M/s.Escapade Resorts P.Ltd, Cochin V. DCIT, Ernakulam

ITA 677/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64919 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 10-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2010
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Keywords: Rejection of books of accounts; Depreciation; Revenue expenditure; Capital expenditure
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 677/COCH/2010 ASSESSMENT YEAR: 2007-08 M/S. ESCAPADE RESORTS (P) LTD., W/ISLAND, C/O CASINO HOTEL, KOCHI-682 003. [PAN:AAACE 5978L] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), RANGE-1, ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NO. 658/COCH/2010 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), RANGE- 1, ERNAKULAM. VS. M/S. ESCAPADE RESORTS (P) LTD., W/ISLAND, C/O CASINO HOTEL, KOCHI-682 003. [PAN:AAACE 5978L] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) ASSESSEE BY SHRI G.SARANGAN, SR. COUNSEL, FOR SHRI P.K.SASIDHARAN, CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 10/10/2012 DATE OF PRONOUNCEMENT 16/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE O RDER DATED 15-09-2010 PASSED BY THE LD. CIT(A)-II, KOCHI AND THEY RELATE TO THE ASSESSM ENT YEAR 2007-08. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD . CIT(A) IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER: I.T.A. NOS.677 & 658/COCH/2010 2 (A) DISALLOWANCE OF A PORTION OF INTEREST PAID TO D IRECTORS/SHAREHOLDERS UNDER SEC.40A(2)(A) OF THE ACT. (B) AD-HOC DISALLOWANCE OF RS.5.00 LACS MADE TOWARD S THE DEFICIENCIES FOUND IN THE VOUCHERS MAINTAINED FOR MISCELLANEOUS EXPENSES. 3. THE REVENUE IS ASSAILING THE DECISION OF THE L D. CIT(A) IN DELETING THE FOLLOWING DISALLOWANCES: (A) DISALLOWANCE OF CLAIM OF CURRENT REPAIRS OF RS . 1,50,95,476/-. (B) DISALLOWANCE OF A PORTION OF DEDUCTION CLAIMED U/S. 80IB. (C) DISALLOWANCE OF DEDUCTION OF PREMIUM ON REDEMP TION OF DEBENTURES OF RS. 5.00 LACS. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE-COMPANY IS ENGAGED IN HOTEL BUSINESS. IT HAS OPERATED THREE HO TEL UNITS DURING THE YEAR UNDER CONSIDERATION. IT FILED ITS RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS.5.32 CRORES. THE ASSESSING OFFI CER, HOWEVER, COMPLETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME AT RS.9. 09 CRORES BY MAKING VARIOUS ADDITIONS. THE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED. HENCE, BOTH THE PARTIES ARE IN APPEAL BEFORE US ON THE ISSUE DECIDED AGAINST EACH OF THEM. 5. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSE E. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF A PORTION OF INTEREST PERTAINING TO DIRECTORS/SHAREHOLDERS. THE ASSESSEE PAID INTEREST ON THE AMOUNT RECEIVED FROM DIRECTORS /SHAREHOLDERS AT THE RATE OF 14%. THE AO TOOK THE VIEW THAT THE MARKET RATE OF INTERE ST IS ONLY 12%. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE INTEREST RATE OF 14%, AS EXCESSIVE AND RESTRICTED THE DEDUCTION TO THE AMOUNT CALCULATED AT THE RATE OF 1 2%, WHICH RESULTED IN A DISALLOWANCE OF RS. 3,77,146/-. THE LD. CIT(A) SUSTAINED THE SA ID DISALLOWANCE. I.T.A. NOS.677 & 658/COCH/2010 3 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEPOSITS ACCEPTED BY THE ASSESSEE-COMPANY ARE REGULATED BY THE GOVERNMENT UN DER THE COMPANIES ACT. THE RATE OF INTEREST PAYABLE ON SUCH DEPOSITS IS ALSO P RESCRIBED BY THE GOVERNMENT FROM TIME TO TIME. THOUGH THE SAID DEPOSIT RULES ARE NO T APPLICABLE TO THE DEPOSITS ACCEPTED FROM DIRECTORS/SHARE HOLDERS, YET THE RATE OF INTER EST PRESCRIBED UNDER THOSE RULE CAN BE TAKEN AS GUIDANCE. HE FURTHER SUBMITTED THAT THE G OVERNMENT HAS PRESCRIBED THE RATES RANGING FROM 11% TO 15% AT VARIOUS POINTS OF TIME. HE FURTHER SUBMITTED THAT THE RATE OF INTEREST AGREED TO BE PAID AT THE TIME OF A CCEPTING DEPOSITS SHALL PREVAIL TILL THE TIME OF MATURITY, EVEN IF THE RATE OF INTEREST IS R EDUCED SUBSEQUENTLY. ACCORDINGLY, HE SUBMITTED THAT THE RATE OF INTEREST OF 14% IS VERY MUCH REASONABLE AND IT CANNOT BE CONSIDERED AS EXCESSIVE. ON THE OTHER HAND, THE LD. D.R STOOD BY THE ORDER OF THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E AND PERUSED THE RECORD. THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 14% ON DE POSITS RECEIVED FROM DIRECTORS/SHAREHOLDERS. WE NOTICE THAT THE ASSESSI NG OFFICER HAS RESTRICTED THE SAME TO 12% WITHOUT BRINGING ANY MATERIAL ON RECORD. AS SU BMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE RATE OF INTEREST IS PRESCRIBED ON PUB LIC DEPOSITS UNDER THE COMPANIES ACT FROM TIME TO TIME. ACCORDINGLY, IT WAS FURTHER SUB MITTED THAT THE GOVERNMENT HAS FIXED THE RATE OF 15% ON PUBLIC DEPOSITS AT SOME POINT OF TIME. THOUGH THE DEPOSIT RULES ARE NOT APPLICABLE TO THE FUNDS ACCEPTED FROM THE DIREC TORS/SHARE HOLDERS, YET WE FIND FORCE IN THE CONTENTIONS OF THE ASSESSEE. THE PRESCRIBED RATE OF INTEREST UNDERGOES FREQUENT CHANGES AND AS POINTED OUT BY THE LD A.R, THE GOVER NMENT HAS FIXED THE RATE OF INTEREST AT 15% ALSO AT SOME POINT OF TIME. IN THI S FACTUAL SCENARIO, THE RATE OF INTEREST AT 14% GIVEN BY THE ASSESSEE, IN OUR VIEW, DOES NOT APPEAR TO BE UNREASONABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION PERTAINING TO THE SAME. 8. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE REL ATES TO THE DISALLOWANCE OF RS. 5.00 LACS MADE BY THE ASSESSING OFFICER FOR THE DEF ICIENCIES FOUND IN THE VOUCHERS MAINTAINED FOR MISCELLANEOUS EXPENSES. IT IS NOTIC ED THAT THE ASSESSEE HAD CLAIMED THE I.T.A. NOS.677 & 658/COCH/2010 4 MISCELLANEOUS EXPENSES TO THE TUNE OF RS. 56.36 LAC S AND DUE TO THE DEFICIENCIES NOTICED, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 5.00 LACS ON AD-HOC BASIS. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASS ESSING OFFICER DID NOT POINT OUT ANY SPECIFIC DEFECT IN THE VOUCHERS AND THE OBSERVATION S MADE ARE GENERAL IN NATURE. HOWEVER, WE NOTICE THAT THE ASSESSEE COULD NOT DEMO NSTRATE THAT THERE WAS NO DEFICIENCY IN THE MAINTENANCE OF VOUCHERS. WHEN SP ECIFICALLY ASKED WHETHER SELF MADE VOUCHERS WERE PREPARED, THE LD. COUNSEL FAIRLY AGRE ED THAT SUCH VOUCHERS ARE PREPARED FOR SOME OF THE EXPENSES, WHERE THE ASSESSEE COULD NOT GET EXTERNAL VOUCHERS. IT IS A COMMON KNOWLEDGE OF EVERYBODY THAT THE SELF MADE VO UCHERS ARE NOT SUSCEPTIBLE FOR VERIFICATION. AT THE SAME TIME, WE NOTICE THAT THE AO HAS NOT SEGREGATED THE QUANTUM OF EXPENSES SUPPORTED BY SELF MADE VOUCHERS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE IMPUGNED ISSUE WOULD MEET THE END S OF JUSTICE, IF THE ADDITION IS RESTRICTED TO RS.3.00 LAKHS. WE ORDER ACCORDINGLY, THE ORDER OF THE LD. CIT(A) ON THIS ISSUE STANDS MODIFIED ACCORDINGLY. 9. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REV ENUE. THE FIRST ISSUE PERTAINS TO THE DISALLOWANCE OF CURRENT REPAIRS EXPENSES AMOUNT ING TO RS. 1.50 CRORES. IN THIS REGARD, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNAL IN THE CASE OF HOTEL & ALLIED TRADES (P) LTD. IN I.T.A. NOS. 678 & 657/2010: 13. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF CURRENT RE PAIRS AMOUNTING TO RS.73,71,453/-. THE FACTS RELATING THERETO ARE TH AT THE ASSESSEE CONSTRUCTED A BUILDING IN THE EARLIER YEARS ON THE LAND TAKEN ON LEASEHOLD BASIS. THE ASSESSEE DULY CAPITALIZED THE COST OF BUILDING AND CLAIMED DEPRECIATION THEREON. THE WRITTEN DOWN VALUE OF THE SAID BUILDING STOOD AT R S.73,71,4533/- AS AT THE BEGINNING OF THE YEAR UNDER CONSIDERATION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED THE WDV VALUE OF THE BUILDING AS REVENUE EXPENSES, BY FOLLOWING THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS LTD (293 ITR 432). IT APPEARS THAT THE ASSESSEE CLAIMED THE WDV VALUE OF THE BUILDING AS EXPENDITURE, ONLY IN ITS STATEMENT OF TOTAL INCOME COMPUTED FOR THE PURPOSES OF INCOME TAX, I.E., IT DID NOT TREAT THE BUILDING COST AS EXPENDITURE IN ITS BOOKS OF ACCOUNT. HOWEVER, THE ASSESSEE DID NOT CLAIM DEPRECIATION ON THE WDV VALUE OF THE BUILDING. TH E AO DISALLOWED THE SAID CLAIM BY HOLDING THAT THE COST OF CONSTRUCTION OF BUILDI NG IS CAPITAL IN NATURE. HOWEVER, THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT REFERRED SUPRA. I.T.A. NOS.677 & 658/COCH/2010 5 14. BEFORE US, THE LD D.R POINTED OUT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION OF BUILDING IS A CAPITAL EXPENDITURE, EVEN IF THE SAID BUILDING WAS PUT UP ON THE LEASE HOLD LAND. THE L D D.R FURTHER SUBMITTED THAT THE IMPUGNED EXPENDITURE WAS NOT INCURRED DURING T HE YEAR UNDER CONSIDERATION AND HENCE, EVEN IF FOR A MOMENT THE CLAIM OF THE A SSESSEE IS ACCEPTED, THE SAME CANNOT BE TREATED AS THE EXPENDITURE OF THE YEAR U NDER CONSIDERATION. 15. WE HAVE HEARD THE RIVAL CONTENTIONS ON THI S ISSUE. FIRST OF ALL, THE ASSESSEE HAS NOT SHOWN AS TO HOW THE PROVISIONS OF EXPLANATION 1 TO SEC.32 ARE NOT ATTRACTED TO THE FACTS OF THE INSTANT CASE. S ECONDLY, THE ASSESSEE HAS FAILED TO SHOW THE PARITY OF FACTS BETWEEN THE INSTANT CA SE AND THE CASE LAW RELIED ON BY IT. THIRDLY, WHICH IN OUR VIEW IS VERY VITAL, THE IMPUGNED EXPENDITURE WAS NOT INCURRED DURING THE YEAR UNDER CONSIDERATION. THE BUILDING WAS CONSTRUCTED ON THE LEASE HOLD LAND IN THE EARLIER YEARS. ACCORD INGLY, WE FIND FORCE IN THE CONTENTION OF THE REVENUE THAT THE EXPENDITURE INC URRED IN ANY OF THE EARLIER YEAR CANNOT BE CLAIMED AS REVENUE EXPENDITURE DURING