Income Tax Appellate Tribunal - Indore
M/S. Mashal Hotel Pvt. Ltd., Indore vs The Acit-3(1), Indore on 28 February, 2018
Mashal Hotels Pvt. Ltd
ITA Nos.618 to 620 & CO 3 to 5/Ind/2016
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
Before Shri Kul Bharat, Hon'ble Judicial Member and
Shri Manish Borad, Hon'ble Accountant Member
ITA Nos.618,619 & 620/Ind/2015
A.Ys. 2008-09 to 2010-11
ACIT 3(1)
Indore ::: Appellant
Vs
M/s Mashal Hotels Pvt. Ltd.
Indore ::: Respondent
CO Nos. 3 to 5/Ind/2016
Arising out of ITA Nos. 618 to 620/Ind/2015
M/s Mashal Hotels Pvt. Ltd.
Indore ::: Objector
Vs
ACIT 3(1)
Indore ::: Respondent
Appellant by Shri V.J. Boricha
Respondent by Shri Prakash Jain
Date of hearing 6.2.2018
Date of pronouncement 28.2.2018
1
Mashal Hotels Pvt. Ltd
ITA Nos.618 to 620 & CO 3 to 5/Ind/2016
O R D E R
PER BENCH The revenue has preferred appeals for the assessment years 2008-09 to 2010-11 whereas the assessee has preferred cross objections against the consolidated order of the Commissioner of Income Tax (Appeals)-I, Indore, dated 22.6.2015.
2. For the sake of convenience, we would like to dispose of these appeals and cross objections by this consolidated order as the issues raised are mostly common.
3. Briefly stated, the facts, as culled out from record, are that that assessee is a private limited company and is engaged in the hotel business. The assessment for the assessment year 2010-11 is completed u/s 143(3) of the Act on 25.3.2013 assessing the income at nil. During the course of assessment proceedings for the assessment year 2 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 2010-11 the Assessing Officer noticed that the assessee reconstructed its hotel building and he was of the view that the assessee has not disclosed the correct investment in construction of hotel building in its return of income. Reference was accordingly made to the Departmental Valuation Officer. However, since the report of the Departmental Valuation Officer was not received till the date of assessment, no action was considered proper by the Assessing Officer while completing the assessment u/s 143(3) of the Act for the assessment year 2010-11. However, the Assessing Officer put an office note that after receiving the report of the Departmental Valuation Officer, if any discrepancy is noticed, appropriate action would be taken. The report of the Departmental Valuation Officer was received on 28.3.2013. In the said report, investment in the hotel building as per the Departmental Valuation 3 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 Officer for following three assessment years was valued as follows :-
A.Y. Investment Investment Difference as per IT as per DVO return 2008-09 78,47,545 1,59,55,673 81,08,128 2009-10 1,38,33,563 2,92,49,262 1,54,15,699 2010-11 38,76,002 84,54,282 45,78,280
4. On the basis of above information, the Assessing Officer reopened the assessments for these three assessment years issuing notices u/s 148 of the Act and completed the assessments after making the additions for unaccounted investments in the hotel building u/s 69 of the Act at Rs. 81,08,128/-, Rs. 1,54,15,699/- and Rs. 45,66,280/- for the assessment year 2008-09, 2009-10 and 2010-11, respectively. The learned Assessing Officer also made the disallowance of interest u/s 36(1)(iii) of the Act at Rs. 4 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 12,87,371/- treating the interest as capital expenditure to be capitalised with the assets.
5. Aggrieved, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) challenging reopening of assessments for all these years and also challenging the additions/disallowances made by the Assessing Officer. The Commissioner of Income Tax (Appeals) allowed the assessee's grounds challenging reopening of assessments observing that reference made to Departmental Valuation Officer in order to determine the cost of construction/expansion of hotel building without any evidence and without rejecting the books of accounts was not tenable in law. The Commissioner of Income Tax (Appeals) further gave a finding that the reopening of assessment merely on the basis of valuation report of Departmental Valuation Officer is not sustainable in law. The Commissioner of Income Tax (Appeals) accordingly 5 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 quashed the re-assessment proceedings allowing the assessee's legal ground. As regards the grounds raised by the assessee on merits, the Commissioner of Income Tax (Appeals) dismissed the grounds being infructuous. Now the revenue is in appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) and the assessee has raised cross objections. The revenue has raised common issues challenging the findings of the Commissioner of Income Tax (Appeals) quashing the reassessment proceedings and deleting the addition for unaccounted investment in the hotel building.
6. On the other hand, the assessee has raised cross objection against the order of the Commissioner of Income Tax (Appeals) for not deciding ground nos. 2.1 to 2.3 challenging the reassessment proceedings and for the assessment year 2010-11 has challenged the order of the Commissioner of Income Tax (Appeals) confirming the 6 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 disallowance of interest of Rs. 12,87,371/- treating it as capital expenditure.
7. At the outset, the learned counsel for the assessee prayed for not pressing the grounds relating to reassessment proceedings and accordingly we dismiss the common grounds raised in ground nos. 1 of cross objection for the three years being not pressed.
8. Now we take the appeals of the revenue. The first common issue relates to quashing the reassessment proceedings by the Commissioner of Income Tax (Appeals) relying on the decision of Hon'ble Apex Court in the case of Dharia Construction Company; 228 ITR 515 wherein it has been held that reopening of assessment merely on the basis of valuation report of Departmental Valuation Officer is not sustainable in law because the opinion given by the Departmental Valuation Officer is not per se information for the purpose of reopening of assessment u/s 147 of the 7 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 Act. The learned counsel for the assessee referred to and relied upon the findings of the Commissioner of Income Tax (Appeals) whereas the learned DR submitted that the reopening was correctly made after due application of mind by the Assessing Officer.
9. We have heard both the sides and carefully perused the material available on record of the Tribunal, inter alia, impugned assessment order, order of the learned CIT(A) alongwith paper book filed by the assessee. The issue which needs our adjudication is whether the reopening of assessment proceedings for all these years and issuance of notice u/s 148 of the Act was valid. We observe that during the course of assessment proceedings for the assessment year 2010-11 itself the Assessing Officer took up the issue about the investment in hotel building and in order to quantify the issue with supporting evidence, he referred the matter to the Departmental Valuation Officer for valuation 8 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 of the correct investment made in all these years in the hotel building. This is not the case of the assessee that after completion of assessment proceedings, the cases for these three years were reopened merely on the basis of Departmental Valuation Officer report. The fact is that the Assessing Officer was very much aware of the issue but due to statutory time limit for completion of assessment u/s 143(3) of the Act which was approaching nearby and the report of Departmental Valuation Officer was awaited, he had no option but to finalise the assessment u/s 143(3) of the Act but on the date of completing the assessment, the application for ascertaining the correct investment was made to the Departmental Valuation Officer. The date of completion of assessment proceedings for the assessment year 2010-11 was 25.3.2013 and just after 5 days the report from Departmental Valuation Officer was received on 28.3.2013 showing that the investment made in the hotel 9 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 building was much more than the investment shown by the assessee in the income tax return. The facts of the judgment relied upon by the assessee as well as by the Commissioner of Income Tax (Appeals) are different than the facts of the instant appeals. If the reopening has been made on the basis of any other independent information received from the Departmental Valuation Officer after the completion of assessment u/s 143(3), the case would have been different but in the instant case the Assessing Officer made proper application of mind during the assessment proceedings itself and if the hurdle of completing the assessment as per the statutory time limit provided in the Act would not have been there, then the Assessing Officer would have waited for the Departmental Valuation Officer report and accordingly made the additions in the regular assessment proceedings. We, therefore, in the given facts and circumstances of the case, are of the considered 10 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 opinion that the issuance of notice u/s 148 of the Act as well as reassessment proceedings are valid.
10. In the result, this common legal ground raised by the revenue for all these years is allowed.
11. Now moving to Revenue's second common ground which challenges the deletion of addition for unaccounted investments of Rs.81,08,128/-, Rs. 1,54,15,699/- and Rs.45,78,280/-, we observe that during the course of appellate proceedings the assessee referred following arithmetical and measurement defects allegedly made by the Departmental Valuation Officer while making the valuation report:-
"4.6] That the report of the DVO suffers from various arithmetical and measurement mistakes. That major defects as pointed out are as under-:
S. No. Particulars 1 As per DVO quantity of Paver tiles is 1288 sq.mt but on actual measurement it is found at 570 sq.mt.
As per DVO Wooden flooring is 266 sq.mt but on actual same is 61 sq.mt. There is a totaling mistake for fall celling work the DVO has works out at Rs. 10,50,878/- while the correct total works out to Rs. 10,40,600/- . The area of toughened glass work is taken by DVO at 494 sq.mt but in fact the same is 300 sq.mt.
11 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 The DVO has taken four Borewells while in fact there is only one Borewell which is also quite old and in active since last 15 years. The rate applied by the DVO at very higher side and in respect of construction of new building as against the repairs and renovation in existing building is carried by the Company. The rate applied is also the rate of CPWD ,Delhi while the property is situated in a small village Rau where the rate are about 30% cheaper in computation to Delhi . Morever we could not understand why the DVO has applied the rate of CPWD, Delhi particularly when the rate of PWD M.P. is available.
The DVO has not provided in his report detail of Cost Index adopted and rate adopted. Morever he has not given any analysis of construction work which he analyzed .
The DVO has considered the following old work as constructed during the period of repair and renovation while these works were already exist when hotel was originally constructed:-
Base Structure intact Plaster Compound Wall Wooden Flooring Spetic Tank Swimming Pool Fish Pond U.G.Sump R.C..Tank Decorative bridge near fish pond R.C.C. retaining wall Borewell.
In support of our contention that these works were constructed long back when hotel was originally constructed kindly allow time to file old photographs.
The electrical , water and drainage line were already exist when the hotel was originally constructed and the company has not demolished the same , thus no expenditure is incurred for laying electrical , water and drainage line while the CPWD rates includes the cost of these items also. The DVO has adopted DSR rates without giving consideration to the actual bills and without keeping in mind that DSR rates are find out only to prepare estimate for the purpose of making provision in the State Budget for sanctioning the funds required for construction of Government buildings etc, and the State /Government Department never execute the work on DSR rate and actual work is executed by inviting the tenders which were always below the DSR rates.12
Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016
12. Even though the above defects were very much placed before the Commissioner of Income Tax (Appeals) but he did not adjudicate on the issue of merits because he allowed the appeals by allowing legal ground raised by the assessee challenging the reassessment proceedings. The Commissioner of Income Tax (Appeals) merely mentioned that "ground nos. 4 and 5 of the assessee's appeals in the assessment years 2008-09, 2009-10 and 2010-11 challenging the additions made by the Assessing Officer on the basis of Departmental Valuation Officer report has become infructuous, as ground no. 3 challenging the reassessment proceedings has been allowed."
13. From the perusal of the order of the Commissioner of Income Tax (Appeals) it is clear that no finding has been given on merits of the case nor the objections raised by the assessee challenging the valuation given by the Departmental Valuation Officer have been considered. We, 13 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 therefore, set aside the issue to the file of the Commissioner of Income Tax (Appeals) for de novo adjudication after considering the objections raised by the assessee in the Departmental Valuation Officer report contending that various arithmetical and measurement defects exist. Needless to mention that proper opportunity of hearing be afforded to the assessee and if required, a fresh Departmental Valuation Officer report may be obtained considering the objections of the assessee enumerated above.
14. In the result, this common issue for three assessment years on merits challenging the additions for unaccounted investment in reconstrtuction/renovation of hotel building is allowed for statistical purposes.
15. Now we take ground no. 2 raised by the assessee in Cross Objection for the assessment year 2010-11 thereby challenging the order of the Commissioner of Income Tax 14 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016 (Appeals) confirming the action of the Assessing Officer for making the disallowance of Rs. 12,87,371/- u/s 36(1)(iii) of the Act for the interest paid on renovation of building.
16. We have heard the rival submissions. We find that the assessee has made substantial investment in construction of hotel building and the amount shown by the assessee in the audited accounts is Rs. 78,47,545/-,Rs. 1,38,37,563/- and Rs. 38,76,002/- for the three assessment years. Certainly such amounts cannot be categorised as merely repair and renovation charges rather they are in the shape of expansion of hotel. We, therefore, find no infirmity in the order of the Commissioner of Income Tax (Appeals) treating the interest expenditure of Rs. 12,87,371/- as capital expenditure to be added to the cost of assets eligible for depreciation. Accordingly, ground no. 2 of Cross Objection for the assessment year 2010-11 is dismissed. 15 Mashal Hotels Pvt. Ltd ITA Nos.618 to 620 & CO 3 to 5/Ind/2016
17. In the result, the appeals of the revenue are partly allowed for statistical purposes and Cross Objections of the assessee are dismissed.
Pronounced in open Court on 28 February, 2018.
Sd sd
(KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
28th February, 2018
Dn/-
Copy to - Appellant/Respodent/Pr.CIT/CIT(A)/DR/Guard File 16