ACIT, UDAIPUR V. The Lake Shore Palace Hotel P. Ltd., UDAIPUR

ITA 405/JODH/2013

• Counselvise Citation: 40523314 RSA 2013
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: CHANDRA RAM
• Keywords: Depreciation; Deemed to accrue or arise in india; Additional evidence; Non compliance; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.405/JODH/2013 (A.Y. 2009-10) ACIT, CIRCLE-2, VS. THE LAKE SHORE PALACE HOTEL UDAIPUR. PVT. LTD., CITY PALACE, UDAIPUR. PAN NO. AAACT 8215 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI CHANDRA RAM DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 12/05/2014. DATE OF PRONOUNCEMENT : 09/06/2014. O R D E R PER HARI OM MARATHA, A.M THIS APPEAL OF THE REVENUE, FOR A.Y. 2009-10, IS D IRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR, DATED 28/03/2013. 2. BRIEFLY STATED, THE FACTS OF THIS CASE ARE THAT TH E ASSESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF SERVICE SECTO R AS HOTELIER. IT HAS SHOWN TOTAL RECEIPTS OF THE YEAR AT RS. 9,71,86,711 /- GIVING GROSS PROFIT RATE AS AGAINST OF RS. 13,07,60,741/- SHOWN IN THE IMMEDIATELY 2 PRECEDING YEAR GIVING GROSS PROFIT RATE OF 59.50%. THE NET PROFIT SHOWN IN THIS YEAR IS 3.17% AS AGAINST 24.78% IN THE LAST YEAR. FURTHER, THE ASSESSEE MADE PAYMENTS OF RS. 1,70,85,770/- TO THE SPECIFIED PERSONS WITHOUT DEDUCTING TDS AND ATTRACTED PROVISIONS OF S ECTIONS 40A(2)(B) & 40(9)(IA) OF THE ACT. FINALLY, THE ASSESSING OFFIC ER HAS COMPUTED THE TOTAL INCOME AS UNDER AS AGAINST RETURNED AT RS. 14 ,04,051/- BEFORE SET OFF OF LOSSES ETC. RETURNED INCOME (BEFORE SET OF LOSSES & UNABSORBED DEPRECIATION) RS. 1404051/- ADD 1. PAYMENTS SPECIFIED IN SECTION 40A(2)(B) AND ALSO DISALLOWANCE U/S 40(A)(IA) DUE TO NON DEDUCTION OF TDS ON PAYMENT OF ELECTRICITY CHARGES PARA 3.1(A) ABOVE 2. PAYMENTS SPECIFIED IN SECTION 40A(2)(B) AND ALSO DISALLOWANCE U/S 40(A)(IA) DUE TO NON DEDUCTION OF TDS ON LAUNDRY CHARGES PARA 3.1(B) ABOVE. 3. PAYMENTS SPECIFIED IN SECTION 40A(2)(B) AND ALSO DISALLOWANCE U/S 40(A)(IA) DUE TO NON DEDUCTION OF TDS ON PRINTING CHARGES PARA 3.1(C) ABOVE 4. PAYMENTS SPECIFIED IN SECTION 40A(2)(B) AND ALSO DISALLOWANCE U/S 40(A)(IA) DUE TO NON DEDUCTION OF TDS ON PAYMENT TO M/S. HISTORIC RESORTS P. LTD. PARA 3.1(D) ABOVE. 5. DEEMED INCOME U/S 41(1) PARA 3.1(D) ABOVE 6. COMMISSION ON ACCOUNT OF NON COMPLIANCE OF TDS U/S 40(A)(IA) RS. 6856444/- RS. 878053/- RS. 662615/- RS. 7843865/- RS. 102956/- RS. 844793/- RS. 2258543/- 3 PARA 3.3 ABOVE. 