2013 (5) TMI 333 - HC - Income Tax

Re opening of assessment - assessees & his family members were alleged to be involved in fake sale of rock phosphate which is raw material needed for manufacturing SSP to obtain the subsidy from the Govt. of India @ 500 to 700 per M.T. - Held that - A bare perusal of the reasons recorded show that the basis of re-assessment proceeding is the statement of Sri Jugual Kishore Soni who in his statement has not named the petitioner as one of the purchasers of Rock Phosphate from him but has stated to be issuing fake bills to nine firms with two out of which assessee happens to have dealings. There is no material to connect the petitioner with Sri Jugual Kishore Soni to form an opinion that the income of the petitioner has escaped assessment. It is not the case of the Department that two purchasers to whom Rock Phosphate was allegedly supplied by Sri Jugual Kishore Soni through fake bills & assessee happens to have dealings had not purchased Rock Phosphate from any other person. The reasons recorded by the authority concerned has no nexus to form an opinion that the income of the petitioner has escaped assessment. In favour of assessee.

Summary

Issues involved:
Challenging the legality and validity of the notice issued under Section 148 of the Income-tax Act, 1961 for the Assessment Years 1995-96 and 1996-97.

Analysis:
The petitioner, a company incorporated under the Indian Companies Act, 1956, established a factory for manufacturing Single Super Phosphate Fertilizer, claiming that Sulphuric Acid is also a raw material excisable under the Central Excise Act. The petitioner contended that it was manufacturing Single Super Phosphate in the ordinary course of business. The crux of the arguments was that the Department lacked material to believe that the petitioner's income had escaped assessment in the relevant years. The petitioner challenged the legality and validity of the notice issued under Section 148 of the Income-tax Act, 1961. The Department justified the initiation of proceedings under Section 148, citing a survey conducted on an individual named Sri Jugul Kishore Soni, who admitted issuing fake bills for Rock Phosphate supply to firms, including those the petitioner dealt with, leading to a subsidy scam. However, the court found the reasons recorded by the authority insufficient to connect the petitioner with the alleged scam, as Soni did not name the petitioner as a purchaser of Rock Phosphate. The court observed that there was no material to form an opinion that the petitioner's income had escaped assessment based on the recorded reasons, ultimately quashing the notice issued under Section 148 of the Act.

This judgment highlights the importance of sufficient material and a clear nexus to establish that income has escaped assessment. The court emphasized the need for a direct connection between the taxpayer and the alleged discrepancies to justify re-assessment proceedings. The decision underscores the principle that mere suspicion or vague inferences are insufficient grounds for initiating tax reassessment, emphasizing the requirement for concrete evidence and a logical link between the taxpayer and the alleged irregularities.