2013 (3) TMI 270 - HC - Income Tax

Additions to turnover & profit computed in reassessment - whether the additions can be made solely based on the information received in the course of search conducted by totally ignoring the sales tax return filed by the assessee and accepted by the sales tax Authorities - Held that - As decided in Commissioner of Income-Tax Versus Anandha Metal Corporation 2004 (7) TMI 49 - MADRAS HIGH COURT unless and until the competent authority under the Sales Tax Act differs or varies with the closing stock of the assessee, the return accepted by the Commercial Tax Department under the TNGST Act is binding on the Income Tax Authorities and the AO, therefore, has no power to scrutinise the return submitted by the assessee to the Commercial Tax Department and accepted by the said authorities. AO has no jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department. In this case Tribunal, therefore, rightly found that the Department could not have made the addition merely on the basis of the statement of third parties - in favour of assessee. Insofar as the assessment year 2002-03 is concerned, no materials seemed to have been placed by the assessee viz., the sales tax returns for the said year before the authorities below . Even the Tribunal in its order has not referred to the sales tax return filed by the assessee and the order passed therein in respect of the assessment year 2002-2003. Thus the Tribunal ought not to have allowed the appeal in respect of the assessment year 2002-2003 also - matter is remitted back to the Assessing Officer to find out as to whether any sales tax return has been filed by the assessee in respect of the assessment year 2002-2003 and to pass a revised assessment order - in favour of assessee for statistical purposes..

Summary

Issues:
- Whether the turnover and profit of the assessee for the assessment year under consideration could be computed in the reassessment based on information received during a search?
- Whether the Assessing Officer was justified in making additions based on information obtained from a third party?
- Whether the sales tax return filed by the assessee and accepted by the sales tax authorities is binding on the Income Tax Authorities?

Analysis:

1. The Revenue appealed regarding the assessment years 1998-1999 to 2002-2003, questioning the computation of turnover and profit based on information from a search. The assessee, doing business in turmeric trade, filed returns individually. The Assessing Officer believed income had escaped assessment due to discounted drafts/cheques, leading to excess turnover. The assessee argued against additions based solely on third-party statements, citing acceptance of returns by sales tax authorities. The Commissioner and Tribunal upheld the Assessing Officer's decision, prompting the Revenue's appeal.

2. The Revenue contended that additions were justified based on information from a third party, while the assessee relied on a previous court decision to argue against exceeding figures from sales tax returns. The Court examined the cited decision and the core issue of additions solely from search information, disregarding accepted sales tax returns.

3. The Court referenced the previous decision to emphasize that unless sales tax authorities differ with the assessee's closing stock, the accepted return is binding on Income Tax Authorities. As the assessee's sales tax returns were accepted for the relevant years, the Assessing Officer lacked jurisdiction to scrutinize beyond those figures. The Tribunal's decision to adopt sales tax figures and Gross Profit rate was deemed appropriate.

4. However, for the assessment year 2002-2003, the absence of sales tax return materials led the Court to remit the matter back to the Assessing Officer for further assessment. The appeal for this year was allowed for reassessment based on the lack of sales tax return evidence. Other appeals were dismissed, with the question of law answered against the Revenue and in favor of the assessee.