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2014 DIGILAW 2217 (ALL)

RATHI INDUSTRIES LTD. v. STATE OF U. P.

2014-07-28

RAJAN ROY, TARUN AGARWALA

body2014
JUDGMENT By the Court.—Heard Sri BharatJi Agrawal, the learned senior counsel assisted by Sri Shivani Agrawal and Shubham Agawal, the learned counsels for the petitioner and Sri C.B. Tripathi, the special counsel for the State of U.P. The petitioner is a Public Limited Company incorporated under the Indian Companies Act and is engaged in the business of manufacture and sale of M.S. Bar/Tor Steel/T.M.T. Bar etc. The petitioner, being a new unit, holds an eligibility certificate under Section 4-A of the U.P. Trade Tax Act. For the assessment year 2003-04 under U.P. Trade Tax Act as well as under Central Sales Tax Act, the books of account were rejected and a best judgment assessment was passed on 28.2.2005 after considering the material evidence. The petitioner, being aggrieved, filed an appeal before the Joint Commissioner (Appeals)-II, Trade Tax, NOIDA, both under U.P. Trade Tax Act and Central Sales Tax Act, which is pending consideration. During the pendency of the appeal, the petitioner received a notice dated 5.9.2005 under Section 21 of the U.P. Trade Tax Act indicating therein that some part of turn-over had escaped assessment to tax and therefore, reassessment proceedings had been initiated. Similar notice was issued for reassessment proceedings under Central Sales Tax Act. The petitioner being aggrieved by the notices No. 767 and 768 dated 5.9.2005 for the assessment year 2003-04 under the U.P. Trade Tax Act as well as Central Sales Tax Act has filed the present writ petition for its quashing. 2. Sri BharatJi Agrawal, the learned senior counsel contended that from a bare perusal of the aforesaid notices, it is evidently clear that no reason has been assigned and only a printed proforma notice has been issued mechanically without application of mind directing the petitioner to appear on a particular date and participate in the reassessment proceedings. The learned senior counsel contended that the order sheet of the file also does not indicate that any reasons were recorded in arriving at a conclusion that some part of the turnover had escaped assessment to tax. The learned senior counsel submitted that in the absence of formation of a belief that some part of turnover had escaped assessment to tax, the impugned notices were bad in law and were liable to be quashed. 3. The learned senior counsel submitted that in the absence of formation of a belief that some part of turnover had escaped assessment to tax, the impugned notices were bad in law and were liable to be quashed. 3. On the other hand, the learned counsel for the State submitted that pursuant to the notice date 5.9.2005, a supplementary notice dated 14.9.2005 was issued indicating therein the reasons for issuance of notice under Section 21. In this notice, it was indicated that a Special Investigation Branch, Trade Tax, NOIDA had surveyed an iron steel trading firm M/s P.K. Enterprises on 19.3.2005 and seized certain form-49, which were checked by digital ultraviolet photography, in which it was found that the original name of the purchaser was omitted and the name of M/s P.K. Enterprises was written, and on this basis, an opinion was formed that certain part of the turnover of the petitioner had escaped assessment. The learned counsel submitted that it was not necessary that reasons should be recorded in the notice or on the file and that the Assessing Officer could issue a notice under Section 21 based on subjective satisfaction on the tangible material available on the file, on the basis of which a reasonable belief could be formed for issuance of a notice under Section 21 of the Act. The learned counsel submitted that in the instant case, the material was the survey report of the Special Investigation Branch on the basis of which, an opinion was formed and that the Assessing Officer had reasons to believe that some part of turnover had escaped assessment to tax. The learned counsel submitted that the notice in the instant case was valid and consequently, the writ petition was liable to be dismissed. 4. The question, whether the assessing officer had reasons to believe is a question of jurisdiction, which can be considered and investigated by a Court under Article 226 of the Constitution of India. The words “has reasons to believe” must not be arbitrary or irrational but must be based on reasons which are relevant and germane to the issue. The expression “reasons to believe” is not a subjective satisfaction on the part of the assessing officer. The belief has to be in good faith and must have a rational connection with the issue involved and should not be based on extraneous or irrelevant consideration. The expression “reasons to believe” is not a subjective satisfaction on the part of the assessing officer. The belief has to be in good faith and must have a rational connection with the issue involved and should not be based on extraneous or irrelevant consideration. The formation of the required opinion and belief by the assessing officer is a condition precedent. Without such formation, the assessing officer will have no jurisdiction to initiate proceedings under Section 21 of the Act. The aforesaid view was also held by a Division Bench of this Court after considering various judgements of the Supreme Court in M/s S. K. Traders, Modi Nagar, Ghaziabad v. Additional Commissioner, Grade-I, Trade Tax, Zone Ghaziabad and another, 2008 UPTC 392. 5. Similar view was reiterated by another Division Bench in Anand Prakash Agarwal v. Commissioner of Income Tax (Central) and others, Writ Petition No. 1367 of 2005 and other companion cases, decided on 29.5.2014. The Division Bench after considering the case in Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITC 500 (SC), held that at the stage of issuance of notice the only question to be considered was whether there was relevant material on which a reasonable person could have formed the requisite belief. 6. In M/s Rubber Chem Sadabad Gate Hathras v. The Additional Commissioner Grade-I, Commercial Tax, Aligarh Zone, Aligarh and another, decided on 15.3.2014, in Writ Petition No. 1045 of 2009, the Division Bench of this Court, after analysing various decisions of the Supreme Court, held- “On a plain and simple reading of Section 21, it is crystal clear that where a dealer has been assessed to tax at lower, then, it is a case of escape assessment. Rider is that such Assessing Authority should have reason to believe that whole or part of turnover has escaped assessment. The condition precedent, namely, the formation of opinion on the part of Assessing Authority that there is reason to believe that the case in which the action is contemplated falls within the ambit of at least one of the several contingencies mentioned under Section 21. The reason to believe must have rational connection or life linked between the material coming in possession of Assessing Authority and the escapement of turnover of the assessee from assessment in a particular year. The reason to believe must have rational connection or life linked between the material coming in possession of Assessing Authority and the escapement of turnover of the assessee from assessment in a particular year. To put it differently, the Assessing Authority must form opinion objectionably on reasonable ground that the turnover has escaped assessment.” 7. In Commissioner of Sales Tax v. Bhagwan Industries (P) Ltd., (1973)31 STC 293 (SC), it has been held as follows: “The words “reason to believe” in s. 21 of the U.P. Sales Tax Act convey that there must be some rational basis for the assessing authority to form the believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. If there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of the turnover of a dealer has escaped assessment, it can take action under the section. Reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the ground are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the ground are adequate or not is not a matter which would be gone into by the High Court or the Supreme Court, for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency or reasons for the belief. At the same time, the belief must be held in good faith and should not be a mere pretence.” From a perusal of the aforesaid, it is apparently clear that the words “reason to believe” in Section 21 of the U.P. Trade Tax Act conveys that there must be some rational basis for the assessing authority to form a belief that the whole or any part of the turnover of a dealer has for any reasons escaped assessment. Such reason or reasonable ground to believe that the whole or any part of the turnover had escaped assessment must be germane to the formation of the believe regarding escaped assessment. Such reasons or grounds must have a nexus with the formation of the belief. The approach has to be practical and not pedantic. 8. The decision cited by learned counsel for the State in the facts of the present case is not applicable. In Hira Lal Ayodhya Prasad v. Sales Tax Officer, Shahjahanpur, 1972 (30) STC 365 , a Division Bench of this Court held that no proforma has been prescribed by a notice under Section 21 either under the Act or Rules and therefore, it was not necessary that such a notice should specify the items of turnover, which has escaped assessment. The Division Bench held that in order to initiate proceedings under Section 21 of U.P. Sales Tax Act, it was necessary that the Assessing Officer should have before him the material, which induced a reasonable belief in his mind that the turnover of the assessee either in whole or in part had escaped assessment. The satisfaction of the Sales Tax Officer as to the escapement of the turnover was not subjective but has to be based upon relevant material. 9. In Sales Tax Officer v. Uttareswari Rice Mills, AIR 1972 SC 2617 , the Supreme Court held that the language of Section 12(8) of the Orissa Sales Tax Act, 1947, which is similar to the provision of Section 21 of the U.P. Trade Tax Act does not expressly or by necessary implication postulates recording of reasons in the notice, which is issued to the dealer. The Supreme Court held that it is not necessary that reasons should be incorporated in the notice and that failure to do so would not invalidate the notice. The learned counsel for the State also placed reliance upon a decision in Income Tax Officer and others v. Biju Patnaik, AIR 1991 SC 464 , wherein it was held that it is not necessary that reasons should be recorded in the notice issued under Section 147 of the Act and that it was sufficient if there was substantial material on the record to come to a conclusion that income had escaped assessment to tax. 10. There is no quarrel with the aforesaid proposition. 10. There is no quarrel with the aforesaid proposition. The reason to belief must be based on some rational basis for the Assessing Officer to form a belief that the whole or part of the turnover of a dealer has for any reasons escaped assessment to tax. Such reason or belief must be germane to the formation of the belief regarding the fact that some turnover had escaped assessment of tax. The reasons or the grounds to come to such a conclusion must have a nexus with the formation to such belief, which must be based on certain material. 11. In the instant case, we find from a perusal of the order-sheet, which has been annexed to the rejoinder-affidavit that no reason was recorded by the Assessing Officer on or before 5.9.2005 indicating that pursuant to a survey conducted by the Special Investigating Branch, the officer had reason to believe that some part of the turnover had escaped assessment to tax. There is nothing to indicate from the counter-affidavit that the survey report was on the record, which was considered by the Assessing Officer at the time of issuance of the notice date 5.9.2005. In the absence of any reasons being recorded, one finds that the notice was issued without recording any reason therein thereby indicating non-application of mind. 12. Subsequent recording of reasons in the notice dated 14.9.2005 will not validate the original notice dated 5.9.2005. The mandate under Section 21 of the Act is, that there must be reasons to believe that some part of the turnover had escaped assessment to tax. The reasons to believe must be formed on the basis of material before the issuance of the notice by the Assessing Officer, i.e. prior to 5.9.2005 indicating a belief that some part of turnover had escaped assessment. Supplying reasons subsequent to the issuance of notice by the Assessing Officer cannot validate the notice. 13. Our attention is also invited to a circular issued by the Trade Tax Commissioner dated 2.9.2000, in which it has been categorically specified that reasons must be recorded not only on the file/order sheet but should also be indicated in the notice issued under Section 21 of the Act. 14. 13. Our attention is also invited to a circular issued by the Trade Tax Commissioner dated 2.9.2000, in which it has been categorically specified that reasons must be recorded not only on the file/order sheet but should also be indicated in the notice issued under Section 21 of the Act. 14. We are of the opinion that in the light of the circular, reasons in brief should be given in the notice issued under Section 21 of the Act and that there must be reasons recorded on the file by the Assessing Officer coming to a prima facie conclusion or forming a belief that some part of turnover had escaped assessment to tax before issuance of a notice under Section 21 of the U.P. Trade Tax Act. In the light of the aforesaid, we find that in the instant case, there is no reason recorded by the Assessing Officer coming to a belief that some part of turnover had escaped assessment to tax prior to the issuance of notice under Section 21 of the Act. Consequently, the impugned notices dated 5.9.2005 issued under U.P. Trade Tax Act and Central Sales Tax Act for the assessment year 2003-04 cannot be sustained and are quashed. Writ Petition is allowed.