Income Tax Appellate Tribunal - Jabalpur
Assisatant Commissioner Of Income Tax ... vs M/S City Hospital & Research Centre Pvt. ... on 22 September, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
JABALPUR BENCH, JABALPUR
BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER
SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER
IT(SS)A No.20/Jab/2016
(ASSESSMENT YEAR- 2012- 2013)
Asst. Commissioner of vs M/s. City Hospital
Income Tax, Circle-2(1), & Research Centre
Jabalpur Pvt.Ltd., 21/2,
North Civil Lines,
Jabalpur
(Appellant) (Respondent)
PAN No. AADCC3383N
Revenue By Shri Shravan Kumar Gotru, CIT DR
Assessee By Shri Rahul Bardia, FCA
Date of hearing 11/09/2023
Date of Pronouncement 22/09/2023
ORDER
PER OM PRAKASH KANT, A.M.:
This appeal by the Revenue is directed against the order dated 16.02.2016 passed by Ld. Commissioner of Income Tax-2, Jabalpur [in short the "Ld.CIT(A)"] for the assessment year 2012-13, raising following grounds:
1. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in law in deleting the addition of Rs: 2,87,00,000/- and Rs: 1,76,00,000/- in Unit-I and Unit-II buildings for the financial year relevant to the assessment year 2009-10 and 2012-13, IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd.
respectively of CHRC on account of unexplained investment u/s 69 of the IT Act, 1961 when particularly, the AO has noticed that the assessee has disclosed additional income of Rs: 75,00,000/- in the course of survey in year 2008 on account of unexplained investment in construction of hospital building and thereby, the books of account are not reliable for the purpose of disclosure of correct investment in the hospital building.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in giving finding that the total investment determined by registered valuer is not reliable when particularly, the authorized officer had all the power to call for an expert for help in determination of unaccounted investment in the course of search proceedings.
3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in accepting the submission of the assessee without giving an opportunity to the AO to determine correct investment when he particularly, rejected the books of account of the assessee for investment in the building of hospital.
4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying upon the various decisions of the High Court when particularly, the facts of those cases are different, to this case under consideration.
5. That the appellant reserves the right to amend/alter any of the grounds of appeal/add other grounds of appeal at the time of hearing."
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2. Briefly stated facts of the case are that a search and seizure action u/s 132(1) of the Income Tax Act, 1961 (in short "the Act") was carried out on 14.12.2011 at the premises of the assessee. Consequently, notice u/s 153A of the Act was issued for the year under consideration and in response thereto, the assessee filed return of income. The assessment u/s 153A r.w.s. 143(3) of the Act was completed on 28.03.2014, wherein, various additions / disallowances were made including addition for unexplained investment made in construction of hospital 'Unit-I' and 'Unit-II' of the assessee amounting to Rs.2.87 crores and 1.76 crores respectively, which was based on valuation report of the registered valuer. The Assessing officer also noted that in survey operation carried out in 2008, the assessee offered undisclosed income of Rs. 75.00 lakhs against unexplained investment in construction in hospital units of the assessee, but same was not declared in return of income. On further appeal, the Ld.CIT(A) deleted the addition mainly on the ground that firstly, registered valuer was not authorized to act as a "Valuation Officer" for the purpose of section 142(1) of the Act for determining unexplained investment in the building/construction. Secondly, addition can't be made merely on the basis of report of a valuation officer. The relevant findings of Ld.CIT(A) is reproduced as under:-
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6.2.3. Decision:
"I have considered the written submissions put forth by the counsel, perused the facts of the case including the impugned assessment order, the remand report & the rejoinder thereto and other material brought on record. After carefully considering the submissions and counter submissions and perusing the facts of the case, the 2nd ground of the appeal regarding the additions of unexplained investment of Rs. 2,87,00,000/- on account of unexplained investment in CHRC unit 1 building & Rs.1.76 crore in CHRC Unit -11 are decided as under :-
(i) As per the appellant it has invested 2,13,00,000/- in the CHRC unit 1 building and this includes surrender of Rs. 75 lac made during the survey conducted in 2008. Whereas as per the valuation report of registered Bu Ay of 10 valuer Shri Neeraj Agrawal the investment in the building is Rs. 5 crore.
(ii) As per the AO, CHRC was inaugurated in July 2008. The appellant company was formed in February 2008 and the building of CHRC was introduced in the books of accounts in July 2008 at the cost of 1.38 crores by the owners. For sale consideration, the shares of the appellant company was issued to the owners on premium. As per the valuation report of the registered valuer Shri Neeraj Agrawal the construction of CHRC was completed in financial year 2008-09. Accordingly the AO added in the body of the order Rs. 2.87 crore in the assessment year 2009-10 by applying the provision of section 69C. However in the computation portion of the assessment order the AO has added this difference in the assessment year
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2012-13. Similarly the cost of construction of CHRC unit 2 as per the appellant was 3.3 crore whereas as per the registered valuers report the cost of construction comes to Rs. 5.06 crores. Accordingly the AO has added Rs. 1,76,00,000/- in the assessment year 2012-13.
