2018 (3) TMI 1081 - AT - Income Tax

Entitlement to deduction u/s 80IC on account of substantial expansion of the unit - benefit of deduction on account of investment - eligibility criteria - Held that - The special provisions of section 80IC of the Act are enacted for promoting investment activity in certain undertaking or enterprises in the special category of states including state of Himachal Pradesh. The Eco-tourism unit including the hotel has been specifically allowed in the list eligible for deduction as per special provisions which otherwise does not involve installation of plant and machinery. If the original investment made for setting up of such unit is eligible for deduction u/s 80IC of the Act, then certainly the further investment in the same infrastructure for the purpose of expansion cannot be denied, merely because the investment does not involve setting up / installment of plant and machinery. The restrictive meaning given by the lower authorities to deny the deduction u/s 80IC of the Act to the assessee on account of substantial expansion cannot be held to be justified. We, accordingly set aside the order of the lower authorities on this issue and hold that the investment in building, furniture, fixture in the case of a hotel will qualify to be treated as investment in plant and machinery for the purpose of section 80IC and, therefore, hold that the assessee will be entitled to deduction u/s 80IC of the Act on account of substantial expansion of the unit - Decided in favour of assessee

Summary

Issues Involved:
1. Eligibility of the assessee's hotel for deduction under Section 80IC of the Income-tax Act, 1961.
2. Definition and scope of "substantial expansion" under Section 80IC.
3. Reopening of assessment under Section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Eligibility of the Assessee's Hotel for Deduction under Section 80IC:
The primary issue was whether the assessee's hotel qualified as an "Eco-tourism" project under Schedule XIV, Part C of the Income-tax Act, 1961, making it eligible for deductions under Section 80IC. The CIT(A) had ruled in favor of the assessee, holding that the hotel qualified as an Eco-tourism project. The Revenue did not appeal this finding, and thus, the Tribunal did not address this issue further. The Tribunal acknowledged that the hotel was considered an Eco-tourism project based on the CIT(A)'s unchallenged decision.

2. Definition and Scope of "Substantial Expansion" under Section 80IC:
The core dispute was whether the investment in building, furniture, and fixtures constituted "substantial expansion" under Section 80IC. The Assessing Officer had denied the deduction, arguing that only investments in plant and machinery qualified as substantial expansion, excluding buildings, furniture, and fittings. This interpretation was supported by the Supreme Court's decisions in 'CIT Vs. Anand Theatres' and 'CIT Vs. Abad Hotels India Pvt Ltd,' which held that buildings could not be considered as plant for depreciation purposes.

However, the Tribunal disagreed, emphasizing that the special provisions of Section 80IC aimed to promote investment in specific states, including Himachal Pradesh. The Tribunal held that for a hotel, which primarily involves investment in buildings and fixtures rather than plant and machinery, such investments should qualify as substantial expansion. The Tribunal supported this view by referencing the Supreme Court's decision in 'CIT Vs. Karnataka Power Corporation,' which recognized that buildings designed to meet specific technical requirements could be considered as plant for investment purposes. Therefore, the Tribunal concluded that the investment in the hotel's building, furniture, and fixtures constituted substantial expansion, making the assessee eligible for the deduction under Section 80IC.

3. Reopening of Assessment under Section 147:
In ITA No. 375/Chd/2017, the assessee also challenged the reopening of the assessment under Section 147. However, the Tribunal noted that no arguments were presented on this issue, and it was not pressed by the assessee's counsel. Consequently, this ground was dismissed as not pressed. The appeal was partly allowed, with the assessee succeeding on the issue of eligibility for deduction due to substantial expansion.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that the investment in building, furniture, and fixtures for the hotel constituted substantial expansion under Section 80IC. This interpretation aligned with the special provisions aimed at promoting investment in specific states. The Tribunal set aside the lower authorities' restrictive interpretation and allowed the deduction. The issue of reopening the assessment under Section 147 was dismissed as not pressed. The decisions were pronounced in the open court on 19.03.2018.