Hotel Leela Venture Ltd, , Mumbai vs Department Of Income Tax

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BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER vk;dj vihy la[;k@ ITA NO. 2703/Mum/2013 (fu/kkZj.k o'kZ / Assessment year: - 2009-10) Dy. Commissioner of Income Tax, Vs.` Hotel Leelaventure Ltd. Room No. 216-A, Aaykar Bhavan, The Leela Kempinski M.K. Road, Sahar, Mumbai - 400 020. Andheri (East) Mumbai - 400 059. LFkk;h ys[kk la[;k@th vkb vkj la[;k@ PAN/GIR No. AAACH3167J Appellant Respondent

jktLo fd vksj ls @Revenue By Shri Vijay Bhaskar Jakke fu/kZkfjfr fd vksj ls @Assessee By Shri Prakash J. Jotwani

lquokbZ fd rkjh[k @Date of hearing 03.06.2015 ?kks'k.kk fd rkjh[k@ Date of pronouncement 30.6.2015

ORDER Per G.S. Pannu, AM

The captioned appeal preferred by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT(A)'] dated 21.01.2013, which in-turn has arisen from an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961( hereinafter referred to as the Act) dated 30.11.2011 pertaining to assessment year 2009-10.

2 ITA NO. 2703/Mum/2013 Assessment year: - 2009-10 In this appeal, the Revenue has raised following main Grounds of Appeal :-

"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not upholding the AO's finding that the payment of Rs. 9,09,664/- for Mystery Audit was for acquisition of a property at Kerala and hence liable to be treated as Capital Expenditure."

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the assessee's explanation that the payment of Rs. 9,09,664/- for carrying out Mystery Audit was to check quality of services provided in it's various restaurants, without giving the AO an opportunity in terms of Rule 46A of the IT Rules and without appreciating that the assessee had been given due opportunity in this regard by the AO but it had failed to substantiate such claim."

3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 6,34,22,030/- "under section 40(a)(ia) of the Act without appreciating that the assessee had failed to deduct tax at source from commission paid to Banks for providing credit card services, in contravention of section 194H of the Act."

2. The respondent assessee is a company incorporated under the provisions of Companies Act, 1956, and is inter alia engaged in the business of setting up and running of Five Star Deluxe Hotels. For the year under consideration, assessee company filed a return of income declaring total income of Rs. 43,17,69,664/- which was subjected to scrutiny assessment whereby the total income was assessed at Rs. 62,66,74,561/- and as the tax liability in terms of section 115JB of the Act, was higher, the ultimate tax liability on the assessee was computed u/s 115JB of the Act. Be that as it may the dispute before us relates to certain reliefs allowed by the CIT(A), which are being challenged by the Revenue by way of aforestated Grounds of appeal.

3. The issue in the Ground of appeal no. 1 relates to an expenditure of Rs. 9,09,664/-, which was disallowed by the Assessing Officer. The

Page 2 of 7 3 ITA NO. 2703/Mum/2013 Assessment year: - 2009-10 Assessing Officer noted that assessee company claimed deduction of a sum of Rs. 9,09,664/- under the head "legal and professional fee" which represented the payment of fees to M/s Shaw Hotels & Consultancy Services for Mystery audit. The Assessing Officer in para 6.2 of the assessment order has noticed that the said fee was for an audit deliberating upon modalities of acquiring property in Kerala and, therefore, it was an expenditure of capital in nature. Thus he, disallowed such expenditure.

3. Before the CIT(A), the assessee contended that the Assessing Officer erred in treating the said expenditure as having been incurred for acquiring a property in Kerala. Instead, it was explained that the said expense was incurred for Mystery audit of various Restaurants belonging to the assessee so as to check quality of services being provided therein. The CIT(A) has noted that the payment was not connected to acquisition of any Capital asset and, therefore, the Assessing Officer was not justified in treating the said expenditure as capital in nature. The CIT(A) also noticed that the assessee has been making payments to M/s Shaw Hotels & Consultancy Services for conducting Mystery audit of its Hotels to ensure that the standards of services are maintained. Accordingly, the CIT(A) has allowed the expenditure, as claimed by the assessee.

4. We have heard the rival submissions. Before us, the Ld DR has merely reiterated the objection raised by the Assessing Officer, which we have already noted above. However, there is no material or evidence lead by the Ld. DR to establish any infirmity in the findings of CIT(A) that the expenditure in question has been incurred for carrying out inspection of assessee's Hotels at various locations to ensure standards of services and,

Page 3 of 7 4 ITA NO. 2703/Mum/2013 Assessment year: - 2009-10 therefore, the same is revenue in nature. In the absence of any cogent material or evidence brought out by the Revenue, we hereby affirm the findings of CIT(A). Thus in so far as Ground no. 1 of appeal is concerned, Revenue fails. Another aspect in this connection contended by the Revenue by way of Ground of appeal no. 2, is that the CIT(A) accepted assessee's explanation without giving the Assessing Officer an opportunity in terms of Rule 46 of the Income Tax Rules, 1962 (In short 'the Rules'). On this aspect, the Ld. Representative for the respondent-assessee vehemently pointed out that no fresh material or evidence was furnished to the CIT(A) other than what was before the Assessing Officer and, therefore, the CIT(A) has not violated the provisions of rule 46A of the Rules. According to the Ld. Representative, even in the past years such expenditure has been allowed as revenue expenditure and that in the current year assessment year, the Assessing Officer has based his disallowance on a complete misreading of the submissions put-forth by the assessee. We find that Revenue has not specified any material or evidence relied upon by the CIT(A) which was not before the Assessing Officer and, therefore, in our opinion, the objection of the Revenue in Ground of appeal no. 2, based on Rule 46 of the Rules, is quite misconceived and the same is hereby dismissed.

5. The last issue in this appeal is with regard to the action of the CIT(A) in deleting the disallowance of Rs. 6,34,22,030/- which was made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act.

6. In this context, brief facts are that the Assessing Officer noticed that assessee has paid commission to banks on credit card transactions amounting to Rs. 6,34,22,030/-, without deduction of tax at source u/s

Page 4 of 7 5 ITA NO. 2703/Mum/2013 Assessment year: - 2009-10 194H of the Act. The claim of the assessee was that in terms of agreement with banks, the payments made by the customers by credit/debit cards were processed by the banks. In consideration of the banks agreeing to render such payment processing services, assessee was paying commission to various banks which was in the nature of 'bank charges; and such expenditure could not be considered as 'commission' so as to fall within the provisions of section 194H of the Act. However, the Assessing Officer disagreed with assessee, as according to him, the banks were charging commission on providing credit card services to the assessee and such commission payments were liable for deduction of tax at source u/s 194H of the Act, and, Since the assessee did not deduct the requisite tax at source, the corresponding expenditure of Rs. 6,34,22,030/- was disallowed in terms of section 40(a)(ia).

7. The CIT(A) has disagreed with the Assessing Officer and on the basis of the decision of the Hyderabad Bench of the Tribunal in the case of Vah Magna Retail (P) Ltd, dated 10.04.2012, he held that the payments made to the banks for credit card services was outside the purview of deduction of tax u/s 194H and, therefore, the impugned sum could not be disallowed by invoking the provisions of section 40(a)(ia).

8. At the time of hearing, the Ld. DR has not assailed the above decision of CIT(A), on the basis of any decision contrary to that of the Hyderabad Bench of the Tribunal followed by the CIT(A). Apart therefrom, the Ld. Representative for the respondent-assessee relied upon the Judgment of Hon'ble Delhi High Court in the case of CIT Vs. JDS Apparels P. Ltd. [ 2015] 370 ITR 454 (Delhi) and the decision of the Mumbai Bench of the

Page 5 of 7 6 ITA NO. 2703/Mum/2013 Assessment year: - 2009-10 Tribunal in the case of ITO Vs. Jet Airways (India) Ltd [2014] 147 ITD 133 (Mum) in support of the conclusion drawn by the CIT(A).

9. We have considered the rival stands and find that the issue is squarely covered by the Judgment of the Hon'ble Delhi High Court in the case of JDS Apparels P. Ltd. (supra). As per the Hon'ble Delhi High Court, payment of commission to banks with regard to the processing of credit card transactions was not liable to be considered as a 'commission' within the meaning of section 194H of the Act. According to the Hon'ble High Court, the bank does not act as an agent of the assessee while processing the credit card payments and a charge collected by the bank for such service does not amount to 'commission' within the meaning of section 194H of the Act. In view of the aforesaid Judgment of Hon'ble Delhi High Court in the case of JDS Apparels P. Ltd. (supra), we hereby affirm the conclusion of the CIT(A) to the effect that the impugned disallowance made by the Assessing Officer by invoking section 40(a)(ia) is unsustainable. Thus, Revenue fails on this Ground also.

10. In the result appeal of the Revenue is dismissed.

Order pronounced in the open court on this 30th day of June 2015.

Sd/- Sd/-

(Sanjay Garg) (G.S. Pannu) (Judicial Member/U;kf;d lnL;) (Accountant Member/ys[kk lnL;)

Mumbai dated 30-06-2015 SKS Sr. P.S,

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Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, "B" Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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