Pr. Commissioner Of Income Tax, Kota v. M/S Om Rudra Priya Holiday Resort Pvt. Ltd

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No.46/2019 Pr. Commissioner Of Income Tax, Kota ----Appellant Versus M/s Om Rudra Priya Holiday Resort Pvt. Ltd., C/o Sardar CycleStore, Bajariya, Sawai Madhopur ----Respondent For Appellant(s) : Ms. Parinitoo Jain HON'BLE MR. JUSTICE MOHAMMAD RAFIQ HON'BLE MR. JUSTICE NARENDRA SINGH DHADDHA 01/07/2019 Judgment This appeal under Section 260A of the Income Tax Act, 1961has been preferred by appellant Principal Commissioner of IncomeTax, Kota, assailing the order dated 20.12.2018 of the Income TaxAppellate Tribunal, Jaipur Bench, Jaipur, in ITA No.416/JP/2018 forthe assessment year 2013-14, whereby the Tribunal allowed theappeal of assessee M/s Om Rudra Priya Holiday Resort Pvt. Ltd.and set aside the order dated 31.01.2018 of the PrincipalCommissioner of Income Tax, Kota, passed under Section 263 ofthe Income Tax Act, 1961. Facts of the case are that respondent M/s Om Rudra PriyaHoliday Resort Pvt. Ltd. (hereinafter shall be referred to as ‘theassessee’) is a company engaged in the business of hotel and itfollows the mercantile system of accounting. The assessmentorder under Section 143(3) of the Income Tax Act, 1961 (forshort, ‘the IT Act’) was passed on 14.03.2016, whereby total income was assessed at Nil. The assessing officer examined thebooks of accounts randomly. Subsequent to passing of order dated14.03.2016, it was found by the CIT that the order was erroneousand prejudicial to the interest of the revenue, therefore, a noticedated 22.09.2017 was issued to the assessee under Section 263of the IT Act, which was duly served on the assessee. The issuewas in respect of investment in fixed assets under the head“Income from Business or Profession”, which was declared andaccepted at Rs.2,20,03,275/-, whereas the same was valued atRs.3.52 crore by the bank’s surveyor-cum-valuer vide hisvaluation certificate dated 02.10.2012. Further, it was noticed thatthe assessee had shown total investment in fixed assets atRs.2,69,26,206/- including land worth Rs.49,22,931/- as per Note9 to the Balance Sheet as on 31.03.2013 against the amount ofinvestment excluding land certified by the valuer vide workcompletion certificate dated 02.10.2012 of Rs.3.52 crores. Thesame value including land cost was to be taken as full value ofinvestment in fixed assets at Rs.4,01,22,931/- which was neithertaken by the assessee nor by the assessing officer. The saidcertificate was available on record while completing theassessment proceedings. However, the assessing officer had nottaken proper cognizance on it and the assessing officer failed todeal with entire material on record including the valuationcertificate of the surveyor-cum-valuer appointed by the bank. Hedid not give specific reasons why the valuation done by thesurveyor-cum-valuer was not acceptable. There was a hugedifference in the valuation done by the two valuers. Thus, the CITwas of the view that in such a situation the correct course ofaction would have been to refer the matter to the Departmental Valuation Officer (for short, ‘the DVO’) under Section 142A of theIT Act. Valuation Officer (for short, ‘the DVO’) under Section 142A of theIT Act. Ms. Parinitoo Jain, learned counsel for the revenue, hassubmitted that the Tribunal was not justified in setting aside theorder passed under Section 263 of the IT Act because the projectreport, which was filed at the time of getting the loan, wasprepared on 28.05.2011, wherein the cost was estimated atRs.2.26 crores. Thereafter, the work completion certificate wasprepared on 02.10.2012 after utilization of loan and the costs ofconstruction was certified at Rs.3.53 crores. The Tribunal haswrongly considered the work completion certificate as projectreport filed with bank at the time of getting loan. The assessingofficer made reference under Section 142(1) of the IT Act to theDVO estimated the cost of investment in construction of buildingat Rs.5.81 crores which is much higher than amount estimated inthe work completion certificate dated 02.10.2012 issued by thebank valuer. The report was prepared by the revenue on the basisof specified and scientific rates of the CPWD, according to whichthe cost of construction was much higher than cost of Rs.1.81crores recorded by the assessee in the books of accounts. TheTribunal was therefore not justified in holding that the assessingofficer has made all equiries in respect to investment ofRs.1,81,49,072/- for construction of hotel building which wasrecorded by the assessee in its books of accounts, whereas theassessing officer has never made any inquiry regarding actualinvestment in construction of hotel building. The fact is that theassessing officer never referred the matter to the DVO forvaluation of construction work and never made any inquiry inrespect of amount mentioned in the work completion certificate. It is argued that the Tribunal failed to appreciate that theloan was sanctioned by the bank on 26.07.2011 and at the time ofgetting loan, a project report dated 28.05.2011 was prepared bythe bank valuer and cost of construction was estimated at Rs.2.26crores. The Tribunal has failed to appreciate that the assess hasproduced on record showing different valuation of cost ofconstruction of the hotel building, then the claim of the assesseecould not be accepted without proper inquiry. The Tribunal has notconsidered the judgment of the Calcutta High Court in BinodKumar Agarwala Vs. CIT – 257 Taxman 58 (Cal.), judgment ofMadras High Court in M/s. Coimbatore Spinning & Weaving Co.Ltd. Vs. CIT – 95 ITR 375 (Mad.) and that of Gauhati High Court inDhansiram Agarwalla Vs. CIT – 201 ITR 192 (Gau.), in trueperspective. It is therefore prayed that the appeal be allowed. Having heard learned counsel for the revenue and perusedthe impugned judgment as also the material on record, we findthat the Tribunal has analytically examined all the argumentswhich were advanced on behalf of the revenue. The Tribunal hasnoted that the assessing officer during the course of assessmentproceedings had issued a query letter dated 03.03.2015 whereinvarious queries were raised including the details of additions ofRs.2,20,03,275/- as per the schedule of fixed assets of the auditreport and copies of supporting books and vouchers for acquisitionof the fixed assets were also called from the assessee. Theassessing officer also asked the assessee to furnish the valuationreport of the cost of construction as shown in the books ofaccounts. In response thereto, the assessee produced thevaluation report dated 14.05.2013. The assessing officer alsocalled for relevant documents submitted with the Baroda Rajasthan Gramin Bank including application form and otherrecord in the shape of project report for availing the term loan forconstruction of the hotel building. All these records were suppliedby the bank to the assessing officer along with the sanction letterdated 26.07.2011, whereby a loan of Rs.2.00 crores wassanctioned by the bank for construction of the hotel building. TheTribunal therefore concluded that at the time of applying for termloan, the assessee furnished the estimated and projected cost ofconstruction of the hotel building for a total cost of Rs.3.52 crores,whereas the assessee had shown the fixed assets in the balancesheet as on 31.03.2013 at Rs.2,69,26,206/-. The project reportsubmitted with the bank was an estimated cost of the hotelbuilding to be incurred in future and was not based on thevaluation of any existing assets of the assessee. It was thereforethat the Tribunal held that the project report cannot constituteactual cost of construction once the assessee has recorded theactual cost of construction in the books of accounts, which wasduly verified by the assessing officer along with the report of theregistered valuer. After considering the explanation of theassessee as well as the relevant valuation report, the assessingofficer was satisfied with the cost of fixed assets as shown in thebalance sheet. There was no dispute that the project reportproduced by the assessee before the bank at the time of takingthe loan for the purpose of construction of hotel building was onlya projected estimated of the cost and not the actual cost ofconstruction incurred by the assessee. It was stated that theassets must be as per the actual cost of construction and not onthe projected cost of acquisition. In these facts, the Tribunal tookthe view that if the order passed by the assessing officer is without any investigation or enquiry on an issue, then it would beerroneous so far as it is prejudicial to the interest of the revenueon the ground of lack of enquiry. However, it was not a case ofcomplete lack of enquiry on the part of the assessing officer ratherthe assessing officer has conducted a detailed enquiry on thisissue and called for all the relevant records from the bank for thepurpose of examining the cost of construction of the hotelbuilding. It could be a case of inadequate enquiry so far as notreferring the matter to the DVO, however, it was not mandatoryfor the assessing officer to refer the valuation to the DVO once theassessing officer was satisfied with the cost of construction andcost of fixed assets as recorded in the books of account. TheTribunal further held that even if the Principal Commissioner foundthat the decision of the assessing officer accepting the cost ofconstruction/cost of fixed assets is contrary to the facts orotherwise not permissible as per the provisions of the IT Act, thenthe order of the assessing officer could have been reversed bygiving a concluding finding on the issue. The PrincipalCommissioner has set aside the impugned order only for thepurpose of referring the same to the DVO. It is thus evident thatthe Principal Commissioner was not sure about the correctness ofthe cost of construction or cost of fixed assets either shown in theproject report or recorded in the books of account. In the facts ofthe case, when the assessing officer has taken a broad view byaccepting the cost of fixed assets as recorded in the books ofaccount which were also supported by the valuation report, thenthe order of the assessing officer cannot be held to be erroneouson the ground of lack of enquiry. It is settled position of law thatwhen the assessing officer has taken one of the possible views then the Principal Commissioner cannot be permitted to invoke theprovisions of Section 263 simply because he does not agree withthe view taken by the assessing officer. then the Principal Commissioner cannot be permitted to invoke theprovisions of Section 263 simply because he does not agree withthe view taken by the assessing officer. On examination of the reasoning given by the Tribunal, wedo not find that there was any justification for the PrincipalCommissioner to invoke the provisions of Section 263 of the IT Acton the specific plea that the order of the assessing officer wasprejudicial to the interest of the revenue. The Supreme Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, Kerala State – (2000) 2 SCC718, in para 9 of the report, did not approve the interpretationplaced by the Madras High Court in Venkatakrishna Rice Co. Vs. CIT – (1987) 163 ITR 129 (Mad) on the phrase “prejudicial tothe interests of the Revenue” and held that the scheme of the Actis to levy and collect tax in accordance with the provisions of theAct and this task is entrusted to the Revenue. If due to anerroneous order of the Income Tax Officer, the Revenue is losingtax lawfully payable by a person, it will certainly be prejudicial tothe interests of the Revenue. The phrase "prejudicial to theinterests of the Revenue" is not an expression of art and is notdefined in the Act. When this phrase is understood in its ordinarymeaning, it is of wide import and is not confined to loss of tax.Relevant discussion is found in Paras 8, 9 and 10 of the Report,which are reproduced as follows: "8. The phrase "prejudicial to the interests of theRevenue" is not an expression of art and is not definedin the Act. Understood in its ordinary meaning it is ofwide import and is not confined to loss of tax. The HighCourt of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain(1957) 31 ITR 872 (Cal), the High Court of Karnatakain CIT v. T. Narayana Pai (1975) 98 ITR 422 (Kant), theRevenue" is not an expression of art and is not definedin the Act. Understood in its ordinary meaning it is ofwide import and is not confined to loss of tax. The HighCourt of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain(1957) 31 ITR 872 (Cal), the High Court of Karnatakain CIT v. T. Narayana Pai (1975) 98 ITR 422 (Kant), the High Court of Bombay in CIT v. Gabriel India Ltd.(1993) 203 ITR 108 (Bom), and the High Court ofGujarat in CIT v. Minalben S. Parikh (1995) 215 ITR 81(Guj) treated loss of tax as prejudicial to the interestsof the Revenue. 9. Mr Abraham relied on the judgment of the DivisionBench of the High Court of Madras in VenkatakrishnaRice Co. v. CIT (1987) 163 ITR 129 (Mad) interpreting"prejudicial to the interests of the Revenue". The HighCourt held: "In this context, (it must) be regarded as involving aconception of acts or orders which are subversive of theadministration of revenue. There must be somegrievous error in the order passed by the Income TaxOfficer, which might set a bad trend or pattern forsimilar assessments, which on a broad reckoning, theCommissioner might think to be prejudicial to theinterests of Revenue Administration". In our view this interpretation is too narrow to meritacceptance. The scheme of the Act is to levy and collecttax in accordance with the provisions of the Act andthis task is entrusted to the Revenue. If due to anerroneous order of the Income Tax Officer, the Revenueis losing tax lawfully payable by a person, it willcertainly be prejudicial to the interests of the Revenue. "In this context, (it must) be regarded as involving aconception of acts or orders which are subversive of theadministration of revenue. There must be somegrievous error in the order passed by the Income TaxOfficer, which might set a bad trend or pattern forsimilar assessments, which on a broad reckoning, theCommissioner might think to be prejudicial to theinterests of Revenue Administration". In our view this interpretation is too narrow to meritacceptance. The scheme of the Act is to levy and collecttax in accordance with the provisions of the Act andthis task is entrusted to the Revenue. If due to anerroneous order of the Income Tax Officer, the Revenueis losing tax lawfully payable by a person, it willcertainly be prejudicial to the interests of the Revenue. 10. The phrase "prejudicial to the interests of theRevenue" has to be read in conjunction with anerroneous order passed by the Assessing Officer. Everyloss of revenue as a consequence of an order of theAssessing Officer cannot be treated as prejudicial to theinterests of the Revenue, for example, when an IncomeTax Officer adopted one of the courses permissible inlaw and it has resulted in loss of revenue; or where twoviews are possible and the Income Tax Officer hastaken one view with which the Commissioner does notagree, it cannot be treated as an erroneous orderprejudicial to the interests of the Revenue unless theview taken by the Income Tax Officer is unsustainablein law. It has been held by this Court that where a sumnot earned by a person is assessed as income in hishands on his so offering, the order passed by theAssessing Officer accepting the same as such will beerroneous and prejudicial to the interests of theRevenue. (See Rampyari Devi Saraogi v. CIT (1968) 67ITR 84 (SC) and in Tara Devi Aggarwal v. CIT (1973) 3SCC 482)". In view of the above discussion, it must be held that everyloss of the revenue as a consequence of the order of the assessing officer cannot be treated prejudicial to the interest of the revenue.Where two views are possible and the assessing officer has takenone view with which the Principal Commissioner did not agree, itcannot be treated as an erroneous order prejudicial to theinterests of the Revenue unless the view taken by the assessingofficer was not at all possible in law. In the result, we do not find any merit in this appeal. It isaccordingly dismissed. (NARENDRA SINGH DHADDHA),J (MOHAMMAD RAFIQ),J //Jaiman//52