2015 (9) TMI 168 - AT - Income Tax

Disallowance of expenditure on account of Guest Complimentary and Guest Supplies - CIT(a) deleted disallowance - Held that - Principally as regards allowability of expenditure debited on account of food and beverages under the head Guest complimentary expenses and expenditure on account of supply of sundry cosmetics under the head guest complimentary the same is allowable. However, we note that as regards guest complimentary before the ld. CIT(A) the assessee has submitted that it was on account of complimentary breakfast and the accounting entry made was guest complimentary is debited and room rents are credited. This has been justified on the ground that room rent is debited on the gross amount which is inclusive of complimentary break fast and or meal. Now in this regard we find from the paper book submitted by the assessee that there is a guest complimentary ledger. This aspect has neither been explained by the assessee nor appreciated by the ld. CIT(A). The scheme of entry shown as above showed that it is not a simple matter as debiting guest complimentary on account of food and beverages and crediting room rent. It cannot be said that the ld. CIT(A) has properly understood the scheme of assessee s entry. Before us also except producing copy of the ledger account the ld. Counsel of the assessee could not explain in detail the impact of the entries in the aforesaid complimentary ledger account. How the guest complimentary account is affected by business promotion, staff welfare and F&B cost adjustment has not been explained. In such circumstances in our considered opinion the issue needs to be remitted to the file of AO. AO is directed to examine in detail the nature of guest complimentary ledger account and the entries made therein. After detail examination of the ledger complimentary account he is directed to consider the allowability of the expenditure booked/affected through this account - Decided in favour of revenue for statistical purposes.

Summary

Issues:
Disallowance of expenses under the head Guest Complimentary and Guest Supplies for Assessment Year 2005-06.

Analysis:
The appeal by the revenue challenged the deletion of disallowance of expenses amounting to Rs. 30,18,748 made by the Assessing Officer under the head Guest Complimentary and Guest Supplies. The Assessing Officer disallowed the expenses as the assessee failed to provide detailed evidence or explanation regarding the incurrence of these expenses. The ld. CIT(A) considered the submissions of the assessee, which included ledger printouts detailing the nature of expenses incurred, especially related to complimentary services like breakfast and major meals for guests. The assessee justified the expenses by explaining the competitive nature of the hotel industry and the practice of offering complimentary services to maintain healthy occupancy rates. The ld. CIT(A) found the expenses directly related to the hotel business and allowed them as business expenditure.

The ld. CIT(A) observed that the guest complimentary expenses mainly involved food and beverages, while guest supplies included complimentary sundry cosmetics. The AR of the assessee produced evidence during the appellate proceedings to support the claim of these expenses. The ld. CIT(A) found the expenses to be directly linked to the business operations of the assessee and thus allowed them. However, upon further examination, the Tribunal noted discrepancies in the entries related to guest complimentary expenses in the ledger account provided by the assessee. The Tribunal found that the scheme of entries in the ledger was not straightforward, and the impact of certain entries like business promotion and staff welfare on the guest complimentary account was not adequately explained.

Therefore, the Tribunal directed the AO to conduct a detailed examination of the nature of the guest complimentary ledger account and the entries made therein. The AO was instructed to assess the allowability of the expenditure associated with this account after thorough scrutiny. The Tribunal emphasized granting the assessee a fair opportunity to present their case during this examination process. As a result, the appeal filed by the revenue was allowed for statistical purposes, indicating a need for further investigation and clarification on the issue of guest complimentary expenses.