ACIT, New Delhi V. M/s. Sunair Hotels Ltd., New Delhi

ITA 4450/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91090 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 06-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Keywords: Business income; Depreciation; Block assessment; Unabsorbed depreciation
• Section: 37

Judgement Text

1 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRIC.M. GARG : JUDICIAL MEMBER ITA NOS. 4450 & 4451/DEL/2012 A.Y. 2009-10 & 2010-11 ACIT, CIRCLE 9(1), VS. M/S SUNAIR HOTELS LTD., NEW DELHI. A-7, 1 ST FLOOR, GEETANJALI ENCLAVE, NEW DELHI-110017. PAN: AAACS 1463 L ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI B.R.R. KUMAR SR. DR RESPONDENT BY : SHRI VINOD KUMAR BINDAL CA DATE OF HEARING : 06-05-2015 DATE OF ORDER : 29-05-2015. O R D E R PER S.V. MEHROTRA, A.M:- THESE APPEALS, FILED BY THE ASSESSEE, IS DIRECTED A GAINST SEPARATE ORDERS OF LD. CIT(A) PERTAINING TO AY 2009-10 & 2010-11. BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 4450/DEL/2012 AY 2009-10: 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD FILED ITS RETURN DECLARING INCOME OF RS. 16,35, 40,070/-. IT WAS ENGAGED IN THE 2 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. BUSINESS OF HOTEL RUNNING AND FINANCIAL/PORTFOLIO M ANAGEMENT. DURING THE YEAR UNDER CONSIDERATION IT HAD SHOWN INCOME FROM HOUSE PROPERTY AND BUSINESS. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS. 1 8,28,46,328/- AS UNDER: INCOME FROM HOUSE PROPERTY RENT RECEIVED FROM COMMERCIAL CENTER 4,78,83,525/ - LESS: 30% DEDUCTION U/S 24(A) 1,43,65,057/ - 3,35,18,468/- ASSESSED INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY INCOME FROM BUSINESS : BUSINESS INCOME RETURNED BEFORE SET OFF B/F LOSSES 13,10,30,537/- ADD: LEGAL AND PROFESSIONAL CHARGES 14,33,347/- EXCESS DEPRECIATION 99,31,096/- TOTAL: 14,23,94,980/- LESS : SET OFF C.F UNABSORBED DEPRECIATION B/F/LOSSES 1,95,28,540/- 12,28,66,4 40/- INCOME FROM OTHER SOURCES: SERVICE CHARGES RECEIPT 2,64,72,720/- TOTAL: 18,28,57,628/- LESS: DEDUCTION UNDER CHAPTER VIA 11,300/- TOTAL ASSESSED INCOME 18,28,46,328/ - R/O 18,28,46,330 /- 2.1. LD. CIT(A) ALLOWED THE ASSESSES APPEAL. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING EFFE CTIVE GROUNDS OF APPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE M ADE BY THE AO AT RS. 79,41,516/- BEING 30% DEDUCTION FOR REPAI R U/S 24 ON RENTAL INCOME RECE4IVED BY THE ASSESSEE WAS SERVICE CHARGES AND NOT RENTAL INCOME. 3 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2, 64,72,720/- CONSIDERED BY THE AO AS INCOME FROM OTHER SOURCES I NSTEAD OF RENTAL INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 14 ,33,347/- OUT OF LITIGATION FEES PAID TO SOME LAW FIRMS BY HOLDIN G THE SAME AS NOT INCURRED FOR BUSINESS PURPOSES. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 99 ,31,096/- TOWARDS DEPRECIATION ON THE BASIS OF A FINDING GIVE N IN THE BLOCK ASSESSMENT ORDER. 3. BRIEF FACTS APROPOS GROUND NOS. 1 & 2 ARE THAT A SSESSEE HAD CREDITED IN ITS P&L A/C SUB-LICENSE FEE AND SERVICES CHARGES OF RS. 7,43,56,245/-. THE AO NOTICED THAT ASSESSEE HAD REDUCED ITS RECEIPTS FROM BUSINESS INCOME AND DECLARED IT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE OBS ERVED THAT DETAILS WERE CALLED FOR, AS THIS ISSUE CAME IN PRECEDING YEAR AL SO. HE OBSERVED THAT ASSESSEE HAD ENTERED INTO SUB-LICENSE AGREEMENT DATED 27-9-2008 WITH MITSUI & CO. INDIA PVT. LTD. FOR LETTING OUT ITS METROPOLITAN CENTRE AT BANGLA SAHIB ROAD, NEW DELHI. THE ASSESSEE HAD ALSO ENTERED INTO A SERVICE AGREEMENT ON THE SAME DAY WITH MITSUI & CO. INDIA PVT. LTD. THE BIFURCATION OF THE TOTAL RE CEIPTS AS PER THE TWO AGREEMENTS WERE AS UNDER: (I) SUBLICENSE FEE RS. 4,78,83,525/- (II) SERVICE CHARGE RECEIPT RS. 2,64,72,720/- TOTAL: RS. 7,43,56,245/- 3.1. AO ACCEPTED THE ASSESSEES CLAIM QUA SUB-LICEN SE FEE AND TREATED THE SAME AS INCOME FROM HOUSE PROPERTY. HOWEVER, AS REGARD S SERVICE CHARGE RECEIPTS, HE 4 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. HELD THAT THE SAME WAS TAXABLE UNDER THE HEAD INCO ME FROM OTHER SOURCES AS THE SAME HAD BEEN RECEIVED FOR RENDERING DEFINITE SERV ICES ALONG WITH UTILIZATION OF THE EQUIPMENTS FOR THE BENEFIT OF MITSUI & CO. INDIA P VT. LTD. HE, ACCORDINGLY, DISALLOWED ASSESSEES CLAIM OF DEDUCTION U/S 24(A) OF RS. 79,41,816/- QUA THE SERVICE CHARGES. 3.2. LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN ITA NO. 2729/DEL/2010 FOR AY 2007-08 DATED 20-8-2010 ALLOWED THE ASSESSEE S CLAIM BY OBSERVING AS UNDER: '11 . THE ASSESSEE IMPUGNED ABOVE DISALLOWANCE IN APPEAL AND DREW 1D. CIT(A)'S ATTENTION TO TWO AGREEMENTS DATED 29.10.97 WITH MITSUI & CO: LTD. FO R LETTING PUT ITS COMMERCIAL CENTER TO THAT CONCERN; ONE AGREEMENT WAS FUR RENT AND THE OTHER WAS FOR SERVI CES CLAIMED TO HAVE BEEN ENTERED AT THE INSISTENCE OF T HE TENANT. THE ASSESSEE ALSO PLACED ON RECORD SUBSEQUE NT CHANGES IN THE AGREEMENT BETWEEN THE TENANT AND THE ASSESSEE. IT WAS CONTENDED THAT THE APPELLANT NEVER PROVIDED ANY SERVICES TO THE TENANT NOR CLAIMED AN Y DEDUCTION OF ANY EXPENS.ES FOR SUCH SERVICES; WHAT WAS RECEIVED FROM THE TENANT UNDER THE TWO AGREEMENTS W AS RENT FOR LETTING OUT OF THE PREMISES. EVEN THE TENA NT HAS DEDUCTED TAX AT SOURCE FROM THE ENTIRE AMOUNT TREA TING IT AS RENT AND NOT AS SERVICES CHARGES U/S 194(C). THE 1D. CIT(A),AFTER CONSIDERING FACTS AND CIRCUMSTANCE OF THE CASE, TREATED THE ENTIRE AMOUNT AS RENT AND HELD TH AT THE ASSESSEE WAS ENTITLED TO FULL DEDUCTION TOWARDS REP AIRS U/S 24 OF THE LT. ACT. THE ID. CIT(A) OBSERVED AS UNDE R:- 1 HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES, THE REASONING OF THE AO AND THE SUBMISSION OF THE ASSESSEE. AFTER CONSIDERING THE SAME 1 AM. OF THE 5 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. OPINION THAT THOUGH TWO AGREEMENTS HAD BEEN MADE FOR SUBLICENSE FEE I.E RENT AND SERVICE CHARGES SEPARATELY, YET THE FACT REMAINS THAT NO SERVICES OF ANY KIND WERE PROVIDED BY THE APPELLANT TO MITSUI CO. TO COMPOUND THE ISSUE, THE AO HAS ALSO FAILED TO BRING ON RECORD THE FACT, WHETHER ANY EXPENSES IN RESPECT OF THE SERVICES ALLEGEDLY PROVIDED TO MITSUI & CO., WERE CLAIMED BY THE APPELLANT. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT NO SERVICES WERE ACTUALLY PROVIDED BY THE APPELLANT, AND FACTUALLY THE SO CALLED SERVIC E CHARGES WERE NOTHING BUT RENT RECEIVED BY IT. FURTHER, IT IS SETTLED LAW THAT FORM AND SUBSTANCE OF THE TRANSACTION, AND NOT THE NOMENCLATURE ASSIGNED TO IT, DETERMINE THE NATURE OF THE INCOME . ACCORDINGLY, THE APPELLANT IS ELIGIBLE TO CLAIM STANDARD DEDUCTION U/S 24 OF THE ACT FROM THE SAME AND THE DISALLOWANCE OF RS. 54,39,600/- SO MADE IS DELETED.' 3.3. WE HAVE HEARD RIVAL SUBMISSIONS. THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN QUESTION BEING IN CONFORMITY WITH THE ORDERS OF THE ITAT FOR EARLIER YEARS AND THERE BEING NO CHANGE IN FACTS AND CIRCUMSTANCES, W E SEE NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. G ROUND NOS. 1 & 2 ARE DISMISSED. 4. BRIEF FACTS APROPOS GROUND NO. 3 ARE THAT A SUM OF RS. 1,37,57,137/- HAD BEEN DEBITED UNDER THE HEAD LEGAL & PROFESSIONAL C HARGES. THE AO NOTICED THAT A SUM OF RS. 14,33,347/- HAD BEEN PAID TO M/S ATUL SHARMA & ASSOCIATES FOR LITIGATION CHARGES AND PROFESSIONAL FEES FOR THE CA SES AGAINST VLS FINANCE LTD. THE AO OBSERVED THAT THIS PAYMENT TO M/S ATUL SHARMA & ASSOCIATES WAS TREATED AS 6 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. EXPENSES NOT PAID WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS IN THE PRECEDING ASSESSMENT YEARS AND WAS DISALLOWED U/S 3 7 OF THE I.T. ACT. HE, ACCORDINGLY, MADE AN ADDITION OF RS. 14,33,347/-. 4.1. LD. CIT(A) FOLLOWING THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA), ALLOWED THE ASSESSEES CLAIM BY OB SERVING AS UNDER:. 17. THE REVENUE HAS BROUGHT THE ISSUE HI APPEAL BEF ORE THE APPELLATE TRIBUNAL. THE LD. DR RELIED UPON THE ORD ER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, DREW OUR ATTENTION TO THE DETAIL OF LITIGATION EXPENSES IN ALL THREE YEARS AND CONTENDED THAT ALL THE EXPENSES WERE .INC URRED BY ,THE COMPANY IN RESPECT OF LITIGATION CARRIED ON BY THE COMPANY . AGAINST BLS FINANCE LTD. IN DIFFERENT COURTS. NO E XPENSES PERTAINING TO PERSONAL LITIGATION OR .OTHER LITIGAT ION OF THE DIRECTORS WERE DEBITED IN THE BOOKS OF .ACCOUNT OF THE ASSESSEE. IF . DIRECTORS