THE INDIAN HOTELS COMPANY LTD,MUMBAI vs. DCIT (OSDZ0 CIR 2(2), MUMBAI

22. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.

“8. We noticed that the coordinate bench has decided this issue in favour of assessee in assessee own case for AY 2003-04, and AY The Indian Hotel Company 2004-05, ITAs No. 2678/Mum/ 2009. The findings of ornate bench are reproduced as under:- “8. We have heard the arguments of both the sides and also produce the relevant material placed on record. As agreed by the learned a percentage of both the sides, this issue is squarely covered in fear of assessee by the decision of tribunal rendered in assessee’s own case for earlier years. In AY 1995-96, it was held by the tribunal wide its order dated 12 September 2006 passed in that there being no diversion of interest-bearing funds for non-business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds. It was noted by tribunal that the share application money was finally returned to the assessee with interest @ 19% and the interest so received was duly offered by the assessee in the relevant year. Similar view has been taken by the tribunal in subsequent years i.e. assessment year 1996- 97 to 2002-03. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years, we respectfully follow the order of the tribunal for the said years and uphold the impugned order of learned CIT(A) giving relief to the assessee on this issue.

25. Grounds 16 & 18 pertain to expenditure on replacement of carpet.

The assessee also raised an alternative ground that without prejudice depreciation should be allowed @15% instead of 10% allowed by the AO for carpet. The Ld.AR of the assessee submitted that the issue is squarely covered by the decision of the Tribunal for AY 2005-06 in ITA 17

The Indian Hotel Company No.841/Mum/2010 & which followed the order of Tribunal for AYs 2003- 04 & 2004-05 in & 2678/Mum/2009.s

“12. We notice that coordinate bench has decided this issue and fair of assessee in the assessee’s own case for AYs 1992-93 aforesaid by following the decision of ITAT in case of PIEM Hotles Ltd for AYs 1991-92, 1995 - 96, 1993 - 94, 1986 - 87, 1988 - 89 to 1990 - 91 and 1994-95. Apart from the decision of the coordinate bench the learned counsel for the assessee relied upon the decision of Hon’ble Rajasthan High Court rendered in CIT versus Lake Palace Hotel and Motels Private Limited 258 ITR 562 (Raj). Since, this issue has already been decided in favour of assessee, we respectfully following the decision of coordinate bench uphold the filing of learned CIT(A) and dismissed this ground of appeal of the revenue.

27. Considering the decision of the Tribunal, which is consistently followed in all years, thus, respectfully following the same these grounds of appeals are allowed. Since, we have allowed the main grounds therefore the discussion on alternative ground of appeal for allowing depriciation has become academic. 18

The Indian Hotel Company 28 Grounds 17 & 18 relates to expenditure on replacement of linen.

The assessee also raised an alternative ground that without prejudice, allowance of depreciation @15% and not 10% for linen. The Ld.AR of the assessee submitted that that the issue is squarely covered by the decision of the Tribunal for AY 2005-06 in & which followed the order of Tribunal for AYS 2003-04 & 2004-05 in ITA No. 6712/Mum/2008 & 2678/Mum/2009.

“ 15. We notice that coordinate bench has decided this issue in fear of the assessee in assessee’s own case report of the list hence, respectfully following the decision of coordinate benches aforesaid, we uphold the finding of learned CIT(A) and dismissed this ground of appeal of the revenue.”

31. Considering the decision of the Tribunal, which is consistently followed in all years, thus, respectfully following the same these grounds of appeals are allowed. Since, we have allowed the main grounds therefore the The Indian Hotel Company discussion on alternative ground of appeal for allowing depriciation has become academic.

Ground 19 pertains to adjustment on account of difference on rate 32. of foreign exchange on deposit placed with WOS (TIHK). The Ld.AR of the assessee submitted that that the issue is squarely covered in favour of the assessee by the decision of the Tribunal for AY 2005-06 in ITA No.841/Mum/2010.

“18. We have noticed that the coordinate bench has decided this issue in favour of assessee holding as under:- “11. We heard the arguments of both the sides and also pursued the relevant material record. The learned counsel for the assessee has a strongly relied on the order of learned CIT (Appeals) in support of assessee’s case on this issue whereas the learned DR has relied on the order of AO in support of the revenue’s case. It is observed that impugned additions were made by AO mainly relying on AS- 11. According to the AO, as per said accounting standard, the investment made in the shareholders deposit with TIHK by the assessee company was required to 20 be recognised in the exchange rate prevailing on the last date of relevant previous year. However, as submitted on behalf of the assessee before the learned CIT(Appeals) as well as before us, only the monetary items are required to be reported/recognised at the exchange rate prevailing on the last date of the relevant transaction. As per the classification made in the AS-11, monetary items mainly include amounts held on current account, such as, cash receivables, payables etc. while nonmonetary items include amounts held as capital accounts, such as, fixed assets, investment in shares etc. In the present case, the shareholders deposit represented the amount held by the assessee on capital account inasmuch as it was convertible into equity shares within a period of 10 years and if not so converted, it was liable to be refunded to the assessee company after a period of 10 years. In our opinion, the said amount thus was in the nature of nonmonetary item which was required to be reported/recognised at the exchange rate prevailing on the date of relevant transaction as per AS-11 has rightly held by learned CIT appeals. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) deleting the addition is made by the AO on this issue and upholding the same, we dismiss relevant grounds of revenue’s appeal.”

of the revenue by respectfully following the decision of coordinate bench in assessee’s own case for the assessment years mentioned above.”

34. Considering the decision of the Tribunal in AY 2005-06, wherein the order of ld CIT(A) in allowing relief to the assessee was affirmed on the identical ground of appeal, thus, respectfully following the same these grounds of appeals are allowed.

35 Ground 20 pertains to disallowance u/s 14A. The Ld.AR of the assessee submitted that the issue is squarely favour of the assessee in 21

The Indian Hotel Company assessee’s own case by the decision of the Tribunal for AY 2005-06 in ITA No.841 /Mum / 2010 and for AY 2004-05.

“6. We have heard the rival submission and also produce the material on record including the cases relied upon by the parties. The only grievance of the assessee is that learned CIT(A) has wrongly upheld the disallowance is made by the AO under section 14A of the act. As contended by the learned counsel for the assessee, the suo-moto disallowance made by assessee is in accordance with the earlier year’s orders, which was accepted by the Department. We noticed that the AO has accepted this promoter disallowance of ₹ 1,09,33,117/-under section 14A during the assessment year 2004-05 on the basis of disallowance made in the year 1998-99 to assessment year 2002-03 holding that the assessee is claimed is found to be correct and in order. The assessee has pointed out that as per the decision of coordinate bench in case of Garware Walls Limited versus Add. CIT 2014 65 SOT 86 (Mumbai tribunal) and other benches of the tribunal strategic investments made by the assessee as required to be excluded from the value of investment. As per the decision of Delhi bench of the tribunal only those investments are to be considered for computing the average value of investments, which yield exempt income during the year. In Godrej and Boyce Manufacturing Co Ltd 328 ITR 81 (Bombay), the honourable Bombay High Court has held that provisions of Rule8D are not retrospective nature and shall apply w.e.f. AY 2008-09. Hence, 22

The Indian Hotel Company in the light of the aforesaid decisions and in view of the fact that the suo-moto disallowance made by assessee was allowed by the Department in the year 2004-05, we are of the considered view that the suo-moto disallowance made by the AO in the assessment year under consideration, which is 10% of the exempt dividend income is reasonable. We therefore, set aside the order of ld. CIT(A) and direct the AO to delete the disallowance confirmed by ld CIT(A) and accept the soma to disallowance made by the assessee under section 14 A of the Act. We accordingly allow the sole ground of appeal of the assessee.”

37. Considering the decision of tribunal on similar set of facts we direct the assessing officer to accept the 10% of exempt income, which is allowed as suo moto disallowance by the assessee. In the result this ground of appeal is allowed.

38 Ground 21 pertains to addition of premium on redemption of foreign currency convertible bonds. This ground is not pressed before us.

Therefore, this ground is dismissed.

The assessing Officer disallowed, as according to him, no evidence of interest waiver or copy of Board resolution was furnished and therefore,

The Indian Hotel Company right to received interest was crystallised. Accordingly, he added an amount of Rs.37,45,000/- to the total income. Relying on Accounting Standard 9, the Ld.AR of the assessee submitted that revenue to be recognised only when it becomes reasonably certain that the ultimate collection would be made. The ld AR submits that in past no such adjustment/addition was made on same facts, no funds was given in the year under consideration. For this proposition he relied upon the following judgements:-

39. On the other hand, the Ld. DR for the revenue supported the order of lower authorities.

The Indian Hotel Company and the financial condition is very week. There is no waiver in the year under consideration and the position is the same as of earlier year. It was specifically stated that the income which is added is not actually earned and only ‘real income’ is chargeable to tax , as no real income is accrued to the assessee. The assessee also relied on the decision of Hon’ble Supreme Court in UCO Bank and Tamil Nadu Industrial Corporation Ltd (237 ITR 889 SC) and Marchatile Bank Ltd Vs CIT 283 ITR 84 (SC) and Godhra Electricity Company Vs CIT 225 ITR 746 (SC). The submission of the assessee was not accepted by ld. DRP. The ld DRP concluded that the action of the AO is correct and that the assessee was unable to satisfy the uncertainty to the ultimate collection of revenue from the party to which the assessee placed its deposit.

The Indian Hotel Company parties and had been paying interest thereon. The assessee claimed deduction in respect of the interest payment to the third parties. The assessing authority disallowed the deduction claimed by the assessee to the extent of interest-free advances standing in the name of N on the ground that the amounts borrowed were not utilised by the assessee for its own business. On second appeal, the Tribunal held that since no additions had been made in the earlier years, the opening balance could not be considered in the year in question and the enquiry had to be limited only to the increase in the year in question. On reference to the Hon’ble Court it was held that in the instant case the status of the amount standing as outstanding due from N on the first day of the accounting year was the amount that stood outstanding on the last day of the previous accounting year; therefore, its nature and status could not be different on the first day of the current accounting year, from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee’s claims for deductions were allowed in respect of the sums advanced during those years; this could be only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years was the very basis of the deductions permitted during the past years, whether a specific finding was recorded

The Indian Hotel Company or not. A departure from the finding in respect of the said amounts advanced during the previous year, would result in a contradictory finding; it would not be equitable to permit the revenue to take a different stand now, in respect of the amounts which were the subject-matter of previous years’ assessments consistency and definiteness of approach by the revenue ‘was necessary in the matter of recognising the nature of an account maintained by the assessee so that the basis of a concluded assessment would not be ignored without actually reopening the assessment. The principle is similar to the cases where it has been held that a debt which had been treated by the revenue as a good debt in a particular year cannot subsequently be held by it to have become bad prior to that year. Therefore, the Tribunal was, justified in holding that since no additions had been made in earlier years, the opening debit balance could not be considered during the current year and the enquiry had to be limited to the increase in the current year only.

43. Ground 23 pertains to levy of interest u/s 234B and 234D. Levy of interest is mandatory and consequential. The assessing officer is directed to allow consequential relief to the assessee.

44. Ground 24 pertains to lack of adequate opportunity. This ground is not pressed before us; hence, rejected.

45 Ground No. 25 was raised as additional grounds of appeal, which relates to non issuance of notice under section 143(2). While making submissions on various grounds of appeal, no submissions for admissions of this ground of appeal was not made nor any submission to substantiate the ground of appeal was made, therefore this ground of appeal is dismissed as not pressed.