Income Tax Appellate Tribunal - Hyderabad
Dr. G. Premalatha, Hyderabad vs Assessee on 5 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 200/Hyd/2014
Assessment year 2004-05
Dr. G. Premalatha vs. The Deputy CIT
Hyderabad Circle-8(1)
PAN: ADMPM6596Q Hyderabad
Appellant Respondent
ITA No. 201/Hyd/2014
Assessment year 2005-06
Dr. G. Premalatha vs. The Joint CIT
Hyderabad Circle-8(1)
PAN: ADMPM6596Q Hyderabad
Appellant Respondent
Appellant by: Sri C.R. Sekhar Reddy
Respondent by: Sri R. Mohan Reddy
Date of hearing: 30.07.2014
Date of pronouncement: 05.09.2014
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
The above two appeals by the assessee are directed against different orders of the CIT(A)-III, Hyderabad dated 30th December, 2013 for assessment years 2004-05 and 2005-06. Since both the appeals pertain to one assessee and contain identical issues, both these appeals are clubbed and heard together and are disposed of by this common order for the sake of convenience.
2. The assessee is an individual and running a hospital in the name of Vikram Hospitals. She filed her return of income for A.Y. 2004-05 on 31.10.2004 2 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= declaring total loss of Rs. 24,02,965. The Assessing Officer completed the assessment u/s. 143(3) of Income- tax Act, 1961 by making the following additions:
Sl. Addition
Particulars
No. (Rs.)
1. Addition towards undisclosed investment in hospital building 15,00,000
2. Addition towards depreciation on fixed assets 2,28,816
3. Addition towards unexplained addition in capital 7,26,185
4. Addition towards unsecured loan in the name of her father 3,30,000
5. Addition towards undisclosed receipts 99,405
6. Addition towards expenses 1,44,930
3. The facts are that the assessee is a gynaecologist and running a hospital by name Vikram Hospitals. A survey u/s. 133A of the Act was conducted on 27.09.2005. During the course of survey a statement of assessee was recorded wherein she stated that she did not have any knowledge about the books of account or registers of the hospital. Further, she also stated that she had no control over the financial affairs of the hospital which was looked after by her husband and her father. The husband of the assessee made a statement that the books have been lost and only a ledger extract of the construction account for FY 2002-03 was available and beyond that no details of construction account were available. The assessee had submitted that the construction of Vikram Hospitals in Madhapur was started during the FY 2002-03 and the completed in FY 2003-04. The hospital was inaugurated in the month of January, 2004.
4. The Assessing Officer disagreed with the cost of construction shown by the assessee and by taking into account comparable cases, worked out the actual cost of 3 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= construction at Rs. 80,45,650 and made an addition of Rs. 15 lakhs by giving the following reasons:
"3.7 The assessee furnished a reply dated 23.12.2006 stating that the cost of construction declared by her is Rs. 63,99,186/- including building of Rs. 56,58,839/- and electrical fittings of Rs. 7,40,347/-. She further claimed that out of the total plinth area of 19,807 sq. ft. the basement occupies 3470 sq. ft. and the cost of construction of the basement cannot be at par with other areas. She stated that the cost of basement floor is approximately Rs. 130/- to Rs. 150/- per sq. ft. Further, she claimed that the construction was taken up under her husband's personal supervision, which involved savings at the rate of 15% on the total cost.
3.8 The above arguments of the assessee were carefully examined. Since the assessee has failed to produce all the bills/vouchers in support of the construction of the hospital and the cost of construction adopted by her was approximately Rs. 300/- per sq. ft. only, it is definitely on a very low side. The argument of the assessee that the cost of construction of the basement floor cannot be Rs. 450/- per sq. ft. appears to be reasonable. Hence, the cost of construction of the basement floor is estimated to be Rs. 200/- per sq. ft. and not Rs. 150/- per sq. ft. as claimed by the assessee, considering the fact that a lot of excavation work is required for this part of the building and it has a working lab, watchmen room and stores constructed on it. During the F. Y. 2002-03, only the basement was constructed. As regards the balance plinth area of 16,337 sq. ft. as discussed above, the minimum cost of construction is adopted at Rs. 450/- per sq. ft. as the construction for this part of the building was undertaken F. Y. 2003-04. Based on this working the total cost of construction of the hospital building is worked out as under:-4
ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= For the basement: 3470 sq. ft. Rs. 6,94,000 @ Rs. 200 per sq. ft.
Remaining part of the building Rs. 73,51,650 i.e., 16337 sq. ft. @ Rs. 450 per sq. ft.
Rs. 80,45,650 3.9 The assessee has disclosed the cost of construction of the hospital building in its balance sheet at Rs. 63,99,186/- only. Hence, the difference of Rs. 16,46,464/- (Rs.
80,45,650/- Rs. 63,99,186/-) is liable to be treated as undisclosed investment made in the said building. However, considering the fact that the construction was done under the personal supervision of assessee's husband, some credit is given to the assessee and the addition on account of undisclosed investment in the construction of the building is restricted to Rs. 15 lakhs. Accordingly, an addition of Rs. 15,00,000/- is made to the total income of the assessee on account of undisclosed investment in the hospital building for which penalty proceedings u/s 271(1)( c) of the 1. T. Act are separately initiated."
5. Aggrieved, the assessee preferred an appeal before the CIT(A).
6. The assessee argued before the CIT(A) that the Assessing Officer had arbitrarily rejected the valuation done by the assessee and the Assessing Officer has not found any mistake in the valuation report of the valuer consulted by the assessee. The CIT(A) vide letter dated 12.2.2008 referred the case to the Assessing Officer for a Remand Report to be submitted after getting the valuation of the hospital done from District Valuation Officer and also gave a direction that the report should be properly confronted by the assessee.
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7. The Remand Report along with the valuation report made by the Chief Engineer in charge of valuation was submitted to the AO on 1st October, 2013 after confronting the assessee. The entire report was sent to the assessee who gave her counter submissions. The issue of enhancement of income emanating out of the enhanced valuation by the Chief Engineer was also confronted to the assessee. The CIT(A) observed from the DVO's report that the 4th floor was constructed after December, 2006 and, therefore, it should not be taken into account for this assessment year. The official valuer's report was challenged by the assessee who reiterated the stand that original valuation report was correct and no enhancement was called for.
8. The CIT(A) concluded as under:
"4.9 Given the above major discrepancies and the detailed and scientific methods of valuation adopted by the Chief engineer based on CBDT guidelines, I hold that I am in agreement with the report of the Chief engineer wherein the total cost of construction has been valued at Rs. 2.44 crore. It was stated that on the fourth floor only a penthouse existed during the current year. The total cost of the fourth floor is Rs. 25,34,661/-. The cost of penthouse is conservatively taken as Rs. 5 lakhs. Therefore, from the total cost Rs. 20 lakhs is reduced. Thus, the cost of construction is approximately Rs. 2.20 crore. Accordingly, reducing the cost estimated by the assessing officer at Rs. 80,45,650/-, a further addition of Rs. 1,63,54,350/- is made to the declared income of the appellant on account of cost of construction as discussed above. This enhancement will be over and above the addition of Rs. 15 lakhs made by the assessing officer in the assessment order."6
ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha =======================
9. The next ground of appeal before us relates to the addition of Rs. 3,30,000 on account of unsecured loan given by the father of the assessee. The assessee has shown that her father Sri Vara Prasada Rao had given a loan of Rs. 5,35,000 during the year. Upon examination of the bank account, the Assessing Officer found that in the account with ICICI Bank, cash of Rs. 3,30,000 was deposited on 20.1.2004 and immediately after that a cheque of equivalent amount was given to the assessee on 23.1.2004. Accordingly, the Assessing Officer added the above amount.
10. During the appellate proceedings before the CIT(A), the assessee did not elaborate on this issue and only stated that the father of the assessee had sources to provide the loans. The assessee has argued that on various occasions her father had been withdrawing cash from his bank account totalling to Rs. 2.25 lakhs in the last two years. It is stated that all these withdrawals were deposited back in the bank to give the loan. The CIT(A) held that the explanation of the father of the assessee cannot be relied upon as he stated that this cash had been kept with some relative and has been returned back and the CIT(A) pointed out that no details have been provided and absolutely no evidence has been provided regarding this story. The CIT(A) agreed with the Assessing Officer that the father of the assessee does not have any other source of income and this amount of so called withdrawals had definitely been used for the purpose of his personal household expenses over nearly two years. Thus the CIT(A) held that the fact is further proven by the conclusive evidence wherein just before issue of cheque 7 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= an amount of Rs. 3.3 lakhs which is much more than the cumulative withdrawals of the last two years had been deposited. The CIT(A) held that it is very clear from the above that the transaction is not genuine and section 68 of the Act has been rightly applied in the case of the assessee. Accordingly, he sustained the addition made by the Assessing Officer.
11. The next ground of appeal before us relates to the addition of Rs. 1,26,185 given by the husband of the assessee. During the appeal proceedings the assessee agreed that she had voluntarily admitted to the disallowance of Rs. 6 lakhs, but at the same time the assessee could not explain the difference of Rs. 1,26,185/-. Following are the written submissions of the appellant:
"Addition on account of capital : The total capital introduced was Rs. 14,25,185/-, out of which Rs. 6 lakhs was admitted and an amount of Rs. 5,99,000/- represents the cost of land transferred. This leaves a balance of Rs. 2,25,185/-. The Assessing Officer accepted Rs. 1,00,000/- received from Sri Vikram. A copy of the account of Sri Vikram is submitted which would clearly show that he paid on behalf of the appellant the amounts to Margadarsi, etc., which was transferred to her account by way of a journal entry. Therefore, no addition should have been made by the Assessing Officer.
