M/S AKASH INN ,SHIMOGA vs. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2 , MANGALORE

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

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.

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.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 13th Aug, 2021

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order