TH E YEAR UNDER CONSIDERATION. THE LD CIT(A) HAS OMITTED TO CONSIDER THE PERIOD O F INCURRING THE IMPUGNED EXPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. IT WAS SUBMITTED BEFORE US THAT THE FACTS AND CIRCU MSTANCES SURROUNDING THE CLAIM OF RS.1.50 CRORES MADE IN THE INSTANT CASE ARE ALSO ID ENTICAL WITH THE ONE CONSIDERED IN THE ABOVE CITED CASE. WE NOTICE THAT THE ASSESSEE DID NOT CLAIM DEPRECIATION ON THE BUILDING TERMED AS LEASEHOLD BUILDING BY AFFIXING FOLLOWING NOTES IN THE DEPRECIATION STATEMENT:- NOTE: DEPRECIATION ON LEASEHOLD BUILDING (OPG. WDV = RS.1,50,95,476?-) IS NOT CONSIDERED, AS THE ENTIRE AMOUNT IS TAKEN AS REVENU E EXPENDITURE, IN VIEW OF DECISION OF MADRAS HIGH COURT. WE HAVE ALREADY TAKEN A VIEW ON AN IDENTICAL ISSUE IN THE CASE OF M/S HOTEL & ALLIED TRADES (P) LTD, REFERRED SUPRA. CONSISTENT WITH TH E VIEW TAKEN THEREIN, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION OF THE IMPUG NED AMOUNT AS REVENUE EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY W E SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO. 10. THE NEXT ISSUE RELATES TO THE COMPUTATION OF DEDUCTION U/S. 80IB OF THE ACT. THE ASSESSEE CLAIMED DEDUCTION U/S. 80IB OF THE ACT IN RESPECT OF THE HOTEL LOCATED AT MARARI BEACH. THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAS PREPARED ONE CONSOLIDATED I.T.A. NOS.677 & 658/COCH/2010 6 AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT F OR INCOME TAX PURPOSES. BEFORE THE ASSESSING OFFICER, THE ASSESSEE CLAIMED THAT IT HAS MAINTAINED SEPARATE ACCOUNTS FOR EACH OF THE THREE HOTEL UNITS OWNED BY IT. HOWEVER , THE ASSESSING OFFICER TOOK THE VIEW THAT THE INTER-UNIT DIVERSION OF FUNDS CANNOT BE RU LED OUT. HE NOTICED THAT THE PROFIT DECLARED BY THE ASSESSEE IN RESPECT OF MARARI BEACH UNIT WAS 44.53% OF TOTAL RECEIPTS AS AGAINST THE AVERAGE PROFIT OF 36.6% IN RESPECT O F ALL THE THREE UNITS. ACCORDINGLY, THE ASSESSING OFFICER FELT THAT THE ASSESSEE HAS DECLAR ED MORE PROFITS IN RESPECT OF THE UNIT FOR WHICH THE DEDUCTION U/S 80IB IS AVAILABLE AND A CCORDINGLY COMPUTED THE PROFIT FROM THE MARARI BEACH UNIT BY APPLYING THE AVERAGE PROFI T RATE OF 36.6% ON THE TOTAL RECEIPTS AND THUS RESTRICTED THE DEDUCTION U/S. 80IB ON THE SAID AMOUNT. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE WITH THE FOLLOWI NG OBSERVATIONS: I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CA SE. THE APPELLANTS CLAIM WAS ONLY IN RESPECT OF THE UNIT MARARI BEACH RESORT AN D THE CLAIM OF THE APPELLANT IS BASED ON THAT IT HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR EACH UNIT. THE APPELLANT ALSO SUBMIT THAT UNIT WISE FINANCIAL STA TEMENT WAS ALSO SUBMITTED DURING THE COURSE OF HEARING BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS OBSERVED THAT ONLY ONE CONSOLIDATED BALANCE SH EET AND PROFIT AND LOSS ACCOUNT WAS SUBMITTED FOR INCOME TAX PURPOSES IS S TRONGLY DENIED BY THE APPELLANT BY SAYING THAT THE STATEMENT OF THE ASSE SSING OFFICER IS NOT FACTUALLY CORRECT. DURING THE COURSE OF APPELLATE PROCEEDIN GS ALSO THE APPELLANT HAS PRODUCED BEFORE ME SEPARATE ACCOUNT FOR THE