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TMI Blog2024 (8) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... ates). It was submitted before the Assessing Officer that there was difference of at least 25% in the rates of construction released by the CPWD as compared to PWD rates. We, further, note that no incriminating or corroborating evidence was found during the course of search action at the office premises of the assessee prompting the search party/Assessing Officer to get the report of the DVO regarding the cost of construction. The issue has been settled by the various Hon ble High Courts, who have been unanimously on the point that if during the course of search, no incriminating material was found exhibiting unexplained investment by an assessee, merely, on the basis of DVO s report, the addition cannot be made. Decided in favour of assessee. Rejection of books of accounts u/s 145(3) - as noted difference between the amount invested in the building and amount as disclosed in the books of accounts, therefore, the books of accounts are liable to be rejected - HELD THAT:- We agree with the contention so advanced by the ld AR as the whole basis of rejection of books of accounts was difference in amount invested in building and as we have deleted the same, there is no justifiable basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues involved in all the above appeals are common and were heard together so they are being disposed off by this consolidated order for the sake of convenience and brevity. 3. The assessee has raised the following grounds in ITA No. 663/Chd/2023 for the A.Y. 2017-18: 1. That the Ld. CIT(A) has erred in confirming the action of the Ld. AO in sustaining an addition of Rs. 2,09,48,986/- in the assessment framed u/s 153A on account of alleged unexplained investment as made by the assessee company in the construction of Hotel Building against the loss of Rs. 17,57,981/- declared by the assessee. 2. That the Ld. CIT(A) has also erred in invoking the provisions of section 69 read with section 115BBE of the income Tax Act on account of alleged unexplained investment in the Hotel Building. 3. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the reference to the Departmental Valuer, for estimate cost of construction of the hotel building, without any incriminating evidence during the course of search from the business premises of the assessee company or from residential premises of the Directors. 4. That the Ld. CIT(A) has ignored the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of the Assessing officer in disallowing the current year business loss without pointing out any defect and further has erred in not allowing carried forward of losses. 11. That the Ld. CIT(A) has erred in not allowing the deduction u/s 35AD for which, the necessary evidence was filed and has also failed to appreciate the written submission and various judgements as cited before him on this issue. 12. That the said deduction u/s 35AD have been disallowed without giving specific finding. 13. That the assessee craves leave to add, amend, and alter any ground or grounds of appeal before the appeal is finally heard or disposed-off. 4. The assessee has raised the following grounds in ITA No. 668/Chd/2023 for the A.Y. 2018-19: 1. That the Ld. CIT(A) has erred in confirming the action of the Ld. AO in sustaining an addition of Rs. 2,02,71,026/- in the assessment framed u/s 153A on account of alleged unexplained investment as made by the assessee company in the construction of Hotel Building declared by the assessee. 2. That the Ld. CIT(A) has also erred in invoking the provisions of section 69 read with section 115BBE of the Income Tax Act on account of alleged unexplained inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any amount introduced in the books of accounts of the assessee. 9. That the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in rejecting the books of accounts u/s 145(3) since no defect have been pointed out in the books of accounts which are maintained and duly audited and, as such, the upholding of rejection of books of accounts u/s 145(3) is void- ab-intio. 10. That the Ld. CIT(A) has erred in confirming the action of the Assessing officer in making the addition of Rs. 37,30,789/-u/s 35AD, without pointing out any defect and further has erred in not allowing the carried forward of losses. 11. That the Ld. CIT(A) has erred in not allowing the deduction u/s 35AD, for which, the necessary evidence was filed and has also failed to appreciate the written submission and various judgements as cited before him on this issue. 12. That the Ld. CIT(A) has erred in not allowing the carried forward loss as claimed by the assessee. 13. That the said deduction u/s 35AD have been disallowed without giving specific finding. 14. That the assessee craves leave to add, amend, alter any ground or grounds of appeal before the appeal is finally heard or disposed-off. 5. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in sustaining the addition on the basis of report of the Valuation Cell, which is based on the CPWD Rates, against the PWD rates, which should have been applied as per the binding judgment of the Jurisdictional High Court in the case of CIT vs. Rajesh Mahajan reported at [201] 50 taxmann.com 206 (P H). 8. Notwithstanding the above grounds of appeal, that the confirmation of addition on substantive basis on the basis of the judgment of CIT vs. Sh. Baba Rupa Dass is against the facts 6t circumstances of the case, since it is not a case of any amount introduced in the books of accounts of the assessee. 9. That the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in rejecting the books of accounts u/s 145(3) since no defect have been pointed out in the books of accounts which are maintained and duly audited and, as such, the upholding of rejection of books of accounts u/s 145(3) is void- ab-inito. 10. That the Ld. CIT(A) has erred in confirming the action of the Assessing Officer in making the addition of Rs. 64,60,630/- under section 35AD, without pointing out any defect and further has erred in not allowing carried forward of losses. 11. That the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self-supervision and further @7.5% for discount on self-procurement of construction material and thereafter the Assessing Officer bifurcated the said total investment determined by the DVO into different years and made the impugned additions on account of difference in the value of investment on construction of hotel building shown by the assessee in the books of account as compared to the value of investment estimated by the DVO. The details of which is given as under: F.Y. Declared by the Assessee Estimated by Valuation Cell Rebate @17.5% Net Valuation Year wise Unexplained Investment A B C D(C*D/100) E (C-D) F (E-B) 2012-13 65,07,890.00 2,13,96,100.00 37,44,318.00 1,76,51,782.50 1,11,43,893.00 2013-14 - - - - - 2014-15 2,72,08,989.00 8,94,55,400.00 1,56,54,695.00 7,38,00,705.00 4,65,91,716.00 2015-16 1,55,41,673.81 5,10,96,600.00 89,41,905.00 4,21,54,695.00 2,66,13,021.00 2016-17 1,22,33,916.78 4,02,21,700.00 70,38,798.00 3,31,82,902.50 2,09,48,986.00 Total 6,14,92,469.59 20,21,69,800.00 3,53,79,715.00 16,67,90,085.00 10,52,97,615.00 The Assessing Officer further noted that the assessee company was incorporated on 21.11.2012. He in this respect observed that till the time the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confronted to the assessee. He, therefore, has submitted that the reference to the DVO, merely, on the basis of cost shown in the balance sheet of the assessee, without any other incriminating material found during search action, was bad in law. He in this respect has relied upon the latest decision of the Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. [2023] 149 taxmann.com 399 (SC). He in this respect has made the following written submissions also: 7. We have as per our ground of appeal by way of ground number one to have challenged the jurisdiction of the DDI to refer to the case of valuation cell without there being any incriminating material found during the course of search from the premises of the assessee, either from Hotel or from the residential premises of the promoters and for which our contention are as under:- (i) It is a fact that the no incriminating material was found from the assessee and as such the reference to the valuation cell was uncalled for. The Ld. CIT(A) has referred to the certain document as seized from third party namely M/s Royal Builders during search in his case on 29.11.2018 and a further held that the reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the finding of the Ld. CIT(A) at page 17, that there is no requirement of incriminating material for the purpose of assessment u/s 153A is devoid of any valid reasoning. In view of the direct judgment of Apex Court, Delhi High Court. (vi) Reliance in being place on the judgement of Delhi High Court in the case of CIT vs Concorde Capital Management Company Ltd. reported in (2011) 334 ITR 346, that when no incriminating documents were found during course of search, the additions cannot be sustained on the basis of third party statements, independent of the search. In our case, they was no parallel search as the search was conducted on the Vishal Bhatia on 29.11.2018 and the search on the assessee was on 21.02.2019. (vii) The finding of the CIT(A) on section 292C in not relevant, since the said document was not found the assessee, but from the third party and under what circumstances the said document have been prepared by third party is not known to the assessee and merely that some cheque transactions total tallies with the assessee cannot amount to the addition, as the document may have been prepared by the third party, with the ulterior motives and the fact of the matter is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arh Bench, Chandigarh in these years i.e. Asstt. Years 2013-14, 2015-16 2017-18 and the Hon'ble Bench in a decision reported in 110 ITR (Trib.) 161 (Chd.) both on the legal and on merits, the said additions were deleted and copy of the reported judgments had also been submitted to your goodself. 11. It was further submitted that the Ld. CIT(A) had followed the order of the CIT(A) in the earlier assessment years, where he had confirmed such addition as per para 7.2.1, at page 23 of the order. Thus, in view of the above said facts, the addition had been deleted by the Hon'ble ITAT in the case of same assessee on similar facts and circumstances and, as such, the grounds No. 1 to 8 as raised before your honour should be allowed. 12. The ld. DR, on the other hand, has relied upon the findings of the ld. CIT(A) and has submitted that the ld. CIT(A) has rightly confirmed the additions on account of undisclosed investment on the hotel building. At the same time, he fairly submitted that the matter is covered by the decision of the Coordinate Bench as so referred by the ld AR. 13. We have heard the rival contentions and purused the material available on record. During the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Assessing Officer, in this respect was very less. 7.2. We, further, note that no incriminating or corroborating evidence was found during the course of search action at the office premises of the assessee prompting the search party/Assessing Officer to get the report of the DVO regarding the cost of construction. The issue has been settled by the various Hon ble High Courts, who have been unanimously on the point that if during the course of search, no incriminating material was found exhibiting unexplained investment by an assessee, merely, on the basis of DVO s report, the addition cannot be made. The Ahmedabad Bench of the Tribunal in the case of ACIT vs. ShriJayantilal T. Jariwala in IT(SS) A No.65/Ahd/2009 vide order dated 28.10.2015 has taken note of the following decisions of the Hon ble High Courts in this respect: i) Hon ble Gujarat High Court in the case of CIT Vs. Jayendra N. Shah, (2014) 52 taxmann.com 54 (Gujarat). ii) The Hon ble High Court in the case of CIV Vs. Vasudev Construction (2014) 44 taxmann.com 30 (Kar.) iii) CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj) iv) CIT Vs. Sadhna Gupta (IT Appeal No.434 of 2012) (Delhi HC); v) CIT Vs. La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on the valuation report of the DVO. There are several other decisions of this Court in the same vein. One such case being the case of CIT v. VinodSinghal (IT Appeal No.482/2010 decided on 05.05.2010) where, again, reliance was placed on the very same decision of the Supreme Court in K.P. Varghese (supra) and also on a decision of this Court in CIT v. Smt. Shakuntala Devi [2009] 316 ITR 46. It was observed that there must be a finding that the assessee had received an amount over and above the consideration stated in the sale deed and for this the primary burden was cast on the revenue. It is only when this burden is discharged by the revenue that it would be permissible to rely upon the value as given in the valuation report of the DVO. 5. The law seems to be well settled that unless and until there is some other evidence to indicate that extra consideration had flowed in the transaction of purchase of property, the report of the DVO cannot form the basis of any addition on the part of the revenue. In the present case there is no evidence other than the report of the DVO and, therefore, the same cannot be relied upon for making an addition. In these circumstances, the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat High Court has made following observations: 9. We are of the opinion that CIT( Appeals) as well as the Tribunal committed no error in deleting the additions made by the Assessing Officer. It is undisputed that the sole basis for making the addition was the DVO's report. DVO's report may be a useful tool in the hands of the Assessing Officer, Nevertheless it is an estimation and without there being anything more, cannot form basis for additions under Section 69B of the Act. In absence of any other material on record, addition was correctly deleted. Tax Appeal is, therefore, dismissed. 11. A perusal of the above judgments would indicate that mere valuation report is not sufficient to conclude that the assessee has made unexplained investment. From perusal of the assessment, nowhere it reveals that inspite of search, Revenue was in a position to lay its hands on any material exhibiting the unexplained investment made by the assessee, over and above one stated in the books of accounts. Further, we find that the ld. First Appellate Authority has deleted the addition by following the order of the ITAT in the case of Smt. Ilaben Bharat Shah in ITA No.839/Ahd/2007 dtd. 17-8-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he documents from the Assessing Officer of the searched person, the Assessing Officer of the assessee could have initiated the proceedings u/s 153C of the Act. However, the department did not act on the said documents. Even otherwise, the said slip was a third party document, which was never confronted to the assessee. The difference of the amount mentioned in the said slip was also meager as compared to the additions made by the Assessing Officer. Thirdly, since the said document was not sufficient enough to base additions in this case, the said document at the most could have been a trigger point to initiate search action in the case of the assessee. As per the facts on the file, the matter was referred to the DVO after the search action at the premises of the assessee and admittedly, no incriminating material whatsoever was found during the search action, however no incriminating material was found, which could have been stated to be a trigger point to refer the matter to the DVO. 7.7. The other important point in this case is that the report of the DVO is based on pure estimation of investment. The DVO has taken the CPWD rates and as noted above, the CPWD rates are on more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned that since there is difference between the amount invested in the building and amount as disclosed in the books of accounts, therefore, the books of accounts are liable to be rejected. The Ld. CIT (A) has discussed this ground of appeal, in para 7.3 of the order and confirmed such rejection of books of accounts at page 24. It was submitted that where such addition on account of difference in cost of construction and DVO report stands deleted by the decision of the Tribunal and, thus, there is no basis of rejection of books of accounts. 17. We agree with the contention so advanced by the ld AR as the whole basis of rejection of books of accounts was difference in amount invested in building and as we have deleted the same, there is no justifiable basis for rejection of books of accounts and hence, the said ground of appeal is allowed. 18. Ground No. 10 deals with action of the Assessing Officer in disallowing the current year business loss being without pointing out any defect and not allowed to be carried forward to the subsequent years. 19. The Assessing has discussed this issue in para 7 at pages 15 to17 of the order and only ground for disallowing the current year's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D for the first time in the Assessment Year 2017-18 since the hotel started functioning in early 2017 and the said deduction has been claimed as per the provisions of Section 35 AD which provides that an assessee shall , if he opts, be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him. It was submitted that though the deduction is allowed for each year in which such expenditure is incurred but in respect of capital expenditure incurred prior to starting of the operations, the whole of the capital expenditure incurred prior to its operations will be allowed as deduction in the first year of its operation. It was submitted that it is a fact that the Hotel started functioning during the year under consideration and receipts have been disclosed in the audited set of accounts to the tune of Rs. 22,62,584/- and as per computation of income, a deduction of Rs. 9,88,54,633/- has been claimed and which is evidenced by the fixed asset chart and that has not been doubted by the Ld. AO and during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government existed in case of the assessee company till the date of passing of the assessment order for the A.Y.2017-18 to 2019-20. Now during the appellate proceedings, the assessee has submitted a four star rating certificate issued by the Ministry of Tourism dated 14.12.2021 (valid from 14.12.2021 to 13.12.2026) and a perusal of the additional evidence shows that the four star rating certificate of the assessee company is valid from December 2021 to December 2026 (i.e. A.Y.2022-23 onwards). Thus, proving the fact the observation made in the assessment order that the assessee does not had a valid star rating certificate and thus failed to submit the documentary evidence of the eligibility criteria of claiming deduction u/s 35AD of the Income Tax Act. Also, the additional evidence proves beyond doubt that the Hotel run by the assessee company in the name style of The Palm Court does not held any two star above rating certificate issued by the component authority during the A.Y.2017-18, A.Y.2018-19 A.Y.2019-20, which was mandatory for being covered under the definition of specified business and claiming deduction u/s 35AD of the Income Tax Act. Thus, the claim of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of two or more star hotel by Central Government. Further, reliance was placed on the following judgments: ACIT Vs. River View Hotel reported in 94 taxman.com 433 (Ahd. Trib) CIT Vs. Ceebros Hotels(P) Ltd. (Madras HC) reported in 101 taxmann.com 173 Robust Hotels (P) Ltd. Vs. DCIT, reported in 139 taxmann.com 53 (Chennai Trib) Banaras Hotels Ltd. Vs. DCIT (Varanasi Trib) reported in 115 Taxmann.com 39 27. The submissions so filed by the assessee and the remand Report by the AO were considered by the Ld. CIT(A). As per Ld. CIT(A), the language in the Act is very clear and there is no ambiguity in this regard as to the eligibility for claim of deduction under Section 35AD of the Act. As per the Ld. CIT(A), a bare reading of the certificate proves that no such valid certificate was in existence during the year under consideration and hence the claim of the assessee under Section 35AD is not in order during the year under consideration. The Ld. CIT(A) further held that various decisions cited by the assessee in its submissions are distinguishable on the facts, hence the disallowance so made by the AO was confirmed. 28. Against the said findings and the directions of the Ld. CIT(A), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue in para 7.5 and has only stated that since the Hotel was not registered as a Star Hotel as required under the Act and, therefore, this ground was dismissed. It was submitted that the Hotel consisting of 41 rooms and started its working in Asstt. Year 2017-18, which is a fact and the case laws as cited before the Ld. CIT (A) were not considered by the Ld. CIT (A) and it has been held in all the judgments that since the certificate of classification issued in favour of assessee had not been doubted and section also does not require any specific date of operation to be mentioned in the certificate and, therefore, the deduction should have been allowed by the Assessing Officer. It was accordingly submitted that the order of the Ld. CIT(A) on this issue may be reversed and necessary relief be provided to the assessee. 30. In his submissions, the ld CIT/DR submitted that the hotel being run by the assessee was not a star rated hotel during the financial year relevant to impugned assessment year in absence of any star rating certificate issued by the Ministry of Tourism. It was submitted that the assessee company only submitted a copy of the payment receipt that shows the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is incurred by him. It has further been provided that where the expenditure is incurred prior to the commencement of its operation and the amount is capitalised in the books of accounts of the assessee on date of commencement of its operation, the expenditure incurred wholly and exclusively for the purposes of specified business shall be allowed as deduction during the previous year in which it commences operation of his specified business. Sub-Section (2) of Section 35AD provides that section applies to specified business which is not set up by splitting up or the reconstruction of a business already in existence and is not set up by the transfer to the specified business of machinery or plant previously used for any purposes. Sub-Section (5) of Section 35AD provides that the provision of this section shall apply to the specified business where it commences its operation on or after the 1st day of April, 2010 where the specified business is in the nature of building and operating a new hotel of two star or above category as classified by the Central Government and thereafter, under Sub-Section 8(c)(iv) of Section 35AD, the phrase specified business has been defined interalia to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was not granted any star rating for the financial year relevant to the impugned assessment year 2017-18, and subsequent to the close of the assessment proceedings, the assessee got the four star rating certificate on 14/12/2021 valid for the period starting 14/12/2021 to 13/12/2026 and which was furnished during the course of appellate proceedings before the ld CIT(A), and in such a situation, whether the same would be in compliance with the provisions of Section 35AD and in particular, the definition of the specified business as so defined therein and the assessee can be held eligible for claim of deduction u/s 35AD of the Act. 34. The provisions of Section 35AD and in particular, the matter relating to grant of star rating to the hotel, came up for consideration before the Hon ble Madras High Court in the case of CIT vs. Ceebros Hotels Pvt. Ltd. (supra) wherein briefly the facts of the case were that the assessee filed its return claiming deduction under section 35AD(5)(aa) and the AO while completing the assessment under section 143(3) denied the benefit on the ground that the assessee obtained the classification as a three star category hotel only during the next ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DCIT (Supra) wherein the briefly of the facts of the case were that the AO held that the newly commenced hotel qua which the deduction was claimed by the assessee was not of specified category though assessee had started operating hotel, that there was no formal launch and Government of India had not issued any classification certificate certifying hotel as a four star hotel and claimed of deduction u/s 35AD was denied. Thereafter, the Commissioner (Appeals) concurred with the AO s findings and held that certificate approving four star hotel category issued by Ministry of Tourism was issued post passing of the assessment order on 31/01/2018 w.e.f 29/01/ 2018 and since the assessee did not have requisite classification certification in year under consideration, the benefit of deduction could not be provided to the assessee. On further appeal, the Coordinate Bench allowed the claim of the assessee following the decision of Hon ble Madras High Court in Ceebros Hotels Pvt. Ltd. (supra). It was held by the Coordinate Bench (speaking through one of us, being a party to the said decision) that a pure and a simple question which arise for consideration is whether the assessee is entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A), it were these facts which led to the issuance of the certificate in the next financial year. 20. Be that as it may, these facts, as narrated by the Id. CIT (A), cannot tinge the certificate to be useless so far as regards the grant of the deduction claimed under section 35AD, for the year under consideration. To reiterate, 'Ceebros' (supra) is categorical that the date is of no relevance in this regard. At this juncture, it would be appropriate to mention that the provisions of section 35AD contain conditions which require to be satisfied before the assessee becomes entitled to deduction thereunder. These conditions are that the expenditure should have been incurred prior to the commencement of the operation; that the amount should be capitalized in the books of account on the date of commencement of the operations; that the unit is not set up by splitting up, or the reconstruction of a business already in existence; and that the unit is not set up by the transfer, to the specified business, of machinery or plant previously used for any purpose. The last two conditions have not been challenged as being relevant to the dispute under consideration. The specified busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommences its operations. 23. It would also be apt, at this stage, to reiterate what the Ministry of Tourism, Government of India, has observed, in the opening lines (APB:253) of its Guidelines for classification/re- classification of hotels , as under: Hotels are an important component of the tourism product. They contribute to the overall tourism experience through the standards of facilities and services offered by them. With the aim to provide contemporary standards of facilities and services, the Ministry of Tourism has formulated a voluntary scheme for approval of hotel projects........... Thus, the impetus to be granted to the hotel industry being the aim of the Government of India, is again evident. Now, the classification certificate) in question is also as per the Guidelines issued by the Ministry of Tourism. This, again, has not been called in question. 24. To sum up, our observations on this issue are a savoir faire: (1) The Id. CIT (A) has erred in confirming the assessment order in refusing to allow the deduction claimed under section 35AD of the Act. (ii) The certificate of classification issued in favour of the assessee has not been doubted. (iii) The date of issuanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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