ACIT, NEW DELHI vs. M/S. GODAVARI SHILPKALA HOSPITALITY PVT. LTD., NEW DELHI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the CIT(A)'s decision that Section 14A is not applicable if no exempt income is earned. It also agreed that the lease rent for the hotel was a revenue expenditure deductible under Section 37(1) as it was an extension of the assessee's business.
What were the facts?
The Revenue appealed against the CIT(A)'s order deleting disallowances made under Section 14A and Section 37(1) of the Income Tax Act. The assessee contended that no exempt income was earned, and the lease rent paid for a hotel was an extension of its existing business.
What were the issues?
Whether disallowance under Section 14A is warranted when no exempt income is earned, and whether lease rent for a new hotel is a revenue expenditure deductible under Section 37(1).
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(7)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- Cheminvest Ltd. v. CIT1,569 citing378 ITR 33 · 2015 · HC · Read judgment
- CIT v. Rajendra Prasad Moody386 citing115 ITR 519 · 1978 · SC
- Taparia Tools Ltd. v. JCIT343 citing372 ITR 605 · 2015 · SC · Read judgment
- Similarly, in CIT v. Modi Industries Ltd. (No.3)37 citing200 ITR 341 · 1993 · HC
- CIT v. Relaxo Footwears Limited25 citing293 ITR 231 · 2007 · HC
- 2016) 383 ITR 490 (Kar); HDFC Bank Ltd Vs. DCIT & Others (2016) 383 ITR 529 (Bom); CIT v. Modi Rubber Ltd.4 citing372 ITR 425 · 2015 · HC
- CIT v. Tata Chemicals 256 ITR 395; Produce Exchange Corporation Ltd. v. Commissioner of Income-tax3 citing212 CTR 562 · 2007 · HC
Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI PRASHANT MAHARISHI & SHRI K. NARASIMHA CHARY
Aggrieved by the order dated 18.05.2016 in Appeal No.282/15- 16/CIT(A)-4 passed by learned Commissioner of Income-tax (Appeals)-4, New Delhi {for short “ld.CIT(A)”} for Assessment Year 2012-13, Revenue filed this appeal on the following grounds :-
“1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in not upholding disallowance of Rs.2,68,36,592/- under section 14A of the Income Tax, 1961 (the Act) without considering legislative intend of introducing section 14A by the Finance Act 2001 as clarified by the CBDT Circular No.5/2014 dated 10.02.2014.
2. Whether on facts and on circumstances of the case and in law, the Ld. CIT(A) is justified in not upholding disallowance of Rs.2,68,36,592/- under section 14A of the Act without consider a legal principles that allowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon'ble Supreme Court in case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519.
3. Whether on facts and circumstances of the case and law, the Ld. CIT(A) is justified in deleting the addition of Rs.66,75,874/- by ignoring the provisions of section 37(1) of the I.T. Act, 1961.
4. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs.66,75,874/-, whereas the auditor has also been certified lease rent expenditure as capital expenditure.”
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.
Order pronounced in open court on this 28th day of August, 2019.
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