Om Shakthy Hospitalities Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 960/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9024 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: N ANUSH SHANK E R
• Keywords: Assessment record
• Section: 37(1); 37; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBE R AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO.960/MDS/2015 / ASSESSMENT YEAR :2011-2012 M/S. OM SHAKTHY HOSPITALITIES PVT. LTD, T.S. 64, SIDCO INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. [PANAABCO 0105A] VS. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE III(1) CHENNAI. ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI.N. ANUSH SHANKER, C.A. $% ! ' # /RESPONDENT BY : SHRI. R. CLEMENT RAMESH KUMAR, CIT. & ' ' ( /DATE OF HEARING : 26-05-2016 ) ' ' ( /DATE OF PRONOUNCEMENT : 28-06-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-18, CHE NNAI IN ITA NO.201/2014-15, DT 28.01.2015 FOR THE ASSESSMENT YE AR 2011-2012 ITA NO 960/MDS2015 . :- 2 -: PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1 961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ORDE R OF THE A.O. WHEN THE A.O. HAD WRONGLY MADE DISALLOWANCE OF EXPENDITURE, WHICH WAS RIGHTFULLY ALLOWABLE UNDER S ECTION30 TO SECTION 37 OF THE INCOME TAX ACT. 2. THE LEARNED CIT (A) ERRED IN UPHOLDING THE DISALLOW ANCE MADE BY THE LEARNED A.O, IN SPITE OF THE APPELLANT SUBMISSION THAT THE EXPENSES WERE INCURRED DURING T HE TRIAL PERIOD, WHICH IS AFTER THE CONSTRUCTION PERIOD. 3. NOTWITHSTANDING THE ABOVE AND WITHOUT PREJUDICE TO THE ABOVE, WHILE HOLDING THAT THE EXPENDITURE INCURRED ARE OF THE NATURE INCURRED DURING THE CONSTRUCTION PERIOD, THE LEARNED CIT ( A) ERRED IN NOT HOLDING THAT THE SAID EXPENDI TURE IS TO BE TREATED AS CAPITAL IN NATURE AND SHOULD HAVE DIRECT ED THE LD. A.O. ACCORDINGLY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY WAS INCORPORATED ON 16.02.2008 IN THE FINANCIAL YEA R 2007-08 AND IN THE HOTEL BUSINESS AND FILED RETURN OF INCOME ON 3 0.09.2011 WITH LOSS OF =2,33,84,423/-AND CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. A QUESTIONNAIRE W AS ISSUED U/S.142(1) OF THE ACT. IN COMPLIANCE, THE LD. AUTH ORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TI ME AND SUBMITTED DETAILS. THE LD. ASSESSING OFFICER ON PERUSAL OF T HE PROFIT AND LOSS ACCOUNT FOUND THAT ASSESSEE HAS CLAIMED LOSS OF =2, 33,84,423/- UNDER ITA NO 960/MDS2015 . :- 3 -: THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFES SION AND IS CLAIMED TO BE CARRY FORWARD FOR SUBSEQUENT ASSESSMENT YEAR AS THE ASSESSEE COMPANY ACQUIRED THE ASSETS AND ARE PUT TO USE. TH E HOTEL RR INN, TIRUNELVELI, OWNED BY ASSESSEE COMPANY WAS INAUGURA TED ON 02.05.2011. THE DISPUTED ISSUE BEING