DCIT, New Delhi V. M/s. C.J. International Hotels Ltd., New Delhi

ITA 4003/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6998 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 27-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI RAJPAL YADAV, JM AND SHRI K.G.BANSAL, A M ITA NOS.4002/DEL/2010 & 4003/DEL/2010 ASSESSMENT YEARS : 2006-07 & 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), NEW DELHI. VS. M/S C.J.INTERNATIONAL HOTELS LIMITED, HOTEL LE MERIDIEN, WINDSOR PLACE, NEW DELHI. PAN NO.AAACC0174E. (APPELLANT) (RESPONDENT) ITA NOS.3771/DEL/2010 & 3772/DEL/2010 ASSESSMENT YEARS : 2006-07 & 2007-08 M/S C.J.INTERNATIONAL HOTELS LIMITED, HOTEL LE MERIDIEN, WINDSOR PLACE, NEW DELHI. PAN NO.AAACC0174E. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1), NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI STEPHEN GEORGE, CIT-DR. ASSESSEE BY : SHRI TARANDEEP SINGH, CA. ORDER PER RAJPAL YADAV, JM : THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPEALS AGAINST THE COMMON ORDER OF LEARNED CIT(A) DATED 8.6.2010 PASSED FOR A Y 2006-07 & 2007-08. ITA NOS.4002 & 4003/DEL/2010 :- 2. THE SOLITARY SUBSTANTIAL GROUND OF APPEAL TAKEN BY THE REVENUE IN BOTH THE YEARS IS VERBATIM SAME WHEREIN REVENUE IS IMPUGNING THE DELETION OF AN ADDITION OF RS.6,96,49,798/-. ITA-4002/D/2010 & 3 OTHERS 2 3. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE ORDERS OF THE TRIBUNAL PASSED IN ASSESSMENT YEARS 2001-02 UPTO 2005-06. H E PLACED ON RECORD COPIES OF THE TRIBUNALS ORDERS IN ALL THESE ASSESSMENT YEARS . THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY OWNS PROPERTY ADJACENT TO HOTEL BU ILDING KNOWN AS WEST TOWER. THIS BUILDING IS LOCATED IN THE SAME COMPO UND IN WHICH THE HOTEL BUILDING IS LOCATED. THIS BUILDING IS NOT USED FOR THE HOTEL BUSINESS OF THE ASSESSEE COMPANY. IT HAS DIFFERENT ENTRIES AND OTHER INFRAS TRUCTURE SERVICES SUCH AS LIFTS, STAIRS, PARKING SLOTS ETC. THE ASSESSEE COMPANY HA S SUB-LICENSED OFFICES AND APARTMENTS IN THIS BUILDING TO VARIOUS PARTIES. TH E SUB-LICENSES GIVEN TO VARIOUS PARTIES WERE FOR A PERIOD OF NINE YEARS AND ELEVEN MONTHS WHICH ARE RENEWABLE ON THE REQUEST OF THE SUB-LICENSEE. THE ASSESSEE COMP ANY IS NOT CHARGING ANY RENT, LEASE OR LICENSE FEES FROM THESE PARTIES. IT HAD R ECEIVED INTEREST FREE SECURITY DEPOSITS IN THE YEAR OF ORIGINAL SUB-LICENSE TO WHI CH THE COMPANY IS SHOWING AS UNSECURED LOAN IN ITS BALANCE SHEET. SUB-LICENSE I S TRANSFERABLE BY THE SUB-LICENSEE TO ANY OTHER PERSON ON PAYMENT OF TRANSFER CHARGES TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY USED TO TRANSFER THE SECURITY DEPO SIT IN THE NAME OF NEW SUB- LICENSEE AND MODIFY ITS RECORD ACCORDINGLY. IT IS NOT CONCERNED WITH ANY OTHER CONSIDERATION AT THE TIME OF TRANSFER OF SUB-LICENS E BY THE LICENSEE TO THE TRANSFEREE I.E. SUB-LICENSEE. THE AO WAS OF THE OPINION THAT ASSESSEE OUGHT TO HAVE SHOWN RENTAL INCOME FROM THIS PROPERTY AND HE DETERMINED THE ALV U/S 23 OF THE IT ACT. THE DISPUTE FIRST TIME AROSE IN AY 2001-02 WHICH TR AVELED UPTO THE TRIBUNAL AND THE TRIBUNAL IN THAT YEAR HAS HELD THAT SUB-LICENSE ES ARE TO BE TREATED AS DEEMED OWNER AND THEREFORE, ALV CANNOT BE DETERMINED IN TH E HANDS OF THE ASSESSEE. 4. IN ALL OTHER ASSESSMENT YEARS, SAME VIEW HAS BEE N TAKEN BY THE TRIBUNAL. IN THE PRESENT TWO YEARS, AO THOUGH ACCEPTED IN THE AS SESSMENT ORDER THAT THIS VIEW WAS TAKEN BY THE TRIBUNAL AND THERE IS NO DISPARITY ON FACTS, BUT HE OBSERVED THAT ITA-4002/D/2010 & 3 OTHERS 3 THE VIEW TAKEN BY THE TRIBUNAL IS NOT ACCEPTABLE TO THE REVENUE AND THE DISPUTE HAS BEEN TAKEN FURTHER IN APPEAL BEFORE THE HONBLE HIGH COURT. IN A WAY FOR KEEPING THE ISSUE ALIVE, THE AO HAS ASSESSED THE IN COME FROM THIS PROPERTY AS INCOME FROM HOUSE PROPERTY ON THE BASIS OF ALV DETE RMINED BY HIM AND ACCORDINGLY MADE AN ADDITION OF RS.6,96,49,798/- EA CH IN BOTH YEARS. 5. THE LEARNED CIT(A) HAS DISCUSSED THE ISSUE IN DE TAIL AND AFTER RELYING UPON THE ORDERS OF THE TRIBUNAL IN EARLIER YEARS, DELETE D THE ADDITION. SINCE THERE IS NO DISPARITY ON FACTS, AO HIMSELF HAS OBSERVED THAT TH E VIEW TAKEN BY THE TRIBUNAL IS NOT ACCEPTABLE TO THE REVENUE AND IT IS FURTHER CHA LLENGED BEFORE THE HIGH COURT. HE HAS NOT POINTED OUT ANY OTHER DISPARITY OR CHANG E IN THE FACTS AND CIRCUMSTANCES. THE CONCLUSION ARRIVED AT BY THE TR IBUNAL IN AY 2001-02 HAS BEEN NOTICED BY THE ITAT IN AY 2005-06 IN ITA NO.3566/DE L/2008. THE OBSERVATION MADE IN PARAGRAPH 21.9 OF AY 2001-02 READ AS UNDER: - 21.9 IN VIEW OF THE ABOVE, WE ARE UNABLE TO CONCUR WITH THE FINDINGS RECORDED BY THE LD.CIT(A) AND SETTING ASID E THE SAME WE HOLD THAT THE ASSESSEE CANNOT BE SUBJECTED TO HOUSE -PROPERTY INCOME UNDER SECTION 22 AND 23 OF THE INCOME TAX ACT AS OW NER OF THE PREMISES LICENSED TO IT. IN OUR VIEW, SUB-LICENSEE S ARE TO BE TREATED AS DEEMED OWNER IN VIEW OF THE DEFINITION OF OWNERS HIP AND TRANSFER AS GIVEN IN SECTION 27(III) READ WITH SECTION 269UA (F)(II). 6. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNA L IN EARLIER YEARS, WE DO NOT FIND ANY FORCE IN THE GROUND OF APPEAL RAISED BY TH E REVENUE IN BOTH THE YEARS. ACCORDINGLY, THE SAME IS REJECTED. NO OTHER ISSUE HAS BEEN RAISED BY THE REVENUE IN ITS APPEALS. THEREFORE, THE APPEALS OF THE REVE NUE ARE DISMISSED. ITA NO.3771/DEL/2010 :- 7. IN AY 2006-07, THE ASSESSEE HAS CHALLENGED THE R EOPENING OF ASSESSMENT BY ISSUANCE OF NOTICE U/S 148 OF THE IT ACT. THE ASSE SSEE DID NOT PRESS THIS GROUND OF APPEAL, HENCE IT IS REJECTED. THE APPEAL OF THE AS SESSEE IS DISMISSED. ITA-4002/D/2010 & 3 OTHERS 4 ITA NO.3772/DEL/2010 :- 8. IN AY 2007-08, THE ASSESSEE HAS PLEADED THAT LEA RNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.22,72,038/- OUT OF INTEREST COST. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS ADVANCED LOAN TO M/S PURE DRINKS, NEW DELHI AND HAS CHARGED INTEREST AT THE RATE OF 8%. THE AO WAS OF THE OPINION THAT INTEREST BEARING FUNDS HAVE BEEN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN ON A LOWER RATE OF INTEREST. THE ASSESSEE HAS BEEN PAYING INT EREST TO THE BANK AT 12%. THE AO HAS DISALLOWED A SUM OF RS.22,72,038/- WHICH, AC CORDING TO HIM, IS RELATABLE TO THE AMOUNT ADVANCED BY THE ASSESSEE TO THE SISTE R CONCERN AT A HIGHER RATE OF INTEREST. THE OBSERVATION OF THE AO ON PAGE 11 REA D AS UNDER:- THE ASSESSEE COMPANY CHARGED INTEREST @ 8% PER ANN UM FROM M/S PURE DRINKS LTD. WHEREAS IT HAS PAID INTEREST TO BA NKS AT 12%. COST OF INTEREST ON THESE ADVANCES TO M/S PURE DRINKS LT D. HAS BEEN BORNE BY THE ASSESSEE COMPANY WHICH HAS RESULTED INTO EXC ESS EXPENSE AND THE REDUCTION OF PROFIT OF THE ASSESSEE COMPANY. T HE INTEREST PAID DURING THE YEAR TO THE BANKS AS PER THE SUBMISSIONS GIVEN BY THE ASSESSEE COMPANY IS RS.1,25,39,576/-. THE PORTION OF INTEREST CLAIMED BY THE ASSESSEE COMPANY ATTRIBUTABLE TO ADV ANCE GIVEN TO THE SISTER CONCERN IS BEING DISALLOWED WHICH AMOUNT S TO RS.22,72,038/- (TREATING RATE OF INTEREST PAYABLE B Y THE ASSESSEE COMPANY @ 12%). 9. APPEAL TO THE LEARNED CIT(A) DID NOT BRING ANY R ELIEF TO THE ASSESSEE. 10. THE LEARNED COUNSELS HAVE ADMITTED THAT THIS IS SUE HAS ARISEN IN EARLIER YEARS AND IN AY 2002-03, IT WAS SET ASIDE TO THE AO. THE FACTS AND THE CONCLUSION OF THE TRIBUNAL IN THAT ASSESSMENT YEAR READ AS UNDER:- 17. THE BRIEF FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, LEARNED ASSESSING OFFICER F OUND THAT A LOAN OF RS.4,44,96,489.93 AS ON 31.3.2002 WAS OUTSTANDIN G TOWARDS M/S ITA-4002/D/2010 & 3 OTHERS 5 PURE DRINKS LTD. ON PERUSAL OF THE DETAILS, THE LE ARNED ASSESSING OFFICER FOUND THAT ASSESSEE COMPANY HAS BEEN CHARGI NG INTEREST FROM THE SISTER COMPANY @ 8% AND PAID INTEREST ON OVER D RAFT RANGING FROM 15.75 TO 16%. HE WAS OF THE OPINION THAT ASSE SSEE HAS DIVERTED INTEREST BEARING FUNDS TOWARDS THE SISTER COMPANY B Y CHARGING INTEREST AT A LOWER RATE. HE, THEREFORE, COMPUTED THE INTEREST CHARGEABLE FROM THE SISTER CONCERN AT 16% AND MADE THE DISALLOWANCE OF THE INTEREST EXPENSES EQUIVALENT TO THE DIFFERENCE BETWEEN THE INTEREST CHARGED AND THE INTEREST PAID BY IT ON THE INTEREST BEARING FUNDS. IN THIS WAY, HE MADE A DIS ALLOWANCE OF RS.35,59,719/-. 18. ON APPEAL, LEARNED CIT(APPEALS) HAS CONFIRMED T HE DISALLOWANCE. 19. LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUGNIN G THE ORDER OF CIT(APPEALS) CONTENDED THAT ASSESSEE HAS SUFFICI ENT LIQUID FUNDS WITH IT. IT HAS ADVANCED THE MONEY FROM ITS OWN SO URCES AND, THEREFORE, ASSESSING OFFICER OUGHT TO HAVE NOT MADE THE DISALLOWANCE. ON THE OTHER HAND, LEARNED DR CONTEN DED THAT IN ASSESSMENT YEAR 2001-02, SIMILAR DISALLOWANCE WAS M ADE AND THE ITAT HAS CONFIRMED THAT DISALLOWANCE. THEREFORE, T HE ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE ORDER OF TH E ITAT. HE TOOK US THROUGH PARAGRAPH NOS.23.1 AND 25 OF THE ITATS ORDER IN ASSESSMENT YEAR 2001-02. 20. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORDS CAREFULLY. IN ASSESSMENT YEAR 2001-02, SIMILAR ADVANCES WERE GIVEN TO THE SISTER CONCERN M/S PURE DRINKS LTD. THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS.23, 35,824/- OUT OF THE INTEREST EXPENSES OF THE ASSESSEE. THE LEARNED CIT(APPEALS) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.4,40 ,071/- I.E. TO THE EXTENT INTEREST BEARING FUNDS WERE ACTUALLY GIVEN T O THE SISTER CONCERN ON LOWER RATE OF INTEREST. THIS ACTION OF THE LEARNED CIT(APPEALS) IN RESTRICTING THE DISALLOWANCE HAS BE EN CONFIRMED BY THE ITAT. WE FIND THAT IN THIS YEAR ADVANCES HAVE BEEN INCREASED FROM RS.397.91 LACS TO RS.444.96 LACS AS ON 31.3.20 02. THE ITAT IN PRINCIPLE HAS UPHELD THE STAND OF THE ASSESSING OFF ICER THAT ASSESSEE HAD UTILIZED ITS INTEREST BEARING FUNDS FOR NON-BUS INESS PURPOSES. IT CONFIRMED THE DISALLOWANCE TO THE EXTENT OF ACTUAL USER OF THOSE FUNDS. THE ASSESSING OFFICER HAD DISALLOWED ON PRO PORTIONATE BASIS. IN THE PRESENT YEAR ALSO, THE ASSESSING OFFICER HAS NOT VERIFIED THE CASH FLOW STATEMENT AND DETERMINED THE ACTUAL HIGHE R INTEREST BEARING FUNDS ADVANCED BY THE ASSESSEE TOWARDS THE SISTER CONCERN ITA-4002/D/2010 & 3 OTHERS 6 BY CHARGING LOWER RATE OF INTEREST. THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON THAT HE SHALL VERIFY THE CASH FLOW STATEMENT OF THE ASSESSEE AND DETERMINE HOW MUCH HIGHER INTEREST BEARING FUNDS HAVE BEEN ACTUAL LY ADVANCED BY THE ASSESSEE TO THE SISTER CONCERN. HE IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF ACTUAL USER OF INTERE ST BEARING FUND FOR THIS PURPOSE. IN CASE ASSESSEE IS ABLE TO DEMONSTR ATE THAT IT HAS SUFFICIENT LIQUID FUND AND HAS NOT USED HIGHER RATE OF INTEREST BEARING FUNDS FOR MAKING ADVANCE TO THE SISTER CONCERN THEN NO DISALLOWANCE BE MADE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OU T THAT IN THIS YEAR, THE AO HAS NOT MADE ELABORATE DISCUSSION POINTING OUT EXAC TLY HOW MUCH AMOUNT HAS BEEN ADVANCED BY THE ASSESSEE TO THE SISTER CONCERN FROM HIGHER RATE OF INTEREST BEARING FUNDS. WE HAVE GONE THROUGH THE FINDING OF THE AO EXTRACTED SUPRA AND WE FIND THAT AO HAS NOT DISCUSSED ANY FUND FLOW STA TEMENT. IT IS ALSO NOT DISCERNIBLE WHETHER ASSESSEE HAS FILED ANY FUND FLO W STATEMENT BEFORE THE LEARNED AUTHORITIES BELOW. FACED WITH THIS DIFFICULTY, WE SET ASIDE THIS ISSUE TO THE AO AND DIRECT HIM TO READJUDICATE THE ISSUE IN THE LIGHT O F THE TRIBUNALS ORDER IN EARLIER YEARS. 12. WE SUMMARIZE THE RESULT AS UNDER:- (I) ITA NOS.4002/DEL/2010, 4003/DEL/2010 AND 3771/DEL/2 010 ARE DISMISSED. (II) ITA NO.3772/DEL/2010 IS ALLOWED FOR STATISTICAL PUR POSES. DECISION PRONOUNCED IN THE OPEN COURT ON CONCLUSION OF HEARING ON 27 TH OCTOBER, 2010. SD/- SD/- (K.G.BANSAL) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27.10.2010. VK. ITA-4002/D/2010 & 3 OTHERS 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR