ACIT, NEW DELHI vs. M/S. GODAVARI SHILPKALA HOSPITALITY PVT. LTD., NEW DELHI

Insofar as the grounds no.1 & 2 are concerned, all through the proceedings, the contention of the assessee is that the assessee did not earn any exempt income during the impugned assessment year. It was so pleaded before the Ld. AO and also before the ld. CIT (A). Ld. AO had taken a view that the investment guidelines provided by the ultimate holding company of the assessee are for investment of temporary surplus funds and it requires meeting of certain expenditure and, therefore, non-earning of any dividend income is of any consequence.

Ld. CIT (A) however while following the decision of Hon’ble jurisdictional High Court in the case of Cheminvest Ltd. vs. CIT 378 ITR 33 (Delhi) held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

It is not explained before us as to how the decision of Hon’ble jurisdictional High Court in the case of Cheminvest Ltd. (supra) is not applicable to the facts of the case. Since the Ld. CIT (A) followed the binding principle of Hon’ble jurisdictional High Court which is later in point of time to the decision of ld. AO, we are of the considered opinion that the course adopted by the Ld. CIT (A) cannot be found fault with. We, therefore, uphold the finding of the Ld. CIT (A) on the aspect of the non-application of section 14A in cases where there was no exempt income during the relevant previous year.

Now, coming to ground no.3, it relates to the disallowance of Rs.66,75,874/- on account of lease rent paid. Ld. AO disallowed the same relying on the observations of the tax audit report wherein auditors have stated that the lease rent has been capitalized in the books of account during the relevant previous year and the assessee had claimed the expenses as revenue in the computation of income while filing the return.

It is admitted fact that during the relevant previous year, the assessee was running the business of catering service and mandap keeping services. Such a fact is verified by the first appellate authority from the audited balance sheet wherein the revenue from the operations was shown as Rs.2,03,08,588/-. The assessee expanded the business by opening a hotel in Bharatpur in respect of which it entered into a lease rent with H.H. Maharaj Vishvendra Singh at Bharatpur. TDS under section 194-I of the Income-tax Act, 1961 (“the Act”) was deducted on the lease rent paid.

On the set of facts, ld. CIT (A) found that opening a hotel is merely the extension of the business of the assessee as is evident from the common management and affairs of the existing business as well as the new project at Bharatpur. The utilization of the common pool of funds was also found by the ld. CIT (A). In these circumstances, Ld. CIT (A) while applying the decision of Hon’ble Apex Court in Taparia Tools Ltd. vs. JCIT – (2015) 372 ITR 605 held that an expense which is revenue in nature can be claimed as deduction u/s 37(1) of the Act regardless of the treatment given by the assessee in their books of account. Since the expenses were met in respect of an existing business which was expended by way of taking lease of the premises from Maharaj Vishvendra Singh at Bharatpur, Ld. CIT (A) found that they are revenue in nature and following the decisions reported in CIT vs. SRF Ltd. (2015) 372 ITR 425; CIT vs. Modi Industries (1993) 200 ITR 341 (Delhi); CIT vs. Relaxo Footwears Ltd. (2007) 293 ITR 231 (Delhi); Jay Engineering Works Ltd. vs. CIT (2007) 212 CTR 562 (Delhi); and CIT vs. Gaja Advisors (P.) Ltd. (2014) 367 ITR 726 (Delhi), ld. CIT (A) held that since the facts are covered by these judgments, assessee is entitled to relief and accordingly granted the relief to the assessee. It is not explained before us as to any discrepancy in the facts found by the ld. CIT (A) and since the expenses are incurred while conducting the business though it was expended further by way of lease at Bharatpur, they are revenue in nature and assessee is entitled to claim deduction u/s 37 (1) of the Act. On this score also, we find the reasoning given by the ld. CIT (A) is impeccable and there is no reason to interfere with the impugned order.

In the result, the appeal filed by the Revenue is therefore dismissed.