TaxTMI 
TaxTMI 
2020 (3) TMI 934
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.... filing of Return of Income by the Appellant Company without 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 t....
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.... to encourage the setting up of the specified business project there is a provision 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:- ....
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....ondia, Maharahtra and such expenditure have been capitalized in the books of account of the Company. This fact has been fully demonstrated. Section 35AD was inserted 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....
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....eration. (v) As per reply dated 28.12.2017, the Inspection Committee is scheduled to revisit the premises. This fact itself proves that till today, it has not peen given the specified category and before 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....
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.... or above category as classified by the Central Govt is mandatory. The details filed during course of appellate proceedings indicate that the appellant has for the first time made an application to Ministry of Tourism requesting for grant of four-star category hotel status on 04.07.2014 (Page-15 of the written submission 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 To....
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.... and the issue to be decided in this appellate proceeding is whether such an exemption provision should be interpreted strictly or liberally. The undisputed fact is star rating certificate was not available to the appellant till the close of F.Y. 2014-15 and if the exemption provision are to be interpreted strictly, the benefit of the 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 exempt....
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....placed on various judicial pronouncements by the appellant needs to be considered in the light of Hon'ble Supreme decision as discussed above. The reliance placed on the case of River View Hotel (supra) by the appellant cannot help it in the light of the above decision since in the case of present appellant the certificate granting four-star category has been issued w.e.f 29.01.2018 and 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 bei....
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....on 27.02.2008 i.e. before the cut-off date and as per the assessee, it was entitled for deduction u/s. 80-IB(10)(a). The Hon 'ble High Court have in para-26 of the order held 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) section 80-IB (10) 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....
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....e Assessing Officer has held that The Gateway Hotel, Gondia, qua which, the deduction was claimed, was not of the specified category; that though the assessee had started operating The Gateway Hotel, there was no formal media launch; and that the Government had not issued any classification certificate certifying the Hotel as a four-star hotel. The ld. CIT (A), concurring with the assessment order, has held to the effect that the certificate 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....
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.... operating new hotel of two-star or above category as classified by the Central Government. We find nowhere in Clause (aa) to sub-section (5) of section 35AD of the Act mandating that the date of certificate should be with effect from a particular date. Therefore, the provision, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision and therefore, the interpretation given by the Tribunal 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 cit....
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.... Then, obviously, the Revenue would have had a case. Minus that, it is not so. 15. Therefore, evidently, Dilip Kumar (supra) was concerned with an exemption notification and it was the interpretation thereof which their Lordships held was to be done strictly, and that when there is an ambiguity in an exemption notification, which is subject to such strict interpretation, the benefit of such ambiguity must go in favour of the Revenue rather than that of the assessee. Sun Export v. Collector 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 subsequen....
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....xamined as to whether the issuance of completion certificate after the cut-off date by the Local Authority, but mentioning the date of completion of the project before the cut-off date did not fulfill the condition specified in clause (a) of section 80-IB(10) of the Act read with Explanation (ii) thereunder. Taking note of the facts of the case, the Court held that securing of the completion certificate before the cut-off date is not directory in view of the express provision in section 80-IB(10)(a) 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 wh....
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....ns of section 35AD(5)(aa) of the Act [which was the provision under consideration in 'Ceebros' (supra) too]. Then, the incurrence of expenditure for the construction of The Gateway Hotel by the assessee has also not been disputed as having been done prior io the commencement of the operations of the business. Further, neither of the authorities below has made out that the amount was not capitalized in the books of account of the assessee. Rather, the taxing authorities have accepted the income offered 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 wh....