DCIT, Circle - 8, Kolkata, Kolkata V. M/s. Peerless Hotels Ltd., Kolkata

ITA 954/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87692 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 29-06-2011
• Court: TRIBUNAL
• Department Lawyers: TKS BISWAS FCA L D
• Assessee Lawyers: PINAKI MUKHERJEE JCITLD
• Keywords: Business expenditure; Opportunity of being heard; Bad and doubtful debts
• Section: 43B; 139

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA ( ) , , [BEFORE HON BLE SHRI MAHAVIR SINGH, JM & HON BLE SHRI SHAMIM YAHYA, AM ] ITA NO. 9 64 /KOL/2011 A.Y 200 3 - 04 M/S. PEERLESS HOTELS LIMITED VS. DCIT, CIRCLE - 8, KOLKATA PAN : AABCP 9484D [ APPELLANT ] [ R RESPONDENT ] ITA NO. 954/ KOL/2011 A.Y 2003 - 04 DCIT, CIRCLE - 8, KOLKATA VS. M/S. PEERLESS HOTELS LIMITED [ APPELLANT ] [ R RESPONDENT ] APPELLANT BY : SHRI TKS BISWAS, FCA, L D.AR RESPONDENT BY : SHRI PINAKI MUKHERJEE, JCIT/LD.DR /DATE OF HEARING : 24 - 02 - 2015 /DATE OF PRONOUNCEMENT: 05 - 0 3 - 2015 / ORDER , SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER TH ESE CROSS A PPEALS ARE FILED BY THE ASSESSEE AND REVENUE EMANAT E OUT OF THE ORDER OF THE LD.CIT (A) DATED 0 9.02.2011 PERTAINING TO ASSESSMENT YEAR 200 3 - 04 . ITA NO. 964/KOL/2011 A.Y 2003 - 04 (BY THE ASESSEE) 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER : - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WAS IT APPROPRIATE FOR THE COMMISSIONER OF INCOME - TAX (APPEALS) TO PASS ORDER CONFIRMING DISALLOWANCE OF BAD DEBTS OF RS.1037344 ALLEGING FAILURE OF THE APPELLANT TO PROVE REVENUE RECO GNITION OF SUCH DEBTS IN EARLIER YEARS WITHOUT CONSIDERING THE STATEMENT SUBMITTED TO SUCH EFFECT DURING THE COURSE OF APPEAL PROCEEDINGS ON 02.09.2009. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WAS IT JUSTIFIED FOR THE COMMISSIONER OF I NCOME TAX (APPEALS) TO CONFIRM DISALLOWANCE OF BAD DEBTS OF RS.1037344 WHICH HAS ITS GERMANE FROM HOTEL OPERATIONS AND OFFERED FOR TAXATION IN EARLIER YEARS. 3. IN THIS CASE THE AO MADE DISALLOWANCE OF BAD DEBTS OF RS.10,37,344/ - BY OBSERVING AS UNDER: - ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 2 IT IS OBSERVED FROM THE PROFIT & LOSS A/C THAT THE ASSESSEE HAS WRITTEN OF BAD DEBITS OF RS.10,37,344/ - . HOWEVER, THE ASSESSEE FAILED TO FURNISH ANY DETAILS IN SUPPORT OF THE CLAIM AND HENCE, THE NATURE OF THE CLAIM COULD NOT BE ASCERTAINED. THEREFORE, THE CLAIM OF BAD DEBTS OF RS.10,37,344/ - IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. 4. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD.CIT(A). THE LD.CIT(A) REPRODUCED THE FOLLOWING SUBMISSIONS OF THE ASSESSEE: - 01. THE STATEME NT TO SUCH EFFECT IS NOT APPROPRIATE IN VIEW OF THE FACT, THAT FULL DETAILS THEREOF WERE FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. DETAILS OF BAD DEBTS WAS FURNISHED BOTH IN ASSESSMENT PROCEEDINGS AND ALSO IN APPEAL PROCEEDING. DEBTS WHICH WER E WRITTEN OFF AS BAD IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003 - 04, WERE OFFERED FOR TAXATION IN RESPECTIVE ASSESSMENT YEARS. 01 . CBDT IN CIRCULAR NO.551 DATED 23.01.19990 AS REPORTED IN (1990) 183 ITR (ST) 7 HELD THAT AMENDMENT HAS BEEN BROUGHT TO DO AWAY WITH ALL THE COMPLICATIONS INVOLVED IN DETERMINING THE ISSUE OF DEDUCTIBILITY OF BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. THE AMENDMENT DECIDED THE YEAR IN WHICH THE DEDUCTION HAS TO BE ALLOWED, AS THE YEAR IN WHICH THE ASSESSEE HAS WRITTEN OFF THE DEBT AS BAD DEBT IN THE BOOKS OF ACCOUNT. THE AMENDMENT HAS ALSO DONE AWAY WITH THE REQUIREMENT OF ESTABLISHING THAT THE DEBT HAS BECOME BAD. 02 . MUMBAI BENCH H (SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT, SPECIAL RANGE 27 V OMAN INTERNATIONAL BANK SAOG (2006) 100 ITD 285 HELD THAT : THE EARLIER EXPRESSION ANY DEBT OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR HAS BEEN CONSPICUOUSLY OMITTED BY THE AMENDMENT AND SUBSTITUTED BY THE EXPRESSION WRITTEN OFF AS IRRECOVERABLE . THE WORDS OF THE LAW ARE CLEAR AND THE INTENT AND PURPOSE OF THE AMENDMENT ARE MANIFEST. THE EARLIER RATE OF ESTABLISHING THAT THE DEBT HAS BECOME BAD IS OMITTED FROM THE PROVISIONS OF THE LAW. THEREFORE THER E IS NO OCCASION OR PROVOCATION TO CONSIDER WHETHER THE ASSESSEE H AS AGAIN TO ESTABLISH THAT THE DEBT HAS BECOME BAD. IN FACT, THERE IS NO PROVOCATION AT ALL TO GO TO THAT EXTENT OF DISCUSSION BECAUSE THE AMENDMENT HAS OMITTED THE EXPRESSION THE DEBT WH ICH IS ESTABLISHED TO HAVE BECOME BAD DEBT . W HEN THE AMENDMENT HAS BEEN BROUGHT TO C U RE A DEFECT AND THE AMENDMENT HAS OMITTED THE EXPRESSION WHICH HAS MADE WAY FOR SUCH DEFECT, THERE IS NO REASON TO PONDER OVER THE PAST AND TO DECIDE THE MATTER STILL UNDER THE LAW AS STOOD PRIOR TO AMENDMENT. 03 . THE AFORESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL HAS BEEN APPROVED BY BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. OMAN INTERNATIONAL BANK (2009) 313 ITR 218. 04 . TH E DETAILS OF BAD DEBT FURNISHED EVIDENCES THAT SUCH DEBTS WERE OFFERED FOR TAXATION IN THE RESPECTIVE YEAR AND ALL SUCH DEBTS CARRIED OVER FROM A LONG PERIOD ARISING OUT OF HOTEL OPERATIONS HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE FINANCIAL Y EAR 2002 - 03 RELEVANT TO ASSESSMENT YEAR 2003 - 04. THE DISALLOWANCE OF BAD DEBTS OF RS.1037344 WAS NOT CORRECT EITHER ON LAW AND ON FACTS. ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 3 CONSIDERING THE ABOVE, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT THE AMOUNT WRITTEN OF AS BAD DEBTS W A S EVER OFFERED BY IT FOR TAXATION. HE FURTHER OBSERVED AS UNDER: - FOR THE ALLOWABILITY OF A DEBT AS BAD IT REQUIRES TO BE PROVED THAT THE AMOUNT OF THAT DEBT WAS TAKEN INTO INCOME OF THE ASSESSEE IN AN EARLIER YEAR. IN THE INSTANT CASE SIN CE THE ASSESSEE DID NOT DO SO, ITS CLAIM OF BAD DEBTS CANNOT BE ALLOWED. FOR THE ABOVE DISCUSSION THE DISALLOWANCE OF RS.10,37,344/ - MADE BY THE AO IS CONFIRMED. THIS GROUND IS, THUS, DISMISSED. 