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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. and 3801/Del/2009 (AY 2006-07) 1. These are the appeal filed by the parties against the order of the ld CIT(A) dated 26.06.2009 for the AY 2006-07 2. The assessee has raised the following grounds of appeal in ITA No. 3605/Del/2009 for the Assessment Year 2006-07:- “1. That on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax Appeals ("CIT (A)") has erred in holding that the repair and maintenance expenses amounting to Rs. Rambagh Palace Hotels Private Limited ITA No 3605 & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 29,43,060 provide enduring benefit to the Appellant and therefore not allowable as revenue expenditure.
2. That on the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in holding that the establishment expenses, amounting to Rs. 40,00,000/- have not been incurred for the purpose of business of the appellant. 2.1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that the subject expenses are in the nature of allocation of expense and have no direct nexus with the business of the appellant.”
3. The revenue has raised the following grounds of appeal in Assessment Year 2006-07:- “1. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,11/54,8677- (out of total addition of Rs.5,40,97,927/-) made by the AO on account of disallowance of repair & maintenance expenses being capital in nature.
2. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 73,41,050/- (out of total addition of Rs.85,11,050/-) made by the AO on account of disallowance of travelling expenses.
3. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,35,46,405/- made by the AO on account of difference in income from room, restaurant, and other services etc as reported to IHC & as declared in P&L account. The CIT(A) has allowed relief on the basis of his 'considered opinion' where as the difference could be reconciled only on actual verification of facts and details. The CIT(A) has neither recovered his own satisfaction that he has verified the facts and details nor he has given any opportunity to the AO to do so.
4. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 90,57,751/- made by the AO on account of disallowance of professional fee. Regarding these expenses, very specific particulars and details before the AO, nor even before the CIT(A). The CIT(A) has allowed the relief only on the basis of general observations.”
4. The brief facts of the case is that the assessee is a company deriving income from running a hotel filed its return of income on 30.11.2006 showing nil Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 income. The assessment was framed u/s 143(3) of the Act at taxable income of Rs. 186862697/-. The major addition of Rs. 54097927/- on account of repairs and maintenance, Rs. 8511050/- of travelling expenses, Rs. 23546408/- on account of difference in receipt of room rent, Rs. 40 lakhs on account of establishment expenses disallowed, Rs. 9057791/- being disallowance of legal expenses were made. The assessee challenged it before the ld CIT(A) who vide order dated 26.06.2009 partially allowed the claim of the assessee of repairs expenses disallowed as capital expenditure and confirmed the disallowance of Rs. 2943060/- as capital expenditure and further upheld disallowance of Rs. 40 lakhs of establishment expenses. He allowed all other claims/ additions. Therefore, both the parties are in appeal before us.
5. First, we take up the appeal of the revenue wherein the first ground is that ld CIT(A) deleted the disallowance of Rs. 51154867/- out of total disallowance of Rs. 54097927/- on account of amount debited as repairs and maintenance expenditure being capital in nature. During the year, the assessee has incurred repairs and maintenance expenditure of Rs. 66788797/- on account of building, machinery and others. The ld AO treated them capital expenditure for the reason that a. four parties who carried out certain repairs and maintenance could not be produced, b. the room tariff charged by the assessee has gone up 7 to 8 times higher as compared to 2000-01, and c. the expenses incurred by the assessee are very huge, Therefore , he disallowed 90% of Rs. 66788797/- amounting to Rs. 60109917/- capital of which has given enduring advantage to the assessee, hence are of capital in nature. He granted depreciation on the sum @10% amounting to Rs. 6010990/- hence, resulting into net disallowance of Rs. 54098927/-. The ld Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 CIT(A) deleted the addition of Rs. 51154867/- net of depreciation but confirmed the disallowance to the extent of Rs. 2943060/-.
6. The ld Departmental Representative submitted that the assessee has incurred huge expenditure and further could not produce four parties, therefore, the ld AO has made the disallowance. He further submitted that the assessee company is Five Star hotel and several fixture and fittings in hotel rooms are required to be replaced and the heavy expenditure is carried out which has given the huge advantage of higher room tariff and occupancy rate. Therefore, the disallowance is correctly made. He submitted that the AO has relied upon many decisions of the various courts including the decision of the Hon'ble Supreme Court. In the end, he vehemently supported the order of the AO.
7. The ld AR submitted that details of repairs and major expenditure are at page No. 176 to 306 of the paper book wherein complete details showing the date, vouchers No., the nomenclature and amount of expenditure incurred is shown. He further referred to the nature of expenditure to state that they comprise sanitary, electrical fittings, annual maintenance contract, cleaning, painting etc. He submitted that the hotel run by the assessee is a five star deluxe palace hotel and caters to a very high class of foreign tourists, which required regular up gradation. He further referred that Rs. 5 to 7 crores is the annual repair and maintenance expenditure of the assessee. He reiterated all the submissions made before the ld CIT(A), and also referred to the following decisions: a. CIT Vs. Dasaprakash.: 114 ITR 210 (MAD) b. CIT Vs. Ooty Dasaprakash : 237 ITR 902 (MAD) c. CIT v. Hotel Control (P.) Ltd. [2004] 136 Taxman 312/265 ITR 109 (Uttaranchal) d. CIT Vs. MAC Charles (India) Ltd. 233 Taxman 177 (karn) e. DCIT Vs. Indo Continental Hotel and Resorts Ltd 321 ITR 610 (Rajasthan) f. United Hotel Limited Vs. ACIt ITA No. 3225/Del/2012 (Del Tribunal)
Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 8. We have carefully considered the rival contentions. The ld CIT(A) has dealt with the issue at para No. 5.4 of his order as under:- “5.4 I have considered the submissions of the Appellant and the material placed on record. There is no dispute on the fact that the Appellant is a five star luxury Palace Hotel, which is operating for last so many years and this is not a case where hotel is become operational in the relevant previous year. On perusal of the assessment orders of AY 2002-03, AY 2003-04 and AY 2004-05 clearly shows that in those AY's, various details relating to repair and maintenance expenses were examined and specific expenditure was identified which the AO considered to be of a capital nature. Earlier years orders for AY 2004-05, 2003-04 and 2002-03 show the amount of expenses incurred on Repair and maintenance of Rs. 6,76,92,199, Rs.5,24,09,060 and Rs.7,41,20,326, respectively. From perusal of the amount incurred in earlier years, it may be noticed that, in earlier years, the expenses incurred were within the range of Rs. 5 to 7 crore per year. In the subject year, repairs and maintenance expenses of Rs. 6.67 crore have been incurred, which given an v impression that the Appellant is incurring the same or a similar amount every year to preserve and maintain its existing hotel business. This is not the case where the Appellant has incurred huge amount of expenses in contrast to its previous track record or has incurred accumulated repairs during the current year, Therefore, disallowances based on a vague statement that repairs and maintenance expenses incurred during the year give an enduring benefit or a new advantage is contrary to the facts of the case. The AO has also held that the Appellant could not produce the vendors for physical verification and therefore, the subject expenses are bogus. On perusal of submissions and records, it is noticed that the Appellant had duly produced all material facts to establish that the vendors are not fake parties. The Appellant produced copy of their bank account, copy of ledger accounts, and their income tax return. All these documents establish without any doubt that the parties are genuine and not bogus. So far as physical verification is concerned, as submitted, these parties are independent parties therefore, it takes time to make them available for verification by the tax department. The Appellant also submitted that such parties could be produced for verification. However, Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 having regard to the documents filed by the Appellant, it seems not relevant to physically verify the parties. The AO relied on several case laws to substantiate his viewpoint: • Ballimal Naval Kishore And Another vs Commissioner of Income Tax (224 ITR 414) • New Shorrock Spinning And Manufacturing Company Limited. Vs CIT (30 ITR 338) • CIT vs Saravana Spinning Mills P. Limited. (293 ITR 201) (Supreme Court) • Humayun Properties Limited, vs. CIT (44 ITR 73) • Asian Hotels Limited, vs DCIT (104 TTJ 921) (ITAT Delhi) • Liberty Cinema, vs CIT (52 ITR 153) (Calcutta High Court) • CIT Vs Glen View Rubber Company P. Limited. 291 ITR 1 KERALA High Court • K. T. M. T. M. Abdul Kayoom And Another, vs CIT 44 ITR 689(SC) • Alembic Chemical Works Company Limited, vs CIT 177 ITR 377 (SC) • Assam Bengal Cement Company Limited, vs CIT 27 ITR 34 (SC) • Bikaner Gypsums Limited, vs CIT 187 ITR 39 (SC) 1% • Commissioner Of Income-Tax, Bombay City vs Associated • Companies Limited. 172 ITR 257 (SC) To the contrary, the Appellant distinguished above case laws from its facts and also relied on several case laws to support its claim: Modi Spinning & Wvg. Mills Co. Ltd vs. CIT : 200 ITR 544 (Delhi) CIT v. Hindustan Times Ltd. [1999] 107 Taxman 442 (Delhi) CIT Vs. Ooty Dasaprakash : 237 ITR 902 (MAD) CIT v. Hotel Control (P.) Ltd. [2004] 136 Taxman 312/265 ITR 109 (Uttaranchal) CIT Vs. I.C.I. (India) Pvt. Ltd: 139 ITR 105 (CAL) ACIT Vs India United Mills Limited: 143 ITR 399 (BOM) CIT Vs. J.K. Industries (P.) Ltd. : 125 ITR 218 (CAL) CIT Vs. Rex Talkies : 148 ITR 560 (KAR) CIT Vs. Oxford University Press : 108 ITR 166 (BOM) CIT Vs. Dasaprakash.: 114 ITR 210 (MAD) Gulamhussein Ebrahim Matcheswalla (By His Legal Heirs) Vs. CIT : 097 ITR 24 (BOM)
Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 Indian Hotels Company Ltd. Vs. Inspecting Assistant Commissioner: 34 TTJ 526 (ITAT Bombay) CIT V. Volga Restaurant: 253 ITR 405 (DEL) The above case laws relied upon by the AO, in my considered opinion, do not support the case of the AO. The case laws relied upon are on different facts and primarily based on the situation where expenses were incurred to bring into existence a new asset or additional advantage of capital nature. Whereas, the nature of expenses like replacement of sanitary and electrical fittings, annual maintenance contracts for cleaning, painting, polishing, waterproofing, tile repair works, pest control, current repairs including maintenance of air conditioners, cold storage, generators, lifts, boilers, kitchen and musical equipments, fire extinguishers, repairs of tables, chairs, beds, sofa sets, carpentry work, upholstery work, curtains, mirrors, door repairs, locks and labour etc. clearly reveals that the subject expenses have been incurred on account of current repairs in the normal course of the business and for the purpose of preservation, maintenance or proper utilization or for restoring the existing assets to their original condition. However, on perusal of details filed and corresponding supporting documents, I noticed certain expenses, which give impression of giving enduring benefit to the appellant and appear to fall on capital account. A brief detail of such expenses is as follows: S.No. Particulars Amounts 1. Swaroop Narain Shiv Narain 524,271/- Wood purchase for annex room renovation 2 Swaroop Narain Shiv Narain 167,359/- Wood purchase for annex room renovation 3 Singh Construction Co Renovation of 2,251,4307- Floor Total 2,943,0607- Therefore, the above expenses of Rs. 2,943,060/-, in my opinion, should not be allowed as revenue expenses and deserve to be treated as capital expenses. However, other expenses disallowed by the AO do not bring into existence nor obtain a new or different advantage for the Appellant. Accordingly, balance disallowances (net of depreciation) of Rs. 51,154,867/- are deleted.”
Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10
Further, Hon'ble madras High Court in case of CIT Vs Dasprakash (supra) has held that many items, which are fixed in the wall that would present an inviting appearance for the customers assembled, are allowable as revenue expenditure. Furthermore, the Hon'ble Madras High Court in 237 ITR 902 also held that expenditure incurred for repairs and modernizing hotel and replacing the existing components of old building furniture and fittings with the object to create a conducive and beautiful atmosphere for running business of hotel is not an expenditure of enduring in nature but is only current repairs. Further Hon'ble Karnataka High Court in 233 Taxman 177 has held that expenditure incurred on replacing flooring, falls roofing, furniture, carpets and refurnishing of hotel rooms in tune with international standard without addition of extra floor space or extra room capacity is revenue in nature. Assessee was incurring expenditure from AY 2002-03 to the present assessment year on repairs and maintenance as under:- Assessment Amount of repair/ Year expenditure claimed (In Rs.) 74120326 2002-03 52409060 2003-04 67692199 2004-05 78384501 2005-06 66788797 2006-07
The expenditure in earlier year though higher or of almost of the similar level incurred are allowed to the assessee. Revenue has not shown that by incurring this expenditure the assessee has made any addition to the room capacity of the hotel. It is also not the case of the revenue that the expenditure has resulted into construction or setting up of a new restaurant or any other new facility in the Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 hotel. The increasing trend in the room tariff itself suggests that incurring such expenditure has resulted into continued occupancy and saleability salability of hotel rooms. The increased room tariff has definitely gone to swell the revenue of the hotel. In view of the several judicial pronouncements cited above as well as failure of revenue to show any increase in the capacity of the room or any new facility, merely because repairs expenditure are on higher side as per perception of the revenue, it cannot be held to be capital expenditure. In view of this we do not find any infirmity in the order of the ld CIT(A) in allowing the expenditure of Rs. 51154867/-. Ground No. 1 of the appeal of the assessee, which is also on the same point wherein, the ld CIT(A) has upheld the disallowance of Rs. 2943060/- on account of renovation of floor. Issue is now squarely covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in 233 Taxman 177 wherein, expenditure on refurnishing on hotel rooms is held to be revenue in nature. The expenditure disallowed by the ld CIT(A) were wooden purchases for renovation of floor. It does not meet the test of increase in any additional capacity in the hotel. Therefore, the order of the ld CIT(A) to the extent of disallowance confirmed of Rs. 2943060/- cannot be upheld. In view of our above finding, ground No. 1 of the appeal of the revenue is dismissed and ground No. 1 of the appeal of the assessee is allowed with a direction to allow total expenditure on repairs and maintenance incurred by the assessee of Rs. 66788797/- and withdraw the depreciation allowed of Rs. 6010990/-.
Ground No. 2 of the appeal of the revenue is against disallowance of travelling expenses of Rs. 7341050/– deleted by the Ld. CIT (A) out of the total disallowance made by the Ld. AOof Rs. 8 511050/–. Assessee company has incurred travelling expenses of Rs. 1.34 crores, which was examined by the Ld. assessing officer. Out of the total expenses of 1.34 crores the assessee would furnish only the details of 1.22 crores and therefore the details of Rs. 11.70 Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 lakhs was not at all provided by the assessee and no explanation was given before the assessing officer. Further the Ld. AOanalyzed the details of travelling expenses for past 6 years and held that foreign inland travelling expenses incurred by the directors and others as per the details submitted by the assessee company has not been approved in the board of directors meeting of each tour carried out by the directors and others. No business report was also submitted by the directors on their foreign visit. In view of this he identified a sum of Rs. 73.41 lakhs pertaining to the directors’ foreign travel, directors’ domestic travel, airport transport expenses and staff foreign tour expenses. Further a sum of Rs. 11.70 lakhs on which the details could not be given by the assessee before the assessing officer, he disallowed a sum of Rs. 8511050/-. The assessee carried the matter before the Ld. CIT(A), who vide para No. 6 of his order, relying upon the decision of the coordinate bench in assessee’s own case for assessment year 1997-98 deleted the disallowance. Therefore, revenue is in appeal before us.
The Ld. departmental representative submitted that when the assessee has not submitted the details of 11.7 Lacs before the Ld. AO there is no reason mentioned in the order of the Ld. CIT (A) for allowing this expenditure at least. With respect to other expenditure he reiterated the arguments of the Ld. AOin assessment order.
The Ld. authorized representative submitted that the issue is squarely covered in favour of the assessee by the decision of the coordinate bench in its own case for assessment year 1997-98 and the Ld. CIT(A) has followed the same order of the coordinate bench therefore there cannot be any disallowance of travelling expenditure and hence submitted that the order of the CIT (A) may be upheld.
We have carefully considered the rival contentions. In assessee’s own case in ITA No. 279/Del/2001 (Assessment Year 1997-98) when the disallowance was made with respect to the foreign travelling expenses of its director and foreign Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 trip expenses of its Chief Executive, the coordinate bench upheld the finding given by the Ld. CIT (A) who deleted the disallowance vide para No. 4 of that decision the coordinate bench has set aside the issue back to the file of the AOto substantiate the claim of the assessee for disallowance of travelling expenses. Consequent to that order the Ld. AOpassed an order under section 143 (3) read with section 254 of the income tax act on 26/09/2006 wherein he deleted the disallowance of expenditure on account of foreign travel of Rs. 4 326940/–. In the set aside proceedings to the file of the Ld. AO vide reply dated 26/09/2006, which has been incorporated at page No. 2 of the assessment order of the Ld. assessing officer, assessee submitted complete details as directed by coordinate bench, which was examined by the Ld. assessing officer. Therefore following decision of coordinate bench in assessment year 1997-98, we also set aside this issue back to the file of the Ld. AO to decide it afresh after giving assessee an opportunity of addressing the requisite detailed and after examination to allow the claim of the assessee if found in accordance with the law and past history of the assessment of the assessee. Assessee also gets an opportunity to furnish the evidence with respect to the difference in total travelling expenditure incurred by the assessee and the details submitted before the Ld. assessing officer, which has resulted into the disallowance of Rs. 11.70 lakhs. In the result ground No. 2 of the appeal of the revenue is set aside back to the file of the Ld. AO and is partly allowed.
Ground No. 3 of the appeal of the revenue is with respect to the deletion of the addition of Rs. 23546405/- made by the Ld. AO on account of difference in income from room, restaurant and other services etc as reported to IHC and as declared in the profits and loss account ld. AO during the assessment proceedings asked the company to file the details of working of operating fees of Rs. 4.47 crores paid to IHC Ltd. The gross revenue for the purpose of computation of fees payable to IHC Ltd was taken at Rs. 498309022/- instead Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 of Rs. 474762614/- and therefore there was a difference of Rs. 23546408/- and hence the Ld. AO has made any addition to that extent as revenue receipt from undisclosed sources. The assessee challenges the same before the Ld. CIT (A) who deleted the addition after examining the details filed and reconciliation relating to the income from room, restaurant and other services as given in the audited accounts and in the computation of IHC fees. He noted that in the audited accounts, the revenue in respect of rooms and restaurants have been given on net basis as Rs. 47 476 2614/-after reducing the relatable expenses from the gross revenue. He further held that the difference is arising because of the relatable expenses. Revenue aggrieved with the order of the Ld. CIT (A) has preferred an appeal before us.
The Ld. departmental representative strongly relied upon the order of the AO and stated that when there is a difference in the gross revenue shown in the books of accounts as well as the gross revenue for the purpose of payment to IHC Ltd the addition has rightly been made by the Ld. assessing officer.
The Ld. authorized representative submitted that the Ld. CIT(A) has rightly deleted the disallowance /addition made by the Ld. assessing officer. He also took us to the chart submitted which shows the complete reconciliation with respect to the amount on which the remuneration is paid to IHC Ltd and the gross receipt shown in the books of accounts. He therefore submitted that there is no difference in the turnover shown by the company and the Ld. CIT(A) has rightly deleted the disallowance .
We have carefully considered the rival contentions and also perused the computation of the gross revenue on which the fees is paid to IHC limited as well as the gross revenue shown in the books of account. On the perusal of the above chart, we find there is no difference amount of Rs. 23546408/- as it is relatable to the various expenses. The Ld. CIT(A) has given the detailed reason for deletion of the addition made. The Ld. DR could not point out any error in Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 the chart submitted by the assessee and the reconciliation of gross receipt as per books of accounts and gross receipts for the purpose of payment of fees to IHC Ltd. The amount of Rs. 498309022/- is gross income from room sales, food and beverage sales and other services as appearing in the computation of operating fees whereas the amount shown in the audited profit and loss account is Rs. 474762614/- which is income from room sales food and beverages sales and other services after setting off of certain expenses. The difference of those expenses is identical to the sum of Rs. 23546408/- which has been added by the Ld. assessing officer. In view of this we do not find any infirmity in the order of the Ld. CIT (A) in deleting the disallowance of Rs. 23546408/- made by the Ld. AO on account of difference in reconciliation of gross receipts. In the result ground No. 3 of the appeal of the revenue is dismissed.
Ground No. 4 of the appeal of the revenue is with respect to the deletion of the addition of Rs. 9 057751/– made by the Ld. AO on account of disallowance of professional fees. During the year the assessee has incurred the legal expenses of Rs. 11441569/– the Ld. AO examined claim of the assessee with respect to nature of these expenses and justification on the basis of each case for which the fees has been paid and also the details of the cases pending in the Courts for which the legal expenses are incurred by the company. The assessee could not submit these details hence the Ld. AO disallowed a sum of Rs. 9057751/- paid as professional fees as assessee could not demonstrate what nature of services rendered by the professionals to the business of the company. The assessee aggrieved with the order of the Ld. AO preferred an appeal before the Ld. CIT (A) who deleted the above disallowance on the basis of the submission of the appellant. Revenue is aggrieved with the order of the Ld. CIT (A) and therefore in appeal before us on this ground.
The Ld. departmental representative submitted that that assessee has not submitted any detail with respect to the professional fees of Rs. 9057751/- and Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 only filed the breakup of legal expenses as an item. Ld. CIT(A) has deleted it on examination of the complete detail of professional fees along with documentary evidences. The Ld. CIT (A) has not given any opportunity to the Ld. AO for verification of these details and without obtaining the remand the addition has been deleted. He therefore submitted that the order of the Ld. CIT (A) is patently wrong.
The Ld. authorized representative submitted that the complete details of the professional fees/ charges amounting to Rs. 9057751/- along with the documentary evidences were examined which are pertaining to the services rendered for architectural interior designing repairs, company law matters services and income tax, other appellate matters. He further submitted that these are the small retainer ship fees payment made by the assessee to the various consultants. He therefore submitted that the Ld. CIT (A) has completely examined details and thereafter has allowed the claim of the assessee. He therefore submitted that there is no error in the order of the Ld. CIT (A).
We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee submitted complete details before the Ld. CIT (A) but it are not submitted before the Ld. assessing officer. It would have been appropriate had the Ld. CIT(A) would have given an opportunity to the Ld. AO for examination of the details or obtaining the remand report, it would have been allowed them, if there is no adverse inference from assessing officer. The Ld. CIT (A) has completely bypassed the above procedure. In the order of the Ld. CIT (A) he has not given any reference to what kind of evidences he has examined whether it has been examined with respect to the bills of professional services rendered or as the details was required by the AO for examination of these expenses. There is no reference of what is meant by complete details. In view of this in the interest of Justice we set aside this ground of appeal to the file of the Ld. AO with a direction to examine the Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 details filed by assessee before the Ld. CIT(A) and if they are found in order and if incurred wholly and excessively for the purposes of the business then same may be allowed. Needless to say that proper opportunity of hearing may be granted to the assessee. In the result ground No. 4 of the appeal of the revenue is allowed with above direction.
In the result appeal of the revenue in ITA number 3801/del/2009 is partly allowed for statistical purposes.
Coming to the appeal of the assessee, ground No 1 is against disallowance sustained by the Ld. CIT (A) of Rs. 2943060/- out of the repairs and maintenance expenses holding it to be capital expenditure. We have decided ground No. 1 of the appeal of the revenue where we have held that the complete repairs and maintenance expenses of Rs. 66788797/- is allowable to the assessee as revenue expenditure as there is no benefit of enduring nature accruing to the assessee. In view of this ground No. 1 of the appeal of the assessee is allowed.
Ground No. 2 of the appeal of the assessee is against disallowance of Rs. 40 Lacs of establishment expenses sustained by the Ld. CIT (A). These expenses have been incurred by the assessee and paid to IHC Ltd for which assessee could not furnish any justification before the AO hence it was disallowed. The Ld. AO further noted that as per the operating agreement filed by the assessee and as per the various clauses of that agreement these expenses are incurred beyond the operating agreement and no confirmation from IHC Ltd has been filed for the nature of these expenses. Assessee contested this issue before the Ld. CIT (A) who confirmed the finding of the assessing officer. Therefore assessee is in appeal before us.
The Ld. AR submitted that as per terms of the operating agreement all expenses are to be incurred by IHC Ltd in using its good offices and endeavors to obtain for the hotel and its guest the benefit and advantage of the worldwide Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 sales/reservation credit card systems available to other hotels managed , operated and owned by the ITC Ltd solely on the account of the appellant. In addition, for these acts services the above expenditure has been incurred by the assessee. These expenses are supported by the debit notes raised by the IHC Ltd for CRS expenses and expenses of international sales office in United Kingdom and USA incurred. Since the appellant has already filed a copy of debit notes raised by the IHC Ltd with respect to the above expenses which are on the assessee and which has been confirmed by the IHC Ltd also showing that these are the expenses for the purpose of the business of the assessee, it shall be allowable to the assessee. Therefore he submitted that Ld. AO as well as the 1st appellate authority has grossly erred in disallowing the above expenditure.
The Ld. departmental representative vehemently relied upon the order of the lower authorities and submitted that appellant could not produce necessary evidence, which could prove beyond doubt that this allocation has direct nexus with business of the assessee and therefore it is allowable.
We have carefully considered the rival contentions. We have also perused page No. 170 of the paper book showing details of the expenditure of Rs. 40 Lacs incurred as the proportionate expenses of CRS and international sales office expenses in UK and USA up to March 2006. At page No. 171 and. 172 assessee has submitted two debit notes dated 15/06/2006 raised by Indian Hotels company Ltd wherein Rs. 25 Lacs is for proportionate expenses of CRS expenses for the period up to 31/03/2006 and a sum of Rs. 15 lakhs is towards proportionate expenses of international sales office in the UK and USA for the period up to 31/03/2006 . Vide page No. 581 of the paper book assessee has also submitted the confirmation of the party with respect to the above expenditure. The Ld. CIT (A) has merely confirmed the disallowance for the reason that appellant could not produce necessary evidences, which could prove beyond any doubt that the allocation of this expenses has direct nexus with its Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 business. We do not find any such phraseology used under section 37 (1) of the Income Tax Act for allowing any expenditure. If the expenditure is wholly and exclusively incurred for the purpose of the business then it is allowable. The assessee has given a reason that why this expenditure are required to be incurred by the assessee for the purpose of its business. In view of this we do not find any merit in the disallowance made by the lower authorities. In the result we reverse the finding of the CIT (A) and delete the above disallowance. In the result ground No. 2 of the appeal of the assessee is allowed.
In the result appeal of the assessee for assessment year 2006-2007 in ITA number 3605/Del/2009 is allowed.
Now we come to the appeal of the parties for assessment year 2009 – 10.
The assessee has raised the following grounds of appeal in ITA No. 1693/Del/2013 for the Assessment Year 2009-10:- “1. That on the facts and in the circumstances of the case and in law, the order passed by the ld Commissioner of Income Tax (appeals) XIX, CIT(A) is bad in law.
2. That on the facts and in the circumstances of the case and in law, ld CIT(A) has erred in holding that the repair and maintenance expenses amounting to Rs. 32015530/- is capital in nature and therefore not allowable as revenue expenditure.”
32. Ground No. 1 of the appeal of the assessee is general in nature and therefore it is dismissed.
33. Ground No. 2 of the appeal of the assessee is against the confirmation of the disallowance out of the repairs and maintenance expenses of Rs. 32015530/- by the Ld. CIT (A) holding that it is capital in nature and are not allowable as revenue expenditure. The details of such expenditure are given at page No. 16 of the order of the Ld. CIT (A) as under :-
Rambagh Palace Hotels Private Limited & 3801/Del/2009 A Y 2006-07 ITA No 1693 & 2078/Del/2013 A Y 2009-10 a. changing of the floor tiles/replacing of doors providing quota stone pathways at Rambagh Palace wherein a sum of Rs. 8505016/- has been incurred on repairs and maintenance. b. Rs 1.29 crore has been incurred with respect to the dismantling and removal of the existing flooring tiles, plasters cement concrete sintering unsettling at Ramgarh Lodge. c. Rs. 30.21 lakhs have been incurred for conference room at Ram Bagh palace by dismantling stone masonry and existing floor tiles and re-fixing doors and windows with wall paneling. d. Rs. 52.03 Lacs was incurred at Ramgarh Lodge in Room number 101 - 102 and 203 to 208 where opening and shifting moving doors and windows were replaced with the fixed doors for giving proper shapes. e. Rs. 7.57 lakhs incurred at Sawai Madhopur Lodge for replacement of sanitary fittings, f. Rs. 2.86 Lacs at Rambagh palace hotel for indoor and outdoor swimming pool changes due to reduction in depth and g. Rs. 12.46 lakhs were incurred at well for replacement of old pipes and for increasing the depth of tube well due to low water level.
On perusal of the above expenses we do not find that there is any increase in the capacity of the hotel or any other new facilities have been added to the existing facilities. Most of the expenditure have been incurred by the assessee for modification of existing facilities to make it more usable looking to the standard of the Hotel and the various tourists and international guests using it. In the appeal of the assessee for assessment year 2006 – 07 we have decided the identical issue and deleted the disallowance on the ground that if there is no increase in the capacity of the hotel and no new facilities have been added , merely renovating or modifying the existing facilities do not result in any benefit of enduring nature and therefore the expenditure incurred on such