2014 (1) TMI 1380 - HC - VAT and Sales Tax

Validity of notice of reopening of the assessment - Jurisdiction of Court - Held that - third respondent while authorising a reopening of the reassessment for the year 2004-05 has furnished a tangible basis upon which the formation of belief has been founded. The search which was conducted upon M/s. Parmarth Iron Pvt. Ltd., Bijnor resulting in recovery of data maintained in the electronic form indicated transactions of a value of ₹ 4.31 crores with the petitioner for the year 2004-05. The petitioner has undoubtedly disputed having had any transaction with the aforesaid party but this is not the matter which falls for consideration at this stage. The point to be noted, as is reflected in the original order of the assessment dated 5 January 2007, is that for the year in question the petitioner reflected total purchases of only ₹ 1.22 lacs and sales of ₹ 54,114/-. On this material, it cannot be held that the formation of belief was extraneous or that the grounds which weighed with the third respondent have no nexus with the formation of belief. Section 12-A of the Trade Tax Act provides that in any assessment proceedings, when any fact is specially within the knowledge of the assessee, the burden of proving that fact shall lie upon him, and in particular, the burden of proving the existence of circumstances bringing the case within inter alia any of the exceptions, exemptions or reliefs mentioned in Section 3-A, shall lie upon the assessee and the assessing authority shall presume the absence of such circumstances - Once the Court has come to the conclusion that the jurisdictional requirement of reopening and reassessment has been duly met, there is no reason to interfere with the impugned action of the authorities - Decided against assessee.

Summary

Issues:
1. Legality of order granting approval for reopening of assessment for Assessment Year 2004-05.
2. Notices issued for regular assessment for Assessment Year 2005-06 and 2006-07.
3. Interpretation of the expression 'reason to believe' under Section 21 of the Trade Tax Act.
4. Burden of proof on the assessee regarding liability for tax.
5. Justification for notice of reassessment and regular assessment.

Analysis:
1. The petitioner challenged the legality of the order granting approval for reopening the assessment for the year 2004-05 under the proviso to Section 21(2) of the U.P. Trade Tax Act, 1948. The petitioner disputed transactions with a company, arguing no liability for tax. However, the court held that the formation of belief for reassessment was based on tangible grounds, meeting the requirements of Section 21. The notices for regular assessment for subsequent years were also deemed lawful.

2. The notices issued for regular assessment for the years 2005-06 and 2006-07 were challenged. The court clarified that the mere fact that a previous case had a stay on assessment proceedings did not justify interference in this case. The jurisdictional requirements for reassessment were met, and there was no reason to interfere with the authorities' actions.

3. The interpretation of the expression 'reason to believe' under Section 21 was crucial. The court referenced the Supreme Court's interpretation, emphasizing the need for a rational basis for the authority to believe that turnover had escaped assessment. The court found that the grounds for reassessment were relevant and had a nexus with the formation of belief, meeting the legal standards.

4. The petitioner argued that liability for tax should fall on the manufacturer, not on them. However, the court noted that this was not a pure jurisdictional issue for the court to decide in a petition challenging a reassessment notice. The burden of proof regarding liability lies with the assessee, and the court did not conclude on the substantive issues of liability at this stage.

5. The court dismissed the writ petition, stating that no case for interference under Article 226 was made out. The authority had a 'reason to believe' for reassessment, and the notices for regular assessment were found to be in accordance with the law. The court emphasized that this was not a case of mere suspicion but of a valid belief for reassessment.