SPICE OF LIFE HOTELS AND ESTATES PRIVATE LIMITED,MUMBAI vs. DCIT-2(3)(1), MUMBAI

The grounds of appeal are as under:- 1.GROUND NO. 1: ADDITION OF RS. 13,42,963/- MADE AT 5% ON ADHOC BASIS TOWARDS ADVANCE CLUB MEMBERSHIP FEE OF RS. 2,68.59.279/-: 1.1 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in upholding the adhoc addition at the rate of 5% made by the Ld. AO of Rs. 13,42,963/-towards the club membership fee received in advance.

1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the disallowance of interest on loan amounting to Rs. 37,70,706/- made by the Ld. AO for the alleged reason that the same has not been used for the purpose of Appellant’s business.

2 The Appellant prays that the above disallowance be deleted.

GROUND NO. 111: LEVYING INTEREST UNDER SECTION 234A AND 234B OF THE ACT OF RS. 23,060/- and RS. 96,852/- RESPECTIVELY:

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in upholding the levying interest u/s 234A and 234B of the Act by the Ld. AO amounting to Rs. 23,060 and Rs. 96,852/- respectively,

2 The Appellant prays that the above interest levied under section 234A and 234B of the act amounting to Rs. 23,060/- and Rs. 96,852/- respectively be deleted.

Brief facts of the case are that return of income was filed declaring loss of Rs. 32,21,950/-. Thereafter, the case was selected for scrutiny and accordingly notice u/s 143(2) of the Act was issued.

Ground no.1 pertains to the ad hoc addition at the rate of 5% made by the AO of Rs. 13,42,963/-towards the Club membership fee received in advance.The assessee had received advances against Club membership fees at Rs. 2,68,59,279/-. It was asked by the AO to furnish the name, signed proofs from members of having acquired club membership, PANs, email ids of members who had subscribed to membership and other details. Notice u/s.133(6) of the Act were issued to randomly selected members. Out of 41, three notices could not be served as their email deliveries got bounced. Twenty two persons had not responded while fourteen responded and confirmed their memberships and payments while two denied of any payment or membership and one had said of paying lesser amount than that claimed by the assessee. Hence, the AO disallowed 5% of the amount Rs. 2,68,59,279/- i.e., Rs. 13,42,963/- which included denials/deficiencies.

The ld.CIT(A) affirmed the addition by observing that the AO rightly disallowed 5% of the amount outstanding in view of fact that the P a g e | 4 A.Y. 2021-22 Spice of Life Hotels and Estates Private Limited confirmation was not received in some cases and differences in the amounts paid towards the club membership fee while confirming the transacted parties. The assessee ought to have discharged the burden of proof of the club membership received beyond reasonable doubt. Therefore, the addition made by the AO on this account was justified, which includes the denied transaction/ lesser payments..

Before us, the ld.AR has contended that the assessee had furnished the relevant evidence before the lower authorities to substantiate its claim of genuineness of club membership fees. However, in order to further corroborate the documents already placed on record, the assessee was submitting a copy of the ledger account of Income from Membership Subscription Fees received, income from Club Membership and Advance received for membership fees for the captioned year. Further, the AO made an addition of 5% of the total club membership advances received, substantial portion of which had been received in earlier years. To substantiate the claim, the assessee also sought permission to submit certain additional evidences in support of the claim.

Ground No. 2 pertains to the disallowance of Rs. 37,70,706/- made on account of interest expenditure on loan. Facts of P a g e | 5 A.Y. 2021-22 Spice of Life Hotels and Estates Private Limited the case are that assessee paid interest amounting to Rs.37,70,606/- to M/s Paranjape Properties & Investments Pvt. Ltd. & M/s Paranjape Schemes (Construction Ltd.) amounting to Rs. 59,056/- & Rs.37,11,550/- respectively. However, it failed to produce the evidence that the loans were utilized for its business purpose. Moreover, the loans were taken in the year 2017 and before 2013 respectively from them. It also failed to explain the sources for investment in PSC Pacific. Therefore, it was concluded that the loans were not used for the business purpose. Accordingly, the addition made was upheld by the ld.CIT(A) as well.

Before us, the ld.AR has submitted that the AO disallowed the aforesaid interest expenditure on the ground that the borrowed funds were not utilised for the purposes of business. It is stated that during the course of assessment proceedings, it had furnished a detailed reply explaining the complete flow of funds. It was submitted that during the year, it had received a sum of Rs. 4,80,62,000/- from PSC Pacific and repaid loans aggregating to Rs. 4,66,50,000/- to Flagship Infrastructure Pvt. Ltd. (now merged with Paranjape Schemes (Const.) Ltd.). However, the AO, merely on the basis of movement of funds, concluded that the amounts may have beeninvested in PSC Pacific and not utilised for P a g e | 6 A.Y. 2021-22 Spice of Life Hotels and Estates Private Limited business purposes, without appreciating the factual position entirety.It is further contended that during FY 2011-12, it had availed loans of Rs. 11,00,00,000/- from Flagship Infrastructure Pvt. Ltd. and Rs. 10,00,000/- from Paranjape Properties & Investment Pvt. Ltd. Out of the said borrowings, a sum of Rs. 10,50,00,000/- was advanced as loan to PSC Pacific during FY 2011-12. Interest was duly charged on the loans advanced and correspondingly interest was also paid on the loans availed. Further, the entire loan advanced to PSC Pacific was fully repaid by PSC Pacific to the assessee by the end of FY 2016-17. Accordingly, on March 31, 2017, there was no outstanding loan receivable from PSC Pacific. Therefore, during the captioned AY, the amount received from PSC Pacific represents withdrawal from capital account. The assessee furnished a detailed reply along with the supporting documents during the assessment proceedings substantiating the above position.

1 Without prejudice, it is further submitted that the interest expenditure has consistently been treated as allowable business expenditure in earlier years as a part of its Inter Corporate Deposit activity and the same has been accepted by the Department in all these past years from AY 2012-13 to AY 2020-21. In support of the said contention, the assessee made a request for filing certain additional

On careful consideration of the above stated facts, it appears to us that the assessee failed to produce cogent evidences before the lower authorities in support of the above issues resulting into the impugned additions. The assessee made a request for filing certain additional evidences in respect of both the above issues. Considering the totality of the facts, we consider that in the interest of justice and fairplay, both the issues need to be re-adjudicated afresh by the AO after taking into account the evidences now being requested for admission. It would be fair to the AO as well that such evidences are properly evaluated and considered for arriving at a fair conclusion. Accordingly, we deem it appropriate and send back both the issues in hand to the file of the AO for reconsideration and after allowing adequate opportunity to the assessee in this regard who would be at liberty to file any additional evidence before him as deemed necessary to canvass its case. Therefore, both the above grounds are allowed for statistical purposes.

Ground No. 3 relates to charging of interest u/s. 234A & 234B. Charging of interest is consequential in nature requiring any adjudication.

In the result, the above appeal of the assessee stands allowed for statistical purposes.