WERE CARRYING ANY LITIGATION IN: THE IR PERSONAL CAPACITY, THOSE EXPENSES WERE SEPARATELY DEBITED IN THE PERSONAL ACCOUNT OF THE PARTNERS AND NOT CLAIMED BY THE ASSE SSEE COMPANY. IN THE LIGHT OF CATEGORICAL FINDING OF LD. CIT (A), IN OUR OPINION, IT WAS FOR THE REVENUE AUTHORITIES TO SHOW FROM THE DETAIL OF EXPENSES 'THAT EXPENSES DISALLOWED RELATE D TO CRIMINAL' PROCEEDINGS AGAINST DIRECTORS. OR WERE OTHERWISE ' INADMISSIBLE AND WERE WRONGLY CLAIMED BY THE ASSESSEE COMPANY.' THIS HAS . NOT BEEN SHOWN, THEREFORE, ON FACTS AND CIRCUMSTANC ES FOR THE CASE, WE ARE UNABLE TO INTERFERE WITH THE FINDING O F THE LD . CIT(A) THAT NO INADMISSIBLE EXPENDITURE WAS CLAIMED BY THE APPELLANT UNDER THE HEAD 'LITIGATION EXPENSES'. ADD ITION 'MADE WAS RIGHTLY DELETED IN ALL THE THREE YEARS. THIS GR OUND OF APPEAL IS ALSO REJECTED.' 4.2. WE HAVE HEARD RIVAL SUBMISSIONS. THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN QUESTION BEING IN CONFORMITY WITH THE ORDERS OF THE ITAT FOR EARLIER YEARS AND 7 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. THERE BEING NO CHANGE IN FACTS AND CIRCUMSTANCES, W E SEE NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. G ROUND NO. 3 IS DISMISSED. 5. BRIEF FACTS APROPOS GROUND NO.4 ARE THAT THE ASS ESSEE CLAIMED DEPRECIATION TO THE TUNE OF RS. 36,53,108/-. THE AO OBSERVED THAT I N ASSESSEES CASE IN THE BLOCK ASSESSMENT ORDER U/S 158BC DATED 29-11-02, THIS ISS UE WAS CONSIDERED AND DISALLOWANCE OUT OF DEPRECIATION WAS MADE ON THE AS SETS WHICH WERE CONSIDERED UNEXPLAINED. THIS DISALLOWANCE WAS MADE IN SUBSEQUE NT ASSESSMENT YEARS BY THE AO. HE WITHDREW THE EXCESSIVE DEPRECIATION AS PER C ALCULATION GIVEN IN THE CHART ENCLOSED AS ANNEXURE 2 TO THE TUNE OF RS. 99,31,096 /- AND MADE THE ADDITION ACCORDINGLY. 5.1. IN APPEAL, THE LD. CIT(A), FOLLOWING ITATS OR DER FOR EARLIER YEARS, ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: '21. THE REVENUE IS AGGRIEVED AND HAS BROUGHT THE I SSUE IN APPEAL BEFORE THE APPELLATE TRIBUNAL. DURING THE COURSE OF HEARING, A COPY OF ORDER OF ITA T 'D' BENCH, NEW DELHI IN ITA NO. 2 481DELL04 AND 3981DI04 IN THE CASE OF DCIT. CC-JJ VS SUNAIR HOTEL LTD (ASSESSEE COMPANY) DATED 2611012007 WAS FILED BEFORE US. THE ORDER WAS PASSED IN THE APPEAL FILED BY THE REVENUE IN THE BL OCK ASSESSMENT. THE TRIBUNAL CONSIDERED THE QUESTION WHETHER ANY DI SALLOWANCE BY TREATING EXPENDITURE ON CONSTRUCTION AS BOGUS WAS J USTIFIED THE TRIBUNAL NOTED THAT CERTAIN MATERIAL COLLECTED BY T HE AD WAS NOT PUT TO THE ASSESSEE BY THE AO SUBSEQUENTLY, ON DIRECTIO N OF THE APPELLATE AUTHORITY, THE MATTER WAS RE-EXAMINED THE ASSESSEE HAD FURTHER PRODUCED MATERIAL TO SHOW THAT COST OF CONSTRUCTION DECLARED WAS LOWER THAN SIMILAR COST SHOWN BY OTHER HOTELS. THE TRIBUNAL ALSO NOTED THAT COST OF