2018 (9) TMI 1326 - HC - Income Tax

Addition of suppressed sale - additions of income made on the basis of SCN issued under the Central Excise - assessee contended that - Proceedings under central excise could not be finalized - Held that - Similar issue came up for consideration before this Court in 2018 (5) TMI 1274 - GUJARAT HIGH COURT AO cannot be expected to defer completion of assessment awaiting final order of adjudication in excise proceedings at the risk of his assessment getting time barred. Even otherwise, in a given case, the material that may be brought on record in excise proceedings may be different from that which may form part of the assessment proceedings though the both may, to some extent, be common. In addition to confronting the assessee with the contents of the show-cause notice issued by the Excise department, the Assessing Officer has done little else. By merely producing the copies of the statements of the witnesses accompanying the show-cause notices, such statements and the veracity thereof does not get automatically established. AO merely cosmetically gave an opportunity to the assessee to meet with such allegations, virtually, shifting the burden of proving the evasion of duty that had taken place on the assessee. We have perused the entire order of assessment. There is no independent material brought on record by the Assessing Officer other than those which were already collected by the Excise department and which, as noted earlier, are yet to be verified. - Decided against the revenue.

Summary

Issues:
1. Interpretation of section 145 of the Income Tax Act regarding rejection of book results.
2. Deletion of addition made based on suppressed sales using material from the Excise Department.

Issue 1: Interpretation of section 145 of the Income Tax Act regarding rejection of book results.

The Tax Appeals challenged the judgment of the Income Tax Appellate Tribunal regarding the assessment year 2005-06. The Revenue questioned whether the Appellate Tribunal was justified in not appreciating the provisions of section 145 of the IT Act, which allow the rejection of the book results if the assessing officer is not satisfied with the accuracy of the accounts. The High Court considered a similar case where the assessing officer relied solely on a show-cause notice from the Excise Department without further verification, leading to the Court quashing the reassessment order. The Court emphasized that the assessing officer must have sufficient material to believe tax evasion, not merely rely on show-cause notices. The Court noted that the Excise proceedings do not have time barring provisions like the Income Tax Act, and the assessing officer cannot delay assessment based on pending excise proceedings. The Court concluded that the assessing officer lacked independent material to support the additions made, shifting the burden of proof unfairly to the assessee. The Court dismissed the Tax Appeals, ruling in favor of the assessee.

Issue 2: Deletion of addition made based on suppressed sales using material from the Excise Department.

The High Court analyzed the case where the assessing officer made additions based on suppressed sales using material from the Excise Department. The Court noted that the assessing officer did not have a proper basis for these additions and did not provide independent material beyond what was collected by the Excise department. The Court highlighted that the assessing officer merely confronted the assessee with the allegations without establishing the veracity of the materials. The Court rejected reliance on a judgment of the Customs, Excise, and Service Tax Appellate Tribunal, emphasizing that the Excise show-cause notices were yet to be adjudicated. The Court concluded that since the assessing officer lacked a basis for the additions, the question of the percentage of sales for making such additions became irrelevant. Consequently, the Court ruled against the Revenue, dismissing all Tax Appeals.

This judgment clarifies the importance of having sufficient independent material to support additions in assessments, especially when relying on information from other departments. It underscores the assessing officer's duty to establish tax evasion with concrete evidence rather than shifting the burden onto the assessee based on unverified materials.