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2020 (3) TMI 934 - AT - Income TaxDeduction u/s 35AD disallowed - relevant certificate has been granted in accordance with the Guidelines issued by the Ministry of Tourism, on the assessee, obviously, having fulfilled the requisite conditions for the grant of classification as a four-star hotel, despite the fact that the certificate was issued in the subsequent assessment year and was for a specific period of five years from 29/1/2018 to 28/1/2023, as above - classification for three-star category having been obtained by that assessee only during the subsequent assessment year, i.e., assessment year 2012-13, the year under consideration being assessment year 2011-12 - HELD THAT - Hon'ble Madras High Court, in 'Ceebros' 2018 (12) TMI 333 - MADRAS HIGH COURT has held that section 35AD(5)(aa) of the Act does not mandate that the date of the certificate should be with effect from a particular date; that therefore, the provision, i.e., section 35AD, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision. No decision contrary to 'Ceebros' (supra), which is directly on the issue and on exactly similar facts as those doing the rounds in the case before us, has been cited before us. The specified business has also not been disputed to be that of building and operating a new hotel of a two-star or above category, in keeping with the provisions of section 35AD(5)(aa) which was the provision under consideration in 'Ceebros' (supra) too . Then, the incurrence of expenditure for the construction of The Gateway Hotel by the assessee has also not been disputed as having been done prior io the commencement of the operations of the business. Further, neither of the authorities below has made out that the amount was not capitalized in the books of account of the assessee. Rather, the taxing authorities have accepted the income offered to tax by the assessee, it is the deduction claimed under section 35AD, which has been disallowed. It is, thus, seen that none of the conditions of the provisions of section 35AD of the Act has been violated at the hands of the assessee. The provisions of this section stand explained in the Memorandum explaining the provisions of Finance Bill, 2010, wherein, it has been noted that In view of the high employment potential of this sector, it is proposed to provide investment linked incentive to the hotel sector, irrespective of location, under section 35AD - The investment-linked tax incentive allows 100 per cent deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the specified business during the previous year in which such expenditure is incurred. Therefore, it is quite evident that it is an incentive provision by way of section 35AD, which was introduced in the statute book. (i) The ld. CIT (A) has erred in confirming the assessment order in refusing to allow the deduction claimed under section 35AD of the Act. (ii) The certificate of classification issued in favour of the assessee has not been doubted. (iii) The date of issuance of this certificate/the period for which the classification has been granted, is irrelevant for the grant of deduction under section 35AD of the Act. (iv) 'Ceebros' (supra) is categorical in this regard. (v) No decision contrary to 'Ceebros' (supra) has been cited before us. (vi) The ld. CIT (A) did not have the benefit of 'Ceebros' (supra) while passing the order under consideration, 'Ceebros' (supra) having been rendered post-the passing of the ld. CIT (A)'s order. (vii) The facts with regard to the certificate having been granted in the year subsequent to the year under consideration, are not of any detriment to the assessee, in keeping with 'Ceebros' (supra). (viii) Even if, arguendo, these facts were to be accepted, they do not detract from the settled position as per 'Ceebros' (supra) , that once the conditions of section 35AD are fulfilled, the section, per se, not requiring any specific date of operation, the deduction thereunder cannot be disallowed. Finding the grievance of the assessee by way of Ground No.1, to be justified, we accept the same. The disallowance of deduction claimed under section 35AD of the Act, as upheld by the ld. CIT (A), is, therefore, deleted.
Issues Involved:
1. Deduction under Section 35AD of the Income-tax Act, 1961. 2. Interest under Section 234A of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deduction under Section 35AD of the Income-tax Act, 1961: The primary issue in this case was whether the assessee was entitled to a deduction under Section 35AD of the Income-tax Act, 1961, for the capital expenditure incurred on a new hotel at Gondia, Maharashtra. The assessee claimed a deduction of ?18,57,34,050, but the Assessing Officer disallowed ?14,14,71,288 of this amount, arguing that the hotel did not meet the mandatory condition of being classified as a two-star or above category hotel by the Central Government during the relevant assessment year. The Assessing Officer noted that the audit report submitted by the assessee was unsigned and unstamped, and the assessee had not provided separate financial statements for the Varanasi and Gondia units. Furthermore, the classification certificate from the Ministry of Tourism, which would confirm the hotel as a four-star category, was not issued until January 30, 2018, effective from January 29, 2018. As such, the Assessing Officer concluded that the hotel did not meet the specified category requirement during the assessment year in question. The Commissioner of Income-tax (Appeals) [CIT (A)] upheld the Assessing Officer's decision, emphasizing that the exemption provisions under Section 35AD should be interpreted strictly. The CIT (A) referenced the Supreme Court's decision in Commissioner of Customs (Import) v. Dilip Kumar and Company, which held that exemption notifications should be interpreted strictly and any ambiguity should favor the revenue. However, the assessee argued that the classification as a four-star hotel was a procedural matter beyond their control and that the hotel met all the necessary requirements. The assessee cited the case of CIT v. Ceebros Hotels (P.) Ltd., where the Madras High Court held that Section 35AD does not mandate the date of the certificate to be from a particular date and should be read as a beneficial provision. The Appellate Tribunal (ITAT) considered the arguments and found that the CIT (A) had erred in not granting the deduction. The Tribunal noted that the classification certificate's date was irrelevant for the deduction under Section 35AD, as long as the hotel met the criteria. The Tribunal also observed that the conditions of Section 35AD were fulfilled and that the deduction should not be disallowed based on the timing of the certificate issuance. 2. Interest under Section 234A of the Income-tax Act, 1961: The second issue was the imposition of interest under Section 234A of the Income-tax Act, 1961, for the alleged late filing of the return of income by the assessee. The assessee contended that the return was filed within the due date prescribed under the Act, and therefore, the interest of ?54,336 should not have been levied. The Tribunal did not provide a detailed analysis of this issue in the judgment, as it was consequential to the primary issue of the deduction under Section 35AD. Since the Tribunal allowed the appeal in favor of the assessee on the primary issue, the interest under Section 234A would also be consequentially addressed. Conclusion: The Tribunal allowed the appeal, granting the deduction under Section 35AD of the Income-tax Act, 1961, and consequently addressing the issue of interest under Section 234A. The Tribunal emphasized that the classification certificate's date was irrelevant for the deduction, and the conditions of Section 35AD were fulfilled by the assessee. The decision of the CIT (A) was overturned, and the disallowance of the deduction was deleted.
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