Powerdeal Energy Systems (I) Pvt. Ltd v. The Asstt. Commissioner Of Income Tax, Circle 2 Nashik And Ors

ASN IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPEALLATE JURISDICTION WRIT PETITION NO.4650 OF 2014WITHWRIT PETITION NO.4651 OF 2014 Powerdeal Energy Systems (I) Pvt. Ltd...Petitioner. vs.The Asstt. Commissioner of Income Tax,Circle 2 Nashik and ors. ..Respondents. Mr. J.D. Mistry, Senior Advocate with Ms. Aasifa Khan for the Petitioner. Mr. Vimal Gupta, Senior Advocate with Mr. Arvind Pinto for the Respondents. CORAM : M. S. SANKLECHA AND N.M. JAMDAR, JJ.DATE : 13OCTOBER 2014 DATE : PC: By these two petitions under Article 226 of the Constitution of India the challenge is to two notices dated 20 November 2013 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) by the Assessing Officer. The two impugned notices dated 20 November 2013 seek to reopen the assessment for Assessment Year 2009-10 and 2010-11 respectively. Both the impugned notices have been issued within a period of less than 4 years from the end of the assessment year. ASN 2)Both the petitions raise identical issues save and except change in the quantum of figures and that for Assessment Year 2010-11 the petitioner has claimed depreciation Goodwill which is not claimed in Assessment year 2009-10. For the sake of convenience we shall refer to the facts set out in W.P .No.4650/2014 dealing with Assessment Year 2009-10 for the purpose of this order. 3)On 21 April 2010 the petitioner filed its return of income for AY 2009-10 inter alia valuing intangible assets as under:- (i)Goodwill at Rs.24.37 crores; (ii) Product research and development at Rs.22.73 crores; and (iii) Product design and drawing at Rs.7.27 crores. On the aforesaid intangible assets the petitioner claimed depreciation of 25% on product research and development and Product design and drawing aggregating to Rs.7.50 crores. No depreciation was claimed on Goodwill for A.Y. 2009-10 though claimed for A.Y. 2010-11. 4)On 26 December 20112 the Assessing Officer assessed the petitioner's income under Section 143(3) of the Act at Rs.69.28 lacs after having accepted the claim for depreciation on intangible assets as made by the petitioner. ASN 5)Thereafter, on 4 September 2013 a survey action under Section 133A of the Act was carried out on the petitioner. During survey proceedings the statements were made by the Managing Director of the petitioner company as well as the Valuer who had valued the intangible assets. The Managing Director of the petitioner in his statement on 5 September 2013 during survey proceedings inter alia stated as under:- “We are ready to withdraw 50% (fifty percent) of our claim of depreciation for FY 2008-09, FY 2009-10 and FY 2010-11 subject to fresh valuation of intangible assets i.e. of Rs.14,00,34,200/-.We are also promise to pay due taxes on this amount of Rs.14,00,34,200/-”. Similarly the Valuer in a statement made on 4 September 2013 during the survey proceedings inter alia stated as under: Q. No.9:Pleaseexplainthe authenticity/grounds of the valuation certificates issued by you to M/s. Perfect Auto Industries? “Ans. I have issued these certificates only on business projections and not on the basis of any valuation of tangible and intangible assets. I have to also state that I have not issued this certificate fort any drawings, designs and research development. Q.10. I am showing you the Audit Report of Powerdeal Energy System (I) Pvt. Ltd. for F.Y. Similarly the Valuer in a statement made on 4 September 2013 during the survey proceedings inter alia stated as under: Q. No.9:Pleaseexplainthe authenticity/grounds of the valuation certificates issued by you to M/s. Perfect Auto Industries? “Ans. I have issued these certificates only on business projections and not on the basis of any valuation of tangible and intangible assets. I have to also state that I have not issued this certificate fort any drawings, designs and research development. Q.10. I am showing you the Audit Report of Powerdeal Energy System (I) Pvt. Ltd. for F.Y. 2008-09 relevant to AY 2009-10. Please go through the depreciation chart (Annexure 3 of Form 3 CD) and and explain the applicability of your certificate with respect to claim of the assessee regarding depreciation. Also, please explain the basis and utility of the Certificates issued by you to M/s. Perfect Auto Industries?Ans.As per my knowledge and the discussion with Mr. Mahesh Khairnar and Mr. Satpute the certificates issued by me were only for the purpose of the future business prospects of the company. As stated earlier I was not Government approved valuer, therefore I have to state that the certificates issued by me cannot be used by the company for claiming any deduction available under Income Tax Act 1961 or Company Act 1956 and for any other Government Agency. Hence, once again I confirm that the claim made by Powerdeal Energy System (I) Ltd., on the basis of my certificate is bogus and not genuine.Q.No.11 :Do you want to say anything else?Ans.Yes. The Certificate issued by me is not admissible for purpose of claiming any deduction as it was only projections and internal use of the company. It was also explained by me to the representative of the company. Further I have also confirmed this fact to your office wide my letter dated 23/05/2013. Hence, I have to state that the certificates issued by me are used for the purpose other than intended one.” 6)It is on the basis of the above tangible material obtained during the survey proceedings that the impugned notices dated 20 November 2012 were issued . In support of the aforesaid impugned notices the following reasons were communicated to the petitioner:- “Power deal Entry Systems (I) Pvt. Ltd. is a company engaged in the business of manufacturing of Electric Control Panels, compact power stations, scaffolding items made from steel etc. The assessee filed its return of income for the A. Y. 2009-10 on 21.04.2010. As per the balance sheet, the valuation of some specific intangible assets of the assesssee are as under :- The assessee company has claimed total depreciation of Rs.9,49,14,770/- in its return of income for the A. Y. 200-10, out of which the depreciation on the above mentioned assets is as under: In this case, scrutiny assessment u/s. 143(3) of the Act for the A. Y. 2009-10 was passed on 26.12.2011 assessing the total income of the assessee at Rs.69,28,911/- and accepting the claim of depreciation. A survey action u/s. 133A of the Act was conducted at the business premises of the assessee on 04 & 05.09.2013 to verify the genuineness of the valuation of the intangible assets and depreciation claimed thereon. The intangible assets are 1. Goodwill, 2. Product Research & Development and 3. Product Design & Drawing. The assessee company has claimed total depreciation of Rs.9,49,14,770/- in its return of income for the A. Y. 200-10, out of which the depreciation on the above mentioned assets is as under: In this case, scrutiny assessment u/s. 143(3) of the Act for the A. Y. 2009-10 was passed on 26.12.2011 assessing the total income of the assessee at Rs.69,28,911/- and accepting the claim of depreciation. A survey action u/s. 133A of the Act was conducted at the business premises of the assessee on 04 & 05.09.2013 to verify the genuineness of the valuation of the intangible assets and depreciation claimed thereon. The intangible assets are 1. Goodwill, 2. Product Research & Development and 3. Product Design & Drawing. During the survey action, it was found that the intangible assets – Product Research & Development and Product Design & Drawing were non-existent at the time of merger of Perfect Auto Products with the assessee company. A statement of Shri Manoj Kasat who issued the valuation certificate to the assessee was also recorded during the survey action in which he categorically stated that the valuation certificate was issued by him only for the internal use of the company and not for the purpose of claiming depreciation under the Income Tax Act. He stated that the valuation was based on future estimate and not on any assets. These facts were confronted with the director of the assessee company – Shri Mahesh Khairnar. Regarding the valuation of goodwill, he has stated that the valuation of goodwill at Rs.25 crore was made by him only. From the statement of Shri Mahesh Khairnar, following facts are emerged: Goodwill: There is no basis for valuation. No authentic valuation has been made by any competent authority. Product R & D, Product Design & Drawing:The assessee could not establish the existence of intangible assets. There is no evidence of creation of any intangible assets and expenditure incurred for creation of any asset. The assessee has not established that any expenditure is incurred for Research & Development and for creation of assets. Subsequently, the valuation of intangible assets have been done by two Govt. approved valuers. These valuers have categorically stated that the assessee has not created any intangible assets. Thus, there is no existence of intangible assets like Product Research & Development and Product Design & Drawing. Further, Shri Mahesh Khairnar has accepted, in his statement recorded during the survey, that 50% valuation of the intangible assets as non-genuine subject to fresh valuation. Accordingly, he also accepted 50% depreciation of these assets as excessive. It is thus accepted that he has no evidence to establish the valuation of intangible assets. Thus, the assesee has accepted the amount of Rs.3,75,00,000/- (50% of 7,50,00,000) as excess depreciation which is again subject to valuation. In view of the above facts, I have reason to believe that the income of the assessee to the extent of Rs.3,75,00,000/- has escaped assessment for the A. Y. 2009-10 within the meaning of section 147 of the Income Tax Act, 1961. Therefore, the assessment for the A. Y. 2009-10 is to be reopened u/s. 147 of the Income Tax Act, 1961.” 7)On 20 January 2014 the petitioner filed its objection to the reasons in support of the impugned notice. In its objection the petitioner particularly pointed out that the valuation of the intangible assets and the claim for depreciation were examined by the Assessing Officer while passing the order of assessment on 26 December 2011, thus the impugned notices were merely a change of opinion and therefore should be withdrawn. In view of the above facts, I have reason to believe that the income of the assessee to the extent of Rs.3,75,00,000/- has escaped assessment for the A. Y. 2009-10 within the meaning of section 147 of the Income Tax Act, 1961. Therefore, the assessment for the A. Y. 2009-10 is to be reopened u/s. 147 of the Income Tax Act, 1961.” 7)On 20 January 2014 the petitioner filed its objection to the reasons in support of the impugned notice. In its objection the petitioner particularly pointed out that the valuation of the intangible assets and the claim for depreciation were examined by the Assessing Officer while passing the order of assessment on 26 December 2011, thus the impugned notices were merely a change of opinion and therefore should be withdrawn. 8)On 20 January 2014 the Assessing Officer rejected the petitioner's objection to the grounds in support of the impugned notice. This was essentially on the ground that during the survey proceedings under Section 133A of the Act certain facts emerged which give reason to believe that the petitioner claim for depreciation on intangible assets was based on incorrect valuation. This resulted in excess depreciation being allowed. Thus, it was held that the impugned notices were not issued on the basis of change of opinion. 9)The grievance of the petitioner is that the impugned notice for the Assessment Years 2009-10 and 2010-11 are without jurisdiction in inasmuch as the same arises only on account of change of opinion. The Assessment order under Section 143(3) of the Act for A.Y. 2009-10 was passed on 26 ASN December 2012 while Assessment Order under Section 143(3) of the Act for A.Y. 2010-11 was passed on 12 December 2012 by the Assessing Officer. The survey proceedings took place thereafter in September 2013. During the survey proceedings under Section 133A of the Act statement of Managing Director of the petitioner as well as Chartered Engineer who valued the intangible assets were recorded. In his statement the Managing Director stated that he was ready to withdraw 50% of the claim for depreciation for AY 2009-10 and 2010-11 subject to fresh valuation of the intelligible assets. This acceptance of the Managing Director is itself sufficient tangible material for the Assessing officer to reopen the assessment for the purpose of considering the petitioner's claim with regard to valuation of intangible assets and the claim for depreciation thereon. The intangible assets would be revalued only during the course of reassessment proceedings and in the absence of reassessment proceedings, it would be impossible to take up the petitioner's offer that it is ready to withdraw 50% of the claim for depreciation subject to fresh valuation of intangible assets. Similarly the statement of the Chartered Engineer who valued the intangible assets as recorded during the survey proceeding indicates that the valuation done by him was only for the internal use of the company and not for the purpose of claiming deduction under the Act. In fact the Valuer very clearly states that the claim made by the petitioner “on the basis of his certificate is bogus and not genuine”. Thus the impugned notices have not been issued on the basis of change of opinion but on the basis of fresh tangible material obtained during the survey proceedings after the assessment orders u/s. 143(3) of the Act for A.Y.2009-10and 2010-11 were passed. Therefore, we see no reason to interfere with the impugned notices. but on the basis of fresh tangible material obtained during the survey proceedings after the assessment orders u/s. 143(3) of the Act for A.Y.2009-10and 2010-11 were passed. Therefore, we see no reason to interfere with the impugned notices. 10)Therefore, the Assessing Officer is at liberty to proceed with the reassessment proceedings for A.Y .2009-10 and 2010-11. During the reassessment proceedings it would be open to the petitioner to satisfy the Assessing Officer that the valuation of the intangible assets and the depreciation thereon as claimed was proper. The Assessing Officer would examine the claim of the petitioner with regard to valuation of intangible assets during the reassessment proceedings without being influenced by any observations made by us while dismissing this petition under Article 226 of the Constitution of India. 11)Accordingly both the petitions are dismissed. No order as to costs. ( N. M. JAMDAR, J.) (M.S. SANKLECHA, J.)