DCIT, Bangalore V. M/s Pristine Hospital and Research Centre (P) Ltd., Bangalore

ITA 1145/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60795 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 24-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Assessee Lawyers: HARISH RAO
• Section: 143(3); 133A; 148

Judgement Text

PAGE 1 OF 7 ITA NO.1145/B ANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1145/BANG/2011 (ASSESSMENT YEAR 2003-04) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5(1), BANGALORE-27. VS M/S PRISTINE HOSPITAL AND RESEARCH CENTRE (P) LTD., NO.877, 2 ND STAGE EXTN., WEST OF CHORD ROAD, MODI EYE HOSPITAL ROAD, BANGALORE-10. PA NO.AACCP 8749G (APPELLANT) (RESPONDENT) DATE OF HEARING : 02.07.2012 DATE OF PRONOUNCEMENT : 12.07.2012 APPELLANT BY : SMT. SUSAN THOMAS JOSE, JCIT RESPONDENT BY : SHRI HARISH RAO, C.A. ORD ER PER GEORGE GEORGE K : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE CIT (A)-II, BANGALORE, DATED: 5.9.2011. THE RELEVA NT ASSESSMENT YEAR IS 2003-04. 2. THE REVENUE HAD RAISED SEVEN GROUNDS. HOWEVER , THE CRUX OF THE ISSUE AGITATED BY THE REVENUE CONFINES TO A SOLI TARY GROUND, NAMELY: THAT THE CIT (A) HAD ERRED IN NOT SUSTAINING THE ADDITION OF RS.41 LAKHS AS UNDISCLOSED INVESTMENT. PAGE 2 OF 7 ITA NO.1145/B ANG/2011 2 3. BRIEFLY STATED, THE FACTS ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY. IT ENGAGED IN THE BU SINESS OF CONSTRUCTING AND DEVELOPMENT OF A HOSPITAL AND RESE ARCH CENTRE. IT FURNISHED ITS RETURN OF INCOME FOR THE ASSESSMENT YE AR UNDER CONSIDERATION, ADMITTING NIL INCOME ON 27.11.2003. SUBSEQUENTLY, THE ASSESSEE COMPANYS PREMISES WAS SUBJECTED TO AN ACTION U/S 133A OF THE ACT. ACCORDING TO THE AO, THERE WAS SUPPRESSION OF INVESTMENT TO THE TUNE OF RS.41.4 LAKHS IN THE PURCHASE OF SUBJECT PROPERTY. ACCORDINGLY, THE ASSESS MENT WAS REOPENED BY ISSUANCE OF A NOTICE U/S 148 OF THE ACT. CONSEQUENT LY, THE REASSESSMENT PROCEEDING WAS CONCLUDED, DETERMINING THE TOTAL IN COME OF THE ASSESSEE COMPANY AT RS.41 LAKHS FOR THE REASONS RECORDED IN T HE ASSESSMENT ORDER MADE U/S 143(3) R.W.S. 147 OF THE ACT. 4. AGGRIEVED, THE ASSESSEE COMPANY TOOK UP THE ISS UE, AMONG OTHERS, WITH THE CIT (A) FOR RELIEF. AFTER DUE CON SIDERATION OF THE CONTENTIONS OF THE ASSESSEE COMPANY AS RECORDED IN H ER ORDER UNDER DISPUTE, THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE. TH E RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS :- 4.6. THE APPELLANTS ARGUMENT THAT A SUBSTANTIAL AMOUNT OF RS.35,40,000/- HAS BEEN PAID IN ADVANCE TO THE CONTRACTOR FOR REMOVAL OF BOULDERS HAS BEEN SHOWN T O HAVE BEEN PAID ON 11/11/2002 BY CHEQUE THROUGH TGMC BANK CURRENT ACCOUNT NO.369 AT THE TIME OF REGISTRA TION OF THE SAID PROPERTY. HOWEVER, EVEN IF THE APPELLAN T IS TO BE BELIEVED ON THIS EXPLANATION, THERE WOULD STILL REMAIN A DIFFERENCE OF RS.6,00,000/-. TO THIS EXTENT, THERE IS A DIFFERENCE WHICH IS STILL NOT RECONCILED. THIS MUC H DIFFERENCE ALSO FIGURES IN THE ADVANCE PAYMENTS IN T HE PAGE 3 OF 7 ITA NO.1145/B ANG/2011 3 TWO AGREEMENTS I.E., RS.10,00,000/- MINUS RS.4,00,0 00/-. THE APPELLANT HAS NOT RECONCILED THIS DIFFERENCE EI THER. MOREOVER, ADVANCE TO CONTRACTORS FOR CONSTRUCTING A ND PAYMENT OF SALE PRICE TO SELLER ARE TOTALLY DIFFERENT PAYMENTS. THEREFORE, THE EXPLANATION OFFERED BY THE APPELLANT CANNOT BE ACCEPTED. HOWEVER, THE DIFFERE NCE IN THE TWO AGREEMENTS ENTERED INTO ON THE SAME DAY ITSELF DOES LEAVE CLEAR DOUBTS AS TO THERE BEING SO ME PAYMENT OVER AND ABOVE THE SECOND AGREEMENT, THE PARTIES HAVING ALREADY AGREED TO A MUCH HIGHER AMOUN T. HOWEVER, THE SAID AGREEMENTS PRIOR TO REGISTRATION OF SALE DEEDS ARE: (I) BY THE PROMOTERS OF THE COMPANY AND SELLER; AND (II) BETWEEN THE APPELLANT COMPANY (EVEN BEFORE ITS INCORPORATION) REPRESENTED BY ITS PROMOT ERS AND SELLER. THE REGISTRATION DEED IS AFTER THE COM PANY IS REGISTERED ON 11/12/2002 AT AN AMOUNT OF RS.45,00,000/- AS DECLARED IN ITS BOOKS OF ACCOUNT. AS THE COMPANY WAS TECHNICALLY REGISTERED ONLY ON 14/11/2002, THIS AMOUNT CAN BE TAXED ONLY IN THE HAN DS OF THE PROMOTERS WHO WERE INVOLVED IN THE AGREEMENT AND RUNNING THE AFFAIRS OF THE COMPANY BEFORE ITS INCORPORATION. 4.7. IN VIEW OF THE ABOVE FACTS, IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY THE AO REGARDING THE DIFFERENCE BETWEEN THE TWO AGREEMENTS IN RESPECT OF THE AMOUNT OF RS.41,00,000/- HAVING BEEN PAID BY THE APPELLANT COMPANY, I AM UNABLE TO SUSTAIN THIS ADDIT ION WHICH STANDS DELETED. 5. AGGRIEVED, THE REVENUE HAS COME UP WITH THE PR ESENT APPEAL. IT WAS THE CASE OF THE REVENUE THAT THE CIT (A) HAD FAILED TO APPRECIATE THE FACT THAT THE CORRECTION WAS MADE BY INCLUDING T HE ASSESSEE COMPANYS NAME IN THE SALE AGREEMENT WHICH SHOWED THAT THE LA ND IN QUESTION WAS INTENDED TO BE PURCHASED FOR THE COMPANY. IT WAS, F URTHER, ARGUED THAT THE CIT (A) HAD ALSO FAILED TO APPRECIATE THE FACT THAT THE THREE DOCTORS WHO PAGE 4 OF 7 ITA NO.1145/B ANG/2011 4 ENTERED INTO AGREEMENT WITH THE SELLER WERE THE DIR ECTORS OF THE ASSESSEE COMPANY; AND THAT THE CIT (A) FAILED TO TAKE COGNI ZANCE OF THE FACT THAT RS.35.4 LAKHS SUPPOSED TO BE PAID TO THE CONTRACTOR FOR LAND CLEARANCE WAS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. THIS BENC HS ATTENTION WAS DRAWN TO THE FACT THAT THE CIT (A) HAD FAILED TO AP PRECIATE THAT THE ADVANCE OF RS.4 LAKHS PAID VIDE CHEQUE NO.396259 DA TED 9.12.2002 BY THE THREE DOCTORS WAS ADJUSTED TOWARDS FINAL SETTLEMENT ON SALE OF LAND TO THE ASSESSEE COMPANY THEREBY PROVING THAT THE THREE DOCTO RS WERE ACTING ON BEHALF OF THE ASSESSEE COMPANY. IN CONCLUSION, IT W AS PLEADED THAT THE CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO WHICH REQUIRES TO BE RESTORED. 6. ON THE OTHER HAND, THE LEARNED A R SUBMITTED THAT THE CIT (A) HAD, AFTER DUE CONSIDERATION OF THE CONTENTIONS RAI SED BY THE ASSESSEE COMPANY, DEALT WITH THE SUBJECT MATTER JUDICIOUSLY AN D RECORDED ELABORATE FINDINGS WHICH, ACCORDING TO THE LEARNED A R, REQUI RES NO INTERFERENCE. TO DRIVE HOME HIS POINT, THE LEARNED AR HAD PLACED STR ONG RELIANCE ON THE FOLLOWING CASE LAWS, NAMELY: CIT V. CITY MILLS DISTRIBUTORS (P) LTD (1996) 219 IT R 1 (SC); & BIRLA VXL LTD V. ACIT (1996) 217 ITR 1 (GUJ) 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, PERUSED THE RELEVANT MATERIALS AVAILABLE IN THE CASE RECORDS AN D ALSO THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED ITS STRONG RELIANCE. THE AO, ON THE BASIS OF MATERIALS GATHERED DURING THE SURVEY, OBSERVED THAT THERE WAS AN AGREEMENT DURING THE FINANCIAL YEAR 2002-03 FOR THE PURCHASE O F A LAND FOR RS.86.40 PAGE 5 OF 7 ITA NO.1145/B ANG/2011 5 LAKHS ON WHICH THE ASSESSEE COMPANY PROPOSED TO CONS TRUCT A HOSPITAL; BUT, IN THE RETURN OF INCOME FURNISHED, THE COST OF ACQU ISITION OF THE SUBJECT PROPERTY WAS SHOWN ONLY AT RS.45 LAKHS. THE DIFFERENC E BETWEEN THE COST OF THE LAND AS PER AGREEMENT AND THE COST OF ACQUISITI ON AS SHOWN IN THE RETURN [RS.8640000 RS.4500000 = RS.41.4 LAKHS], ACCORDIN G TO THE AO, WAS CONSTITUTED SUPPRESSION OF INVESTMENT IN THE SUBJEC T PROPERTY. HOWEVER, THE ASSESSEE COMPANY CONTENDED THAT THE AGREEMENT FO R PURCHASE OF LAND WAS ENTERED INTO BETWEEN THE SELLER AND DR.H.N. PRA SANNA, DR.G. LAKSHMINARAYANA AND DR. ANANTH KISHAN AND, THEREFORE , THERE WAS NO QUESTION OF THE ASSESSEE COMPANY BEING HELD TO BE RE SPONSIBLE FOR THE ALLEGED SUPPRESSION OF INVESTMENT OF RS.41.4 LAKHS. 7.1 REJECTING THE ASSESSEE COMPANYS CONTENTIONS, THE AO TOOK A VIEW THAT THE AGREEMENT FOUND IN THE PREMISES WAS I N RESPECT OF PURCHASE OF LAND FOR THE ASSESSEE COMPANY SINCE THE ABOVE MENTIO NED PERSONS HAPPEN TO BE THE DIRECTORS OF THE ASSESSEE COMPANY AND AFTER T HE AGREEMENT WAS ENTERED INTO FOR THE PURCHASE OF THE LAND FOR RS.86 .45 LAKHS, THERE WAS A SEPARATE AGREEMENT WHICH INCLUDED THE NAME OF THE A SSESSEE COMPANY; AND THAT THE CORRECTION MADE BY INCLUDING THE ASSESSEE C OMPANYS NAME IN THE AGREEMENT SHOWED THAT THE LAND IN QUESTION WAS INTE NDED TO BE PURCHASED FOR THE ASSESSEE COMPANY. ACCORDINGLY, THE AO CAME T O A CONCLUSION THAT THE ALLEGED SUPPRESSION OF INVESTMENT OF RS.41 LAKH S IN THE ACQUISITION OF THE PROPERTY RELATED DIRECTLY TO THE ASSESSEE COMPANY AS U NDISCLOSED INVESTMENT. PAGE 6 OF 7 ITA NO.1145/B ANG/2011 6 7.2 HOWEVER, ON APPEAL, THE CIT (A) TOOK A DIVERG ENT VIEW THAT SINCE THE ASSESSEE COMPANY WAS TECHNICALLY REGISTERED ONLY ON 14.11.2002, THE ALLEGED INVESTMENT OF RS.41 LAKHS IN THE ACQUIS ITION OF THE SUBJECT PROPERTY CAN BE BROUGHT TO TAX ONLY IN THE HANDS OF T HE PROMOTERS WHO WERE INVOLVED IN THE AGREEMENT AND RUNNING THE AFFAIRS O F THE ASSESSEE COMPANY BEFORE ITS INCORPORATION. CAREFULLY ANALYZING THE FI NDINGS OF THE CIT (A), WE ARE OF THE CONSIDERED OPINION THAT THERE IS A CON SIDERABLE FORCE IN THE REASONING OF THE CIT (A). THE VIEW OF THE CIT (A) IS IN CONSONANCE WITH THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. CITY MILLS DISTRIBUTORS (P) LIMITED REPORTED IN (1996) 219 ITR 1 (SC). FOR APPRECIATION OF FACTS, THE RELEVANT PORTION OF THE OBSERVATIONS OF THE HONBLE COURT IS REPRODUCED AS UNDER: ..THE RELEVANT QUESTION WAS: WHAT WAS THE LEGAL ENTITY THAT HAD CARRIED ON THE BUSINESS BEFORE THE ASSESSE E COMPANY WAS INCORPORATED AND EARNED INCOME AT THE TI ME OF ITS ACCRUAL. A COMPANY BECOMES A LEGAL ENTITY IN THE EYE OF THE LAW ONLY WHEN IT IS INCORPORATED. PRIOR T O ITS INCORPORATION, IT SIMPLY DOES NOT EXIST. THE ASSESS EE COMPANY DID NOT EXIST WHEN THE INCOME WAS EARNED. I T IS, THEREFORE, NOT THE ASSESSEE COMPANY WHICH EARNED THE INCOME WHEN IT ACCRUED AND IT IS NOT LIABLE TO PAY T AX THEREIN. THE SAME RESULT IS REACHED BY A SOMEWHAT DIFFERENT PROCESS OF REASONING. A COMPANY CAN ENTER INTO AN AGREEMENT ONLY AFTER ITS INCORPORATION. IT IS ON LY AFTER INCORPORATION THAT A COMPANY MAY DECIDE TO ACCE PT THAT ITS PROMOTION HAVE CARRIED ON BUSINESS ON ITS BEHALF AND APPROPRIATE THE INCOME THEREOF TO ITSELF. THE QUESTION AS TO WHO IS LIABLE TO PAY TAX ON SUCH INCO ME CANNOT DEPEND UPON WHETHER OR NOT THE COMPANY AFTER INCORPORATION SO DECIDES. IT IS HE WHO CARRIED ON THE PAGE 7 OF 7 ITA NO.1145/B ANG/2011 7 BUSINESS AND RECEIVED THE INCOME WHEN IT ACCRUED WH O IS LIABLE TO BEAR THE BURDEN OF TAX THEREON.. 7.3 MOREOVER, THE REVENUE HAS NOT BROUGHT ON RECO RD ANY CREDIBLE DOCUMENTARY EVIDENCE WITH REGARD TO THE DIFFERENCE B ETWEEN THE TWO AGREEMENTS HAVING BEEN PAID BY THE ASSESSEE COMPANY. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH THE RATIO LAID DOWN BY THE HONBLE SU PREME COURT CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE CIT ( A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.41 LAKHS. IT IS ORDERE D ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED. THE ORDER PRONOUNCED ON THE 12 TH DAY OF JULY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.