TaxTMI 
TaxTMI 
TaxTMI 
2017 (6) TMI 1272
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....d under section 143(1) of the Act on 28.12.2012 determining a demand of Rs..1,84,790/-. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued. After considering the submissions of the assessee, the assessment under section 143(3) of the Act was completed on 24.03.2014 determining the total income at Rs..11,53,06,636/- by making disallowance of Rs..78,17,85,770/- under section 35AD(5)(aa) of the Act being expenses incurred in creating and establishing the eligible asset i.e., hotel [The Rain Tree]. 2.1 During the year, the assessee company has commenced its operation in the hotel (The Rain Tree) situated at Mount Road, Chennai. The entire hotel building (Rs..40,05,09,377/-) and other assets amounting to Rs..78,17,85,770/- was capitalized during the year. The assessee company claimed deduction under section 35AD(5)(aa) of the Act in respect of the whole of the expenditure of capital in nature incurred for the business of The Hotel Rain Tree, Mount Road. Consequently, the assessee has claimed a loss in the return of income amounting to Rs..56,92,36,737/-. 2.2 During the scrutiny proceedings, the assessee was directed t....
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.... The statute permits claim of such deduction which mainly comprised of capital expenditure incurred for creating the specified asset/property and on the facts of the case the claim of such deduction in the computation of taxable total income is proper and justified. The specified business had commenced their operations on 09.07.2010, as reflected in the financial statements. The first condition of commencement of the operations of the specified business is accordingly satisfied on the factual matrix of case. The approvals for running the specified business were obtained from various governmental authorities inasmuch as one such approval for star category recognition with the Indian tourism, Chennai working under ministry of tourism, Government of India is required while deciding the issue relating to the claim of such deduction in the computation of taxable total income. The second condition prescribed in the section under consideration so as to give decision on the correctness of the claim of such deduction in the computation of taxable total income for the Assessment Year 2010-11 is the requirement of the classification of category two star or above by the Central relating to....
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....by the Assessing Officer, star category classification order is available to support the plea of the assessee for the eligibility to make such claim for deduction in the computation of taxable total income. Therefore the letter issued by the India Tourism on the recognition of the star category with reference to the period is not relevant for considering the claim under consideration. d) In any event, the legal theory of substance over form would rescue the assessee on the interpretation of the provisions under scrutiny inasmuch as the operations of the eligible business had commenced in the previous year relating to the Assessment Year under consideration and the said fact being not disputed, the belated furnishing of the certificate by the India Tourism should relate back to the date of application/date of commencement of the operations of the eligible business in view of the legal consequence/ implication. e) The purposive legislation relating to the statutory provisions under consideration should be reckoned and having not disputed the commencement of the operations of the eligible business in the previous year relating to the Assessment Year under consideration, the techni....
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.... mis-reading of the provisions under consideration has resulted in the present attempt/ proposal of the Assessing officer for making the disallowance of the said deduction In the computation of taxable total income. The assessee is eligible for investment allowance under section 35AD(5)(aa) of the Act, if the assessee commences its operations on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hotel of two star or above category as classified by the Central Government. When the commencement of new hotel on or after 01.04.2010 was not disputed, filing of application for star category classification before India Tourism, the competent authority under the Central Government and scrutiny of the application and its acknowledgement by the competent authority are also not disputed, star category classification awarded by the India Tourism to the assessee was not disputed, the Assessing Officer was not legally and factually correct to make the disallowance and pleaded for deleting the disallowance made on this account. On the other hand, the ld. DR strongly supported the orders of authorities below. 5. We have heard both si....
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....f the Act was to replace profit-linked incentives by investment-linked incentives and the benefit was extended to various businesses w.e.f. 01.04.2010 and the said investment allowance is available only in the year of commencement of operation of a new business. The Department has not disputed the operation of the new hotel of the assessee in the financial year 2010-11 because, the Department has accepted the income, which was offered to tax. Once the Department has accepted the income of the assessee from hotel business, which was newly established and become fully operational in the year 2010, then the assessee is very much eligible for claiming investment allowance. If we accept to the contention of the Assessing Officer that the assessee was granted star category classification only on 10.05.2011, the Assessing Officer should not have accepted the income of the assessee offered to tax, which was earned in lieu of star category of the hotel. Once the application for star category classification dated 17.04.2010 was not rejected by the India Tourism and even after inspection on 22.04.2011, the HRACC has not found any discrepancy and very well recommended for classification under ....