BRITANNIA INDUSTRIES LIMITED VS DEPUTY COMMISSIONER OF INCOME-TAX
2001 P T D 31
[238 I T R 57]
[Calcutta High Court (India)]
Before Y.R. Meena, J
BRITANNIA INDUSTRIES LIMITED
versus
DEPUTY COMMISSIONER OF INCOME‑TAX and others
Writ Petition No. 1603 of 1995, decided on 17/11/1998.
Income‑tax‑‑‑
‑‑‑‑Reassessment‑‑‑Capital gains‑‑‑Amount of capital gains shown in return and accepted by Assessing Officer‑‑‑Subsequent report by Valuation Officer that fair market value of property was greater than that disclosed‑‑‑No evidence of understatement of consideration for transfer of property‑ Reassessment proceedings on the basis of such report was not valid‑‑‑Indian Income Tax Act, 1961, Ss.45 & 147.
Although section 52(2) of the Income Tax Act, 1961, has been omitted from the statute the fact remains that in case of transfer of assets no capital gain tax can be taxed over and above the capital' gain shown and disclosed by the assessee unless there is evidence that there has been an understatement by the assessee and more consideration has passed than disclosed. A valuation report is only an opinion, but that does not show or prove that there is some underhand dealing and consideration has passed more than what is disclosed by the assessee or the petitioner. When no tax or any addition can be made on. the basis of the valuation report, the Assessing Officer cannot assume jurisdiction under section 148 of the Income Tax Act, 1961, to issue notice for escaped capital gain as no addition can be made on the basis of the fair market value of the property in case of capital gain tax.
Brooke Bond Lipton India Ltd. v. CIT (1996) 222 ITR 540 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Indian‑ Oil Corporation v. ITO.(1986) 159 ITR 956 (SC); Indo Asahi Glass Co. v. ITO (4996) 222 ITR 534 (Cal.); ITO v. Selected Dalurband Coal Co. (Pvt.) Ltd. (1996) 217 ITR 597 (SC); Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC); Rattan Gupta v. Union of India (1998) 234 ITR 220 (Delhi) and Varghese (K.P.) v ITO (1981) 131 ITR 597 (SC) ref.
Dr. Debiprosad pal and Miss Manisha Seal for Petitioner.
Prodosh Kumar Mallick and P.K. Bhowmick for Respondents.
JUDGMENT
By this petition the petitioner has challenged the impugned notice, dated April 7, 1995, issued by respondent No. l under section 148 of the Act relating to the assessment year 1992‑93. After hearing the matter on August 19, 1998, a prima facie view was taken that the notice under section 148 was illegal and that should be quashed. But subsequently after going through the materials before signing the orders it was found that the notice has been issued under section 148 of the Act within four years from the end of the relevant assessment year. Therefore, in that case it is not relevant whether the assessee has declared fully and truly all materials facts for the assessment. What is relevant is whether any income has escaped from the assessment which is liable to be taxed in the relevant assessment year.
The date of year eliding of the accounting year is March 31, 1992, and the notice under section 148 has been issued on April 7, 1994, for the assessment year 1992‑93. Thus, the notice has been issued within four years from the end of the relevant assessment year. The notice under section 148 has been issued on the basis that the Assessing Officer has received a report from the Valuation Officer regarding the value of the Soya Unit which had been sold to S.M. Dyechem Limited, Bombay. The unit was transferred for a total consideration of Rs.9,65,00,000 that is for capital assets as well as current assets.
The assessee has filed the return for the assessment year 1992‑93 on December 23, 1992. Along with the said return, the assessee has filed the audit report of profit and loss account, the balance‑sheet for the financial year ended on March 31, 1992, and also the reports under sections 44AB, 80HH and 80HHC of the Act.
After considering all the relevant materials produced before respondent No. 1, respondent No. 1 completed the assessment under section 143(3) of the Act on March 30, 1995, and completed the total income of the petitioner at Rs. 22,28,43,640. The Assessing Officer has also referred to the transaction of Soya Unit which was sold by the petitioner. 'Though tile book value of the assts has been taken at Rs.5,04,10,980 but according to the petitioner the correct figure is Rs.5,31,90,000. The Assessing Officer has referred the matter to the Valuation Officer under section 55A of the Act. He received the valuation report after completion of the assessment order under section 143(3) of the Act. As the Valuation Officer has valued the assets transferred at a higher, figure, the impugned notice under section 148 read with section 147 of the Act has been issued to the petitioner.
Learned counsel for the petitioner, Dr. Pal, submits that, for notice, under section 148 of the Act, the Court should look into the reasons recorded to see whether there is any escapement of income which is to, be taxed and which escaped from the assessment.
In the supplementary affidavit filed by the respondent; copy of the reasons recorded has been annexed. The reasons recorded by the Assessing Officer for reopening the assessment under section 147, which were recorded on April 7, 1995, reads as under:
"The F. No. DVO/DPL/OG‑10/1994‑95/319, dated March 27, 1995, was received on March 31, 1995, after the assessment order was signed by me. The structural portion of the Vidisha Plant has been valued by the D.V.C. at Rs.3,73,47,000 which is much higher than shown by the assessee in respect of sale made to S.M. Dye Chem Ltd.
I have reason to believe that income of the assessee (capital gain) has escaped assessment as well as depreciation has been allowed at higher quantum for failure on the part of the assessee to file correct facts at the time of assessment. "
Dr. Pal submits that the opinion of the Assessing Officer that some income has escaped assessment is purely based on the valuation report of the valuer, who has valued the transferred assets at higher value. According to him, that cannot be made the base for reopening of the assessment under section 147. He submits that now section 52(2) has been omitted from the Act and he further placed reliance that in view of the decision of the apex Court in K.P. Varghese's case (1981) 131 ITR 597, no capital gain can be taxed unless it is proved that there is some underhand dealing. When that material is not there with the Assessing Officer, he cannot assume the jurisdiction under section 148 for issue of notice for the escaped income, as no income has escaped on the basis of materials available to him.
Learned counsel for the Department, Mr; Mullick, submits that notice under section 148 has been issued on the basis of the material on record and whether there was an escapement of income or not and how much income has escaped from the assessment, that cannot be decided at the notice stage; that can be decided only after issue of notice. Therefore, at the notice stage the Court should not interfere only on the ground that the Department has not proved how much income has been escaped. He placed reliance on the decision of the apex Court in ITO v. Selected Dalurband and Coal Co. (Pvt.) Ltd. (1996) 217 ITR 597; Brooke Bond Lipton India Ltd. v. CIT (.1996) 222 ITR 540 (Cal.) and Rattan Gupta v. Union of India (1998) 234 ITR 220 (Delhi). He also referred to the background of this case which is stated in paragraphs 6 and 9 of the affidavit‑in‑opposition. He further submits that there is alternate remedy in case the petitioner has any grievance after the reassessment, he can file appeal and take all these grounds before the appellate authority. In counter, Dr. Pal, learned counsel for the petitioner, placed reliance on Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Indian Oil Corporation v. ITO (1986) 159 ITR 956 (SC) and Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC).
The proviso to section 147 reads as under:
"Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
It is the admitted case of the petitioner that notice has been issued within four years from the end of the relevant assessment year. Therefore, it is not necessary to show that the petitioner has failed to disclose fully and truly all material facts for the assessment of its income.
Now the limited question is whether the valuation report can be made the basis for the notice under section 148 read with section 147 of the Income Tax Act, 1961. In the case on hand, the petitioner has challenged the notice under section 148 itself, but a perusal of the judgment in Indo Asahi Glass Co. v. ITO (1996) 222 ITR 534 (Cal.) at page 539 shows that there was no dispute on the jurisdiction of the Income‑tax Officer to issue the show‑cause notice. When the show‑cause notice was not in challenge in that case, the, above‑referred cases are of no assistance to the respondent here. In ITO v. Selected Dalurband Coal Co. (P.) Ltd. (1996) 217 ITR 597 (SC), the issue before the apex Court was whether notice under section 148 read with section 147 (a) is valid. In that case a joint inspection was made in the colliery mentioned above on January 9, 1967, and after inspection it was found that the colliery company has under reported the raising figure to the following extent during the period from 1956 to January 9, 1967: "Shortage of 'surface coal stock was‑also detected to the extent of 387 m.t. of Grade I Coal on January 9, 1967". These were the facts which subsequently came to the notice of the Income‑tax Officer and which was suppressed by the assessee on the basis of that material some addition in the income could be made. Therefore, the apex Court has taken the view that the notice under section 148 was valid.
In the case in hand the dispute is whether the capital gain has correctly been shown by the assessee in his return for the assessment year 1992‑93 after completion of the assessment. The Assessing Officer received the valuation report which shows higher value of the assets transferred than the value disclosed. Can that be taken as reason for notice under section 148 of the Act? For capital gains tax before 1988 there was a section 52(2) which reads as under:
"52 (2). Without prejudice to the provisions of subsection (1), if in the opinion of the Income‑tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer."
This section, has been omitted with effect from April 1, 1988. Thereafter, no capital gain can be taxed on the basis of fair market value. Assuming that what the Valuation Officer has shown is a fair value of the assets transferred, can that be taken as the value for capital gains tax purpose? The answer will obviously be in the negative, specially after omission of section 52(2) of the Act.
In Rattan Gupta v. Union of India (1998) 234 ITR 220, the Delhi High Court also had the occasion to deal with the notice under section 148 of the Act, and followed the view taken by the apex Court in ITO v. Selected Dalurband Coal Co. (Pvt.) Ltd. (1996) 217 ITR 597. As I have stated above, there can be a case for reopening of the assessment when some material has been suppressed, but for capital gain tax after transfer of the asset, no capital gain can be taxed ' unless it is proved that there is an underhand dealing and consideration has passed more than that shown in the deed.
In K.P. Varghese v. ITO (1981) 131 ITR 597 (SC), at page 616, their Lordships of the apex Court observed as under:
"It is, therefore, clear that subsection (2) cannot be invoked by the Revenue unless there is understatement of the consideration in respect of the'' transfer and burden of showing that there is such understatement is on the Revenue. Once it is established by the Revenue that the consideration for the transfer has been understated or, to put it differently, the consideration actually received by the assesssee is more than what is declared or disclosed by him, subsection (2) is immediately attracted, subject of course to the fulfilment of the condition of 15 per cent. or more difference, and the Revenue is then not required to show what is the precise extent of the understatement or in other words, what is the consideration actually received by the assessee. That would in most cases be difficult, if not impossible, to show and hence subsection (2) relieves the Revenue of all burden of proof regarding the extent of understatement or concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely provides a statutory best judgment assessment of the consideration actually received by the assessee and brings to tax capital gains on the footing that the fair market value of the capital asset represents the actual consideration received by the assessee as against the consideration untruly declared or disclosed by him. This approach in the construction of subsection (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noted that section 52 is not a charging section but is a computation section. It has to be read along with section 48 which provides the mode of computation and under which the starting point of computation is 'the full value of the consideration received or accruing'. What in fact never accrued or was never received cannot be computed as capital gains under section 48. Therefore, subsection (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received from the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and prove the exact quantum of the suppressed consideration, subsection (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the Revenue to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer."
Now, section 52(2) has been omitted from the statute but still the fact remains that in case of transfer of assets no capital gain tax can be taxed over and above the capital gain shown and disclosed by the assessee unless there is material that there is an understatement by ‑the assessee and more consideration has passed than disclosed. A valuation report is only an opinion, but that does not show or prove that there is some underhand dealing and consideration has passed more than what is disclosed by the assessee or the petitioner. When no tax or any addition can be made on the valuation report which is made the base Or reopening of the assessment, the Assessing Officer cannot assume jurisdiction under section 148 of the Act to issue notice for escaped capital gain'; as no addition can be made on the basis of the fair market value of the' property in case of capital gain tax, however, the position would be different if there will be a case of investment in construction or any fact is suppressed and income escaped from assessment.
Assuming that the valuation report was available to the Assessing Officer before completion of the assessment order under section 143(3), could he make any addition on the basis of that report on the ground that the fair market value of the asset is more than the consideration which has passed to the assessee/petitioner in the transaction in question my answer will be in negative. When he could not make any addition after the decision of the apex Court in K.P. Varghese's case (1981) 131 ITR 597, on the basis of the valuation report, how he can issue the notice under‑ section 148 of the. Income‑tax Act on the basis of such report.
In the result, the impugned notice, dated April 7, 1995, issued under section 148 of the Income Tax Act, 1961, is quashed. The petition is allowed. No order as to costs.
Stay of operation of this judgment and order is prayed for by Mr. Mullick, but the same is refused.
M.B.A./67/FC
Order accordingly.