By TIOL News Service

NEW DELHI, APR 24, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether re-assessment initiated not because of a second opinion or review but because of a survey conducted subsequently, cannot be invalidated. YES IS THE VERDICT.

Facts of the case:

THE assessee company is a subsidiary of M/s. Century Metal Recycling Private Limited. During the course of its survey operation, it was observed that CMR purchase their maximum raw material from its subsidiary company M/s. Sanjivani. The perusal of the financials of the said company revealed the fact that the company was showing lower profits despite huge turnover. Further, various incriminating documents were impounded showing that the said company had been used to raise bogus purchases in CMR. On perusal of the ITR filed by the assessee, it was observed that against the total sales of Rs.5,97,36,46,243/-, the assessee had declared net profit of Rs. 33,12,137 only. As the assessee had indulged in the activity of bogus sales taking the NP rate to be 1.5 of the sales, the income escaping assessment would be Rs.8,96,04,693/-. The requisite material facts in the reasons for reopening were embedded in such a manner that material evidence could not be verified by the AO from the return and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147. Thus, income chargeable to tax had escaped assessment for the failure on the part of assessee to disclose fully & truly all material facts, resulting in issuance of notice u/s 148.

High Court held :

++ the trigger for the reassessment notice in this case was a survey conducted in the premises of CMR. The AO became aware of this survey report when the investigation wing through a letter shared a copy of it with him. Besides extracting the turnover for three years and the disproportionately low profits declared, the reassessment notice also alludes to several incriminating documents pointing to suspect nature of sale and which the assessee had declared. The reassessment notices talk about the statements of two employees and officials of CMR who were completely unaware and disclosed no knowledge about the invoices raised upon the transporter, or even its existence. According to the documents filed, the transporter was responsible for transporting goods to CMR from the assessee. Undoubtedly, the assessee is under a responsibility to disclose all relevant material. Conversely, the AO cannot lightly order reassessment unless the discovery is not true or not full in the sense of the material facts;

++ in the present case, the materials on record and made available to the AO are in the form of a survey report i.e. after conclusion of the scrutiny assessments for both years, and the relative records were shared with the AO only on March 19, 2018. Given the time constraint after analysing the report of the survey, including the statement recorded during the survey, the AO was of the opinion that the issue of profitability which appears to be gone into, requires re-examination not because of a second opinion or review but because of the survey conducted subsequently. The materials clearly showed that the sales declared were suspect, to say the least. For the same reasons, the Court is of the opinion that the relief claimed in these petitions, i.e. quashing of the reassessment notice cannot be granted.

(See 2019-TIOL-900-HC-DEL-IT)