2014 (9) TMI 340 - HC - VAT and Sales Tax

Reassessment of proceedings - Escapement of income - Rejection of books of accounts - best judgment assessment - Held that - From a perusal of the order-sheet, which has been annexed to the rejoinder affidavit that no reason was recorded by the Assessing Officer on or before 05.09.2005 indicating that pursuant to a survey conducted by the Special Investigating Branch, the officer had reason to believe that some part of the turnover had escaped assessment to tax. There is nothing to indicate from the counter affidavit that the survey report was on the record, which was considered by the Assessing Officer at the time of issuance of the notice date 05.09.2005. In the absence of any reasons being recorded, one finds that the notice was issued without recording any reason therein thereby indicating non-application of mind. Subsequent recording of reasons in the notice dated 14.09.2005 will not validate the original notice dated 05.09.2005. The mandate under Section 21 of the Act is, that there must be reasons to believe that some part of the turnover had escaped assessment to tax. The reasons to believe must be formed on the basis of material before the issuance of the notice by the Assessing Officer, i.e. prior to 05.09.2005 indicating a belief that some part of turnover had escaped assessment. Supplying reasons subsequent to the issuance of notice by the Assessing Officer cannot validate the notice. In the light of the circular, reasons in brief should be given in the notice issued under Section 21 of the Act and that there must be reasons recorded on the file by the Assessing Officer coming to a prima facie conclusion or forming a belief that some part of turnover had escaped assessment to tax before issuance of a notice under Section 21 of the U.P. Trade Tax Act - there is no reason recorded by the Assessing Officer coming to a belief that some part of turnover had escaped assessment to tax prior to the issuance of notice under Section 21 of the Act. Consequently, the impugned notices dated 05.09.2005 issued under U.P. Trade Tax Act and Central Sales Tax Act for the assessment year 2003-04 cannot be sustained and are quashed - Decided in favour of assessee.

Summary

Issues:
Challenge to reassessment notices under U.P. Trade Tax Act and Central Sales Tax Act for assessment year 2003-04.

Detailed Analysis:

1. Reasons for Reassessment Notices:
The petitioner, a Public Limited Company, challenged reassessment notices under U.P. Trade Tax Act and Central Sales Tax Act for the assessment year 2003-04. The petitioner contended that the notices lacked any assigned reasons, were issued mechanically, and did not demonstrate the formation of a belief that turnover had escaped assessment to tax. The State argued that a supplementary notice provided reasons based on a survey report by the Special Investigation Branch, forming a reasonable belief that part of the turnover had escaped assessment.

2. Legal Interpretation of "Reasons to Believe":
The Court analyzed the concept of "reasons to believe" under Section 21 of the U.P. Trade Tax Act. It emphasized that the belief must be rational, relevant, and based on tangible material to justify initiating reassessment proceedings. The Court referred to precedents emphasizing that the assessing officer must have a valid belief supported by material evidence before issuing reassessment notices.

3. Precedents and Legal Standards:
The judgment cited various legal precedents to establish the requirement of a valid belief for reassessment. It highlighted that the belief must be in good faith, relevant, and not based on extraneous considerations. The Court emphasized that the assessing officer must form an objective opinion on reasonable grounds that turnover has escaped assessment.

4. Validity of Reassessment Notices:
The Court scrutinized the reassessment notices issued to the petitioner and found that no reasons were recorded by the Assessing Officer before the initial notice date. It noted that subsequent reasons provided in a supplementary notice could not validate the original notice. The Court emphasized the necessity of recording reasons before issuing notices, as per a circular by the Trade Tax Commissioner.

5. Court's Decision:
Based on the analysis, the Court held that the reassessment notices lacked valid reasons to believe that turnover had escaped assessment. Consequently, the Court quashed the notices issued under U.P. Trade Tax Act and Central Sales Tax Act for the assessment year 2003-04. The Court's decision was in favor of the petitioner, allowing the writ petition challenging the reassessment notices.

In conclusion, the judgment delved into the legal intricacies of reassessment notices, emphasizing the importance of valid reasons to believe in initiating such proceedings under tax laws. The Court's decision was based on the lack of recorded reasons before issuing the notices, highlighting the necessity of a rational and well-founded belief by the assessing officer.