M/s Taramount Hotels (P) Ltd., Jalandhar V. The Assistant Commissioner of Income Tax, Jalandhar

ITA 667/ASR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9591 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKAR
• Assessee Lawyers: GUNJEET SINGH SAYAL
• Keywords: Depreciation; Business expenditure; Additional evidence; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALANDHAR) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.667(ASR)/2015 ASSESSMENT YEAR: 2007-08 M/S TARAMOUNT HOTELS (P) LTDE. 618 MODEL TOWN, JALANDHAR. PAN:AAACT8657K VS. ASST. CIT CIRCLE-II, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. GUNJEET SINGH SAYAL (ADV.) RESPONDENT BY: SH. BHAWANI SHANKAR (DR) DATE OF HEARING: 27.06.2016 DATE OF PRONO UNCEMENT: 22.08.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LEARNED CIT(A), JALANDHAR DATED 29.10.2015 FOR ASST. YEAR:2 007-08. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE G ROUNDS OF APPEAL. (I) THAT THE LD. CIT(A)-2, JALANDHAR HAS WRONGLY C ONFIRMED ADDITION OF RS.5,83,825/- IN RESPECT OF RENT, RATES AND TAXE S. (II) THAT THE LD. CIT(A)-2, JALANDHAR HAS WRONGLY C ONFIRMED THE ADDITION OF RS.1,41,710/- ON ACCOUNT OF CESSATION O F LIABILITY OF M/S. VOLTAS LIMITED. (III) THAT THE LD. CIT(A)-2, JALANDHAR HAS CONFIRME D THE ADDITION OF RS.30,000/- ON ACCOUNT OF REBATE AND DISCOUNT WHICH IS UNJUSTIFIED. (IV) THAT AUTHORITY HAS CONFIRMED THE ADDITION OF R S.10,000/- ON ACCOUNT OF PENALTY LEVIED BY DETC. ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 2 3. AT THE TIME OF HEARING, THE LEARNED AR SUBMITTED THAT HE WILL NOT BE PRESSING GROUND NO.4, THEREFORE, THE SAME MAY BE DI SMISSED AS NOT PRESSED AND THEREFORE, THE SAME WAS DISMISSED. 4. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE IS A PRIVATE LTD. COMPANY AND IS RUNN ING A HOTEL UNDER THE NAME PARAMOUNT HOTEL PVT. LTD. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER MADE THE FOLLOWING DISALLOWANCES. (I) DISALLOWANCE OUT OF EXPENSES CLAIMED UNDER THE HEAD RENT, RATES & TAXES RS.5,83,825/- (II) DISALLOWANCE OUT OF EXPENSES CLAIMED UNDER THE HEAD, REBATE AND DISCOUNT RS.30,000/- (III) DISALLOWANCE OUT OF EXPENSES CLAIMED UNDER THE HEADS, LEGAL & PROFESSION FEE RS.10,000/- (IV) ADDITION ON ACCOUNT OF CESSATION OF LIABILITY BY INVOKING PROVISIONS OF SECTION 41(1) OF THE ACT. RS.1,41,710/- 5. THE ASSESSING OFFICER OBSERVED THAT OUT OF RS.5, 83,825/- WHICH THE ASSESSEE HAD CLAIMED UNDER THE HEAD RENT, RATES AN D TAXES, THE AMOUNT OF RS.33,4,250/- REPRESENTED RAZINAMA CHARG ES AND WHICH APPEARED TO HAVE BEEN PAID BY ASSESSEE TO MUNICIPAL CORPORATION ON ACCOUNT OF SOME COMPROMISE AND THEREFORE, PENAL IN NATURE AND THEREFORE, HE MADE THE ADDITION OF THE SAID AMOUNT. ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 3 6. AS REGARDS THE AMOUNT OF RS.2,49,575/-, THE ASS ESSING OFFICER OBSERVED THAT ENTIRE EXPENSE DO NOT RELATE TO THE P ERIOD UNDER ASSESSMENT AND MOREOVER ASSESSEE HAD NOT FILED DOCU MENTARY EVIDENT TO SUPPORT THE EXPENSES, THEREFORE, THESE WERE ALSO D ISALLOWED. 7. THE ASSESSING OFFICER FURTHER OBSERVED FROM THE LIST OF SUNDRY CREDITORS THAT AN AMOUNT OF RS.1,41,710/- WAS OUTST ANDING IN THE NAME OF M/S VOLTAS LTD. AND THE AMOUNT WAS OUTSTANDING F ROM EARLIER YEARS. THEREFORE, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN. THE ASSESSEE EXPLAINED THAT THE HOTEL HAD GOT INSTALLED AIR COND ITIONER SYSTEM FROM M/S VOLTAS LTD. AND HUGE PAYMENTS WERE MADE AND THE AMOUNT REPRESENTING OUTSTANDING LIABILITY WAS ON ACCOUNT O F PART PAYMENT DUE TO M/S VOLTAS LTD. WHICH WAS HELD UP DUE TO SOME PROBL EM IN THE AIR CONDITIONING SYSTEM. HOWEVER, THE ASSESSING OFFICER HELD THE SAME TO BE THE LIABILITY WHICH HAD CEASED AND THEREFORE, MADE ADDITION U/S 41(1) OF THE ACT. 8. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASS ESSEE IN THE P&L ACCOUNT HAD CLAIMED AN ACCOUNT OF RS.1,43,565/- ON ACCOUNT OF REBATE ALLOWED, THEREFORE, ASSESSEE WAS SHOW CAUSED. IN R EPLY THE ASSESSEE SUBMITTED THAT THE REBATE AND DISCOUNT ARE ALLOWA BLE BUSINESS EXPENSES AS THESE AMOUNTS WERE OUTSTANDING FROM LAS T SEVERAL YEARS. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.30,000 /- OUT OF TOTAL REBATE AND DISCOUNT HOLDING THAT THE ASSESSEE HAD WRITTEN OFF THE ENTIRE ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 4 AMOUNT STANDING TO THE DEBIT OF A NUMBER OF PERSONS WITHOUT ASSIGNING ANY REASONS AND HAD NOT JUSTIFIED THE SAME. THE ASS ESSING OFFICE ALSO MADE A DISALLOWANCE OUT OF LEGAL AND PROFESSIONAL F EE AMOUNTING TO RS.10,000/- WHICH WAS PAID TO DETC AS PENALTY. 9. AGGRIEVED WITH THE ASSESSMENT ORDER THE ASSESSEE FILED APPEAL BEFORE LEARNED CIT(A) AND ALSO FILED ADDITIONAL EVI DENCE IN RESPECT OF PAYMENT MADE ON ACCOUNT OF TAXES AND RAZINAMA CHARG ES PAID TO MUNICIPAL CORPORATION. THE LEARNED CIT(A) ADMITTED THE ADDITIONAL EVIDENCES, HOWEVER, HE DID NOT AGREE WITH THE CONTE NTIONS OF ASSESSEE THAT THESE EXPENSES WERE ALLOWABLE. IN RESPECT OF A MOUNT OF RS.3,34,250/- PAID AS COMPROMISE CHARGES, THE LED C IT(A) HELD THAT PAYMENT WAS IN THE NATURE OF PENAL EXPENSES AND THE REFORE, HE UPHELD THE ADDITION. SIMILARLY WITH RESPECT TO HOUSE-TAX PAID AMOUNTING TO RS.2,49,575/-, THE LEARNED CIT(A) HELD THAT THE AMO UNT HAS BEEN PAID BY SMT. AMARJEET KAUR IN RESPECT OF PROPERTY AND TH E SAID PROPERTY WAS NOT THE PROPERTY ON WHICH HOTEL WAS BEING RUN B Y THE ASSESSEE. HE FURTHER HELD THAT RECEIPT WAS ISSUED IN THE NAME OF AMARJEET KAUR AND THEREFORE, THE AMOUNT WAS NOT DEDUCTIBLE. IN RESPEC T OF DISALLOWANCE OF RS.30,000/-, THE LEARNED CIT(A) HELD THAT AMOUNTS W RITTEN OFF BY THE ASSESSEE WERE RECOVERABLE FROM A NUMBER OF PERSONS AND IT CAN NOT BE ASSUMED THAT SUCH PERSONS WILL NOT PAY THE AMOUNT P AYABLE TO ASSESSEE. HE FURTHER HELD THAT THE ASSESSEE HAD NOT GIVE N ANY VALID GROUND ON ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 5 THE BASIS OF WHICH THE EXPENSES HAS BEEN CLAIMED AS BAD DEBTS AND THEREFORE, HE UPHELD THE ADDITION OF RS.30,000/-. 10. AS REGARDS THE DISALLOWANCE OF RS.1,41,710/-, T HE LEARNED CIT(A) HELD THAT ASSESSEE HAS BEEN CLAIMING DEPRECIATION O N THE AIR CONDITIONER PLANT INSTALLED BY M/S VOLTAS LIMITED AND THEREFORE , IT CANNOT BE SAID THAT ASSESSEE HAD NOT CLAIMED ANY EXPENSES IN EARLI ER YEARS. THE LEARNED CIT(A) FURTHER HELD THAT ASSESSEE HAS NOT ADVANCED ANY EVIDENCE WHICH WILL SHOW THAT M/S. VOLTAS LIMITED HAS EVER ASKED F OR THE AMOUNT DUE TO IT FROM THE ASSESSEE. THEREFORE, HE UPHELD THE ACTI ON OF LEARNED CIT(A) AND CONFIRMED THE ADDITION U/S 41(1) OF THE ACT. 11. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 12. AT THE OUTSET, LEARNED AR SUBMITTED THAT IN RES PECT OF PAYMENTS MADE UNDER HEAD RENT, RATES THE ASSESSEE HAD MADE P AYMENTS THROUGH CHEQUES. IT WAS SUBMITTED THAT SMT. AMRJIT KAUR, WA S DIRECTOR OF THE ASSESSEE COMPANY AND WAS LOOKING AFTER THE AFFAIRS OF THE COMPANY AND HAD PAID THE TAXES ON BEHALF OF THE COMPANY AND THE REFORE, IT WAS ALLOWABLE EXPENSES. 13. AS REGARDS THE AMOUNT OF RS.3,34,250/-, THE LEA RNED AR SUBMITTED THAT COMPROMISE CHARGES WERE NOT PENAL IN NATURE. I T WAS FURTHER SUBMITTED THAT ASSESSEE COMPANY HAD NOT VIOLATED AN Y PROVISIONS OF LAW AND THEREFORE, THE AMOUNT CANNOT BE SAID TO BE PENA L IN NATURE. RELIANCE IN THIS RESPECT WAS PLACED ON JUDGMENT OF HONBLE D ELHI HIGH COURT IN ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 6 THE CASE OF SOUTH ASIA INDUSTRIES VS. CIT (1981) 13 2 ITR 144(DEL), FOR THE PROPOSITION THAT THE AMOUNT PAID TO THE LANDLORD UN DER A COMPROMISE TO WITHDRAW AN EVICTION SUIT IS AN ALLOWABLE EXPENSES. SIMILARLY RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF PRAKASH COTTON MILLS PVT. LTD. VS. CIT [1993] 201 I TR 684 (SC), FOR THE PROPOSITION THAT WHEREVER ANY AMOUNT IS FOUND TO BE OF A COMPOSITE NATURE, THAT IS, PARTLY PENAL AND PARTLY OF COMPENS ATORY NATURE, THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COMP ONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPE NSATORY IN NATURE. 14. AS REGARDS THE ADDITION CONFIRMED BY LEARNED C IT(A) U/S 41(1) OF THE ACT, THE LEARNED AR SUBMITTED THAT THE AMOUNT R ELATED TO EXPENDITURE INCURRED BY ASSESSEE ON ACCOUNT OF AIR CONDITIONING WORK OF THE HOTEL WHICH WAS CAPITALIZED IN THE BOOKS AND TH E AMOUNT PAYABLE REPRESENTED THE AMOUNT PAYABLE WHICH WAS NOT PAID A S THE COMPANY DID NOT PERFORM THE WORK AS PER CONTRACT. IT WAS SUBMIT TED THAT PROVISIONS OF SEC.41(1) ARE NOT APPLICABLE