M/s Indira Hospital Research & Diagnostic Centre, Mangalore v. ACIT, Mangalore

THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K JUDICIAL MEMBER AND SHRI A MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.503/BANG/2010 ASSESSMENT YEAR : 2001-02 M/S INDIRA HOSPITAL RESEARCH & DIAGNOSTIC CENTRE MOTHER THERESA ROAD FALNIR MANGALORE-575 002. - APPELLANT VS THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-1(1) MANGALORE. - RESPONDENT APPELLANT BY : SHRI S VENKATESAN C.A. RESPONDENT BY : SMT. JACINTA ZIMIK VA SHAI ADDL. CIT(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) MANGALORE DATED 23.02.2010 . THE RELEVANT ASST. YEAR IS 2001-02. 2. EIGHT GROUNDS ARE RAISED IN THIS APPEAL. THE F IRST AND THE 8 TH GROUND ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDI CATION IS CALLED FOR. HENCE THE SAME ARE DISMISSED. 3. THE 7 TH GROUND RAISED RELATE TO THE LEVY OF INTEREST U/S 2 34B OF THE ACT. IT A NO.503/BANG/2010 PAGE 2 OF 9 3.1 THE LEVY OF INTEREST U/S 234B OF THE ACT IS MA NDATORY AND CONSEQUENTIAL IN NATURE AND HENCE THIS GROUND IS D ISMISSED. 4. THE OTHER GROUNDS NAMELY GROUND NO.2 TO 6 RE LATE TO THE ISSUE WHETHER THE CIT(A) IS JUSTIFIED IN SUSTAININ G THE ADDITION TO THE EXTENT OF 25% MADE BY THE ASSESSING OFFICER. THE A SSESSING OFFICER MADE THE ADDITION ON ACCOUNT OF DIFFERENCE IN THE C OST OF CONSTRUCTION AS DISCLOSED BY THE ASSESSEE AND THE VALUE FIXED BY TH E DVO. 4.1 THE BRIEF FACTS IN RELATION TO THE ISSUE ARE A S FOLLOWS:- THE ASSESSEE IS A FIRM. IT IS RUNNING A HOSPITAL PROVIDING MEDICAL FACILITIES. THE ASSESSEE HAD PUT UP A HOSP ITAL BUILDING. THE CONSTRUCTION OF THE HOSPITAL BUILDING WAS STARTED O N 12.6.1996 AND THE SAME WAS COMPLETED ON 5.3.2002. THE TOTAL COST OF CONSTRUCTION ACCOUNTED BY THE ASSESSEE WAS RS.1.81 CRORES MADE U P OF RS.1.55 CRORES UNDER THE HEAD BUILDING COST AND RS.26 LAK HS APPROXIMATELY UNDER THE HEAD OTHER ITEMS SUCH AS KEB DEPOSITS LIFT SYSTEM SOLAR WATER HEATERS TRANSFORMERS GENERATORS AIR-CONDITIONING ETC. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WAS N OT SATISFIED WITH THE CORRECTNESS OF INVESTMENT FIGURES DISCLOSED BY THE ASSESSEE; HENCE THE MATTER WAS REFERRED TO THE DISTRICT VALUATION OFFIC ER WHO ESTIMATED THE TOTAL VALUE AT RS.2 26 51 991/- WHICH CONSIST COST OF CONSTRUCTION ESTIMATED AT RS.1 91 27 940/- AND THE COST OF OTHER ITEMS AT RS.35 24 051/-. IT A NO.503/BANG/2010 PAGE 3 OF 9 THE ASSESSING OFFICER AFTER CONDUCTING LOCAL EN QUIRY THROUGH HIS INSPECTOR CONSIDERED RS.36 11 000/- AN D RS.9 30 000/- RESPECTIVELY AS THE UNEXPLAINED INVESTMENT BEING T HE DIFFERENCE BETWEEN THE FIGURES FIXED BY THE DVO AND THE COST OF CONSTR UCTION ACCOUNTED BY THE ASSESSEE. APPORTIONING THE SAID FIGURE BASED ON TH E INVESTMENT MADE BY THE ASSESSEE IN THE RESPECTIVE YEARS THE AMOUNT DE TERMINED AS RELATABLE TO THE CONCERNED ASST. YEAR WAS RS.2 54 540/- AND R S.1 28 998/- IN TOTAL AMOUNTING TO RS.3 83 538/-. 4.2 AGGRIEVED BY THE ADDITION OF RS.3 83 538/- AS UNEXPLAINED INVESTMENT ON THE COST OF CONSTRUCTION OF HOSPITAL BUILDING THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTH ORITY. 4.3 IT WAS CONTENDED BEFORE THE CIT(A) THAT THE DI STRICT VALUATION OFFICERS REPORT WAS FOR THE YEAR 2002 WHEREAS THE CONSTRUCTION WORK HAD COMMENCED IN THE YEAR 1996-97. IT WAS SUBMITTED THA T THE INCREASE IN THE COST OF MATERIALS WOULD HAVE NECESSARILY INCREASED THE COST OF CONSTRUCTION. IT WAS FURTHER SUBMITTED THAT THE AC TUAL COST INCURRED FOR THE CONSTRUCTION OF BUILDING AND THE EQUIPMENT INSTALLE D THEREIN WAS DEBITED IN THE REGULAR BOOKS OF ACCOUNT AND THE AUDITORS REPO RT U/S 44AB IT WAS SUBMITTED DID NOT CONTAIN ANY ADVERSE REMARKS IN T HE FINANCIAL RESULTS OF THE FIRM. THEREFORE IT WAS CONTENDED THAT THE INC OME ADMITTED BY THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED BY THE ASSESSI NG OFFICER. IT WAS ARGUED THAT NO ADDITION COULD BE MADE WHEN THE ASSE SSEE MAINTAINED THE IT A NO.503/BANG/2010 PAGE 4 OF 9 BOOKS OF ACCOUNTS AND VOUCHERS FOR THE CONSTRUCTION AND THE SAME HAS NOT BEEN REJECTED. FOR THE ABOVE PROPOSITION OF TH E ASSESSEE HE RELIED ON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V PRATAPSINGH AMROSINGH RAJENDRA SINGH AND DEEPAK KUM AR 200 ITR 788 AND THE ORDER OF THE TRIBUNAL IN THE CASE OF SRI HA R SARUP COLD STORAGE & GENERAL MILLS V ITO 27 ITD 1. IT WAS FURTHER ARGUE D THAT THE DVO OUGHT TO HAVE ADOPTED STATE PWD RATES INSTEAD OF CPWD RATES AS THE IMPUGNED BUILDING IS SITUATED IN A VILLAGE. BY ADOPTING THE CPWD RATES IT WAS SUBMITTED THE DVO HAD INCREASED THE VALUE OF THE I MPUGNED BUILDING BY 15% TO 20%. 4.4 THE CIT(A) AFTER ELABORATELY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT THE LOCAL INSPEC TION CONDUCTED BY THE ASSESSING OFFICER THROUGH HIS INSPECTOR WAS FAULTY AS THE REPORT OF THE INSPECTOR WAS NOT PUT TO THE ASSESSEE FOR REBUTTAL. HE ALSO FOUND VARIOUS DISCREPANCIES IN THE VALUE OF BUILDING DETERMINED B Y THE DVO. CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS CITED THE FIRST APPELLATE AUTHORITY REDUCED THE AD DITION MADE BY THE ASSESSING OFFICER BY 75% AND SUSTAINED AN ADDITION ONLY TO THE EXTENT OF 25% NAMELY RS.95 884/-. 4.5 THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTHORITY IN SUSTAINING AN ADDITION OF RS .95 884/- HAS FILED THIS APPEAL BEFORE US. IT A NO.503/BANG/2010 PAGE 5 OF 9 4.6 THE LEARNED AR SUBMITTED THAT THE FIRST APPELL ATE AUTHORITY HAVING FOUND THAT THERE IS NO CASE IN MAKING A SUBS TANTIAL ADDITION WITH THE COST ADOPTED BY THE ASSESSEE HAS ERRED IN SUSTAINI NG THE ADDITION TO THE EXTENT OF 25% OF THE ADDITION MADE BY THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE ASSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNT AND THE ENTIRE COST OF CONSTRUCTION IS ACCOUNTED IN THE BOOKS. IT WAS ARGUED THAT SINCE THESE BOOKS OF ACCOUNT HAVE NOT BEEN REJ ECTED THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) TO THE EXTENT OF 25% IS UNWARRANTED AND NOT JUSTIFIED ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. 4.7 THE LD. AR FURTHER RELIED ON THE DECISION OF T HE RECENT CASE RENDERED IN SARGAM CINEMA V. CIT 328 ITR 513 (SC) WHEREIN IT WAS HELD THAT THE ASSESSEE AUTHORITY COULD NOT REFER THE MAT TER TO DVO IN A CASE WHERE THERE WAS A CATEGORICAL FINDING RECORDED BY T HE TRIBUNAL THAT THE BOOKS OF ACCOUNTS WERE NEVER REJECTED. 4.8 THE LEARNED DR ON THE OTHER HAND SUPPORTED T HE IMPUGNED ORDER OF THE CIT(A). 4.9 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.3 83 538/- FOR THE CONCERNED ASST. YEAR. THE AD DITION WAS REDUCED BY THE FIRST APPELLATE AUTHORITY TO RS.95 884/-. THE VOUCHERS AND ABSTRACTS IT A NO.503/BANG/2010 PAGE 6 OF 9 WITH REFERENCE TO COST OF CONSTRUCTION OF THE IMPUG NED BUILDING WAS CALLED IN QUESTION BY THE DVO AND THE OBSERVATION OF THE D VO AT PARA 4.4 OF HIS REPORT DATED 25.9.2002 READS AS FOLLOWS:- AT THE OUTSET IT IS TO BE MENTIONED THAT THE VOUCH ERS AND ABSTRACTS HOWEVER TRUE THEY ARE THEY LACK IN DETAI LING. THEY REPRESENT AN ACCOUNTANT VIEW OF A RECORD OF EXPENDI TURE ON DAY TO DAY BASIS. THEY ARE NOT LINKED TO PHYSICAL AND CHRONOLOGICAL GROWTH OF THE STRUCTURE. IT IS NOT POSSIBLE TO QUA NTUMNISE THE RECORD AND APPORTIONS SAY THE CONSUMPTION OF CEMENT AS REPRESENTED BY THE RECORD OF FINANCIAL TRANSACTION AS TO PERTAIN TO ANY OF THE ITEMS OF CONSTRUCTION/BUILDING LIKE F OUNDATION ROOF FLOOR ETC. THEREFORE IN THE ABSENCE OF SUCH VITAL LINKAGE IT IS DIFFICULT TO SAY THAT THE VOUCHERS AND ABSTRA CTS THOUGH ARE ACCEPTABLE TO THE EXTENT THEY ARE MADE AVAILABLE R EPRESENT THE STRUCTURE COMPLETELY. 4.10 THE ASSESSEES CONTENTION IS THAT THE ACTUAL COST INCURRED IN THE CONSTRUCTION OF THE BUILDING AND THE EQUIPMENT INSTALLED THEREIN IS CORRECTLY RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND THERE ARE NO ADVERSE REMARKS ON THE FINANCIAL RESULTS OF THE ASS ESSEE FIRM. IT IS THE FURTHER CONTENTION OF THE ASSESSEE THAT THE ASSESSI NG OFFICER HAVING NOT REJECTED THE BOOKS OF ACCOUNT OUGHT TO HAVE ACCEPT ED THE COST OF CONSTRUCTION RECORDED IN THE BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE FIRM. HOWEVER IN THE INSTANT CASE WE ARE OF THE VIE W THAT THOUGH THE ASSESSING OFFICER HAS NOT REJECTED THE ENTIRE BOOKS OF ACCOUNTS AND NOT SPECIFICALLY OBSERVED THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE CONSIDERED IT NECESSARY TO REFER TO DVO SINCE COMPLETE INFORMA TION WAS FOUND TO BE MISSING WITH RESPECT TO COST OF CONSTRUCTION OF THE HOSPITAL BUILDING. ACCORDING TO THE ACT THE REJECTION OF BOOKS OF ACCO UNT AND RECORDING THE IT A NO.503/BANG/2010 PAGE 7 OF 9 SAME IN THE ASSESSMENT ORDER IS NOT A CONDITION PRE CEDENT FOR REFERENCE TO DVO HOWEVER IT IS GOVERNED BY THE PRINCIPLE JUSTIC E AND THEREFORE ONE HAS TO EXAMINE WHETHER THE AO HAS ARBITRARILY ACTED SO OR AFTER PROPER APPLICATION OF MIND. 4.11 THE HONBLE CALCUTTA HIGH COURT IN THE CASE O F UNIT CONSTRUCTION CO. LTD. V JCIT 260 ITR 189 AND ALSO T HE HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT V BHAWANI SHANKAR VYAS 311 ITR 8 HAVE HELD THAT ASSESSING OFFICER NEED NOT REJECT T HE BOOKS OF ACCOUNT BEFORE MAKING A REFERENCE OR CALLING FOR A REPORT OF VALUER U/S 142A OF THE ACT. IN THIS CASE WE ARE OF THE VIEW THAT THE CIT(A) HAD GIVEN ADEQUATE RELIEF BY REDUCING THE ADDITION BY 7 5%. IN THIS CONTEXT THE PLEA OF THE ASSESSEE THAT FURTHER RELIEF SHOULD BE GRANTED AS THE DVO HAS ADOPTED THE CPWD RATES INSTEAD OF KARNATAKA STATE P WD RATES CANNOT BE ACCEPTED AS THE CIT(A) HAD ALREADY GIVEN SUBSTA NTIAL RELIEF TO THE ASSESSEE. WE HAVE ALSO CONSIDERED THE CASE LAW REL IED BY THE LD. AR IN SARGAM CINEMA V. CIT (SUPRA). HOWEVER WE ARE OF THE CONSIDERED VIEW THAT THE FACTS OF THE CASE CITED BY THE LD. AR ARE NOT IDENTICAL TO THE FACTS OF THE CASE IN HAND. IN THE PRESENT CASE AFTER EXAM INING THE BOOKS OF ACCOUNTS FURNISHED BY THE ASSESSEE WITH RESPECT TO THE CONSTRUCTION OF THE HOSPITAL BUILDING AND FURTHER PERUSING THE VALUATIO N REPORT FURNISHED BY THE ASSESSEE LD. AO CAME TO THE CONCLUSION THAT THE MA TTER NEEDS TO BE FURTHER EXAMINED BY THE DVO SINCE THE TECHNICAL EVA LUATION OF CIVIL CONSTRUCTION OF HOSPITAL BUILDING WAS NOT WITHIN HI S WISDOM. THE VALUATION IT A NO.503/BANG/2010 PAGE 8 OF 9 REPORT DATED 23.4.2003 FURNISHED BY THE ASSESSEE (P AGE 26 OF THE PAPER- BOOK FILED BY THE ASSESSEE) BEFORE THE LD. AO WAS T OO VAGUE AND NOT BASED ON SOUND PRINCIPLES. LD. DR CLARIFIED BEFORE US THAT THE ASSESSING OFFICER AFTER EXAMINING THE BOOKS OF ACCOUNTS IN P ARTICULAR THE BUILDING CONSTRUCTION ACCOUNT IN THE GENERAL LEDGER AND PERU SING THE HALF-BAKED VALUATION REPORT FURNISHED BY THE ASSESSEE WAS LEF T WITH NO OTHER OPTION BUT TO REFER THE MATTER TO DVO IN ORDER TO OBTAIN T ECHNICAL GUIDANCE FOR VALUING THE BUILDING. FURTHER THERE WAS NO LINKAGE BETWEEN THE EXPENDITURE TO THE PHYSICAL AND CHRONOLOGICAL GROWT H OF THE STRUCTURE IN QUESTION. IT IS NOT A CASE WHERE THE ASSESSING OF FICER HAS BLINDLY REFERRED THE MATTER TO THE DVO WITHOUT APPLYING HIS MIND THE REBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. HE HAS CONSCIOUSLY EXAMINED THE BOOKS OF ACCOUNT AND ANALYZED THE VALUATION REPORT FURNISHED BY THE ASSESSEE AND CAME TO A CONCLUSION THAT FURTHER TECHNICAL GUIDANC E IS REQUIRED TO DETERMINE THE VALUE OF THE BUILDING TO RENDER JUSTI CE. MORE OVER THE CONSTRUCTION OF THE BUILDING WAS DONE IN STAGES OVE R A PERIOD OF YEARS AND THEREFORE TO DETERMINE THE VALUE OF THE BUILDING TH E COST INCURRED BY THE ASSESSEE FOR THE ENTIRE PERIOD HAS TO BE SEEN AS A WHOLE AND NOT BY EXAMINING THE COST INCURRED IN A PARTICULAR ASSESSM ENT YEAR. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT FURTHER INTERFER ENCE BY US IS NOT NECESSARY CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE. HENCE THE GROUNDS RAISED ARE DISMISSED. 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. IT A NO.503/BANG/2010 PAGE 9 OF 9 PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF FEBRUARY 2011. SD/- SD/- (GEORGE GEORGE K) (A MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED 18 TH FEBRUARY 2011. MSP/DS COPY TO :- 1. THE ASSESSEE 2. THE REVENUE 3. TH E CIT(A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GF BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.