2018 (5) TMI 1274 - HC - Income Tax

Addition of suppressed sale - additions of income made on the basis of SCN issued under the Central Excise - assessee contended that - Proceedings under cental excise could not be finalized - Held that - Assessing Officer cannot be expected to defer completion of assessment awaiting final order of adjudication in excise proceedings at the risk of his assessment getting time barred. Even otherwise in a given case the material that may be brought on record in excise proceedings may be different from that which may form part of the assessment proceedings though the both may to some extent be common. In addition to confronting the assessee with the contents of the show-cause notice issued by the Excise department the Assessing Officer has done little else. By merely producing the copies of the statements of the witnesses accompanying the show-cause notices such statements and the veracity thereof does not get automatically established. AO merely cosmetically gave an opportunity to the assessee to meet with such allegations virtually shifting the burden of proving the evasion of duty that had taken place on the assessee. We have perused the entire order of assessment. There is no independent material brought on record by the Assessing Officer other than those which were already collected by the Excise department and which as noted earlier are yet to be verified. The assessee drew our attention to a judgement of Customs Excise and Service Tax Appellate Tribunal in which the order of adjudication passed in case of one of the ceramic units (not an assessee before us) by the Adjudicating authority came to be set aside. However for the following reasons we do not wish to place any reliance on this judgement 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. Decided against revenue

Summary

Issues:
Identification of unaccounted income based on show-cause notices by Excise Department, assessment of suppressed sales, rejection of books of accounts, estimation of profit margin, appeal before CIT(A), reduction of profit margin, appeals before Tribunal, rejection of Revenue's appeals, deletion of additions made by Assessing Officer, revival of appeals, adoption of a common question of law.

Analysis:
1. The Tax Appeals involved questions of law arising from the identification of unaccounted income based on show-cause notices issued by the Excise Department to various manufacturing units, including the respondent-assessee. The notices alleged that goods were sold at prices higher than the declared Retail Sale Price (RSP), leading to suppressed sales and evasion of excise duty. The Assessing Officer initiated steps to tax the unaccounted income based on the materials collected by the Excise Department.

2. The Assessing Officer rejected the assessee's explanations, referred to the show-cause notice contents, and estimated the profit margin at 25% of the suppressed sales, adding a specific amount to the total income. The assessee contended that the show-cause notice contents were unverified, and the higher selling prices did not necessarily imply receipt of the excess amount by the assessee.

3. The CIT(A) partially upheld the Assessing Officer's decision but reduced the profit margin to 9%. Both parties appealed before the Tribunal, which favored the assessee, leading to the Revenue filing appeals before the High Court. The Court adopted a common question of law for all appeals regarding the deletion of additions made by the Assessing Officer.

4. The Court distinguished a previous case involving the reliance on a show-cause notice for reassessment, emphasizing that the Assessing Officer in the present case did not treat the show-cause notice as final but sought the assessee's response. The Court rejected the contention that finalization of excise proceedings was a prerequisite for income tax assessment.

5. The Court clarified that the absence of final adjudication in excise proceedings did not bar the Assessing Officer from completing the assessment. It highlighted the different timelines and materials involved in excise and income tax proceedings, allowing independent assessment actions.

6. The Court scrutinized the Assessing Officer's actions, noting a lack of independent material beyond the excise department's findings. It criticized the shifting of the burden of proof to the assessee and emphasized the need for concrete evidence to establish tax evasion.

7. The Court dismissed reliance on a Tribunal judgment due to pending adjudication of show-cause notices and differing legal provisions. Ultimately, the Court ruled against the Revenue, concluding that the Assessing Officer lacked sufficient grounds for making additions, leading to the dismissal of all Tax Appeals.