In so far as the discrepancies in receipts are concerned, the appellant offered an additional income of Rs. 6 lakhs and, therefore, no separate addition should have been made. The appellant also submits that the Assessing Officer disallowed expenditure to an extent of 1/5th of the amounts debited to the profit and loss account. It is submitted that the 8 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= expenditure is incurred in running the hospital and, therefore, the Assessing Officer should not have disallowed any expenses. The Assessing Officer is not justified in making any disallowance.
12. The CIT(A) observed that the assessee has given identical arguments as given during assessment proceedings and for the difference of Rs. 1.25 lakh there is no explanation from the assessee. Accordingly, he sustained the addition on this count. Aggrieved the assessee is in appeal before us with the following revised grounds.
1. The order of the learned CIT (Appeals), in so far as it is prejudicial to the interest of the appellant, is erroneous both on facts and in law.
2. (i) The addition sustained of Rs. 15 lakhs made by the AO towards estimated understatement of cost of construction of the hospital and enhancing the cost of construction by Rs. 1,63,54,350 based on the report of the District Valuation Officer (DVO) is erroneous and is liable to be deleted.
(ii) The learned CIT (Appeals) has no jurisdiction to travel beyond his jurisdiction, which he did while calling for a report of the DVO.
(iii) The learned CIT (Appeals) erred in admitting fresh evidence in appeal from the Revenue whereas only the appellant is entitled to furnish fresh evidence in the appellate proceedings in terms of Rule 46A of the Income Tax Rules, 1962. Addition made pursuant to such fresh evidence is legally not sustainable.
(iv) The learned CIT (Appeals) erred in directing the Assessing Officer to make a reference to the Valuation Officer while 9 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= calling for a remand report, which in law he is not entitled to do. The addition sustained and enhancement made to the cost of construction based on the DVO's report is bad in law.
(v) The learned CIT (Appeals) overlooked the fact that only the AO could make a reference to the Valuation Officer in terms of section 142A of the JT Act and that too for the purpose of making an assessment or reassessment consequent to which no reference was permissible after the assessment was made. Thus, the learned CIT (Appeals) grievously erred in directing the AO to make a reference ignoring the provisions of law in this behalf.
Consequently, the addition sustained and enhancement made to the cost of construction based on the ova's report are devoid of any merit.
(vi) The learned CIT (Appeals) erred in calling for the report of the Valuation Officer while under section 142A the AO alone could do this if he was satisfied that the cost of construction was under stated or suppressed and where an estimate of cost was required. Therefore, the addition sustained and enhancement made to the cost of construction based on the DVO's report is bad in law.
(vii) The learned CIT (Appeals) failed to notice that the AO had no material or evidence to show that the provisions of section 69A applied to the case of the appellant even after conducting survey under section 133A of the IT Act, 1961 consequent to which there was neither a requirement nor occasion to call for a report under section 142A. The valuation report obtained in such circumstances has no legal validity. Further, the addition sustained and enhancement made to the cost of construction based or such report is bad in law.
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3. Without prejudice to ground No. 2 above -
(i) The learned CIT (Appeals) erred in confirming the addition Rs, 15 lakhs made by the AO towards estimated understatement of cost of construction of the hospital on surmises and conjectures.
(ii) Tile learned CIT (Appeals) overlooked the fact that the AO conducted survey under section 133A and did not find any evidence or suppression of cost of construction. Even though there was no finding suppress on of cost of construction, the learned CIT (Appeals) erroneously sustained addition of Rs. 15 lakhs made by the AO.
(iii) The learned CIT (Appeals) grievously erred in relying on the report of the DVO in enhancing the cost of construction of the hospital by Rs. 1,63,54,350.
(iv) The learned CIT (Appeals) ought to have realised that the valuation report estimated the cost of construction arbitrarily and after adopting cost of materials at fanciful rates.
(v) The learned CIT (Appeals) erred in commenting that the appellant did not have the bills while the fact was that the bills were impounded by the department after survey, which even now are in the custody of the department.
(vi) The learned CIT (Appeals) failed to notice that the rates adopted were not prevalent during the years of construction or in some respects even today, i.e. after almost a decade.
(vii) Tile learned CIT (Appeals) ought to have seen that the valuation report assumed construction of the hospital from the years 2002 to 2008 whereas the construction relevant for the Assessment 11 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= Year under consideration was completed in early 2004 itself, consequent to which the valuation report is erroneous and the cost arrived at is arbitrary unreason able and highly excessive.
(viii) The learned CIT (Appeals) erred in not realising that the cost arrived at by the DVO included. The cost of water softener, diesel generator set, air conditioning and the lift aggregating to Rs. 25,80,000. A sum of Rs. 24,67,271 was separately incurred by the appellant towards the aforesaid items and this cost was in addition to the cost construction admitted. Consequently, the cost of construction in the DVO's report was excessive by Rs. 25,80,000 on this count alone
(ix) The learned CIT (Appeals) deducted the cost of the fourth floor from the DVO's report since the same did not exist during the year but erred in not deducting proportionately the cost of services added in the report.
4. The learned CIT (Appeals) erred in confirming disallowance of depreciation on office equipment at Rs. 7,123, hospital equipment at Rs. 3,724 and computers at Rs. 2,260 on the ground that the purchases were not substantiated.
5. The learned CIT (Appeals) erred in confirming the addition of Rs. 1,26,185 despite leading evidence that the amount was paid by the appellant's husband.
6. The learned CIT (Appeals) erred confirming the loan of Rs. 3,30,000 from the appellant's father as unexplained credit even though the identity and creditworthiness of the creditor was beyond doubt and the genuineness of the transaction was beyond dispute.
7. The learned CIT (Appeals) erred in confirming disallowance of Rs. 1,44,930 made on ad hoc 12 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= basis at 1/5th of the hospital expenditure debited to the profit and loss account.
13. Ground No. 1 is general in nature and needs no adjudication. Ground Nos. 2 and 3 can be taken as one effective ground which is as follows:
"That the CIT(A) erred in obtaining valuation report u/s. 142(A) after assessment is completed and making enhancement to the cost of construction of the building, based on such report."
14. The learned counsel for the assessee made elaborate written submissions. The counsel submitted that the CIT(A) has issued the notice of enhancement to the assessee and finally worked out the enhancement at Rs. 1,63,54,350 to the cost of construction arrived by the Assessing Officer. The CIT(A) vide his letter dated 12.2.2008 remitted the matter to the Assessing Officer asking to make reference to the valuation officer, obtain valuation report and confront it to the assessee and arrive at conclusion regarding unexplained investment. In pursuance of the said direction the Assessing Officer made a reference u/s. 142A on 16.6.2008 to the AC (valuation) to value the construction cost of the hospital and the value of furniture and fixtures in the building as on 31.3.2004. The Department Valuer estimated the cost at Rs. 2,44,01,000. The short point for discussion is whether the CIT(A) was competent in law to ask the Assessing Officer to make a reference to the valuation authority after the assessment was completed and whether the report obtained after completion of the assessment was valid in law.
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15. The AR submitted that as follows: As per sec. 142A, reference to the Valuation Officer can be made for the purpose of assessment or re-assessment, that too when the AO is required to make an addition u/s 69. Addition u/s 69 can be made on account of undisclosed investment. Thus, the pre-requisites u/s 142A are two fold: (i) the assessment or re-assessment is pending and (ii) that there is undisclosed investment and for the purpose of estimating the same, Valuer's report may be obtained. If an assessment is already completed, the AO has no jurisdiction to make reference u/s 142A. Likewise, if the AO has not arrived at a finding that there is undisclosed investment, section 69 cannot be invoked in which case reference u/s 142A is automatically ruled out.
16. The AR stated that in the case of the assessee, the AO had concluded the issue by making a detailed discussion before arriving at addition of Rs. 15 lakhs as undisclosed investment u/s 69. Further the AO referred to a few comparable cases and the AO consulted SE (Valuation). It was submitted that when the assessee preferred an appeal against this addition, the CIT(A) ought to have confined to the merits of this addition. Instead the CIT(A) asked the AO to refer the matter to the Valuation Officer and after obtaining a report from the DVO the CIT(A) made enhancement. It was submitted that, in other words, the CIT(A) issued a direction to the AO to make a reference u/s 142A and acted upon the report obtained thereafter and in view of the specific language of sec. 142A, the CIT(A) clearly overstepped his jurisdiction. The counsel relied on the following decisions for the proposition that the valuation report was invalid:
14ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha =======================
(i) In CIT v. Umiya Co-operative Housing Society Ltd. 314 ITR 272, the Court held that the AO had no jurisdiction to refer any property to the Valuation Officer for valuation unless proceedings for assessment or re-assessment were pending.
(ii) In Tarawati Devi Agarwal v. ITO (1987) 30 Taxman 589 (Cal), it has been held as under:
"Valuation is a question of opinion and unless there is a clear finding on the basis of the materials that the assessee invested in the construction of the house property more than what had been shown by her in the course of the assessment proceedings, the Income Tax Officer cannot proceed merely on the basis of departmental valuation."
(iii) In Sargam Cinema v. CIT (2010) 328 ITR 513 the Supreme Court and the Allahabad HC in CIT v. Lucknow Public Educational Society (2011) 339 ITR 588 held that the AO has to record satisfaction that the cost of construction is understated before making a reference to the Valuation Officer. In the case of the assessee, the AO was acting at the behest of the CIT(A). In the circumstances, there was no occasion for the AO to record her own satisfaction for the purpose of section 142A.
(iv) The Delhi Tribunal in the case of Rajeshwar Nath Gupta in ITA No. 4295/Del/2005 has held as follows:
15ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= "A perusal of the aforesaid provisions shows that section 142A is attracted, inter alia, where the assessee is found to have made investment outside the books of account or where any such investment made by him is not fully disclosed in the books of account. The condition precedent for making the reference by invoking the provisions of section 142A thus is that there should be something on record to show that the assessee in the first place has made such investment outside the books or the investment so made by him is not fully disclosed in the books of account and once this condition is satisfied, the quantum of such investment made can be ascertained by the Assessing Officer by making a reference under section 142A in order to make the addition under section 69 or 69B, whichever is applicable ...
A perusal of the assessment order, however, shows that there was no reference whatsoever made by the Assessing Officer to any material/evidence/ information on the basis of which it could be said that the said consideration shown by the assessee was understated and that anything above what was disclosed by the assessee had actually been paid as consideration. The condition precedent for making a reference to the DVO by invoking the provisions of section 142A thus was not satisfied in the present case and neither the said reference nor the addition made on the basis of report obtained from the DVO in response to the said reference, in our opinion, was sustainable in law as rightly held by the learned Commissioner of Income-tax (Appeals). In the case of Subhash Chand Chopra v. Asst. CIT [2005) 92 TTJ 1087, this Bench of the Tribunal has held that no material or evidence having been recovered during the course of search showing investment in construction, the Assessing Officer was not competent to make a reference to the DVO under section 142A and to make addition on that basis. "
(v) In CIT v. Kalaivani (2008) 296 ITR 515 (Mad) addition of investment in a commercial complex was deleted because it was based on the report 16 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= of the DVO without any supporting material.
(vi) In CIT v. Suraj Devi 328 ITR 604 Del, the High Court referred to the judgment in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) and reiterated that it is settled law that the primary burden of proof to prove understatement or concealment of income is on the Revenue and it is only when such burden is discharged that it would be permissible to rely upon the valuation given by the DVO; that the opinion of the DVO, per se, is not an information and cannot be relied upon as held by the Supreme Court in Asst. CIT v.
Dhariya Construction Co. 328 ITR 515 (SC).
(vii) In the case of Aerens Infrastructure & Technology Ltd. v. DCIT (2010) 3 ITR (Trib.) Delhi, the assessee had acquired some property. The Assessing Officer made a reference to the DVO under section 142A for an estimate of the cost. The Tribunal held that reference to the Valuation Officer can be made only when a requirement is felt by the Assessing Officer for making a reference. The requirement presupposes existence of some material with the AO to show that the assessee's estimate of cost is not correct or not reliable. On an appeal, the Delhi High Court in CIT v. Aerens Infrastructure & Technology Ltd. in ITA Nos. 454 & 584 of2011 held that the Assessing Officer had to first record that there was excess expenditure incurred by the assessee in acquiring the property and the 17 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= next stage is invocation of section 142A. The Assessing Officer ha not at all done this exercise. The High Court dismissed the appeal of the department.
(viii) In DCIT v. Abhinav Kumar Mittal in ITA No. 4460/ dell 2010 for assessment year 2006-07 pronounced on 29-6-2012, the Tribunal has in detail deliberated on the amplitude of section 142A and held that the reference made by the AO was without justification. The relevant portions of paragraph 6 of the said order are reproduced below:
"The issue before us is as to whether reference made by the AD to the DVD u/s 142A of the Act is valid ... Under section 142A, a reference can be made for assessment or reassessment where an estimate of value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or 69B is required to be made. The AO may require the DVO to make an estimate of such value and report the same to him. In the instant case, there is nothing to suggest that any incriminating document was found and seized during the course of search or survey on 26-4- 2007 in the premises of the aforesaid group ... A mere glance at the assessment order reveals that there is no reference to any material/ evidence/ information on the basis of which it could be said that the cost of construction shown by the assessee was understated or anything above what was disclosed by the assessee. In terms of sec. 142A of the Act, reference to the DVO can be made only when a requirement would arise or could be felt when there is some material with the AO for making such reference and such requirement would arise or could be felt only when there is some material with the AO to show that whatever estimate the assessee has shown 18 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= is not correct or not reliable. The use of the word 'require' is not superfluous but signifies a definite meaning whereby some preliminary formation of mind on objective basis by the AO is necessary, which requires him to make a reference to the DVO under section 142A."
(ix) In Girdhar Gopal Gulati v. UOI (2004) 269 ITR 45 (AIl.), the High Court held that where an assessment was completed after detailed enquiry U/S 143(3), valuation report obtained subsequently by the AO cannot justify action U/S 263.
(x) In Elel Hotels & Investments Ltd. v. CIT (2005) 2 SOT 659 (Mum.), it has been held that the CIT(A) does not get jurisdiction to do certain acts for which the AO did not have the jurisdiction.
17. The learned DR has relied on the decision of Madras High Court in the case of CIT vs. Prasad Productions Pvt. Ltd. (133 Taxman 501) wherein it was held as follows:
The scope of the appellate power under the Income-tax Act was considered in the decisions of the Supreme Court in CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225; Jute Corpn of India Ltd. v. CIT [1991] 187 ITR 688/ (1990) 53 Taxman 58 and CIT v.Nirbheram Daturam [1997] 224 ITR 610/91
Taxman 181. That the power of the appellate authority is as wide as that of the Assessing Officer is emphatically stated and reiterated in the above said decisions. (para 6).
What was said by the Apex Court in relation to the appellate power under the Income-tax Act is equally applicable to the scope of the appellate power under the Wealth-tax Act, as 19 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= in that Act also, no restriction or limitation has been placed on the appellate power. (para 9) The Commissioner (Appeals), when he entertains the appeal under the provisions of the Wealth-tax Act is equally competent as the Wealth-tax Officer is in relation to all matters concerning the assessment which are within the scope of the Wealth-tax Officer while making the assessment. (para 10) In the instant case, there was no error of jurisdiction in the Commissioner (Appeals) giving the direction that he did after accepting the argument which the assessee itself had advanced before the Commissioner. When an appeal is allowed in whole or in part, the assessment is either required to be redone wholly or in part. When the discretion which the original authority is vested with in relation to that assessment is a matter with regard to which it is open to the appellate authority to give suitable directions, we see no error in the order which the Commissioner had made. The Tribunal was wholly in error not only in entertaining the plea that was raised by the assessee which had persuaded the Commissioner to direct the Assessing Officer to refer the matter to the valuation cell, but in further proceeding to hold that the Commissioner did not have the power to do so. (para 11) In view of the above, the Tribunal is right in law in holding that referring the matter to the Valuation Officer under Section 16A, was a discretion given by the statute to the Assessing Officer only and hence the Commissioner (Appeals) could not direct the Assessing Officer to redetermine the value of the property after referring the matter to the valuation cell?"
18. We have heard both the parties. Section 142A is as under:
(i) For the purposes of making an assessment or reassessment under this Act, where an 20 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B [or fair market value of any property referred to in sub-section (2) of section 56] is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him."
19. The decision relied on by the learned DR in the case of Prasad Productions Pvt. Ltd. (supra) is not applicable to the facts of the present case since in that case, the AO had not accepted the assessee's valuation of plots owned by it but had made an estimate of the same and on appeal, the assessee urged that the WTO should be directed to refer the valuation of the said property to the valuation cell. The CIT(A) accepted the contention of the assessee and directed the Assessing Officer to get valuation done by the valuation cell u/s. 16(A) r.w.s. Rule 3D. In the instant case the CIT(A) erred in directing the Assessing Officer to refer the matter to the valuation cell. On the other hand, the CIT(A) himself could have referred the valuation of the building to the valuation cell. The subtle difference between Prasad Productions Pvt. Ld. (supra) and the present case is to be noted.
20. In the case of the assessee, the AO made the assessment U/S 143(3) after elaborate discussion of the cost of construction. She consulted experts. She referred to comparable cases and finally made addition of Rs. 15 lakhs. After this, it was not permissible for even the administrative CIT to invoke his jurisdiction U/S 263 on the issue because of a valuation report obtained subsequently. If the administrative CIT could not exercise 21 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= jurisdiction U/S 263, as held in the case of Girdhar Gopal Gulati vs Union Of India And Anr., 269 ITR 45 (All), the CIT(A) had no jurisdiction in appeal proceedings to call for a valuation report, which is the exclusive prerogative of the AO.
21. Reference u/s 142A is not allowed after assessment or re-assessment. The AO has no jurisdiction to invoke section 142A after assessment or re- assessment. Likewise the CIT(A) also ceases to have any jurisdiction to press sec. 142A into service either himself directly or indirectly through the AO. In any case, the basic pre-requisite of sec. 142A is satisfaction of the AO. When the AO makes a reference at the behest of the CIT(A), the valuation report so obtained has no legal validity and has to be ignored.
22. Hence we are of the opinion that in the present case, as the assessment is already completed, the Assessing Officer has no jurisdiction to make the reference u/s. 142A of the Act. In view of the specific language of section 142A, the CIT(A) has clearly overstepped his jurisdiction and hence the order of enhancement by the CIT(A) has no legal sanction and is, therefore, deleted. This issue is decided in favour of the assessee.
23. With respect to the determination by the AO as undisclosed investment of Rs. 15 lakhs which was added to the construction cost of the hospital building, facts are as follows. The assessee filed a valuation report dated 17-12-2006 from an approved valuer who estimated the cost of construction of the hospital building at Rs.
22ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= 59,66,000. The AO examined the cost of construction of the hospital. She noted that the plinth area of the property was 19807 sq. ft. In para 3.4, the AO noted that bills/vouchers impounded during the survey were verified with the ledger account of building construction account and observed that out of Rs. 56,58,839 claimed as cost in building a/c, the assessee was unable to produce bills/vouchers for Rs. 23,45,667. The AO noted that the cost of construction as per the assessee worked out to Rs. 286 per s. ft. whereas as per the approved valuer's report it was Rs. 301 per s. ft. In para 3.5 of the assessment order, the AO observed that the cost shown by the assessee was low. She noted that the cost was not less than Rs. 400 to Rs. 450 per s. ft. She also consulted the SE (Valuation) who also confirmed the cost of construction was Rs. 400 in F.Y. 2002-03 and Rs. 450 next year. She relied on some comparable cases also. Then she issued a show cause notice asking the assessee to state her objections to adopt the cost of construction at Rs. 450 per s. ft. Para 3.7 of the assessment order refers to the assessee's reply wherein she stated that out of plinth area of 19,807 s. ft. basement was 3,470 s. ft. the cost of which was only about Rs. 130 to Rs. 150 per s. ft. She also said that her husband was an engineer and so her savings on that score were substantial and not less than 15% of the total cost. In para 3.8, the AO partly accepted the assessee's explanation and adopted cost of basement at Rs. 200 per s. ft. In regard to the balance area of 16,337 s. ft., she adopted the cost of construction at Rs. 450 per s. ft. She did not allow the assessee's claim for self supervision at 15%. The cost arrived at by the AO as per the assessment order was as under:
23ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= Basement 3470 s. ft. at Rs. 200 per s. ft. = Rs. 6,94,000 Bal. 16337 s. ft. at Rs. 450 per s. ft. = Rs. 73,51,650 Rs. 8045650
24. We find that since the assessee had admitted the cost of construction of the hospital building at Rs.
63,99,186, the difference was Rs. 16,46,464. The AO, however, restricted the difference to Rs. 15,00,000 on the ground that the assessee's husband supervised the construction. This difference of Rs. 15 lakhs was added as undisclosed investment in construction of the hospital building. If the AO had allowed 15% for self supervision, deduction of 15% on cost of Rs. 80,45,650 estimated by the AO would have meant Rs. 12,06,847. Then the cost would have been close to the cost shown by the assessee, the difference being only about Rs. 4 lakhs. Hence we admit the cost of construction of hospital building at Rs. 63,99,186 as admitted by the assessee and delete the addition made by the AO.
25. In respect of addition of Rs. 1,86,185 pertaining to the loan given by the husband of the assessee, it has been claimed by the assessee that out of a sum of Rs. 8,26,185 being the addition in the capital account, a sum of Rs. 5,93,000 was given by her husband and balance represented her personal savings. In the course of scrutiny, the assessee surrendered a sum of Rs. 6 lakhs and offered the same for assessment. Out of the balance amount of Rs. 2,26,185, the Assessing Officer allowed Rs. 1 lakh as representing assessee's savings and the amount given by her husband and the balance of Rs. 1,26,185 was added back.
24ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha =======================
26. Before the CIT(A), a copy of account of assessee's husband was submitted as per which he made payments on her behalf to Margadarsi Chit fund, etc., which was transferred by a journal entry. The CIT(A) held that the assessee had given the same explanation in the assessment proceedings which was not satisfactory and confirmed the addition of Rs. 1.26 lakhs. The learned counsel stated that the Revenue authorities cannot expect the source of source to be established.
27. We have heard both the parties. Identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction are proved by the assessee and hence the assessee has discharged her onus. Relying on the decision of the jurisdictional High Court in the case of R.B. Mittal (243 ITR 283) we are of the opinion that this addition is to be deleted as the assessee had satisfactorily proved the criteria laid down in the Supreme Court decision.
28. The next ground relates to the addition of Rs. 3.30 lakhs. The AO held that the credit was not proved and the CIT(A) agreed with the AO observing that the transaction was not genuine. Before us the learned counsel for the assessee reiterated the argument as in the case of loan given by the assessee's father that the Revenue authorities cannot ask the assessee to prove the source of source.
29. We have heard both the parties. Identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction are proved by the assessee and hence the assessee has discharged her onus. Relying 25 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= on the decision of the jurisdictional High Court in the case of R.B. Mittal (243 ITR 283) we are of the opinion that this addition is to be deleted as the assessee had satisfactorily proved the criteria laid down in the Supreme Court decision.
30. In the result, assessee's appeal in ITA No. 200/ Hyd/2014 is allowed.
ITA No. 201/Hyd/2014 (A.Y. 2005-06):31. The assessee raised the following revised grounds of appeal:
i) The order of the learned CIT (Appeals), in so far as it is prejudicial to the interest of the appellant, is erroneous both on facts and in law.
ii) The learned CIT (Appeals) erred in confirming the loan of Rs. 3,20,000 from the appellant's father as unexplained even though the identity and the credit worthiness of the creditor was beyond doubt and the genuineness of the transaction was not in dispute.
iii) The learned CIT (Appeals) erred in
confirming disallowance of Rs.
