2018 (9) TMI 801 - HC - Income Tax

Addition of suppressed sale - addition using the material collected by the Excise Department including the statements of relevant witnesses recorded during the search - Held that - We notice that under identical situation in THE PRINCIPAL COMMISSIONER OF INCOME TAX RAJKOT-3 VERSUS VRUNDAVAN CERAMICS PVT. LTD. 2018 (5) TMI 1274 - GUJARAT HIGH COURT 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. As 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 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:
1. Interpretation of section 145 of the IT Act regarding rejection of book results.
2. Deletion of addition based on suppressed sales using material from Excise Department.

Issue 1: Interpretation of section 145 of the IT Act
The High Court considered whether the Appellate Tribunal was justified in not appreciating the provisions of section 145 of the IT Act, which allow the rejection of the book result if the assessing officer doubts the correctness or completeness of the accounts. The respondent, a ceramic manufacturer, was investigated by the Central Excise Department, leading to a show-cause notice for unpaid excise duty. The Revenue reopened assessments based on materials collected during the investigation. The Assessing Officer made additions, which were later deleted by the Tribunal. The Court referred to a previous case involving tax evasion allegations and emphasized the need for concrete evidence before making additions to assessments. The Court noted that the Assessing Officer did not have sufficient independent material to support the additions and merely relied on materials collected by the Excise Department. The Court highlighted that the Excise proceedings were not finalized, and the Assessing Officer should not have proceeded without concrete evidence of tax evasion. The Court dismissed the appeals, ruling against the Revenue.

Issue 2: Deletion of addition based on suppressed sales
The second issue concerned the deletion of additions made based on suppressed sales using materials from the Excise Department. The Court analyzed the actions of the Assessing Officer, who relied on show-cause notices and witness statements without concrete verification. The Court emphasized the need for verified evidence before making additions to assessments. The Court also rejected reliance on a judgment from the Customs, Excise, and Service Tax Appellate Tribunal due to differences in circumstances. Ultimately, the Court found that the Assessing Officer lacked sufficient basis for the additions, rendering the percentage of sales irrelevant. Consequently, the Court dismissed the appeals, ruling in favor of the respondent.