THE PRINCIPAL COMMISSIONER OF INCOME TAX 3 vs. M/S RAYSONS RESIDENCY PVT. LTD.

C/TAXAP/650/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 650 of 2019 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX 3 Versus M/S RAYSONS RESIDENCY PVT. LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant MR BS SOPARKAR(6851) for the 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 the Income Tax Act has been preferred by the revenue against the order passed by the 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 the present Appeal in nutshell are as under :- 2.01. The assessee is engaged in the business of builder and operating hotel of Two Star and above category as classified by the Central government of India. 2.02. According to the assessee, capital expenditure Page 1 of 8

C/TAXAP/650/2019 ORDER incurred wholly and exclusively for the purpose of any specified business carried out by him during the previous year shall not include expenditure on land, goodwill and financial instruments incurred by the assessee as he has claimed exemption u/s.10AA of the Act and he also claimed deduction u/s.35AD of the Act as he has obtained license from the competent authority. 2.03. That the A.O. made disallowance of claim of deduction u/s. 35AD of the Act of Rs.6,26,94,610/- on account of failure on the part of assessee to furnish any evidence from which it can be established that a separate approval had been taken to avail the concession under Income Tax Act, 1961 during the course of assessment proceedings. 2.04. The aforesaid assessment order passed by the A.O. was challenged by the assessee before the Commissioner of Income Tax (Appeals) by way of filing Appeal No.CIT(A)- 9/587/DCIT.Cir-3(1)(2)/14-15. The Commissioner (Appeals) dismissed the appeal holding that the addition made by the A.O. was unwarranted and therefore, he ordered to delete the addition made by the A.O. 2.05. Against the aforesaid order passed by the Commissioner (Appeals), the revenue preferred appeal before the Income Tax Appellate Tribunal, C-Bench, Ahmedabad in ITA No.3214/Ahd/2015 for A.Y. 2012-13 and the tribunal dismissed the appeal vide order dated 28/02/2019 holding that the assessee has submitted the details with supporting documents which entitles him for the deduction under section 35AD(5)(aa) of the Act and therefore, the assessee is entitled to the Page 2 of 8

C/TAXAP/650/2019 ORDER deduction. 3.00. Against the aforesaid order passed by the tribunal, the appellant - revenue has preferred the present Appeal with the following proposed question of law :- "Whether the appellate tribunal has erred in law and on facts in allowing deduction of Rs.6,26,94,610/- u/s.35AD of the Act in A.Y. 2012-13 in the absence of statutory certificates of classification for star rating which is mandatory as per the provision of section 35AD of the Act?" 4.00. Ms.Mauna Bhatt, learned counsel has contended that the assessee has failed to produce any evidence to establish that there was separate approval and is granted under section 35AD(5)(aa) of the Act. It is contended that the order of the tribunal is erroneous. The tribunal has failed to take into account the fact that the assessee could not furnish the Certificate having been prescribed by law. It is contended that the order of the 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 the assessee has contended that the order passed by the tribunal is just, legal and as per the evidence. 5.01. Mr.Soparkar has also drawn attention of this Court to the observations made by tribunal in the impugned order. Page 3 of 8

C/TAXAP/650/2019 ORDER 5.02. Mr.Soparkar has also relied upon the decision of the Madras High Court in the 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 the present appeal. 6.00. Heard Ms.Mauna Bhatt, learned standing counsel appearing for the revenue and Mr.B.S. Soparkar, learned counsel appearing for the assessee at length. 6.01. The tribunal while dismissing the appeal preferred by the revenue observed in paras 2, 3, 4 and 5 as under :- "2. Thereafter, against the disallowance of Rs.6,26,69,610/- made under section 35AD(5)(aa) of the Act, assessee preferred first statutory appeal before the Ld. CIT(A) who allowed the appeal of the assessee on the ground that no specific permission is laid down in section 35AD and/or relevant income tax rules the 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 the assessee. 3. Now Revenue has come before us against the order of the Ld. CIT(A), we have gone through the Page 4 of 8

C/TAXAP/650/2019 ORDER relevant record and amount the question before us is whether assessee is entitled for deduction under section 35AD(5)(aa) of the Act or not and in order to avail the benefits of sec.35AD(5)(aa) of the Act assessee has to fulfill the conditions being expenditure incurred prior to commencement of its operation and the amount is capitalize in the books of accounts of the assessee on the operation. As per the provisions of section, any capital expenditure incurred by the assessee prior to commencement of operation of the new unit shall be allowed as deduction in the previous year in which the assessee commences the 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 the specified business is in the nature of building and operating a new hotel of Two Star or above category as classified by the Central Government." In respect of its contention assessee submitted copy of operation granted by the Ministry of Tourism letter dated 30/08/2010 where approval of three Star Hotel has been granted by the Ministry and assessee has filed Building Use Permission issued by the Municipal Authority dated 18/10/2011 for granting the permission of hotel and assessee submitted details with the 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

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. The CIT(A) in our view has rightly come to the conclusion in favour of the assessee. Thus, we dismiss the appeal of the Revenue. 5. In the result, appeal filed by the Revenue is dismissed." 6.02. At this juncture, the following observation made by the Madras High Court in the case of Ceebros Hotels Pvt. Ltd. (supra) are required to be considered : "The Test would be as to whether the provisions of section 35AD of the Act would apply to specified business referred to in sub-section (2) if it commences operations and in the case of business like that of the assessee, on or after April 1, 2010 Page 6 of 8

C/TAXAP/650/2019 ORDER where specified business is in the nature of building and operating new hotel of Two Star or above category as classified by the Central government. We find nowhere in clause (aa) to sub-section (5) of section 35AD of the Act mandating that the date of certificate should be with effect from a particular date. Therefore, the provision which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision and therefore, the interpretation given by the Tribunal considering the facts of the case is perfectly valid and justified. For the above reasons, we find no grounds to interfere with the order passed by the Tribunal. Accordingly, the above tax case appeal is dismissed. No costs." 6.03. In the case on hand, the Central Government has approved the proposal of the assessee for Three Star Hotel project and therefore, the interpretation made by the tribunal considering the fact of the case is just and legal. The law laid down by the Madras high Court in the case of Ceebros Hotels Pvt. Ltd. (supra) is squarely applicable to the facts of the case on hand. 7.00. Considering the overall facts and circumstances of the case, and applying the ratio laid down in the case of Ceebros Hotels Pvt. Ltd. (supra) coupled with the fact that the petitioner is approved for Three Star hotel project, it cannot be said that the tribunal has committed any error which requires Page 7 of 8

C/TAXAP/650/2019 ORDER interference of this Court. No substantial question of law, as proposed, is involved in the present Appeal. Hence, present appeal is dismissed. Sd/- (J. B. PARDIWALA, J) Sd/- (A. C. RAO, J) RAFIK Page 8 of 8