16,39,625, being payments made to the professionals, and Rs. 60,000 being contract payments made, u/s 40(a)(ia) of the IT Act overlooking the second proviso to section 194J and Explanation (I)(B) under section 194-C of the Income Tax Act which excluded the appellant, being an individual, from the requirement of effecting TDS on the said payments.
iv) The learned CIT (Appeals) erred in confirming the addition of Rs. 4,76,000 made as unexplained credits. He ought 26 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= to have noticed that the appellant had surrendered an amount of Rs. 4,00,000 towards receipts and therefore the benefit of telescoping should have been allowed to the appellant. Besides, the learned CIT(A) erred in not accepting her explanation that she received Rs.
76,000 from her husband.
v) The learned CIT (Appeals) erred in confirming disallowance of depreciation of Rs. 2,25,000 on various assets.
vi) The learned CIT (Appeals) erred in confirming disallowance of hospital maintenance expenses of Rs. 2,20,000, other expenses of Rs. 70,000 and benefits paid to staff amounting to Rs. 1,00,000.
32. Ground No. 1 is general in nature and ground Nos. 5 and 6 have not been pressed by the assessee. Accordingly, these grounds are dismissed.
33. Ground No. 2 is with respect to the addition of Rs. 3.20 lakhs. The assessee has received this amount by cheque from her father. The CIT(A) confirmed the order of the Assessing Officer in holding that the transaction is not genuine. On appeal, it was submitted before us that the identity and creditworthiness of the creditor and genuineness of the credit were proved. Further it was submitted that the assessee had admitted in a sworn statement at the time of survey that her husband and her father are looking after the financial matters.
34. We find that her father Sri Vara Prasada Rao has filed a confirmation letter before the Assessing Officer. It has been stated by him that he has retired as Dy. General Manager from Power Grid Corporation in June 2002 and 27 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= that he received the retirement benefits of Rs. 12,76,876. Shri Vara Prasada Rao had also stated that he had withdrawn the amount earlier and had given it to persons who had asked for some finance and later when his daughter wanted finance for construction of the hospital building, he had collected the amounts from those people who had taken loans in cash and had deposited in the bank account and had issued cheque to his daughter.
35. We are of the opinion that it is but natural that a father would help his daughter in time of need and Sri Vara Prasada Rao has confirmed the same. The creditworthiness and identity of the person giving the credit to his daughter has been proved and relying on the decision of R.B. Mittal v. CIT, as reported in 246 ITR 283, and the Revenue authorities cannot ask the source of source to be proved. Hence this ground is allowed.
36. The next ground relates to disallowance of a sum of Rs. 16,39,625 being payment made to the professionals and a sum of Rs. 60,000 being contract payments made invoking the provisions of section 40(a)(ia) of the Act.
37. We have gone through the second proviso to section 194J and Explanation (1)(B) u/s. 194C of the Act which excludes the appellant being an individual from the requirement of effecting TDS on the said payments. The CIT(A) has not taken cognizance of these provision. Hence, the disallowance made is deleted.
38. The fourth ground related to the addition of Rs. 4,76,000 as unexplained credits. The as explained that she had received Rs. 77,000 from her husband and had 28 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= offered additional receipt of Rs. 4 lakhs as income. She asked for benefit of telescoping which was refused by the Assessing Officer. The Assessing Officer stated that the additional receipts or Rs. 4 lakhs was noted in the impounded documents and not in the books and that the credit of Rs. 4,76,000 appeared in her regular capital account. The Assessing Officer stated that telescoping was not permissible and treated Rs. 4,76,000 as unexplained credit. The CIT(A) agreed with the Assessing Officer and held that the assessee's explanation was not acceptable.
39. We are of the opinion that the sum of Rs. 77,000 had been received from her husband who is an income- tax assessee and the Department cannot again insist on proving the source of source. Further the addition has been made separately on account of receipts and in such a case benefit of telescoping should be allowed to the assessee. Hence the confirmation of the addition by the CIT(A) is not warranted. We allow this ground of appeal of the assessee.
40. In the result, assessee's appeal is allowed.
41. Both the appeals of assessee are allowed.
Pronounced in the open court on 5th September, 2014 Sd/- Sd/-
(B. RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, dated the 5th August, 2014 Tprao 29 ITA Nos. 200&201/Hyd/2014 Dr. G. Premalatha ======================= Copy to:
1. Dr. G. Premalatha, c/o. Vikram Hospitals, 1-98/90/ 26, Madhapur, Cyberabad, Hyderabad.
2. The Deputy CIT, Circle-8(1), Hyderabad.
3. The Joint CIT, Circle-8(1), Hyderabad.
4. The CIT(A)-III, Hyderabad.
5. The CIT-II, Hyderabad.
6. The DR, A-Bench, ITAT, Hyderabad.