The Income Tax Appellate Tribunal (ITAT), Delhi bench, in a major relief to Tulip Star Hotel, upheld an order of the Commissioner of Income Tax (Appeals) where an order of the income tax department disallowing the expenses amounting to approximately 3.61 crores to the Company.
The assessee, a company and was engaged in the business of owning and managing the hotels in India, claimed expenses amounting to Rs.3,61,28,155/- while filing its income tax returns for the period 2012-13. According to the assessee, the same includes expenses like salary, payment towards statutory funds, traveling and conveyance, communication, professional fee, vehicles, etc. The Assessing Officer, however, did not agree with the submissions of the assessee and disallowed the entire expenses debited to the profit and loss account and assessed the income of the assessee at nil.
When the order was reversed by the first appellate authority, the Revenue approached the Tribunal contending that the assessee had paid to the collaborators for expenses on services/premises which are clearly covered under the ambit of TDS provisions and that the assessee did not form any partnership firm with any of the collaborators and therefore, payments made to them/revenue shared with them cannot be treated as a share of profits in the absence of partnership firm.
The Tribunal bench comprising Accountant Member Prasant Maharishi and Judicial Member K Narsimha Chary noted the fact that the assessee was incorporated on 10.09.2087, made investments in V. Hotels Ltd, which had acquired Centaur Hotel in Mumbai from the Government intending to revive the business of such hotels.
“But in view of a legal dispute with regarding Centaur Hotel and also on account of economic slowdown, the assessee could not start running of the hotel, but, however, to keep the status of the company, the assessee had to incur expenses in the shape of salary of few key personnel, payments made towards statutory funds, communications, professional fees, etc,” the bench noted.
The bench, while upholding the order of the first appellate authority, relied on the decision in the case of Integrated Technology Ltd wherein it was held that the expenses incurred for retaining the status of the compare are an allowable deduction, even though the assessee did not carry out any business activity during the assessment year.
“We do not find any illegality or irregularity in the reasoning given or conclusions reached by the ld. CIT(A) and as a matter of fact, the challenge of the Revenue also is non-specific. We, accordingly, uphold the order of the ld. CIT(A) and dismiss the grounds of appeal of the Revenue,” the bench said.
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