2014 (5) TMI 557 - HC - Income Tax

Validity of reassessment of order - Held that - Assessee prima-facie has reduced its tax liability by escalating the debit and other expenses in the book of accounts - the revenue has verified the information u/s 133(6) of the Act - After receiving the information, the discrepancies were recorded - The amount of liability does not tally with the accounts of creditors and debtors for the assessments year - The discrepancies will have to be explained by the assessee - When the discrepancies are there, it will have to be clarified by the assessee - the notices were rightly issued u/s 148 of the Act - The assessee has an opportunity to explain the same by filing the reply to the notices or during the proceedings u/s 147 of the Act Decided against Assessee.

Summary

Issues:
1. Validity of the notices issued under Section 148 for re-assessment.
2. Allegations of discrepancies in the assessee's book of accounts.
3. Justification of the impugned notices by the department.
4. Prima facie evidence of reducing tax liability by the assessee.
5. Upholding the validity of the notices and declining interference with the orders passed.

Analysis:

1. Validity of Notices under Section 148:
The petitioner challenged the validity of the notices issued under Section 148 for re-assessment, arguing that the second notices were null and void as they were similar to the earlier ones that were dropped. The petitioner contended that discrepancies in the accounts were the responsibility of the raw material sellers, not the assessee. The counsel cited various legal precedents to support the argument that there was no prima facie material for the alleged discrepancies. However, the department justified the notices by stating that they were issued after discrepancies were found in the book of accounts, and no response was received from the assessee.

2. Allegations of Discrepancies:
The department alleged discrepancies in the assessee's book of accounts, leading to an escalation of liabilities to reduce tax burden. The notices under Section 133(6) were issued to verify the liabilities shown in the accounts, and upon finding discrepancies, subsequent notices were issued. The department emphasized that the reasons to believe were recorded, justifying the issuance of the second notices. The court observed that the discrepancies needed to be explained by the assessee, but no response was provided, upholding the validity of the notices based on the evidence of reduced tax liability.

3. Prima Facie Evidence of Reducing Tax Liability:
The court noted that the assessee had apparently reduced its tax liability by inflating expenses in the accounts, leading to a significant amount of discrepancies. The department's verification under Section 133(6) revealed discrepancies amounting to Rs. 24,65,238. The court emphasized the need for the assessee to clarify the discrepancies and provide explanations, which were not forthcoming, leading to the dismissal of the petitions filed by the assessee.

4. Upholding Validity and Declining Interference:
Based on the evidence of discrepancies and the failure of the assessee to provide explanations, the court upheld the validity of the notices issued under Section 148. The court declined to interfere with the orders passed by the authorities, directing the Assessing Officer to expedite the proceedings within three months from the date of the order. The dismissal of the petitions and the vacation of the interim order were justified based on the lack of merit in the petitioner's arguments.

In conclusion, the judgment upheld the validity of the notices issued for re-assessment, emphasizing the need for the assessee to clarify discrepancies in the book of accounts and provide explanations for the alleged reduction in tax liability. The court's decision was based on the evidence presented and the failure of the assessee to respond adequately to the allegations raised by the department.