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TMI Blog2012 (8) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... ts costs are to be considered for computing the value of substantial expansion. In any case, even if the said items are excluded from the list of substantial expansion in the P&M, there is addition of 52.94% to the value of P&M as on 1.4.2004. Hence, condition of substantial expansion as stipulated in section 80-IC(8)(ix) are fulfilled. Non-filing of Audit report alongwith return of income - Held that:- Various courts have laid down that the provisions of filing the Audit Report alongwith return of income is directory and not mandatory. In present case, assessee had furnished Audit Report in Form No.10CCB during the course of assessment proceedings and had also filed revised computation during the course of assessment proceedings, hence the said claim merits to be allowed to the assessee. Denial on ground of non-fulfillment of condition of eco-friendly - Held that:- Tribunal in another case has held that in the absence of definition of eco-tourism though the hotel is added into Item No.15 of Part-C is to be construed to be hotel situated in the State of Himachal Pradesh or the State of Uttaranchal having valid licence on the basis of No Objection from the Pollution Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel could be considered to be a eco-hotel subject to fulfilment of environment norms. 5. The ld. CIT(A) has erred in holding that an eco-hotel automatically qualifies to be termed as an eco-tourism project, when the meaning of eco-hotel is entirely different from that of eco-tourism. 6. The order of the ld. CIT(A) suffers from gross inconsistencies and perversities, and is hence liable to be set aside. 7. It is prayed that the order of the ld. CIT(A) be set aside and that of the AO restored." The Revenue in ITA No. 152/Chd./2010 has raised the following additional grounds : "1. Ld. CIT(A) has erred in allowing deduction under section 80-IC to the assessee hotel in spite of the provisions of section 80-IC(2)(b) which require that the relevant operations specified in Schedule Fourteen should commence on or after 07.01.2003. 2. Ld. CIT(A) has erred in holding that the assessee hotel is eligible for deduction u/s 80-IC even though a separate deduction for hotels is provided in section 80-IB(7) and a second deduction u/s 80-IC could not be intended for the same activity. 3. Ld. CIT(A) has erred in allowing deduction u/s 80-IC to the assessee hotel inspite of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 80-IC of the Act are based on misconception of the facts and circumstances of the case of the appellant and are factually incorrect and legally unsustainable. ITA No. 3419/D/2009 for Assessment Year 2006-07, wherein identical claim of deduction had been disallowed. The disallowance there in disregard of binding orders is neither justified nor valid. It is therefore, prayed that disallowance of claim of deduction u/s 80-IC of the Act of Rs. 1,28,14,582/- may kindly be deleted and appeal of the appellant be allowed." 3. All the three appeals relating to the same assessee involving identical issue were heard together and are being disposed of by this consolidated order for the sake of convenience. In the appeals relating to assessment years 2006-07 and 2007-08, the Revenue is aggrieved by the order of the CIT (Appeals) in allowing relief to the assessee by way of holding the assessee eligible for deduction under section 80-IC of the Act. The assessee in ITA No.1144/Chd./2011 is aggrieved by the order of CIT (Appeals) in denying deduction under section 80-IC of the Act. 4. The brief facts of the case are that the assessee was engaged in the business of runn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct was not accepted by the Assessing Officer. The Assessing Officer also noted that the assessee had not complied with the statutory requirement of filing the audit report in Form No.10CCB along with return of income which was only filed on 10.7.2007 i.e. after 8 months of filing the return of income on 31.10.2006. Further in the return of income the assessee had not claimed any deduction as per point No.26 of Form No.3CD submitted with the return of income. The Assessing Officer also took note of the fact that Form No.3CB which was filed along with return of income on 31.10.2006 was dated 23.10.2006 and the original Form No.10CCB was also dated 23.10.2006. The non-filing of Form No.10CCB along with the return of income, as per the Assessing Officer raised a doubt and the same may have been obtained after filing the return of income. Another observation made by the Assessing Officer in the alternative was that the assessee had filed revised Audit Report in Form No.10CCB dated 24.11.2008, which was filed on 27.11.2008. The assessee vide its reply dated 20.10.2008 filed before the Assessing Officer in para 4 had stated that the substantial expansion had been undertaken by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act in this regard. The reply of the assessee is reproduced by the Assessing Officer under para 19 at page 11 of the assessment order. The details of addition to plant machinery during the financial year 2004-05 are enlisted at page 12 of the assessment order. The Assessing Officer observed that the furniture and fittings could not be included in the definition of plant. Reference was made to new Appendix-I read with Rule 5 of I.T. Rules wherein different rates of depreciation were provided for furniture and fittings including electric fittings and other fittings like fan etc., and it was observed by the Assessing Officer that the electric fittings were not to be included in the definition of plant. Similarly AC systems were held to be part of electric fittings and could not be said to be plant machinery. The amount spent on purchase of 45 colour TVs and also on Music system were held to be non-plant machinery in any sense. Further the Gym equipments were held to be non plant machinery. Reliance was placed on the ratio laid down by the Hon'ble Kerala High Court in Asiatic Sea Foods v. CIT [1998] 229 ITR 172/[1996] 89 Taxman 79, by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eco-tourism.". 7. The CIT (Appeals) concluded by holding as under: "6.9 in a broad sense eco-tourism means venturing into and enjoying nature to minimize and mitigate negative impacts on the cultural and natural environment. It is eco-logically and culturally sensitive tourism that also helps local communities in realizing the social and economic benefits. The appellant's hotel is adopting following eco-friendly norms:- "A" It is in view of these norms that the appellant got a 'NO OBJECTION CERTIFICATE' regarding ECO HOTEL from the Department of Tourism, H.P. 6.10 Keeping in view the discussion above it is held that the appellant is entitled to deduction u/s 80-IC of the I.T. Act, 1961 on the following grounds:- i. The business carried on by the appellant qualifies under item 15 in Schedule XIV . ii. The appellant qualifies under 'eco-tourism ' project keeping in view the norms adopted by it and NOC from Department of Tourism." 8. With regard to the issue of late furnishing of Audit Report and expansion being found not to be in order, observations of the CIT (Appeals) were that appellant was held eligible for deduction u/s 80-IC(2)( b ) read with Part- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. The contents of the certificate are reproduced under para 4.7 at pages 13 and 14 of the appellate order. The observations of the CIT (Appeals) vide para 4.8 were that the assessee was mixing up concept of eco-friendly with eco-tourism and the assessee was only complying with the eco-friendly norms, such as management of hazardous waste, maintenance of green cover and maintenance of pollution free environment. The CIT (Appeals) held that the assessee had stretched concept to eco-friendly to claim that it means eco-tourism and even after certification as eco-hotel, it would not fall in the category of eco-tourism within the meaning of entry No.15 in Part-C of Schedule-XIV of the Act. The CIT (Appeals) referred to the new industrial policy and incentive packages introduced for certain states including H.P. and the consequent introduction of provisions of section 80-IC of the Act, the excerpts of the Finance Bill 2003, vide which section 80-IC of the Act was inserted and held that the activity of running hotel had been included in Schedule-XIV only when its adjunct to the main activity of eco-tourism. Further reference was made to the provisions of section 80-IB(7) under which ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 80-IC of the Act in view of item No.15 in Part-C of Schedule-XIV of the Act, which talks of eco-tourism. Placing reliance on the written submission dated 10.9.2010, the learned D.R. for the Revenue took us elaborately through the order of the Assessing Officer and pointed out that the assessee is only running hotel which had undertaken substantial expansion, but the same could not be said to have fulfilled the conditions of self appraisal. The learned D.R. for the Revenue fairly admitted that deduction under section 80-IC of the Act was claimed in the return of income, but Audit Report in Form No.10CCB was not filed with the return of income and was filed during the assessment proceedings. It was further pointed out that the assessee had filed the revised Audit Report under which it had claimed deduction under section 80-IC of the Act. Our attention was drawn to the additions made to the fixed assets and it was pointed out that the changes were by way of investment in AC/TV. No such changes were made by the assessee which were for the conservation of the environment. Next plea of the learned D.R. for the Revenue was that changes made by the assessee were not in consensu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04. The explanation of the assessee was that out of the opening book value of Rs. 98,18,269/- as on 1.4.2004, the cost of TV, VCR, Gym equipments and AC System totalling Rs. 14.99 lacs had to be excluded and the balance cost of plant machinery was Rs. 83.19 lacs. The cost of addition as accepted by the Assessing Officer in the plant machinery was Rs. 44.04 lacs which was about 52.94% of the value of plant machinery as on 1.4.2004. The learned A.R. for the assessee pointed out that the list of fixed assets as on 31.3.2004 is placed at page 94 of the Paper Book i.e. the gross value without depreciation and the addition to the plant machinery during the financial year 2005-06 was Rs. 7,39,988/- as per list placed at page 95 of the Paper Book. The learned A.R. for the assessee fairly admitted that the exemption under section 80-IB (7) of the Act was available to the hotel. However, it was pointed out by the learned A.R. for the assessee that the assessee fulfils the conditions under section 80-IC of the Act and hence entitled to the claim of deduction. It was further pointed out by the learned A.R. for the assessee that the Assessing Officer's consideration in this regard was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act against the profits and gains from the business of running the hotel under the name and style of hotel Combermere at The Mall, Shimla. The acknowledgement of filing the return alongwith computation of income are placed at pages 1 to 4 of the Paper Book. The net profit declared from the hotel was Rs. 52,12,304/- and the deduction claimed under section 80-IC of the Act was also Rs. 52,12,304/-. The profits of the business declared by the assessee were supported by Audit Report furnished by the assessee in Form Nos.3CB and 3CD, which are enclosed at pages 5 to 24 of the Paper Book alongwith copy of audited Balance Sheet, Profit Loss Account and the annexure at pages 25 to 35 of the Paper Book. The perusal of the list of fixed assets as on 31.3.2006 reflects no major addition to the fixed assets during the year except to the vehicle account, furniture fixtures and kitchen equipments. The list of the fixed assets as on 31.3.2006 is placed at page 28 of the Paper Book. The claim of the assessee was that it had undertaken substantial expansion after 1.4.2003 to 25.3.2005 and in view of its additions made in the plant machinery account during the said period the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Sikkim; or ( ii ) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or ( iii ) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States; ( b ) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or section 10B, in relation to the profits and gains of the undertaking or enterprise. (6) Notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, exceeds ten assessment years. (7) The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section. (8) For the purposes of this section,- ( i ) "Industrial Area" means such areas, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; ( ii ) "Industrial Estate" means such estates, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; ( iii ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and gains for five assessment years commencing with the initial assessment year and thereafter 25% of its profits and gains for the balance five years. The expression 'substantial expansion for the purpose of section 80-IC is defined under sub-section (8)( ix ) to section 80-IC of the Act. The undertaking or enterprises in order to the eligible for substantial expansion should have increased the investment in the plant and machinery by atleast 50% of the book value of plant and machinery, before taking depreciation in any year as on the first day of the previous year, in which substantial expansion is undertaken. In other words, in order to be eligible for deduction under section 80-IC of the Act, in addition to fulfilling the initial conditions, an undertaking or enterprises must undertake substantial expansion by way of investment in its plant machinery to the extent as provided in sub-section (8)( ix ) to section 80-IC of the Act i.e. an assessee would have entitled to the benefit of deduction under section 80-IC(2)( b ) of the Act in all such cases where undertaking of enterprises is carrying on the business as envisaged therein and also addition has been made to the plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions by way of hotels, resorts, spa, entertainment/amusement parks and ropeways. However, the State of Himachal Pradesh has further laid down broad parameters for the grant of status eco-tourism to an undertaking or enterprises which in turn has to obtain No Objection Certificate under the norms set up by the Himachal Pradesh State Environment Protection Pollution Control Board. Where an undertaking or enterprises fulfils the abovesaid conditions, it is eligible for claim of deduction under section 80-IC(2)( b ) of the Act. 22. Now coming to the facts of the present case, we find that the assessee was running a hotel at The Mall, Shimla. However, starting from 1.4.2003 to 25.3.2005 the assessee claims to have undertaken substantial expansion in its hotel and made total addition of Rs. 61,31,864/- to the plant machinery as against gross cost of plant machinery as on 1.4.2003 of Rs. 90,78,284/-, making its claim of eligibility by way of substantial expansion in view of the provisions of section 80-IC of the Act. The assessee had furnished on record at page 94 of the Paper Book the details of plant machinery, as on 1.4.2003 with gross value of Rs. 90,78,284/- refle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause ( ix ) of sub-section (8) of section 80-IC of the Act. 25. The second aspect of the claim of deduction under section 80-IC of the Act by the assessee was that the hotel being an eco-hotel which falls within the definition enshrined in Item No.15, under Part-C of Fourteenth Schedule of the Act. The assessee claims that the hotel Combermere was an eco-hotel as it was eco-friendly in terms of the norms prescribed by Himachal Pradesh State Environment Protection Pollution Control Board which had issued a certificate to it. In addition the assessee claims to have promoted recycling, energy efficiency, water reuse and creation of economic opportunity for local communities which were in furtherance of the policy framed by the State Government of Himachal Pradesh to promote eco-tourism in the State. The Department of Tourism had issued a certificate dated 30.1.2007 to the assessee, which is placed at page 71 of the Paper Book, which reads as under: "Therefore, on the basis of consent/approval to operate is given to Hotel Combermere for adhering the norms prescribed under the said Acts and the HP State Environment Protection Pollution Control Board Shimla this office has no obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt was less than 50% of opening book value of Rs. 98,18,269/- of plant and machinery in that year. In view thereof, he held that the assessee cannot be said to have undertaken substantial expansion within the meaning as provided in the Act. The explanation of the assessee in this regard was that if the contention of the Assessing Officer is to be accepted it is necessary to work out the gross cost of plant machinery as on 1.4.2004 after excluding these items from the gross cost also. As such gross cost of plant machinery comes to: Values as shown earlier Rs. 98,18,268.31 Less: Cost of TVs VCR Rs. 11,06,011.00 Gym Equipments Rs. 2,11,100.00 AC Systems Rs. 1,82.120.00 Rs. 14.99.231.00 Balance cost of Plant machinery as on 1.4.2004 Rs. 83,19,038.31 Cost of additions accepted by the Assessing Officer (as per assessment order) Rs. 44,04,454.00 - Addition required for substantial expansion 50% of cost as on 1.4.2004 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule of the Act arose before the Delhi Bench of the Tribunal in the case of Bidhi Chand Singhal ( supra ) for assessment year 2006-07. The Assessing Officer in the said case had observed that the hotel eligible for deduction under section 80-IC of the Act should also be a hotel which is environment friendly, relying upon the definition of eco-tourism etc., the Tribunal vide order dated 4.11.2010 and relying upon the provisions of section 80-IC of the Act and Item No.15 of Part-C of Fourteen Schedule held, it can be observed what is eligible for deduction is eco-tourism which include inter-alia hotels. The Tribunal further noted that the hotel was approved by the Government, which approval was to be given only after obtaining No Objection from the Pollution Department. The Tribunal further observed that there was no material on record to show that eco-tourism status has been granted to another hotel and which status assessee does not have. The conclusion of the Tribunal was that in the absence of definition of eco-tourism though the hotel is added into Item No.15 of Part-C is to be construed to be hotel situated in the State of Himachal Pradesh or the State of Uttaranchal havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The abovesaid benefit is by way of special provision, provided under the Act and once the assessee has fulfilled the conditions laid down under the said section, the said deduction is to be allowed to the assessee. The CIT (Appeals) in the appeal relating to assessment year 2008-09 had observed that the assessee was not entitled to the benefit of deduction under section 80-IC of the Act in view of the Certificate issued by the Pollution Control Board which talks of its validity up to 31.3.2004 i.e. even before the date of expansion carried on by the assessee. We find that while coming to the said conclusion the CIT (Appeals) has erred as there are two certificates issued by the Pollution Control Board. The first certificate is dated 3.1.2004 and validity of the said certificate is up to 31.3.2004. The second certificate is dated 9.6.2004 and it is in force for a period up to 31.3.2009. Both the certificates are filed on record. Nothing has been brought on record by the Revenue to establish that the said certificate dated 9.6.2004 has been withdrawn by the Pollution Control Board. In view of the confusion in the observation of the CIT (Appeals), we find no merit in the o ..... 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