Gujarat High Court
Principal Commissioner Of Income Tax ... vs Gokul Ceramics....Opponent(S) on 29 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/542/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 542 of 2015
TO
TAX APPEAL NO. 547 of 2015
With
TAX APPEAL NO. 550 of 2015
TO
TAX APPEAL NO. 557 of 2015
With
TAX APPEAL NO. 558 of 2015
With
TAX APPEAL NO. 560 of 2015
TO
TAX APPEAL NO. 564 of 2015
With
TAX APPEAL NO. 580 of 2015
TO
TAX APPEAL NO. 585 of 2015
With
TAX APPEAL NO. 590 of 2015
TO
TAX APPEAL NO. 597 of 2015
With
TAX APPEAL NO. 632 of 2015
TO
TAX APPEAL NO. 637 of 2015
With
TAX APPEAL NO. 2 of 2016
TO
TAX APPEAL NO. 9 of 2016
With
TAX APPEAL NO. 10 of 2016
TO
TAX APPEAL NO. 17 of 2016
With
TAX APPEAL NO. 37 of 2016
TO
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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
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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PRINCIPAL COMMISSIONER OF INCOME TAX RAJKOT 3....Appellant(s)
Versus
GOKUL CERAMICS....Opponent(s)
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Appearance:
MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1
MR B S SOPARKAR, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 29/06/2016
ORAL 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 facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in setting aside the re-assessment orders on the ground that the reopening of assessment under section 147 of the Income Tax Act, 1961 was bad in law?"
2. Facts may be noted from Tax Appeal No. 542 of 2015. The appeal is filed by the Revenue challenging the judgement of the Income Tax Appellate Tribunal dated 27.02.2015. The respondent-assessee is engaged in the business of manufacturing ceramic tiles. For the assessment year 2004-05, the assessee had filed the return of income. The regular Page 3 of 22 HC-NIC Page 3 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 unearthed by DGCEI. The findings of the said authority were that there was a suppression of sale of Rs. 5.90 crores (rounded off) by the assessee. On the basis of such materials collected by the DGEI, the show-cause notice was issued by the Excise Department. The show cause notice and the accompanying materials were forwarded by the Excise Department to the Income Tax Department. On the basis of such materials, the Assessing Officer re-opened the assessment of the assessee for the assessment 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 re- assessment 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 a suppressed sale of Rs. 98.18 lacs in case of the assessee. Applying the gross profit rate of 25%, he made addition of Rs. 24.54 lacs in the assessee's total income.
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3. This order of assessment was challenged by the assessee before the CIT(Appeals). The assessee questioned both, the validity of the re-opening of assessment as well as the additions made by the Assessing Officer in the said order. The CIT(Appeals) in a detailed order dated 07.02.2013 rejected the assessee's ground 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 CIT(Appeals) granted partial relief to the assessee. The Tribunal, by the impugned judgement dated 27.02.2015, limited its focus on the question of validity of the reopening of the assessment. The Tribunal declared that the Assessing Officer could not have re-opened the assessment. For coming to such a conclusion, the Tribunal made following observations:
"16. We find on an analysis of the reasons as recorded, that the AO has firstly recorded the nature of the business of the assessee and the background 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 Page 5 of 22 HC-NIC Page 5 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 came to be issued in the case of the assessee by the DGCEI.
17. According to the AO, the report contained in the show cause notice of Excise Department is foolproof, and there is substantial material evidence of suppression of sales and the said show cause notice also quantified the extent of suppressed sale. According to the AO for the above reasons, he believed that the assessee's income tot the extent of the sale found by the Excise Department to have been suppressed for levy of excise duty 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 view, the above conclusion of the AO is contrary to the decision of the Hon'ble jurisdictional High Ocurt in the case of Futura Ceramics Pvt. Ltd. vs. State of Gujarat, SCA No. 6500 of 2012 order dated 20.12.2012, wherein the Hon'ble High Court while deciding the issue under VAT Act on a similar show cause notice issued by the Central Excise Authority has held as under:
"...Merely because the Excise Department issued a show cause notice, that cannot be a ground to presume and conclude that there was evasion of excise duty implying Page 6 of 22 HC-NIC Page 6 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 contains the allegation of the Excise Department that the assessee has suppressed sales for the purpose of making payment of excise duty. A perusal of recorded reasons does not show that the AO verified the particulars declared by the assessee in its income tax return. Nowhere in the recorded reasons, the sale declared by the assessee in its income tax return, has been brought on record. The AO, as per the recorded reasons, has not verified the income tax return of the assessee vis a vis the alleged escapement 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 relevant particulars declared in the income tax return, it cannot be reason to believe about the escapement of taxable income under the Income Tax Act.
22. In view of this, in our considered view, the reopening of the assessment based on the above recorded reasons, is bad in law and cnnot be sustained. We, therefore, hold accordingly, and consequently, cancel the impugned reassessment orders for all the years."
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5. It is this judgement of the Tribunal which the Revenue has challenged before us. Since 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 belief that income chargeable to tax had escaped assessment.
(ii) The Tribunal committed a serious error in declaring the re-opening of assessment as invalid relying on the decision of this Court in case of Futura Ceramics Pvt. Ltd. And anr vs. State of Gujarat through Secretary and ors reported in [2013] 40 Taxmann.com 404 which was rendered in the background of the final order of assessment passed by the Value Added Tax Authorities.
(iii) Counsel contended that the information collected by the evasion wing of the Excise Department would form tangible material on the basis of which, it would be open for the Page 8 of 22 HC-NIC Page 8 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 Co.
Pvt. Ltd. reported in 217 ITR 597;
(iv) AGR Investment Ltd. vs. Additional Commissioner of Income Tax and anr reported in [2011] 333 ITR 146;
(v) Sterlite Industries (India) Ltd. vs. Assistant Commissioner of Income Tax reported in [2008] 302 ITR 275 (Mad).
6. On the other hand, learned counsel Mr. Soparkar and Mr. Hemani appearing for the assessees in different tax appeals opposed the Revenue's appeal on following ground:
Mere show cause notice issued by the Excise Department cannot be the basis for re-opening of an assessment, since the Assessing Officer cannot be stated to be in possession of Page 9 of 22 HC-NIC Page 9 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 Gujarat through Secretary and ors(supra) in which, it was observed that the Value Added Tax Authority could not have acted in a mechanical manner and passed the order of assessment merely on the basis of issuance of show- cause notice by the Excise Department.
7. To answer the question framed in this group of appeals, we may refer to the reasons recorded by the Assessing Officer for re- opening of the assessment which read as under:
"1. The assessee is engaged in the business of manufacturing of ceramic 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 Rs. 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 Evasion Wing of the Central Excise department was forwarded to this office on 22.12.2009 from the offfice of the CIT Central II Ahmedabad through the Addl. CIT, Central Range, Baroda, which is placed on record.
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2. The facts of the case is that, the Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit [herein after referred to as DGCEI for the sake of brevity] collected an intelligence, indicating that the manufacturers of Ceramic glazed and Vitrified tiles of Morbi and other parts 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 are prepared for third quality, whereas, supply is made of first quality, that the differential value, over and above the value declared in the Central Excise invoices, was collected by them in cash from the buyers and such cash amounts are not accounted for in their statutory records etc. Thus, the allegation is that, the assessee had adopted a fraudulent method to keep the landed cost of tiles at the barest minimum at the destination so that it does not exceed the artificial MRP declared in the 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 also forms part of the exhaustive show cause issued by the CED. Discreet verification from the banks revealed that, over Rs. 1000 crores were exchanged hands as unaccounted cash amounts, in the aforesaid manner, through a number of shroffs situated in Morbi, Rajkot, Himmatnagar and Ahmedabad. Therefore, the DGCEI conducted a detailed investigation in the matter and factory premises of the assessee was covered under search on 17.01.2008 during which several incriminating documents were recovered, 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 Page 11 of 22 HC-NIC Page 11 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 foolproof and there is substantial material evidence of suppression of sale. The show cause notice by the Excise department also quantified the extent of suppressed sale.
3. I have therefore reasons to believe that the assessee's income to the above extent has escaped assessment within the meaning of section 147 of the I T Act and that, such escapement was by reason of the omission and failure of the assessee to disclose fully and truly all material facts. Hence, the assessment is required 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 Excise Department for suppression of sale of Rs. 5.90 crores worth of stock. The show- cause notice was forwarded by the Excise Department to the Income Tax Department. It was noticed that the ceramic tiles manufactures of Morbi and other parts of the State of Gujarat were engaged in large scale evasion of excise duty by removing finished goods from their registered factories by misdeclaring Page 12 of 22 HC-NIC Page 12 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT the ex-factory price of such tiles to the Excise Department. The Assessing Officer, therefore, noted that the 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 17.01.2008. A detailed report of such investigation formed part of the show-cause notice issued by the Excise Department which also contained corroborative evidence. According to the Assessing Officer, therefore, there was substantial material evidence of suppression of sale which was also quantified by the department. In the show-cause notice it was on the basis of these materials at the command of the Assessing Officer that he has formed a belief that the income chargeable to tax has escaped assessment.
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, Page 13 of 22 HC-NIC Page 13 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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. 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 the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Authorities Page 14 of 22 HC-NIC Page 14 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT 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 can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied."
11. In case of Income Tax Officer vs Purushottam 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. The question, therefore, arose whether the information contained in the letter of Directorate of Investigation could be said to be definite information and the Assessing Officer could Page 15 of 22 HC-NIC Page 15 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT act upon such information for taking action under Section 147(b) of the Act. In such background, the Supreme Court observed as under:
"12. Ms. Gauri Rastogi, the learned counsel appearing for the respondents, has urged that the letter of Shri Bagai was received by the Income tax Officer on March 26, 1974 and on the 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 the said letter, the Income Tax officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for 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 colliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding the validity of re-opening of assessment, the Supreme Court held Page 16 of 22 HC-NIC Page 16 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT and observed as under:
"After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection 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 have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which 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 Delhi High Court considered the validity of reopening of assessment where the notice was based on information received from Directorate of investigation that the assessee was beneficiary of bogus accommodation entries. The Court while Page 17 of 22 HC-NIC Page 17 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT upholding the validity of reopening observed that sufficiency of reason cannot be considered in a writ petition. It was observed as under:
"23 The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting 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 Rs.27 lakhs mentioned in the table in Annexure P-2 constitute fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INV-V) as regards the transactions entered into by the assessee company with number of concerns which had made 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 been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and Page 18 of 22 HC-NIC Page 18 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT independently arrived 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 the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score."
14. Learned Single Judge of Madras High Court in case of 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. State of Gujarat through Secretary and ors(supra). This was a case where the assessee had challenged an order of re-assessment passed by the Value Added Tax Authority under the Gujarat Value Added Tax Act, 2003. The entire order was based on the Page 19 of 22 HC-NIC Page 19 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT notice issued by the Excise Department against the assessee for having allegedly evaded excise duty. The assessment order proceeded solely on such notice and without there being any other additional material, the Assessing Officer had made additions. In this 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. It may be that the raid carried out by the Excise duty and the material collected during such proceedings culminating into issuance of a show cause notice for recovery of unpaid excise duty and penalty in a given case sufficient to re-open previously closed assessment. In this case, however, we are not called upon to judge this issue and would therefore not give any definite opinion. The question, however, is whether on a mere show cause issued by the Excise Department, the Sales tax Department 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 the present case, however, no such exercise was undertaken. All that the Assessing Officer did was to rely on the show cause notice issued by the Excise Department. Nowhere did he conclude that there was a case of clandestine removal of goods without payment of tax under the VAT Act. Merely because the Excise Department issued a show Page 20 of 22 HC-NIC Page 20 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT cause notice, that cannot be a ground to presume and conclude that 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 re- assessment, if ultimately the Excise Department were to drop the proceedings without levying any duty or penalty from the petitioner.
11. All in all, the Asstt. Commissioner has acted in a mechanical manner and passed final order of assessment merely on the premise that the Excise Department has issued a show cause notice alleging clandestine removal of the goods. Such order, therefore, cannot be sustained and is accordingly quashed. When the order is ex facie illegal and wholly untenable in law, mere availability of alternative remedy would not preclude us from interfering at this stage in a writ petition."
16. Thus, the decision in case of Futura Ceramics Pvt. Ltd. And anr vs. State of Gujarat through Secretary and ors(supra) was rendered in an entirely different background and had no direct application to the question whether on the basis of information supplied by the Excise Department to the Assessing Officer of suppression of valuation of goods or clandestine removal of goods for evading excise duty, notice for re-opening of the assessment could have been issued.
17. Under the circumstances, we answer the question in favour of the Revenue and allow all appeals and set aside the respective judgements of the Tribunal. Since the Tribunal had not addressed the merits of the additions, we place all tax Page 21 of 22 HC-NIC Page 21 of 22 Created On Tue Jul 05 00:52:18 IST 2016 O/TAXAP/542/2015 JUDGMENT appeals back before the Tribunal for deciding such question in accordance with law. Needless to add we have not made any observations on such issues. All tax appeals are disposed of accordingly.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) Jyoti Page 22 of 22 HC-NIC Page 22 of 22 Created On Tue Jul 05 00:52:18 IST 2016