PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR vs. M/S GROWMORE CERAMICS PVT LTD

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TAXAP/600/2018HC GujaratGJHC24029129201812 June 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT's deletion of the addition was justified. The Court noted that the Assessing Officer had proceeded solely on the basis of the show-cause notice issued by the Excise department. The judgment cited the High Court's own decision in M/s. Futura Ceramics Pvt. Ltd vs. State of Gujarat, which held that an AO cannot treat allegations in a show-cause notice as final conclusions and make additions without independent evidence. Furthermore, the Court observed that the excise show-cause notice did not survive, as the CESTAT had deleted the additions on the excise side, and this CESTAT judgment was upheld by the High Court. Therefore, the AO's reliance on mere allegations in the show-cause notice was impermissible. Consequently, no question of law arose, and the Tax Appeals were dismissed.

What were the facts?

The Revenue (Principal Commissioner of Income Tax, Gandhinagar) has challenged the Income Tax Appellate Tribunal's (ITAT) order dated November 30, 2017. The assessee, Growmore Ceramics Pvt Ltd, is a manufacturer of ceramic items. The Investigation Wing of the Excise department had gathered material suggesting clandestine removal of goods by the assessee, leading to a show-cause notice from the Excise department on February 14, 2013, alleging sales worth Rs. 5.32 crores. Based on this, the Income Tax department reopened the assessment for the assessment year 2006-07. The Assessing Officer (AO) made an addition of Rs. 79.86 lacs, representing an estimated 15% gross profit on the alleged clandestine removal of goods.

What were the issues?

1. Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of Rs. 74,02,253/- made on the ground of undervaluation of sales and Rs. 79,86,892/- on the ground of estimated GP on account of clandestine removal of goods? Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the ITAT's deletion of the addition was primarily based on the CESTAT's judgment which adjudicated the excise show-cause notice in favour of the assessee, thereby deleting additions on the excise side. The ITAT reasoned that the income tax addition could not survive if the excise issue was decided in favour of the assessee. Revenue's Contentions: The Revenue argued that the ITAT erred in deleting the additions. The AO had proceeded solely on the basis of the excise show-cause notice, and at the time of passing the assessment order, there was no final adjudication by the Excise authority. The Revenue contended that the AO could not have taken the allegations in the show-cause notice as final conclusions without independent evidence.

Which sections of the Income-tax Act were involved?

None explicitly mentioned in the provided text, other than general reference to income tax assessment and additions.

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

C/TAXAP/599/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 599 of 2018 With R/TAX APPEAL NO. 600 of 2018 With R/TAX APPEAL NO. 601 of 2018 ========================================================== PRICIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR Versus GROWMORE CERAMICS PVT LTD ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 12/06/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

These appeals arise out of common background. We may record facts from Tax Appeal No. 599 of 2018. Revenue has challenged the judgement of the Income Tax Appellate Tribunal dated 30.11.2017 raising following question for our consideration: “Whether the Appellate Tribunal has erred in law and on facts of the case in deleting the addition of Rs. 74,02,253/- made on ground of undervaluation of sales and Rs. 79,86,892/- on ground of estimated GP on ground of clandestine removal of goods?” C/TAXAP/599/2018 ORDER

Respondent-assessee is engaged in manufacturing ceramic items. Investigation Wing of the Excise department had gathered material prima facie suggesting clandestine removal of manufactured goods by the assessee. A show-cause notice was therefore, issued by the Excise department on 14.02.2013 alleging that the assessee had sold goods worth Rs. 5.32 crores. On the basis of such show-cause notice, the Income Tax department reopened the assessment of the assessee for the assessment year 2006-07. Assessing Officer, on the basis of the show-cause notice, hold that there was clandestine removal of goods and added a sum of Rs. 79.86 lacs which was 15% of the valuation of the goods treating as the assessee's possible gross profit from such activity.

The Tribunal ultimately deleted the addition primarily on the ground that by virtue of the judgement of CESTAT, the excise show-cause notice was adjudicated in favour of the assessee. In other words, the Tribunal noted that CESTAT had deleted additions on excise side. The addition on the income tax side

therefore cannot survive.

Having heard learned counsel for the Revenue, we find that quite apart from the fact that CESTAT had deleted the additions, the Assessing Officer in the present case had proceeded solely on the basis of show cause-notice. When the order of assessment was passed, it appears that there was no final adjudication by the Excise authority. The Assessing C/TAXAP/599/2018 ORDER Officer could not have, as held by this Court in case of M/s. (2013) 40 Taxmann.com 404 (Guj) [SCA No. 6500/2012 dtd. 20.12.2012], taken the allegations in the show-cause notice as final conclusions and make additions without there being any further independent evidence or conclusions of the Assessing Officer. More so, in the present case, when the excise show- cause notice does not survive and as we are informed, even the judgement of the CESTAT has been upheld by the High Court, the reliance of the Assessing Officer on mere allegation of the show-cause notice was solely impermissible.

In the result, no question of law arises. Tax Appeals are dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI

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