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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 1014/2018
Date of decision: 17th September, 2018
THE PR. COMMISSIONER OF INCOME TAX -7..... Appellant
Through Mr. Puneet Rai, Advocate.
versus
RAMBAGH PALACE HOTELS PVT. LTD. ..... Respondent
Through Mr. Ajay Vohra, Sr. Advocate with
Mr. Aniket D. Aggarwal, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J. (ORAL)
Revenue in this appeal under Section 260A of the Income Tax
Act, 1961 (Act, for short) against the order dated 23rd March, 2018
passed by the Income Tax Appellate Tribunal (Tribunal, for short) in
the case of Rambagh Palace Hotels Pvt. Ltd. in ITA
No.6025/Del/2014 and 6098/Del/2014, relating to Assessment Year
2005-06, has raised the following questions of law:-
"Whether ld. ITAT is legally justified in deleting
disallowances of a part of repair and maintenances
expenditure solely for the reasons that the assessee
had furnished PAN of venders by ignoring the finding
of fact recorded by the AO that neither vendor nor
ITA No. 1014/2018 Page 1 of 8
confirmation were produced during the course of
assessment proceedings?
Whether ld. ITAT is legally justified in deleting
disallowance of a part of repair and maintenances
expenditure even when the assessee had fail to
discharges its initial onus U/s 37(1) of the Act that
expenditure was laid out wholly and exclusively for the
purposes of the business of the assessee?"
2. The Assessing Officer vide assessment order dated 26th March, 2013
had allowed repair and maintenance expenditure of Rs.4,00,32,801/- paid to
four different parties, who had appeared before him and whose statements
were recorded on oath. However, the balance repair and maintenance
expenditure of Rs.3,83,51,701/- was disallowed to the extent of 50%, on the
ground of absence of supporting documents and in view of the complaint
made by one Rajkumar Devraj. The findings recorded by the Assessing
Officer are as under:
"The assessee has produced the vendors for
verification/vebdor's documents, the expenditure on
repairs and maintenance incurred by the said vendors
amounts to Rs 4,00,32,801. However, the assessee was
unable to produce the balance confirmation/balance
vendors for verification, the expenditure pertaining to
whom amounts to Rs 3,83,51,701. In the absence of any
supporting documents and taking the complaint as the
basis, for the balance expenditure of Rs 3,83,51,701, I
deem it proper to treat 50% of Rs 3,83,51,701 i.e. Rs
1,91,75,850 as ingenuine and accordingly disallow the
same.
ITA No. 1014/2018 Page 2 of 8
I have also gone through the invoices pertaining to the
vendors who were produced on oath. On careful
examination of the invoices and other details for the
vendors produced, I find that the expenditure pertaining
to the vendors "Chandra Singh Contractor" of Rs
2,36,00,765 and "National Sanitation" of Rs 19,93,220
are capital in nature as the said expenditure gives
enduring benefit to the assessee and hence disallowed.
Depreciation @ 10% is allowed on the amount
capitalized.
(Addition of Rs 1,91,75,850 + Rs 2,36,00,765 + Rs
19,93,220 =Rs 44769835)"
3. The Commissioner of Income Tax (Appeals) vide order dated 29th
August, 2014 reduced the said disallowance from 50% to 5%, following the
orders in earlier years. The first appellate authority had also referred to the
written submissions of the respondent/assessee to justify and establish that
this expenditure was genuine and was incurred wholly and exclusively for
the purpose of business. Relevant portion written submissions of the
respondent/assessee, as mentioned in the order of the Commissioner of
Income Tax (Appeals) read as under:
"3.1 During the course of the assessment
proceedings, the Appellant produced along with the
copies of invoices of more than Rs. 1 lakh, also
produced following vendors (along with copy of their
Income-tax returns, copy of their bank accounts, copy
of statement of, account of the Appellant in the book
of contractors, etc) for physical verification to
substantiate the genuineness of the expenditure (on
March 4, 2013):
ITA No. 1014/2018 Page 3 of 8
Chandra Singh Contractor
Rajputana electric Trading Co.
National Sanitations
Vijay Sanitary Works
3.2 Furthermore, the appellant also filed certain
documents of following vendors for confirming the
account balance of appellant in the books of vendors
books vide submission dated March 22, 2013:
Singh Construction Company
Chetan Singh Ghelot
Siddhi
Rajpal Sharma
Sugan Chand
3.3 Out of the total expenditure incurred on Repair
& maintenance account, the Ld AO held that since
the Appellant was unable to produce the balance
vendors (other than the vendors mentioned above) for
verification of 50% of the expenditure amounting to
Rs.3,83,51,70 i.e. Rs.1,91,75,850 is to be treated as
ingenuine and accordingly disallowed the same.
3.4 During the course of the assessment proceeding,
the Appellant has furnished all the details sought by
Ld. AO and Appellant also produced the major
vendors before the Ld. AO substantiate the
expenditure incurred on repair and maintenance
expenses. Furthermore, the Appellant also filed the
complete list of vendors (app. 400 nos.) along with
ITA No. 1014/2018 Page 4 of 8
their PAN (vide letter dated March 19, 2013) and also
requested the Ld. AO that in case he so desires, he
may issue notices to the vendors directly and ask
their accounts confirmation with the Appellant's
accounts. It is most respectfully submitted that, it is
not required under any statue to produce the complete
list of 400 parties for verification. However, the Ld.
AO did not consider the submissions/details placed
on record, vendors produced by the Appellant in short
span of time and assumed the repair & maintenance
expenses as non genuine without any basis or
support. The Id. A. O. failed to appreciate the basis of
expenditure incurred by the company even after
verifying all bills/ supporting documents e.g. job
order, receiving reports, transport co. evidence etc.
for such expenses, withholding tax compliance for all
the parties, payments through banking channels etc.
Such compliance itself proves genuineness of parties/
expenses. The only basis of disallowance by A. O. is
non production of vendors/ balance confirmations, in
connection with the Appellant which the assessee
company has produced all the details, PAN,
addresses, copies of bills etc available with Appellant
company and the A. O. have failed to verify them at
his level.
3.5 Moreover, the Ld. AO has also failed to
appreciate the CIT(A) order in the case of the
Appellant in succeeding assessment years AY 2006-
07, AY 2007-08 and AY 2009-10 wherein similar
addition made by the Ld. AO was deleted by the
CIT(A). It is pertinent to note that no appeal has been
filed by the revenue before the ITAT against the
ITA No. 1014/2018 Page 5 of 8
order of the CIT(A) for AY 2007-08 and thus the
order of the Hon'ble CIT(A) became final.
xxxx
3.9 In the instant case, The Ld. AO had disallowed the
50% of the expenditure by saying that the Appellant was
unable to produce the supporting documents (other
than the vendors mentioned in point 2.5 and 2.6 above)
and treated the expenditure as ingenuine in nature. The
Ld. AO simply ignored and failed to appreciate the fact
that the Appellant had duly submitted various details
relating to the subject expenditure including bills of
amount exceeding Rs.1 lakh.
3.10 Thus, the finding made by the Ld. AO that the
repairs and maintenance expenditure are non-genuine
is totally contrary to the facts involved in the instant
case."
4. The Commissioner of Income Tax (Appeals) had observed that the
assessee had filed parawise details of the partly disallowed repair and
maintenance expense with names, PAN number as well as the amount paid.
The same parties had rendered and performed services in the subsequent
years. The repondent-assessee had furnished details of the foreign
suppliers/supplies, with copies of bills of lading etc. during the course of
assessment proceedings. The Commissioner of Income Tax (Appeals) had
observed that the respondent-assessee had produced all details and
particulars during the course of hearing and, therefore, there was no
justification not to make disallowance of 50%. However, the respondent-
assessee had not been able to furnish confirmation from one M/s.
ITA No. 1014/2018 Page 6 of 8
Govindram Contractor to whom payment of Rs.7,77,651/- was made. The
assessee had stated that this person was unable to give confirmation due to
his ill-health. For this account and reason, the Commissioner of Income Tax
(Appeals) disallowed the expenditure to the extent of 5% amounting to
Rs.19,17,585/-.
5. The Tribunal, in the impugned order, had recorded that the assessee
had produced details of all vendors, including their PAN numbers, invoices
raised by them, etc. Reference was also made to the orders passed by the
Coordinate Bench of the Tribunal for assessment years 2006-07 and 2009-
10, in which similar and ad-hoc the disallowance was deleted. It was
observed that the Commissioner of Income Tax (Appeals) was not right in
making disallowance of 5% on the ground of mere suspicion.
6. Learned counsel for the Revenue accepts that the Revenue had
preferred ITA Nos.1184/2017, 1185/2017 and 1188/2017 against similar
deletions made by the Tribunal for the earlier years, which have been
dismissed, though these orders primarily deal with the question whether the
expenditure incurred on repair and maintenance was revenue or capital
expenditure.
7. The finding of the Tribunal deleting disallowance of 50% by the
Assessing Officer is primarily factual. We have quoted the reply filed by the
respondent/assessee before the first appellate authority. These documents
and papers were relied upon by the Tribunal and the Commissioner of
Income Tax (Appeals). However, copies of the said documents/papers have
not been filed. There is nothing to show and establish that the findings of
ITA No. 1014/2018 Page 7 of 8
the Commissioner of Income Tax (Appeals) and the Tribunal are perverse
and factually incorrect.
8. Given the aforesaid facts, we do not think any substantial question of
law arises for consideration. The appeal is accordingly dismissed, without
any order as to costs.
SANJIV KHANNA, J.
CHANDER SHEKHAR, J.
SEPTEMBER 17, 2018
NA
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