2015 (6) TMI 382 - AT - Income Tax

Reopening of assessment - suppressed sale - AO has concluded that the show cause notice issued by the Excise Department is foolproof and substantial material evidence of suppression of sales - Held that - Conclusion of the AO is contrary to the decision of the Futura Ceramics Pvt. Ltd. Vs. State of Gujarat, 2012 (12) TMI 955 - GUJARAT HIGH COURT wherein, while deciding the issue under VAT Act on a similar show cause notice issued by the Central Excise Authority has held that merely because the Excise Department issued a show-cause notice, that cannot be a ground to presume and conclude that there was evasion of excise duty implying thereby that there was also evasion of tax under the VAT Act. It is not even the case of the Department that such show-cause notice proceedings has culminated into any final order against the petitioner. We wonder what would happen to the order of reassessment, if ultimately the Excise Department were to drop the proceedings without levying any duty or penalty from the petitioner. Further, the show cause notice issued by the Excise Department contains the allegation of the Excise Department that the assessee has suppressed sales for the purpose of making payment of excise duty. A perusal of recorded reasons does not show that the AO verified the particulars declared by the assessee in its income-tax return. Nowhere in the recorded reasons, the sale declared by the assessee in its income-tax return, has been brought on record. The AO, as per the recorded reasons, has not verified the income-tax return of the assessee vis- -vis the alleged escapement of income to arrive at the satisfaction to the effect that the assessee has not disclosed such income in the return of income, and has concluded that the alleged sales, on which the excise duty was allegedly not paid by the assessee, was income chargeable to income-tax, and has escaped the assessment under the Income Tax Act. - Decided in favour of assesse.

Summary

Issues Involved:
Cross appeals by assessee and Revenue against CIT(A)'s order for Asstt. Years 2005-06, 2006-07, and 2007-08; Validity of reopening of assessment based on suppression of sales by Excise Department.

Analysis:

1. Reopening of Assessment:
The appeals involved challenges to the reopening of assessments for the mentioned years based on suppression of sales by the Excise Department. The AO issued notices under section 148 for all three years citing suppression of sales amounting to a substantial sum. The AO believed that the assessee's income had escaped assessment due to failure to disclose material facts fully. The assessee contested the validity of the reopening unsuccessfully before lower authorities.

2. Legal Principles Governing Reopening:
The Tribunal emphasized that the validity of a notice under section 148 must be judged solely on the reasons recorded by the AO under section 148(2). The AO must have a bona fide belief based on specific, reliable, and relevant material to issue such a notice. The belief must be genuine and not arbitrary or irrational, focusing on the escapement of taxable income chargeable to tax.

3. Analysis of Recorded Reasons:
Upon analyzing the reasons recorded by the AO, the Tribunal found discrepancies. The AO relied heavily on the show cause notice by the Excise Department, deeming it foolproof evidence of sales suppression. However, the Tribunal pointed out that the AO failed to verify the particulars declared by the assessee in its income-tax return. The Tribunal referenced a High Court decision stating that a show cause notice alone cannot establish evasion of tax under different statutes.

4. Conclusion and Decision:
The Tribunal concluded that the reopening of assessments based solely on the Excise Department's show cause notice was legally flawed. Without verifying the assessee's income-tax return against the alleged suppression of sales, the belief in income escapement was deemed unsubstantiated. Consequently, the Tribunal canceled the reassessment orders for all years, rendering the Revenue's appeals irrelevant and dismissing them.

5. Final Verdict:
The Tribunal allowed the assessee's appeals for the mentioned years and dismissed the Revenue's appeals. The decision was pronounced on February 27, 2015, in Ahmedabad.