5 . AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6 . WE HAVE HEARD BOTH THE LD. COUNSEL AND PERUSED THE RECORD. WE FIND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.10,37,344/ - AS BAD DEBT. THE ASSESSEE HAS CLAIMED THAT IT HAS BEEN WRITTEN OF AS BAD DEBT , AND AS SUCH CLAIM OF BAD DEBT WRITTEN OFF IS ALLOWABLE. THE REVENUE AUTHORITIES HAVE NOT DRAWN ANY ADVERSE INFERENCE ON ACCOUNT OF BAD DEBT . WE FIND THAT ONCE THE ASSESSEE HAS WRITTEN OFF AS BAD DEBT AS PER LAW EMANATING FROM THE SPECIAL BENCH DECISION IN THE CASE OF OMAN INTERNATIONAL BANK (SUPR A) [ITAT MUMBAI BENCH, MUMBAI] THE SAME IS ALLOWABLE. HOWEVER, IT IS ALSO SETTLED THAT BAD DEBT CLAIMED BY THE ASSESSEE IS ALLOWABLE ONLY IF THE AMOUNT OF BAD DEBT WAS TAKEN INTO ACCOUNT IN THE INCOME OF THE ASSESSEE IN THE EARLIER YEARS. WE FIND THAT THE AO HAD MADE DISALLOWANCE OF BAD DEBT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FURNISH ANY DETAILS IN SUPPORT OF THE CLAIM. WE FIND THAT THE NATURE OF THE CLAIM COULD NOT BE ASCERTAINED IN THE SUBMISSIONS OF THE ASSESSEE REPRODUCED BY THE LD.CIT(A). WE NOTE THAT ASSESSEE HAS CLAIMED BEFORE THE LD. CIT(A) THAT DETAILS OF BAD DEBT WERE FURNISHED BY THE ASSESSEE REGARDING OFFER FOR TAXATION IN THE RESPECTIVE YEAR AND ALL SUCH DEBTS CARRIED OVER FOR LONG PERIODS ARISING OUT OF HOTEL OPERATIONS. HOWEV ER , WE FIND THAT THE DETAILED AS REFERRED IN THE ABOVE SUBMISSIONS HAVE NOT BEEN PRODUCED BY THE ASSESSEE BEFORE US. THE LD. CIT(A) HAS GIVEN FINDING THAT THE ASSESSEE HAS NOT PROVED THAT THE AMOUNT OF BAD DEBTS WAS TAKEN INTO INCOME OF THE ASSESSEE IN THE EARLIER YEARS. WE FIND THAT THERE IS CONTRADICTION BETWEEN THE SUBMISSIONS OF THE ASSESSEE AND THE FINDING OF THE LD.CIT(A) AS TO WHETHER THE DETAILS WERE FURNISHED THAT THE INCOME RELATING TO BAD DEBTS WERE OFFERED FOR TAXATION IN THE EARLIER YEARS. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED OPINION THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF THE AO TO MAKE FACTUAL EXAMINATION OF THE ASSESSEE S CLAIM AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. THIS ISSUE OF ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 7 . THIS APPEAL OF ASSESSEE IN ITA NO.964/KOL/2011 STANDS ALLOWED FOR STATISTICAL PURPOSE. ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 4 ITA NO. 9 5 4/KOL/2011 A.Y 2003 - 04 (BY THE REVENUE ) 8 . THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER : - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING DEDUCTION U/S. 43B OF THE INCOME - TAX, 1961 OF MUNICIPAL TAXES AGGREGATING TO RS.34,91,315/ - PERTAINING TO THE PREVIOUS YEARS 1997 - 98 TO 2001 - 02 AND ACTUALLY PAID IN THE PREVI OUS YEAR 2003 - 04 IN COMPUTING THE TOTAL INCOME FOR THE PREVIOUS YEAR 2002 - 03 RELEVANT TO THE ASSESSMENT YEAR 2003 - 04. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW,, THE LD.CIT(A) ERRED IN ALLOWING EXPENDITURE INCURRED ON ACCOUNT OF DECORAT IVE EXPENSES (RS.2,38,347/ - ), MUSIC & CONCERT (RS.5,51,880/ - ), PEST CONTROL (RS.1,02,950/ - ), PLANT & FLOWER (RS.3,87,527/ - ), CLEANING CHARGES (RS.5,35,280/ - ) AND SECURITY SERVICES (RS.5,910/ - ) DISALLOWED BY THE ASSESSING OFFICER IN THE ABSENCE OF SUPPLIERS BILL OR OTHER RELEVANT EVIDENCE BEING FURNISHED BY THE ASSESSEE IN COURSE OF ASSESSMENT PROCEEDING. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS..23,17,827/ - OF MANAGEMENT FEES FOR THE ASSESSMENT YEAR 2003 - 04. 9 . APROPOS GROUND NO.1 REGARDING ALLOWABILITY OF DEDUCTION U/S. 43B OF THE ACT. IN THIS CASE THE AO HAS MADE DISALLOWANCE OF RS.54, 17, 874/ - BY OBSERVING AS UNDER: - AS PER THE PROFIT & LOSS A/C THE ASSESSEE HAS DEBITED RS.76,41 ,979/ - ON ACCOUNT OF RATES & TAXES. HOWEVER, AS PER POINT 8 OF THE NOTES ON ACCOUNT A SUM OF RS.48,65,858/ - RELATES TO EARLIER YEARS. FROM THE DETAILS OF RATES & TAXES THE FOLLOWING IS REPRODUCED BELOW - 3.03.2003 INCOME TAX [INADMISSIBLE] RS.12,695/ - LUX URY TAX 2000 - 01 RS. 2,186/ - PROFESSIONAL - TAX, 2001 - 02 RS. 380/ - WBST, 1996 - 96 TO 1999 - 2000 RS.82,003/ - 31.03.2003 KOLKATA MUNICIPAL CORPN 1994 - 95, 1995 - 96, 1996 - 97 RS.13,40,266/ - KOLKATA MUNICIPAL CORPN. 1998 - 99 RS. 39,80,344/ - RS.54,17,874/ - AS SEEN FROM ABOVE, EXPENSES OF RS.54,17,874/ - RELATES TO EARLIER YEARS. WHEREAS, PAYMENT OF INCOME - TAX IS AN INADMISSIBLE EXPENDITURE, PROFESSIONAL TAX, LUXURY, W.B.S.T ARE PENAL IN NATURE, AND THOUGH LIABILITY OF KOLKATA MUNICIPAL CORPORAT ION, WHICH RELATES TO EARLIER CRYSTALLIZED IN THE YEARS 1994 TO 1999 NO PAYMENT WAS MADE TO THAT EFFECT. THE ASSESSEE FAILED TO FURNISH ANY SATISFACTORY EXPLANATION OR ANY EVIDENCE TO PROVE THAT THE SAID LIABILITIES CRYSTALLIZED DURING THE CURRENT FINANCIA L YEAR. ANY DELAYED PAYMENT WHICH WAS NOT ADDED BACK U/S. 43B EARLIER IS NOT ALLOWABILITY DEDUCTION EVEN ON PAYMENT BASIS, IF IT IS NOT PROVED THAT THE LIABILITY AROSE DURING THE YEAR. SINCE THE ASSESSEE COMPANY COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CLAIM, EXPENSES OF RS.54,17,874/ - RELATING TO EARLIER YEARS ON ACCOUNT OF RATES & TAXES IS BEING DISALLOWED. ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 5 1 0 . UPON ASSESSEE S APPEAL IN THIS REGARD THE LD.CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER: - I HAVE CAREFULLY PER USED THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE. THE DEMAND REGARDING MUNICIPAL TAXES WAS RAISED BY THE KOLKATA MUNICIPAL CORPORATION IN AUGUST 2002, EVEN THOUGH THE SAME PERTAINED TO 1 ST QUARTER OF THE YEAR 1994 - 95. BEING STATUTORY PAYMENT, THE SAME IS ALLOWABLE ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT. THE AO HAS NOT CONSIDERED SUCH PERTINENT FACT. FURTHERMORE, THE TENANCY ARRANGEMENT UNDER WHICH THE ASSESSEE IS OCCUPYING THE BUILDING AND CARRYING ON BUSINESS OF PEERLESS INN AT KOLKATA EVIDENCES THAT MUNICIPAL TAXES WILL HAVE TO BE PAID BY THE ASSESSEE. FURTHERMORE, SIMILAR PAYMENTS HAVE NOT BEEN DISALLOWED BY THE AO IN THE ASSESSMENTS OF SUCCEEDING ASSESSMENT YEARS THOUGH THE SAME WERE CLAIMED BY THE ASSESSEE. IN THE REMAND REPORT D ATED 30.09.2009, THE AO HAS ADMITTED THAT THE PAYMENT OF LUXURY TAX OF RS.2,186/ - , PROFESSIONAL TAX OF RS.380/ - AND WEST BENGAL S ALES TAX OF RS.82,003/ - WERE ALLOWABLE ON PAYMENT BASIS. SINCE SUCH TAXES HAD BEEN PAID DURING THE RELEVANT PREVIOUS YEAR, THER EFORE, THE SAME ARE ALLOWED AS EXPENDITURE OF THE YEAR UNDER CONSIDERATION. ACCORDINGLY, DISALLOWANCE IN ASSESSMENT TO SUCH EFFECT IS DELETED. MUNICIPAL CORPORATION TAX OF RS.51,60,061/ - WHICH WAS PAID BEFORE THE DUE DATE U/S. 13 9 (1) OF THE ACT FOR FILLIN G THE RETURN OF INCOME STANDS ALLOWED UNDER SECTION 43B OF THE ACT. THE DISALLOWANCE IN ASSESSMENT IN RESPECT OF MUNICIPAL CORPORATION TAX IS THEREBY DELETED. THE INCOME TAX PAID OF R S.12,695/ - IS NOT AN ALLOWABLE EXPENDITURE, THEREFORE, THE DISALLOWANCE OF THE SAME IS CONFIRMED. THIS GROUND IS, HENCE, PART LY ALLOWED. 11. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD. WE FIND THAT THE LD.CIT(A) HAS ALLOWED THE IMPUGNED PAYMENT ON THE BASIS OF PROVISIONS OF SECTION 43B OF THE I.T ACT 1961. THE SAID SECTION MANDATES THAT TH E STATUTORY DUES SHOULD BE ALLOWED IF THEY ARE PAID DURING THE YEAR OR SUBSEQUENTLY PRIOR TO THE DUE DATE OF FILING OF RETURN IRRESPECTIVE TO THE YEAR TO WHICH THE Y PERTAIN. IN THIS CASE , THE LD. CIT(A) HAS GIVEN A FINDING THAT LIABILITY OF MUNICIPAL TAX THOUGH PERTAINING TO EARLIER YEAR CRYSTALLIZED DURING THE YEAR AS NECESSARY BILL WAS RAISED DURING THE YEAR . THIS WAS PAID BEFORE THE DUE DATE OF FILING OF RETUR N. HENCE, THE AMOUNT INVOLVED IS ALLOWABLE AS PER PROVISIONS OF SECTION 43B OF THE ACT. IT IS NOT THE CASE OF THE REVENUE THAT THE CONCERNED PAYMENT HAS NOT BEEN MADE BEFORE THE DUE DATE OF FILING OF RETURN. THE REVENUE HAS TAKEN THE GROUND THAT THE SAID AMOUNT SHOULD NOT BE ALLOWED IF IT WAS PAID IN SUBSEQUENT FINANCIAL YEAR. WE FIND THAT THIS GROUND IS NOT SUSTAINABLE AS SECTION 43B ITSELF MANDATES THAT THE AMOUNT INVOLVED CAN BE ALLOWED IF THE SAME IS PAID AFTER THE CLOSE OF THE FINANCIAL YEAR , BUT BE FORE THE DUE DATE OF FILING OF RETURN. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). WE UPHOLD THE SAME. THIS GROUND OF THE REVENUE IS DISMISSED. ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 6 13. APROPOS GROUND NO.2 REGARDING DISALLOWANCE S ON VARIOUS EXPENSES. ON THIS ISSUE THE AS SESSEE HAD DEBITED RS.55,80,075/ - ON ACCOUNT OF EXPENSES ON APARTMENT AND BOARD. THE AO ASKED THE ASSESSEE TO FURNISH DETAILS AND SUPPORTING. IN RESPONSE TO AO S REQUISITION REGARDING THE DETAILS THE ASSESSEE FURNISHED THE DETAILS FOR ONLY OF RS.14,92,721 / - . SINCE NO EXPLANATION WAS OFFERED REGARDING THE DIFFERENCE OF RS.40,87,354/ - , THE AO ADDED THE SAME AS UNEXPLAINED. 14. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THE DETAILS WHICH WERE REMANDED BY THE LD.CIT(A) TO THE AO. LD. CIT(A) OBSERVED AS UNDER: - THE DETAILS FURNISHED BY THE ASSESSEE WERE SENT TO THE AO FOR HIS COMMENTS . THE AO IN HIS REMAND REPORT DATED 24.05.2007 STATED THAT THOUGH THE DETAILS OF THE EXPENSES HAVE BEEN FURNISHED DURING THE APPELLATE PROCEEDINGS BUT NO NAMES, ADDRE SSES OR BILLS OF SUPPLIERS, ETC. ARE FURNISHED, THEREFORE, EXPENDITURE REMAINED UNVERIFIABLE. FROM THE DETAILS OF THE IMPUGNED EXPENDITURE FILED BY THE ASSESSEE IN RESPECT OF ITS KOLKATA UNIT, IT IS OBSERVED THAT THE EXPENSES INCURRED ARE DIRECTLY RELATE D TO THE OPERATION OF ASSESSEE S HOTEL BUSINESS IN THE SENSE THAT THE EXPENDITURE WAS INCURRED FOR PROVIDING BETTER SERVICES AND BETTER ENVIRONMENT TO ITS GUESTS AND CUSTOMERS WHICH WOULD HAVE A POSITIVE IMPACT ON ITS HOTEL OCCUPANCY AND BUSINESS. THE AO S OBJECTION THAT NO NAMES, ADDRESSES OR BILLS OR SUPPLIERS, ETC. ARE FURNISHED BY THE ASSESSEE IS NOT GOOD BECAUSE THE ACCOUNTS OF THE ASSESSEE ARE SUBJECTED TO AUDIT AND THE AUDITORS HAD NOT MENTIONED ANY SHORT COMING ON THAT ACCOUNT, IN ASSESSEE S BOOKS, IN THEIR AUDIT REPORT. 15. ACCORDINGLY , THE LD.CIT(A) GRANTED PART RELIEF TO THE ASSESSEE . 1 6 . AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 1 7 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD. WE FIND THAT THE LD. CIT(A) HAS NOT ED THAT AO IN HIS REMAND REPORT HAS STATED THAT THOUGH THE DETAILS OF THE EXPENSES HAVE BEEN FURNISHED BUT NO NAMES, ADDRESSES OR BILLS OF SUPPLIERS ETC WERE FURNISHED. THEREFORE, EXPENDITURE REMAINED UNVERIFIABLE. THE LD.CIT(A) HAS DISLODGED THIS FINDIN G OF THE AO BY HOLDING THAT AO S OBJECTION IS NOT GOOD BECAUSE THE ACCOUNTS OF THE ASSESSEE ARE SUBJECTED TO AUDIT AND THE AUDITORS HA VE NOT MENTIONED ANY SHORT COMING ON THAT ACCOUNT, IN ASSESSEE S BOOKS, IN THEIR AUDIT REPORT. WE FIND THAT AO S REMAND REPORT INDICATES THAT THE BILLS SUBMITTED IN THIS REGARD WERE NOT PROPER INASMUCH AS NAMES, ADDRESSES OR BILLS OF SUPPLIERS ETC WERE NOT MENTIONED IN THE VOUCHERS. T HIS FINDING OF THE AO CANNOT BE DISLODGE D ONLY BY PLEA THAT THE ACCOUNTS OF THE ASSESSEE W ERE AUDITED AND THE AUDITORS HAVE NOT POINTED OUT ANY SHORT COMING. INCOME TAX LAWS DO NOT PROVIDE THAT THE AUDITORS REPORT SHOULD BE TREATED AS SACROSANCT AND THE AO NEED NOT MAKE PROPER EXAMINATION. HENCE, ASSESSEE S CLAIM O F EXPENDITURE IN ABSENCE OF P ROPER SUPPORTING BY WAY OF COGENT VOUCHERS CANNOT BE ALLOWED. IN SUCH CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO . ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 7 18. APROPOS GROUND NO.3 REGARDING DISALLOWANCE OF RS.23,17,827/ - OF MANAGEMENT FEES. T HE ASSESSEE HAD SUBMITTED DURING THE ASSESSMENT PROCEEDINGS THAT DURING THE FINANCIAL YEAR 2002 - 03 IT HAD ENTERED INTO AN AGREEMENT WITH SAROVAR PARK PLAZA HOTELS AND RESORTS PVT. LTD FOR OPERATING HOTEL PEERLESS INN AND A SUM OF RS.23,17,827/ - WAS PAID TO THAT COMPANY TOWARDS MANAGEMENT FEES. THE AO OBSERVED FROM THE DETAILS BEFORE HIM THAT THE ASSESSEE HAD ALSO PAID DIRECTOR S REMUNERATION OF RS.7,68,000/ - AND DIRECTOR S FEES OF RS.1,38,000/ - DURING THE RELEVANT YEAR. THE AO ALSO NOTED THAT EMPLOYEE S CO ST WAS ALSO BORNE BY THE ASSESSEE. THEREFORE , THE AO FORMED THE VIEW THAT THE OPERATING AGENCY DID NOT CARRY OUT THE AGREEMENT AND ALSO FOR THE REASON THAT THE ASSESSEE HAD NOT PRODUCED COPY OF THE OPERATING AGREEMENT, THE AO DISALLOWED THE SUM OF RS.2317 827/ - BEING MANAGEMENT FEES PAID TO SAROVAR PARK PLAZA HOTELS & RESORTS PVT. LTD BY TREATING THE SAME TO BE UNVERIFIABLE. 19. DURING THE APPELLATE PROCEEDINGS THE LD.CIT(A) NOTED THAT DURING THE ASSESSMENT PROCEEDINGS , COPY OF AGREEMENT ENTERED INTO WITH SAROVAR PARK PLAZA HOTELS AND RESORTS PVT. LTD WAS FURNISHED AND COPY THEREOF WAS ALSO FURNISHED DURING THE APPELLATE PROCEEDINGS. THE LD.CIT(A) REPRODUCED THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD AND CONCLUDED AS UNDER : - THE ASSESSEE HAS EXPLAIN ED THAT THE AGREEMENT WITH SAROVAR PARK PLAZA HOTELS AND RESORTS PVT. LTD ENTAILS THAT RESPONSIBILITY FOR OPERATION OF HOTEL PEERLESS INN, KOLKATA AND ALSO TO RENDER SUPERVISORY SERVICES. THE AGREEMENT PROVIDES THAT THE OPERATOR SHALL OPERATE THE HOTEL AND SHALL ALSO RENDER SUPERVISORY SERVICES. THE OPERATOR APART FROM EXCLUSIVE OPERATION AND SUPERVISION IS ALSO RESPONSIBLE FOR (1) ARRANGEMENT AND CONTRACT OF ALL ADVERTISING AND PROMOTION; (2) DEVELOPMENT OF STRATEGIES AND PLANS TO ACHIEVE TARGETED ROOM OC CUPANCY REVENUE AND F & B REVENUE ; (3) IMPROVEMENT OF FIT BUSINESS OF THE HOTEL; (4) DESIGNING BROCHURES, LITERATURE AND FACT SHEETS: (5) INTRODUCTION OF SPECIAL PACKAGES THEMES: (6) CONFERENCE BUSINESS; (7) IMPLEMENTATION OF NEW SALES SALES AND MARKETING STRATEGIES AND VARIOUS OTHER SERVICES FOR OVERALL DEVELOPMENT OF BUSINESS ACTIVITIES OF THE HOTEL. IT IS ALSO OBSERVED THAT THE SAID AGREEMENT DID NOT PROVIDE FOR EMPLOYEE S COST TO BE BORNE BY THE OPERATOR. DIRECTOR S REMUNERATION OR DIRECTOR S FEES ARE PAID TO THE DIRECTORS OF THE COMPANY WHICH IS AN ALLOWABLE EXPENDITURE. THE IMPROVEMENT OF BUSINESS POSITION OF THE ASSESSEE IN THE SUBSEQUENT YEARS EVIDENCES THAT ASSOCIATION OF OPERATING AGENT HAS PROVED TO BE ADVANTAGEOUS. IT IS ALSO PERTINENT TO NOTE THAT IN THE ASSESSMENTS OF SUBSEQUENT ASSESSMENT YEARS, NO PART OF PAYMENT OF MANAGEMENT FEES HAS BEEN DISALLOWED. THE PAYMENT OF MANAGEMENT FEES BEING DIRECTLY ATTRIBUTABLE TO INCOME FROM OPERATIONS IS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. THEREFORE, THE DISALLOWANCE OF RS.23,17,827/ - MADE BY THE AO IS DELETED. THIS GROUND IS, HENCE, ALLOWED. 20. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 21. WE HAVE HEARD BOTH THE LD. COUNSEL AND PERUSED THE RECORD. WE FIND THAT THE ASSESSE E HAD ENTERED INTO AGREEMENT WITH SAROVAR PARK PLAZA HOTELS & RESORTS P.LTD FOR OPERATION OF HOTEL OF ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 8 THE ASSESSEE AND ALSO TO RENDER SUPERVISORY SERVICES. THE AMOUNT PAID WAS BASED UPON PERCENTAGE OF GROSS REVENUE AND GROSS OPERATING PROFIT. THE LD. CIT(A ) HAS GIVEN A FINDING THAT AFTER AVAILING SERVICES OF THE ABOVE REFERRED REP UTED HOTEL CHAIN THE BUSINESS POSITION OF THE ASSESSEE IN SUBSEQUENT YEARS IMPROVED. IN SUCH SITUATION, IT CANNOT BE SAID THAT THE AMOUNT PAID AS MANAGEMENT FEE , WAS NOT ALLOWA BLE. THE LD .CIT(A) HAS RIGHTLY HELD THAT MANAGEMENT FEE IS DIRECTLY ATTRIBUTABLE TO INCOME FROM OPERATIONS AND IS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. THERE IS NO BASIS FOR AO S OBSERVATION THAT THE ASSESSEE CANNOT PAY THE MANAGEMENT FEES , IF IT H AS ALSO PAID DIRECTOR S REMUNERATION, DIRECTOR S SALARY, AND ANY OTHER ADMINISTRATION EXPENSES. THERE IS NO BASIS FOR SUCH OBSERVATION OF THE AO. BY NO STRETCH OF IMAGINATION, IT CAN BE INFERRED THAT SINCE THE ASSESSEE HAS PAID MANAGEMENT FEES , H ENCE, SERV ICES OF THE DIRECTORS AND SALARY TO THE STAFF ARE NOT REQUIRE D . IN TH IS RESPECT, WE ALSO REFER TO THE CASE OF CIT VS. WA LC HAND & CO. PVT. LTD REPORTED IN (1967) 65 ITR 381 (SC) . IN THIS CASE, IT WAS HELD THAT IN APPLY ING THE TEST OF COMMERCIAL EXPEDIENC Y FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY MADE OUT FOR BUSINESS REASONABLENESS HAS TO BE JUDGED FROM THE POINT OF VIEW OF BUSINESSMAN. ON THE BASIS OF AFORESAID DISCUSSION AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF MANAGEMENT FEE . ACCORDINGLY, W E UPHOLD THE SAME. 22. THIS APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSE AND APPEAL OF THE REVENUE STANDS PARTLY ALLOWED AS STATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 05 - 03 - 2015 \ SD/ - SD/ - [ , ] [ , ] [ MAHAVIR SINGH , JUDICIAL MEMBER] [ SHAMIM YAHYA, ACCOUNTANT MEMBER / DATED: 05 /0 3 /2015 ITA NO S. 964 & 954/KOL/20 11 A - AM M/S. PEERLESS HOTELS LTD 9 / COPY OF THE ORDER FORWARDED TO: 1 . /APPELLANT - M/S. PEERLESS HOT ELS LTD 12 J L NEHRU ROAD, KOL - 13 . 2 / RESPONDENT : THE DCIT,CIR - 8, AAYKAR BHAWAN, 5 TH FL., P - 7 CHOWRINGHEE SQ, KOL - 69 3 . / CIT, 4 . ( )/ CIT(A), 5 . / DR, KOLKATA BENCHES, KOLKATA *PP /SPS [ / TRUE COPY] / BY ORDER, /ASSTT REGISTRAR