2005-VIL-371-ITAT-JDP
Equivalent Citation: TTJ 097, 969, [2006] 9 SOT 80 (JODH.) (URO)
Income Tax Appellate Tribunal JODHPUR
IT APPEAL NOS. 616 (JODH.) OF 2004 AND 118 (JODH.) OF 2005
Date: 09.09.2005
HOTEL HILLTONE (P) LIMITED.
Vs
ASSISTANT COMMISSIONER OF INCOME TAX.
BENCH
Member(s) : R. S. SYAL., HARI OM MARATHA.
JUDGMENT
These cross-appeals, one by the assessee and the other by the Revenue, emanate from the order passed by the CIT(A) on 8th Dec, 2004 in relation to asst. yr. 2001-02. Since common issues are raised in these appeals, we are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience.
2. First ground of assessee's appeal was not pressed, the same, therefore, stands dismissed. Ground Nos. 2, 3 and 4 of the assessee's appeal and the only ground raised by the Revenue deal with the addition on account of suppressed room rent receipts and suppressed sales of the restaurant.
3. Briefly stated, the facts of the case are that the assessee is running a hotel and furnished its return declaring loss of Rs. 1,94,385. Pursuant to the notice under s. 143(2), the 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 22 Rs. 2,800
Suite Cottages 2 Rs. 2,950
---------------------------------------------------
The AO observed that on receipt of detailed questionnaire, the assessee had changed its stand and stated that there were only three brackets of room tariffs Rs. 1,600 (standard), Rs. 2,400 (deluxe) and Rs. 2,800 (cottages). It was also stated that after renovation, rate of Rs. 1,600 was increased to Rs. 2,000 and that of the deluxe rooms was increased to Rs. 2,800. It was mentioned that the rates were inadvertently mentioned earlier. The AO observed that the room rent was never Rs. 1,600 as per the chart submitted on 16th Oct., 2003. Certain other discrepancies in room rents and number of rooms were also considered. It was observed by the AO that after renovation, the number of rooms had gone upto 70 and even if room Nos. 310 and 311 be considered as one, there should be 69 rooms as against disclosed number of 68 by the assessee. It was, therefore, opined that the profit shown by the assessee could not be considered as correct.
(II) Pillow covers and bed sheets found used were much in excess of room occupancies shown by the assessee.
It was noticed that the assessee had shown 22,613 pillow covers having been washed during the whole year. By considering the fact that room with double beds requires two pillow covers, it was observed that the number of rooms occupied during the year should have been 11,306. On being called upon to explain the reasons for showing lower occupancy of the rooms on the basis of pillow covers washed, the assessee furnished explanation, which is contained on p. 8 of the assessment order.
(III) The AO also suggested for adopting average room rent of Rs. 1,500 per room.
The assessee gave its own explanation, which is contained in pp. 9 and 10 of the assessment order, as per which the tariff per day per room comes to Rs. 1,123 per room after considering the impact of discount, etc. The AO observed that there was difference of more than Rs. 50 lakhs in the room tariff receipts as per statement made by him and calculation by the assessee. The assessee was required 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 the notice of the assessee, it was stated that it did not maintain any register and only Guest Registration Cards (GRCs) were maintained normally in the handwriting of guests. All the discrepancies pointed out by the AO were explained by assessee vide its reply dt. 16th March, 2004 contained in pp. 17 to 19 of the assessment order. The AO observed that the GRCs produced by the assessee were not upto the mark.
(V) The AO advanced another reason for the rejection of book results being the disproportionate expenses on account of house-keeping, water, electricity and washing, etc. He compared room tariff receipts with these expenses and found that in some months, tariff receipts disclosed by the assessee were comparatively much lower than these expenses whereas in some other months, these expenses were low but tariffs were high. Discrepancies pointed out by the AO were replied by the assessee, which find place at pp. 21 and 22 of the assessment order.
