2021 (9) TMI 802 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - clandestine clearance/ suppressed sale - independent application of mind v/s borrowed satisfaction - HELD THAT - A.O. in the present case has not formed his own belief but has rather acted upon borrowed satisfaction. Information relied upon being the SCN is based on a search conducted by the Central Excise Authorities and not by the Income Tax Department and that too at the premises of the Transporters and/or Dealers but not at the place of the assessee. Thus, the impugned reasons are clearly based upon wrong facts and are on the basis of third-party information which is unreliable. Apart from this, no material was found showing that the assessee was indulged in a clandestine clearance/ suppressed sale from its factory without paying excise duty and notices issued by the Excise Department is only on the basis of statement of third party or some information gathered from third party because no direct material or evidence was found or seized from the premises of the assessee. Neither any stock was seized nor was it found that it was the case of lesser stock or excess stock of finished goods or of raw materials found. Absolutely, no evidence was recovered nor has been placed on record to prove illicit transaction of money involved in the alleged transactions. Excise Department though alleged huge clandestine clearance of goods yet not an iota of evidence to prove procurement of huge quantities of raw materials has been placed on record, though the list of raw material suppliers was with the investigation. Without showing receipt of the raw material clandestinely, manufacture of such huge quantities of excisable goods and clandestine clearance thereof is impossible. Therefore, consequent suppressed sale and again undeclared income there from, is too remote even to be suspected. Although the A.O. categorically admitted that the assessee had filed a detailed reply on dated 18.03.2016, however, further held that such factual explanation dealing with each and every case was not relevant inasmuch as the CCE has already examined the issue and recorded his findings. This fact clearly shows that the AO has summarily rejected the contention of the assessee without examining the issue in hand, huge additions were made. Merely relied upon the findings of the CCE, however, it is important to mention that the CCE had passed the order under the provision of Central Excise Act, 1944 in that peculiar context of the case. However, such findings cannot be lifted and relied upon by the A.O. in a different factual context of Income Tax Laws. AO had merely borrowed satisfaction in respect of escapement from someone else, which is not sufficient to confer valid jurisdiction or power upon the AO to initiate reassessment proceedings. See SFIL STOCK BROKING LTD 2010 (4) TMI 102 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148.
2. Jurisdiction and application of mind by the Assessing Officer (AO).
3. Basis of addition and reliance on third-party information.
4. Principles of natural justice and timely disposal of objections.
5. Charging of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The reassessment proceedings were challenged on the grounds that the AO did not dispose of the objections filed by the assessee within a reasonable period. The objections were filed on 04.06.2015 and 05.08.2015 but were disposed of only on 22.03.2016, just before the completion of the assessment on 30.03.2016. This delay violated the principles laid down by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO & Ors. 259 ITR 19 (2002), which mandates that the AO must dispose of the objections by passing a speaking order within a reasonable time. The Tribunal found that the reassessment proceedings were initiated based on suspicion rather than a concrete belief, as required by law. The information relied upon by the AO was premature and based on a show-cause notice issued by the Central Excise Department, which was later quashed.

2. Jurisdiction and Application of Mind by the AO:
The Tribunal observed that the AO did not form an independent belief but acted on borrowed satisfaction from the Central Excise Department. The reasons recorded for reopening the assessment were based on third-party information, which was not reliable. The AO failed to apply his mind independently and relied solely on the findings of the Central Excise Department, which were later found to be unsustainable. The Tribunal emphasized that the AO must collect evidence and adjudicate the matter after due application of mind, which was not done in this case.

3. Basis of Addition and Reliance on Third-Party Information:
The addition made by the AO was based on the alleged suppressed sales and unexplained investment in unaccounted capital, derived from the Central Excise Department's findings. However, the Tribunal noted that no direct material or evidence was found from the assessee's premises to support these allegations. The Central Excise Department's findings were based on statements and documents from third parties, which were not corroborated by tangible evidence. The Tribunal held that the AO's reliance on these findings without independent verification was not justified.

4. Principles of Natural Justice and Timely Disposal of Objections:
The Tribunal found that the AO violated the principles of natural justice by not disposing of the objections within a reasonable time and passing the assessment order hastily. The delay in disposing of the objections and the subsequent hurried assessment order deprived the assessee of a fair opportunity to present his case. The Tribunal cited several judicial precedents, including the Hon'ble Mumbai High Court's decision in Capgemini India Pvt. Ltd. vs. ACIT 120 DTR 1 (Mum), to emphasize the importance of adhering to the principles of natural justice.

5. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee challenged the charging of interest under Sections 234A, 234B, and 234C, denying liability for such interest. However, since the Tribunal quashed the reassessment proceedings, the issue of interest became moot and was not adjudicated separately.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 147/148, finding them to be based on suspicion and borrowed satisfaction without independent application of mind by the AO. The Tribunal emphasized the need for adherence to the principles of natural justice and timely disposal of objections. Consequently, the additions made by the AO were also quashed, and the appeal of the assessee was allowed.