TaxTMI 
TaxTMI 
2020 (3) TMI 934
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithout appreciating the fact that the Return of Income was filed within the due date prescribed under the Act. 2. The assessee is a Private Limited Company, duly incorporated and registered in the year 1971 under the provisions of the Companies Act, 1956 and is a subsidiary of the Indian Hotels Company Limited, inter alia, operating hotels under the brand name 'Taj'. The assessee, for the year under consideration, filed its return of income declaring a total income of Rs. 94,72,010/-, claiming deduction under section 35AD of the Income-tax Act, 1961, amounting to Rs. 18,57,34,050/-, in respect of its newly commenced hotel at Gondia, Maharashtra. The case of the assessee was selected for scrutiny assessment and the assessment was completed under section 143(3) of the Act, vide order dated 30/12/2017, assessing the total income of the assessee at Rs. 15,18,19,310/-, by making disallowance of deduction of Rs. 14,14,71,288/- under section 35AD of the Act and disallowance of expenses under various heads @15%, i.e., Rs. 8,76,008/-. The findings of the Assessing Officer with regard to the disallowance under section 35AD of the Act, are, as under: "3. On perusal of details, it h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the Income-tax Act in section 35AD which prescribes that the deduction of whole of the capital expenditure shall be allowed in the year of commencement of business. The computation of claim u/s. 35AD has been made on the basis of capital expenditure incurred in \the Gateway Hotel, Gondia which commenced business on 21/08/2014. This is a 4-Star category hotel. The item-wise details of complete capital expenditure are enclosed herewith at pages 1 to 15. The aggregate of such capital expenditure is Rs. 18,57,34,050/-. However, it maybe seen from the return of income/computation of income that the claim has been made only to the extent of Rs. 14,14,71,288/-. Although the entitlement of claim u/s. 35AD was to the tune of Rs. 18,57,34,050/- but the claim has been made to the extent of business income only. In case the business income is assessed at a higher figure then the claim u/s. 35AD would also go up to the extent of Rs. 18,57,34,050/-. All the bills and vouchers are fully audited and are open to verification. The break-up of entire capital expenditure in the new hotel project is given as under:- Particulars Aggregate Capital Expenditure Cost of Building 10,08,53,795/- Furni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Finance Act, 2009 w.e.f 1st April, 2010 with a view to encouraging and setting up of several types of new business ventures. It provided that all capital expenditure" capitalized in the books of account will be fully allowed as a deduction in the computation of total income of assessee for the previous year in question. The assessee has constructed a hotel in Gondia, Maharashra which is of a 4-Star Category. The criteria as laid down by the Ministry of Tourism, Govt. of India for categorization of star hotel is also being submitted herewith for your kind perusal. It maybe appreciated that our infrastructure confirms to the specifications of 4-Star hotel and accordingly application was moved for granting such approval. Due to some technical shortcomings which have also been removed and the compliance report submitted by us has been approved. The Inspection Committee is scheduled to revisit any time now following which the formal approval certificate shall be issued. Since all the conditions as envisaged u/s. 35AD are technically fulfilled except for the formal approval letter from Ministry of Tourism, it is requested that the genuine allowable claim may kindly be allowed by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efore obtaining it, the claim of deduction u/s. 35AD was premature and not allowable. (vi) Without obtaining the appropriate certificate and category, being mandatory for such claim, running of Hotel and showing some receipts cannot be a basis of claim of deduction of 35AD. 3.2 In view of above facts as discussed above, the deduction as claimed by the assessee u/s. 35AD of the IT Act, 1961 amounting to Rs. 14,14,71,288/- for want of statutory requirements and non-fulfilment thereof cannot be allowed and hence denied. Addition of Rs. 14,14,71,288/- " 3. Aggrieved, the assessee preferred an appeal before the ld. CIT (A), who deleted the disallowance of expenses at Rs. 8,76,008/- and confirmed the order of the Assessing Officer disallowing the deduction under section 35AD of the Act at Rs. 14,14,71,288/-, observing as under: "9. I have considered the submissions of the appellant and have gone through the assessment order and assessment record. In order to properly appreciate the claim u/s. 35AD of the IT Act, the relevant provisions of IT Act are reproduced herein below:- 35AD. (1) An assesses shall be allowed a deduction in respect of the whole of any expenditure of capital ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmission dated 27.08.2018). There were deficiencies in the proposal of the appellant, and accordingly a letter was issued from Ministry of Tourism on 22.07.2014 to the assessee to remove the discrepancy. Particularly, the copy of feasibility report was mentioned as incomplete. Further, the affidavit as well as demand draft was pointed out as not sent through the application of the assessee requesting for grant of star status. (Page-16 of the written submission dated 27.08.2018). The appellant took time to remove the deficiency and has submitted its reply on 23.03.2015 i.e. at the fag end of relevant financial year. (Page-18 of the Written submission dated 27.08.2018). It is important to mention here that in these correspondences, the only proposal regarding the four-star hotel category was submitted. However, the appellant has filed copy of mail received from Ministry of Tourism at Page-19 of the written submission (dated 28.07.2018) in which request for hotel classification of star category four-star with alcohol was mentioned for the first time. There was no other communication on record regarding the procedure for grant of star category. The appellant submits that inspection com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same cannot be allowed to the appellant. The Constitution Bench of Hon'ble Supreme Court have had an occasion to examine the interpretation of exemption provisions in Civil Appeal No. 3327 of 2007 in the case of Commissioner of Customs (Import) Mumbai v. Dilip Kumar and Company (TS-336-SC-2018-CUST) and vide their order dated 30.07.2018 have held that exemption provisions are to be interpreted strictly. The Hon'ble Court have clearly brought out the issue for consideration before the constitution bench in para-28 of the order as under :- 28. With the above understanding the stage is now set to consider the core issue. In the event of ambiguity in an exemption notification, should the benefit of such ambiguity go to the subject/assessee or should such ambiguity should be construed in favour of the revenue, denying the benefit of exemption to the subject/assessee? There are catena of case laws in this area of interpretation of an exemption notification, which we need to consider herein. The case of Commissioner of Inland Revenue v. James Forrest, [(1890) 15 AC 334 (HL)] - is a case which does not discuss the interpretative test to be applied to exemption clauses in a taxa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the certificate only for a limited period of five years. The reliance by the appellant in the cases of Epsom Shipping (I) (P.) Ltd, Claris Lifesciences Ltd, Banco Products India Ltd, Shrikar Hotels, English Indian Clays Ltd and Rajasthan Co-operative Dairy Federation Ltd are not applicable to the facts of the present case as the exemption provisions relating to deduction u/s. 35AD are to be interpreted strictly in accordance with the decision of Hon'ble Supreme Court. Similarly the reliance placed on case laws by the appellant relating to procedural delays (para-3.35 of the submission dated 16.08.2018 referred to above) are also not going the help to the appellant as in the case of the appellant, the star rating certificate has been granted to the appellant w.e.f. 29.01.2018 and being an exemption provision, the same has to be interpreted strictly to mean that the hotel was granted star certificate w.e.f. 29.01.2018 only and not retrospectively. Similarly the decision cited upon by the appellant relating to doctrine of relation back is not applicable in the cases of exemption provisions as in the case of the appellant. 14. The appellant has further relied upon the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....read with Explanation (ii) thereunder. The decision of Hon'ble Court is as under: - 26. We accordingly hold that issuance of completion certificate, after the cut-off date by the Local Authority but, mentioning the date of completion of project before the cut-off date, does not fulfil the-condition specified in clause (a) of section 80-IB (10) read with Explanation (ii) thereunder. We reject the argument of the assessee that the effect of amended clause (a) of sub-section 10 of Section 80-IB, which has come into force with effect from 1st April, 2005, has retrospective effect or that it is unjust in any manner or incapable of compliance at all. Similarly, the requirement of securing completion certificate issued by the Local Authority before the cut-off date is not directory, in view of the express provision in section 80-IB(10)(a) and the Explanation (ii) thereunder. The completion certificate granted by the Local Authority must bear the date of having been issued before the cut-off date. Thus Hon'ble High Court have clearly held that in case of claim of exemption, if the certificate entitling the assessee to claim the same is issued by prescribed authority after the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficate approving the four-star hotel category issued by the Ministry of Tourism, in respect of The Gateway Hotel, was issued post the passing of the assessment order dated 30/12/2017, on 30/1/2018, w.e.f. 29/1/2018, valid till 28/1/2023; that section 35AD of the Act is an exemption provision, which has to be strictly interpreted; and that since the assessee did not have the requisite classification certification in the year under consideration, the benefit of deduction could not be provided to the assessee, as rightly held by the Assessing Officer. 7. The ld. CIT (A),'in the order under appeal, has placed reliance on Commissioner of Customs (Import) v. Dilip Kumar [2016] 69 taxmann.com 206 (SC) and the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT v. Global Reality [2015] 62 taxmann.com 204/234 Taxman 677/379 ITR 107 (MP). 8. The ld. Counsel for the assessee has placed reliance on CIT v. Ceebros Hotels (P.) Ltd. [2019] 101 taxmann.com 173/261 Taxman 41/[2018] 409 ITR 423 (Madras). This is for the propositiqn that the ld. CIT (A) has erred in holding that since the certificate approving four-star category by the Ministry of Tourism in respect of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal considering the facts of the case is perfectly valid and justified. For the above reasons, we find no grounds to interfere with the order passed by the Tribunal." 11. Therefore, the Hon'ble Madras High Court, in 'Ceebros' (supra), has held that section 35AD(5)(aa) of the Act does not mandate that the date of the certificate should be with effect from a particular date; that therefore, the provision, i.e., section 35AD, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision. 12. No decision contrary to 'Ceebros' (supra), which is directly on the issue and on exactly similar facts as those doing the rounds in the case before us, has been cited before us. 13. The ld. CIT (A) has placed reliance on Dilip Kumar (supra). Dilip Kumar (supra), it is seen, was handed down by the Hon'ble Supreme Court in an entirely different set of facts and circumstances. Therein, what was up for consideration before their Lordships of the Hon'ble Supreme Court was an ambiguity, which got triggered by way of an exemption notification. Their Lordships held (para 28 of their judgment, as quoted verbatim at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ector of Customs 1997 taxmann.com 696 (SC), rendered earlier by the Hon'ble Supreme Court, was held not to have expounded the correct law in this regard and was, accordingly, overruled, on the aforesaid proposition. 16. These, however, are not the facts of the present case. Here, the pure and simple question is as to whether the assessee is entitled to deduction under section 35AD of the Act, when the relevant certificate has been granted in accordance with the Guidelines issued by the Ministry of Tourism, on the assessee, obviously, having fulfilled the requisite conditions for the grant of classification as a four-star hotel, despite the fact that the certificate was issued in the subsequent assessment year and was for a specific period of five years from 29/1/2018 to 28/1/2023, as above. In such facts and circumstances, it cannot be gainsaid that Dilip Kumar (supra) is of no aid to the case of the Department and has wrongly been relied on py the ld. CIT (A). Here, 'Ceebros' (supra) is directly on the issue, when it holds, in no uncertain terms, that section 35AD(5)(aa) nowhere mandates that the date of the certificate should be with effect from a particular date. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the Act and Explanation (ii) thereunder. We have perused the said provision. Explanation (ii) has specifically stated that the date of completion of construction of housing project shall be taken to be the date, on which, the completion certificate in respect of such housing project is issued by the Local Authority. Thus, interpreting the said provision, the Court held that it was directory. " 18. A reading of the above would show that the provisions of section 80-IB are entirely different and do not impinge at all on the deduction claimed under section 35AD of the Act. 'Ceebros' (supra), on the other hand, is an authority directly on the issue, as noted hereinabove, to which, no contra decision has been referred before us. 19. The ld. CIT (A) has also held that it was not simply a procedural matter beyond the control of the assessee that the certificate in question got issued in the subsequent assessment year; that the assessee had, for the first time, made an application to the Ministry of Tourism, requesting grant of four-star category hotel status, on 4/7/2014; that there were discrepancies in the proposal of the assessee and, accordingly, a letter was issued fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fered to tax by the assessee, it is the deduction claimed under section 35AD, which has been disallowed. 21. It is, thus, seen that none of the conditions of the provisions of section 35AD of the Act has been violated at the hands of the assessee. 22. The provisions of this section stand explained in the Memorandum explaining the provisions of Finance Bill, 2010, wherein, it has been noted that "In view of the high employment potential of this sector, it is proposed to provide investment linked incentive to the hotel sector, irrespective of location, under section 35AD of the Income-tax Act. The investment-linked tax incentive allows 100 per cent deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the "specified business" during the previous year in which such expenditure is incurred." Therefore, it is quite evident that it is an incentive provision by way of section 35AD, which was introduced in the statute book. For the sake of convenience, section 35AD is being reproduced, as below: "35AD. (1) An assessee shall be allowed a deduction in respect of t....