(VI) It was noted that the assessee had shown restaurant sale of Rs. 34,02,072 and bar sale of Rs. 6,45,035. Against these sales, the assessee had shown consumption of raw material at Rs. 21,39,538 and an amount of Rs. 2,63,912 in the bar, giving ratio of cost of material to sale at 62.88 per cent in restaurant and 59.38 per cent in restaurant and bar combined. It was observed that this ratio was too high when compared with the other hotels, namely, Hotel Chacha Inn and Hotel Hillock (P) Ltd. which was found to be at 41 per cent for restaurant and 40 per cent for restaurant and bar combined. The assessee was confronted with this aspect of the matter to which the assessee replied which is available at p. 24 of the assessment order. The AO considered the cost of material to sale ratio of 41 per cent and came to the conclusion that the sale of restaurant and bar of the assessee should have been at Rs. 58,99,769 as against RS. 40,47,107 shown by the assessee. This, in his opinion resulted in suppression of restaurant sales to the tune of Rs. 18,52,660. In order to verify the costing of restaurant items, he obtained information from Institute of Hotel Management Catering Technology and Applied Nutrition, Jodhpur and confronted the assessee with the relevant facts. The assessee, vide its detailed reply contained in pp. 27 and 28 of the assessment order, submitted the reasons as to why the pricing in the assessee's hotel 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 per cent out of 16 days tariff for the month of October, he came to the conclusion that the assessee had suppressed room tariff to the tune of Rs. 36.69.840. Out of the three options, he adopted the last figure of Rs. 36.69 lakhs for making addition on account of suppression of room tariff. He further proceeded to estimate the income from restaurant by applying 41 per cent cost of material to sale ratio in which he found difference of Rs. 18.52 lakhs. By allowing 20 per cent rebate for complimentaries, pilferage, wastage, etc., he held that the amount of Rs. 14,82,128 was the suppression of restaurant as well as bar sales, which was further added to the income of the assessee. In this manner, he computed the income of the assessee at Rs. 49,57,583 out of which deduction was allowed on account of carry forward and unabsorbed depreciation and resultant total income was computed at Rs. 43,57,850.
5. In the first appeal, the learned CIT(A) called for the remand reports from the AO and the assessee also made objections to the said reports. After considering all the facts, he came to the conclusion that the assessee deserved a relief of Rs. 7,13,382 out of the addition made on account of room tariff which was calculated as under:
(A) Average Room Rent
Rs.
25 Rooms X 1,600 : 40,000
19 Rooms X 2,000 : 38,000
22 Rooms X 2,800 : 61,600
02 Rooms X 2,950 : 5,900
---------
68 Rooms 1,45,500
---------
Therefore, the average room rent works out:
1,45,500/68 rooms : 1.e., 2,140 per room per day
(B) Seasonwise availability of rooms:
(a) Off season (Jan., Feb., March, July to Mid October), i.e., 213 days x 68 rooms per day
(b) Season (April to June), i.e., 91 days x 68 rooms per day
(c) Peak season (Mid Oct., Nov., & Dec), i.e., 61 days x 68 rooms per day
Total rooms available for the entire 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
-----------------------------------------------------------
Off season 2,88,12,960 86,43,888(30% 34,57,555(60%
(13,464 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 1,10,59,520 77,41,664(70% 65,80,041(15%
(5,168 x 2,140) occupancy) discount)
Total 5,31,14,800 2,16,82,480 1,32,15,753
-----------------------------------------------------------
Total receipts as worked
out above 1,32,15,753
Less: Receipts shown
by the assessee 1,02,59,295
-------------
Understatement of receipts 29,56,458
by the assessee -------------
Thus, as per above working, the addition was required to be made at Rs. 29,56,458 as against Rs. 2,36,69,840 and accordingly the additions are restricted to Rs. 29,56,458 and the appellant will get a relief of Rs. 7,13,382 under this headOn the other aspect, namely, suppressed sale in restaurant and bar, the learned CIT(A) could not convince himself for allowing any relief.
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 exercise done by the AO had not been properly considered in the right perspective.
