2016 (1) TMI 368 - AT - Income Tax

Rejection of deduction u/s. 80IC(2) - failure to obtain NOC from the Pollution Control Board - Whether the Ld. CIT(A) has erred in law and on facts in allowing the claim as not to appreciate the fact that ecotourism is the condition precedent, to be complied with for hotels for claiming deduction u/s. 80IC? - Held that - No interference is called for in the well reasoned order passed by the Ld. CIT(A), because the Ld. CIT(A) has decided the issue in dispute in favor of the assessee by holding after appreciating the evidence filed by the assessee as well as various decisions rendered by the Hon ble Supreme Court, Hon ble High Court and the decisions of the ITAT. We further find considerable cogency in the assessee s counsel submissions that the present issue involved in the Revenue s Appeals is squarely covered by the ITAT decision in the case of Bidhi Chand Singhal 2010 (11) TMI 957 - ITAT DELHI for AY 2006-07 and in Anchal Hotels (P) Ltd. vs. ACIT 2012 (10) TMI 639 - ITAT, DELHI for AY 2005-06 to 2006-07 . Moreover, it is a settled law that, a deduction once granted cannot be re-examined in the succeeding assessment years. However, in the assessee s own case the claim of deduction by the assessee had been examined in the AY 2006-07 and accepted by the Revenue, therefore, it was incumbent upon the Revenue to allow such claim in the succeeding assessment years. - Decided in favour of assessee Subsidy received from the Government under the Central Capital Investment Subsidy Scheme 2003 - revenue receipt v/s capital receipt - Held that - We are in agreement with the contention of the Ld. Counsel that the issue is squarely covered by the High Court of J&K in the case of Shri Balaji Alloys vs. CIT reported in 2011 (1) TMI 394 - Jammu and Kashmir High Court wherein it was held that the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence, revenue Receipt, cannot be sustained, being against the law laid down by Hon ble Supreme Court of India in Sahney Steel & Press Works Ltd. s case reported in 1997 (9) TMI 3 - SUPREME Court and CIT vs. Ponni Sugars & Chemicals Ltd. reported in 2008 (9) TMI 14 - SUPREME COURT . The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the Assessee. - Decided in favour of assessee. Disallowance of deduction u/s 80IC of the Act in respect of profits derived from sale in the restaurant to non-resident customers - Held that - we find that the profits derive from sale in the restaurant to non-resident customers are derived from the undertaking and as such profit is eligible for deduction u/s. 80IC of the Act. Our view is supported by the following judgments - Liberty India and Ors. Vs. CIT 2009 (8) TMI 63 - SUPREME COURT and CIT vs. Dharampal Prem Chand Ltd. 2008 (11) TMI 231 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act, 1961.
2. Nature of subsidy received under the Central Capital Investment Subsidy Scheme, 2003.
3. Directions to initiate proceedings under Sections 147, 150(1), and 153(3) of the Income Tax Act.
4. Deduction under Section 80IC for profits derived from sales to non-resident customers.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IC of the Income Tax Act, 1961:
The primary issue was whether the assessee's hotel qualified for a deduction under Section 80IC, which applies to eco-tourism including hotels, resorts, spas, etc. The Assessing Officer (AO) denied the deduction on the grounds that the hotel did not have a No Objection Certificate (NOC) from the Pollution Control Board, arguing that eco-tourism status was a prerequisite. The CIT(A) allowed the deduction, emphasizing that the term 'eco-tourism' is not defined in the Act, and that the hotel had a valid license and no NOC had been denied. The Tribunal upheld the CIT(A)'s decision, citing the principle of consistency since the deduction had been allowed in previous years and referencing relevant case law, including the ITAT decision in Bidhi Chand Singhal vs. ITO.

2. Nature of Subsidy Received under the Central Capital Investment Subsidy Scheme, 2003:
The assessee received a subsidy of Rs. 29,23,251 under the Central Capital Investment Subsidy Scheme, 2003, which the AO treated as a revenue receipt. The CIT(A) upheld this view, stating that the subsidy was received after the commencement of production and was not tied to acquiring new plant and machinery. The Tribunal reversed this decision, citing the Jammu & Kashmir High Court's ruling in Shree Balaji Alloys vs. CIT, which classified similar subsidies as capital receipts. The Tribunal thus held the subsidy to be a capital receipt, not taxable as revenue.

3. Directions to Initiate Proceedings under Sections 147, 150(1), and 153(3) of the Income Tax Act:
The CIT(A) directed the AO to initiate proceedings under Sections 147, 150(1), and 153(3) for the year in which the subsidy was received. The Tribunal found this direction to be without jurisdiction and unsustainable in law, particularly since the subsidy was deemed a capital receipt. Consequently, the Tribunal cancelled these directions.

4. Deduction under Section 80IC for Profits Derived from Sales to Non-Resident Customers:
The AO disallowed the deduction under Section 80IC for profits derived from sales in the restaurant to non-resident customers. The CIT(A) upheld this disallowance. The Tribunal, however, found that profits derived from the restaurant's sales to non-resident customers were eligible for deduction under Section 80IC, as they were derived from the undertaking. This view was supported by the Supreme Court decisions in Liberty India and Ors. vs. CIT and CIT vs. Dharampal Prem Chand Ltd.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeal, affirming the CIT(A)'s decision on the deduction under Section 80IC and the classification of the subsidy as a capital receipt. The Tribunal also ruled in favor of the assessee regarding the initiation of proceedings and the eligibility of profits from sales to non-resident customers for deduction under Section 80IC.