Sri Sai Educational Society (Prathiba ... vs Department Of Income Tax

ITA No.1617/Hyd/14 : Assessment year 2007-08 ITA No.1618/Hyd/14 : Assessment year 2010-11

Income Tax Officer Ward 1, V/s. M/s. Sri Sai Educational Society, Mahabubnagar (Prethibha Junior College), Mahaboobnahagar

(PAN - AAFAS 6773 C) (Appellant) (Respondent)

Appellant by : Shri Rajat Mitra DR

Respondent by : Shri Mohd. Afzal, AR

Date of Hearing 5.3.2015 Date of Pronouncement 11.3.2015

ORDER

Per P.M.Jagtap, Accountant Member :

These two appeals preferred by the Revenue against two separate orders passed by the learned Commissioner of Income-tax(Appeals) V, Hyderabad, both dated 30.5.2014 for assessment year 2007-08 and 2010-11 involve a common issue and the same, therefore, have been heard together and are being disposed of by a single consolidated order,

2. The solitary common issue involved in these appeals relate to the deletion by the learned CIT(A) of the additions of Rs.13,74,290 and Rs.12,96,500 made by the Assessing Officer to the total income of the assessee on account of unexplained investment allegedly made in the construction of the college building, for assessment years 2007-08 and 2010-11 respectively.

2 ITA No.1617-1618/Hyd/2014 Sri Sai Educational Society, (Prethibha Junior College), Mahaboobnahagar

3. The assessee in the present case is a society, which is engaged in the business of imparting intermediate education through Prathibha Junior College and higher education, B.Ed through Sri Sai College of Education. Since no returns of income were being regularly filed by the assessee, a survey under S.133A was carried out in this case on 24.11.2010. Subsequent to the survey, the assessee society filed its returns of income inter alia for both the years under consideration declaring a loss of Rs.10,080 for assessment year 2007-08 and income of Rs.8,08,640 for assessment year 2010-11. As found during the course of survey, the construction of college building at Nagasala, Jadhcerla was done by the assessee. In the returns of income filed for assessment years 2007-08 to 2012-13, the cost of said construction was disclosed by the assessee as under-

Assessment Cost of year Construction Rs. 2008-09 21,21,248 2008-09 13,15,551 2009-10 22,78,772 2010-11 20,01,650 2011-12 .... 2012-13 34,00,000

Total 1,11,17,221

During the course of assessment proceedings, a valuation report of the registered valuer was also submitted by the assessee in support of cost of construction shown in the books of account. A reference however, was made by the Assessing Officer to the Departmental Valuation Officer, Hyderabad to ascertain the correct cost of construction. In the report dated 8.2.2013 submitted to the Assessing Officer, the cost of construction of the college building of 3 ITA No.1617-1618/Hyd/2014 Sri Sai Educational Society, (Prethibha Junior College), Mahaboobnahagar

the assessee society was estimated by the DVO at Rs.173.29 lakhs. The assessee, therefore, was called upon by the Assessing Officer to explain why the difference of Rs.72,02,277 should not be treated as its unexplained investment made in the construction of the college building during the relevant years, including both the years under consideration. In reply, various objections were raised by the assessee to the valuation made by the DVO as per his report. The Assessing Officer, however, found the said objections to be unsustainable and overruling the same, he treated the difference of Rs.72,02,277 as unexplained investment of the assessee made in the construction of the college building. The said amount accordingly was added by him to the total income of the assessee in the ratio of investments made by the assessee in the relevant years as under-

Assessment Investment % of Year-wise break up year made by Invest- of unexplained the assessee ment investment of Rs. Rs.72,02,779

2007-08 21,21,248 19.08% 13,74.290 2008-09 13,15,551 11.83% 8,52,089 2009-10 22,78,772 20.49% 14,75,850 2010-11 20,01,650 18.00% 12,96,500 2012-13 34,00,000 30.58% 22,04,050 Total 1,11,17,221 72,02,779

The additions of Rs.13,74,290 and Rs.12,95,500 were thus made to the total income of the assessee for assessment years 2007-08 and 2010-11 respectively on account of unexplained investments made in the construction of the college building, in the assessments completed under S.143(3) read with S.147, vide orders dated 31.3.2013.

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4. Against the orders passed by the Assessing Officer under S.143(3) read with s.147 for both the years under consideration, appeals were preferred by the assessee before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) deleted the additions made by the Assessing Officer on account of unexplained investments allegedly made by the assessee in the construction of college building for both the years under consideration for the following identical reasons given in his impugned orders-

"5.3 I have carefully considered the submissions of the appellant and the assessment order. I fully agree with the submissions of the appellant both on facts and law. The A.O. is not justified in referring the valuation of construction of the building for the following reasons:

(i) A survey u/s 133A was conducted in this case and some material was impounded. During the asst.

proceedings, the assessee produced books of account and other documents and expenditure vouchers for verification, which was verified by the AO with reference to the material impounded. The AO had not found any .material contradicting the statements provided alongwith the returns of income.

(ii) The A.O. without rejecting the books of accounts or pointing out any defects in the books or in the investment account referred the matter to the Valuation Cell for estimating the construction value of the property.

(iii) The assessee made aggregate investment of Rs.1,11,17,221 during the A.Ys 2007-08 to 2012-13 and the Valuation Officer estimated the same at Rs.1,83,20,000 and the AO added the difference of Rs.72,02,779 spreading over A.Ys 2007-08 to A.Y. 2007-08 to A.Y. 2012-13, solely relying upon the report of the Departmental Valuer, in the absence of any corroborative material found/brought on record.

(iv) I agree with the submissions of the appellant mentioned in Para.5.2 (sub-paras 3 & 4) of this 5 ITA No.1617-1618/Hyd/2014 Sri Sai Educational Society, (Prethibha Junior College), Mahaboobnahagar

order regarding its objections in respect of valuation of the property by the Valuation Officer and supporting the justifiability of the cost of construction and hold that the A.O. was not justified in not considering the same, which are reasonable and acceptable.

5.4 On legal front, I also fully agree with the submissions of the appellant in Para.5.2 (sub-para 5) of this order. In this case, the A.O. had not brought out any corroborative material to disprove the investment shown in the construction of the building as per the books of account and did not reject the books of account.

(i) In the case of Sargam Cinema Vs. CIT supra, the Apex Court held that without rejecting the books of account, the matter of valuation in respect of investment cannot be referred to the Valuation officer.

(ii) In the case of CIT Vs. Aaar Pee Apartments 319 ITR 276 the Hon'ble Delhi High Court held that where there is no evidence to disbelieve the expenditure shown by the assessee, reference to valuation Officer would be invalid and so would be the assessment order. It was also held as there is no reference to section 69C in Section 142A of the Act, which relates to unexplained exp the assessing officer does not have power to refer to the expenditure incurred in a construction projects to the valuation Officer.

(iii) In the case of CIT Vs. Naveen Gera, the Delhi High Court held that the addition made on the basis of valuation report of the Valuation officer cannot be sustained in the absence of any adverse material found in the course of search.

In the case of the appellant, the A.O. had not brought out any adverse material found during the course of survey nor pointed out any discrepancies in the books of the account.

5.5 In view of my observations in Para.SA, I hold that the above case-laws are squarely applicable to the facts of the appellant and the A.O. was not 6 ITA No.1617-1618/Hyd/2014 Sri Sai Educational Society, (Prethibha Junior College), Mahaboobnahagar

justified in referring the matter to valuation officer and adopting the same, without rejecting books of account or pointing out any discrepancies in the books of account. Hence, I delete the addition of Rs.13,74,290 pertaining to the asst. Year under consideration.

Aggrieved by the orders of the disallowed CIT(A), Revenue has preferred these appeals before the Tribunal.

5. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the cost incurred by the assessee on construction of college building at Nagasala, Jadcharla was duly reflected in its books of account regularly maintained for the relevant years including the years under consideration. A perusal of the assessment order passed by the Assessing Officer, however, shows that neither any specific or material defect has been pointed out by the Assessing Officer in the books of account maintained by the assessee or in the bills/vouchers maintained in support of construction cost, nor has he rejected the books of account of the assessee, and this position is not disputed even by the Learned Departmental Representative at the time of hearing before us.

6. In the case of ITO V/s. Vijetha Educational Society (118 ITD 382), cited by the learned counsel for the assessee, Lucknow Bench of this Tribunal has held that where Assessing Officer found no defect in the books of account, reference to DVO could not be made to find out the construction of building incurred by the assessee and the said report, even though obtained could not be utilised for assessment or re-assessment. In the case before the Lucknow Bench, the assessee had maintained proper books of account, which were duly supported by vouchers. No defects in the said books of account or vouchers were however, pointed out by 7 ITA No.1617-1618/Hyd/2014 Sri Sai Educational Society, (Prethibha Junior College), Mahaboobnahagar

the Assessing Officer nor the books of account were specifically rejected by him. In these facts and circumstances of that case, it was held by the coordinate bench of this Tribunal that the valuation report could be taken into consideration only when the books of account were found to be not reliable. In the case of Sargam Cinema (supra), the Tribunal had come to the conclusion that the assessing authority could not refer the matter of valuation to the DVO, without the books of account being rejected. Keeping in view a categorical finding recorded by the Tribunal that the books were never rejected by the Assessing Officer, the Hon'ble Supreme Court held that reliance could not be placed on the report of the DVO for alleging any unexplained investment in the hands of the assessee. Keeping in view the ratio laid down in these judicial pronouncements and having regard to the facts of the present case, including the fact that the books of account disclosing the cost of construction of college building, were never rejected by the Assessing Officer, we find ourselves in agreement with the learned CIT(A) that the reference made by the Assessing Officer to the DVO for estimating the cost of construction itself was not valid and the additions made on the basis of the said report for both the years under consideration are not sustainable. We therefore, uphold the impugned orders of the learned CIT(A) deleting the additions made by the Assessing Officer on account of unexplained investments, allegedly made by the Assessing Officer in the construction of the college building for both the years under consideration, and dismiss these appeals of the Revenue.

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7. In the result, both the appeals of the Revenue are dismissed.

Order pronounced in the court on 11th March, 2015

Sd/- Sd/- (Asha Vijayaraghavan) (P.M.Jagtap) Judicial Member Accountant Member

Dt/- 11th March, 2015

Copy forwarded to:

1. M/s. Sri Sai Educational Society, (Prethibha Junior College), 130/18 Sania Complex Opp. Government Hospital, Mahaboobnahagar

2. Income Tax Officer Ward 1, Mahabubnagar

3. Commissioner of Income-tax(Appeals) V Hyderabad

4. Commissioner of Income-tax IV, Hyderabad

5. Departmental Representative, ITAT, Hyderabad. B.V.S