M/s Escapade Resorts Pvt. Ltd. v. Assistant Commissioner of Income Tax Circle-1(1), Kochi

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** # **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** ## **THE HONOURABLE MR.JUSTICE BASANT BALAJI** **WEDNESDAY, THE 18[TH] DAY OF MAY 2022 / 28TH VAISAKHA, 1944** **ITA NO. 28 OF 2017** **AGAINST THE ORDER/JUDGMENT IN ITA 159/2014 OF I.T.A.TRIBUNAL, COCHIN** **BENCH** ## **APPELLANT/S:** M/S.ESCAPADE RESORTS PVT.LTD. C/O CASINO HOTEL BUILDING, WILLINGDON ISLAND, KOCHI-682 003. (PAN:AAACE 5978L). BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.GOVIND VIJAYAKUMARAN NAIR SRI.HARAN THOMAS GEORGE SRI.ISAAC THOMAS ## **RESPONDENT/S:** THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(1),KOCHI-682018. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 18.05.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ITA NO. 28 OF 2017 ``` ``` -2- ``` ## **J U D G M E N T** M/s. Escapade Resorts Pvt. Ltd/assessee is the appellant. The Assistant Commissioner of Income Tax, Circle-(1), Kochi/Revenue is the respondent. 2. The appeal deals with the controversies arising from the return filed for the assessment year 2008-09. On 27.09.2008 the assessee filed the return for the assessment year 2008-09. The Assessing Officer through Annexure-B order disallowed a few claims and added back to the income of the assessee. A detailed description of these disallowances or additions is not necessary for the order we are proposing to pass in the appeal. The assessee being aggrieved by the tax demanded filed appeal before the Commissioner of Income Tax (Appeals)-II (for short, ‘CIT(Appeals)’) and through Annexure-C order dated 02.12.2013, the appeal was allowed in part. The assessee carried the matter in appeal before the Income Tax Appellate Tribunal (for short, 'the Tribunal') and through the order impugned in the appeal, ``` ITA NO. 28 OF 2017 ``` ``` -3- ``` the appeal was allowed in part for statistical purposes. Hence, the appeal under Section 260A of the Income Tax Act (for short, ‘the Act’). 3. Heard learned Senior Advocates Mr.Joseph Markose and Mr. P.K.R Menon for parties. 4. The dispute in the appeal is with reference to the expenses incurred by the assessee towards repairs, refurbishing, and the establishment of plant and machinery at one of the resorts under the management of the assessee stated as ‘Visalam’. The Assessing Authority recorded the following findings on the expenditure claimed by the assessee as follows: “5. Thus, the basic test to find out whether a particular expenditure comes under current repairs is to see whether expenditure has been incurred “to preserve and maintain" an already existing asset. The object of the expenditure must not be to bring a new asset in to existence or to obtain a new addition. But, in the instant case, the assessee has claimed as current repairs, the value of building on leasehold land capitalised on 01-04-2007. Actually, the expenditure had already been incurred before the previous year and it is in respect of an entirely new capital asset - ``` ITA NO. 28 OF 2017 ``` ``` -4- ``` building. In fact, the assessee has included the same in its fixed assets in the Balance Sheet and has taken it out only for Income Tax purposes. Stretching to any extent, this expenditure can never be put under "current repairs". Since this expenditure is capital in nature, it cannot be allowed u/s. 37 of the Act also. Moreover, this expenditure has not been incurred during the relevant previous year. Considering all these, claim of the assessee is rejected. However, since it is a capital asset coming under Plant and Machinery, depreciation @15% is granted on it. The resultant disallowance comes to Rs. 2,72,05,544 [3,20,06,52248,00,978)” The CIT (Appeals) and the Tribunal confirmed the said finding. 5. Mr. Joseph Markose referring to the principle laid down by this Court in _Joy Alukkas India vs. ACIT_[1] , _Indus Motos Co. P.Ltd v. Deputy Commissioner Of Income Tax[2]_ and also by relying on the additional documents now brought on record argues that the claim of the assessee towards expenses incurred by the assessee is legally permissible and the claim shall be entertained by the answering the questions framed in (a) and (b) in favour of assessee. 1 282 CTR 551 (ker) 2 [2016] 382 ITR 503 (Ker.) (FB) ``` ITA NO. 28 OF 2017 ``` ``` -5- ``` 6. _Per contra_ it is argued for the Revenue that the omission now pointed out in the assessment order is sought to be explained by relying on the additional documents brought on record through I.A No.1/2021. 6.1 The learned counsel contends that notwithstanding the principle in both _Joyalukkas and Indus Motors_ cases (supra), verification of the basic details by the Assessing Authority is warranted. In other words, the reasoning either on its own narration or by reference to the additional documents now brought on record is unsustainable. The same is to be reexamined by the Assessing Officer and this Court while answering the substantial questions (a) and (b) avoids reexamining the totality of the circumstances. In other words, it is argued that the matter needs to be examined by the Primary Authority. 7. The argument of the assessee is to invite a conclusive finding on the entitlement and the extent of entitlement from ``` ITA NO. 28 OF 2017 ``` ``` -6- ``` this Court. The circumstances of the case, particularly keeping in view the order made by us in I.A No.1/2021, refrains us from examining the said issue on merits and record our findings. 8. However, both from the record and the submissions made in this behalf, we are convinced that the findings recorded by all the Authorities on the entitlement and the extent of entitlement towards allowance for expenses incurred at ‘visalam’ are unsustainable and need to be re-examined by the Primary Authority. We are, after appreciating findings in this behalf, are convinced that these are unsustainable as wanting in details and need to be re-examined in the light of additional material relied on by the assessee. Therefore, substantial questions (a) and (b) are answered in favour of the assessee and against the Revenue by setting aside the findings recorded in this behalf and remitted to the Assessing Officer for consideration and disposal afresh in accordance with law. The assessee is given liberty, if so advised, to place additional explanations/documents/citations as may be advised in this ``` ITA NO. 28 OF 2017 ``` ``` -7- ``` behalf. ## The substantial question arising under Section 80IB of the Act 9. The claim of the assessee for deduction as per 80IB of the income received from ayurvedic treatment etc, the Tribunal has remitted the question to the Primary Authority in the following terms: 9. We have heard the rival contentions and perused the facts of the case. An identical issue has been dealt by the ITAT, Cochin Bench in the assessee's own case in I.T.A. Nos. 677 & 658/Coch/2012 dated 16/11/2012 and the relevant findings are reproduced hereinbelow for the sake of convenience: 11. We notice that the Assessing Officer has restricted the amount from the Marari Beach unit on the basis of certain presumptions without bringing any material on record. The Assessing Officer failed to examine the claim of the assessee that it has maintained separate books of accounts for each of the three units, though for the purposes of income tax, one consolidated audited balance sheet and profit and loss account was prepared. The assessee has also submitted that the customers of Marari Beach unit are mainly foreign tourists and accordingly substantiated the higher profit declared in that unit. The question whether separate books of account is necessary for the purpose of claiming deduction under sec. 80HH and 801 was considered by the Hon'ble Supreme Court in its recent decision in the case of ``` ITA NO. 28 OF 2017 ``` ``` -8- ``` Bongaigaon Refinery and Petrochemical Limited in Civil Appeal No. 1679 of 2004 and the Apex Court, vide its order dated 05-09-2012 has held as under: "At the outset, it may be stated that the impugned order of the High Court is cryptic. Ordinarily, we would have remitted the case to the High Court for de novo consideration. The High Court has relied upon its earlier judgment, which, in our view, is not applicable on all fours to the facts of the present case. However, to put an end to the litigation, we are of the view, that though neither Sec. 80HH nor Sec. 80I (as it then stood) statutorily obliged BRPL to maintain its accounts unit-wise and that it was open to BRPL, to maintain its accounts in a consolidated form in order to put an end to the litigation between the Tax Department and the PSU we remit the case to the Assessing Officer to ascertain whether the assessee had correctly calculated its net profits for assessment year 1992-93 in respect of its petrochemical unit for the purposes of claiming deduction u/s. 80HH and 80I of the IT. Act, 1961. In the present case, BRPL has Financial Statements on prepared Consolidated Basis from which it has worked out unit-wise net profits. If not done, it could be done by the Auditors even today from the Consolidated Books of Accounts. Once such working is certified by the Auditors the net profit computation (unit-wise) could be placed before the Assessing Officer who can find out whether such profit(s) is properly worked out on that basis compute deduction u/s. 80HH/80I". Thus, the Hon'ble Apex Court has approved the splitting up of profits for the purpose of computing the deduction u/s 80HH/80I, even if the assessee did not maintain separate accounts. In the instant case, the assessee has maintained ``` ITA NO. 28 OF 2017 ``` ``` -9- ``` separate accounts for each of the hotel units and later it has consolidated them in order to prepare a single Profit and Loss account and Balance Sheet. As pointed out the Ld CIT(A), the AO has not pointed out any mistake in the accounts maintained for the Marari Beach unit. Accordingly, in view of the foregoing discussions, we do not find any infirmity in the decision of Ld CIT(A) in holding that the assessee is eligible to claim deduction u/s 801B of the Act as per the results declared in the separate books of account maintained by the assessee. However, we notice that the AO did not examine the said claim with reference to the books of account. Accordingly, we direct the AO to examine the claim u/s 80-IB vis-a-vis the books of account and allow the same. The order of Ld CIT(A) stands modified accordingly. In the present case also, the assessee has stated that it has maintained books of account for the impugned year but they have not been examined by the Assessing Officer with regard to the claim and accordingly, a direction is given to examine the said claim u/s. 80IB of the Act vis-à-vis books of account and decide the issue accordingly after affording adequate opportunity of being heard to the assessee. Thus Ground No. 3 of the assessee is allowed for statistical purpose.” 10. We are convinced that in the circumstances of the case, the order of remand by the Tribunal, does not warrant our interference. Hence the order of the Tribunal set out above is confirmed. The scope and contentions on the inclusion of ayurvedic expenditure as part of the business activity of the assessee attracting deduction under Section 80IB are left open. ``` ITA NO. 28 OF 2017 ``` ``` -10- ``` We make it clear that the deduction under Section 80IB to the nature of services provided by the assessee is not considered by us and left open for consideration in an appropriate case. Question No. (c) is answered in favour of Revenue and against the assessee in the above terms. The appeal is allowed in part as indicated above. No order as to costs. **Sd/- S.V.BHATTI** **JUDGE** **Sd/- BASANT BALAJI JUDGE** JS ``` ITA NO. 28 OF 2017 ``` ``` -11- ``` ## **`APPENDIX OF ITA 28/2017`** ``` PETITIONER ANNEXURES ``` ``` ANNEXURE A ``` ``` TRUE COPY OF STATEMENT SHOWING NATURE AND BREAK OF EXPENSES INCURRED FOR THE ASST.YEAR 2008-09. ``` ``` ANNEXURE B TRUE COPY OF ASSESSMENT ORDER DATED 24.12.2010 PASSED BY THE ASSESSING OFFICER FOR ASST.YEAR 2008-09. ``` ``` ANNEXURE C TRUE COPY OF APPELLATE ORDER DATED 02.12.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KOCHI FOR ASST.YEAR 2008-09. ``` ``` ANNEXURE D TRUE COPY OF GROUNDS OF APPEAL FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH IN ITA No.159/COCH/2014 FOR ASST.YEAR 2008-09. ``` ``` ANNEXURE E CERTIFIED COPY OF THE IMPUGNED ORDER DATED 26.07.2016 OF THE INCOME TAX APPELLATE TRIBUNAL, KOCHI BENCH IN ITA No.159/COCH/2014 FOR ASST.YEAR 2008-09. ```