7. We have heard the rival submissions in extenso and perused the relevant material on record. First of all, we will proceed to determine as to whether or not the books of account were rightly rejected. The first reason advanced by the AO is regarding the number of rooms available and the tariff structure. The assessee had stated before the AO that it had 68 rooms, whereas the AO has taken the number of rooms at 69. It is the case of the learned Authorised Representative that the correct number of rooms in the hotel is 68 which is the position even till date and that is a matter of record. The AO proceeded to determine the occupancy rate by considering pillow covers and bed sheets got washed during the whole year. He took the figure of two pillow covers per room with double beds, as against which the assessee had submitted that in all rooms, there were four pillows placed on the bed and one extra pillow was placed in the cupboard along with quilts and kambals. Page 413 of the paper book is the certificate from Hotel and Restaurant Association of Rajasthan stating about the standard practice in all luxury/standard hotels all over the State and country to use four pillows (two hard and two soft) in guest room of a hotel. We are unable to appreciate the viewpoint of the Department in estimating the number of rooms occupied by considering the washing of pillow covers. There may be several reasons for a customer to demand more pillows, which the hotel cannot deny. Moreover, it is found that the assessee had stated before the AO that in every room, about 5 to 6 pillows were provided, which stand gets corroborated from the abovereferred certificate of Hotel and Restaurant Association of Rajasthan. As against this, the AO had considered the room occupancy by taking two pillow covers in a room.
8. Now we come to the room tariff estimated by the AO at Rs. 1,500 per day against which the assessee had given its separate calculation of average room tariff. It is strange that the AO had proceeded to determine room tariff at a particular figure by completely ignoring the details of room tariffs received by the assessee throughout the year datewise and billwise. Such detail is contained on pp. 224 to 298 of the paper book showing check-in date, check-out date, number of days, rate per day, 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, tariff may be charged higher depending upon the pocket of the customer and his particular requirements. It is further found that the hotels do come out with different plans, such as, particular fixed amount is charged for room tariff plus meals which on a combined basis offered more discount to the customers availing such plans and at the same time ensuring the number of customers for which the meal would be prepared. Another reason may be the involvement of booking agents who fetch customers for the hotels. There may be a difference in a situation where a customer comes direct to the hotel or through booking agent. The sum and substance of the above discussion is that there can be no straight-jacket formula for charging a particular amount as tariff in private hotels. Room rent may be higher or lower than the standard tariff and even the extent of variation may depend from situation to situation. The action of the assessing authority may be justified in estimating a particular room tariff where necessary details are either not maintained or do not facilitate verification of such room tariff, Where complete detail is available, there cannot be any question for disregarding the same unless it is proved that the assessee had shown lower amount than actually realized from the customers. It is not the case of the Revenue that it had verified the bill amount with any of the thousands of customers whose complete address are available as per GRCs and any discrepancy was found. In such circumstances, there cannot be any scope for making presumption after presumption and making an estimate of income in the realm of wild guess. It is a settled legal position that the onus to prove the apparent as not real is on the one who so alleges. In the instant case, the Revenue has not brought any material on record to contradict the recording of receipts by the assessee.
9. Now we move towards the next objection raised by the AO regarding non-production of guest entry register. The AO has mentioned that the assessee originally admitted that it had maintained guest entry register, but subsequently the same was not produced. On the other hand, the assessee had stated that guest entry register was not maintained but GRCs were maintained separately for each customer visiting the hotel and it was due to inadvertence that the original guest entry register was written to have maintained 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 finally chosen as to where he wants to stay. Another objection raised by the AO in registration No. 91962 is that the departure had been shown on 14th Aug., 2000 whereas the corresponding bill had shown the date of departure on 13th Aug., 2000. It has been explained on behalf of the assessee that when a customer comes to the hotel, he fills in tentative date of departure, which in this case was 14th Aug., 2000. If, due to one reason or the other, the customer had to leave the hotel a day prior to that, he cannot be charged with the tariff for the day on which he had not used the hotel. Similarly, there may be a position when a customer has originally filled in a particular date and thereafter considers expedient to extend his stay by one or two days. In these cases, the customer would be required to pay for the use of the hotel beyond the original tentative date of departure. In our considered opinion, the correct parameter is not the tentative date of departure but the number of days for which the room was actually occupied. The AO has also objected to the amount of Rs. 1,16,101 shown to have been received by the assessee as per settlement of bill with Patel Tourist, Mumbai on 18th Oct., 2000. It was observed that the corresponding Nos. 93013 to 056 revealed that 162 students @ Rs. 725 per head per day had stayed for two days. On the contrary, the learned Authorised Representative has drawn out attention towards the relevant GRC and bill placed at pp. 221 and 222 of the paper book. From the GRC, it is apparent that the rate has been mentioned as Rs. 725 per head and there is no reference to "per day" which has been presumed by the AO. Apart from that, it is found that the total bill raised is for Rs. 1,16,101 out of which Rs. 10,000 was received as deposit and balance amount of Rs. 1,06,101 has been received subsequently from the Mumbai party through cheques. The AO had unnecessarily doubted that the total amount received should have been Rs. 2,34,900 as against Rs. 1,16,101 shown by the assessee, without even bothering to consult the assessee's books of account or establishing contact with M/s Patel Tourist, Mumbai whose complete address along with telephone numbers is available as per GRC itself. The AO has also referred to the amount of Rs. 9.60 lakhs shown to have been received from Patel Tourist on 23rd Oct., 2000 whereas GRC No. 93090 shows the figure 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 registration cards.
10. Next objection raised by the AO is against the disproportionate expenses on account of house keeping, water, electricity and washing, etc. Here also, we find that the AO misdirected himself by comparing house keeping, water and electricity expenses, etc., with the receipts on account of room tariff. There does not appear to be any reason for matching such expenses with the room tariffs. The AO has contradicted his own finding by mentioning in the assessment order that in some months these expenses are disproportionately high when compared with the room tariff receipts, whereas in other months, these are on lower level. Merely because there has been a hike or reduction in such expenses, it cannot, per se, lead to the presumption that the room tariff receipts would move in the same direction. Moreover, it is found that the AO had accepted the expenses claimed by the assessee as genuine and had not made any disallowance on this count.
11. The next objection of the AO is the abnormalities in restaurant/bar sale. He found the ratio of cost of material at 62.88 per cent in restaurant and 59.38 per cent in restaurant and bar combined in assessee's case as high in comparison with other hotels. We find that it depends upon the pricing pattern of the restaurant items. In case of bigger hotels, having more stars attached to it, a particular item may be offered for sale, say at Rs. 100. The same thing in a middle class hotel may be offered for sale at Rs. 75. Still, a lower class hotel may offer the same thing for sale in its restaurant at Rs. 50. In all such cases, the cost price remains same. If it is presumed to be at Rs. 40, then in the lower class hotel, it would give profit of Rs. 10 only which gives ratio of cost of material to sale at 80 per cent, whereas in middle class hotel such ratio would fall to 53 per cent and in the top bracket hotel, it would come down to 40 per cent. Therefore, it is highly dangerous to apply cost of material to sale ratio from one hotel to another unless otherwise it is established beyond doubt that the pricing of the item in both the hotels is at the same level. Be that as it may, we find that in p. 46 of the paper book is the report of the Indian Hotel Industry Survey, 2002-03, which indicates different ratios of departmental expenses as a percentage of revenue. In this report the ratio of food and 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 per his own calculation could have been there. In this process, he allowed relief of Rs. 7,13,382 in room tariff. The learned Authorised Representative has placed on record a chart at pp. 4-6 of the paper book indicating the calculation mistakes by the first appellate authority as under:
-------------------------------------------------------
As per Correct
CIT(A) Calculation
-------------------------------------------------------
(a) Off Season (Jan., Feb., March, 13,464 14,484
July to Mid October) i.e.
213 days x 68 rooms per day
(b) Season (April to June) 6,188 6,188
i.e. 91 days x 68 rooms
per day
(c) Peak season (Mid Oct., Nov., 5,168 4,148
i.e. 61 days x 68 rooms
per day and December)
(d) Total rooms available 24,820 24,820
for the entire year
-------------------------------------------------------
Receipts : Calculation of estimated room (receipt) on the basis of correct calculation of rooms available in different seasons-----------------------------------------------------------
Seasons 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
-----------------------------------------------------------
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 occupancy) discount)
Total 1,21,79,296
-----------------------------------------------------------
Total receipts as worked out above-----------------------------------------------------------
As per CIT(A) Correct calculations
after rectification
of calculation
mistakes in the
chart of CIT(A)
-----------------------------------------------------------
(a) Total receipts as 1,32,15,753 1,21,79,296
worked out above
(b) Less: Receipts 1,02,59,295 1,02,59,295
shown by the
assessee
(c) Alleged under- 29,56,458 19,20,001
statement of
receipts by the
assessee
-----------------------------------------------------------
13. It has been shown that if the calculation is made as per the learned CIT(A)'s presumption, it would bring 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 is available in pp. 16 and 17 and of the w/s placed on record, which has remained undisputed by the learned Departmental Representative. As we have held in the foregoing para that the books of account are properly maintained and room rent receipts are available in entirety open to verification, there is no question of rejecting such receipts, without pointing out any glaring defect and resorting to a hypothetical exercise to estimate the amount of room tariff receipts which the assessee ought to have earned. Income tax is charged on the income actually earned and in the absence of any deeming provision, such income cannot be substituted with the income that ought to have been earned. In the present case, the Revenue has preferred the latter approach in preference to the former, which cannot be allowed to sustain. Similar is the position regarding sale of restaurant and bar.
14. There is one more significant aspect of the case, which had gone unnoticed by the AO. Even if for a minute it is presumed that the assessee had not maintained proper books of account or book results do not facilitate the calculation of correct income, he had two options open before him. He could have brought on record some comparable case, which is really comparable or he could have considered the past results. The Jodhpur Bench of the Tribunal is consistently holding that in the absence of any change in the factual scenario, the past results constitute good basis for adoption of income in the relevant year. Page 35 of the w/s is the statement of sales and GP separately for restaurant and bar for the year in question and five preceding years. This chart shows that in the previous year relevant to assessment year under consideration, the assessee had shown GP of 37.12 per cent in restaurant and 69.45 per cent in bar. The corresponding figures of the two preceding years have been at 35.69 per cent and 33.93 per cent (restaurant) and 55.14 per cent and 56.05 per cent (in bar) respectively. The figure of total sales under both the heads in this year is at Rs. 40.47 lakhs whereas the corresponding figure for the immediately preceding year is at Rs. 40.52 lakhs. Not only the volume but the rate of profit in bar and restaurant in this year has shown northwards sojourn. In so far as the total receipts of the hotel, as a whole, are considered, the same is found at Rs. 1.49 crore as against Rs. 1.68 crore in the immediately preceding year. The reason for the decline in the gross receipts at around 10 per cent is justified when considered with the fact that out of total rooms available at 68, 12 rooms remain under renovation and on a full year basis, six rooms can be excluded on that count. Moreover, it is the contention of the learned Authorised Representative that most of the assessee's customers come from Gujarat and in this year the earthquake hit Gujarat on 26th Jan., 2001, which severely affected tourism. Apart from that point, the GP rate of the assessee in this year has been shown at 54.09 per cent as against 49.98 per cent of the immediately preceding year and 50.80 per cent in the year prior to that. These calculations are available at p. 452 of the paper book which were not denied by the learned Departmental Representative. In view of the foregoing discussion, we are satisfied that primarily there was no reason to reject the book result and secondly the profit percentages declared by the assessee, being higher than that of the preceding year, could not have been disturbed. We, therefore, hold that the learned CIT(A) was not justified in upholding the rejection of book results and sustenance of substantial additions. By overturning the impugned order, we direct the deletion of the additions made by the AO on hypothetical grounds.
15. Ground No. 5 of the assessee's appeal regarding charging of interest under s. 234B is consequential and disposed of accordingly.
16. Last effective ground is the prayer made by the assessee for awarding suitable costs. We have considered the facts in entirety and are of the considered opinion that no cost can be awarded against the Revenue in these facts.
17. In the result, the appeal of the Revenue is dismissed and that of the assessee is partly allowed.
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