Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI B. R. BASKARAN & SMT. BEENA PILLAI
The assessee has filed this appeal challenging the order dated 27.11.2018 passed by Ld. CIT(A)-2, Panaji and it relates to assessment year 2015-16. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the disallowance of expenditure of Rs.6,99,270/- relating to liquor section and also in not fully deleting the disallowance of expenses made out other expenses.
The Ld. Counsel appearing for the assessee submitted that the assessee is a partnership firm running a hotel business under the name “Aakash Inn”. It had 3 divisions namely Restaurant
M/s. Akash Inn, Shimogga Page 2 of 4 Wing, Bar Wing and Lodging Wing. The assessee entered into a Memorandum of Understanding (MOU) on 1.2.2014 with a concern named M/s. Green Leaves Inc. for managing restaurant & lodging wings. The clause 8 of MoU read as under: “8. The license to run the Bar and restaurant etc in the Restaurant Wing shall be in the name of the 1st party but the expenses of license fee and renewal fee, restaurant taxes, service tax, Income Tax, Excise Tax, Luxury Tax etc., with respect to Restaurant Wing shall be paid by the 2nd party, in all the 2nd party shall make payment of all expenses/fees taxes to run the restaurant Wing business”
Restaurant wing is described as under in the MOU:
WHEREAS the above said hotel is having one Coffee shop, one Restaurant, with full fledged kitchen and a Banquet Hall, the same are herein after called as “RESTAURANT WING”.
During the course of assessment proceedings, the A.O. noticed that the assessee has claimed salary, license fee & other expenses in respect of liquor wing. The AO took the view that the said expenses are to be borne by the lessee M/s Green Leaves Inc and hence they are not allowable as deduction, since as per MoU the assessee is eligible for claiming expenses towards maintenance of lodging section only. Accordingly, he disallowed salary, license fee and expenses relating to liquor wing aggregating to Rs.6,99,270/-. The A.O. also disallowed 25% of salary and other expenses claimed in the hotel which worked out to Rs.3,76,438/-.
The Ld. CIT(A) confirmed the disallowance of Rs.6,99,270/- and reduced the disallowance to 10% in respect of other disallowance referred above. Aggrieved, the assessee has filed this appeal before us.
At the time of hearing, the Ld. A.R. restricted his argument with regard to the disallowance of Rs.6,99,270/- made out of relating to liquor wing. Inviting our attention to clause 8 of the MoU, which is extracted above, the Ld. A.R. submitted that clause 8 clearly states that the license to run the bar and restaurant shall be in the name of first party but the expenses relating to “restaurant wing” shall be paid by the second party. He further submitted that the assessee has given license to M/s. Green Leaves Inc. to run restaurant & lodging wing alone and the assessee is running liquor wing. Accordingly, the Ld. A.R. submitted that the A.O. was not justified in taking the view that the expenses relating to liquor wing shall be borne by the lessee M/s. Green Leaves Inc. He submitted that Ld. CIT(A) has also confirmed the disallowance without appreciating the correct facts.
The Ld. D.R. on the contrary supported the order passed by Ld. CIT(A).
Having heard the rival submissions, we find merit in the submissions made by Ld. A.R. The clause-8 of MoU, which was relied on by the tax authorities to disallow the above said expenditure referred to “Restaurant Wing only”. Further “restaurant wing” has been described in the MOU itself. Both the clauses have been extracted by us in the earlier paragraph. Hence, it is clear that “liquor wing” was not leased out to M/s Green Leaves Inc. Accordingly, there is no reason to extend the conditions mentioned in clause 8 of MoU to Liquor wing. Accordingly, we are of the view that there is no merit in the disallowance of Rs.6,99,270/- made by A.O. and confirmed by Ld. CIT(A). Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.
M/s. Akash Inn, Shimogga Page 4 of 4
Since the Ld. A.R. did not advance his arguments with regard to the next disallowance, we do not find it necessary to adjudicate the same.