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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI. G. PAVAN KUMAR
M/s. Kalpana Medical Centre Vs. Assistant Commissioner of Income Private Limited, Tax, 4/5-C, Kalpana Complex, Company Circle - IV(1), Kavundampalyam, Coimbatore. Mettupalayam, (Presently Corporate Circel-2, Coimbatore - 641 030. Coimbatore) [ PAN AACCK 7724L] (अपीलाथ� अपीलाथ� अपीलाथ�/Appellant) अपीलाथ� (��यथ� ��यथ� ��यथ�/Respondent) ��यथ� अपीलाथ� क� ओर से/ Appellant by : Shri T. Banusekar, CA. ��यथ� क� ओर से /Respondent by : Shri Clement Ramesh Kumar, Addl. CIT सुनवाई क� तारीख/Date of Hearing : 18-10-2016 घोषणा क� तारीख /Date of Pronouncement : 09 -11-2016 आदेश आदेश / O R D E R आदेश आदेश PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These are appeals by assessee are directed against the different orders of CIT(A) for assessment year 2007-08, 2008-09 and 2009-10. The main grievance of the assessee is that CIT(A) erred in upholding the action of AO in wrongly assuming the jurisdiction u/s. 147 on the premise that there was excess investment in the :-2-: & 347/Mds/2015 construction of building without any tangible material to form the belief. The assessee is also challenged addition before us based on the DVO report.
Facts of the case for these assessment years are common. We are considering the facts in ITA No. 2847/Mds/2014. The assessee is a company in which public are not substantially interested. A search u/s. 132 was conducted in the case of Dr. (Mrs.) Mridubashini Govindarajan on 22.09.2010 and during the course of search, it was found that a branch of M/s. Women Centre of Dr. (Mrs.)
Mridubashini was functioning in the premises of the appellant. Simultaneously, a survey u/s. 133A was conducted in the premises of the appellant on the same day.
During the course of survey, books of account and other documents were found and impounded. In the Sworn Statement, it was mentioned that the cost of construction of the Hospital Building was around Rs. 3.71 Crores. The Assessing Officer estimated the construction of hospital building @Rs. 1,250/- per sq.ft. for 40,000 sq.ft., around Rs. 5 Crores. As there was difference between the cost of construction of building reported by the appellant and the amount estimated by the Assessing Officer, a notice u/s. 148 was issued on 30.03.2012 and served on the assessee on the same day to reopen the assessment.
The Ld.CIT(A) observed that during the course of survey operation, the AO came to know that assessee has shown cost of construction in the books of accounts lesser than the cost of construction and the assessee made unexplained investment in the construction of building. This is also supported by the DVO Report dated 30.01.2013. Accordingly, he confirmed the reopening of assessment.
:-3-: & 347/Mds/2015 Further, he also confirmed addition made on the basis of valuation report furnished by DVO against which the assessee is in appeal before us. For all these appeals assessment years, we have heard both the parties and perused material available on records. There was a survey in the case of assessee u/s. 133A of the Income Tax Act. During the course of survey, books and documents were found and impounded. It also came to the knowledge of AO that the construction of building measuring 40,000 sq.ft by assessee. In the sworn statement, it was stated by the assessee that cost of construction was Rs. 3.71 crores. The assessee as admitted cost of construction at Rs. 3.5 Crores in its books of accounts. According to the AO, assessee shown lesser value of cost of construction of the building. As such, AO issued a notice u/s 148 Act on 30.03.2012 for reopening assessment. Subsequent to this, the assessee filed revised return of income on 20.04.2012. Later, the matter was referred to DVO to ascertain the cost of construction and was submitted the valuation report by DVO determining the cost of construction of the assessee property at Rs. 5,18,86,000/- According to AO this also included Rs. 19,06,738/- in respect to various cost like lift, generator, solar heater and fire equipments and it was already disclosed by the assessee to the department. Hence, AO determined the cost of construction of the building at Rs. 4,99,79,351/-. After deducting the sum of Rs. 3,50,50,774/- which was also already disclosed in its books of account and he finally made addition towards undisclosed portion of cost of construction in these three assessment years as follows:
Sl.No Assessment Unexplained
:-4-: & 347/Mds/2015 year investment 01 2007-08 43,31,831 02 2008-09 76,92,103 03 2009-10 29,04,643
Now, the contention of the Ld. AR is that reopening of the assessment is bad in law, as there is no basis for AO to come to the conclusion that there was undisputed income so as to bring it to tax. Further, he submitted that in the present case the whole addition was based on the DVO report as the reference to the DVO is bad in law as the AO referred the matter to the DVO without rejecting the books of accounts. For this purpose, he relied on judgement of the Supreme Court in the case of Sargam Cinema Vs CIT (328 ITR 513) where in held as follows:
"According to the Departmental Representative, the Assessing Officer applied his mind on the DVO report and he has segregated the total cost of factory building for three years, which is conscious decision of the AO and it is not solely based on the DVO report and it cannot be said that DVO report is the basis for reopening of assessments. In our opinion, the argument of ld. DR is totally misconceived. As seen from the reasons recorded by the AO for reopening, the sole basis for reopening of assessments is nothing but valuation report submitted by the DVO. Had it been no valuation report from the DVO, the AO has no basis for reopening of assessments. The AO came to know about the additional amount of investment made by the assessee on the construction of building because of the DVO report."
Admittedly in this case, reopening of assessment was on the basis of sworn statement recorded during the course of survey u/s 133A of the Act. It is to be noted that there was no material gathered with regard to the cost of construction incurred by the assessee towards construction of building. The AO got the sworn statement recorded from Dr. D. Bala Chandra, wherein he stated that the cost of :-5-: & 347/Mds/2015 construction impounded of property was Rs. 3.71 Crores and on that income the AO issued the notice u/s 148 of the Act.
The Sworn Statement recorded from the assessee u/s 133A of the Act cannot be considered as the basis for reopening of assessment and there is no fresh tangible material in the hands of Assessing Officer for reopening of assessment. The AO merely stated the reason for reopening of assessment that there was escapement of income but do not stated any material on the basis of which he had arrived that conclusion. As such, there was no material on the basis of which AO came to such belief. It cannot be said that the sworn statement collected from assessee u/s 133A can be the basis for reopening of assessment. The Supreme Court in the case of M/s. Khadar Khan and Sons Vs CIT (352 ITR 480) (SC), held that Sworn Statement recorded from the assessee u/s 133A cannot be basis for addition. Hence, there is no basis for reopening of assessment. Thus reopening of assessment is bad in law as held in the case of ITO Vs Madan Ali Engineering Works Limited (118 ITR 1) (SC). Similar view was taken at Bombay High Court in the case of Samir Diamonds Export Private Limited Vs A.K. Goutham, under (189 ITR 410).
Being so reopening of assessments in these assessment years is bad in law.
Accordingly, for all these assessment years, the assessment orders are quashed.
Since, we have quashed the assessments for these assessment years, we are refrained from going into the merits of the addition made by AO.
:-6-: & 347/Mds/2015
In the result, all the appeals of the assessee are allowed.
Order pronounced on Wednesday, the 9th day of November, 2016 at Chennai.