TaxTMI 
TaxTMI 
2005 (9) TMI 263
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....assessee produced books of account, which were examined by the AO on test check basis. He was not satisfied with the correctness and completeness of the books of account for the following reasons: (I) Shifting stand of the assessee on the number of rooms available and their tariff structure. The AO called upon the assessee to submit the details regarding number of rooms with specification (account/non-account), tariff for each class of room and occupancy rate. The assessee, vide its reply dt. 12th Sept., 2003, stated that it had total 68 rooms during the year under consideration, detailed as under: --------------------------------------------------- Type of Rooms Number of Rooms Tariff --------------------------------------------------- Standard Non-AC 25 Rs. 1,600 Semi Delux AC 19 Rs. 2,000 Deluxe &nbs....
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....red to furnish details regarding number of room tariff for each class of room, occupancy rate and discount offered during various seasons by the hotel. The assessee furnished its reply submitting details and stating that it had three seasons, namely, six months for off-season, three months for season and three months for peak season. As per AO's calculation, he observed that the assessee should have gross receipts of Rs. 1.11 crore as against RS. 60.45 lakhs disclosed by the assessee during the season and peak season. He, therefore, opined that there was understatement of receipts by more than Rs. 50 lakhs. (IV) The AO observed that the assessee had not produced guest entry register which could give details including name and address of guest, nationality, place from where coming, destination, number of rooms, room no. allotted, rate charged and number of days stayed, etc. It was observed that the assessee despite having maintained the guest entry register had not furnished the same and the guest entry cards furnished by the assessee were found defective on certain counts which have been narrated on pp. 16 and 17 of the assessment order. When the discrepancies were brought, to t....
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....otel was a little costly. 4. In the light of the above defects, the AO rejected the book results by applying the provisions of s. 145(3) and proceeded to complete the assessment by estimating the income of the assessee. For the room tariff suppression, he found that on the basis of excess pillow covers used by applying room tariff at Rs. 1500 per room, the receipts would come at Rs. 1.69 crores as against Rs. 1,02,59,295 declared by the assessee. He computed room rent, on the basis of suppression of restaurant sales at Rs. 1.49 crore. While reaching this figure, he took the figure of the restaurant/bar sales shown by the assessee as the denominator and in the numerator, room tariff shown by the assessee was multiplied with the estimate restaurant/bar sale at Rs. 58.99 lakhs as estimated by him. He further allowed rebate for complimentaries, wastage, pilferage, etc. by calculating net difference of Rs. 37,57,155. From another angle also, he calculated the expected room tariff by considering the calculation on the basis of three seasons noted above, which in his opinion, had shown understatement by more than Rs. 50 lakhs as discussed above. By providing deduction at the rate of 70....
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....ntire year (C) Receipts ----------------------------------------------------------- Season Notional Receipts on Receipts after receipts the basis of allowing assuming occupancy as discount as full stated by the stated by occupancy assessee the assessee and at the full rate ------------------------....
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....ief. 6. Before us, the learned counsel for the assessee, in his exhaustive arguments took us through each and every aspect on the basis of which the AO had estimated the income by rejecting the book results. It was stated that there was no reason whatsoever with the authorities below to reject the book results and compute income on hypothetical basis. He invited our attention towards the comparative profit rates of the earlier years vis-a-vis the current year to make out a case that the GP rates declared by the assessee in this year was certainly better than those of the earlier years in which also assessments were made under s. 143(3). We shall be referring to the contentions of the learned Authorised Representative while discussing the justification for rejection of book results infra. In the opposition, the learned Departmental Representative strenuously argued that the AO had taken exemplary pains in completing a detailed investigation in the assessee's case, which was based on sound footing. She relied on the impugned order insofar as the additions were sustained. However, with regard to the relief of Rs. 7,13,382 allowed in the first appeal, she contended that the entire e....
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....y, registration number and bill amount, etc. A summary of the total has been incorporated on p. 223 of the paper book which is a monthwise statement bifurcating room nights and tariff amounts in standard and deluxe rooms. According to this detail, the average room rent has been obtained at Rs. 1,013 by dividing the total tariff amount at Rs. 1,02,59,295 with total room nights at 10,123. It is true that the room tariff structure gives broad idea of room rent to be charged by a hotel. There cannot be any hard and fast rule or rigidity in such tariff structure. Room rent is always a matter of negotiation depending upon numerous factors, such as, seasonal impact, more or less demand of rooms depending upon the holidays, working days, etc. and above that, the inflow of customers. There is no provision in the IT Act mandating the charging of a particular amount as hotel room rent and prohibiting the assessee from charging higher or lower amount. It is a matter of convenience that the tariff is settled by a hotel depending upon customer to customer. Sometimes substantial discounts are allowed when there is booking in groups or when the booking is made well in advance. At other times, tari....
