2019 (11) TMI 746 - AT - Income Tax

Computing deduction u/s 80HHD - AO concluded that the receipts transferred to other hoteliers should have been included in the total business receipt - HELD THAT - The relevant observations of the Tribunal on the issue were also brought to the notice of the Bench. Having considered rival submissions, we have noted that deduction u/s 80HHD is calculated as a percentage of profit derived from services provided to foreign tourists. The mode and manner of computing such deduction has also been provided in the said provision. It is the specific case of the assessee that the receipts transferred to other hoteliers and tour operators by issuing certificate in Form no. 10CCAC should not form part of tourist receipts to compute deduction u/s 80HHD as per the formula prescribed under the said provision. While deciding identical issue in A.Y. 2002 03, 2019 (3) TMI 561 - ITAT MUMBAI held that the receipts passed on to other hotels and travel agents cannot be included in the total business receipts for computing deduction u/s 80HHD. The same view was reiterated by the Tribunal while deciding the issue in A.Y. 2003 04. As could be seen from the aforesaid facts, this is a recurring dispute continuing from past assessment years. In fact, the AO as well as Commissioner (Appeals) have decided the issue simply following their respective decisions in the assessment year 2002 03. There being no difference in facts brought to our notice in the impugned assessment year, respectfully following the consistent view of the Tribunal in assessee s own case as referred to above, we uphold the decision of Commissioner (Appeals). Ground raised is dismissed. Excluding the unrealized tour receipts for the purpose of computing deduction under section 80HHD - HELD THAT - As rightly observed by Learned Commissioner (Appeals), the Assessing Officer has included the unrealized tour receipts to the gross receipts for computing deduction under section 80HHD of the Act without making any discussion in the assessment order. Be that as it may, it has come to our notice that while deciding identical issue in assessee s own case in A.Y. 2002 03, the Tribunal in the order referred to above has held that unrealized tour receipts would not form part of total business receipts for computing deduction under section 80HHD of the Act. Facts being identical, following the decision of the Tribunal in A.Y. 2002 03, we uphold the decision of Learned Commissioner (Appeals) on the issue. Including the foreign exchange fluctuation gain for the purpose of computing the deduction under section 80HHD - HELD THAT - Notably while deciding identical issue in assessee s own case in A.Y. 2002 03 (supra), the Tribunal following the decisions of the Hon ble jurisdictional High Court in case of CIT vs. Syntel Limited 2009 (12) TMI 689 - BOMBAY HIGH COURT and in case of CIT vs. Rachana Udhyog 2010 (1) TMI 38 - BOMBAY HIGH COURT has held that the foreign exchange fluctuation gain has to be considered as part of foreign exchange receipt for computing deduction under section 80HHD of the Act. The same view was expressed by the Tribunal while deciding the issue in assessee s own case in A.Y. 2003 04 (supra). There being no difference in facts involved in the impugned assessment year, respectfully following the consistent view of the Tribunal in assessee s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. Disallowance of interest paid - HELD THAT - In proceeding before learned Commissioner (Appeals), the Assessing officer again verified the loan transaction and in the remand report accepted it to be genuine. On the basis of such remand report, Commissioner (Appeals) not only deleted the addition made under section 68, but also allowed the interest expenditure. In the impugned assessment year, the Assessing Officer has disallowed the interest expenditure primarily for the reason that the loan transaction was treated as non genuine in assessment year 2003-04. However, as discussed earlier, the first Appellate Authority accepted the loan transaction as genuine and also allowed the interest expenditure thereon while deciding the appeal for A.Y. 2003-04. The aforesaid decision of learned Commissioner (Appeals) was also upheld by the Tribunal. That being the case, the reason on which the Assessing Officer disallowed the interest expenditure is unsustainable. As regards the observation of the learned Commissioner (Appeals) that the amount on which interest was paid being an advance the interest expenditure is not allowable, we must observe, the facts on record clearly reveal that since the assessee needed finance for his business activity it availed the loan/advance against proposed sale of property. The purpose of availing loan / advance is connected with the business of assessee. In any case of the matter, under identical facts and circumstances, interest expenditure was allowed in the preceding assessment year. That being the case, we delete the disallowance of interest expenditure. Ground raised is allowed. Disallowance of deduction claimed towards payment of non compete fees - HELD THAT - From the observations of Commissioner (Appeals) it appears that the payment made by the assessee is not only for non compete but also for acquiring brand name, trademark, goodwill etc. While allowing assessee s claim in assessment year 2002-03 the aforesaid factual aspect appears to have not been brought to the notice of the Tribunal. Further, the fact that by making such payment the assessee has acquired assets of enduring benefit cannot be denied. Therefore, we concur with the view expressed by the Revenue Authorities that the expenditure incurred is capital in nature. However, it is established on record that the payment made by the assessee is for non compete, acquiring brand name, trademark, goodwill etc. Therefore, by incurring such expenditure the assessee certainly has acquired assets which have to be considered as intangible assets as per section 32(1) (ii). That being the case, assessee would be eligible to avail depreciation at the rate applicable to intangible assets. Therefore, we direct the Assessing Officer to allow depreciation on the expenditure claimed by the assessee. Disallowance of expenditure u/s 14A - HELD THAT - Undisputedly, the assessee has earned exempt income during the year under consideration. Therefore, expenditure attributable to earning of exempt income has to be allowed in terms of section 14A. It is observed, while deciding identical issue in assessment year 2002-03, the Tribunal, in the order referred to above, has restricted the disallowance to 2% of the exempt income earned during the year. Facts being identical, respectfully following the decision of the Coordinate Bench in assessee s own case, we direct the Assessing Officer to restrict the disallowance to 2% of the exempt income. Ground raised is partly allowed. Disallowance being commission paid to PTC Holidays Private Limited - HELD THAT - Assessing Officer must establish on record that the payment made by the assessee to a related party is unreasonable and excesseive having regard to the market rate. On a careful reading of the assessment order, we are of the view that the AO before disallowing the expenditure has not brought any material on record to demonstrate that the payment made by the assessee is unreasonable and excessive having regard to the market rate. Commissioner (Appeals) also sustained the disallowance on a factual misconception that similar disallowance was sustained by the first Appellate Authority in A.Y. 2003-04. Whereas, in Assessment Year 2003-04, Learned Commissioner (Appeals) has actually deleted the disallowance made by the Assessing Officer, as evident from his order dated 06.12.2012. In fact, in assessment year 2002-03 also the Assessing Officer himself allowed the payment made to the very same party in the scrutiny assessment. Therefore, considering the overall facts and circumstances relating to the issue, we are of the opinion that the disallowance made is unsustainable, accordingly, we delete it. Computing deduction u/s 80HHD - excluding the income received on interest on income tax refund and misc. Income from total business receipt - HELD THAT - In so far as income from interest on income tax refund, the assessee has accepted the decision of Revenue authorities. Therefore, there is no need to deliberate any further on that issue. As regards misc. income, it is the claim of the assessee that this income is closely related to the business activity of the assessee. It is observed, the Revenue authorities have disallowed assessee s claim in absence of necessary details. It has been submitted before us by the learned AR that the assessee is in possession of all the details relating to the income earned and can establish its claim before the AO. Considering the above, we are inclined to restore the issue relating to assessee s claim of misc. income to be treated as business income for deduction under section 80HHD to the Assessing Officer for de novo adjudication after verifying the details to be filed by the assessee. Needless to mention, the Assessing Officer must afford a reasonable opportunity of being heard to the assessee before deciding the issue. Ground raised is partly allowed for statistical purposes. Disallowance under section 40A(2)(b) - HELD THAT - While deciding the issue arising out of disallowance of commission paid to the very same party, we have deleted the disallowance on the basis of our detailed reasoning therein. The said decision of ours would apply mutatis mutandis to the issue raised in the present appeal also. Accordingly, the disallowance made by the Assessing Officer is deleted. Ground raised is allowed. Disallowance under section 14A to 02% of the exempt income earned during the year. This ground is partly allowed. Disallowance u/s 40A(2)(b) - HELD THAT - While considering the disallowance of commission paid to the very same party, we have allowed assessee s claim and deleted the disallowance. Following our decision therein, we delete the disallowance made in the impugned assessment year as well.

Summary

Issues Involved:
1. Exclusion of receipts transferred to other hoteliers for computing deduction under section 80HHD.
2. Exclusion of unrealized tour receipts for computing deduction under section 80HHD.
3. Inclusion of foreign exchange fluctuation gain for computing deduction under section 80HHD.
4. Disallowance of interest paid on loan.
5. Disallowance of deduction claimed for payment of non-compete fees.
6. Disallowance of expenditure under section 14A.
7. Disallowance of commission paid to related party.
8. Exclusion of income from interest on income tax refund and miscellaneous income for computing deduction under section 80HHD.

Detailed Analysis:

1. Exclusion of Receipts Transferred to Other Hoteliers for Computing Deduction under Section 80HHD:
The Revenue challenged the exclusion of receipts of ?52,04,70,961/- from the total receipt for computing deduction under section 80HHD. The Tribunal noted that the issue had been decided in favor of the assessee in previous years (A.Y. 2002-03 and A.Y. 2003-04), where it was held that receipts passed on to other hotels and travel agents should not be included in the total business receipts for computing deduction under section 80HHD. Respectfully following the consistent view of the Tribunal, the decision of the learned Commissioner (Appeals) was upheld, and the ground raised by Revenue was dismissed.

2. Exclusion of Unrealized Tour Receipts for Computing Deduction under Section 80HHD:
The Revenue challenged the exclusion of unrealized tour receipts of ?63,90,733/- for computing deduction under section 80HHD. The Tribunal observed that the Assessing Officer included the unrealized receipts without any discussion. Referring to the decision in A.Y. 2002-03, where unrealized tour receipts were not considered part of total business receipts for computing deduction under section 80HHD, the Tribunal upheld the decision of the learned Commissioner (Appeals) and dismissed the ground raised by Revenue.

3. Inclusion of Foreign Exchange Fluctuation Gain for Computing Deduction under Section 80HHD:
The Revenue challenged the inclusion of foreign exchange fluctuation gain of ?3,66,81,741/- for computing deduction under section 80HHD. The Tribunal referred to its decision in A.Y. 2002-03 and A.Y. 2003-04, where it was held that foreign exchange fluctuation gain should be considered part of foreign exchange receipts for computing deduction under section 80HHD. Following the consistent view, the Tribunal upheld the decision of the learned Commissioner (Appeals) and dismissed the ground raised by Revenue.

4. Disallowance of Interest Paid on Loan:
The assessee challenged the disallowance of interest paid of ?19,00,000/- on a loan treated as unexplained cash credit in A.Y. 2003-04. The Tribunal noted that the loan was accepted as genuine by the learned Commissioner (Appeals) in A.Y. 2003-04, and the interest expenditure was allowed. Following the decision of the Tribunal in A.Y. 2003-04, the disallowance of interest expenditure was deleted, and the ground raised by the assessee was allowed.

5. Disallowance of Deduction Claimed for Payment of Non-Compete Fees:
The assessee challenged the disallowance of deduction claimed for payment of non-compete fees of ?1,61,71,875/-. The Tribunal observed that the payment was not only for non-compete but also for acquiring brand name, trademark, and goodwill. It concurred with the Revenue Authorities that the expenditure was capital in nature. However, it directed the Assessing Officer to allow depreciation on the expenditure as intangible assets. The ground raised by the assessee was partly allowed.

6. Disallowance of Expenditure under Section 14A:
The assessee challenged the disallowance of expenditure under section 14A amounting to ?5,26,896/-. The Tribunal noted that in A.Y. 2002-03, the disallowance was restricted to 2% of the exempt income earned during the year. Following the consistent view, the Tribunal directed the Assessing Officer to restrict the disallowance to 2% of the exempt income. The ground raised by the assessee was partly allowed.

7. Disallowance of Commission Paid to Related Party:
The assessee challenged the disallowance of ?50,00,000/- paid as commission to PTC Holidays Pvt. Ltd., a related party. The Tribunal observed that the Assessing Officer did not establish that the payment was unreasonable or excessive. It also noted that similar disallowance was deleted by the learned Commissioner (Appeals) in A.Y. 2003-04. The disallowance was deleted, and the ground raised by the assessee was allowed.

8. Exclusion of Income from Interest on Income Tax Refund and Miscellaneous Income for Computing Deduction under Section 80HHD:
The assessee accepted the decision of Revenue authorities regarding the exclusion of interest on income tax refund. However, it contested the exclusion of miscellaneous income of ?2,27,10,558/-. The Tribunal restored the issue to the Assessing Officer for fresh adjudication after verifying the details to be filed by the assessee. The ground raised by the assessee was partly allowed for statistical purposes.

Summary:
The Tribunal dismissed the appeal of the Revenue and partly allowed the appeals of the assessee for A.Y. 2004-05 and A.Y. 2006-07, while fully allowing the appeal for A.Y. 2005-06. The decisions were primarily based on consistent views and precedents set in previous assessment years.