Income Tax Appellate Tribunal - Chandigarh
Sirmour Hotels (P) Ltd., Sirmour vs Assessee on 30 August, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A' CHANDIGARH
BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT
AND SHRI T.R.SOOD, ACCOUNTANT MEMBER
ITA No. 604/Chd/2012
Assessment Year: 2007-08
M/s Sirmour Hotels (P) Ltd., Vs The DCIT, Circle,
Sirmour Parwanoo
PAN No. AACCS5530J
(Appellant) (Respondent)
Appellant By : Shri M.L. Jhamba
Respondent By : Smt. Jyoti Kumari
Date of hearing : 30.08.2012
Date of Pronouncement : 24.09.2012
ORDER
PER T.R.SOOD, AM
This appeal filed by the assessee is directed against the order of CIT, Shimla relating to as sessment year 2007-08.
2. In this appeal the assessee has raised the f ollowing grounds:-
1. That the order passed u/s 263 by the Ld. CIT is illegal.
2. That the Ld. CIT is not justified in setting aside the order u/s 263.
3. That any other ground of appeal which may be advanced at the time of hearing of appeal.2
3. The brief facts of the case are that upon examination of the assessment record, Ld. Commissioner was of the view that claim for deduction u/s 80IC of the Act was not allowable. He was also of the view that no proper enquiries have been conducted, therefore, a show cause notice u/s 263 was issue. Through the show cause notice, following two reasons were given for the proposed action u/s 263 of the Act.
There was no substantial expansion of the business within the meaning of sub-clause (ix) of sub-section 8 of section 80IC of the Act because the increase in value in plant and machinery during previous year 2005-06 was less than 50% of the book value of such assets as on 1.4.2005.
The entry No.15 of the scheduled XIV of the Income Tax Act makes activity of Eco-tourism to be eligible for deduction u/s 80IC of the Act. The assessee runs a hotel in a city. This hotel is not a part of any Eco-tourism project. Since the assessee was neither manufacturing nor producing any article or thing and since it was not covered in the entry No.15 of the schedule XIV of the Income Tax Act, it was not eligible for deduction u/s 80IC of the Act.
In response to show cause notice, it was mainly submitted that a revisionary order u/s 263 of the Act can be passed only if the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. It was submitted that assessment order was neither erroneous nor prejudicial because the Assessing Officer was correct in holding that assessee has carried out substantial expansion within the meaning of sub-clause (ix) of sub-section 8 of section 80IC of the Act and the activity of running a hotel is covered in the inclusive definition of Eco-tourism given in entry No. 15 of 3 schedule XIV of the Income Tax Act. The assessee also relied on the decision of the Hon'ble Himachal Pradesh High Court in the case of CIT Vs Shivalik Hatchery Ltd [2010] 329 ITR 432 (HP) in which it was held that in specific cases, building can be construed as a plant. The assessee also relied upon the decision of the Delhi Bench of the Tribunal in the case of Bidhi Chandi Singhal, Hotel Tourist Empire, Rudrapur Vs ITO Rudrapur in ITA No. 3419/Del/2009 dated 4.11.2010.
4. The Ld. Commissioner after examining the submissions was not satisfied. He observed that in the case of Gee Vee Enterprises Vs Addl CIT (1975) 99 ITR 375 (Del) it has been held that the word "erroneous' includes cases where the Ass essing Officer has remained passive and he has failed to ascertain true facts by making necessary enquiry. The same principle has been reiterated in number of judicial pronouncements. A clear enunciation of this principle is also available in following recent judgments: Duggal and Co Vs CIT (1996) 220 ITR 456(Del); CIT, Mumbai v Hindustan Lever Ltd. 2012-TIOL-171-HC-Mum; CIT v DLF Power Ltd 2011-TIOL-850-HC- DEL and CIT Vs Regency Park Property Management Services Pvt Ltd 2012- TIOL-75-HC-DE L. He also observed that "prejudicial to the interest of Revenue" is a term of wide import and if Assessing Officer fails to apply his mind to the case in the right perspective, there is prejudice to the interest of Revenue. Though, it is correct in view of the decision of Malabar Industrial Corporation Ltd v CIT (2000) 243 ITR 83 (SC) that if the Assessing Officer takes one of the possible view then assessment order cannot called erroneous but such view should be permissible view. In the instant case, the Assessing Officer has 4 failed to verify the claim regarding deduction u/s 80IC of the Act and has further failed to verify how the assessee's activity falls within the entry No.15 of schedule XIV of Income Tax Act, 1961. Therefore, order of Assessing Officer was erroneous and prejudicial to the interest of Revenue. The Assessing Officer further failed to inquire into the nature of additions to plant and machinery and whether such additions made by the assessee satisfy the condition of substantial expansion within the meaning of sub-clause (ix) of sub section (8) of section 80IC of the Act. The Assessing Officer did not question whether the addition to the building constitutes an addition to plant and machinery of the assessee. "Plant" is defined in sub-section 3 of section 43 of the Act. By Finance Act, 2003 and w.e.f. 1.4.2004, buildings furniture and fixtures have been specifically excluded from definition of "plant. Even prior to this change in definition, whole of building could not be considered plant and machinery and in this regard he relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs Taj Mahal Hotel (1971) 82 ITR 44 (SC) and CIT Vs Anand Theatres (2000) 244 ITR 192 (SC). He observed that decision in the case of Shivalik Hatchery Ltd (supra) is clearly distinguishable because in that case the Court was concerned with the question whether poultry shed designed specifically to protect birds from diseases and to facilitate proper arrangement for collection of manure and droppings can be considered as plant. In this background, the Ld. Commissioner held that order passed by Assessing Officer was erroneous and prejudicial to the interest of Revenue and he set aside the same and directed the Assessing Officer to pass fresh order after making necessary enquiries whether the claim of the assessee u/s 80IC of the Act was admissible or not. 5
5. Before us, Ld. Counsel for the assessee submitted that the Assessing Officer has made proper enquires and in this regard he referred to pages 3 to 5 of the questionnaire issued by the Assessing Officer and the reply given by the assessee vide pages 6 & 7. These queries and replies clearly shows that Assessing Officer has conducted proper enquires. Simply because enquiry which has been satisfactorily answered but does not reflect in the assessment order would not make an assessment order erroneous and prejudicial to the interest of Revenue. In this regard, he relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs Ashish Rajpal (2010) 320 ITR 674(Delhi) and particularly referred to the observation of the Court at page 687, which reads as under:-
"The fact that a query was raised dur ing the course of scrutiny which was satisfactorily answered by the assessee but he did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. The fact that ther e was an enquiry can also be demonstrated with the help of the material available on record with the Assessing Officer."
6. He referred to another decision of Hon'ble Delhi High Court in the case of CIT Vs Sun Beam Auto Company Ltd [2011] 332 ITR 167 (Delhi) making the similar observation. He vehemently argued that in any case, the issue is covered in favour of the assessee on merits by the order of the Chandigarh Bench of the Tribunal in the case of CIT Vs Raghunath Singh Thakur, Shimla in ITA Nos. 152 & 469/Chd/2010 order dated 22.6.2012 (copy of the order is filed). He also contended that hotel building should be construed as part of the plant and in this regard he relied upon the decision of Hon'ble Himachal 6 Pradesh High Court in the case of CIT Vs S Shivalik Hatcheries P. Ltd (supra).
7. On the other hand, Ld. DR submitted that mere perusal of the assessment order would clearly s how that no enquiry has been made by the Assessing Officer. The assessment order would be erroneous and prejudicial to the interest of Revenue even when no enquiry has been made by the Assessing Officer and in this regard she relied upon the decision of the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi v CIT [1968] 67 ITR 84 and in the case of Tara Devi Aggarwal v CIT [1973] 88 ITR 323 (SC). She also relied upon the decision of Hon'ble Delhi High Court which has been cited by Ld. Commissioner in the case of Gee Vee Enterprises Vs CIT ((supra).
8. We have considered the rival submissions carefully in the light of materials available on record as well as decisions cited by the parties. The Hon'ble Delhi High Court has discussed the importance of inquiry in the case of Gee Vee Enterprises (s upra) and has relied upon the decision of the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi Vs CIT (supra). Ultimately, Hon'ble Court while giving the reasons for conducting proper enquiries and in case of failure of such enquires, why the order was erroneous and prejudicial to the interest of Revenue observed at page 386 as under:-
"The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the 7 absence of any rebuttal. The civil court is neutr al. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the tr uth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word " erroneous " in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
9. From the above, it is clear that Assessing Officer is not only and adjudicator of a dispute between Revenue and the Assessee but he also has to play a role of inves tigator on behalf of the Revenue. It is also true that sometimes he may make enquires and he may be satisfied with the replies of the assessee and s uch satisfaction may not be reflected in the assessment order as observed by the Hon'ble Delhi High Court in the case of CIT Vs Ashish Raj Pal (supra) and CIT Vs Sunbeam Auto Ltd [2011] 332 ITR 167 (Delhi). The relevant observation in the case of CIT Vs Ashish Raj Pal contained in para 18 which was heavily relied upon by the Ld. counsel for the assessee is as under:-
"The fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment orde , would not by itself lead to a conclusion that there was no enquiry with 8 respect to transactions carried out by the assessee. The fact that there was an enquiry can als o be demonstrated with the help of the material available on record with the Assessing Officer."
10. The observations in the case of CIT Vs Sunbeam Auto Ltd (supra) which was relied on by the Ld. counsel are as under:-
"The Asses sing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act, 1961, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open."
11. Now, let us examine the enquiry made in the case before us in the light of above legal position and observations by various High Courts. Before examining the position, we would like to reproduce the assessment order and the enquiries raised by the Assess ing Off icer and reply given to them because they are very short and would make the understanding better. The assessment order reads as under:-
"Return declaring nil income was e-filed, which was processed u/s 143(1) of the I.T. Act. Subsequently, the case was selected for scrutiny under CASS and notices u/s 143(2) & 142(1) alongwith detailed questionnaire were issued and duly served upon the assessee. In response to the statutory notices, Shri M.L. Jhamba, Advocate, counsel for the assessee, attended the assessment proceedings from time to time and produced the books of account, which were test-checked and the case was discussed with them.9
!
2. This is a case of company, which derives income from running a hotel-cum-restaurant at Kalaamb. During the year under consideration, the assessee has declared Nil income after availing deduction under Chapter VI- A amounting to Rs. 3935965/-. Requisite information and income earned under various sub-heads as well as expenses incurred under different heads have been called for and verified with reference to the books of account produced during the course of assessment proceedings. The assessee company has maintained complete accounts of sale/purchase and other expenses and the expenses are duly supported with vouchers.
.
3. Subject to the above observations, income returned by the assessee is accepted.
Assessed, Issue requisite documents.
(R.C.Beakta) Deputy Commissioner of Income Tax/ Circle, Parwano"
12. It was claimed that detailed enquires were made by Assessing Officer vide questionnaire dated 17.9.2009, copy of which is placed at pages 3 to 5 of the paper book, and copy of query No.1, which is relevant to the issue and which has been highlighted on behalf of the assessee reads as under:-
"1. Nature of business carried on and period since when it is being carried on. Also give the following information
1. First year of claim of deduction u/Chapter VI-A 2 Year wise claim of deduction U/Chapter VI A"
13. The replies to the queries have been placed at pages 6 & 7 of the paper book, through which according to Ld. Counsel, the detailed replies were given. The whole reply dated 21.10.2009 is as under:-
10
"To The Deputy Commissioner of Income Tax, Circle, Parwanoo (H.P.) Sub: - Regarding M/s Sirmour Hotels (P) Ltd., Kala-
Amb, Distt. Sirmour (HP) Assessment year 2007-08 PANo. AACCS 5530 J Dear Sir, Reference to your queries in the abovesaid case of mine, it is respectfully submitted as under:-
Sirmour Hotels Pvt. Ltd. is incorporated in 22nd June, 1986, having Central Sales Tax No.1812, dated 11.12.1985 and Sale Tax No.1372 dated 11.12.1985. Monthwise purchase & Sale is enclosed.
We had increased our Share Capital to Rs.72000/- by the contribution of our Director Mr. Jatinder Singh on dated 20-03-2007.
Detail of Supplier & Customers from whom and to whom purchase/sale of more than 1 lakh is enclosed.
Month wise detail of following expenses enclosed.
Salary & Wages Travelling & Conveyance Telephone expenses Electricity expenses Bank charges Bank Interest Repair & Maintenance Laundry expenses Advertisement Expenses Employees State Insurance Detail of Sundry creditors & Debtors with address is enclosed. We had not made any violation of Sec.40A (3) of the Income Tax Act, 1961. Neither of our Director's relatives nor any partner engaged in Similar related business activity (As per section 2(41) of Income Tax Act, 1961.
Details of Bank Account, account number, and address is enclosed. 11
Detail of fixed Assets with purchase vouchers in excess of Rs. 20000/- is enclosed Name and complete address of all the directors enclosed. That complete books of accounts alongwith vouchers are being produced.
Thanking you, yours faithfully,
(M.L.JHAMBA)
ADVOCATE
For the Assessee".
14. A simple glance at the assessment order, query and the reply to the same would itself show that practically no enquiry has been made and no reply has been given. Further, the reading of assessment order shows that it is a case where assessment has been completed almost blindly without examining anything before granting deduction, u/s 80IC of the Act. The Assessing Officer should have at bare minimum asked the assessee how assessee is eligible for deduction and how the as sessee has carried out substantial expansion. None of these questions have been raised, therefore, it is a clear case of failure to make enquiry and cannot be equated with inadequate enquiry. Therefore, in the light of the observation of the Hon'ble Delhi High Court in Gee Vee Enterprises Vs Addl. CIT (supra) which have been extracted above, the Assessing Officer was not only adjudicator but was also an investigator and was duty bound to make proper enquiry expected to be conducted by reasonable or a prudent person. We have deliberately reproduced the ques tionnaire issued by Assessing Officer in respect to the issue regarding deduction u/s 80IC as well as reply of the assessee and assessment order which clearly reveals that no enquiry has been conducted at all. Therefore, in the light of non-enquiry itself, the assessment order is erroneous and prejudicial to the interest of Revenue. 12
15. Coming to the order of the Tribunal, in case of ACIT, Shimla Vs Shri Raghunath Singh Thakur, Shimla (supra), which was heavily relied by the Ld. counsel for the assessee for the purpose that issue on merit is totally covered in favour of assessee. In this case, the deduction u/s 80IC was denied by Assessing Officer because of the following assessee:-
(i) The assessee was not covered by the definition of Eco-
tourism as given in entry no.15 of the Part C, schedule XIV of section 80IC was applicable.
(ii) Non-filing of form No. 10 CCB and late filing of the same through revised return.
(iii) There was no substantial expansion.
16. As far as the first issue is concerned, the enquiry has been made by the Assessing Officer and he has given certain findings and according to him the hotel situated in the city could be covered by the definition of Eco-tourism. However, in view of the no objection certificate issued by the Department of Tourism, Himachal Pradesh and also the Certificate granted by the H.P. Pollution Control Board and some other details, it was held that even a hotel in the city would be covered by the definition of Eco-Tourism, therefore, it is clear that because enquiry was conducted , Certificate from Himachal Pradesh as well as H.P. Pollution Control Board were filed and on the basis of this Certificate and other details it was held that the hotel situated in as city was also part of the project of Eco-tourism as envisaged in item No.15 of part C of schedule XIV. The case before us is under Section 263 of the Act and assessment order has been held to be erroneous mainly on the basis of lack of enquiry. Even the so called questionnaire raised and the replies given by the Assessing Off icer and the assessee nowhere shows that any certificate 13 was filed from Himachal Pradesh Tourism or Himachal Pradesh Pollution Control Board, therefore, it is a matter of examination by the Assessing Officer and it cannot be said that this issue is covered in favour of the assessee. In this background, we are of the opinion that this part of the decision will be of no assistance to the assessee.
17. As far as the issue regarding non-filing / late filing of Form No.10 CCB is concerned, the same is not involved in the present case, therefore, no need to discuss the same.
18. The third objection was regarding substantial expansion and in the case of Shri Raghunath Singh Thakur (supra), the dispute was whether certain items would cons titute 'Plant and Machinery' or not. According to Assessing Officer the purchase and installation of split ACs, colour TV, music system and gym equipment could not form plant and machinery. However, the Tribunal held that if these types of equipment have to be reduced in this year, then the same is to be reduced earlier years also. The Tribunal held that in any case, the installation of A.Cs, colour TVs and music system etc. are also plant and machinery. However, in the case before us, the substantial expansion has been claimed on the basis of various additions and major portion of the same was building. Therefore, the question is whether building would also constitute plant for the purpose of substantial expansion. Such expansion has been defined in clause IX of sub section (8) of section 80IC, which reads as under:-
Section 80 IC (8) ..............
(ix) "s ubstantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent of the book value of plant and 14 machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken;
19. The above makes it clear that to qualify for substantial expansion, the addition has to be in Plant and Machinery by at least 50% and not any other assets. The claim of the assessee is that major addition is in terms of building which shall also be constituted as plant. Therefore, the issue before us is totally distinguishable in the case of ACIT v Shri Raghunath Singh Thakur (supra).
20. Now, the question is whether the hotel building could be considered as plant? The Ld. counsel had strongly relied upon the decision of Hon'ble Himachal Pradesh High Court in the case of CIT Vs S Shivalik Hatcheries P. Ltd. [2010] 329 ITR 432 (HP). I n that case a dispute arose as to whether a poultry shed would constitute plant. In that case it was observed as under:-
"The line of demarcation between what is "plant" or not is a very thin one. Each case will have to be decided with reference to the particular facts of the case. The definition of "plant" in section 43(3) of the Income-tax Act, 1961, is not an exhaustive definition but only inclusive in nature. Therefore, there is a wide scope for including in the definition many items. The Legislature by including ships, vehicles, and books in the definition of "plant" had widened the scope of the word "plant". It has specifically excluded buildings from the definition of the word "plant". Prior to the exclusion with effect from April 1, 2004, buildings if specifically constr ucted and falling within the guidelines of the various authorities could be treated as plant. The various authorities als o indicate that very wide amplitude has been given to the term "plant".15
The definition of "plant" engulfs within its ambit many divers e subjects, such as ships sailing on the high seas, books used by lawyers or engineers and scalpels used by doctors.
The assessee was engaged in the hatchery business. It claimed depreciation and investment allowance on poultry sheds by treating them as plant. The Assessing Officer only allowed deprecation treating the poultry s heds as building and not plant and disallowed investment allowance. The Tribunal came to the conclusion that the poultry sheds were in the nature of plant because the sheds constituted an apparatus or tool for the assessee because the poultry sheds were specifically designed from a technical point of view so as to facilitate the various hatchery operations on scientific lines. However, the Tribunal did not give the status of plant to the water lines used for residential quarters. The assessee also claimed extra shift allowance on poultry sheds, fencing, well and water tank. The Tribunal held that once the fencing, poultry sheds, water tank and well were treated as plant the assessee was entitled to the extra shift allowance."
21. On the above observation it was held as under:-
"Held, (i) that the Tribunal found that the poultry sheds had been specifically designed with a view to protecting the birds from disease. They had been designed to ensure proper light and circulation of air, proper and scientific feeding arrangement, proper water system, pr oper arrangement for collection of manure and droppings, proper arrangement for medication and vaccination ; and right environment conducive for laying of eggs by the birds. The building had been designed in a manner so as to protect the birds and increase their productivity. Thus, the poultry sheds were plant within the meaning of section 43(3), as it then stood."16
22. Thus, it is clear that poultry shed were held to be plant because they were specifically designed with a view to protecting the birds from diseases. They had been designed to ens ure proper light and circulation of air, proper and scientific feeding arrangement, proper water system, proper arrangement for collection of manure and droppings, proper arrangement for medication and vaccination etc. The same cannot be said about a building of a hotel. The Hon'ble Supreme court in the case of CIT v Anand Theatres (supra), where the issue was whether building or plant were separate categories , observed as under:-
"There is well-established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. It is proper to consider the function of the item in dispute. If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is, by its constr uction particularly well-suited to the business, or indeed was specially built for that business, does not make it plant. Its suitability is simply the reason why the business is carried on there. But it remains the place in which the business is carried on and is not something with which the business is carried on, except in some rare cases where it plays an essential part in the operations which take place. Hotel premises are not considered to be an apparatus or tool for running the hotel bus iness but are merely a shelter or hom e or setting in which bus iness is carried on. The same would be the position with regard to a theatre in which cinem a business is carried on. Therefore, even the functional test is not satisfied."
23. The above shows clearly that generally there is a distinction between plant and machinery and buildings. The highlighted portion further shows 17 that it was specifically observed that hotel premises are not considered to be an apparatus or tool for running a hotel busines s but are merely shelter for home or setting in which busines s is carried on. Thus , it is clear that hotel building generally speaking cannot be held to be a plant. In any case, Ld. Commissioner has very rightly observed that section 43(3) which defines plant specifically excluded the buildings or furniture and fittings out of definition of plant by an amendment to that section by Finance Act, 2003 w.e.f 1.4.2004. The Section reads as under:-
"(3) Plant includes ships, vehicles, books , scientific apparatus and surgical equipment used for the pur poses of the business of profession [ but does not include tea bushes or livestock] [ for building or furniture and fittings]
24. The above clearly shows that certain items including building have been specifically excluded from the definition of plant. Once the building cannot be considered as plant then obviously the same cannot form part of substantial expansion as defined in sub-section (8) of section 80IC of the Act which makes the assessee eligible for deduction u/s 80IC of the Act.
25. In the present case before us, the Ld. Commissioner could have easily held that the assess ee is not entitled to deduction but u/s 80IC of the Act because the assessee has not fulfilled the conditions laid down in s ub section (8) of section 80IC of the Act regarding substantial expansion. However, Ld. Commissioner has been more than reasonable to remit the matter back to the file of the Assessing Officer to make fresh enquiries because this issue has not been examined. We are of the considered opinion that practically no enquiry was conducted by the Assessing Officer. The assessment order is 18 definitely erroneous and prejudicial to the interest of Revenue and Ld. Commissioner has rightly passed revisionary order u/s 263 of the Act.
26. In the result, appeal of the assessee is dismissed.
Order Pronounced in the Open Court on this 24 t h day of September,
2012
Sd/- Sd/-
(H.L.KARWA) (T. R. SOOD)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated : 24 t h September, 2012
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar