2018 (2) TMI 675 - HC - Income Tax

Reopening of assessment - unaccounted sales - sales of manufactured goods to specific party was found bogus - eligibility of reasons to believe - Held that - From the statement of the Director, it can be culled out that the finished goods manufactured by the assessee stated to have been sold to M/s H K Impex Pvt. Ltd would first reach the premises of M/s. H. K Impex Pvt. Ltd., Umbergaon from where under the instructions of the recipient the same would be diverted to Vasai or Bhayandar without disclosure to the Excise Authorities. This later portion of the movement of the goods may be unauthorized and may have either Central Excise or the Sales Tax evasion angle. Nevertheless, this factum would not establish that there was no sale of the goods made by the assessee, as claimed in the reasons recorded. At any rate, no such fact emerges from the statement of the Director of the company contrary to what the reasons record. - Decided against assessee.

Summary

Issues:
1. Validity of the notice for reopening the assessment for the assessment year 2005-06.
2. Challenge to the action of the department in reopening the assessee's assessment.
3. Interpretation of the statement of the Director of the assessee-company by the Tribunal.
4. Dismissal of the Tax Appeals.

Analysis:

1. The appeals before the Gujarat High Court involved challenging the judgment of the Income Tax Appellate Tribunal which annulled the action of the department in reopening the assessee's assessment for the assessment year 2005-06. The Assessing Officer had recorded reasons for reopening the assessment based on unaccounted sales by the assessee company to various parties, leading to under-assessment of income. The Tribunal held that the notice of reopening lacked validity as the reasons recorded did not conclusively establish tax evasion by the assessee.

2. Despite the assessee opposing the notice of reopening and fresh assessment, the Assessing Officer proceeded to frame the assessment. The CIT (Appeals) dismissed the appeal of the assessee, leading to the matter being brought before the Tribunal. The Tribunal found that the reasons for issuing the notice of reopening were not valid as they were based on the assumption of bogus sales, which the statement of the Director of the assessee-company did not support. Therefore, the Tribunal concluded that the notice of reopening was unjustified.

3. Upon reviewing the materials on record, including the reasons recorded for reopening and the Tribunal's order, the High Court agreed with the Tribunal's interpretation of the Director's statement. The statement indicated that the goods manufactured by the assessee were diverted to different locations, potentially involving evasion of Central Excise or Sales Tax. However, this unauthorized movement did not negate the fact of goods being sold by the assessee, as claimed in the reasons for reopening. The High Court concurred that the reasons recorded did not align with the actual content of the Director's statement.

4. Ultimately, the High Court dismissed the Tax Appeals, upholding the Tribunal's decision that the notice of reopening the assessment for the assessment year 2005-06 was not valid. The judgment emphasized the importance of establishing a clear link between the reasons for reopening an assessment and the actual evidence or statements supporting such reasons to ensure the validity of such actions under the law.