7. INTEREST ON ADVANCE TO THE LAKE PALACE HOTELS & MOTELS P. LTD. PARA 4 ABOVE GTI RS. 20851317/- LESS: B/F LOSSES SET OFF ALLOWED RS. 20851317/- TOTAL INCOME NIL BOOK PROFIT U/S 115 JB BOOK PROFIT U/S 115JB AS PER ROI RS. 27 65266/- 2.1 AGGRIEVED, THE ASSESSEE COMPANY PREFERRED FIRS T APPEAL AND LD. CIT(A) HAS GIVEN PART RELIEF TO IT. THE REVENUE IS NOW AGGRIEVED HAS FILED THIS APPEAL BY RAISING THE FOLLOWING GROUNDS: - ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF TH E CASE, THE ID. CIT(A) HAS ERRED IN: 1. DELETING THE DISALLOWANCE MADE OF RS.83,97,109 /- U/S 40(A)(IA) OF THE I.T. ACT ON ACCOUNT OF PAYMENT TO M/S LAKE PALACE HOTELS & MOTELS PVT. LTD FOR ELECTRICITY, LA UNDRY AND PRINTING CHARGES WITHOUT MAKING TDS U/S 194C. 2. DELETING THE DISALLOWANCE MADE OF RS.78,43,865 /- U/S 40(A)(IA) OF THE I.T. ACT ON ACCOUNT OF PAYMENT TO M/S HISTORIC RESORTS PVT. LTD FOR MARKETING CONSULTANCY AND STAFF SERVICE ETC. WITHOUT MAKING TDS U/S 194C/194J . 3. DELETING THE DISALLOWANCE MADE OF COMMISSION E XPENSE OF RS.8,44,793/- U/S 40(A)(IA) OF THE I.T. ACT WITH OUT MAKING TDS U/S 194H. 4 4. DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) O F THE I.T. ACT RELYING ON THE DECISION OF HON'BLE ITAT, S PECIAL BENCH, VISAKHAPATNAM IN THE CASE OF MARILYAN SHIPPI NG & TRANSPORTS IGNORING THE FACT THAT THE HON'BLE ANDHR A PRADESH HIGH COURT HAS PUT THE SAID DECISION UNDER INTERIM SUSPENSION AND ALSO IGNORING THE JUDGMENT OF (I) HO N'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORTS SYNDICATE AND (II) HON'BLE GUJRAT HIGH COURT IN THE CASE OF SIKANDARKHAN N TUNVAR WHEREIN IT HAS BEEN HELD THAT SECTION 40(A)(IA) OF THE I.T. ACT WOULD ALSO COVER THE AMOUNTS WHICH ARE PAYABLE AT ANY TIME DURING THE YE AR. 5. DELETING THE ADDITIONS AND IGNORING THE OBSERV ATION AND FINDING OF THE AO THAT THE ASSESSEE HAS FAILED TO J USTIFY THAT THE PAYMENT MADE FOR ELECTRICITY, LAUNDRY CHAR GES, SALES AND MARKETING ARE COMMENSURATE WITH THE MARKE T RATE AND NOT EXCESSIVE AND THEREFORE, THESE PAYMENT S ARE HIT BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE I .T. ACT. 6. DELETING THE DISALLOWANCE OF INTEREST U/S 36(1 )(III) OF THE I.T. ACT AMOUNTING TO RS.22,58,543/- ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO M/S THE LAKE PALACE HOTELS & MOTELS PVT. LTD. IGNORING THE FACT THAT THESE ADV ANCES WERE GIVEN WITHOUT ANY BUSINESS EXPEDIENCY. 2.2 WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFU LLY PERUSED THE ENTIRE RECORD. BOTH THE PARTIES HAVE REITERATED TH EIR ARGUMENTS TAKEN 5 BEFORE LD. CIT(A). IT WAS, HOWEVER, ARGUED BY LD. A.R SHRI CHANDRA RAM JI THAT BOTH THE ISSUES RAISED IN THIS APPEAL S TAND SQUARELY COVERED BY THE APPELLATE TRIBUNALS ORDER RENDERED IN ASSES SEES OWN CASE IN THE LAST YEAR. 2.3 ON THE OTHER HAND, THE LD. SR. LD DR. HAS RELIE D ON THE ORDER OF THE A.O. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAVE FOUND THAT BOTH THE ISSUES STAND COVERED BY THE TRIBUNAL ORDER REND ERED IN ASSESSEES OWN CASE. THE RELEVANT PORTIONS OF THE TRIBUNAL OR DER ARE BEING EXTRACTED HEREIN AS BELOW: 5. AFTER CONSIDERING SAME AND SIMILAR AND RIVAL SUBMISSIONS OF THE PARTIES IN THE LIGHT OF THE EVID ENCE AVAILABLE ON RECORD, WE ARE ALSO OF THE OPINION AS HAS BEEN TAKEN BY LD. CIT(A). IN FACT, IN THE GIVEN CASE, IN TEREST FREE ADVANCES HAVE BEEN GIVEN TO FURTHER AND 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 AGREE MENT WITH LD. CIT(A) THAT THESE ADVANCES PERTAIN TO EXPE NSES INCURRED ON RECIPROCAL BASIS. IT IS AN UNDISPUTED F ACT THAT HRH, ARE ASSESSEES SISTER CONCERNS. THE ASSESSEE I S IN THE HOTEL BUSINESS AND ITS SISTER CONCERNS ARE ALSO IN THE HOTEL 6 BUSINESS, AND THEY OPERATE FROM THE CITIES OF UDAIP UR, JAISALMER AND BIKANER. IT WAS FOUND THAT THESE CONC ERNS INCUR EXPENSES TO MEET TO REQUIREMENTS OF THEIR GUE STS (CUSTOMER) THROUGH THEIR UNITS, AND BILLS ARE RAISE D BY WAY OF DEBIT NOTES TO THE CONCERNED ENTITY TO WHICH THE CUSTOMERS / GUEST BELONGED TO. THIS PRACTICE HELPS THE SISTER CONCERNS IN GETTING REGULAR GUESTS AS BOOKIN G IS DONE OF TOURIST GROUPS WHO VISIT DIFFERENT PLACES. EACH CONCERN ACCOMMODATES EACH OTHERS GUEST. THE MISCELLANEOUS EXPENSES LIKE THE PETROL, DIESEL, ELECTRICITY, PRIN TING WORK, TELEPHONE, INTEREST, ETC. ARE RECOVERED THROUGH DEB IT 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 BUS INESS INTERESTS. THAT IS WHY NEITHER THE SISTER CONCERNS CHARGE INTEREST FROM THE ASSESSEE, NOR THE ASSESSEE CHARGE S INTEREST FROM THEM. IT WAS FOUND THAT NO PART OF SU CH EXPENSES 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 200 6-07 U/S 143(3) OF THE ACT. DURING THE YEAR THE NET OUTS TANDING AMOUNT HAS REDUCED AND THIS FACT IS PROVED BY THE A BOVE, UNDISPUTED, CHART. THE DECISIONS ON WHICH AO HAS PL ACED RELIANCE WERE RENDERED ON DISTINGUISHABLE 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, 7 PART CANNOT BE DISALLOWED WITH REFERENCE TO INTERES T PAID, ON PROPORTIONATE BASIS. THE DEPARTMENT HAS NOT RAIS ED ANY ISSUE REGARDING ADMISSION OF AN ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES. THE FACTS AND FIGURES TAKEN BY LD. CIT(A) ARE FROM THE BALANCE SH EET, ETC WHICH WERE ALSO AVAILABLE BEFORE AO. 6. REGARDING, DECISIONS ON WHICH AO HAS RELIED, WE HAVE ALREADY OBSERVED THAT THESE DECISIONS, IN FACT, SUP PORT 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 DONATIONS TO A COLLEGE TO COMMEMORATE THE MEMORY OF ASSESSEES DECEASED HUSBAND. THIS IS PURELY AND APPARENT BY A PERSONAL EXPENDITURE AND DEDUCTION OF INTEREST US/ 36(1)(III) CANNOT BE ALLOWED. THEREFORE, THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE GIVEN CASE. (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 ITS 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 8 BUSINESS. BUT IN THE GIVEN