SAROVAR HOTELS P.LTD, MUMBAI V. DCIT CIR. 3 ( 3 ), MUMBAI

MA 169/MUM/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9576 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 18-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O THARIA N
• Assessee Lawyers: FAROOKH IRANI
• Section: 73; 13; 22

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, A M AND SHRI RAM LAL NEGI , J M M .A. NO . 169 & 170 /MUM/2020 ARISING OUT OF I.T.A. NO. 2384/MUM/2017 & 7348/MUM/2016) (ASSESSMENT YEAR: 2012 - 13 & 2011 - 12) S AROVAR HOTEL S PVT. LTD. 42, MITTAL CHAMBERS, NARIMAN POINT, MUMBAI - 400 020 / VS. D CIT CIR - 3 (3), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN NO. AA ACS8083L ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI FAROOKH IRANI , AR / RESPONDE NT BY : SHRI O. THARIA N , DR / DATE OF HEARING : 06/11 /20 20 / DATE OF PRONOUNCEMENT : 04.01.2021 / O R D E R PER S . RIFAUR RAHMAN, ACCOUNTANT MEMBER : THE PRESENT TWO MISCELLANEOUS APPLICATION S HA VE BEEN FILED BY THE ASSESSE E FOR RECTIFYING THE ORDER DATED 2 0.12 .20 19 PASSED IN ITA NO. 2384/MUM/ 2017 & 7348/ MUM/201 6 AND FOR DISPOSE OF THE APPEAL ON MERITS. 2 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD 2 . BEFORE US , LD. A R APP EARING ON BEHALF OF THE ASSESSEE BROUGHT TO OUR NOTICE THE WRITTEN SUBMISSION, WHICH IS REPRODUCE D BELOW: - A) THE ASSESSEE HAS EARNED THE FOLLOWING NET TAXABLE INCOMES FROM EACH OF ITS RESPECTIVE UNITS REPORTING UNIT DEDUCTION U/S 35AD (RS) NET INCOME (RS) MUMBAI -- 3,99,40,374 CHANDIGARH 1,10,94,787 5,62,11,853 INDORE -- 64,07,686 AHMADABA D -- 1,87,27,261 HYDERABAD -- 2,97,769 HUL -- 2,51,887 MOHALI -- (2,38,412) NET TAXABLE INCOME / (LOSS) 12,15,98,418 B) FOR AY 2011 - 12, THE ASSESSEE HAD CLAIMED THE DEDUCTION UNDER SECTION 35AD OF THE ACT, ONLY IN RESPECT OF THE CHANDIG ARH UNIT. THIS RESULTED IN A LOSS IN RESPECT OF THE CHANDIGARH UNIT OF RS 35,94,62,610 / - . IT HAD THEREAFTER CLAIMED A SET OFF, UNDER SECTION 73A OF THE ACT, OF THE LOSS OF RS. 35,94,62,610 / - OF ITS CHANDIGARH UNIT, AGAINST THE PROFITS OF ITS MUMBAI, INDORE , AHMEDABAD & HYDERABAD UNITS, RESULTING IN A NET LOSS OF RS. 28,45,51,846 / - . 3 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD FOR AY 2012 - 13, THE BROUGHT FORWARD UNUTILIZED LOSS OF RS.28,45,51,846 / - WAS SET OFF, UNDER SECTION 73A OF THE ACT, AGAINST THE AFORESAID INCOME OF RS. 12,15,98,418 / - FOR ALL OF ITS ABOVE UNITS. THIS WAS ON THE FOOTING THAT ALTHOUGH THE MUMBAI, INDORE, AHMEDABAD, HYDERABAD, HUL AND MOHALI UNITS DID NOT QUALIFY FOR THE DEDUCTION UNDER SECTION 35AD OF THE ACT, YET, SINCE THESE UNITS FELL WITHIN THE DEFINITION OF 'SPECIFIED BUSINESS' IN SECTION 35AD(8)(C)(IV) OF THE ACT, THEIR PROFITS WERE ELIGIBLE, BY VIRTUE OF THE PROVISIONS OF SECTION 73A OF THE ACT, FOR SET OFF AGAINST THE LOSS OF THE CHANDIGARH UNIT, WHICH ALONE WAS ENTITLED TO THE DEDUCTION UNDER SECTION 35AD OF THE ACT. C) THE ASSESSEE 'S CLAIM FOR DEDUCTION UNDER SECTION 35AD OF THE ACT, IN RESPECT OF ITS CHANDIGARH UNIT, WAS NOT DISPUTED BY THE DEPARTMENT. HOWEVER, THE ASSESSEE 'S CLAIM FOR SET OFF, UNDER SECTION 73A OF THE ACT, OF THE PROFITS OF ITS OTHER UNITS, AGAINST THE LOSS OF ITS CHANDIGARH UNIT, WAS DENIED BY THE LD. AO & THE LD. CIT(A). THE ASSESSEE 'S CLAIM FOR SET OFF OF THE PROFITS OF ITS MUMBAI AND INDORE UNIT WAS DENIED ON THE GROUND THAT SUCH UNITS WERE NOT BUILT AND OWNED BY THE ASSESSEE BUT ONLY OPERATED BY TH E ASSESSEE . D) BEING AGGRIEVED BY THE ACTION OF THE LD. CIT(A) THE ASSESSEE FILED AN APPEAL BEFORE THE HON. ITAT. E) THE ASSESSEE , DURING THE COURSE OF THE HEARING POINTED OUT THE DISTINCTION BETWEEN SECTION 35AD AND SECTION 73A OF THE ACT. THE ASSES SEE POINTED OUT THAT EVEN IF A UNIT DID NOT FULFILL THE CONDITIONS ENABLING IT TO QUALIFY FOR THE DEDUCTION SECTION 35AD OF THE ACT, YET, IF IT CAME WITHIN THE DEFINITION OF 'SPECIFIED BUSINESS' AS DEFINED UNDER 4 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD SECTION 35AD(8)(C)(IV) OF THE ACT, THE LOSS IN RESPECT OF ANY 'SPECIFIED BUSINESS' WOULD BE AVAILABLE FOR SET OFF AGAINST THE PROFITS OF SUCH UNIT , EVEN THOUGH SUCH UNIT, BY ITSELF, DID NOT QUALIFY FOR THE DEDUCTION UNDER SECTION 35AD OF THE ACT. F) THE ASSESSEE , IN THE LIGHT OF THE ABOVE, THEREF ORE SUBMITTED THAT THOUGH THE MUMBAI AND INDORE UNITS BY THEMSELVES DID NOT QUALIFY FOR THE DEDUCTION UNDER SECTION 35AD OF THE ACT, YET AS THEY CAME WITHIN THE DEFINITION OF 'SPECIFIED BUSINESS' IN SECTION 35AD(8)(C)(IV) OF THE ACT, THEIR PROFITS WERE AVA ILABLE FOR SET OFF, UNDER THE PROVISIONS OF SECTION 73A OF THE ACT, AGAINST THE LOSS OF ITS CHANDIGARH UNIT. G) THE ASSESSEE CONTENDED THAT BOTH THE MUMBAI AND INDORE UNITS FELL WITHIN THE DEFINITION OF 'SPECIFIED BUSINESS' IN SECTION 35AD(8)(C)(IV) O F THE ACT, EVEN THOUGH THESE UNITS WERE NOT BUILT BY THE ASSESSEE , AS THE CONDITIONS OF 'BUILDING AND OPERATING' THEREIN DID NOT REQUIRE THAT AN ASSESSEE SHOULD ITSELF BOTH BUILD OR OWN THE HOTEL. H) THE HON. ITAT WAS PLEASED TO ACCEPT THE ASSESSEE 'S AB OVE ARGUMENT AND HELD THAT THE ASSESSEE 'S MUMBAI UNIT FELL WITHIN THE DEFINITION OF 'SPECIFIED BUSINESS', EVEN THOUGH THE ASSESSEE ITSELF DID NOT OWN THE HOTEL BUILDING. THE HON. ITAT ACCORDINGLY DIRECTED THAT THE PROFITS OF THE MUMBAI UNIT, COULD BE SET O FF, UNDER SECTION 73A OF THE ACT, AGAINST THE LOSS OF THE CHANDIGARH UNIT . I) AS REGARDS THE PROFITS OF THE INDORE UNIT, THOUGH THE DEPARTMENT'S GROUNDS FOR DENYING THE SET OFF, OF THE PROFIT OF THE INDORE UNIT AGAINST THE LOSS OF THE CHANDIGARH UNIT WERE THE SAME, NAMELY, THAT SUCH UNIT WAS 5 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD NOT BUILT OR OWNED BY THE ASSESSEE BUT ONLY OPERATED BY IT, THE HON. ITAT IN PARA 20 ON PAGE 24 OF ITS ORDER INADVERTENTLY OBSERVED: 'LD.AR HAS SUBMITTED THAT IT IS NOT CLAIMING THE BENEFIT IN INDORE BRANCH AND AC CORDINGLY, IT SHOULD BE ELIMINATED' J) IN PARA 18 ON PAGE 22 OF ITS ORDER, THE HON. ITAT HAS CORRECTLY OBSERVED: 'AS FAR AS DEDUCTION FOR INDORE UNIT IS CONCERNED, THE ASSESSEE IS NOT CLAIMING THE DEDUCTION FOR THIS INDORE HOTEL AND FINALLY HE SUBMITT ED THAT THE SECTION 35AD IS INTRODUCED AS INCENTIVE PROVISIONS, IT SHOULD BE INTERPRETED NOT IN NARROW MANNER' K) THE ASSESSEE RESPECTFULLY SUBMITS THAT WHILE THE HON. ITAT, IN PARA 18 ON PAGE 22, HAS CORRECTLY OBSERVED THAT THE ASSESSEE IS NOT CLAIM ING THE DEDUCTION U/S 35AD OF THE ACT, IN RESPECT OF ITS INDORE UNIT, IN PARA 20 ON PAGE 24 OF ITS ORDER (REPRODUCED ABOVE) AND IN PARA 22 OF ITS ORDER, THE HON. ITAT HAS INADVERTENTLY HELD THAT THE ASSESSEE IS ENTITLED TO SET OFF THE LOSSES OF ITS CHANDIG ARH UNIT ONLY AGAINST THE PROFITS OF ITS MUMBAI UNIT AND NOT AGAINST THE PROFITS OF ITS INDORE UNIT. L) IN LIGHT OF THE ABOVE, THE ASSESSEE RESPECTFULLY SUBMITS THAT THE HON ITAT MAY BE PLEASED TO RECTIFY THE ABOVE ORDER BY HOLDING THAT THE ASSESSEE I S ELIGIBLE TO SET OFF THE LOSS OF ITS CHANDIGARH UNIT AGAINST BOTH, ITS MUMBAI AND INDORE UNIT, AS THE DEPARTMENT'S GROUNDS FOR REJECTION OF THE ASSESSEE 'S CLAIM FOR SET OFF, UNDER SECTION 73A OF THE ACT, OF THE PROFITS OF ITS MUMBAI UNIT AGAINST THE LOSS OF ITS CHANDIGARH UNIT (WHICH GROUNDS HAVE BEEN REVERSED BY THE HON. ITAT) ARE IDENTICAL TO THE DEPARTMENT'S GROUNDS FOR REJECTION OF THE ASSESSEE 'S 6 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD CLAIM, FOR SET OFF, UNDER SECTION 73A OF THE ACT, OF THE PROFITS OF ITS INDORE UNIT AGAINST THE LOSS OF ITS CHANDIGARH UNIT. 3. ON THE OTHER HAND , LD. D R OBJECTED TO THE ABOVE SUBMISSION OF ASSESSEE AND SUBMITTED THAT THERE IS NO APPARENT MISTAKE IN THE ORDER PASSED BY HONBLE ITAT. 4. CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD. WE NOTICE T HAT ASSESSEE HAS CLAIMED DEDUCTION U/S 35AD AND SET OFF U/S 73A AGAINST THE LOSS INCURR ED BY IT IN THE CHANDIGARH UNIT IN BOTH THE ASSESSMENT YEAR 2011 - 12 AND 2012 - 13 UNDER CONSIDERATION. WE HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE IN REGULAR HEARING AND CAME TO THE CONCLUSION THAT ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION AND SET OFF U/S 35AD AND 73A RESPECTIVELY. WHILE DEALING WITH INDIVIDUAL UNITS, WE HAVE ALREADY ADJUDICATED THAT THE UNITS MUMBAI AND INDORE ARE SPECIFIED BUSINESS UNITS AND ELIGIBLE TO SET OFF U/S 73A AND CAN CLAIM DEDUCTION U/S 35AD. HOWEVER, WE OBSERVE THAT INDORE UNIT WAS ESTABLISHED BEFORE THE CUT OFF DATES SPECIFIED IN SECTION 35AD. ACCORDINGLY, EVEN THOUGH INDORE UNIT IS COMES UNDER SPECIFIED BUSINESS, BUT CANNOT CLAIM ANY BENEF IT U/S 35AD. THE SAME WAS ACKNOWLEDGED BY THE ASSESSEE. IT IS FACT ON RECORD AND SUBMISSION MADE BY ASSESSEE THAT AS PER THE CLARIFICATION NOTE ON FINANCE BILL 2011, THE CLARIFICATION NOTE STATE AS BELOW: - UNDER SECTION 73A, ANY LOSS OF A 'SPECIFIED BUSIN ESS' (UNDER SECTION 35AD) IS ALLOWED SET OFF AGAINST PROFIT AND GAINS OF ANY OTHER 7 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD 'SPECIFIED BUSINESS'. IN ORDER TO REMOVE ANY AMBIGUITY IN THIS REGARD IN RESPECT OF THE BUSINESS OF HOTELS AND HOSPITALS/ IT IS PROPOSED TO REMOVE THE WORD 'NEW' FROM THE DE FINITION OF SPECIFIED BUSINESS IN THE CASE OF HOTELS AND HOSPITALS UNDER SECTION 35 AD (8) (C). WITH THIS, THE LOSS OF AN ASSESSEE ON ACCOUNT OF A 'SPECIFIED BUSINESS' CLAIMING DEDUCTION UNDER SECTION 35AD WOULD BE ALLOWED TO BE SET OFF AGAINST THE PROFI T OF ANOTHER 'SPECI FIED BUSINESS' UNDER SECTION 73 A, WHETHER OR NOT THE LATTER IS ELIGIBLE FOR DEDUCTION UNDER SECTION 35ADT . THEREFORE, AN ASSESSEE WHO CURRENTLY OPERATES A HOSPITAL OR A HOTEL WOULD BE ABLE TO SET OFF THE PROFITS OF SUCH BUSINESS AGAINST THE LOSSES, IF ANY, OF A NEW HOSPITAL OR NEW HOTEL WHICH BEGINS TO OPERATE AFTER 1ST APRIL,2010 AND WHICH IS ELIGIBLE FOR DEDUCTION OF EXPENDITURE UNDER SECTION 35AD. THIS AMENDMENT WILL TAKE EFFECT RETROSPECTIVELY FROM 1ST APRIL, 2011 AND WILL, ACCORDINGL Y, APPLY IN RELATION TO THE ASSESSMENT YEAR 2011 - 12 AND SUBSEQUENT YEARS. 5. FROM THE ABOVE, IT IS CLEAR THAT THE LOSS OF ASSESSEE ON ACCOUNT OF A SPECIFIED BUSINESS CLAIMING DEDUCTION U/S 35AD WOULD BE ALLOWED TO SET OF AGAINST THE PROFIT OF ANOTHER SPEC IFIED BUSINESS. U/S 73A, WHETHER OR NOT THE LATER IS ELIGIBLE FOR DEDUCTION U/S 35AD. THEREFORE, BY THE ABOVE CLARIFICATION, IT IS CLEAR THAT ASSESSEE CAN CLAIM SET OFF AGAINST THE PROFIT FROM SPECIFIED BUSINESS UNITS OF MUMBAI AND INDORE. WE NOTICE FROM T HE RECORD THAT ASSESSEE HAS ACKNOWLEDGED THAT IT IS NOT CLAIMING DEDUCTION U/S 35AD ONLY. BUT WE CAME TO CONCLUSION THAT ASSESSEE IS NOT CLAIMING DEDUCTION U/S 35AD AS WELL AS 8 M.A. NO. 169 & 170 /MUM/2020 SAROVAR HOTELS PVT. LTD SURRENDERING THE SET OFF U/S 73A. FROM THE RECORDS PLACED BEFORE US, WE DIRECT A O TO ALLOW THE ASSESSEE TO CLAIM SET OFF AGAINST THE PROFIT EARNED FROM UNITS MUMBAI AND INDORE AGAINST THE CARRY FORWARD LOSSES OF CHANDIGARH UNITS, AS PER THE AMENDED PROVISION AND CLARIFICATION N OTE GIVEN FOR FINANCE BILL 2011. ACCORDINGLY, MA FILED FOR BOTH THE AYS ARE ALLOWED. 6 . IN THE NET RESULT, BOTH THE MISCELLANEOUS APPLICATION S FILED BY THE ASSESSEE STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 04.01.2021. SD/ - SD/ - ( R. L. NEGI ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 04.01.2021 SR.PS DHANANJAY. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, M UMBAI