M/s Islamic Academy of Education, Mangalore V. ACIT, Mangalore

ITA 658/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51325 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 12-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PREETHI GARG
• Assessee Lawyers: DINESH
• Keywords: Unexplained investment; Revision of order; Charitable institution; Opportunity of being heard; Valuation report
• Section: 143(3); 153A; 147; 263; 11

Judgement Text

PAGE 1 OF 10 ITA NOS.656 TO 658/ BANG/2010 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.656 TO 658/BANG/2010 (ASST. YEARS 2004-05, 2006-07 & 2007-8) M/S ISLAMIC ACADEMY OF EDUCATION, NITHYANANDA NAGAR, P.O.DERALAKATEE, MANGALORE-18. - APPELLANT PA NO.AAAT13176M VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MANGALURU . - RESPONDENT DATE OF HEARING : 20/10/2011 DATE OF PRONOUNCEMENT : 20/10/2011 APPELLANT BY : SHRI DINESH, ADVOCATE RESPONDENT BY : SMT. PREETHI GARG, CIT O R D E R PER BENCH : THESE THREE APPEALS INSTITUTED BY THE ASSESSEE ARI SE OUT OF THE CONSOLIDATED ORDER OF THE CIT, MANGALORE ARE PASSED U/S 263 OF THE ACT DATED 23RD MARCH, 2010. THE RELEVANT ASST. YEARS AR E 2004-05, 2006-07 AND 2007-08. PAGE 2 OF 10 ITA NOS.656 TO 658/ BANG/2010 2 2. THE GROUNDS OF APPEAL FOR ALL THE ASST. YEARS A RE MORE OR LESS IDENTICAL AND HENCE, THE GROUNDS RELATING TO ASST. YEAR 2004-05 ARE REPRODUCED BELOW:- I) THE CIT GROSSLY ERRED IN INVOKING THE PROVISIONS OF SECTION 263 WHEN THE ASSESSMENT ORDER FOR THE RELEV ANT ASSESSMENT YEAR WAS NEITHER ERRONEOUS NOR PREJUDICIA L TO THE INTEREST OF THE REVENUE AND THEREFORE, THE ORDE R U/S 263 AS PASSED BY HIM IS LIABLE TO BE SET ASIDE. II) THE CIT GROSSLY ERRED IN NOT APPRECIATING THAT THE VALUATION REPORT ON WHICH THE ASSESSMENT ORDER WAS SOUGHT TO BE REVISED WAS JUST AN OPINION, THE NON CONSIDERATION OF WHICH BY ITSELF WOULD NOT CONSTITUT E AN ASSESSMENT ORDER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTI ON 263. III) WITHOUT PREJUDICE, THE CIT OUGHT TO HAVE APPRECIATE D THAT THE SO CALLED REPORT OF THE DVO WAS PREPARED WITHOUT AN OPPORTUNITY HAVING BEEN GIVEN TO THE APPE LLANT BEFORE FINALIZING THE VALUATION REPORT AND THEREFOR E EVEN THE SO CALLED REPORT WAS NOT A MATERIAL PIECE OF EV IDENCE TO JUSTIFY INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT WHEN THE SAID REPORT ITSELF WAS NOT BEYOND ANY CONTROVERSY. IV) WITHOUT PREJUDICE, THE APPELLANT HAVING NOT MADE AN Y INVESTMENT OUTSIDE THE BOOKS OR THAT THERE BEING AN Y ALLEGATION THAT THE INVESTMENT MADE BY IT WERE NOT DISCLOSED IN THE BOOKS, THE CIT OUGHT TO HAVE APPRECIATED THAT IT WAS NOT A FIT CASE FOR REFERENC E TO THE DVO FOR VALUATION. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- DURING THE PENDENCY OF SEARCH ASSESSMENT FOR AY 2 000-01 TO 2006-07, A REFERENCE WAS MADE TO THE DISTRICT VALUA TION OFFICER (DVO) ON PAGE 3 OF 10 ITA NOS.656 TO 658/ BANG/2010 3 25.7.2007 U/S 142A OF THE ACT IN ORDER TO VERIFY THE CORRECTNESS OF THE INVESTMENT MADE BY THE ASSESSEE IN PURCHASE OF FLAT S IN DELTA COURT APARTMENTS AND FOR CONSTRUCTION OF CAMPUS AT NITHYAN ANDA NAGAR, DERALAKATTE, MANGALORE. ASSESSMENT ORDERS WERE PA SSED FOR THE ABOVE SAID ASST. YEARS WITHOUT CONSIDERING THE DVOS REPORT, AS IT WAS NOT AVAILABLE AT THE TIME OF ASSESSMENTS. LATER, THE DVOS REPORT DATED 10/7/2009 WAS RECEIVED AND IT WAS NOTICED THAT THE INVESTMENT DIS CLOSED IN THE BALANCE SHEET FOR THE PURCHASE OF FLATS AND THE CONSTRUCTIO N OF CAMPUS MENTIONED ABOVE WAS MUCH LESS THAN THE VALUE ARRIVED AT BY THE DVO IN HIS REPORT DATED 10/7/2009. 3.1 THE CIT, INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT, WAS OF THE OPINION THAT SINCE THE ASSESSEE HAD DECLARED THE VALUE OF BUILDING MUCH LOWER THAN THE ESTIMATE COST ARRIVED AT BY THE DVO AND SINCE THE AO HAS NOT CONSIDERED THE VALUATION REPORT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSMENT ORDER PASSED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. KEEPIN G IN MIND THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V SHREE M ANJUNATHESWARA PACKING PRODUCTS AND CAMPHOR WORKS 231 ITR 53, THE CIT ISSU ED SHOW CAUSE NOTICE U/S 263 OF THE ACT. RELEVANT PORTION OF THE SHOW C AUSE NOTICES ISSUED BY THE COMMISSIONER FOR EACH OF THE ASST. YEAR ARE AS F OLLOWS:- ASST. YEAR 2004-05 1. THE ABOVE MENTIONED ASSESSMENT ORDER IN YOUR CASE WAS PASSED U/S 153A RWS 143(3) OF THE INCOME TAX ACT, 1961 ON 24/12/2007 BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MANGALORE. ON VERIFICATION OF RECORDS, IT IS FOUND PAGE 4 OF 10 ITA NOS.656 TO 658/ BANG/2010 4 THAT THE ORDER IS ERRONEOUS IN LAW AND IS PREJUDICI AL TO THE INTEREST OF REVENUE IN AS MUCH AS THE ASSESSING OFFICER HAS NOT DONE A PROPER EXAMINATION OR ENQUIR Y OR VERIFICATION/COMPLETELY OMITTED THE FOLLOWING ISS UE WHILE COMPLETING THE ASSESSMENT. 2. IT IS SEEN FROM THE RECORD THAT BUILDING-3, DELTA COURT APARTMENTS IS REFLECTED IN THE BALANCE SHEET AS ON 31/03/2004, AT RS.1,97,95,050/- AGAINST THE VALUATION DONE BY DISTRICT VALUATION OFFICER, INCOME TAX DEPARTMENT, BANGALORE AT RS.3,38,14,320/-. THI S REVEALS AN UNDERVALUATION OF ASSETS. ASST. YEAR 2006-07 1. THE ABOVE MENTIONED ASSESSMENT ORDER IN YOUR CASE WAS PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 O N 24/12/2007 BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MANGALORE. ON VERIFICATION OF RECORDS, IT IS FOUND THAT THE ORDER IS ERRONEOUS IN LAW AND IS PREJUDICIAL TO THE INTEREST OF REVENUE IN AS MUCH AS THE ASSESSING OFFICER HAS NOT DONE A PROPER EXAMINATION OR ENQUIRY OR VERIFICATION/COMPLETELY OMITTED THE FOLLOWING ISSUE WHILE COMPLETING THE ASSESSMENT. 2. IT IS SEEN FROM THE RECORD THAT BUILDING IS REFLE CTED IN THE BALANCE SHEET AS ON 31/03/2006, AT RS.52,59,47,942/- AGAINST THE VALUATION DONE BY DISTRICT VALUATION OFFICER, INCOME TAX DEPARTMENT, BANGALORE AT RS.83,54,34,609/-. THIS REVEALS AN UNDERVALUATION OF ASSETS. ASST. YEAR 2007-08 1. THE ABOVE MENTIONED ASSESSMENT ORDER IN YOUR CASE WAS PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 O N 07/12/2009 BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), MANGALORE. ON VERIFICATION OF RECORDS, IT IS FOUND THAT THE ORDER IS ERRONEOUS IN LAW PAGE 5 OF 10 ITA NOS.656 TO 658/ BANG/2010 5 AND IS PREJUDICIAL TO THE INTEREST OF REVENUE IN AS MUCH AS THE ASSESSING OFFICER HAS NOT DONE A PROPER EXAMINATION OR ENQUIRY OR VERIFICATION/COMPLETELY OMITTED THE FOLLOWING ISSUE WHILE COMPLETING THE ASSESSMENT. 2. IT IS SEEN FROM THE RECORD THAT BUILDING IS REFLE CTED IN THE BALANCE SHEET AS ON 31/03/2007, AT RS.52,59,41,825/- AGAINST THE VALUATION DONE BY DISTRICT VALUATION OFFICER, INCOME TAX DEPARTMENT, BANGALORE AT RS.83,54,34,609/-. THIS REVEALS AN UNDERVALUATION OF ASSETS. 4. THE ASSESSEE, VIDE ITS LETTER DATED 17/3/2010, RAISED OBJECTIONS TO THE ABOVE PROPOSAL TO REVISE THE ASSE SSMENT U/S 263 OF THE ACT. THE OBJECTIONS RAISED BY THE ASSESSEE ARE LIST ED OUT IN PARA 8 OF THE IMPUGNED ORDER OF THE CIT. IN ESSENCE IT WAS SUBMI TTED THAT (1) REFERENCE TO DVO U/S 142(2A) IS INVALID; (2) DVOS REPORT HAS NOT BEEN FURNISHED AND NO ADEQUATE OPPORTUNITY WAS PROVIDED BY THE DVO TO PL ACE THE ASSESSEES POINT OF VIEW IN REGARD TO THE VALUATION & (3) THE ASSESSEE, BEING A CHARITABLE INSTITUTION GOVERNED BY SECTIONS 11 AND 12A, ADDITIO N MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IS REVENUE NEUTRAL, SINCE TH E ADDITION TANTAMOUNT TO APPLICATION OF INCOME. FURTHER IT WAS SUBMITTED TH AT THE VALUATION REPORT IS MERELY A SUBJECTIVE ESTIMATE OF THE VALUATION OFFICE R AND EVIDENCE IN THE FORM OF REGULAR BOOKS IS CERTAINLY MORE RELIABLE THA N AN ESTIMATE, THOUGH BY AN EXPERT. FOR THE ABOVE SAID REASONS, IT WAS PRAYE D THAT THE REVISION PROCEEDINGS U/S 263 OF THE ACT MAY BE SET ASIDE. 5. THE CIT FOR HIS REASONS MENTIONED IN PARA 9 OF HIS IMPUGNED ORDER, REJECTED THE OBJECTIONS/CONTENTIONS OF THE A SSESSEE AND DIRECTED THE AO TO CONSIDER THE VALUATION REPORT AND AFTER P ROVIDING REASONABLE PAGE 6 OF 10 ITA NOS.656 TO 658/ BANG/2010 6 OPPORTUNITY OF HEARING TO THE ASSESSEE, COMPLETE THE ASSESSMENT IN ACCORDANCE WITH LAW. 6. THE ASSESSEE, BEING AGGRIEVED, IS IN APPEAL BEF ORE US. 7. THE CONTENTIONS RAISED BEFORE THE CIT ARE REITE RATED BEFORE US. IT WAS FURTHER SUBMITTED THAT THE DVOS REPORT CANNOT BE RELIED ON AND THE VALUATION REPORT DOES NOT AMOUNT TO INFORMATION WITHIN THE MEANING OF SECTION 147 OF THE ACT. 8. THE LEARNED DR STRONGLY RELIED ON THE FINDINGS/C ONCLUSION OF THE CIT. SHE ALSO REFERRED TO THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF SHREE MANJUNATHESHWARE PACKING PRODUCTS AND CAMPHOR WORKS 231 ITR 53 AND ALSO THE JUDGEMENT OF THE HONBLE MA DRAS HIGH COURT IN THE CASE OF CIT V M N SULAIMAN 238 ITR 139. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE FOR OUR CONSIDERATION IS WHETHER THE CIT HAS CORRECTLY INVOKED HIS JURISDICTION U/S 263 OF THE AC T. IT IS AN ADMITTED FACT THAT FOR THE ASST. YEARS 2004-05 AND 2006-07, THE AS SESSMENT ORDERS WERE PASSED MUCH PRIOR TO THE RECEIPT OF DVOS REPORT (D VO REPORT IS DATED 10.7.2009 AND THE ASSESSMENT ORDERS FOR BOTH THE YEA RS ARE DATED 24.12.2007). FOR THE ASST. YEAR 2007-08, THOUGH THE ASSESSMENT WAS COMPLETED ONLY ON 7.12.2009, IT IS NOT CLEAR WHETHER THE VALUATION REPORT IS RECEIVED BEFORE THE ASSESSMENT WAS COMPLETED. IN A NY EVENT, WHILE PASSING THE ASSESSMENT ORDER FOR THE AY 2007-08, THE AO HAS NOT TAKEN INTO CONSIDERATION THE VALUATION REPORT OF THE DVO DATED 10.7.2009. PAGE 7 OF 10 ITA NOS.656 TO 658/ BANG/2010 7 9.1 BY VIRTUE OF SECTION 263 OF THE ACT, THE COMMIS SIONER HAS THE POWER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROC EEDINGS AND PASS SUCH ORDERS THEREON AS THE CIRCUMSTANCES OF THE CASE JUS TIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT, IF HE CONSIDERS THAT ANY ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO T HE INTEREST OF THE REVENUE. THE MATERIALS, WHICH ARE NOT AVAILABLE TO THE AO WH EN HE COMPLETED THE ASSESSMENT, COULD BE TAKEN INTO CONSIDERATION BY THE COMMISSIONER FOR INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT. 9.2 THE HONBLE SUPREME COURT IN THE CASE OF SHRE E MANJUNATHESHWARE PACKING PRODUCTS AND CAMPHOR WORKS 231 ITR 53 WAS CONSIDERING AN IDENTICAL FACT WHEREIN THE ASSESSEE RESPONDENT FIRM, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 197 7-78 HAD CONSTRUCTED A CINEMA THEATRE AND IN THE RETURN FILED BY IT, HAD SHOWN THE COST OF CONSTRUCTION AT RS.20,28,498 (RS.23,78,242 LESS RS. 3,49,644 BEING ELECTRIC PORTION). THE INCOME-TAX OFFICER ON FEBRUARY 2, 198 0, WROTE TO THE DEPARTMENTAL VALUATION OFFICER TO ASCERTAIN AND REP ORT THE CORRECT COST OF CONSTRUCTION OF THE THEATRE. THE VALUATION OFFICER EXPRESSED HIS INABILITY TO GIVE HIS VALUATION REPORT BY MARCH 31, 1 980, BY WHICH DATE THE ASSESSMENT WAS TO BE COMPLETED. THE INCOME TAX OFF ICER, THEREFORE, WITHOUT WAITING FOR HIS REPORT, PASSED AN ORDER OF ASSESSMENT ACCEPTING THE VALUATION MENTIONED BY THE ASSESSEE IN ITS RETUR N. THE VALUATION OFFICER SUBMITTED HIS REPORT ON DECEMBER 16, 1980. HE DETE RMINED THE COST OF CONSTRUCTION AT RS.34,58,600 AS AGAINST RS. 20,28,498 STATED BY THE ASSESSEE. THEREFORE, THE CIT HELD U/S 263(1) OF THE I T ACT, 1961 PAGE 8 OF 10 ITA NOS.656 TO 658/ BANG/2010 8 THAT THE INVESTMENT NOT ACCOUNTED FOR BY THE ASSESSE E FIRM SHOULD HAVE BEEN BROUGHT TO TAX AND THE INCOME TAX OFFICER HAVI NG NOT DONE SO, HIS ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE. ON FURTHER APPEAL, THE TRIBUNAL UPHELD THE CONTENTION OF THE ASSESSEE AND THE SAME WAS AFFIRMED BY THE HONBLE HIGH COURT OF KARNA TAKA. WHEN THE REVENUE TOOK UP THE MATTER IN SLP TO HONBLE SUPREM E COURT, THE HONBLE APEX COURT REVERSED THE JUDGEMENT OF THE HONBLE HI GH COURT AND UPHELD THE REVISIONARY JURISDICTION OF THE COMMISSIONER U/S 263 OF THE ACT. 9.3 SIMILARLY, ON IDENTICAL FACTS, THE HONBLE MADR AS HIGH COURT IN THE CASE OF CIT V M N SULAIMAN 238 ITR 139 HELD THAT THE INCOME TAX OFFICER HAD PASSED THE ASSESSMENT ORDER AFTER HAVIN G CALLED FOR A VALUATION REPORT, BUT WITHOUT WAITING FOR THE REPORT TO BE SU BMITTED TO HIM. THAT REPORT WHICH WAS SUBSEQUENTLY SUBMITTED RELATED TO T HE PROCEEDINGS AND FORMED PART OF THE RECORD WHICH WAS BEFORE THE CIT WHEN HE EXAMINED THE SAME. IT WAS CERTAINLY PERMISSIBLE FOR THE CIT TO L OOK INTO THAT VALUATION REPORT FOR THE PURPOSE OF DECIDING AS TO WHETHER TH E ASSESSMENT MADE WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE FA CT THAT THE ASSESSMENT YEAR IN QUESTION WAS 1971-72 WHICH WAS LONG PRIOR TO THE DATE OF AMENDMENT OF SECTION 263 BY THE FINANCE ACT, 1988, DID NOT IN ANY MANNER AFFECT THE AMBIT OF THE CITS POWER U/S 263 AS IT HAS BEEN LAI D DOWN BY THE SUPREME COURT IN CIT V SHREE MANJUNATHESHWARE PACKING PRODU CTS AND CAMPHOR WORKS (1998) 231 ITR 53 THAT EVEN THE VIEW THAT PRE VAILED WITH REGARD TO SECTION 263 AS IT STOOD PRIOR TO 1988 WAS TOO NARRO W AN INTERPRETATION OF THE WORD RECORD AND WAS UNJUSTIFIED. THE EXPLANA TION ADDED TO SECTION 263(1) IN THE YEAR 1988 WAS, THEREFORE, TO BE REGARD ED AS DECLARATORY. PAGE 9 OF 10 ITA NOS.656 TO 658/ BANG/2010 9 9.4 IN THE INSTANT CASE, THE COMMISSIONER HAS ONLY DIRECTED THE AO TO EXAMINE THE DVOS REPORT AND PROVIDE AN OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY MODIFY THE ASSESSMENT FO R THE ASST. YEARS MENTIONED ABOVE. THE RELEVANT FINDING OF THE CIT R EADS AS FOLLOWS:- IN VIEW OF THE ABOVE AND IN ORDER TO GIVEN OPPORTU NITY OF BEING HEARD, TAKING INTO CONSIDERATION OF THE FACT THAT LOSS WILL BE CAUSED TO THE REVENUE AND UNDUE ADVANT AGE WILL BE GAINED BY THE ASSESSEE, I DIRECT THE AO TO M ODIFY THE ASSESSMENTS FOR AYS 2004-05 ALSO, CONSIDERING T HE VALUATION REPORT OF THE DVO AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9.5 THE MATTER HAS BEEN REMANDED BY THE CIT(A) TO T HE AO FOR A PROPER EXAMINATION IN ACCORDANCE WITH LAW, THEREFOR E, THE ASSESSEE CAN RAISE HIS OBJECTIONS WITH REFERENCE TO THE VALUE DETERMIN ED BY THE DVO IN HIS REPORT DATED 10.7.2009. SINCE THE DVOS REPORT IS NOT BINDING ON THE AO, TAKING INTO CONSIDERATION THE OBJECTION OF THE ASSE SSEE, SUITABLE MODIFICATION CAN BE MADE TO ARRIVE AT THE VALUE OF THE INVESTMENTS. ACCORDINGLY, WE SEE THERE IS NO PREJUDICE CAUSED TO THE ASSESSEE AND HENCE, THE GROUNDS RAISED ARE DISMISSED. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF OCTOBER, 2011 SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER PAGE 10 OF 10 ITA NOS.656 TO 658 /BANG/2010 10 COPY TO:- 1.THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCE RNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.