2011 (1) TMI 583 - HC - Income Tax

Reassessment - Escapement of income - reasonable ground for initiation reassessment proceeding - treatment of consignment sale as sale - Held that - assessee had given sufficient opportunity to establish that the goods had been received from Assam parties on consignment basis. Since assessee had failed to establish that the goods had been sold on commission basis and since on enquiry also the parties were not found to exist the AO was justified in treating the commission sales as trading sales and assessing the profit accordingly. The AO has also been reasonable in determining the profits on the basis of the rate of profit disclosed by the assessee in respect of trading of timber other than sales on consignment.

Summary

Issues:
Validity of reassessment proceedings based on communication dated 12.12.1992 without reasonable grounds, Consignment sales treated as trading sales without proper investigation, Authorities acting on their own presumption.

Analysis:
1. The judgment addressed the validity of reassessment proceedings concerning the appellant's timber and consignment sales business for the assessment year 1991-92. The reassessment was initiated based on information received, indicating an escapement of income due to certain sales being treated as consignment transactions. The CIT(A) initially set aside the reopening, citing lack of necessary sanction under Section 151(1) of the Income Tax Act. However, the Tribunal overturned this decision, stating that no such sanction was required for reassessment initiated under Section 143(1)(a) within the statutory period.

2. The Tribunal found a sound basis for the reassessment in the received information and upheld the additions made by the Assessing Officer for undisclosed investment in trading activities. It noted that the appellant failed to prove consignment sales and justified treating them as trading sales based on the lack of evidence and non-existence of involved parties. The Tribunal deemed the AO's profit determination reasonable and restored the additions made for both the appellant's businesses.

3. The High Court upheld the Tribunal's decision, emphasizing that Section 151(1) did not apply to reassessments initiated under Section 143(1)(a). As the earlier assessment was under this section, the CIT(A) was not justified in invoking Section 151(1). Consequently, the Court dismissed the appeals filed by the assessees, affirming that the questions of law raised by them were to be answered against their favor. The judgment concluded by ordering a copy of the decision to be placed in the file of related cases.