Commissioner of Income Tax vs Dua and Associates (P) Ltd.

Rakesh Kumar Garg, J.—This judgment shall dispose of ITA Nos. 496/2005 and 557/2005 as the common question of law on similar facts arises in all these appeals. However, the facts are taken from ITA No. 496 of 2005.

The revenue has filed the present appeal u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') against the order of the Income Tax Appellate Tribunal, Chandigarh , Bench ''A'' Chandigarh (hereinafter referred to asthe Tribunal''), dated 30-5-2005 passed in ITA No. 718/Chandi/2001 for the assessment year 1997-98 raising the following substantial question of law:

Whether on the facts and in the circumstances of the case and in law, the order of the Tribunal is perverse as the Tribunal has failed to appreciate the fact that the Commissioner (Appeals) restricted the food cost ratio to 55 per cent only on conjectures and surmises and without any evidence, whereas the assessing officer had based its order on the basis of results of 16 hotels/ res taurants.

The assessee owns a hotel. The assessee filed a return declaring loss of Rs. 2,78,420 on 29-11-1997. The assessee had shown receipts from room rent at Rs. 31,39,633 and sales of food and bar at Rs. 54,73,082. The cost of purchase of raw material like milk products, fish, chicken, vegetables, etc. was shown at Rs. 33,85,000, i.e., cost of raw material was shown at around 62 per cent food cost ratio. During the course of assessment proceedings, the assessing officer sought to estimate the excess purchases, which according to han were excessive i.e., 62 per cent in comparison to prevalent norms in the hotel industry at 39 per cent. The assessing officer sought to determine sales, which according to him were suppressed. Accordingly, taking the purchases at Rs. 33.85 lacs and assuming 40 per cent sales made, the assessing officer determined the difference in sales disclosed by the assessee. After considering various clarifications sought by the assessing officer from the assessee and the fact that the assessee was unable to maintain day-to-day stock of raw material consumed and products obtained, the food cost was adopted at 45 per cent after allowing a margin of 5 per cent from various factors. Accordingly, an addition of Rs. 18,37,729 was made by taking the food cost ratio at 45 per cent on account of suppressed sales. It is relevant to mention that before arriving at the above conclusion, the assessing officer also sought information from CITCO about average cost of some of the dishes and average cost of food, liquor, vis-a-vis sales norms accepted in hotel, which according to them in the case of Hotel Shivalik View was 29.85 per cent

Being aggrieved against the assessment, the assessee filed an appeal before the Commissioner (Appeals). It was contended by the assessee that sales were fully vouched, no specific defects were found in the books of accounts maintained by the assessee and therefore, the assessing officer was not justified in enhancing sales on mere presumption. After considering the assessee''s contention, the Commissioner (Appeals) restricted the food cost at 55 per cent and gave relief of Rs. 16,38,996 to the assessee to that extent.

While allowing the appeal partly, the Commissioner (Appeals) held that the assessee has a locational disadvantage as the same is situated at a far end place of the city whereas hotel Shivalik View operates on a much wider scale having all the advantage and benefits of effective economy while working on a large scale. The Commissioner (Appeals) also held that the assessing officer has not brought any material on record which warrants rejection of books of accounts u/s 145(2). The relevant para of the order of Commissioner (Appeals) is reproduced here as under:

Therefore, it is held that non-maintenance of day-to-day consumption cannot be a ground for rejecting books of account. The assessing officer has not brought any material on record which warrants rejection of books of account u/s 145(2). No specific defects or inflation of purchase or omission of sale or non-genuine claims in respect of expenses have been found. Sales are fully vouched. Cash memo is issued to each customer and at the end of the day, cash memos are tallied with the order slips and are entered in the cash book. Sales as well as gross profits are progressive. The assessing officer has made addition by comparing the appellant with CITCO and Haryana Tourism Corporation. The status of the two hotels differ. The appellant has a very small hotel and it does not have infrastructure of CITCO, hence comparison between the two businesses is unfair. The CITCO is running a hotel which is a star hotel and is posh and the charges are very high. Further the CITCO hotels have advantage of economics of scale, whereas the appellant is running a restaurant on a very small scale with only 12 tables. The ambiance which is offered by CITCO hotel is different from the appellant hotel and the customer is prepared to pay high price for good ambiance. The CITCO hotel is patronized by elite and the rich people of the town, whereas the appellant''s hotel is patronized by ordinary people. Therefore, there cannot be any comparison between the trading results of the two types of hotels.

Feeling aggrieved against the said order, the revenue as well as the assessee filed appeals before the Tribunal. The revenue was aggrieved against the deletion of part of additions as made by the assessing officer whereas the assessee was aggrieved on the ground that he was entitled to the total deletion of the additions made by the assessing officer. The Tribunal after considering the rival submissions found that the food cost average at 55 per cent restricted by the Commissioner (Appeals) is fair and reasonable, and dismissed the appeals.

ITA No. 496 of 2005 has been filed by the revenue challenging the decision of the Tribunal whereby the Tribunal has refused to interfere in the findings of the Commissioner (Appeals) to the extent these are against the revenue. The assessee has filed ITA No. 557 of 2005 challenging the decision of the Tribunal whereby the Tribunal has maintained the food cost ratio at 55 per cent as held by the Commissioner (Appeals), whereas the assessee is claiming the deletion of total addition made by the assessing officer against the assessee. Mr. S.K. Garg Narwana, advocate, learned Counsel for the revenue, has argued that the order of the Tribunal is perverse as the Tribunal has failed to appreciate the fact that the Commissioner (Appeals) has restricted the food cost ratio to 55 per cent only on conjectures and surmises and without any evidence, whereas the assessing officer has based its order on the basis of results of 16 hotels/restaurants.

On the other hand, learned Counsel for the assessee has argued that in the facts and circumstances of the case some clement of estimate was unavoidable and in the appellate jurisdiction, the court normally does not interfere by substituting its own estimate in place of the one of the Tribunal unless it is shown that the estimate of the Tribunal could not possibly be reached. Learned Counsel for the assessee has relied upon a judgment of this Court in the case of Ved Prakash Vs. Commissioner of Income Tax, in support of his contentions.

We have heard learned Counsel for the parties and have perused the order of the Tribunal. We are of the view that findings recorded by the Tribunal are pure findings of facts and do not give rise to any substantial question of law for consideration by this Court. It is well settled that food cost varies from establishment to establishment and therefore, there cannot be a comparison between two hotels/restaurants regarding the food cost ratio. It is also an accepted fact that the food cost ratio of big hotels can be less as compared to the food cost ratio of small restaurants and the food cost ratio also depends upon the location of the hotel. In these appeals, the Tribunal found no fault with the findings of the Commissioner (Appeals)and upheld the action of Commissioner (Appeals), who has fixed the food cost ratio after considering all the relevant factors and has found that the assessing officer has not brought any material on record which warrants rejection of books of account u/s 145(2) of the Act and there was no omission of sale and all the sales are fully vouched as well as the gross profits are also progressive. The Commissioner (Appeals) also found that the additions cannot be made by comparing the appellant with CITCO and Haryana Tourism Corporation as the status of two hotels differ. The appellant has a very small hotel and does not have infrastructure of CITCO and therefore, comparison between the two businesses is unfair. The CITCO is running a hotel which is a star hotel and is located in a posh locality and the charges are very high. Further, the CITCO hotels have advantage of economics of scale. The ambience which is offered by CITCO hotel is different from the appellant hotel and the customer is prepared to pay high price for good ambience. The CITCO hotel is patronized by elite and the rich people of the town, whereas the appellant''s hotel is patronized by ordinary people. Therefore, there cannot be any comparison between the trading results of the two types of hotels. The revenue has not in fact challenged these findings before the Tribunal.

No doubt, in such cases some element of estimate is unavoidable. However, this is a well settled that in the appellate jurisdiction u/s 260A of the Act, this Court normally does not interfere by substituting its own estimate in place of the one of the Tribunal unless it is shown that the estimate of the Tribunal could not possibly be reached. This is not the case in hand. There is not an iota of evidence to show that the conclusion reached by the Tribunal is perverse in any case. Our view finds support from the judgment of this Court in Ved Parkash''s case (supra). SLP filed by the assessee against this judgment was dismissed by the Hon''ble Supreme Court. Hence in our view, no substantial question of law arises in these appeals for our determination and therefore, we refuse to interfere in the pure finding of fact given by the Tribunal.

The appeals are dismissed.