The opinion expressed by the Third Member was very much binding on the Account member and he was bound to follow the opinion of the Third Member in its true letter and spirit.
On a difference of opinion among the two Members of the Tribunal, the ld.Third Member was called upon to answer two questions on which there was difference of opinion among the two members who framed the questions and the ld.Third Member in a well considered order, answered the reference by giving sound and valid reasons agreeing with the views of the ld. Judicial Member. Thus, the majority view was in favour of the assessee.
We further hold that the proposed order dated 18.2.2010 of the ld. Accountant Member who is in the minority and had become functus officio wherein he has expressed his inability to give effect to the opinion of the majority and proceeded to frame three new questions to be referred to the Hon’ble President, ITAT again for resolving the controversy cannot be said to be a valid or lawful order passed in accordance with the provisions of section 255(4) of the Act and, hence, the said order dated 18.2.2010 proposed by the ld. Accountant Member is not sustainable in law.
INCOME TAX APPELLATE TRIBUNAL
ITA Nos.6490 and 6491/Mum/2008 (Asst.Years 2004-05 and 2005-06)
Tulip Hotels Pvt. Ltd. Vs. DCIT
Date of Pronouncement : 30.3.2012
ORDER
Per Bench:
The Hon’ble President of the Income Tax Appellate Tribunal, on a reference made by a Division Bench, has constituted this Special Bench vide order dated 14.5.2010 and the following question has been referred for our consideration and decision:-
“Whether on a proper interpretation of sub-section (4) of section 255 of the Income Tax Act, the order proposed by the learned AM while giving effect to the opinion of the majority consequent to the opinion expressed by the learned Third Member, can be said to be a valid or lawful order passed in accordance with the said provision”
2. The factual matrix of the case leading to the recommendation for the constitution of this Special Bench by the Division Bench is as follows:
3. The assessee company is engaged in the business of operation and management of hotels owned by third parties. The assessee has taken over the management of the hotel property, viz. Tulip Star Mumbai, situated at Juhu Tara Road, Juhu, Mumbai. The assessee was redeveloping the said property into a multi product hospitability destination and was also developing international standard Service Apartments. The assessee offered the space in the same property to Shri Somendra Khosla of UAE on a 99 years lease basis. After negotiation, Shri Khosla agreed to acquire the space admeasuring 12700 sq. ft. at the rate of Rs.7,500/- per sq. ft. In pursuance to such booking of the property, Shri Khosla advanced the sum of Rs.4,78,12,403/- during the accounting year relevant to assessment year 2004- 05 and the sum of Rs.1,02,91,176/- in the accounting year relevant to assessment year 2005-06. During the assessment proceedings, the assessee produced the copies of correspondence between the assessee and Shri Khosla; confirmation of Shri Khosla with regard to advance given by him; complete details with regard to remittance in USD; the correspondence showing why the property could not be developed as stipulated and the termination of the agreement with the liability on the assessee to refund the money. The assessee also produced the certificate from Citibank, Mumbai, certifying the receipt of inward foreign remittance by the assessee, which was sent by Shri Khosla. The Assessing Officer, not being satisfied with the evidences furnished before him held that the assessee has not established the identity, creditworthiness and genuineness of the transaction and accordingly added an amount of Rs.4,78,12,403/- u/s 68 of the Income Tax Act, 1961 (the Act) to the total income of the assessee. In the assessment year 2005-06 also, the assessee had received a sum of Rs.1,02,91,176/- from Shri Khosla and for the same reasons given in the assessment order for the assessment 2004-05, the AO added the sum of Rs.1,02,91,176/- as income of the assessee u/s 68 of the Act. On appeal before the CIT(A), the assessee furnished various additional evidence in the form of certificate from a Chartered Accountant, giving the details of the properties owned by Shri Khosla; copy of his Passport; the Trade License issued to the company of Shri Khosla, viz. Dome Services (FZC); copy of his telephone bill, electricity bill; newspaper cuttings showing the voluminous business being done by the company named as New World Real Estate (NWRE), whose President is Shri Somendra Khosla; the Heath Card and other Cards issued by the Government of UAE. The ld. CIT(A) while observing that these documents were not produced before the Special Auditor during the special audit conducted u/s 142(2A) of the Act or the AO at the time of assessment , held that the same cannot be admitted being fresh evidence at the appellate stage as the appellant has failed to explain the reasons for not producing these documents before the AO or Special Auditor. He further held that since no evidence of creditworthiness of Shri Somendra Khosla was produced during the assessment proceedings, the AO was justified in making addition u/s 68 of the Act Rs.4,78,12,403/- for the assessment year 2004-05 and Rs.1,02,91,176/- for the assessment year 2005-06.
4. With regard to the second issue of disallowance of payments, the brief facts are that the assessee has entered into an agreement with M/s Tulip Hospitality Services Ltd.(THSL) for operating their Hotel Tulip Star, Mumbai for which the assessee is entitled to operating fee © 3% and reimbursement of actual expenditure incurred by it on operating the hotel. The assessee entered into another contract with M/s Tulip Star Hotels Pvt. Ltd. (TSHL) for operating the Hotel Tulip Star, Mumbai, by which TSHL is to get 3% of the gross hotel receipt. Thus, whatever the amount assessee is entitled to receive from THSL is to be passed on to TSHL. The assessee also entered into an agreement with M/s Cox & King (India) Pvt. Ltd. (CKIL) for using their network of office and infrastructure for brand awareness and marketing of Tulip Star hotel for which CKIL is entitled to reimbursement of expenses actually incurred by them. CKIL raised monthly debit note upon the assessee for expenditure incurred by them. In turn, the assessee raised debit note of identical amount upon THSL. During the whole year, CKIL raised debit note of Rs.7,56,16,910/- and in turn, similar debit note is raised by the assessee. The amount received from THSL is paid to CKIL. In its profit and loss account,the assessee has not claimed any deduction in respectof debit note raised by CKIL, because the same waslready reimbursed by THSL. With regard to the operating fee of Rs.61,93,015/- is concerned it entered into an agreement with THSL for operating their hotel namely Tulip Star. Simultaneously, the assessee entered into another agreement with THSL for operating the said hotel. The entire operating fee receivable by the assessee for operating the hotel was passed on to TSHL. Therefore, in effect, the assessee has not claimed expenditure of Rs.61,93,015/-. The AO however, did not accept the claim. It was observed by him that the auditors had clearly stated that the assessee had claimed the expenditure in P & L account. It was observed by him that the assessee had understanding with TSHL & CKIL to provide various services and therefore question of reimbursement did not arise and even if the services were actually provided by CKIL and TSHL the assessee was required to deduct tax at sources in respect of payments made to them as the same were in the nature of contractual payments. The AO accordingly disallowed the claim of deductions of Rs.7,56,16,910/- and Rs.61,93,015/- for assessment year 2004-05. Similar deduction had also been claimed in assessment year 2005-06 i.e. sum of Rs.7,95,73,902/- on account of brand awareness activities paid to CKIL and Rs.37,03,683/- on account of operating fees paid to THSL. For the reasons given in the assessment order for the assessment year 2004-05 the AO disallowed the said claims in assessment year 2005-06 also. In appeal CIT(A) confirmed the above disallowances made by the AO.
5. On appeal before the Tribunal, on the issue of sustenance of addition u/s 68 of the Act, both learned Members have considered the evidence produced before the AO as well as the additional evidence. The learned Judicial Member, after considering all the evidence, i.e. the evidence produced before the Assessing Officer as well as the additional evidence, came to the conclusion that the assessee has discharged the onus of proving the cash credit lay upon it and accordingly he ordered for deletion of addition; while the learned Accountant Member was of the opinion that even after considering the additional evidence the assessee has not been able to discharge the onus of proving the cash credit and hence upheld the order of ld.CIT(A) sustaining the addition made by the AO.
