2014 (9) TMI 356 - AT - Income Tax

Suppressed sales - Goods sold outside the books of account CIT(A) set aside the additions made by the AO - Held that - The ld. CIT(A) ought to have called remand report from the Assessing Officer with regard to the additional evidence or the explanations filed by the assessee before him. He should have afforded an opportunity to the Assessing Officer to conduct necessary enquiry with regard to the information received from the Excise Department for suppressed sales outside the books of account. But the ld. CIT(A) did not afford any opportunity to the Assessing Officer and has deleted the additions on the basis of explanations furnished by the assessee, having observed that the Assessing Officer has not made necessary enquiries before making the additions. - matter remanded back to CIT(A) for fresh decision - Decided in favor of revenue.

Summary

Issues Involved:
1. Validity of additions made by the Assessing Officer (AO) based on information from Central Excise Authority regarding suppressed sales.
2. Appropriateness of the AO's reliance on Central Excise Authority's information without independent verification.
3. Procedural fairness in the assessment process, including adherence to principles of natural justice.
4. Validity of the Hon'ble Settlement Commission's order rejecting the assessee's application.
5. Legitimacy of the reassessment proceedings under section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Additions Based on Central Excise Authority Information:
The AO received information from the Central Excise Authority that the assessee had clandestinely cleared goods of different values, suggesting suppressed sales. The AO issued a show cause notice to the assessee, who responded by requesting the proceedings be kept in abeyance due to a pending petition before the Hon'ble Settlement Commission. The Settlement Commission later rejected the petition, stating that the assessment proceedings had been finalized by the Department. The AO, finding no finalized order on record, continued the assessment based on the information from the Excise Authority, estimating gross profit on suppressed sales and making additional unexplained investment in stock.

2. AO's Reliance on Central Excise Authority Information Without Independent Verification:
The AO proceeded with the assessment based on the Excise Authority's information without requisitioning the evidence or conducting independent verification. The assessee argued that the AO should have obtained material from the Excise Authorities before making additions. The CIT(A) deleted the additions, stating that the AO failed to make necessary enquiries and obtain evidence from the Excise Authorities. The Tribunal noted that the AO was constrained by time limitations and the assessee's requests to keep proceedings in abeyance, thus justifying the AO's reliance on available information.

3. Procedural Fairness and Principles of Natural Justice:
The CIT(A) deleted the additions, citing a lack of material facts and violation of natural justice principles. The Tribunal observed that the CIT(A) did not call for a remand report or allow the AO to conduct necessary enquiries. The Tribunal emphasized that the AO was not given an opportunity to verify the suppressed sales information due to the assessee's repeated requests to delay proceedings. The Tribunal concluded that the CIT(A) failed to consider the circumstances under which the AO completed the assessment and set aside the CIT(A)'s order, remanding the matter back to the AO for proper enquiry.

4. Validity of the Hon'ble Settlement Commission's Order:
The Settlement Commission rejected the assessee's application, stating that the assessment proceedings had been finalized. The AO and the Tribunal found no finalized order on record, questioning the basis of the Settlement Commission's rejection. The Tribunal directed the AO to make necessary enquiries and obtain relevant evidence from the Excise Department to substantiate the suppressed sales claim.

5. Legitimacy of Reassessment Proceedings Under Section 147:
The CIT(A) had allowed the AO to take action under relevant provisions of the Income-tax Act, including reassessment under section 147. However, when the AO reopened the assessment under section 147, the CIT(A) invalidated the reopening. The Tribunal noted this inconsistency and set aside the reassessment orders, directing the AO to conduct a thorough enquiry and reassess the matter based on proper evidence.

Conclusion:
The Tribunal set aside the CIT(A)'s orders and remanded the matter to the AO for re-adjudication. The AO was directed to make necessary enquiries with the Excise Department, obtain relevant evidence regarding suppressed sales, and provide the assessee with a proper opportunity to be heard. The subsequent reassessment orders were also set aside, as they were based on the invalidated CIT(A) orders. All appeals of the Revenue were allowed for statistical purposes.