C/TAXAP/650/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 650 of 2019 PRINCIPAL COMMISSIONER OF INCOME TAX 3 Versus M/S RAYSONS RESIDENCY PVT. LTD. Appearance: MRS MAUNA M BHATT(174) for Appellant MR BS SOPARKAR(6851) for Opponent CORAM:HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 17/09/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE A.C. RAO) 1.00. This Tax Appeal under section 260A of Income Tax Act has been preferred by revenue against order passed by Income Tax Appellate Tribunal, Bench-C, Ahmedabad in ITA No.3214/Ahd/2015 for A.Y. 2012-13 dated 28/02/2019. 2.00. Facts giving rise to present Appeal in nutshell are as under :- 2.01. assessee is engaged in business of builder and operating hotel of Two Star and above category as classified by Central government of India. 2.02. According to assessee, capital expenditure Page 1 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER incurred wholly and exclusively for purpose of any specified business carried out by him during previous year shall not include expenditure on land, goodwill and financial instruments incurred by assessee as he has claimed exemption u/s.10AA of Act and he also claimed deduction u/s.35AD of Act as he has obtained license from competent authority. 2.03. That A.O. made disallowance of claim of deduction u/s. 35AD of Act of Rs.6,26,94,610/- on account of failure on part of assessee to furnish any evidence from which it can be established that separate approval had been taken to avail concession under Income Tax Act, 1961 during course of assessment proceedings. 2.04. aforesaid assessment order passed by A.O. was challenged by assessee before Commissioner of Income Tax (Appeals) by way of filing Appeal No.CIT(A)- 9/587/DCIT.Cir-3(1)(2)/14-15. Commissioner (Appeals) dismissed appeal holding that addition made by A.O. was unwarranted and therefore, he ordered to delete addition made by A.O. 2.05. Against aforesaid order passed by Commissioner (Appeals), revenue preferred appeal before Income Tax Appellate Tribunal, C-Bench, Ahmedabad in ITA No.3214/Ahd/2015 for A.Y. 2012-13 and tribunal dismissed appeal vide order dated 28/02/2019 holding that assessee has submitted details with supporting documents which entitles him for deduction under section 35AD(5)(aa) of Act and therefore, assessee is entitled to Page 2 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER deduction. 3.00. Against aforesaid order passed by tribunal, appellant - revenue has preferred present Appeal with following proposed question of law :- "Whether appellate tribunal has erred in law and on facts in allowing deduction of Rs.6,26,94,610/- u/s.35AD of Act in A.Y. 2012-13 in absence of statutory certificates of classification for star rating which is mandatory as per provision of section 35AD of Act?" 4.00. Ms.Mauna Bhatt, learned counsel has contended that assessee has failed to produce any evidence to establish that there was separate approval and is granted under section 35AD(5)(aa) of Act. It is contended that order of tribunal is erroneous. tribunal has failed to take into account fact that assessee could not furnish Certificate having been prescribed by law. It is contended that order of tribunal is otherwise perverse and therefore, requires to be quashed and set aside. 5.00. Mr.B.S. Soparkar, learned advocate appearing on behalf of assessee has contended that order passed by tribunal is just, legal and as per evidence. 5.01. Mr.Soparkar has also drawn attention of this Court to observations made by tribunal in impugned order. Page 3 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER 5.02. Mr.Soparkar has also relied upon decision of Madras High Court in case of Commissioner of Income tax Versus Ceebros Hotels Pvt. Ltd, reported in [2018] 409 ITR 423 (Madras). Making above submissions and relying upon above decision, Mr.Soparkar requested to dismissed present appeal. 6.00. Heard Ms.Mauna Bhatt, learned standing counsel appearing for revenue and Mr.B.S. Soparkar, learned counsel appearing for assessee at length. 6.01. tribunal while dismissing appeal preferred by revenue observed in paras 2, 3, 4 and 5 as under :- "2. Thereafter, against disallowance of Rs.6,26,69,610/- made under section 35AD(5)(aa) of Act, assessee preferred first statutory appeal before Ld. CIT(A) who allowed appeal of assessee on ground that no specific permission is laid down in section 35AD and/or relevant income tax rules action of AO seems to be unjustified in denying deduction under section 35AD and held that assessee had completed necessary formalities in terms of obtaining licenses from different authorities were obtained by assessee. 3. Now Revenue has come before us against order of Ld. CIT(A), we have gone through Page 4 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER relevant record and amount question before us is whether assessee is entitled for deduction under section 35AD(5)(aa) of Act or not and in order to avail benefits of sec.35AD(5)(aa) of Act assessee has to fulfill conditions being expenditure incurred prior to commencement of its operation and amount is capitalize in books of accounts of assessee on operation. As per provisions of section, any capital expenditure incurred by assessee prior to commencement of operation of new unit shall be allowed as deduction in previous year in which assessee commences operation of hotel business. Sec.35AD(5)(aa) is regarding deduction in respect of expenditure on specified business:- "on or after 1st day of April, 2010, where specified business is in nature of building and operating new hotel of Two Star or above category as classified by Central Government." In respect of its contention assessee submitted copy of operation granted by Ministry of Tourism letter dated 30/08/2010 where approval of three Star Hotel has been granted by Ministry and assessee has filed Building Use Permission issued by Municipal Authority dated 18/10/2011 for granting permission of hotel and assessee submitted details with AO for following documents along with copies of assessee submitted letter dated 09/02//2015 along with following documents copy of :- Page 5 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER 1. Eating House License. 2. License for keeping of lodging house. 3. Professional tax registration certificate. 4. B.U. Permission. 5. Permit Order under Gujarat tax on luxuries. 6. Consent to operate (Pollution control). 7. Kitchen waste removal agreement. 8. Lift License. 9. License under Food Safety and Standard Act, 2006. 10. Certificate for fire safety measure. 11. Checklist and details submitted with Tourism Department. 12. Approval of proposed Three Star Hotel project. 4. CIT(A) in our view has rightly come to conclusion in favour of assessee. Thus, we dismiss appeal of Revenue. 5. In result, appeal filed by Revenue is dismissed." 6.02. At this juncture, following observation made by Madras High Court in case of Ceebros Hotels Pvt. Ltd. (supra) are required to be considered : "The Test would be as to whether provisions of section 35AD of Act would apply to specified business referred to in sub-section (2) if it commences operations and in case of business like that of assessee, on or after April 1, 2010 Page 6 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER where specified business is in nature of building and operating new hotel of Two Star or above category as classified by Central government. We find nowhere in clause (aa) to sub-section (5) of section 35AD of Act mandating that date of certificate should be with effect from particular date. Therefore, provision which is obviously to encourage establishment of hotels of particular category, should be read as beneficial provision and therefore, interpretation given by Tribunal considering facts of case is perfectly valid and justified. For above reasons, we find no grounds to interfere with order passed by Tribunal. Accordingly, above tax case appeal is dismissed. No costs." 6.03. In case on hand, Central Government has approved proposal of assessee for Three Star Hotel project and therefore, interpretation made by tribunal considering fact of case is just and legal. law laid down by Madras high Court in case of Ceebros Hotels Pvt. Ltd. (supra) is squarely applicable to facts of case on hand. 7.00. Considering overall facts and circumstances of case, and applying ratio laid down in case of Ceebros Hotels Pvt. Ltd. (supra) coupled with fact that petitioner is approved for Three Star hotel project, it cannot be said that tribunal has committed any error which requires Page 7 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 C/TAXAP/650/2019 ORDER interference of this Court. No substantial question of law, as proposed, is involved in present Appeal. Hence, present appeal is dismissed. Sd/- (J. B. PARDIWALA, J) Sd/- (A. C. RAO, J) RAFIK Page 8 of 8 Downloaded on : Sat Oct 26 10:35:54 IST 2019 Principal Commissioner of Income-tax 3 v. Raysons Residency Pvt. Ltd