AS THE AMOUNT PAYABLE TO VOLTAS LTD. BECAUSE EXPENSES HAVE BEEN CAPITALIZED IN THE BOOKS AND WERE NOT CLAIMED AS REVENUE EXPENSES. RELIANCE IN THIS RESPE CT WAS PLACED ON THE FOLLOWING CASE LAWS. (I) CIT VS. OHALL CHAND JIWAN RAM (1981) 131 ITR 32 7 (DEL.) (II) CIT VS. LAL TAXTILES FINISHING MILLS (P) LTD. (1989) 180 ITR 45 (P&H). (III) CIT VS. G.P. INTERNATIONL LTD. (2010) 186 TAX MAN.229 (P&H) (IV) CIT VS. SITA DEVI JUNEJA (SMT.) (2010) 325 ITR 593 (P&H). ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 7 15. AS REGARDS THE ADDITION ON ACCOUNT OF DISALLOWA NCE OUT OF REBATE AND BAD DEBTS, THE LEARNED AR SUBMITTED THAT THE AM OUNT WRITTEN OFF WAS DULY SHOWN AS INCOME IN THE P&L ACCOUNT IN THE PREC EDING YEARS AND THESE ACCOUNTS WERE WRITTEN OFF AS BAD DEBTS ONLY A FTER CONSISTENT EFFORTS OF THE ASSESSEE TO RECOVER OUTSTANDING AMOUNT HAD F AILED. THE LEARNED AR RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 190 TAXMAN.391(SC), FOR THE PROPOSITION THAT CLAIM OF BAD DEBTS IS ADMISSIBLE IF THE SAME IS WRI TTEN OFF IN THE BOOKS OF ACCOUNT. 16. THE LEARNED DR, ON THE OTHER HAND, HEAVILY PLAC ED HIS RELIANCE ON THE ORDER OF AUTHORITIES BELOW. 17. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE AMOUNT OF RS.2.49,575/- WAS PAID BY SMT. AMARJIT KAUR WHO IS DIRECTOR OF THE AS SESSEE COMPANY AND WHO HAD CLAIMED TO HAVE PAID THE AMOUNT ON BEHALF O F THE ASSESSEE COMPANY. THE LEARNED CIT(A) HAS CONFIRMED THIS ADDI TION HOLDING THAT THE PROPERTY ON WHICH TAXES WERE PAID WAS NOT THE S AME ON WHICH HOTEL WAS RUNNING. HOWEVER, WE FIND THAT THAT ON THE RECE IPT ISSUED BY MUNICIPAL CORPORATION, JALANDHAR, BOTH PROPERTIES B EARING NO.B-IV/3- 618/AK AND & 618/R HAS BEEN MENTIONED. THE LEARNED AR HAS SUBMITTED THAT MUNICIPAL TAX WAS PAID IN RESPECT OF PROPERTY NO.618 R ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 8 ON WHICH HOTEL WAS RUNNING, HOWEVER, THIS ASPECT HA S NOT BEEN EXAMINED BY AUTHORITIES BELOW. THEREFORE, WE DEEM I T APPROPRIATE TO REMIT THIS ISSUE TO THE OFFICE OF ASSESSING OFFICER , WHO ON THE BASIS OF RECORD WILL EXAMINE AS TO WHETHER THE TAXES WERE PA ID FOR THE PROPERTY ON WHICH HOTEL WAS RUNNING. HE WILL ALSO FURTHER EXAMI NE AS TO WHETHER SMT. AMARJIT KAUR HAD PAID THE TAXES ON BEHALF OF T HE ASSESSEE COMPANY. IN THIS RESPECT HE CAN EXAMINE THE RELEVANT RENT DE ED IF ANY EXECUTED BETWEEN SMT. AMARJIT KAUR AND THE ASSESSEE COMPANY. THE ASSESSEE IS ALSO FREE TO PROVIDE ANY OTHER EVIDENCE TO SUPPORT THE CLAIM THAT THE TAXES WERE PAID ON BEHALF OF THE ASSESSEE AND WERE INDEED WERE RELATING TO PROPERTY ON WHICH HOTEL WAS RUNNING. 