Court upholds reassessment notices under U.P. Trade Tax Act, emphasizing need for reasons & preventing arbitrary power use.

The court dismissed the writ petition, upholding the validity of the reassessment notices under Section 21(2) of the U.P. Trade Tax Act. It found that the assessing authority had reasonable grounds to believe that turnover had escaped assessment due to inadequate consideration of diesel utilization. Emphasizing the necessity of recording reasons for reassessment, the court highlighted the importance of preventing arbitrary use of power. The reassessment was deemed justified as the original assessment failed to adequately address the relationship between diesel consumption and production.

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Issues Involved:
1. Validity of reassessment notices under Section 21(2) of the U.P. Trade Tax Act.
2. Requirement of recording reasons for reassessment.
3. Examination of diesel consumption in relation to production and ancillary activities.
4. Alleged change of opinion by the assessing authority.

Detailed Analysis:

1. Validity of Reassessment Notices under Section 21(2):
The petitioner-company challenged the notices dated 10.3.2004 and 17.3.2004 for reassessment of the completed assessments for the years 1997-98, 1998-99, 1999-2000, and 2000-2001. The company also sought to quash the order dated 1.2.2004 by the Additional Commissioner, Trade Tax, Allahabad, which granted sanction for reassessment of escaped turnover. The court examined whether the reassessment notices and the sanction for reassessment were valid under Section 21(2) of the U.P. Trade Tax Act.

2. Requirement of Recording Reasons for Reassessment:
The petitioner argued that the reassessment notices were invalid as the reasons for reassessment were not recorded in writing by the assessing authority, as mandated by Section 21(2) and relevant circulars. The court noted that the petitioner had requested the reasons for reassessment, but the reasons were not communicated. The court emphasized the necessity of recording reasons for reassessment to prevent arbitrary use of power by the assessing authority.

3. Examination of Diesel Consumption in Relation to Production and Ancillary Activities:
The court scrutinized the petitioner's claim that the entire manufacturing process relied on electricity generated from diesel sets, and the details of diesel purchases were disclosed during the original assessments. The court found that the assessment orders did not discuss the number of units of electricity produced, its utilization in manufacturing paper, or other ancillary activities. The court held that the assessing authority failed to consider the co-relation between diesel consumption and production, which justified the reassessment.

4. Alleged Change of Opinion by the Assessing Authority:
The petitioner contended that the reassessment was based on a mere change of opinion, which is not permissible under Section 21(1). The court referred to the Supreme Court's judgment in *Commissioner of Income-Tax v. Kelvinator of India Ltd.*, which held that reassessment should be based on "tangible material" and not a mere change of opinion. The court concluded that the assessing authority did not apply its mind to the material disclosed during the original assessment, which warranted reassessment.

Conclusion:
The court dismissed the writ petition, holding that the reassessment notices were valid. The court found that the assessing authority had sufficient reason to believe that the turnover had escaped assessment due to the failure to consider the utilization of diesel. The court emphasized the importance of recording reasons for reassessment to ensure transparency and prevent arbitrary use of power. The reassessment was justified as the original assessment did not adequately examine the co-relation between diesel consumption and production.

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