Asstt. Commissioner of Income Tax Circle- Gonda, GONDA V. M/s Satish Chandra Pandey Memorial Hospital Pvt. Ltd, GONDA

ITA 314/LKW/2013

• Counselvise Citation: 31423714 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTAV
• Keywords: Unexplained investment; Depreciation; Valuation report; Assessment record
• Section: 142(1); 133A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.314/LKW/2013 ASSESSMENT YEAR:2009-10 ACIT CIRCLE, GONDA V. M/S SATISH CHANDRA PANDEY MEMORIAL HOSPITAL PVT. LTD. GONDA PAN/PAN:AAICS2308G (APPELLANT) (RESPONDENT) C.O. NO.16/LKW/2013 [ARISING OUT OF ITA NO.314/LKW/2013] ASSESSMENT YEAR:2009-10 M/S SATISH CHANDRA PANDEY MEMORIAL HOSPITAL PVT. LTD. GONDA V. ACIT CIRCLE, GONDA PAN/PAN:AAICS2308G (CROSS-OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI. Y.P. SRIVASTAV, D.R. ASSESSEE BY: SHRI. ABHINAV MEHROTRA, ADVOCATE DATE OF HEARING: 19 09 2014 DATE OF PRONOUNCEMENT: 10 11 2014 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) ON VARIOUS GROUNDS. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION ASSAILING THE ORDER OF THE LD. CIT(A). SINCE THE APPEAL AND CROSS OBJECTION WERE HEARD TOGETHER, THEY ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. :- 2 -: I.T.A. NO.314/LKW/2013: 2. THIS IS AN APPEAL BY THE REVENUE, IN WHICH THE ORDER OF THE LD. CIT(A) IS ASSAILED, INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER:- 1. THAT THE ID. CIT(A)- II, LUCKNOW HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY DELETING THE ADDITION OF RS.38,60,412/- MADE BY THE A.O., ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE FROM UNDISCLOSED/OUT OF BOOKS INCOME/RECEIPTS. 2. THAT ID. CIT(A)-II, LUCKNOW HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN BY OBSERVING THAT UPPWD RATES HAS TO BE APPLIED AND BY NOT APPRECIATING THE FACT THAT THE DVO IN HIS REPORT DATED : 16.11.2011 HAS MENTIONED THAT PWD PLINTH AREA RATES ARE NOT ACCEPTABLE AS CBDT HAS APPROVED ONLY CPWD PLINTH AREA RATES. 3. THAT THE ID. CIT(A)- II, LUCKNOW HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY OBSERVING IN PARA 5(6) OF THE APPELLATE ORDER THAT THE DIFFERENCE IN THE COST OF CONSTRUCTION ESTIMATED BY DVO AS ADJUSTED OF RS.1,36,93,742/- AND AS DISCLOSED BY THE APPELLANT AT RS.1,21,24,174/- WORKS OUT TO RS. 15,69,568/- WHICH IS ABOUT 8% OF THE ESTIMATED COST AND IS TO BE IGNORED. 4. THAT THE ID. CIT(A)- II, LUCKNOW HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY OBSERVING THAT AN ADDITIONAL 5% DEDUCTION HAS TO BE ALLOWED FOR SELF SUPERVISION FOR BACKWARD DISTRICT OF GONDA AS AGAINST 7.5% ALLOWED BY THE DVO. 5. THAT THE ID. CIT(A)- II, LUCKNOW HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW AS THE RATIO OF CASE LAWS MENTIONED IN THE APPELLATE ORDER IS NOT APPLICABLE IN THIS CASE. 6. THAT THE ID. CIT(A)- II, LUCKNOW HAS ERRED ON FACTS AND :- 3 -: CIRCUMSTANCES OF THE CASE AND IN LAW BY DELETING THE ADDITION OF RS. 3,40,932/- MADE BY THE A.O. BY ESTIMATING A NET PROFIT RATE OF 10% ON THE RECEIPTS OF HOSPITAL. 7. THAT THE ORDER DATED 15.02.2013 PASSED BY THE ID. CIT(A)- II, LUCKNOW IN APPEAL NO. 24/113/DCIT/GONDA/L 1-12 RELATING TO ASSESSMENT YEAR 2009-10 BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE CANCELLED AND ORDER OF THE A.O. DESERVES TO BE RESTORED. 3. IN THE CROSS OBJECTION, THE ASSESSEE HAS ASSAILED THE ORDER OF THE LD. CIT(A) ON THE GROUND THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.78,200/-. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO MOVED AN APPLICATION UNDER SECTION 253 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') READ WITH RULE 11 OF THE ITAT RULES RAISING THE ADDITIONAL GROUNDS IN THE CROSS OBJECTION, WHICH ARE AS UNDER:- (I) BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHO HAS MADE A REFERENCE TO DVO, WITHOUT LAWFULLY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HAS EVEN COMPUTED THE TOTAL INCOME OF THE ASSESSEE, BASING RELIANCE ON THE BOOK RESULTS, AS IS EVIDENT FROM THE COMPUTATION OF INCOME BY THE SAME. (II) BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHO HAS MADE A REFERENCE TO DVO, WITHOUT LAWFULLY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND AS SUCH THE ADDITION MADE ON THIS SCORE IS BAD IN LAW AS PER THE VERDICT OF THE HON'BLE APEX COURT IN SARGAM CINEMA. :- 4 -: 4. SINCE THE ADDITIONAL GROUNDS RAISED IN THE CROSS OBJECTION ARE LEGAL IN NATURE, THE SAME ARE ADMITTED AND ARE BEING DISPOSED OF AT THRESHOLD. 5. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT THE ASSESSING OFFICER HAS MADE REFERENCE FOR THE VALUATION OF THE PROPERTY WITHOUT REJECTING THE BOOKS OF ACCOUNT. THEREFORE, THE REFERENCE MADE TO THE DVO IS INVALID AND ADDITION MADE ON THE BASIS OF THE DVOS REPORT IS NOT SUSTAINABLE IN THE EYES OF LAW. INITIALLY, THE FACTS OF REFERENCE TO THE DVO WITHOUT REJECTING THE BOOKS OF ACCOUNT WERE DISPUTED BY THE REVENUE AND IN ORDER TO ASCERTAIN THE CORRECT POSITION IN THIS REGARD, THE REVENUE WAS DIRECTED TO PRODUCE THE ASSESSMENT RECORD. ACCORDINGLY THE ASSESSMENT RECORD WAS PRODUCED AND ON ITS PERUSAL IT WAS NOTICED FROM THE ORDER SHEET OF THE ASSESSMENT RECORD THAT NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 22.9.2010 FIXING THE DATE OF HEARING FOR 29.9.2010. THEREAFTER ON 10.11.2010 SHRI. ANUPAM GUPTA, C.A. ATTENDED IN RESPONSE TO NOTICE UNDER SECTION 143(2) OF THE ACT AND FILED HIS POWER OF ATTORNEY. AFTER THAT AN ORDER WAS PASSED TO FIX THE MATTER IN DUE COURSE. THEREAFTER, THE HEARING WAS FIXED FOR 30.8.2011 ON WHICH DATE THE ASSESSING OFFICER HAS ISSUED NOTICE UNDER SECTION 142(1) OF THE ACT FIXING THE DATE FOR COMPLIANCE ON 14.9.2011. IN THE LIGHT OF THESE FACTS, OUR ATTENTION WAS INVITED TO THE VALUATION REPORT SUBMITTED BY THE DVO, WHEREFROM IT IS EVIDENT THAT THE REFERENCE WAS MADE TO THE DVO BY THE ASSESSING OFFICER VIDE HIS LETTER DATED 28.12.2010 AND THE VALUATION WAS CONDUCTED BY THE DVO ON 24.2.2011. THEREFORE, THE REFERENCE WAS MADE TO THE DVO EVEN WITHOUT CALLING THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT. IN THE LIGHT OF THESE FACTS, IT WAS STRONGLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE REFERENCE WAS MADE TO THE DVO WITHOUT REJECTING THE BOOKS OF ACCOUNT, THE REFERENCE IS ILLEGAL AND BAD IN LAW AND THE VALUATION REPORT SUBMITTED CONSEQUENT THERETO IS ALSO ILLEGAL AND CANNOT BE RELIED ON FOR MAKING THE ADDITION ON ACCOUNT OF UNEXPLAINED :- 5 -: INVESTMENT IN THE PROPERTY. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE DVOS REPORT IS LIABLE TO BE DELETED. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT THE HONBLE APEX COURT VIDE ITS JUDGMENT DATED 19.10.2009 IN THE CASE OF SARGAM CINEMA VS. CIT, 328 IR 513 (SC), HAS CLARIFIED THE LEGAL POSITION WITH REGARD TO THE REFERENCE TO THE DVO FOR DETERMINING THE COST OF INVESTMENT IN THE PROPERTY BY HOLDING THAT THE ASSESSING AUTHORITIES COULD NOT HAVE REFERRED THE MATTER TO THE DVO WITHOUT THE BOOKS OF ACCOUNT BEING REJECTED. THEREAFTER, THE JUDGMENT OF THE HONBLE APEX COURT HAS BEEN FOLLOWED BY THE SUBORDINATE COURTS THROUGHOUT THE COUNTRY AND HAS BEEN REPEATEDLY HELD THAT A REFERENCE MADE WITHOUT REJECTING THE BOOKS OF ACCOUNT, IS BAD IN LAW AND ADDITION CANNOT BE MADE ON THE BASIS OF THE VALUATION REPORT SUBMITTED CONSEQUENT TO THE SAID REFERENCE. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS:- 1. CIT VS. REGHURAJI AGRO INDUSTRIES (P) LTD., 38 TAXMANN.COM 318 (ALLD). 2. ACIT-1, KANPUR VS. M/S INDUS TECHNICAL EDUCATION SOCIETY, KANPUR (I.T.A. NO. 296&297/LKW/2011). 3. HONEST GROUP OF HOTELS (P) LTD. VS. CIT, 123 TAXMAN 464 (J&K). 4. CIT VS. RAJ KUMAR, 182 ITR 436 (ALLD.) 6. THIS FACTUAL MATRIX WERE CONFRONTED TO THE LD. D.R. AND HE HAS NO ANSWER AS TO WHY REFERENCE WAS MADE TO THE DVO EVEN BEFORE ISSUING NOTICE UNDER SECTION 142(1)OF THE ACT. THE PHOTOCOPY OF THE ORDER SHEETS ARE OBTAINED AND KEPT IN RECORD. THE ORIGINAL ASSESSMENT RECORD WAS RETURNED TO THE LD. D.R. 7. HAVING CAREFULLY EXAMINED THE PROCEEDINGS RECORDED BY THE ASSESSING OFFICER AND THE MANNER IN WHICH REFERENCE WAS MADE TO THE DVO FOR :- 6 -: DETERMINING THE COST OF INVESTMENT MADE IN CONSTRUCTION OF PROPERTY, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS MADE REFERENCE TO THE DVO EVEN BEFORE ISSUING A NOTICE UNDER SECTION 142(1) OF THE ACT THROUGH WHICH QUERIES WITH REGARD TO THE INVESTMENT IN THE PROPERTY COULD HAVE BEEN RAISED AND WHAT TO SAY ABOUT REJECTION OF THE BOOKS OF ACCOUNT. THOUGH THROUGH THE JUDGMENT DATED 19.10.2009 IN THE CASE OF SARGAM CINEMA VS. CIT(SUPRA), THE HONBLE APEX COURT HAS CLARIFIED/LAID DOWN THE LAW OF THE LAND THAT REFERENCE TO THE DVO FOR DETERMINING THE COST OF CONSTRUCTION CAN ONLY BE MADE AFTER REJECTING THE BOOKS OF ACCOUNT, BUT THE ASSESSING OFFICER THOUGH BOUND BY THE JUDGMENT OF THE HONBLE APEX COURT AS PER ARTICLE 141 OF THE CONSTITUTION OF INDIA, HAS MADE A REFERENCE EVEN WITHOUT CARING THE JUDGMENT OF THE HONBLE APEX COURT. THIS ATTITUDE AND APPROACH OF THE ASSESSING OFFICER CANNOT BE APPRECIATED. THIS IS NOT THE ONLY ONE CASE WHERE WE HAVE NOTICED THIS TYPE OF APPROACH OF THE ASSESSING OFFICER. WE HAVE COME ACROSS A NUMBER OF CASES, IN WHICH THE ASSESSING OFFICER HAS MADE REFERENCE TO THE DVO WITHOUT CALLING FOR THE BOOKS OF ACCOUNT FROM THE ASSESSEE IN GROSS VIOLATION OF THE LAW LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF SARGAM CINEMA VS. CIT(SUPRA) IN THIS REGARD. THEREFORE, WE ARE OF THE VIEW THAT THE DEPARTMENT SHOULD ADOPT SOME MODE TO EDUCATE THEIR ASSESSING OFFICER TO ACT IN ACCORDANCE WITH LAW AND WHENEVER ANY JUDGMENT OF THE HONBLE APEX COURT IS RENDERED ON A PARTICULAR ISSUE, THEY SHOULD FOLLOW THE SAME. 8. SINCE REFERENCE HAS BEEN MADE WITHOUT EVEN CALLING FOR THE BOOKS OF ACCOUNT, WHAT TO SAY ABOUT THE REJECTION OF THE BOOKS OF ACCOUNT; THE REFERENCE TO THE DVO IS BAD AND INVALID IN THE EYES OF LAW AND ANY VALUATION MADE ON THE BASIS OF INVALID REFERENCE CANNOT BE USED AS A PIECE OF EVIDENCE FOR ESTIMATING THE COST OF CONSTRUCTION IN THE IMMOVABLE PROPERTY. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 69 OF THE ACT FOR UNEXPLAINED INVESTMENT IN THE PROPERTY DESERVES :- 7 -: TO BE DELETED AND WE ACCORDINGLY FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION. 9. THE OTHER GROUND IN THE REVENUES APPEAL IS WITH REGARD TO DELETION OF ADDITION OF RS.3.40 LAKHS MADE BY THE ASSESSING OFFICER AND ESTIMATED THE NET PROFIT RATE AT 10% ON THE RECEIPTS OF THE HOSPITAL. 10. IN THIS REGARD, WE HAVE NOTICED THAT THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT OF BUSINESS AT 10% OF THE TOTAL RECEIPT OF RS.97,25,962/- WITHOUT POINTING OUT ANY DEFECT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT. THE LD. CIT(A) HAS EXAMINED THIS ISSUE IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND DELETED THE ADDITION. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER:- 6(3) 1 HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. I HAVE CONSIDERED THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO CALLED FOR AND EXAMINED THE ASSESSMENT RECORDS. I FIND THAT THE AO HAS FAILED TO POINT OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNTS AS REGARDS THE BUSINESS OF THE APPELLANT. THERE IS NO FINDING THAT THE RECEIPTS OF THE APPELLANT ARE NOT PROPERLY DISCLOSED OR THAT BOGUS EXPENDITURE HAS BEEN CLAIMED. DISCREPANCIES POINTED OUT IN RESPECT TO RECORDING OF EXPENDITURE INCURRED IN COST OF CONSTRUCTION OF HOSPITAL BUILDING IS NOT THE SAME THING AS THE DISCREPANCIES IN THE BOOKS OF ACCOUNTS WITH REGARD TO THE BUSINESS CARRIED ON BY THE ASSESSEE. THE AO HIMSELF ADMITS THAT NEW BUSINESSES HAVE BEEN STARTED BY THE ASSESSEE AND HAS REDUCED THE RECEIPTS OF SCHOOL OF NURSING AND PARAMEDICAL SCIENCE AND FAMILY PLANNING FROM TOTAL RECEIPTS TO WORK OUT THE RECEIPTS FROM HOSPITAL AT RS.97,25,962/-. HOWEVER, IN DOING SO THE AO HAS FAILED TO CONSIDER THE EXPENSES INCURRED IN RESPECT THERETO WHICH HAS GONE ON TO REDUCE THE PROFIT RATE. FURTHER, THE FALL IN PROFIT RATE FROM 15.05% IN ASSESSMENT YEAR 2008-2009 TO 6.75% IN THE YEAR UNDER CONSIDERATION IS EXPLAINED BY HIGHER INTEREST OUTGO ON LOANS TAKEN FOR :- 8 -: ACQUISITION OF FIXED ASSETS AND DEPRECIATION CLAIMED ON ADDITIONS ON FIXED ASSETS. THE EXPENDITURE ON THESE TWO ACCOUNTS HAS INCREASED FROM RS.19,02,648/- IN THE PRECEDING YEAR TO RS. 35,76,668/- IN THE YEAR UNDER CONSIDERATION. THE FALL IN PROFIT RATE IS THEREFORE ADEQUATELY EXPLAINED. IN ANY CASE THE FALL IN PROFIT RATE COULD NOT BE A SUFFICIENT GROUND TO ESTIMATE THE PROFIT AT A HIGHER RATE. IN VIEW OF ABOVE, THE ADDITION OF RS.3,40,932/- MADE BY THE ASSESSING OFFICER IS DELETED GIVING RELIEF TO THE APPELLANT. 11. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. D.R. COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDER OF THE LD. CIT(A). HE HAS SIMPLY PLACED RELIANCE UPON THE ASSESSMENT ORDER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSING OFFICER HAS APPLIED THE NET PROFIT RATE AT 10% ON THE RECEIPTS OF HOSPITAL WITHOUT POINTING OUT ANY DEFECT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT. NO DOUBT, NET PROFIT RATE CAN BE RE-ESTIMATED BY THE ASSESSING OFFICER BUT IT CAN ONLY BE DONE WHERE THE DEFECTS ARE POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT. WITHOUT POINTING OUT ANY DEFECT, RE-ESTIMATION OF NET PROFIT RATE IS NOT PERMISSIBLE. WE ACCORDINGLY FIND NO MERIT IN THIS GROUND OF THE REVENUE AND WE DISMISS THE SAME. 12. IN THE CROSS OBJECTION, THE ASSESSEE HAS ALSO RAISED ANOTHER GROUND WITH REGARD TO THE CONFIRMATION OF ADDITION OF RS.78,200/- MADE BY THE ASSESSING OFFICER BY TAKING RECEIPTS OF SCHOOL OF NURSING AND PARAMEDICAL AT RS.22,86,300/- AS AGAINST RS.22,08,000/- SHOWN BY THE ASSESSEE. 13. IN THIS REGARD, IT IS NOTICED THAT THE LD. CIT(A) HAS CALLED FOR ASSESSMENT RECORD AND VERIFIED HIMSELF THE DIFFERENCE IN FEES OF SCHOOL OF NURSING & INSTITUTE OF PARAMEDICAL SCIENCE AND NOTED THAT THE ASSESSING OFFICER HAS WORKED OUT THE DIFFERENCE IN FEES OF SCHOOL OF NURSING & INSTITUTE OF PARAMEDICAL SCIENCE AT RS.22,86,300/- AS AGAINST :- 9 -: RS.22,08,000/- SHOWN BY THE ASSESSEE ON THE BASIS OF DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT ON 7.3.2009. THEREFORE, WE FIND NO INFIRMITY IN THIS ADDITION. ACCORDINGLY WE REJECT THE GROUND RAISED BY THE ASSESSEE. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH NOVEMBER, 2014 JJ:1510 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR