2015 (8) TMI 1185 - HC - VAT and Sales Tax

Re-assessment of turnover escaping assessment Production as per SIB standards Books of accounts of petitioner were duly audited and assessment order was passed Thereafter, AO seek permission of Additional Commissioner under Section 21(2) of U.P. Trade Tax Act to make reassessment on reason of report received from SIB authorities after assessment order, which was permitted and subsequent notices were issued to petitioner Held that - As per section 21 reassessment proceedings can be initiated only on basis of material on which belief can be formed that some turnover has escaped assessment Apparently clear that words reason to believe in Section 21 conveys that there must be some rational basis for assessing authority to form belief that whole or any part of turnover of dealer has for any reasons escaped assessment Sole ground for forming reason to believe is that as per settled norms production should be 94%, whereas petitioner has indicated lesser production This belief of assessing authority is patently perverse and against figures shown in assessment order and/or balance sheet Balance sheet indicates that out of total brass scrap, finished goods have been produced and that there was only melting loss of approximately 4% that is to say, there was production of 96% Standards indicated in confidential report of SIB authorities that there should be production figure of 94% Very basis for making ground for reassessment and for having reason to believe that some turnover had escaped assessment is lacking Consequently, impugned notice quashed Decided in favour of petitioner.

Issues:
Initiation of reassessment proceedings under Section 21(2) of the U.P. Trade Tax Act based on a proposal from SIB authorities post original assessment, permission granted by Additional Commissioner for reassessment, legality of the reasons to believe for escapement of tax, examination of production figures and melting loss, challenge to the reassessment proceedings, jurisdictional aspects under Article 226 of the Constitution of India.

Initiation of Reassessment Proceedings:
The judgment involved two writ petitions with similar controversies being decided together. The petitioner, engaged in the business of non-ferrous metals and brass ingots manufacturing, imported brass scraps for which customs duty was paid under the U.P. Trade Tax Act for the assessment year 2000-01. The Assessing Officer sought permission from the Additional Commissioner for reassessment based on a report from SIB authorities post original assessment, alleging less production of brass ingots compared to other manufacturers, indicating escapement of tax due to a high melting loss. The petitioner challenged the permission and subsequent notice for reassessment, arguing the lack of foundational requirements for initiating reassessment proceedings.

Reasons to Believe for Escapement of Tax:
The petitioner contended that reassessment proceedings were initiated based on a confidential note from SIB authorities without documentary evidence supporting the production norms cited. They argued that production figures were misinterpreted, considering factors like raw material quality and manufacturing process, leading to a conclusion of underreported production. The petitioner emphasized that all relevant details were provided during the original assessment, and there was no material suggesting escaped assessment, rendering the approval for reassessment unjustified and a change of opinion.

Jurisdictional Aspects and Legal Precedents:
The High Court analyzed the legal principles governing the initiation of reassessment proceedings under Section 21 of the Act. It emphasized that the assessing officer must have a rational basis or reasons to believe that turnover has escaped assessment, which must be relevant and not arbitrary. Referring to various judgments, the Court highlighted the necessity of a rational connection between the material available and the belief formed by the assessing authority. The judgment cited precedents to underscore that the belief must be held in good faith and not based on extraneous considerations, emphasizing the importance of a practical approach in forming the belief for escapement of tax.

Examination of Production Figures and Melting Loss:
The Court scrutinized the production figures and melting loss cited as the basis for reassessment, finding discrepancies in the assessing authority's calculations. It noted that the assessing authority misinterpreted the figures from the assessment order and balance sheet, erroneously including finished goods as melting loss. By comparing the actual production figures from the balance sheet, the Court concluded that the production exceeded the norms cited in the SIB report, undermining the grounds for reassessment based on alleged escapement of tax.

Conclusion and Judgment:
Ultimately, the High Court held that the assessing authority lacked a rational basis to believe that turnover had escaped assessment, as the production figures and melting loss were misinterpreted. It found that the foundational requirements for initiating reassessment proceedings were missing, rendering the notice for reassessment and the permission granted by the Additional Commissioner without jurisdiction. Consequently, the Court quashed the impugned notice and permission, allowing the writ petitions in favor of the petitioner.

This detailed analysis of the judgment from the Allahabad High Court provides a comprehensive overview of the issues involved, the legal arguments presented by the parties, the application of legal principles, and the ultimate decision reached by the Court.

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