TaxTMI 
TaxTMI 
2024 (8) TMI 743
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....ed 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 jurisdictional Bench of ITAT in the case of Harbhajan Kaur and Smt. Jatinder Kaur in ITA No. 70 Et 71/Chd/2021 and 75 a 76/Chd/2021 in which, following the judgment of Delhi High Court in the case of Abhinav Kumar Mittal reported at 351 ITR 20, it has been held that no reference could be made to the Valuation Officer in the absence of any incriminating material found during search. 5. That the finding of the Ld. ....
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....arious 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 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 premis....
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....ounts 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 Assessee has raised the following grounds in ITA No. 679/Chd/2023 for the A.Y. 2019-20: "1. That the Ld. CIT(A) has erred in confirming the action of the Ld. AO in sustaining an addition of Rs. -2....
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....es, 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) has erred in not allowing the deduction u/s 35AD, for which, the necessary evidence was filed a....
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....nt 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....
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...., neither the said documents were brought to the knowledge of the assessee nor the same was 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 ....
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..... The said document cannot be said to be incriminating, in so far, as the assesses is concerned in view of the judgement of the Apex Court and further 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 w....
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....018-19 & 2019-20, certain additions had been made on account of difference in the cost of construction as discussed as per DVO report and that matter had come before the Hon'ble ITAT, Chandigarh 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 ....
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....e contractor in the Government departmental rates i.e. CPWD/PWD, whereas, the assessee has got construction of the work in self-supervision and even the material was purchased at discounted rates, and that the concession given 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). ....
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.... K. P. Varghese (supra) as also on another decision of a Division Bench of this Court in CITv. Smt. Suraj Devi [2010] 328 ITR 604 wherein this Court held that the primary burden of proof with regard to concealment of income was on the revenue and it was only when the said burden was discharged that reliance could be placed 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 considera....
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....over, the DVO had also substantially relied on jantri rates and had made other reference's for arriving at the valuation." 10. Both the issues are based primarily on factual aspects. No question of law, therefore, these appeals are dismissed." 10. Similarly, in the case of CIT Vs. Berry Plastics P. Ltd., (2013) 35 taxmann.com 296 (Guj), the Hon'ble Gujarat 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 ....
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....e amount booked by the assessee in the books of account was 5.14 crores and there was a meagre difference noted. 7.6. We note that as per the relevant provisions of the Act, if the department wanted to act on the said document, the proceedings could have been initiated u/s 153C of the Act against the assessee by recording satisfaction by the Assessing Officer of the searched person. Thereafter, after receipt of the 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 as....
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....lowed for the impugned assessment year 2017-18 and the additions made in the case of the assessee cannot be held to be justified and the same are accordingly ordered to be deleted. 15. In the result, ground of appeals no 1-8 of the assessee's appeal are hereby allowed. 16. In Ground No. 9, the assessee has challenged the rejection of books of accounts u/s 145(3) of the Act. The Assessing Officer has discussed this issue in para 3.1.5 at page 12 and has mentioned 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 th....
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....ral Government for the Financial Year under consideration. Further the assessee company has failed to file the copy of the two star or above category certificate as issued by the Central Government in support of its claim of deduction under section 35AD of the Act, accordingly claim of deduction under Section 35AD was disallowed. 22. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and it was submitted that the assessee had claimed deduction u/s 35AD 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 i....
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....ted that during the assessment proceedings, the assessee failed to submit a valid star rating category certificate pertaining to the assessment year 2017-18 to 2019-20, which was the basic requirement/eligibility criteria for claiming deduction u/s 35AD of the Income Tax Act. The new hotel though had commenced its working in the A.Y.2017-18 but was not registered/classified as star rated hotel by the Central Government as no two star or above rating category certificate as classified by the 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 eligib....
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..... Year 2017-18 particularly, when the assessee had added back the depreciation and the revenue from operations have been declared and accepted by the department. The contention of the Assessing Officer in the remand report that since in the certificate, the date is different is not allowable, is not a correct observation because, there is no such time limit for obtaining star certificate, which has been prescribed, in the above said section and "the "only requirement is that it should be classified as operation 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 ....
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....ing the star rating had been required in the above said section and the only requirement was that it should be classified as operational as two or more star Hotel by the Central Govt, and, reliance was placed, on the judgments of 'Ahmedabad Tribunal', 'Madras High Court', 'Chennai Bench' and 'Varanasi Tribunal' and copies of same have been submitted at paper books pages 165 to 221 and certificate of the Central Govt, have been placed at pages 130 to 132 of the Paper Book. It was submitted that the Ld. CIT (A) has given his finding 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,....
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....nd the same be confirmed and the ground of appeal so taken by the assessee be dismissed. 31. We have heard the rival contentions and perused the material available on the record. The issue under consideration relates to claim of deduction under Section 35AD of the Act. Sub-Section (1) of Section 35AD provides that an assessee shall, if he opts, be allowed deduction in respect of the whole of any expenditure of capital nature incurred wholly and exclusively for the purpose of any specified business carried on by him during the previous year in which such expenditure 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....
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....ia of claiming deduction u/s 35AD of the Income Tax Act. It was further stated by the AO that the additional evidence in terms of star rating certificate 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. 33. We therefore have a situation where the hotel run by the 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 ....
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....) to Sub-Section (5) of Section 35AD of the Act mandating that the date of certificate should be with effect from a particular date. Therefore, the provision, which is obviously to encourage establishment of hotels of a particular category, should be read as a beneficial provision and therefore, the interpretation given by the Tribunal considering the facts of the case is perfectly valid and justified. For the above reasons, we find no grounds to interfere with the order passed by the Tribunal." 35. Similar issue came up for consideration before the Coordinate Varanasi Benches in case of Benares Hotels Ltd. 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....
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....epancies in the proposal of the assessee and, accordingly, a letter was issued from the Ministry of Tourism, on 22/7/2014, to the assessee, to remove the discrepancy; that the assessee took time to remove the discrepancy and submitted its reply on 23/3/2015, i.e., at the fag end of the relevant financial year; that the assessee had submitted that the Inspection Committee of the Ministry of Tourism visited the Hotel in Gondia on 23/1/2018 to decide about confirming the eligibility of the unit being fit for four star category classification; and that the assessee received the certificate on 30/1/2018. Thus, as per the Id. 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 b....
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.... 35AD is being reproduced, as below: "35AD. (1) An assessee shall 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: Provided that the expenditure incurred, wholly and exclusively, for the purposes of any specified business, shall be allowed as deduction during the previous year in which he commences operations of his specified business, sub-section (5) The provisions of this section shall apply to the specified business referred to in sub-section (2) if it commences 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 service....