DY.CIT, CIRCLE-1(2),, HYDERABAD vs. M/S CONCORD DRUGS LTD.,, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER

Sl.No. ITA No. AY Appellant Respondent 1 to 3 1901 to 2006-07 Concord Drugs Dy. 1903/Hyd/ to Ltd., Commissioner of 2017 2008-09 Hyderabad. Income-tax, Circle – 1(2), PAN – Hyderabad. AAACC8171D 4 to 6 1152/ to -do- Dy. Concord Drugs 1154Hyd/ Commissioner Ltd., Hyderabad. 2014 of Income-tax, Circle – 1(2), PAN – Hyderabad. AAACC8171D 7 to 9 SA Nos. Concord Drugs Dy. 81, 82 & -do- Ltd., Commissioner of 83/H/2018 Hyderabad. Income-tax, (in ITA Circle – 1(2), Nos. 1901 PAN – Hyderabad. to AAACC8171D 1903/H/17)

Assessee by: Shri P. Murali Mohana Rao Revenue by: Shri Nilanjan Dey Date of hearing: 06/02/2019 Date of pronouncement: 27/03/2019 O R D E R PER S. RIFAUR RAHMAN, AM:

All these appeals are cross appeals filed by the assessee as well as revenue directed against a common order of CIT(A) – II, Hyderabad dated 25/03/2014 for the AYs 2006- 07 to 2008-09. As identical issues are involved in these appeals, the same were clubbed and heard together and therefore, a common order is passed for the sake of convenience.

2 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 2. On perusal of record, we find that there was a delay of 1274 days in filing these appeals by the assessee. In this connection, the assessee filed an affidavit, wherein it was affirmed as under: “The CIT(A) order in respect of the Assessment year 2006-2007 has been received on 28.03.2014, and the same could not be filed in time as we were advised by our authorised representative that we have received the relief by learned CIT(A) and therefore no further appeal before the Hon'ble ITAT was required. However, now, it has been noticed that only part relief was granted by the learned CIT(A) and therefore, the appellate order passed by CIT(A) needs to be challenged further before the Hon'ble ITAT. Therefore, the appeal could be filed on 21/11/2017 with the delay of 1274 days as the appeal was due for filing on 27.05.2014 and instead of that the same has been filed on 21/11/2017 The delay in filing of the appeal may please be condoned and the appeal may please be considered.”

2.1 Further, the AR of the assessee submitted that the department initiated recovery proceedings to recover the tax due from the assessee and accordingly collected. Meanwhile, assessee approached the present AR to represent the cases. Ld. AR after study advised the assessee that the whole assessment was not maintainable and the earlier AR has misguided and mis-represented the case and not approached the case technically. With the advise of the present AR, assessee enlightened and filed the present appeal with delay. The Courts should view on merit and deliver justice. For that proposition, relied on the following cases for condonation of delay: 1. M/s Midas Polymer Compounds Pvt. Ltd., Vs. ACIT, ITA No. 288/Coch/2017, order dated 25/06/2018. 2. CIT Vs. KSP Shanmugavel Nadar, [1987] 30 Taxmann 133 (Mad.) 3. Divya Jyothi Steels Ltd. Vs. ACIT, ITA Nos. 1176 & 29/Hyd/2016, order dated 28/03/2018.

3 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 3. On the other hand, DR, contended that the delay is not condonable, for which he filed written submissions, which are extracted below: “2.1 The assessee's appeals before the Hon'ble ITAT, for the above assmt. years is filed with a delay of 1274 days. The reasons for delay according to the assessee is that it relied on the version of its authorized representative that it has got relief from the CIT (Appeals); and that it realized late that it has only got partial relief from the Ld. CIT (Appeals). Such a contention is not credible when the assessee had received the appellate order dated: 25.3.2014 on 28.3.2014 and for further reasons submitted below. It is difficult to believe how an appellate order on an appeal by the assessee would not attract even a reading after its receipt; to know whether the relief prayed for in the appeal filed has been allowed. 2.2 It is respectfully brought to the kind notice of the Hon'ble ITAT that there has also been several communications by the Department with the assessee, which brought out that the relief given to the assessee by the Ld. CIT (Appeals) was only partial. The Assessing Officer passed consequential order to the Appellate Order of the Ld. CIT (A) on 12.11.2015 and raised a demand which was served on the assessee. This order clearly shows that the relief given by the Ld. CIT (Appeals) to the assessee is only partial. After this order also, the assessee did not file any appeal before ITAT. It filed appeal before the Hon'ble ITAT on 21.11.2017. Records also show that, the Assessing Officer had referred this case to TRO for recovery of demand. The TRO-1, Hyderabad drew up Demand Notice in Form 57 on 29.11.2016 which was duly served on the assessee. Thereafter, ITCP 1 was drawn up by the TRO on 06.12.2016 which was also served on the assessee. The assessee responded to the notice vide letter dated: 19.12.2016 addressed to the TRO requesting for adjournment. The letter was signed by the Director of the company. The assessee requested for further adjournment to the TRO vide letter dated: 22.02.2017 signed by its Director. Further summons under Rule 83 of the Second Schedule was issued to the assessee by the TRO-1/ Hyderabod, on 25.05.2017. The assessee responded to the summons vide letter dated: 08.6.2017 and submitted details requisitioned. The assessee cannot claim ignorance of the effect of the appellate order of the Ld. CIT (Appeals) as the reason

4 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. for delay in filing appeal before the Hon'ble ITAT. The facts discussed show that, that the reason adduced by the assessee for delay in filing appeal by 1274 days (appeal filed on 27.11.2017) is not credible and acceptable. 2.3 It is inconceivable that an assessee company, would rely on the version of its alleged Authorised Representative that it has got relief from the Ld. CIT (A) on its appeal and remain oblivious to the fact that, only partial relief has been granted to it by the Ld. CIT (Appeals), evident from the appellate order, consequential order passed to the appellate order received by the assessee on 12.11.2015 and the various notices issued by the TRO to the assessee as discussed above and to which the assessee has responded to. 2.4 It may be submitted here that, the Hon'ble High Court of Madras in the case of Madhu Dadha v. Assistant Commissioner of Income-tax, Central Circle- IV(2), Chennai (317 ITR 458) held that when the delay on the part of the assessee was deliberate and the assessee was clearly guilty of culpable negligence, such negligent attitude was not taken care of to preserve the right of appeal and having slept over for more than 558 days and having not explained the delay without any reasonable doubt, the assessee could not avail of sympathy or discretion of the High Court (Para 14.) In the case of the assessee the delay is of 1274 days for which no credible explanation has been provided with supporting evidences. 2.5 Under the facts of the case discussed it is respectfully submitted that the delay in filing appeals be not condoned and assessee's request in this regard rejected. At the time of hearing, ld. DR relied on the judgment of the Hon’ble Karnataka High Court in the case of Shankar Appayya Gorakar Vs. Nurudappa Basappa Maliad and Others. This case is relating to Motor Accident claim, which may not be relevant for the case on hand.

5 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. CIT(A), there is no need to appeal further. The assessee was made to live with the belief but as submitted by the present AR of the assessee that he has advised the legal consequence and technically assessee has favourable case in its favour. The earlier AR has failed to appreciate the case on hand. Each case of delay has to be evaluated based on the facts available on record. We notice that the earlier AR has objected before CIT(A) only in completing the assessment based on DVO value u/s 142A. But, assessee has approached the present AR who has brought on record the other technical failure on the part of the AO, who completed the assessment u/s 143(3) rws 147. On verification of those issues for which assessee has appealed before us raising grounds of appeal. On initial observation, we notice that assessee has a favourable case, on merit.

3.1 While adjudicating the delay in filing the appeal, the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST. Katiju and others, [1987]167 ITR 471, has held as below:

“3. The legislature has conferred the power to condone delay by enacting s. 5 of the Limitation Act of 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on "merits". The expression "sufficient cause" employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice—that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. 4. And such a liberal approach is adopted on principle as it is realized that: 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late.

6 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay ? The doctrine must be applied in a rational common sense and pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”

3.2 Considering the above decision and reasons for delay in filing the appeal submitted before us, only for the rendering of justice, we condone the delay in filing the appeal before us on the ground that the assessee was prevented by reasonable cause in filing the appeal belatedly. Accordingly, we admit the appeals for hearing and adjudication.

4.1 The assessee company engaged in manufacturing of drugs, made additions to the tune of Rs. 1,06,56,105/- towards land and development of buildings during the AY 2006-07. When the AO asked the relevant documents, the assessee failed to furnish the information despite sufficient

7 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. opportunities. Then, the AO resorted to reference to the Valuation Cell u/s 142A of the Income-tax Act, 1961 (in short ‘the Act’) on 19/11/2008. . The following two properties were referred to DVO: i) Factory building at Roorkee, Haridwar, Uttaranchal ii) Factory building at Hyathnagar, Hyderabad. Since the assessment was getting time barred, the regular assessment was completed before the receipt of the valuation report on 31/12/2008. However, the assessee filed a copy of order sheet, as per which, the AO has not recorded any reference to such evaluation by DVO. On subsequent receipt of Valuation Report from the Departmental Valuation Officer, notice u/s 148 was issued for reopening of the assessment on 13/12/2011. The reassessment completed u/s.143(3) r.w.s. 147, the AO added the difference between the value determined in valuation report and the value accounted for in books of account. It is pertinent to mention with reference to property at Roorkee the addition was made in all the three years - A.Ys. 2006-07, 2007-08 a 2008-09. With reference to property at Hyathnagar, Hyderabad, the addition was made only in A.Y.2006-07.

8 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. a) AO cannot refer to DVO without rejecting the books, he submitted that a copy of the order sheet of original assessment which was completed u/s 143(3) as per which there is no trace of proposal to reject the books or any doubt expressed on the expenditure incurred on the factory building. The assessment was completed and assessee was under the impression that AO has accepted the records submitted before him. He submitted that AO before ordering the valuation of property, first he should have expressed his lack of confidence in the books submitted before him. The order sheet collected from the department clearly shows that AO has not recorded any suspicion on the books of the assessee. Therefore, the action of the AO is not as per the procedure of law. For this proposition, he relied on the case law below: 1. ITO Vs. Sri Sai Educational Society, 1617/Hyd/2014. 2. CIT Vs. Lakshmi Constructions, 55 Taxmann.com 253 3. Sargam Cinema Vs. CIT, 197 Taxman 203 (SC) 4. CIT Vs. Freedom Board & Paper Mills, 57 Taxmann.com 383 (P&H) b) He submitted that DVO report per se is not an information for initiating reopening of assessment proceedings. He brought to our notice the reasons for reopening u/s 148, which is placed on record. The main reason for reopening the assessment is the valuation submitted by the DVO. It is not the proper reason to initiate the proceedings u/s 147. For this proposition he submitted following case law: 1. Mahadev Rice & General Mills Vs. ACIT, 579/Chd/2014 2. ACIT Vs. Dhariya Constructions Co., 197 Taxman 202 (SC). c) Further, he submitted that reassessment proceedings cannot be made without recording a finding that the

9 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. escapement of income is due to the failure of the assessee when the assessment was reopened after expiry of four years. For this proposition, he relied on the following case law: 1. Shri Kushal Kumar Vs. DCIT, 134/Hyd/2016 2. CIT Vs. Foramer France, 129 Taxman 72 (SC)

10 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd.

5.1 Before the Ld. CIT(A) the assessee raised objections to the value determined of factory building at Roorkee. The assessee submitted report of the approved valuer in support of its claims. The Ld. CIT(A) for discussions made at Para 7.4 (a) at Page 9 of the appellate order held that, the second floor of the Roorkee property was constructed during the FY: 2008-09 and 2009-10 and not in the financial years 2005-06 to 2007-08. As per the DVO's Report cost of construction of the second floor was Rs. 13, 82,826/-. The Ld. CIT (A) has held that since the amount does not pertain to the AY: 2006- 07 to 2008-09 the same shall not be considered by the AO for the purpose of section 69. The revenue is on appeal against the relief granted by the Ld. CIT (A). The assessee is on appeal against the balance addition confirmed by the Ld. CIT (Appeals). 5.2 In the Valuation Report for Roorkee Building, the Departmental Valuation Officer clearly states that his office vide letter dated: 21.8.2009, had issued a notice to the assessee company for submission of requisite' documents and in response, the' assessee company has submitted consolidated year wise investment on construction of factory building. The Valuation Officer further states in his Report that, his office has worked the estimated value on the basis of investment details submitted by the assessee. When the estimate has been worked out by the Valuation Officer based on the investment details furnished by the assessee, the assessee cannot take the plea that the Valuation Officer erred in Valuation of the Property vis a vis the investments made and the period in which those investments have been made. The assessee has not shown with evidences as to how the estimate made by the valuation officer is incorrect. Further, the assessee has been provided with adequate opportunities for rebutting the valuation of the Valuation Officer with evidences in support of its rebuttal. As submitted above, apart from the general submissions made, the assessee has not shown with evidences as to how the valuation made by the Valuation Officer was incorrect. The Departmental Valuation Officer has categorically mentioned in his Valuation Report that, the assessee had also submitted the Valuation Report and that the inspection of the property was carried out by his office on 20.4.2010 in the presence of Shri N. L. Reddy, MD of the assessee company.

11 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 5.3 Therefore, the assessee's contention that the estimate of the Valuation Officer was incorrect is not supported by facts of the case. Further, the Ld. CIT(A) also erred in disregarding the findings of the Valuation Officer in respect of second floor of the Building, holding that, Rs. 13,82,826/- does not pertain to the AY: 2006- 07 to 2008-09 and the same shall not be considered by the AO for the purpose of section 69. It has already been submitted above that, the departmental valuation officer had estimated the cost of construction of the building which includes the second floor on the basis of the investment details submitted by the assessee. The Departmental Valuation Officer estimated the cost of construction of the property during the stated financial years, after carrying in out an inspection of the property which was carried out in the presence of the MD of the company. 5.4 In the light of the discussion made above, it is respectfully submitted that the appeal filed by the assessee on this ground is devoid of merits. 6. Hyathnagar Property: 6.1 Regarding the building at Hyathnagar, Hyderabad, the DVO determined the cost of building at Rs. 177.42 lakhs. According to the AO the amount reflected in books of accounts was Rs. 16.03 lakhs. Difference of Rs. 161.38 lakhs was added u/s 69. The Ld. CIT (A) has observed at Para 7.5 of the appellate order on Page 11 that, in the year 2005-06 and 2006-07 the appellant renovated the old building constructed in 1997-98 and also started construction of a small building additionally. It is observed by the Ld. CIT (A) that the DVO determined the value assuming that both the buildings were constructed in the year 2005-06 to 200607 itself. On this account, the Ld. CIT (A) provided partial relief to the assessee. Revenue is on appeal against the relief granted by the Ld. CIT (Appeals). The assessee is on appeal against the confirmation of the balance addition by the Ld. CIT (Appeals). 6.2 The appeal by the assessee on this ground is also without merits. As per the Valuation Report of Valuation Cell, Income-tax Department, Hyderabad, notices were issued to the assessee vide communications dated: 18- 12-2008, asking the assessee to submit all the relevant documents required for valuation and the property was inspected on 06.8.2009 in the presence of the Director, S. Nagi Reddy. Further, at Para 1.3 of the Valuation

12 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. Report it is stated that, further clarifications of the construction of other two buildings were asked vide letter dated: 18.8.2009 and the assessee was asked to submit other details like bills etc. Therefore, the DVO's estimate is based on the details submitted by the assessee and the physical inspection carried out. The DVO has considered clarifications in respect of the two buildings, details provided by the assessee for arriving at the estimate. The ld. CIT(A) therefore erred in allowing relief to the assessee partially by disregarding the DVO's Report which clearly states the detailed manner in which the estimate has been arrived at which is based on the submissions of the assessee. The appeal by the assessee on this issue is also accordingly without any merit as the assessee has not been able to establish with evidences as to how the DVO's Report was wrong. The Valuation Officer has only valued the cost of construction of the property during the period mentioned in the Valuation Report, on physical inspection which understandably includes the renovation cost to the old building during the period. The Departmental Valuation Officer has nowhere mentioned in his Report that the alleged old building was in fact a new building constructed during the above period. He has only estimated the cost of construction in the buildings during the period mentioned in the Valuation Report. 7. In the light of the submissions made above it is humbly and respectfully submitted that the appeals filed by the assessee be dismissed and the order of the Assessing Officer restored.” 9. Considered the rival submissions and perused the material on record. We notice that the original assessment was completed on 31/12/2008 and the order sheet for the assessment u/s 143(3) filed by the assessee, has no reference to valuation officer nor there is any reference to the non- satisfaction of the valuation or books submitted before the AO. The AO had referred the valuation to DVO on 17/11/2008. The DVO has issued notice for submission of requisite information to assessee on 21/08/2009, when the assessment was already completed by the AO on 31/12/2008. Even though, the matter was referred to DVO on 17/11/2008, the DVO has issued

13 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. notice to AO only on 21/08/2009 calling for information. At the time of completion of assessment, there was no recording to such reference to DVO nor any indication of unsatisfaction on the records submitted by the assessee.

9.1 Now, before us, the assessee has rightly raised the issue that AO has not rejected the books before reference to DVO and also DVO report per se is not reason to reopen the completed assessment. For the rejection of books, assessee has relied on the case law of Sargam Cinema, [2010] 328 ITR 513 and Lakshmi Constructions (supra) wherein the ratio laid down by the Hon’ble Court is as under:

“7. Even the Commissioner (Appeals) was of the view that the books of account commended their own acceptability and any addition of amount towards unexplained investment could have been done only after veri Ii cation from the books. That very observation, if not principle, cuts into the justification for referring the matter to the Valuation Officer. The reason is that it is only when the Assessing Officer did not take the contents of the books of account, on their face value, that he could have resorted to an independent valuation. It is here, that the Tribunal maintained the subtle distinction and held that even before ordering ~ the valuation of any property by independent valuer in respect of an assessee, who maintained books of account, the Assessing Officer must, as a first step, express his lack of confidence in the books of account. That not having been done in the instant case, the very reference to the Valuation Officer cannot be susi.rined in law. 8. ln Sargam Cinema v. CIT [2010] 328 ITR 513/[2011] 197 Taxman 203 (SC), the hon'ble Supreme Court held that the assessing authority cannot refer the matter to a Departmental Valuation Officer unless the hooks of account maintained by the assessee were rejected or disbelieved. The same was followed by the Punjab and Haryana High Court in Nirpal Singh v. CIT [2013] 359 ITR 398 (P&H).

14 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 9. Though the Tribunal did not take note of any precedents, obviously because they were not cited, the view taken by it accords with the principle laid down by the hon'ble Supreme Court. Added to that, the assessee-firm is said to have been wound up in the year 1992 itself. 10. Though section 142A of the Act was amended in the year 2004 with retrospective effect from 1972, we find it difficult to sustain the exercise undertaken by the Assessing Officer on the touch stone of that provision. Viewed from any angle, we do not find any merits in the appeal.”

9.2 Further, ld. DR relied on the case of Bharati Cements Corporation Pvt. Ltd. (supra) and Smt. Kiran Latha (supra) to submit that in a case where the AO referred for the cost of construction u/s 142A to the DVO, and made addition u/s 69, objection of books of account is implied. We do agree with the proposition but in the above cases, the facts were, the AO referred to the DVO during the assessment proceedings and assessee was confronted with the report during the assessment proceedings. But, in the given case, the books of account were accepted during assessment proceedings and assessments were also completed without even hint of any doubt on the figures submitted by the assessee. The assessee was never confronted with the valuation submitted and adopted by them in the books. Assessee came to know about the reference only after completion of the assessment u/s 143(3) i.e. when the assessee receives a letter from DVO office only 21/08/2009 (refer page 35 of the paper book). In the case of Bharati Cement, the AO did not accept the valuation shown by the assessee in the balance sheet, the observations in the said case are reproduced for the sake of clarity: “18. Even otherwise it may be noted here that in the course of previous assessment proceedings, as will be presently seen under the third plea, the third respondent did not accept the valuation shown by the petitioner in

15 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. its balance sheet and accounts and he was asking for more information to arrive at the fair market value of the petitioner's plant and civil works connected with it. In fact, that can be treated as amounting to rejecting the books of account of the petitioner by implication and no formal order rejecting the books of account is necessary. This is also a negative point for the petitioner and the petitioner's contention under this point is liable to be rejected on the above ground.”

9.3 Considering the above discussion and ratios laid down in the above decision, we are of the view that AO has not rejected the books nor informed the assessee that he is not accepting the valuation submitted by them or value adopted by them in the balance sheet are not proper. Without any hint, he has completed the assessment u/s 143(3). Even though, the reference was made to DVO on 17/11/2008, the assessee came to know only on 21/08/2009, when the DVO contacted the Assessee to submit various information to carryout inspection. Respectfully following the ratio laid down in the case of Lakshmi Constructions (supra), we are of the view that the AO must have confronted the issue of not accepting the valuation of assessee and referred the issue to the DVO. In that case, AO can reopen the assessment even though the assessment was completed due to limitation. But, in this case, assessee was never informed about the reference to valuation and the assessment was completed. The completed assessment cannot be reopened without rejecting the books or confronting with assessee about not accepting the valuation submitted by assessee and the completed assessment cannot be re-visited on the same information available on record. Therefore, in our view, reopening was bad in law and, therefore, the reopening of assessment is quashed in all the appeals under consideration.

16 I.T.A. No. 1901Hyd/17 and others Concord Drugs Ltd. 10. As we have quashed the reopening of assessment itself, the additions made on such assessments, become infructuous. Therefore, the other grounds raised by the assessee on merits, are not required to be adjudicated.

10.1 Since the reopening of assessments are quashed in all the years under consideration, the appeals filed by the revenue become infructuous and therefore, the same are dismissed as infructuous.

Pronounced in the open court on 27th March, 2019.

Sad/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 27th March, 2019. kv