2013 (1) TMI 213 - HC - Income Tax

High Court upholds jurisdiction & valuation in tax appeal, remands for reassessment.

The High Court partially allowed the appeal, setting aside the Tribunal's order regarding the valuation of shares and remanding the matter for ... Block assessment - search in the residential premises of the assessee & business premises of the company - notice u/s 158BC - assessee contested on jurisdiction to make assessment u/s 158BC as there was no search warrant shown in the assessee's name to result in a block assessment - Held that:- The search warrant reads under Caption A, 'the warrant in the case of M/s.Tamil Nadu Textile Corporation'. Under Column B, 'warrant to search (Details and ownership of place of search)', the name of the assessee is shown. The operative portion of the search warrant also pointed out that the warrant of authorisation dated 30.1.1996, issued in the case of M/s.Tamil Nadu Textile Corporation Limited, was shown to the assessee to search the place of the assessee mentioned at Column 'B', who was present in the said place at the time of search. The details as stated above are available in the search warrant as well as in the Panchnama. Rightly, on the basis of these documents, the Tribunal came to the conclusion that the search was conducted in the assessee's premises, leading to the assessment under Chapter XIVB. It is no doubt true that the search in the assessee's premises was a result of the search in the case of M/s.Tamil Nadu Textile Corporation Limited. This, however, does not mean that there was no search warrant issued in the assessee's case under Section 132 - no hesitation in rejecting the said plea of the assessee. Issue regarding the assessment made in Coimbatore - Held that:- File referring to the Notification of the CIT in the letter dated 07.08.1996, AO Chennai, addressed a letter to the ACIT, Coimbatore, forwarding the files of the assessee and R.Venkatakrishnan relating to the assessment year 1996-97 who called upon the assessee to file the return of income in the prescribed form within ten days from the date of service of notice dated 01.08.1996. Admittedly, the assessee addressed a letter dated 07.10.1996 seeking time to file the return & prayed for transfer of file to Madras, since the business activities were based at Madras. With reference to the request of the assessee for retransfer to Chennai the ACIT Coimbatore directed him to approach the CIT Central-I, Madras-34 and called upon the assessee to file the return. On 29.12.1996, the assessee once again wrote a letter to the ACIT, Central Circle-I, Coimbatore, reporting filing of the return and as to the discharge of the liability of tax, the assessee agreed that the gold jewellery seized could be disposed of and the proceeds credited towards the tax liability. The family members from whom gold jewellery were seized, had also expressed their willingness and consent letters were obtained from them also. The letters, however, did not say anything as to whether the assessee had addressed the CIT for transfer of the files to Chennai. Thus, as the matter stood, the assessment was completed by the Officer and no justifiable ground to accept the plea of the assessee herein that the assessment done by the Commissioner suffered from want of jurisdiction. Assessment made at the hands of the assessee in respect of the shares held by the assessee's relatives is without basis - Held that:- In the absence of any substantial material from the assessee's side, it is too difficult to accept the case of the assessee that there was no consideration passed on, on the allotment of shares. But as there being no further enquiry made on the aspect of allotment, no other option but to except to accept the plea of the assessee that the assessment could be sustained only to the extent of shares, which stand in the name of the assessee and his wife alone and that the value of the shares standing in the name of his other relatives could not be included as unexplained investment, for the purpose of assessment under Chapter XIVB. In the circumstances, the extent to which the investment income has to be assessed in respect of these two companies, has to be worked out by the Assessing Officer pro-rata. The total investment made in the two companies was taken at Rs.17,50,000/- and Rs.9,00,000/-. The investment is reflected in the books of accounts of both the companies in the year 1993-94. Having thus valued, the Officer directed to fix the value of the shares allotted to the assessee and the assessee's wife to be assessed at the hands of the assessee. Valuation of shares of M/s.Anchor Breweries based on the valuation of the property done through the Valuation Officer - Held that:- A reading of the order of the AO shows that nowhere the assessee was favoured with a copy of the Valuation Officer's assessment, enabling the assessee to place his objection on this value. Even though the Officer has a right to refer the document for valuation by a Valuation officer, yet, when he seeks to make use of this piece of evidence to arrive at the undisclosed income, in fairness to the claim of the assessee, a copy of the valuation report should have been given to the assessee, so as to enable him to place his objection, by following the principles of natural justice. In the absence of any material shown that this requirement had been complied with, no hesitation in accepting the plea of the assessee that this portion of the order merits to be set aside and the matter be remitted back to the AO so as to furnish a copy of the valuation report to the assessee. In the absence of any material to show that the entirety of the shares of M/s. Anchor Breweries Limited were to be taken in as the shares proved by the assessee, the liability that could be fastened on the assessee has to be only with reference to the 1320 shares, which stood in the name of the assessee and his wife - remand the assessment back to files of the AO. Issues Involved:1. Jurisdiction to make assessment under Section 158BC.2. Valuation of demolished material and cash flow balance.3. Treatment of gifts and investment in shares as undisclosed income.4. Assessment of investments in house property.5. Validity of the assessment made in Coimbatore.6. Assessment of shares in M/s. Talent Alloys Pvt. Ltd., M/s. Talent Steel Industries Pvt. Ltd., and M/s. Anchor Breweries Ltd.7. Valuation of shares based on the Valuation Officer's report.Detailed Analysis:1. Jurisdiction to make assessment under Section 158BC:The assessee contended that there was no search warrant in his name to justify a block assessment. The Tribunal found that the search warrant was indeed issued in the name of the assessee, leading to the assessment under Chapter XIVB. The High Court confirmed this finding, noting that the search warrant mentioned the assessee's name under the details of the place to be searched, thereby validating the jurisdiction for assessment under Section 158BC.2. Valuation of demolished material and cash flow balance:The Tribunal granted partial relief by valuing the old building and debris at Rs.1,00,000 instead of Rs.50,000. For the cash flow balance, the Tribunal adjusted the undisclosed income to Rs.25,000 after considering past savings and gifts.3. Treatment of gifts and investment in shares as undisclosed income:The Tribunal upheld the Assessing Officer's view, treating gifts received as undisclosed income, fixing the amounts at Rs.2,50,000 and Rs.1,24,374. Investments in shares of M/s. Talent Alloys Pvt. Ltd., Talent Steel Industries Pvt. Ltd., and M/s. Anchor Breweries Ltd. were also treated as undisclosed income, with the share certificates found in the assessee's locker.4. Assessment of investments in house property:The Tribunal deleted the addition related to the investment in house property at Anusuya Street, as the valuation report was not a seized material and was not connected with the seized material.5. Validity of the assessment made in Coimbatore:The assessee challenged the jurisdiction of the assessment made in Coimbatore. The High Court found that the files were transferred to Coimbatore based on a notification, and the assessee had been directed to file the return there. The Court upheld the assessment's validity, noting no justifiable ground to accept the assessee's plea of jurisdictional error.6. Assessment of shares in M/s. Talent Alloys Pvt. Ltd., M/s. Talent Steel Industries Pvt. Ltd., and M/s. Anchor Breweries Ltd.:The Tribunal upheld the assessment of shares found in the assessee's locker, treating the family members as benamidars. The High Court agreed with the Tribunal's view that the investment aspect failed due to lack of substantial material from the assessee's side. However, the Court directed the assessment to be confined to shares standing in the names of the assessee and his wife alone, not including those in the names of other relatives.7. Valuation of shares based on the Valuation Officer's report:The High Court rejected the assessee's contention that the Valuation Officer's report could not be used in a block assessment under Chapter XIVB. The Court noted that the procedure for assessment under Section 158BC includes determining undisclosed income based on the Act's provisions, which may involve valuation by a Valuation Officer. However, the Court found that the assessee was not provided with a copy of the Valuation Officer's report, violating principles of natural justice. Consequently, the Court set aside this portion of the order and remitted the matter to the Assessing Officer to provide the valuation report to the assessee for objections.Conclusion:The High Court partly allowed the appeal, setting aside the Tribunal's order to the extent of the valuation of shares and remanding the matter back to the Assessing Officer for reassessment, ensuring the assessee is provided with a copy of the valuation report and an opportunity to object. The Court upheld the Tribunal's findings on other issues, including the jurisdiction to make the assessment under Section 158BC and the validity of the assessment made in Coimbatore.