2020 (3) TMI 934 - AT - Income Tax

Appeal granted under Section 35AD for hotel deduction. CIT (A) decision overturned. Interest under Section 234A resolved.

Benares Hotels Ltd. Versus Deputy Commissioner of Income Tax, Range 3

Benares Hotels Ltd. Versus Deputy Commissioner of Income Tax, Range 3 - TMI Issues Involved:1. Deduction under Section 35AD of the Income-tax Act, 1961.2. Interest under Section 234A of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Deduction under Section 35AD of the Income-tax Act, 1961:The primary issue in this case was whether the assessee was entitled to a deduction under Section 35AD of the Income-tax Act, 1961, for the capital expenditure incurred on a new hotel at Gondia, Maharashtra. The assessee claimed a deduction of Rs. 18,57,34,050, but the Assessing Officer disallowed Rs. 14,14,71,288 of this amount, arguing that the hotel did not meet the mandatory condition of being classified as a two-star or above category hotel by the Central Government during the relevant assessment year.The Assessing Officer noted that the audit report submitted by the assessee was unsigned and unstamped, and the assessee had not provided separate financial statements for the Varanasi and Gondia units. Furthermore, the classification certificate from the Ministry of Tourism, which would confirm the hotel as a four-star category, was not issued until January 30, 2018, effective from January 29, 2018. As such, the Assessing Officer concluded that the hotel did not meet the specified category requirement during the assessment year in question.The Commissioner of Income-tax (Appeals) [CIT (A)] upheld the Assessing Officer's decision, emphasizing that the exemption provisions under Section 35AD should be interpreted strictly. The CIT (A) referenced the Supreme Court's decision in Commissioner of Customs (Import) v. Dilip Kumar and Company, which held that exemption notifications should be interpreted strictly and any ambiguity should favor the revenue.However, the assessee argued that the classification as a four-star hotel was a procedural matter beyond their control and that the hotel met all the necessary requirements. The assessee cited the case of CIT v. Ceebros Hotels (P.) Ltd., where the Madras High Court held that Section 35AD does not mandate the date of the certificate to be from a particular date and should be read as a beneficial provision.The Appellate Tribunal (ITAT) considered the arguments and found that the CIT (A) had erred in not granting the deduction. The Tribunal noted that the classification certificate's date was irrelevant for the deduction under Section 35AD, as long as the hotel met the criteria. The Tribunal also observed that the conditions of Section 35AD were fulfilled and that the deduction should not be disallowed based on the timing of the certificate issuance.2. Interest under Section 234A of the Income-tax Act, 1961:The second issue was the imposition of interest under Section 234A of the Income-tax Act, 1961, for the alleged late filing of the return of income by the assessee. The assessee contended that the return was filed within the due date prescribed under the Act, and therefore, the interest of Rs. 54,336 should not have been levied.The Tribunal did not provide a detailed analysis of this issue in the judgment, as it was consequential to the primary issue of the deduction under Section 35AD. Since the Tribunal allowed the appeal in favor of the assessee on the primary issue, the interest under Section 234A would also be consequentially addressed.Conclusion:The Tribunal allowed the appeal, granting the deduction under Section 35AD of the Income-tax Act, 1961, and consequently addressing the issue of interest under Section 234A. The Tribunal emphasized that the classification certificate's date was irrelevant for the deduction, and the conditions of Section 35AD were fulfilled by the assessee. The decision of the CIT (A) was overturned, and the disallowance of the deduction was deleted.