DOLPHIN HOTELS PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE -5(1), HYDERABAD

PDF · subscribers
ITA 520/HYD/2026Status: DisposedITAT Hyderabad22 July 2026AY 2018-1915 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that if the additions on which penalty was levied are deleted, the penalty cannot survive. It also found that the disallowance under Section 40(a)(ia) was unjustified as the assessee had provided Form 26A certificates, indicating the sellers had accounted for the income.

What were the facts?

The assessee's appeals concern penalties levied under Section 270A and assessment orders. For AY 2018-19, the penalty was confirmed by CIT(A) despite the Tribunal having deleted additions on which the penalty was based. For AY 2023-24, a disallowance under Section 40(a)(ia) was made due to non-deduction of TDS on purchases, which the assessee contended was covered by Form 26A certificates.

What were the issues?

Whether penalty under Section 270A is sustainable when the additions are deleted, and whether disallowance under Section 40(a)(ia) is justified when Form 26A certificates are provided.

Which sections of the Income-tax Act were involved?

Section 270A,Section 143(3),Section 40(a)(ia),Section 201(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD

Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G.

Pronounced: 22.07.2026

आदेश / ORDER

PER VIJAY PAL RAO, VICE PRESIDENT: These two appeals by the Assessee are directed against the two separate Orders of the Ld. CIT(A)-National Faceless Appeal Centre [in short "NFAC"], Delhi, both dated 22.12.2025 arising from penalty order passed u/sec.270A and assessment order passed u/sec.143(3) of the Income Tax Act [in short "the Act"], 1961, for the assessment years 2018- 2019 and 2023-2024, respectively. ]

2.

For the assessment year 2018-2019, the assessee has raised the following grounds of appeal: 1. “The Order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 22-12-2025 is erroneous, contrary to law and facts of the case. 2. Commissioner of Income Tax (Appeals) is not justified in confirming the penalty of Rs.60,91,334/- imposed by the Assessing Officer u/s.270A. Commissioner of Income Tax (Appeals) ought to have seen that Assessing Officer issued a notice proposing to impose penalty u/s.270A on 27-03-2025 requiring the appellant to submit reply to such notice and imposed penalty by Order dated 29-03- 2025 even before Appellant could file reply to the said notice. Assessing Officer is not justified in imposing penalty without giving sufficient opportunity to the Appellant to explain situation in the matter. Commissioner of Income Tax (Appeals), further ought to have seen that the Hon'ble Income Tax Appellate Tribunal, Hyderabad-A Bench, Hyderabad vide its Order dt.26-09-2024 had allowed the Appeal filed by the Appellant against Order dt.21-12- 2023 passed u/s.250 by National Faceless Appeal Centre (NFAC), Delhi in ITA No.165/Hyd/2024 was allowed in favour of the Appellant and the additions/disallowance made by the Assessing Officer on account of Site seeing expenses, Royalty disallowance made u/s.143(1)(a) were deleted. Hence the Commissioner of Income Tax (Appeals) is not justified in confirming the penalty imposed u/s.270A.

3.

For all of the above and such other grounds as may be urged at the time of hearing it is prayed that the appeal be allowed and suitable directions be issued to the Assessing Officer to delete penalty of 60,91,334/- imposed in the Order u/s.270A in the interest of justice.”

3.

At the time of hearing, the learned Authorised Representative of the Assessee has submitted that the penalty levied against the additions have been deleted partly bythe learned CIT(A) and remaining by this Tribunal vide Order dated 25.10.2024 in ITA.No.165/Hyd./2024. Thus, the learned Authorised Representative of the Assessee has submitted that when the entire addition has been deleted then, the penalty levied by the Assessing Officer u/sec.270A of the Act would not survive and liable to be deleted.

4.

On the other hand, the learned DR has not disputed that the additions originally made by the Assessing Officer have been partly deleted by the learned CIT(A) and thereafter the balance addition confirmed by the learned CIT(A) has been deleted by this Tribunal in quantum appeal.

5.

We have considered the rival submissions as well as relevant material on record. At the outset, we note that in the Order passed u/sec.143(3) of the Act dated 22.03.2021 the Assessing Officer has made three additions on account of (i) disallowance out of sight seeing expenses Rs.1,91,68,225/- (ii) addition of royalty expenses paid at 1% of turnover Rs.1,45,30,900/- and (iii) addition on account of provision for doubtful debts Rs.81,969/-. On appeal the addition made by the Assessing Officer on account of sight seeing expenses were deleted and partial relief was granted by the learned CIT(A) in respect of royalty payment by deleting 60% of the addition and taking 0.6% as the reasonable payment of royalty and remaining 0.4% addition was confirmed. The learned CIT-(Appeals) also confirmed the additions made by the Assessing Officer on account of provision of doubtful debts of Rs.81,969/-. Against the said Order of the

learned CIT(A), both Assessee as well as Revenue filed

appeals before the Tribunal in ITA.Nos.165/Hyd./2024 and

ITA.No.204/Hyd./2024 and this Tribunal vide Order dated

25.10.2024 has deleted the said addition confirmed by the learned CIT(A) on account of royalty payment in Para no.8 of

the said order as under:

“8. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the trade mark “Ramoji” is owned by Shri Ramoji Rao (HUF). As per the agreement between Shri Ramoji Rao (HUF), the trade mark license holder and the appellant, the appellant required to pay 1% royalty on business turnover for using the brand name in their business. The Assessing Officer never disputed the fact that Ramoji brand name commands respect in business circle and public especially in the States of Telangana and Andhra Pradesh. Therefore, in our considered view, once the appellant paying royalty as per agreement between the parties and further said brand name is owned by a person with a registered trade mark, in our considered view, the Assessing Officer and the learned CIT (A) are erred in disallowing royalty payment by invoking the provisions of section 40A(2)(b) of the I.T. Act, 1961 without bringing on record any comparable case of similar nature or how royalty payment is excessive and unreasonable. We further note that the appellant has got direct benefit from using brand name which is evident from substantial increase in turnover when compared with the impugned A.Y to earlier financial year. Thus, in our considered view, the royalty payment for using brand name is a business expenditure and allowable u/s 37(1) of the I.T. Act, 1961. The learned CIT (A) without appreciating the relevant facts simply restricted royalty payment to adhoc 0.4% of the total turnover. Thus, we set aside the findings of the learned CIT (A) on this issue and direct the Assessing Officer to delete the addition made towards disallowance of royalty payment u/s 40A(2)(b)( of the I.T. Act, 1961.

5.1. Further, the remaining addition on account of provision for doubtful debts was also deleted by the Tribunal in Para no.14 as under:

“14. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the method of accounting followed by the assessee for giving treatment to provision for bad and doubtful debts in the books of account and in the computation of statement of total income. The dispute is only with regard to the provisions for bad and doubtful debts and amount recovered out of said provision for bad and doubtful debts for the A.Y 2017-18. The Assessing Officer under wrong facts observed that the assessee has debited an amount of Rs.23,26,752/-, whereas claimed for deduction at Rs.24,08,691/- for A.Y 2017-18. We find that the Assessing Officer has grossly erred in observing that there is a difference on the provision for bad and doubtful debt added back in statement of total income and credited to P&L Account and also amount excluded from total income, because the assessee has debited an amount of Rs.21,03,697/- for A.Y 2016-17 and Rs.23,26,751/- for A.Y 2017-18. Out of the said bad debts written off, the appellant has recovered sum of Rs.3,66,282/- for A.Y 2016- 17 and Rs.20,42,409/- out of bad debts written off for A.Y 2017- 18. The Assessing Officer without appreciating the above fact simply compared the amount debited for A.Y 2017-18 and amount recovered for the A.Y 2017-18 ignoring the recovery out of bad debts written off in the books and added back to the total income and amount realized out of written back amount and credited to P&L Account for the A.Y 2016-17. If you consider two years, the amount debited is more than the amount of recovery. In any way, going by the method of accounting followed by the assessee itself, it is a tax neutrality because whatever may be the treatment in the books, the assessee added back the provision for bad debts in the statement of total income and reduced the recovery out of said bad debts in the statement of total income. Therefore, we are of the considered view that the Assessing Officer is erred in making addition of Rs.81,839/- out of the amount claimed as deduction under schedule BP. The learned CIT (A) without appreciating the relevant facts simply sustained the addition made by the Assessing Officer. Thus, we set aside the findings of the learned CIT (A) on this issue and direct the Assessing Officer to delete the addition made towards disallowance in other deductions claimed under schedule BP.”

5.2. Thus, the appeal of the assessee was allowed by the Tribunal whereas the Revenue’s appeal was dismissed. Accordingly, the three additions have been deleted at the stage of learned CIT(A) as well as by this Tribunal and consequently, the Assessing Officer has also passed giving effect order dated 10.02.025 whereby the relief to the extent of Rs.3,37,81,064/- has been granted. In view of the Order of this Tribunal when the entire addition against which the penalty has been levied by the Assessing Officer u/sec.270A of the Act has been deleted, the penalty has no legs to stand and the same is liable to be deleted. We Order accordingly.

6.

In the result, appeal ITA.No.520/Hyd./2026 of the Assessee for the assessment year 2018-2019 is allowed.

ITA.No.521/Hyd./2026 – A.Y. 2023-2024:

7.

The assessee has raised the following grounds of appeal: 1. “The Order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 22-12-2025 is erroneous, contrary to law and facts of the case. 2. a) Commissioner of Income Tax (Appeals) is not justified in sustaining the disallowance of Rs.1,77,02,142/- u/s.40(a) (ia).

b) Commissioner of Income Tax (Appeals) ought to have seen that the vendors of the Appellant from whom TDS was not made u/s.194Q are income tax assessee and have accounted purchases made from Appellant in their Books of Account as sales and thus income arising out of such purchases was declared in their returns of income and paid tax due thereon which fact was confirmed by an Accountant who furnished the required information in Annexure A to Form No.26A confirming that parties from whom goods were purchased by the Appellant have accounted such sales in their accounts and income thereon was declared in their returns of income filed u/s. 139 and paid tax due thereon. In spite of such information made available to Commissioner of Income Tax (Appeals) during appellate proceedings, Appellant was treated as defaulter of TDS on the purchases made from them ignoring the first proviso to section 201(1) of IT Act which specifically states that payees shall not be held to be a defaulter of tax. Hence Commissioner of Income Tax (Appeals) is not justified in confirming the disallowance made u/s.40(a)(ia). 3. For all of the above and such other grounds as may be urged at the time of hearing it is prayed that the appeal be allowed and suitable directions be issued to the Assessing Officer to delete disallowance of Rs.1,77,02,142/- u/s.40(a)(ia) made in the Asst. Order in the interest of justice.”

8.

The assessee company is engaged in the business of hospitality business operating hotels under the name and style of Dolphin at Visakhapatnam, 'Sitara', 'Tara' and 'Sahara' etc., in various cities of Andhra Pradesh and Telangana. The solitary issue arises in this appeal of the assessee is regarding the disallowance made by the Assessing Officer u/sec.40(a)(ia) of the Act for non-deduction of TDS u/sec.194Q in respect of the purchases made by the assessee. The learned Authorised Representative of the Assessee has submitted that Assessing Officer has made the disallowance by misconducting himself during the assessment proceedings and on the ground that neither the payee nor the payer has complied with the mandatory deduction of TDS on the purchases u/sec.194Q of the Act exceeding 50 lakh rupees during the relevant financial year. The learned Authorised Representative of the Assessee has submitted that the assessee furnished the declaration in Form-26A whereby the payees have confirmed that the goods purchased by the assessee were accounted in their sales and income thereupon was declared in their return of income filed u/sec.139 of the Act. The learned Authorised Representative of the Assessee has further submitted that once the assessee has produced the declaration in Form-26A then, as per the proviso to sec.40(a)(ia) as well as proviso to sec.201(1) of the Act no disallowance is called for u/sec.40(a)(ia) of the Act. He has further submitted that the Assessing Officer has also committed a mistake for not reducing the amount of Rs.50 lakhs from each vendor/seller and made the disallowance by taking the entire purchases without reducing Rs.50 lakhs as per sec.194Q of the Act from each supplier. He has then referred to the impugned order of the learned CIT(A) and submitted that the reasoning and finding of the learned CIT(A) is contradictory in the last para of the reasoning the learned CIT(A) has referred to the Judgment of Hon'ble Supreme Court and also acknowledged that in the said case the addition made by the Assessing Officer on account of disallowance made u/sec.40(a)(ia) was deleted by the Tribunal on the ground that payee has reflected the said amount in its tax liability in the return of income despite that the appeal of the assessee was dismissed. Thus, the learned Authorised Representative of the Assessee has submitted that the disallowance made by the Assessing Officer u/sec.40(a)(ia) is not sustainable in law and liable to be deleted.

9.

On the other hand, the learned DR has submitted that the Assessing Officer has given the finding that the assessee as well as the payee/seller has failed to comply with the provisions which means that the assessee has not deducted the tax at source in respect of the purchases made exceeding Rs.50 lakhs from the sellers and also failed to show that the said amount was considered while computing the income as reported in the return of income filed u/sec.139 of the Act. He has relied upon the Orders of the authorities below.

10.

We have considered the rival submissions as well as relevant material on record. During the assessment proceedings the assessee has produced certificates in Form- 26A whereby the payee/sellers of the goods have stated that the amount paid by the assessee towards purchase of goods has been considered as part of sales and also declared the income in the return of income filed by the seller details of which are duly annexed in the Annexure-A to the certificate in Form-26A. Thus, all these certificates clearly manifest that the seller has accounted the purchases made by the assessee in sales and also reported the income from these sales in the return of income filed. The Assessing Officer has reproduced one of such certificates in the assessment order however, despite filing the certificate on behalf of the assessee in Form- 26A the Assessing Officer has stated at Page-13 of assessment order as under: “Therefore, it is obvious that neither of the parties i.e. payee/supplier and payer/buyer has complied with the mandatory deduction of TDS on business purchase u/s 194Q exceeding 50 lakh rupees during relevant F.Y. Total business purchase exceeding 50 lakh rupees on which TDS has not been deducted stands at Rs.9,90,07,139/- from 08 suppliers. Since 30% of the amount exceeding purchase of 50 lakhs out Rs.9,90,07,139/ of business purchase is to be disallowed in compliance of section 40(a)(ia) which is calculated at Rs.1,77,02,142/- (Rs.5,90,07,139/-30%), therefore Rs.1,77,02,142/- is added back to the total income of the assessee on account of non-deduction of TDS on business purchase exceeding Rs.50 lakh for A.Y. 2023-24.

As the assessee has under reported the income which is inconsequence of mis-reporting, on account of misrepresentation of facts in this case, penalty proceedings u/s 270A(1) r.w.s. 270A(8) r.w.s 270A(9)(a) of the Act is initiated separately.”

10.1. This observation and findings of the Assessing Officer is contrary to the record as the assessee has discharged its onus to produce certificate in Form-26A and if the Assessing Officer has any doubt about the correctness of the certificate then, it is the subject matter of the assessment of the seller to verify the same. Further, the Assessing Officer has not conducted any further enquiry and even not rejected the certificate in Form-26A then, the disallowance made by the Assessing Officer is unjustified. On appeal, the learned CIT(A) has made an observation at Page no.18 as under:

“The case law mentioned above is not applicable to the case of the appellant since it was rendered prior to amendment to the section 40(a)(ia) of the I.T Act. However, in the case of Principal Commissioner of Income-tax v. Shivaai Industries (P.) Ltd, [2024] 159 taxmann.com 388 (SC) the Hon'ble SUPREME COURT OF INDIA had observed that, Section 40(a)(ia) of the Income-tax Act, 1961-Business disallowance Interest etc., paid to a resident without deduction of tax at source (Tax paid by payee) In course of assessment, Assessing Officer made disallowance under section 40(a)(ia) in respect of certain payments made by assessee to DTC on which tax had not been deducted at source Tribunal deleted said disallowance on ground that payee had reflected said amount as its tax liability in its return High Court upheld Tribunal's order - Whether instant appeal against impugned order was to be dismissed - Held, yes [Para 2] [In favour of assessee.”

10.2. Thereafter, the learned CIT(A) has dismissed the appeal of the assessee as under:

“In view of above facts and circumstances, the objection raised by the appellant are rejected and the ground are dismissed. As a result, the appeal is dismissed.” 4.

10.3. Thus, this finding of the learned CIT(A) is also self- contradictory as well as contrary to the facts and record. Accordingly, in the facts and circumstances of the case, when the assessee has produced the certificate in Form-26A in accordance with the proviso to sec.40(a)(ia) as well as 201(1)

of the Act then, no disallowance u/sec.40(a)(ia) of the Act is called for. Hence, in the facts and circumstances of the case as discussed above, the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) is deleted.

11.

In the result, appeal ITA.No.521/Hyd./2026 for the assessment year 2023-2024 is allowed.

To sum up, both the appeals of the Assessee are allowed. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 22.07.2026.

Sd/- Sd/- MANJUNATHA G. VIJAY PAL RAO ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 22nd July, 2026. VBP Copy to: DOLPHIN HOTELS PRIVATE LIMITED, HOTEL SITARA, RAMOJI FILM CITY, RANGA REDDY DIST, HYDERABAD. 1 PIN- 501512,TELANGANA 2 DCIT, CIRCLE -5(1), IT TOWERS, HYDERABAD - 500001, TELANGANA 3 THE PR. CIT, HYDERABAD. 4 THE D.R., ITAT, HYDERABAD A-BENCH, HYDERABAD. 5 GUARD FILE TRUE COPY VADREVU Digitally signed by VADREVU PRASADA ASSISTANT REGISTRAR / PRASADA RAO I.T.A.T., HYDERABAD Date: 2026.07.22 RAO 17:22:12 +05'30'

More judgments on Section 270A

All 4,156 judgments and leading authorities on Section 270A →

Recent GST High Court judgments

Search GST case law →