KHANNA INFRABUILD PRIVATE LIMITED ,LUDHIANA vs. THE DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE)-2, LUDHIANA, LUDHIANA

Since the issues involved in all the above appeals are common and were heard together so they are being disposed off by this consolidated order for the sake of convenience and brevity.

The assessee has raised the following grounds in ITA No. 663/Chd/2023 for the A.Y. 2017-18:

The assessee has raised the following grounds in ITA No. 668/Chd/2023 for the A.Y. 2018-19:

The Assessee has raised the following grounds in ITA No. 679/Chd/2023 for the A.Y. 2019-20:

With the consent of the parties, the case of the assessee in ITA No.633/Chd/2023 was taken as the lead case wherein the brief facts of the case are that the assessee was involved in the business of running a hotel. A search and seizure operation,u/s 132 of the Act, was carried out at the hotel premises of the assessee on 21.02.2019. It was noticed from the balance sheet of the assessee company that the assessee company had shown total amount spent on construction of hotel building in different years at Rs.6,14,92,469/-, whereas the value of the building was more. The matter was referred to Departmental Valuation Officer (DVO) for calculating the investments made by the company in the hotel building. The DVO gave the report estimating the cost of construction in various years totaling Rs. 20,21,69,800/-. The Assessing Officer further noted that earlier a separate search action was carried out in the case of another party i.e. M/s Royal Builders on 29.11.2018, during the course of which, certain incriminating documents were found at the premises of the said third party. That document no. 58 found from the premises of M/s Royal Builders showed project wise detail on 12.02.2016, which included the project of M/s Khanna Infrauild Pvt. Ltd. (assessee). He observed that the said document showed that the assessee company had remitted cash payment of Rs.

Being aggrieved by the said order of the Assessing Officer, the assessee company preferred appeal before the CIT(A). The ld. CIT(A) however confirmed the additions so made by the Assessing Officer, rather, on substantive basis in the case of the assessee company observing that it was immaterial as to whether the assessee company had commenced its business or not when, the undisclosed investments were found in the hands of the assessee company.

Against the said findings and directions of the ld CIT(A), the assessee company is in appeal before us.

During the course of hearing, the ld. Counsel for the assessee has submitted that admittedly no incriminating material was found during the course of search action at the premises of the assessee. He has submitted that in the absence of incriminating material found during the search action, the reference to the DVO for determining the estimated cost of construction was not valid. He has further submitted that so far as the reference to some incriminating documents from the office premises of a third party i.e. M/s Royal Builders during an earlier search in the case of the said party was concerned, neither the said documents were brought to the knowledge of the assessee nor the same was confronted to the assessee. He, therefore, has submitted that the reference to the DVO, merely, on the basis of cost shown in the balance sheet of the assessee, without any other incriminating material found during search action, was bad in law. He in this respect has relied upon the latest decision of the Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. [2023] 149 taxmann.com 399 (SC). He in this respect has made the following written submissions also:

The ld. Counsel has further contended that after the search, the department had referred the case to the DVO to assess the cost of construction in respect of the Hotel Building and on the basis of report of the DVO starting from Asstt. Years 2013-14, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20, certain additions had been made on account of difference in the cost of construction as discussed as per DVO report and that matter had come before the Hon'ble ITAT, Chandigarh Bench, Chandigarh in these years i.e. Asstt. Years 2013-14, 2015-16 & 2017-18 and the Hon'ble Bench in a decision reported in 110 ITR (Trib.) 161 (Chd.) both on the legal and on merits, the said additions were deleted and copy of the reported judgments had also been submitted to your goodself.

It was further submitted that the Ld. CIT(A) had followed the order of the CIT(A) in the earlier assessment years, where he had confirmed such addition as per para 7.2.1, at page 23 of the order. Thus, in view of the above said facts, the addition had been deleted by the Hon'ble ITAT in the case of same assessee on similar facts and circumstances and, as such, the grounds No. 1 to 8 as raised before your honour should be allowed.

The ld. DR, on the other hand, has relied upon the findings of the ld. CIT(A) and has submitted that the ld. CIT(A) has rightly confirmed the additions on account of undisclosed investment on the hotel building. At the same time, he fairly submitted that the matter is covered by the decision of the Coordinate Bench as so referred by the ld AR.

We have heard the rival contentions and purused the material available on record. During the course of hearing, our reference was drawn to the findings of the Coordinate Bench (in ITA No. 133-135/Chd/2023 for A.Y 2013-14, 2015-16 and 2016-17) and the same reads as under:

The Coordinate Ahmedabad Bench of the Tribunal in the case of ACIT vs. ShriJayantilal T. Jariwala (supra) taking note of the aforesaid decision of various High Courts, under similar circumstances, has decided the issue in favour of the assessee, observing as under:

Similarly, it is pertinent to note the observations of the Hon’ble Gujarat High Court in the case of CIT Vs. Jayendra N. Shah (supra). The observations in para-8 and 9 are worth to note. They read as under:

Both the issues are based primarily on factual aspects. No question of law, therefore, these appeals are dismissed.”

Similarly, in the case of CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj), the Hon’ble Gujarat High Court has made following observations:

A perusal of the above judgments would indicate that mere valuation report is not sufficient to conclude that the assessee has made unexplained investment.

Even the Hon’ble Delhi High Court in the case of CIT vs. Abhinav Kumar Mittal, reported in (2013) 351 ITR 0020, has taken the similar view.

So far as the reliance by the Assessing Officer to the document found from the premises of third party i.e. M/s Royal Builders was concerned, admittedly the said document was never confronted to the assessee, either during the search action or during the assessment proceedings. The ld. CIT(A), himself, in the impugned order has mentioned that the additions in the case of the assessee have been made on the basis of report of the DVO, rather than, on the basis of documents impounded from the premises of M/s Royal Builders. The ld. CIT(A) has observed that the said documents were a trigger point for reference of the valuation to the valuation officer. However, the facts of the case do not speak so. The search action was carried out in the case of M/s Royal Builders on 29.11.2018. The first contention of the ld. Counsel for the assessee in this respect is that the said statement was never acted upon by the department and even neither confronted to the assessee either during the course of search action or even during the assessment proceedings. Secondly, there was a difference of only Rs.50,00,000/- regarding the cost of construction mentioned in the said document as compared to the cost of construction accounted for by the assessee in the books of account. That the amount mentioned in the said slip was 6.76 crores, whereas, the amount booked by the assessee in the books of account was 5.14 crores and there was a meagre difference noted.

We note that as per the relevant provisions of the Act, if the department wanted to act on the said document, the proceedings could have been initiated u/s 153C of the Act against the assessee by recording satisfaction by the Assessing Officer of the searched person. Thereafter, after receipt of the documents from the Assessing Officer of the searched person, the Assessing Officer of the assessee could have initiated the proceedings u/s 153C of the Act. However, the department did not act on the said documents. Even otherwise, the said slip was a third party document, which was never confronted to the assessee. The difference of the amount mentioned in the said slip was also meager as compared to the additions made by the Assessing Officer. Thirdly, since the said document was not sufficient enough to base additions in this case, the said document at the most could have been a trigger point to initiate search action in the case of the assessee. As per the facts on the file, the matter was referred to the DVO after the search action at the premises of the assessee and admittedly, no incriminating material whatsoever was found during the search action, however no incriminating material was found, which could have been stated to be a trigger point to refer the matter to the DVO.

The other important point in this case is that the report of the DVO is based on pure estimation of investment. The DVO has taken the CPWD rates and as noted above, the CPWD rates are on more than 25% higher side as compared to the state-PWD. there is force in the contention of the ld. AR that a very high profit rate of the contractor is embedded in the departmental rates and further a lot of difference in expenditure occurs between a work got done through government contractor and the workgot done under self-supervision and self-purchasing of the material.

Even otherwise, since the assessee company’s business has not commenced and that the construction of the building was done out of the capital invested by the shareholders and hence, there was no case of earning of any income, what to say of any income from undisclosed sources, therefore, the substantive addition in the hands of the assessee company was not justified. The issue is squarely covered by the various decisions including the decision of the Hon’ble Apex Court in the case of “CIT vs Bharat Engineering & Construction Co.” (supra) as referred to above by the ld. Counsel for the assessee in the written submissions. The action of the CIT(A) in reversing the view point of the Assessing Officer on this issue, therefore, cannot be held to be justified. In view of this, the additions made in the case of the assessee cannot be held to be justified and the same are accordingly ordered to be deleted.

Admittedly and undisputedly, the facts and circumstances of the case are pari-materia with others years where the matter has been decided by the Coordinate Bench (supra). Following the principles of consistency, we see no reason to deviate from the earlier orders of the Coordinate Bench and the same have thus been followed for the impugned assessment year 2017-18 and the additions made in the case of the assessee cannot be held to be justified and the same are accordingly ordered to be deleted.

In the result, ground of appeals no 1-8 of the assessee’s appeal are hereby allowed.

In Ground No. 9, the assessee has challenged the rejection of books of accounts u/s 145(3) of the Act. The Assessing Officer has discussed this issue in para 3.1.5 at page 12 and has mentioned that since there is difference between the amount invested in the building and amount as disclosed in the books of accounts, therefore, the books of accounts are liable to be rejected.

We agree with the contention so advanced by the ld AR as the whole basis of rejection of books of accounts was difference in amount invested in building and as we have deleted the same, there is no justifiable basis for rejection of books of accounts and hence, the said ground of appeal is allowed.

Ground No. 10 deals with action of the Assessing Officer in disallowing the current year business loss being without pointing out any defect and not allowed to be carried forward to the subsequent years.

The Assessing has discussed this issue in para 7 at pages 15 to17 of the order and only ground for disallowing the current year's business loss and not to be allowed to be carried forward was rejection of books of accounts u/s 145(3) of the Act. Now, since the very basis of rejection of books of accounts is not sustainable as discussed above, we see no basis for denying the current year business loss and carry forward of the same for set off in subsequent years. Hence, the ground of appeal is allowed.

In Ground No. 11 & 12, the assessee has challenged the sustenance of disallowance of deduction under section 35AD of the Act.

Briefly, the facts of the case are that during the course of assessment proceedings, the AO observed that the assessee company has claimed deduction of a sum of Rs. 9,88,54,633/- under section 35AD of the Act on account of expenditure incurred on hotel building in the name and style of ‘The Palm Court’. In order to examine the claim so made by the assessee company, the assessee was asked to furnish the certificate of star rating as classified by the Central Government. In response, the assessee submitted a copy of the payment receipt of Rs. 15,000/- for applying for hotel classification and on perusal thereof, the AO observed that the payment receipt does not depict either the date of filing of the application or the name of the Government Agency to which the application has been filed. The AO further referred to the website of National Integrated Database of Hospitality Industry (NIDHI) (www. Nidhi.nic.in) which provides real time details of all the classified and non classified hotels/resorts/guest house in the country and it was observed by the AO that the hotel run by the assessee company in the name of “The Palm Court” was an unclassified hotel of 41 rooms and a copy of the scanned image of the website has been reproduced in the assessment order. The AO accordingly held that the Hotel being run by the assessee company is not registered / classified as a star rated Hotel by the Central Government for the Financial Year under consideration. Further the assessee company has failed to file the copy of the two star or above category certificate as issued by the Central Government in support of its claim of deduction under section 35AD of the Act, accordingly claim of deduction under Section 35AD was disallowed.

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and it was submitted that the assessee had claimed deduction u/s 35AD for the first time in the Assessment Year 2017-18 since the hotel started functioning in early 2017 and the said deduction has been claimed as per the provisions of Section 35 AD which provides that an assessee shall , if he opts, be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him. It was submitted that though the deduction is allowed for each year in which such "expenditure is incurred but in respect of capital expenditure

It was further submitted before the ld CIT(A) that the said approval has since been received from the Ministry of Tourism vide Certificate dated, 14.12.2021 and therefore, the assessee fulfills all the conditions for grant of such deduction u/s 35AD. It was also submitted that since this is a additional evidence which was not available at the time of assessment proceedings, the same may be admitted as additional evidence under Rule 46A since the assessee was prevented by reasonable and sufficient cause in not submitting the same to the Ld. AO and reference was drawn to the judgment of Hon'ble Supreme Court in the case of Tek Ram reported at 357 ITR 133 in which it has been held that additional evidence even if, it is submitted before the High Court/Apex Court, the same deserves to be admitted provided it as a nexus to the issue in hand. It was submitted that this certificate is very much relevant to their claim of deduction u/s 35AD and, therefore, the same deserves admission.

The submissions and additional evidence so filed by the assessee were sent to the AO seeking his comments and the AO in his Remand Report has referred to the provisions of Section 35AD of the Act and in particular the definition of specified business as so provided which talks about “Building and operating, anywhere in India, a hotel of two star or above category as classified by the Central Government”. The AO thereafter stated that during the assessment proceedings, the assessee failed to submit a valid star rating category certificate pertaining to the assessment year 2017-18 to 2019-20, which was the basic requirement/eligibility criteria for claiming deduction u/s 35AD of the Income Tax Act. The new hotel though had commenced its working in the A.Y.2017-18 but was not registered/classified as star rated hotel by the Central Government as no two star or above rating category certificate as classified by the Central Government existed in case of the assessee company till the date of passing of the assessment order for the A.Y.2017-18 to 2019-20. Now during the appellate proceedings, the assessee has submitted a four star rating certificate issued by the Ministry of Tourism dated 14.12.2021 (valid from 14.12.2021 to 13.12.2026) and a perusal of the additional evidence shows that the four star rating certificate of the assessee company is valid from December 2021 to December 2026 (i.e. A.Y.2022-23 onwards). Thus, proving the fact & the observation made in the assessment order that the assessee does not had a valid star rating certificate and thus failed to submit the documentary evidence of the eligibility criteria of claiming deduction u/s 35AD of the Income Tax Act. Also, the additional evidence proves beyond doubt that the Hotel run by the assessee company in the name & style of "The Palm Court" does not held any two star & above rating certificate issued by the component authority during the A.Y.2017-18, A.Y.2018-19 & A.Y.2019-20, which was mandatory for being covered under the definition of specified business and claiming deduction u/s 35AD of the Income Tax Act. Thus, the claim of deduction under section 35AD remains non-allowable for the above mentioned 3 A.Y's (A.Y.2017-18 to A.Y.2019-20). Keeping in view the above, it was requested that the additional evidence given by the assesses may not be accepted and the appeal of the assessee may be decided accordingly on the merits of the case.

Thereafter, the assessee company in his rejoinder submitted that from the above bare reading of the section 35AD, it is very much clear that the deduction is allowable of the expenditure, which is capitalized in the books of accounts and the same is allowable in the previous year, in which the commencement of business takes place and ‘hotel’ is one of the ‘specified category'. Further, if the assessee claims such deduction," then no depreciation is allowed to the assessee. It was submitted that the assessee had filed its return of income u/s 139 (1) on due date and in the computation of income, we have disallowed the provisions for depreciation in each year and claimed the deduction u/s 35AD and there is a loss, which have been carried forward. It was submitted that the Hotel was started, which is very much clear from the annual audited accounts of the assessee, which copies have been filed in the earlier paper book and there is revenue from operation of Rs 22,62,584/- in A.Y 2017-18, 6,90,65,650/- in AY 2018-19 and 8,92,64,179/- in AY 2019-20. Thus, from the above paragraph, it is established that the hotel had started functioning from Asstt. Year 2017-18 and, thus, there should not be any dispute for deduction u/s 35AD.

Regarding the contention of the Assessing Officer that as per certificate, it was valid from 14 December 2021 to 13 December 2026, it was submitted that the issuance of certificate is only a formality and, whereas, the fact is that the hotel has already started the working and, therefore, the said deduction is allowable in Asstt. Year 2017-18 particularly, when the assessee had added back the depreciation and the revenue from operations have been declared and accepted by the department. The contention of the Assessing Officer in the remand report that since in the certificate, the date is different is not allowable, is not a correct observation because, there is no such time limit for obtaining star

The submissions so filed by the assessee and the remand Report by the AO were considered by the Ld. CIT(A). As per Ld. CIT(A), the language in the Act is very clear and there is no ambiguity in this regard as to the eligibility for claim of deduction under Section 35AD of the Act. As per the Ld. CIT(A), a bare reading of the certificate proves that no such valid certificate was in existence during the year under consideration and hence the claim of the assessee under Section 35AD is not in order during the year under consideration. The Ld. CIT(A) further held that various decisions cited by the assessee in its submissions are distinguishable on the facts, hence the disallowance so made by the AO was confirmed.

Against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the ld AR taken us through the submissions made before the lower authorities and legal authorities on the subject and it was submitted that the same have not been appreciated properly by the authorities and the claim of deduction which has rightly been claimed by the assessee company has been wrongly denied. It was submitted that the assessee had claimed deduction for the first time in Asstt. Year 2017-18, since the Hotel had started its operations and all details were submitted before the Assessing Officer, but only 'Star Rating Certificate' to substantiate the claim could not be filed and, therefore, the said deduction was disallowed by the Assessing Officer. It was submitted that it was submitted that certificate regarding the proof of star rating as classified by the Central Govt, could not be submitted before the AO and said certificate was received from the Ministry of Tourism vide certificate, dated 14.12.2021 and, thus, it was stated that the assessee fulfilled all the condition and requested for admission of additional evidence. On this issue, the remand report of the Assessing Officer was called for and the Ld. Assessing Officer has stated that since four star rating certificate of the assessee company is valid from 14.12.2021 to 13.12.2026 and, thus, for the year under consideration, since the said certificate was not there and, therefore, no such deduction is allowable. It was submitted that in response, it was submitted that the revenue have been generated by the Hotel as per details filed at page 20 of the order of CIT(A) order and, therefore, it was stated that the Hotel started its working in financial year 2016-17 and issuance of certificate was just a formality because in the section, no such time for obtaining the star rating had been required in the above said section and the only requirement was that it should be classified as operational as two or more star Hotel by the Central Govt, and, reliance was placed, on the judgments of 'Ahmedabad Tribunal', 'Madras High Court', 'Chennai Bench' and 'Varanasi Tribunal' and copies of same have been submitted at paper books pages 165 to221 and certificate of the Central Govt, have been placed at pages 130 to 132 of the Paper Book. It was submitted that the Ld. CIT (A) has given his finding on this issue in para 7.5 and has only stated that since the Hotel was not registered as a Star Hotel as required under the Act and, therefore, this ground was dismissed. It was submitted that the Hotel consisting of 41 rooms and started its working in Asstt. Year 2017-18, which is a fact and the case laws as cited

In his submissions, the ld CIT/DR submitted that the hotel being run by the assessee was not a star rated hotel during the financial year relevant to impugned assessment year in absence of any star rating certificate issued by the Ministry of Tourism. It was submitted that the assessee company only submitted a copy of the payment receipt that shows the date of 20/01/2018 during the course of assessment proceedings and no other information was submitted and in absence thereof, the AO has rightly denied the claim of the deduction u/s 35AD of the Act. It was submitted that the impugned assessment year, being the first year of claim of deduction, it was incumbent on part of the AO to verify the satisfaction of relevant conditions before allowing the claim of deduction and since, the assessee failed to produce any star rating certificate issued by the Competent authority, the action of the AO cannot be faulted. It was further submitted that the assessee subsequently produced the four star rated certificate during the course of appellate proceeding and thus, as far as existence of such certificate is concerned, there is no dispute, at the same time, it needs to be noted that such certificate was issued on 14/12/2021 and it was valid for the period 14/12/2021 to 13/12/2026 and thus, both the issuance of certificate as well as validity of the said certificate is for the period subsequent to the financial year relevant to impugned assessment year and such a certificate therefore cannot form the basis for claim of deduction for the impugned assessment year. It was accordingly submitted that where the ld CIT(A) has held that the language in the statue is clear and there is no doubt for ambiguity, he

We have heard the rival contentions and perused the material available on the record. The issue under consideration relates to claim of deduction under Section 35AD of the Act. Sub-Section (1) of Section 35AD provides that an assessee shall, if he opts, be allowed deduction in respect of the whole of any expenditure of capital nature incurred wholly and exclusively for the purpose of any specified business carried on by him during the previous year in which such expenditure is incurred by him. It has further been provided that where the expenditure is incurred prior to the commencement of its operation and the amount is capitalised in the books of accounts of the assessee on date of commencement of its operation, the expenditure incurred wholly and exclusively for the purposes of specified business shall be allowed as deduction during the previous year in which it commences operation of his specified business. Sub-Section (2) of Section 35AD provides that section applies to specified business which is not set up by splitting up or the reconstruction of a business already in existence and is not set up by the transfer to the specified business of machinery or plant previously used for any purposes. Sub-Section (5) of Section 35AD provides that the provision of this section shall apply to the specified business where it commences its operation on or after the 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 and thereafter, under Sub-Section 8(c)(iv) of Section 35AD, the phrase “specified business” has been defined interalia to mean “building and operating anywhere in India a hotel of two star or above category as classified by the Central Government”.

In the instant case, the Assessing officer held that the Hotel being run by the assessee company is not registered / classified as a star rated Hotel by the Central Government for the financial year under consideration. Further, the assessee company has failed to file the copy of the two star or above category certificate as issued by the Central Government in support of its claim of deduction under section 35AD of the Act and for the said reasons, the claim of deduction under Section 35AD was disallowed. It is further noted that during the appellate proceedings, the assessee has produced the four star rating certificate issued by the Ministry of Tourism dated 14.12.2021 which was valid from 14.12.2021 to 13.12.2026. The AO in the remand report has stated that the new hotel though had commenced its working in the A.Y.2017-18 but was not registered/classified as star rated hotel by the Central Government as no two star or above rating category certificate as classified by the Central Government existed in case of the assessee company till the date of passing of the assessment order for the A.Y.2017-18 to 2019-20. It has been further stated by the AO that the assessee has submitted during the appellate proceedings a four star rating certificate issued by the Ministry of Tourism dated 14.12.2021and a perusal of the same shows that the four star rating certificate of the assessee company is valid from December 2021 to December 2026 (i.e. A.Y. 2022-23 onwards), thus, proving the fact & the observation made in the assessment order that the assessee does not had a valid star rating certificate and thus failed to submit the documentary evidence of the eligibility criteria of claiming deduction u/s 35AD of the Income Tax Act. It was further stated by the AO that the additional evidence in terms of star rating certificate proves beyond doubt that the Hotel run by the assessee company in the name & style of "The Palm Court" does not held any two star & above rating certificate issued by the component authority during the A.Y.2017-18, A.Y.2018-19 & A.Y.2019-20, which was mandatory for being covered under the definition of specified business and claiming deduction u/s 35AD of the Income Tax Act.

We therefore have a situation where the hotel run by the assessee was not granted any star rating for the financial year relevant to the impugned assessment year 2017-18, and subsequent to the close of the assessment proceedings, the assessee got the four star rating certificate on 14/12/2021 valid for the period starting 14/12/2021 to 13/12/2026 and which was furnished during the course of appellate proceedings before the ld CIT(A), and in such a situation, whether the same would be in compliance with the provisions of Section 35AD and in particular, the definition of the “specified business” as so defined therein and the assessee can be held eligible for claim of deduction u/s 35AD of the Act.

The provisions of Section 35AD and in particular, the matter relating to grant of star rating to the hotel, came up for consideration before the Hon’ble Madras High Court in the case of CIT vs. Ceebros Hotels Pvt. Ltd. (supra) wherein briefly the facts of the case were that the assessee filed its return claiming deduction under section 35AD(5)(aa) and the AO while completing the assessment under section 143(3) denied the benefit on the ground that the assessee obtained the classification as a three star category hotel only during the next year. The Tribunal allowed the claim of the assessee and on Revenue’s appeal, the Hon’ble High Court, referring to the contention advanced by the Ld. Standing Counsel for the Revenue that obtaining the star category recommendation from Ministry of Tourism, Government of India is a pre requisite for being entitled to benefit of Section 35AD of the Act, held that the requirement for obtaining classification with regard to the star category hotel is neither in the hands of the assessee nor of the Revenue, that the classification is done by the Ministry of Tourism, Government of India and what is required to be seen in the case on hand is as to how the assessee has been treated by the Department and thereafter, referring to the findings of the Tribunal, the Hon’ble High Court has upheld the findings of the Tribunal has fully correct. It was further held by the Hon’ble High Court that Section 35AD(5)(aa) of the Act does not mandate that the date of certificate should be w.e.f a particular date. It was held that the provisions of Section 35AD which is obviously to encourage establishment of hotels of a particular category should be read as a beneficial provision and in this regard, we deem it useful to reproduce the legal proposition so laid down by the Hon’ble High Court which are contained at para 16 of its order and the same reads as under:

Similar issue came up for consideration before the Coordinate Varanasi Benches in case of Benares Hotels Ltd. Vs. DCIT (Supra) wherein the briefly of the facts of the case were that the AO held that the newly commenced hotel qua which the deduction was claimed by the assessee was not of specified category though assessee had started operating hotel, that there was no formal launch and Government of India had not issued any classification certificate certifying hotel as a four star hotel and claimed of deduction u/s 35AD was denied. Thereafter, the Commissioner (Appeals) concurred with the AO’s findings and held that certificate approving four star hotel category issued by Ministry of Tourism was issued post passing of the assessment order on 31/01/2018 w.e.f 29/01/ 2018 and since the assessee did not have requisite classification certification in year under consideration, the benefit of deduction

It would also be apt, at this stage, to reiterate what the Ministry of Tourism, Government of India, has observed, in the opening lines (APB:253) of its "Guidelines for classification/re- classification of hotels", as under: "Hotels are an important component of the tourism product. They contribute to the overall tourism experience through the standards of facilities and services offered by them. With the aim to provide contemporary standards of facilities and services, the Ministry of Tourism has formulated a voluntary scheme for approval of hotel projects........... Thus, the impetus to be granted to the hotel industry being the aim of the Government of India, is again evident. Now, the classification certificate) in question is also as per the Guidelines issued by the Ministry of Tourism. This, again, has not been called in question.

To sum up, our observations on this issue are a savoir faire: (1) The Id. CIT (A) has erred in confirming the assessment order in refusing to allow the deduction claimed under section 35AD of the Act. (ii) The certificate of classification issued in favour of the assessee has not been doubted. (iii) The date of issuance of this certificate/the period for which the classification has been granted, is irrelevant for the grant of deduction under section 35AD of the Act. (iv) 'Ceebros' (supra) is categorical in this regard. (v) No decision contrary to 'Ceebros' (supra) has been cited before us. (vi) The Id. CIT (A) did not have the benefit of 'Ceebros' (supra) while passing the order under consideration, 'Ceebros' (supra) having been rendered post-the passing of the Id. CIT (A)'s order. (vii) The facts with regard to the certificate having been granted in the year subsequent to the year under consideration, are not of any detriment to the assessee, in keeping with 'Ceebros' (supra). (viii) Even if, arguendo, these facts were to be accepted, they do not detract from the settled position [as per 'Ceebros' (supra)], that once the conditions of section 35AD are fulfilled, the section, per se, not requiring any specific date of operation, the deduction thereunder cannot be disallowed.

In view of the above, finding the grievance of the assessee by way of Ground No.1, to be justified, we accept the same. The disallowance of deduction claimed under section 35AD of the Act, as upheld by the Id. CIT (A), is, therefore, deleted.”

We find that similar matter came up for consideration before the Coordinate Ahmedabad Benches in case of ACIT VS River View Hotels (supra)

Following the aforesaid authorities on the subject, in the instant case, we find that the hotel being run by the assessee has been duly granted a four star rating certificate by the Ministry of Tourism, Government of India and thus, it qualify as a specified business for the purposes of claim of deduction u/s 35AD of the Act. The compliance of other conditions are not in dispute. In view of the same, we are of the considered view that there is no justifiable basis to deny the claim of deduction and the assessee is held eligible for claim of deduction u/s 35AD of the Act. The findings of the AO and that of the ld CIT(A) are hereby set- aside and the AO is directed to allow the deduction as so claimed by the assessee u/s 35AD of the Act. In the result, the ground of appeal is allowed.

In the result, the appeal of the assessee is allowed.

Both parties fairly submitted that similar facts and circumstances of the case are involved in the two other appeals and similar contentions as raised aforesaid may be considered, hence, our findings given above will apply mutatis mutandis to ITA No. 668 & 679/CHANDI/2023 and these two appeals are also allowed.

In the result, all the three appeals of the assessee are allowed.

""यथ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File