ACIT, UDAIPUR V. M/s. The Lake Palace Hotels & Motels Pvt. Ltd., UDAIPUR

ITA 394/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3025 (ITAT-JODHPUR)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Assessee Lawyers: CHANDRA RAM
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

1 IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 394/JODH/2012 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-2, VS M/S. THE LAKE PALACE HOTEL S & MOTELS UDAIPUR. PVT. LTD., CITY PALACE, UDAIPUR. PAN NO. AAACT7433M (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI CHANDRA RAM. DEPARTMENT BY : DR. DEEPAK SEHGAL-CIT-DR DATE OF HEARING : 04/04/2013. DATE OF PRONOUNCEMENT : 10/05/2013. PER HARI OM MARATHA, J.M.: THIS APPEAL OF THE REVENUE FOR A.Y. 2009-10 IS DIR ECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR, DATED 22/08/2012. 2. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY EXAMINED THE ENTIRE RECORD AVAILABLE BEFORE US. THE ASSESSEE-COM PANY IS ENGAGED IN THE BUSINESS OF SERVICE SECTOR HOTELS. FOR A.Y. 200 9-10 THE COMPANY HAS SHOWN TOTAL RECEIPTS OF RS. 29,85,88,179/- AS A GAINST RS. 2 33,76,13,563/- SHOWN IN THE IMMEDIATELY PRECEDING Y EAR. THE FACTS APROPOS GROUND NO. (1) OF THIS APPEAL ARE THAT THE ASSESSEE HAS DEBITED INTEREST PAID OF RS. 8,99,74,026/- IN THE P&L ACCOU NT. THE ASSESSEE HAS TAKEN TERM LOAN FROM SBI OF RS. 77,98,82,458/-, WHI CH WAS OUTSTANDING DURING THE YEAR. THE ASSESSEE HAS, ON THE OTHER HAN D, ADVANCED RS. 28,72,16,549/- TO HISTORIC RESORT HOTELS PVT. LTD. (HRH) AND RS. 12,72,08,023/- TO RAJPUT HOTELS & RESORT PVT. LTD. (RHR), WHICH ARE ITS SISTER CONCERNS. THE A.O. HAS FOUND THAT THESE ADVA NCES ARE FROM INTEREST BEARING FUNDS. FROM THE FOLLOWING CHART TH E POSITION OF OPENING AND CLOSING BALANCE OF THE ASSESSEE-COMPANY , IS DEPICTED :- NAME OF SUBSIDIARY CONCERN OPENING BALANCE [RS.] CLOSING BALANCE [RS.] AVERAGE BALANCE [RS.] HRH P. LTD 30,48,25,808 28,72,16,549 29,60,21,179 HRH P. LTD 12,72,04,175 12,72,08,023 12,72,06,099 TOTAL 43,20,29,983 41,44,24,572 42,32,27,278 3. AS PER THE ABOVE CHART THE AO HAS TREATED THE TO TAL OF AVERAGE BALANCE AMOUNT OF RS. 42,32,27,278/- AS INTEREST B EARING FUNDS TO HAVE BEEN GIVEN TO ITS SUBSIDIARIES INTEREST FREE. ACCORDINGLY, HE HSS DISALLOW A SUM OF RS. 5,30,12,131/- BY CALCULATING INTEREST AT THE RATE OF 12% P.A. ACCORDING TO A.O. EVEN AFTER CONSIDERIN G SHARE HOLDERS 3 FUNDS AND RESERVE FUNDS ONLY SURPLUS OF RS. 12,28,5 0,015/- AGAINST WHICH THE ASSESSEE HAS AND INVESTMENT OF RS. 15,96, 67,965/- (AS PER SCHEDULE F OF THE BALANCE SHEET). THUS, THERE WER E NO INTEREST FREE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, AND WITH REFERENCE TO VARIOUS DECISIONS HE HAS JUSTIFIED THE ABOVE DISALL OWANCE. 