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2016 (7) TMI 214 - GUJARAT HIGH COURT

2016 (7) TMI 214 - GUJARAT HIGH COURT - TMI - 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 ev .....

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ise 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 - TAX APPEAL NO. 542 of 2015 - Dated:- 29-6-2016 - Akil Kureshi And A. J. Shastri, JJ. For the Appellant : Mr Pranav G Desai, Advocate For the Respondent : Mr B. S. Soparkar, Advocate TAX APPEAL NO. 542 of 2015 TO TAX APPEAL N .....

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2016 TO TAX APPEAL NO. 44 of 2016 With TAX APPEAL NO. 80 of 2016 TO TAX APPEAL NO. 87 of 2016 With TAX APPEAL NO. 90 of 2016 With TAX APPEAL NO. 91 of 2016 With TAX APPEAL NO. 93 of 2016 With TAX APPEAL NO. 96 of 2016 Date : 29/06/2016 JUDGMENT ( Per Honourable Mr. Justice Akil Kureshi ) 1. This group of appeals involve identical question of law and arise in substantially similar factual background. For the purpose of all appeals, we adopt following substantial question of law: Whether on the f .....

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the assessment year 2004-05, the assessee had filed the return of income. The regular assessment of such return was completed at the relevant time. Later on, the Director General of Central Excise Intelligence ['DGCEI' for short], Ahmedabad, searched the assessee's premises on 17.01.2008. During such search, several incriminating documents were recovered. The investigation led to a prima facie revelation that the assessee was engaged in large scale financial irregularities which were .....

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t year 2004-05 by issuing notice under Section 148 of the Income Tax Act, 1961 ['the Act' for short] on 22.03.2011. The assessee was supplied the reasons recorded by the Assessing Officer for issuing such notice. During the reassessment proceedings, the assessee contested the validity of the notice for reopening as also the quantum additions proposed by the Assessing Officer. Ignoring such objections, the Assessing Officer passed order of assessment on 15.12.2011 and held that there was .....

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of invalidity of the re-assessment but granted partial relief in the additions made by the Assessing Officer by adopting gross profit rate of 9% on the suppressed sales instead of 25% as was adopted by the Assessing Officer. 4. This decision of the CIT(Appeals) gave rise to two cross appeals. The assessee approached the Tribunal on the grounds of validity of re-assessment as well as on the additions confirmed by the CIT (Appeals). The department approached the Tribunal insofar as the order of C .....

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ground under which the AO recorded that Director General of Central Excise Intelligence, Ahmedabad (DGCEI) in the case of the assessee found that there was a suppression of sale for the purpose of levy of excise duty and accordingly issued show cause notice, a copy of which was received by him from CIT, Central-2, Ahmedabad. Thereafter, the AO recorded the background under which the DGCEI made investigation and search in the case of the assessee and the background under which show cause notice c .....

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y has escaped assessment under the Income Tax Act, and such escapement was for omission and failure on the part of the assessee to disclose fully and truly al the material facts. He, therefore, issued notice under section 148 of the Act for all the years under consideration. 18. We find that the AO, in the above recorded reasons, has concluded that the show cause notice issued by the Excise Department is foolproof and substantial material evidence of suppression of sales. 19. In our considered v .....

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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. 20. Further the show cause notice issued by the Excise Department contain .....

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capement 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. 21. In our considered view the information contained in the show cause notice of the Excise Department can be reason to suspect by the AO but without verifying the .....

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nce the Tribunal has decided only one question viz. that of the validity of the re-opening of assessment, we would confine our scrutiny to this legal question alone. In this context, learned counsel Mr. P.G.Desai for the Revenue, drawing our attention to the reasons recorded by the Assessing Officer for issuing the notice for re-opening, submitted that: (i) The Assessing Officer had recorded proper reasons for issuing the notice for reopening. He had tangible material in his possession to form a .....

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e evasion wing of the Excise Department would form tangible material on the basis of which, it would be open for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment. In this context, counsel relied on following decisions: (i) In case of Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur reported in 191 ITR 662; (ii) Income Tax Officer vs Purushottam Das Bangur reported in 224 ITR 362; (iii) Income Tax Officer vs Selected Dalurband Coal .....

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the basis for re-opening of an assessment, since the Assessing Officer cannot be stated to be in possession of tangible material enabling him to form a belief that income chargeable to tax has escaped asseessment. It was contended that the Assessing Officer had no information beyond what was collected by the Excise department and that, therefore, notice for re-opening was bad in law. Reliance was placed on the decision of this Court in case of Futura Ceramics Pvt. Ltd. And anr vs. State of Guja .....

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tiles. The case of the assessee was centralized with this Circle with the sole purpose of assessing the income of the assessee, in light of the various financial irregularities noted and unearthed by the Directorate General of Central Excise, Intelligence, Ahmedabad Zonal Unit. As per their finding, there is suppression of sale of ₹ 5,90,63,965/- and such irregularities have been highlighted in the show cause notice of the excise department. A copy of the show cause letter issued by the Ev .....

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rts of the State of Gujarat, are engaged in large scale evasion of Central Excise duty by adopting modus operandi like removing finished goods from their registered factory premises by not delcaring the actual MRP of their products in the Central Excise Invoice, mis declaring in the Central Excise Inovices the actual ex factory prices of such tiles, which is recoverable from their buyers, sale of tiles in the market at prices which vary according to the quality and grade and that the invoices ar .....

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Central Excise Invoices. Subsequently, in order to transfer such cash amounts from dealers, different methods were adopted by them viz., in case of transfer from within the State of Gujarat, cash amounts were mostly transferred through angadias and where transfer is from locations outside Gujarat, cash amounts were sometimes collected personally by the authorized representatives or their sales personnel during their visit to the dealers or even by the angadias. Evidence of such transfer of cash .....

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red, which lead to the confirmation of the intelligence. Records and documents as listed in the annexures tot he panchnamas dated 17.1.2008 drawn at the factory premises of the assessee, were seized by them for further investigation. Report on such detailed investigation is contained in the show cause notice issued by the Excise department. In the said report, corroborative evidence were also gathered and kept on record by the Excise department. Hence, the said report of the excise department is .....

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to be reopened. 8. Substantially similar reasons have been recorded by the Assessing Officer in all the cases as well. We, therefore, adopt these reasons as a test case to judge the validity of the rival contentions. If one peruses the reasons minutely, it is recorded by the Assessing Officer that in case of the assessee which is engaged in the business of manufacturing ceramic tiles, the DGCEI had unearthed various financial irregularities which led to issuance of show-cause notice by the Excis .....

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e allegation was that the assessee had adopted a fraudulent method to suppress the cost of tiles and cash amounts received from the dealers were routed through different methods. It was noticed that the DGCEI had conducted detailed investigation in the matter and that factory premises of the assessee was searched on 17.01.2008, during which, several incriminating documents were recovered. The Assessing Officer noted that records and documents were listed in an annexure to a panchnama drawn on 17 .....

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essment. 9. It can thus be seen 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 .....

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o hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur (supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price in respect of t .....

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s that the assessee had under-voiced goods during export. Under such circumstances, upholding the validity of the notice for reopening, the Supreme Court held and observed as under: So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it .....

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tam Das Bangur (supra) after completion of assessment in case of the assessee, the Assessing Officer received letter from Directorate of Investigation giving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as a result of manipulated transaction. On the basis of such information, the Assessing Officer issued notice for reopening of the assessment. .....

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very next day, that is, on March 27, 1974, he issued the impugned notice under Section 147(b) of the Act and that he did not have conducted any inquiry or investigation into the information sent by Shri Bagai. Merely because the impugned notice was sent on the next day after receipt of the letter of Shri Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri Bagai. On the basis of the said facts and information contained in .....

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r the relevant assessment years. For the reasons aforementioned, we are unable to uphold the impugned judgment of the High Court. The appeal is, therefore, allowed, the impugned judgment of the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs. 12. In case of Income Tax Officer vs Selected Dalurband Coal Co. Pvt. Ltd.(supra), the assessment was reopened on the basis of the information contained in letter from Chief Mining Officer that the .....

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n was conducted in the colliery of the respondent on January 9,1967, by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too after conducting a joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to .....

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ch a reasonable person could have formed the requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have not to go on we don not and we ought not to express any opinion on the merits. 13. In case of AGR Investment Ltd. vs. Additional Commissioner of Income Tax and anr (supra), a Division Bench of .....

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that the learned counsel for the petitioner has submitted with immense vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that transactions involving ₹ 27 lakhs mentioned in the table in Anne .....

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ade accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under Section 147 of the Act. The reason to believe has been appropriately understood by the assessing officer and there is material on the basis of which the notice was issued. As has b .....

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rived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and .....

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Sterlite Industries (India) Ltd. vs. Assistant Commissioner of Income Tax reported in [2008] 302 ITR 275 (Mad) upheld the notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by the assessee. 15. Under the circumstances, in our opinion, the Tribunal committed a serious error in declaring the re-opening of assessment as invalid that too relying on the decision of this Court in case of Futura Ceramics Pvt. Ltd. And anr vs. S .....

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his background, the Court had observed as under: 9. From the above, it can be seen that the assessment which was previously concluded was re-opened on the premise that during the Excise raid, it was revealed that the petitioner had clandestinely removed goods without payment of excise duty. The Sales Tax Department, therefore, formed a belief that the value of goods plus excise duty evaded should form part of the turnover of the assessee for the purpose of tax under the Value Added Tax Act. 10. .....

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can make additions for the purpose of collecting tax under the Gujarat Value Added Tax Act without any further inquiry. If the Assistant Commissioner of Commercial Tax has utilized the material collected by the Excise Department; including the statements of the petitioner and other relevant witnesses and had come to an independent opinion that there was in fact evasion of excise duty by clandestine removal of goods, he would have been justified in making additions for the purpose of VAT Act. In .....

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