18. AS REGARDS THE AMOUNT OF RS.3,34,250, WE FIND THAT SAID AMOUNT HAS BEEN PAID AS COMPROMISE CHARGES. THE NATURE OF EXPENSES AS TO WHETHER IT WAS COMPENSATORY IN NATURE OR PENAL IN N ATURE HAS NOT BEEN EXAMINED BY ASSESSING OFFICER AS NO EVIDENCE OF HAV ING PAID THIS AMOUNT WAS FILED AND WHEREAS LEARNED CIT(A) HAS HELD THAT THE EXPENSES MAY BE PENAL IN NATURE. HE HAS NOT MADE ANY CATEGORICAL FI NDING THAT EXPENSES WERE PENAL IN NATURE, THEREFORE, WE REMIT THIS ISSU E TO THE OFFICE OF ASSESSING OFFICER, WHO ON THE BASIS OF NATURE OF EX PENSES WILL DETERMINE THE DISALLOWANCE IF ANY. ON EXAMINATION IF THE ASSE SSING OFFICER FINDS THE SAME TO BE PENAL IN NATURE HE WILL DISALLOW AND IF THE SAME ARE FOUND TO BE COMPENSATORY IN NATURE, HE WILL ALLOW IT AND IF THE EXPENDITURE BELONGS TO BOTH CATEGORIES HE CAN BIFURCATE THE SAME TO DET ERMINE THE ALLOWABILITY ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 9 OF THE SAME ON THE BASIS OF NATURE OF EXPENSES THAT IS COMPENSATORY OR PENAL. IN VIEW OF THE ABOVE, GROUND NO.1 OF THE APP EAL IS ALLOWED FOR STATISTICAL PURPOSES. 19. AS REGARDS GROUND NO.2 WITH RESPECT TO ADDITION U/S 41(1)(I), WE FIND THAT IT IS AN UNDISPUTED FACT THAT ASSESSEE HA D NOT CLAIMED IT AS TRADING LIABILITY BECAUSE THE EXPENSES WERE CAPITAL IZED IN THE BOOKS AND WERE NOT CLAIMED AS REVENUE EXPENSES. MOREOVER, WE FIND THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. G. P. INTERNATIONAL LTD. (2010) 186 TAXMAN 229 (P&H) HAS HELD THAT MERELY BE CAUSE LIABILITY WAS OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE PRESU MED THAT SAME HAS CEASED TO EXIST FOR THE PURPOSE OF SECTION 41(1). S IMILARLY THE JURISDICTIONAL PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. SITA DEVI JUNEJA (SMT.) (2010) 325 ITR 593 (P&H) HAS HEL D THAT THE FACT THAT THE LIABILITY WAS OLD WOULD NOT MAKE ANY GROUND FOR ADDITION SO LONG AS THERE WAS NO CESSATION OF LIABILITY BY WRITING BACK THE SAME. IN THE PRESENT CASE THE ASSESSEE HAS NOT WRITTEN BACK THE LIABILITY AND THEREFORE, NO ADDITION CAN BE MADE U/S 41(1) OF THE ACT. IN VI EW OF THE ABOVE, GROUND NO.2 IS ALLOWED. 20. AS REGARDS GROUND NO. 3 WITH RESPECT TO ADDITIO N ON ACCOUNT OF REBATE DISCOUNT, WE FIND THAT THE HONBLE APEX COU RT IN THE CASE OF TRF LTD. VS. CIT (2010) 190 TAXMAN 391 (SC) HAS HELD TH AT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, INFACT HAS BECOME ITA NO.667 (ASR)/2015 ASST. YEA R: 2007-08 10 IRRECOVERABLE & IT WAS SUFFICIENT IF THE ASSESSEE H AD WRITTEN OFF THE DEBTS IN THE BOOKS OF ACCOUNTS. IN THE PRESENT CASE ADMIT TEDLY THE ASSESSEE HAS WRITTEN OFF THE SAID AMOUNT. THEREFORE, THE BASIS O F CONFIRMATION OF ADDITION BY LEARNED CIT(A) IS NOT SUSTAINABLE. IN V IEW OF THE ABOVE, GROUND NO.3 IS ALLOWED. 21. GROUND NO. 4 HAS NOT BEEN PRESSED AND THEREFORE , IT IS DISMISSED AS NOT PRESSED. 22. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 .08.2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED:22.08.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER