ITO Vs Pritham and Prathik Hospitals Pvt. Limited (ITAT Hyderabad)
ITAT Hyderabad held that prior to 01.10.2014 it was essential for the Assessing Officer to reject the books of accounts of the assessee before referring the matter to the Valuation Officer for determining different entries and the expenditure incurred by the assessee.
Facts- A survey u/s 133A of the Income-tax Act, 1961 was conducted at business premises of the assessee and during the survey proceedings, certain documents/loose sheets found at the business premises were impounded. Assessee company did not file its Return of Income for the A.Y.2014-15. Subsequently, the case was selected for compulsory scrutiny. A notice under section 142(1) of the I.T.Act was served on the assessee calling for return of income. The assessee company filed Return of Income on 31/07/2015 admitting total income as Nil. Thereafter, AO completed the assessment on 31.12.2016 by making an addition of Rs.64,10,599/- u/s 143(3) of the Act on account of difference in Cost of Construction as per valuation Report u/s 69 of the I.T.Act,1961 and also added Rs.1,29,10,000/- as unexplained share capital money appearing in the balance sheet as on 31.03.2014 assessed u/s.68 of the I.T.Act after reducing initial Share Application Money invested during the F.Y.2012-13.
Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who allowed the appeal in favour of the assessee. Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us.
Conclusion- Hon’ble Supreme Court in the case of Sargam Cinema vs. Commissioner of Income Tax, reported it was held that without rejecting the books of accounts, it is not open for the Assessing Officer to refer the matter to Valuation Cell, Income Tax Department for determining different entries and the expenditure incurred by the assessee.
Held that prior to 01.10.2014 it was essential for the Assessing Officer to reject the books of accounts of the assessee before referring the matter to the Valuation Officer.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal by the Revenue and cross-objection by the assessee are directed against the order of Commissioner of Income Tax (Appeals), Kurnool dated 29.11.2018 for the assessment year 2014-15.
2. The Revenue has raised the following grounds :
“(i) The order of ld.CIT(A) is erroneous both on facts and in law.
(ii) The Ld.CIT(A) erred, in holding that the reference to Valuation Officer cannot be made without rejecting the books of account, by ignoring the amended provisions of 142A(2) of the Act w.e.f. 01-10-2014 which stipulates that the AO may make a reference to the Valuation Officer, whether or not satisfied about the correctness or completeness of the accounts of the assessee.
(iii) The Ld.CIT(A) erred in holding that the appellant discharged the onus of proving the credits, ignoring the fact that many of the alleged share applicants did not appear for examination and the others who appeared denied on examination under oath to have paid share application money.
(iv) The learned CIT (A) ignored the fact that the main shareholders Sri T. Dinakar Reddy and Smt. G. Aparna could not prove their genuineness of the gifts which were used by them for investing in share application money.
(v) Under the facts and circumstances of the case, the Ld. CIT(A) erred in holding that the company discharged the onus of proving the credits ignoring the jurisdictional HC decision iii the case of Dhanalakshmi Steel Rerolling Mills Vs.CIT (AP) 228 ITR 780 and the Hon’ble SC decision in the case of CIT Vs.BijuPatnaik 160 ITR 674.
(vi) Under the facts and circumstances of the case, the Ld. CIT(A) erred in directing the AO to delete the additions made u/s 68 and u/s 69 of the Act, on the ground that the company was not carrying on any business activity daring the year under consideration and no source of income exists.
(vii) The Ld. CIT(A) was erred in holding that the share application money was to be taxed in the hands of shareholders for not proving their creditworthiness ignoring the amended provisions of section 68 w.e.f. 01-04-2013.”
3. The only effective ground raised by the assessee in C.O. reads as under :
“The learned Commissioner of Income-Tax (Appeals) ought to have considered the fact that the Valuation of cost of construction is not properly made and if the correct working is made, there would be no addition on account of difference in valuation.”
4. The C.O. filed by the assessee is barred by limitation by 26 days. It has moved a condonation explaining reasons thereof. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the C.O., of the assessee for hearing.
5. First, we take up the appeal of Revenue i.e. ITA 97/Hyd/2019 for adjudication.
5.1. Though the assessee has raised six grounds but out of them, ground No.1 is general in nature, ground no. 2 is with respect to addition of Rs.64,10,599/- made u/s 69 of the Act and the remaining grounds are inter-connected and are with respect to addition of Rs.1,29,10,000/- towards unexplained share capital money u/s 68 of the Act.
5.2. Facts of the case, in brief, are that a survey u/s 133A of the Income-tax Act, 1961 was conducted at business premises of the assessee and during the survey proceedings, certain documents/loose sheets found at the business premises were impounded. Assessee company did not file its Return of Income for the A.Y.2014-15. Subsequently, the case was selected for compulsory scrutiny. A notice under section 142(1) of the I.T.Act was served on the assessee calling for return of income. The assessee company filed Return of Income on 31/07/2015 admitting total income as Nil. Thereafter, Assessing Officer completed the assessment on 31.12.2016 by making an addition of Rs.64,10,599/- u/s 143(3) of the Act on account of difference in Cost of Construction as per valuation Report u/s 69 of the I.T.Act,1961 and also added Rs.1,29,10,000/- as unexplained share capital money appearing in the balance sheet as on 31.03.2014 assessed u/s.68 of the I.T.Act after reducing initial Share Application Money invested during the F.Y.2012-13.
6. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who allowed the appeal in favour of the assessee.
6.1. Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us. However, ld.CIT(A) had granted relief to the assessee and the reasoning given by ld.CIT(A) mentioned at Paras 6 and 6.1 at Pages 20 and 21 read as under :
“6. The assessment order, statement of facts, grounds of appeal and written submissions have been perused. It is evident that the books of accounts of the appellant are audited u/s.44AB of the I.T.Act and the AO not rejected the books of accounts. The AO compared the value determined by the DVO with the value of construction adopted by the appellant itself implies that the AO is satisfied by the books of accounts of the appellant. The facts of the present case may be examined in the light of the statutory scheme discussed by the Hon’ble Supreme Court in Sargam Cinema v. Commissioner of Income Tax, reported in (2010) 328 ITR 513 (SC). In this regard, a perusal of the assessment order reveals that the AO has made the reference to the Valuation Officer merely to seek expert advice regarding the cost of construction. There is nothing in the assessment order to suggest that the AO had any doubt regarding the cost of construction or that he was not satisfied regarding the correctness or completeness of the books of account. Before making the reference to the Valuation Officer for ascertaining the fair priced of construction, the Assessing Officer does not appear to have ascertained the correctness or otherwise of the cost of construction shown by the appellant in its books of account. Thus, prior to making the reference to the Valuation Officer, the AO has not ascertained as to what was the defect in the cost of construction disclosed by the appellant in its returns of income. Moreover, it is apparent that the only reason for making the addition u/s.69 of the Act is that there is a difference in the cost of construction as determined by the Valuation Officer and as shown by the assessee. At no stage of the assessment proceedings does the AO appear to have mentioned that the books of account are defective or that the cost of construction as shown in the books of account is not the true cost of construction. Thus, while making the reference to the Valuation Officer, the AO has not recorded any defect in the books of account nor he rejected the same. Except for the difference in the estimated cost determined by the Valuation Officer and the actual cost as shown by the appellant, the AO has not brought any material on record to establish that the appellant had made any unaccounted investment in the construction of the building in question and that the books of account do not reflect the correct cost of construction.
6.1 Considering the facts and circumstances of the case, there was no occasion for the Assessing Officer to make a reference to the Valuation Officer. I hold that reference made to the Valuation Officer, not being in consonance with the provisions of law, was, therefore, invalid. Accordingly, the report made by the Valuation Officer pursuant to such an invalid reference could not have been made the basis for addition under section 69 of the Act. Hence, the AO is directed to delete the addition of Rs.64,10,599/-on account of difference in Cost of Construction as per valuation Report u/s 69 of the I.T.Act, 1961.”
7. Addition of Rs.64,10,599/- u/s 69 of the Act on account of difference in DVO valuation and the cost of construction incurred by the assessee as per books of accounts:
7.1. With respect to addition of Rs.64,10,599/- u/s 69 of the Act, the ld. DR had drawn our attention to Paras 4 and 5 of the assessment order wherein the Assessing Officer after referring the matter to the Valuation Cell, Income Tax Department, for valuation had determined the cost of construction and he found the probable expenditure incurred by the assessee for the assessment year under consideration was Rs.3,35,40,081/- whereas as per the assessee, it was Rs.2,17,24,352/-. Thus, there was a difference of Rs.64,10,599/-. For the ready reference, Paras 4 and 5 of assessment order are reproduced hereunder :
4. notices u/s 143(2) and 142(1) of I.T. Act, 1961 dated 03.08.2015 along with questionnaire were issued and duly served on the Managing Director of Assessee company on 10.09.2015. In response to the notices issued, the Company’s Authorized Representative Sri M. Subba Reddy, CA appeared and filed the Certificate of Incorporation, Memorandum of Association and copy of Return of Income for the assessment year 2014-15 along with its enclosures. The assessee company’s Authorized Representative has been asked to produce books of account, bill and vouchers for the huge expenditure incurred in the construction of Hospital Building besides providing documentary evidences in support of loans and gifts received and copies of statements of all the Banks Accounts and any other relevant information in respect of the pending assessment proceedings. The Authorized Representative of assessee company has furnished the information called for. On examination of Return of Income filed by the Assessee-Company, it is seen that the Company has introduced Share Capital to the tune of Rs.1,50,00,000/- during the financial year 2013-14 relevant to the Asst. Year 2014-15 and incurred expenditure on the construction of Hospital Building. As per the books of account of the Assessee-Company and recording of the investment in the construction of the Hospital Building were concerned, there is a discrepancy with reference to the material impounded at the time of survey proceedings. In light of the above, in order to ascertain the actual expenditure incurred in the construction of Hospital Building by the Assessee-Company a reference has been made to the Valuation Cell, Income Tax Department, Hyderabad on 23/03/2016. The Superintending Engineer (Val), Income Tax Department, era ad had furnished his valuation report vide File.No.SE(V)Hyd/2799/Cost/3690 dated 20/12/2016 which is received in this office on 26/12/2016. The Hospital Building was valued at the details as under:
