Case Law Details
VCI Hospitality Ltd. Vs DCIT (ITAT Delhi)
Interest expenses on FBT being penal in nature cannot be treated as business expenses
Facts- Assessee is a company engaged in the business of hotel operations and marketing activities. Assessee filed its ROI for A.Y. 2011-12 on 30.09.2011 declaring income of Rs.80,67,320/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act order dated 31.03.2014 and the total income was determined at Rs.2,45,00,458/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 06.03.2017 in Appeal No.162/14-15 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal on following important grounds –
1. Addition u/s 40(a)(ia) for non-deduction of TDS on commission;
2. Addition u/s 40A(3);
3. Addition of income tax provision FBT.
Conclusion- With respect to disallowance under Section 40(a)(ia) on account of non deduction of TDS. We find that CIT(A) has granted relief to the extent of the TDS that was deducted and paid by the Assessee till the filing of return. With respect to the amount of Rs.8,51,234/-, the disallowance of which has been upheld, he has given a finding that no evidence has been placed by assessee to demonstrate that the required TDS was deducted and deposited with the appropriate authorities. Before us, no fallacy in the findings of CIT(A) has been pointed by the Assessee. In such circumstances, we find no reason to interfere with the order of CIT(A) and thus the ground of Assessee is dismissed.
With respect to disallowance under Section 40(A)(3) of the Act. We find that CIT(A) while upholding the addition has noted that Assessee has neither given the details or justification for cash payment before Assessing Officer and him. Before us also, no material has been placed by Assessee to point any fallacy in the finding of CIT(A). We therefore find no reason to interfere with the order of CIT(A) and thus the ground of Assessee dismissed.
With regard to addition of income tax provision FBT, the Assessing Officer had disallowed interest expenses on FBT holding it to be penal in nature and the same was upheld by CIT(A). Before us, no material has been placed by Assessee to point any fallacy in the findings of CIT(A). We therefore find no reason to interfere with the order of the CIT(A) and thus the ground of Assessee is dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
Both the appeals filed by the assessee are directed against the consolidated order dated 06.03.2017 of the Commissioner of Income Tax (Appeals)-9, New Delhi relating to Assessment Years 2011-12 and 2012-13.
2. At the outset, Learned DR submitted that the issue involved in both the appeals are identical except for the year and amounts involved and therefore the submissions made by him for one year would be applicable to the other year also. In view of the aforesaid submissions of the DR, we for the sake of convenience proceed to dispose of both the appeals by a consolidated order but for the sake of reference refer to the facts for A.Y. 2011-12.
3. The relevant facts as culled from the material on records are as under:
4. Assessee is a company stated to be engaged in the business of hotel operations and marketing activities. Assessee filed its return of income for A.Y. 2011-12 on 30.09.2011 declaring income of Rs.80,67,320/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act order dated 31.03.2014 and the total income was determined at Rs.2,45,00,458/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 06.03.2017 in Appeal No.162/14-15 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal and has raised the following grounds:
1. “The learned Commissioner of Income Tax (Appeals)-IX has erred on facts and in law in passing the impugned order which is contrary to law, equity and justice and facts and material on record, arbitrary, based on conjectures and surmises.
2. The appellant denies its liability to tax as determined and computed by the learned AO / CIT (A) and the manner in which it has been so determined or computed.
3. The Ld. CIT (A) did not appreciate the nature and conduct of the business of the assessee, where the Investments were made in the normal business parlance to obtain a controlling interest of similar companies in the same / related industry to obtain a competitive edge among its competitors, thus amount of Rs.62,52,021/- disallowed U/s 36(1)(iii) is contrary to facts of the case and is liable to be deleted.
4. The Ld. CIT (A) confirmed addition of 8,51,234/-U/s.40(a)(ia) without appreciating the fact that the assesse Company did not deduct the TDS on captioned amount as this expenses represent the reimbursement of out of pocket marketing / sales promotion expenses, which were incurred by the principal / agent in discharging their contractual obligation undertaken with the Assessee Company, thus the addition of Rs.8,51,234/- is contrary to facts and the applicable provision of the Income Tax Act, 1961 and is liable to be deleted.
5. The Ld. CIT (A) has confirmed an addition of 6,00,000/-U/s.40A(3) of the Income Tax Act, 1961 merely on the basis that the expenses were incurred in cash without undergoing the facts, supporting, factual evidence held by the assesse in relation to the above expenses. The said addition was made without considering the relevant vouchers and supporting evidence and thus liable to be deleted.
6. That the Ld. CIT (A) without considering the facts of the case confirmed the addition of 1,83,853/- to the taxable income of the assesse being the interest charged by the Income Tax Department consequent to the refund order issued by it, where the interest was granted to assesse on the late refund by Income Tax Department and Interest levied under the same order on late payment of Fringe Benefit Tax adjusted against such refund.
7. The appellant craves leave to and permission of the Hon’ble ITAT to add to or alter any of the grounds of appeal at anytime up to the final decision of the appeal.
8. The appellant craves leave and sanction of the Hon’ble ITAT to file additional evidence, if so required for proper prosecution of the case, based on facts and circumstances, which has not been or could not be reduced or filed before lower authorities either because proper and sufficient opportunity was not provided or because it was not solicited or its need was not appreciated.
9. The addition made be deleted and the returned income be accepted or such other relief as Your Honors may deem fit, under the circumstances of the case, be granted.”
5. Similar grounds have been raised by assessee in ITA No.3781/Del/2017 for A.Y. 2012-13.
6. The case file of the appeal reveals that the appeal was filed by the assessee in the year 2017. The matter was fixed for hearing for the first time on 01.02.2021. On that day, there was no appearance on behalf of the assessee nor any adjournment application was filed on its behalf. The matter was therefore adjourned for hearing for 12.04.2021 and the notice was issued through registered post. It is seen that thereafter the case for hearing was fixed on various dates and the notice for hearing was also issued but on all those dates there was no appearance on behalf of the assessee nor any adjournment application was moved on its behalf. The details of the dates when the matter was listed for hearing but was adjourned on account of non appearance by assessee is tabulated hereunder:
1. 01. 02.2021 – matter was adjourned to 12.04.2021
2. 12. 04.2021 – matter was adjourned to 21.06.2021
3. 21. 06.2021 – matter was adjourned to 08.09.2021
4. 08. 09.2021 – matter was adjourned to 17.11.2021
5. 17. 11.2021 – matter was adjourned to 07.02.2022
6. 07. 02.2022 – matter was adjourned to 28.04.2022
7. On the present date also, there is no appearance from the side of assessee nor there is any request for adjournment. Mere filing of an appeal by the assessee before this Tribunal would not be sufficient. It is incumbent upon the assessee to attend the proceedings as and when so fixed. In the present case the details as listed in the preceding para indicates the callous approach of the assessee in not attending the proceedings nor seeking adjournment of hearings. In such a situation and considering the fact that after filing the appeal by assessee in the year 2017, there has been no appearance on its behalf in the past, we proceed to dispose of the appeals ex parte qua the assessee and after hearing the Learned DR.
8. Before us, ld. DR submitted that the effective grounds which require adjudication are Grounds No.3 to 6.
9. We find that Assessee had filed return of income for Assessment Year 2011-12 on 30.09.2011 declaring total income of Rs.80,67,320/-. In the assessment framed u/s. 143(3) vide order dated 31.03.2014, the total income was determined at Rs.2,45,00,458/- by making various disallowances/additions. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A) who granted partial relief to the Assessee. To the extent relief was not granted by the CIT(A), Assessee is now in appeal. Vide ground No.3, assessee is challenging the addition of Rs.62,52,021/- disallowed under Section 36(1)(iii) of the Act.
10. Assessing Officer in para 2 of the order has discussed the issue of interest payment. He noticed that Assessee had claimed interest expenses of Rs.72,16,911/-. He also noticed that Assessee; apart from giving other advances, had shown Rs.1,77,99,844/- as advance for share application money. Assessing Officer concluded that Assessee had diverted borrowed funds, on which interest was paid, as interest free advances. He therefore held that the claim of interest payment to be not backed by commercial expediency. He therefore disallowed interest of Rs.72,16,911/-.
11. When the matter was carried before CIT(A), CIT(A) after considered the submission of assessee vide para 4.2 of the order granted relief to the extent of Rs.9,64,890/- and upheld the addition to the extent of Rs.62,52,021/-. Aggrieved by the order of the CIT(A), assessee is now in appeal.
12. Before us, ld. DR took us through the findings of CIT(A) and supported his order.
13. We have heard the ld. DR and perused the material on record. CIT(A) has upheld that addition to the extent of Rs.62,52,021/- and the relief of interest was granted to the extent of amount of loan which was vehicle loan and for business purposes. CIT(A) while upholding the addition has noted that Assessee had given Rs.1,77,99,844/- advance against share application money, no shares were allotted within a reasonable period of 60 days and Assessee had also not given any evidence to show that the shares were allotted on the share application money advanced by the Assessee. He has further given a finding that the advancing for share application money has not been proved to be for business purpose. As far as other interest free amounts advanced, he has given a finding that Assessee has not proved that the loan was given for commercial expediency. Before us no material has been placed by Assessee to point to any fallacy in the findings of CIT(A). We thus find no reason to interfere with the order of CIT(A) and thus the ground of assessee is dismissed.
14. Vide Ground No.4, Assessee is challenging the addition of Rs.8,51,234/- under Section 40(a)(ia). Assessing Officer vide para 4 of the assessment order noted that assessee had paid commission aggregating to Rs.18,58,588/- and on such payments, Assessee had not deducted TDS under Section 194H of the Act. He therefore, by invoking the provisions of Section 40(a)(ia), disallowed Rs.18,55,588/-.
15. Aggrieved by the order of the Assessing Officer, Assessee carried the matter before CIT(A). The CIT(A) vide para 6.2 of the order upheld the addition to the extent of Rs.8,51,234/- and granted relied to the extent of Rs.10,07,354/-.
16. Aggrieved by the order of the CIT(A), Assessee is now in appeal.
17. Before us, ld. DR took us through the findings of the CIT(A) and supported his order.
18. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance under Section 40(a)(ia) on account of non deduction of TDS. We find that CIT(A) has granted relief to the extent of the TDS that was deducted and paid by the Assessee till the filing of return. With respect to the amount of Rs.8,51,234/-, the disallowance of which has been upheld, he has given a finding that no evidence has been placed by assessee to demonstrate that the required TDS was deducted and deposited with the appropriate authorities. Before us, no fallacy in the findings of CIT(A) has been pointed by the Assessee. In such circumstances, we find no reason to interfere with the order of CIT(A) and thus the ground of Assessee is dismissed.
19. Vide Ground No.5, Assessee is challenging the addition of Rs.6,00,000/- made under Section 40A(3) of the Act.
20. Assessing Officer vide para 7 of the order had noted that assessee had made payments in cash aggregating to Rs.6,00,000/-. Assessing Officer noted that Assessee did not furnish any justification for commercial expediency. He therefore by invoking provisions under Section 40A(3) disallowed Rs.6,00,000/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A), who for the reasons stated in para 9.2 of the order upheld the order of Assessing Officer.
21. Aggrieved by the order of CIT(A), Assessee is now before us.
22. Before us, ld. DR took us through the findings of Assessing Officer and CIT(A) and supported their orders.
23. We have heard the ld. DR and perused the material on record. The issue in the present ground is with respect to disallowance under Section 40(A)(3) of the Act. We find that CIT(A) while upholding the addition has noted that Assessee has neither given the details or justification for cash payment before Assessing Officer and him. Before us also, no material has been placed by Assessee to point any fallacy in the finding of CIT(A). We therefore find no reason to interfere with the order of CIT(A) and thus the ground of Assessee dismissed.
24. Vide Ground No.6, assessee is challenging the addition of Rs.1,83,853/-. Assessing Officer vide para 8 of the order has noted that assessee had paid Rs.1,83,853/- on account of “Income Tax Provisions-FBT”. Assessing Officer was of the view that the amount paid was of penal nature and therefore not allowable. He accordingly disallowed the expenses.
25. Aggrieved by the order of the Assessing Officer, Assessee carried the matter before CIT(A) who for the reasons recorded in para 10.2 of his order upheld the action of Assessing Officer.
26. Aggrieved by the order of the CIT(A), Assessee is now before us.
27. Before us, ld. DR took us through the findings of lower authorities and supported their orders.
28. We have heard the ld. DR and perused the material on record. The Assessing Officer had disallowed interest expenses on FBT holding it to be penal in nature and the same was upheld by CIT(A). Before us, no material has been placed by Assessee to point any fallacy in the findings of CIT(A). We therefore find no reason to interfere with the order of the CIT(A) and thus the ground of Assessee is dismissed.
29. In the result, appeal of the assessee is dismissed.
30. As far as ITA No.3781/Del/2017 for A.Y. 2012-13 is concerned, before us, the Learned DR has submitted that the issue raised in the appeal for A.Y. 2012-13 is identical to that of A.Y. 2011-12. We have hereinabove while deciding the appeal for A.Y. 2012-13 for the reasons stated have dismissed the appeal of the assessee. We for similar reasons also dismiss the appeal of the assessee for A.Y. 2012-13. Thus the grounds of the assessee are dismissed.
31. In the combined result, both the appeals of the assessee are dismissed.
Order pronounced in the open court on 23.05.2022
Author Bio
