2024 (5) TMI 1669 - AT - Income Tax

Reopening of income tax assessment based on anti evasion findings dismissed after those findings lacked corroboration and were reversed on appeal.

Reopening an income tax assessment based on alleged clandestine manufacture and removal was held unsustainable where the Anti Evasion team's private ... Reopening of assessment - allegation of clandestine production and removal - search conducted by a team of officers of Anti-Evasion Section, Central Excise Commissioner, Rajkot - whether there was relevant material on which a reasonable person could have formed a requisite belief? - findings of Central Excise Anti-Evasion team later reversed by the CESTAT [2024 (2) TMI 431 - CESTAT AHMEDABAD] - Scope of legal maxim 'Sublato fundamento cadit opus' HELD THAT:- Mere entries in the private records, do not, ipso facto, lead to the allegation of clandestine removal unless there is corroborative evidence to that effect from independent sources. Revenue has miserably failed to produce corroborative evidence on records so as to substantiate the charges of clandestine removal. Assessee had specifically requested for cross examination of the witnesses, but the witnesses were not offered for cross examination. We note that reasons recorded by the AO u/s 147 are not sustainable in the eye of law. We note that statements and the diaries which were found during the search do not contain any information about removal of the Excisable Goods without paying the Excise Duty, therefore, the Customs, Excise and Service Tax Appellate Tribunal, in assessee's case has quashed the order of lower authorities. Since the AO has reopened the assessment based on the findings of the Anti-Evasion Section, Central Excise Commissionarate, Rajkot, which were rejected/ reversed by the Customs, Excise and Service Tax Appellate Tribunal (supra) in assessee's own case. That is, no addition was made or sustained by the Customs, Excise and Service Tax Appellate Tribunal, based on the findings, of the Anti-Evasion Section, Central Excise Commissionarate, Rajkot, and we note that based on these findings, the assessing officer under the Income Tax Act, had recorded the reasons u/s 147 stating that assessee's income has escaped assessment, which is now not sustainable in law in view of the decision of the Customs, Excise and Service Tax Appellate Tribunal [2024 (2) TMI 431 - CESTAT AHMEDABAD] in assessee's own case. Basis of reopening of the assessment u/s 147 of the Act is not sustainable in the eye of law, as there is no foundation. Hence we find that the basic premise on which the assessing officer has recorded the reasons u/s 147 of the Act, on the ground of show-cause notice issued by the Assistant Commissioner, Central Excise Division, Morbi, is not maintained now in the eye of law and therefore completely fails. The findings of the search team of the Anti-Evasion Section, Central Excise Commissionarate, Rajkot, have been held by the Customs, Excise and Service Tax Appellate Tribunal (supra) in assessee`s case, as not sustainable in the eye of law. Once the foundation fails, the superstructure also fails i.e. the addition also is to be deleted. In this regard, we placed reliance on the legal maxim 'Sublato fundamento cadit opus' (meaning thereby that foundation being removed, structure / work falls). Hence the initial action of the assessing officer in initiating the proceedings u/s 147 of the Act, itself is not in consonance with law then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. Assessee appeal allowed. Issues: (i) Whether reassessment proceedings initiated under section 147/148 of the Income-tax Act, 1961 are valid where the foundational material relied upon (findings of Anti-Evasion Section, Central Excise) was subsequently reversed by the Customs, Excise and Service Tax Appellate Tribunal in the assessee's own case; (ii) Whether delay in filing the assessee's appeal (73 days) should be condoned.Issue (i): Whether reopening of assessment under section 147/148 of the Income-tax Act, 1961 was legally sustainable in view of subsequent reversal of the excise findings by the Customs, Excise and Service Tax Appellate Tribunal.Analysis: The Tribunal examined the material on which the Assessing Officer recorded the reasons to believe and found that reopening was founded on the Anti-Evasion Section's findings and excise show-cause material. The excise findings were later set aside by the Customs, Excise and Service Tax Appellate Tribunal, which held that entries in private notebooks alone, without independent corroborative evidence (procurement, transportation, buyers, cash receipts, cross-examination), did not establish clandestine removal. The Tribunal applied established authorities requiring a rational nexus between the material and formation of belief for reopening and relied on precedent holding that reopening cannot rest on unverified or unreliable excise material alone. Since the foundational material was held not sustainable by the appellate tribunal, the reason to believe for initiating reassessment was vitiated.Conclusion: Reassessment proceedings under section 147/148 are quashed as the reasons to believe recorded by the Assessing Officer were not supported by sufficient independent material and were rendered unsustainable by the subsequent authoritative reversal; relief is in favour of the assessee.Issue (ii): Whether the delay of 73 days in filing the assessee's appeal should be condoned.Analysis: The Tribunal reviewed the affidavit explaining that the CIT(A)'s order was delivered to the company's registered email but was routed to the junk folder, causing unintentional delay; there was no imputation of negligence or mala fides. The Tribunal applied the liberal construction of 'sufficient cause' and exercised judicial discretion to advance substantial justice.Conclusion: The delay in filing the appeal is condoned and the appeal is admitted; conclusion is in favour of the assessee.Final Conclusion: The Tribunal quashed the reassessment proceedings as they were initiated without sustainable foundational material and allowed the assessee's appeals (assessment years 2012-13, 2013-14 and 2014-15); the revenue's appeal against the part relief is dismissed. All consequential additions and proceedings founded on the quashed reopening are rendered academic.Ratio Decidendi: Where an Assessing Officer's reason to believe under section 147 of the Income-tax Act, 1961 is founded solely on excise/investigative material that is subsequently held by an authoritative tribunal to be unreliable or unsustained for establishing clandestine removal, the reopening is vitiated for lack of sufficient independent material and must be quashed.