2015 (12) TMI 180 - HC - VAT and Sales Tax

Validity of reassessment proceedings - Escapement of sales turnover - Held that - Court, after surveying the earlier cases that clarified the legal position held that the requirement of the AA having to record reasons to believe preceding the issuance of the show cause notice to an Assessee under Section 24 (1) DSTA was mandatory. It is not enough for the AA to merely reproduce the wording of the provision and state in the notice to an Assessee that there is reason to believe that the whole or any part of the turnover has escaped assessment. It other words the exercise of reopening of an assessment is not a casual one. The noting has to reveal that as part of the process of reopening the assessment, the AA applied his mind to the relevant materials prior to arriving at the conclusion, even prima facie, that there are reasons to believe that the whole or any part of the turnover has escaped assessment. - mandatory requirement of Section 24 (1) of the DSTA has not been fulfilled in the present case. Schedule 13 of the balance sheet produced by the Assessee clearly discloses the know-how fees in the sum of ₹ 400 lakhs. The extracted passage of the order clearly indicates that the Assessing Officer had perused the balance sheet and thereafter framed the assessment. Consequently, what in fact the AA did was to review his earlier order based on a change of opinion that the said sum of ₹ 400 lakhs ought to have been brought to tax. This course of action was legally impermissible and was beyond the scope of the powers of the AA under Section 24 (1) of the DSTA. If indeed the assessment order of the AA was prejudicial to the interests of the revenue then it was open to the Commissioner to seek to invoke the revisional powers under Section 46 of the DSTA. That course was, however, not opted in the present case. - Decided in favour of assessee.

Summary

Issues:
Appeal against reassessment under Section 24 of the DSTA for Assessment Year 2004-05.

Detailed Analysis:
1. The Assessee, engaged in real estate promotion and development, appealed under Section 81 of the Delhi Value Added Tax Act against the re-assessment order dated 31st May, 2007, which sought to tax Know-How fees of Rs. 400 lakhs at 8% along with interest.

2. The Assessing Authority (AA) initially assessed the Assessee for the Assessment Year 2004-05, determining a tax liability of Rs. 336, which was paid by the Assessee. Subsequently, the AA issued a notice under Section 24 of the DSTA to reopen the assessment based on the belief that the turnover had been under-assessed.

3. The re-assessment order was challenged before the Additional Commissioner and the Tribunal, both of whom upheld the order. The High Court framed questions of law regarding the justification of reassessment, the correctness of the turnover assessment, and the levy of interest.

4. The Court highlighted the mandatory requirement under Section 24(1) of the DSTA for the Commissioner to record 'reasons to believe' before initiating reassessment proceedings. The Court emphasized that the AA must apply his mind to relevant materials before concluding that turnover has escaped assessment.

5. The Respondent's counsel admitted that the AA failed to record 'reasons to believe' before issuing the reassessment notice, rendering the reassessment proceedings invalid. Additionally, the Court noted that the AA's attempt to tax the Know-How fees, already disclosed in the balance sheet, based on a change of opinion was legally impermissible.

6. The Court concluded that the reassessment under Section 24(1) of the DSTA was without jurisdiction and unsustainable in law. As a result, the impugned orders of the Tribunal, Additional Commissioner, and AA were set aside, and the appeal was allowed with a direction for the refund of any tax deposited by the Assessee.

7. The judgment focused on the procedural and jurisdictional aspects of reassessment under the DSTA, emphasizing the importance of complying with statutory requirements and avoiding arbitrary exercise of powers by the Assessing Authority.