2017 (8) TMI 254 - HC - VAT and Sales Tax

Search/survey - Revenue is of the view that the AO ought to have gathered / further material in support which was gathered by the Income Tax Officers, and merely because of the said communique from the Income Tax Department, the addition could not have been sustained - whether there is any reciprocal arrangement of exchanging such information of the search / survey conducted by the other Tax Departments or other Departments? - Held that - It is directed that not only information would be passed on, but the Officer concerned having information in his possession, is duty bound to transmit even the incriminating material collected during the course of search / survey so that other Tax Department, without wasting further time, acts on such incriminating material rather than calling again and again from the official concerned under whose possession the said incriminating material is lying seized. The purpose would be served of constituting REIC by the Union Government when such information is transmitted by all the Agencies in their possession. Accordingly, it is directed that no sooner a search / survey is conducted wherever necessary, let the Agency who has conducted the search / survey pass on not only the information of search / survey being conducted of the person searched, but also the incriminating material / information gathered will also be transferred / transmitted in a confidential seal cover for use to the Chief / Head of the other Departments after putting a seal & signature by the Officer from whose possession these documents are being sent. Let a direction be given that such information lying in possession be forwarded/transmitted within a period not later than 3 months and in case information is not passed than the said officer would be held personally liable of the consequences which may follow. The power of prosecution plays a deterrent effect not only on the tax payer who has evaded the tax but it goes a long way and would be deterrent on the society / other tax payers at large. It is true that it should be sparingly used and not in a routine manner wherever evasion takes plays but at-least in cases where it is noticed that there is huge evasion of taxes over the years, that such power should certainly be used by the authorities respectively. Therefore, direction is given that as and when needed though sparingly such power of prosecuting the person / tax evader should be used. Therefore, this need to be taken care of henceforth by all the authorities concerned. Petition allowed - decided in favor of Revenue.

Summary

Issues Involved:
1. Reopening of assessment by the Assessing Officer (AO) based on information from the Income Tax Department.
2. Coordination and information exchange among various tax departments.
3. Functioning and effectiveness of the Regional Economic Intelligence Council (REIC).

Issue-wise Detailed Analysis:

1. Reopening of Assessment by the AO:
The court examined a case where the assessment was reopened by the AO based on information received from the Income Tax Department following a search/survey of the respondent assessee. The AO proceeded to pass an assessment order without seeking further information from the Income Tax Department. The court held that the AO should have gathered additional material in support of the assessment. The Tax Board decided against the Revenue, and the court upheld this decision, emphasizing that the addition could not be sustained merely based on the initial communique from the Income Tax Department.

2. Coordination and Information Exchange Among Various Tax Departments:
The court observed a lack of coordination among various tax departments, leading to inefficiencies in handling tax evasion cases. The Commissioner, Commercial Taxes, and other senior officers highlighted the need for better information sharing. The court noted that the time-barring nature of tax assessments necessitates prompt and effective communication of information among departments. The Union Government had constituted REIC to facilitate such coordination, but its purpose was being defeated due to reluctance in sharing information.

3. Functioning and Effectiveness of REIC:
The court reviewed the guidelines issued by the Union Government for REIC, which aimed to ensure operational coordination among different enforcement and investigation agencies dealing with economic offenses. The REIC was mandated to cover all areas of economic interest, gather general economic intelligence, and ensure timely and prompt exchange of information on suspicious transactions, unusual financial transactions, and other economic offenses. The court emphasized the importance of REIC meetings being attended by designated officers and the need for regular and effective communication among member agencies.

Key Directives and Observations:
- The court directed that all suggestions given by various tax agencies in their affidavits should be acted upon, and information should be immediately transmitted to other agencies.
- The court mandated that incriminating material collected during searches/surveys should be shared with other tax departments within three months, and failure to do so would result in personal liability for the concerned officer.
- The court suggested joint searches/surveys by multiple tax departments to enhance effectiveness.
- The court highlighted the power of prosecution available under various tax laws and directed that it should be used sparingly but effectively in cases of significant tax evasion.
- The court ordered the dissemination of the judgment and directives to relevant authorities to ensure statewide and potentially nationwide implementation of REIC's mandate.

Conclusion:
The petitions were disposed of with the court's directives aimed at improving coordination and information sharing among tax departments, ensuring the effective functioning of REIC, and enhancing the overall efficacy of tax enforcement and investigation processes.