2018 (9) TMI 1537 - AT - Income Tax

Reopening of assessment - Reopening on the basis of show cause notice issued by the Excise Authorities - addition on account of suppression of value of sale of aluminium dross - Held that - In the instant case it is undisputed fact that action u/s 148 of the Act was proceeded on the basis of show cause notice issued by the Excise Authorities which formed the basis of adjudication order by the Commissioner of Central Excise which had been set aside by an order dated 4.12.2015 of the Customs, Excise Service Tax Appellate Tribunal. Thus once the very foundation on which the action u/s 147 had been initiated had cease to exist; both logically and legally what emerges is that notice u/s 148 of the Act was invalid and the assessment framed u/s 147/143(3) was also vitiated. Addition on suppression of value of sale of alumninium dross - Held that - AO has made a chain of presumptions while making addition in the hands of the appellant. Firstly, it was presumed that the quantity of dross mentioned in the excel sheet for the month of April, 2007 has been sold by the appellant in the guise of ash and residue as the same was matching with the invoiced quantity of ash and residue for that month. Secondly, it was presumed that even if the data for the other months was not matching, then took the appellant must have sold dross in the guise of ash and residue in all months. And thirdly, in the period after the date of search i.e. June, 2008 to March, 2009, for which there was no data on the excel sheet, the appellant must have also sold dross in the guise of ash and residue. There is no evidence whatsoever brought on record to support these presumptions. Even, for the period after the date of search, when the investigation was already initiated against the appellant, the AO has filed to bring out any evidence to show as to how the appellant was able to all the aluminum dross without issuing any invoice or by issuing invoice of ash and residue. Therefore, AO was not justified in making the presumption that the appellant has sold aluminium doss in the guise of ash and residue. Appellant has not sold dross in the year under consideration as there is no concrete evidence available on record to show that the appellate has underreported its sale. Further, the AO has not doubted the books of accounts and the operating results shown by the appellant. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the initiation of proceedings under section 147 of the Income Tax Act.
2. Validity of the reassessment proceedings under section 147/143(3) of the Income Tax Act.
3. Deletion of the addition of ?13,19,00,275 on account of suppression of value of sale of aluminum dross.

Detailed Analysis:

1. Validity of the initiation of proceedings under section 147 of the Income Tax Act:
The Assessee argued that the initiation of proceedings under section 147 was invalid as the reasons recorded were mechanically reproduced from the Investigation Wing's report without independent verification by the Assessing Officer (AO). The Assessee highlighted that the Central Excise and Service Tax Appellate Tribunal (CESTAT) had set aside the show cause notice issued by the Central Excise Department, which was the basis for reopening the assessment. The Assessee also contended that there was no valid approval under section 151 of the Act, as the approval was given mechanically without proper satisfaction.

The Tribunal observed that the AO's reasons for reopening the case were based solely on the show cause notice issued by the Excise Department, which had been set aside by the CESTAT. The Tribunal concluded that since the foundation for reopening the case had ceased to exist, the notice under section 148 was invalid. Additionally, the Tribunal noted that the approval under section 151 was given mechanically, as the Principal Commissioner of Income Tax (Pr. CIT) merely noted "yes" without providing any reasons for satisfaction. The Tribunal referred to the Supreme Court's decision in Chhugamal Rajpal vs. S. P. Chaliha and Others, which emphasized the need for proper application of mind by the approving authority.

2. Validity of the reassessment proceedings under section 147/143(3) of the Income Tax Act:
The Tribunal found that the reassessment proceedings were vitiated as they were based on invalid reasons recorded for reopening the assessment. The Tribunal held that once the very foundation for the action under section 147 had ceased to exist, the reassessment proceedings were also invalid. The Tribunal quashed the reassessment proceedings, citing the lack of valid reasons and mechanical approval under section 151.

3. Deletion of the addition of ?13,19,00,275 on account of suppression of value of sale of aluminum dross:
The Revenue appealed against the deletion of the addition of ?13,19,00,275 made by the AO on account of alleged suppression of sales of aluminum dross. The AO had based the addition on findings from the Central Excise Department, which alleged that the Assessee sold aluminum dross as "ash and residue" to suppress the actual value. The AO relied on statements from job workers and data from a seized pen drive to support the addition.

The Tribunal upheld the CIT(A)'s deletion of the addition, noting several key points:
- The AO's presumption that the Assessee sold aluminum dross in the guise of ash and residue was not supported by concrete evidence.
- The manufacturing process explained by the Assessee indicated that aluminum dross was processed to extract aluminum, and the remaining ash and residue were sold.
- The AO did not bring any evidence to show that the Assessee sold aluminum dross without issuing proper invoices.
- The statements from job workers were not treated as evidence by the AO, and the Assessee had rebutted these statements with specific explanations.
- The CESTAT had set aside the findings of the Central Excise Department, and there was no corroborative evidence of cash transactions or other discrepancies in the Assessee's books.

The Tribunal concluded that the AO's addition was based on presumptions and lacked concrete evidence. The Tribunal upheld the CIT(A)'s decision to delete the addition and dismissed the Revenue's appeal.

Conclusion:
The Tribunal quashed the reassessment proceedings and upheld the deletion of the addition of ?13,19,00,275 on account of suppression of value of sale of aluminum dross. The Tribunal found that the initiation of proceedings under section 147 was invalid due to mechanical recording of reasons and approval, and the reassessment proceedings were vitiated as a result. The Tribunal also concluded that the addition made by the AO was based on unsupported presumptions and lacked concrete evidence.