEES RECEIVED BY FRANCIS WACZIARG FROM ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 18 THE NEEMRANA HOTELS PVT. LTD. IS INCOME WHICH SHOULD BE ASSESSED AS BUSINESS INCOME AND NOT UNDER THE HEAD AS 'INCOME FROM HOUSE PROPERTY' AS MADE BY THE ASSESSING OFFICER. THE ORDER OF CIT(A) - XXVI, NEW DELHI HAS BEEN UPHELD BY THE JURISDICTIONAL ITAT IN THEIR ORDER DATED 23 - 04 - 2010 IN THE ITA NO. 1340/DEL/08 FOR ASSESSMENT YEAR 2003 - 04 AGAINST THE APPEAL MADE BY ASSESSING OF FICER. WE ARE SUBMITTING HEREWITH THE COPIES OF THE SAME FOR YOUR KIND CONSIDERATION. THUS WHEN SUCH INCOME IS NOT TAXABLE AS RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, PROVISIONS U/S 194 I OF THE ACT IS NOT APPLICABLE AT ALL. THE APPELLANT HAS RELIED ON JUDGMENT OF KAMAT HOTELS (I) LTD. VS. ITO [2001] 78 ITD 241 (MUM), WHEREIN SIMILAR FACTS HAS EMERGED AND HON'BLE ITAT HAS RULED THAT TDS PROVISIONS U/S 194 I IS NOT APPLICABLE TO THE ASSESSEE. HOWEVER THE APPELLANT IS DEDUCTING TAX AT SOUR CE AS PER MUTUAL AGREEMENT WITH THE VARIOUS PARTIES, WHEREIN DWPL, HAS REQUESTED TO DEDUCT TAX @ 20% ON PAYMENT BASIS SO THAT IT CAN RELIEVED FROM PAYMENT OF ADVANCE TAX, WHILE OTHERS REQUESTED FOR DEDUCTION OF TAX AT 2% OF CONTRACTUAL PAYMENTS. IT IS NOT THE INTENTION OF THE ASSESSEE TO DEDUCT TAX AT A LOWER RATE OR AT A HIGHER RATE. THE APPELLANT IS NOT AT ALL LIABLE FOR TDS ON THESE PAYMENTS. IT IS DEDUCTING TAX AS PER MUTUAL AGREEMENT WITH THE PARTIES. THERE IS NO PROVISION IN THE ACT WHICH RESTRICTS T HE APPELLANT NOT TO DEDUCT TDS ON BEHALF OF THE OTHER PARTIES. IN FACT, THE APPELLANT IS TAKING ADDITIONAL BURDEN IN MAKING PAYMENT TO GOVERNMENT TREASURY ON THEIR BEHALF. THE APPELLANT CANNOT BE PENALIZED FOR DEDUCTING TAX AT SOURCE WHICH HE IS NOT LIABLE FOR. FURTHER LD. AO HAS MADE DISALLOWANCE U/S 40(A)(IA) ON CERTAIN SELECTED PAYMENTS AND ALLOWED OTHER SIMILAR PAYMENTS FOR THE REASONS BEST KNOWN TO HER, DETAILS GIVEN HEREUNDER: ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 19 PAID TO MR. ASHOK JAIN RS.41,660/ - TDS DEDUCTED@ 2.06% OF RS.858/ - PAID TO MRS. SHEELA NATH RS.81,330/ - TDS DEDUCTED@ 2.06% OF RS.1,686/ - PAID TO A T CHANGAPA RS.14,105/ - TDS DEDUCTED@ 2.06% OF RS.2911 - PAID TO SAGARI DALIA CHANGAPA RS.14,105/ - TDS DEDUCTED@ 2.06% OF RS.291/ - PAID TO POONAMA ROMANA AOOANNA RS.14,105/ - TDS D EDUCTED @ 2.06% OF RS.291/ - LD. AO HAS ALSO WRONGLY STATED THAT THE APPELLANT HAS DEDUCTED TAX U/S 194 I ON THE PAYMENTS OF LICENCE FEES MADE TO DWPL FOR USAGE OF SPACE, WHILE PAYMENT TO THE OTHERS VIZ. MEERA KULKARNI /SRK TOURS & TRAVELS PVT. LTD. / FRA NCIS WACZIARG HAVE BEEN MADE U/S 194C. AS ALREADY STATED ABOVE THE AGREEMENTS ENTERED INTO WITH VARIOUS PARTIES ARE REVENUE SHARING AGREEMENTS AND NOT RENTAL AGREEMENTS. HON'BLE SUPREME COURT OF INDIA IN THE CASE OF KEDAR NATH JUTE MFG. CO. LTD. V. CIT ( CENTRAL), CALCUTTA [1971] 82 ITR 363 HAS OBSERVED THAT: 'WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH HE MIGHT TAKE OF HIS RIGHTS; NOR CAN THE EXISTENCE O R ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER.' NO SUCH DISALLOWANCE HAS BEEN BY MADE THE LD. AOS IN EARLIER YEARS. THE APPELLANT THEREFORE PRAYS TO DELETE THE DISALLOWANCES MADE U/S 40(A)(IA) OF THE ACT AS THE PROV ISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE TO THE APPELLANT ON THE LICENCE FEES PAID AS DETAILED HEREINABOVE. 10. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION OF RS. 21,60,000/ - BY OBSERVING IN PARAS 6.3 TO 6.6 OF THE IMPUGNED ORDER WHICH ARE REPRODUCED VERBATIM AS UNDER: ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 20 6.3 FROM THE AGREEMENTS BETWEEN THE APPELLANT AND THE ABOVE PARTIES IT IS EVIDENT THAT EXCEPT THE AGREEMENT WITH SRK TRAVELS & TOURS PVT. LTD., ALL THE REMAINING AGREEMENTS ARE MORE OR LES S SIMILARLY WORDED HAVING MOSTLY IDENTICAL CLAUSES. THE AGREEMENTS WITH THE PARTIES ARE FOR SHARING OF REVENUE AS UNDER: (A) AS PER AGREEMENT, DWPL WILL BE PAID 15% OF GROSS OPERATING PROFITS AND ACCORDINGLY RS. 1,37,01,000/ - WAS PAID DURING THE YEAR. (B) AS PER AGREEMENT, MRS. MEERA KULKARNI IS ENTITLED TO MINIMUM GUARANTEED AMOUNT OF RS.L,50,000/ - OR 30% OF GROSS OPERATING PROFITS, TO BE CALCULATED EVERY QUARTER, WHICHEVER IS HIGHER AND ACCORDINGLY RS. 61,53,504/ - WAS PAID DURING THE YEAR. (C) IN TH E CASE OF MR. FRANCIS WACZIARG, HE IS ENTITLED TO MINIMUM GUARANTEED AMOUNT OF RS. 15,00,000/ - OR 20% OF GROSS OPERATING PROFIT WHICHEVER IS HIGHER AND ACCORDINGLY RS. 39,37,502/ - WAS PAID DURING THE YEAR. (D) IN THE CASE OF MOUNTAIN VALLEY SPRINGS PRIVA TE LTD. IT IS ENTITLED TO 30% OF ANNUAL TURNOVER AND ACCORDINGLY RS. 2,12,909/ - WAS PAID DURING THE YEAR. (E) MR. SUDHIR MULJI IS ENTITLED TO 20% OF THE GROSS OPERATING PROFITS AND ACCORDINGLY RS. 6,37,305/ - WAS PAID DURING THE YEAR. (F) MATHESONS BOSAN QUFT ENTERPRISES LTD. IS ENTITLED TO 20% OF GROSS OPERATING PROFITS AND ACCORDINGLY RS. 3,03,676/ - WAS PAID DURING THE YEAR. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 21 ALL THE AGREEMENTS BETWEEN THE APPELLANT ON THE ONE HAND THAT OTHER PARTIES EXCEPT SRK TRAVELS & TOUR PVT. LTD. CONTAINS THE FOLL OWING IMPORTANT CLAUSE: 'IT IS HEREBY AGREED THAT BOTH PARTIES SHALL HOLD MEETINGS FROM TIME TO TIME TO TRANSACT NECESSARY BUSINESS AND TO REVIEW THE AFFAIRS OF THE HOTEL. THEY SHALL MUTUALLY DECIDE UPON THE APPOINTMENT/ENGAGEMENT OF EXPERTS IN THE FIELD OF HOTEL MANAGEMENT/OPERATIONS TO RUN, CONDUCT, OPERATE, MANAGE, MARKET, DIRECT, CONTROL AND SUPERVISE THE OPERATIONS OF THE SAID HOTEL.' FROM THE ABOVE IT IS EVIDENT THAT ALL THE AGREEMENTS WITH THE ABOVE PARTIES ARE FOR DIFFERENT REVENUE SHARING DEP ENDING ON LOCATION, POTENTIAL ETC. AND PAYMENTS WERE ALSO MADE BY THE APPELLANT TO THE PARTIES ON THE BASIS OF REVENUE SHARING METHOD. FROM THE ABOVE CLAUSE IN THE AGREEMENT IT IS ALSO SEEN THAT THE PARTIES ARE INVOLVED IN ALL THE ASPECTS OF MANAGEMENT AND DAY TO DAY RUNNING OF THE BUSINESS AFFAIRS OF THE PROPERTY AS A HOTEL INCLUDING APPOINTMENTS/ENGAGEMENT OF EXPERTS IN THE OPERATION OF THE HOTEL. THE LICENSE FEE PAID TO THE PARTIES IS NOT FIXED AMOUNT AS IN THE CASE OF INCOME FROM HOUSE PROPERTY BUT IT I S BASED ON REVENUE SHARING AGREEMENT. THE LICENSE FEE PAID IS BASED ON BUSINESS OF RUNNING THE HOTEL. THE INCOME FROM HOUSE PROPERTY IS USUALLY A FIXED AMOUNT IRRESPECTIVE OF THE INCOME FROM BUSINESS CARRIED ON IN A HOUSE PROPERTY. HOWEVER IN THE INSTANT C ASE THE PAYMENTS MADE TO THE PARTIES ARE NOT FIXED AMOUNTS BUT INCOME FROM BUSINESS OF RUNNING HOTEL ON THE BASIS OF REVENUE SHARING AGREEMENTS. IN VIEW OF THE PAYMENTS ACTUALLY MADE ON THE BASIS OF REVENUE SHARING AGREEMENTS AND INVOLVEMENT OF THE PARTIES IN THE DAY TO DAY RUNNING OF THE BUSINESS IN THE PROPERTY, IT IS EVIDENT THAT NATURE OF PAYMENTS MADE BY THE APPELLANT TO THE PARTIES ARE NOT IN THE NATURE OF INCOME BY WAY OF RENT. IN VIEW OF THE ABOVE, THE PAYMENTS MADE BY THE APPELLANT TO THE PARTIES W OULD NOT COME UNDER THE ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 22 PURVIEW OF SEC 194 I. THEREFORE, THE A.O. IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE ON THE GROUND THAT THERE IS SHORT - DEDUCTION OF TDS BY THE APPELLANT UNDER SEC 194 I. THE REASONING GIVEN THE A.O. IS THAT BECAUSE TDS WAS MADE @ 2 2.66% IN THE CASE OF DWPL, THEREFORE, THE LICENSE FEE PAID TO THE REMAINING - PARTIES IS ALSO LIABLE FOR TDS U/S 194 I. THE ABOVE REASONING GIVEN BY THE A.O. IS NOT BASED ON PROPER APPRECIATION OF RELEVANT ASPECTS. RATE OF TDS MADE BY THE ASSESSEE DO NOT DET ERMINE THE NATURE OF PAYMENT. IT IS THE NATURE OF PAYMENT THAT DETERMINES THE RATE AT WHICH TDS SHOULD BE MADE. 6.4 FURTHER, ON IDENTICAL ISSUE FOR A.Y. 2003 - 04 IN THE CASE OF INCOME RECEIVED BY FRANCIS WACZIARG FROM THE APPELLANT COMPANY, HON'BLE DELHI HIGH COURT IN ITA NO. 338/2011 IN ITS DECISION DT. 08/11/2011 IN THE CASE OF CIT VS. M/S FRANCIS WACZIARG HAVE HELD THAT: 'EVEN OTHERWISE, WE FIND THAT CIT(APPEALS) HAS GIVEN DETAILED FACTUAL FINDING WHY INCOME EARNED BY THE ASSESSEE FROM THE THREE PRO PERTIES IS TAXABLE UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' AND NOT UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THE REASONING GIVEN BY THE ASSESSING OFFICER IS CRYPTIC AND SHE HAS NOT CONSIDERED THE RELEVANT ASPECTS. ON THE BASIS OF FINDINGS RE CORDED BY HER, IT IS NOT POSSIBLE TO HOLD THAT THE FINDING OF FACT RECORDED BY THE CIT(APPEALS)/TRIBUNAL ARE UNFOUNDED OR UNREASONABLE. IN ANY CASE, THE SAID FINDINGS ARE NOT PERVERSE AND ARE BASED ON DOCUMENTS AND MATERIAL PLACED ON RECORD. THE REASONING IS COGENT AND WELL EXPLAINED. THEREFORE, WE DO NOT FIND THAT ANY QUESTION OF LAW ARISES ON THE FIRST ASPECT AND WE ARE NOT INCLINED TO FRAME ANY SUBSTANTIAL QUESTION OF LAW WHETHER THE INCOME EARNED BY THE RESPONDENT ASSESSEE IS TAXABLE UNDER THE HEAD 'INC OME FROM HOUSE PROPERTY'. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 23 IN THE ABOVE DECISION HON'BLE DELHI HIGH COURT HAVE UPHELD THE DECISION OF HON'BLE ITAT DELHI AND LD. CIT(A) THAT LICENSE FEE RECEIVED BY FRANCIS WACZIARG FROM NEEMRANA HOTELS PVT. LTD. AS REVENUE SHARING FROM RUNNING OF THE PROP ERTY ARE TAXABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE TERMS OF AGREEMENT BETWEEN THE APPELLANT AND THE PARTIES ARE ALMOST IDENTICAL AS IN THE CASE OF FRANCIS WACZIARG AND ACTUAL PAYMENTS T O THE PARTIES ARE ALSO AS PER TERMS OF AGREEMENT ON REVENUE SHARING BASIS. IN VIEW OF THE ABOVE, FACTUAL AND LEGAL POSITION, THE DISALLOWANCE MADE BY THE A.O. IN RESPECT OF THE ABOVE PARTIES VS. SUDHIR MULJEE, FRANCIS WACZIARG, MATHESON BOSANQUET ENT. LTD. , MEERA KULKARNI, AND MOUNTAINVALLEY SPRING INDIA P. LTD. UNDER SEC 40(A)(IA) READ WITH SEC 194 I ARE NOT SUSTAINABLE. 6.5 REGARDING THE LICENSE FEE PAID TO SRK TRAVELS & TOURS PVT. LTD, FROM THE AGREEMENT DT. 23/06/2005 BETWEEN THE APPELLANT AND THE PAR TY IT IS EVIDENT THAT THERE IS NO INVOLVEMENT OF THE PARTY IN THE MANAGEMENT AND DAY TO DAY RUNNING OF THE BUSINESS AFFAIRS OF THE HOTEL IN THAT PROPERTY. THE LICENSE FEE PAYABLE TO THE PARTY DURING THE RELEVANT PERIOD IS MINIMUM OF RS. 12,00,000/ - OR 15% OF GROSS OPERATING PROFIT WHICHEVER IS HIGHER SUBJECT TO MAXIMUM OF RS. 18,00,000/ - PER ANNUM. THEREFORE, UNLIKE OTHER AGREEMENTS THERE IS A MAXIMUM CEILING OF RS. 18 LAKHS. THE LICENSE FEE IS PAYABLE SIMPLY BECAUSE THE PROPERTY IS LET OUT AND THE REQUIRE MENT OF THE APPELLANT COMPANY TO MAINTAIN PROPER ACCOUNTS IS SIMPLY BECAUSE THE PARTY IS OTHERWISE ENTITLED TO LICENSE FEE OF 15% OF GROSS OPERATING PROFIT SUBJECT TO MINIMUM CEILING OF RS. 12 LAKHS AND MAXIMUM CEILING OF RS. 18 LAKHS. IN ANY CASE SIMPLY B ECAUSE THE PARTY IS ENTITLED TO CERTAIN PERCENTAGE OF GROSS OPERATING PROFIT SUBJECT TO MAXIMUM AND MINIMUM CEILING, DO NOT MAKE THE INCOME, A BUSINESS INCOME. BECAUSE THERE IS NO INVOLVEMENT IN THE BUSINESS OF RUNNING OF THE HOTEL. FURTHER THE ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 24 PAYMENTS AR E ALSO SUBJECT TO CEILINGS I.E. THE PARTY WILL NOT BE ENTITLED BEYOND THE MAXIMUM CEILING. THEREFORE, IRRESPECTIVE OF HIGHER BUSINESS INCOME, THE PARTY WILL GET ONLY RS. 18 LAKHS. FURTHER, DURING THE PERIOD THE LICENSE FEE ACTUALLY PAID WAS RS. 18 LAKHS, W HICH IS THE FIXED MAXIMUM AMOUNT. THE FIXED AMOUNT ACTUALLY PAID HAS THE CHARACTER OF HOUSE PROPERTY INCOME. SINCE, THERE IS NO INVOLVEMENT OF THE PARTY IN THE BUSINESS AFFAIRS BEING RUN IN THE PROPERTY AND LICENSE FEE PAID IS ALSO FIXED AMOUNT AND NOT PRO PORTIONATE TO THE BUSINESS INCOME AND THE LICENSE FEE PAID IS SOLELY FOR THE USE OF LAND AND BUILDING, THEREFORE, THE PAYMENTS MADE ARE IN THE NATURE INCOME OF HOUSE PROPERTY AND NOT IN THE NATURE OF INCOME FROM BUSINESS CARRIED OUT. IN VIEW OF THE ABOVE T HE PAYMENTS MADE BEING IN THE NATURE OF INCOME BY WAY OF RENT, THEREFORE, THE APPELLANT IS LIABLE TO DEDUCT TAX ON ACCOUNT OF THE SAID PAYMENTS TO THE PARTY UNDER SEC 194 I. 6.6 SINCE THERE IS SHORT DEDUCTION OF TDS BY THE APPELLANT U/S 194 I AS SHOWN BY THE A.O. IN RESPECT OF THE ABOVE PAYMENTS TO SRK TRAVELS & TOURS PVT. LTD. TO THE EXTENT OF RS. 21,60,000/ - , THEREFORE, THE A.O. IS JUSTIFIED IN DISALLOWING THE ABOVE PAYMENT MADE BY THE APPELLANT U/S 40(A)(IA). THE AR OF APPELLANT ALSO SUBMITTED THAT DIS ALLOWANCE U/S 40(A)(IA) DOES NOT COVER SHORT DEDUCTION OF TDS OR DEDUCTION OF TDS UNDER WRONG HEAD DUE TO DIFFERENCE OF OPINION OR ANY OTHER REASONS. THE ABOVE SUBMISSION OF THE APPELLANT IS NOT SUSTAINABLE BECAUSE CHAPTER XVII - B CONTAINS SPECIFIC PROVISIO NS OF TDS AT DIFFERENT RATES IN RESPECT OF DIFFERENT NATURE OF PAYMENTS LIKE SALARY, INTEREST ON SECURITIES, DIVIDENDS, INTEREST, RENTS, PAYMENTS TO CONTRACTORS ETC. SEC 40(A)(IA) PROVIDES THAT PAYMENTS OF THE NATURE SPECIFIED THEREIN SHALL NOT BE ALLOWED AS DEDUCTION IF TDS AS PROVIDED IN CHAPTER XVIIB IS LIABLE TO BE MADE AND SUCH TDS HAS NOT BEEN MADE OR PAID BEFORE THE DUE DATE. THEREFORE, IF DISALLOWANCE U/S 40(A)(IA) CANNOT COVER SHORT DEDUCTION OF TDS OR TDS UNDER WRONG HEAD AS CLAIMED BY THE APPELL ANT, THE PROVISIONS IN ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 25 CHAPTER XVIIB PROVIDING DIFFERENT RATES OF TDS WOULD BE MEANINGLESS. IF PROVISIONS OF SEC 40(A)(IA) CANNOT COVER SHORT DEDUCTION OF TDS, THE ASSESSEES WOULD BE AT LIBERTY TO MAKE TDS AT LOWER RATES AND THEREFORE, THE PROVISIONS OF SE C 40(A)(IA) WOULD ALSO BE MEANINGLESS ALTOGETHER. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT PROVISIONS OF SEC 40(A)(IA) COVERS BOTH NON - DEDUCTION AS WELL AS SHORT - DEDUCTION OF TDS. FURTHER, THE DECISIONS RELIED UPON BY THE A.O. IN THIS REGARD ARE DIST INGUISHABLE FROM THE ISSUES INVOLVED IN THIS APPEAL. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O. IS REDUCED FROM RS. 1,24,49,495/ - TO RS. 21,60,000/ - . 11. NOW BOTH THE PARTIES ARE IN APPEAL. THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF GRAN TED TO THE ASSESSEE AND THE ASSESSEE IS IN APPEAL AGAINST THE SUSTENANCE OF THE ADDITION. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE WAS HAVING REVENUE S HARING A RRAN GEMENT S WITH OTHER PARTIES, SO TDS WAS NOT REQUIRED TO BE DEDUCTED U/S 194 I OF THE ACT , SINCE IT WAS A BUSINESS TRANSACTION AND THE ASSESSEE ITSELF DEDUCTED THE TDS U/S 194C OF THE ACT BECAUSE THE ASSESSEE WAS REQUIRED TO PAY PORTION OF THE GROSS OPERATIN G P ROFIT TO THE VARIOUS PARTIES. IT WAS FURTHER STATED THAT IN THE HANDS OF THE RECIPIENT THE INCOME WAS TREATED AS BUSINESS INCOME (A REFERENCE WAS MADE TO PAGE NOS. 349 TO 351 OF THE ASSESSEE S PAPER BOOK). IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) AL SO ACCEPTED THAT ALL THE AGREEMENTS BETWEEN THE ASSESSEE AND THE OTHER PARTIES EXCEPT SRK TRAVELS & TOURS PVT. LTD. WERE FOR DIFFERENT REVENUE SHARING AND THERE WAS NO INVOLVEMENTS OF THE PARTY IN THE DAY TO DAY ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 26 RUNNING OF THE BUSINESS IN THE PROPERTY. IT WAS FURTHER STATED THAT THE PAYMENTS MADE TO THE PARTIES WERE NOT FIXED AMOUNT RATHER IT WAS INCOME FROM BUSINESS OF RUNNING OF THE HOTEL ON THE BASIS OF REVENUE SHARING ARRANGEMENTS. IT WAS SUBMITTED THAT THE HON BLE JURISDICTIONAL HIGH COURT HAS DECIDED AN IDENTICAL ISSUE IN THE CASE OF CIT VS FRANCIS WACZIARG FOR THE ASSESSMENT YEAR 2003 - 04 AND HELD THAT THE INCOME RECEIVED BY MR. FRANCIS WACZIARG FROM THE ASSESSEE WAS INCOME FROM BUSINESS OR PROFESSION AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERT Y . IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ARBITRARY ADDITION MADE BY THE AO IN RESPECT OF THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. AS REGARDS TO THE DISALLOWANCE OF RS. 21,60,000 / - SUSTAINED BY THE LD. CIT( A), T HE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LICENCE FEES PAYABLE TO M/S SRK TRAVELS & TOURS PVT. LTD. WAS MINIMUM O F RS. 12,00,000/ - OR 15% OF GROSS OPERATING PROFIT WHICHEVER WAS HIGHER SUBJECT TO MAXIMUM OF RS. 18,00,000/ - PER ANNUM. IT WAS C ONTENDED THAT AT THE MOST THE DISALLOWANCE TO THE EXTENT OF RS. 18,00,000/ - COULD HAVE BEEN MADE , THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS. 21,60,000/ - . THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS FRANCIS WACZIRAG 353 ITR 157 . 12. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT AS THE ASSESSEE SHORT DEDUCTED THE ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 27 TDS, THEREFORE, THE DISALLOWANCE WAS RIGHTL Y MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT SINCE THERE WAS VIOLATION OF SECTION 194 I OF THE ACT BY THE ASSESSEE. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABL E ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE ENTERED INTO AGREEMENT WITH THE VARIOUS PARTIES WHO WERE HAVING VARIOUS PROPERTIES AND WERE INVOLVED IN ALL ASPECTS OF MANAGEMENT AND DAY TO DAY RUNNING OF BUSINESS AFFAIRS OF THE PROPERTY AS A HOTEL. THE ASSESSEE ENTERED INTO AGREEMENT WITH THOSE PARTIES FOR DIFFERENT REVENUE SHARING DEPENDENT ON LOCATION POTENTIAL ETC. AND THE PAYMENTS WERE MADE BY THE ASSESSEE ON THE BASIS OF REVENUE SHARING METHOD. THE ASSESSEE ALSO AGREED FOR MINIMUM GU ARANTEED AMOUNT. THE LD. CIT(A) ALSO ACCEPTED AFTER MAKING A DETAILED VERIFICATION FROM THE VARIOUS AGREEMENTS IN BETWEEN THE ASSESSEE AND THE OTHER PARTIES THAT THE PAYMENTS ON THE BASIS OF SHARING OF REVENUE WOULD NOT COME UNDER THE PURV IEW OF SECTION 19 4 I OF THE ACT. H OWEVER, IN RESPECT OF SRK TRAVELS & TOURS PVT. LTD. , T HE LD. CIT(A) CATEGORICALLY STATED THAT AS PER THE AGREEMENT DATED 23.06.2005, IT WAS EVIDENT THAT THERE WAS NO INVOLVEMENT OF THE SAID PARTY IN THE MANAGEMENT AND DAY TO DAY RUNNING OF THE BUSINESS AFFAIRS OF THE HOTEL IN THAT PROPERTY. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE WAS IN THE NATURE OF RENT AND THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S 194 I OF THE ACT . THE LD. CIT(A) HELD THAT AS THE ASSESSEE SHORT DEDUCTED THE TDS, THE ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 28 DISALLOWANCE U/S 40(A)(IA) OF THE ACT AMOUNTING TO RS. 21,60,000/ - WAS JUSTIFIED. IN THE PRESENT CASE, THE MAXIMUM AMOUNT PAYABLE TO M/S SRK TRAVELS & TOURS PVT. LTD. WAS RS. 18,00,000/ - , THEREFORE, THE DISALLOWANCE COULD HAVE BEEN MADE TO THAT EXTENT ONLY . IT IS ALSO NOTICED FROM THE DETAILS OF THE LICENCE FEES PAID AS MENTIONED BY THE AO AT PAGE NOS. 2 & 3 OF THE ASSESSMENT ORDER THAT THE ASSESSEE PAID A SUM OF RS. 18,00,000/ - TO M/S SRK TRAVELS & TOURS PVT. LTD. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. WE, THEREFORE, CONSIDERING TH E TOTALITY OF THE FACTS MODIFY THE ORDER OF THE LD. CIT(A) AND UPHOLD THE DISALLOWANCE OF RS. 18,00,000/ - INSTEAD OF RS. 21,60,000/ - SUSTAINED BY THE LD. CIT(A). 14. THE NEXT ISSUE VIDE GRO UND NOS. 2 & 2.1 OF THE DEPARTMENTAL APPEAL AND GROUND NO. 6 OF THE ASSESSEE S APPEAL RELATES TO THE DELETION/SUSTENANCE OF ADDITION MADE BY THE AO ON ACCOUNT OF SHORT TERM CAPITAL GAINS. 15. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE SOLD A PROPERTY SITUATED AT A - 53, NIZAMUDDIN, NEW DELHI AND DECLARED A SHORT TERM CAPITAL GAIN OF RS. 3,990,385/ - . THE AO ASKED THE ASSESSEE TO FURNISH THE FULL DETAILS ALONGWITH AGREEMENTS AN D RELATED DOCUMENTS THEREOF. IN RESPONSE THE ASSESSEE FURNISHED THE WORKING OF THE CAPITAL GAIN AS UNDER: ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 29 SALE CONSIDERATION COST OF TRANSFER NET SALE CONSIDERATION GAIN LAND 19750000 24296373 555988 23740385 3990385 BUILDING 2197720 2703627 60756 264 2871 445151 21947720 27000000 616744 26383256 4435536 16. FROM THE ABOVE DETAILS AND THE COPIES OF SALES DEED AND PURCHASE AGREEMENTS, THE AO NOTICED THAT THE ASSESSEE HAD SOLD THE LAND AND BUILDING FOR RS. 2.70 CRORES WHICH WAS ACQUIRED BY IT DURING T HE FINANCIAL YEAR 2006 - 07 FOR RS. 2 CRORE. HE ALSO NOTICED THAT THERE WAS NO APPORTIONMENT OF COST BETWEEN LAND AND BUILDING EITHER IN THE PURCHASE AGREEMENT OR IN THE SALE DEED, H OWEVER, THE ASSESSEE HAD BIFURCATED THE PURCHASE PRICE AND SALE PROCEEDS BET WEEN THE LAND AND BUILDING ON ITS OWN. THE AO REPRODUCED THE RELEVANT PORTION OF PURCHASE AGREEMENT AND SALE DEED AT PAGE NO. 10 OF THE ASSESSMENT ORDER DATED 28.12.2010 , FOR THE COST OF REPETITION, THE SAME IS NOT REPRODUCED HEREIN. THE ASSESSEE FURNISHED BEFORE THE AO A CERTIFICATE FROM AN ARCHITECT CERTIFYING THE VALUE OF THE LAND AND BUILDING TO BE RS. 1,97,50,000/ - AND RS. 21,97,720/ - RESPECTIVELY. HOWEVER, THE AO CONSIDERED THE SAID CERTI FICATE AS SELF - SERVING DOCUMENT BECAUSE NO DETAILS OF VALUATION DONE AND DESCRIPTION OF THE PROPERTY HAD BEEN PROVIDED THEREIN . THE AO ALSO POINTED OUT THAT THE COST OF ACQUISITION AS EMANATING FROM THE AGREEMENTS WAS RS. 2 CRORES. SO IT WAS NOT COMPREHENSIBLE AS TO HOW THE ASSESSEE HAD ALLOCATED A SUM OF RS. 2,19,47,7 20/ - TO THE COST OF LAND AND ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 30 BUILDING. THE AO WORKED OUT THE ADDITION OF RS. 23,92,871/ - ON ACCOUNT OF SHORT TERM CAPITAL GAIN AS UNDER: PROPERTY PURCHASED FOR RS. 20000000 PROPERTY SOLD FOR RS. 27000000 GROSS GAIN RS. 7000000 LESS: COST OF TRANSFER (AS CLAIMED BY THE ASSESSEE) RS. 616744 RS. 6383256 LESS: GRAIN DECLARED BY THE ASSESSEE RS. 3990385 DIFFERENCE RS. 23,92,871 17. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: THE APPELLANT HAS PURCHASED BASEMENT & GROUND FLOOR OF THE PROPERTY BEARING NO. A - 53, NIZAMUDDIN EAST, NEW DELHI - 110013 FOR A TOTAL COST OF RS.2,19,47,720/ - ON 26 - 05 - 2006 AS DETAILED HEREUNDER: AMOUNT AS PER SALE DEED RS. 2,00,00,000/ - COST OF STAMP DUTY/CORPORATION TAX RS. 16,00,000/ - PAID TO MS. ANJALI K VERMA & ASSOCIATES, ADVOCATES FOR FINALIZING MOU ETC. RS. 11,000/ - BROKERAGE PAID TO MR. PRAMAN KAPOOR RS. 3,36,720/ - TOTAL COST RS. 2,19,47,720/ - COMPLETE DETAILS WERE FURNISHED TO THE LD. AO TOWARDS COST OF THE PROPERTY. EVEN STAMP PAPER COST IS APPEARED ON THE FACE OF THE 'SALE DEED'. THE SAME WAS SOLD ON 09 - 07 - 2007 FOR A TOTAL LUMP SUM PAYMENT OF RS.2,70,00,000/ - . IT INCURS TOTAL EXPENDITURE OF RS.6,16,744/ - TOWARDS COST OF TRANSFER. SINCE THE PROPERTY WAS PURCHASED FOR BUSINESS PURPOSES AND THUS BUILDING IS ELIGIBLE FOR DEPRECIATION. FOR CONVENIENCE, THE APPELLANT BIFURCATED ITS TOTAL COST INTO LAND AT RS.197.50 LAKHS ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 31 AND INTO BUILDING AT R S.21,97,720/ - . THE BIFURCATION OF COST INTO LAND & BUILDING HAS BEEN MADE BASED ON DISCUSSION TOOK PLACE BETWEEN WITH THE VARIOUS PROFESSIONAL INVOLVED IN FINALIZATION OF DEAL AT THAT TIME THOUGH THE APPELLANT COULD NOT LOCATE BASIS/DOCUMENT FOR BIFURCATIO N OF TOTAL COST INTO LAND AND INTO BUILDING. SINCE THE PROPERTY WAS HAVING VERY OLD CONSTRUCTION, THE APPELLANT CONSIDERED THE LAND COST FOR GROUND AND FIRST FLOOR AT RS.1, 97,50,000/ - (VIZ. RS.98,75,000/ - EACH FLOOR) AND BALANCE IS KEPT IN BUILDING ACCOUN T. NO OBJECTIONS HAVE EVER BEEN RAISED FOR THIS APPORTIONMENT OF TOTAL COST INTO LAND AND INTO BUILDING BY RSM & CO., CHARTERED ACCOUNTANTS, THE STATUTORY AUDITOR/TAX AUDITOR OF THE APPELLANT WHO HAVE BEEN THE STATUTORY AUDIT REPORT AND TAX AUDIT REPORT. AS CONCEPT OF BLOCK OF ASSET U/S 32 OF THE ACT IS MANDATORY, AND SINCE THE APPELLANT IS ELIGIBLE FOR DEPRECIATION ON BUILDING, THE APPELLANT RECORDED COST OF BUILDING INTO 'BUILDING' BLOCK OF ASSET IN DEPRECIATION SCHEDULE AND CHARGED DEPRECIATION AT THE RATES APPLICABLE. AS PER BLOCK CONCEPT, THE APPELLANT CHARGED DEPRECIATION ON BUILDING PORTION WHILE THERE IS NO DEPRECIATION ON LAND. FURTHER, AS THE PROPERTY IS SOLD WITHIN 3 YEARS PERIOD, THERE IS A SHORT TERM CAPITAL GAIN ON SALE OF LAND PORTION. THE APPELLANT BIFURCATED THE SALE CONSIDERATION AND COST ON TRANSFER, PROPORTIONATELY INTO LAND VALUE AND INTO BUILDING VALUE AS PER COST RECODED IN BOOKS FOR EACH OF THE ITEM AT THE TIME OF PURCHASE. AS PER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/PRACTICES, FROM 'BUILDING' BLOCK OF ASSET, PROPORTIONATE SALE VALUE OF BUILDING IS DEDUCTED. THUS VALUE OF DEPRECIATION IS AFFECTED (REDUCED) ACCORDINGLY AS PER DEPRECIATION SCHEDULE. THE LD. AO WHILE NOT ALLOWING THE BASIS ADOPTED BY THE APPELLANT FOR COMPUTING SHORT TERM CAPITAL GAIN AND ALSO ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 32 DEPRECATION' (CONSEQUENTIAL), HAS TAKEN PURCHASE COST OF PROPERTY AT RS.200 LAKHS ONLY AS STATED IN THE SALE DEED, IGNORING OTHER COST INCLUDING STAMPING COST PAID AS PER THE STAMP DUTY ACT, 1952 WHICH IS APPEARING ON THE FACE OF THE SALE DEED, BROKERAGE EXPENSES, LEGAL EXPENSES ETC, WHICH THE APPELLANT HAS INCURRED IN THE COURSE OF PURCHASE OF THE AFORESAID PROPERTY, THE DETAIL OF WHICH IS SUBMITTED TO THE LD. AO BY THE APPELLANT IN THE COURSE OF ASSESSMENT PROCEEDINGS. WHEN THE LD. AO HAS ACCEPTED BUILDING BLOCK OF ASSET FOR DEPRECIATION PURPOSE 'AND ALSO ACCEPTED COST OF BUILDING IN DEPRECIATION SCHEDULE BOTH FOR THE FINANCIAL YEAR 2006 - 07 AND 2007 - 08 AND ALSO ACCEPTED DEPRECIATION SCHEDULE FOR 2007 - 08 WHEREIN PROPORTIO NATE SALE VALUE OF BUILDING IS REDUCED, SHE CANNOT AGAIN RECOMPUTE SHORT TERM CAPITAL GAIN ON BUILDING. IT HAS RESULTED IN WRONG COMPUTATION OF SHORT TERM CAPITAL GAIN ON BUILDING AND ALSO REDUCTION IN DEPRECIATION FOR FINANCIAL YEAR 2007 - 08 RELEVANT TO AS SESSMENT YEAR 2008 - 09 (BY REDUCING THE VALUE OF BUILDING BLOCK OF ASSET). FURTHER FOR DEPRECIABLE ASSETS, SECTION 50 OF THE ACT IS APPLICABLE, WHICH SHE HAS TOTALLY IGNORED. SHE HAS EVEN NOT CARED TO GIVE A NATURAL JUSTICE TO THE APPELLANT AND TAXING ONE TRANSACTION (I.E. PROPORTIONATE VALUE IN SALE OF BUILDING) FOR TWO TIMES - FIRSTLY AS TAXING THE SAME AS SHORT TERM CAPITAL GAIN AND FURTHER REDUCTION IN VALUE OF DEPRECIATION (BY REDUCING THE VALUE OF BUILDING BLOCK OF ASSET). WHEN SHE HAS IGNORED THE BASI S OF COMPUTATION OF DEPRECIATION ON BUILDING BLOCK OF ASSET, SHE SHOULD (A) RECOMPUTE DEPRECIATION FOR THE FINANCIAL YEAR 2006 - 07 DURING WHICH THE BUILDING COST IS CAPITALIZED INTO BUILDING BLOCK OF ASSET AND FOR THE FINANCIAL YEAR 2007 - 08, DURING WHICH THE PROPERTY IS SOLD DELETING THE PROPORTIONATE SALE VALUE OF BUILDING WHICH THE APPELLANT ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 33 HAS TAKEN IN DEPRECIATION SCHEDULE. THUS SHE CANNOT TAKE SHORT TERM CAPITAL GAIN ON COST, AND ALSO REDUCTION IN VALUE OF BUILDING BLOCK OF ASSET, WHICH SHE HAS NOT TOUCH ED. (B) ALLOW FULL COST OF PURCHASE INCLUDING STAMP DUTY, BROKERAGE ETC, AS STATED HEREINABOVE IN THE COST ACQUISITION OF THE PROPERTY SOLD. THE LD. AO HAS TAKEN THE COST OF LAND & BUILDING AT RS.200 LAKHS, PURCHASED DURING FINANCIAL YEAR 2006 - 07 AS COMPARE D TO ACTUAL TOTAL COST INCURRED BY THE APPELLANT OF RS.219.47 LAKHS AS PER DETAILS STATED HEREIN ABOVE. SHE CANNOT DISREGARD THE AUDITED BOOKS OF ACCOUNT FOR THE FINANCIAL YEAR 2006 - 07 WITHOUT INVOKING THE PROVISIONS OF SECTION 147/148 OF THE ACT BY REASSE SSING THE INCOME OF THE APPELLANT FOR FINANCIAL YEAR 2006 - 07 RELEVANT TO ASSESSMENT YEAR 2007 - 08, WHICH SHE HAS NOT DONE. THUS LD. AO HAS ILLEGALLY REDUCED THE COST OF PROPERTY TO RS.200 LAKHS FROM RS.219.47 LAKHS, WHICH THE APPELLANT IS HEREBY PRAYING T O KINDLY RESTORE THE SAME. FURTHER WHILE CHARGING SHORT TERM CAPITAL GAIN ON BUILDING, SHE HAS ILLEGALLY DISREGARDED THE DEPRECIATION SCHEDULE FOR FINANCIAL 2006 - 07 (ASSESSMENT YEAR 2007 - 08) AND FOR FINANCIAL YEAR 2007 - 08 (ASSESSMENT YEAR 2008 - 09), IN WHIC H SHE SHOULD HAVE MAKE NECESSARY CORRECTIONS. THERE WILL BE NO CHANGE IN TAX LIABILITY IF THE SHORT TERM CAPITAL GAIN LIABILITY IS COMPUTED BY WAY THE LD. AO HAS DONE, BUT SHE HAS TO MAKE NECESSARY CORRECTIONS FOR DEPRECIATION AND CAPITAL GAIN U/S 50 ON B UILDING AS SHOWN IN PAGE NO. --- ATTACHED. THE APPELLANT HAS GOT THE VALUATION CERTIFICATE FOR THE PROPERTY A53 FROM THE CERTIFIED VALUER RECENTLY FOR CONVENIENCE, WHICH CAN BE CONSIDERED FOR VALUATION OF LAND AND BUILDING ON APPROXIMATE BASIS. IT IS THE REFORE PRAYED TO KINDLY ISSUE ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 34 DIRECTIONS TO LD. AO TO DELETE THE ADDITIONS MADE ON ACCOUNT OF SHORT TERM CAPITAL GAIN BY THE LD. AO. 18. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE PURCHASED BASEMENT & GRO UND FLOOR OF THE PROPERTY BEARING NO. A - 53, NIZAMUDDIN EAST, NEW DELHI FOR THE COST OF RS. 2,19,47,720/ - ON 26.05.2006 , THE SAME WAS SOLD ON 09.07.2007 FOR A TOTAL L UMP SUM PAYMENT OF RS. 2,70,00,000/ - AND THE ASSESSEE ALSO INCURRED TOTAL EXPENDITURE OF RS . 6,16,744/ - TOWARDS COST OF TRANSFER. THE LD. CIT(A) POINTED OUT THAT THE ASSESSEE WORKED OUT THE CAPITAL GAIN AS UNDER: SALE CONSIDERATION COST OF TRANSFER NET SALE CONSIDERATION GAIN LAND 19750000 24296373 555988 23740385 3990385 BUILDING 2197720 2 703627 60756 2642871 445151 21947720 27000000 616744 26383256 4435536 19. THE LD. CIT(A) MENTIONED THAT THE AO HAD NOT ACCEPTED THE AFORESAID WORKING OF THE ASSESSEE BY OBSERVING THAT THERE WAS NO APPORTIONMENT OF COST BETWEEN LAND AND BUILDING EITHER IN THE PURCHASE AGREEMENT OR IN THE SALE DEED. THE LD. CIT(A) OBSERVED THAT IN THE ASSESSMENT YEAR 2007 - 08 WHEN THE PROPERTY WAS PURCHASED THE ASSESSEE BIFURCATED THE TOTAL COST INTO LAND AT RS. 197.50 LAKHS AND BUILDING AT RS. 21,97,720/ - AND THE SAID BIF URCATION HAD BEEN MADE ON THE BASIS OF DISCUSSION WITH VARIOUS PROFESSIONAL INVOLVED IN FINALIZATION OF DEAL AT THAT TIME , THOUGH THE ASSESSEE COULD NOT LOCATE BASIS/DOCUMENT FOR ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 35 BIFURCATION OF TOTAL COST INTO LAND AND BUILDING. THE LD. CIT(A) POINTED OUT THAT THE ASSESSEE RECORDED COST OF BUILDING INTO BUILDING BLOCK OF ASSET IN DEPRECIATION SCHEDULE AND CHARGED DEPRECIATION AT THE RATES APPLICABLE. HE FURTHER OBSERVED THAT AS THE PROPERTY WAS SOLD WITHIN 3 YEARS PERIOD, THEREFORE, SHORT TERM CAPITAL GAIN ARISING ON SALE OF LAND PORTION WAS SHOWN BY THE ASSESSEE. ACCORDING TO THE LD. CIT(A) THE AO WAS NOT JUSTIFIED IN TAKING PURCHASE COST OF PROPERTY AT RS. 2 CRORES ONLY BY IGNOR ING OTHER COST OF RS. 19,47,720/ - INCLUDING STAMP DUTY OF RS. 10 LAKHS AND CORPORATION TAX OF RS. 6 LAKHS WHICH WAS APPEARING ON THE FACE OF THE SALE DEED, BROKERAGE EXPENSES, LEGAL EXPENSES ETC. WHICH THE ASSESSEE HAD INCURRED IN THE COURSE OF PURCHASE OF THE AFORESAID PRO PERTY AND THE DETAIL OF WHICH WERE SUBMITTED TO THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS AND WAS ALSO SHOWN IN THE BALANCE SHEET FILED ALONGWITH INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2007 - 08. THE LD. CIT(A) ALSO POINTED OUT THAT THE CLAUSE 16 OF THE AGREEMENT SAYS THAT ALL THE EXPENSES OF THE CORP ORATION TAX, STAMP DUTY, REGISTRATION FEE, ETC. HAD BEEN BORNE AND PAID BY THE VENDEE. HE, THEREFORE, HELD THAT THE AO WAS NOT JUSTIFIED IN WORKING OUT THE CAPITAL GAIN WITHOUT BIFURCATING THE GAIN INTO LAND AND BUILDING. THE LD. CIT(A) ACCORDINGLY ACCEPTE D THE BIFURCATION OF THE PURCHASE COST OF RS. 2,19,47,720/ - INTO LAND AND BUILDING AS SHOWN BY THE ASSESSEE. THE LD. CIT(A) FURTHER OBSERVED THAT THE CIRCLE RATES WERE FIRST INTRODUCED IN DELHI IN THE YEAR 2007 AND AS PER NOTIFICATION NO. 3548 DATED 18.07. 2007, THE CIRCLE RATE OF THE BASE UNIT OF ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 36 COST OF CONSTRUCTION IN CATEGORY - B LOCALITY WHERE THE PROPERTY WAS LOCATED WAS RS. 11,870/ - PER SQ. METERS . THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE FURNISHED VALUATION REPORT OF M/S KAPIL & ASSOCIATES DURING THE COURSE OF APPELLATE PROCEEDINGS, WITH THE BIFURCATION OF SALE PRICE OF ASSET WHICH REVEALED THAT THE COST OF CONSTRUCTION OF THE GROUND FLOOR + BASEMENT WAS AT RS. 18.75 LAKHS. ACCORDING TO THE LD. CIT(A) THE VALUATION SHOWN @ RS. 600 AND RS. 650 PER SQ. FEET BEING FAR BELOW THE RATE NOTIFIED BY THE GOVERNMENT FOR THE YEAR 2007 AND ALSO FAR BELOW THE VALUE SHOWN BY THE ASSESSEE. ACCORDINGLY, THE LD. CIT(A) DID NOT ACCEPT THE AFORESAID VALUATION REPORT OF M/S KAPIL & ASSOCIATES. THE LD. CIT(A) BIFURCAT ED THE SALE VALUE BETWEEN LAND AND BUILDING ON THE BASIS OF UNIT RATE OF COST OF CONSTRUCTION FOR THE YEAR 2007 AS PER NOTIFICATION OF CIRCLE RATE AS UNDER: COST OF PURCHASE (1) [AS WORKED OUT BY THE APPELLANT] SALE CONSIDERATION (2) COST OF TRANSFER (3 ) NET SALE CONSIDERATION [(4)=1 - 2] GAIN [(5)=4 - 1] LAND 1 , 97 , 50 , 000 / - 2,47,80,310/ - 5,66,034/ - 2,42,14,266/ - 44,64,266/ - BUILDING 21 , 97 , 720 / - 22,19,690/ - 50,700/ - 21,68,990/ - ( - )28,730/ - {RS. 11,870/ - 187 SQ M TS (CIRCLE RATES FOR THE YEAR 2007)} TOTAL 2 , 19 , 47 , 720 / - 2,70,00,000/ - 6,16,744 2,63,83,256/ - 44,35,536/ - 20. SINCE THE CAPITAL GAIN SHOWN BY THE ASSESSEE WAS AT RS. 39,90,385/ - . THE LD. CIT(A) DIRECTED THE AO TO MAKE THE ADDITION ON ACCOUNT OF ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 37 SHORT TERM CAPITAL GAIN AT RS. 4,73,881/ - (RS. 44,64,266/ - - RS. 39,90,385/ - ) INSTEAD OF RS. 23,92,871/ - . THE LD. CIT(A) ALSO DIRECTED THE AO TO GIVE CONSEQUENTIAL EFFECTS ON THE DEPRECIATION CLAIMED IN VIEW OF THE SALE VAL UE OF THE BUILDING ADOPTED AT CIRCLE RATE OF COST OF CONSTRUCTION AT RS. 22,19,690/ - . 21. NOW THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF ALLOWED BY THE LD. CIT(A) WHILE THE ASSESSEE IS AGGRIEVED FOR THE ADDITION SUSTAINED BY THE LD. CIT(A). THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER AND ALSO SUBMITTED THAT THE ASSESSEE BIFURCATED THE COST IN LAND AND BUILDING WITHOUT ANY BASIS AND THE LD. CIT(A) ALSO DELETED THE ADDITION MADE BY THE AO WITHOUT APPRECIATING THE FACTS IN THE RIGHT PROSPECTIVE. IT WAS FURTHER STATED THAT THE LD. CIT(A) WAS NOT JUSTIFIED WHILE ACCEPTING THE BIFURCATION OF THE COST INTO LAND AND BUILDING AS SHOWN BY THE ASSESSEE . 22. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 4,73,881/ - . 23. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFUL LY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE AO WHILE WORKING OUT THE CAPITAL GAIN ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 38 CONSIDERED THE PURCHASE VALUE AT RS. 2 CRORES AND IGNORE D THE OTHER EXPENSES OF RS. 19,47,720/ - INCURRED BY THE ASSESSEE WH ICH INCLUDED STAMP DUTY OF RS. 10 LAKHS, CORPORATION TAX OF RS. 6 LAKHS AND OTHER EXPENSES AMOUNTING TO RS. 3,47,720/ - ON ACCOUNT OF BROKERAGE EXPENSES, LEGAL EXPENSES ETC. THOSE EXPENSES WERE INCURRED BY THE ASSESSEE IN ACCORDANCE WITH CLAUSE 16 OF THE PU RCHASE AGREEMENT WHEREIN IT WAS MENTIONED THAT THE AFORESAID EXPENSES WERE TO BE BORNE BY THE VENDEE/ PURCHASER. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN CONSIDERING THE PURCHASE COST AT RS. 2,19,47,720/ - . IN THE PRESENT CASE, IT ALSO APPEARS THAT THE LD. CIT(A) ACCEPTED THE BIFURCATION OF THE COST OF THE PROPERTY INTO LAND AND BUILDING BECAUSE THE SAME WAS SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET OF THE PRECEDING YEAR WHICH WAS NOT DOUBTED BY THE DEPARTMENT BECAUSE NOTHING IS BROUGHT ON RECORD THAT THE VALUATION SHOWN BY THE ASSESSEE IN THE PRECEDING YEAR WAS WRONG. IN THE PRESENT CASE, THE LD. CIT(A) ADOPTED THE VALUE OF BUILDING ON THE BASIS OF CIRCLE RATE . IN THE INSTANT CASE, THE TOTAL LUMP SUM AMOUNT OF RS. 2.70 CRORES WAS RECEIVED BY THE ASSESSEE A ND EXPENDITURE OF RS. 6,744,000/ - WAS INCURRED TOWARDS COST OF TRANSFER , HOWEVER, NO BIFURCATION OF THE SALE PRICE RELATING TO LAND AND BUILDING WAS DONE OUT OF LUMP SUM SALE PRICE OF RS. 2.70 CRORES, THEREFORE, T HE LD. CIT(A) HAD NO OTHER OPTION EXCEPT TO ADOPT THE SALE VALUE OF THE BUILDING ON THE BASIS OF CIRCLE RATE WHICH WAS AT RS. 11,870/ - PER SQ MTS AT THE RELEVANT TIME. IN OUR OPINION THE LD. ITA NOS. 3134 & 2893 /DEL /2013 NEEMRANA HOTEL PVT. LTD. 39 CIT(A) RIGHTLY WORKED THE SHORT TERM CAPITAL G AIN, THEREFORE, WE CONFIRM THE ADDITION OF RS. 4,73,881/ - SUST AINED BY THE LD. CIT(A). 24. THE LAST ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. 10 RELATES TO THE CHARG ING OF INTEREST U/S 234A, 234B, 234C & 234D OF THE ACT . AS REGARD TO THIS ISSUE, IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT IT IS CONSE QUENTIAL IN NATURE. WE ORDER ACCORDINGLY. 25 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ( ORDER PRON OUNCED IN THE COURT ON 19 /06 /2015 ) SD/ - SD/ - (G. C. GUPTA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 19 /06 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR