On February 20, 2020, the Additional Commissioner of Income Tax (ACIT), Central Circle – 13, New Delhi, filed an appeal against the order dated December 12, 2019, passed by the Commissioner of Income-tax (Appeals) [CIT(A)]-37, New Delhi. The case pertained to the assessment year 2016-17 and involved a dispute over the treatment of house property income by A B Hotels Limited. The original assessment order was issued on October 23, 2019, under Section 143(1) by the Deputy Commissioner of Income-tax (DCIT), CPC, Bengaluru.
Appellant: ACIT, CC-13, New Delhi
Respondent: A B Hotels Limited, Radisson Hotel, National Highway-08, Mahipalpur, New Delhi
Assessment Year: 2016-17
Case Filed On: February 20, 2020
Order Type: Final Tribunal Order
Date of Order: November 24, 2022
Date of Pronouncement: November 24, 2022
The appellant was represented by Shri Kanav Bali, Senior Departmental Representative (DR), while the respondent was represented by Ms. Kanika Jain, Advocate.
A B Hotels Limited, based in New Delhi, was assessed for the year 2016-17. During the assessment, the DCIT, CPC, Bengaluru, disallowed Rs. 7,67,21,258/- on the grounds that the income pertained to house property but was wrongly claimed in the Profit and Loss (P&L) account by the assessee. The CIT(A)-37, New Delhi, deleted the disallowance in the order dated December 12, 2019. Subsequently, ACIT CC – 13, New Delhi, filed an appeal with the Income Tax Appellate Tribunal (ITAT), contesting this decision.
The primary grounds for the appeal were:
The appellant’s representative, Shri Kanav Bali, argued that the Assessing Officer (AO) made a disallowance of 10% of operating expenses, employee benefit expenses, and administrative & general expenses, considering that the total rental income was approximately 10% of the total revenue/income, including rental and hotel business. He emphasized that the CIT(A) granted relief to the assessee without a justified and reasonable basis, ignoring the principle that res judicata does not apply to income tax proceedings. He contended that the assessee had claimed a deduction under Section 24(a) of the Act but had not apportioned the relevant part of the expenses incurred and claimed in the P&L account of operating expenses, employee benefit expenses, and administrative & general expenses. Thus, the CIT(A)’s order should be set aside, and the AO’s order restored.
On behalf of the respondent, Ms. Kanika Jain supported the first appellate order and submitted that in the scrutiny assessment orders under Section 143(3) of the Act for the immediately preceding assessment years 2014-15 and 2015-16, the AO had accepted the method of accounting without any dispute. Therefore, the AO could not take a different or deviated view on similar facts and circumstances, following the principle of consistency in tax jurisprudence. She argued that the expenses were duly vouched for, and the audited accounts were supported by vouchers made available to the AO, who had not rejected the books of accounts. Thus, the AO was not justified in estimating the disallowance based on mere suspicion.
During the proceedings, both parties cited several legal precedents to support their arguments. The appellant referred to cases emphasizing the importance of strict compliance with statutory deadlines and accurate expense apportionment. The respondent relied on cases supporting the principle of consistency and the need for substantial evidence to justify disallowances.
The case was heard on August 29, 2022, by a bench comprising Shri C.M. Garg, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member. After considering the arguments and evidence presented, the tribunal concluded that the principle of res judicata does not apply to income tax proceedings, but the rule of consistency should be respected. The AO is duty-bound to examine the issue thoroughly to prevent revenue leakage and tax evasion.
The tribunal observed that the assessee had shown and included in other income an amount of Rs.2,47,24,241/- received as maintenance charges but had incurred expenditure towards maintenance from the common pool. This prompted the AO to make the disallowance. The tribunal directed the AO to identify the expenses pertaining to hotel and rental activity from the common pool and make proportionate and appropriate disallowance on rental area/portion maintenance. The appeal was allowed for statistical purposes with directions to the AO.
The dismissal of the appeal in ITA No.864/DEL/2020 highlights the procedural aspects of tax litigation, particularly the importance of precise and accurate filing and expense apportionment. It underscores the complexities involved in the interpretation and application of tax laws concerning house property income and the need for thorough documentation and compliance.
This case has broader implications for businesses and tax professionals, especially concerning the treatment of house property income and expense apportionment. The key takeaways include:
This section provides a detailed analysis of the judicial precedents cited during the case, their implications, and how they influenced the tribunal’s decision.
While the principle of res judicata does not apply to income tax proceedings, the rule of consistency is often respected to maintain fairness and predictability in tax assessments. This principle ensures that similar facts and circumstances are treated consistently across different assessment years, providing stability and reliability in tax administration.
Various judicial precedents emphasize that the reasonableness of any expenditure should be evaluated from the perspective of a prudent businessman rather than the taxing authorities. This principle ensures that business decisions are respected, and only unreasonable or excessive expenditures are disallowed.
The burden of proof lies with the taxpayer to demonstrate that the expenses claimed are genuine, reasonable, and incurred for business purposes. Proper documentation and evidence are crucial in defending against disallowances and ensuring compliance with tax laws.
The case of ITA No.864/DEL/2020 serves as an important case study for understanding the complexities of tax compliance, particularly concerning house property income and expense apportionment. Businesses and tax professionals must prioritize timely compliance with statutory requirements, maintain robust documentation, and stay informed about relevant judicial precedents. These practices will help ensure accurate tax filings, defend against potential disallowances, and achieve favorable outcomes in tax litigation.
ITA No.864/DEL/2020: ACIT Challenges House Property Income Treatment by A B Hotels Limited
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