CIT vs. ELEL HOTEL & INVESTMENT LTD

While admitting this appeal by the order dated 22nd August, 2013, the following substantial questions of law were framed: “(i) Whether the Income Tax Appellate Tribunal was right in holding that the respondent-assessee is entitled to depreciation on Rs.30.86 crores @10 % as building?

For the AY in question, the Assessee filed its return on 21st October, 2006 declaring a loss of Rs.39,39,710/-. The Assessee being covered under Section 115-JB of the Income Tax Act, 1961 („Act‟), it paid an aggregate tax of Rs.9,15,785/- on book profit under the aforementioned provision.

A search took place under Section 132 of the Act in the Suresh Nanda Group of Companies on 28th February, 2007. Pursuant thereto, the Assessing Officer („AO‟) issued a notice to the Assessee on 9th September, 2008 under Section 153-A of the Act for reopening of proceedings. Pursuant to the notice, the Assessee filed a return of income declaring a loss of Rs.5,08,73,700/-. This difference in the return of income was attributed to the changed claim of depreciation. Whereas in the original return, the

The AO passed an assessment order on 31st December, 2008 under Section 143 (3) read with Section 153-A of the Act assessing the total income of the Assessee at Rs.2,85,42,450/-, as against the returned loss of Rs.5,08,73,700/-. Against the aforementioned assessment order, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals) [„CIT (A)‟]. During the course of the proceedings before the CIT (A), the Assessee was allowed to raise a ground that the amount paid by it to ITC Limited at the time of termination of the agreement with ITC Limited, ought to be allowed, as a revenue expenditure. In the order dated 30th December, 2009, the CIT (A) came to the following conclusions: “6.3.2. Based on the above discussions, ground No. 3 is decided as under:

Aggrieved by the above order, both the Assessee and the Revenue filed appeals before the ITAT, which were disposed of by a common impugned order (which incidentally was also common to the appeals for the AY 2005- 06). It is seen from paragraph 24.6 of the impugned order of the ITAT that the counsel for the Assessee made three „without prejudice‟ arguments before it in the following order of preference:

The discussion on the aspect whether the payment made to ITC Limited was capital in nature starts from paragraph 24.11 of the impugned order. The ITAT came to the conclusion that since on account of the aforementioned payment to ITC Limited “the Assessee‟s business acquired a new lease of life” it could “only be held to be an expenditure of capital in nature”.

The ITAT then proceeded to consider the second alternative plea that the payment had led to acquisition of intangible asset. The ITAT in the impugned order came to the conclusion that “the payment cannot be said to be for acquisition of any intangible asset”. It appears that the ITAT, in view

Even when the above questions of law were framed before this Court by the order dated 22nd August 2013, it appears that no specific question as such was framed on this aspect.

However, it is pointed out by Mr S. Ganesh, learned Senior Counsel appearing for the Assessee, that if Question (i) is to be answered in favour of the Revenue i.e. by holding that the ITAT was in error in holding that the Assessee was entitled to depreciation on Rs.30.86 crores at 10% as building then the corollary would be that the said expenditure has to be treated as revenue expenditure.

On the other hand, Ms Vibhooti Malhotra, learned Senior Standing Counsel appearing for the Revenue, submits that the ITAT did not have an occasion to actually examine whether the expenditure could at all be claimed as a revenue expenditure. She points out that without examining how the Assessee treated the amount in the original return filed by it i.e. the return filed prior to the return pursuant to the notice under Section 153-A of the Act, the ITAT could not have come to a conclusion, one way or the other.

It must be noticed at this stage that according to the Assessee, it made a claim of depreciation at 10% on the sum of Rs.30.86 treating as building, both in its original return as well as in the return filed pursuant to the notice

The Court finds merit in the contention that this aspect of the matter, viz., if the expenditure is not to be treated as „capital expenditure‟, then it will have to be treated as „revenue expenditure‟ was perhaps not addressed in the manner it should have been treated by the ITAT. On this aspect, therefore, the Court considers it appropriate to remit the matter to the ITAT for decision afresh on the treatment to be accorded to the expenditure incurred by the Assessee of the aforementioned sum of Rs.30.86 crores and whether in particular, it should be treated as a „revenue expenditure‟ or as „capital expenditure‟. The Court makes it clear that it has not expressed any view one way or the other on the respective contentions of the Revenue or the Assessee on the issue, and, it will be open to the ITAT, after examining the entire records, including the original return filed by the Assessee to come to a fresh decision independent of its earlier decisions and any observations in the instant order.

As far as the Question (ii) is concerned, the Court is of the view that the findings both of the CIT (A) as well as the ITAT are consistent that the only business of the Assessee was its hotel business and, therefore, the income shown by the Assessee should be treated as income from house property and not as income from other sources. Consequently, Question (ii) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue.

The appeal i.e. ITA No. 918/Del/2010 is restored to the file of the ITAT for deciding the specific issue mentioned in para 14 of this order afresh in accordance with law. The appeal shall be listed for directions before the ITAT on 11th September, 2019. The ITAT will make endeavour to dispose of the appeal as expeditiously as possible and in any event within a period of six months from the date of receipt of a copy of this order.

The appeal is disposed of in above terms.