2014 (1) TMI 863 - AT - Income Tax

Disallowance of expenses expenses treated as being capital nature Held that - For expenses pertaining to Tennis hard court to tennis Clay Court, Dholpur planter for banquets these are not brining any enduring benefit or enhancement of capacity of hotel in any manner - the assessee is operating five star hotels, these expenses have been made to meet the requirement of efficiency and good service to the guests by a star hotel which do not bring any enduring benefit or enhancement of capacity in any manner to the assessee - Expenditure related to automatic door, installation of Milnor, water exterior, mobile radio and DVD players, these expenses also need to be tested in the light of the fact that these expenditures have been made by the assessee to maintain harmony and efficiency in the service of guest. The additions made are revenue in nature because these expenditures are not bringing any enduring benefit or enhancement of earning capacity of the assessee- The authorities below ignored a basic fact that the assessee is operating Five Star Hotel and it is bound to maintain good ambience and dignity of the hotel and to enable to the system which could provide efficiency and hassle free services to the guests of the hotel thus, the expenses are revenue in nature Decided in favour of Assessee. Disallowance on account of donation made Deduction u/s 80G of the Axt Held that - No documentary evidence was produced before the authorities below to substantiate the claim u/s 80G of the Act pertaining to donation made by the assessee thus, the order of the CIT(A) sustained - Decided against Assessee.

Summary

Issues Involved:
1. Disallowance of various business expenses as capital nature
2. Disallowance of donation amount
3. Consequential relief in interest under sections 234A, 234B, and 234C

Issue 1: Disallowance of Various Business Expenses as Capital Nature:
The appeal contested the disallowance of expenses amounting to Rs.22,56,239 as capital in nature. The appellant argued that the expenses were essential for maintaining the Five Star Hotels' ambience and efficient service. The expenses included automation system for doors, provision for software, and maintenance of electrical equipment. The appellant emphasized that these expenses were necessary for the continuous good service to guests and did not enhance the hotel's capacity. The authorities below contended that certain expenses were capital in nature, bringing enduring benefits to the appellant. However, the Tribunal concluded that the expenses were revenue in nature as they were crucial for maintaining the hotel's efficiency and service standards. The Tribunal directed the Assessing Officer to grant relief to the appellant, considering the nature of the Five Star Hotel operations.

Issue 2: Disallowance of Donation Amount:
The Commissioner confirmed the disallowance of a donation of Rs.15,000 to the Delhi Fire Service Benevolent Fund. The appellant argued that the donation to a government institution should not have been disallowed. However, as no documentary evidence was provided to substantiate the claim under section 80G of the Act, the Tribunal upheld the disallowance. The Tribunal found no reason to interfere with the authorities' decision due to the lack of evidence supporting the deduction claim. Consequently, ground no. 2 of the appellant was dismissed.

Issue 3: Consequential Relief in Interest under Sections 234A, 234B, and 234C:
Since the Tribunal allowed relief to the appellant in the first issue, directing the Assessing Officer to grant relief regarding the disallowed expenses, the Tribunal also directed the Assessing Officer to provide consequential relief in interest under sections 234A, 234B, and 234C. The Tribunal made this decision in conjunction with the relief granted in the first issue. As a result, ground no. 3 of the appellant was also addressed in favor of the appellant.

In conclusion, the Tribunal partly allowed the appellant's appeal, granting relief in the disallowance of various business expenses and providing consequential relief in interest under sections 234A, 234B, and 234C. However, the disallowance of the donation amount was upheld due to the lack of documentary evidence supporting the claim under section 80G of the Act.