2018 (8) TMI 1847 - AT - Income Tax

Suppression of sales - show cause notice issued by the Excise Department showing substantial material evidence of suppression of sales - CIT(A) adopting gross profit rate of 9% on the suppressed sale instead of 25% as was determined by the assessing officer rejecting the ground of reopening of assessment as agitated by the assessee - HELD THAT - Review applications were preferred before the Hon ble Gujarat High Court by the assessee in respect of 8 appeals which ultimately were disposed of by and under the judgement and order 2018 (5) TMI 1274 - GUJARAT HIGH COURT by the jurisdictional High Court. Hon ble High Court by the said judgement was pleased to dismiss the appeals preferred by the Revenue virtually dismissing the quantum order passed by the Assessing Officer in the absence of independent material brought on record except those were already collected by the Excise Department which are yet to be verified. The Hon ble High Court was further pleased to observe, since the addition made by the Assessing Officer had no basis, the question of percentage of the sales at which stage additions should be made would become redundant. The appeals before us since identical in nature having same set of facts are covered by the ratio of the said order above 8 passed by the Hon ble High Court at Gujarat. We, therefore delete the quantum order passed by the authorities below and thereby allow the appeals preferred by the assessee

Issues Involved:
1. Validity of reopening of assessment.
2. Quantum additions based on suppressed sales.
3. Reliance on Excise Department's show-cause notice.
4. Independent verification by the Assessing Officer (AO).
5. Determination of Gross Profit (GP) rate on suppressed sales.

Detailed Analysis:

1. Validity of Reopening of Assessment:
The reopening of the assessment was based on materials forwarded by the Excise Department, which were derived from a search conducted by the Director General of Central Intelligence (DGCEI). The DGCEI's investigation suggested large-scale financial irregularities, leading to the issuance of a show-cause notice by the Excise Department. The AO reopened the assessment for multiple years by issuing notices under section 148 of the Income Tax Act, 1961. The assessee challenged the validity of these notices, but the initial assessment orders were passed, ignoring the objections.

2. Quantum Additions Based on Suppressed Sales:
The AO concluded that the assessee had suppressed sales amounting to ?590 crores and made quantum additions by applying a Gross Profit (GP) rate of 25% on the suppressed sales. The CIT(A) later granted partial relief by reducing the GP rate to 9%. The Tribunal quashed the reassessment orders, holding that the reopening based on the Excise Department's show-cause notice was not justifiable.

3. Reliance on Excise Department's Show-Cause Notice:
The Tribunal observed that the AO's reliance on the Excise Department's show-cause notice was contrary to the jurisdictional High Court's decision in Futura Ceramics Pvt. Ltd. vs. State of Gujarat. The High Court had held that a show-cause notice alone could not be the basis for presuming tax evasion under the VAT Act. The Tribunal emphasized that the AO did not independently verify the particulars declared by the assessee in its income tax return.

4. Independent Verification by the Assessing Officer (AO):
The Tribunal criticized the AO for not conducting an independent verification of the income tax returns vis-à-vis the alleged escapement of income. The AO merely relied on the show-cause notice without bringing the sales declared by the assessee on record. The Tribunal held that the information in the show-cause notice could be a reason to suspect but not a reason to believe in the escapement of taxable income.

5. Determination of Gross Profit (GP) Rate on Suppressed Sales:
The Tribunal referred to a previous decision where a GP rate of 9% was deemed fair and reasonable for estimating profit on suppressed turnover. The Tribunal confirmed the addition to the extent of 9% net profit rate on the suppressed sales, deleting the excess additions made by the CIT(A).

Separate Judgments by Judges:
The Tribunal's decision was consistent across the appeals, and no separate judgments by individual judges were mentioned.

Outcome:
The Tribunal quashed the reassessment orders and deleted the quantum additions made by the authorities below. The appeals preferred by the Revenue were dismissed, and those by the assessee were allowed. The High Court upheld the Tribunal's decision, emphasizing that the AO did not have a basis for making additions without independent verification. The Tribunal followed the High Court's judgment, leading to the deletion of the quantum orders and allowing the assessee's appeals.

← Previous Next →