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2018 (7) TMI 1079 - AT - Income TaxDisallowance of deduction u/s.35AD - Deduction in respect of expenditure on specified business - Held that - Any capital expenditure incurred by the assessee prior to the commencement of operations of the new unit shall be allowed as deduction in the previous year in which the assessee commences the operation of offices as new specified business if the assessee has capitalized the amount of expenditure in its books of accounts on the date of commencement of operation of the specified business which is present in the case in hand. The assessee commenced its business on 17.11.2011 and he applied for the star classification certificate on 07.06.2013 which was granted by the concerned department on 24.09.2013 with effect from 11.09.2013 till 10.09.2018. Application was made by the assessee in due time, inspection was conducted by the concerned department and ultimately certificate was issued. There is no fault on the part of the assessee to apply and/or obtain the said certificate so far delay is concerned nor there any time limit specified for obtaining such certificate in this Statute. The assessee thus fulfills the criterion prescribed under the Statute and is entitled to deduction on capital expenditure incurred by him prior to the commencement of its operation and therefore we find no infirmity in the order passed by the CIT(A) and thus we uphold the same. Revenue s appeal on this ground stands dismissed. Addition/disallowance made by the AO is hereby deleted. - Decided against revenue
Issues Involved:
1. Whether the assessee is entitled to deduction under Section 35AD of the Income Tax Act, 1961 for the Assessment Year 2012-13 despite obtaining the three-star classification certificate after the relevant assessment year. Detailed Analysis: Issue 1: Entitlement to Deduction under Section 35AD Facts: - The assessee-firm is engaged in the hotel business and commenced operations on 17.11.2011. - For the Assessment Year (AY) 2012-13, the assessee claimed a deduction under Section 35AD of the Income Tax Act, 1961. - The assessee applied for a three-star hotel classification with the Ministry of Tourism on 07.06.2013 and was awarded the classification on 24.09.2013, valid from 11.09.2013 to 10.09.2018. Assessing Officer's (AO) Decision: - The AO disallowed the deduction on the basis that the star classification certificate was issued beyond AY 2012-13. Commissioner of Income Tax (Appeals) [CIT(A)] Decision: - The CIT(A) allowed the deduction, noting that the assessee fulfilled the conditions under Section 35AD, which includes expenditure incurred prior to the commencement of operations and capitalization in the books of accounts. Appellate Tribunal's Analysis: - The Tribunal examined Section 35AD, which allows a deduction for capital expenditure incurred wholly and exclusively for specified businesses, including hotels of two-star or above category as classified by the Central Government. - The Tribunal noted that there is no time limit prescribed in the statute for obtaining the star classification certificate. - It was observed that the assessee applied for the classification in due time and the delay in obtaining the certificate was not attributable to the assessee. - The Tribunal emphasized that the assessee had designed the hotel to meet the three-star specifications from the commencement of its operations. Conclusion: - The Tribunal upheld the CIT(A)'s decision, affirming that the assessee is entitled to the deduction under Section 35AD for AY 2012-13. - The Tribunal dismissed the Revenue's appeal and deleted the addition/disallowance made by the AO. Judgment: - The Revenue's appeal is dismissed, and the assessee's entitlement to the deduction under Section 35AD is confirmed. Order Pronounced: - This order was pronounced in Open Court on 06/06/2018.
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