THE LD. ASSES SING OFFICER IS OF THE OPINION THAT THE HOTEL WAS SINCE INAUGURATED ON 02.05.2011 FALLING IN THE FINANCIAL YEAR 2011-2012 RELEVANT TO ASSESS MENT YEAR 2012- 2013, IT IS CLEAR THAT THE ASSESSEE DID NOT CARRY O N HOTEL BUSINESS IN THE PREVIOUS YEAR AND THE CLAIM OF EXPENDITURE =2,31,20 ,691/- BEING BANK CHARGES AND INTEREST =1,36,65,460/-, SELLING EXPENS ES =1,81,295/-, OPERATIONAL EXPENSES =4,37,645/- AND ADMINISTRATIVE EXPENSES =91,43,665/- CANNOT BE ALLOWED. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT EXPENSES ARE PERTAINING TO THE OPER ATIONS OF THE HOTEL AND REFERRED IN SCHEDULE 13 UNDER OPERATIONAL EXPEN SES INCLUDES ELECTRICITY, KITCHEN AND GAS CYLINDER CHARGES. THE CLAIM BEING THE HOTEL HAS COMMENCED ITS TRAIL RUN WITH THE FACILITIES AN D WAS ALREADY SETUP AND IRRESPECTIVE OF FACT, THE INAUGURATION TOOK PL ACE IN SUBSEQUENT FINANCIAL YEAR. THE LD. ASSESSING OFFICER RELIED ON THE DECISION OF CIT VS. PAEM HOTEL PVT. LTD 209 ITR 616(BOM) AND FORMED AN OPINION ON PERUSAL OF THE EXPENDITURE ON EACH SEGMENT AND DI SCUSSED AT PAGE 4 OF THE ORDER AND CONCLUDED THAT THE NATURE OF EXPEN DITURE CLAIMED BY ITA NO 960/MDS2015 . :- 4 -: THE ASSESSEE COMPANY IN THE PROFIT AND LOSS ACCOUNT INCURRED DURING CONSTRUCTION OF HOTEL BUT NOT INCURRED FOR RUNNING THE HOTEL BUSINESS AND NOT ALLOWED THE CLAIM UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AS PER THE PROVISIONS OF S EC. 28(1) OF THE ACT AND FORFEITED THE CARRY FORWARD OF BUSINESS LOSS O F =2,33,84,423 /- AND PASSED ORDER U/S.143(3) OF THE ACT DATED 31.03.2014 . AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND EXPLAINED THE FACTS OF THE CASE AND RELIED ON THE JUDICIAL DECISIONS AND EMPHASIZED THAT A UNIT CANNOT BE SET TO HAVE SETUP UNLESS IT IS READY TO DISCHARG E THE FUNCTIONS FOR WHICH IT IS SETUP. THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY PERTAINING TO THE HOTEL BUSINESS AND WAS READY TO C OMMENCES ITS OPERATION. THE LD. COMMISSIONER OF INCOME TAX (APP EALS) CONSIDERED THE GROUNDS, SUBMISSIONS, FINDINGS OF THE ASSESSING AUTHORITY AND CONCLUDED AT PARA 7.1 OF HIS ORDER OBSERVING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS DURING CONSTRUCTION OF HOTEL AND NOT FOR RUNNING THE HOTEL, THOUGH THE ASSESSEE HAS ADMITTED CERTAIN SUM OF INCOME ON SCRAP SALES. WITH THESE FINDINGS, THE LD . COMMISSIONER OF INCOME TAX (APPEALS) HAS CONCURRED WITH THE OPINION OF THE LD. ITA NO 960/MDS2015 . :- 5 -: ASSESSING OFFICER AND DISMISSED THE APPEAL OF THE A SSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFO RE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED THE SUBMISSIONS MADE IN THE ASSESSMENT AND APPELLATE PR OCEEDINGS AND RELIED ON THE JUDICIAL DECISIONS. THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE THAT COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER FO R NOT ALLOWING THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE DURIN G TRAIL PERIOD AFTER CONSTRUCTION PERIOD. FURTHER, IF EXPENDITURE HAS TO BE TREATED AS CAPITAL IN NATURE THE SAME SHOULD HAVE BEEN DIRECTED TO THE LD. ASSESSING OFFICER AND THE LD. COMMISSIONER OF INCOME TAX (APP EALS) HAS OVERLOOKED THE DECISIONS OF APEX COURT. THE LD. A UTHORISED REPRESENTATIVE FILED A COPY OF MEMORANDUM OF ASSOCI ATION AND STATUTORY AUDIT REPORT FOR THE PERIOD 2010-2011 WIT H JUDICIAL DECISIONS SUPPORTING THE CASE. FURTHER, ARGUED THAT THE ASSE SSEE COMPANY HAS INCURRED SUBSTANTIAL AMOUNTS FOR OPERATION AND INVE STED IN FIXED ASSETS AND THE EXPENDITURE INCURRED ON OPERATIONAL AND AD MINISTRATIVE WORKS ARE TO BE ALLOWED U/S.37(1) OF THE ACT AND INTERE ST ON BORROWED CAPITAL BE ALLOWED AS DEDUCTION U/S.36 (1)(III) O F THE ACT AND EMPHASIZED ON THE DEFINITION OF PREVIOUS YEAR U/SEC . 3 OF THE ACT AND ITA NO 960/MDS2015 . :- 6 -: PROVISIONS OF SEC. 37(1) OF THE ACT. THE EXPENDITUR E INCURRED B Y THE ASSESSEE COMPANY FALLS WITHIN THE PROVISIONS AND WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE FA CT THAT THE ASSESSEE COMPANY HOTEL WAS INAUGURATED ON 02.05.2011 BEING A USPICIOUS DATE TO COMMENCE SALES. THE ACTIVITIES OF THE BUSINESS NEED NOT START SIMULTANEOUSLY AND THE ASSESSEE COMPANY HAS INCURRE D EXPENDITURE IN THE PREVIOUS YEAR THOUGH INAUGURATION HAS TAKEN PLA CE IN NEXT FINANCIAL YEAR. THE ASSESSEE COMPANY DID COMPLETED CONSTRU CTION OF THE HOTEL DURING PREVIOUS YEAR 2010-2011 AND THERE IS A DISTI NCTION BETWEEN SETTING UP OF BUSINESS AND COMMENCEMENT OF BUSINESS AND ALWAYS THE COMMENCEMENT SUCCEEDS AFTER SETTING UP OF BUSINESS AND PRAYED FOR ALLOWING THE APPEAL. 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF ASSESSING AUTHORITY AND ARGUED THAT THE P ROCEEDINGS ARE DISTINCT AND RELIED ON THE LOWER AUTHORITIES FINDIN GS AND VEHEMENTLY OPPOSED THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHO RISED REPRESENTATIVE CONTENTIONS ARE FOCUSSED ON THE BUSINESS OF THE A SSESSEE COMPANY WHICH IS ALREADY SETUP AND THE EXPENDITURE IS INCU RRED BEFORE ITA NO 960/MDS2015 . :- 7 -: COMMENCEMENT OF COMMERCIAL OPERATIONS AND THESE OP ERATONAL EXPENDITURE ARE IN THE NATURE OF REVENUE AND TO BE ALLOWABLE U/S.37(1) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE DEMON STRATED BY FILING PAPER BOOK WERE THE MAIN OBJECTS OF THE ASSESSEE IS TO CARRY ON THE BUSINESS OF HOTELS, RESTAURANT, MOTELS, RUNNING CAF ETERIAS, CATERERS, TAVERNS WITH FACILITIES, SUCH AS PERMIT ROOMS, REFR ESHMENT ROOMS, LODGING HOUSE KEEPERS, LICENCE VICTUALLERS AND DRIV E-ON-RESTAURANTS, MOTEL HOLIDAY CAMP, LEISURE CENTER, CARAVAN SITE, C AF BEER HOUSE, BOARDING AND LODGING HOUSE KEEPERS, CLUBS, BATHS, D RESSING ROOM, LAUNDRIES, READING, WRITING AND NEWSPAPER ROOMS, LI BRARIES, GROUNDS AND PLACE OF AMUSEMENTS AND RECREATION, SPORT, ENTE RTAINMENT AND APARTMENT HOUSE PROPRIETORS. THE ASSESSEE COMPAN Y WAS INCORPORATED UNDER THE COMPANIES ACT IN THE YEAR 20 08 AND LD. AUTHORISED REPRESENTATIVE DREW ATTENTION TO THE INC OME TAX RETURN FILED FOR THE ASSESSMENT YEAR 2011-12 AND THE STAT EMENT OF TOTAL INCOME COMPUTED BASED ON STATUTORY AUDITED ACCOUNTS FOR THE PERIOD FROM 01.04.2010 TO 31.03.2011 AND THE ASSESSEE COMP ANY HAS DISCLOSED IN SCHEDULE -10 OTHER INCOME =7,374/- PE RTAINS TO SALE OF SCRAP. FURTHER CLAIMED EXPENDITURE UNDER FOUR HEAD INGS, BANK CHARGES AND INTEREST, SELLING EXPENSES, OPERATIONAL AND ADM INISTRATIVE EXPENSES AND CARRY FORWARD AS BUSINESS LOSS. THE DEFINITION OF SETUP OF BUSINESS ITA NO 960/MDS2015 . :- 8 -: IN THE COMMON UNDERSTANDING IS DIFFERENT. BUT ACTU ALLY WHEN THE BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE O PERATIONS, IT IS TERMED AS BUSINESS IS SETUP AND ALL THE EXPENSES I NCURRED AFTER SETTING UP OF BUSINESS AND BEFORE COMMENCEMENT OF BUSINESS ARE REVENUE IN NATURE AND TO BE ALLOWED. THE LD. AUTHORISED REPR ESENTATIVE PRODUCED LEDGER ACCOUNTS COPIES OF EXPENDITURE INCL UDING WORK IN PROGRESS TO SUBSTANTIATE THE CLAIM THAT MAXIMUM INF RASTRUCTURE HAS BEEN BUILT FOR THE HOTEL AND THE BUSINESS IS SET U P. FURTHER ON A QUERY FROM THE BENCH, THE LD. AUTHORISED REPRESENTATIVE S UBSTANTIATED THE CLAIM OF BUSINESS SETUP IN PREVIOUS YEAR AND FILE D A LETTER OF THE ASST. COMMISSIONER, THATCHANALLOOR WARD OFFICE, TIRUNELVE LI DIST, NO.E1/3730/2010, DATED 02.06.2010 ISSUED FOR UNDERG ROUND LICENCE AND ALSO PERMISSION OF FOOD ADULTERATION LICENCE. THE LD. DEPARTMENTAL REPRESENTATIVE OBJECTED TO THE FRESH EVIDENCE FILED OUT OF ASSESSMENT RECORDS AND THE LD. ASSESSING OFFICE R WAS DEPRIVED TO VERIFY THE DOCUMENT AND SATISFYING WITH GENUINENESS OF BUSINESS OPERATIONS ARE SETUP. SO, CONSIDERING THE APPARENT FACTS, MATERIAL ON RECORD AND THE FRESH EVIDENCE FILED, WE SET ASIDE T HE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO VERIFY THE EVIDENCE FI LED BEFORE TRIBUNAL THAT THE BUSINESS HAS BEEN SETUP AND EXPENDITURE BE ING REVENUE IN ITA NO 960/MDS2015 . :- 9 -: NATURE AND WE REMIT THE ENTIRE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 28TH DAY OF JUNE, 2016 AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) # $% / ACCOUNTANT MEMBER ( & . ' ( ) (G. PAVAN KUMAR) ) $% / JUDICIAL MEMBER *& / CHENNAI + / DATED:28TH JUNE, 2016. KV , ' $'./ 0/' / COPY TO: 1 . ! / APPELLANT 2. $% ! / RESPONDENT 3. 1' () / CIT(A) 4. 1' / CIT 5. /4 5 $'6 / DR 6. 5 7 8 & / GF