Commissioner of Income Tax vs Pokar Hotel

This appeal, has been filed, by the Revenue, seeking to challenge the judgment of the Tribunal dt. 3rd Jan., 2005 reported as (2006) 101 TTJ 1042 ., affirming the order of the CIT(A), dt. 19th May, 2000, whereby he had set aside the reassessment order, made by the Dy. CIT on 24th March, 2000.

The appeal was admitted on 9th March, 2006, by framing following substantial question of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the proceedings u/s 147/148 of IT Act, 1961, were not validly initiated against the assessee?

The necessary facts are, that for the relevant asst. yr. 1993-94, the assessee filed return on 1st Sept., 1993, which was processed u/s 143(1)(a) on 23rd Nov., 1993. The assessment was reopened, and notice u/s 148 was served, on 29th March, 1998. As appears from the assessment order, that action u/s 132(1) was carried out, at the residence of Shri Pokar Bhati, and his sons on 29th Nov., 1994, and simultaneously, survey was conducted at Pokar Hotel u/s 133A. In the course of survey, it was noticed that the assessee made substantial investment in the hotel building, which was constructed, during the period, relevant to the asst. yrs. 1991-92 to 1995-96, however major investment was made, in the period, relevant to assessment year under consideration, being 1993-94, which was not found supported with bills and vouchers, reference was made u/s 131(1)(d), to the valuation cell of the IT Department. The valuation officer vide report dt. 19th Jan., 1996, determined the cost of construction of the hotel building, at Rs. 25,30,000 as against Rs. 18,11,444, shown by the assessee. Thus, it is on this basis, that notice u/s 148 was issued, and AO, ultimately, made an addition of Rs. 4,92,346, as unexplained investment, in construction of the hotel building, and passed the assessment order, and also directed the levy of interests, under Sections 234A, 234B and 234C, and for initiation of penalty proceedings, u/s 271(1)(c).

This order was challenged in appeal, on the ground, that the reopening proceedings have been initiated on the basis of DVO''s report, which was contended to be not a permissible ground, for reopening of the assessment, and that contention was decided in favour of the assessee by the learned CIT(A) and the learned Tribunal.

Both the authorities below relied upon the judgments in Commissioner of Income Tax Vs. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar, and Commissioner of Income Tax Vs. Hotel Joshi,

Assailing the impugned order, it is contended, that both these judgments, in Pratap Singh''s case and Hotel Joshi''s case, relate to the assessment years, prior to 1st April, 1989, while since 1st April, 1989, material changes have been brought in the IT Act, and the scope of Section 147 was substantially widened, more so, the procedure for processing the return, u/s 143(1)(a) was introduced, and, therefore, the proceedings could be reopened even on the basis of DVO''s report, and two judgments, relied upon, do not come in the way.

The matter came up before this Court on 14th Aug., 2008, and the Court desired to know the final outcome of the search and survey proceedings, referred to above, and for providing that information, time was also granted.

Learned Counsel for the appellant made available for our perusal, the assessment order, passed in the case of Shri Pokar Ram Bhati, u/s 132(5) of the Act, being order dt. 27th March, 1995, and therefrom, we find, that therein unexplained investment in the construction of hotel building has been taken at Rs. 15,00,000, for the asst. yr. 1994-95. We do not know, as to what has been final outcome of that assessment order, but then, the glaring facts, which emerge from this assessment order dt. 27th March, 1995, and the orders of the two authorities below, project a glaring picture, even on the basis of which alone, we do not feel, that it would be right to interfere, with the impugned order.

In this regard, first of all, we may recall, that DVO had determined the cost of construction of the hotel building, Rs. 25,30,000, and it has been found by the AO, that out of this, major investment was made, during the period, relevant to asst. yr. 1993-94, with this, we find from the order of learned CIT(A) Annex. 2, that it has been noticed, that the appellant started constructing hotel in April, 1990, and the same was completed in the accounting year, relevant to asst. yr. 1996-97. The assessee had furnished return for the asst. yr. 1992-93, and also 1993-94, as business of hotel was started even before the hotel building was completed in all respect. It has also been noticed, that in the asst. yr. 1991-92, the assessee had invested Rs. 2,20,600, and has shown, this investment, in the books of account, then sum of Rs. 2,89,947, was shown to have been invested, in the asst. yr. 1992-93, and further sum of Rs. 11,64,862 was shown to have been invested in the asst. yr. 1993-94. On simply adding of these amounts, it is clear, that the assessee, had shown to have invested a sum of Rs. 16,75,409, during the three assessment years being 1991-92, 1992-93 and 1993-94, with this, vide assessment order dt. 27th March, 1995, obviously, which was passed before the present assessment order, being dt. 24th March, 2000, a sum of Rs. 15,00,000 has been considered to have been invested, for construction of the hotel, for the asst. yr. 1994-95, thus, the total amount taken by the Department to have been invested in construction of hotel, comes to Rs. 32,00,000 and odd, as against the cost of the construction, valued by the DVO, at Rs. 25,30,000.

In such circumstances, we do not find any justification, for the AO, to make the addition, as made in the assessment order, and consequently, do not find any ground to interfere with the impugned orders of the appellate authorities, though for the different reasons. It is needless to say, that the assessee''s income could not be assessed, under the head of investment, in construction of building, in an amount, beyond what was shown to be the cost, by the DVO, on the ground, that the assessee has shown investment, to be at lesser figure.

Thus, though for different reasons, we answer the question, as framed, against the Revenue and in favour of the assessee.

We thus do not find force in the appeal, and the same is dismissed.