TaxTMI 
TaxTMI 
2012 (8) TMI 301
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.... eligible for deduction u/s 80-IC of Rs. 52,12,304/-. 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. &nb....
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....sis of dictionary meaning of eco-tourism and eco-tourism policy of Himachal 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 disallowa....
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....r as per para 9 is that Thus, as can be seen, eco-tourism is a broader concept and is certainly 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 8....
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.... section 80-IB (7) of the Act. 5. The next aspect considered by the Assessing Officer was 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....
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....ively denied to include hotels. Further reference was made to item No.15 Part-c of Schedule-XIV, 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 ....
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....h it was proposed that it had no objection for considering the hotel Combermere as eco-hotel subject to fulfilment 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....
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....llowed to hotels, unless they form', part of an eco-tourism project." 11. The CIT (Appeals) thus held that "Only a hotel functioning 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....
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....under section 80-IC of the Act by the same Assessing Officer vide order passed under section 143(3) of the Act which is placed at pages 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 asse....
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....n account of additions in the plant & machinery account. In respect of the order passed by the CIT (Appeals) relating to assessment year 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....
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....oned under the provisions of section 80-IC of the Act. 18. Section 80-IC of the Act reads as under: "80-IC. (1) Where the gross total income 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 Them....
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....ub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-five per cent (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 ....
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....y the Government of India in the Ministry of Commerce and Industry; (ix) "substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book 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 th....
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.... turn includes setting up of hotels, resorts, spa, entertainment/amusement parks and ropeways in support of the policy of encouraging tourism in the State. It is an established principle that the provisions of incentive 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 F....
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....mentioned additions to the plant & machinery totalling Rs. 62,35,827/-: DETAIL OF ADDITIONS IN PLANT & MACHINERY DURING THE PERIOD 1-4-2004 TO 25-3-2005 S.No. Particulars Additions (Rs.) 1 Refrigerators 10,09,747.00 2 TV/VCR/Music System 11,22,140.20 3 Plant and Machinery 19,68,525.00 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, ....
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....ion 80-IC of the Act. 27. Now coming to the objections of the Assessing Officer in granting deduction under section 80-IC of the Act, the first objection of the Assessing Officer was that certain items could not form part of the plant & machinery within the meaning of substantial expansion, which are as under: a. Purchase of 4 Split A.C's Rs. 3,61,080/- b. Installation/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 b....
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....timeters Electricals (P.) Ltd. (supra). In the facts of the present case before us the assessee had furnished Audit Report in Form No.10CCB during the course of assessment proceedings and had also filed revised computation during the course of assessment proceedings, which was considered for allowing the claim of the assessee. The assessee having claimed deduction under section 80-IC of the Act in its return of income, which in turn was supported by the Audit Report in Form Nos.3CB & 3CD and also 10CCB 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 ....
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....State of Himachal Pradesh for the promotion of eco-tourism. The underlying concept is to provide infrastructure for the promotion of tourism and in order to promote the same, the Department of Tourism in the State of Himachal Pradesh had framed policy, under which recognition is given subject to fulfilment of conditions. The assessee had made an application to the Department of Tourism for its recognition as Eco-tourism undertaking or enterprises. The assessee admittedly had fulfilled the abovesaid conditions 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 ....