Wp/6260/2012 Of Bharathi Cement Corporation Pvt. Ltd v. The Commissioner Of Income Tax-Ii

THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON'BLE SRI JUSTICE N.RAVI SHANKAR WRIT PETITION No.6260 of 2012 ORDER:(Per THE HON'BLE SRI JUSTICE N. RAVI SHANKAR) This matter arises under the Income Tax Act, 1961 (forshort Act). The petitioner is a private limited company calledBharathi Cements Corporation Private Limited represented by itsdirector G.Balaji and it is in the business of manufacture ofcement. 2. When this writ petition came up for admission, the learnedStanding Counsel for the Income Tax Department took notice andsubsequently the third respondent filed his counter and materialpapers. Thereafter both sides were heard in the matter at theadmission stage itself. 3. The point raised in this writ petition is whether a letter/communication No.ACIT.2(3)/VAL/BHA/2011-12 dated 07.12.2011of the third respondent (Assistant Commissioner of Income Tax,Circle-2(3), Hyderabad) informing the petitioner that an earliernotice in File No.SE(V)/HYD/2485/ CG/895 dt.25.11.2011 given bythe fourth respondent (District Valuation Officer of the ValuationCell of the Income Tax Department, Hyderabad) and the earlierconnected notices should be read as those issued under Section142A are ultra vires the provisions of the Act and should be setaside. 4. The fourth respondent had earlier issued a notice dated25.11.2011 calling upon the petitioner to produce copies of certaindocuments to arrive at the fair market value of the petitioner’s plant at Nallalingayapalli village, Kamalapuram Mandal in KadapaDistrict. That notice was issued by the fourth respondent pursuantto the third respondent’s requisition dt.21.11.2011. In the noticedated 25.11.2011 it was mentioned that it was issued underSection 50C of the Act. Pursuant to the reply dated 05.12.2011 bythe petitioner to the third respondent explaining that Section 50Cwas inapplicable, the latter issued the impugned notice informingthe petitioner that it should be read as one issued under Section142A of the Act and that Section 50C was mentioned by mistake. 5. It is clear from the contentions that the petitioner is alsoquestioning the validity of the fourth respondent’s noticedt.25.11.2011 and also the aforementioned requisitiondt.21.11.2011 of the third respondent. It is also seen that the thirdrespondent earlier during assessment proceedings for theassessment year (AY) 2009-10 issued a notice dated 21.10.2011to the petitioner calling upon it to produce particulars relating to theinvestments and valuation of civil works and its plant. We willrefer to these notices later. 6. The point arises in the following circumstances. Thepetitioner for the AY 2009-10 submitted a return of income on30.09.2009 declaring a total income of Rs.2,91,01,247/-comprising of interest on fixed deposits with banks and APSTDCL,as by the previous year it did not commence its business and theabove income could not be capitalized. The third respondent whois also assessing officer by his assessment order dt.30.12.2011after taking up scrutiny of the return and for reasons recordedadded an income of Rs.69,84,11,520/- which was the amountshown as received through share premia from other investors inthe petitioner company and a sum of Rs.94,28,904/- towards unexplained cash credits under the relevant provisions of the Actand assessed the income of the petitioner at Rs.73,69,41,671/-after the said additions and fixed the total tax inclusive of interestand after deducting the tax already paid determined the taxpayable at Rs.32,09,48,108/-. 7. The petitioner preferred a statutory appeal before theconcerned Commissioner of Income Tax (Appeals) against theabove assessment order. We are not, of-course, concerned withthe correctness or otherwise of the said assessment order as itsmerits have to be decided in the statutory appeal. We mention theabove facts as the petitioner has made the above assessmentorder also a basis, as will presently be seen, for questioning theimpugned letters and notices. unexplained cash credits under the relevant provisions of the Actand assessed the income of the petitioner at Rs.73,69,41,671/-after the said additions and fixed the total tax inclusive of interestand after deducting the tax already paid determined the taxpayable at Rs.32,09,48,108/-. 7. The petitioner preferred a statutory appeal before theconcerned Commissioner of Income Tax (Appeals) against theabove assessment order. We are not, of-course, concerned withthe correctness or otherwise of the said assessment order as itsmerits have to be decided in the statutory appeal. We mention theabove facts as the petitioner has made the above assessmentorder also a basis, as will presently be seen, for questioning theimpugned letters and notices. 8. The first plea of the petitioner is that Section 50C of the Actdeals with consideration received by an assessee whiletransferring a capital asset and provides for calling for valuation ofthe asset only to determine the correct capital gain when theassessee suppresses it and therefore the said provision was notapplicable as no issue of capital gain arose in the assessmentproceedings. It is also pointed out in this connection that noticingthe above aspect which was canvassed by the assessee in itsreply dt.05.12.2011, the third respondent sent the impugned letterdt.07.12.2011 to wriggle out of that situation and therefore theimpugned notices are invalid. 9. The petitioner’s second plea is that the assessing officershould first reject the books of account of the petitioner or for thatmatter any assessee to again go into the investment and valuationof an asset and as the third respondent did not reject the books of account regarding the valuation of the petitioner’s plant in theassessment proceedings, it was not open to him to go into thisaspect. In support of this plea Sri C.P. Ramaswamy the learnedcounsel for petitioner also relied upon two decisions which we willrefer to later. 10. The third plea of the petitioner is that while conducting theassessment and passing the assessment order, the thirdrespondent neither referred to nor expressed any doubt about thevaluation of its plant; there was no reference to valuation and infact he also accepted certain vouchers and other documents filedby it showing investments in the plant. Therefore the presentnotices amount to witch hunting and harassment. Section 142A isalso not applicable to the petitioner’s case, to once again probeinto the valuation of the petitioner’s plant or the investment madeon it, is the contention. It is also pointed out that mere valuationcannot be the basis for taxation and it is only profits or incomewhich can be taken into account for the purpose of assessingtaxable income. 11. The third respondent filed a counter affidavit supporting theletter and the stand of the Revenue. Sri J.V.Prasad, the learnedStanding Counsel for the Revenue, contends that under Section142A(1) of the Act, it is open for the assessing officer to hold anenquiry into the valuation of any investment made by an assesseeeven after an assessment order is passed in order to assess thecorrect income from an unexplained investment or when the assetis deliberately wrongly valued for suppressing taxable income andthe third and fourth respondents are therefore justified in issuingthe impugned notices. Sri Prasad also pointed out that the thirdrespondent has not yet taken any final decision in the matter regarding valuation and unexplained investment or income and thatprocess has only been initiated. Ultimately if the third respondenttakes any decision which goes against the petitioner, the petitionercan always work out his remedies and the present writ petition ispremature. regarding valuation and unexplained investment or income and thatprocess has only been initiated. Ultimately if the third respondenttakes any decision which goes against the petitioner, the petitionercan always work out his remedies and the present writ petition ispremature. 12. We will now take up the pleas of the petitioner and the standof the Revenue for analysis. Regarding the first plea of thepetitioner, it is true that Section 50C of the Act deals withassessment of capital gain when it is noticed or suspected thatthere is suppression of actual consideration received by theassessee on transfer of an asset. It may however be noted thatSection 292B of the Act enacts no assessment, notice, summonsor other proceedings taken by the authorities under the Act shallbe invalid by reason of any mistake, defect or omission if suchnotice or proceedings or assessment is otherwise valid under theAct. This provision enacts the principle that mere non-mention ormention of a wrong provision of law in a proceeding or ordercannot be a ground to invalidate it if that is otherwise permissibleand valid under law. In fact, this was the answer of the thirdrespondent in his counter to the first plea of the petitioner and ithas to be accepted. 13. Sub-section 1 of Section 142A enacts that for the purposesof making assessment or re-assessment, where an estimate ofthe value of any investment referred to in the various sectionsmentioned therein, the assessing officer may require the valuationofficer concerned to make an estimate of such value and furnishhis report to him. Section 142A (1) of the Act which is relied uponby the respondents clearly authorizes issuance of the impugnedletter and the concerned notices; and they are permissible under the aforesaid provision even after an assessment is made. Thisaspect can as well fall under Section 69 of the Act which may dealwith unexplained investment. Thus the first plea of the petitioneris rejected. 14. Coming to the second plea of the petitioner, which is basedupon the requirement of rejection of books of account of thepetitioner regarding the valuation as a pre-condition for calling areport from the valuation officer, the position is this. Section142A(1) of the Act which provides for probing into the valuation ofinvestments and the source of money for such investments, hasbeen introduced by Finance Act 2004 (Central Act 23 of 2004),with effect from 15.11.1972. This provision specifically empowersthe concerned assessing authority to undertake re-assessmenteven after making an assessment. The provision does requirethat for exercise of power under Section 142A(1) of the Act(regarding ascertaining the value of investment), the assessingofficer should first reject the books of account of the assessee inwhich he has shown the valuation of such investment, as a pre-condition for enquiring into the same. 15. Basing upon the language of Section 142A(1) of the Act, aDivision Bench of Uttarakhand High Court in CIT v. BhawaniShankar Vyas[[1]](relied upon by Sri C.P. Ramasami) has alsoclearly held that rejection of books of account is not a pre-condition for enquiring into the valuation of an investment for thepurpose of re-assessment under Section 142A(1). The DivisionBench in that case was dealing with an appeal from the order of anappellate tribunal. It has also considered the scope and power ofthe authorities under Section 144 which deals with best judgmentassessment, Section 144A which deals with the power of the Joint Commissioner in certain cases to issue directions and Section 131which deals with the power regarding discovery and production ofevidence and laid down the above proposition. 15. Basing upon the language of Section 142A(1) of the Act, aDivision Bench of Uttarakhand High Court in CIT v. BhawaniShankar Vyas[[1]](relied upon by Sri C.P. Ramasami) has alsoclearly held that rejection of books of account is not a pre-condition for enquiring into the valuation of an investment for thepurpose of re-assessment under Section 142A(1). The DivisionBench in that case was dealing with an appeal from the order of anappellate tribunal. It has also considered the scope and power ofthe authorities under Section 144 which deals with best judgmentassessment, Section 144A which deals with the power of the Joint Commissioner in certain cases to issue directions and Section 131which deals with the power regarding discovery and production ofevidence and laid down the above proposition. 16. As already mentioned, the above decision was rendered inan appeal under Section 260A of the Act from an order of thetribunal. There the tribunal independently considered the matterand reached its conclusions on facts. On the premise thatfindings of facts cannot be interfered with, the Division Bench inthe aforesaid case however held that the tribunal’s view that theassessing officer should first reject the books of account of theassessee before calling for a valuation report was not correct. The Division Bench of the Uttarakhand High Court ultimatelyconcluded that full powers have been given by Section 142A of theAct to the assessing officer and it was not necessary for him tofirst reject the books of account of the assessee. We respectfullyagree with the above view of the Uttarakhand High Court. 17. However, in Sargam Cinema v. CIT[[2]](another decisionrelied upon by Sri C.P. Ramasami) the Hon’ble Supreme Court inproceedings arising in statutory appeals under the Act did observethat the assessing authority could not have referred the matters tothe departmental valuation officer without rejecting the books ofaccount of the assessee. This judgment is a very short judgmentand nothing is placed before us to infer that the matter pertains toa year after the amendment of Section 142A by Finance Act 2004. The relevant facts are not discernable from the judgment and inour opinion this decision cannot therefore come to the rescue ofthe petitioner. 18. Even otherwise it may be noted here that in the course of previous assessment proceedings, as will be presently seen underthe third plea, the third respondent did not accept the valuationshown by the petitioner in its balance sheet and accounts and hewas asking for more information to arrive at the fair market valueof the petitioner’s plant and civil works connected with it. In fact,that can be treated as amounting to rejecting the books of accountof the petitioner by implication and no formal order rejecting thebooks of account is necessary. This is also a negative point forthe petitioner and the petitioner’s contention under this point isliable to be rejected on the above ground. 19. That takes us to the third plea of the petitioner. The thirdrespondent has dealt with the same in his counter affidavit, indetail. The relevant plea in the counter is that earlier in the courseof assessment proceedings for the AY 2009-10 he issued severalquestionnaires also. He pointed out that in the balance sheet as at31.03.2009 the petitioner showed the aggregate value of the capitalwork in progress roughly at Rs.481.92 crores; the petitionerproduced bills and vouchers roughly for about Rs.405.76 croresand has yet to produce bills roughly for the value of Rs.67 croresand more but failed to produce the same. It is also the case of thethird respondent that he issued a notice dt.21.10.2011 to thepetitioner calling for the above particulars to be produced by10.11.2011 but the petitioner did not comply and went on furnishinginformation in a piece meal manner, which was incomplete. Thisnotice dated 21.10.2011 was admitted by the petitioner in his replyaffidavit. 20. The version of the third respondent is that despite remindersthe petitioner did not produce the bills and vouchers necessary forcorrectly estimating the value of the investments in the plant and went on postponing the matter and as the time limit for completionof assessment was about to expire, he passed the assessmentorder dt.30.12.2011 without touching the valuation of the civilworks including the plant. We mention the above facts only toindicate the situation or circumstances under which the thirdrespondent says the impugned letter and connected notices wereissued to the petitioner calling for all particulars of the valuationrelating to the plant and its civil works. As noticed earlier, theconduct of the third respondent in calling for particulars relating tovaluation of the plant would show that he did not accept the booksof account of the petitioner filed in the initial assessmentproceedings and this by implication amounts to rejection. Itcannot therefore be said that the third respondent or the revenuewere acting according to their whims and fancies. 21. What should be noted is that the above circumstances wouldshow that the third respondent had already referred to valuation ofthe plant and other civil works during assessment proceedingswhich culminated in the order dated 30.11.2011 and the petitionerdid not fully comply with the notices issued by him in that behalf. In fact the third respondent did not go into valuation of the plant inthe aforesaid assessment order and his plea was that since therewas no full information, he refrained from going into the same. Insuch a situation, the third respondent claims that he took up theissue of valuation of the plant and called for particulars from thevaluation officer also apart from issuing other communications tothe petitioner for full information relating to valuation to take up re-assessment if necessary and the third respondent was within hispower to do so under Section 142A of the Act. 22. It is also settled now that an assessing authority under the Act is also given inquisitorial powers while making assessment orre-assessment. Thus it cannot be said that the third respondenthad accepted the valuation given by the petitioner in his books ofaccount and the other bills and vouchers filed by him with regardto its plant and its other civil works in the previous assessmentproceedings. It therefore follows that the third respondent waswell within his power under Section 142A to take up that issue ofvaluation of or investment in petitioner’s plant for a re-assessmentif necessary. Hence we are not inclined to accept this third plea ofthe petitioner also. 23. Further this is a case where the assessing authority hasmerely issued a notice earlier to the petitioner calling for certaininformation regarding valuation of the plant, but subsequentlyreferred the matter to the fourth respondent valuation officer inorder to take a decision in the matter. The third respondent is yetto take a decision and pass a final order regarding re-assessmentand about the valuation of the investment in question and he mayrest his decision on various factors and having regard to thelanguage of Section 142A(1) it can be said that he has that power. Once a decision is taken by the third respondent in this matter andif it goes against the petitioner, it is always open for the petitionerto work out its remedies. Thus the writ petition can be said to bepremature. 24. In the above circumstances and for the aforesaid reasons,we are of the opinion that this writ petition must fail and it isaccordingly dismissed at the admission stage with costs. _______________________ GODA RAGHURAM, J 20[th] JUNE 2012CVRK/TJMR _______________________ N. RAVI SHANKAR, J THE HON’BLE SRI JUSTICE GODA RAGHURAMANDTHE HON'BLE SRI JUSTICE N.RAVI SHANKAR WRIT PETITION No.6260 of 2012 (Per THE HON'BLE SRI JUSTICE N. RAVI SHANKAR) CVRK/TJMR 20[th] JUNE 2012 [1](2009) 311 ITR 8 (Uttarakhand) [2](2010) 328 ITR 513 (SC)