CASE THE ASSESSEE- COMPANY HAS INCURRED EXPENSES AS ADVANCE TO ITS SUBSIDIARIES FOR BUSINESS PURPOSE AND NOT OTHERWISE. RATHER THE ASSESSEE AND ITS SUBSIDIARIES HAVE INCURRED MUTUAL EXPENSES FOR MUTUAL BUSINESS BENEFITS AND NO PERSONAL ELEMENT IS INVOLVED THEREIN. THIS DECISION ALSO SUPPORTS 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 PARTNERS WAS DISALLOWED U/S 36(1)(III), BUT THE FACTS OF THIS CASE ARE ENTIRE DIFFERENT. (III) IN ABHISHEK INDUSTRIES CASE (2006) 156 TAXMAN 257 (P&H) IN THAT CASE INTEREST FREE ADVANCES WERE GIVEN TO SISTER CONCERN WITHOUT ANY BUSINESS PURPOSE. AGAIN, THE RATIO 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. 9 THE FACTS APROPOS GROUND NO. (3) ARE THAT THE AO H AS NOTICED PAYMENTS MADE BY THE ASSESSEE-COMPANY TO TH E PERSONS 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 T HE AO THESE PAYMENTS HAVE BEEN MADE FOR THE SERVICES PROV IDED BY THE LAKE PALACE HOTELS PVT. LTD. (LSPH) OF RS. 5 .42 LAKHS, AND REMAINING AMOUNT PAID FOR THE SERVICES P ROVIDED BY THE HISTORIC RESORT HOTELS PVT. LTD. THESE SERV ICES 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. BU T THE AO HAS TREATED THEM AS PAID UNDER MUTUAL ARRANGEMEN T / AGREEMENT AND TDS PROVISIONS ARE APPLICABLE. THAT T HE ASSESSEE-COMPANY RENDERED SERVICES AND RECEIVED PAY MENTS BY WAY OF SHARING OF EXPENSES WHICH ATTRACT TDS PRO VISIONS. ACCORDINGLY, HE HAS DISALLOWED 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 SUBMIS SIONS MADE BY THE ASSESSEE-COMPANY, HAS HELD AS UNDER: FROM THE ABOVE IT IS APPARENT THAT TDS HAS BEEN DEDUCTED BY THE ACTUAL PAYER OF THE EXPENSES I.E. 10 M/S LAKE SHORE PALACE HOTEL PVT. LTD AND HISTORIC RESORT HOTELS PVT. LTD AS PER PROVISION S OF THE AC T AND DEBIT NOTE HAS BEEN RAISED IN THE CASE OF THE ASSESSEE WHICH HAS BEEN SQUARED UP BY DEBIT ENTRY. MOREOVER, THE AMOUNTS ARE NOT REMAINED PAYABLE AT THE END OF THE YEAR. IN VIEW OF THE ABOVE FACTS, ADDITION MADE U/S 40(A)(IA) IS NOT SUSTAINABLE IN T HE EYES OF LAW AND THE SAME IS DELETED. THIS GROUND O F APPEAL IS ALLOWED. 15. AFTER CONSIDERING RIVAL STANDS IN THE LIGHT OF THE FACTS OF THIS ISSUE, WE DONT FIND ANY REASON TO INTERFER E IN THE IMPUGNED FINDING. THEREFORE, WE CONFIRM THE SAME AN D DISMISS GROUND NO. (3) OF THIS APPEAL. THEREFORE, BY RESPECTFULLY FOLLOWING THE ABOVE TRIB UNAL ORDER, WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE REV ENUE IN THIS APPEAL. ACCORDINGLY, WE DISMISS BOTH THE GROUNDS OF APPEAL OF THE REVENUE. 4. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISS ED. (ORDER PRONOUNCED IN THE COURT ON 09 TH JUNE, 2014). SD/- SD/- (N.K.SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09 TH JUNE, 2014. VL/ 11 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.