(iii) Section 142A of the Act provides that for the purpose of section 69 to 69B the investment in the building etc is to be estimated by the valuation officer. As per the explanation to section 142A the valuation officer shall has the same meaning in clause (r) of section 2 of the Wealth Tax Act 1957. That section 2(r) r.w.s 12A of Wealth Tax Act the valuation officer is appointed by Central Government and includes regional valuation S officer and district valuation officer. Whereas chapter VIIB of Wealth Tax Act deals with the registration etc of Registered valuer. In other words the registered valuer is not a valuation officer within the meaning of that word given in Wealth tax and Income Tax Act. For this reason, I am of the considered view that no addition can be made to the income of the appellant on the basis of valuation report of registered valuer. Further it has been held in the following cases that no addition can be made on account of cost of construction solely on the basis of valuation report :-
i) CIT v Puneet Sabharwal(2011) 338 ITR 485
ii) CIT v Naveen Gera (2010) 328 ITR 516
iii) CIT v Smt. Suraj Devi(2010) 328 ITR 604
iv) CIT v Sadhna Gupta IT Appeal No. 434 of 2012
(iv) For the above reasons the additions of Rs. 2.87 crore for Unit-1 of CHRC & and of Rs. 1.7 crore for Unit -11 of CHRC
5|Page IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd. made on account of unexplained investment made in cost of construction are deleted."
3. Before us, Ld. Counsel of the assessee has filed two Paper Books containing pages 1 to 40 and pages 1 to 35. 3.1 We have heard Ld. Authorized Representatives of the parties on the issue in dispute and perused the material available on record. Before us, Ld.CIT DR submitted that Ld.CIT(A) has deleted the addition mainly on the ground that registered valuer was not authorized to carry out valuation report as per the provision of Act for the purpose of determination of unexplained investment in terms of sections 69A and 69B of the Act, ignoring the admission by the assessee itself during survey proceedings. The Ld. counsel of the assessee on the other hand submitted that same registered valuer, Sh. Neeraj Agrawal has reported two different valuations in respect of the same property, once, while filing valuation report dated 7/02/2011 to the Union Bank of India (PB-1 to 6 amounting to Rs. 3,31,82,900/-) and other value of Rs. 5,06,00,000/- while submitting report dated 14/12/2011 to the AO/Investigation Wing (PB-8 to 16). Before us, Ld. Counsel of the assessee has pointed out various defects in the valuation reports obtained by the Investigation wing. He submitted that valuation has been made by the registered valuer for the purpose of determining fair market
6|Page IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd. value of the investment rather than determining the cost of construction by the assessee. The Ld. Counsel of the assessee also submitted that registered valuer has made purely an ad-hoc estimate without any input of maps, measurements or type of the construction obtained from the assessee.
4. As per the provision of section 142A of the Act, the AO for the purpose of assessment or re-assessment, may make a reference to a Valuation Officer for estimating the value including the fair market value of any asset, property or investment. The relevant provision of section 142A of the Act is reproduced as under:-
Estimation of value of assets by Valuation Officer.
142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him.
(2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.
(3) The Valuation Officer, on a reference made under sub-
section (1), shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).
7|Page IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd. (4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee.
(5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not co-operate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section (4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made under sub-section (1).
(7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.
Explanation.--In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957)."
5. As per the above provision, Valuation Officer has been defined under clause (r) of section 2 of Wealth Tax Act, 1957. The relevant provision of section 2(r) of Wealth Tax Act, 1957 is reproduced as under:-
Section 2(r) "Valuation Officer" means a person appointed as a Valuation Officer under section 12A, and includes a Regional
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Valuation Officer, a district Valuation Officer, and an Assistant Valuation Officer."
6. Thus, for the purpose of section 142A, Valuation Officer has to be a Valuation Officer appointed u/s 12A of Wealth Tax Act including a Regional Valuation Officer or a District Valuation Officer or an Assistant Valuation Officer depending on the monetary limit of valuation. The section 12A of the wealth tax Act prescribe appointment of valuation officer by the Central Govt. Thus, for the purpose of section 142A of the Act for determining the investment in the construction of property, the AO was required to refer the valuation to the regional Valuation Officer or a District Valuation Officer or an Assistant Valuation Officer etc appointed by the Central Government and not to registered valuer, who is a private person, registered by the Income-tax department for giving valuation report on request of taxpayer. Thus, the reference made by the AO to a registered valuer was not in accordance with the provision of Act. However, we are of the opinion that the Ld.CIT(A) himself was authorized to refer the matter to the District Valuation Officer rather than deleting the addition made by the AO. The Hon'ble Delhi High Court in the case of CIT-II vs M/S Jansampark Advertising and Marketing (P) Ltd.In ITA 525/2014 dated 11.03.2015 has held that "if the AO failed in carrying out certain
9|Page IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd. inquiry then the appellate authority can also carry out such inquiry for determination of the true facts". The relevant finding of the Hon'ble High Court is reproduced as under:
" 35. Assessment proceedings under the Income Tax Act are not a game of hide and seek. The inquiry in the wake of a notice under Section 148 is not an empty formality. It must be effective and with a sense of purpose. There is an elaborate procedure set out which requires scrupulous adherence and followed up on. In the hierarchy of the authorities, the AO is placed at the bottom rung. The two layers of appeals, before the matter engages the appellate jurisdiction of this court, are authorities vested with the jurisdiction, power and obligation to reach appropriate findings on facts. Noticeably, it is only the appeal to the High Court, under Section 260-A, which is restricted to consideration of "substantial question of law", if any arising. As would be seen from the discussion that follows, the obligation to make proper inquiry and reach finding on facts does not end with the AO. This obligation moves upwards to CIT (Appeals), and also ITAT, should it come to their notice that there has been default in such respect on the part of the AO. In such event, it is they who are duty bound to either themselves properly inquire or cause such inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse.
36. The authority to bring to tax unaccounted money by exercising the power given to the AO under Section 68 is of great importance. It is expected that the AO would resort to this provision with all requisite circumspection. Since the provision is generally invoked, as has been done in the case at hand, by recourse to the procedure of notice under Section 148 upon satisfaction under Section 147 that the income (purportedly represented by the unexplained sums found credited in the books of accounts), within the mischief of Section 68, it is inherent that the explanation of the assessee respecting such credit entries would be called for only with circumspection and solely upon some concrete material coming up to support the tentative impression about it being suspect.
37. Thus, when the AO sets about seeking explanation for the unaccounted credit entries in the books of accounts of the assessee in terms of Section 68, it is legitimately expected that the exercise would be taken to the logical end, in all fairness taking into account the material submitted by the assessee in support of his assertion that the person making the payment is real, and not non-existent, and that such other person was actually the source of the money forming the subject matter of the transaction as indeed that the transaction is real and genuine, same as it is represented to be. Having embarked upon 10 | P a g e IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd.
such exercise, the AO is not expected to short-shrift the inquiry or ignore the material submitted by the assessee.
38. The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, "further inquiry", in terms of sub-section (4) which reads as under:-
―The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals).‖
39. The further inquiry envisaged under Section 250(4) quoted above is generally by calling what is known as "remand report". The purpose of this enabling clause is essentially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings re- opened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in Section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz.
the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party.
40. The CIT (Appeals), as also the ITAT, in the case at hand, in our view, unjustifiably criticized the AO for not having confronted the assessee with the facts regarding return of some of the summons under Section 131 or not having given opportunity for the identity of all 11 | P a g e IT(SS)A No.20/Ja b/2016 ACIT vs M/s. City Hospital & Research Centre Pvt.Ltd. the share applicants to be properly established. The order sheet entries taken note of in the order of CIT (Appeals) seem to indicate otherwise. The order of CIT (Appeals), which was confirmed by ITAT in the second appeal, does not demonstrate as to on the basis of which material it had been concluded that the genuineness of the transactions had been duly established. There is virtually no discussion in the said orders on such score, except for vague description of the material submitted by the assessee at the appellate stage. Whilst it does appear that the time given to the assessee for proving the identity of the third party was too short, and further that it is probably not always possible for the assessee placed in such situation to be able to enforce the physical attendance of such third party (who, in the case of share applicants vis-à-vis a company, would be individuals at large and may not be even in direct or personal contact), the curtains on such exercise at verification may not be drawn and adverse inferences reached only on the basis of returning undelivered of the summonses under Section
131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non-
delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged." 6.1 Accordingly, following the findings of Hon'ble Delhi High Court in the case of CIT-II vs M/S Jansampark Advertising and Marketing (P) Ltd.(supra), we feel it appropriate to restore the matter back to the file of the AO for determination of the investment in construction of the relevant unit of the assessee made in the year under consideration through departmental valuer. If the investment in construction of any of unit has not been made in the year under consideration, then no addition is called for in respect of that investment. It is needless to mention that the assessee shall be afforded opportunity of being heard. Thus, grounds raised by the Revenue are allowed for statistical purposes.
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7. In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced in the open Court on 22/09/2023.
Sd/- Sd/-
(PAVAN KUMAR GADALE) (OM PRAKASH KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*Amit Kumar*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
6. Guard File
Asstt. Registrar
Jabalpur Bench
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