Hibiscus Hospitality Services Vs ITO: ITAT Bangalore permits delayed appeal and remands double taxation dispute to AO

Background and context

The Bangalore Bench of the ITAT in Hibiscus Hospitality Services Vs ITO (ITA No. 1592/Bang/2026, order dated 04/08/2026, A.Y. 2017-18) dealt with two key issues:

  1. Whether a massive delay of 78 months in filing an appeal against an intimation under Section 143(1) could be condoned; and
  2. Whether an adjustment under Section 143(1) that effectively resulted in double taxation of the same income should be examined on merits.

The assessee, a partnership firm engaged in hospitality‑related services, had filed its return for A.Y. 2017‑18 under presumptive taxation, offering its business receipts as income from business and profession. The Centralized Processing Centre (CPC) treated certain receipts as “income from house property” solely based on TDS reported under Section 194-I, and made an addition of Rs. 18,20,373/‑ under that head while issuing an intimation under Section 143(1) on 07/08/2018.

The assessee asserted that this income was already part of the presumptive business income, and that the CPC’s action led to the same receipts being taxed twice. An appeal was ultimately filed before the Ld.CIT(A) with a delay of 78 months, along with a detailed condonation petition. The Ld.CIT(A) refused to condone the delay, holding that the explanation was not backed by adequate documentary evidence, and dismissed the appeal as time‑barred.

The assessee then approached the ITAT, challenging the refusal to condone delay and pressing the plea that double taxation had occurred.

Brief facts of the case

Nature of business and return filing

  • The assessee is a partnership firm operating in the hospitality space, primarily engaged in providing furniture, cutlery and related equipment to hotels on hire.
  • For A.Y. 2017‑18, the assessee filed its return of income under Section 139(4) on 20/03/2018, declaring a total taxable income of Rs. 2,68,336/‑.
  • The return disclosed business receipts of Rs. 28,36,269/‑ under the presumptive taxation scheme and computed the business profit at Rs. 2,68,336/‑ under the head “Profits and gains of business or profession”.

TDS deduction pattern

  • The assessee’s customers generally deducted tax at source under Section 194C or Section 194-I(a) depending on the contractual arrangement.
  • For the year in question, two customers – M/s Indian Hotels Company Limited and M/s The Indian Hotel Company Ltd – deducted TDS under Section 194-I(b).
  • According to the assessee, the underlying receipts were still business receipts for hire of furniture and cutlery, and not rent from land or building. These receipts were already embedded in the presumptive business income offered in the return.

CPC intimation under Section 143(1)

  1. On 06/06/2018, CPC issued a proposal for adjustment pointing out that an amount of Rs. 18,20,373/‑ reflected in Form 26AS as subject to TDS under Section 194-I(b) had not been shown as income from house property in the return.
  2. Subsequent to this proposal, on 07/08/2018, the return was processed under Section 143(1) and an intimation was issued:
    • Returned income: Rs. 2,68,336/‑
    • Addition under the head “Income from house property”: Rs. 18,20,373/‑
    • Assessed income: Rs. 20,88,710/‑

The core grievance of the assessee was that this adjustment treated hire charges for furniture and cutlery as house property income merely due to the TDS section used by the deductors, even though no land or building had been leased out, and the same receipts were already taxed as business income.

Steps taken by the assessee before filing appeal

The assessee provided a comprehensive chronology in its condonation application before the Ld.CIT(A), explaining how the delay occurred and demonstrating that it had been consistently attempting to get the matter rectified administratively.

Initial objections before the Assessing Officer

  • Upon receiving the CPC’s proposal dated 06/06/2018, the assessee wrote to the Income Tax Officer, Ward 4(2)(1), Bangalore, on 08/08/2018.
  • In that communication, it was clarified that:
    • TDS had been deducted under Section 194-I(b) by M/s Indian Hotels Company Limited and M/s The Indian Hotel Company Ltd;
    • The assessee had neither leased any land nor any building to these entities;
    • The payments were hire charges for furniture and cutlery; and
    • The same receipts were already offered as business income under presumptive taxation.
  • A further letter reiterating these points was sent on 17/05/2019.
  • The assessee continued to follow up with the local Assessing Officer, who informed that rectification rights for the relevant Section 143(1) intimation continued to lie with CPC and had not been transferred.

Rectification applications under Section 154