Income Tax Appellate Tribunal - Bangalore
M/S Islamic Academy Of Education , ... vs Assessee on 20 October, 2011
Page 1 of 10 1 ITA Nos.656 to 658/Bang/2010
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
ORDER
PER BENCH :
These three appeals instituted by the assessee arise 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 are 2004-05, 2006-07 and 2007-08.Page 2 of 10 2 ITA Nos.656 to 658/Bang/2010
2. The grounds of appeal for all the asst. years are 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 relevant assessment year was neither erroneous nor prejudicial to the interest of the revenue and therefore, the order 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 constitute an assessment order erroneous or prejudicial to the interest of the revenue within the meaning of section 263.
iii) Without prejudice, the CIT ought to have appreciated that the so called report of the DVO was prepared without an opportunity having been given to the appellant before finalizing the valuation report and therefore even the so called report was not a material piece of evidence 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 any investment outside the books or that there being any 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 reference to the DVO for valuation.
3. Briefly stated the facts are as follows:-
During the pendency of search assessment for AY 2000-01 to 2006-07, a reference was made to the District Valuation Officer (DVO) on Page 3 of 10 3 ITA Nos.656 to 658/Bang/2010 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 flats in Delta Court Apartments and for construction of campus at Nithyananda Nagar, Deralakatte, Mangalore. Assessment orders were passed for the above said asst. years without considering the DVO's report, as it was not available at the time of assessments. Later, the DVO's report dated 10/7/2009 was received and it was noticed that the investment disclosed in the balance sheet for the purchase of flats and the construction 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 during the course of assessment proceedings, the assessment order passed was erroneous and prejudicial to the interest of the revenue. Keeping in mind the judgement of the Hon'ble Apex Court in the case of CIT v Shree Manjunatheswara Packing Products and Camphor Works 231 ITR 53, the CIT issued show cause notice u/s 263 of the Act. Relevant portion of the show cause notices issued by the Commissioner for each of the asst. year are as follows:-
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 4 ITA Nos.656 to 658/Bang/2010 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-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/-. This 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 on 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 reflected 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 on 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 5 ITA Nos.656 to 658/Bang/2010 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 reflected 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 assessment u/s 263 of the Act. The objections raised by the assessee are listed out in para 8 of the impugned order of the CIT. In essence it was submitted that (1) reference to DVO u/s 142(2A) is invalid; (2) DVO's report has not been furnished and no adequate opportunity was provided by the DVO to place the assessee's point of view in regard to the valuation & (3) the assessee, being a charitable institution governed by sections 11 and 12A, addition made on account of unexplained investment is revenue neutral, since the addition tantamount to application of income. Further it was submitted that the valuation report is merely a subjective estimate of the valuation officer and evidence in the form of regular books is certainly more reliable than an estimate, though by an expert. For the above said reasons, it was prayed 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 assessee and directed the AO to consider the valuation report and after providing reasonable Page 6 of 10 6 ITA Nos.656 to 658/Bang/2010 opportunity of hearing to the assessee, complete the assessment in accordance with law.
6. The assessee, being aggrieved, is in appeal before us.
7. The contentions raised before the CIT are reiterated before us. It was further submitted that the DVO's 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/conclusion of the CIT. She also referred to the judgement of the Hon'ble Apex Court in the case of Shree Manjunatheshware Packing Products and Camphor Works 231 ITR 53 and also the judgement of the Hon'ble Madras 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 Act. It is an admitted fact that for the asst. years 2004-05 and 2006-07, the assessment orders were passed much prior to the receipt of DVO's report (DVO report is dated 10.7.2009 and the assessment orders for both the years 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 any 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 7 ITA Nos.656 to 658/Bang/2010 9.1 By virtue of section 263 of the Act, the Commissioner has the power to call for and examine the record of any proceedings and pass such orders thereon as the circumstances of the case justify, 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 the interest of the revenue. The materials, which are not available to the AO when 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 Hon'ble Supreme Court in the case of Shree 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 1977-78 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, 1980, wrote to the Departmental Valuation Officer to ascertain and report the correct cost of construction of the theatre. The Valuation Officer expressed his inability to give his valuation report by March 31, 1980, by which date the assessment was to be completed. The Income Tax Officer, therefore, without waiting for his report, passed an order of assessment accepting the valuation mentioned by the assessee in its return. The Valuation Officer submitted his report on December 16, 1980. He determined 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 8 ITA Nos.656 to 658/Bang/2010 that the investment not accounted for by the assessee firm should have been brought to tax and the Income Tax Officer having not done so, his order was erroneous and prejudicial to the interests of the revenue. On further appeal, the Tribunal upheld the contention of the assessee and the same was affirmed by the Hon'ble High Court of Karnataka. When the revenue took up the matter in SLP to Hon'ble Supreme Court, the Hon'ble Apex Court reversed the judgement of the Hon'ble High Court and upheld the revisionary jurisdiction of the Commissioner u/s 263 of the Act. 9.3 Similarly, on identical facts, the Hon'ble Madras 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 having called for a valuation report, but without waiting for the report to be submitted to him. That report which was subsequently submitted related to the 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 look into that valuation report for the purpose of deciding as to whether the assessment made was prejudicial to the interest of the revenue. The fact 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 CIT's power u/s 263 as it has been laid down by the Supreme Court in CIT v Shree Manjunatheshware Packing Products and Camphor Works (1998) 231 ITR 53 that even the view that prevailed with regard to section 263 as it stood prior to 1988 was too narrow an interpretation of the word "record" and was unjustified. The Explanation added to section 263(1) in the year 1988 was, therefore, to be regarded as declaratory". Page 9 of 10 9 ITA Nos.656 to 658/Bang/2010 9.4 In the instant case, the Commissioner has only directed the AO to examine the DVO's report and provide an opportunity of being heard to the assessee and accordingly modify the assessment for the asst. years mentioned above. The relevant finding of the CIT reads as follows:-
"In view of the above and in order to given opportunity of being heard, taking into consideration of the fact that loss will be caused to the revenue and undue advantage will be gained by the assessee, I direct the AO to modify the assessments for AYs 2004-05 also, considering the 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 the AO for a proper examination in accordance with law, therefore, the assessee can raise his objections with reference to the value determined by the DVO in his report dated 10.7.2009. Since the DVO's report is not binding on the AO, taking into consideration the objection of the assessee, 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 assessee are dismissed.
Order pronounced in the open court on 20th day of October, 2011 Sd/- Sd/-
(N BARATHVAJA SANKAR) (GEORGE GEORGE K)
VICE PRESIDENT JUDICIAL MEMBER
Page 10 of 10 10 ITA Nos.656 to 658/Bang/2010
Copy to:-
1.The Revenue 2. The Assessee 3. The CIT concerned 4. The CIT(A)
concerned 5. The DR 6. GF
MSP/- By Order
Asst. Registrar, ITAT, Bangalore.