THE PR. COMMISSIONER OF INCOME TAX -4 vs. HARI STEELS & GENERAL INDUSTRIES LTD

$~62 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 413/2019 THE PR. COMMISSIONER OF INCOME TAX -4 .....Appellant Through: Mr. Ruchir Bhatia, SSC with Mr. Anant Mann & Mr. Pratyaksh Gupta, JSCs. versus HARI STEELS & GENERAL INDUSTRIES LTD .....Respondent Through: Mr. Shashwat Bajpai & Mr. Mahir Khanna, Advs. CORAM: HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE RAVINDER DUDEJA O R D E R %

07.08.2024 1. The Principal Commissioner of Income Tax has impugned the order of the Income Tax Appellate Tribunal [“Tribunal”] dated 05 October 2018. 2. We had in terms of our order dated 24 January 2024, admitted the appeal on the following question of law:- "2.1 Whether ITAT was legally justified in holding thatreopening made by the Assessing Officer was withoutapplication of mind ignoring the fact that reopening was madeby the Assessing Officer based on credible facts of suppressionof turnover as unearthed during the survey conducted by theEnforcement branch of Trade & Taxes?” 3. For the purposes of disposal of the present appeal, we deem it apposite to take notice of the following essential facts. Undisputedly and for Assessment Year [“AY”] 2005-06, the petitioner had been assessed This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

in accordance with the provisions of Section 143(3) of the Income Tax Act [“Act”]and an assessment order came to be framed on 08 March 2006. Subsequently, proceedings under Section 147 of the Act came to be initiated by the Assessing Officer [“AO”] on the basis of information received from the Investigation Wing of the Sales Tax Department and the material gathered in the course of a survey which was conducted by that Department on 11 May 2006. Basis the aforesaid information, the AO issued a notice referrable to Section 148 of the Act on 20 March 2012. 4. It becomes pertinent to note that the AO had recorded the following reasons for the purposes of initiation of proceedings and invoking Section 148 of the Act:- “In this case information has been received from theInvestigation Wing of the Department that a survey on M/s HariSteel & General Industries Limited, a dealer of Toyota Car, wasconducted on 11.05.2006by a team of Enforcement Branch of theDepartment of the Trade & taxes. During the survey proceedings, it isestablished that the dealer, M/s Hari Steel general IndustriesLimited, was generating higher value of invoices from Toyota DealerManagement System (TDMS), centrally controlled by the Principal,M/ s Toyota Kirloskar, Bangalore and since the dealer could notfiddle with the original invoices of higher value (MRP fixed by thePrincipal) same price centrally controlled through TDMS, he deviseda parallel TDMS invoices or maintained a parallel software for generating lower value of invoices for the same transactions anddeposited the tax according to lower value of invoices. Considering the material on records, it is found that issue'sinvolved in this case relates to Assessment Year 2005-06 and 2006-07.Further, from the perusal of the above facts and records, it is clear that M/s Hari Steels and General Ind. Ltd. has suppressed theturnover by maintaining duplicate set of books. It is noted that heturnover suppressed is the income concealed for the income taxpurposes. The difference in turnover for the two financial years forwhich action can is required to taken as per the provisions of theIncome Tax Act is worked out as under: This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

