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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri R. C. Jain Department by: Shri R. P. Rastogi सुनवाई क� तार�ख / Date of Hearing: 11.05.2016 घोषणा क� तार�ख /Date of Pronouncement: 23.09.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 11.06.2012 passed by the Commissioner of Income Tax (Appeals) 17,
ITA No.5220/M/2012 A.Y. 2008-09 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2008-09.
The assessee has raised the following grounds:-
“1. ADDITION ON ACCOUNT OF LOW GROSS PROFIT AND ESTIMATION OF SALES (Rs.15,45,186/-) i. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs.15,45,186/- made by the A.O. to the income of Goa unit on estimate by adopting the figure of the Murud unit and accordingly dismissing the ground of appeal. ii. The ld. CIT(A) erred in not appreciating that: (a) The Gross Profit shown by the appellant in the Goa unit was comparable and in fact better than the result shown in earlier years. (b) Maintenance of quantitative details of consumable food items running into hundreds is not practicable, as also appreciated by the Govt. of India, which grants exemption for such quantitative details, and such an exemption cannot be a ground to justify invoking of section 145(3) of the Act. (c) The ld. CIT(A) erred in failing to bring on record an comparative cases of any third party assessee, to justify the addition, and taking a different view runs contrary to the view taken by him in deciding Gr. 1 of the appeal before him.”
The brief facts of the case are that the assessee filed the original return of income on 30.09.2008 declaring total income to the tune of Rs.92,82,482/-. The return was accompanied by Balance Sheet, Profit and Loss Account, Tax Audit Report u/s.44AB of the Income Tax Act, 1961 ( in short “the Act”). The return was processed u/s.143(1)
ITA No.5220/M/2012 A.Y. 2008-09 of the Act. Notice u/s.143(2) of the Act was issued on 06.08.2008 and duly served upon the assessee. Further notices u/s.142(1) of the Act were issued on 16.08.2010 and 15.10.2010 alongwith questionnaire calling for various details and was duly served upon the assessee. The assessee was in the business of running two resorts one at Goa and the other at Murud. While assessing the income of Goa unit the Assessing Officer adopted the figure of Murud Unit and disallowed the expenses to the tune of Rs.15,45,186/- and also disallowed the expenditure in view of the provision u/s.14A read with Rule 8D of the Act and assessed the total income to the tune of Rs.1,13,86,790/-. Thereafter, the assessee filed an appeal before the CIT(A) who confirmed the order of the Assessing Officer, therefore the assessee filed the present appeal before us.
ISSUE NO.1:-
Under this issue the assessee has challenged the confirmation of addition to the tune of Rs.15,45,186/- made by the Assessing Officer on account of the income of the Goa unit assessed on the basis of the figure of the Murud unit. The assessee was in the business of hoteliering. The assessee was running two units vide which one unit was being run at Goa whereas the other unit was being run at Murud. The sale rate at Murud unit was much lower than the sale rate of Goa of food and beverage items. The assessee company did not keep any record of day to day consumption of food and beveragers purchased
ITA No.5220/M/2012 A.Y. 2008-09 and consumed and sales made. The Assessing Officer noted the following points:- a. During the month of March 2008, the purchases at Murud were Rs.20254/- and the sales were Rs.1,41,042/-,i.e. the sales were seven times of purchases. b. Likewise, the consolidated figure of purchase at Murud was Rs.7,88,846/- and sales was Rs.27,22,237/-. Thus, the sales were 3.5 times the purchases. c. On the other hand, at Goa, the purchases were Rs.9,43,475/- and the sales were Rs.18,23,020/-, i.e., two times of purchases. d. The AO noted that the rates mentioned on the menu at Goa were higher than the rates mentioned in the menu at Murud for the same items.”
The Assessing Officer was of the view that the sale or closing stocks have been suppressed at Goa. The Assessing Officer applied the ratio of 3.57 times, as per Murud unit. Therefore, came to the conclusion of sale amounting to Rs.15,45,186/- has been suppressed at Goa after invoking the provision u/s.145(3) of the Act. The contention of the assessee is that the accounts of both the units are not comparable. The assessee has raised the following points before us:-
ITA No.5220/M/2012 A.Y. 2008-09
(i) Gross profit of Goa Resort in Asstt. Year 2008-09 works out to 50% as compared to 22% in the immediate previous year and of Murud 71% as compared to 70% in the immediate previous year from which no adverse inference could be drawn. (Reference is made to Asstt. Order dtd. 12.11.2008 made u/s.143(3) for A.Y.2006-07, wherein G.P. of 39% in Goa Resort and 72% in Murud is accepted. (Refer 38-40 of P.B. and page 67 of PB). The books results as shown in all earlier years have been accepted by the AO and therefore the AO ought to have accepted the Gross Profit as shown in the Goa Hotel in the year under assessment (Refer pg. 67 of P.B.) (ii) The accounts of the appellant company are audited under provision of Companies Act 1956 and also u/s.44AB of the I.T.Act and are subject to scrutiny by other government departments, viz., Luxury Tax and Sales Tax Officer at Goa and Murud. (iii) The AO erred in failing to make out a case as to why the G.P. shown by the appellant was not acceptable. He further erred in failing to bring on record any comparable case of any other outside assessee in the same geographical area having
ITA No.5220/M/2012 A.Y. 2008-09 similar nature of business so a to justify any addition to G.P. The AO has acted on pure guess, suspicion, surmises and conjunctures to make the addition as Extra Profit. The appellant submits that the profit ratios in the two hotels i.e. Murud and Goa are different combination of turnover of food and rooms, packages tours and competition at Goa in hotel business. In Murud on an average 3.5 times is the sales ration to cost of raw materials, whereas in Goa it is 2 times, and thus the result of the Murud Hotel and Goa Hotel cannot be compared and made the basis for any addition as suppressed sales. It is submitted that more material was required to justify the addition.”
The Assessing Officer has admitted Gross Profit of 39% in Goa Resorts and 72% in Murud for the A.Y.2006-07 made u/s.143(3) of the Act. No plausible reasons have been placed on record by the Assessing Officer to which it can be assumed that in which circumstances the Gross Profit of Goa unit is not acceptable. The ratio which has been taken by the assessee has been accepted by the Assessing Officer for A.Y.2006-07 to 2009-10 which is hereby reproduced below:-
ITA No.5220/M/2012 A.Y. 2008-09 Sr. Particulars Assessment Year No. 2006-07 (Note 2) 2007-08 (Note 3) 2007-08 (Note 3) 2007-08 (Note 3) LOTUS LOTUS LOTUS LOTUS LOTUS LOTUS LOTUS LOTUS RESORT SUITES RESORT SUITES RESORT SUITES RESORT SUITES (MURUD) (GOA) (MURUD) (GOA) (MURU (GOA) (MURUD) (GOA) D) (a) 2,097,991 1,683,502 2,456,111 1,727,761 2,722,237 1,823,020 3,482,068 534,679 SALES: Food and Beverages TOTAL 2,097,991 1,683,502 2,456,111 1,727,761 2,722,237 1,823,020 3,482,068 534,679 (b) CONSUMPT ION i) Purchases Food 590,400 681,288 702,135 814,954 701,499 894,648 789,856 375,047 Purchases Beverages 70,515 158,198 56,439 78,438 87,347 48,837 91,576 33,843 Purchases 660,915 8,39,486 7,58,574 893,391 788,846 943,475 881,432 408,890 ii) Less: Closing Stock 66,872 34,538 48,730 55,953 49,515 30,659 55,052 -- Consumption 594,043 804,948 709,844 837,438 739,331 912,816 826,380 408,890 Ration of Sales to 3.53 2.09 3.46 2.06 *3.68 2.00 4.21 1.31 Consumption * As per assessment order the ration is taken as 3.57 times.
Notes:- (1) No rejection of book results in any earlier years. (2) Results for A.Y.2006-07 accepted u/s.143(3) vide order dated 12.11.2008. (3) Results for A.Y.2007-08 accepted u/s.143(1) (4) Goa unit closed from A.Y.2009-10 (5) A.O. estimated sales of Goa unit @ 3.57 times of purchases similar to Murud unit and estimated the sales at Rs.33,68,206/- and added the difference of Rs.15,45,186/- as alleged suppressed sales.
All figures which have been mentioned in the said assessment order speaks about the less profit of the Goa unit. In view of the said figures mentioned above, we are of the view that the Assessing Officer has wrongly assessed the gross / net profit of the Goa unit by comparing the profit of Murud unit. In view of the above said specific
ITA No.5220/M/2012 A.Y. 2008-09 facts and circumstances, we are of the view that end of the justice would meet if the disallowance to be reduced to the extent of 50% of the above addition to the tune of Rs.15,45,186/- Accordingly, we allow the same and the Assessing Officer is hereby directed to reduced the addition to the extent of 50% of the amount of Rs.15,45,186/-. Accordingly, this issue has been partly allowed in favour of the assessee.
ISSUE NO.2:-
Under this issue the assessee has challenged the disallowance u/s.14A of the Act. The contention of the assessee is that the disallowance u/s.14A of the Act is required to be restricted to the tune of Rs.62,069/-. Before going further it is necessary to advert the finding of the CIT(A) on record:
“5.2 I have perused the facts in the appellant case. There is no doubt that appellant is having tax free dividend income. on the debit side the appellant has debited general expenses totaling Rs.23,24,942/- for the Head Office. These expenses are clearly common expenses, which include demat expenses. The provisions of sub-section (2) to section 14A, reads as follow:
[(2) The Assessing Office shall determine the amount of expenditure incurred in relation to such income which ITA No.5220/M/2012 A.Y. 2008-09 does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the account of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.”
“5.3 Further, the provisions of Rule 8D, read as follows:
“(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with –
(a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provision of sub-rule (2).
ITA No.5220/M/2012 A.Y. 2008-09
(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula namely:- A x B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iv) an amount equal to one-half per cent of the average of the value of investment, income from ITA No.5220/M/2012 A.Y. 2008-09 which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.
(3) For the purpose of this rule, the “total assets” shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.”
On appraisal of the above mentioned order, it came into the notice that the Assessing Officer did not go through the correctness of the claim. No satisfaction of any kind was recorded by the Assessing Officer. The assessee has shown the common expenses to all head of income. The provision of section 14A read with Rule 8D of the Act is applicable, therefore the CIT(A) has directed the Assessing Officer to re-compute the expenditure incurred to earn the exempt income in view of the provision contain in section 14A read with Rule 8D of the Act. We found no ground to interfere with the finding of the CIT(A), therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which does not require to be interfere with at this appellate stage. Therefore we decide this issue in favour of the revenue against the assessee.
ITA No.5220/M/2012 A.Y. 2008-09
In the result, the appeal filed by the assessee is hereby partly Allowed.
Order pronounced in the open court on 23rd September, 2016.