2020 (5) TMI 647 - AT - Income Tax

Addition u/s 69B on the basis of DVO s report only - Unexplained investment in the hotel building - 99 years lease deed was converted to a sale deed - HELD THAT - In the case in hand a perusal of the report of the government valuer reveals that the valuer has taken the cost of construction / Fair market value as on 31.8.2006. It is not the case of the valuer that the building was newly constructed on the date rather the valuer has mentioned categorically that the date of construction is not known. He even has failed to estimate the age of the building as on the date of valuation. Under the circumstances the said report of the valuer cannot be relied upon. Even we find that the Assessing Officer has formed his opinion to refer the matter to the government valuer only because the 99 years lease deed was converted to a sale deed at the almost at the same price. This in our view is not a matter of suspicion as 99 years lease is almost the sale of the property itself. This fact in our view is not sufficient to hold that the actual value of the property was more than that the sale deed mentioned. The assessee has also claimed a sum to have been incurred for the repair and maintenance of the property. The said claim of the assessee has been denied on the ground that no specific bills and vouchers were produced. The assessee submitted before the AO that in the office of the Registering Authority / Tehsildar the report of the approved valuer was submitted wherein the value of the building was mentioned and the stamp duty accordingly accepted by the Assistant Collector. These submissions of the assessee find mention at page 8 of the assessment order. AO totally ignored the above submissions of the assessee. Moreover the AO has held that the value of the property was more than that was depicted in the sale deed but he had not initiated any action for corresponding addition to the income of the seller. Because of the aforesaid discrepancies and ambiguities in the valuation report the reliance on the same was wrongly placed by the lower authorities whereas the record furnished by the assessee in the office of Tehsildar for determining the value has been disregarded without any reasons - registered valuer assessed / determined the value of the property at a later date without taking into consideration the actual facts and circumstances of the case. In view of the above the addition made by the lower authorities on this issue is not sustainable and the same is accordingly ordered to be deleted. Disallowance of expenses - addition based on incriminating loose papers found in course of survey proceedings carried out u/s 133A(1) - estimation of the actual income of the assessee from room rent and refreshment bills - AO has taken note of the rates fixed by the Tourism Department at Rs. 1, 000 /- to Rs. 1, 100/- per room however giving benefit of doubt to the assessee that sometimes the rooms are booked at a lower rate than the rates fixed by the Tourism Department has adopted the average rate of Rs. 600/- per room - HELD THAT - No reason to interfere in the above order of the Assessing Officer so far as the estimation of the room rent is concerned. However the Assessing Officer having estimated the room rent should have given the deduction of the expenditure claimed at Rs. 1, 52, 626/- on water and electricity charges and Rs. 45, 000/- on food material. AO has allowed only Rs. 1 lac against this which does not seems to be justified. We therefore partly allow this ground. Estimation of restaurant income - HELD THAT - AO has taken the restaurant income at Rs. 600/- per day however considering the overall facts and circumstances and the plea of the assessee that on most of the days hotel remains vacant the restaurant income is directed to be estimated at Rs. 500/- per day. The Assessing Officer is direct to restrict the addition accordingly on this issue.

Summary

Issues Involved:
1. Addition of Rs. 18,54,476/- under Section 69 based on DVO's report.
2. Penalty proceedings under Section 271(1)(b).
3. Adoption of assessee's status as AOP.
4. Assessment under Section 144 instead of Section 143(3).
5. Addition of Rs. 9,42,000/- on account of Room Rent.
6. Addition of Rs. 1,59,339/- on account of Restaurant Sale.
7. Penal interest under Sections 234A and 234B.
8. Penalty under Section 271(1)(c) for various additions.
9. Discrepancies in Room Rent and Food Sale accounts.

Detailed Analysis:

1. Addition of Rs. 18,54,476/- under Section 69:
The assessee challenged the addition made by the Assessing Officer (AO) based on the Valuation Officer's (VO) report, which estimated the cost of investment in a hotel building. The AO referred the matter to the VO under Section 142A, who determined the fair market value as higher than the purchase price. The Tribunal found that the VO's report was unreliable because it did not account for the actual year of construction and failed to estimate the building's age. The Tribunal concluded that the lower authorities wrongly relied on the VO's report and ordered the deletion of the addition.

2. Penalty Proceedings under Section 271(1)(b):
The Tribunal found this ground premature and did not need adjudication at this stage.

3. Adoption of Assessee's Status as AOP:
No arguments were addressed by the assessee's counsel, and this ground was dismissed as 'not pressed'.

4. Assessment under Section 144 instead of Section 143(3):
No arguments were addressed by the assessee's counsel, and this ground was dismissed as 'not pressed'.

5. Addition of Rs. 9,42,000/- on Account of Room Rent:
During a survey, incriminating documents were found showing unrecorded room rent. The AO estimated the rental income based on these documents and the statement of the hotel manager. The Tribunal upheld the AO's estimation but directed that the expenditure claimed by the assessee should be allowed in full, resulting in partial relief for the assessee.

6. Addition of Rs. 1,59,339/- on Account of Restaurant Sale:
The AO estimated the restaurant income based on the documents found during the survey. The Tribunal directed the AO to estimate the restaurant income at Rs. 500/- per day instead of Rs. 600/-, providing partial relief to the assessee.

7. Penal Interest under Sections 234A and 234B:
No arguments were advanced by the assessee, and this ground was dismissed as 'not pressed'.

8. Penalty under Section 271(1)(c) for Various Additions:
The assessee appealed against the penalty imposed for additions made under Sections 69, 9,42,000/- for room rent, and 1,59,339/- for restaurant sales. The Tribunal found that the CIT(A)'s order was ex-parte and non-speaking and restored the matter to the CIT(A) for fresh decision, considering the Tribunal's findings in the quantum appeal.

9. Discrepancies in Room Rent and Food Sale Accounts:
For the assessment year 2008-09, the assessee challenged the additions made by the AO for discrepancies in room rent and food sales. The Tribunal directed that the room rent be estimated after allowing the expenditure incurred, as decided for the previous year. The Tribunal upheld the CIT(A)'s order restricting the addition for food sales to Rs. 50,000/-.

Conclusion:
The appeals were partly allowed, with the Tribunal providing relief on certain grounds while upholding the lower authorities' decisions on others. The matter concerning the penalty under Section 271(1)(c) was remanded to the CIT(A) for fresh consideration.