Bharat Hotel Ltd., New Delhi V. ACIT, New Delhi

ITA 99/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65489 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PIRTHI LAL; MRS ANURADHA MISRA
• Assessee Lawyers: RUPESH JAIN GAURAV JAIN; SATISH SACHDEVA
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A NEW DELHI BEFORE SHRI AD JAIN, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO: 99/DEL/2012 ASSESSMENT YEAR : - 2008-09 BHARAT HOTELS LTD. VS. ACIT,CIRCLE 2(1) BARAKAMBA LANE C.R.BLDG., NEW DELHI NEW DELHI PAN: AAACB 1298 E AND ITA NO: 521/DEL/2012 ASSESSMENT YEAR : - 2008-09 ACIT, CIRCLE 2(1), NEW DELHI VS. BHARAT HOTELS LTD. , NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RUPESH JAIN, GAURAV JAIN, ADV. AND SHRI SATISH SACHDEVA, A.R. DEPARTMENT BY : MRS.ANURADHA MISRA, CIT, DR & SHRI PIRTHI LAL, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST T HE ORDER OF THE LD.CIT(A)-V, NEW DELHI DATED 30.11.2011 FOR TH E A.Y. 2008-09. 2. FACTS OF THE CASE:- THE ASSESSEE IS A PUBLIC LI MITED COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF RUNNING HOTELS. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED RETURN OF INCOME O N 29.9.2008 DECLARING TOTAL INCOME OF RS. 122,70,74,393/-, WHICH WAS PROC ESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. SUBSEQUENTLY, THE RETURN WAS 2 SELECTED FOR SCRUTINY AND, ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED VIDE ORDER DT. 2.12.2010 AT TOTAL INCOME OF RS. 131,634,95,950/- AFTER MAKING SEVERAL ADDITIONS/DIS ALLOWANCES AS FOLLOWS:- I. LEAVE ENCASHMENT RS. 1,65,35,210/- II. UNDER SECTION 14A RS. 3,38,96,253/- III. CROCKERY & CUTLERY RS. 3,16,16,713/- IV. COMMISSION & BROKERAGE U/S 40(A) RS. 7 2,92,127/- V. DEPRECIATION ON WORLD TRADE CENTRE & WORLD TRADE TOWER RS. 77,186/-. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE FIRST APPELLATE AUTHORITY WHICH GRANTED PART RELIEF. ON THE ISSUES THAT WERE DECIDED IN FAVOUR OF THE REVENUE THE ASSESSEE HAS FILED AN APPEAL BEFORE US, AND ON THE ISSUES WHICH WERE DECIDED IN FAVOUR OF THE ASSESSEE- THE REVENUE IS IN APPEAL BEFORE US. 4. WE FIRST TAKE UP THE ASSESSEES APPEAL I.E ITA 9 9/DEL/2010 WHICH IS ON THE FOLLOWING GROUNDS. 1. THAT THE LD.CIT(A) HAS ERRED INREJECTING THE EX PENSE CLAIMED BY THE ASSESSEE COMPANY ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS.1,65,35,210/-. IT IS CONTENDED THAT THE ABOVE AMOUNT OF PROVISION FOR LEAVE ENCASHMENT PENDING FOR PAYMENT AS ON 31.3.2008 HAS BEEN CLAIME D AS AN EXPENSE BY FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COU RT IN THE CASE OF EXIDE INDUSTRIES LTD. AND ANOTHER VS UNION OF INDIA AND O THER, 292 ITR 470 (CAL.). 5. WE HAVE HEARD MR.RUPESH JAIN, THE LD.COUNSEL FOR THE ASSESSEE AND MRS.ANURADHA MISHRA, THE LDCIT(A), DR ON BEHAL F OF THE REVENUE. 3 6. THE HONBLE CALCUTTA HIGH COURT HAS IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA (2007) 164 TAXMA N 9 (CAL) STRUCK DOWN S.43B(F) OF THE ACT AS ARBITRARY AND U NCONSCIONABLE. 7. THIS DECISION HAS BEEN FOLLOWED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN LATRIX LTD.VIDE IT S JUDGEMENT DT. 7 TH JANUARY,2012. THE HONBLE SUPREME COURT WHILE ADMI TTING A SPECIAL LEAVE PETITION IN SLP 22889/2000 JUDGEMENT DT. 8 TH MAY,2009 IN THE CASE OF M/S EXIDE INDUSTREIS LTD. AND ANOTHER (SUPR A) HAS OBSERVED AS FOLLOWS:- WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, DURING THE PENDENCY OF THE CIVIL APPEAL. PAY TAX AS IF S.43B(F) IS ON T HE STATUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. IN VIEW OF THE ABOVE OBSERVATIONS, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO BOTH PARTIES TO FOLLOW TH E ABOVE SAID DIRECTION. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. COMING TO THE APPEAL OF THE REVENUE I.E. ITA 521/DE L/2010, THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.3,38,96,253/- MADE BY THE ASSESSING OFFICER UNDE R SECTION 14A OF THE INCOME TAX ACT, 1961. 4 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF RS.3,16,16,713/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF CHANGE IN METHOD OF ACCOUNTING FOR CROCKERY AND CUTLERY. 3. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE DISALLOWANCE OF DEPRECIATION ON WORLD TRADE CENTRE AND WORLD TRA DE TOWER AMOUNTING TO RS.77,186/-.. 9. ON DISALLOWANCE U/S 14A MRS.ANURADHA MISHRA DR AWS THE ATTENTION OF THE BENCH TO THE SUBMISSIONS MADE BY T HE ASSESSEE BEFORE THE AO, WHEREIN THE DISALLOWANCE WAS ALTERNATIVELY QUANTIFIED AT RS.10,15,608/- AND SUBMITTED THAT THE CIT(A) IGNORE D THE SUBMISSIONS OF THE ASSESSEE AND HAS WRONGLY CONCLUDED THAT NO DISA LLOWANCE IS WARRANTED U/S 14A OF THE INCOME TAX ACT, 1961. 10. IN REPLY THE LD.COUNSEL FOR THE ASSESSEE SUBMIT S THAT: A) NO SATISFACTION HAS BEEN RECORDED BY THE AO PRIOR T O MAKING A DISALLOWANCE U/S 14A; B) THE ASSESSEE HAS SUBSTANTIAL INTEREST FREE FUNDS, W HICH WAS INVESTED IN SHARES AND HENCE NO DISALLOWANCE CAN BE MADE OF EXPENDITURE OF INTEREST. THAT ALL THE INVESTMENTS ARE MADE IN SUBSIDIARY COMPANIES FOR CONTROLLING PURPOSE AND HE NCE NO EXPENDITURE CAN BE ATTRIBUTABLE FOR THE SAME; C) THAT THE SUBMISSIONS BEFORE THE AO, REFERRED TO BY THE CIT, D.R. WERE ONLY WITHOUT PREJUDICE AN ALTERNATE SUBMISSION S; D) THAT AT BEST THE DISALLOWANCE CAN BE RESTRICTED TO RS.10,15,608/-. RELIANCE WAS PLACED ON VARIOUS CASE LAWS. 5 11. IN REPLY THE LD.D.R. SUBMITS THAT THE SATISFACT ION OF THE AO HAS BEEN RECORDED IN THE ASSESSMENT ORDER AND AS TH E AO HAD APPLIED THE ACT AND RULES, THE QUESTION OF ANALYZING EACH E XPENDITURE DOES NOT ARISE. 12. AFTER HEARING THE RIVAL SUBMISSION, PERUSING TH E MATERIAL AVAILABLE ON RECORD, WE HOLD AS FOLLOWS:- THE ASSES SEE RELIED UPON THE ORDER OF THE MUMBAI E BENCH OF THE TRIBUNAL IN M/S SIPRA ENGINEERING PVT.LTD. VS DCIT IN ITA 7353/MUM/2010 O RDER DT. 29 TH AUGUST, 2012. THE TRIBUNAL HAS HELD AS FOLLOWS:- 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND WE ARE IN AGREEMENT WITH THE AR THAT RULE 8D CANNOT BE APPLIED, KEEPING IN VIEW THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ AND BOYCE MFG. CO.LTD. (SUPRA). COMING NOW, TO THE ISSUE WHE THER AT ALL THE PROVISIONS OF SECTION 14A ARE APPLICABLE, IN ALL CA SES, WE MUST OBSERVE, WE HAVE TO EXAMINE THE FACTS OF THE CASE. WE HAVE SEEN FROM APB THAT THE ASSESSEE HAD MADE INVESTMENT IN ITS SUBSIDIARY M/S VEENA CASTING AND COMPONENTS P.LTD. AS BACK AS ASSESSMENT YEAR 2002-03 AND THERE HAVE BEEN NO CHANGE IN ITS HOLDING PATTER N. AS PER THE APB THE VALUE OF INVESTMENTS HAS GROWN. ONLY IN THE CU RRENT YEAR, THE ASSESSEE RECEIVED DIVIDEND OF RS.2,25,000/-. IN IT S SUBMISSION BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE A SSESSEE HAD SUBMITTED, THAT THE ASSESSEE AND ITS SUBSIDIARY ARE HOUSED IN THE SAME PREMISES AND THE DIVIDEND WAS RECEIVED BY A SINGLE CHEQUE, THIS FACT, HAS NOT BEEN CONTROVERTED BY THE REVENUE AUTHORITIE S. IT IS SEEN THAT SUB SECTION (2) OF SECTION 14A SAYS, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED AND IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT... THUS, THE ONUS IS ON THE ASSESSING OFFICER TO DETE RMINE THE AMOUNT OF EXPENDITURE. THIS DOES NOT MEAN THAT EXPENDITURE H AS TO BE COMPUTED AND DISALLOWANCE HAS TO BE MADE IN EACH AND EVERY CASE WHERE THERE IS AN ELEMENT OF EXEMPT INCOME. THE LEGISLATURE HA S USED WORD SHALL BEFORE THE WORD DETERMINE, WHICH GOES TO MEAN THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT ALL RELEVANT FACTS AND SUR ROUNDING CIRCUMSTANCES TO DETERMINE EXPENDITURE INCURRED IN RELATION TO INCOME NOT FORMING PART OF TOTAL INCOME, WHICH MAY, AT TIM ES AND UNDER CERTAIN 6 CIRCUMSTANCES, INCLUDE, DETERMINATION AT NIL EXPEND ITURE, ATTRIBUTABLE TO EXEMPT INCOME. 10. IN THE FACTS AS NARRATED BY LD.A.R. AND PLACED BEFORE US IN APB THE ASSESSING OFFICER HAS NOT MADE ANY ATTEMPT TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE I NCOME DNOT FORMING PART OF TOTAL INCOME. 11. WE MAY MENTION THAT THE AR HAS RELIED UPON NUMB ER OF OTHER JUDGEMENTS BESIDES GODREJ AND BOYCE MFG. CO.LTD. (S UPRA) AND APPENDED THEM IN APB, WE HAVE GONE THROUGH THEM AND SEEN. SINCE WE HAVE DECIDED TO SET ASIDE THE ISSUE WITH THE DIR ECTION TO ASSESSING OFFICER FOR DETERMINING THE EXPENSES TO BE ATTRIBUT ABLE TOWARDS EXEMPT INCOME WE ARE NOT ADJUDICATING ON ALL THE CASES CIT ED. 13. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO WAS SATISFIED THAT S.14A READ WITH RULE 8D HAS TO BE IN VOKED. THUS THE ARGUMENT OF THE LD.COUNSEL IS HEREBY REJECTED. COMI NG TO THE QUANTUM OF DISALLOWANCE, IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACT URING CO.LTD. 328 ITR 81 THE MATTER IS SET ASIDE TO THE FILE OF T HE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. IN THE RESULT THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.3,60,16,713/- ON ACCOUNT OF CHANGE IN THE METHOD OF ACCOUNTING FOR CROCKERY AND CUTLERY. THE FIRST APPELLATE AUT HORITY HAS AT PARA 6.3 OF HIS ORDER HELD AS FOLLOWS 6.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AS WELL AS THE CONTENTIONS RAISED BY THE APPELLANT IN THE WRIT TEN SUBMISSION. I FIND THAT THE REASON GIVEN BY THE ASSESSING OFFICER FOR THIS ADDITION IS THAT THE APPELLANT HAS BEEN FOLLOWING THIS METHOD O F ACCOUNTING FOR THE APST SEVERAL YEARS AND IT HAS CHANGED THE METHOD ON LY IN ;THIS YEAR. IDNS THE PRESENT CASE, TI IS NOBODYS CASE THAT THE CHANGED SYSTEM OF 7 ACCOUNTING IS NOT BONA FIDE OR IS NOT IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACTICE OR THE SAME DOES NOT R EFLECT TRUE AND CORRECT PROFITS. THE DISALLOWANCE AHS BEEN MADE IN THE ASSESSMENT ORDER SIMPLY ON THE GROUND THAT DURING THE RELEVANT PY THE ASSESSEE HAS CHANGED THE SYSTEM OF ACCOUNTING WHICH WAS CONS ISTENTLY AND REGULARLY FOLLOWED SINCE PAST SEVERAL YEARS. WHAT IS IMPORTANT IS TO EXAMINE WHETHER THE CHANGE IS BONAFIDE AND WHETHER IT HAS BEEN FOLLOWED REGULARLY IN THE SUBSEQUENT YEARS. IT IS ALSO A MATTER OF RECORD THAT THE APPELLANT IS A PROFIT MAKING COMPANY FOR T HE PAST SEVERAL YEARS AND CONTINUES TO DO SO IN THE SUBSEQUENT YEARS TOO AND IS PAYING TAXES AT THE SAME SLAB. IT IS ALSO SEEN THAT THE SAME ME THOD OF ACCOUNTING WITH REGARD TO CROCKERY AND CUTLERY HAS BEEN CONSIS TENTLY FOLLOWED IN THE SUBSEQUENT YEARS TOO. HENCE I DO NOT FIND ANY REASONS TO DISBELIEVE THE APPELLANT THAT THIS WAS A BONAFIDE CHANGE IN KE EPING WITH THE RECOMMENDATIONS OF THE ICAI FOR A MORE SCIENTIFIC A ND RATIONALE METHOD. MOREOVER, THE RATIO OF THE DECISION OF APEX COURT. IN THE CASE OF BRITISH PAINTS INDIA LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND HAS BEEN WRONGLY RELIED UPON BY THE ASSESS ING OFFICER WHILE MAKING THE IMPUGNED DISALLOWANCE. THE AFORESAID DE CISION, HAS BEEN DISTINGUISHED BY THE TRIBUNAL IN THE DECISION OF IT C HOTELS (SUPRA). THE CASE OF ITC HOTELS SUPRA RELIED ON BY THE APPELLANT IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERA TION. AS THE CHANGE HAS BEEN CONSIDERED TO BE BONAFIDE, THE ADDITION IS DIRECTED TO BE DELETED. 15. THE ASSESSEE IN THIS CASE HAS BROUGHT ABOUT THE CHANGE IN THE SYSTEM OF ACCOUNTING, SO AS TO FALL IN LINE WIT H THE RECOMMENDATIONS MADE FOR A HOTEL INDUSTRY ACCOUNTIN G, BY THE ICAI. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F DCIT VS. ITC HOTELS LTD. (2004) 1 SOT 703 BANGALORE HAS CONSIDER ED A SIMILAR ISSUE AND DECIDED THE MATTER IN FAVOUR OF THE ASSE SSEE. THE FIRST APPELLATE AUTHORITY FOLLOWED THIS DECISION. WE FI ND NO INFIRMITY IN THE SAME. IN THE RESULT THIS GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. 16. GROUND NO.3 IS AGAINST THE DELETION OF DISALLOW ANCE OF DEPRECIATION OF WORLD TRADE CENTRE AND WORLD TRADE TOWERS 8 AMOUNTING TO RS.77,186/-. BOTH PARTIES AGREED THAT SIMILAR ISSUE HAS COME UP BEFORE THE TRIBUNAL IN THE ASSESSEES OWN C ASE FOR THE EARLIER AYS 1995-96 TO 2006-07. THE FIRST APPELLATE AUTHOR ITY HAS FOLLOWED THESE DECISIONS. WE FIND NO INFIRMITY IN THE SAME. 17. IN THE RESULT BOTH THE APPEALS ARE ALLOWED IN P ART. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2012. SD/- SD/- (A.D. JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED: THE 21 ST SEPTEMBER, 2012 *MANGAVATHY COPY OF THE ORDER IN ITA NO. 99/DEL/2012 AND ITA NO. 521/DEL/2012 FOR THE ASSESSMENT YEAR 2008-09 FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR 9 // C O P Y // 1. DATE OF DICTATION: 12/09 2. DRAFT PLACED BEFORE THE AUTHOR ON: 17/09 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 21/09/2012 6. DATE OF PRONOUNCEMENT : 21/09/2012 7. FILE SENT TO BENCH CLERK ON : 21/09/2012 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :