Friday, October 28, 2011

Whether Revenue can initiate reassessment proceedings merely on basis of i

I-T - Whether Revenue can initiate reassessment proceedings merely on basis of information obtained from Central Excise Department that assessee had suppressed sales of manufactured goods - YES, but all relied upon documents to be given to assessee: ITAT

MUMBAI, SEPT 28, 2011: THE Income Tax - Sections 115O, 147 - Whether at the time of initiation of Sec 147 proceedings it is not necessary for AO to confront that material to assessee on the basis of which reasonable belief is formed - Whether information received from Central Excise department revealing that the assessee was suppressing sales is sufficient to assume jurisdiction of 147 - Whether at the time of completion of proceedings it is incumbent on AO to supply the material to assessee so that principle of natural justice may be complied with.

The assessee is a company engaged in the business of manufacturing and dealing in lubricating oils. The assessee filed return of income on 28.11.2006 declaring total income of Re.1. The same was processed under section 143(1) of the Act on 6.12.2007. On 3.12.2005 & 6.12.2005, the factory premises of the assessee was searched by the central excise officers (Preventive). The office premise of the assessee was also searched by the central excise officers (Preventive) on 6.12.2005. The premises of M/s. Jay Enterprises and M/s. Krishna Marketing were also searched by the central excise officers (Preventive) on 14.12.2005. Statements of various persons were recorded and ultimately it was held by the central excise authorities that the assessee was clandestinely removing goods from the place of manufacturer without payment of excise duty. The Additional Commissioner of Central Excise raised a demand of Rs.48,49,843 and Central Excise Duty payable by the assessee on clandestine removal of goods. This order was passed on 31.3.2008.

The AO received information from the Central Excise Authorities about the above facts. The Assessing Officer issued a notice under sections 148 of the Act on 27.10.2008. Before issuing the said notice, the Assessing Officer recorded the following reasons for initiating proceedings under sections 147 of the Act. The CIT(A) affirmed the order of the AO. Before ITAT, it was contended that the AO has violated the principle of natural justice in as much as he had not supplied the material, collected from Excise department, to the assessee for it's rebuttal.

After hearing the parties the ITAT held that,

++ the claim of the Assessee was that since dividend was not distributed, the question of payment of dividend distribution tax does not arise at all;

++ the admitted facts are that the Amalgamation was sanctioned by the High Court on 18.10.2000. The appointed date was 1.4.2000. As on the date of sanction the dividend had already been paid by the Assessee. The incidence of tax u/s 115-O of the Act is on the distribution of dividend. Any subsequent act by which the dividend itself does not become taxable in the hands of the recipient of the dividend will not be relevant. In other words the payment of dividend distribution tax is not dependent on the ultimate chargeability to tax in the hands of the recipient of the dividend. Therefore the extension of the analogy laid down by the Bombay High Court in the case of Mafatlal Gagalbhai & co. (supra) to Sec.115-O of the Act, sought to be canvassed on behalf of the Assessee, in our view was rightly rejected by the revenue authorities. We therefore confirm the order of the Revenue authorities and dismiss ground No.2 raised by the Assessee;

++ it is not in dispute that the facts and the basis on which liability by way of provision for warrant claims was made in AY 92-93 and AY 00-01 and the basis of provision of warranty liability in the present A.Y. was made are identical. In such circumstances, we do not find any reason to take a different view;

++ the law is very clear that where profit or loss arises on account of appreciation or depreciation in the value of foreign currency, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss depending on the purpose for which the foreign exchange was to be used whether for incurring capital expenditure or for meeting revenue expenditure. Admittedly the Euro Notes were raised for capital purpose and the gain arose, not in the course of trading activities but merely due to conversion of the currency of one country into the currency of another country, the said gain is on capital account and not in the nature of income. Further, the gain has arisen at the point of time when the funds were repatriated to India. Admittedly the Euro Notes were issued for meeting capital expenditure and remained outside India. When they were repatriated to India at the point of time of repatriation, the purpose for which the funds were raised admittedly remained one for meeting capital expenditure. As rightly held by the CIT(A), the taxability has to be determined at the point of time when the profit arose. The subsequent utilisation, in our view was irrelevant, on the facts of the present case. With regard to allegation of the AO that there was a failure on the part of the Assessee to explain the utilisation of the funds repatriated for meeting capital expenditure, we are of the view that the fact that the repatriated funds went into a common pool from which both capital and revenue expenditure were met cannot lead to the conclusion that the utilization of funds was for revenue purposes and not capital expenses;

++ it is seen from the reasons recorded by the Assessing Officer that he has recorded reasons for escapement of income on the basis of information received from the excise authorities. In this regard, the fact that there was a search by the excise authorities on 3.12.2005 and 6.12.2005 in the premises of factory and office of the assessee are not in dispute. The assessee was well aware of these proceedings;

++ on 27.10.2008, notice under section 148 has been issued to the assessee. Before issue of such notice, the Assessing Officer recorded reasons for issue of notice under section 148 of the Act which we have already referred to in the earlier part of this order. All the above facts were well within the knowledge of the assessee. On the above facts which came to the knowledge of the Assessing Officer, it cannot be said that he could not have entertained belief regarding escapement of income. We are of the view that on the facts available before the Assessing Officer, he was justified in coming to the conclusion that income chargeable to tax has escaped assessment;

++ at the outset, we notice that while concluding the reassessment proceedings, the assessee was not given copies of the documents as well as the statements recorded by the central excise authorities;

++ it cannot be said that the assessee had proper opportunity to put forth his grievances in the reassessment proceedings before the Assessing Officer. In fact it was precisely for the same reason that the CESTAT set aside the orders of central excise authorities and directed them to make fresh assessment after providing all the material based on which assessments were made to the assessee. There was no right of cross examination of the persons who gave statement in the income tax proceedings. We are of the view that the assessment made in the income tax proceedings should also be set aside and the Assessing Officer should be directed to make assessment afresh in the light of the assessment that may be made by the central excise authority on remand by the CESTAT.

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