2016 (7) TMI 214 - HC - Income Tax

Reopening of assessment - suppression of sale - excise duty evasion proceedings were pending - Held that - The entire material collected by the DGCEI during the search which included incriminating documents and other such relevant materials was alongwith report and show-cause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material the Assessing Officer also formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing officer had such material available with him which he perused considered applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment the re-opening could not and should not have been declared as invalid on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. - Decided against assessee

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Sufficiency and nature of material required to form a belief that income chargeable to tax has escaped assessment.
3. Reliance on show-cause notice issued by the Excise Department for reopening assessment.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Income Tax Act, 1961:

The High Court examined whether the Income Tax Appellate Tribunal was justified in setting aside the reassessment orders on the ground that the reopening of assessment under Section 147 was bad in law. The Tribunal had invalidated the reassessment orders, asserting that the Assessing Officer (AO) could not reopen the assessment based solely on a show-cause notice issued by the Excise Department, which had not culminated in a final order.

The High Court disagreed with the Tribunal, emphasizing that the AO had tangible material, including incriminating documents and a detailed report from the Directorate General of Central Excise Intelligence (DGCEI), which suggested suppression of sales. The AO had applied his mind to these materials and formed a belief that income chargeable to tax had escaped assessment. The High Court held that at the stage of issuing the notice, the AO only needed to form a bona fide belief, not conclusively prove the escapement of income.

2. Sufficiency and Nature of Material Required to Form a Belief that Income Chargeable to Tax has Escaped Assessment:

The High Court referred to several precedents to analyze the sufficiency and nature of material required for reopening an assessment. It cited the Supreme Court's rulings in:
- *Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer*: The Supreme Court held that findings by Customs Authorities regarding under-invoicing could form a valid reason to believe that income had been under-assessed.
- *Income Tax Officer vs. Purushottam Das Bangur*: The Court ruled that information from the Directorate of Investigation about manipulated transactions could be sufficient for the AO to form a belief of income escapement.
- *Income Tax Officer vs. Selected Dalurband Coal Co. Pvt. Ltd.*: The Supreme Court upheld reopening based on a letter from the Chief Mining Officer indicating under-reporting of coal raised.

The High Court concluded that the AO had substantial material evidence from the DGCEI's investigation, which included detailed reports and corroborative evidence, to form a belief that the assessee's income had escaped assessment.

3. Reliance on Show-Cause Notice Issued by the Excise Department for Reopening Assessment:

The Tribunal had relied on the High Court's decision in *Futura Ceramics Pvt. Ltd. vs. State of Gujarat*, where it was held that a mere show-cause notice from the Excise Department could not be the sole basis for reassessment under the Value Added Tax (VAT) Act. The High Court distinguished this case, noting that the VAT Authority had acted mechanically without independent inquiry, whereas in the present case, the AO had substantial material and had applied his mind to form a belief of income escapement.

The High Court emphasized that the AO's belief was based on detailed investigations and incriminating documents provided by the Excise Department, not merely on the show-cause notice. Therefore, the reopening of the assessment was valid.

Conclusion:

The High Court allowed the appeals, set aside the Tribunal's judgments, and remanded the cases back to the Tribunal to address the merits of the additions. The Court clarified that it had not made any observations on the merits of the additions and confined its scrutiny to the validity of the reopening of assessments.

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