MARARI BEACH RESORT WITH THE UNDERTAKING THAT THE SAME WERE FURNISHED BEFORE TH E ASSESSING OFFICER. I HAVE PERUSED THE SAME. AS REGARDS ANOTHER OBSERVATION OF THE ASSESSING OF FICER THAT DIVERSION OF FUNDS AMOUNT UNITS CANNOT BE RULED OUT. IT HAS BEEN SEE N FROM THE ASSESSMENT ORDER NOTHING CONCRETE HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THERE WAS SOME DIVERSION OF FUNDS AMONG UNITS RUN BY THE APPELLANT. HENCE, THE SUSPICION OF THE ASSESSING OFFICER IS NOT CORROBOR ATED BY ANY CONCRETE EVIDENCE. THE APPELLANT HAS ALSO SUBMITTED THAT EACH UNIT OF THE COMPANY IS HAVING DIFFERENT STANDARD AND THEREFORE, THE ELEMENT OF P ROFITABILITY CANNOT BE SAME. THE APPELLANT SUBMIT THAT THE MARARI UNIT IS SPECI ALLY DESIGNED TO CATER TO THE TASTE AND REQUIREMENTS OF INTERNATIONAL TOURISTS A ND, THEREFORE, THE PROFITABILITY OF SUCH UNIT IS HIGHER AS COMPARED TO OTHER UNITS. TH E ASSESSING OFFICER HAS DISMISSED THE STATEMENT BY OBSERVING THAT THE DECL ARATION OF HIGHER PROFITS FROM MARARI UNIT IS COLOURABLE DEVICE TO REDUCE THE TAX LIABILITY. ON A CAREFULLY CONSIDERATION OF THE ABOVE, I AM OF THE VIEW THAT THE ASSESSING OFFICER IGNORED THE FACT THAT SEPARATE BOOKS OF ACCOUNTS WHICH IS MANDATORY CONDITION FOR A UNIT TO BE ELIGIBLE FOR DEDUCTION U/S. 80IB, HAS BEEN D ULY COMPLIED WITH BY THE I.T.A. NOS.677 & 658/COCH/2010 7 ASSESSEE TO CLAIM FOR DEDUCTION FOR MARARI UNIT. EVEN ON EXAMINATION OF BOOKS OF ACCOUNTS, THE ASSESSING OFFICER HAS NOT BEEN AB LE TO POINT OUT ANY INSTANCE WHICH COULD SUPPORT THE ASSESSING OFFICERS VIEW T HAT THERE HAS BEEN AN ATTEMPT TO UNDERSTATE THE EXPENDITURE IN THE UNIT MARARI B EACH. COUPLED WITH THIS, THE ASSESSING OFFICER BEFORE DISBELIEVING AND NOT FULL Y ALLOWING THE CLAIM FOR DEDUCTION U/S. 80IB HAS NOT REJECTED THE BOOKS OF ACCOUNTS. THE HONBLE COURT HAS HELD IN MANY CASES AND IT IS A SETTLED LAW THA T PARTIAL REJECTION OF BOOKS OF ACCOUNTS FOR DISALLOWING THE CLAIM OF THE ASSESSEE IS NOT PERMISSIBLE. HENCE, HAVING CONSIDERED ABOVE, I AM OF THE CONSID ERED VIEW THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S. 80IB AS CLAIMED BY THE MARARI UNIT. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 11. WE NOTICE THAT THE ASSESSING OFFICER HAS RESTRI CTED THE AMOUNT FROM THE MARARI BEACH UNIT ON THE BASIS OF CERTAIN PRESUMPTIONS WIT HOUT BRINGING ANY MATERIAL ON RECORD. THE ASSESSING OFFICER FAILED TO EXAMINE TH E CLAIM OF THE ASSESSEE THAT IT HAS MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR EACH OF T HE THREE UNITS, THOUGH FOR THE PURPOSES OF INCOME TAX, ONE CONSOLIDATED AUDITED BA LANCE SHEET AND PROFIT AND LOSS ACCOUNT WAS PREPARED. THE ASSESSEE HAS ALSO SUBMIT TED THAT THE CUSTOMERS OF MARARI BEACH UNIT ARE MAINLY FOREIGN TOURISTS AND ACCORDIN GLY SUBSTANTIATED THE HIGHER PROFIT DECLARED IN THAT UNIT. THE QUESTION WHETHER SEPARA TE BOOKS OF ACCOUNT IS NECESSARY FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SEC. 80HH A ND 80I WAS CONSIDERED BY THE HONBLE SUPREME COURT IN ITS RECENT DECISION IN THE CASE OF BONGAIGAON REFINERY AND PETROCHEMICAL LIMITED IN CIVIL APPEAL NO. 1679 OF 2 004 AND THE APEX COURT, VIDE ITS ORDER DATED 05-09-2012 HAS HELD AS UNDER: AT THE OUTSET, IT MAY BE STATED THAT THE IMPUGNED ORDER OF THE HIGH COURT IS CRYPTIC. ORDINARILY, WE WOULD HAVE REMITTED THE CA SE TO THE HIGH COURT FOR DE NOVO CONSIDERATION. THE HIGH COURT HAS RELIED UPO N ITS EARLIER JUDGMENT, WHICH, IN OUR VIEW, IS NOT APPLICABLE ON ALL FOURS TO THE FACTS OF THE PRESENT CASE. HOWEVER, TO PUT AN END TO THE LITIGATION, WE ARE O F THE VIEW, THAT THOUGH NEITHER SEC. 80HH NOR SEC. 80I (AS IT THEN STOOD) STATUTOR ILY OBLIGED BRPL TO MAINTAIN ITS ACCOUNTS UNIT-WISE AND THAT IT WAS OPEN TO BRPL, T O MAINTAIN ITS ACCOUNTS IN A CONSOLIDATED FORM IN ORDER TO PUT AN END TO THE LI TIGATION BETWEEN THE TAX DEPARTMENT AND THE PSU WE REMIT THE CASE TO THE AS SESSING OFFICER TO ASCERTAIN WHETHER THE ASSESSEE HAD CORRECTLY CALCULATED ITS NET PROFITS FOR ASSESSMENT YEAR 1992-93 IN RESPECT OF ITS PETROCHEMICAL UNIT FOR T HE PURPOSES OF CLAIMING DEDUCTION U/S. 80HH AND 80I OF THE I.T. ACT, 1961. IN THE PRESENT CASE, BRPL HAS PREPARED ITS FINANCIAL STATEMENTS ON CONSOLIDA TED BASIS FROM WHICH IT HAS WORKED OUT UNIT-WISE NET PROFITS. IF NOT DONE, IT COULD BE DONE BY THE AUDITORS EVEN TODAY FROM THE CONSOLIDATED BOOKS OF ACCOUNTS . ONCE SUCH WORKING IS I.T.A. NOS.677 & 658/COCH/2010 8 CERTIFIED BY THE AUDITORS THE NET PROFIT COMPUTATI ON (UNIT-WISE) COULD BE PLACED BEFORE THE ASSESSING OFFICER WHO CAN FIND OUT WHET HER SUCH PROFIT(S) IS PROPERLY WORKED OUT ON THAT BASIS COMPUTE DEDUCTION U/S. 80 HH/80I. THUS, THE HONBLE APEX COURT HAS APPROVED THE SPLIT TING UP OF PROFITS FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80HH/80I, EVEN IF THE A SSESSEE DID NOT MAINTAIN SEPARATE ACCOUNTS. IN THE INSTANT CASE, THE ASSESSEE HAS MAI NTAINED SEPARATE ACCOUNTS FOR EACH OF THE HOTEL UNITS AND LATER IT HAS CONSOLIDATED TH EM IN ORDER TO PREPARE A SINGLE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. AS POINTED OUT THE LD CIT(A), THE AO HAS NOT POINTED OUT ANY MISTAKE IN THE ACCOUNTS MAINTAINED FOR THE MARARI BEACH UNIT. ACCORDINGLY, IN VIEW OF THE FOREGOING DISCUSSIONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN HOLDING THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IB OF THE ACT AS PER THE RESULTS DECLARED IN THE SEPAR ATE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. HOWEVER, WE NOTICE THAT THE AO DID N OT EXAMINE THE SAID CLAIM WITH REFERENCE TO THE BOOKS OF ACCOUNT. ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THE CLAIM U/S 80-IB VIS-A-VIS THE BOOKS OF ACCOUNT AND ALLOW THE SAME. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 12. THE LAST ISSUE IN THE APPEAL OF THE REVENUE REL ATES TO THE DISALLOWANCE OF PREMIUM PAID ON REDEMPTION OF DEBENTURES. THE ASSE SSEE PAID A SUM OF RS. 5.00 LACS AS PREMIUM PAID ON REDEMPTION OF DEBENTURES, BUT TH E ASSESSING OFFICER DISALLOWED THE SAME BY TREATING IT AS CAPITAL IN NATURE. THE LD. CIT(A) AGREED WITH THE CONTENTIONS OF THE ASSESSEE THAT PREMIUM PAID ON REDEMPTION OF DE BENTURES IS REVENUE IN NATURE. 13. THE HONBLE HIGH COURT OF BOMBAY HAS CONSIDERED THE NATURE OF PREMIUM PAID UPON REDEMPTION OF DEBENTURES IN THE CASE OF COMMIS SIONER OF INCOME TAX-2, MUMBAI VS. RAYMOND LTD IN ITA NO.188 OF 2011 AND THE HIGH COURT, VIDE ITS ORDER DATED 20-03- 2012 HAS HELD AS UNDER:- 9. IN THE PRESENT CASE THE ASSESSEE ISSUED NON CON VERTIBLE DEBENTURES IN THE FINANCIAL YEAR ENDING ON 31 MARCH 1985, WHICH WERE LIABLE TO BE REDEEMED IN FINANCIAL YEAR 1991-92 AT A PREMIUM OF RS. 15 LAKHS . THE AMOUNT WHICH WAS EXPENDED BY THE ASSESSEE TOWARDS THE PREMIUM OF RS. 15 LAKHS IS, PROPERLY CONSTRUED, A LIABILITY WHICH THE ASSESSEE INCURRED FOR THE PURPOSE OF ITS BUSINESS IN ORDER TO OBTAIN THE USE OF THE FUNDS FOR THE PER IOD COVERED BY THE ISSUE OF NON I.T.A. NOS.677 & 658/COCH/2010 9 CONVERTIBLE DEBENTURES. THE PAYMENT OF A PREMIUM A T THE END OF THE TERM WHICH IS FIXED FOR THE NON CONVERTIBLE DEBENTURES A ND UPON WHICH THE DEBENTURES ARE TO BE REDEEMED IS THE FLIP SIDE OF A SITUATION WHERE THE ASSESSEE ISSUES DEBENTURES AT A DISCOUNT. IN THE CASE OF A DISCOUNT, THE ASSESSEE HAS THE BENEFIT OF THE FUNDS WHICH ARE REALISED FROM THE IS SUE OF THE DEBENTURES, OVER THE TERM OF THE DEBENTURES. IN THE CASE OF A PREMIU M WHICH THE ASSESSEE PAYS, THE PREMIUM PAID ON THE DATE FIXED FOR REDEMPTION I S IN CONSIDERATION OF THE USE OF THE FUNDS BY THE ASSESSEE UNTIL SUCH DATE AS THE DEBENTURES FALL DUE FOR REDEMPTION. THE PRINCIPLE WHICH HAS BEEN LAID DOWN BY THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. (SUPRA) (* 225 ITR 802) TO HOLD THAT THE ADDITIONAL LIABILITY EQUIVALENT TO A DISCOUNT R EPRESENTS REVENUE EXPENDITURE MUST, BY ANALOGY OF REASONING, APPLY TO THE PREMIUM WHICH IS PAID BY THE ASSESSEE AT THE TIME OF REDEMPTION OF THE DEBENTURE S. IN THAT VIEW OF THE MATTER, THE QUESTION WHICH HAS BEEN FRAMED BY THE R EVENUE WOULD HAVE TO BE ANSWERED IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSES SEE. THE ACTUAL PREMIUM PAID UPON THE REDEMPTION OF DEBENTURES WOULD HAVE T O BE CLASSIFIED AS REVENUE EXPENDITURE IN TERMS OF THE DECISION OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPN. TD. (SUPRA). THE HONBLE CALCUTTA HIGH COURT, IN THE CASE OF CIT VS. TUNGABHADRA INDUSTRIES LTD (207 ITR 553) HAS HELD THAT THE LIABILITY TO PAY TH E PREMIUM WOULD ARISE WOULD ARISE ONLY IN THE YEAR OF REDEMPTION OF THE DEBENTURES AN D THE ENTIRE LIABILITY ON PAYMENT OF PREMIUM IS ALLOWABLE IN THAT YEAR. DERIVING SUPPOR T FROM THESE TWO DECISIONS, WE HOLD THAT THE PREMIUM PAID BY THE ASSESSEE UPON REDEMPTI ON OF DEBENTURES IS ALLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY, WE UPHOLD THE OR DER OF LD CIT(A) ON THIS ISSUE. 14. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E AND BY THE REVENUE ARE PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 16-11-20 12. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 16TH NOVEMBER, 2012 GJ I.T.A. NOS.677 & 658/COCH/2010 10 COPY TO: 1. M/S. ESCAPADE RESORTS (P) LTD., W/ISLAND, C/O CA SINO HOTEL, KOCHI-682 003. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1( 1), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4.THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN