M/s.Hotel Green Park, Aluva V. The DCIT, Ernakulam

ITA 401/COCH/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7311 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 31-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-09-2016
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Keywords: Depreciation; Revised return
• Section: 143(3); 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER I.T.A. NO S . 399 - 401 / COCH/201 6 ASSESSMENT YEAR S : 2008 - 09 - 2010 - 11 M/S. HOTEL GREEN PARK, 103A/103B/103C, M.C. ROAD, KALADY-683 574. [PAN: AAHFG 5302J] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1, ERNAKULAM. (ASSESSEE - APPELLANT) (R EVENUE - RESPONDENT) ASSESSEE BY SHRI MATHEW JOSEPH, CA REVENUE BY SHRI A. DHANARAJ, SR. DR DATE OF HEARING 31 / 0 1 / 201 7 DATE OF PRONOUNCEMENT 2 ND / 0 2 /201 7 O R D E R PER GEORGE GEORGE K.,JUDICIAL MEMBER: THESE APPEALS AT THE INSTANCE OF THE ASSESSEE A RE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-IV, KOCHI DATED 16 /06/2016. THE RELEVANT ASSESSMENT YEARS ARE 2008-09 TO 2010-11. 2. SINCE COMMON ISSUES ARE RAISED IN THESE APPEALS , THEY WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. I DENTICAL GROUNDS ARE RAISED FOR I.T.A. NOS.399-401/COCH/2016 2 ALL THE ASSESSMENT YEARS EXCEPT FOR VARIANCE IN FIG URES. HENCE GROUNDS RELEVANT TO THE ASSESSMENT YEAR 2008-09 ARE REPRODUCED BELOW : 1.THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS. 4,58,012/- ON ESTIMATE BASIS STATING THAT INTERNAL VOUCHERS ARE O NLY MAINTAINED. THE CIT(A) HAS CONFIRMED THE FINDING WITHOUT CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE ESTIMATE OF FOOD SALE, SODA AND COLA AND EMP TIES ON THE BASIS OF LIQUOR SALE AND THEN ESTIMATING THE NET PROFIT ON T HIS WAS MADE WITHOUT ANY BASIS. THE CIT(A) HAS CONFIRMED THE FINDINGS OF THE OFFICER IGNORING THE SUBMISSIONS OF THE ASSESSEE. THE FACT THAT THE RE WERE NO INCRIMINATING DOCUMENTS RELATING TO THIS YEAR WAS A LSO IGNORED BY THE OFFICER AND CIT(APPEALS). 3. ANY OTHER GROUNDS THAT MAY BE ALLOWED AT THE TIM E OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PARTNERSHIP FIRM HAVING TW O PARTNERS. THE FIRM IS RUNNING A BAR ATTACHED HOTEL. THERE WAS A SEARCH IN THE PRE MISES OF ONE OF THE PARTNERS. CONSEQUENTLY, A SURVEY U/S. 133A WAS DONE IN THE OT HER BUSINESS ENTITIES CONNECTED WITH THE ASSESSEE. DURING THE COURSE OF SURVEY, CERTAIN DOCUMENTS RELATING TO THE ASSESSEE-FIRM WERE IMPOUNDED WHICH PERTAINS TO THE ASSESSMENT YEAR 2009-10. THE DOCUMENTS IMPOUNDED SUGGEST AN A VERAGE MARGIN OF PROFIT ON SALE OF LIQUOR AT THE RATE OF 79.90%. THE PROFIT MARGIN ON SALE OF FOOD, SODA, SOFT DRINKS AND EMPTY BOTTLES WAS ESTIMATED AT 13.6 8%, 4.62% AND 5.6% RESPECTIVELY. BASED ON THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF HOTEL MERIYA VS. CIT, KOTTAYAM IN I.T.A. NO . 551 OF 2009, THE ASSESSING I.T.A. NOS.399-401/COCH/2016 3 OFFICER WAS OF THE VIEW THAT THE SEIZED MATERIAL OF A SINGLE YEAR COULD BE UTILIZED FOR THE OTHER ASSESSMENT YEARS SINCE THE NATURE OF THE BUSINESS IS IDENTICAL AND THE ASSESSEE IS NOT LIKELY TO MAINTAIN THE COMPLETE EVIDENCE FOR ALL THE ASSESSMENT YEARS. HENCE, NOTICES U/S. 148 WERE ISSU ED FOR THE ASSESSMENT YEARS 2008-09 TO 2010-11 AND THE ASSESSMENTS WERE COMPLET ED U/S. 143(3) R.W.S. 147 OF THE ACT. THE MAJOR ADDITIONS MADE FOR THE ABOVE ASSESSMENT YEARS ARE AS FOLLOWS: I) ESTIMATION OF THE GROSS PROFIT OF LIQUOR AT 79.90% II) ESTIMATION OF SALE OF FOOD AT 13.68% OF THE LIQUOR S ALE. III) ESTIMATING THE SALE OF SODA AND SOFT DRINKS AT 4.62% OF THE LIQUOR SALE. IV) ESTIMATING THE SALE OF EMPTIES AT 5.7% OF THE LIQUOR SALE. V) DISALLOWANCE OF EXPENSES 4. AGGRIEVED BY THE ORDER OF THE ASSESSMENTS, THE ASSESSEE PREFERRED APPEALS TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) ALLOWE D THE ASSESSEES CLAIM REGARDING GROSS PROFIT ON SALE OF LIQUOR. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUNAL CONTESTING THE SUSTENAN CE OF ADDITION WITH REGARD TO THE ESTIMATION OF GROSS PROFIT ON SALE OF FOOD AT 1 2% AND DISALLOWANCE OF I.T.A. NOS.399-401/COCH/2016 4 EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE HAS FI LED A BRIEF WRITTEN SUBMISSION WITH REGARD TO ESTIMATION OF GROSS PROFIT ON FOOD A ND DISALLOWANCE OF EXPENSES. THE RELEVANT POTION READS AS FOLLOWS: ESTIMATION OF GROSS PROFIT ON FOOD THE ASSESSING OFFICER HAS ESTIMATED THE SALE OF FOO D AS A PERCENTAGE OF THE LIQUOR SALES BASED ON THE STATEMENTS IMPOUNDED. BUT THESE DOCUMENTS HA VE NO EVIDENCE TO SHOW THE GROSS PROFIT PERCENTAGE. THE HOTEL IS SITUATED IN A PANC HAYATH AND THE FOOD SALES ARE VERY MINIMUM. THERE ARE NO WALK IN CUSTOMERS. THE VILLA GERS HAVE A DRINK AND THEY HAD THEIR FOOD FROM THEIR HOMES. THE FOOD FOR MORE THAN 30 S TAFF IS ALSO PROVIDED FROM THE HOTEL. THE RATE OF GROSS PROFIT @ 12% OF THE ESTIMATED SAL ES (THE G.P. ON LIQUOR IS TAKEN ON THE PURCHASE VALUE) WERE ADOPTED WITHOUT ANY BASIS OF E VIDENCE. AS PER THE IMPOUNDED DOCUMENTS FOR A FEW MONTHS IN F.Y. 2008-09 THE AVER AGE GROSS PROFIT ON FOOD SALE IS ONLY 6.32%. THE WORKING IS ENCLOSED HEREWITH. AS THE EN TIRE ADDITION WAS BASED ON THIS DOCUMENT THE GROSS PROFIT ON FOOD MAY PLEASE BE TAK EN AT 6.32% AGAINST THE ESTIMATE OF 12%. THE COPY OF THE IMPOUNDED STATEMENTS IS ENCLOS ED HEREWITH. DISALLOWANCE OF EXPENSES THE ASSESSING OFFICER IN PARA 5 OF THE ORDER STATES THAT THE BOOKS OF ACCOUNTS ARE REJECTED ONLY IN RESPECT OF PROFITS AND THE EXPENDITURE ARE FOUND TO BE GENUINE AND SUPPORTED BY VOUCHERS. THE ASSESSING OFFICER HAS DISALLOWED A P ORTION OF THE SALARY AND INCENTIVE TO STAFF AMOUNTING TO RS. 4,58,012/- STATING THAT THESE EXPE NSES ARE SUPPORTED ONLY BY INTERNAL VOUCHERS. THE FACT THAT FOR SALARIES AND INCENTIVES ONLY INTERNAL EVIDENCES ARE AVAILABLE WAS IGNORED BY THE OFFICER. ESTIMATING A HUGE INCOME AND NOT ALLOWING THE ACTUA L EXPENDITURE IS AGAINST ALL NORMS OF JUSTICE. THE ASSESSMENT WAS BASED ON THE REVISED PR OFIT AND LOSS ACCOUNT AND DISALLOWING A PORTION OF IT STATING THAT IT WAS NOT CLAIMED IN TH E ORIGINAL RETURN WAS AGAINST LAW AND FACTS AND HENCE THESE EXPENSES ARE TO BE ALLOWED. 6. THE LD. DR HAS FILED A BRIEF WRITTEN SUBMISSI ON. THE RELEVANT PORTION READS AS FOLLOWS: 5. IN FACT INPAGE-2 OF ASSESSMENT ORDER (SUB-PARA 6 ) FOR AY 2008-09, THE ASSESSING OFFICER HAS MENTIONED THAT THE CORRECTNESS OF EXPEN DITURE AS PER ORIGINAL PROFIT& LOSS ACCOUNT IS NOT DOUBTED. THE RELEVANT PARA IS REPRO DUCED AS UNDER. HIS BOOKS THOUGH REJECTED ON PROFIT ASPECTS GIVE REASONABLE PICTURE FOR EXPENDITURE ASPECTS, MOST OF HIS I.T.A. NOS.399-401/COCH/2016 5 EXPENDITURES ARE FOUND TO BE GENUINE AND PROPERLY S UPPORTED BY VOUCHERS ETC. LIKE THERE IS NO DISPUTES OR DOUBTS ON EXPENDITURE LIKE PURCHASE OF LIQUOR BECAUSE IT IS FROM STATE BODY, BAR LICENSE FEES, BANK CHARGES AND INTE REST. ELECTRICITY CHARGES, INSURANCE, P.F. CONTRIBUTION, DEPRECIATION AND SALES TAX PAYME NTS. HOWEVER, EXPENDITURE LIKE STAFF INCENTIVE, SALARY ARE SUPPORTED BY INTERNAL V OUCHERS ONLY AND TOTALLY RELIABLE SO A PORTION OF THEM IS DISALLOWED AND ADDED BACK IN TOT AL INCOME. ADDITION = RS.4,58,012/- ONLY. 6. COPY OF ORDER OF COMMERCIAL TAX OFFICER, ANGAMA LY DATED15.03.2010 IN ORDER NO: 24162809/07-08 IS ENCLOSED HEREWITH TO HIGHLIGHT TH AT THE FIRM (GREEN PARK) WAS NOT KEEPING THE TRUE AND CORRECT ACCOUNTS RELATING TO T HEIR BUSINESS TRANSACTION FOR 2007-08. THE MANGER OF GREEN PARK HOTEL HAS ADMITTED THE OFF ENCE AND HAS PRAYED FOR COMPOSITION OF OFFENCE BEFORE THE COMMERCIAL TAX DE PARTMENT. 7. IN THE LIGHT OF THE ABOVE, THE ASSESSING OFFICE R HAS CORRECTLY TAKEN THE TOTAL EXPENSES OF THE FIRM AT RS.81,45,850/- BASED ON THE ORIGINAL RETURN AND PROFIT & LOSS ACCOUNT FILED ALONGWITH THE ORIGINAL RETURN. 8. IT IS THEREFORE SUBMITTED THAT THE ASSESSING OF FICER, HAS AFTER TAKING INTO ACCOUNT THE IMPOUNDED MATERIALS, SWORN STATEMENTS, ORIGINAL RET URN, ORDER OF COMMERCIAL TAX OFFICER, ANGAMALLY AND OTHER RELEVANT MATERIAL AND FINALIZED THE ASSESSMENT ON 08/02/2013, ADOPTING TOTAL EXPENSES AT RS.81,45,850 /- AND THE SAME BE UPHELD. 9. THE PRAYER OF APPELLANT THAT TOTAL EXPENSES BE TAKEN AT RS.1,03,10,112/- BEFORE THE HON. ITAT, IS NOTHING BUT AN AFTER THOUGHT TO AVOID PAYMENT OF TAX LIABILITY, ESPECIALLY AS HE HAS ORIGINALLY (VIDE LETTER DATED 21/09/2012) AC CEPTED FOR TOTAL EXPENSES AVAILABLE IN ORIGINAL PROFIT & LOSS ACCOUNT. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. I SHALL ADJUDICATE THE ISSUE RAISED AS UNDER: ESTIMATION OF GROSS PROFIT ON SALE OF FOOD THE ASSESSING OFFICER HAS ESTIMATED THE SALE OF FOO D AS A PERCENTAGE OF THE LIQUOR SALES. THE LEARNED AR HAD SUBMITTED THAT TH E HOTEL IS SITUATED IN A PANCHAYAT WHERE THE FOOD SALES ARE VERY MINIMUM. T HE VILLAGERS WILL HAVE A DRINK AND THE FOOD WILL BE TAKEN IN THEIR HOME. TH E AVERAGE GROSS PROFIT ON FOOD I.T.A. NOS.399-401/COCH/2016 6 SALE IS