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

ITA 962/KOL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87690 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 30-06-2011
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: T K S BISWAS
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE HON BLE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA AM ] I.T.A NO.96 2/KOL/2011 ASSESSMENT YEAR: 2005 - 06 D.C.I.T., CIRCLE - 8 , VS. M/S. PEERLESS HOTELS LTD. KOLKATA KOLKATA (APPELLA NT) ( RESPONDENT) (PAN: AABCP 9484 D) FOR THE APPELLANT : SHRI PINAKI MUKHERJEE, JCIT FOR THE RESPONDENT : SHRI T.K.S.BISWAS, FCA DATE OF HEARING : 24 .02 .2015. DATE OF PRONOUNCEMENT: 03.03.2015. ORDER PER SHRI SHAMIM YAHYA, AM : THIS APPEA L BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) - VIII , KOLKATA DATED 09.02.2011 AND PERTAIN S TO ASSESSMENT YEAR 2005 - 06. 2. THE GROUNDS OF APPEAL READ AS UNDER : - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW , THE LD. CIT(A) ER RED IN DELETING THE DISALLOWANCE OF RS.30,18,748/ - MADE BY THE ASSESSING OFFICER IN THE ABSENCE OF EVIDENCE OF INCURRENCE OF ANY EXPENDITURE ON ACCOUNT OF GUEST COMPLIMENTARY AND GUEST SUPPLIES FOR THE ASSESSMENT YEAR 2005 - 06. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, MODIFY, ALTER OR RESCIND ANY OF THE GROUND OF APPEAL AT THE TIME OF HEARING OF THE CASE. 3. IN THIS CASE AO MADE DISALLOWANCES OF EXPENSES UNDER THE HEAD GUEST COMPLIMENTARY AND GUEST SUPPLIES BY OBSERVING AS UNDER : AS PER THE PROFIT & LOSS A/C. THE ASSESSEE HAD DEBITED RS.73,10,746/ - ON ACCOUNT OF EXPENSES ON APARTMENT AND BOARD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED DETAILS FROM WHEREIN IT IS NOTICED THAT SUM OF RS.22,14,839/ - WAS CLAIMED ON ACCOUNT OF GUEST COMPLIMENTARY AND FURTHER RS.8,03,909/ - WAS CLAIMED ON ACCOUNT OF GUEST SUPPLIES. THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION IN RESPECT. HOWEVER, NO DETAILS/EXPLANATION HAVE BEEN FURNISHED IN THIS REGARD, AND, HENCE, THE AFORESAID EXPENSES OF R S.30,18,748/ - REMAINED UNEXPLAINED. IN THE ABSENCE OF ANY DETAIL OR EVIDENCE THE SAID AMOUNT OF RS.30,18,748/ - IS BEING DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. ITA NO. 962/KOL/2011 M/S.PEERLESS HOTELS LTD . A.YR. 2005 - 06 2 3.1. UPON ASSESSEE S APPEAL THE LD. CIT(A) REPRODUCED ASSESSEE S SUBMISSIONS A ND THE AO S COMMENTS THEREON AS UNDER : 01. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO IN THE APPEAL PROCEEDINGS, DETAILS WERE SUBMITTED IN THE FORM OF LEDGER PRINTOUTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE NATURE OF EXPENSES INCURRE D WERE FULLY EXPLAINED. 02. THE DETAILS OF GUEST COMPLIMENTARY OF RS.2214839 IDENTIFY EXPENSES INCURRED FOR COMPLIMENTARY BREAKFAST AND MPA. MPA IN HOTEL TERMINOLOGY REPRESENTS MODIFIED AMERICAN PLAIN SO AS TO IDENTIFY COMPLIMENTARY SERVICE OF ONE MAJOR M EAL EITHER LUNCH OR DINNER. 03. HOTEL INDUSTRY IS A VERY COMPETITIVE BUSINESS. THE WORLD WISE POSITION REFLECTS THAT EACH AND EVERY HOTEL IS STRIVING HARD TO MAINTAIN HEALTHY OCCUPANCY RATE. THE FACTOR FOR SUCCESS IN THE BUSINESS OF HOTEL LIES ON IMPROVED OCCUPANCY RATE. THE ROOMS ARE OFFERED TO VISITING GUESTS WITH COMPLIMENTARY BREAKFAST. THIS IS THE SETTLED PRACTICE THE WORLD OVER. ROOM RENT IS ACCORDINGLY CREDITED IN THE ACCOUNTS ON GROSS RENT. THE COST OF COMPLIMENTARY BREAKFAST IS ACCORDINGLY DEBITED IN THE ACCOUNTS. 04. SOME OF THE GUESTS AND MORE PARTICULARLY BUSINESS EXECUTIVES OF DIFFERENT COMPANIES LIKE COAL INDIA, GLEN MARK PHARMACEUTICALS ETC., WHO ARE REGULAR CUSTOMERS, ARE ALSO OFFERED ROOMS WITH COMPLIMENTARY BREAKFAST AND COMPLIMENTARY ONE MAJOR MEAL EITHER LUNCH OR DINNER. IN SUCH CASES, ROOM RENT ARE CREDITED IN THE ACCOUNTS AT GROSS RATE WITH CORRESPONDING DEBIT IN GUEST COMPLIMENTARY ON ACCOUNT OF COMPLIMENTARY BREAKFAST AND ONE MAJOR MEAL. 05. THE FACT OF COMPLIMENTARY BREAKFAST AND ONE MAJOR MEAL IS APPARENT FROM DETAILS SUBMITTED IN THE FORM OF LEDGER PRINT OUTS. FURTHER MORE ROOM RENTS BEING CREDITED IN THE ACCOUNTS ON GROSS BASIS AND REFLECTED AS SUCH IN THE PROFIT AND LOSS ACCOUNTS HAS BEEN OFFERED FOR TAXATION. THE GROSS ROOM RENT INCLUDES COST OF COMPLIMENTARY BREAKFAST AND ONE MAJOR MEAL DEBITED IN THE ACCOUNTS AS GUEST COMPLIMENTARY. DISALLOWANCE THEREOF IN ASSESSMENT EPITOMIZES THAT INCOME TO SUCH EXTENT HAS SOUGHT TO BE TAXED TWICE. ACCORDINGLY THE DISALLOWANCE OF GUEST COMPLI MENTARY OF RS.2214839 IN ASSESSMENT WAS NOT APPROPRIATE. 06. VISITING GUESTS ARE ALSO COMPLIMENTED WITH SHAVING SETS, SHAMPOO, TOILET SOAPS, FRESHNERS, ROOM SLIPPERS AND OTHER UTILITIES OF PERSONAL CARE. ALL SUCH FACILITIES ARE PROVIDED TO GUEST TO ENJOY HOME COMFORT AND TO HAVE A FEELING OF PERSONAL TOUCH AND CARE. THE TOTAL COST, THEREFORE, OF RS.803909 IS NOT SIGNIFICANT AS FAR AS INCOME FROM HOTEL OPERATIONS ARE CONCERNED. IT HOWEVER BRINGS ADDITIONAL PLEASURE AND COMFORT TO ALL VISITING GUEST WHICH I S RECIPROCATED THROUGH INCREASED INCOME FROM HOTEL OPERATIONS. 07. NO PART OF EXPENSES HAS BEEN DISALLOWED AS BOGUS AND INFLATED. THE EXPENSES INCURRED TOWARDS GUEST COMPLIMENTARY AND GUEST SUPPLIES AGGREGATING TO RS.3018748 WERE DIRECTLY RELATED TO HOTEL BUSINESS. THE EXPENSES INCURRED ON ACCOUNT OF GUEST COMPLIMENTARY AND GUEST SUPPLIES AGGREGATING TO RS.30.18 LACS REPRESENTS 1.96% OF INCOME FROM HOTEL OPERATION OF R S.1536.09 LACS. THE EXPENSES SO INCURRED BEING DIRECTLY RELATED WITH INCOME FROM HOTEL OP ERATIONS, THE SAME IS FULLY ALLOWABLE AS BUSINESS EXPENDITURE. A COPY OF THE SUBMISSIONS OF THE ASSESSEE WAS SENT TO THE A.O. FOR HIS COMMENTS. THE A.O. OFFERED FOLLOWING COMMENTS IN HIS REMAND REPORT SUBMITTED VIDE HIS LETTER DATED 19.11.2009 : 1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESEE WAS ASKED TO GIVE DETAILS OF GUEST COMPLIMENTARY AND GUEST SUPPLIES. HOWEVER, ASSESSEE DID NOT GIVE DETAILED BREAKUP OF THESE EXPENSES INSTEAD LEDGERS WERE SUBMITTED. EVEN DURING THE COURSE OF REMAND REPORT PROCEEDINGS, THE ASSESEE HAS ONLY SUBMITTED LEDGERS. NO ITA NO. 962/KOL/2011 M/S.PEERLESS HOTELS LTD . A.YR. 2005 - 06 3 INFERENCE CAN BE DRAWN FROM LEDGER BECAUSE THE NARRATION DOES NOT CONTAIN ANYTHING IN DETAIL. NARRATION OF EXPENSES IS VERY GENERAL IN NATURE. SO, THE UNDERSIGNED IS OF THE VIEW THAT ASSESSEE FAILED TO GIVE DETAILED BREAK UP OF EXPENSES ON APARTMENT AND BOARD OF RS.30,18,748/ - WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. 3.2. CONSIDERING THE ABOVE THE LD. CIT(A) OBSERVED THAT GUEST COMPLIMENTARY WERE MAINLY IN THE NATURE OF FOOD AND BEVERAGES AN D GUEST SUPPLIES RELATE TO COMPLIMENTARY SUPPLY OF SUNDRY COSMETICS. THE LD. CIT(A) OBSERVED THAT DURING THE APPELLATE PROCEEDINGS THE AR OF THE ASSESSEE WAS REQUIRED TO PRODUCE EVIDENCE IN SUPPORT OF COMPLIMENTARY BREAKFA ST AND MODIFIED AMERICAN PLAN. THA T I N RESPONSE THE A.R. SUBMITTED A COPY OF ITS TARIFF PLAN WHICH SHOWS THAT COMPLIMENTARY BREAKFAST WA S INCLUDED IN THE ROOM TARIFF. THAT F ROM THE DETAILS SUBMITTED BY THE ASSESSEE BEFORE THE A.O. AS WELL AS BEFORE HIM, ITS CLAIM OF GUEST COMPLIMENTARY AND GUEST SUPPLIES IS FOUND TO BE DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE, THEREFORE, THE SAME IS TO BE ALLOWED AS EXPENDITURE. THAT A CCORDINGLY, THE ASSESSEE S CLAIM OF EXPENDITURE OF RS.30,18,748/ - IS DELETED AND THIS GROUND IS ALLOWED. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE COUNSEL AND CAREFULLY PERUSED THE RECORDS. WE FIND THAT PRINCIPALLY AS REGARDS ALLOWABILITY OF EXPENDITURE DEBITED ON ACCOUNT OF FOOD AND BEVERAGES UNDER THE HEAD GUEST COMPLIMENTARY E XPENSES AND EXPENDITURE ON ACCOUNT OF SUPPLY OF SUNDRY COSMETICS UNDER THE HEAD GUEST COMPLIMENTARY THE SAME IS ALLOWABLE. HOWEVER, WE NOTE THAT AS REGARDS GUEST COMPLIMENTARY BEFORE THE LD. CIT(A) THE ASSESSEE HAS SUBMITTED THAT IT WAS ON ACCOUNT OF COMP LIMENTARY BREAKFAST AND THE ACCOUNTING ENTRY MADE WAS GUEST COMPLIMENTARY IS DEBITED AND ROOM RENTS ARE CREDITED. THIS HAS BEEN JUSTIFIED ON THE GROUND THAT ROOM RENT IS DEBITED ON THE GROSS AMOUNT WHICH IS INCLUSIVE OF COMPLIMENTARY BREAK FAST AND OR MEAL . NOW IN THIS REGARD WE FIND FROM THE PAPER BOOK SUBMITTED BY THE ASSESSEE THAT THERE IS A GUEST COMPLIMENTARY LEDGER. A SA MPLE ENTRY IN THE SAID LEDGER ACCOUNT IS AS UNDER : - PARTICULARS DEBIT GUEST COMPLIMENTARY 1,53,285.50 BUSINESS PROMOTIO N 55,119.33 DR STAFF WELFARE 27,154.53 DR F&B COST ADJUSTMENT 2,35,559.36 CR AMOUNT ADJD AGST. COST OF MAP, BREAKFAST, COMPLIMENTARY AND EDM. ITA NO. 962/KOL/2011 M/S.PEERLESS HOTELS LTD . A.YR. 2005 - 06 4 4.1. WE NOTE THAT THIS ASPECT HAS NEITHER BEEN EXPLAINED BY THE ASSESSEE NOR APPRECIATED BY THE LD. CIT( A). THE SCHEME OF ENTRY SHOWN AS ABOVE SHOWED THAT IT IS NOT A SIMPLE MATTER AS DEBITING GUEST COMPLIMENTARY ON ACCOUNT OF FOOD AND BEVERAGES AND CREDITING ROOM RENT. IT CANNOT BE SAID THAT THE LD. CIT(A) HAS PROPERLY UNDERSTOOD THE SCHEME OF ASSESSEE S E NTRY. BEFORE US ALSO EXCEPT PRODUCING COPY OF THE LEDGER ACCOUNT THE LD. COUNSEL OF THE ASSESSEE COULD NOT EXPLAIN IN DETAIL THE IMPACT OF THE ENTRIES IN THE AFORESAID COMPLIMENTARY LEDGER ACCOUNT. HOW THE GUEST COMPLIMENTARY ACCOUNT IS AFFECTED BY BUSINES S PROMOTION, STAFF WELFARE AND F&B COST ADJUSTMENT HAS NOT BEEN EXPLAINE D. IN SUCH CIRCUMSTANCES IN OUR CONSIDERED OPINION THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF AO. AO IS DIRECTED TO EXAMINE IN DETAIL THE NATURE OF GUEST COMPLIMENTARY LEDGER ACCOUN T AND THE ENTRIES MADE THEREIN . AFTER DETAIL EXAMINATION OF THE LEDGER COMPLIMENTARY ACCOUNT HE IS DIRECTED TO CONSIDER THE ALLOWABILITY OF THE EXPENDITURE BOOKED/AFFECTED THROUGH THIS ACCOUNT. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPOR TUNITY OF BEING HEARD. 5. IN THE RESULT THE APPEAL FILED BY THE REVENUE ALLOWED FOR STATISTICAL PURPOSES. ORDE R PRONOUNCED IN THE OPEN COURT ON 0 3.03.2015. SD/ - SD/ - [ MAHAVIR SINGH ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 03.03.2015. R.G.(.P.S.) C OPY OF THE ORDER FORWARDED TO: 1 . M/S. PEERLESS HOTELS LIMITED, 12, J.L.NEHRU ROAD, KOLKATA - 700013. 2 D.C.I.T., CIRCLE - 8 , KOLKATA. 3 . CIT(A) - V II I , KOLKATA 4. CIT - KOLKATA. 5. CIT - DR, KOLKA TA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA NO. 962/KOL/2011 M/S.PEERLESS HOTELS LTD . A.YR. 2005 - 06 5