Commissioner Of Income Tax, Jaipur-Ii ,Jaipur v. Hotel Gaudavan P. Ltd., C

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 157 / 2011 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus HOTEL GAUDAVAN P. LTD., C-22, Vaishali Nagar, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 167 / 2011 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus HOTEL GAUDAVAN P. LTD., C-22, Vaishali Nagar, Jaipur ----Respondent D.B. Income Tax Appeal No. 321 / 2011 Commissioner of Income Tax, JAIPUR-II ,JAIPUR ----Appellant Versus Hotel Gaudavan P. LTD., C-22, Vaishali Nagar, Jaipur ----Respondent_____________________________________________________For Appellant(s) : Mr. R.B. Mathur with Mr. Prateek Kedawat & Menal GhiyaFor Respondent(s) : Mr. Mahendra Gargeiya _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 21/08/2017 In these appeals common questions of law and facts are involved, hence, they are decided by this common judgment. By way of these appeals, the department has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department. This Court while admitting the matter framed the followingquestions of law:- In DBITA No. 157/2011 “Whether in the facts and circumstances of thecase the ITAT was justified in deleting theaddition of Rs. 43,05,806/- made by AO byway of disallowance of depreciation claimed onhotel building without appreciation that relatedinvestment in the building was not explainedsince only bogus bills were arranged forconstruction expenses? In DBITA No. 167/2011 “i) Whether in the facts and circumstances ofthe case the ITAT was justified in deleting theaddition of Rs. 1,45,45,000/- made by theAssessing Officer on account of cessation ofliability u/s 41(1) of the I.T. Act. ii) Whether in the facts and circumstances ofthe case the ITAT was justified in deleting theaddition of Rs. 1,07,64,515/- made by AO byway of disallowance of depreciation claimed onhotel building without appreciating that relatedinvestment in the building was not explainedsince only bogus bills were arranged forconstruction expenses? In DBITA No. 321/2011 “Whether in the facts and circumstances of thecase the ITAT was justified in deleting theadditions made u/s 68 of the Act ofunexplained cash credits for which theassessee could not discharge the burden ofproving creditworthiness of creditors andgenuineness of transactions.” Counsel for the respondent contended that issue is nowsquarely covered by the decision of this Court in Tax Appeal No.608/2009 decided on 25[th] April, 2017 in the case of sameassessee which reads as under:- “Counsel for the respondent has stronglyrelied on the decision of this Court in thecase of Commissioner of Income Taxvs. M/s VTC Leasing & Finance Ltd. inDB Income Tax Appeal No.551/2008,decided on 27.01.2017 where the identicalissue was answered as under: “2. This Court while admitting the matterframed the following question of law:- “i) Whether the Tribunal was justified indeleting the addition of Rs. 85,00,000/-made by the Assessing Officer on accountof unexplained share capital under Section68 of the Act, even when the assesseefailed to discharge the primary onus castedupon it to prove the identify, genuinenessand creditworthiness of the investors?” “Counsel for the respondent has stronglyrelied on the decision of this Court in thecase of Commissioner of Income Taxvs. M/s VTC Leasing & Finance Ltd. inDB Income Tax Appeal No.551/2008,decided on 27.01.2017 where the identicalissue was answered as under: “2. This Court while admitting the matterframed the following question of law:- “i) Whether the Tribunal was justified indeleting the addition of Rs. 85,00,000/-made by the Assessing Officer on accountof unexplained share capital under Section68 of the Act, even when the assesseefailed to discharge the primary onus castedupon it to prove the identify, genuinenessand creditworthiness of the investors?” 3. However, in view of the judgment of theHon’ble Supreme Court in the case ofCommissioner of Income Tax vs. LovelyExports (P) Ltd., reported in (2008) 299ITR 268 (SC), wherein it has been held asunder: “If the share application money isreceived by the assessee-company fromalleged bogus shareholders, whose namesare given to the Assessing Officer, then thedepartment is free to proceed to re-opentheir individual assessments in accordancewith law. Hence, we find no infirmity withthe impugned judgment. In that view of the matter, the issue isanswered in favour of the assessee andagainst the department.” The other issue is covered by the decision of this Court incase of Pr. Commissioner of Income Tax vs. M/s Modern Threads (I) Ltd. decided on 2[nd] June, 2017 which reads as under:- “The issue is covered by the decision of this Court intax Appeal No.144/2010, 145/2010 and 146/2010decided on 26[th] April, 2017 wherein it has been held asunder:- "Counsel for the appellant contended that issue is nowsquarely covered by the decision of Delhi High Court inCommissioner of Income Tax vs. Jindal EquipmentsLeasing and Consultancy Services Ltd. reported in(2010) 325 ITR 87 (Delhi) wherein it has beenobserved as under:- "7. We do not find any merit in this preliminarysubmission of the learned Counsel for the assessee.The assessing officer had made the addition in termsof Section 41(1) of the Act read with Section 28(i) ofthe Act, which was upheld by the Commissioner(Appeals). No doubt, the Tribunal has held that Section41(1) does not apply to which legal position isconstituted (sic-conceded) by the learned Counsel forthe revenue before us, the revenue still wants that theaddition be sustained under provisions of Clause (iv) ofSection 28 of the Act. The revenue is not disputing thefacts on the basis of which decision of the Tribunal isbased. Submission is that on these very facts,provisions of Section 28(iv) of the Act shall beattracted. It is a pure question of law and therefore,the amended ground as raised by the revenue can beallowed. The position in MCorp Global (P) Ltd. (supra)was entirely different. In that case, the transaction inquestion was treated as lease transaction in the earlierassessment years and depreciation was granted onthat basis. However, in the assessment year inquestion, the same very transaction was treated asfinancial transaction and depreciation was disallowed.It was in this backdrop, the Supreme Court opined thatthe depreciation given to the assessee could not bewithdrawn, (sic) when the finding of fact that thetransaction in question was leased and not financialtransaction had become final and had not beenchallenged. 8. With this, we proceed to examine this aspect on its own merit, viz., whether provisions of Section 28(iv) ofthe Act are attracted in the given case. Thus, what isto be seen is that as to whether the written off amountof Rs. 1,46,53,065 in its books of accounts by JSPLamounts to the value of any benefit or perquisitewhether convertible into money or not can be treatedas "profits and gains from business". The prerequisitesfor attracting the said provisions are: 8. With this, we proceed to examine this aspect on its own merit, viz., whether provisions of Section 28(iv) ofthe Act are attracted in the given case. Thus, what isto be seen is that as to whether the written off amountof Rs. 1,46,53,065 in its books of accounts by JSPLamounts to the value of any benefit or perquisitewhether convertible into money or not can be treatedas "profits and gains from business". The prerequisitesfor attracting the said provisions are: (i) Benefit or perquisite arising in the course ofbusiness is of the nature, other than cash or money. Itis for this reason expression "whether convertible intomoney or not" is mentioned in Clause (iv). BombayHigh Court has interpreted this very Clause in the caseofMahindra&MahindraLtd.v.CIT MANU/MH/0199/2003: (2003) 261 ITR 501 (Bom)in the following manner: The-income which can be taxed under Section 28(iv)must not only be referable to a benefit or perquisite,but it must be arising from business. Secondly, Section 28(iv) does not apply to benefits incash or money see CIT v. Alchemic (P)Ltd.MANU/GJ/0053/1980: (1981) 130 ITR 168 (Guj).” 4.1The same view taken by the Madras High Courtin The Commissioner of Income Tax vs. M/s InnvolMedical India Ltd. (2013) 219 Taxman 123 (Mad);Iskraemeco Regent Limited (Originally SeahorseIndustries Ltd. and subsequently in IskraemecoSeahorse Ltd.) vs. The Commissioner of Income Tax(2011) 331 ITR 317 (Mad); Mahindra and MahindraLtd. vs. Commissioner of Income Tax andCommissioner of Income Tax vs. Mahindra andMahindra Ltd. (2003) 261 ITR 501 (Bom) and otherjudgment of Bombay High Court in CIT vs. XylonHoldings (P) Ltd. in ITA No.3704/2010 decided on13.9.2012 and decision of Gujarat High Court inCommissioner of Income Tax-I vs. Gujarat StateFertilizers and Chemicals Ltd. (2013) 217 Taxman 343(Guj.). 5.Counsel for the department Mr. Mathur hassupported the judgment of the Tribunal and contendedthat in view of the observations made by the SupremeCourt in Polyflex (India) Pvt. Ltd. vs. Commissioner ofIncome Tax (2001) 251 ITR 527 wherein it hasobserved as under:- “We are inclined to think that in a case where astatutory levy in respect of goods dealt in by theassessee is discharged and subsequently the amountpaid is refunded, it is the first clause that more appropriately applies. U will not be a case of benefitaccruing to him on account of cessation or remission oftrading liability. U will be a case which squarely fallsunder the earlier clause, namely, "obtained any amountin respect of such expenditure". In other words, whereexpenditure is actually incurred by reason of paymentof duty on goods and the deduction or allowance hadbeen given in the assessment for earlier period, theassessee is liable to disgorge that benefit as and whenhe obtains refund of the amount so paid. Theconsideration whether there is a possibility of therefund being set at naught on a future date will not bea relevant consideration. Once the assessee gets backthe amount which was claimed and allowed as businessexpenditure during the earlier year, the deemingprovision in Section 41(1) of the Act comes into playand it is not necessary that the Revenue should awaitthe verdict of higher Court or Tribunal. If the Court orTribunal upholds the levy at a later date, the assesseewill not be without remedy to get back the relief.” 5.1He also relied upon the decision of Supreme Courtin CIT vs. T.V. Sundaram Iyengar and Sons Ltd. (1996)222 ITR 344 wherein it has been held as under:-“The principle appears to be that if an amount isreceived in course of trading transaction, even though itis not taxable in the year of receipt as being of revenuecharacter, the amount changes its character when theamount becomes the assessee's own money because oflimitation or by any other statutory or contractual right.When such a thing happens, commonsense demandsthat the amount should be treated as income of theassessee. The assessee had received deposits in courseof its business which were originally treated as capitalreceipts. Some of the deposits were neither claimed bynor returned to the depositors. There is no dispute thatthe deposits were received in course of the carrying onof the business of the assessee. Although it was treatedas deposit and was of capital nature at the point of timeit was received, by influx of time the money has becomethe assessee's own money. What remains afteradjustment of the deposits has not been claimed by thecustomers. The claims of the customers have becomebarred by limitation. The assessee itself has treated themoney as its own money and taken the amount to itsprofit and loss account. There is no explanation fromthe assessee why the surplus money was taken to itsprofit and loss account even if it was somebody else'smoney. In fact, as Atkinson, J. pointed out that what theassessee did was the commonsense way of dealing withthe amounts. Therefore, the amount was taxable astrade receipt in the hands of the assessee.” 6.We have heard counsel for both the parties.7.In view of the above, even otherwise the loanwhich was taken was capital investment and alwaystreated in the capital account as liability and if it is so, itwill naturally go as wiping out the capital liability. 8.In that view of the matter, the contention taken bythe appellant is required to be accepted. The view takenby the CIT(A) is required to be restored and that of thetribunal is required to be reversed.” In view of the above, no substantial question of lawarises. The appeal stands dismissed.” Counsel for the appellant has relied upon another decision of the Supreme Court in case of K.M. Sugar Mills Ltd. vs. CITreported in (2015) 373 ITR 0042 wherein it has been held asunder:- “8. The High Court has concurred with theopinion of the Tribunal on the ground that thecylinders were not purchased for leasing businessand one of the parties to whom the cylinderswere leased out is the manufacture and seller ofthe cylinders. 9. It is further stated that the cylinders weredispatched to the other party only a day beforethe closing of the accounting period.10. The aforesaid reasons given by the IncomeTax Appellate Tribunal and the High Court indenying the depreciation do not appear to bevalid reasons in law. Insofar as the purchase ofgas cylinders by the Assessee is concerned, thisfact is not disputed. It is also not disputed thatthese gas cylinders were purchased for businesspurpose. In fact, the plea of the Assessee thatsince manufacturing unit had not startedfunctioning and this necessitated the Assessee tolease out these gas cylinders to the aforesaid twoparties to enable it to earn some income, ratherthan keeping those cylinders idle, is also not indispute. On the contrary, as mentioned above,the income which is generated from leasing outthose gas cylinders is treated as "businessincome". Once the income from leasing those gascylinders is accepted as the "business income",which is taxed at the hands of the Assessee assuch, we see no reason how the depreciation on these gas cylinders could be disallowed on theground that the cylinders were not purchased for"leasingbusiness". these gas cylinders could be disallowed on theground that the cylinders were not purchased for"leasingbusiness". 11. The aforesaid facts would clearlydemonstrate that the Assessee has provedownership of these gas cylinders and use ofthese gas cylinders for business purpose. Oncethese ingredients are proved, the Assessee wasentitled to depreciation Under Section 32 of theIncome Tax Act. We, therefore, set aside thejudgment of the High Court, and hold that theAssessee would be entitled to depreciation asclaimed for the assessment year in question.” He has also relied upon the decision of the Supreme Court inthe case of CIT vs. Kesaria Tea Co. Ltd. (2002) 254 ITR 0434(Supreme Court) wherein it has been held as under:- “4. It may be noted that the provision wasmade in the books of account towardspurchase tax which was under dispute and thebenefit of deduction from business income wasavailed of in the past years in relation thereto.The same was sought to be reversed by theassessee during the year ending on 31.3.1985for whatever reason it be. The question iswhether the circumstances contemplated bySection 41(1) exists so as to enable theRevenue to take back what has been allowedearlier as business expenditure and to includesuch amount in the income of the relevantassessment year i.e. 1985-86. In order toapply Section 41(1) in the context of the factsobtaining in the present case, the followingpoints are to be kept in view : (1) In thecourse of assessment for an earlier year,allowance or deduction has been made inrespect of trading liability incurred by theassessee; (2) Subsequently, a benefit isobtained in respect of such trading liability byway of remission or cessation thereof duringthe year in which such event occurred; (3) inthat situation the value of benefit accruing tothe assessee is deemed to be the profit andgains of business which otherwise would notbe his income; and (4) such value of benefit ismade chargeable to income tax as the incomeof the previous year wherein such benefit was obtained. The High Court, agreeing with theTribunal, rightly held that the resort to Section41(1) could arise only if the liability of theassessee can be said to have ceased finallywithout the possibility of reviving it. On thefacts found by the Tribunal, the Tribunal aswell as the High Court were well justified incoming to the conclusion that the purchase taxliability of the assessee had not ceased finallyduring the year in question. Despite thefinality attained by the judgment in Neroth OilMills'case, the other issues having bearing onthe exigibility of purchase tax still remainedand the dispute between the assessee and thesales-tax department was still going on. Thereis no material on record to rebut these factualobservations made by the Tribunal. Nor can itbe said that the reasons given by the Tribunalare irrelevant. 5. The learned senior counsel appearing forthe Income Tax Department has contendedthat the assessee itself took steps to write-offthe liability on account of purchase tax bymaking necessary adjustments in the books,which itself is indicative of the fact that theliability ceased for all practical purposes andtherefore, the addition of amount of Rs.3,20,758/- deeming the same as income ofthe year 1985-86 under Section 41(1) is welljustified of the Act. But, what the assessee hasdone is not conclusive. As observed by theTribunal, an unilateral action on the part of theassessee by way of writing-off the liability inits accounts does not necessarily mean thatthe liability ceased in the eye of law. In fact,this is the view taken by this Court in CIT v.SuguliSugarWorks(P)Ltd.:[1999]236ITR518(SC). We, therefore, find nosubstance in the contention advanced onbehalf of the appellant. Incidentally, we maymention that the controversy relates to theperiod anterior to the introduction ofExplanation 1 to Section 41(1).” He has also relied upon the decision of the Gujrarat HighCourt in case of CIT vs. Gujarat State Fertilizers & Chemicals Ltd. reported in (2014) 101 DTR 0175 wherein it has been heldas under:- “5.5. On thorough examination of the issue,we are of the firm opinion that the issue issquarely covered by the decision of this Courtrendered in Chetan Chemicals (P.) Ltd.{supra). In the present case also, the facts arealmost identical and, therefore, the CIT(Appeals) and the Tribunal have rightly held infavour of the respondent-assessee. No error iscommitted requiring any indulgence from thisCourt. In that view of the matter, the issue is answered in favour of the assessee against the department. The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/76-78