ONLY 6.32% AS PER THE IMPOUNDED DOCUMENTS. THE ASSESSING OFFICER ON THE OTHER HAND HAD ESTIMATED THE G.P. AT 13.68% TO 12% FOR VARIOUS AYS. THE CIT(APPEALS) HAS NOT GONE INTO THE FACTS AND HAS ES TIMATED GROSS PROFIT RATE OF 12% ON SALE OF FOOD. THE CIT(APPEALS) COMPARED WIT H OTHER GROUP CONCERNS ON IDENTICAL BUSINESS BUT HAS NOT CONSIDERED THE PLACE WHERE THESE CONCERNS ARE DOING BUSINESS. THE PLACE OF BUSINESS HAVE MAJOR RO LE IN THE FOOD SALES AND CANNOT BE COMPARED WITH CONCERNS IN DIFFERENT PLACE S. MOREOVER AS MENTIONED EARLIER, THE IMPOUNDED MATERIAL CLEARLY POINTS OUT ONLY G.P. OF 6.32% ON SALE OF FOOD. (COPY OF G.P. ON SALE OF FOOD FOR THE PERIOD APRIL 2008 TO NOVEMBER 2008 AS PER IMPOUNDED DOCUMENTS IS ENCLOSED HEREWITH). IT IS ALSO TO BE NOTED THAT LIQUOR SALES ARE THE MAIN SALES AND THE FOOD SALES IS ONLY A SECONDARY SALE IN ALL THE AYS. THEREFORE THE PERCENTAGE ADOPTED AT 12% FOR FOOD SALES IS ERRONEOUS AND ADDITION ON THIS COUNT IS DELETED. IT IS ORDER ED ACCORDINGLY. DISALLOWANCES OF EXPENSES 7.1 THE ASSESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES FULLY AND SOME OTHER EXPENDITURE PARTIALLY. BUT THE ASSESSING OFFICER H AS ADMITTED THAT BOOKS OF ACCOUNTS HAVE BEEN REJECTED ONLY IN RESPECT OF PROF ITS AND EXPENDITURES ARE FOUND TO BE GENUINE AND SUPPORTED BY VOUCHERS. THE IMPOUNDED STATEMENTS SHOWING THE EXPENSES HAVE BEEN PRODUCED BY THE ASSE SSEES REPRESENTATIVE, WHICH CONTAIN EXPENSES ON GENERATOR RUNNING, STAFF QUARTERS RENT, LAUNDRY CHARGES, TRAVELLING EXPENSES ETC. BASED ON WHICH TH E ASSESSMENT WAS COMPLETED I.T.A. NOS.399-401/COCH/2016 7 BY THE ASSESSING OFFICER. THE ASSESSEE ALSO STATED THAT THE ASSESSMENT WAS BASED ON THE REVISED PROFIT AND LOSS ACCOUNT AND DI SALLOWING A PORTION OF IT STATING THAT IT WAS NOT CLAIMED IN THE ORIGINAL RET URN IS AGAINST LAW AND FACTS. THE CIT(A) HAS ALSO ACCEPTED THE EXPENSES BUT HAS STATE D THAT THESE EXPENSES ARE SUPPORTED BY INTERNAL VOUCHERS ONLY. THE ASSESSEE HAS PRODUCED ORDERS PASSED BY THE CIT(A) IN THE CONNECTED GROUP CASES WHERE TH E EXPENSES HAVE BEEN FULLY ALLOWED. THE LEARNED DR HAS SUBMITTED A WRITTEN SU BMISSION IN WHICH IT HAS BEEN STATED THAT THE REVISED RETURN HAS BEEN FILED ONLY ON LONG AFTER ISSUE OF NOTICE U/S. 148 OF THE ACT. SUBSEQUENTLY, THE ASSE SSING OFFICER BASED ON THE IMPOUNDED MATERIAL ADOPTED THE AVERAGE MARGIN FOR C OMPLETING THE ASSESSMENT. BUT THE LEARNED AR STATED THAT SINCE ASSESSMENT WAS BASED ON THE REVISED PROFIT AND LOSS ACCOUNT THE EXPENSES CLAIMED HAS TO BE ALL OWED. 7.2 I HAVE GONE THROUGH THE ARGUMENTS OF BOTH PA RTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOW ED THE EXPENSES FOR THE REASON THAT THE ASSESSEE COULD NOT PRODUCE EXTERNAL EVIDENCES FOR THE EXPENSES DISALLOWED. THE CONTENTION OF THE ASSESSEE IS THAT THESE EXPENSES ARE RECORDED IN THE MONTHLY STATEMENTS IMPOUNDED FROM THE ASSESS EES PREMISES BASED ON WHICH THE ASSESSMENT IS COMPLETED WAS IGNORED BY TH E ASSESSING OFFICER AND THE CIT(A). ADMITTEDLY, THE ASSESSING OFFICER HAS STAT ED THAT THE EXPENSES ARE GENUINE AND SUPPORTED BY VOUCHERS. IN SUCH A CASE T HE ASSESSING OFFICER COULD NOT HAVE DISALLOWED THE EXPENSES. IT IS ALSO NOTIC ED THAT THE CIT(A) HAS ALSO NOT I.T.A. NOS.399-401/COCH/2016 8 CORRECTLY APPRECIATED THE FACTS OF THE PRESENT CASE . CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I AM OF THE VIEW, THAT THERE WAS NO JUSTIFICATION IN MAKING THE DISALLOWANCE OF EXPENSE S. I THEREFORE, DELETE THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING OFFI CER AND CONFIRMED BY THE CIT(A). IT IS ORDERED ACCORDINGLY. 8. THE OTHER ISSUE IS WITH REGARD TO WRONG DISALL OWANCE OF EXPENSES FOR AY 2008-09. THIS ISSUE HAS BEEN RAISED BY WAY OF ADDI TIONAL GROUND WHICH READS AS FOLLOWS: THE ASSESSING OFFICER HAS WRONGLY TAKEN THE TOTAL EXPENDITURE OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.2008 AS RS.81,45,850/- AGAINST THE ACTUAL FIGURE OF RS.1,03,10,112/-. THE ACTION OF THE ASSESSING OFFI CER HAS INCREASED THE INCOME BY 21,64,262/- WHICH IS AGAINST THE ACTUAL FACTS. 8.1 WITH REGARD TO THE ABOVE ISSUE, THE CONTE NTION OF THE ASSESSEE IS AS FOLLOWS: WRONG DISALLOWANCE OF EXPENSES AY 2008-09 IN THE ASSESSMENT ORDER FOR 2008-09 WHILE COMPUTING THE INCOME THE ASSESSING OFFICER HAS WRONGLY DEDUCTED THE TOTAL EXPENSES AS PER P&L RS.8 1,45,850/- INSTEAD OF THE ACTUAL FIGURE OF RS.1,03,10,112/-. THE FIGURE DEDUCTED BY THE AS SESSING OFFICER IS THAT OF THE ORIGINAL RETURN. THE ASSESSMENT WAS COMPLETED BASED ON THE REVISED RETURN AND THE DISALLOWANCE OF RS.4,58,012/- WAS MADE FROM THE REVISED PROFIT AND LOSS ACCOUNT. HENCE THE TOTAL EXPENSES AS PER THIS P&L AMOUNTING TO RS.103,10,112/- IS TO BE DEDUCTED FROM THE ESTIMATED GROSS PROFIT. THE COPY OF THE ORIGINAL AND REVISED PROFIT AND LOS S ACCOUNT IS ENCLOSED HEREWITH I.T.A. NOS.399-401/COCH/2016 9 8.2 ON A PERUSAL OF THE CIT(A)S ORDER, I NOTICE THAT THOUGH THE ASSESSEE HAS RAISED THIS ISSUE BEFORE HIM, THE CIT(A) HAS NOT AD JUDICATED THE SAME. THEREFORE, IN THE INTEREST OF JUSTICE AND EQUITY, THIS ISSUE I S RESTORED TO THE FILE OF THE CIT(A). THE CIT(A) SHALL AFTER AFFORDING A REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE SHALL DECIDE THE MATTER IN ACCORDANCE WITH LAW AS EXPEDITIOUSLY AS POSSIBLE. THEREFORE, THE ADDITIONAL GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2009-10 2010-11 ARE ALLOWED WHEREAS FOR AY 2008-09, IT IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COUR T ON 2-02-2017. SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER PLACE: KOCHI DATED: 2 ND FEBRUARY, 2017 GJ COPY TO: 1. M/S. HOTEL GREEN PARK, 103A/103B/103C, M.C. ROAD , KALADY-683 574. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL C IRCLE-1, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. I.T.A. NOS.399-401/COCH/2016 10 4. THE COMMISSIONER OF INCOME-TAX (CENTRAL), KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN