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2015 (7) TMI 953 - HC - Income TaxReopening of assessment - reopening based on information that two Horses Tuscan and Brave Act were purchased at ₹ 1,38,729/- and ₹ 10,09,641/- was actually ₹ 5,32,784/- and ₹ 2,16,96,697/- respectively as detected by Directorate of Revenue Intelligence and customs duty of ₹ 1,87,540/- and ₹ 58,54,471.68 having been paid - Held that - Bare reading of Section 147 of the Act would indicate that it empowers the assessing Officer to assess or re-assess the income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. In the instant case, the assessing officer on conclusion of the assessment for the year 2003-04 on 29.10.2004 has issued the notice for its re-opening and the reason assigned as could be discerned from the order sheet was on account of the information which has been secured from the Directorate of Revenue Intelligence, Mumbai Zonal Unit, I floor, Construction House, Ballard Estate, Mumbai that assessee had indulged in under invoicing its imports and consequent to investigation, the suppressed customs duty payable by the assessee has been quantified at ₹ 89,43,152/-. On issuance of show cause notice by the Directorate of Revenue Intelligence, the jurisdictional assessing Officer has formed an opinion about there being escapement of income of the assessee chargeable to tax. As to whether the said reason to believe of such escapement of income to tax by the assessee is justifiable or not, would not be an exercise which can be undertaken by the assessing Officer at the stage of issuing of notice. In that view of the matter, contention of the assessee cannot be accepted. CIT(Appeals) as well as the Appellate Tribunal were not justified in arriving at a conclusion that re-opening the assessment under Section 147 of the Act by issuance of notice under Section 148 by the assessing Officer was improper. Hence, the substantial questions of law framed hereinabove have to be answered in favour of the revenue. Perusal of records that the jurisdictional assessing Officer in the reassessment order dated 21.07.2006 has arrived at the value of Brave Act horse at ₹ 2,16,96,697/- and that of Tuscan horse at ₹ 5,32,784/- which undisputedly was not the value determined by the Settlement Commission while accepting the claim of the assessee for arriving at a settlement and directing payment of differential customs duty. In that view of the matter, we are of the considered view, it would be just and appropriate to remit the matter back to the assessing Officer for adjudicating said factual aspect. Accordingly, matter is remitted to the assessing Officer.
Issues Involved:
1. Reopening of assessment based on information from the Directorate of Revenue Intelligence. 2. Consideration of the Settlement Commission's order in determining escaped income. Detailed Analysis: Issue 1: Reopening of Assessment Based on Information from the Directorate of Revenue Intelligence The revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) which upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to reverse the assessment order. The core issue was whether the information regarding the purchase of horses and the associated customs duty, provided by the Directorate of Revenue Intelligence (DRI), constituted valid grounds for reopening the assessment under Section 147 of the Income Tax Act, 1961. The assessee had initially declared a loss in their return, which was accepted in the assessment concluded on 29.10.2004. However, based on the DRI's information about under-invoicing and suppressed customs duty, the Assessing Officer (AO) issued a notice under Section 148 to reopen the assessment. The AO believed that the under-invoiced imports indicated investments made outside the books, leading to income escaping assessment. The appellate authorities had previously held that such information from the DRI could not be treated as sufficient grounds for reopening the assessment, relying on the Supreme Court's judgment in the Coca Cola Export Corporation case. However, the court noted that the Coca Cola judgment pertained to the unamended Section 147, whereas the current case fell under the amended provisions effective from 01.04.1989. The amended Section 147 only required the AO to have "reason to believe" that income had escaped assessment, without needing to conclusively prove it at the notice stage. The court distinguished the present case from the Coca Cola case, emphasizing that the AO's belief based on DRI's information was sufficient for reopening the assessment. The court cited the Supreme Court's judgment in Rajesh Jhaveri Stock Brokers (P) Ltd., which clarified that the AO's function at the notice stage is to administer the statute with fairness to taxpayers and that the final outcome of the proceedings is irrelevant at this stage. Issue 2: Consideration of the Settlement Commission's Order The second issue was whether the appellate authorities failed to consider the Settlement Commission's order, which quantified the customs duty based on the DRI's detection, as evidence that income liable to tax had escaped assessment. The court noted that the Settlement Commission had determined the differential customs duty payable by the assessee, which the assessee had agreed to pay. This indicated that the assessee had indeed indulged in under-invoicing. The court held that the AO was justified in forming the belief that income had escaped assessment based on this information. The court also addressed the procedural aspect, noting that the assessee had not sought reasons for the reopening notice from the AO, which they were entitled to do under the GKN Driveshafts (India) Ltd. judgment. Therefore, the assessee's contention that reasons were not furnished by the AO was not tenable. Conclusion and Order: The court concluded that the CIT(A) and ITAT were incorrect in holding that the reopening of the assessment was improper. The substantial questions of law were answered in favor of the revenue and against the assessee. The court allowed the appeal, set aside the ITAT's order, and remitted the matter back to the AO for fresh adjudication. The AO was directed to determine the value of the horses uninfluenced by the Settlement Commission's order or any observations made by the court. All contentions were kept open for consideration by the AO. Final Order: 1. The appeal was allowed. 2. The ITAT's order dated 31.03.2009 was set aside. 3. The matter was remitted to the AO for fresh adjudication. 4. The substantial questions of law were answered in favor of the revenue and against the assessee.
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