6. On the second issue of disallowance of payments, the ld. Judicial Member while observing that there is only incoming and outgoing entries in the books and for this reason neither the assessee has shown in its profit and loss account any incoming entry/ income nor outgoing entry/ expenditure, deleted the disallowance of Rs.7,56,16,910!- and Rs.61,93,015/-for the assessment year 2004-05 and for the same reasons he also deleted the disallowance of Rs.7,95,73,902!- and Rs.37,03,683!- for the assessment year 2005-06. However, the ld. Accountant Member while observing that there is no evidence for services rendered by CKIL and mere agreement or payment by cheque is not enough, the claim has to be disallowed in view of the provisions of section 40(1)(ia) of the Act on the ground of non deduction of tax, confirmed the above disallowances made by the AO.
7. Since there was a difference of opinion between the members constituting the Bench, a Reference was made to the Hon’ble President under section 255(4) of the Income Tax Act, 1961, for referring the points of difference to the ld. Third Member for adjudication of the following points of difference: –
“Whether on the facts and circumstances of the case:
i) the additions of Rs.4,78,12,403/- and Rs.1,02,91,176/- made and confirmed by the lower authorities u/s 68 for AYs 2004-05 and 2005-06 respectively are liable to be deleted or to be confirmed?
ii) the addition made and confirmed by the CIT(A) on account of reimbursement of expenses to M/s Cox & King (India) Pvt. Ltd. and to M/s Tulip Star Hotels Pvt. Ltd. for AYs 2004-05 and 2005-06 are liable to be deleted or confirmed?”
8. The ld. Third Member on the first point of difference vide paragraphs 22 and 23 of his order dated 27.11.2009 held as under :
“22. Considering the totality of the above facts namely that Shri Somendra Khosla is a NRI, he is in the business of development of real estate and he is a man of substantial means, in my opinion, if he has decided to invest in the real estate in India, the genuineness cannot be doubted unless there is any evidence to the contrary. The Revenue has doubted the genuineness merely on the basis of presumption and suspicion ignoring the documentary evidences produced by the assessee, which establish the genuineness of transaction.
23. In view of the above, in my opinion, the assessee has duly established the identity of the creditor, creditworthiness of the creditor and also genuineness of the transaction. Thus, the onus of proving the cash credit which lays upon the assessee is duly discharged. Accordingly, I answer question no.1 in favour of the assessee and hold that the addition of Rs.4,78,12,403/- and Rs.1,02,91,176/- made and confirmed by the lower authorities under section 68 of the Income Tax Act are liable to be deleted.”
On the second point of difference, the ld. Third Member vide paragraphs 27, 28 and 29 of his order has held as under :
“27……The assessee has furnished the profit and loss account in its paper book and from the perusal of which it is evident that the total expenditure debited in the profit and loss account was only Rs.86,97,337/-. When the total expenditure incurred by the assessee during the year under consideration was Rs.86,97,337/-, by no stretch of imagination, it can include the expenditure incurred by CKIL for which debit note amounting to Rs.7,56,16,910/- was raised by the assessee. When the assessee has not claimed the deduction in respect of the expenditure of Rs.7,56,16,910/-, the question of disallowing the same in the case of the assessee cannot arise.
28. With regard to the operating fee of Rs.61,93,015/- is concerned, I find that the assessee received the identical amount from THSL and paid the same to TSHL. Here again, in real terms, the assessee has neither received any income nor incurred any expenditure. It entered into an agreement with THSL for operating their hotel namely Tulip Star. Simultaneously, the assessee entered into another agreement with THSL for operating the said hotel . The entire operating fee receivable by the assessee for operating the hotel was passed on to TSHL.
Therefore, in effect, the assessee has not claimed expenditure of Rs.61,93,015/-. As I have mentioned earlier that in the profit and loss account, the assessee debited total expenditure of only Rs.86,97,337/- the details of which is given in the Schedule ‘G’ to the profit and loss account which is as under :
“SCHEDULE ANNEXED TO AND FORMING PART OF
THE ACCOUNTS FOR THE YEAR ENDED 31 ST MARCH 2004
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