Bharathi Cement Corporation (P) Ltd. vs Commissioner of Income Tax and Others

N. Ravi Shankar, J.—This matter arises under the IT Act, 1961 (for short Act). The petitioner is a private limited company called Bharathi Cements Corporation (P) Ltd. represented by its director, G. Balaji and it is in the business of manufacture of cement. When this writ petition came up for admission, the learned standing counsel for the IT Department took notice and subsequently the third respondent filed his counter and material papers. Thereafter both sides were heard in the matter at the admission stage itself.

The point raised in this writ petition is whether a letter/communication No. Asstt. CIT. 2(3)/VAL/BHA/2011-12 dt. 7th Dec., 2011 of the third respondent [Asstt. CIT, Circle-2(3), Hyderabad] informing the petitioner that an earlier notice in file No. SE(V)/Hyd/2485/CG/895 dt. 25th Nov., 2011 given by the fourth respondent (District Valuation Officer of the Valuation Cell of the IT Department, Hyderabad) and the earlier connected notices should be read as those issued under s. 142A are ultra vires the provisions of the Act and should be set aside ?

The fourth respondent had earlier issued a notice dt. 25th Nov., 2011 calling upon the petitioner to produce copies of certain documents to arrive at the fair market value of the petitioner''s plant at Nallalingayapalli Village, Kamalapuram Mandal in Kadapa District. That notice was issued by the fourth respondent pursuant to the third respondent''s requisition dt. 21st Nov., 2011. In the notice dt. 25th Nov., 2011 it was mentioned that it was issued under s. 50C of the Act. Pursuant to the reply dt. 5th Dec., 2011 by the petitioner to the third respondent explaining that s. 50C was inapplicable, the latter issued the impugned notice informing the petitioner that it should be read as one issued under s. 142A of the Act and that s. 50C was mentioned by mistake.

It is clear from the contentions that the petitioner is also questioning the validity of the fourth respondent''s notice dt. 25th Nov., 2011 and also the aforementioned requisition dt. 21st Nov., 2011 of the third respondent. It is also seen that the third respondent earlier during assessment proceedings for the asst. yr. 2009-10 issued a notice dt. 21st Oct., 2011 to the petitioner calling upon it to produce particulars relating to the investments and valuation of civil works and its plant. We will refer to these notices later.

The point arises in the following circumstances. The petitioner for the asst. yr. 2009-10 submitted a return of income on 30th Sept., 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 the above income could not be capitalized. The third respondent who is also AO by his assessment order dt. 30th Dec., 2011 after taking up scrutiny of the return and for reasons recorded added an income of Rs. 69,84,11,520 which was the amount shown as received through share premia from other investors in the petitioner company and a sum of Rs. 94,28,904 towards unexplained cash credits under the relevant provisions of the Act and assessed the income of the petitioner at Rs. 73,69,41,671 after the said additions and fixed the total tax inclusive of interest and after deducting the tax already paid, determined the tax payable at Rs. 32,09,48,108.

The petitioner preferred a statutory appeal before the concerned CIT(A) against the above assessment order. We are not of course, concerned with the correctness or otherwise of the said assessment order as its merits have to be decided in the statutory appeal. We mention the above facts as the petitioner has made the above assessment order also a basis, as will presently be seen, for questioning the impugned letters and notices.

The first plea of the petitioner is that s. 50C of the Act deals with consideration received by an assessee while transferring a capital asset and provides for calling for valuation of the asset only to determine the correct capital gain when the assessee suppresses it and therefore the said provision was not applicable as no issue of capital gain arose in the assessment proceedings. It is also pointed out in this connection that noticing the above aspect which was canvassed by the assessee in its reply dt. 5th Dec., 2011, the third respondent sent the impugned letter dt. 7th Dec., 2011 to wriggle out of that situation and therefore the impugned notices are invalid.

The petitioner''s second plea is that the AO should first reject the books of account of the petitioner or for that matter any assessee to again go into the investment and valuation of an asset and as the third respondent did not reject the books of account regarding the valuation of the petitioner''s plant in the assessment proceedings, it was not open to him to go into this aspect. In support of this plea Sri C.P. Ramaswamy the learned counsel for petitioner also relied upon two decisions which we will refer to later.

The third plea of the petitioner is that while conducting the assessment and passing the assessment order, the third respondent neither referred to nor expressed any doubt about the valuation of its plant; there was no reference to valuation and in fact he also accepted certain vouchers and other documents filed by it showing investments in the plant. Therefore, the present notices amount to witch-hunting and harassment. Sec. 142A is also not applicable to the petitioner''s case, to once again probe into the valuation of the petitioner''s plant or the investment made on it, is the contention. It is also pointed out that mere valuation cannot be the basis for taxation and it is only profits or income which can be taken into account for the purpose of assessing taxable income.

The third respondent filed a counter affidavit supporting the letter and the stand of the Revenue. Sri J.V. Prasad, the learned standing counsel for the Revenue, contends that under s. 142A(1) of the Act, it is open for the AO to hold an enquiry into the valuation of any investment made by an assessee even after an assessment order is passed in order to assess the correct income from an unexplained investment or when the asset is deliberately wrongly valued for suppressing taxable income and the third and fourth respondents are therefore justified in issuing the impugned notices. Sri Prasad also pointed out that the third respondent has not yet taken any final decision in the matter regarding valuation and unexplained investment or income and that process has only been initiated. Ultimately if the third respondent takes any decision which goes against the petitioner, the petitioner can always work out his remedies and the present writ petition is premature.

We will now take up the pleas of the petitioner and the stand of the Revenue for analysis. Regarding the first plea of the petitioner, it is true that s. 50C of the Act deals with assessment of capital gain when it is noticed or suspected that there is suppression of actual consideration received by the assessee on transfer of an asset. It may however be noted that s. 292B of the Act enacts no assessment, notice, summons or other proceedings taken by the authorities under the Act shall be invalid by reason of any mistake, defect or omission if such notice or proceedings or assessment is otherwise valid under the Act. This provision enacts the principle that mere non-mention or mention of a wrong provision of law in a proceeding or order cannot be a ground to invalidate it if that is otherwise permissible and valid under law. In fact, this was the answer of the third respondent in his counter to the first plea of the petitioner and it has to be accepted.

Sub-s. (1) of s. 142A enacts that for the purposes of making assessment or reassessment, where an estimate of the value of any investment referred to in the various sections mentioned therein, the AO may require the Valuation Officer concerned to make an estimate of such value and furnish his report to him. Sec. 142A(1) of the Act which is relied upon by the respondents clearly authorizes issuance of the impugned letter and the concerned notices: and they are permissible under the aforesaid provision even after an assessment is made. This aspect can as well fall under s. 69 of the Act which may deal with unexplained investment. Thus, the first plea of the petitioner is rejected.

Coming to the second plea of the petitioner, which is based upon the requirement of rejection of books of account of the petitioner regarding the valuation as a precondition for calling a report from the valuation officer, the position is this. Sec. 142A(1) of the Act which provides for probing into the valuation of investments and the source of money for such investments, has been introduced by Finance Act, 2004 (Central Act 23 of 2004), w.e.f. 15th Nov., 1972. This provision specifically empowers the concerned assessing authority to undertake reassessment even after making an assessment. The provision does require that for exercise of power under s. 142A(1) of the Act (regarding ascertaining the value of investment), the AO should first reject the books of account of the assessee in which he has shown the valuation of such investment, as a pre-condition for enquiring into the same.

Basing upon the language of s. 142A(1) of the Act, a Division Bench of Uttarakhand High Court in Commissioner of Income Tax and Another Vs. Bhawani Shankar Was, (relied upon by Sri C.P. Ramasami) has also clearly held that rejection of books of account is not a precondition for enquiring into the valuation of an investment for the purpose of re-assessment under s. 142A(1). The Division Bench in that case was dealing with an appeal from the order of an Tribunal. It has also considered the scope and power of the authorities under s. 144 which deals with best judgment assessment, s. 144A which deals with the power of the Jt. CIT in certain cases to issue directions and s. 131 which deals with the power regarding discovery and production of evidence and laid down the above proposition.

As already mentioned, the above decision was rendered in an appeal under s. 260A of the Act from an order of the Tribunal. There the Tribunal independently considered the matter and reached its conclusions on facts. On the premise that findings of facts cannot be interfered with, the Division Bench in the aforesaid case however held that the Tribunal''s view that the AO should first reject the books of account of the assessee before calling for a valuation report was not correct. The Division Bench of the Uttarakhand High Court ultimately concluded that full powers have been given by s. 142A of the Act to the AO and it was not necessary for him to first reject the books of account of the assessee. We respectfully agree with the above view of the Uttarakhand High Court.

However, in Sargam Cinema vs. CIT (2011) 241 CTR (SC) 179 : (2010) 328 ITR 513 (SC) (another decision relied upon by Sri C.P. Ramasami) the Hon''ble Supreme Court in proceedings arising in statutory appeals under the Act did observe that the assessing authority could not have referred the matters to the DVO without rejecting the books of account of the assessee. This judgment is a very short judgment and nothing is placed before us to infer that the matter pertains to a year after the amendment of s. 142A by Finance Act, 2004. The relevant facts are not discernible from the judgment and in our opinion this decision cannot therefore come to the rescue of the petitioner.

Even otherwise, it may be noted here that in the course of previous assessment proceedings, as will be presently seen under the third plea, the third respondent did not accept the valuation shown by the petitioner in its balance sheet and accounts and he was asking for more information to arrive at the fair market value of the petitioner''s plant and civil works connected with it. In fact, that can be treated as amounting to rejecting the books of account of the petitioner by implication and no formal order rejecting the books of account is necessary. This is also a negative point for the petitioner and the petitioner''s contention under this point is liable to be rejected on the above ground.

That takes us to the third plea of the petitioner. The third respondent has dealt with the same in his counter-affidavit, in detail. The relevant plea in the counter is that earlier in the course of assessment proceedings for the asst. yr. 2009-10 he issued several questionnaires also. He pointed out that in the balance sheet as at 31st March, 2009, the petitioner showed the aggregate value of the capital work-in-progress roughly at Rs. 481.92 crores; the petitioner produced bills and vouchers roughly for about Rs. 405.76 crores and has yet to produce bills roughly for the value of Rs. 67 crores and more but failed to produce the same. It is also the case of the third respondent that he issued a notice dt. 21st Oct., 2011 to the petitioner calling for the above particulars to be produced by 10th Nov., 2011, but the petitioner did not comply and went on furnishing information in a piecemeal manner, which was incomplete. This notice dt. 21st Oct., 2011 was admitted by the petitioner in his reply affidavit.

The version of the third respondent is that despite reminders the petitioner did not produce the bills and vouchers necessary for correctly estimating the value of the investments in the plant and went on postponing the matter and as the time-limit for completion of assessment was about to expire, he passed the assessment order dt. 30th Dec., 2011 without touching the valuation of the civil works including the plant. We mention the above facts only to indicate the situation or circumstances under which the third respondent says the impugned letter and connected notices were issued to the petitioner calling for all particulars of the valuation relating to the plant and its civil works. As noticed earlier, the conduct of the third respondent in calling for particulars relating to valuation of the plant would show that he did not accept the books of account of the petitioner filed in the initial assessment proceedings and this by implication amounts to rejection. It cannot therefore be said that the third respondent or the Revenue was acting according to their whims and fancies.

What should be noted is that the above circumstances would show that the third respondent had already referred to valuation of the plant and other civil works during assessment proceedings which culminated in the order dt. 30th Nov., 2011 and the petitioner did 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 in the aforesaid assessment order and his plea was that since there was no full information, he refrained from going into the same. In such a situation, the third respondent claims that he took up the issue of valuation of the plant and called for particulars from the Valuation Officer also apart from issuing other communications to the petitioner for full information relating to valuation to take up reassessment if necessary and the third respondent was within his power to do so under s. 142A of the Act.

It is also settled now that an assessing authority under the Act is also given inquisitorial powers while making assessment or reassessment. Thus, it cannot be said that the third respondent had accepted the valuation given by the petitioner in his books of account and the other bills and vouchers filed by him with regard to its plant and its other civil works in the previous assessment proceedings. It therefore follows that the third respondent was well within his power under s. 142A to take up that issue of valuation of or investment in petitioner''s plant for a reassessment if necessary. Hence we are not inclined to accept this third plea of the petitioner also.

Further, this is a case where the assessing authority has merely issued a notice earlier to the petitioner calling for certain information regarding valuation of the plant, but subsequently referred the matter to the fourth respondent Valuation Officer in order to take a decision in the matter. The third respondent is yet to take a decision and pass a final order regarding reassessment and about the valuation of the investment in question and he may rest his decision on various factors and having regard to the language of s. 142A(1), it can be said that he has that power. Once a decision is taken by the third respondent in this matter and if it goes against the petitioner, it is always open for the petitioner to work out its remedies. Thus, the writ petition can be said to be premature. In the above circumstances and for the aforesaid reasons, we are of the opinion that this writ petition must fail and it is accordingly dismissed at the admission stage with costs.