9911796707
TMI Blog2012 (8) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,304/-. 2. The ld. CIT(A) has erred in concluding that the hotel run by the assessee qualifies to be an eco- tourism project, and is hence covered under item 15 of Schedule XIV of the Income-tax Act, 1961 been after holding in the body of the order that eco-tourism is a much broader and different concept from the concept of traditional tourism, and implying thereby that the stand alone hotel, located in the main market place is not a part of an eco-tourism project. 3. The ld. CIT(A) has erred in holding that the hotel run by the assessee qualifies to be an eco-tourism project merely on the basis of the assessee's contention that it is following eco-friendly norms. 4. The ld. CIT(A) has erred in holding that that said hotel is an eco-tourism project, on the basis of a no objection certificate from the State Government even though such certificate nowhere states that the hotel is part on an eco-tourism project, and does not even certify that the hotel is an eco-hotel and in fact merely states that the hotel could be considered to be a eco-hotel subject to fulfilment of environment norms. 5. The ld. CIT(A) has erred in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradesh. The basis adopted is based on misapplication of the statutory provisions contained in the Act and therefore, unsustainable. 1.2. That the ld. CIT(A) has failed to appreciate that once the Serial No. 15 Part C of XIV Schedule clearly provided that eco-tourism included hotels then it ought to have held that all hotels are eligible for deduction u/s 80-IC of the Act in view of the judgment of Hon'ble Apex Court in the case of CIT v. Taj Mahal reported in 82 ITR 544. 1.3 That the ld. CIT(A) has failed to appreciate detailed submissions and evidence furnished by the appellant to support the claim of deduction and as such, disallowance so sustained is otherwise not in accordance with law. The disallowance confirmed is otherwise based on highly subjective, whimsical and fanciful consideration which neither in law and nor on fact can be validly made a basis to disallow the legitimate claim of deduction and therefore, disallowance so confirmed is illegal, untenable and wholly unsustainable. 1.4 That various adverse findings recorded by the ld. CIT(A) while confirming the disallowance of claim of deduction u/s 80-IC of the Act are based on misconception of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly different from the concept of traditional tourism. Running a multi-storeyed commercial hotel in the midst of a city can by no stretch of imagination said to be an eco-tourism project. The assessee's reliance was on a certificate issued by Department of Tourism dated 31.1.2007 under which the approval to operate the hotel as eco-hotel would be available subject to fulfilment of norms prescribed by the H.P. State Environment Protection & Pollution Control Board and also the validity of this no objection certificate was subject to the approval of the HP State Environment and Pollution Control Board, Shimla. The Assessing Officer was of the view that the said certificate only mentioned that the hotel Combermere could be considered as a eco-hotel subject to fulfilment of norms and the said certificate was of no use to the assessee in the present context. The plea of the assessee that it had undertaken expansion in the development of hotel and it could be held eligible for deduction under section 80-IC of the Act, was rejected by the Assessing Officer and the claim of deduction under section 80-IC of the Act was not accepted by the Assessing Officer. The Assessing Officer also note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of substantial expansion. As per definition of the term 'substantial expansion' in section 80-IC(8)(ix), the same means increase in the investment in the plant & machinery by atleast 50% of the cost value of plant & machinery, before taking depreciation in any year, as on the first date of the previous year in which the substantial expansion was undertaken. The assessee vide reply dated 20.10.2008 submitted that the substantial expansion had been undertaken during the financial year 2004-05 and the cost value of the plant & machinery on the first date of the financial year in which substantial expansion had been undertaken had to be seen which as per the assessee was in assessment year 2005-06. The cost value of plant & machinery as on 1.4.2004, as per the assessee, was Rs. 98,18,269/- and the increase in the investment in plant & machinery during the financial year 2004-05 was Rs. 62,35,827/-. As per the assessee the increase in the investment in plant & machinery during the financial year 2004-05 was 63.50% of the cost of plant & machinery as on 1.4.2004 and there was compliance to the provisions of the Act in this regard. The reply of the assessee is reproduced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V, which uses the word 'including'. The CIT (Appeals) held that the main entry was eco-tourism which would include a hotel, amusement, spa or ropeway. The CIT (Appeals) further held as under: "In respect of the hilly states of Himachal Pradesh, Uttaranchal and Sikkim, the activity of eco-tourism has been specified in this schedule. Evidently, the activities of setting up hotels, amusement parks and ropeways by themselves, which would obviously entail damage to the environment, could not have been specified as priority activities. But considering the potential for developing tourism in these States, these activities have been allowed, as long as they are carried out as part of an eco-tourism project in these States. It is to be appreciated that pure eco-tourism projects may not be financially lucrative for investors, but would become profitable if they included high-earning activities like hotels, spa , amusement parks and ropeways. Viewed in this context, it is clear that the activity of running hotels has been included in Schedule XIV only when it is an adjunct to the main activity of eco-tourism.". 7. The CIT (Appeals) concluded by holding as under: "6.9 in a broad sense eco-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the norms prescribed by the H.P. State Environment Protection and Pollution Control Board. The objection of the CIT (Appeals) to the above said NOC relied upon by the assessee were as under: (a) NOC was issued at the request of the proprietor. (b) H.P. Tourism Development Act does not prescribe any norms for eco-hotel and, therefore, the Department of Tourism does not have any locus standi to certify whether any hotel confirm to the concept of eco-hotels or not. (c) The so-called NOC was given subject to fulfilment of the norms prescribed by H.P. State Environment Protection and Pollution Control Board and even the validity of the NOC was subject to the approval of the said Board. In view thereof, the CIT (Appeals) observed that the contention of the assessee that it was certified to be a eco-hotel by the Department of Tourism was totally misconceived and misleading. 10. Further the CIT (Appeals) held that the reliance of the assessee on the approval granted by the Pollution Control Board to be misplaced as there was no date of issuance mentioned on the said certificate. The contents of the certificate are reproduced under para 4.7 at pages 13 and 14 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctioning as a part of 'eco-tourism project' shall be eligible for deduction u/s 80-IC and the said condition is not fulfilled by the appellant". 12. The Revenue is in appeal against the orders of CIT (Appeals) relating to assessment years 2006-07 and 2007-08, in granting deduction to the assessee under section 80-IC of the Act. 13. The assessee is in appeal against the order of CIT (Appeals) in denying the deduction under section 80-IC of the Act relating to assessment year 2008-09. 14. The learned D.R. for the Revenue pointed out that the contentions of the Revenue are in the order of the CIT (Appeals) relating to assessment year 2008-09. The learned D.R. for the Revenue pointed out that in place of ground No.6 in the original grounds of appeal filed by the Revenue, the additional and specific grounds of appeal has been raised vide letter dated 17.3.2011 which may be taken on record. It was further pointed out by the learned D.R. for the Revenue that the claim of the assessee was that it had undertaken substantial expansion of its hotel and it was eligible for deduction under section 80-IC of the Act in view of item No.15 in Part-C of Schedule-XIV of the Act, which talks of ec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 373 and 374 of the Paper Book. The learned A.R. for the assessee thereafter pointed out that at page 70 of the Paper Book is placed a letter by the assessee to the District Tourism Officer stating that it had complied with the eco-friendly norms. Reference was made to the letter issued by the Department of Tourism to the assessee placed at page 71/72 of the Paper Book which as per the assessee is dated 9.6.2004. The learned A.R. for the assessee referred to the provisions of section 80-IC(8)(ix) to explain what is substantial expansion. Our attention was drawn to the details furnished at pages 61 to 63 of the Paper Book to establish the expansion carried out by the assessee in the financial year 2004-05. The learned A.R. for the assessee thereafter referred to the written submissions filed before the CIT (Appeals) placed at pages 322 to 349 of the Paper Book and pointed out that at page 345 the assessee had explained the quantum of investment made in the plant & machinery which was more than the book value of the plant & machinery owned by the assessee as on 1.4.2004. The explanation of the assessee was that out of the opening book value of Rs. 98,18,269/- as on 1.4.2004, the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2008-09, it was pointed out by the learned A.R. for the assessee that the CIT (Appeals) at page 13 relied upon the certificate dated 3.1.2004, though mentioned the certificate dated 9.6.2004. It was pointed out by the learned A.R. for the assessee that two certificates were issued by the Pollution Control Board, one dated 3.1.2004 and the other dated 9.6.2004. 16. The learned D.R. for the Revenue in rejoinder pointed out that the ratio laid down in Bidhi Chand Singhal (supra) was not applicable as in the facts of that case the assessee had produced certificate from Pollution Control Board. In respect of the assessee it was pointed out by the learned D.R. for the Revenue that the certificate issued by the Pollution Control Board was for limited purpose and could not be said to have complied with the provisions of section 80-IC of the Act. 17. We have heard the rival contentions and perused the record. The assessee during the year under consideration had filed return of income on 31.10.2006 in which it had claimed deduction under section 80-IC of the Act against the profits and gains from the business of running the hotel under the name and style of hotel Combermere at The Mall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent (or thirty per cent where the assessee is a company) of the profits and gains. (4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.- The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken; (x) "Theme Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government.]" 19. The relevant provisions of section 80-IC of the Act applicable to the present facts are sub-section 2(b) to section 80-IC of the Act under which the assessee has claimed the aforesaid deduction. The provisions of section 80-IC(2) of the Act provides that where the undertaking or enterprise has commenced any operation specified in Fourteenth Schedule of the Act and had undertaken substantial expansion during the period 7.1.2003 to 1.4.2012 in the State of Himachal Pradesh or in the State of Uttaranchal, would be eligible for the deduction under section 80-IC of the Act. Sub-section (3) to section 80-IC of the Act lays down that the undertaking or enterprises would be entitled to deduction of 100% of such profits and gains for five assessment years commencing with the initial assessment year and thereafter 25% of its profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centive or growth and development of the State should be interpreted liberally, in order to achieve the object of allowing deduction to the undertaking or enterprises, which establishes its infrastructure in the respective States for furtherance of the object of the policy framed thereunder. It is evident that the Statute has provided deduction by way of section 80-IC of the Act to such undertakings or enterprises which commences any operation specified in the Fourteenth Schedule and undertakes substantial expansion during the prescribed period within the State, would be entitled to the benefit by way of deduction from the profits and gains of the business, which in the case of present assessee i.e. relating to section 80-IC(2)(b) of the Act would be 100% of such profits and gains for five assessment years commencing with the initial assessment year and 25% of the profits and gains of the business for the next five assessment years. The definition of eco-tourism under the Fourteenth Schedule is inclusive definition and includes within its definition the provisions by way of hotels, resorts, spa, entertainment/amusement parks and ropeways. However, the State of Himachal Pradesh has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Computers 1,81,712.00 5 Office Equipments 22,000.00 6 Generator 5,15,472.00 7 Kitchen Equipments 12,17,578.50 8 Gym Equipments 1,98,653.00 6,235,827.70 24. The claim of the assessee that the aforesaid addition in the plant & machinery of Rs. 62,35,827/- as compared to the book value of plant & machinery as on 1.4.2004 of Rs. 98,18,269/- was 63.5% of the book value of plant & machinery as on 1.4.2004. Consequently there were substantial expansion in the financial year 2004-05 i.e. assessment year 2005-06 in terms of section 80-IC(2)(b) read with clause (ix) of sub-section (8) of section 80-IC of the Act. 25. The second aspect of the claim of deduction under section 80-IC of the Act by the assessee was that the hotel being an eco-hotel which falls within the definition enshrined in Item No.15, under Part-C of Fourteenth Schedule of the Act. The assessee claims that the hotel Combermere was an eco-hotel as it was eco-friendly in terms of the norms prescribed by Himachal Pradesh State Environment Protection Pollution Control Board which had issued a certificate to it. In addition the assessee claims to have promoted recycling, energy efficiency, water reuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion/Commissioning Charges Rs. 1,49,500/- c. Purchase of 45 Color T.V's Rs. 5,50,080/- d. Puchase of music systems Rs. 5,72,060/- e. Gym equipments Rs. 1,98,653/- Total Rs. 18,31,373 28. The conclusion of the Assessing Officer was that in case above said items totalling Rs. 18,31,373/- were excluded, the value of substantial expansion comes down to Rs. 44,04,454/- (Rs. 62,35,827/-minus Rs. 18,31,373/-) and this amount was less than 50% of opening book value of Rs. 98,18,269/- of plant and machinery in that year. In view thereof, he held that the assessee cannot be said to have undertaken substantial expansion within the meaning as provided in the Act. The explanation of the assessee in this regard was that if the contention of the Assessing Officer is to be accepted it is necessary to work out the gross cost of plant & machinery as on 1.4.2004 after excluding these items from the gross cost also. As such gross cost of plant & machinery comes to: Values as shown earlier Rs. 98,18,268.31 Less: Cost of TVs & VCR Rs. 11,06,011.00 Gym Equipments Rs. 2,11,100.00 AC Systems Rs. 1,82.120.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as certified by the accountant, the said claim merits to be allowed to the assessee. 31. We find that similar issue of claim of deduction under section 80-IC of the Act on the ground of the assessee having fulfilled the condition of eco-tourism as specified in Item No.15 of Fourteen Schedule of the Act arose before the Delhi Bench of the Tribunal in the case of Bidhi Chand Singhal (supra) for assessment year 2006-07. The Assessing Officer in the said case had observed that the hotel eligible for deduction under section 80-IC of the Act should also be a hotel which is environment friendly, relying upon the definition of eco-tourism etc., the Tribunal vide order dated 4.11.2010 and relying upon the provisions of section 80-IC of the Act and Item No.15 of Part-C of Fourteen Schedule held, it can be observed what is eligible for deduction is eco-tourism which include inter-alia hotels. The Tribunal further noted that the hotel was approved by the Government, which approval was to be given only after obtaining No Objection from the Pollution Department. The Tribunal further observed that there was no material on record to show that eco-tourism status has been granted to another hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and also received No Objection Certificate from Pollution Control Board for fulfilling their conditions and norms. In view thereof, where the assessee had fulfilled the conditions of the Statute, is to be held eligible for the benefit of deduction under section 80-IC of the Act. The abovesaid benefit is by way of special provision, provided under the Act and once the assessee has fulfilled the conditions laid down under the said section, the said deduction is to be allowed to the assessee. The CIT (Appeals) in the appeal relating to assessment year 2008-09 had observed that the assessee was not entitled to the benefit of deduction under section 80-IC of the Act in view of the Certificate issued by the Pollution Control Board which talks of its validity up to 31.3.2004 i.e. even before the date of expansion carried on by the assessee. We find that while coming to the said conclusion the CIT (Appeals) has erred as there are two certificates issued by the Pollution Control Board. The first certificate is dated 3.1.2004 and validity of the said certificate is up to 31.3.2004. The second certificate is dated 9.6.2004 and it is in force for a period up to 31.3.2009. Both the certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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