2014 (11) TMI 402 - AT - Income Tax

Unexplained investment from undisclosed/out of books income/receipts - Reference made to DVO Held that - The revenue should adopt some mode to educate their AO to act in accordance with law and whenever any judgment of the Hon ble Apex Court is rendered on a particular issue, they should follow the same - Since reference has been made without even calling for the books of account, what to say about the rejection of the books of account, the reference to the DVO is bad and invalid in the eyes of law and any valuation made on the basis of invalid reference cannot be used as a piece of evidence for estimating the cost of construction in the immovable property - the addition made by the AO u/s 69 of the Act for unexplained investment in the property deserves to be deleted and the order of the CIT(A) is to be set aside. Estimation of NP @ 10% - Receipts of hospital Held that - Revenue could not point out any specific defect in the order of the CIT(A) - the assessee has contended that the AO has applied the net profit rate at 10% on the receipts of hospital without pointing out any defect in the maintenance of the books of account - No doubt, net profit rate can be re-estimated by the AO but it can only be done where the defects are pointed out in the maintenance of the books of account - Without pointing out any defect, re-estimation of net profit rate is not permissible Decided against revenue. Receipts of school of nursing and paramedical Held that - CIT(A) has called for assessment record and verified himself the difference in fees of School of Nursing & Institute of Paramedical Science and noted that the AO has worked out the difference in fees of School of Nursing & Institute of Paramedical Science at ₹ 22,86,300/- as against ₹ 22,08,000/- shown by the assessee on the basis of documents impounded during the course of survey under section 133A of the Act on 7.3.2009 the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues:
1. Addition of unexplained investment
2. Application of UPPWD rates vs. CPWD rates
3. Ignoring cost difference in construction
4. Deduction for self-supervision
5. Applicability of case laws
6. Addition of net profit rate on hospital receipts
7. Validity of reference to DVO without rejecting books of account
8. Estimation of net profit rate without defects
9. Confirmation of addition for difference in fees
10. Overall decision on appeal and cross objection

1. Addition of unexplained investment:
The Revenue appealed against the CIT(A)'s order deleting the addition of &8377; 38,60,412 made by the Assessing Officer. The CIT(A) erred in deleting the addition of unexplained investment from undisclosed income. The Revenue contended that the CIT(A) should have considered the approved CPWD plinth area rates instead of UPPWD rates. The CIT(A) was criticized for ignoring the cost difference in construction and allowing a different deduction for self-supervision. The Revenue also argued against the applicability of certain case laws. The CIT(A) deleted the addition of &8377; 3,40,932 made by the Assessing Officer as net profit on hospital receipts.

2. Validity of reference to DVO without rejecting books of account:
The cross objection raised by the assessee challenged the addition of &8377; 78,200 confirmed by the CIT(A). The issue revolved around the Assessing Officer making a reference to the DVO without rejecting the books of account. The assessee argued that this reference was invalid and the subsequent addition based on the DVO's report was not legally sustainable. Citing the Sargam Cinema case, the assessee contended that the reference without rejecting the books of account was against the law. The Tribunal agreed that the reference to the DVO without rejecting the books of account was invalid, leading to the deletion of the addition for unexplained investment in the property.

3. Estimation of net profit rate without defects:
Regarding the estimation of net profit rate at 10% on hospital receipts, the Tribunal found that the Assessing Officer had not identified any defects in the books of account to justify the re-estimation. The CIT(A) correctly deleted the addition of &8377; 3,40,932 as the Assessing Officer failed to point out any discrepancies in the maintenance of the books of account.

4. Confirmation of addition for difference in fees:
The cross objection raised another ground related to the confirmation of the addition of &8377; 78,200 due to a variance in the fees of the School of Nursing and Institute of Paramedical Science. The Tribunal upheld the CIT(A)'s decision after verifying the difference in fees and documents impounded during a survey, rejecting the assessee's ground.

5. Overall decision on appeal and cross objection:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objection. The decision was based on various grounds, including the invalid reference to the DVO without rejecting the books of account, the estimation of net profit rate without defects, and the confirmation of the addition for the difference in fees. The Tribunal emphasized the importance of following legal precedents and ensuring proper adherence to the law in such matters.

This detailed analysis covers the various issues raised in the judgment, highlighting the arguments presented by both parties and the Tribunal's reasoning behind the decisions made.