CONSTRUCTION IN THE BOOKS WAS SU PPORTED BY VALUATION CARRIED BY DVO THE TRIBUNAL ACCORDINGLY S AW NO JUSTIFICATION FOR UPHOLDING ANY DISALLOWANCE OR ADD ITION ON ACCOUNT 8 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. OF BOGUS EXPENSES ON CONSTRUCTION. THE ORDER OF THE LD. CIT(A) ON THE ISSUE WAS UPHELD BY THE TRIBUNAL. '22. IN THE LIGHT OF ABOVE ORDER OF THE TRIBUNAL, W E SEE NO JUSTIFICATION IN SUSTAINING ANY DISALLOWANCE OF DEP RECIATION. AS NOTED EARLIER, THE IMPUGNED DISALLOWANCE AS 'PROTEC TIVE' IS MADE SOLELY BASED ON SIMILAR DISALLOWANCE AND ADDITION M ADE IN THE BLOCK ASSESSMENT YEAR. NO NEW OR FRESH MATERIAL WAS PLACE D ON RECORD TO JUSTIFY ADDITION/DISALLOWANCE OF DEPRECIATION IN TH E THREE YEARS UNDER APPEAL. THE DISALLOWANCE IN BLOCK ASSESSMENT YEAR WAS DELETED BY LD CIT(A) FOR THE REASON? ALREADY DISCUS SED ABOVE. THE SAID ORDER HAS BEEN CONFIRMED BY ITAT AND DISALLOWA NCE OF DEPRECIATION OR OF EXPENSES CLAIMED TO BE INCURRED ON CONSTRUCTION HAS NOT BEEN SUSTAINED THE ASSESSEE HAS PLACED ALL THE RELEVANT MATERIAL ON RECORD TO JUSTIFY COST OF CONSTRUCTION. IN THE ABOVE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE CIT(A) DE LETING THE DISALLOWANCE ON DEPRECIATION IN ALL THE YEARS BEFOR E US. 5.2. WE HAVE HEARD RIVAL SUBMISSIONS. THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN QUESTION BEING IN CONFORMITY WITH THE ORDERS OF THE ITAT FOR EARLIER YEARS AND THERE BEING NO CHANGE IN FACTS AND CIRCUMSTANCES, W E SEE NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION. G ROUND NO. 4 IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO. 4441/DEL/2013 (A.Y. 2010-11) : 7. EFFECTIVE GROUNDS RAISED ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 52 ,28,312/- BEING 30% DEDUCTION FOR REPAIR U/S 24 ON RENTAL INC OME . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 21 ,28,750/- OUT OF LITIGATION FEES PAID TO SOME LAW FIRMS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 89 ,12,568/- 9 ITA 4450/DEL/20012 ACIT VS. SUNAIR HOTELS LTD. TOWARDS DEPRECIATION ON THE BASIS OF A FINDING GIVE N IN THE BLOCK ASSESSMENT ORDER. 8. ADMITTEDLY, FACTS FOR AY 2010-11 ARE IDENTICAL TO AY 2009-10. HEREIN ALSO THE LD. CIT(A) HAS ALLOWED ASSESSEES CLAIM ON THE ISSUES IN QUESTION BY FOLLOWING EARLIER ORDERS OF THE ITAT. IN AY 2009-10 WE HAVE D ISMISSED ASSESSEES APPEAL BY UPHOLDING THE ORDER OF LD. CIT(A) ON IDENTICAL ISS UES. FOR THE VERY SAME REASONS HEREIN ALSO WE SEE NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ON THE ISSUES IN QUESTION. 9. IN THE RESULT, BOTH THE APPEALS PREFERRED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29-05-2015. SD/- SD/- (C.M.GARG) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29-05-2015. MP: C OPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR