2017 (5) TMI 200 - AT - Income Tax

Reopening of assessment - Held that - We find that the Departmental Valuation Officer s report is an opinion which has come to the knowledge of the AO during the assessment proceedings for the A.Y 2008-09 and the same was examined and an addition was made during the A.Y 2008-09. It is pursuant thereto that the assessments for the relevant A.Ys have been reopened. We find that the AO for the A.Y 2008-09 has observed that the construction of the hospital building has taken place in two phases and has brought the proportionate cost to the tax in the A.Y 2008-09 and formed a belief that the cost of construction in the first phase has also been under reported by the assessee. Thus the re-assessment proceedings have been validly initiated. Valuation of cost of construction of the property - Held that - DVO has valued the property as on 31.3.2008. The DVO has adopted the CPWD rate and not the State PWD rate and he has adopted plinth area indexation method for valuation of the property. We also find that he has not given any rebate for self supervision whereas it is the case of the assessee that her husband is an Architect and he himself has supervised the construction of the hospital. We find that for the A.Y 2008-09 the CIT (A) has considered the issue at length and has observed that the State PWD rates are to be considered and also the self supervision rebate is to be given. Since the construction of the building has started in financial year 2003-04 and has been partially completed in the financial year 2007-08 the rates adopted for financial year 2007-08 may be higher than the rates for the A.Ys 2004-05 and 2005-06. We find that the order of the CIT (A) for the A.Y 2008-09 has attained finality as no appeal has been filed by the Revenue. Therefore we are of the opinion that the AO for the A.Ys 2004-05 and 2005-06 also has to adopt the valuation as per the State PWD rates for the relevant period and also has to grant discount for the self supervision. Therefore the issue of valuing the cost of construction of the hospital building for the A.Ys 2004- 05 and 2005-06 is remitted to the file of the AO for consideration in accordance with law and our observations above. Addition on gift received - Held that - While the assessee has filed confirmations of the gifts from her father and brother no evidence whatsoever for the agricultural income and internal accruals have been filed. Since the confirmations have been filed we are inclined to accept the gift from assessee s father and brother who out of love and affection might have given the gift of cash for construction of the hospital building and we are also inclined to accept a sum of Rs. 22, 200 to be out of internal accruals as the assessee is a medical professional. However as regards the agricultural income of Rs. 55, 000 we confirm the addition as no evidence whatsoever of holding of agricultural land and carrying on of agricultural activities has been filed by the assessee. Therefore the addition of Rs. 55, 000 is confirmed. Similarly addition of Rs. 1, 60, 800 is also confirmed as the assessee herself agreed for the addition during the assessment proceedings.

Summary

Issues Involved:
1. Validity of the re-assessment proceedings under Section 147 of the Income Tax Act.
2. Addition of the difference in the cost of construction of the hospital building.
3. Other additions made by the Assessing Officer (AO) for the respective assessment years.

Detailed Analysis:

1. Validity of the Re-assessment Proceedings under Section 147:
The assessee challenged the validity of the re-assessment proceedings initiated under Section 147 for the assessment years (A.Y.) 2004-05 and 2005-06. The assessee argued that the cost of construction was already recorded in the books of account, and no fresh information had come to the AO's knowledge. The reassessment was initiated based on the Departmental Valuation Officer's (DVO) report, which the assessee contended was not sufficient grounds for reopening the assessment.

The Tribunal noted that the original assessments were processed under Section 143(1) and not Section 143(3), implying no detailed scrutiny was done initially. The AO received the DVO report during the assessment for A.Y. 2008-09, applied his mind to it, and formed a belief that income had escaped assessment. The Tribunal upheld the validity of the re-assessment proceedings, stating that the AO's actions were in line with the Supreme Court's judgment in the case of ACIT vs. Dharia Constructions Co., which mandates that the AO must apply his mind to the information received. Consequently, the Tribunal rejected the grounds of appeal challenging the validity of the re-assessment.

2. Addition of the Difference in the Cost of Construction:
The AO made additions based on the difference between the cost of construction recorded in the assessee's books and the valuation determined by the DVO. The assessee's books were not rejected, but the AO adopted the DVO's valuation, which used Central Public Works Department (CPWD) rates without considering self-supervision rebates.

The Tribunal observed that the DVO's valuation should have considered State PWD rates and self-supervision rebates, as the construction was supervised by the assessee's husband, an architect. The Tribunal remitted the issue back to the AO for revaluation in accordance with these observations, directing the AO to adopt the State PWD rates and grant discounts for self-supervision. The Tribunal allowed these grounds for statistical purposes.

3. Other Additions Made by the AO:
- Unsecured Loans and Gifts: The assessee claimed unsecured loans from her father and another individual, supported by confirmation letters. The Tribunal found the identity, creditworthiness, and genuineness of the transactions to be proven and directed the deletion of the related addition.
- Investment in Hospital Building: The assessee claimed various sources for the investment, including gifts from family members, agricultural income, and internal accruals. The Tribunal accepted the gifts and internal accruals but confirmed the addition related to agricultural income due to a lack of evidence.
- Other Discrepancies: The AO observed discrepancies in receipts and certain loans/gifts received by the assessee. The Tribunal found that the assessee failed to provide sufficient evidence to counter the AO's findings and confirmed these additions.

Interest under Sections 234A, 234B, and 234C:
The Tribunal directed the AO to provide consequential relief concerning the interest charged under Sections 234A, 234B, and 234C, based on the revised assessments.

Conclusion:
The appeals for A.Y. 2004-05 and 2005-06 were partly allowed. The Tribunal upheld the validity of the re-assessment proceedings, remitted the issue of construction cost valuation back to the AO for reconsideration, deleted some additions related to unsecured loans and gifts, and confirmed other additions due to insufficient evidence from the assessee. The AO was directed to provide consequential relief regarding interest charges.