2019 (6) TMI 1420 - HC - Income Tax

Rejection of books of accounts u/s 145 - Addition made on account of suppressed sale by using the material collected by the Excise Department; including the statements of relevant witnesses recorded during the search - HELD THAT - As decided in VRUNDAVAN CERAMICS PVT. LTD. 2018 (5) TMI 1274 - GUJARAT HIGH COURT Firstly the excise show-cause notices in case of the present assessee are yet to be adjudicated. What would be the material on record during such proceedings is not possible for us to foresee. Secondly the Tribunal has mainly proceeded on the basis of absence of section 4A of the Central Excise Act at the relevant time which in the opinion of the Tribunal alone could have permitted the department to substitute the sale price by the transaction value of the goods. Such is not the case in the present group of cases. We would therefore be well advised to clear such controversy. When we find that the Assessing Officer did not have the basis for making additions the question of percentage of the sales at which stage additions should be made would become redundant. In the result question is decided against the Revenue

Summary

Issues Involved:
1. Applicability of Section 145 of the Income Tax Act, 1961 regarding the rejection of the assessee's book results.
2. Deletion of additions made due to suppressed sales based on material collected by the Excise Department.
3. Validity of the Appellate Tribunal's decision against the Revenue despite directions to verify the finality of Excise Department proceedings.

Detailed Analysis:

Issue 1: Applicability of Section 145 of the Income Tax Act, 1961

The primary question was whether the Appellate Tribunal was justified in not appreciating the provisions of Section 145 of the Act, which requires rejecting the book results of the assessee if the assessing officer is not satisfied with the correctness or completeness of the accounts. The court observed that the Assessing Officer had relied heavily on the show-cause notices issued by the Excise Department, which were yet to be adjudicated. The Tribunal found that merely presenting the show-cause notices without independent verification or additional material did not justify rejecting the assessee's books of accounts.

Issue 2: Deletion of Additions Based on Material Collected by the Excise Department

The Tribunal had deleted the additions made on account of suppressed sales, which were based on materials collected by the Excise Department, including statements of witnesses recorded during a search. The court noted that the Assessing Officer had not conducted any independent verification and had relied solely on the unadjudicated show-cause notices. The Tribunal found that the Assessing Officer had shifted the burden of proof onto the assessee without substantiating the allegations with independent evidence, thereby justifying the deletion of the additions.

Issue 3: Validity of the Tribunal's Decision Against the Revenue

The Tribunal's decision against the Revenue was challenged on the grounds that the issue should have been set aside with directions to verify the finality of the proceedings by the Excise Department. The court referred to a previous judgment (Principal Commissioner of Income Tax, Rajkot-3 Vs. Vrundavan Ceramics (P.) Ltd.) where it was held that the Assessing Officer cannot defer the completion of assessment awaiting the final order of adjudication in excise proceedings due to the risk of the assessment getting time-barred. The court concluded that the Assessing Officer did not have sufficient material to make additions, and the Tribunal was justified in its decision.

Conclusion:

The court dismissed the Revenue's appeal, affirming the Tribunal's decision to delete the additions based on unverified materials from the Excise Department. The issues raised were no longer res integra, and the appeal was dismissed in line with the coordinate bench's previous decision. Consequently, the connected Tax Appeal was also dismissed.