Income Tax Appellate Tribunal - Chennai
Taj Madras Flight Kitchen P Ltd., ... vs Acit, Chennai on 22 March, 2018
आयकर अपील
य अ धकरण, 'बी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं
ी ए. मोहन अलंकामणी, लेखा सद य केसम&
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
आयकर अपील सं./ITA Nos.1568 & 1569/Chny/2014
नधा(रण वष( / Assessment Years : 2005-06 & 2007-08
M/s Taj Madras Flight Kitchen
The Assistant Commissioner of Private Limited,
Income Tax, v. No.6, Officers Lines No.272,
Company Circle - III(1), G.S.T. Road, Pallavaram,
Chennai - 600 034. Chennai - 600 043.
PAN : AAACT 7755 J
(अपीलाथ,/Appellant) (-.यथ,/Respondent)
आयकर अपील सं./ITA No.1705/Chny/2014
नधा(रण वष( / Assessment Year : 2007-08
M/s Taj Madras Flight Kitchen
Pvt. Ltd., The Assistant Commissioner of
C/o M/s Subbaraya Aiyar v. Income Tax,
Padmanabhan & Ramamani Company Circle III(1),
Advocates, Chennai - 600 034.
New No.75A (Old No.105A),
Dr. Radhakrishnan Salai,
Mylapore, Chennai - 600 004.
(अपीलाथ,/Appellant) (-.यथ,/Respondent)
राज व क0 ओर से /Revenue by : Shri B. Sahadevan, JCIT
नधा(2रती क0 ओर से /Assessee by : Sh. R. Vijayaraghavan, Advocate
सन
ु वाई क0 तार
ख/Date of Hearing : 26.02.2018
घोषणा क0 तार
ख/Date of Pronouncement : 22.03.2018
2 I.T.A. Nos.1568 & 1569/Chny/14
I.T.A. No.1705/Chny/14
आदे श /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the Revenue and the assessee are directed against the respective orders of the Commissioner of Income Tax (Appeals)-III, Chennai, dated 26.03.2014. When the Revenue has filed appeals for assessment years 2005-06 and 2007-08, the assessee has filed appeal for assessment year 2007-
08. We heard all the appeals together and disposing of the same by this common order.
2. The first issue arises for consideration is in the Revenue's appeal is addition of ₹27,00,000/- with regard to excess collection of sales tax.
3. Shri B. Sahadevan, the Ld. Departmental Representative, submitted that the assessee was expected to collect sales tax at the rate of 2%. However, the assessee collected 4% and surcharge at 5% thereon. Therefore, according to the Ld. D.R., the Assessing Officer found that the excess collection has to be treated as trading receipt, hence, the Assessing Officer made the addition of ₹27,00,000/-.
3 I.T.A. Nos.1568 & 1569/Chny/14
I.T.A. No.1705/Chny/14
4. On the contrary, Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that what was collected by the assessee was deposited with Sales Tax Department. According to the Ld. counsel, there was a confusion with regard to the rate of tax, therefore, the assessee sought clarification from Commercial Tax Officer. The Commercial Tax Officer clarified that the assessee has to collect sales tax at 2%. However, the assessee collected 4% and surcharge 5% thereon. According to the Ld. counsel, the entire sales tax and surcharge were admittedly paid to Sales Tax Department and nothing retained by the assessee, therefore, the CIT(Appeals) rightly deleted the addition made by the Assessing Officer.
5. We have considered the rival submissions on either side and perused the relevant material available on record. If the assessee collected sales tax and failed to deposit the same, then the same has to be treated as part of trading receipt. In this case, what was collected by the assessee was already deposited with the Sales Tax Department and there was confusion regarding the sales tax rate. The assessee collected 4% instead of 2%. The entire amount collected was deposited with the Sales Tax Department, therefore, 4 I.T.A. Nos.1568 & 1569/Chny/14 I.T.A. No.1705/Chny/14 nothing retained by the assessee. Hence, treating the same as trading receipt does not arise, therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer.
6. The next issue arises for consideration is with regard to additional sales tax collected by the assessee to the extent of ₹28,37,259/-.
7. Shri B. Sahadevan, the Ld. Departmental Representative, submitted that the assessee collected ₹28,37,259/- towards sales tax. Out of this, according to the Ld. D.R., an amount of ₹9,43,078/- was refundable to the assessee since a credit note was issued to Jet Airways for the excess amount collected. The Commercial Tax Officer adjusted the balance amount of ₹18,87,096/- towards penalty under the Sales Tax Act. According to the Ld. D.R., the penalty and the amount to the extent the credit note issued to Jet Airways cannot be allowed as deduction.
8. On the contrary, Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the excess amount was collected at the rate of 4% instead of 2%. The Commercial Tax Officer clarified that the assessee has to collect only 2% by a letter dated 7th May, 5 I.T.A. Nos.1568 & 1569/Chny/14 I.T.A. No.1705/Chny/14 2003. The amount collected over and above the sales tax was also paid to the Government account. Once the entire amount is remitted to the Government account, according to the Ld. counsel, no part of the sales tax can be treated as income of the assessee.
