2013 (10) TMI 1026 - HC - Income Tax

Application of section 292B of the Income Tax Act Applicability of section 50C when no capital gains liable to tax - Reference to valuation officer u/s 142A without rejection of books of accounts - Held that - 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. Section 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. Reliance has been placed upon the judgment in the case of CIT v. Bhawani Shankar Vyas 2008 (11) TMI 154 - UTTARKHAND HIGH COURT , wherein it was held that rejection of books of account is not a precondition for enquiring into the valuation of an investment for the purpose of reassessment under section 142A(1) - The Division Bench of the Uttarakhand High Court ultimately concluded that full powers have been given by section 142A of the Act to the Assessing Officer and it was not necessary for him to first reject the books of account of the assessee Decided against the assessee.

Issues Involved:
1. Validity of the notice issued under Section 142A of the Income-tax Act, 1961.
2. Applicability of Section 50C of the Income-tax Act, 1961.
3. Requirement of rejecting the books of account before calling for a valuation report.
4. Allegations of harassment and witch-hunting by the Income-tax Department.

Detailed Analysis:

1. Validity of the notice issued under Section 142A of the Income-tax Act, 1961:

The petitioner challenged the notice dated December 7, 2011, issued by the Assistant Commissioner of Income-tax (ACIT), Circle-2(3), Hyderabad, which informed the petitioner that an earlier notice should be read as issued under Section 142A of the Act. The court analyzed Section 142A(1) of the Act, which allows the Assessing Officer (AO) to require a Valuation Officer to estimate the value of any investment and furnish a report for the purpose of assessment or reassessment. The court concluded that the impugned letter and notices were permissible under Section 142A(1) and could also fall under Section 69, dealing with unexplained investment. Therefore, the first plea of the petitioner was rejected.

2. Applicability of Section 50C of the Income-tax Act, 1961:

The petitioner argued that Section 50C, which deals with the consideration received while transferring a capital asset, was inapplicable as no issue of capital gain arose in the assessment proceedings. The court noted that Section 292B of the Act states that no assessment, notice, summons, or other proceedings shall be invalid by reason of any mistake, defect, or omission if such notice or proceedings are otherwise valid under the Act. The court accepted the Revenue's contention that the mention of Section 50C by mistake did not invalidate the notice, as it could be read under the correct provision, Section 142A.

3. Requirement of rejecting the books of account before calling for a valuation report:

The petitioner contended that the AO should first reject the books of account before calling for a valuation report. The court referred to Section 142A(1) and the decision of the Uttarakhand High Court in CIT v. Bhawani Shankar Vyas, which held that rejection of books of account is not a precondition for enquiring into the valuation of an investment. The court agreed with this view and noted that the Supreme Court's decision in Sargam Cinema v. CIT, which suggested otherwise, did not provide relevant facts to infer its applicability post-amendment of Section 142A by the Finance (No. 2) Act, 2004. The court also observed that the AO's actions during the previous assessment proceedings implied a rejection of the petitioner's books of account, thus rejecting the second plea.

4. Allegations of harassment and witch-hunting by the Income-tax Department:

The petitioner claimed that the current notices amounted to harassment, as the AO had neither referred to nor expressed any doubt about the valuation of the plant during the assessment. The court noted that the AO had issued several questionnaires and notices during the assessment proceedings, indicating that the petitioner failed to produce complete information. The AO's actions were within his powers under Section 142A to reassess the valuation of the plant. The court concluded that the AO had not accepted the petitioner's valuation and was justified in seeking further information for reassessment. Therefore, the third plea of the petitioner was also rejected.

Conclusion:

The court dismissed the writ petition at the admission stage with costs, stating that the AO was within his powers to issue the impugned notices and that the writ petition was premature, as the AO had not yet taken a final decision regarding the reassessment.

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