2012 (8) TMI 301 - AT - Income Tax

Deduction u/s 80IC - assessee engaged in the business of running hotel in the name and style of Hotel Combermere in Shimla in the State of Himachal Pradesh - assessee contended to have incurred substantial expansion and is eco friendly - denial of deduction on ground that running a multi-storeyed commercial hotel in the midst of a city cannot be said to be an eco-tourism project - certificate issued by Department of Tourism only mentioned that Hotel could be considered as a eco-hotel but has not confirmed the same - non-filing of audit report in Form No. No.10CCB - exclusion of certain items from list of substantial expansion and word hotel included in Schedule-XIV was necessarily to be read with word eco-tourism Held that - From facts on record it is observed that there is approx 63.5% addition to the book value of P&M and we are not in conformity with the observation of the AO in excluding the items of AC, Colour TV, Music Systems and Gym equipments out of the list of plant & machinery as each of the abovesaid items are in the nature of P&M and its costs are to be considered for computing the value of substantial expansion. In any case, even if the said items are excluded from the list of substantial expansion in the P&M, there is addition of 52.94% to the value of P&M as on 1.4.2004. Hence, condition of substantial expansion as stipulated in section 80-IC(8)(ix) are fulfilled. Non-filing of Audit report alongwith return of income - Held that - Various courts have laid down that the provisions of filing the Audit Report alongwith return of income is directory and not mandatory. In present case, 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, hence the said claim merits to be allowed to the assessee. Denial on ground of non-fulfillment of condition of eco-friendly - Held that - Tribunal in another case has held that in the absence of definition of eco-tourism though the hotel is added into Item No.15 of Part-C is to be construed to be hotel situated in the State of Himachal Pradesh or the State of Uttaranchal having valid licence on the basis of No Objection from the Pollution Department which can be treated to be hotel eligible for deduction u/s 80IC. Since assessee has received Certificate from the Ministry of Tourism and has also a No Objection Certificate issued by the Pollution Control Board, which has not been withdrawn. In view thereof, the assessee is entitled to the benefit of deduction under section 80-IC.

Issues Involved:
1. Eligibility for deduction under section 80-IC of the Income-tax Act, 1961.
2. Classification of the hotel as an eco-tourism project.
3. Compliance with statutory requirements for claiming deductions.
4. Substantial expansion and its compliance under section 80-IC.
5. Filing of the Audit Report in Form No. 10CCB with the return of income.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-IC:
The core issue was whether the profit derived from the hotel run by the assessee qualifies for deduction under section 80-IC of the Income-tax Act, 1961. The tribunal noted that the assessee had claimed such deductions for the first time in the assessment year 2006-07. The CIT (Appeals) had upheld the eligibility of the hotel for the deduction under section 80-IC, considering it as part of an eco-tourism project.

2. Classification of the Hotel as an Eco-Tourism Project:
The Revenue argued that the CIT (Appeals) erred in classifying the hotel as an eco-tourism project based on eco-friendly norms and a no-objection certificate from the State Government. The CIT (Appeals) had concluded that eco-tourism, as defined in Schedule XIV of the Act, includes hotels. The tribunal upheld this view, stating that the hotel qualifies as part of an eco-tourism project due to its adherence to eco-friendly norms and the certification from the Department of Tourism.

3. Compliance with Statutory Requirements for Claiming Deductions:
The Assessing Officer noted that the assessee had not filed the Audit Report in Form No. 10CCB along with the return of income, which was filed later during the assessment proceedings. The tribunal referenced various court decisions indicating that the filing of the Audit Report is directory and not mandatory. Consequently, the tribunal found that the late submission of the Audit Report did not disqualify the assessee from claiming the deduction.

4. Substantial Expansion and Its Compliance under Section 80-IC:
The tribunal examined whether the assessee had undertaken substantial expansion as required under section 80-IC. The assessee had made significant additions to its plant and machinery, which exceeded 50% of the book value of plant and machinery as on the first day of the previous year in which the expansion was undertaken. The tribunal found that the assessee had indeed complied with the substantial expansion requirement, thus qualifying for the deduction.

5. Filing of the Audit Report in Form No. 10CCB with the Return of Income:
The tribunal noted that the Audit Report in Form No. 10CCB was filed during the assessment proceedings, although it was not attached to the original return of income. Citing precedents, the tribunal held that the filing of the Audit Report is directory and not mandatory, and the assessee's claim for deduction should not be disallowed on this ground.

Conclusion:
The tribunal concluded that the assessee's hotel qualifies for the deduction under section 80-IC of the Income-tax Act, 1961, as it meets the criteria of an eco-tourism project and has undertaken substantial expansion. The late submission of the Audit Report does not disqualify the claim. Consequently, the tribunal directed the Assessing Officer to allow the deduction for the assessment years 2006-07, 2007-08, and 2008-09. The appeals of the Revenue were dismissed, and the appeal of the assessee was allowed.

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