TaxTMI 
TaxTMI 
2022 (7) TMI 165
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....vant to determination of income brought out succinctly from the audited accounts." Gross Profit: 3. During the course of assessment proceedings, the AO observed that the gross profit of the assessee has been significantly dropped for the year under consideration in comparison to the earlier Assessment Year's (2013-14) of 28.59% gross profit and net profit of 7.96%. The gross profit for the current year was 15.24% and net profit of 1.74%. The AO held that on deduction of income from other sources of Rs.14.46 Cr. the net profit would have been further steeped down. Before the AO, it was submitted that the fall in the profits was due to renovation that has been undertaken by the assessee during the year. Further, the AO observed that the complementary expenses was not shown in the P&L account but only reduced from the closing stock. The AO also observed that the service charges received are not shown in the P&L account. The AO observed that while the decrease in the turnover was 18.82%, the gross profit has fallen down to 46.69% which is not justifiable. After comparing the gross profit ratios of the Lalit Hotel, the Le Meridian, Shangri-la Eros and Taj Vivanta, the AO concluded tha....
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....employees and this is fully passed on to them. Accounting treatment of service charges in books of accounts is as under: a. A memoranda account is prepared and a very strict and rigid control is exercised on the receipt and payment of service charge. b. Service charge is not routed through profit and loss account but entry is passed in books of accounts. c. Following entry is passed when service charges are collected: d. Service charge collected from guests is credited to service charge payable account which is a liability account. On a monthly basis, the amount collected is used to disburse salaries of banquet FTCs, banquet casuals and to the Event Manager who provides casual banquet service staff and KST. Therefore, while making payment, the account is debited with salary and wages and Event Manager. e. At the end of the year, the closing balance of the account is reported under other current liabilities (employee related payables) in the balance sheet and is utilized for payment in the subsequent financial year. f. Even, if the entire service charges were to be made part of the profit and loss account, the effect thereof would be revenue neutral in as much as the ent....
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.... average 68% in the preceding and subsequent assessment years. 13. In nutshell, the AO rejected books of accounts books of account u/s 145(3) of the Act by observing that, (i) the complementary expenses in the form of entertainment, free gifts etc. was not routed through the P & L account and the appellant did not submit details of the complementary expenses and the details of the beneficiaries; (ii) the service charges received from customers and claimed to be paid to the staff are not shown in the books of account as income and no details of the same were filed and are not verifiable and therefore personal gains out of the same cannot be ruled out, and which is also the reason for the difference in total revenue receipts as per Service Tax Return; (iii) the appellant did not submit the bills related to internal audit fees of Rs. 9.00 lakh and the internal audit report as well as the proof of payment of the internal audit fees; (iv) the decline in turnover is only 18.87% while the GP declined by 46.69% though the GP of "the hotels of same category are in the range of 24% to 32%"; and, (v) the appellant failed to produce complete books of account alongwith relevant bills....
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....ment year. 20. It has been submitted that therefore the amount was merely an advance for sale of shares which was repaid without interest and the balance sheet also reflects the amount as "Advance against purchase of investment". 21. The AO asked for the details related to these transactions and held that the advances is to be considered as deemed dividend in the hands of M/s Universal Business Solutions Ltd. (UBSL) substantively holding that UBSL held more than 50% shares in AIEPL & GSL and UBSL was a 100% subsidiary of the appellant company, and made similar addition in the hand of the appellant company on a protective basis. 22. The aforesaid companies viz. M/s AIPL & M/s GSL were fellow subsidiaries of the assessee through the holding company of the assessee, viz. M/s Universal Business Solutions Limited (hereinafter referred to as "M/s UBSL"). The shareholding pattern of M/s UBSL in the Respondent, M/s AIPL and M/s GSL, is as under: 23. During the assessment proceedings, the Assessing Officer made protective additions amounting to Rs. 12.50 Crores in the hands of the assessee and substantive additions to be made in the hands of M/s Universal Business Solutions Limited (M/s....
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....e Ld. AR has placed reliance on judgments in Rajeev Makhija ITA No. 3148/Del/2008 (ITAT Delhi), MSC Mediterranean Shipping Company S.A. 154 ITD 478 (ITAT Mumbai), Resource Connections (FZE) 42 SOT 23 and Union of India v. Azadi Bachao Andolan [2003] 263ITR 706. Even so this argument is not relevant for deciding the appeal in this case of the appellant company which has been already decided herein above and therefore this ground no. 7.1 is not considered for adjudication in this case and dismissed." 25. We find that the provisions of section 2(22)(e) of the Act are not applicable as the assessee is not a registered shareholder of the company from which advance has been received. 26. The provisions of section 2(22)(e) of the Act are not applicable in the present case as the assessee is not a shareholder in the companies from which advance has been received during the year. As evident from the aforesaid table showing shareholding pattern, the assessee is not a shareholder in M/s AIPL & M/s GSL. In case of GSL, viz., GSHPL do not hold shares in assessee company, clearly bringing it outside the scope of Section 2(22) (e) of the Act. The provisions of section 2(22)(e) of the Act states....