4. AGGRIEVED, THE ASSESSEE FILED APPEAL AND LD. CIT (A) HAS DELETED THIS ADDITION ON THE REASONING THAT IN FACT NO SUCH INTEREST FREE ADVANCES HAVE BEEN GIVEN TO THE SISTER CONCERNS WHO ALL ARE IN THE SIMILAR BUSINESS AND FOR MUTUAL BENEFIT AND PARTICU LARLY FOR THE BUSINESS INTEREST OF THE ASSESSEE-COMPANY, SUCH EXP ENSES ARE MADE, INTER-SE. IN EARLIER YEARS SIMILAR EXPENSES HAVE BE EN ALLOWED AND NOT DOUBTED. THE LD. CIT(A) HAS GIVEN REASONINGS TO ARR IVE AT HIS CONCLUSION. BUT THE REVENUE IS, NOW, AGGRIEVED. 5. AFTER CONSIDERING SAME AND SIMILAR AND RIVAL SUB MISSIONS OF THE PARTIES IN THE LIGHT OF THE EVIDENCE AVAILABLE ON R ECORD, WE ARE ALSO OF THE OPINION AS HAS BEEN TAKEN BY LD. CIT(A). IN FAC T, IN THE GIVEN CASE, INTEREST FREE ADVANCES HAVE BEEN GIVEN TO FURTHER A ND ENHANCE ASSESSEES BUSINESS INTEREST AND FOR THE BUSINESS P URPOSE. BEFORE US ALSO THE MODUS OF OPERATION AMONGST THE CONCERNS OF GROUP WAS EXPLAINED AND WE ARE IN AGREEMENT WITH LD. CIT(A) T HAT THESE ADVANCES 4 PERTAIN TO EXPENSES INCURRED ON RECIPROCAL BASIS. I T IS AN UNDISPUTED FACT THAT HRH, ARE ASSESSEES SISTER CONCERNS. THE ASSESSEE IS IN THE HOTEL BUSINESS AND ITS SISTER CONCERNS ARE ALSO IN THE HOTEL BUSINESS, AND THEY OPERATE FROM THE CITIES OF UDAIPUR, JAISAL MER AND BIKANER. IT WAS FOUND THAT THESE CONCERNS INCUR EXPENSES TO MEE T TO REQUIREMENTS OF THEIR GUESTS (CUSTOMER) THROUGH THEIR UNITS, AND BILLS ARE RAISED BY WAY OF DEBIT NOTES TO THE CONCERNED ENTITY TO WHICH THE CUSTOMERS / GUEST BELONGED TO. THIS PRACTICE HELPS THE SISTER C ONCERNS IN GETTING REGULAR GUESTS AS BOOKING IS DONE OF TOURIST GROUPS WHO VISIT DIFFERENT PLACES. EACH CONCERN ACCOMMODATES EACH OTHERS GUES T. THE MISCELLANEOUS EXPENSES LIKE THE PETROL, DIESEL, ELE CTRICITY, PRINTING WORK, TELEPHONE, INTEREST, ETC. ARE RECOVERED THROU GH DEBIT NOTES FROM THE CONCERNS FOR WHOM THESE EXPENSES ARE RELATED TO . IN THE SIMILAR PATTER, THE EXPENSES ARE INCURRED ON MUTUAL BENEFIT BASIS TO ENHANCE EACH OTHERS BUSINESS INTERESTS. THAT IS WHY NEITHE R THE SISTER CONCERNS CHARGE INTEREST FROM THE ASSESSEE, NOR THE ASSESSEE CHARGES INTEREST FROM THEM. IT WAS FOUND THAT NO PART OF SUCH EXPENS ES ARE INCURRED OTHER THAN ON BUSINESS CONSIDERATIONS. WE HAVE ALSO CONFIRMED THAT SIMILAR EXPENSES WERE MADE IN THE EARLIER YEAR AND THE SAME HAS BEEN ALLOWED IN THE ASSESSMENT MADE FOR A.Y. IN 2006-07 U/S 143(3) OF THE ACT. DURING THE YEAR THE NET OUTSTANDING AMOUNT HAS REDUCED AND THIS 5 FACT IS PROVED BY THE ABOVE, UNDISPUTED, CHART. THE DECISIONS ON WHICH AO HAS PLACED RELIANCE WERE RENDERED ON DISTINGUISH ABLE FACTS. THEREFORE, THIS INTEREST HAS TO BE ALLOWED EVEN U/S 36(1)(III) OF THE ACT. SO LONG AS THE INTEREST FREE ADVANCES SUBSERVE THE BUSINESS INTEREST OF AN ASSESSEE, THE INTEREST, PART CANNOT BE DISALLOWED WITH REFERENCE TO INTEREST PAID, ON PROPORTIONATE BASIS. THE DEPARTMENT HAS NOT RAISED ANY ISSUE REGARDING ADMISSION OF AN ADDI TIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES. THE FACTS AND FIGURES TAKEN BY LD. CIT(A) ARE FROM THE BALANCE SHEET, ETC WHICH WE RE ALSO AVAILABLE BEFORE AO. 6. REGARDING, DECISIONS ON WHICH AO HAS RELIED, WE HAVE ALREADY OBSERVED THAT THESE DECISIONS, IN FACT, SUPPORT THE CASE OF THE ASSESSEE-COMPANY. (I) MADHAV PRASAD JATIA VS CIT REPORTED IN (1979) 118 ITR 200 (SC) IN THAT CASE BORROWALS WERE MADE FOR GIVING DO NATIONS TO A COLLEGE TO COMMEMORATE THE MEMORY OF ASSESSEE S DECEASED HUSBAND. THIS IS PURELY AND APPARENT BY A PERSONAL EXPENDITURE AND DEDUCTION OF INTEREST US/ 36(1)(III) CANNOT BE ALLOWED. THEREFORE, THIS DECIS ION IS NOT APPLICABLE TO THE FACTS OF THE GIVEN CASE. 6 (II) S.A. BUILDERS LTD. VS CIT (2007) 288 ITR 1 (SC) IN THAT CASE THE HOLDING COMPANY (THE ASSESSEE) DEBITED INTEREST IN THE SUBSIDIARY COMPANY AND ADVANCED BORROWED MONEY TO I TS SUBSIDIARIES WHICH WAS USED BY THE SUBSIDIARIES FOR THEIR OWN BUSINESS PURPOSES. APPARENTLY, THIS EXPENDITURE CANNOT BE TAKEN AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. BUT IN THE GIVEN CASE THE A SSESSEE- COMPANY HAS INCURRED EXPENSES AS ADVANCE TO ITS SUBSIDIARIES FOR BUSINESS PURPOSE AND NOT OTHERWISE . RATHER THE ASSESSEE AND ITS SUBSIDIARIES HAVE INCURRED MUT UAL EXPENSES FOR MUTUAL BUSINESS BENEFITS AND NO PERSON AL ELEMENT IS INVOLVED THEREIN. THIS DECISION ALSO SUP PORTS THE CASE OF THE ASSESSEE (III) K. SOMASUNDARAM & BROTHERS VS CIT 238 ITR 93 9 (MAD) IN THAT CASE OUT OF INTEREST PAID ON BORROWING TO THE EXTENT OF INTEREST FREE LOAN GIVEN TO THE RELATIVES OF THE PA RTNERS WAS DISALLOWED U/S 36(1)(III), BUT THE FACTS OF THIS CA SE ARE ENTIRE DIFFERENT. (III) IN ABHISHEK INDUSTRIES CASE (2006) 156 TAXMAN 257 ( P&H) IN THAT CASE INTEREST FREE ADVANCES WERE GIVEN TO SIST ER CONCERN WITHOUT ANY BUSINESS PURPOSE. AGAIN, THE RA TIO OF THIS DECISION CANNOT APPLY THE CASE IN HAND. 7. ACCORDINGLY, WE CONFIRM, THE IMPUGNED DELETION A ND DISMISS GROUND NO. (1) AND 1.1 OF REVENUES APPEAL. 7 8. THE FACTS APROPOS GROUND NO. (2) AND (2.1) THAT THE ASSESSEE DURING THE RELEVANT YEAR HAS PAID THE FOLLOWING EXP ENSES :- REPAIR OF BUILDING : RS. 31,05,513/- REPAIR OF ELECTRICAL : RS. 07,11,059/- AS PER THE AO EXPENDITURE INCURRED BY THE ASSESSEE IS AS UNDER :- REPAIR OF BUILDING S. NO SUPPLIER ITEM AMOUNT 1. PARSHWA TRADING CO. PUMP 00,95,212 2. SHREE CONSTRUCTION CONSTRUCTION OF DG FOUNDATION, CABLE TRENCHES ETC AT CITY PALACE 19,10,137 3. R.K. DECORATORS PAINTING WORK AT BADIPAL TOILETS 00,42,455 4. THE ARC BADIPAL STAFF QUARTERS 07,87,980 5. M.K. CONSTRUCTION CO. CONSTRUCTION, RCC ETC. WORK 02,69,729 TOTAL 31,05,513 REPAIR TO ELECTRICALS S. NO SUPPLIER ITEM AMOUNT 1. MEGA SOUND CONFERENCE SET UP ON 17.6.2008 