POWERDEAL ENERGY SYSTEMS (I) PVT. LTD vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, NASHIK AND ORS

2009­10 for the purpose of this order. 3) On 21 April 2010 the petitioner filed its return of income for AY 2009­10 inter alia valuing intangible assets as under:­ (i) Goodwill at  Rs.24.37 crores; (ii)     Product research and development at Rs.22.73 crores; and (iii)   Product design and drawing at Rs.7.27 crores. On   the   aforesaid     intangible   assets   the   petitioner   claimed depreciation of 25% on product research and development  and Product design and drawing aggregating to Rs.7.50 crores. No depreciation was claimed on Goodwill for A.Y. 2009­10 though claimed for A.Y. 2010­11. 4) On   26   December   20112   the   Assessing   Officer assessed the petitioner's   income under Section 143(3) of the Act   at   Rs.69.28   lacs   after   having   accepted       the   claim   for depreciation on intangible assets as made by the petitioner.

ASN 3/10 WP-4650-14 5) Thereafter, on 4 September 2013 a survey action under   Section   133A   of   the   Act   was   carried   out   on     the petitioner. During survey proceedings the statements were made by the  Managing Director of the petitioner company as well as the Valuer who had valued the intangible assets.  The Managing Director of the petitioner   in his statement     on 5 September 2013 during survey proceedings inter alia stated as under:­

“We are ready to withdraw 50% (fifty percent) of our claim of depreciation for FY 2008­09,   FY   2009­10   and   FY   2010­11 subject to fresh valuation of intangible assets i.e.   of   Rs.14,00,34,200/­.We   are   also promise  to pay due taxes on this amount of Rs.14,00,34,200/­”. Similarly the Valuer   in a statement made on 4 September 2013 during the survey proceedings inter alia stated as under: Q. No.9: Please

explain

the authenticity/grounds of   the   valuation certificates issued by you to M/s. Perfect Auto Industries? “Ans. I have issued these certificates only on business projections and not on the basis of any   valuation   of   tangible   and   intangible assets. I have to also state that I have not issued   this   certificate   fort   any   drawings, designs and research development. Q.

ASN 4/10 WP-4650-14 2008­09 relevant to AY 2009­10. Please go through the depreciation chart (Annexure 3 of Form 3 CD) and  and explain the applicability of your certificate with respect to claim of the assessee regarding depreciation. Also, please explain the basis and utility of the Certificates issued by you to M/s. Perfect Auto Industries? Ans. As   per   my   knowledge   and   the

discussion with Mr. Mahesh Khairnar and Mr. Satpute   the   certificates   issued   by   me   were only for the purpose of the future business prospects of the company. As stated earlier I was   not   Government   approved   valuer,

therefore I have to state that the certificates issued by me cannot be used by the company for  claiming   any   deduction   available   under Income Tax Act 1961 or Company Act 1956 and for any other Government Agency. Hence, once again I confirm that the claim made by Powerdeal   Energy   System   (I)   Ltd.,   on   the basis   of   my   certificate   is   bogus   and   not genuine. Q.No.11 : Do   you   want   to   say   anything else? Ans. Yes. The Certificate issued by me is not admissible for purpose of claiming any deduction   as   it   was   only   projections   and internal   use   of   the   company.   It   was   also explained by me to the representative of the company. Further I have also confirmed this fact   to   your   office   wide   my   letter   dated 23/05/2013. Hence, I have to state that the certificates   issued   by   me   are   used   for   the purpose other than intended one.” 6) It is on the basis of the above tangible material obtained   during   the   survey   proceedings   that   the   impugned notices dated 20 November 2012 were issued . In support of the aforesaid   impugned   notices   the   following   reasons   were

ASN 5/10 WP-4650-14 communicated to the petitioner:­ “ Power deal Entry Systems (I) Pvt. Ltd. is a   company   engaged   in   the   business   of manufacturing   of   Electric   Control   Panels, compact power stations, scaffolding items made from steel etc.  The assessee filed its return of income for the A. Y. 2009­10 on 21.04.2010. As per the balance sheet, the valuation of some specific intangible assets of the assesssee are as under :­ Asset Valuation in (Rs.) Goodwill 24,37,27,771/­ Product   Research   & Development 22,73,00,000/­ Product   Design   & Drawing 7,27,00,000/­ Total 54,37,27,771/­ The assessee company has claimed total depreciation of Rs.9,49,14,770/­ in its return of income for the A. Y. 200­10, out of which the depreciation on the above mentioned assets is as under: Asset Rate

of depreciation Depreciation (in Rs.) Goodwill 0.00% Nil Product Research   & Development 25.00% 5,68,25,000/­

ASN 6/10 WP-4650-14 Product Design

& Company 25.00% 1,81,75,000/­ Total 7,50,00,000/­ In   this   case,     scrutiny   assessment   u/s. 143(3) of the Act for the A. Y. 2009­10 was passed   on   26.12.2011   assessing   the   total income of the assessee at Rs.69,28,911/­ and accepting the claim of depreciation. A survey action u/s. 133A of the Act was conducted   at   the   business   premises   of   the assessee   on   04   &   05.09.2013   to   verify   the genuineness of the valuation of the intangible assets and depreciation claimed thereon.   The intangible  assets  are  1. Goodwill,   2. Product Research & Development and 3. Product Design & Drawing. During the survey action, it was found that the intangible assets – Product Research & Development and Product Design & Drawing were   non­existent   at   the   time   of   merger   of Perfect   Auto   Products   with   the   assessee company.  A statement of Shri Manoj Kasat who issued the valuation certificate to the assessee was also recorded during the survey action in which he categorically stated that the valuation certificate   was   issued     by   him   only   for   the internal use of the company and not for the purpose   of   claiming   depreciation   under   the Income Tax Act. He stated that the valuation was based on future estimate and not on any assets.   These facts were confronted with the director of the assessee company – Shri Mahesh Khairnar.  Regarding the valuation of goodwill, he has stated that the valuation of goodwill at Rs.25 crore was made by him only.  From the statement of Shri Mahesh Khairnar, following

ASN 7/10 WP-4650-14 facts are emerged: Goodwill:  There is no basis for valuation.  No authentic   valuation   has   been   made   by   any competent authority. Product R & D, Product Design & Drawing: The assessee could not establish the existence of intangible   assets.     There   is   no   evidence   of creation of any intangible assets and expenditure incurred for creation of any asset.  The assessee has   not   established   that   any   expenditure   is incurred for Research & Development and for creation of assets. Subsequently, the valuation of intangible assets have been done by two Govt. approved valuers. These valuers have categorically stated that  the assessee has not created any intangible assets.  Thus, there is no existence of intangible assets like Product Research & Development and Product Design & Drawing. Further,   Shri   Mahesh   Khairnar   has accepted, in his statement recorded during the survey,   that   50%   valuation   of   the   intangible assets as non­genuine subject to fresh valuation. Accordingly, he also accepted 50% depreciation of these assets as excessive.  It is thus accepted that   he   has   no   evidence   to   establish   the valuation of intangible assets.  Thus, the assesee has   accepted   the   amount   of   Rs.3,75,00,000/­ (50%   of   7,50,00,000)   as   excess   depreciation which is again subject to valuation. In view of the above facts, I have reason to believe that the income of the assessee to the extent   of   Rs.3,75,00,000/­   has   escaped assessment   for   the   A.   Y.   2009­10   within   the

ASN 8/10 WP-4650-14 meaning of section 147 of the Income Tax Act, 1961. Therefore, the assessment for the A. Y. 2009­10   is   to   be   reopened   u/s.   147   of   the Income Tax Act, 1961.” 7) On   20   January   2014   the   petitioner   filed   its objection to the reasons in support of the impugned notice. In its  objection  the  petitioner particularly  pointed  out  that   the valuation of the intangible  assets and the claim for depreciation were examined by the Assessing Officer while passing the order of assessment on 26 December 2011, thus the impugned notices were   merely a change of opinion and therefore should  be withdrawn. 8) On 20 January 2014 the Assessing Officer rejected the   petitioner's   objection   to   the   grounds   in   support   of   the impugned notice. This was essentially on the ground that during the survey proceedings under Section 133A of the Act certain facts emerged which give reason to believe that the petitioner claim   for   depreciation     on   intangible   assets   was   based   on incorrect valuation. This resulted in excess depreciation being allowed. Thus, it was held that the impugned notices were not issued on the basis of change of opinion. 9) The   grievance   of   the   petitioner   is   that   the impugned notice for the Assessment Years 2009­10 and 2010­11 are without jurisdiction in inasmuch as the same arises only on account   of   change   of   opinion.   The   Assessment   order   under Section 143(3) of the Act  for A.Y. 2009­10 was passed on 26

ASN 9/10 WP-4650-14 December 2012 while Assessment Order under Section 143(3) of the Act for A.Y. 2010­11 was passed on 12 December 2012 by the   Assessing   Officer.   The   survey   proceedings   took   place thereafter in September 2013. During the survey proceedings under Section 133A of the Act statement of Managing Director of the petitioner as well as Chartered Engineer who valued the intangible assets were recorded. In his statement the Managing Director stated that he was ready to withdraw 50% of the claim for depreciation for AY 2009­10 and 2010­11 subject to fresh valuation   of   the   intelligible   assets.   This   acceptance   of   the Managing Director is itself sufficient tangible material for the Assessing officer to reopen the assessment for the purpose of considering the petitioner's claim with regard to valuation of intangible   assets and the claim for depreciation thereon. The intangible  assets would be revalued only during the course of reassessment proceedings and in the absence of reassessment proceedings, it would be impossible to take up the petitioner's offer     that   it   is   ready   to   withdraw   50%   of   the   claim   for depreciation subject to fresh valuation  of intangible   assets. Similarly the statement of the Chartered Engineer who valued the intangible assets  as recorded  during the survey proceeding indicates   that   the   valuation   done   by   him   was   only   for   the internal use of the company and not for the purpose of claiming deduction under the Act. In fact the Valuer very clearly states that  the   claim   made   by   the   petitioner   “on   the   basis   of   his certificate   is   bogus   and   not   genuine”.   Thus   the   impugned notices have not been issued on the basis of change of opinion

ASN 10/10 WP-4650-14 but on the basis of  fresh tangible material obtained  during the survey proceedings  after the assessment orders u/s. 143(3) of the Act for A.Y.2009­10and 2010­11 were passed. Therefore, we see no reason to interfere with the impugned notices. 10) Therefore,   the   Assessing   Officer   is   at   liberty   to proceed with the reassessment proceedings for A.Y .2009­10 and 2010­11. During the reassessment proceedings it would be open to the petitioner to satisfy the Assessing Officer that the valuation of the intangible assets  and the depreciation thereon as claimed was proper.   The Assessing Officer would examine the claim of the petitioner with regard to valuation of intangible assets   during   the   reassessment   proceedings   without   being influenced by any observations made by us while dismissing this petition under Article 226 of the Constitution of India. 11)

Accordingly both the petitions are dismissed. No order as to costs. ( N. M. JAMDAR, J.) (M.S. SANKLECHA, J.)