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Income Tax Appellate Tribunal, “A” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Sandeep Gosain (JM)
O R D E R Per Shamim Yahya (AM) : This appeal by the Revenue is directed against the order of learned CIT(A) dated 12.8.2016 and pertains to A.Y. 2011-12.
Grounds of appeal reads as under : 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) justified in deleting the disallowance of business loss of Rs 2,53,15,947/- on account of advances to subsidiary company holding the same as Revenue in nature.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the fact that the assessee is in to hospitality business and not money lending & therefore the loss suffered on advances to subsidiary company is Capital in nature.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance made u/s 36(1)(va) on account of delay payment of contributions received from the employees towards PF/ESIC ignoring the fact that these payments are not covered by the provision of section 43B of the I.T. Act, 1961- Gujarat State Road Transport Corporation (204-lTMI502- Guj HC).
2 M/s. Advani Hotels & Resort (India) Pvt. Ltd. 4. "The appellant prays that the order of CIT (A) on the above ground be set aside and that of Assessing Officer be restored."
Apropos issue relating to deletion of disallowance of business loss :
Brief facts on this issue are that the assessee is in hospitality business. To promote its hospitality business the assessee-company and M/s. Casinos Austria International, Vienna formed a subsidiary company named M/s. Advani Pleasure Cruise Pvt. Ltd. Initially due to running of casino by this subsidiary company, assessee’s business of hospitality in initial stage got substantially boosted. However, subsequently since Goa Government gave such license to number of other concerns business of subsidiary declined and suffered huge loss. During this period assessee-company had given significant amount as loan and advance to its subsidiary company to pay off expenses/liabilities incurred by the subsidiary company. Subsequently, assessee sold its shares in the subsidiary to another company and it could not recover whole amount and difference between the advance amount and that recovered was claimed as business loss. The Assessing Officer was not satisfied by this treatment. He held that non-recovery of dues from subsidiary company amounting to Rs. 2,53,15,947/- is a capital loss and such loss is not admissible under the head “income from business”. He also observed that advances to subsidiary lacked nexus with the assessee’s business. He observed that the assessee was just doing charity at the cost of revenue. Accordingly he disallowed the assessee’s claim.
Upon assessee appeal learned CIT(A) deleted the disallowance by observing as under :- 5.1.6 In deciding the issue in appeal under this ground the following undisputed facts have to be taken into consideration:
I. The appellant (AHRIL) is into the business of hospitality and runs a resort in Goa. This is evident from clause III (A) of its Memorandum of Association and refusal of its financial statements.
II. The appellant had already been providing casino gaming service to its customers/guests prior to creation of a special purpose vehicle,
3 M/s. Advani Hotels & Resort (India) Pvt. Ltd. APCCP, which is a Joint-Venture Company (JVC) formed with CAI CASINOINVEST GMBH of Austria (CAII), which is one of the world's leading international casino network operators.
III. The shareholders agreement dated 10/11/2000 appellant and CAII clearly indicate that the JVC was formed because the appellant was "in the business of Hotels & Resorts, Flight Catering and Casino and is desirous of enhancing its business."
IV. The JVC was authorised to take a loan from the appellant of a sum equivalent to USD 0.5 million interest-free up to 6 months after which DC- 11% per annum interest was payable by APCCP.
V. CAM was to provide technical services and arranged to manage and operate the casino on the cruise ship MV Caravela. The overall management of the venture would be done by 2 directors from Advani Group and 2 directors from CAM Group.
VI. The Memorandum of Association of the JVC viz. APCCP clearly includes "casino" as one of the main objects of the company.
VII. The live gaming license from Government of Goa as well as the "Bareboat Charter Agreement" for the cruise ship MV Caravela used for live gaming casino of the JVC between appellant and CAM werein the name of the appellant, Advani Hotels & Resorts (India) ltd. VIII. A perusal of financials of the appellant from 2001-02 to 2010-11 reveals that AHRIL was providing food catering and hotel services to the JVC and also discharging primary obligation such as lease rent of the casino ship, licence fee for the casino, lease rent for the jetty etc. The appellant was regularly getting reimbursed for these expenses and also received dividends of Rs. 2.78 crores. The appellant thus got total reimbursements/dividend of Rs. 48.16 crores recovered from APCCP during this period.
5.1.7 All the above undisputed facts indicate that the appellant had wanted to expand its business opportunity by venturing into a new and unique hospitality/entertainment segment of live-gaming provided by license from Government of Goa. This is evident from the fact that both the live-gaming license as well as cruise ship charter was taken in the name of the appellant. It was only to use the casino related international expertise of CAN that the appellant created a special purpose vehicle in form of JVC, APCCP. Further, the fact that the appellant was using its existing hospitality infrastructure/hotel resources for even providing the most basic hospitality services such as food/beverage catering on-board the casino ship MV Caravela also shows that the subsidiary/JVC was nothing but an extended limb of the hospitality business of the 4 M/s. Advani Hotels & Resort (India) Pvt. Ltd. appellant. In fact, the jointly formulated holiday packages which included cruise excursion/casino experience for guests is a clear indicator that the hospitality business of the appellant was integrated with the specialised/casino business of the JVC created by the appellant.
5.1.8 Under the circumstances, the nexus between the main business of the appellant and the expenditure incurred by it in providing certain services or procuring facilities of the cruise ship, jetty etc. is self evident. To further certain the existence of nexus between the nature of expenditure incurred and the business of the appellant, certain questions may be posed and answered based on the facts available on record: i. Prior to creation of the joint-venture APCCP, was the appellant in hospitality business? - Yes. ii. Did the business of the appellant include food catering, leisure entertainment and Casino? - Yes. iii. Is there documentary evidence to show that the appellant wanted to expand its current business activity of running a resort and providing casino and other entertainment activities? - Yes. iv. For the above purpose, the appellant take the initiative to get the appropriate license/cruise ship/jetty? - Yes. v. Did the appellant use its existing catering/kitchen infrastructure supplied road and beverages to the live gaming casino on MV Caravela? - Yes. vi. Did the appellant integrate its hotel-stay tourist packages with entertainment in form of cruise/live gaming casino? - Yes. vii. Did the cruise packages aboard MV Caravela depended on catering services provided by the appellant? - Yes. viii. As per the shareholder agreement of APCCP was the appellant supposed to be actively involved in funding, financial plans, business plan through nominee directors on the board of APCCP? - Yes.
5.1.9 By looking at the answers to the above set of questions, all in the positive, it is only reasonable to conclude that not only was the expenditure incurred by the appellant on behalf of APCCP had direct nexus with its main business activity but also that without such expenditure, it would be tactically impossible for subsidiary APCCP to 5 M/s. Advani Hotels & Resort (India) Pvt. Ltd. run the specialised business of cruise ship/live gaming casino. The facts and circumstances indicate that this was an instance where the appellant tried to add a new dimensional to its business by providing a new and novel form of life-gaming experience to its guests in addition to other entertainment and catering services. It was only because of the conditionalities of laws of Government of Goa that the appellant had to lease a cruise ship and also involved special expertise of an internationally reputed casino management company. Clearly, this effort was done to reap benefits of providing a special form of entertainment and thus making the existing resort create a USP for increased guest traffic.
5.1.10 The nature of expenditure incurred by the appellant, part of which remained not-reimbursed from its subsidiary's seen from the follows: Particulars Amount
Licence fee paid and part financed by AHRIL 7,34,23,287 Other expenses (like interest and other items funded) 1,74,85,437 TOTAL 9,09,08,724 Less: Amount received during F.Y. 2010-1 1 (including 6,55,92,777 Rs.6.18 crores) (net of expenses incurred during 2010-11) Balance amount due from the subsidiary not recoverable, 2,53,15,947 written off 5.1.11 It is settled law that for any expenditure to be considered as capital expenditure, it should be incurred in connection to acquisition of an asset or benefit of an enduring nature. As can be seen from above, the outstanding expenditure of Rs. 2,53,15,947/- cannot be said to be in relation to any such asset or benefit of enduring nature. The gaming license fee paid to Government of Goa is a recurring expenditure for a limited period permission to engage in casino activity. Similarly, jetty fee paid is in nature of parking fees for docking the cruise ship before and after the cruise. Other expenses are in relation to items like cost of food/beverages supplied by the appellant and catering services rendered on a reimbursable basis. By no stretch of imagination can these expenses be considered to create any benefit/asset of enduring nature for the appellant. In fact, they are routine business expenditure that can be related to the hospitality business of the appellant. Had any of these items of expenditure incurred for alive-gaming casino within the premises of the appellant, they would all be considered as revenue in nature and not capital expenditure.
5.1.12 In my opinion, these facts can only lead to the conclusion that the appellant had made investment in APCCP purely for commercial expediency to further main business objectives and that expenditure
6 M/s. Advani Hotels & Resort (India) Pvt. Ltd. incurred in relation to the subsidiary were primarily related to business operations of the appellant. This view is supported by the ratio of Hon'ble Bombay High Court in CIT v. Colgate Palmolive (India) Ltd, 370 ITR 728 (BOM). According to the ratio of that judgement of jurisdictional High Court, losses in relation to such business activity are allowable in the hands of the appellant. Further, in S.A. Builders vs CIT 158 Taxman 74 (SC) the Hon'ble Apex Court held that where holding company has deep interest in the subsidiary and advance interest free loan to the subsidiary which uses it for business purpose, the holding company would ordinarily be entitled to deduction of interest on its borrowed funds. Similar view was also expressed by Hon'ble Bombay High Court in Vassanji Sons & Co. (P) Ltd v. CIT, 125 ITR 462 (BOM), wherein it was held that loss suffered by holding company on account of amount outstanding from subsidiary which went into liquidation was allowable business expense for the holding company. I also find that the ratio of various decisions including those of jurisdictional High Court and honourable Supreme Court cited by the appellant in this regard apply with full force to the facts and circumstances of the case.
5.1.13 In view of the above discussion, I do not find merit in the action of the assessing officer in disallowance of business loss of Rs. 2,53,15,947/- and therefore the same is deleted. This ground of appeal is allowed.
5. Against the above order Revenue is in appeal before us. We have heard both the counsel and perused the records. Upon careful consideration we note that learned CIT(A) has found that advance was very much in line of the assessee’s business. He also found due nexus between advances given to the subsidiary and assessee’s business. He found that these advances to the subsidiary cannot be treated as advances which could derive benefit of enduring nature. Learned CIT(A) placed reliance upon several case laws for the proposition that advances to the subsidiary in line of assessee’s business and non-recovery thereof should be allowed as business loss. Hence, learned CIT(A) deleted the advances.
6. We find that the above action of learned CIT(A) does not suffer from any infirmity. Appreciation of the facts by learned CIT(A) is correct. Assessee’s advance to subsidiary which was also engaged in the hospitality industry was revenue in nature as mentioned hereinabove. Non-recovery thereof is liable to be allowed as revenue expenses. While disallowing assessee’s claim the 7 M/s. Advani Hotels & Resort (India) Pvt. Ltd. Assessing Officer has commented that by giving those advances to the subsidiary the assessee was doing charity at the cost of revenue. This we find is unsustainable proposition. It is settled law that Revenue should not sit in the shoes of businessmen and decide what is appropriate for the business of the assessee. Accordingly in the light of the aforesaid discussion and precedent referred, we do not find any infirmity in the order of learned CIT(A). Accordingly, we uphold the same.
Apropos issue of disallowance for delay in payment of contribution received from employees towards PF and ESIC.
We find that the Assessing Officer has disallowed impugned payments on the ground that these payments were not made within stipulated time under respective Act. However, these payments were made before the due date of filing of return. Learned CIT(A) has decided the issue in favour of the assessee by referring to Hon'ble Jurisdictional High Court decision in the case of CIT Vs. Hindustan Organics Chemicals Ltd. (2014) 48 taxmann.com 421 and CIT Vs. Ghatge Patil Transport Ltd. order dated 14.10.2014 in of 2012 and 1034 of 2012.
Since learned CIT(A) has decided the issue by following Hon'ble Jurisdictional High Court decision, we do not find any infirmity in the same. Accordingly, we uphold the same.
In the result, appeal filed by the Revenue stands dismissed. Order has been pronounced in the Court on 3.6.2019.