Hotel Celebration v. Income-tax Officer
[Citation -2017-LL-0615-1]

Citation 2017-LL-0615-1
Appellant Name Hotel Celebration
Respondent Name Income-tax Officer
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 15/06/2017
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags question of cost of construction • investment in construction • reopening of an assessment • income chargeable to tax • unaccounted investment • departmental valuer • reason to believe • valuation officer • value of property • valuation report • hotel building • hotel business • going concern • value of land • total cost
Bot Summary: Subsequently, notice for reopening of the assessment was issued Page 2 of 8 HC-NIC Page 2 of 8 Created On Mon Jun 19 14:17:49 IST 2017 C/SCA/837/2014 JUDGMENT on the basis that according to DVO total investment in construction during the period between 01.04.2004 to 01.07.2005 was Rs. 1.82 crores. In case of the present petitioner, the assessment of the return for the year 2006-07 was similarly carried out and completed. During the course of assessment proceedings investment in construction of hotel building was examined. During the course of assessment proceedings total value of land and building was declared by assessee was Rs. 64,11,464/- for land and building up to 20.09.2005 and Rs. 66,87,372/- at the end of year i.e. 31.03.2005. Rs. 70,11,772 62,60,199 7,51,571 In view of the above, I have reason to believe that the income chargeable to income tax escaped assessment at least to the above extent for the above Assessment year within the meaning of section 147 of the Income Tax Act, 1961. Though these reasons do not indicate further details of the report of the DVO, reasons recorded by the Assessing Officer in case of the properietor for reopening his assessment for the assessment 2005-06 show that according to the valuer, the said investment of Rs. 1.86 crores was made during the period between 01.04.2004 and 01.07.2005. Only in the present case, we are concerned with the reopening of an assessment which was previously framed after scrutiny and whet her such notice is issued beyond a period of four years from the end of the relevant assessment year.


C/SCA/837/2014 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 837 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? HOTEL CELEBRATION....Petitioner(s) Versus INCOME TAX OFFICER....Respondent(s) Appearance: MR TUSHAR P HEMANI, ADVOCATE for Petitioner(s) No. 1 MS VAIBHAVI K PARIKH, ADVOCATE for Petitioner(s) No. 1 MR PRANAV G DESAI, ADVOCATE for Respondent(s) No. 1 RULE SERVED for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Page 1 of 8 HC-NIC Page 1 of 8 Created On Mon Jun 19 14:17:49 IST 2017 C/SCA/837/2014 JUDGMENT Date : 15/06/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. This petition is filed by assessee to challenge notice dated 14.03.2013 issued by respondent-Assessing Officer to reopen assessment for assessment year 2006-07. 2. Brief facts are as under: petitioner is partnership firm and is engaged in business of running hotel. Earlier, one of partners of firm Mr. Jagdish Bhatt had started construction for purpose of running hotel by name Hotel Celebration as properitory concern. Substantial portion of construction was carried on between 01.04.2004 and 31.03.2004. Construction continued in next financial year also. For some point, proprietor wanted to transfer business of running hotel. present petitioner-partnership firm was constituted, who took over under-construction hotel business on 20.09.2005. According to petitioner, some finishing work was left out, which was done by partnership firm after said date. return of erstwhile proprietor for assessment year 2005-06 was taken in scrutiny. During such scrutiny, question of cost of construction came up for consideration. Assessing Officer referred issue for valuation. DVO's report, however, did not arrive within time. Assessing Officer framed assessment without making any addition on score. Subsequently, notice for reopening of assessment was issued Page 2 of 8 HC-NIC Page 2 of 8 Created On Mon Jun 19 14:17:49 IST 2017 C/SCA/837/2014 JUDGMENT on basis that according to DVO total investment in construction during period between 01.04.2004 to 01.07.2005 was Rs. 1.82 crores. According to Assessing Officer, assessee had shown cost of construction upto 20.09.2005 only at Rs. 64.11 lacs. On such basis, assessment was reopened. 3. In case of present petitioner, assessment of return for year 2006-07 was similarly carried out and completed. To reopen such assessment also Assessing Officer issued impugned notice. In order to do so, he relied on same report of valuation and recorded following reasons: In this case, assessment was finalized u/s. 143(3) on 31.12.2008 and income assessed at Rs. 15640/-. During course of assessment proceedings investment in construction of hotel building was examined. 2. reference was made to valuation officer on 17/08/2007 to determined value of property, known as Hotel Celebration during course of assessment proceedings u/s. 143(3) in case of M/s. Hotel Celebration, Jamnagar. However, valuation report was not received till completion of time barring Assessment year 2006-07 i.e. 31.12.2008. During course of assessment proceedings total value of land and building was declared by assessee was Rs. 64,11,464/- for land and building up to 20.09.2005 and Rs. 66,87,372/- at end of year i.e. 31.03.2005. 3. valuation officer prepared report on 02.12.2011 and Page 3 of 8 HC-NIC Page 3 of 8 Created On Mon Jun 19 14:17:50 IST 2017 C/SCA/837/2014 JUDGMENT submitted it on 08.12.2011 determining total cost of investment Rs. 1,82,16,349/- for financial year 2004-05 and 2005-06 against declared cost of Rs. 66,87,372/- by assessee firm. 4. During course of assessment proceedings, firm made submission vide letter dated 30.10.2008 as under: Shri Jagdishchandra P.Bhatt originally commenced business in name of Hotel Celebration as proprietary concern. With view to broad base activity, partnership firm in name of Hotel Celebration took over running business of Hotel Celebration as going concern within effect from 20.09.2005. Copies of ledger accounts of all assets together with copies of bills are submitted herewith. You may kindly note that opening balance mentioned in ledger account is balance incurred upto date of formation of partnership. 5. It is seen that assessee firm has debited expenditure on its account Rs. 2,75,908 (66,87,372-64,11,464) which is required to be determined true value of investment proportionate to total cost of value determined as per valuation report received on 08.12.2011 from Departmental Valuer as mentioned above para. As valuation report is prepared for entire hotel building this portion of expenditure is also considered to assess true value of expenditure by firm for period from 21.09.2005 to 31.03.2006. Departmental Valuer has determined total value of hotel building at Rs. 1,82,16,349/- against total investment declared by assessee for Rs. 65,87,372/-. Thus proportionate investment not declared by firm for period from 21.09.2005 to 31.03.2006 to tune of Rs. 4,75,663/- (7,51,571-2,75,908) as per e detail working in Table & B below which has escaped assessment and assessee firm has failed to declare fully and truly all material facts necessary for assessment year 2006-07 regarding expenditure incurred for construction of Hotel Building. Page 4 of 8 HC-NIC Page 4 of 8 Created On Mon Jun 19 14:17:50 IST 2017 C/SCA/837/2014 JUDGMENT Table Construction F.Y 2004.05 F.Y 2005.06 during FY 2004.05 & 2005.06 Total cost declared by 66,87,372 41,13,293 25,74,079 assessee in books of account Total cost of construction for 1,82,16,349 Proportionate Proportionate building as per valuers report cost cost Rs. 1,12,04,577 70,11,772 Table B Total Expenditure during Expenditure debited Expenditure debited by F.Y. 2005.06 detailed in by Partner during F.Y. partner books 2005.06 during F.Y. 2005-06 25,74,079 22,98,171 2,75,908 Proportionate Expenditure On partner's account On Firm's account during F.Y. 2005-06 as per Proportionate Proportion Expenditure valuation report Expenditure during during F.Y. 2005 as per F.Y. 2005.06 as per valuation report. valuation report. Rs. 70,11,772 62,60,199 7,51,571 In view of above, I have reason to believe that income chargeable to income tax escaped assessment at least to above extent for above Assessment year within meaning of section 147 of Income Tax Act, 1961. Therefore, I am satisfied that it is fit case of reopening for assessment by issuing notice u/s. 147 of IT Act, 1961. 4. From reasons recorded by Assessing Officer it can be seen that total cost of construction of building was Rs. 66.87 lacs as per records of assessee. Out of which, Page 5 of 8 HC-NIC Page 5 of 8 Created On Mon Jun 19 14:17:50 IST 2017 C/SCA/837/2014 JUDGMENT Rs. 61.11 lacs was spent up to 20.09.2005. However, as per valuer's report dated 08.12.2011, total investment in construction was Rs. 1.82 crores during financial years 2004-05 and 2005-06. 5. Though these reasons do not indicate further details of report of DVO, reasons recorded by Assessing Officer in case of properietor for reopening his assessment for assessment 2005-06 show that according to valuer, said investment of Rs. 1.86 crores was made during period between 01.04.2004 and 01.07.2005. We have tried to verify whether latter date 01.07.2005 was typographical error. However, we find that even while disposing of objections raised by said assessee, Assessing Officer has stuck to this date. We may, therefore, proceed on such basis. Thus, according to reasons recorded by Assessing Officer, in connected case, DVO's report dated 08.12.2011 suggests that total investment in construction of Rs. 1.82 crores was made between 01.04.2004 and 01.07.2005. 6. petitioner partnership firm came into picture only on 20.09.2005 when it took over hotel business. partnership can be made accountable for cost of construction after said date. Since Assessing Officer relies only on DVO's report it is difficult to appreciate how he contends that present petitioner had made any unaccounted investment in construction. If we peruse reasons recorded by Page 6 of 8 HC-NIC Page 6 of 8 Created On Mon Jun 19 14:17:50 IST 2017 C/SCA/837/2014 JUDGMENT him more minutely, we find that rather unconventional approach was adopted by Assessing Officer to project cost of construction over entire span of financial year 2005- 06. He noted declared cost of construction by two assessees during financial years 2004-05 and 2005-06. He took note of declaration of petitioner of investment made in construction after 20.09.2005. He then broke up total cost of construction of Rs. 1.82 crores estimated by DVO over two financial years and then projected figure commensurate to financial year 2005-06 in proportion of declared cost of construction pre and post 20.09.2005. This is rather bizarre and wholly impermissible method of extrapolation. Assessing Officer had to have tangible material at his command to enable him to form belief that income chargeable to tax had escaped assessment. His belief is based on presumption of extrapolation even otherwise wholly impermissible on basis of materials on record. To reiterate, according to report of DVO, entire investment of Rs. 1.82 crores in construction was made before 01.07.2005. There was thereafter, no question of apportioning any portion thereof during period after 20.09.2005. In any case, same could not have been done without basis or further opinion available with Assessing Officer. Only in present case, we are concerned with reopening of assessment which was previously framed after scrutiny and whet her such notice is issued beyond period of four years from end of relevant assessment year. Page 7 of 8 HC-NIC Page 7 of 8 Created On Mon Jun 19 14:17:50 IST 2017 C/SCA/837/2014 JUDGMENT 7. For such reasons, this petition is allowed. Impugned notice dated 14.03.2013 is set aside. Rule is made absolute. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Jyoti Page 8 of 8 HC-NIC Page 8 of 8 Created On Mon Jun 19 14:17:50 IST 2017 Hotel Celebration v. Income-tax Officer
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