00, 45 , 985 2. MEGA SOUND SPEAKERS ON 22.8.2008 00 , 73,800 3. PARSHWA TRADING CO PUMP 07.10.2008 00, 41 , 560 4. DHAN SAMPDA PUMP 30.12.2008 0 0 , 65 , 800 5. PARSHWA TRADING CO PU MP 29.12.2008 00,81,434 6. SONER COMMUNICATION P. LTD TELEPHONE M OTHER B OARD B ILL NO. 121 DATED 19.11.2008 01,87,200 7. SONER COMMUNICATION P. LTD TELEPHONE M OTHER B OARD B ILL NO. 122 DATED 12.11.2008 02, 15 , 280 TOTAL 07 , 11 , 059 8 AS PER A.O. THESE EXPENSES ARE TO BE CAPITALIZED, T HEREFORE, HE HAS DISALLOWED THEM. 9. THE LD. CIT(A) HAS FOUND SOME OF THE EXPENSES AR E REVENUE AND SOME OF THEM TO BE CAPITAL, IN NATURE. AGAINST THE FINDING OF LD. CIT(A) WHERE HE HAS TREATED THE EXPENSES ARE REVENUE IN NA TURE, THE REVENUE HAS CAME UP IN APPEAL. THE LD. CIT(A) HAS DELETED T HE DISALLOWANCE OF EXPENDITURE OF RS. 11,95,376/- OUT OF TOTAL DISALL OWANCE OF RS. 31,05,513/-, MADE ON ACCOUNT OF REPAIRS OF THE BUIL DING AND CLAIMED AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE LD. C IT(A) HAS FURTHER DELETED THE DISALLOWANCE OF RS. 7,11,059/- SPENT ON REPAIRS OF ELECTRICAL AND CLAIMED AS REVENUE EXPENDITURE U/S 3 7(1). 10. WE HAVE HEARD THE PARTIES. THE LD. CIT(A) HAS T REATED THE FOLLOWING EXPENSES AS OF REVENUE IN NATURE :- (I) PUMP EXPENDITURE OF RS. 95,212/- (II) PAINTING WORK EXPENDITURE OF RS. 42,455/- (III) CONSTRUCTION OF RCC, ETC OF RS. 2,69,729/- (IV) BADIPAL STAFF QUARTER RS. 7,87,980/-. THUS, OUT OF TOTAL DISALLOWANCE OF RS. 31,05,513/- THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS. 11,95,376/- WHICH I S TOTAL OF ITEMS (I) 9 TO (IV), AS ABOVE. WE WILL DISCUSS EACH ITEM TO SEE OF IT IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE. (I) AN EXPENDITURE OF RS. 95,212/- WAS INCURRED TO MAKE THE SEWERAGE PLANT, INSTALLED IN THE EARLIER YEARS AND WHOSE WDV IS SHOWN AT RS. 52,92 LAKHS AT THE END OF THE Y EAR, FUNCTIONAL. THIS EXPENDITURE CANNOT BE TREATED AS A CAPITAL ONE WHICH WAS SPENT ON SUBMERSIBLE PUMP WITH GRINDE R WHICH WAS INSTALLED IN THE SEWERAGE PLANT. THIS IS, OBVIOUSLY, A REVENUE EXPENDITURE. (II) EXPENDITURE OF RS. 42,455/- INCURRED ON PAINTING IS TO BE TREATED AS REVENUE EXPENDITURE WITHOUT MUCH ADO. (III) EXPENDITURE OF RS. 7,87,980/- INCURRED TOWARDS REPA IR OF STAFF QUARTERS HAS TO BE TREATED REVENUE EXPENDITUR E. IT IS NOTICED THAT NEW STAFF QUARTERS HAVE NOT BEEN CONST RUCTED. (IV) THE EXPENDITURE OF RS. 2,69,729/- INCURRED ON ACCOU NT OF CONSTRUCTION RCC ETC. WORK TO SHIFT THE EXISTING WA TER TANK, CAN BE TREATED AS REVENUE EXPENDITURE. THUS, WE DONT FIND ANY FALLACY IN THE ABOVE FINDIN G OF LD. CIT(A) AND ACCORDINGLY, CONFIRM THE SAME. 10 11. THE AO HAS DISALLOWED AN EXPENDITURE OF RS. 7,1 1,059/- INCURRED TOWARDS REPAIR OF ELECTRICAL ITEMS, AS SHOWN IN THE CHART EXTRACTED IN THE EARLIER PART OF THIS ORDER. THE LD. CIT(A) HAS ALLOWED ONLY RS. 41,560/-, RS. 65,800/-, RS. 81,434/-, RS. 2,15,280/ - AND RS. 1,87,200/. THE LD. CIT(A) HAS CONFIRMED ADDITION OF RS. 45,985 /- INCURRED ON CONFERENCE SET UP AND OF RS. 73,800/- INCURRED ON S PEAKERS. 12. AFTER HEARING BOTH SIDES, WE DONT FIND ANY FAL LACY IN THE IMPUGNED DELETION AND, THEREFORE, CONFIRM HE ORDER TO THAT EXTENT. THE GROUND RAISED IS NOT CORRECT, IN FACT, LD. CIT( A) HAS NOT ALLOWED THE ENTIRE EXPENDITURE OF RS. 7,11,059/-, AS HAS BEEN P LEADED IN GROUND NO. 2.1. ACCORDINGLY, WE CANNOT ALLOW GROUND NO. 2 AND 2.1 OF THIS APPEAL AND DISMISS THEM. 13. THE FACTS APROPOS GROUND NO. (3) ARE THAT THE A O HAS NOTICED PAYMENTS MADE BY THE ASSESSEE-COMPANY TO THE PERSON S SPECIFIED IN SECTION 40A(2)(B) ON WHICH TAX AT SOURCE (TDS) HAS NOT BEEN DEDUCTED AS PER LAW. THE ASSESSEES CONTENTION IS THAT IT IS NOT REQUIRED TO DEDUCT TDS ON THESE PAYMENTS. BUT, THE A.O. HAS NOT AGREED AND HAS MADE AN ADDITION OF RS. 1,31,00,000/-. AS PER THE A O THESE PAYMENTS HAVE BEEN MADE FOR THE SERVICES PROVIDED BY THE LAK E PALACE HOTELS PVT. LTD. (LSPH) OF RS. 5.42 LAKHS, AND REMAINING A MOUNT PAID FOR THE 11 SERVICES PROVIDED BY THE HISTORIC RESORT HOTELS PVT . LTD. THESE SERVICES ARE MAINLY RELATED TO MARKETING AND SALARY PAYMENTS. AS PER THE ASSESSEE, THESE ARE REIMBURSEMENTS OF EXPENSES PAID BY THE PAYEES ON BEHALF OF THE ASSESSEE-COMPANY. BUT THE A O HAS TREATED THEM AS PAID UNDER MUTUAL ARRANGEMENT / AGREEMENT A ND TDS PROVISIONS ARE APPLICABLE. THAT THE ASSESSEE-COMPAN Y RENDERED SERVICES AND RECEIVED PAYMENTS BY WAY OF SHARING OF EXPENSES WHICH ATTRACT TDS PROVISIONS. ACCORDINGLY, HE HAS DISALLO WED AN AMOUNT OF RS. 1,31,00,000/. 14. WHEN THE ASSESSEE WENT IN APPEAL BEFORE LD. CIT (A), THE LD. CIT(A) AFTER CONSIDERING THE VARIOUS SUBMISSIONS MA DE BY THE ASSESSEE- COMPANY, HAS HELD AS UNDER: FROM THE ABOVE IT IS APPARENT THAT TDS HAS BEEN DED UCTED BY THE ACTUAL PAYER OF THE EXPENSES I.E. M/S LAKE SHOR E PALACE HOTEL PVT. LTD AND HISTORIC RESORT HOTELS PVT. LTD AS PER PROVISION S OF THE ACT AND DEBIT NOTE HAS BEEN RAIS ED IN THE CASE OF THE ASSESSEE WHICH HAS BEEN SQUARED UP BY DEBIT ENTRY. MOREOVER, THE AMOUNTS ARE NOT REMAINED PAYABLE AT T HE END OF THE YEAR. IN VIEW OF THE ABOVE FACTS, ADDITION MAD E U/S 40(A)(IA) IS NOT SUSTAINABLE IN THE EYES OF LAW AND THE SAME IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 12 15. AFTER CONSIDERING RIVAL STANDS IN THE LIGHT OF THE FACTS OF THIS ISSUE, WE DONT FIND ANY REASON TO INTERFERE IN THE IMPUGNED FINDING. THEREFORE, WE CONFIRM HE SAME AND DISMISS GROUND NO . (3) OF THIS APPEAL. 16. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2013. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10 TH MAY, 2013. VL COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR