2010 (1) TMI 1147 - HC - VAT and Sales Tax

Whether the proceedings under section 21(2) of the U. P. Trade Tax Act is without any material? Held that - Perusal of the order of the Additional Commissioner reveals that there was no material on the basis of which belief has been formed that tax has been wrongly assessed on the liquid glucose except that according to his view the correct rate of tax has not been applied by the assessing authority and the order of the Tribunal is subject-matter of consideration before this court. The assessing authority in the notice under section 21 of the Act has also not recorded any reason on the basis of which belief of escaped turnover has been formed. Thus the proceedings under section 21(2) of the Act is without any material on the basis of which belief of escaped assessment could be formed namely that the tax on the liquid glucose has been wrongly assessed to tax. W.P. allowed.

Issues Involved:

1. Validity of the initiation of proceedings under Section 21(2) of the U.P. Trade Tax Act beyond the period of four years.
2. Whether there was sufficient material to form a belief of escaped assessment.

Issue-wise Detailed Analysis:

1. Validity of the initiation of proceedings under Section 21(2) of the U.P. Trade Tax Act beyond the period of four years:

The petitioner challenged the order passed under Section 21(2) of the U.P. Trade Tax Act dated August 6, 2005, and the subsequent notice issued under Section 21 of the Act dated September 15, 2005. The petitioner contended that the proceedings under Section 21 of the Act can only be initiated when there is material on the basis of which the belief is formed about the escaped assessment. The court referred to Section 21(1) and (2) of the Act, which states that the assessing authority must have "reason to believe" that the turnover has escaped assessment. The court cited several precedents, including Johri Lal (HUF) v. Commissioner of Income-tax, where it was held that the belief must be formed on the basis of material that has a nexus to the escaped turnover.

2. Whether there was sufficient material to form a belief of escaped assessment:

The petitioner argued that neither the Additional Commissioner had any material to grant approval under Section 21(2) of the Act to initiate proceedings beyond four years nor did the assessing authority have any material to form the belief that there was escaped assessment. The court examined the order of the Additional Commissioner and found that there was no material basis for the belief that tax had been wrongly assessed on the liquid glucose. The only basis for the initiation of proceedings was the Additional Commissioner's view that the correct rate of tax had not been applied and that the order of the Tribunal was under consideration before the court. The court emphasized that the reasons for the formation of the belief must have a rational connection or relevant bearing on the formation of the belief, as held in Income-tax Officer v. Lakhmani Mewal Das.

The court concluded that the proceedings under Section 21(2) of the Act were without any material basis for the belief of escaped assessment. Consequently, the order under Section 21(2) of the Act dated August 6, 2005, and the subsequent notice dated September 15, 2005, were set aside.

Conclusion:

The writ petition was allowed, and the order of the Additional Commissioner dated August 6, 2005, and the consequential notice dated September 15, 2005, were quashed. The court held that the initiation of proceedings under Section 21(2) of the Act was invalid due to the absence of material evidence to form the belief of escaped assessment.

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