C.I.T. vs. M/S Hotel Bluemoon

I.T.R. No.141/1998 9/4/2014 : Shri Sanjay Lal, learned counsel for the Revenue. Shri L. L. Sharma with Shri A. Oswal, learned counsel for the respondents. This is an application filed by the Revenue under Section 256(2) of the Income Tax Act whereby a proposal made by the revenue for referring the following question to the High Court has been rejected by the Income Tax Appellate Tribunal :- "Whether on the facts and on the circumstances of the case, the Hon'ble ITAT, Jabalpur Bench, Jabalpur was right in law in quashing the order under Section 263 of the Income Tax Act, 1961, passed by the Commissioner of Income Tax, Jabalpur on 28.3.95 without appreciating the facts mentioned in the order under Section 263 by the Commissioner of Income Tax"? It is said that the Tribunal without taking note of the reasons given by the Commissioner in the order passed, declined to make the reference which was not sustainable. Facts which have come on record goes to show that the assessee is engaged in the business of running a hotel on partnership basis in the city of Jabalpur. For the assessment year 1990-1991 the assessee filed a return of income declaring a loss of Rs.5,51,930/-. - 1 -1 -:2:- Assessment proceedings were conducted and the Assessing Officer found that assessee had made extensive investment in the matter of construction of hotel building and considering the same the Assessing Officer referred the matter to the District Valuation Officer to find out valuation of the building so constructed. The Assessing Officer also found that in the partnership deed submitted by the Assessee the signature of the partners was not genuine and therefore, the same was sent to the handwriting expert. Based on the report of the handwriting expert it was found that the signatures of the two partners are not genuine. Accordingly, the firm was declared as an unregistered firm and an assessment order Annexure P/1 was passed. After the assessment order was passed, the Commissioner of Income Tax took up the matter in suo motu cognizance and found that the assessment order is adverse to the interest of revenue and it came to the notice of the Commissioner that according to the valuation report of the property submitted by the assessee the cost of construction came to Rs.21,06,070/-, whereas, according to the departmental valuer it was Rs.25,24,200/-. The Commissioner found that there is a difference of Rs.4,17,500/- and therefore, the Commissioner issued notice under Section 263 of the Act and set aside the assessment order and referred the matter back to the Assessing Officer for - 2 -:3:- reassessment vide Annexure P/2. Aggrieved by this order of the Commissioner, appeal was filed by the assessee before the Tribunal and the Tribunal having allowed the appeal, reference was sought for and when this was also rejected, this application under Section 256. Having heard learned counsel for the parties and on going through the record it is seen that the Commissioner had merely issued notice and took action under Section 263 on the ground that there is a difference in the valuation as is reflected from the report of the departmental valuer and as submitted by the assessee. However, the Tribunal found that the investment made for construction of the hotel building was accepted by the Assessing Officer to be correct and the Assessing Officer after going through the books of account and the valuer's report found that there is not much of a difference. It is found by the Tribunal that merely on the assumption and merely by presuming there to be a difference action was taken under Section 263, whereas, based on the books of accounts the Assessing Officer found that in the accounts and the audited report produced by the Assessee there was no substantial difference with regard to the amount reflected in the books of account and the audited report and the approved valuer. Accordingly, taking note of all these factors, the Tribunal allowed the appeal and interfered with the order of Commissioner under Section - 3 -:4:- 263. In fact, the Tribunal in para 5 and 6 of the order has dealt with the matter in the following manner :- "5. It is pertinent to note, as far as the investment in construction, the AO had accepted the correctness of account and the Id. CIT had not doubted the correctness of the account and there was no defect pointed out by the Id CIT in the accounts and audit report produced by the assessee in the issue relates to investment in constructions. The finding by the AO that "There is no difference in the investment as per books and as per the valuation report (by the approved valuer) is not disputed by the Id. CIT in his order. It is also to be seen that the method adopted by the Approved Valuer is not in dispute and the same appears to be one of the recognized methods to work out cost of construction. (Emphasis Supplied) 6. The Id. CIT had not looked into all these vital factors. According to him, there is a difference between the valuation reports, and therefore was of the opinion that the difference has to be added under Section 69B of the I.T.Act. The order of the Id.CIT was confronted by the assessee by citing a decision of the jurisdictional High Court in the case of CIT Vs. Ratlam Coal Ash Company - - 4 -:5:- (1988) 171 ITR 141 (H.P.), wherein it has been held as follow :- "In the instant case, however, the Tribunal has found that the assessee had furnished all the requisite information and that the Income Tax Officer considering all the facts, had completed the assessment. The Tribunal further held that in the circumstances of the case, it could not be held that the Income Tax Officer had made the assessment without making proper enquiries. In view of these findings, the Tribunal in our opinion, was justified in law in reversing the order passed by the Commissioner of Income Tax." Once the Assessing Officer and the Tribunal had taken action based on the books of account, the audited report and valuation report, we see no reason to make any further indulgence into the matter, particularly when the action is taken in accordance to the law laid down by a judgment of this Court which has been referred to by the Tribunal in para 6 of the order as is reproduced herein above. Accordingly, in the facts and circumstances of the case, we find that no substantial question of law arises and the Income Tax Tribunal has not committed any error in rejecting the application for reference. The reference is accordingly disposed of. ( Rajendra Menon) ( A. K. Sharma ) Judge Judge mrs.mishra - 5