M/s. Hotel Rangoli, Mehsana V. The ACIT., Cent.Circle-1(1), Ahmedabad

ITA 3439/AHD/2007

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68079 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 08-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D C PATWARI; SHANKARLAL MEENA
• Assessee Lawyers: G C PIPARA
• Keywords: Business income; Depreciation; Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.3439/AHD/2007 A.Y. 2003-04 M/S. HOTEL RANGOLI 5, ASHOKNAGAR SOCIETY, RADHANPUR ROAD HIGHWAY, MEHSANA, NORTH GUJARAT PAN NO.AACFR 1951M V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(1), 3 RD FLOOR, AAYAKAR BHAVAN, ASHRAM ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : S/SHRI D.C. PATWARI AND SHANKARLAL MEENA, D.R. ASSESSEE(S) BY : SHRI G.C. PIPARA, A.R. / DATE OF HEARING : 19/09/2013 / DATE OF PRONOUNCEMENT: 17/12/2013 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FRO M THE ORDER OF LEARNED CIT(A)-IV, AHMEDABAD, DATED 13 TH MARCH, 2007. THE GROUND RAISED IS REPRODUCED BELOW: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF RS.64,800/- U/S. 24 OF THE ACT FROM THE RENTAL INCOME SHOWN UNDER THE HEAD INCOME FROM HOU SE PROPERTY ON INCORRECT OBSERVATIONS AND WITHOUT PROPER CONSID ERATION OF THE FACTS AND SUBMISSIONS FILED. IN VIEW OF THE FACTS A ND SUBMISSIONS FILED, THE CLAIM OF RS.64,800/- U/S. 24 REQUIRES TO BE ALL OWED. 2. IN RESPECT OF THE ABOVE GROUND, FACTS IN BRIEF A S PER THE ASSESSMENT ORDER PASSED U/S.143(3), DATED 10.02.200 6 WERE THAT THE AO HAD OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRE CIATION ON THE ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 2 - HOTEL BUILDING AT RS.4,26,554/- HOWEVER, AT THE SAM E TIME ALSO CLAIMED DEDUCTION U/S.24 OF RS.64,800/-. THE ASSESS EES REPLY WAS THAT THE BUSINESS OF THE FIRM IS RUNNING OF HOTEL, THEREFORE, PROVIDING ROOMS TO THE CUSTOMERS. IT WAS ALSO INFOR MED THAT ONE SHOP AND AN OPEN SPACE ON THE GROUND FLOOR HAD BEEN GIVEN TO HONEST CENTRE ON RENTAL BASIS. FROM THAT PREMISES RENTAL INCOME OF RS.2,16,000/- WAS RECEIVED. THE ASSESSEES REPLY WAS THAT ON THE SAID RENTAL INCOME A DEDUCTION U/S.24 OF THE IT ACT WAS TO BE ALLOWED AND IN THE ALTERNATE DEPRECIATION ON THE CO ST WAS TO BE ALLOWED AS PER THE RULES. THE AO WAS NOT CONVINCED AND IN HIS OPINION THE CLAIM OF DEPRECIATION AS WELL AS THE CL AIM OF DEDUCTION U/S. 24 WAS A DOUBLE DEDUCTION CLAIMED BY THE ASSES SEE. THE AO HAD MADE THE ADDITION IN THE FOLLOWING MANNER: IN THIS REGARD IT IS CLARIFIED ONCE AGAIN THAT THE ASSESSEE HAS CLAIMED DOUBLE DEDUCTION ON THE INCOME RELATED TO THE SHOP NO.1 AT THE GROUND FLOOR OF THE HOTEL BUILDING SINCE THE DEPREC IATION CLAIM HAS BEEN MADE ON THE ENTIRE BUILDING INCLUDING THE SHOP UNDER CONSIDERATION AND AT THE SAME TIME AGAINST THE RENTAL INCOME OF T HE SHOP, DEDUCTION U/S.24 OF THE ACT HAS BEEN CLAIMED. THE CONTENTION OF THE ASSESSEE THAT THE DEPRECATION CLAIM ON THE AMOU NT OF RS.60,000/- SHOULD BE DISALLOWED IS NOT ACCEPTABLE SINE THE SHO P IS BEING USED FOR THE BUSINESS ACTIVITY AND NOT FOR THE RESIDENTIAL P URPOSE. THE DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE ON TH E ENTIRE STRUCTURE AND AT THE SAME TIME ALL THE EXPS. RELATED TO REPAI RING AND MAINTENANCE OF THE HOTEL BUILDING HAVE BEEN CLAIMED BY THE ASSESSEE ON THE ANNUAL BASIS. THE ASSESSEE HAS GIVEN THE SHO P NO.1 ON RENT TO HONEST CENTRE AS RUNNING BUSINESS ON THE SAME. THER EFORE, THE CLAIM OF THE DEPRECIATION ON THE ENTIRE HOTEL BUILDING IS JUSTIFIED AND FURTHER CLAIM OF DEDUCTION U/S. 24 AS AD-HOC DEDUCTION TOWA RDS REPAIRING AND MAINTENANCE ON THE SHOP NO.1 AT RS. 64,800/- CANNOT BE ALLOWED SINCE, THE SAME AMOUNTS TO DOUBLE DEDUCTION. SECOND LY, THE ASSESSEE COULD NOT PROVE BY FURNISHING THE DETAILS AS TO WHE THER THE HONEST CENTRE IS CLAIMING THE REPAIRING EXP. RELATED TO TH E SHOP OR NOT AS WAS CALLED FOR IN THE SHOW CAUSE NOTICE, THEREFORE THE ASSESSEE CAN NOT BE ALLOWED THE DEDUCTION FOR REPAIRING AND MAINTENANCE OF THE SHOP. ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 3 - 3.3 THE PREMISE WHICH IS BEING USED AS SHOP CANNOT BE CONSIDERED AS HOUSE PROPERTY FOR THE CLAIM OF THE DEDUCTION U/ S.24 OF THE ACT SINCE THE SAME IS BUSINESS PREMISE AND NOT THE RESIDENTIA L ONE. MOREOVER THE DEDUCTION OF THE REPAIRING AND MAINTENANCE CANNOT B E ALLOWED WHEN THE SAME IS BEING CARRIED OUT BY THE SHOPKEEPER ITS ELF. BUT THE DEDUCTION OF DEPRECIATION AS HAS BEEN RIGHTLY CLAIM ED BY THE ASSESSEE WITH THE ENTIRE BLOCK OF ASSETS IS ALLOWED. AGAIN T HE COST OF THE SHOP CANNOT BE SEPARATED OUT FROM THE BLOCK OF THE ASSET S AFTER CLAIMING THE DEPRECIATION FOR SO MANY YEARS. THEREFORE THE DOUBL E DEDUCTION CLAIMED BY THE ASSESSEE IN THE FORM OF DEPRECIATION AS WELL AS DEDUCTION U/S.24 AS AD-HOC DEDUCTION TOWARDS REPAIR ING AND MAINTENANCE IS NOT JUSTIFIABLE. HENCE DEDUCTION U/S .24 OF RS.64,800/- IN SHOP NO.-1 AT GROUND FLOOR OF THE HOTEL BUILDING IS DISALLOWED. (DISALLOWANCE OF RS. 64,800) 3. LEARNED CIT(A) WAS ALSO NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND AFFIRMED THE ACTION OF THE AO AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE CONTENTIONS AS WEL L GONE THROUGH THE RECORDS. ON PERUSAL OF ASSESSMENT ORDER IT HAS BEEN NOTICED THAT THE APPELLANT HAD CLAIM INCOME FROM THE SOP NO. 1 SINCE DEPRECIATION ALLOWABLE FOR THE BUSINESS INCOME WAS CLAIMED VOLUN TARILY BY THE APPELLANT AND ALLOWED BY THE A.O. AS CLAIMED. FURTH ER, THE DEDUCTION U/S 24 CANNOT BE ALLOWED IF THE DEPRECIATION HAS CL AIMED AND ALLOWED BY THE A.O. RATHER IT WAS OBLIGATORY ON THE PART OF THE APPELLANT TO FILE REVISED RETURN OF INCOME BEFORE ASSESSMENT FOR CLAI MING THE CORRECT DEDUCTIONS. KEEPING IN VIEW OF ABOVE FACTS AND CIRC UMSTANCES OF THE CASE, THE CONTENTIONS OF LD. COUNSEL ARE HEREBY REJ ECTED AND FIRST GROUND OF APPEAL IS DISMISSED. 4. HAVING HEARD THE SUBMISSION OF BOTH THE SIDES, W E ARE OF THE CONSIDERED OPINION THAT THE AO WAS REQUIRED TO MAKE A FURTHER INQUIRY IN RESPECT OF INCOME SHOWN FROM THE PREMISE S GIVEN ON RENT TO HONEST CENTRE. IF THE NATURE OF INCOME IS RENTAL INCOME THEN THE SAME IS OUGHT TO HAVE BEEN TAXED UNDER THE HEAD OF INCOME INCOME FROM HOUSE PROPERTY AS PRESCRIBED U /S.14-C OF IT ACT. FROM THE ORDERS OF THE AUTHORITIES BELOW, I T IS NOT CLEAR THAT ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 4 - UNDER WHAT HEAD OF INCOME THE ALLEGED RENTAL INCOME FROM THE HONEST CENTRE HAD BEEN TAXED? ALTHOUGH, THE ASSESSE E HAS STATED THAT THE RENTAL INCOME OF RS.2,16,000/- WAS EARNED FROM THE HONEST CENTRE BUT HOW IT WAS TREATED BY THE AO IS NOT EMERGING FROM THE ASSESSMENT ORDER. IT IS, THEREFORE, DIRECT ED TO RE-EXAMINE THIS ISSUE IN THE LIGHT OF THE PROVISIONS OF THE AC T AND THEREUPON DECIDE DE NOVO, NEEDLESS TO SAY AFTER PROVIDING AN ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. GROUND NO.2 AND 3 ARE REPRODUCED BELOW: 2.THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN PARTLY CONFIRMING THE DISALLOWANCE OF INTEREST PAID TO PAR TNER SHRI RAJNIBHAI J. DESAI AND HIS PROPRIETARY CONCERN SHYAM CORPORAT ION AMOUNTING TO RS.3,29,881/- REQUIRES TO BE QUASHED/CANCELLED. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN PARTLY CONFIRMING THE DISALLOWANCE OF INTEREST PAID TO PAR TNER SHRI RAMESHBHAI J. DESAI AMOUNTING TO RS.4,82,616/-. IN VIEW OF FACTS AND SUBMISSIONS FILED THE ENTIRE DISALLOWANCE OF RS.4,8 2,616/- REQUIRES TO BE QUASHED/CANCELLED. 6. BOTH THESE GROUNDS ARE IN RESPECT OF DISALLOWANC E OF INTEREST PAID TO PARTNERS. AS PER AO, THE INTEREST @ 12% WAS ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 40(B)(IV) OF IT A CT. APROPOS TO GROUND NO.2, THE COMPUTATION OF THE DISALLOWANCE WA S AS UNDER: S.N. NAME CLAIMED RATE CLAIMED AMOUNT ALLOWABLE RATE ALLOWABLE AMOUNT DISALLOWA BLE AMOUNT 1. SHRI RAJNIBHAI J. DESAI 18% 1,21,868 12% 81,246 40,622 2. SHYAM CORPORATION 18% 8,67,777 12% 5,78,518 2,89,259 TOTAL 3,29,881 ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 5 - 6.1 APROPOS TO GROUND NO.3, THE AO HAS COMPUTED THE DAY-WISE INTEREST @ 12% IN THE CASE OF SRI RAMESHBHAI J. DES AI AND THEREUPON HELD THAT THE ASSESSEE WAS ENTITLED FOR I NTEREST AS PER THE STATUTE AT RS.12,84,567/-, HOWEVER, AS PER BOOKS TH E ASSESSEE HAD PAID INTEREST OF RS.17,67,183/-, THEREFORE, THE DIF FERENCE BETWEEN TWO, I.E., RS.4,82,616/- WAS TAXED. 7. WHEN THE MATTER WAS CARRIED BEFORE LEARNED CIT(A ), HE HAS HELD THAT THERE WAS AN AMENDMENT IN THE PROVISIONS OF SECTION 40(B)(IV) OF THE IT ACT, W.E.F. 1 ST JUNE, 2002 SO THE INTEREST @ 18% IS ADMISSIBLE. HE HAS DIRECTED TO RE-COMPUTE THE DI SALLOWANCE. 8. HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE F IND NO FALLACY IN THE SAID DIRECTION OF LEARNED CIT(A) BEC AUSE BIFURCATION OF FINANCE ACT, 2002 AN AMENDMENT TOOK PLACE W.E.F. IST JUNE, 2002 ACCORDING TO WHICH IN THE CASE OF A FIRM ANY P AYMENT OF INTEREST TO ANY PARTNER WHO IS AUTHORIZED AS PER TH E TERMS OF THE PARTNERSHIP DEED THE INTEREST @ 12% PER ANNUM IS PE RMISSIBLE. DUE TO THIS AMENDMENT, A RE-CALCULATION IS REQUIRED . BEFORE WE CONCLUDED, IT IS WORTH TO MENTION THAT LEARNED AR H AD MADE A STATEMENT THAT ONE OF THE PARTY, NAMELY, SHYAM CORP ORATION IS NOT THE PARTNER AND MAINTAINED SEPARATE BOOKS OF ACCOUN TS. TO VERIFY THIS FACT THE MATTER IS REQUIRED TO BE REFERRED BAC K TO AO TO ASCERTAIN THE CORRECT FACTUAL POSITION. FURTHER, LE ARNED AR HAS ALSO CONCEDED NOT TO PRESS THE DISALLOWANCE MADE IN CASE OF SRI RAJNIBHAI DESAI. WE, THEREFORE, DIRECT THAT THE DIS ALLOWANCE OF INTEREST IS TO BE RECALCULATED BY THE AO IN RESPECT OF BOTH THESE ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 6 - GROUNDS WHICH ARE NOW BEING RESTORED BACK TO THE FI LE OF THE AO. RESULTANTLY, THESE GROUNDS MAY BE TREATED AS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSE. 9. GROUND NO.4 IS REPRODUCED BELOW: THE LEARNED AO HAS ALSO ERRED IN LAW AND ON FACTS IN DISALLOWING INTEREST OF RS.9,53,827/- ON ALLEGED BORROWED FUNDS AND IDLE CASH AS PER CASH BOOK MERELY ON HYPOTHETICAL CALCULATIONS B ASED ON SURMISES AND CONJECTURES. IN VIEW OF FACTS AND SUBMISSIONS F ILED AS WELL AS LEGAL POSITION, THE IMPUGNED NOTIONAL DISALLOWANCE OF RS. 9,53,827/- REQUIRES TO BE QUASHED/CANCELLED. 10. THE OBSERVATION OF THE AO WAS THAT ON ONE HAND THE ASSESSEE HAD TAKEN LOAN FROM DIFFERENT PARTIES @ 18 % BUT ON THE OTHER HAND ADVANCE LOAN TO THE RELATED PARTIES @ 15 % / 12% ONLY. AFTER DETAILED DISCUSSION, THE AO HAD COMPUTED A DI FFERENCE IN INTEREST AND DISALLOWANCE WAS MADE OF RS.9,53,827/- AS PER THE FOLLOWING OBSERVATION:- FROM THE ABOVE WORKING, IT IS CLEAR THAT THE FUNDS AVAILABLE WITH THE ASSESSEE @ 12% ARE ONLY RS.5,32,983/- BUT RS.98,62, 650/- HAVE BEEN DIVERTED @ 12%, THEREFORE FOR THE REST OF THE FUNDS HAVE BEEN TRANSFERRED AT LESS RATES 12%, THOUGH THE SAME HAVE BEEN BORROWED @ 18%. SIMILARLY ALL THE FUNDS DIVERTED @ 15% WERE BO RROWED @ 18%. SIMILARLY, THE HUGE CASH BALANCE IS LYING WITH THE ASSESSEE IN THE CASH BOOKS BUT IT HAS TAKEN THE LOANS @ 18%, THEREFORE T HE CLAIM TO THE EXTENT OF WORKING ON THE SAME @ 18% IS DISALLOWED. THIS DISALLOWANCE IS MADE SINCE THE ASSESSEE HAD TAKEN L OANS FROM THE BANKS @ 18% AND COULD HAVE REDUCED ITS TAX BURDEN B Y KEEPING LESS CASH BALANCE, WHICH IS NECESSARY FOR PETTY EXP. IN THE WORKING OF DISALLOWANCE CASH BALANCE OF RS.50,000/- HAS BEEN P ERMITTED ON DAY TO DAY BASIS. SINCE, THE ASSESSEE CANNOT GIVE THE L OAN ON CASH NEITHER IT CAN ACCEPT THE SAME UPTO THE EXTENT OF MORE THAN RS .20,000/- THERE IS NO NEED TO THE ASSESSEE TO KEEP THE BALANCE MORE TH AN RS.50,000/-. THE WORKING OF THE DISALLOWANCE OF INTEREST @ 18% O N THE CASH BOOK BALANCE IS ATTACHED AS ANN. A. WITH THIS ASSESSMENT ORDER. 11. LEARNED CIT(A) HAS MISS DIRECTED THEMSELVES IN DECIDING THIS GROUND. HOWEVER, AFTER HEARING BOTH THE SIDES NOW WE ARE OF ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 7 - THE VIEW THAT THIS TYPE OF INTEREST DISALLOWANCE AR E NOW TO BE ADJUDGED IN THE LIGHT OF TWO DECISIONS, VIZ., S.A. BUILDERS, 288 ITR PAGE 1 (SC) AND RELIANCE UTILITIES AND POWER LTD., 221 CTR 435 (BOM.). THE HONBLE COURTS HAVE HELD THAT THE ASSES SEE IS REQUIRED TO ESTABLISH THE COMMERCIAL EXPEDIENCY FOR CLAIMING THE EXPENDITURE OF INTEREST. IN OTHER DECISION, THE VER DICT IS THAT THE DIVERSION NON-INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE TO THE SISTER CONCERN IS TO BE ESTABLISHED BY THE ASSE SSEE AND THAT A PRESUMPTION COULD BE DRAWN THAT THE NON-INTEREST BE ARING FUNDS HAVE BEEN DIVERTED TO THE SISTER CONCERNS OR RELATE D PARTIES. HOWEVER, REVENUE DEPARTMENT IS FREE TO DISPROVE THE SAID CLAIM OF THE ASSESSEE BY PLACING ON RECORD THE DIVERSION OF THE INTEREST BEARING FUND FOR THE BENEFIT OF THE SISTER CONCERNS . SINCE, THE AO HAS NOT EXAMINED THE QUESTION OF DISALLOWANCE OF IN TEREST ON THESE LINES, THEREFORE, IN THE INTEREST OF NATURAL JUSTIC E; WE DEEM IT PROPER TO RESTORE THIS GROUND BACK TO THE STAGE OF THE AO FOR DE NOVO DECISION. RESULTANTLY, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED PROTANTO. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 17/12/2013 PRABHAT KR. KESARWANI, SR. P.S. TRUE COPY TRUE COPY TRUE COPY TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT ITA NO.3439/AHD/2007 M/S. HOTEL RANGOLI VS. ACIT AHMEDABAD A.Y. 2003-04 - 8 - 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD