2018 (9) TMI 1563 - HC - Income Tax

Rejection of book of accounts - addition on account of suppressed sale by using the material collected by the Excise Department - Held that - As decided in THE PRINCIPAL COMMISSIONER OF INCOME TAX RAJKOT-3 VERSUS VRUNDAVAN CERAMICS PVT. LTD. 2018 (5) TMI 1274 - GUJARAT HIGH COURT AO 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. - Decided against revenue

Summary

Issues:
- Interpretation of section 145 of the IT Act regarding rejection of book results
- Deletion of addition made on suppressed sales based on material from Excise Department

Interpretation of Section 145 of the IT Act:
The High Court considered the appeal against the Income Tax Appellate Tribunal's judgment for the assessment year 2004-05. The first issue revolved around the Tribunal's justification in not appreciating the provisions of section 145 of the IT Act. The Court examined whether the Assessing Officer had sufficient grounds to reject the book results of the assessee if the accounts' correctness or completeness was in question. The Court analyzed the facts and circumstances to determine the validity of the Tribunal's decision in this regard.

Deletion of Addition Based on Material from Excise Department:
The second issue involved the deletion of an addition made on suppressed sales using material from the Excise Department. The Court referred to a similar case where the Assessing Officer's actions were scrutinized. The Court highlighted that the Excise show-cause notices presented material collected by the department, indicating potential tax evasion. However, the Court emphasized that these notices were preliminary and not conclusive evidence of evasion. The Assessing Officer's reliance on these notices without additional independent verification was deemed insufficient. The Court noted that the burden of proof regarding tax evasion should not be shifted solely to the assessee based on unverified materials. Ultimately, the Court dismissed the Tax Appeals, indicating that the Assessing Officer lacked a proper basis for making the additions, rendering the percentage of sales irrelevant in this context.

This judgment underscores the importance of substantial evidence and independent verification in tax assessments. It clarifies the Assessing Officer's responsibilities in establishing tax liabilities based on verified information rather than preliminary notices. The decision provides valuable insights into the interpretation of tax laws and the burden of proof in tax evasion cases, ensuring fair and just tax assessments based on concrete evidence and legal provisions.