Sunstar Hotels & Estates Pvt. Ltd., CHENNAI V. DCIT, CORP CIR-6(2), CHENNAI

ITA 3269/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1569 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 30-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R V AROON PRASAD
• Assessee Lawyers: D ANAND
• Keywords: Business income; Set aside
• Section: 143(2)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.3269/CHNY/2018 / ASSESSMENT YEAR :2013-14 M/S. SUNSTAR HOTELS & ESTATES PVT. LTD., NO. 16/3, VIDYODAYA, 1 ST CROSS STREET, T. NAGAR, CHENNAI 600 017. [PAN: AALCS5478E] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), CHENNAI 600 034. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI D. ANAND, ADVOCATE / RESPONDENT BY : SHRI R.V. AROON PRASAD, JCIT / DATE OF HEARING : 04.06.2019 /DATE OF PRONOUNCEMENT : 07.06.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 15, CHENNAI, DATED 30.08.2018 RELEVANT TO THE ASSESSMENT YEAR 2013-14. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE CAPITALIZATION OF EXPENSES INCURRED BY THE ASSESSEE TO EARN INTEREST INCOME AS PRE-OPERATIVE EXPENSES. 2. THE APPEAL FILED BY THE ASSESSEE IS DELAYED BY 3 DAYS, FOR WHICH, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A PETITION IN SUPPORT OF AN AFFIDAVIT FOR I.T.A. NO.3269/CHNY/18 2 CONDONATION OF THE DELAY, TO WHICH; THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION. CONSEQUENTLY, SINCE THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE, THE DELAY OF 3 DAYS IN FILING OF THE APPEAL STANDS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 30.09.2013 DECLARING INCOME OF .2,23,44,930/-. THIS CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] WAS ISSUED ON 04.09.2014 AND SERVED ON THE ASSESSEE AGAINST WHICH, THE ASSESSEE FURNISHED ALL DETAILS. AFTER VERIFICATION OF THE DETAILS, THE ASSESSING OFFICER HAS OBSERVED THAT THE MAIN OBJECTIVE FOR WHICH THE COMPANY ESTABLISHED WAS FOR SETTING UP AND OPERATING HOTELS AND RESORTS. THE ASSESSEE IS YET TO COMMENCE ITS BUSINESS. THE ASSESSING OFFICER HAS OBSERVED THAT SINCE THE ASSESSEE HAS BEEN DEPLOYING FUNDS RAISED BY IT IN SHORT TERM LENDING OPERATIONS TILL THE TIME IT COMMENCES BUSINESS, THE RECEIPT OF INTEREST INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. AS THERE IS NO INCOME FROM BUSINESS ACTIVITY, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM EXPENSES OF .3,06,89,757/- AND ACCORDINGLY, THE ASSESSING OFFICER CAPITALIZED THE EXPENSES AS PRE-OPERATIVE EXPENSES AND BROUGHT TO TAX. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING UPON VARIOUS I.T.A. NO.3269/CHNY/18 3 DECISIONS, THE LD. CIT(A) UPHELD THE DISALLOWANCE OF ALL THE EXPENSES INCLUDING SALARY EXPENSES AND CAPITALIZATION OF THE SAME AND ALSO ASSESSMENT OF INTEREST INCOME UNDER THE HEAD OTHER SOURCES. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012-13 AND PRAYED FOR FOLLOWING THE SAME. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON SIMILAR FACTS AND CIRCUMSTANCES IN AN IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012-13 WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL AND VIDE ORDER DATED27.08.2018 IN I.T.A. NO. 1242/CHNY/2017, THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN FINANCE, HOTEL & REAL ESTATE BUSINESS, E- FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 29.09.2012 ADMITTING INCOME OF RS.1,09,25,509/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 08.08.2013. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 30.03.2015, WHEREIN THE LD.AO MADE ADDITION OF RS.2,06,42,360/- TOWARDS DISALLOWANCE OF EXPENDITURE. I.T.A. NO.3269/CHNY/18 4 4. THE LD.AO HAD DISALLOWED THE EXPENDITURE OF RS.2,06,42,360/- BECAUSE THE ASSESSEE HAD ONLY EARNED INTEREST INCOME AND THE COMPANY HAD NOT STARTED THE OPERATION WITH RESPECT TO HOTEL AND RESORT BUSINESS. ON APPEAL THE LD.CIT(A) ALLOWED INTEREST AND MISCELLANEOUS EXPENDITURE TO THE TUNE OF RS.56,42,360/- AGAINST THE INTEREST INCOME EARNED BY THE ASSESSEE, HOWEVER DISALLOWED THE EXPENDITURE OF RS.1,50,00,000/- BEING THE EXPENDITURE INCURRED TOWARDS PAYMENT OF SALARY TO THE DIRECTORS OF THE COMPANY. 5. BEFORE US THE LD.AR SUBMITTED THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE WAS ONLY ENGAGED IN FINANCE BUSINESS AND DEPLOYED ITS FUNDS FOR EARNING INTEREST INCOME. IT WAS THEREFORE PLEADED THAT THE ENTIRE EXPENSES INCURRED BY THE ASSESSEE COMPANY OUGHT TO BE ALLOWED AS DEDUCTION BECAUSE THE INTEREST INCOME EARNED BY THE ASSESSEE WAS IN THE NATURE OF BUSINESS INCOME SINCE THE COMPANY WAS ONLY INDULGING IN FINANCE BUSINESS DURING THE RELEVANT ASSESSMENT YEAR. ON THE OTHER HAND, THE LD. DR VEHEMENTLY ARGUED STATING THAT ONLY THE EXPENDITURE INCURRED TOWARDS EARNING INTEREST CAN BE ALLOWED AS DEDUCTION WHILE COMPUTING THE NET INTEREST INCOME OF THE ASSESSEE WHICH HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCE. HENCE IT WAS PLEADED THAT THE ORDER OF THE LD. CIT(A) MAY BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS ABUNDANTLY CLEAR THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE WAS 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 MEMORANDUM OF ASSOCIATION ALSO PERMITTED THE ASSESSEE COMPANY TO CARRY ON THE BUSINESS OF FINANCIAL SERVICES. IN THE PROCESS THE ASSESSEE COMPANY HAD DEPLOYED ITS FUND TOWARDS EARNING INTEREST INCOME BECAUSE DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSE COMPANY DID NOT COMMENCED ACTIVITIES WITH RESPECT TO HOTEL BUSINESS. SINCE THE BUSINESS OF THE ASSESSEE COMPANY DURING THE RELEVANT ASSESSMENT YEAR WAS ONLY FINANCIAL SERVICES, THE INCOME EARNED DURING THE RELEVANT ASSESSMENT YEAR OUGHT TO BE ASSESSED AS BUSINESS INCOME AND THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE 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 BUSINESS INCOME OF THE ASSESSEE FOR THE RELEVANT I.T.A. NO.3269/CHNY/18 5 ASSESSMENT YEAR. ACCORDINGLY 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 ALLOWED. THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. IN FACT, THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 2012-13 DATED 27.08.2018 WAS NOT AVAILABLE BEFORE THE LD. CIT(A) SINCE THE APPELLATE ORDER WAS PASSED ON 30.08.2018 JUST THREE DAYS AFTER PASSING THE TRIBUNALS ORDER. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012-13, AS REFERRED ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 07 TH JUNE, 2019 AT CHENNAI. SD/ - SD/ - (M. BALAGANESH) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 07.06.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.