Wild India Resorts Kanha Pvt. Ltd., New ... vs Department Of Income Tax
- CitationITA No.2570/Del/2012
Ratio decidendi
The rule this decision rests on
Under the mercantile system of accounting, income is recognised when it accrues, not when an advance is received; accordingly, an advance from customers received in a year is to be treated as income of that year unless it is shown to relate to services rendered or to be rendered in that year, and the assessee must establish the correlation between the advance and the stay of guests in the period relevant to the claimed deferment. Expenses incurred by a head office are deductible as business expenditure even where no business activity is carried on from that office, provided the assessee shows they relate to the business; the Assessing Officer cannot disallow such expenses merely because no business activity was carried out at the office from which they were incurred.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
ITO, Vs. Wild India Resorts Kanha Pvt. Ltd., Ward 18(3), 39, Shahpur Jat, CR Building, New Delhi. New Delhi. PAN: AAACW5735F
(Appellant) (Respondent)
Assessee By : Shri Mahesh Sahai, FCA Department By : Shri J.P. Chandrakar, Sr. DR
Date of Hearing : 05.05.2015 Date of Pronouncement : 06.05.2015
ORDER PER R.S. SYAL, AM:
This appeal by the Revenue is directed against the order passed by
the CIT(A) on 15.3.2012 in relation to the assessment year 2008-09. ITA No.2570/Del/2012
2. The first ground is against the deletion of addition of Rs.7,65,084/-
on account of Advances received from customers not shown as income.
3. Succinctly, the assessee runs a resort at Baihar. A sum of
Rs.7,65,084/- was shown as Advances from customers, which was not
offered as income. On being called upon to explain as to why such
advances be not taken as the income for the year, the assessee stated that
these amounts were in the nature of advances which were considered as
income for the subsequent year on the guests actually putting in stay in
the period relevant to April, 2008 to March, 2009. Not convinced, the
AO made addition for the said sum of Rs.7,65,084/-, which came to be
deleted in the first appeal.
4. After considering the rival submissions and perusing the relevant
material on record, it is observed that the assessee is running a resort at
Baihar and a sum of Rs.7.65 lac was shown as `Advances from
customers' against their stay to be made in the subsequent financial
year. Under the mercantile system of accounting, the event of
recognizing income is when such income accrues and not when a sum is
2 ITA No.2570/Del/2012
received as an advance. The assessee has made out a case that this
amount of Rs.7.65 lac received in the instant year actually related to the
stay by guests taking place in the subsequent year, when such amount
was offered for taxation. However, no such details co-relating advances
received in the current year with the stay of guests taking place in the
subsequent year, has been placed on record. In our considered opinion,
if the amount received in the instant year actually pertains to stay of
customers in the subsequent year, then, the amount shown in the balance
sheet as advance has to be taken as such without consisting of any
element of income for the current year. If, on the other hand, the stay of
customers actually took place in the year in question, then, the amount
should be treated as income. We, therefore, set aside the impugned
order and remit the matter to the file of AO for considering the co-
relation between the advances and stay of guests as indicated above.
5. The only other ground which survives is against the deletion of
addition of Rs.30,69,305/- out of Direct and administrative expenses
incurred at the Delhi registered office.
3 ITA No.2570/Del/2012
6. The facts relating to this ground are that on perusal of the
assessee's Profit & Loss Account, it was noticed by the AO that the
assessee claimed expenses of Rs.52.62 lac for its Delhi office which,
inter alia, included Direct expenses amounting to Rs.20,51,225/- and
Administrative expenses of Rs.10,18,050/-. The AO observed that the
assessee was running a resort at Baihar and no activity was carried out
at Delhi office. He, therefore, refused to accept the assessee's claim for
deduction of these expenses totaling to Rs.30,69,305/-. The ld. CIT(A)
deleted the addition.
7. After considering the rival submissions and perusing the relevant
material on record, it is observed that though the assessee is running a
resort at Baihar, but, its head office is in Delhi, which has not been
controverted by the ld. DR. There can be no denial of the fact that
certain expenses are incurred by head office even without carrying on
any business activity therefrom. The ld. AR contended that certain
purchases were made by Delhi office and recorded in its books of
account which actually pertained to the running of resort at Baihar. It
4 ITA No.2570/Del/2012
was contended that similarly other expenses incurred by the Delhi office
also relate wholly to resort. In our considered opinion, the view taken
by the ld. CIT(A) in deleting the addition is unimpeachable in view of
the fact that the AO made addition simply by observing that no business
activity was carried out by the assessee at Delhi office. We, therefore,
uphold the view taken by the ld. CIT(A) on this score. This ground is not
allowed.
8. In the result, the appeal is partly allowed for statistical purposes.
The order pronounced in the open court on 06.05.2015.
Sd/- Sd/-
[H.S. SIDHU] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 06th May, 2015. dk
5 ITA No.2570/Del/2012
Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.
6
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