Gujarat Carbon and Industrial Ltd. vs Joint Commissioner of Income Tax

D.A. Mehta, J.—This petition challenges the notice issued u/s 148 of the Income Tax Act, 1961 ("the Act") dated March 19, 1999, for the assessment year 1988-89.

The petitioner, a public limited company is engaged in the business of manufacturing carbon black. On March 17, 1988, search proceedings took place u/s 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, manufacturing and sales, as such whole of the amount of Rs. 3,26,69,000 is considered to be its sales of carbon black made outside its regular books of account.

Further, during search operation as per physical verification of stock inventory prepared it was found that excess stock of finished goods (carbon black) was found to the extent of 136.234 M.T. which is valuedat Rs. 21,36,131.00. This excess stock of carbon black. Is considered tobe part of suppression of yield of carbon black. As described inprevious paras of this order, hence a sum of Rs. 21,36,131.00 is set offagainst the total unaccounted sale consideration of yield of carbonblack, worked out above. Thus in a nutshell a net addition of Rs. 3,05,42,869.00 (3,26,69,000, 21,36,131) is made in this account.

The assessee carried the matter in appear before the Commissioner(Appeals) who gave partial relief. Against the order of the Commissioner(Appeals) both the assessee and the Department preferred appeals beforethe Tribunal. To complete the chain of events it may be noted that duringpendency of the said appeals the petitioner-assessee took benefit of the Karvivad Samadhan Scheme.

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-p reply tendered by the respondent- 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 much reliance has been placed on the following two decisions of this court:

Mohamed Nasim Abdul Razak Mistry Vs. Wealth Tax Officer,

Swastik Engineering and Manufacturing Co. Pvt. Ltd. Vs. Income Tax Officer,

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 u/s 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 March 31, 1988.

Hence, there was failure on the part of the petitioner-assessee to disclose fully and truly all material facts relevant for the purpose of assessment and the respondent-authority had rightly exercised jurisdiction u/s 147 of the Act.

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 December 30, 1996, at a total income of Rs. 4,98,26,170 as against the returned income of Rs. 2,35,67,582.

A search action u/s 132 was carried out in this case on March 17, 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.

As per order dated December 30, 1996, 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 March 17, 1988, nor has it shown the value of the same as part of the closing stock as on March 31, 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 Income Tax Act, 1961. Therefore, notice u/s 148 is being issued for making reassessment u/s 147 of the Income Tax Act, 1961 in this case.

On going through the aforesaid reasons it is apparent that the Assessing Officer is conscious while recording reasons for proposed reopening that as per the assessment order dated December 30, 1996, addition to the tune of Rs. 3,26,69,900 was made on account of 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 the Assessing Officer, while framing the assessment order had applied his mind to the aforesaid item relatable to value of excess stock of carbon black.

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.

In the aforesaid set of facts and circumstances of the case it is not possible to state that there is any failure on the part of the assessee to fully and truly disclose all material facts relevant for the assessment of the assessment year in question. At the most, it can be termed to be a case wherein the Assessing Officer has formed an incorrect opinion as per the 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 u/s 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.

For the reasons stated hereinbefore, notice u/s 148 of the Act dated March 19, 1999, for the assessment year 1988-89 is hereby quashed. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs.