2012 (10) TMI 713 - AT - Income Tax

Deduction u/s 80IC - assessee s hotel is not environment friendly as held by AO - sustenance of disallowance by the CIT(A) as the assessee did not commence its operations in the period specified - Held that - As decided in M/s Anchal Hotels (P) Ltd., Versus Assistant Commissioner of Income tax, Circle-2, Dehradun 2012 (10) TMI 639 - ITAT, DELHI in terms of section 80- IC(2)(b), the deduction is admissible if the hotel commences the operation within the period mentioned in the statute. It is also admissible if the hotel commences any operation and undertakes substantial expansion during the period mentioned in the statute. Therefore, in the case of an existing hotel, the deduction will be admissible if the substantial expansion takes place within the prescribed period. Thus assessee would be entitled to deduction under Section 80IC considering the substantial expansion taken place within the prescribed period by assessee - in favour of assessee.

Summary

Issues:
Disallowance of deduction under Section 80IC of the Income-tax Act, 1961 based on hotel's environmental friendliness and commencement of operations for AY 2006-07 & 2007-08.

Analysis:
The appeals were filed against the order of the learned CIT(A)-II, Dehradun for AY 2006-07 & 2007-08, challenging the disallowance of deduction under Section 80IC. The Assessing Officer disallowed the deduction citing that the hotel was not environment friendly. The CIT(A) acknowledged the eco-tourism promotion efforts but upheld the disallowance due to the hotel not being new but having undergone substantial expansion. The main contention revolved around the commencement of operations during the specified period under Section 80IC.

The CIT(A) held that the hotel was not entitled to claim the deduction under Section 80IC as it was an old hotel and did not qualify as a new hotel as per the statutory conditions. The disallowance was based on the hotel not fulfilling the requirements of promoting eco-tourism and having commenced operations before the relevant financial year. The ITAT's decision in a similar case supported the allowance of deduction even on substantial expansion within the prescribed period.

The ITAT Delhi Bench considered the issue and clarified that for an existing hotel, the deduction would be admissible if substantial expansion occurred within the specified period, even if the hotel had commenced operations outside that period. The interpretation emphasized that the deduction is available when substantial expansion takes place during the statutory period, irrespective of the commencement of operations within that timeframe. No contrary decision was presented, leading to the allowance of the deduction under Section 80IC for the assessee based on the substantial expansion within the prescribed period.

In conclusion, the appeals were allowed, directing the Assessing Officer to grant the deduction under Section 80IC to the assessee, as the substantial expansion met the statutory requirements. The decision was pronounced in open court on 12th October 2012.