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Commissioner Of Income Tax, Delhi-7 Vs. Dlf Hilton Hotels
May, 12th 2016
     IN THE HIGH COURT OF DELHI AT NEW DELHI
                               Judgment reserved on: 11th March, 2016
                               Judgment Delivered on:  10th May 2016

+              ITA 623/2015 & CM No. 16086/2015

COMMISSIONER OF INCOME TAX, DELHI-7 ..... Appellant

                            versus

DLF HILTON HOTELS                                         ..... Respondent
Advocates who appeared in this case:
For the Petitioner   : Mr Ashok K. Manchanda, Sr. Standing Counsel for ITD
For the Respondent   : Ms Kavita Jha and Ms Mehak Gupta, Advocates

CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
                            JUDGMENT

SANJEEV SACHDEVA, J


1.      This appeal under Section 260-A of the Income Tax Act, 1961
(hereinafter referred to as the Act) impugns the order dated
22.08.2014 passed by the Income-Tax Appellate Tribunal (hereinafter
referred to as the Tribunal) confirming the order dated 26.10.2012
passed by the Commissioner of Income Tax (Appeals) {hereinafter
referred to as the CIT(A)} whereby the assessment made by the
Assessing Officer (AO) disallowing expenditure and depreciation to






ITA 623/2015                                                          Page 1 of 9
the tune of Rs. 1,30,01,214/- was deleted and further deleting the
addition of Rs. 1,27,21,738/- made by the AO.

2.      The assessment year in issue is 2008-09.


3.      The appellant contends that the following substantial questions

of law arise in the appeal:-


        A.     Whether on the facts and circumstances of the case
               and in law, the Hon'ble ITAT has erred in
               dismissing the appeal of the Revenue and deleting
               the addition of Rs. 1,30,01,214/- made by the AO
               on account of disallowance of miscellaneous
               expenses and depreciation as the same do not
               relate to the business of the assessee?
        B.     Whether on the facts and circumstances of the case
               and in law, the Hon'ble ITAT has erred in
               dismissing the appeal of the Revenue and deleting
               the addition of Rs. 1,27,21,738/- made by the AO
               on account of disallowance of interest income
               accrued on time deposits?
4.      With regard to question ­ A i.e., disallowance of             Rs.
1,30,01,214/- made by the AO, it may be noted that the AO had made
the disallowance on the basis that the assessee was not doing any
business activity but acting as a real estate developer. The expenses
claimed debited to its profit and loss account were held to be not
related to its day-to-day business activities.

ITA 623/2015                                                  Page 2 of 9
5.      The CIT(A) noted that the assessee was engaged in the business
of providing and running of hospitality services. During the relevant
financial year, the assessee had provided project management services
to DLF Ltd. and earned income of Rs. 29,53,775/-. The CIT(A) noted
that the assessee company was engaged in rendering professional
services for advising and assisting in implementation of administrative
and technical, financial, costing, cost control, fiscal, taxation,
personnel, marketing and solving general management problems
related to Hotel and food entrepreneurs. It was noted that the assessee
had rendered services in the hospitality line and earned the income.
However, the expenses incurred on running the hospitality business
exceeded the receipts. The assessee had maintained a pool of
staff/personnel   for   providing    such   services   and    maintained
infrastructure for that. In support of the expenditure, the assessee filed
copy of accounts of expenses incurred on hiring cars, rent paid, hiring
personnel, furniture & fixtures, recruitment & training, miscellaneous
expense, repair and maintenance, brokerage and commission etc. The
CIT(A) noted from the accounts that full narration of the expenses
was given date wise and person wise.

6.      The CIT(A) held that it reasonably established that these
expenses had been incurred by the assessee for running its business
and further noted that these expenses were necessary for running any



ITA 623/2015                                                    Page 3 of 9
business establishment      and in the absence of these expenses an
establishment could not be run. The AO had disallowed 50% of the
expenditure and depreciation of the assets related to business but had
not held that the balance expenditure was not genuine. The CIT(A)
held that the disallowance of 50% of the expenditure was not based on
any scientific method or any specific defects were pointed out in the
books of account. The disallowance of 50% of the expenditure and
depreciation was held to be unjustified. The disallowance was
accordingly deleted. The Tribunal has affirmed the finding of the
CIT(A).

7.      We find that the findings returned by the CIT(A) are purely
factual in nature. The CIT(A) has examined the record and the
accounts produced by the assessee and after scrutiny of the same
returned findings of fact that the expenditure was justified. No
rationale has been given by the AO for disallowing 50% of the
expenses incurred. Neither is there a finding that the expenditure is
not genuine nor have the books of accounts been rejected by the AO.
There is no perversity in the findings of fact returned by the CIT(A)
and affirmed by the Tribunal.

8.      With regard to the question ­ B, i.e., deletion of the addition of
Rs. 1,27,21,738/- on account of interest income accrued on time
deposits, the AO held that the interest income of Rs. 6,22,35,272/- had


ITA 623/2015                                                    Page 4 of 9
accrued to the assessee out of which only Rs. 4,95,13,545/- had been
offered to tax and Rs. 1,27,21,738/- had not been offered to tax.
Therefore, the aforesaid amount of Rs. 1,27,21,738/- was added by
the AO as undisclosed income of the assessee.

9.      The CIT(A) noted that the interest on time deposits shown by
the assessee in the accounts on accrual basis was for the purpose of
closing of quarterly results. The accrual entries made in the accounts
were subsequently reversed and the actual interest income earned by
the assessee was duly accounted for. It is noted that the entries
totalling to Rs. 1,27,21,738/- were memorandum entries and had no
relation with the actual interest earned.   The CIT(A) held that there
was no suppression of income accrued on the fixed deposits (FDs) and
the entire income received had been offered to tax. The addition of Rs.
1,27,21,738/- was accordingly deleted. The Tribunal has confirmed
the order passed by the CIT(A).

10.     The statement of account as filed before the Tax Authorities
were also produced before us. Perusal of the same shows that the
interest income of Rs. 1,27,21,738/- in issue relates to the FDs with
Citi Bank Ltd. and not with ICICI Bank as recorded by the CIT(A) as
well as the Tribunal. The statement of account shows that two types of
credit entries have been made. One is with regard to the credit of the
amount with the voucher type shown as `bank receipts' and the other


ITA 623/2015                                                  Page 5 of 9
is shown with voucher type as `Journal'. It is contended by the
counsel for the respondent that the `Journal' entries were made in the
account as a memorandum of the accrual of interest on quarterly basis
for the purpose of closing of quarterly results and on receipt of the
actual interest from the bank, the interest amount was credited to the
account and the journal entry was reversed. Corresponding debit
entries with voucher type `Journal' also appear in the account
statement. The six credit `Journal' entries as tabulated below had
been made in the accounts:

Date           Particulars                           Vch.      Vch.   Debit   Credit
                                                     Type      No.

9/21/2007      Interest accrued on Time Deposits     Journal   568            Rs. 14,01,704.00

               Being interest accrued on time
               deposits upto 21.09.2007 as per the
               FD Details attached

9/28/2007      Interest accrued on Time Deposits     Journal   623            Rs. 16,78,452.00

               Being interest accrued on time
               deposits upto 30.09.2007 as per the
               FD Details attached

11/30/2007     Interest accrued on Time Deposits     Journal   898            Rs. 24,62,284.00

               Being interest accrued on time
               deposits upto 30.11.2007 as per the
               FD Details attached

12/20/2007     Interest accrued on Time Deposits     Journal   1007           Rs. 21,13,817.00

               Being interest accrued on time
               deposits upto 20.12.2007 as per the
               FD Details attached






ITA 623/2015                                                                     Page 6 of 9
12/28/2007     Interest accrued on Time Deposits     Journal   1092            Rs. 29,11,075.00

               Being interest accrued on time
               deposits upto 28.12.2007 as per the
               FD Details attached

12/31/2007     Interest accrued on Time Deposits     Journal   1109            Rs. 21,54,406.00

               Being interest accrued on time
               deposits upto 31.12.2007 as per the
               FD Details attached



11.     The account also reveals that the corresponding six debit entries
had also been made and the same are as under:

Date           Particulars                           Vch.      Vch.   Debit                Credit
                                                     Type      No.

9/28/2007      Interest accrued on Time Deposits     Journal   622    Rs. 14,01,704.00

               Being interest accrued on time
               deposits upto 21.09.2007 which was
               passed on 21.09.2007, now reversed

10/1/2007      Interest accrued on Time Deposits     Journal   644    Rs. 16,78,452.00

               Being interest accrued on time
               deposits upto 30.09.2007, now
               reversed

12/3/2007      Interest accrued on Time Deposits     Journal   919    Rs. 24,62,284.00

               Being interest accrued on time
               deposits upto 30.11.2007, now
               REVERSED




ITA 623/2015                                                                      Page 7 of 9
12/21/2007     Interest accrued on Time Deposits     Journal   1029   Rs. 21,13,817.00

               Being interest accrued on time
               deposits upto 20.12.2007, now
               REVERSED

12/31/2007     Interest accrued on Time Deposits     Journal   1108   Rs. 29,11,075.00

               Being interest accrued on time
               deposits upto 28.12.2007 as per the
               FD Details attached, now reversed

1/1/2008       Interest accrued on Time Deposits     Journal   1139   Rs. 21,54,406.00

               Being interest accrued on time
               deposits upto 31.12.2007 as per the
               FD Details attached, now reversed



12.        We find merit in the submission of the learned counsel for the
assessee that the credit journal entries made as accrual of interest were
made for the purpose of closing of quarterly results. The entries have
been reversed and the interest actually received has been offered to
tax. It is not the case of the appellant that the actual interest income
received has not been offered to tax. The AO has only taken into
account the `Journal' entries credited in the account. The AO has not
taken into account the corresponding `Journal' entries debited. The
CIT(A) as well as the Tribunal on perusal of the account statement
have returned findings of fact that there is no suppression of interest
income and the entire interest income has been offered to tax.



ITA 623/2015                                                                      Page 8 of 9
13.     The findings returned by the CIT(A) and confirmed by the
Tribunal are purely factual in nature. We have also examined the
account statement and are of the view that the findings of fact returned
are not perverse. No substantial question of law arises in the facts of
the present appeal.

14.     The appeal is accordingly dismissed leaving the parties to bear
their own costs.




                                           SANJEEV SACHDEVA, J



                                      BADAR DURREZ AHMED, J


MAY 10, 2016
rs




ITA 623/2015                                                   Page 9 of 9

 
 
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