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2022 (12) TMI 425 - AT - Income TaxRevision u/s 263 - valuation of the cost of construction for hospital building - survey u/s 133A - assessee had admitted additional income on account of unexplained investment in construction of hospital building - Pr.CIT has pointed out that the AO has ignored the issue which was the subject matter of the survey carried out u/s 133A of the Act and the AO should have examined in detail with regard to the valuation of the cost of construction carried out by the assessee for hospital building - HELD THAT - We found substance on the observation of the ld.Pr.CIT as per his order dated 22/03/2017 and the ld.DR also argued the case very well and we found substance in the argument of the ld.DR also. All the facts were available before the AO, he should have referred to the cost of the construction of the building, which was the subject matter of the survey u/s 133A - AO completely brushed aside the survey statements/documents and merely accepted the submissions of the assessee. Therefore, as per explanation u/s 263, the AO did not discharge his liability fully. First the AO is an investigating officer thereafter he is an adjudicating officer. Considering the entire facts on the order passed by the AO, which is erroneous and prejudicial to the interest of the revenue, we uphold the action of the ld.Pr.CIT and dismissed the appeal of the assessee. Revision u/s 263 as AO has not referred the matter to DVO in the original proceedings us/ 143(3) of the Act - We do not find any substance on the order of the ld.Pr.CIT that the AO passed order in a hurry without waiting for the DVO report. DVO submitted report on 25/04/2018 u/s 142A of the Act after 6 months from the receipt of reference, therefore, the DVO report has no value in the eye of law as per sec. 142A(6) of the Act. In support of our view, we rely on the decision Narula Educational Trust 2021 (2) TMI 459 - ITAT KOLKATA . Therefore, the AO will not get any benefit of extended period of 60 days as per sec. 153 of the Act. The ld.Pr.CIT is also not justified for reckoning the period for completion of assessment by the AO as per the limitation is also wrong. We set aside the order passed by the ld.Pr.CIT for exercising his power u/s 263 of the Act. Hence, the order passed by the AO cannot be revised us/ 263 of the Act. Therefore, the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue. Appeal of the assessee is allowed.
Issues Involved:
1. Validity of proceedings initiated under Section 263 of the Income Tax Act. 2. Justification of the Principal Commissioner of Income Tax (Pr. CIT) in invoking jurisdiction under Section 263. 3. Delay in filing the appeal and its condonation. 4. Adequacy of Assessing Officer's (AO) verification and valuation of the building. 5. Errors and prejudice to the interest of revenue in the AO's order. 6. Reference to the Department Valuation Officer (DVO) and its necessity. 7. Application of Section 69 and 69A of the Income Tax Act. Detailed Analysis: 1. Validity of Proceedings Initiated Under Section 263: The assessee contested the validity of the notice issued for initiation of proceedings under Section 263, claiming it was "bad in law." The Pr. CIT issued a show cause notice on three grounds, including the introduction of capital and the valuation of the building. The Pr. CIT partly accepted the assessee's explanations but found that the AO had not referred the matter to the DVO for determining the cost of construction, which was deemed an error. The Tribunal upheld the initiation of Section 263 proceedings, agreeing with the Pr. CIT that the AO's order was erroneous and prejudicial to the interest of revenue. 2. Justification of the Pr. CIT in Invoking Jurisdiction Under Section 263: The Pr. CIT invoked Section 263, asserting that the AO's order lacked proper verification and was prejudicial to the revenue's interest. The Tribunal agreed, noting that the AO did not refer the valuation of the hospital building to the DVO, which was a significant oversight given the survey findings under Section 133A. The Tribunal upheld the Pr. CIT's direction for a fresh assessment, emphasizing that the AO must conduct a thorough inquiry. 3. Delay in Filing the Appeal and Its Condonation: The appeal was delayed by 1322 days. The assessee's Chartered Accountant (CA) provided an affidavit explaining the delay, citing advice against filing an appeal initially to avoid protracted litigation. The Tribunal condoned the delay, relying on precedents from the Supreme Court, including Collector, Land Acquisition Vs. MST. Katiji and Others, emphasizing that the delay was justified and should not obstruct the appeal's merit. 4. Adequacy of AO's Verification and Valuation of the Building: The AO accepted the assessee's valuation of the hospital building without referring it to the DVO. The Pr. CIT found this to be a lack of proper inquiry. The Tribunal agreed, stating that the AO should have referred the matter to the DVO, especially given the discrepancies noted during the survey. The Tribunal upheld the Pr. CIT's directive for a fresh assessment to include proper valuation. 5. Errors and Prejudice to the Interest of Revenue in the AO's Order: The Tribunal found the AO's order to be erroneous and prejudicial to the revenue's interest. The AO did not adequately verify the capital introduced or the valuation of the building. The Tribunal supported the Pr. CIT's view that the AO's failure to refer the valuation to the DVO and the lack of detailed inquiry constituted errors that were prejudicial to the revenue. 6. Reference to the DVO and Its Necessity: The Pr. CIT criticized the AO for not referring the valuation of the hospital building to the DVO. The Tribunal agreed, noting that the AO's failure to obtain a DVO report was a significant lapse. The Tribunal emphasized that the AO should have conducted a thorough investigation, including referring the valuation to the DVO, as part of the assessment process. 7. Application of Section 69 and 69A of the Income Tax Act: The Pr. CIT noted that the additional income admitted during the survey should have been taxed under Sections 69 and 69A, which deal with unexplained investments and cash. The AO did not make this verification. The Tribunal upheld the Pr. CIT's observation, agreeing that the AO's failure to apply these sections constituted an error. Conclusion: The Tribunal dismissed the appeal against the Pr. CIT's order dated 22/03/2017, upholding the Pr. CIT's directives for a fresh assessment due to the AO's errors and lack of proper inquiry. However, in the subsequent appeal (ITA No.07/Bang/2021), the Tribunal set aside the Pr. CIT's order dated 27/05/2020, finding that the AO's completion of the assessment without waiting for the DVO report was justified given the statutory time constraints. Thus, the Tribunal allowed the second appeal, concluding that the AO's order was neither erroneous nor prejudicial to the revenue's interest.
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