Case Law Details

Case Name : M/s Pransukhlal Bros. Vs ITO (Bombay High Court)
Appeal Number : ITA WP Lodging no. 2124 of 2014
Date of Judgement/Order : 20/08/2014
Related Assessment Year :
Courts : All High Courts (4239) Bombay High Court (763)

CA Sandeep Kanoi

In this case, we find that the order disposing of the objections refers to and relies upon investigation carried out by Sales Tax department, the information put up by Sales Tax department on it’s website and the affidavit cum- declaration filed by the defaulting parties with the Sales Tax authorities. None of the above facts were even remotely adverted to in the grounds recorded for reopening the assessment. It is settled position in  law that the validity of reopening of an assessment can only be tested by the reasons recorded at the time of issuing the notice for reopening an assessment. These grounds for reopening of assessment can neither be substituted and / or supplemented. The reopening of assessment will either stand or fall only upon the reasons recorded before issuing the impugned notice. Thus the order disposing of the objection relying on facts which were not a part of the reasons recorded makes the same unsustainable in law.

In view of the fact that the order disposing of the objections is beyond the reasons recorded for reopening the assessment, we set aside  the order dated 23 July 2014, disposing of the objections. We direct the Assessing Officer to dispose of the objections of the petitioner dated 23 July 2014 to the impugned notice dated 21 March 2014 afresh keeping in mind the reasons, recorded for issuing the impugned notice. The Assessing Officer is directed to dispose of the objections as expeditiously  as possible and preferably within three weeks from today.

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0 responses to “Reassessment based on Suspicious/ Hawala purchases – Disposal of objections should be based on recorded reasons”

  1. Dinesh Gandhi. says:

    We must consider possibility of filing appeals on behalf of a number on assesses in one appeal or a bunch of appeals for arguing by one expert before CIT and tribunal and High Court. This would be required because lots of assesses will not be able to do because of cost factor v/s amounts of tax involved in tax and interest. This could be done by contacting trade and industries associations This would be a great service to small assesses. It could be done by taking contributions from the assesses.

  2. Dinesh Gandhi says:

    Great idea. Keep me posted on the development. In case of writ injunction may be prayed to not bar govt. from using retrospective effect till disposal of the writ. You may succeed in getting injunction. All the very best..l

  3. Rajesh says:

    Satish Boob is right.In Mumbai and Maharashtra, Sales Tax Department has found that around 2000 suspicious suppliers have sold goods and issued sales Invoice without paying taxes. Purchasers, on the basis of said sales Invoices, claimed set off of taxes as legitimately permitted by law. But since, seller had not paid taxes, Sales tax department, instead of being harsh and coercive with sellers who was guilty and had made mockery of system fooling department, invoked section 48(5) of Mvat act and started to recover said evaded taxes from purchaser of goods. This has become burning issue and trading community is being harassed in such a way.

    All these suppliers/sellers held valid registration numbers at the time of transactions. But department cancelled their 4-5 years old number with retrospective effects.

    Department had a long sleep of so many years and woken up after computers (Electronic system) found an abnormal mismatch in tax payments v/s set off claimed.

    Department contacted those sellers and took (forced them) their statement in writing that they had issued fake invoices without delivery of goods. Such statement saved those defaulting suppliers from paying huge tax liability and helped department to catch genuine purchasers in view of section 48(5). See smartness of Department that after taking (desired) statement, those sellers are free and genuine existing purchasers are being harassed with coercive recovery action with penalty and interest.

    Further with above ongoing episode which caught eye of and was wrongly interpreted in media also, Income tax department sprang into action seeing opportunity to do something to fill their coffers to meet target. They had got an easy pray in above episode without doing anything. They got easily available list of those beneficiary buyers from sales tax department and started sending scrutiny notices opening old cases of such buyers. The highest income tax authority gave standing instructions to officers to open cases and make 100% additions of such purchases and tax them with interest and 100% penalty without considering any facts. It is ridiculous that department believes statements of such sellers who fooled, cheated and made mockery of system but does not rely on valid documents and evidences. Department believes that seller did not deliver goods and only issued fake sales invoices but at the same time accepts subsequent sales of goods by purchasers. It tantamount to say that goods were manufactured out of said Fake Bills issued by seller and further sold by purchaser. Even a layman will understand the intention behind it, is to show up inflated income tax arrears and at the same time to show that they are also doing their part of work. It is a pity that law makers go to the extent of making any law giving retrospective effects. For 5% or 12.5% evasion of taxes by said unscrupulous sellers, Existing purchasers are being harassed for recovery of 100 to 120% (Including interest and penalty) by sales and income tax department.

    Business community humbly request Platform like Tax Guru to raise this issue with the new government and highlight it as the issue has shaken the confidence of business community. Highhandedness by tax officers making retrospective laws and punishing each and every purchaser without considering facts of the case is uncalled for.

    Only ITAT and Higher courts can teach them a lesson but need of the hour is that even Assessing officers must be well educated of law and there should rest accountability on them.

  4. satish boob says:

    Dear Friends, The issue of Hawala Dealers have created Hawac among the trade community and we practitioners. But the present few decisions like:-
    a) Bombay High Court Prahsukhlal Bros. v/s. ITO decided on 20/08/2014.
    b) DCIT v/s. Rajeev Kalathi-ITAT Mumbai decided on 20/08/2014.
    c) CIT v/s. Nangalia Fabric Pvt. Ltd. Gujrat High Court decided on 22/04/2013.
    d). State of Maharashtra v/s. Suresh Trading Co. Supreme Court case decided on 07/02/1996
    and such other cases have given us all a courage to file a public interest litigation against Finance Department Income Tax and Finance Department State MVAT to call for explanation. Because writ can solve only the particular case but PIL can help the entire community at large. Please Note.

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