Income Tax Appellate Tribunal - Chandigarh
Sh. Raghunath Singh Thakur, , Shimla vs Department Of Income Tax on 29 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA Nos.152 & 469/Chd/2010
(Assessment Years : 2006-07 & 2007-08)
The A.C.I.T., Vs. Sh.Raghunath Singh Thakur,
Circle Shimla. Hotel Marina, The Mall,
Shimla.
PAN: ABOPT5057F
And
ITA No.1144/Chd/2010
(Assessment Year : 2008-09)
Sh.Raghunath Singh Thakur, Vs. The D.C.I.T.,
Hotel Marina, The Mall, Circle Shimla.
Shimla.
(Appellant) (Respondent)
Assessee by : S/Shri Salil Aggarwal & Gautam Jain
Department by : Smt.Jaishree Sharma, DR
Date of hearing : 29.03.2012
Date of Pronouncement : 22.06.2012
ORDER
PER SUSHMA CHOWLA, J.M, :
Out of three appeals two appeals are by the Revenue against the separate orders of CIT (Appeals), Shimla dated 30.11.2009 and 1 1 . 0 2 . 2 0 1 1 r e l a t i n g t o a s s e s s m e n t ye a r s 2 0 0 6 - 0 7 a n d 2 0 0 7 - 0 8 a g a i n s t t h e order passed under section 143(3) of the Income Tax Act, 1961. The third appeal is filed b y the assessee against the order of the CIT ( A p p e a l s ) , S h i m l a d a t e d 0 4 . 1 1 . 2 0 1 1 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 against the order passed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2. The Revenue in ITA No. 152/Chd/2010 has raised the following grounds:
"1 On the facts and circumstances of the cased, the CIT(A) has erred in holding that the profit derived from the hotel run by the assessee are eligible for deduction u/s 80IC of Rs. 52,12,304/-.2
2. The ld. CIT(A) has erred in concluding that the hotel run by the assessee qualifies to be an eco- tourism project, and is hence covered under item 15 of Schedule XIV of the Income-tax Act, 1961 been after holding in the body of the order that eco tourism is a much broader and different concept from the concept of traditional tourism, and implying thereby that the stand alone hotel, located in the main market place is not a part of an eco-tourism project.
3. The ld. CIT(A) has erred in holding that the hotel run by the assessee qualifies to be an eco-tourism project merely on the basis of the assessee's contention that it is following eco-friendly norms.
4. The ld. CIT(A) has erred in holding that that said hotel is an eco- tourism project, on the basis of a no objection certificate from the State Government even though such certificate nowhere states that the hotel is part on an eco-tourism project, and does not even certify that the hotel is an eco-hotel and in fact merely states that the hotel could be considered to be a eco-hotel subject to fulfillment 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 80IC to the assessee hotel in spite of the provisions of section 80IC(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 80IC even though a separate deduction for hotels is provided in section 80IB(7) and a second deduction u/s 80IC could not be intended for the same activity.
3. Ld. CIT(A) has erred in allowing deduction u/s 80IC to the assessee hotel inspite of the findings of the AO that no substantial expansion within the meaning of the said section had been carried out."
The Revenue in ITA No. 469/Chd/2011 has raised the following grounds:
"1 On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the profit derived from the hotel run by the assessee are eligible for deduction u/s 80IC of Rs. 77,32,590/- as the definition of 'eco-tourism' including hotels as given in Schedule XIV and the concept of eco-tourisdoe not justify the claim of the assessee for claiming deduction u/s 80IC.
2. It is prayed that the order of the ld. CIT(A) be set aside and that of the AO restored."3
The assessee in ITA No. 1144/Chd/2011 has raised the following grounds:
"1 That the ld. CIT(A) Shimla has erred both in law and on facts in upholding disallowance of claim of deduction of Rs. 1,28,14,582/- u/s 80IC of the Act.
1.1 That the ld. CIT(A) while upholding the disallowance of claim of deduction has misconstrued the statutory provisions of facts and circumstances of the appellant and has proceeded on arbitrary and erroneous consideration in as much as disallowance of deduction has been confirmed on the basis of dictionary meaning of eco-tourism and eco-tourism policy of Himachal Pradesh. The basis adopted is based on misapplication of the statutory provisions contained in the Act and therefore, unsustainable.
1.2 That the ld. CIT(A) has failed to appreciate that once the Serial No. 15 Part C of XIV Schedule clearly provided that eco-tourism included hotels then it ought to have held that all hotels are eligible for deduction u/s 80IC of the Act in view of the judgment of Hon'ble Apex Court in the case of CIT V. Taj Mahal reported in 82 ITR 544.
1.3 That the ld. CIT(A) has failed to appreciate detailed submissions and evidence furnished by the appellant to support the claim of deduction and as such, disallowance so sustained is otherwise not in accordance with law. The disallowance confirmed is otherwise based on highly subjective, whimsical and fanciful consideration which neither in law and nor on fact can be validly made a basis to disallow the legitimate claim of deduction and therefore, disallowance so confirmed is illegal, untenable and wholly unsustainable.
1.4 That various adverse findings recorded by the ld. CIT(A) while confirming the disallowance of claim of deduction u/s 80IC 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 80IC 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 off by this consolidated order for the sake of convenience. In the appeals relating t o a s s e s s m e n t ye a r s 2 0 0 6 - 0 7 a n d 2 0 0 7 - 0 8 , t h e R e v e n u e i s a g g r i e v e d b y the order of the CIT (Appeals) in allowing relief to the assessee by way of holding the assessee eligible for deduction under section 80IC of the Act. The assessee in ITA No No.1144/Chd/2011 is aggrieved by the 4 o r d e r o f C I T ( A p p e a l s ) i n d e n yi n g d e d u c t i o n u n d e r s e c t i o n 8 0 I C o f t h e Act.
4. The brief facts of the case are that the assessee was engaged in the b u s i n e s s o f r u n n i n g h o t e l i n t h e n a m e a n d s t yl e o f h o t e l C o m b e r m e r e i n Shimla in the State of Himachal Pradesh. T h e a s s e s s e e d u r i n g t h e ye a r under consideration had earned net profit of Rs.52,12,304/- from the business of running the hotel, against which it had claimed deduction u n d e r s e c t i o n 8 0 I C o f t h e A c t f o r t h e f i r s t t i m e i n a s s e s s m e n t ye a r 2 0 0 6 -
07. During the course of assessment proceedings the Assessing Officer noted the assessee to have claimed deduction under section 80IC of the Act in respect of its profits from hotel. The Assessing Officer show caused the assessee to explain as to how the hotel could be said to have confirmed to the concept of eco-tourism, as enshrined in Schedule-XIV of the Act. The reply of the assessee alongwith reliance on various case laws is reproduced at page 4 of the assessment order in which it was stated that the activit y of hotel is specified activity in Schedule-XIV and the activity of eco-tourism had been inclusively defined to specifically include hotels. The Assessing Officer referred to various popular meanings of work 'eco-tourism' as referred to in para 8 at pages 5 and 6 of the assessment order. The conclusion of the Assessing Officer as per para 9 is that Thus, as can be seen, eco-tourism is a broader concept and is certainly different from the concept of traditional tourism. Running a multi-storeyed commercial hotel in the midst of a city can by no stretch of imagination said to be an eco-tourism project. The assessee's reliance was on a certificate issued by Department of Tourism dated 31.1.2007 under which the approval to operate the hotel as eco-hotel would be available subject to fulfillment of norms prescribed by the H.P.State Environment Protection & Pollution Control Board and also 5 the validity of this no objection certificate was subject to the approval of the HP State Environment and Pollution Control Board, Shimla. The Assessing Officer was of the view that the said certificate only mentioned that the hotel Combermere could be considered as a eco-hotel subject to fulfillment of norms and the said certificate was of no use to the assessee in the present context. The plea of the assessee that it had undertaken expansion in the development of hotel and it could be held eligible for deduction 80IC of the Act, was rejected by the Assessing Officer and the claim of deduction under section 80IC of the Act 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 From No.10CCB alongwith 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 alongwith 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 alongwith 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 u n d e r t a k e n b y t h e a s s e s s e e d u r i n g t h e f i n a n c i a l ye a r 2 0 0 4 - 0 5 r e l e v a n t t o a s s e s s m e n t ye a r 2 0 0 5 - 0 6 . It was also reiterated by the assessee vide its submission dated 27.11.2008. The Assessing Officer, however, noted 6 that as per the Audit Report in Form No.10CCB filed on 10.7.2007, the date of substantial expansion was shown as on 1.4.2003 as against 1.4.2004 claimed in the submission. Also there was a difference in the figure of value of increase in plant & machinery i.e. in Form No.10CCB it was shown at Rs.61,31,864/- as against Rs.62,35,827/- shown in the submission filed on 20.10.2008. When the said differences were pointed out to the assessee, a revised Form No.10CCB dated 24.11.2008 was submitted on 27.11.2008. In view of the differing submissions/explanation filed by the assessee, Assessing Officer rejected the revised Audit Report dated 24.11.2008 and held that the deduction claimed by the assessee under section 80IC of the Act was to be denied on this ground. The Assessing Officer was further of the view that the word 'hotel' included in Schedule-XIV was necessarily to be read with word 'eco-tourism'. Moreso, since separate deduction had been given to the hotels in the Act itself under section 80IB (7) of the Act.
5. The next aspect considered by the Assessing Officer was the issue of substantial expansion. As per definition of the term 'substantial ex pansion' in section 80IC(8)(ix ), the same means increase in the investment in the plant & machinery by atleast 50% of the cost value of p l a n t & m a c h i n e r y, b e f o r e t a k i n g d e p r e c i a t i o n i n a n y y e a r , a s o n t h e f i r s t d a t e o f t h e p r e v i o u s ye a r i n w h i c h t h e s u b s t a n t i a l e x p a n s i o n w a s undertaken. The assessee vide reply dated 20.10.2008 submitted that the s u b s t a n t i a l e x p a n s i o n h a d b e e n u n d e r t a k e n d u r i n g t h e f i n a n c i a l ye a r 2004-05 and the cost value of the plant & machinery on the first date of t h e f i n a n c i a l ye a r i n w h i c h s u b s t a n t i a l e x p a n s i o n h a d b e e n u n d e r t a k e n h a d t o b e s e e n w h i c h a s p e r t h e a s s e s s e e w a s i n a s s e s s m e n t ye a r 2 0 0 5 - 0 6 . The cost value of plant & machinery as on 1.4.2004, as per the assessee, was Rs.98,18,269/- and the increase in the investment in plant & 7 m a c h i n e r y d u r i n g t h e f i n a n c i a l ye a r 2 0 0 4 - 0 5 w a s R s . 6 2 , 3 5 , 8 2 7 / - . A s p e r the assessee the increase in the investment in plant & machinery during t h e f i n a n c i a l ye a r 2 0 0 4 - 0 5 w a s 6 3 . 5 0 % o f t h e c o s t o f p l a n t & m a c h i n e r y as on 1.4.2004 and there was compliance to the 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. S i m i l a r l y A C s ys t e m s w e r e h e l d t o b e p a r t o f e l e c t r i c f i t t i n g s a n d c o u l d n o t b e s a i d t o b e p l a n t & m a c h i n e r y. The amount spent on purchase of 45 colour TVs and also on Music system were held to be non plant & machinery in any sense. F u r t h e r t h e G ym e q u i p m e n t s w e r e h e l d t o b e n o n p l a n t & m a c h i n e r y. Reliance was placed on the ratio laid down by the Hon'ble Kerala High Court in Asiatic Sea Foods Lt d. Vs. CIT [229 ITR 172 (Ker)], by the Assessing Officer. The Assessing Officer held items totaling Rs.18,31,373/- i.e. cost of four split ACs installation/commissioning charges, cost of 45 colour TVs, cost of Music s ys t e m a n d G ym e q u i p m e n t s w e r e t o b e e x c l u d e d a n d t h e s u b s t a n t i a l expansion as done by the assessee would be reduced to Rs.44,04,454/- which was less than 50% of the opening cost value of plant & machinery of Rs.98,18,269/-. It was thus held that the assessee had not complied with the provisions of section 80IC of the Act. Further on account of the following reason deduction claimed under section 80IC of the Act 8 was denied to the assessee by the Assessing Officer observing subject to fulfillment of the norms prescribed by the H.P. State Environment Protection & Pollution Control Board and also the validity of this no objection certificate is subject to the approval of the HP State Environment and Pollution Control Board, Shimla.
6. T h e C I T ( A p p e a l s ) i n t h e a p p e a l s r e l a t i n g t o a s s e s s m e n t ye a r s 2006-07 and 2007-08 referred to the definition of eco-tourism as reproduced at pages 5 of the appellate order and observed that in order to qualify for the deduction under Schedule-XIV of the Act, eco-tourism had been inclusively denied to include hotels. Further reference was made to item No.15 Part-c of Schedule-XIV, which uses the word 'including'. The CIT (Appeals) held that the main entry was eco-tourism w h i c h w o u l d i n c l u d e a h o t e l , a m u s e m e n t , s p a o r r o p e w a y. The CIT (Appeals) further held as under:
In respect of the hilly states of Himachal Pradesh, Uttaranchal and Sikkim, the activity of eco-tourism has been specified in this schedule. Evidently, the activities of setting up hotels, amusement parks and ropeways by themselves, which would obviously entail damage to the environment, could not have been specified as priority activities. But considering the potential for developing tourism in these States, these activities have been allowed, as long as they are carried out as part of an eco- tourism project in these States. It is to be appreciated that pure eco- & tourism projects may not be financially lucrative for investors, but would become profitable if they ij included high -earning activities like hotels, spas, amusement parks and ropeways. Viewed in this context, it is clear that the activity of running hotels has been i n c l u d e d i n Schedule^ XIV only when it is an adjunct to the main activity of eco-tourism.".
7. The CIT (Appeals) concluded b y holding as under:
9
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 ecologically 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 80IC 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 ex pansion being found not to be in order, observations of the CIT (Appeals) were that appellant was held eligible for deduction u/s 80IC (2)(b) read with Part-C Schedule XIV and the appeal of the appellant is allowed on these grounds of appeal.
9. The CIT (Appeals) allowed the appeal of the assessee relating to a s s e s s m e n t ye a r 2 0 0 7 - 0 8 f o l l o w i n g h e r o r d e r i n a s s e s s m e n t ye a r 2 0 0 6 -
07. H o w e v e r , i n a s s e s s m e n t ye a r 2 0 0 8 - 0 9 t h e a p p e a l o f t h e a s s e s s e e claiming deduction under section 80IC of the Act was rejected by the CIT (Appeals). The CIT (Appeals) vide paras 4 to 4.3 considered the meaning of the term eco-tourism and the policy of the State of H.P. with 10 regard to eco-tourism. Reference was made to the order of Assessing Officer at pages 11 and 12 where the objectives of the said policy had been reproduced. The conclusion of the CIT (Appeals) was that the d e f i n i t i o n o f e c o - t o u r i s m w a s t yp i c a l l y m o r e r e m o t e t h a n c o n v e n t i o n a l tourism destination and the entry at Sr.No.15 in Part-C of Schedule-XIV of the Act goes on to elaborate that the said activity of eco-tourism is inclusive of hotels, resorts, spa amusements, parks, etc. The CIT (Appeals) vide para 4.6 referred to the submission of the assessee on the subject and the no objection certificate issued by the Department of Tourism, Shimla dated 9.6.2004 under which it was proposed that it had no objection for considering the hotel Combermere as eco-hotel subject to fulfillment of the norms prescribed by the H.P. State Environment Protection and Pollution Control Board. The objection of the CIT (Appeals) to the above said NOC relied upon by the assessee were as under:
a) NOC was issued at the request of the proprietor.
b) H.P.Tourism Development Act does not prescribe any norms
for eco-hotel and, therefore, the Department of Tourism does not have any locus standi to certify whether any hotel confirm to the concept of eco-hotels or not.
c) The so-called NOC was given subject to fulfillment of the norms prescribed by H.P. State Environment Protection and Pollutiuon Control Board and even the validity of the NOC was subject to the approval of the said Board. In view thereof, the CIT (Appeals) observed that the contention of the assessee that it was certified to be a eco-hotel by the Department of Tourism was totally misconceived and misleading.
11
10. Further the CIT (Appeals) held that the reliance of the assessee on the approval granted by the Pollution Control Board to be misplaced as there was no date of issuance mentioned on the said certificate. 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 w i t h e c o - t o u r i s m a n d t h e a s s e s s e e w a s o n l y c o m p l yi n g w i t h t h e e c o - 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 80IC of the Act, the ex cerpts of the Finance Bill 2003, vide which section 80IC of the Act was inserted and held that the activity of running hotel had been included in Schedule- XIV onl y when its adjunct to the main activity of eco-tourism. Further reference was made to the provisions of section 80IB(7) under which deduction out of the profits of the hotels located in hilly areas were held t o b e e l i g i b l e u p t o a s s e s s m e n t ye a r 2 0 0 4 - 0 5 a n d s u b s e q u e n t ye a r s , i . e . the period for which section 80IC of the Act was enacted. The observations of CIT (Appeals) are as under:
" Had the legislative intention been to make such a hotel eligible for deduction u/s 80/C, after undertaking substantial expansion, a suitable clause or proviso would have been added to section 80/8 (7) laying down that no deduction under that sub-section shall be allowed for the A.Y. 2004-05 or any subsequent year to any 12 hotel falling under section 80IC(2). It is to be noted that a proviso on these lines has, in fact, been inserted in section 80/8 (4) which relates to an industrial undertaking set up in certain States including Himachal Pradesh. Further, sub-section (6) of section 80/C a/so lays down that the total period of deduction under section 80/C and under section 80/8 (4) shall not exceed a period of ten years. The sub-section does not refer to section 80/8 (7). Thus, taking together the provisions of section 80/8 and 80/C, it is evident that the deduction u/s 80/C is not intended to be allowed to hotels, unless they form', part of an eco- tourism project."
11. The CIT (Appeals) thus held that "Only a hotel functioning as a part of 'eco-tourism project' shall be eligible for deduction u/s 80IC and the said condition is not fulfilled by the appellant".
12. The Revenue is in appeal against the orders of CIT (Appeals) r e l a t i n g t o a s s e s s m e n t ye a r s 2 0 0 6 - 0 7 a n d 2 0 0 7 - 0 8 , i n g r a n t i n g d e d u c t i o n to the assessee under section 80IC of the Act.
13. The assessee is in appeal against the order of CIT (Appeals) in d e n yi n g the deduction under section 80IC of the Act relating to a s s e s s m e n t ye a r 2 0 0 8 - 0 9 .
14. The learned D.R. for the Revenue pointed out that the contentions of the Revenue are in the order of the CIT (Appeals) relating to a s s e s s m e n t ye a r 2 0 0 8 - 0 9 . T h e l e a r n e d D . R . f o r t h e R e v e n u e p o i n t e d o u t that in place of ground No.6 in the original grounds of appeal filed by the Revenue, the additional and specific grounds of appeal has been raised vide letter dated 17.3.2011 which may be taken on record. It was further pointed out by the learned D.R. for the Revenue that the claim of the assessee was that it had undertaken substantial expansion of its hotel and it was eligible for deduction under section 80IC of the Act in view of item No.15 in Part-C of Schedule-XIV of the Act, which talks of eco- 13 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 80IC 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 80IC 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 consensus with eco-tourism. R e f e r r i n g t o t h e o r d e r o f t h e C I T ( A p p e a l s ) r e l a t i n g t o a s s e s s m e n t ye a r 2006-07 the learned D.R. for the Revenue brought to our notice the findings of the CIT (Appeals) in para 6.6 at page 7 of the appellate order and pointed out that the CIT (Appeals) has failed to address what were the norms specified for treating the products as eco-tourism and what were the norms fulfilled by the assessee entitling it to deduction under section 80IC on the said ground. The learned D.R. for the Revenue further pointed out that even before the expansion was undertaken by the assessee, the Pollution Control Board had given a certificate dated 9.6.2004.
15. The learned A.R. for the assessee in reply stressed that the issue in the present case stands covered by the order of the Tribunal in Shri 14 Bidhi Chand Singhal Vs. ITO in ITA No.3419/D/2009 and M/s Anchal Hotels (P) Ltd. Vs. ACIT in ITA No.1800 & 1801(Del)/2010 placed at pages 357 and 362 of the Paper Book. It was also pointed out b y the learned A.R. for the assessee that similarly placed hotel Landmark in Shimla had been granted deduction under section 80IC of the Act b y the same Assessing Officer vide order passed under section 143(3) of the Act which is placed at pages 373 and 374 of the Paper Book. The learned A.R. for the assessee thereafter pointed out that at page 70 of the Paper Book is placed a letter by the assessee to the District Tourism Officer stating that it had complied with the eco-friendly norms. Reference was made to the letter issued by the Department of Tourism to the assessee placed at page 71/72 of the Paper Book which as per the assessee is dated 9.6.2004. The learned A.R. for the assessee referred to the provisions of section 80IC(8)(ix) to explain what is substantial expansion. Our attention was drawn to the details furnished at pages 61 to 63 of the Paper Book to establish the expansion carried out by the a s s e s s e e i n t h e f i n a n c i a l ye a r 2 0 0 4 - 0 5 . The learned A.R. for the assessee thereafter referred to the written submissions filed before the CIT (Appeals) placed at pages 322 to 349 of the Paper Book and pointed out that at page 345 the assessee had explained the quantum of investment made in the plant & machinery which was more than the book value of the plant & machinery owned by the assessee as on 1.4.2004. The explanation of the assessee was that out of the opening book value o f R s . 9 8 , 1 8 , 2 6 9 / - a s o n 1 . 4 . 2 0 0 4 , t h e c o s t o f T V , V C R , G ym e q u i p m e n t s a n d A C S ys t e m t o t a l i n g R s . 1 4 . 9 9 l a c s h a d t o b e e x c l u d e d a n d t h e b a l a n c e cost of plant & machinery was 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 15 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 & m a c h i n e r y d u r i n g t h e f i n a n c i a l ye a r 2 0 0 5 - 0 6 w a s R s . 7 , 3 9 , 9 8 8 / - a s p e r list placed at page 95 of the Paper Book. The learned A.R. for the assessee fairl y admitted that the ex emption under section 80IB (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 fulfills the conditions under section 80IC 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 erroneous. The learned A.R. for the assessee thereafter drew our attention to the return of income filed by the assessee on 31.10.2006, copy of which is placed at page-1 of the Paper Book alongwith computation of income at page 2 of the Paper Book in which it was pointed out that it had claimed deduction under section 80IC of the Act at Rs.52.12 lalcs. The learned A.R. for the assessee stressed that the said return of income though was filed without the copy of the Audit Report in Form No.10CCB, but filing of Audit Report was directory as h e l d b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s . P u n j a b Financial Corporation [254 ITR 6 (P&H)(FB)] and by t he Hon'ble Delhi High Court in CIT Vs. Contimeters Electricals P. Ltd. [317 ITR 249 (Delhi)]. In respect of the revised Audit Report furnished by the assessee, the learned A.R. for the assessee referred to the original Audit Report placed at page 40 of the Paper Book, which is dated 23.10.2006 and the revised Audit Report placed at page 83 of the Paper Book, which is dated 24.11.2008 and it was pointed out that the minor difference in the claim of deduction under section 80IC of the Act was on account of additions in the plant & machinery account. In respect of the order p a s s e d b y t h e C I T ( A p p e a l s ) r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 , i t w a s 16 pointed out b y the learned A.R. for the assessee that the CIT (Appeals) at page 13 relied upon the certificate dated 3.1.2004, though mentioned the certificate dated 9.6.2004. It was pointed out by t he learned A.R. for the assessee that two certificates were issued by the Pollution Control Board, one dated 3.1.2004 and the other dated 9.6.2004.
16. The learned D.R. for the Revenue in rejoinder pointed out that the ratio laid down in Shri Bidhi Chand Singhal Vs. ITO (supra) was not applicable as in the facts of that case the assessee had produced certificate from Pollution Control Board. In respect of the assessee it was pointed out by the learned D.R. for the Revenue that the certificate issued by the Pollution Control Board was for limited purpose and could not be said to have complied with the provisions of section 80IC of the Act.
17. We have heard the rival contentions and perused the record. The a s s e s s e e d u r i n g t h e ye a r u n d e r c o n s i d e r a t i o n h a d f i l e d r e t u r n o f i n c o m e on 31.10.2006 in which it had claimed deduction under section 80IC of the Act against the profits and gains from the business of running the h o t e l u n d e r t h e n a m e a n d s t yl e o f h o t e l C o m b e r m e r e a t T h e M a l l , 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 80IC 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 No.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 17 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 had complied with the provisions of section 80IC of the Act regarding substantial expansion and consequently was entitled to the deduction available under section 80IC of the Act for running hotel in the State of Himachal Pradesh as it had complied with the conditions of running infrastructure facility as in item No.15, part-C of Fourteenth Schedule of the Act which was inserted by the Finance Act 2003 w.e.f. 1.4.2004. The second plea of the assessee was that it had claimed the said expenditure in the return of income filed within due date of filing the return of income. However, though the Auditors had furnished the audit report dated 23.10.2006 in the prescribed Proforma i.e. Form No.10CCB alongwith Audit Report under section 44AB of the Act, however, by a clerical error the same was not attached with the return of income at the time of filing the same. The assessee claims to have filed the said report in Form No.10CCB before the Department as soon as the same came to his knowledge. During the course of assessment proceedings, the assessee furnished a revised Audit Report in Form No.10CCB vis-a-vis value of the assets which were part of its substantial expansion, as requisitioned under the provisions of section 80IC of the Act.
18. Section 80IC of the Act reads as under:
" 80-IC. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).18
(2) This section applies to any undertaking or enterprise,--
(a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning--
(i) on the 23rd day of December, 2002 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 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 commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning--
(i) on the 23rd day of December, 2002 and ending before the 1st day of April, 31[2007], in the State of Sikkim; or
(ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, 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 of the North-Eastern States.
(3) The deduction referred to in sub-section (1) shall be--
(i) in the case of any undertaking or enterprise referred to in sub-clauses
(i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year;19
(ii) in the case of any undertaking or enterprise referred to in sub-clause
(ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty-
five per cent (or thirty per cent where the assessee is a company) of the profits and gains.
(4) This section applies to any undertaking or enterprise which fulfils all the following conditions, namely:--
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.--The provisions of Explanations 1 and 2 to sub-section (3) of section 80-IA shall apply for the purposes of clause (ii) of this sub- section as they apply for the purposes of clause (ii) of that sub-section. (5) Notwithstanding anything contained in any other provision of this Act, in computing the total income 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) "Industrial Growth Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;
(iv) "Industrial Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government; 20
(v) "Initial assessment year" means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion;
(vi) "Integrated Infrastructure Development Centre" means such centres, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government;
(vii) "North-Eastern States" means the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura;
(viii) "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry;
(ix) "substantial expansion" means increase in the investment in the plant and machinery by at least fifty per cent 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 the substantial expansion is undertaken;
(x) "Theme Park" means such parks, which the Board, may, by notification in the Official Gazette, specify in accordance with the scheme framed and notified by the Central Government.]"
19. The relevant provisions of section 80IC of the Act applicable to the present facts are sub-section 2(b) to section 80IC of the Act under which the assessee has claimed the aforesaid deduction. The provisions of section 80IC(2) of the Act provides that where the undertaking or enterprise has commenced any operation specified in Fourteenth Schedule of the Act and had undertaken substantial expansion during the period 7.1.2003 to 1.4.2012 in the State of Himachal Pradesh or in the State of Uttranchal, would be eligible for the deduction under section 80IC of the Act. S u b - s e c t i o n ( 3 ) t o s e c t i o n 8 0 I C o f t h e A c t l a ys d o w n that the undertaking or enterprises would be entitled to deduction of 1 0 0 % o f s u c h p r o f i t s a n d g a i n s f o r f i v e a s s e s s m e n t ye a r s c o m m e n c i n g w i t h t h e i n i t i a l a s s e s s m e n t ye a r a n d t h e r e a f t e r 2 5 % o f i t s p r o f i t s a n d g a i n s f o r t h e b a l a n c e f i v e ye a r s . The expression 'substantial expansion for the purpose of section 80IC is defined under sub-section (8) (ix ) to section 80IC of the Act. The undertaking or enterprises in order to the eligible for substantial expansion should have increased the investment 21 in the plant & machinery by atleast 50% of the book value of plant & m a c h i n e r y, b e f o r e t a k i n g d e p r e c i a t i o n i n a n y y e a r a s o n t h e f i r s t d a y o f t h e p r e v i o u s ye a r , i n w h i c h s u b s t a n t i a l e x p a n s i o n i s u n d e r t a k e n . In other words, in order to be eligible for deduction under section 80IC 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 80IC of the Act i.e. an assessee would have entitled to the benefit of deduction under section 80IC(2)(b) of the Act in all such c a s e s w h e r e u n d e r t a k i n g o f e n t e r p r i s e s i s c a r r yi n g o n t h e b u s i n e s s a s envisaged therein and also addition has been made to the plant & machinery by way of investment, which is more than 50% of the book v a l u e o f t h e p l a n t & m a c h i n e r y o n t h e f i r s t d a y o f t h e f i n a n c i a l ye a r , i n which substantial expansion was undertaken before claiming depreciation.
20. Under the Fourteenth Schedule to the Income Tax Act, list of articles or things or operations eligible for deduction under section 80IC of the Act are enlisted. Part-C is in relation to the State of Himachal Pradesh and State of Uttranchal. Item No.15 in Part-C of the Fourteenth Schedule reads as under:
"Eco-tourism including hotels, resorts, spa, entertainment/amusement parks and ropeways".
21. The above said definition and the operation to be carried out in the field of eco-tourism are exclusively defined by the Act to include the provisions of infrastructure i.e. hotels, resorts, spa, e n t e r t a i n m e n t / a m u s e m e n t p a r k s a n d r o p e w a ys . In view of the policy of Government of India, it transpires that incentives are provided to the undertaking or enterprises for setting up infrastructure in the State of 22 Himachal Pradesh or State of Uttranchal in order to promote eco-tourism which in turn includes setting up of hotels, resorts, spa, e n t e r t a i n m e n t / a m u s e m e n t p a r k s a n d r o p e w a ys i n s u p p o r t o f t h e p o l i c y o f encouraging tourism in the State. It is an established principle that the provisions of incentive or growth and development of the State should be interpreted l i b e r a l l y, in order to achieve the object of allowing deduction to the undertaking or enterprises, which establishes its infrastructure in the respective States for furtherance of the object of the policy framed thereunder. It is evident that the Statute has provided deduction by way of section 80IC of the Act to such undertakings or enterprises which commences any operation specified in the Fourteenth Schedule and undertakes substantial expansion during the prescribed period within the State, would be entitled to the benefit by way of deduction from the profits and gains of the business, which in the case of present assessee i.e. relating to section 80IC (2)(b) of the Act would b e 1 0 0 % o f s u c h p r o f i t s a n d g a i n s f o r f i v e a s s e s s m e n t ye a r s c o m m e n c i n g w i t h t h e i n i t i a l a s s e s s m e n t ye a r a n d 2 5 % o f t h e p r o f i t s a n d g a i n s o f t h e b u s i n e s s f o r t h e n e x t f i v e a s s e s s m e n t ye a r s . The definition of eco- tourism under the Fourteenth Schedule is inclusive definition and includes within its definition the provisions by way of hotels, resorts, s p a , e n t e r t a i n m e n t / a m u s e m e n t p a r k s a n d r o p e w a ys . 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 fulfills the above said conditions, it is eligible for claim of deduction under section 80IC(2)(b) of the Act. 23
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 80IC 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/- reflected in the books of account of the assessee. The said list of plant & machinery is as under :
DETAIL OF PLANT & MACHINERY (GROSS VALUE) AS ON OI.04.2003 IN THE BOOKS OF HOTEL COMBERMERE, SHIMLA S.No. Particulars Gross Value as on 01.04.2003 1 Electrical Appliances 919,022.44 2 Refrigerators 389,030.00 3 TV & VCR 784,021.00 4 Plant and Machinery 515,693.55 5 EPABX 348,605.40 6 Computers 621,876.36 7 Fire Fighting Equipments 35,216.50 8 Office Equipments 78,598.83 9 Generator 500,137.60 10 Kitchen Equipments 1,039,141.19 11 Lift 3,488,910.13 12 Gym Equipments 155,000.00 13 Pent House Equipments 203,028.31 9,078,281.31
23. The additions to the plant & machinery during the period 1.4.2003 to 31.3.2004 as enlisted at page 95 of the Paper Book were totaling R s . 7 , 3 9 , 9 8 8 / - a n d c o n s e q u e n t l y t h e g r o s s c o s t o f p l a n t & m a c h i n e r y, 24 without claiming depreciation, as on 1.4.2004 was Rs.98,18,269/-. The assessee during the period 1.4.2004 to 25.3.2005 had made the undermentioned additions to the plant & machinery totaling Rs.62,35,827/-:
DETAIL OF ADDITIONS IN PLANT & MACHINERY DURING THE PERIOD 01.04-2004 TO 25.03.2005 S.No. Particulars Additions (Rs.) 1 Refrigerators 10,09,747.00 2 TV /VCR/Music System 11,22,140.20 3 Plant and Machinery 19,68,525.00 4 Computers 1,81,712.00 5 Office Equipments 22,000.00 6 Generator 5,15,472.00 7 Kitchen Equipments 12,17,578.50 8 Gym Equipments 1,98,653.00 6,235,827.70
24. The claim of the assessee that the aforesaid addition in the plant & machinery of Rs.62,35,827/- as compared to the book value of plant & machinery as on 1.4.2004 of Rs.98,18,269/- was 63.5% of the book value of plant & machinery as on 1.4.2004. Consequently there were s u b s t a n t i a l e x p a n s i o n i n t h e f i n a n c i a l y e a r 2 0 0 4 - 0 5 i . e . a s s e s s m e n t ye a r 2005-06 in terms of section 80IC(2)(b) read with clause (ix) of sub-
section (8) of section 80IC of the Act.
25. The second aspect of the claim of deduction under section 80IC 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 Comberemere 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 25 t h e a s s e s s e e c l a i m s t o h a v e p r o m o t e d r e c yc l i n g , e n e r g y e f f i c i e n c y, w a t e r 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 objection for considering Hotel Combermere as Eco hotel subject to the fulfillment of the norms prescribed by the HP State Environment Protection & Pollution Control Board and also the validity of this no objection certificate is subject to the approval of the HP State Environment Protection & Pollution Control Board Shimla."
26. The assessee had also received a certificate from Himachal Pradesh State Environment Protection and Pollution Control Board which is dated 9.6.2004 and is valid till 31.3.2009 under which it is authorized to operate facility for collection of storage of hazardous waste on the premises situated at Shimla. This certificate by the Board was renewed on the earlier authorization dated 3.1.2004 granted to the assessee up to 31.3.2004. The said certification is in operation and is valid as no evidence has been bought on record to the contrary by the authorities below. In view of the above said certificate issued by the Ministry of Tourism to the assessee dated 31.1.2007 and the certification by the Himachal Pradesh State Environment Protection and Pollution Control Board dated 9.6.2004 and the substantial expansion carried out by the assessee, we are of the view that the assessee fulfills the conditions laid down under section 80IC(2)(b) of the Act read with section 80IC (8)(ix ) 26 of the Act in line with Item No.15 of Part-C of Fourteenth Schedule of the Act and hence is eligible for the claim of deduction under section 80IC of the Act.
27. Now coming to the objections of the Assessing Officer in granting deduction under section 80IC of the Act, the first objection of the Assessing Officer was that certain items could not form part of the plant & machinery within the meaning of substantial expansion, which are as under:
a. Purchase of 4 Split A.C's Rs.3,61,080/-
b. Installation/Commissioning Charges Rs.1,49,500/-
c. Purchase of 45 Color T.V's Rs.5,50,080/-
d. Puchase of music systems Rs.5,72,060/-
e. G ym e q u i p m e n t s Rs.1,98,653/-
Total Rs.18,31,373
28. The conclusion of the Assessing Officer was that in case above said items totaling Rs.18,31,373/- were excluded, the value of substantial expansion comes down to Rs.44,04,454/- (Rs.62,35,827/- minus Rs.18,31,373/-) and this amount was less than 50% of opening b o o k v a l u e o f R s . 9 8 , 1 8 , 2 6 9 / - o f p l a n t a n d m a c h i n e r y i n t h a t ye a r . 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. 0 0
AC Systems Rs. 1,82.120.00 Rs. 14.99.231.00
27
Balance cost of Plant & machinery Rs. 83,19,038.31
As on 1.4.2004
Cost of additions accepted by the Assessing Officer Rs. 44,04,454.00
(as per assessment order)
- Addition required for substantial expansion
50% of cost as on 1.4.2004 Rs.41,59,519.15
Actual addition made Rs.44,04,454.00
Which is 52.94% of the value of Plant & m,achinery
As on 1.4.2004
29. In the first instance we are not in conformit y with the observation of the Assessing Officer in excluding the items of AC, Colour TV, Music S ys t e m s a n d G ym e q u i p m e n t s o u t o f t h e l i s t o f p l a n t & m a c h i n e r y a s each of the above said items are in the nature of plant & machinery and its costs are to be considered for computing the value of substantial ex pansion. In an y case, even if the said items are ex cluded from the list o f s u b s t a n t i a l e x p a n s i o n i n t h e p l a n t & m a c h i n e r y, t h e c o r r e s p o n d i n g value is to be excluded from the gross cost of plant & machinery as on 1.4.2004 and the total investment by the assessee in the plant & machinery during the period 1.4.2004 to 25.3.2005 would be 52.94% of the value of plant & machinery as on 1.4.2004, as tabulated in paras hereinabove and the same is in order and fulfills the condition of substantial expansion as stipulated in section 80IC(8)(ix) of the Act.
30. Now coming to the next objection of the Assessing Officer in granting deduction under section 80IC of the Act was non-filing of Audit report alongwith return of income. Various Courts have laid down that the provisions of filing the Audit Report alongwith return of income is d i r e c t o r y a n d n o t m a n d a t o r y. Reference is made to decision of the H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s . P u n j a b F i n a n c i a l Corporation [254 ITR 6 (P&H)(FB)] (supra) and to the decision of Hon'ble Delhi High Court in CIT Vs. Contimeters Electricals P. Ltd. 28 [317 ITR 249 (Delhi)] (supra). In the facts of the present case before us the 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, which was considered for allowing the claim of the assessee. The assessee having claimed deduction under section 80IC of the Act in its return of income, which in turn was supported by the Audit Report in Form No.3CB & 3CD and also 10CCB as certified by the accountant, the said claim merits to be allowed to the assessee.
31. We find that similar issue of claim of deduction under section 80IC of the Act on the ground of the assessee having fulfilled the condition of eco-tourism as specified in Item No.15 of Fourteen Schedule of the Act arose before the Delhi Bench of the Tribunal in the case of Shri Bidhi C h a n d S i n g h a l V s . I T O i n I T A N o . 3 4 1 9 / D / 2 0 0 9 f o r a s s e s s m e n t ye a r 2006-07. The Assessing Officer in the said case had observed that the hotel eligible for deduction under section 80IC of the Act should also be a h o t e l w h i c h i s e n v i r o n m e n t f r i e n d l y, r e l yi n g u p o n t h e d e f i n i t i o n o f e c o - t o u r i s m e t c . , t h e T r i b u n a l v i d e o r d e r d a t e d 4 . 1 1 . 2 0 1 0 a n d r e l yi n g upon the provisions of section 80IC 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 other 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 29 construed to be hotel situated in the State of Himachal Pradesh or the State of Uttranchal having valid licence on the basis of No Objection from the Pollution Department which can be treated to be hotel eligible for deduction under section 80IC of the Act. Similar view has been held in the case of M/s Anchal Hotels (P) Ltd. Vs. ACIT in ITA Nos.1800 & 1 8 0 1 / D e l ; / 2 0 1 0 r e l a t i n g t o a s s e s s m e n t ye a r s 2 0 0 5 - 0 6 a n d 2 0 0 6 - 0 7 a n d I T A N o . 3 6 3 7 / D e l / 2 0 1 1 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 v i d e o r d e r dated 7.10.2011. We further find that the same Assessing Officer had h e l d a n o t h e r e n t e r p r i s e u n d e r t h e n a m e o f s t yl e o f M / s H o t e l L a n d m a r k as entitled to the benefit of the deduction under section 80IC of the Act vide order passed under section 143(3) of the Act dated 7.4.2011. The Assessing Officer while passing the said order under section 143(3) of the Act in the case of M/s Hotel Landmark had held it to have fulfilled all the conditions laid down under section 80IC read with Schedule Fourteen of the Income Tax Act. Copy of the said order is placed on record.
32. In view thereof and following the above said parit y of reasoning we find that the facts of the case before us are identical to the facts before the Delhi Bench of the Tribunal. The assessee in the present case has received Certificate from the Ministry of Tourism and has also a No Objection Certificate issued by the Pollution Control Board, which has not been withdrawn. In view thereof, the assessee is entitled to the benefit of deduction under section 80IC of the Act.
33. Now coming to the observations of the CIT (Appeals) in the appeal r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 v i s - a - v i s t h e d e f i n i t i o n o f e c o - tourism are not correct in view of the policy of Himachal Pradesh applicable to the State of Himachal Pradesh for the promotion of eco- tourism. T h e u n d e r l yi n g c o n c e p t i s t o p r o v i d e i n f r a s t r u c t u r e f o r t h e 30 promotion of tourism and in order to promote the same, the Department o f T o u r i s m i n t h e S t a t e o f H i m a c h a l P r a d e s h h a d f r a m e d p o l i c y, u n d e r which recognition is given subject to fulfillment of conditions. The assessee had made an application to the Department of Tourism for its recognition as Eco-tourism undertaking or enterprises. The assessee admittedly had fulfilled the above said conditions and also received No Objection Certificate from Pollution Control Board for fulfilling their conditions and norms. In view thereof, where the assessee had fulfilled the conditions of the Statute, is to be held eligible for the benefit of deduction under section 80IC of the Act. The above said 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 ye a r 2 0 0 8 - 0 9 h a d o b s e r v e d t h a t t h e assessee was not entitled to the benefit of deduction under section 80IC 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 order of the CIT (Appeals) in not allowing deduction claimed under section 80IC of the Act relating to assessment year 2008-09. In view of the certificate issued by the Department of 31 Tourism and No Objection Certificate dated 9.6.2004 issued by the Pollution Control Board and also the assessee having fulfilled the conditions of substantial expansion and the meaning of the word 'eco- tourism' including hotel under Item 15 in Part-C of Fourteen Schedule of the Act, the special provisions provided by the Statute for the promotion of tourism in the State of Himachal Pradesh, entitles the assessee to the claim of deduction under section 80IC of the Act. A c c o r d i n g l y, w e d i r e c t t h e A s s e s s i n g O f f i c e r t o a l l o w t h e c l a i m o f deduction under section 80IC of the Act to the assessee relating to a s s e s s m e n t ye a r s 2 0 0 6 - 0 7 , 2 0 0 7 - 0 8 a n d 2 0 0 8 - 0 9 .
33. I n t h e r e s u l t , t h e a p p e a l s o f t h e R e v e n u e i n I T A N o s . 152 & 469/Chd/2010 are dismissed and the appeal of the assessee in ITA No.114/Chd/2010 is allowed.
Order Pronounced in the Open Court on 22nd day of June, 2012.
Sd/- Sd/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 22nd June, 2012 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh