Income Tax Appellate Tribunal - Mumbai
The Indian Hotels Company Ltd, Mumbai vs Dcit (Osdz0 Cir 2(2), Mumbai on 6 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNALMUMBAI BENCH "K", MUMBAI
BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND
SHRI PAWAN SINGH, JUDICIAL MEMBER
ITA No. 9087/Mum/2010 (Assessment year : 2006-07)
The Indian Hotels Company Ltd, Vs Dy.CIT (OSD), Circle 2(2),
Mandlik House, Mandlik Road, Mumbai
Colaba, Mumbai-400 001
PAN : AAACT3957G
APPELLANT RESPONDEDNT
Appellant by Shri Kanchun Kaushal &
Aliasgar Rampurawala AR's
Respondent by Shri Anand Mohan CIT-DR
Date of hearing 17-06-2019
Date of pronouncement 06-09-2019
O R D E R UNDER SECTION 254(1) OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER :
This appeal by assessee under section 253 of Income-tax Act, 1961 (Act) is directed against the assessment order dated 27-10-2010 passed u/s 143(3) r.w.s. 144C dated 27-10-2010, passed in pursuance of direction of DRP dated 26-09-2010 for Assessment year (AY) 2006-07. The assessee has raised the following grounds of appeal:-
"The grounds stated here under are independent of, and without prejudice to one another:
Adjustment 7 Addition to Total Income: Rs. 53,24,92,2887-
1) On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (TPO') and the learned Assessing Officer ('AO') under the directions issued by Hon'ble Dispute Resolution Panel ('DRP'), erred in making an addition of Rs. 53,24,92,2887- to the Appellant's total income (i.e.,Rs.25,39,55,9127- based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act') and Rs. 27,85,36,376 based on the other provisions of the Act) and the said addition being wholly unjustified is liable to be deleted.
A) Ground No. 2 to 12 relate to Transfer Pricing adjustments of Rs 25.39,55.912 based on the provisions of chapter - X of the Act.1 ITA No. 9087/Mum/2010
The Indian Hotel Company Adjustment relating to Interest _on loans granted to Associated Enterprises ('AE') - Rs.
24,45,05,5897-
2) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of TPO in making an addition of Rs 24,45,05,589/- to the Appellant's total income on the alleged ground of charging interest at lower rate (i.e., at LIBOR) than the arm's length price/rate on loans granted by it to its associated enterprise (AE) Disregard of Use of controlled transaction barred by law
3) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the TPO in making the aforesaid addition of Rs. 24,45,05,5897- by using controlled transactions to determine the arm's length price7rate which is in violation of provisions of Rule 10B(l)(a)(i) of the Income-tax Rules, 1962 ('the Rules').
Interest rate earned / paid by the Appellant from /to independent parties as CUP
4) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of TPO in making the aforesaid addition of Rs. 24,45,05,589/- without appreciating that
a) interest actually earned and paid by the Appellant from / to independent third parties on the funds out of which loans were advanced to the AEs ought to be taken as Comparable Uncontrolled Price('CUP') for determining the arm's length price or alternatively
b) the adjustment, if any, ought to be computed by considering the interest rate paid by the AEs to third parties on their borrowings. Adjustment on account of Letter of Comfort issued by the Appellant - Rs. 6,66,4Q8/-
5) On the facts and in the circumstances of the case and in law, the learned TPO erred in making and the Hon'ble DRP further erred in upholding / confirming the addition of Rs. 6,66,408/- to the total income of the 2 ITA No. 9087/Mum/2010 The Indian Hotel Company Appellant being the alleged arm's length price/fee chargeable by the Appellant on account of the Letter of Comfort issued by it to banks in respect of the borrowings made by the AEs.
Letter of Comfort erroneously treated as a guarantee
6) On the facts and in the circumstances of the case and in law and without appreciating the fact that issue of letter of comfort would not constitute an international transaction as per the provisions of the Act,, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of TPO in holding that Letter of Comfort issued by the Appellant constitutes a guarantee and that therefore, the Appellant ought to have charged guarantee fees for issuing such letters of comfort. Arbitrary rejection of rat^of guarantee fee obtained by the Appellant from its own bank / Opportunity to examine the material relied upon by Ihc TPQ not granted
7) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in
a) not considering the without prejudice plea of the Appellant that the adjustment, if any, on account of guarantee fees to be charged to the AEs must be made based on the guarantee fee/rate obtained by the Appellant from its own bank.
b) not providing the Appellant an opportunity of examining material on the basis of which rate of guarantee fee was applied.
Disallowance of Sales promotion expenses of Rs. 87,83,9157-
8) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of TPO in making an addition of Rs. 87,83,915 to the total income of the Appellant on account of the sales promotion expenses paid by the Appellant to its AEs namely Apex Hotel Management Services i.e., AHMS (Rs. 70,32,174/-) and International Hotels Management Services i.e., IHMS (Rs. 17,51,741/-) in excess of the alleged arm's length price without considering the details submitted by the assessee. AHMS Requisite condition of issuing show cause notice u/s 92C(3)- not satisfied 3 ITA No. 9087/Mum/2010 The Indian Hotel Company
9) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in confirming the adjustment to the total income of the Appellant in respect of the sales promotion expenses of Rs. 70,32,1747- paid to its AE i.e. AHMS in excess of the alleged arms length price without issuing a show-cause notice before making the said addition.
IHMS Rejection of benchmarking analysis and Appellant as the tested party without giving coherent reasons
10) On the facts and in the circumstances of the case and in law, the learned TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the TPO in making the addition of Rs. 17,51,7417- to the total income of the Appellant on account of sales promotion expenses paid by the Appellant to its AE i.e, IHMS in excess of the alleged arm's length price by disregarding the benchmarking analysis done by the Appellant using Transactional Net Margin Method ('TNMM') and adopting an alternative benchmarking methodology by selecting IHMS as the tested party instead of the Appellant.
Denial of Benefit of 5% range
11) On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding 7 confirming the action of the TPO in denying the \ benefit of 5 percent from the price 7 arithmetic mean of the margin of comparables V companies as provided in proviso to Section 92C(2) of the Act, while computing the adjustments to the total income of the Appellant. Requisite conditions under section 92C(3) - Not satisfied
12) On the facts and in the circumstances of the case and in law, the learned TPO erred and the Hon'ble DRP further erred in upholding 7 confirming the action of the TPO in not stating any reasons to show that either of the 4 ITA No. 9087/Mum/2010 The Indian Hotel Company conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the income of the Appellant. B) Ground No. 13 to 23 relate to other additions/disallowances of Rs. 27,85.36.376 based on the provisions other jjian those contained in Chapter X of the Act.
13) On the facts and in the circumstances of the case and in law, the Hon'ble DRP has legally erred in not following the decision of higher authority rendered in the Appellant's own case and thereby erred in not following principle of judicial propriety.
Disallowance of interest on advances given to group companies
14) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making interest disallowance of Rs. 25,52, 566/- in respect of advances given to group companies of the Appellant. Disallowance of interest on share application money allotment
15) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making interest disallowance of Rs. 112,600 in respect of share application of Rs. 20,00,0007-pending allotment. Expenditure on replacement of carpet treated as capital expenditure 1 6) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making disallowance of Rs. 1,51,75,9467- being expenditure on replacement of carpets on the alleged ground that the same is capital in nature.
Expenditure on replacement of linen treated as capital expenditure 1 7) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making disallowance of Rs. 4,30,17,2607- being expenditure on replacement of linen on the alleged ground that the same is capital in nature.
Carpet and linen treated not treated as plant and machinery for the purpose of depreciation 5 ITA No. 9087/Mum/2010 The Indian Hotel Company 18} Without prejudice to Grounds Nos. 16 and 17, and purely in the alternative, on the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in granting depreciation on replacement of linen and carpets at the rate applicable to furniture and fixtures, thereby allowing depreciation only @ 10%, instead of treating linen and carpets as income earning apparatus eligible for depreciation @ 15%. Rejection of Loss arising on account of Foreign Exchange fluctuation
19) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in not considering the submission of the Assessee that gains arising on account of foreign exchange fluctuation in respect of shareholders deposit placed by the Appellant with its wholly owned subsidiary viz. Taj International H.K. Limited (TIHK') is not taxable. Alternatively and without prejudice, the Learned AO and the Hon'ble DRP ought to have allowed the loss arising on account of such foreign exchange fluctuation.
Disalllowance under section_l4A
20) On the facts and in the circumstances of the case and in law, as against the disallowance of Rs. 2,00,01,8337- computed by Appellant under section 14A of the Act, the learned AO erred in proposing disallowance of Rs. 6,39,10,8167- and the Hon'ble DRP further erred in upholding 7 confirming the said disallowance to the extent of Rs. 6,20,00,0007- which was further wrongly computed by AO at Rs, 14,80,00,0007- (i.e., Rs. 5,49,00,0007- on account of interest and Rs. 9,31,00,000 on account of expenses) and said disallowance of Rs. 12,79,98,167/-(i.e., after reducing the disallowance of Rs. 2,00,01,8837- made by Appellant itself in its computation of income) is wholly unjustified and liable to be deleted.
Premium on redemption of foreign currency convertible Bonds
21) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making the addition of Rs. 859,34,837 being pro rata premium on redemption of foreign currency convertible bonds 6 ITA No. 9087/Mum/2010 The Indian Hotel Company resulting into double taxation as the Appellant had already offered the same for taxation in its computation of Total Income.
Notional interest on _deposits with Taj Karnataka Ltd
22) On the facts and in the circumstances of the case and in law, the Learned AO erred in and the Hon'ble DRP further erred in confirming the action of the Learned AO in making the addition of notional interest income of Rs.37,45,000 in respect of the deposit placed with | Taj Karnataka Ltd.
Levy of interest under section 234B nd 234D
23) On the facts and in the circumstances of the case and in law, the Learned AO erred in levying interest under section 234B and 234D of the Act and said levy of interest being wholly unjustified is liable to be deleted. Lack of adequate opportunity
24) On the facts and in the circumstances of the case and in law, the learned TPO, the learned AO and Hon'ble DRP erred in not granting reasonable and adequate opportunity to the Appellant before passing their orders/directions under sections 92CA(3), 144C(1) and 144C(5) of the Act and the said orders/directions being passed in violation of the principles of natural justice are liable to be quashed."
2. The brief facts of the case are that the assessee filed return of income for A.Y. 2006-07 on 28-11-2006 declaring total income of Rs.2,54,12,53,961. Subsequently, the assessee filed revised return of income declaring the same total income on 28-03-2008. Along with the return of income, the assessee furnished Form No.3CEB, reporting international transaction with its associated enterprises (AEs). The Assessing Officer (AO) made reference to the Transfer Pricing Officer (TPO) for computation of Arm's Length Price (ALP). The TPO, after giving 7 ITA No. 9087/Mum/2010 The Indian Hotel Company opportunity to the assessee made the following adjustment of international transaction:-
Sr. Transaction Adj. Amount (Rs.)
i) In respect of interest on loan 24,45,05,589
ii) In respect of letter of comfort 6,66,408
provided
iii) In respect of sales promotion services 70,32,174
(AHMS)
iv) In respect of sales promotion services 17,51,741
(IHMS)
Total 25,39,55,912
On the basis of adjustment suggested by TPO, the AO passed draft assessment. The AO made adjustment suggested by TPO and also made various additions and disallowances in the draft assessment order dated 29-12-2009. The assessee was served with the copy of draft assessment order. The assessee exercised its option to file its objection before the Dispute Resolution Penal (DRP). The Ld.DRP, vide its order dated 26-09- 2010 upheld various additions made in the draft assessment order. On receipt of direction of DRP, the AO passed the final assessment order u/s 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961. Aggrieved by various additions, the assessee has filed present appeal before this Tribunal.
3. We have heard the Ld. authorised representative (AR) of the assessee and Ld. departmental representative (DR) for the revenue and with their assistance perused the material available on record. 8 ITA No. 9087/Mum/2010
The Indian Hotel Company
4. Ground 1 is general and needs no specific adjudication. Ground No. 2 to 4 relates to addition on account of adjustment of arm's length price of interest charged on loan given to AE. The Ld.AR of the assessee submits that this ground of appeal is covered in favour of the assessee by the decision of Tribunal in assessee's own case for AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018. The DRP while confirming the action of TPO followed the order of CIT(A) for AYs 2003-04 to 2004-05 & 2005-06, which has been by the Tribunal in favour of assessee holding that the LIBOR is acceptable arm's length interest rate.
5. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
6. We have considered the submissions of both the parties and have gone through the orders of authorities below. We have noted that the co- ordinate bench of Tribunal in assessee's own case for AY 2005-06 in ITA No.841/Mum/2010 dated 31-01-2018 passed the following order:-
"20. Ground No. 7 of the revenue's appeal is against the action of Ld. CIT (A) in deleting the addition of Rs. 12,60,80,369/- being adjustment on account of interest charged on loan given by the assessee to its associate enterprise M/s Taj International Hongkong Ltd. The Ld. DR submitted that the assessee had granted loan to Taj Asia Ltd. to the tune of 1.5 million USD and to Taj International Hotels (UK) Ltd. to the tune of 2.362 million USD, 90 million USD and 32 million USD. The AO has rightly followed the order of TPO and held that the interest charged on loan given to TIHK is not at arm's length 9 ITA No. 9087/Mum/2010 The Indian Hotel Company and has rightly confirmed the adjustment of Rs. 12,60,80,369/- made to the value of the international transaction in question.
21. On the other hand, the Ld. Counsel for the assessee submitted that the transaction was reported in Form 3CEB of the F.Y. 2004-05 and the same were made with the approval of the Reserve Bank of India. The Ld. Counsel further submitted that in the assessee's own case ITA No. 6712/Mum/08 and 2678/Mum/09 for the A.Ys. 2003-04 and 2004-05 respectively. The ITAT has held that LIBOR is acceptable arms length interest rate. The Ld. counsel further relied on the decisions of the Hon'ble Bombay High Court rendered in Tata Autocomp Systems Ltd. 276 CTR 481 (Bom) and M/s Aurinpro Solutions Ltd. ITA No. 1869 of 2014 (Mum) and Hon'ble Delhi High Court rendered in M/s Cotton Naturals (1) Pvt. Ltd. 276 CTR 445 (Del).
22. We notice that this issue has been dealt by the coordinate Bench in assessee's own case for the A.Y. 2003-04 holding as under:-
"27 We have considered the rival submissions and also perused the relevant material on record. As regards the issue relating to arm's length rate of interest charged by the assessee company to its AE on the outstanding interest, it is observed that the same is squarely covered by the decision of co-ordinate Bench of this Tribunal rendered in the case of Hinduja Global Solutions Ltd. Vs. ACIT vide its order dtd. 5th June, 2013 in ITA No. 254/Mum/2013 wherein it was held, following the decision of Delhi Bench of this Tribunal in the case of Cotton Natural (I) P. Ltd. Vs. DCIT, that the CUP method is the most appropriate method to determine the arm's length rate of interest of the international transaction involving lending of money by the assessee company in foreign currency to its AE and LIBOR being inter- bank rate fixed for the international transaction has to be adopted as arm's length rate. Respectfully following this decision of the co- ordinate Bench of this Tribunal, we uphold the impugned order of the ld. CIT (A) deleting the addition made by the A.O./TPO in respect of international transaction involving interest charged by the assessee on outstanding interest from its AE."
23. Since, this issue has already been decided in favour of the assessee in the assessee's own case for the A.Y. 2003-04 and 2004-05 aforesaid by the ITAT holding that the LIBOR is acceptable arm's length interest rate, we respectfully following the decision of the coordinate Bench decide this issue in favour of the assessee and dismiss this ground of appeal of the revenue." 10 ITA No. 9087/Mum/2010
The Indian Hotel Company
7. Considering the decision of Tribunal for AY 2005-06 wherein the Tribunal has followed the earlier order for AYs 2003-04 to 2004-05, these grounds of appeal are allowed in favour of the assessee.
8. Grounds 5 to 7 relate to non charging of fees from AE for providing letter of comfort. The Ld.AR of the assessee submits that these grounds of appeal are also covered by the decision of Tribunal for AY 2005-06 wherein the Tribunal followed the order for AYs 2003-04 and 2004-05.
9. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
10. We have considered the submissions of both the parties and seen that on similar grounds of appeal, the co-ordinate bench of Tribunal in assessee's own case for AYs 2003-04 and 2004-05 has passed the following order:-
"24. Ground No. 8 pertains to non charging guarantee fees from AEs by providing letter of comfort to the Bank for the loan granted to the AE. The Ld. Departmental Representative relying on the assessment order submitted that AO has rightly confirmed the order of TPO that the transaction of giving undertaking i.e. letter of comfort to the banks for loans granted to AEs is an international transaction. The Ld. CIT (A) has wrongly held that the appellant has no intention of taking any obligation of liability to repay the loans in case its subsidiaries unable to repay the same. The intention of the assessee in issuing the letter of comfort was merely to confirm the affiliation of subsidiaries and issued as a part of its shareholders activities.11 ITA No. 9087/Mum/2010
The Indian Hotel Company
25. On the other hand, the Ld. counsel for the assessee submitted that the letter of comfort was given by the assessee company to its AEs to avail loan from financial institutions, which is outside the ambit of international transaction. The Ld. counsel relying on the decision of Hon'ble Karnataka High Court passed in M/s United Braveries (Holdings Ltd.) vs. Karnataka Estate Industrial Investment and Development Corporation Ltd. MFA No. 4243 of 2007 in which it has been held that the letter of comfort merely indicates the appellant's assurance that the respondent would comply the terms of financial transactions without guaranteeing performance in the event of default.
26. We have heard the rival submissions since the assessee has not bond itself for repaying the loans in the event of default by the AEs, the issue is covered by the law laid down by the Hon'ble Karnataka High Court in the case of United Braveries Holdings Ltd. (supra). Moreover, the Chennai Bench of the ITAT in TVS Logistics Services Ltd. (2016) 72 Taxmann.com 89 (Chennai Trib) has held that the letter of comfort is outside the ambit of international transaction. Hence, following the decisions of the Hon'ble Karnataka High Court and the Chennai Tribunal, we hold that the letter of comfort issued by the assessee in this case is outside the ambit of international transaction. We, therefore, dismiss this ground of appeal of the revenue."
11. Considering the decision of Tribunal for AY 2005-06 wherein the Tribunal has followed the earlier order for AYs 2003-04 to 2004-05, therefore respectfully following the order of the coordinate bench of the Tribunal, these grounds of appeal are allowed in favour of the assessee.
12. Grounds 8 to 10 relates to disallowance of sales promotion expenses. The Ld.AR of the assessee submits that the TPO made adhoc and arbitrary adjustment which is not permissible. The ld AR for the 12 ITA No. 9087/Mum/2010 The Indian Hotel Company assessee submits that this ground of appeal is covered by the order of Tribunal in assessee's own case for AY 2003-04 and 2004-5 in ITA No.6712/M/2010 & 2678/M/2009. The Ld. Counsel of the assessee also placed reliance n the following decisions:-
1. Firmenich Aromatics India P Ltd vs DCIT ITA No.2590/Mum/2017
2. CIT vs Johnson & Johnson Ltd (ITA No.1030 of 2014)(Bom HC)
3. DCIT vs RAK Ceramics I.P. Ltd (ITA No.595 o 2016)(Bom HC)
4. Kosdak India P Ltd vs ACIT (ITA No.7349/Mum/2012
13. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
14. We have considered the submissions of both the parties and seen that in assessee's own case for AY 2003-04 & 2004-05 in ITA No. 6712/M/2010 & 2678/M/2009 dated 09.04.2014 the Tribunal passed following order;
" 29. As regards the international transaction involving availing services by assessee company from its AE in US for sales promotion services, it is observed that the same were benchmarked in the TP study report submitted by the assessee by following TNMM. The assessee company was taken as tested party and since its profit margin earned from the relevant transaction at 8.75% was higher than the average profit margin of 2.36% of the Indian comparable companies, the price charged for these transactions to its AE was claimed to be at ALP. It is observed that the TPO, however, took the AE of assessee company in US as tested party without giving any convincing reason to justify this action made the TP adjustment on the basis of higher margin earned by 13 ITA No. 9087/Mum/2010 The Indian Hotel Company comparable company US. As found by the learned CIT(A) in his impugned order, the relevant art of the US comparable companies was incomplete and unreliable to justify the TP adjustment made by the AO/TPO and this finding recorded by the learned CIT(A) has not been rebutted or contributed by the learned DR. The learned DR has also not been able to point out any reason given by the AO/TPO to justify the change of tested party from the assessee company to the AE in US. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) deleting the TP adjustment made by the AO/TPO in respect of the international transaction involving availing of sales promotion services by the assessee from its AE in US. Ground No. 6 of revenue's appeal for a way to thousand 3-4 is accordingly treated as partly allowed forest ethical purpose.
15. Considering the decision of the tribunal, wherein on similar adjustment the order of the learned CIT(A) for AY 2003-04 was affirmed, therefore respectfully following the decision of tribunal the ground No. 8 to 10 are allowed with similar directions. In the result these grounds of appeal are dismissed.
16. Ground No. 11 relates to denial of 5% benefit rate and Ground No.12 relates to non compliance of conditions of section 92C(3). These grounds of appeal were not pressed by ld AR for the assessee hence, dismissed.
17. Ground 13 pertains to disallowance other than those contained under Chapter X. This ground is general in nature, thus needs no specific adjudication.
18. Ground 14 pertains to disallowance of interest on advances to subsidiary and group company. The Ld.AR of the assessee submitted that 14 ITA No. 9087/Mum/2010 The Indian Hotel Company the issue stands decided in favour of the assessee in assessee's own case for 2005-06 in ITA No.841/Mum/2010, which in turn, relied upon the decisions of the Tribunal for AY 2003-04 and 2004-05 ( ITA No. 6712/M/2008 &2678/M/09).
19. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
20. We have considered the submissions of both the parties and perused the record. During the year under consideration the assessee has advanced loan of Rs. 3,50,00,000/- to M/s KTC Hotel Ltd and Rs. 1,0336,844/- to Taida Trading Industries Ltd. We have noted that on identical ground of appeal is assessee's own case for AY 2005-06 in ITA No. 841/M/2010, by following the order in AY 2003-04 &2004-5 the Tribunal passed the following order:
"5. We have heard the rival submissions and perused the material on record including the decision of coordinate bench. We noticed that the coordinate bench had set aside the finding of learned CIT(A) so far as the advances made to Tadia trading and industries Ltd is concerned. As regards the advances made to KTC Hotels Ltd, the tribunal has held that there is no justification in making disallowance is of interest attributable to assessee's own subsidiary company. During the assessment year under consideration, the assessee advanced ₹4,79,630/- to Taida Trading and Industries Ltd and ₹ 18,42,036/- to KTC Hotels Ltd. Since, this issue has been dealt with by the coordinate bench in assessee's own case for AYs 2003-04 and 2004-5, we respectfully following the decision of the coordinate bench partly allowed this ground of appeal and set aside the impugned 15 ITA No. 9087/Mum/2010 The Indian Hotel Company order passed by learned CIT(A) in respect of advance to M/s Taida trading and industries Ltd and uphold the order deleting the disallowance made by AO in respect of advance given to M/s KTC Hotles Ltd AO is directed to recompute the disallowance of interest in terms of the said order.
21. Considering the order of the Tribunal in assessee's own case and respectfully following the same, we direct the AO to delete disallowance of interest in respect of advances to Taida trading and Industries Ltd and recompute the disallowance of interest in respect of loan to KTC Hotel as per the direction of the Tribunal in earlier years. In the result this ground of appeal is partly allowed.
21 Ground 15 pertains to disallowance of interest on share application money pending allotment. The Ld.AR of the assessee submitted that the issue has been decided by the Tribunal in favour of the assessee for 2005- 06 in ITA No.841/Mum/2010, which in turn, relied upon the decisions of the Tribunal for AY 2003-04 and 2004-05
22. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
23. We have considered the submissions of the parties and have noted that similar ground of appeal the Tribunal in assessee's own case in AY 2005-06 on identical grounds passed the following order.
"8. We noticed that the coordinate bench has decided this issue in favour of assessee in assessee own case for AY 2003-04, ITA No. 6712/Mum/2008 and AY 16 ITA No. 9087/Mum/2010 The Indian Hotel Company 2004-05, ITAs No. 2678/Mum/ 2009. The findings of ornate bench are reproduced as under:-
"8. We have heard the arguments of both the sides and also produce the relevant material placed on record. As agreed by the learned a percentage of both the sides, this issue is squarely covered in fear of assessee by the decision of tribunal rendered in assessee's own case for earlier years. In AY 1995-96, it was held by the tribunal wide its order dated 12 September 2006 passed in ITA No. 2527/Mum/2002 that there being no diversion of interest-bearing funds for non-business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds. It was noted by tribunal that the share application money was finally returned to the assessee with interest @ 19% and the interest so received was duly offered by the assessee in the relevant year. Similar view has been taken by the tribunal in subsequent years i.e. assessment year 1996- 97 to 2002-03. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years, we respectfully follow the order of the tribunal for the said years and uphold the impugned order of learned CIT(A) giving relief to the assessee on this issue.
24. Considering the decision of tribunal, which is consistently followed from the assessment year 1996-97 onwards, no variation of facts is brought to notice therefore respectfully following the decision of coordinate bench the ground of appeal raised by assessee is allowed.
25. Grounds 16 & 18 pertain to expenditure on replacement of carpet. The assessee also raised an alternative ground that without prejudice depreciation should be allowed @15% instead of 10% allowed by the AO for carpet. The Ld.AR of the assessee submitted that the issue is squarely covered by the decision of the Tribunal for AY 2005-06 in ITA 17 ITA No. 9087/Mum/2010 The Indian Hotel Company No.841/Mum/2010 & which followed the order of Tribunal for AYs 2003- 04 & 2004-05 in ITA No. 6712/Mum/2008 & 2678/Mum/2009.s
26. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
22. We have considered the submissions of the parties and have noted that similar ground of appeal the Tribunal in assessee's own case in AY 2003-04 &2004-05 in ITA No. 6712/Mum/2008, 2678/Mum/20119, which was followed by Tribunal in AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018 on identical grounds passed the following order:-
"12. We notice that coordinate bench has decided this issue and fair of assessee in the assessee's own case for AYs 1992-93 aforesaid by following the decision of ITAT in case of PIEM Hotles Ltd for AYs 1991-92, 1995 - 96, 1993 - 94, 1986 - 87, 1988 - 89 to 1990 - 91 and 1994-95. Apart from the decision of the coordinate bench the learned counsel for the assessee relied upon the decision of Hon'ble Rajasthan High Court rendered in CIT versus Lake Palace Hotel and Motels Private Limited 258 ITR 562 (Raj). Since, this issue has already been decided in favour of assessee, we respectfully following the decision of coordinate bench uphold the filing of learned CIT(A) and dismissed this ground of appeal of the revenue.
27. Considering the decision of the Tribunal, which is consistently followed in all years, thus, respectfully following the same these grounds of appeals are allowed. Since, we have allowed the main grounds therefore the discussion on alternative ground of appeal for allowing depriciation has become academic.18 ITA No. 9087/Mum/2010
The Indian Hotel Company 28 Grounds 17 & 18 relates to expenditure on replacement of linen.
The assessee also raised an alternative ground that without prejudice, allowance of depreciation @15% and not 10% for linen. The Ld.AR of the assessee submitted that that the issue is squarely covered by the decision of the Tribunal for AY 2005-06 in ITA No.841/Mum/2010 & which followed the order of Tribunal for AYS 2003-04 & 2004-05 in ITA No. 6712/Mum/2008 & 2678/Mum/2009.
29. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
30. We have considered the submissions of the parties and have noted that identical ground of appeal the Tribunal in assessee's own case in AY 2003-04 &2004-05 in ITA No. 6712/Mum/2008, 2678/Mum/20119, which was followed by Tribunal in AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018 on identical grounds passed the following order:-
" 15. We notice that coordinate bench has decided this issue in fear of the assessee in assessee's own case report of the list hence, respectfully following the decision of coordinate benches aforesaid, we uphold the finding of learned CIT(A) and dismissed this ground of appeal of the revenue."
31. Considering the decision of the Tribunal, which is consistently followed in all years, thus, respectfully following the same these grounds of appeals are allowed. Since, we have allowed the main grounds therefore the 19 ITA No. 9087/Mum/2010 The Indian Hotel Company discussion on alternative ground of appeal for allowing depriciation has become academic.
32. Ground 19 pertains to adjustment on account of difference on rate of foreign exchange on deposit placed with WOS (TIHK). The Ld.AR of the assessee submitted that that the issue is squarely covered in favour of the assessee by the decision of the Tribunal for AY 2005-06 in ITA No.841/Mum/2010.
32. On the other hand, the Ld.DR for the revenue supported the order of lower authorities.
33. We have considered the submissions of the parties and have noted that identical ground of appeal the Tribunal in assessee's own case in AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018 on identical grounds passed the following order:-
"18. We have noticed that the coordinate bench has decided this issue in favour of assessee holding as under:-
"11. We heard the arguments of both the sides and also pursued the relevant material record. The learned counsel for the assessee has a strongly relied on the order of learned CIT (Appeals) in support of assessee's case on this issue whereas the learned DR has relied on the order of AO in support of the revenue's case. It is observed that impugned additions were made by AO mainly relying on AS- 11. According to the AO, as per said accounting standard, the investment made in the shareholders deposit with TIHK by the assessee company was required to 20 ITA No. 9087/Mum/2010 The Indian Hotel Company be recognised in the exchange rate prevailing on the last date of relevant previous year. However, as submitted on behalf of the assessee before the learned CIT(Appeals) as well as before us, only the monetary items are required to be reported/recognised at the exchange rate prevailing on the last date of the relevant transaction. As per the classification made in the AS-11, monetary items mainly include amounts held on current account, such as, cash receivables, payables etc. while nonmonetary items include amounts held as capital accounts, such as, fixed assets, investment in shares etc. In the present case, the shareholders deposit represented the amount held by the assessee on capital account inasmuch as it was convertible into equity shares within a period of 10 years and if not so converted, it was liable to be refunded to the assessee company after a period of 10 years. In our opinion, the said amount thus was in the nature of nonmonetary item which was required to be reported/recognised at the exchange rate prevailing on the date of relevant transaction as per AS-11 has rightly held by learned CIT appeals. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) deleting the addition is made by the AO on this issue and upholding the same, we dismiss relevant grounds of revenue's appeal."
19. Since, this issue has already been decided in favour of assessee's own case aforesaid, we dismiss this ground of appeal of the revenue by respectfully following the decision of coordinate bench in assessee's own case for the assessment years mentioned above."
34. Considering the decision of the Tribunal in AY 2005-06, wherein the order of ld CIT(A) in allowing relief to the assessee was affirmed on the identical ground of appeal, thus, respectfully following the same these grounds of appeals are allowed.
35 Ground 20 pertains to disallowance u/s 14A. The Ld.AR of the assessee submitted that the issue is squarely favour of the assessee in 21 ITA No. 9087/Mum/2010 The Indian Hotel Company assessee's own case by the decision of the Tribunal for AY 2005-06 in ITA No.841 /Mum / 2010 and for AY 2004-05.
35. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
36. We have considered the submissions of the parties and have noted that identical ground of appeal the Tribunal in assessee's own case in AY 2005-06 in ITA No.841/Mum/2010 dated 31.01.2018 on identical grounds passed the following order:-
"6. We have heard the rival submission and also produce the material on record including the cases relied upon by the parties. The only grievance of the assessee is that learned CIT(A) has wrongly upheld the disallowance is made by the AO under section 14A of the act. As contended by the learned counsel for the assessee, the suo-moto disallowance made by assessee is in accordance with the earlier year's orders, which was accepted by the Department. We noticed that the AO has accepted this promoter disallowance of ₹ 1,09,33,117/-under section 14A during the assessment year 2004-05 on the basis of disallowance made in the year 1998-99 to assessment year 2002-03 holding that the assessee is claimed is found to be correct and in order. The assessee has pointed out that as per the decision of coordinate bench in case of Garware Walls Limited versus Add. CIT 2014 65 SOT 86 (Mumbai tribunal) and other benches of the tribunal strategic investments made by the assessee as required to be excluded from the value of investment. As per the decision of Delhi bench of the tribunal only those investments are to be considered for computing the average value of investments, which yield exempt income during the year. In Godrej and Boyce Manufacturing Co Ltd 328 ITR 81 (Bombay), the honourable Bombay High Court has held that provisions of Rule8D are not retrospective nature and shall apply w.e.f. AY 2008-09. Hence, 22 ITA No. 9087/Mum/2010 The Indian Hotel Company in the light of the aforesaid decisions and in view of the fact that the suo-moto disallowance made by assessee was allowed by the Department in the year 2004-05, we are of the considered view that the suo-moto disallowance made by the AO in the assessment year under consideration, which is 10% of the exempt dividend income is reasonable. We therefore, set aside the order of ld. CIT(A) and direct the AO to delete the disallowance confirmed by ld CIT(A) and accept the soma to disallowance made by the assessee under section 14 A of the Act. We accordingly allow the sole ground of appeal of the assessee."
37. Considering the decision of tribunal on similar set of facts we direct the assessing officer to accept the 10% of exempt income, which is allowed as suo moto disallowance by the assessee. In the result this ground of appeal is allowed.
38 Ground 21 pertains to addition of premium on redemption of foreign currency convertible bonds. This ground is not pressed before us. Therefore, this ground is dismissed.
39. Ground 22 pertains to addition on account of notional interest on deposits with Taj Karnataka Ltd. The Ld.AR of the assessee submitted that the assessee had placed deposit of Rs.5.35 crores with Taj Karnataka in earlier years with interest accrual at 7% p.a. Since the financial condition of Taj Karnataka was extremely weak, it was decided to waive off interest w.e.f. 01-04-2002 and therefore, in current year, no interest was charged. The assessing Officer disallowed, as according to him, no evidence of interest waiver or copy of Board resolution was furnished and therefore, 23 ITA No. 9087/Mum/2010 The Indian Hotel Company right to received interest was crystallised. Accordingly, he added an amount of Rs.37,45,000/- to the total income. Relying on Accounting Standard 9, the Ld.AR of the assessee submitted that revenue to be recognised only when it becomes reasonably certain that the ultimate collection would be made. The ld AR submits that in past no such adjustment/addition was made on same facts, no funds was given in the year under consideration. For this proposition he relied upon the following judgements:-
1. UCO Bank Ltd and Tamil Nadu Industrial Investment Corporation Ltd (237 ITR 889)(SC)
2. Mercantile Bank Ltd vs CIT (283 ITR 84)(SC)
3. Godhra Electricity Company vs CIT (225 ITR 746 (SC)
4. CIT Vs Sridev Enterprises 192 ITR 165 (Kar)
39. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.
40. We have considered the submissions of the ld. representatives of the parties and have gone through the orders of the lower authorities. The AO while passing the draft assessment order made addition of Rs.
37,45,000/- by taking view that no evidence of 'waiver' or copy of the board resolution is furnished by the assessee. Before, ld DRP the assessee urged that no interest is charged from April 2002 on deposit with Taj Karnataka as the accumulated losses are far exceed its capital and reserve 24 ITA No. 9087/Mum/2010 The Indian Hotel Company and the financial condition is very week. There is no waiver in the year under consideration and the position is the same as of earlier year. It was specifically stated that the income which is added is not actually earned and only 'real income' is chargeable to tax , as no real income is accrued to the assessee. The assessee also relied on the decision of Hon'ble Supreme Court in UCO Bank and Tamil Nadu Industrial Corporation Ltd (237 ITR 889 SC) and Marchatile Bank Ltd Vs CIT 283 ITR 84 (SC) and Godhra Electricity Company Vs CIT 225 ITR 746 (SC). The submission of the assessee was not accepted by ld. DRP. The ld DRP concluded that the action of the AO is correct and that the assessee was unable to satisfy the uncertainty to the ultimate collection of revenue from the party to which the assessee placed its deposit.
41. The Hon'ble Karnataka High Court in CIT Vs Sridev Enterprises (supra) while considering the facts in said case that during the accounting year relevant to the assessment year 1978-79, the assessee-firm had advanced certain sums to a firm N. There was certain opening balance of advances made to N during earlier years. The balance outstanding from N was Rs. 2,55,750 as on 31-3-1978. No interest was charged against this advance. Some of the partners of the assessee and N were common and they had business links inter se. The assessee had borrowed from third 25 ITA No. 9087/Mum/2010 The Indian Hotel Company parties and had been paying interest thereon. The assessee claimed deduction in respect of the interest payment to the third parties. The assessing authority disallowed the deduction claimed by the assessee to the extent of interest-free advances standing in the name of N on the ground that the amounts borrowed were not utilised by the assessee for its own business. On second appeal, the Tribunal held that since no additions had been made in the earlier years, the opening balance could not be considered in the year in question and the enquiry had to be limited only to the increase in the year in question. On reference to the Hon'ble Court it was held that in the instant case the status of the amount standing as outstanding due from N on the first day of the accounting year was the amount that stood outstanding on the last day of the previous accounting year; therefore, its nature and status could not be different on the first day of the current accounting year, from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee's claims for deductions were allowed in respect of the sums advanced during those years; this could be only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years was the very basis of the deductions permitted during the past years, whether a specific finding was recorded 26 ITA No. 9087/Mum/2010 The Indian Hotel Company or not. A departure from the finding in respect of the said amounts advanced during the previous year, would result in a contradictory finding; it would not be equitable to permit the revenue to take a different stand now, in respect of the amounts which were the subject-matter of previous years' assessments consistency and definiteness of approach by the revenue 'was necessary in the matter of recognising the nature of an account maintained by the assessee so that the basis of a concluded assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the revenue as a good debt in a particular year cannot subsequently be held by it to have become bad prior to that year. Therefore, the Tribunal was, justified in holding that since no additions had been made in earlier years, the opening debit balance could not be considered during the current year and the enquiry had to be limited to the increase in the current year only.
42. In view of the aforesaid factual discussion and the decision of Hon'ble Karnataka High Court in CIT Vs Sridev Enterprises (supra), we restore this ground of appeal to the file of assessing officer to verify the facts and grant relief to the assessee. The AO shall verify that as to whether no fresh deposits wad made with Taj Karnataka Ltd., during the period under 27 ITA No. 9087/Mum/2010 The Indian Hotel Company consideration and in case the deposits were made in earlier years and no such disallowance on account of notional interest in earlier years, therefore, no such disallowance be made for this year. In the result this ground of appeal is allowed for statistical purpose.
43. Ground 23 pertains to levy of interest u/s 234B and 234D. Levy of interest is mandatory and consequential. The assessing officer is directed to allow consequential relief to the assessee.
44. Ground 24 pertains to lack of adequate opportunity. This ground is not pressed before us; hence, rejected.
45 Ground No. 25 was raised as additional grounds of appeal, which relates to non issuance of notice under section 143(2). While making submissions on various grounds of appeal, no submissions for admissions of this ground of appeal was not made nor any submission to substantiate the ground of appeal was made, therefore this ground of appeal is dismissed as not pressed.
46. In the result the appeal of the assessee is partly allowed.
Order pronounced in the open court on 06-09-2019.
Sd/- Sd/-
(G.S. Pannu) (Pawan Singh)
VICE PRESIDENT JUDICIALMEMBER
Mumbai, Dt : 06 September, 2019
Pk/-
28
ITA No. 9087/Mum/2010
The Indian Hotel Company
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
By order
Asstt. Registrar, ITAT, Mumbai
29