S. No. F. Year Sale amount of higher value of invoices Sale amounts as per books Difference 1 2004-05 Rs. 172,09,86,183 Rs. 150,93,48,131 21,16,38,052 2 2005-06 Rs. 150,74,84,206 Rs. 139,56,98,447 11,17,85,759 In view of the facts mentioned above, in my opinion this is a fitcase for reopening of assessment u/ s 147 of the income to the extent of Rs. 211,638,052/ - and Rs.111,785,759 / - for AY 2005-06 and 2006-07has escaped assessment, as the assessee has not disclosed fully andtruly all material facts necessary for his assessment for the relevantassessment year. Hence, a notice u/ s 147 read with section 148 forreopening of assessment is required to be issued in this case.” 5. Pursuant to the Section 148 proceedings being taken forward, a final assessment order came be drawn on 28 March 2013. Aggrieved by the aforesaid, the respondent/assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [“CIT(A)”]. Before the said authority the assumption of jurisdiction under Section 148 was also questioned and assailed. 6. The CIT(A), however, rejected those objections holding as under:- “6.4 On careful consideration of the facts of the case, I find that inthe appellant's case, the original assessment under Section 143(3) was made. However, evidently at that stage, there was no materialinformation with regard the allegation that the appellant wasmaintaining a parallel set of invoices which were at variance withthe TDMS. While I will dispose off the merit of this issuesubsequently, for the short purpose of deciding the legality of reassessment,it is evidently clear that at the original stage, as thisissue i.e. "suppression of turnover” was not discussed or examinedby the Ld. AO, and hence in terms of the orderof Hon'ble Delhi High Court in the case of GT vs. Usha International Ltd. [2012]348ITR4S5, the reopening of the assessment cannot he held to be inthe nature of "change of opinion", as the Ld. AO had not formedany opinion in the matter. Hence, subsequently it cannot be heldthat the Ld. AO was not in possession of the new material. It isevident that subsequent to passing of the original assessmentorder, specific information from Trade and Tax Authorities wasreceived in which the exact modus This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

operandi used by the appellant indeclaring sales at a lesser value than the one mandated by theToyota Kirloskar India Ltd, was found during the survey/searchoperation. This information certainly constitutes a new materialfor the Ld. AO, based on which he was justified in re- opening theassessment. Further, the appellant's plea that it had made full andtrue disclosure in the return of income is also not acceptable sinceif there is an allegation by another statutory authority based onsearch/survey operation suggesting that the appellant may havesuppressed the actual value of sales, the same implies that theappellant may not have made "full and true disclosure of income".This, however docs not bar the appellant to furnish explanation before the Ld. AO during the re-assessment proceedings on merit,which the AO is duty-bound to take on record. However, primafacie, the circumstances discussed above clearly show that full andtrue disclosure was not made by the appellant while filing thereturn of income. I also find that following the issue of noticeunder Section 148, the appellant was provided with the copies ofreasons recorded by the AG. However, the appellant has not filedany objections before the AO. In view of this, I find no legalinfirmity in the reassessment proceedings initiated by the Ld. AO. Under the circumstances, as the Ld. AO has followed theguidelines of the Hon'ble Supreme Court laid out in the case ofGKN Driveshafts (India) Ltd. Vs ITO (259 ITR 19), I find noinfirmity in the order of re-assessment on legal grounds.Accordingly, Ground No, 1 is dismissed.” 7. By the time the matter reached the Tribunal, it took into consideration the chronology of events surrounding the proceedings which had been drawn by the Sales Tax authorities in paragraph 7 of the order impugned before us and is noted as follows: “7. We have considered the submissions of both the sides and have gonethrough the entire material available on record. Before we consider the legalcontentions of the assessee, we deem it proper to mention here thechronological sequence of events in the instant case as under: 08.03.2006: An exparte assessment was .passed by Sales TaxAuthorities raising a demand of Rs.4,74,56,058/-. 11.05.2006: A survey was conducted by Enforcement Branch ofTrade & Taxes Deptt. At the premises of the assessee,where it was found that This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

the assessee has sold 2187 Cars of Toyota Company instead of 1872 Cars shownto have been sold by the assessee during the year. The enforcement department also found that theassessee has developed a CDMIprogram for inflationof the price of the cars. The premises were sealed and computer laptop andrelated papers were also seized by them. 23.02.2007: Writ petition of the assessee stood disposed of byHon’ble Delhi High Court quashing the exparte orderdated 08.03.2006. 29.01.2008: Assessment order in pursuance to Survey dated11.05.2006 was passed by VAT Officer, creating ademand of Rs.1,04,37,563j-. The VTO found thatnumbers of cars sold by the assessee as per auditedbalance sheet were found 1872 as shown by the assessee. The VTO,however, held that the differencebetween the price of cars sold and price shownremains of Rs.3,82,55,045/- which was taxed underthe Delhi Sales Tax Act. 30.12.2010: The assessment order dated 29.01.2008 was set asideby the Appellate Authority(Special Commissioner-II, Trade & Taxes Deptt.) and reduced the difference byRs.2,73,14,588/- on account of cancelled and doubleinvoices of the same cars and worked out the totaldifference in sales of Rs.1,09,40,457/- and the matterwas remitted to the AO for making fresh 'assessmenton the basis of actual material evidences, which couldnot be produced by the assessee due to the premises,having been sealed.The assessment in pursuance to above order is stillpending. 20.03.2012: Notice u/s 148 was issued on the basis of informationreceived from Investigation Wing, giving the details ofsurvey by Enforcement Branch of Sales Tax Deptt. The position of demand/suppression made by authorities of Sales Tax Deptt as well as revenue authorities below us, on the basis of subject survey is summarized as under:- Suppressed sale as per Survey team : Rs. 21,16,38,052/- Suppressed sale as per order dated 29.01.2008

: Rs. 3,82,55,045/- As per Appeal order of Spcl. Commissioner: Trade & Taxes Deptt. : Rs. 1,09,40,457/- Suppressed sales worked out by This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

Assessing Officer u/s. 147

: Rs. 21,16,38,052/- Suppression worked out by ld. CIT(A) (i). Sales : 3,82,55,045 (ii). Purchase: 62,89,918 : Rs.4,45,44,963/-” 8. As is manifest from the above, on the date when the notice under Section 148 had come to be issued, there were no outstanding demands or orders of assessment on the basis of the survey which had been originally conducted. In fact, and as the Tribunal records, on 30 December 2010 the original order of assessment had itself come to be set aside by the appellate authority and the matter remitted to the AO under the Sales Tax enactment for making a fresh assessment. We are informed that till dateno fresh assessment under the aforesaid Act has come to be either framed or drawn. 9. This thus constituted material which was squarely relevant and pertinent for the purposes of formation of opinion under Section 148. However, and as would be manifest from the reading of the reasons recorded by the AO, it had proceeded solely on the basis of what had come to be recorded in the course of the Sales Tax survey. It becomes evident that the AO not only failed to independently examine those allegations, it also abjectly failed to enquire and ascertain the status of the proceedings under the Sales Tax statute. If that had been done, it would have found that there existed no demand or assessment against the assessee on the relevant date. 10. Curiously, the CIT (A) while dealing with the aforesaid and while negating the objections relating to the assumption of jurisdiction under Section 148 had chosen to rest its view on a ‘prima facie’ formation of This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50

opinion. The said decision is thus clearly rendered untenable and unsustainable on this ground alone. 11. Ultimately, the Tribunal has on due consideration of the facts as they obtained and existed at the time when the Section 147/148 notice came to be issued has come to hold as follows:- “8. An insight over the above chronological events and position of demands/suppression at various stages of Sales Tax Proceedings and Income-tax proceedings, as noted above, goes to show that on the basis of same survey report various authorities have taken different stands. The impugned information regarding survey by Sales Tax Department has been solely used by the Assessing Officer in letter and spirit for formation of belief of escapement of income without making any enquiry or application of mind, particularly when subsequent proceedings before various authorities of Sales Tax Department were available before issuance of notice u/s. 148 and were got acknowledged to the AO before passing the reassessment order. In presence of these facts, the reasons recorded by the AO cannot, in any way, be said to be proper to form a belief of escapement of income, as the information so received was neither found well founded nor the AO made any efforts to make any verification or application of his mind on the same. The provisions of Section 147 do not give unfettered powers to reopen the assessment and the AO is required to satisfy the pre-conditions as given in the said section, which is lacking in the present case. For this, there are several decisions of Hon’ble Courts, as also cited by the assessee before the ld. CIT(A). In view of this, the reassessment u/s. 147 cannot be said to be valid.” 12. On an overall consideration of the aforesaid, we answer the questions posed against the appellant and consequently dismiss this appeal. YASHWANT VARMA, J. RAVINDER DUDEJA, J. AUGUST 7, 2024 RM This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 14/08/2024 at 11:35:50