SCA/8176/2000 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 8176 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE H.B.ANTANI Sd/- ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= GUJARAT CARBON & INDUSTRTIAL LTD. - Petitioner(s) Versus JT.COMMISSIONER OF INCOME TAX - Respondent(s) ============================================================== = Appearance : MR MJ SHAH WITH MR JP SHAH for Petitioner(s) : 1, MR MANISH R BHATT for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE H.B.ANTANI Date : 19/06/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) SCA/8176/2000 2/8 JUDGMENT 1 This petition challenges notice issued under section 148 of the Income Tax Act,1961 (the Act) dated 19.03.1999 for Assessment year 1988-89. 2 The petitioner, a Public Limited Company is engaged in the business of manufacturing Carbon- black. On 17.03.1998 search proceedings took place under section 132 of the Act. After detailed inquiry calling for various details and evidence on the basis of discrepancies found during the course of search operation the assessing officer recorded as under : “Since the assessee has already taken into account all the expense relating to purchase, mfg. And sales, as such whole of the amount of Rs.3,26,69,000/- is considered to be its sales of C.B.made outside its regular books of accounts. Further, during search operation as per physical verification of stock inventory prepared it was found that excess stock of finished goods (C.B.) was found to the extent of 136.234 M.T.which is valued at – Rs.21,36,131.00. This excess stock of C.B. Is considered to be part of suppression of yield of C.B. As described in previous paras of this order, hence a sum of Rs.21,36,131.00 is set off against the total unaccounted sale consideration of yield of C.B. SCA/8176/2000 3/8 JUDGMENT worked out above. Thus in nutshell a net addition of Rs. 3,05,42,869.00 (3,26,69,000 – 21,36,131) is made in this account”. 3 The assessee carried the matter in Appeal before Commissioner (Appeals) who gave partial relief. Against the order of Commissioner (Appeals) both the assessee and the department preferred appeals before the Tribunal. To complete the chain of events it may be noted that during pendency of the said appeals the petitioner assessee took benefit of Karvivad Samadhan Scheme. 3 The learned Advocate for the petitioner-assessee submitted that the impugned notice has been issued beyond the period of four years from the end of the Assessment Year in question viz. Assessment Year 1988-89; that there is no violation on the part of the assessee as required by the Proviso to Section 147 of the Act, and the department has not even stated that there is any failure as stipulated by the Proviso to Section 147 of the Act as can be seen from the reasons recorded which form part of the Affidavit-in-Reply tendered by the respondent SCA/8176/2000 4/8 JUDGMENT authority. That in fact, in relation to the so called excess stock of carbon-black valued at Rs.21,36,131/- the authorities had after application of mind and scrutiny given the set-off as can be seen from the discussion in the assessment order and hence the impugned notice was bad in law. In support of the submissions made reliance has been placed on the following two decisions of this Court : Mohamed Nasim Abdul Razak Mistry V/s. Wealth Tax Officer - (1995) 216 ITR 104. Swastik Engineering And Manufacturing Co. Pvt. Ltd. V/s. Income Tax Officer – (1991) 189 ITR 667. 4. On behalf of the respondent authority Mr. M.R.Bhatt, learned Senior Standing Counsel submitted that as could be seen from the reasons recorded, during course of search and seizure proceedings under section 132 of the Act the value of excess stock of carbon-black amounting to Rs.21,36,131/- was found but the assessee had neither shown the sale of such stock of finished goods nor was the value of the same shown as part of closing stock as on 31.03.1988. Hence, there was failure on the part of the SCA/8176/2000 5/8 JUDGMENT petitioner-assessee to disclose fully and truly all material facts relevant for the purpose of assessment and respondent authority had rightly exercised jurisdiction under section 147 of the Act. 5. The reasons recorded by the assessing officer read as under : “Reasons for the belief that the income has escaped assessment. The assessee is a limited company dealing in the manufacturing of carbon black. The assessment u/s.143(3) was finalised on 30.12.96 at a total income of Rs.4,98,26,170/- as against returned income of Rs.2,35,67,582/-. A search action u/s. 132 was carried out in this case on 17.03.1988. During the search, a detailed inventory of stock lying in the factory premises of the assessee was prepared. Accordingly, a difference was found in the stock found as per physical verification and stock as per books of account. The physical stock of raw material and finished goods was found to be excess than the stock as per books of account on the date of search by Rs.26,59,600/-. Out of total excess stock found, excess stock of finished goods (carbon black) weighing 136.234 MT valued at Rs.21,36,131/- was found. SCA/8176/2000 6/8 JUDGMENT As per order dated 30.12.96, addition of Rs.3,26,69,900/- was made on account of low yield of carbon black. However, the value of excess stock of carbon black of Rs.21,36,131/- found at the time of search was reduced from the addition on account of low yield considering that the excess stock of carbon black found was part of the low yield determined. No separate addition on account of excess stock found of carbon black was made. A perusal of the case records reveals that the assessee has neither shown the sale of this stock of finished goods during the period from 17.03.1988 nor it has shown the value of the same as part of the closing stock as on 31.03.1988. In view of the above, I have reason to believe that the income of Rs.21,36,131/- has escaped assessment. In my opinion, this is a fit case for reassessment u/s. 147 of the I.T.Act, 1961. Therefore, notice u/s. 148 is being issued for making reassessment u/s.147 of the I.T.Act, 1961 in this case”. 6. On going through the aforesaid reasons it is apparent that the assessing officer is conscious while recording reasons for proposed reopening that as per assessment order dated 30.12.1996 addition to the tune of Rs.3,26,69,900/- was made on account of SCA/8176/2000 7/8 JUDGMENT low yield of carbon-black and from the said amount the value of excess stock of carbon-black to the tune of Rs.21,36,131/- was reduced. This indicates that assessing officer, while framing assessment order had applied his mind to the aforesaid item relatable to value of excess stock of carbon-black. 7. In fact, as can be seen from the extract reproduced hereinbefore, there is a categorical finding that the whole of the amount of Rs.3,26,69,000/- has been considered to be sales made by the assessee outside Regular Books of Accounts. The excess stock of finished goods of carbon-black to the extent of Rs.21,36,131/- is considered to be a part of the aforesaid suppressed sales of carbon- black and has been given set-off by making a net addition of Rs.3,05,42,869/-. 8. In the aforesaid set of facts and circumstances of the case it is not possible to state that there is any failure on part of the assessee to fully and truly disclose all material facts relevant for the assessment of the assessment year in question. At the SCA/8176/2000 8/8 JUDGMENT most, it can be termed to be a case wherein the assessing officer has formed an incorrect opinion as per opinion of the successor assessing officer. In the circumstances, the successor assessing officer cannot treat the assessee to be in default of non- disclosure. Considering the fact that admittedly the impugned notice under section 148 of the Act is issued beyond a period of four years from the end of the relevant Assessment Year the said notice is required to be quashed. 9. For the reasons stated hereinbefore, notice under section 148 of the Act dated 19.03.1999 for Assessment Year 1988-89 is hereby quashed. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs. Sd/- Sd/- (D.A. Mehta, J.) (H.B. Antani, J.) M.M.BHATT