2017 (3) TMI 1064 - SC - VAT and Sales Tax

Re-opening of assessment - escaped assessment - whether an audit objection can be construed as information within the meaning of Section 19 of the State Act based on which the assessing officer was satisfied that reasonable grounds exist to believe that any part of the turnover of the appellant-Company had escaped assessment under Section 19 of the State Act? Held that - Sub-Section (1) of Section 19 very clearly prescribes that the competent authority, upon information, if satisfied that reasonable ground exists to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer assessed under sub-Section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable, may, within eight years from the date of order of assessment, proceed to assess or reassess the amount of tax in respect of such turnover - There are a catena of judgments of this Court holding that assessment proceedings can be reopened if the audit objection points out the factual information already available in the records and that it was overlooked or not taken into consideration. Similarly, if audit points out some information or facts available outside the record or any arithmetical mistake, assessment can be re-opened. The Assessing Officer 20 was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment so as to invoke Section 19 of the State Act - the assessing officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction which is not permissible under law - reopening of assessment not permissible. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether an 'audit objection' can be construed as 'information' under Section 19 of the Bihar Finance Act, 1981, justifying the re-opening of an assessment.
2. Whether the re-assessment order dated 27.02.2006 was valid and lawful.
3. Whether the High Court was correct in dismissing the writ petition filed by the appellant-Company.

Issue-wise Detailed Analysis:

1. Whether an 'audit objection' can be construed as 'information' under Section 19 of the Bihar Finance Act, 1981, justifying the re-opening of an assessment:

Section 19 of the Bihar Finance Act, 1981, allows the prescribed authority to re-open an assessment if "reasonable grounds exist to believe that any turnover of a registered dealer has escaped assessment." The appellant-Company argued that an 'audit objection' does not constitute 'information' under Section 19, and thus, cannot be the basis for re-opening an assessment. They contended that the original assessment order had already considered the taxability of the disputed items, and the re-assessment was merely a change of opinion on the same set of facts.

The respondent-State, however, argued that an 'audit objection' is indeed 'information' within the meaning of Section 19, as it points out factual errors or omissions in the assessment. They cited several judgments supporting the view that audit objections can be a valid basis for re-assessment if they reveal overlooked facts or mistakes.

The Court examined the meaning of 'information' and concluded that it includes facts or knowledge derived from external sources, including audit reports. The Court noted that the word 'information' should be construed broadly and can include the discovery of new facts or previously unnoticed information in the assessment record.

2. Whether the re-assessment order dated 27.02.2006 was valid and lawful:

The Court scrutinized the re-assessment order dated 27.02.2006, which was based on the audit team's finding that the appellant-Company had been wrongly allowed an exemption on goods consumed during the execution of works contracts without submitting the mandatory Form IX-C. The audit team had pointed out that the exemption was not allowable, and the assessing authority issued a show cause notice and subsequently passed the re-assessment order.

The Court observed that the assessing authority must be personally satisfied that there are reasonable grounds to believe that turnover has escaped assessment. In this case, the Court found that the assessing officer issued the re-assessment notice based on the audit team's direction rather than his own satisfaction, which is not permissible under law. The Court emphasized that a mere change of opinion does not constitute 'information' for re-assessment purposes.

3. Whether the High Court was correct in dismissing the writ petition filed by the appellant-Company:

The High Court had dismissed the writ petition filed by the appellant-Company, upholding the re-assessment order. The Supreme Court, however, found that the High Court erred in its judgment. The Supreme Court concluded that the re-assessment order was issued without proper jurisdiction as it was based on the audit team's direction rather than the assessing officer's personal satisfaction.

Conclusion:

The Supreme Court allowed the appeal, setting aside the re-assessment order dated 27.02.2006 and the High Court's judgment dated 17.11.2006. The Court held that the re-assessment proceedings were not validly initiated, as the audit objection did not constitute 'information' under Section 19 of the Bihar Finance Act, 1981, and the assessing officer did not independently satisfy himself of the need for re-assessment. The parties were directed to bear their own costs.

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