ITAT deleted addition made on presumption – there cannot be loss in restaurant business

ITAT deleted addition made on the presumption that there cannot be loss in restaurant business.

In a recent judgment, ITAT deleted addition made on the presumption that there cannot be loss in restaurant business

ABCAUS Case Law Citation:
ABCAUS 3963 (2024) (04) ITAT

In the instant case, the assessee had challenged the order passed by the Commissioner of Income-Tax (Appeals), NFAC in confirming the addition made by the Assessing Officer (AO) on the presumption that there cannot be loss in restaurant business.

The appellant assessee was an individual and was inter alia engaged in the business of running a restaurant.

During assessment-proceeding, the Assessing Officer (AO) observed that the assessee’s expenditure on restaurant was more than the receipts from restaurant. Considering these figures, the AO observed that there cannot be loss in restaurant business.

Therefore, the Assessing Officer (AO) estimated receipts of restaurant as double of the expenditure claimed and made addition of the differential of receipts reported and as estimated.

During first appeal, the assessee explained to CIT(A) that he runs a lodging & boarding/ hotel business and as per prevailing practice of such business, the assessee has to provide complimentary tea and breakfast to hotel guests as also to staff. Therefore, the expenditure on restaurant was higher than the receipts of restaurant.

The CIT(A) accepted assessee’s stand but still observed that the restaurant receipts must be more than expenditure, accordingly he allowed part-relief of 50% and thereby reduced addition.

Before the Tribunal the assessee objected to the orders of lower-authorities. He submitted that it was not the case that the assessee was solely running restaurant; the assessee was carrying lodging & boarding business alongwith restaurant.

The assessee submitted that he had provided complimentary tea, food, etc. to guests staying in hotel as also to staff, which is a genuine fact and in line with established practice in this type of business.

The assessee submitted that the CIT(A) had also accepted this practice of assessee but still upheld addition partly to support the AO’s version that the receipts must exceed expenditure. The Tribunal observed that the Department could not show any reason to rebut or controvert the submissions of assessee. Admittedly, it was a fact that the assessee was carrying business of hotel and also shown it receipts including receipts from restaurant.

The Tribunal opined that the claim of assessee that tea, food, etc. has to be provided to hotel guests as part of their package as also to staff was also meritorious and acceptable. Therefore, the authorities should had not taken adverse view.

The Tribunal on the facts and figures explained by assessee opined that it did not warrant any addition. The CIT(A) had, though found strength in assessee’s very explanation and granted relief to assessee but still upheld part addition to approve AO’s version that expenditure cannot be more than receipt. The Tribunal found no merit in lower-authorities’ such stand when the assessee had explained his nature of business and the reasoning of expenditure being higher than the receipts.

Accordingly, the Tribunal deleted the addition as sustained by CIT(A) and allowed the ground of appeal.

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