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TMI Blog2005 (12) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of claim on account of repairs and replacement (Rs. 53.82 lakhs) and building maintenance (Rs. 31.91 lakhs) which has been restored to the file of the Assessing Officer to make further inquiries so as to find out which part of the expenditure is capital meriting disallowance. 4. That the ld. CIT has erred on facts, in law, per record and in view of the detailed written submissions and material placed before the ld. CIT which forms part of the assessment record, in holding that the order of the Assessing Officer was erroneous and prejudicial to the interest of revenue to the extent of the directions given to the Assessing Officer in the order under appeal. 5. That the ld. CIT has erred in invoking provisions of section 263, inter alia , as the same do not permit roving inquiries or substitution of the CIT s opinion for the opinion of the Assessing Officer, particularly when the view of the ld. CIT are contrary to the record, to precedents and case-law in appellant s favour and contrary to the provisions of the Act. 6. That the ld. CIT has erred in stating that vouchers, bills and books were not examined. All relevant records, copies of accounts and details were dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difying or cancelling the assessment order dated 29-1-1999 and directing a fresh assessment. 5. In response to the notice, Shri Anil Kumar Chopra, F.C.A. appeared on behalf of the assessee and filed written submissions opposing recourse to section 263. It was submitted that the deduction under section 80HH was allowed on business income of the assessee and not the business income of the hotel only and further deduction under this section was to be calculated in the manner laid down by the C.B.D.T. in Circular issued for the purpose of calculating deduction under section 80HHC. It was further submitted that the business of hotel and other activities were inter-linked having common management, ownership and funds. Regarding the repairs and replacement and building maintenance, it was submitted that complete information of facts and judicial decisions were placed before the Assessing Officer. The Assessing Officer having satisfied himself that those constituted revenue expenditure, allowed deduction. 6. The ld. CIT(A) after considering the submission of the ld. A.R. of the assessee concluded that the deduction under section 80HHD was to be restricted to the income derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed as business income in the facts, law and Board s circulars involved. It was also his submission that as the amount was irrefutably correctly allowed and no adverse revision order was merited by the ld. CIT. He submitted that the income was assessed as per information, details and materials on record, after due consideration of the same, the said details/information etc. included in the balance sheet, profit loss account, 80HHD computation, 80HHD prescribed certificate of auditor pertaining to the nature of business that includes leasing etc. He also contended that the income involved constitutes profits gains of business and is to be assessed as such and that deduction under section 80HHD was correctly made including as per Board s Circular. 9. He also submitted that the assessee s hotel, leasing and finance income is a consolidated business, which is inter linked with community of management, ownership, control and funds. The common factors include same office, staff, books of account and records, one balance sheet and profit loss account, same members, same Bank account, same partners and Managers and the inter-linking of funds, which flow from one to the other eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved is charged to profit loss account. It was further submitted that the assessee s expenses of substantial income from hotel business alike claim is pursuant to high quality, boutique, hotel operations. The total income of the year was Rs. 3,28,62,051.50 pursuant to repairs and maintenance and decor the same as enhanced to Rs. 4,61,88,594.50 in the next year. This is an indication of the commercial activity and the bona fides of the assessee. 13. It was also submitted that from the decisions placed on record in clear and irrefutable support of the assessee s case, it will be seen that it support the assessee s view that the amount has been correctly allowed by the Assessing Officer as revenue expenses. Hence, it was submitted that with the reliance on the case law, no revision order under section 263 changing the assessment order as made or disallowing these expenses correctly allowed as revenue expenses is capable of being made or required to be made in the case. 14. On the other hand, the ld. D.R. argued and submitted that under section 263, the CIT exercised administrative and judicial functions. He after examining the assessment records passed an order. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral terms is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to an other Helsbury s Laws. It is a payment for commercial compensation for non-payment of the debt on time. When a sale is effected the money consideration thereof becomes due and payable and interest starts running as per the terms stipulated. Such interest is not a consideration of sale of goods of the industrial undertaking, even though it has its origin in sale-for sale of goods manufactured if not made, there would not be debt and consequently no interest, but the immediate source is the debt owed, which takes it a degree away from industrial undertaking. Thus, interest on late payment of sale proceeds would not be eligible for deduction under section 80HH and 80-I/80-IA/80/IA as immediate source is the debt owed and not the industrial undertaking. 16. He further submitted that to claim deduction under section 80HHD there has to be live wire connection between the income and provision of services to foreign tourists. He submitted that as per the scheme of the section 50% of the profits derived by the assessee from services provided to foreign tourists and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the CIT after perusal of the records of assessment arrived at a finding that the claim of the assessee was allowed in a perfunctory manner or in a mechanical manner without examining the allowability of the claim for weighted deduction, under which sub-clause of section 35B(1)( b ) of the Act the claim would fall. The CIT was justified in passing an order under section 263 of the Act. 21. He further relied on the decision of the Hon ble Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 , wherein it was held that it is incumbent on the ITO to further investigate the facts stated in the return when the circumstances would make such an enquiry prudent that the word "erroneous" in section 263 includes failure to make such enquiry. Hence he fully justified the order passed by the CIT under section 263 of the Act. 22. We have heard the rival submissions and perused the order of both the lower authorities and the materials available on record. We find that while passing order under section 143(3), the Assessing Officer has allowed deduction under section 80HHD to the assessee including the lease rent and interest income earned from the Bank. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authority, in this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of a sum equal to the aggregate of ( a )fifty per cent of the profits derived by him from services provided to foreign tourists; and ( b )so much of the amount out of the remaining profits referred to in clause ( a ) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4) :" From a bare reading of the above section, it will be seen that deduction is allowed under this section in respect of the hotel business of the assessee, which consists of services provided to foreign tourists. Thus, for computing the deduction allowable under this section, we will first have to compute the income from the hotel business of the assessee. In the instant case, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80HHD. In other words, the expenditure attributable to the earning of the lease rent and interest has to be deducted from the gross receipts on account of lease rent and the net receipts has to be deducted from the business income for the purpose of determining the deduction allowable under section 80HHD of the Act. Thus, the proportionate expenses relatable to lease rent and interest earning will be deducted from the hotel business income of the assessee and which should meet the main grievance of the assessee in this appeal. We modify the order of the CIT to this extent. Further, with regard to the setting aside of the issue on account of repairs and replacement Rs. 53.82 lakhs and building maintenance Rs. 35.91 lakhs to the file of the Assessing Officer for making further enquiries in order to determine the expenditure, which is of capital nature for making the disallowance we find that it is not in dispute that the full details of the expenditure in question were filed before the Assessing Officer and the CIT. The CIT has alleged that the Assessing Officer has not examined these details. We further observe that after examining these details, the CIT cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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