2014 (9) TMI 496 - AT - Income Tax

Tribunal Appeals: Undisclosed Investments and Unexplained Credits Deleted, Depreciation Disallowed

The Tribunal allowed the appeals, deleting major additions related to undisclosed investments in the hospital building and unexplained credits. ... Valuation report u/s. 142(A) – Reference made by AO - Estimated understatement of cost of construction – Held that:- The AO had not accepted the assessee's valuation of plots owned by it but had made an estimate of the same and on appeal, the assessee urged that the WTO should be directed to refer the valuation of the said property to the valuation cell - CIT(A) accepted the contention of the assessee and directed the AO to get valuation done by the valuation cell u/s. 16(A) r.w.s. Rule 3D - CIT(A) erred in directing the AO to refer the matter to the valuation cell – the CIT(A) himself could have referred the valuation of the building to the valuation cell - the AO made the assessment u/s 143(3) after elaborate discussion of the cost of construction - She referred to comparable cases and finally made addition of ₹ 15 lakhs - it was not permissible for even the administrative CIT to invoke his jurisdiction U/S 263 on the issue because of a valuation report obtained subsequently - If the administrative CIT could not exercise jurisdiction U/S 263, relying upon Girdhar Gopal Gulati vs Union Of India And Anr. [2004 (4) TMI 45 - ALLAHABAD High Court] the CIT(A) had no jurisdiction in appeal proceedings to call for a valuation report, which is the exclusive prerogative of the AO. Reference u/s 142A is not allowed after assessment or re-assessment - The AO has no jurisdiction to invoke section 142A after assessment or re- assessment - the CIT(A) also ceases to have any jurisdiction to press sec. 142A into service either himself directly or indirectly through the AO -the basic pre-requisite of sec.142A is satisfaction of the AO - When the AO makes a reference at the behest of the CIT(A), the valuation report so obtained has no legal validity and has to be ignored - as the assessment is already completed, the AO has no jurisdiction to make the reference u/s. 142A of the Act - the CIT(A) has clearly overstepped his jurisdiction and hence the order of enhancement by the CIT(A) has no legal sanction – Decided in favour of assessee. Undisclosed investment determined by AO – Amount added to cost of construction of hospital building - Held that:- Identity of the creditor, the creditworthiness of the creditor and genuineness of the transaction are proved by the assessee and the assessee has discharged her onus - Relying upon RB. Mittal Versus Commissioner Of Income-Tax [2000 (8) TMI 54 - ANDHRA PRADESH High Court] – the addition is to be deleted as the assessee had satisfactorily proved. Issues Involved:1. Addition towards undisclosed investment in hospital building.2. Addition towards depreciation on fixed assets.3. Addition towards unexplained addition in capital.4. Addition towards unsecured loan in the name of assessee's father.5. Addition towards undisclosed receipts.6. Addition towards expenses.7. Jurisdiction of CIT(A) in calling for a valuation report.8. Application of Section 142A for valuation after assessment completion.9. Disallowance of depreciation on office equipment, hospital equipment, and computers.10. Disallowance of payments made to professionals and contract payments.11. Addition of unexplained credits.12. Disallowance of hospital maintenance expenses and other expenses.Detailed Analysis:1. Addition towards undisclosed investment in hospital building:The Assessing Officer (AO) disagreed with the cost of construction shown by the assessee and added Rs. 15,00,000 as undisclosed investment. The CIT(A) enhanced the addition by Rs. 1,63,54,350 based on the District Valuation Officer's (DVO) report, valuing the total cost of construction at Rs. 2.44 crore. However, the Tribunal found that the CIT(A) had overstepped jurisdiction by directing the AO to refer the matter to the valuation cell after the assessment was completed. The Tribunal held that such a reference under Section 142A was not permissible post-assessment, thereby deleting the enhancement.2. Addition towards depreciation on fixed assets:The CIT(A) confirmed the disallowance of depreciation on office equipment at Rs. 7,123, hospital equipment at Rs. 3,724, and computers at Rs. 2,260, as the purchases were not substantiated by the assessee.3. Addition towards unexplained addition in capital:The AO added Rs. 1,26,185 towards unexplained capital introduced by the assessee. The CIT(A) sustained this addition, but the Tribunal deleted it, accepting the assessee's explanation that the amount was paid by her husband and the identity, creditworthiness, and genuineness of the transaction were proved.4. Addition towards unsecured loan in the name of assessee's father:The AO added Rs. 3,30,000 as unexplained credit from the assessee's father. The CIT(A) upheld this addition, but the Tribunal deleted it, citing that the identity, creditworthiness, and genuineness of the transaction were proved and the revenue authorities cannot ask for the source of the source.5. Addition towards undisclosed receipts:The AO added Rs. 99,405 towards undisclosed receipts. The Tribunal found that the assessee had already offered an additional income of Rs. 6 lakhs and thus, no separate addition should have been made.6. Addition towards expenses:The AO disallowed Rs. 1,44,930, being 1/5th of the hospital expenditure debited to the profit and loss account. The Tribunal found that the expenditure was incurred in running the hospital and thus, the disallowance was not justified.7. Jurisdiction of CIT(A) in calling for a valuation report:The Tribunal held that the CIT(A) had no jurisdiction to direct the AO to refer the matter to the valuation cell post-assessment. The CIT(A) could have referred the valuation himself but not through the AO after the assessment was completed.8. Application of Section 142A for valuation after assessment completion:The Tribunal emphasized that Section 142A cannot be invoked after the completion of assessment or reassessment. The AO has no jurisdiction to make such a reference post-assessment, and any valuation report obtained in such a manner has no legal validity.9. Disallowance of depreciation on office equipment, hospital equipment, and computers:The Tribunal confirmed the disallowance of depreciation on the specified assets due to lack of substantiation by the assessee.10. Disallowance of payments made to professionals and contract payments:The CIT(A) confirmed the disallowance of Rs. 16,39,625 and Rs. 60,000 under Section 40(a)(ia) for non-deduction of TDS. The Tribunal deleted the disallowance, noting that the appellant, being an individual, was excluded from the requirement of TDS under the relevant provisions of the Income Tax Act.11. Addition of unexplained credits:The AO added Rs. 4,76,000 as unexplained credits. The Tribunal allowed the appeal, accepting the assessee's explanation that Rs. 77,000 was received from her husband and Rs. 4,00,000 was offered as additional income, thus allowing the benefit of telescoping.12. Disallowance of hospital maintenance expenses and other expenses:The CIT(A) confirmed the disallowance of Rs. 2,20,000 for hospital maintenance expenses, Rs. 70,000 for other expenses, and Rs. 1,00,000 for benefits paid to staff. These grounds were not pressed by the assessee before the Tribunal and were dismissed.Conclusion:The Tribunal allowed the appeals of the assessee, deleting the major additions made by the AO and CIT(A), particularly those related to the undisclosed investment in the hospital building and unexplained credits, while confirming the disallowance of depreciation on certain assets. The Tribunal emphasized the limits of jurisdiction under Section 142A and the necessity of substantiating claims with proper evidence.