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....d instead of GRC. It has been stated that more than 10,000 cards separately for each customer were maintained and produced before the assessing authority for verification. It was submitted that the AO could point out certain defects here and there only in 16 GRCs out of about 10,000 maintained and produced. All the GRCs in which the AO had raised objections have been placed on record from pp. 91 to 218 of the paper book. On the perusal of these cards, it is found that these contained complete particulars such as, name of guest, address, phone number, date of arrival, date of departure, number of persons, room number and room tariff, etc. Almost all the cards available on record go to show that the relevant columns are filled by the customer visiting the hotel. Apart from the objections raised by the Revenue with regard to the charging of room tarms, it is observed that the AO objected to the posting of room numbers subsequently, making it open for manipulation. On the other hand, the assessee has stated that when the customer comes to the hotel, he fills in necessary particulars but the room number is filled by the hotel staff only when the tourist has seen the rooms available arid....
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....e as Rs. 96,000. We have perused the said GRC and the bill of the hotel placed at pp. 197 and 198 of the paper book, which clearly demonstrates that the correct bill amount is Rs. 96,000 out of which a sum of Rs. 22,000 has been received as deposit and the balance amount of Rs. 74,000 was stated to have been received through banking channel. These facts show that the objections raised by the AO from GRCs maintained by the assessee do not have any legs to stand on. Insofar as the production of guest entry register is concerned, we find that it can either be the guest entry register or GRCs; which are usually maintained by the hotels. In no case both of them are simultaneously maintained because the customer is required to fill in the necessary particulars which can either be in guest entry register or as per GRC. We find force in the submissions of the learned Authorised Representative that the GRCS are preferred these days over guest entry register because the hotel may not like that the amount of tariff charged from one customer be known to the other as a matter of business expediency. In view of these facts, we are not inclined to go with the AO's objections with regard to guest ....
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....d beverages is shown at 58.7 per cent. In the present case, we are unable to find any basis for applying cost of material to sale ratio at 41 per cent to the assessee's case and thereby presuming receipts at Rs. 58.99 lakhs as against Rs. 40.46 lakhs declared by the assessee. 12. From the above analysis, we find that all the reasons recorded by the AO for rejection of book results do not exist. He has not pointed out any defect in the books but simply chose to ignore them and adopted his own hypothetical exercise to estimate the room tariff and restaurant receipts which the assessee in his opinion ought to have earned by this exercise. Before jumping to the conclusion of unreliability of books, it was his duty to point out the defects in them and then resort to the making of estimates. He has put the cart in front of the horse by first estimating the income which the assessee ought to have earned and then rejected the book results by comparing his own standard results with those declared by the assessee. The learned CIT(A), too, felt on the same line and mechanically upheld the substantial portion of the additions He too proceeded to estimate the room tariff receipts, which as p....
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....p; full stated by the stated by occupancy assessee the assessee and at the full rate ----------------------------------------------------------- Off season 3,09,95,760 92,98,728(30% 37,19,491(60% (14,484 x 2,140) occupancy) discount) Season 1,32,42,320 52,96,928(40% 31,78,157(40% (6,188 x 2,140) occupancy) discount) Peak Season 88,76,720 62,12,704(70% 52,81,648(15% 4,168 x 2,140 ....
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....g down the figure of room tariff by more than Rs. 10 lakhs. The learned Departmental Representative could not controvert the calculation so shown by the assessee in the above chart. It, is further noted that the learned CIT(A) had proceeded with the presumption that the assessee had 68 rooms at its disposal throughout the year. On the contrary, it is the stand of the assessee ab initio that its 12 rooms remained under renovation for a substantial part of the year and if vacancy is considered on an annual basis, six rooms should be considered as idle for the purpose of renovation. The assessee's contention is backed by appropriate evidence, which is apparent from the chart of assets annexed to the balance sheet showing additions to the building at more than Rs. 23 lakhs and to the furniture of more than Rs. 9.24 lakhs. The AO had not disputed these additions to the assets and had granted depreciation as claimed by the assessee. If the correct number of rooms at the disposal of the hotel being 62 is substituted with 68, the total receipts as per learned CIT(A)'s calculation would come at Rs. 1,01,18,725 against receipts shown by assessee at Rs. 1,02,59,295. Such a calculation i....