Hotel Relaxinn vs Income Tax Officer, Ward-51(1)

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 28.03.2025, for Assessment Year 2018-19.

The appeal is time barred by 272 days. The assessee has filed an application supported by an affidavit citing reasons causing delay in filing of appeal. After perusal of the same, I am satisfied that delay in filing of appeal is not intentional, the delay has been caused for the reasons stated in petition which appears to be bonafide. Thus, delay of 272 days in filing of appeal is condoned and appeal is admitted for decision on merits.

Shri Saksham Garg appearing on behalf of the assessee submits that the assessee is a partnership firm engaged in the business of running a hotel on leased premises. The leased premises was originally owned by Smt. Manju Setia and Shri O. P. Wadhwa. Upon demise of Shri O. P. Wadhwa during A.Y. 2017-18, a dispute arose between the co-owners and family members. During the period relevant to assessment year under appeal, the leased premises was sold by the co-owners to Shri Suresh Kumar Kashyap and Shri Surender Kumar Kashyap. The assessee continued its business from the same leased premises after entering into a fresh lease agreement with new owners. Owing to the dispute with the old landlords and threat of eviction, the assessee did not deduct tax at source on rent paid to the old landlords. The total rent paid to the old landlords during the period relevant to assessment year under appeal was Rs.37.50 lakhs. The assessee paid lease rent of Rs.28,00,000/- to the new landlords after deduction of tax at source, which was duly deposited to the Government exchequer within time. In addition to lease rent, the assessee also paid Rs.3,00,000/- towards stamp duty for execution of the new lease agreement, on which provisions of TDS are not applicable. Thus, the total expenditure claimed by the assessee in the Profit and Loss account towards lease rental was Rs.68.50 lakhs (Rs.37.50 lakhs paid to old landlords + Rs.28.00 lakhs paid to new landlords + Rs.3.00 lakhs stamp duty). In the Tax Audit Report under Clause 21(b), the auditors wrongly reported disallowance of Rs.40.50 lakhs u/s 40(a)(i) and 40(a)(ia) of the Act stating that TDS was deducted on lease rentals but not deposited to the Govt. exchequer. The said observation is factually incorrect and is in contradiction to Clause 34(a) of the Tax Audit Report. The Assessing Officer (AO), in scrutiny assessment proceedings, made disallowance of Rs.40.50 lakhs u/s 40(a)(i) of the Act. Further, 30% disallowance of Rs.40.05 lakhs u/s 40(a)(ia) of the Act was also made, resulting in excessive and erroneous addition. Aggrieved by the assessment order dated 06.01.2021, the assessee filed an appeal before the CIT(A). The CIT(A), in ex-parte proceedings, dismissed appeal of the assessee and confirmed the addition. The Id. AR submits that the assessee has a good case on merits and, therefore, prayed for restoring the issue back to the AO for de novo examination.

Per contra, Shri Manoj Kumar, representing the department supported the impugned order and prayed for dismissing appeal of the assessee.

Both sides heard, orders of the authorities below examined. The CIT(A) had issued multiple notices to the assessee but the assessee has failed to respond to the same. Considering entire facts of the case and in interest of justice, I deem it appropriate to restore the appeal back to the CIT(A) for fresh adjudication on merits after affording reasonable opportunity of making submissions to the assessee, in accordance with law.

In the result, impugned order is set aside and appeal of the assessee is allowed.