The Commissioner Of Income Tax -Ii,Chandigarh v. M/S Dua & Associates (P) Ltd. Chandigarh

In the High Court for the States of Punjab and Haryana at Chandigarh… (i)ITA No.496 of 2005Date of decision:12.3.2008 The Commissioner of Income Tax -II,Chandigarh Appellant Versus M/s Dua & Associates (P) Ltd. Chandigarh Respondent(ii)ITA No.557 of 2005Date of decision:12.3.2008M/s Dua & Associates (P) Ltd. Chandigarh AppellantVersusThe Commissioner of Income Tax -II,ChandigarhRespondentCoram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar GargPresent:Mr.S.K.Garg Narwana, Advocatefor the Revenue-Appellant.Mr.Akshay Bhan, Advocatefor the Assessee. Rakesh Kumar Garg,J 1.This judgment shall dispose of ITA Nos.496/2005, and557/2005 as the common question of law on similar facts arises in allthese appeals. However, the facts are taken from ITA No.496 of 2005. The Revenue has filed the present Appeal under Section260A of the Income Tax Act, 1961(for short ‘the Act’) against theorder of the Income Tax Appellate Tribunal, Chandigarh , Bench ‘A’Chandigarh (for short ‘the Tribunal’), dated 30.5.2005 passed in ITANo.718/CHANDI/2001 for the Assessment Year 1997-98 raising thefollowing substantial question of law: - “Whether on the facts and in the circumstances of thecase and in law, the order of the ITAT is perverse as theITAT has failed to appreciate the fact that the CIT(A)restricted the food cost ratio to 55 % only on conjecturesand surmises and without any evidence, whereas theAssessing Officer had based its order on the basis ofresults of 16 hotels/restaurants.” The assessee owns a hotel. The assessee filed a returndeclaring loss of Rs.2,78,420/- on 29.11.1997. The assessee hadshown receipts from room rent at Rs.31,39,633/- and sales of foodand bar at Rs.54,73,082/-. The cost of purchase of raw material likemilk products, fish, chicken, vegetables etc. was shown atRs.33,85,000/-, i.e., cost of raw material was shown at around 62 %food cost ratio. During the course of assessment proceedings, theAssessing Officer sought to estimate the excess purchases, whichaccording to him were excessive i.e., 62 % in comparison toprevalent norms in the hotel industry at 39 %. The Assessing Officersought to determine sales, which according to him were suppressed.Accordingly taking the purchases at Rs.33.85 lacs and assuming 40 % sales made, the Assessing Officer determined the difference insales disclosed by the assessee. After considering variousclarifications sought by the Assessing Officer from the assessee andthe fact that the assessee was unable to maintain day to day stock ofraw material consumed and products obtained, the food costs wasadopted at 45 % after allowing a margin of 5 % from various factors.Accordingly, an addition of Rs.18,37,729/- was made by taking thefood cost ratio at 45 % on account of suppressed sales. It is relevantto mention that before arriving at the above conclusion, theAssessing Officer also sought information from CITCO aboutaverage cost of some of the dishes and average cost of food, liquor,vis a vis sales norms accepted in hotel, which according to them inthe case of hotel Shivalik View was 29.85 %. Being aggrieved against the assessment , the assesseefiled an appeal before the Commissioner of Income Tax(Appeals). Itwas contended by the assessee that sales were fully vouched, nospecific defects were found in the books of accounts maintained bythe assessee and therefore, the Assessing Officer was not justified inenhancing sales on mere presumption. After considering theassessee's contention, the Commissioner of Income Tax (Appeals)restricted the food cost at 55 % and gave relief of Rs.16,38,996/- tothe assessee to that extent. While allowing the appeal partly, the Commissioner ofIncome Tax (Appeals) held that the assessee has a locationaldisadvantage as the same is situated at a far end place of the citywhereas hotel Shivalik View operates on a much wider scale having Being aggrieved against the assessment , the assesseefiled an appeal before the Commissioner of Income Tax(Appeals). Itwas contended by the assessee that sales were fully vouched, nospecific defects were found in the books of accounts maintained bythe assessee and therefore, the Assessing Officer was not justified inenhancing sales on mere presumption. After considering theassessee's contention, the Commissioner of Income Tax (Appeals)restricted the food cost at 55 % and gave relief of Rs.16,38,996/- tothe assessee to that extent. While allowing the appeal partly, the Commissioner ofIncome Tax (Appeals) held that the assessee has a locationaldisadvantage as the same is situated at a far end place of the citywhereas hotel Shivalik View operates on a much wider scale having all the advantage and benefits of effective economy while working ona large scale. The Commissioner of Income Tax (Appeals) also heldthat the Assessing Officer has not brought any material on recordwhich warrants rejection of books of accounts under Section 145(2).The relevant para of the order of Commissioner of Income Tax(Appeals) is reproduced here as under:- “Therefore, it is held that non maintenance of day to dayconsumption cannot be a ground for rejecting books ofaccount. The Assessing Officer has not brought anymaterial on record which warrants rejection of books ofaccount under Section 145(2). No specific defects orinflation of purchase or omission of sale or non genuineclaims in respect of expenses have been found. Salesare full vouched. Cash memo is issued to eachcustomer and at the end of the day, cash memos aretallied with the order slips and are entered in the cashbook. Sales as well as gross profits are progressive.The Assessing Officer has made addition by comparingthe appellant with CITCO and Haryana TourismCorporation. The status of the two hotels differ. Theappellant has a very small hotel and it does not haveinfrastructure of CITCO, hence comparison between thetwo business is unfair. The CITCO is running a hotelwhich is a star hotel and is posh and the charges arevery high. Further the CITCO hotels have advantage ofeconomics of scale, whereas the appellant is running a restaurant on a very small scale with only 12 tables. Theambiance which is offered by CITCO hotel is differentfrom the appellant hotel and the customer is prepared topay high price for good ambiance. The CITCO hotel ispatronized by elite and the rich people of the town,whereas the appellant's hotel is patronized by ordinarypeople. Therefore, there cannot be any comparisonbetween the trading results of the two type of hotels.” Feeling aggrieved against the said order, the Revenue aswell as the assessee filed appeals before the Tribunal. The Revenuewas aggrieved against the deletion of part of additions as made bythe Assessing Officer whereas the assessee was aggrieved on theground that he was entitled to the total deletion of the additions madeby the Assessing Officer. The Tribunal after considering the rivalsubmissions found that the food cost average at 55 % restricted bythe Commissioner of Income Tax(Appeals) is fair and reasonableand dismissed the appeals. ITA 496 of 2005 has been filed by the Revenuechallenging the decision of the Tribunal whereby the Tribunal hasrefused to interfere in the findings of the Commissioner of IncomeTax(Appeals) to the extent these are against the Revenue. Theassessee has filed ITA 557 of 2005 challenging the decision of theTribunal whereby the Tribunal has maintained the Food Cost Ratio at55 % as held by the Commissioner of Income Tax (Appeals),whereas the assessee is claiming the deletion of total addition madeby the Assessing Officer against the assessee. ITA 496 of 2005 has been filed by the Revenuechallenging the decision of the Tribunal whereby the Tribunal hasrefused to interfere in the findings of the Commissioner of IncomeTax(Appeals) to the extent these are against the Revenue. Theassessee has filed ITA 557 of 2005 challenging the decision of theTribunal whereby the Tribunal has maintained the Food Cost Ratio at55 % as held by the Commissioner of Income Tax (Appeals),whereas the assessee is claiming the deletion of total addition madeby the Assessing Officer against the assessee. Mr. S.K. Garg Narwana, Advocate, learned counsel forthe Revenue has argued that the order of the Tribunal is perverse asthe Tribunal has failed to appreciate the fact that the Commissionerof Income Tax(Appeals) has restricted the food cost ratio to 55%only on conjectures and surmises and without any evidence, whereasthe Assessing Officer has based its order on the basis of results of16 hotels/restaurants. On the other hand learned counsel for the assessee hasargued that in the facts and circumstances of the case, someelement of estimate was unavoidable and in the appellatejurisdiction, the court normally does not interfere by substituting itsown estimate in place of the one of the Tribunal unless it is shownthat the estimate of the Tribunal could not possibly be reached.Learned counsel for the assessee has relied upon a judgment of thisCourt in the case of Ved ParkashVersus Commissioner of IncomeTax 265 ITA 642 in support of his contentions. We have heard learned counsel for the parties and haveperused the order of the Tribunal. We are of the view that findingsrecorded by the Tribunal are pure findings of facts and do not giverise to any substantial question of law for consideration by this Court.It is well settled that food cost varies from establishment toestablishment and therefore, there cannot be a comparison betweentwo hotels/restaurants regarding the food cost ratio. It is also anaccepted fact that the food cost ratio of big hotels can be less ascompared to the food cost ratio of small restaurants and the foodcost ratio also depends upon the location of the hotel. In these appeals . The Tribunal found no fault with the findings of theCommissioner of Income Tax (Appeals) and upheld the action ofCommissioner of Income Tax (Appeals), who has fixed the food costratio after considering all the relevant factors and has found that theAssessing Officer has not brought any material on record whichwarrants rejection of books of accounts under Section 145(2) of theAct and there was no omission of sale and all the sales are fullyvouched as well as the gross profits are also progressive. TheCommissioner of Income Tax (Appeals) also found that the additionscannot be made by comparing the appellant with CITCO andHaryana Tourism Corporation as the status of two hotels differ. Theappellant has a very small hotel and does not have infrastructure ofCITCO and therefore, comparison between the two business isunfair. The CITCO is running a hotel which is a star hotel and islocated in a posh locality and the charges are very high. Further theCITCO hotels have advantage of economics of scale. The ambiencewhich is offered by CITCO Hotel is different from the appellant hoteland the customer is prepared to pay high price for good ambience.The CITCO hotel is patronized by elite and the rich people of thetown, whereas the appellant's hotel is patronized by ordinary people.Therefore, there cannot be any comparison between the tradingresults of the two type of hotels. The Revenue has not in factchallenged these findings before the Tribunal. No doubt, in such cases some element of estimate isunavoidable. However, this is a well settled that in the appellatejurisdiction under Section 260-A of the Act, this Court normally does No doubt, in such cases some element of estimate isunavoidable. However, this is a well settled that in the appellatejurisdiction under Section 260-A of the Act, this Court normally does not interfere by substituting its own estimate in place of the one ofthe Tribunal unless it is shown that the estimate of the Tribunal couldnot possibly be reached. This is not the case in hand. There is notan iota of evidence to show that the conclusion reached by theTribunal is perverse in any case. Our view finds support from thejudgment of this Court in Ved Parkash's case(supra). SLP filed by theassessee against this judgment was dismissed by the Hon'bleSupreme Court. Hence in our view, no substantial question of lawarises in these appeals for our determination and therefore, werefuse to interfere in the pure finding of fact given by the Tribunal.The appeals are dismissed. (RAKESH KUMAR GARG) JUDGE March 12,2008 (SATISH KUMAR MITTAL) nk JUDGE