M/s Sirmour Hotels (P) Ltd., Sirmour V. CIT, Shimla

ITA 604/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63948 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: M L JHAMBA
• Keywords: Depreciation; Assessment record; Revised return
• Section: 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 604/CHD/2012 ASSESSMENT YEAR: 2007-08 M/S SIRMOUR HOTELS (P) LTD., VS THE DCIT, CIRCLE, SIRMOUR PARWANOO PAN NO. AACCS5530J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.L. JHAMBA RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 30.08.2012 DATE OF PRONOUNCEMENT : 24.09.2012 ORDER PER T.R.SOOD, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT, SHIMLA RELATING TO ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE ORDER PASSED U/S 263 BY THE LD. CIT IS ILL EGAL. 2. THAT THE LD. CIT IS NOT JUSTIFIED IN SETTING ASIDE THE ORDER U/S 263. 3. THAT ANY OTHER GROUND OF APPEAL WHICH MAY BE ADVANC ED AT THE TIME OF HEARING OF APPEAL. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT UPON EXAMIN ATION OF THE ASSESSMENT RECORD, LD. COMMISSIONER WAS OF THE VIEW THAT CLAI M FOR DEDUCTION U/S 80IC OF THE ACT WAS NOT ALLOWABLE. HE WAS ALSO OF THE V IEW THAT NO PROPER ENQUIRIES HAVE BEEN CONDUCTED, THEREFORE, A SHOW CAUSE NOTICE U/S 263 WAS ISSUE. THROUGH THE SHOW CAUSE NOTICE, FOLLOWING TW O REASONS WERE GIVEN FOR THE PROPOSED ACTION U/S 263 OF THE ACT. THERE WAS NO SUBSTANTIAL EXPANSION OF THE BUSINESS WITHIN THE MEANING OF SUB-CLAUSE (IX) OF SUB-SECTION 8 OF SECT ION 80IC OF THE ACT BECAUSE THE INCREASE IN VALUE IN PLANT AND MACHINERY DURING PREVIOUS YEAR 2005-06 WAS LESS THAN 50% OF T HE BOOK VALUE OF SUCH ASSETS AS ON 1.4.2005. THE ENTRY NO.15 OF THE SCHEDULED XIV OF THE INCOME TAX ACT MAKES ACTIVITY OF ECO-TOURISM TO BE ELIGIBLE FOR DE DUCTION U/S 80IC OF THE ACT. THE ASSESSEE RUNS A HOTEL IN A CI TY. THIS HOTEL IS NOT A PART OF ANY ECO-TOURISM PROJECT. SINCE TH E ASSESSEE WAS NEITHER MANUFACTURING NOR PRODUCING ANY ARTICLE OR THING AND SINCE IT WAS NOT COVERED IN THE ENTRY NO.15 OF THE SCHEDULE XIV OF THE INCOME TAX ACT, IT WAS NOT ELIGIBLE FOR DEDU CTION U/S 80IC OF THE ACT. IN RESPONSE TO SHOW CAUSE NOTICE, IT WAS MAINLY SUB MITTED THAT A REVISIONARY ORDER U/S 263 OF THE ACT CAN BE PASSED ONLY IF THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF REVENUE. IT WAS SUBMITTED THAT ASSESSMENT ORDER WAS NEITHER ERRONEO US NOR PREJUDICIAL BECAUSE THE ASSESSING OFFICER WAS CORRECT IN HOLDIN G THAT ASSESSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION WITHIN THE MEANIN G OF SUB-CLAUSE (IX) OF SUB-SECTION 8 OF SECTION 80IC OF THE ACT AND THE AC TIVITY OF RUNNING A HOTEL IS COVERED IN THE INCLUSIVE DEFINITION OF ECO-TOURISM GIVEN IN ENTRY NO. 15 OF 3 SCHEDULE XIV OF THE INCOME TAX ACT. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS SHIVALIK HATCHERY LTD [2010] 329 ITR 432 (HP) IN WH ICH IT WAS HELD THAT IN SPECIFIC CASES, BUILDING CAN BE CONSTRUED AS A PLAN T. THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE DELHI BENCH OF THE TRIBUNA L IN THE CASE OF BIDHI CHANDI SINGHAL, HOTEL TOURIST EMPIRE, RUDRAPUR VS I TO RUDRAPUR IN ITA NO. 3419/DEL/2009 DATED 4.11.2010. 4. THE LD. COMMISSIONER AFTER EXAMINING THE SUBMISS IONS WAS NOT SATISFIED. HE OBSERVED THAT IN THE CASE OF GEE VEE ENTERPRISES VS ADDL CIT (1975) 99 ITR 375 (DEL) IT HAS BEEN HELD THAT THE W ORD ERRONEOUS INCLUDES CASES WHERE THE ASSESSING OFFICER HAS REMAINED PASS IVE AND HE HAS FAILED TO ASCERTAIN TRUE FACTS BY MAKING NECESSARY ENQUIRY. THE SAME PRINCIPLE HAS BEEN REITERATED IN NUMBER OF JUDICIAL PRONOUNCEMENT S. A CLEAR ENUNCIATION OF THIS PRINCIPLE IS ALSO AVAILABLE IN FOLLOWING RECEN T JUDGMENTS: DUGGAL AND CO VS CIT (1996) 220 ITR 456(DEL); CIT, MUMBAI V HIND USTAN LEVER LTD. 2012-TIOL-171-HC-MUM; CIT V DLF POWER LTD 2011-TIOL -850-HC- DEL AND CIT VS REGENCY PARK PROPERTY MANAGEMENT SERVICE S PVT LTD 2012- TIOL-75-HC-DEL. HE ALSO OBSERVED THAT PREJUDICIAL TO THE INTEREST OF REVENUE IS A TERM OF WIDE IMPORT AND IF ASSESSING OFFICER FAILS TO AP PLY HIS MIND TO THE CASE IN THE RIGHT PERSPECTIVE, THERE IS PREJUDICE TO THE IN TEREST OF REVENUE. THOUGH, IT IS CORRECT IN VIEW OF THE DECISION OF MALABAR INDUS TRIAL CORPORATION LTD V CIT (2000) 243 ITR 83 (SC) THAT IF THE ASSESSING OF FICER TAKES ONE OF THE POSSIBLE VIEW THEN ASSESSMENT ORDER CANNOT CALLED E RRONEOUS BUT SUCH VIEW SHOULD BE PERMISSIBLE VIEW. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS 4 FAILED TO VERIFY THE CLAIM REGARDING DEDUCTION U/S 80IC OF THE ACT AND HAS FURTHER FAILED TO VERIFY HOW THE ASSESSEES ACTIVIT Y FALLS WITHIN THE ENTRY NO.15 OF SCHEDULE XIV OF INCOME TAX ACT, 1961. THE REFORE, ORDER OF ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSING OFFICER FURTHER FAILED TO INQUIRE INT O THE NATURE OF ADDITIONS TO PLANT AND MACHINERY AND WHETHER SUCH ADDITIONS MADE BY THE ASSESSEE SATISFY THE CONDITION OF SUBSTANTIAL EXPANSION WITHIN THE M EANING OF SUB-CLAUSE (IX) OF SUB SECTION (8) OF SECTION 80IC OF THE ACT. THE ASSESSING OFFICER DID NOT QUESTION WHETHER THE ADDITION TO THE BUILDING CONST ITUTES AN ADDITION TO PLANT AND MACHINERY OF THE ASSESSEE. PLANT IS DEFINED IN SUB-SECTION 3 OF SECTION 43 OF THE ACT. BY FINANCE ACT, 2003 AND W.E.F. 1.4 .2004, BUILDINGS FURNITURE AND FIXTURES HAVE BEEN SPECIFICALLY EXCLUDED FROM D EFINITION OF PLANT. EVEN PRIOR TO THIS CHANGE IN DEFINITION, WHOLE OF BUILDI NG COULD NOT BE CONSIDERED PLANT AND MACHINERY AND IN THIS REGARD HE RELIED UP ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS TAJ MAHAL HOTE L (1971) 82 ITR 44 (SC) AND CIT VS ANAND THEATRES (2000) 244 ITR 192 (SC). HE OBSERVED THAT DECISION IN THE CASE OF SHIVALIK HATCHERY LTD (SUPR A) IS CLEARLY DISTINGUISHABLE BECAUSE IN THAT CASE THE COURT WAS CONCERNED WITH THE QUESTION WHETHER POULTRY SHED DESIGNED SPECIFICALLY TO PROTECT BIRDS FROM DISEASES AND TO FACILITATE PROPER ARRANGEMENT FOR C OLLECTION OF MANURE AND DROPPINGS CAN BE CONSIDERED AS PLANT. IN THIS BACKG ROUND, THE LD. COMMISSIONER HELD THAT ORDER PASSED BY ASSESSING OF FICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND HE SET A SIDE THE SAME AND DIRECTED THE ASSESSING OFFICER TO PASS FRESH ORDER AFTER MAK ING NECESSARY ENQUIRIES WHETHER THE CLAIM OF THE ASSESSEE U/S 80IC OF THE A CT WAS ADMISSIBLE OR NOT. 5 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER HAS MADE PROPER ENQUIRES AND IN THIS REGARD HE REFERRED TO PAGES 3 TO 5 OF THE QUESTIONNAIRE ISSUED BY THE ASSESSING OFFI CER AND THE REPLY GIVEN BY THE ASSESSEE VIDE PAGES 6 & 7. THESE QUERIES AND R EPLIES CLEARLY SHOWS THAT ASSESSING OFFICER HAS CONDUCTED PROPER ENQUIRES. S IMPLY BECAUSE ENQUIRY WHICH HAS BEEN SATISFACTORILY ANSWERED BUT DOES NOT REFLECT IN THE ASSESSMENT ORDER WOULD NOT MAKE AN ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN THIS REGARD, HE RELIED UPO N THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS ASHI SH RAJPAL (2010) 320 ITR 674(DELHI) AND PARTICULARLY REFERRED TO THE OBSERVA TION OF THE COURT AT PAGE 687, WHICH READS AS UNDER:- THE FACT THAT A QUERY WAS RAISED DURING THE COURSE OF SCRUTINY WHICH WAS SATISFACTORILY ANSWERED BY THE ASSESSEE B UT HE DID NOT GET REFLECTED IN THE ASSESSMENT ORDER, WOULD NO T BY ITSELF LEAD TO A CONCLUSION THAT THERE WAS NO ENQUIRY WITH RESPECT TO TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE FAC T THAT THERE WAS AN ENQUIRY CAN ALSO BE DEMONSTRATED WITH THE HE LP OF THE MATERIAL AVAILABLE ON RECORD WITH THE ASSESSING OFF ICER. 6. HE REFERRED TO ANOTHER DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS SUN BEAM AUTO COMPANY LTD [2011] 332 ITR 167 (DELHI) MAKING THE SIMILAR OBSERVATION. HE VEHEMENTLY ARGUED THAT IN ANY CASE, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE ON MERITS BY THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS RAGHUNA TH SINGH THAKUR, SHIMLA IN ITA NOS. 152 & 469/CHD/2010 ORDER DATED 22.6.201 2 (COPY OF THE ORDER IS FILED). HE ALSO CONTENDED THAT HOTEL BUILDING SHOU LD BE CONSTRUED AS PART OF THE PLANT AND IN THIS REGARD HE RELIED UPON THE DEC ISION OF HON'BLE HIMACHAL 6 PRADESH HIGH COURT IN THE CASE OF CIT VS S SHIVALIK HATCHERIES P.LTD (SUPRA). 7. ON THE OTHER HAND, LD. DR SUBMITTED THAT MERE PE RUSAL OF THE ASSESSMENT ORDER WOULD CLEARLY SHOW THAT NO ENQUIRY HAS BEEN MADE BY THE ASSESSING OFFICER. THE ASSESSMENT ORDER WOULD BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE EVEN WHEN NO ENQUIRY HAS BEEN MADE BY THE ASSESSING OFFICER AND IN THIS REGARD SHE RELIED UPO N THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAMPYARI DEVI SARAOGI V CIT [1968] 67 ITR 84 AND IN THE CASE OF TARA DEVI AGGARWAL V CIT [1973] 88 ITR 323 (SC). SHE ALSO RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT WHICH HAS BEEN CITED BY LD. COMMISSIONER IN THE CASE OF G EE VEE ENTERPRISES VS CIT ((SUPRA). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY IN THE LIGHT OF MATERIALS AVAILABLE ON RECORD AS WELL AS DECISIONS CITED BY THE PARTIES. THE HON'BLE DELHI HIGH COURT HAS DISCUSSED THE IMPORTAN CE OF INQUIRY IN THE CASE OF GEE VEE ENTERPRISES (SUPRA) AND HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAMPYARI DEVI SARAOGI VS CIT (SUPRA). ULTIMATELY, HON'BLE COURT WHILE GIVING THE REASONS FOR CONDUCTING PROPER ENQUIRIES AND IN CASE OF FAILURE OF SUCH ENQUIRES, WHY THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E OBSERVED AT PAGE 386 AS UNDER:- THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME-TAX OFFICER IS VERY DIFFERENT FROM THAT OF A CIVIL COURT. THE STATEMENTS MADE IN A PLEADING PROVED BY THE MIN IMUM AMOUNT OF EVIDENCE MAY BE ACCEPTED BY A CIVIL COURT IN THE 7 ABSENCE OF ANY REBUTTAL. THE CIVIL COURT IS NEUTRAL . IT SIMPLY GIVES DECISION ON THE BASIS OF THE PLEADING AND EVI DENCE WHICH COMES BEFORE IT. THE INCOME-TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REM AIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDE R BUT CALLS FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN TH E TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CIRCUMSTANCES O F THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY. THE MEANING TO B E GIVEN TO THE WORD ' ERRONEOUS ' IN SECTION 263 EMERGES OUT O F THIS CONTEXT. IT IS BECAUSE IT IS INCUMBENT ON THE INCO ME-TAX OFFICER TO FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDE NT THAT THE WORD 'ERRONEOUS IN SECTION 263 INCLUDES THE F AILURE TO MAKE SUCH AN INQUIRY. THE ORDER BECOMES ERRONEOUS B ECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE T HERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STAT ED THEREIN ARE ASSUMED TO BE CORRECT. 9. FROM THE ABOVE, IT IS CLEAR THAT ASSESSING OFFIC ER IS NOT ONLY AND ADJUDICATOR OF A DISPUTE BETWEEN REVENUE AND THE AS SESSEE BUT HE ALSO HAS TO PLAY A ROLE OF INVESTIGATOR ON BEHALF OF THE REVENU E. IT IS ALSO TRUE THAT SOMETIMES HE MAY MAKE ENQUIRES AND HE MAY BE SATISF IED WITH THE REPLIES OF THE ASSESSEE AND SUCH SATISFACTION MAY NOT BE REFLE CTED IN THE ASSESSMENT ORDER AS OBSERVED BY THE HON'BLE DELHI HIGH COURT I N THE CASE OF CIT VS ASHISH RAJ PAL (SUPRA) AND CIT VS SUNBEAM AUTO LTD [2011] 332 ITR 167 (DELHI). THE RELEVANT OBSERVATION IN THE CASE OF CIT VS ASHISH RAJ PAL CONTAINED IN PARA 18 WHICH WAS HEAVILY RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IS AS UNDER:- THE FACT THAT A QUERY WAS RAISED DURING THE COURSE OF SCRUTINY WHICH WAS SATISFACTORILY ANSWERED BY THE A SSESSEE BUT DID NOT GET REFLECTED IN THE ASSESSMENT ORDE , WOULD NOT BY ITSELF LEAD TO A CONCLUSION THAT THERE WAS NO EN QUIRY WITH 8 RESPECT TO TRANSACTIONS CARRIED OUT BY THE ASSESSEE . THE FACT THAT THERE WAS AN ENQUIRY CAN ALSO BE DEMONSTR ATED WITH THE HELP OF THE MATERIAL AVAILABLE ON RECORD W ITH THE ASSESSING OFFICER. 10. THE OBSERVATIONS IN THE CASE OF CIT VS SUNBEAM AUTO LTD (SUPRA) WHICH WAS RELIED ON BY THE LD. COUNSEL ARE AS UNDER :- THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS N OT REQUIRED TO GIVE A DETAILED REASON IN RESPECT OF EA CH AND EVERY ITEM OF DEDUCTION, ETC. WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION HAS TO BE SEEN. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION T O THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 OF TH E INCOME-TAX ACT, 1961, MERELY BECAUSE HE HAS A DIFFE RENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF ACTION WOULD BE OPEN. 11. NOW, LET US EXAMINE THE ENQUIRY MADE IN THE CAS E BEFORE US IN THE LIGHT OF ABOVE LEGAL POSITION AND OBSERVATIONS BY VARIOUS HIGH COURTS. BEFORE EXAMINING THE POSITION, WE WOULD LIKE TO REPRODUCE THE ASSESSMENT ORDER AND THE ENQUIRIES RAISED BY THE ASSESSING OFFICER AND R EPLY GIVEN TO THEM BECAUSE THEY ARE VERY SHORT AND WOULD MAKE THE UNDERSTANDIN G BETTER. THE ASSESSMENT ORDER READS AS UNDER:- RETURN DECLARING NIL INCOME WAS E-FILED, WHICH WAS PROCESSED U/S 143(1) OF THE I.T. ACT. SUBSEQUENTLY, THE CASE WA S SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) & 142(1 ) ALONGWITH DETAILED QUESTIONNAIRE WERE ISSUED AND DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO THE STATUTORY NOTICES, SHRI M.L. JH AMBA, ADVOCATE, COUNSEL FOR THE ASSESSEE, ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND PRODUCED THE BOOKS OF ACCOUNT, WHI CH WERE TEST-CHECKED AND THE CASE WAS DISCUSSED WITH THEM. 9 ! 2. THIS IS A CASE OF COMPANY, WHICH DERIVES INCO ME FROM RUNNING A HOTEL-CUM-RESTAURANT AT KALAAMB. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED NIL INCOM E AFTER AVAILING DEDUCTION UNDER CHAPTER VI- A AMOUNTING TO RS. 39 35965/-. REQUISITE INFORMATION AND INCOME EARNED UNDER VARIOUS SUB-HEA DS AS WELL AS EXPENSES INCURRED UNDER DIFFERENT HEADS HAVE BEEN C ALLED FOR AND VERIFIED WITH REFERENCE TO THE BOOKS OF ACCOUNT PRODUCED DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE COMPANY HAS MAINTAINED COMPLETE ACCOUNTS OF SALE/PURCHASE AND OTHE R EXPENSES AND THE EXPENSES ARE DULY SUPPORTED WITH VOUCHERS. . 3. SUBJECT TO THE ABOVE OBSERVATIONS, INCOME RETURNED BY THE ASSESSEE IS ACCEPTED. ASSESSED, ISSUE REQUISITE DOCUMENTS. (R.C.BEAKTA) DEPUTY COMMISSIONER OF INCOME TAX/ CIRCLE, PARWANO 12. IT WAS CLAIMED THAT DETAILED ENQUIRES WERE MADE BY ASSESSING OFFICER VIDE QUESTIONNAIRE DATED 17.9.2009, COPY OF WHICH I S PLACED AT PAGES 3 TO 5 OF THE PAPER BOOK, AND COPY OF QUERY NO.1, WHICH IS RELEVANT TO THE ISSUE AND WHICH HAS BEEN HIGHLIGHTED ON BEHALF OF THE ASSESSE E READS AS UNDER:- 1. NATURE OF BUSINESS CARRIED ON AND PERIOD SINCE WHEN IT IS BEING CARRIED ON. ALSO GIVE THE FOLLOWING INFORMAT ION 1. FIRST YEAR OF CLAIM OF DEDUCTION U/CHAPTER VI-A 2 YEAR WISE CLAIM OF DEDUCTION U/CHAPTER VI A 13. THE REPLIES TO THE QUERIES HAVE BEEN PLACED AT PAGES 6 & 7 OF THE PAPER BOOK, THROUGH WHICH ACCORDING TO LD. COUNSEL, THE D ETAILED REPLIES WERE GIVEN. THE WHOLE REPLY DATED 21.10.2009 IS AS UNDE R:- 10 TO THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE, PARWANOO (H.P.) SUB: - REGARDING M/S SIRMOUR HOTELS (P) LTD., KALA- AMB, DISTT. SIRMOUR (HP) ASSESSMENT YEAR 2007-08 PANO. AACCS 5530 J DEAR SIR, REFERENCE TO YOUR QUERIES IN THE ABOVESAID CASE OF MINE, IT IS RESPECTFULLY SUBMITTED AS UNDER:- SIRMOUR HOTELS PVT. LTD. IS INCORPORATED IN 22 ND JUNE, 1986, HAVING CENTRAL SALES TAX NO.1812, DATED 11.12.1985 AND SALE TAX NO.1372 DATED 11.12.1985. MONTHWISE PURCHASE & SALE IS ENCLOSED. WE HAD INCREASED OUR SHARE CAPITAL TO RS.72000/- BY THE CONTRIBUTION OF OUR DIRECTOR MR. JATINDER SINGH ON DATED 20-03-2007. DETAIL OF SUPPLIER & CUSTOMERS FROM WHOM AND TO WHO M PURCHASE/SALE OF MORE THAN 1 LAKH IS ENCLOSED. MONTH WISE DETAIL OF FOLLOWING EXPENSES ENCLOSED. SALARY & WAGES TRAVELLING & CONVEYANCE TELEPHONE EXPENSES ELECTRICITY EXPENSES BANK CHARGES BANK INTEREST REPAIR & MAINTENANCE LAUNDRY EXPENSES ADVERTISEMENT EXPENSES EMPLOYEES STATE INSURANCE DETAIL OF SUNDRY CREDITORS & DEBTORS WITH ADDRESS I S ENCLOSED. WE HAD NOT MADE ANY VIOLATION OF SEC.40A (3) OF THE INCOME TAX ACT, 1961. NEITHER OF OUR DIRECTOR'S RELATIVES NOR ANY PARTNER ENGAGED IN SIMILAR RELATED BUSINESS ACTIVITY (AS PER SECTION 2(41) OF INCOME TAX ACT, 1961. DETAILS OF BANK ACCOUNT, ACCOUNT NUMBER, AND ADDRES S IS ENCLOSED. 11 DETAIL OF FIXED ASSETS WITH PURCHASE VOUCHERS IN EX CESS OF RS. 20000/- IS ENCLOSED NAME AND COMPLETE ADDRESS OF ALL THE DIRECTORS ENCL OSED. THAT COMPLETE BOOKS OF ACCOUNTS ALONGWITH VOUCHERS ARE BEING PRODUCED. THANKING YOU, YOURS FAITHFULLY, (M.L.JHAMBA) ADVOCATE FOR THE ASSESSEE . 14. A SIMPLE GLANCE AT THE ASSESSMENT ORDER, QUERY AND THE REPLY TO THE SAME WOULD ITSELF SHOW THAT PRACTICALLY NO ENQUIRY HAS BEEN MADE AND NO REPLY HAS BEEN GIVEN. FURTHER, THE READING OF ASSE SSMENT ORDER SHOWS THAT IT IS A CASE WHERE ASSESSMENT HAS BEEN COMPLETED ALMOS T BLINDLY WITHOUT EXAMINING ANYTHING BEFORE GRANTING DEDUCTION, U/S 8 0IC OF THE ACT. THE ASSESSING OFFICER SHOULD HAVE AT BARE MINIMUM ASKED THE ASSESSEE HOW ASSESSEE IS ELIGIBLE FOR DEDUCTION AND HOW THE ASSE SSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION. NONE OF THESE QUESTIONS HAV E BEEN RAISED, THEREFORE, IT IS A CLEAR CASE OF FAILURE TO MAKE ENQUIRY AND CANN OT BE EQUATED WITH INADEQUATE ENQUIRY. THEREFORE, IN THE LIGHT OF THE OBSERVATION OF THE HON'BLE DELHI HIGH COURT IN GEE VEE ENTERPRISES VS ADDL. CI T (SUPRA) WHICH HAVE BEEN EXTRACTED ABOVE, THE ASSESSING OFFICER WAS NO T ONLY ADJUDICATOR BUT WAS ALSO AN INVESTIGATOR AND WAS DUTY BOUND TO MAKE PROPER ENQUIRY EXPECTED TO BE CONDUCTED BY REASONABLE OR A PRUDENT PERSON. WE HAVE DELIBERATELY REPRODUCED THE QUESTIONNAIRE ISSUED BY ASSESSING OF FICER IN RESPECT TO THE ISSUE REGARDING DEDUCTION U/S 80IC AS WELL AS REPLY OF THE ASSESSEE AND ASSESSMENT ORDER WHICH CLEARLY REVEALS THAT NO ENQU IRY HAS BEEN CONDUCTED AT ALL. THEREFORE, IN THE LIGHT OF NON-ENQUIRY ITSELF , THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. 12 15. COMING TO THE ORDER OF THE TRIBUNAL, IN CASE OF ACIT, SHIMLA VS SHRI RAGHUNATH SINGH THAKUR, SHIMLA (SUPRA), WHICH WAS H EAVILY RELIED BY THE LD. COUNSEL FOR THE ASSESSEE FOR THE PURPOSE THAT ISSUE ON MERIT IS TOTALLY COVERED IN FAVOUR OF ASSESSEE. IN THIS CASE, THE DEDUCTIO N U/S 80IC WAS DENIED BY ASSESSING OFFICER BECAUSE OF THE FOLLOWING ASSESSEE :- (I) THE ASSESSEE WAS NOT COVERED BY THE DEFINITION OF E CO- TOURISM AS GIVEN IN ENTRY NO.15 OF THE PART C, SCHE DULE XIV OF SECTION 80IC WAS APPLICABLE. (II) NON-FILING OF FORM NO. 10 CCB AND LATE FILING OF TH E SAME THROUGH REVISED RETURN. (III) THERE WAS NO SUBSTANTIAL EXPANSION. 16. AS FAR AS THE FIRST ISSUE IS CONCERNED, THE ENQ UIRY HAS BEEN MADE BY THE ASSESSING OFFICER AND HE HAS GIVEN CERTAIN FINDINGS AND ACCORDING TO HIM THE HOTEL SITUATED IN THE CITY COULD BE COVERED BY THE DEFINITION OF ECO-TOURISM. HOWEVER, IN VIEW OF THE NO OBJECTION CERTIFICATE IS SUED BY THE DEPARTMENT OF TOURISM, HIMACHAL PRADESH AND ALSO THE CERTIFICATE GRANTED BY THE H.P. POLLUTION CONTROL BOARD AND SOME OTHER DETAILS, IT WAS HELD THAT EVEN A HOTEL IN THE CITY WOULD BE COVERED BY THE DEFINITION OF E CO-TOURISM, THEREFORE, IT IS CLEAR THAT BECAUSE ENQUIRY WAS CONDUCTED , CERTIFI CATE FROM HIMACHAL PRADESH AS WELL AS H.P. POLLUTION CONTROL BOARD WER E FILED AND ON THE BASIS OF THIS CERTIFICATE AND OTHER DETAILS IT WAS HELD T HAT THE HOTEL SITUATED IN AS CITY WAS ALSO PART OF THE PROJECT OF ECO-TOURISM AS ENVISAGED IN ITEM NO.15 OF PART C OF SCHEDULE XIV. THE CASE BEFORE US IS UNDE R SECTION 263 OF THE ACT AND ASSESSMENT ORDER HAS BEEN HELD TO BE ERRONEOUS MAINLY ON THE BASIS OF LACK OF ENQUIRY. EVEN THE SO CALLED QUESTIONNAIRE RAISED AND THE REPLIES GIVEN BY THE ASSESSING OFFICER AND THE ASSESSEE NOWHERE S HOWS THAT ANY CERTIFICATE 13 WAS FILED FROM HIMACHAL PRADESH TOURISM OR HIMACHAL PRADESH POLLUTION CONTROL BOARD, THEREFORE, IT IS A MATTER OF EXAMINA TION BY THE ASSESSING OFFICER AND IT CANNOT BE SAID THAT THIS ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE. IN THIS BACKGROUND, WE ARE OF THE OPINIO N THAT THIS PART OF THE DECISION WILL BE OF NO ASSISTANCE TO THE ASSESSEE. 17. AS FAR AS THE ISSUE REGARDING NON-FILING / LATE FILING OF FORM NO.10 CCB IS CONCERNED, THE SAME IS NOT INVOLVED IN THE P RESENT CASE, THEREFORE, NO NEED TO DISCUSS THE SAME. 18. THE THIRD OBJECTION WAS REGARDING SUBSTANTIAL E XPANSION AND IN THE CASE OF SHRI RAGHUNATH SINGH THAKUR (SUPRA), THE DISPUTE WAS WHETHER CERTAIN ITEMS WOULD CONSTITUTE PLANT AND MACHINERY OR NO T. ACCORDING TO ASSESSING OFFICER THE PURCHASE AND INSTALLATION OF SPLIT ACS, COLOUR TV, MUSIC SYSTEM AND GYM EQUIPMENT COULD NOT FORM PLANT AND MACHINERY. HOWEVER, THE TRIBUNAL HELD THAT IF THESE TYPES OF E QUIPMENT HAVE TO BE REDUCED IN THIS YEAR, THEN THE SAME IS TO BE REDUC ED EARLIER YEARS ALSO. THE TRIBUNAL HELD THAT IN ANY CASE, THE INSTALLATION OF A.CS, COLOUR TVS AND MUSIC SYSTEM ETC. ARE ALSO PLANT AND MACHINERY. HOWEVER, IN THE CASE BEFORE US, THE SUBSTANTIAL EXPANSION HAS BEEN CLAIMED ON THE BASIS OF VARIOUS ADDITIONS AND MAJOR PORTION OF THE SAME WAS BUILDING. THEREFORE , THE QUESTION IS WHETHER BUILDING WOULD ALSO CONSTITUTE PLANT FOR THE PURPOS E OF SUBSTANTIAL EXPANSION. SUCH EXPANSION HAS BEEN DEFINED IN CLAUSE IX OF SUB SECTION (8) OF SECTION 80IC, WHICH READS AS UNDER:- SECTION 80 IC (8) .. (IX) 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 14 MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH T HE SUBSTANTIAL EXPANSION IS UNDERTAKEN; 19. THE ABOVE MAKES IT CLEAR THAT TO QUALIFY FOR S UBSTANTIAL EXPANSION, THE ADDITION HAS TO BE IN PLANT AND MACHINERY BY AT LE AST 50% AND NOT ANY OTHER ASSETS. THE CLAIM OF THE ASSESSEE IS THAT MAJOR AD DITION IS IN TERMS OF BUILDING WHICH SHALL ALSO BE CONSTITUTED AS PLANT. THEREFORE, THE ISSUE BEFORE US IS TOTALLY DISTINGUISHABLE IN THE CASE OF ACIT V SHRI RAGHUNATH SINGH THAKUR (SUPRA). 20. NOW, THE QUESTION IS WHETHER THE HOTEL BUILDING COULD BE CONSIDERED AS PLANT? THE LD. COUNSEL HAD STRONGLY RELIED UPON TH E DECISION OF HON'BLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS S SHIVALIK HATCHERIES P.LTD. [2010] 329 ITR 432 (HP). I N THAT CASE A DIS PUTE AROSE AS TO WHETHER A POULTRY SHED WOULD CONSTITUTE PLANT. IN THAT CASE IT WAS OBSERVED AS UNDER:- THE LINE OF DEMARCATION BETWEEN WHAT IS 'PLANT' OR NOT IS A VERY THIN ONE. EACH CASE WILL HAVE TO BE DECIDED WI TH REFERENCE TO THE PARTICULAR FACTS OF THE CASE. THE DEFINITION OF 'PLANT' IN SECTION 43(3) OF THE INCOME-TAX ACT, 196 1, IS NOT AN EXHAUSTIVE DEFINITION BUT ONLY INCLUSIVE IN NATURE. THEREFORE, THERE IS A WIDE SCOPE FOR INCLUDING IN THE DEFINITI ON MANY ITEMS. THE LEGISLATURE BY INCLUDING SHIPS, VEHICLES , AND BOOKS IN THE DEFINITION OF 'PLANT' HAD WIDENED THE SCOPE OF THE WORD 'PLANT'. IT HAS SPECIFICALLY EXCLUDED BUILDINGS FRO M THE DEFINITION OF THE WORD 'PLANT'. PRIOR TO THE EXCLUS ION WITH EFFECT FROM APRIL 1, 2004, BUILDINGS IF SPECIFICALL Y CONSTRUCTED AND FALLING WITHIN THE GUIDELINES OF THE VARIOUS AU THORITIES COULD BE TREATED AS PLANT. THE VARIOUS AUTHORITIES ALSO INDICATE THAT VERY WIDE AMPLITUDE HAS BEEN GIVEN TO THE TERM 'PLANT'. 15 THE DEFINITION OF 'PLANT' ENGULFS WITHIN ITS AMBIT MANY DIVERSE SUBJECTS, SUCH AS SHIPS SAILING ON THE HIGH SEAS, B OOKS USED BY LAWYERS OR ENGINEERS AND SCALPELS USED BY DOCTORS. THE ASSESSEE WAS ENGAGED IN THE HATCHERY BUSINESS. IT CLAIMED DEPRECIATION AND INVESTMENT ALLOWANCE ON POULTRY SH EDS BY TREATING THEM AS PLANT. THE ASSESSING OFFICER ONLY ALLOWED DEPRECATION TREATING THE POULTRY SHEDS AS BUILDING AND NOT PLANT AND DISALLOWED INVESTMENT ALLOWANCE. THE TRIB UNAL CAME TO THE CONCLUSION THAT THE POULTRY SHEDS WERE IN TH E NATURE OF PLANT BECAUSE THE SHEDS CONSTITUTED AN APPARATUS OR TOOL FOR THE ASSESSEE BECAUSE THE POULTRY SHEDS WERE SPECIFI CALLY DESIGNED FROM A TECHNICAL POINT OF VIEW SO AS TO FA CILITATE THE VARIOUS HATCHERY OPERATIONS ON SCIENTIFIC LINES. HO WEVER, THE TRIBUNAL DID NOT GIVE THE STATUS OF PLANT TO THE WA TER LINES USED FOR RESIDENTIAL QUARTERS. THE ASSESSEE ALSO CL AIMED EXTRA SHIFT ALLOWANCE ON POULTRY SHEDS, FENCING, WELL AND WATER TANK. THE TRIBUNAL HELD THAT ONCE THE FENCING, POULTRY SH EDS, WATER TANK AND WELL WERE TREATED AS PLANT THE ASSESSEE WA S ENTITLED TO THE EXTRA SHIFT ALLOWANCE . 21. ON THE ABOVE OBSERVATION IT WAS HELD AS UNDER:- HELD, (I) THAT THE TRIBUNAL FOUND THAT THE POULTRY SHEDS HAD BEEN SPECIFICALLY DESIGNED WITH A VIEW TO PROTECTIN G THE BIRDS FROM DISEASE. THEY HAD BEEN DESIGNED TO ENSURE PROP ER LIGHT AND CIRCULATION OF AIR, PROPER AND SCIENTIFIC FEEDI NG ARRANGEMENT, PROPER WATER SYSTEM, PROPER ARRANGEMEN T FOR COLLECTION OF MANURE AND DROPPINGS, PROPER ARRANGEM ENT FOR MEDICATION AND VACCINATION ; AND RIGHT ENVIRONMENT CONDUCIVE FOR LAYING OF EGGS BY THE BIRDS. THE BUILDING HAD B EEN DESIGNED IN A MANNER SO AS TO PROTECT THE BIRDS AND INCREASE THEIR PRODUCTIVITY. THUS, THE POULTRY SHEDS WERE PL ANT WITHIN THE MEANING OF SECTION 43(3), AS IT THEN STOOD. 16 22. THUS, IT IS CLEAR THAT POULTRY SHED WERE HELD T O BE PLANT BECAUSE THEY WERE SPECIFICALLY DESIGNED WITH A VIEW TO PROTECTIN G THE BIRDS FROM DISEASES. THEY HAD BEEN DESIGNED TO ENSURE PROPER LIGHT AND C IRCULATION OF AIR, PROPER AND SCIENTIFIC FEEDING ARRANGEMENT, PROPER WATER SY STEM, PROPER ARRANGEMENT FOR COLLECTION OF MANURE AND DROPPINGS, PROPER ARRA NGEMENT FOR MEDICATION AND VACCINATION ETC. THE SAME CANNOT BE SAID ABOUT A BUILDING OF A HOTEL. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V ANAN D THEATRES (SUPRA), WHERE THE ISSUE WAS WHETHER BUILDING OR PLANT WERE SEPARATE CATEGORIES, OBSERVED AS UNDER:- THERE IS WELL-ESTABLISHED DISTINCTION, IN GENERAL TERMS, BETWEEN THE PREMISES IN WHICH THE BUSINESS IS CARRI ED ON AND THE PLANT WITH WHICH THE BUSINESS IS CARRIED ON. TH E PREMISES ARE NOT PLANT. IT IS PROPER TO CONSIDER THE FUNCTIO N OF THE ITEM IN DISPUTE. IF IT FUNCTIONS AS PART OF THE PREMISES IT IS NOT PLANT. THE FACT THAT THE BUILDING IN WHICH A BUSINE SS IS CARRIED ON IS, BY ITS CONSTRUCTION PARTICULARLY WEL L-SUITED TO THE BUSINESS, OR INDEED WAS SPECIALLY BUILT FOR THA T BUSINESS, DOES NOT MAKE IT PLANT. ITS SUITABILITY IS SIMPLY T HE REASON WHY THE BUSINESS IS CARRIED ON THERE. BUT IT REMAIN S THE PLACE IN WHICH THE BUSINESS IS CARRIED ON AND IS NOT SOME THING WITH WHICH THE BUSINESS IS CARRIED ON, EXCEPT IN SOME RA RE CASES WHERE IT PLAYS AN ESSENTIAL PART IN THE OPERATIONS WHICH TAKE PLACE. HOTEL PREMISES ARE NOT CONSIDERED TO BE AN APPARATUS OR TOOL FOR RUNNING THE HOTEL BUSINESS BU T ARE MERELY A SHELTER OR HOME OR SETTING IN WHICH BUSINE SS IS CARRIED ON. THE SAME WOULD BE THE POSITION WITH REG ARD TO A THEATRE IN WHICH CINEMA BUSINESS IS CARRIED ON. THE REFORE, EVEN THE FUNCTIONAL TEST IS NOT SATISFIED. 23. THE ABOVE SHOWS CLEARLY THAT GENERALLY THERE IS A DISTINCTION BETWEEN PLANT AND MACHINERY AND BUILDINGS. THE HIGHLIGHTED PORTION FURTHER SHOWS 17 THAT IT WAS SPECIFICALLY OBSERVED THAT HOTEL PREMIS ES ARE NOT CONSIDERED TO BE AN APPARATUS OR TOOL FOR RUNNING A HOTEL BUSINESS B UT ARE MERELY SHELTER FOR HOME OR SETTING IN WHICH BUSINESS IS CARRIED ON. T HUS, IT IS CLEAR THAT HOTEL BUILDING GENERALLY SPEAKING CANNOT BE HELD TO BE A PLANT. IN ANY CASE, LD. COMMISSIONER HAS VERY RIGHTLY OBSERVED THAT SECTION 43(3) WHICH DEFINES PLANT SPECIFICALLY EXCLUDED THE BUILDINGS OR FURNIT URE AND FITTINGS OUT OF DEFINITION OF PLANT BY AN AMENDMENT TO THAT SECTION BY FINANCE ACT, 2003 W.E.F 1.4.2004. THE SECTION READS AS UNDER:- (3) PLANT INCLUDES SHIPS, VEHICLES, BOOKS, SCIENTI FIC APPARATUS AND SURGICAL EQUIPMENT USED FOR THE PURPOSES OF THE BUSINESS OF PROFESSION [ BUT DOES NOT INCLUDE TEA BUSHES OR LIVESTOCK] [ FOR BUILDING OR FURNITURE AND FITTINGS] 24. THE ABOVE CLEARLY SHOWS THAT CERTAIN ITEMS INCL UDING BUILDING HAVE BEEN SPECIFICALLY EXCLUDED FROM THE DEFINITION OF P LANT. ONCE THE BUILDING CANNOT BE CONSIDERED AS PLANT THEN OBVIOUSLY THE SA ME CANNOT FORM PART OF SUBSTANTIAL EXPANSION AS DEFINED IN SUB-SECTION (8) OF SECTION 80IC OF THE ACT WHICH MAKES THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 25. IN THE PRESENT CASE BEFORE US, THE LD. COMMISSI ONER COULD HAVE EASILY HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION BUT U/S 80IC OF THE ACT BECAUSE THE ASSESSEE HAS NOT FULFILLED THE CONDITIO NS LAID DOWN IN SUB SECTION (8) OF SECTION 80IC OF THE ACT REGARDING SUBSTANTIA L EXPANSION. HOWEVER, LD. COMMISSIONER HAS BEEN MORE THAN REASONABLE TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO MAKE FRESH ENQUIRI ES BECAUSE THIS ISSUE HAS NOT BEEN EXAMINED. WE ARE OF THE CONSIDERED OPINIO N THAT PRACTICALLY NO ENQUIRY WAS CONDUCTED BY THE ASSESSING OFFICER. TH E ASSESSMENT ORDER IS 18 DEFINITELY ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE AND LD. COMMISSIONER HAS RIGHTLY PASSED REVISIONARY ORDER U /S 263 OF THE ACT. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2012 SD/- SD/- (H.L.KARWA) (T. R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 24 TH SEPTEMBER, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR