Income Tax Appellate Tribunal - Delhi
Ramabagh Palace Hotel Pvt. Ltd., New ... vs Dcit, New Delhi on 23 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'F' : NEW DELHI)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.6024/Del./2014
(ASSESSMENT YEAR : 2003-04)
ITA No.6025/Del./2014
(ASSESSMENT YEAR : 2005-06)
Rambagh Palace Hotels Pvt. Ltd., vs. DCIT, Circle 15 (1),
C/o Pricewaterhouse Coopers Pvt.Ltd., New Delhi.
Sucheta Bhawan,
(Gate No.2, 3rd Floor),
11-A, Vishnu Digamber Marg,
New Delhi - 110 002.
(PAN : AAACH6899P)
ITA No.6097/Del./2014
(ASSESSMENT YEAR : 2003-04)
ITA No.6098/Del./2014
(ASSESSMENT YEAR : 2005-06)
DCIT, Circle 15 (1), vs. Rambagh Palace Hotels Pvt. Ltd.,
New Delhi. C/o Pricewaterhouse Coopers Pvt.Ltd.,
Sucheta Bhawan,
(Gate No.2, 3rd Floor),
11-A, Vishnu Digamber Marg,
New Delhi - 110 002.
(PAN : AAACH6899P)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Ajay Vohra, Senior Advocate
and Shri Aditya Vohra, Advocate
REVENUE BY : Shri Atiq Ahmad, Senior DR
2 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
Date of Hearing : 22.03.2018
Date of Order : 23.03.2018
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
The aforesaid cross appeals filed by the assessee company and the Revenue are being disposed of by way of consolidated order to avoid repetition of discussion
2. The appellant, Rambagh Palace Hotels Pvt. Ltd. (hereinafter referred to as 'the assessee company') by filing the present appeals, sought to set aside the impugned orders both dated 29.08.2014 passed by Ld. CIT(Appeals)-XVIII, New Delhi qua the assessment years 2003-04 & 2005-06 on the similar grounds, except the difference in amount, inter alia that :-
"1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Commissioner of Income Tax (Appeals) XVIII ["CIT (A)"], to the extent upholding the action of the Ld. AO in full or in part, is contrary to the factual and legal position and thus is bad in law.
2. That on the facts and in the circumstances of the case and in law, Ld. CIT (A) has erred in holding that the repair and maintenance expenses amounting to Rs.2,23,45,165 & Rs.2,55,93,985 for AYs 2003-04 & 2005-06 respectively is capital in nature and therefore not allowable as revenue expenditure .
3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in sustaining the adhoc disallowance of repair & 3 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 maintenance expenses amounting to Rs.13,80,005 & Rs.19,17,585 for AYs 2003-04 & 2005-06 respectively (being 5% of Rs.2,76,00,116 & Rs.3,83,51,700 respectively) purely under misconceived facts and on surmises or suspicion, as to the existence of the party(s) without appreciating that the adhoc disallowance has no nexus with any specific party, and therefore, this part of the order deserves to be set aside."
3. The appellant, Deputy Commissioner of Income-tax, Circle 15 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeals, sought to set aside the impugned orders both dated 29.08.2014 passed by Ld. CIT(Appeals)-XVIII, New Delhi qua the assessment years 2003-04 & 2005-06 on the similar grounds, except the difference in amount, inter alia that :-
"1. On the facts & in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,38,00,058/- & Rs.1,91,75,850/- for AYs 2003-04 & 2005-06 respectively by not appreciating the findings of the Assessing Officer and material evidence on record.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.12,38,793/- & Rs.32,41,106/- for AYs 2003-04 & 2005-06 respectively made by the AO on account of Director's Travel Expenditure by relying on the order of the AO for A.Y. 2011-12 in which this expenditure had not been disallowed ignoring the fact that each assessment year is considered a separate year for assessment.
3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the above disallowance by ignoring the fact that it is unfair to 4 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 extrapolate the inference drawn by the AO in one assessment year into the reasoned conclusion drawn by another AO for an earlier year.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the above disallowance by not appreciating the fact that as per the agreement all the expenses related to the business / foreign travel of the company will be borne by M/s. India Hotels Co. Ltd."
4. Briefly stated the facts necessary for adjudication of the controversy at hand in all the aforesaid appeals are : Assessing Officer made disallowance of Rs.1,38,00,058/- & Rs.1,91,75,850/- being 50% of Rs.2,76,00,116/- & Rs.3,83,51,701/- for AYs 2003- 04 & 2005-06 respectively on account of repair and maintenance expenses qua which vendors were not produced for verification on ad hoc basis. AO further made disallowance on account of repair and maintenance expenditure paid to Chandra Singh Contractor and National Sanitation to the tune for Rs.2,13,76,928/- & Rs.9,68,237/- for AY 2003-04 and Rs.2,36,00,765/- & Rs.19,93,220/- for AY 2005-06 respectively on the ground that the same have given enduring benefit to the assessee company. AO further disallowed an amount of Rs.12,38,793/- & Rs.32,41,106/- for AYs 2003-04 & 2005-06 respectively on account of Director's foreign travel expenses on the ground that the same are not related to business of the assessee company.
5 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
5. Assessee company carried the matter by way of filing appeals before the ld. CIT (A) who has reduced the ad hoc disallowance of repair and maintenance expenses from 50% to 5%; confirmed the disallowance made by the AO qua repair and maintenance expenditure paid to Chandra Singh Contractor and National Sanitation and deleted the disallowance of Director's travel expenditure disallowed by the AO by partly allowing the appeals. Feeling aggrieved, the assessee company as well as Revenue has come up before the Tribunal by way of filing the cross appeals.
6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1 OF ASSESSEE'S APPEALS IN ITA NOS.6024/DEL/2014 & 6025/DEL/2014
7. Ground No.1 of assessee's appeals in ITA Nos.6024/Del/2014 & 6025/Del/2014 is general in nature, hence does not require any adjudication.
6 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014 GROUND NO.3 OF ASSESSEE'S APPEALS IN ITA NOS.6024/DEL/2014 & 6025/DEL/2014 GROUND NO.1 OF REVENUE'S APPEALS IN ITA NOS.6097/DEL/2014 & 6098/DEL/2014
8. At the very outset, the ld. AR for the assessee company contended that the issue in controversy has been duly covered in favour of the assessee company in its own case for AYs 2006-07 & 2009-10 holding that similar repair and maintenance expenditure as revenue in nature and the appeal filed by the Revenue against the said order has also been dismissed by Hon'ble High Court.
9. Undisputedly, the disallowance of repair and maintenance expenses on ad hoc basis has been made by the AO to the extent of 50%, which was reduced to 5% by the ld. CIT (A), on the sole ground that the assessee company has not produced the vendors for verification. It is also not in dispute that at no point of time, the AO has disputed the incurrence of expenditure on repair and maintenance.
10. In the backdrop of the aforesaid undisputed facts and arguments addressed by ld. Authorized Representatives of the parties to the appeals, the question arises for determination is :-
"as to whether disallowance of repair and maintenance expenses on ad hoc basis can be made by the Revenue authorities for not producing vendors for verification?"7 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
11. The ld. AR for the assessee company drew our attention towards the decision rendered by the Hon'ble High Court of Delhi in CIT vs. Fancy International - 166 taxman 183 (Delhi HC), available at pages 62 & 63 of the paper book. Hon'ble jurisdictional High Court while deciding the identical issue, wherein assessee had failed to produce the parties qua which the expenditure were claimed, held as under :-
"Section 37(1) of the income-tax Act, 196•1 - Business - expenditure - Allowable as - Assessment year 1997-98 - Assessee, a 100 per cent. export-oriented unit dealing in garments, claimed certain expenditure towards fabrication charges - Assessing Officer issued summons to some of parties,' to Whom payment was allegedly made by assessee - Said summons, however, came back with report that such persons were not found existing at given addresses - When asked to produce those parties, assessee contended that matter was 3-4 years old and parties might have shifted or gone out of business during that period; that payments were made to all those persons through account-payee cheques and that there was a gate pass and challan system, which. Was being strictly adhered to in that regard - Assessee requested Assessing .Officer to depute a person to trace out parties - Assessing Officer did not take any steps to trace out parties, but added amount paid to fabricators as income- Whether since explanation that parties concerned - might have moved out or closed down their business; appeared plausible, Assessing Officer was unjustified in making addition- Held; yes"
12. In the instant case, assessee has brought on record the complete detail of the vendors including their PAN available at pages 196 & 197 of the paper book, invoices raised by them 8 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 available at pages 507 to 509 & 542of the paper book and ledger account at pages 198 to 464 of the paper book, which were also produced before AO during assessment proceedings and have not been disputed nor the AO and ld. CIT (A) has disputed the incurrence of expenditure. Moreover ld. CIT (A) reduced the ad hoc disallowance from 50% to 5% merely on the basis of surmises that, "still some doubt about the existence of vendors is there".
13. The coordinate Bench of the Tribunal in assessee's own case for AYs 2006-07 & 2009-10, order available at pages 35 to 55 of the paper book has decided the issue in assessee's favour.
14. When expenditure claimed by the assessee company on account of repair and maintenance disallowed on account of non- producing the vendors are held to be existed but ld. CIT (A) has restricted the disallowance to 5% on the basis of doubt only and no addition can be made on the basis of suspicion. So, we are of the considered view that the disallowance of 5% made by the ld. CIT (A) on the ground that still some doubt are there qua the existence of vendors is not sustainable in the eyes of law and hence ordered to be deleted. Consequently, Ground No.3 of assessee's appeals in ITA Nos.6024/DEL/2014 & 6025/DEL/2014 is decided in favour of the assessee and Ground No.1 of Revenue's appeals in ITA 9 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 Nos.6097/DEL/2014 & 6098/DEL/2014 is decided against the Revenue.
GROUND NO.2 OF ASSESSEE'S APPEALS IN ITA NOS.6024/DEL/2014 & 6025/DEL/2014
15. The ld. CIT (A) confirmed the disallowance of repair and maintenance expenditure paid to Chandra Singh Contractor and National Sanitation to the tune of Rs.2,13,76,928/- & Rs.9,68,237/- for AY 2003-04 and Rs.2,36,00,765/- & Rs.19,93,220/- for AY 2005-06 respectively made by the AO by treating the same capital in nature. There is no dispute as to the genuineness of the payment made to Chandra Singh Contractor and National Sanitation. The only dispute is, "as to whether the expenditure are capital or revenue in nature".
16. Assessee company has brought on record the documents as to work done by Chandra Singh Contractor and copy of agreements available at pages 66 to76 & 84 of the paper book.
17. Perusal of the nature of the work done by aforesaid contractor apparently shows that the expenses are qua change in floor and replacement of marble, repair work in Gem Palace, replacement of fixed wood work & art work, changes/repair of rooms including dismantling masonry, water proofing, flooring, 10 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 finishing, tiles/cladding etc., changing of ceiling/floor in corridor, repair work in balcony area, repair/replacement of electrical work in rooms etc.
18. Coordinate Bench of the Tribunal decided the identical issue in assessee's own case for AYs 2006-07 & 2009-10 and held the similar expenditure as revenue in nature by returning following findings :-
"9. Further, Hon'ble madras High Court in case of CIT Vs Dasprakash (supra) has held that many items, which are fixed in the wall that would present an inviting appearance for the customers assembled, are allowable as revenue expenditure. Furthermore, the Hon'ble Madras High Court in 237 ITR 902 also held that expenditure incurred for repairs and modernizing hotel and replacing the existing components of old building furniture and fittings with the object to create a conducive and beautiful atmosphere for running business of hotel is not an expenditure of enduring in nature but is only current repairs. Further Hon'ble Karnataka High Court in 233 Taxman 177 has held that expenditure incurred on replacing flooring, falls roofing, furniture, carpets and refurnishing of hotel rooms in tune with international standard without addition of extra floor space or extra room capacity is revenue in nature. Assessee was incurring expenditure from AY 2002-03 to the present assessment year on repairs and maintenance as under:-
Assessment Amount of repair/ exp.
Year claimed (In Rs.)
2002-03 74120326
2003-04 52409060
2004-05 67692199
2005-06 78384501
2006-07 66788797
11 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
10. The expenditure in earlier year though higher or of almost of the similar level incurred are allowed to the assessee. Revenue has not shown that by incurring this expenditure the assessee has made any addition to the room capacity of the hotel. It is also not the case of the revenue that the expenditure has resulted into construction or setting up of a new restaurant or any other new facility in the hotel. The increasing trend in the room tariff itself suggests that incurring such expenditure has resulted into continued occupancy and saleability salability of hotel rooms. The increased room tariff has definitely gone to swell the revenue of the hotel. In view of the several judicial pronouncements cited above as well as failure of revenue to show any increase in the capacity of the room or any new facility, merely because repairs expenditure are on higher side as per perception of the revenue, it cannot be held to be capital expenditure. In view of this we do not find any infirmity in the order of the ld CIT(A) in allowing the expenditure of Rs. 51154867/-. Ground No. 1 of the appeal of the assessee, which is also on the same point wherein, the ld CIT(A) has upheld the disallowance of Rs. 2943060/- on account of renovation of floor. Issue is now squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in 233 Taxman 177 wherein, expenditure on refurnishing on hotel rooms is held to be revenue in nature. The expenditure disallowed by the ld CIT(A) were wooden purchases for renovation of floor. It does not meet the test of increase in any additional capacity in the hotel. Therefore, the order of the ld CIT(A) to the extent of disallowance confirmed of Rs. 2943060/- cannot be upheld. In view of our above finding, ground No. 1 of the appeal of the revenue is dismissed and ground No. 1 of the appeal of the assessee is allowed with a direction to allow total expenditure on repairs and maintenance incurred by the assessee of Rs. 66788797/- and withdraw the depreciation allowed of Rs. 6010990/-."12 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
19. Keeping in view the facts and circumstances of the case and the decision rendered by the coordinate Bench of the Tribunal in assessee's own case (supra), we are of the considered view that ld. CIT (A) has erred in confirming the disallowance of repair and maintenance expenditure paid to Chandra Singh Contractor and National Sanitation for AYs 2003-04 and 2005-06 as the expenditure are liable to be treated as revenue in nature as keeping the hotel rooms, floors, ceilings and its ambience in good condition would certainly lead to the increase of the revenue of hotel and it will also enhance its sale-ability and cannot be treated as capital expenditure of enduring nature. So, Ground No.2 of assessee's appeals in ITA Nos.6024/DEL/2014 & 6025/DEL/2014 is determined in favour of the assessee.
GROUND NO.2, 3 & 4 OF REVENUE'S APPEALS IN ITA NOS.6097/DEL/2014 & 6098/DEL/2014
20. The AO made disallowance of Rs.12,38,793/- and Rs.32,41,106/- for AYs 2003-04 & 2005-06 respectively towards foreign travel expenses of Directors being not related to business of the assessee company which have been allowed by the ld. CIT (A) by following the assessment order for AY 2011-12 treating the 13 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 foreign travel expenditure incurred wholly and exclusively for business purposes.
21. The ld. DR for the Revenue relied upon the order of the AO.
22. Appeal effect order passed by AO is available at pages 32 to 34 of the paper book. Assessee has brought on record complete detail of the expenditure on passport and visa approval, available at pages 544 to 555 of the paper book, extract of the Minutes of the Board meeting of the foreign travel for business development, available at page 556 of the paper book, invoices relating to travel expenses, available at pages 559 to 582 of the paper book, details of some travel agents whom directors met during the foreign visits, available at page 585 of the paper book, details of foreign travelling expenses, available at pages 591 & 592 of the paper book and Operating Agreement between assessee company and IHC Ltd. showing responsibility for promoting business lies with assessee.
23. However, the ld. AR for the assessee company contended that the issue in controversy has been decided in favour of the assessee in assessee's own case for AYs 1997-98, 2006-07 & 2009-10 wherein the issue was initially set aside to AO for 14 ITA No.6024 & 6025/Del./2014 ITA No.6097 & 6098/Del./2014 verification and re-adjudication which was treated as business expenditure by the AO while giving effect to the appeal order.
24. Ld. CIT (A) has treated the foreign travel expenses as business expenses by examining the details and following the assessment order passed in assessee's own case (supra) passed by giving appeal effect to the order of the Tribunal. So, we find no illegality or perversity in the deletion of the disallowance made by the CIT (A) by treating the same as expenditure incurred wholly and exclusively for the purpose of business on account of directors foreign travelling expenditure. So, Ground Nos.2, 3 & 4 of Revenue's appeals in ITA Nos.6097/DEL/2014 & 6098/DEL/2014 are determined against the Revenue.
25. In the result, the appeals of the assessee being ITA Nos.6024/Del/2014 & 6025/Del/2014 are allowed whereas appeals of the Revenue in ITA Nos. 6097/DEL/2014 & 6098/DEL/2014 are dismissed.
Order pronounced in open court on this 23rd day of March, 2018.
Sd/- sd/-
(R.K. PANDA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 23rd day of March, 2018
TS
15 ITA No.6024 & 6025/Del./2014
ITA No.6097 & 6098/Del./2014
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-XVIII, New Delhi.
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.