CJ INTERNATIONAL HOTELS LTD.,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘B’ : NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER and SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & 6150/Del./2013 (ASSESSMENT YEARS : 2006-07 & 2007-08) M/s. CJ International Hotels Ltd., vs. ACIT, Circle 3 (1), Hotel Le Meridian, Windsor Palace, New Delhi. Janpath, New Delhi. (PAN : AAACC0174E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Tarandeep Singh, Advocate REVENUE BY : Shri B.R.R. Kumar, Senior DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :

These appeals filed by the assessee are against the separate orders of the CIT (Appeals)-VI, New Delhi dated 24.09.2013 and 27.09.2013 for the assessment years 2006-07 and 2007-08 respectively.

3. Briefly stated the facts are that the assessee company is engaged in the business of running hotel in the name and brand of “Le Meridian” in New Delhi. Assessment proceedings for the year under consideration were completed u/s 147/143 on 24.12.2009 assessing the total income of the assessee at Rs.15,83,37,362/-. While completing the assessment, AO made additions under the head “Income from house property” and also made a disallowance of depreciation allowance vis-à-vis building namely “West Tower”. This building is located in the same compound in which the Hotel Building is located. The AO was of the opinion that this building is not used for the purpose of business by the assessee. It was further observed by him that the assessee had sub-licensed offices and apartments in this building to various parties for a period of 9 years and 11 months which was renewable on the request of sub-licensee. The assessee was not charging any rent, lease on license fee from the sub-licensee, however, it had received interest free security deposit in the year of original sub-licensee which was shown as an unsecured loan in the assessee’s balance sheet. The sub-license granted was transferable by the licensee to any other person on payment of transfer charges to the assessee. Premised these facts, the AO concluded that the notional income derived by the assessee by granting sub-license of offices and apartments in West Tower to sub-licensee’s is chargeable to tax as income under the head “House Property”. He further concluded that since the building “West Tower” was not being used by the assessee for its business the depreciation claim thereon was not allowable as a deduction u/s 32 of the Act.

as it was not the owner of the property known as West Tower and therefore, no notional income from house property was taxable in its hands. In this situation, the claim of depreciation on the same property was undisputedly / ex-facie bogus, I am satisfied that this is a fit case for imposition of penalty for furnishing inaccurate particulars in respect of its income as per the provision of Sec. 271(1)(c). Therefore, considering the facts of the case and the gravity of the default committed by the assessee, I hereby impose a penalty of Rs.83,157/- u/s 271(1)(c) of the I.T. Act for furnishing of inaccurate particulars of its income.”

8. The ld. AR for the assessee submitted that since the addition made in quantum proceedings has its genesis with the appellate proceedings for earlier assessment years it would be appropriate to consider whether penalty was sustained in those years vis-à-vis the issue relating to depreciation disallowance. It was submitted by the assessee that the Tribunal vide order dated 12.09.2008 in had deleted levy of penalty in case of assessee for Assessment Year 2001-02 which was the first year in which these disallowances were made by the department. The Ld. AR further submitted that post proceedings for AY 2001-02, reassessment proceedings were initiated by the department in Assessment year 2000-01 and in that year also, levy of penalty on depreciation disallowance has been deleted by the Tribunal. In this regard, our attention was invited to the order dated 08.10.2014 passed by the Tribunal for Assessment Year 2000-01 in ITA No.3626/Del/2013.

9. On the other hand, the ld. DR vehemently supported levy of penalty in the instant case and placed reliance upon the orders passed by the lower authorities levying / sustaining the penalty.

“The issue regarding depreciation that has been decided against the assessee but it is linked with the income from house property and no penalty is imposable upon the assessee on this amount also. Taking into consideration all the facts and circumstances of the case; we do not find any error in the order of learned CIT(Appeals), hence the appeal of the revenue is dismissed.”

Thereafter, in appellate order for Assessment Year 2000-01, penalty on depreciation disallowance was quashed by the Tribunal observing as under :-

“7. We have heard both the parties and perused the orders passed by the revenue authorities along with documentary evidence filed by the ld. Counsel for the assessee and we are of the considered view that the ld. First Appellate Authority has passed the well reasoned order after discussing the relevant provisions of law as well as the case law relating to the issue in dispute.

No.27/06/07 vide order dated 25.07.2007) with the following observation:

i. I find that main addition was by way of property income from waste tower amounting to Rs.2,01,18,507/- was made in connection with such property. Further through the fact, I found that these issues were involved in appellant’s case even in earlier years and upto A.Y.2000-01 and no additions / disallowances were made. Even the depreciation on water tower was allowed to the appellant upto A.Y.2000-01. Thus, the addition by of notional income from house property amounting to Rs.2,01,18,507/- and disallowance of depreciation against waste tower amounting to Rs.10,59,034/- were based on difference of opinion. Hence, these additions / disallowances may be justified for the assessment of income but these are not fit for levying the penalty u/s 271(1)(c). ii. In respect of reduction of claim of deduction u/s 80HHD, I find that it was also based on difference of opinion about interpretation of legal provision. Hence, reduction in claim of deduction u/s 80HHD is also not fit for levying the penalty u/s 271(1)(c). iii. Last disallowances was relating to interest amounting to Rs.4,40,000/- I find that the AO has disallowed the interest to the extent of Rs.44,00,000/- while the CIT(A) has upheld the disallowance of Rs.4,40,000/- only on going through the fact, I find that the assessee has charged interest (at @ 8% against the loan given to family members while the AO has estimated the interest chargeable @ 16%. Thus, the disallowance of interest was based on difference of opinion and interpretation of legal provision which is not fit for levying the penalty u/s 271(1)(c). iv. In the light of facts and circumstances mentioned above, I reach to the conclusions that the aforesaid additions / disallowances were based on change of opinion and there was no element of positive concealment. Hence, the appellant cannot be held liable for furnishing the inaccurate particulars. In this situation, penalty levied Rs.1,02,98,2707/- is cancelled.”

Since there is no change in facts of the case, I have no reason to deviate from the findings of my predecessor and respectfully following the same the impugned penalty is directed to be deleted.”

Respectfully following the above orders passed by the coordinate Benches of Tribunal, we are inclined to allow the relief claimed by the assessee. As a result, levy of penalty u/s 271(1)(c) of Rs. 83,157/- and Rs 2,22,970/- in Assessment Years 2006-07 and 2007-08 respectively is deleted and the appeals filed by the assessee are allowed.