9. We have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals) found that the excess sales tax at the rate of 4% was collected by the assessee and the same was remitted to the Government account. The CIT(Appeals) also found that the sales tax collected and paid was not reflected in the Profit & Loss account. In those circumstances, this Tribunal is of the considered opinion that the excess sales tax collected and remitted to the Government account cannot be construed as income of the assessee. Therefore, the order of the CIT(Appeals) is confirmed.
10. The next ground of appeal is with regard to disallowance made by the Assessing Officer under Section 40A(2)(b) of the Income-tax Act, 1961 (in short 'the Act').
11. Shri B. Sahadevan, the Ld. Departmental Representative, submitted that the assessee has debited a sum of ₹2,33,44,828/- 6 I.T.A. Nos.1568 & 1569/Chny/14
I.T.A. No.1705/Chny/14 towards the payment made to specified persons under Section 40A(2)(b) of the Act. According to the Ld. D.R., the assessee- company paid ₹2,33,44,828/- towards laundry charges to the sister concern. Since the payment was considered to be unreasonable and excess when compared to the market rate, according to the Ld. D.R., the Assessing Officer disallowed the payment, therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee.
12. On the contrary, Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee is supplying food and beverages to the airlines and also rendering laundry service. To carry out laundry service, the assessee engaged its sister concern. The payment made to sister concern is less than the market rate. According to the Ld. counsel, the laundry services are provided to employees of the airlines, therefore, the assessee has to incur expenditure for providing the services. According to the Ld. counsel, Taj Coromandel of Oriental Hotels Ltd. is a sister concern of the assessee and paid ₹32,47,468/- towards laundry charges. The laundry service included sorting, counting, washing, dry cleaning, ironing, pressing, packing and loading of all Carrier's linen to highest standard. According to the Ld. counsel, the Assessing 7 I.T.A. Nos.1568 & 1569/Chny/14 I.T.A. No.1705/Chny/14 Officer disallowed 20% of the expenditure claimed by the assessee on ad hoc basis without any reason. The assessee filed additional evidence before the CIT(Appeals) and the CIT(Appeals) called for remand report. Even though the Assessing Officer found in the remand report that the claim of the assessee cannot be allowed, according to the Ld. counsel, the CIT(Appeals) allowed the same on the ground that these expenditures were allowed by the Assessing Officer himself in the earlier assessment year. Therefore, according to the Ld. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee.
13. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee admittedly paid ₹2,33,44,828/- to M/s Taj Coromandel of Oriental Hotels Ltd. M/s Oriental Hotels Ltd. is the sister concern of the assessee. The Assessing Officer found that the payments were excessive of the market rate, therefore, he disallowed 20% of the payment made by the assessee to the extent of ₹42,06,077/-. The CIT(Appeals), after reproducing the written submission and arguments of the assessee, allowed the claim of the assessee without any discussion. When the payment was disallowed at the 8 I.T.A. Nos.1568 & 1569/Chny/14 I.T.A. No.1705/Chny/14 rate of 20% on the ground that it was excessive of the market rate, it is for the Assessing Officer and the CIT(Appeals) to bring on record how the payments made by the assessee are on par with market rate. No doubt, the laundry service needs to be provided at the highest standard required by the airlines. The question arises for consideration is whether the standard of service maintained by the assessee is on par with the market rate which is otherwise available in the market? Therefore, it is necessary for the Assessing Officer and the CIT(Appeals) to ascertain from market what is the reasonable rate that could have been paid by the assessee for similar service to the third parties. In the absence of any such examination, this Tribunal is of the considered opinion that the matter needs to be re-examined. Accordingly, orders of both the authorities below are set aside and the disallowance made by the Assessing Officer under Section 40A(2)(b) of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and bring on record the market rate of similar laundry service provided in the locality and thereafter decide the issue afresh, in accordance with law, after giving a reasonable opportunity to the assessee.
9 I.T.A. Nos.1568 & 1569/Chny/14
I.T.A. No.1705/Chny/14
14. In the result, the Revenue's appeal for assessment year 2005-06 is partly allowed for statistical purposes. However, for the assessment year 2007-08, both the appeals of the Revenue and the assessee are allowed for statistical purposes.
Order pronounced on 22nd March, 2018 at Chennai.
sd/- sd/-
(ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन)
(A. Mohan Alankamony) (N.R.S. Ganesan)
लेखा सद य/Accountant Member या यक सद य/Judicial Member
चे नई/Chennai,
nd
7दनांक/Dated, the 22 March, 2018.
Kri.
आदे श क0 - त8ल9प अ:े9षत/Copy to:
1. नधा(2रती /Assessee
2. Assessing Officer
3. आयकर आयु;त (अपील)/CIT(A)-III, Chennai-34
4. CIT, Chennai-III, Chennai-34
5. 9वभागीय - त न ध/DR
6. गाड( फाईल/GF.