Misreporting or non-reporting in financials or tax audit report can result in reopening

In I P Patel and Co. V. Dy CIT (2012) 346ITR207 the assessee firm in the business of import, export and manufacture of diamonds is reported to have been involved in theft of electricity as per newspaper report for which it had to pay penalty during the previous year which amount was not reported by the tax auditor in the tax audit report. Interestingly the assessee had not debited the penalty in its books too perhaps due to which the tax auditor may have suppressed this information. And this was found to be reason enough to open up the case even after 6 long years for failure on the part of the assessee to disclose truly and fully all material facts.

In this case the assessee did not show any electricity expenses yet claimed some depreciation on machinery. The revenue side therefore build enough reason to hold the belief that the theft of electricity would have meant unaccounted production.

Whatever may be the cause whether it is assessee’s failure to book any expense or whether any misreporting or non-reporting by the tax auditor such type of cases generally cannot slip the assessment process.

On to whether such information by way of newspaper report etc. is solid enough or not the Gujarat High Court held that the sufficiency or the correctness of the material cannot be considered and that it had to see whether there was prima facie some material on the basis of which the assessment could be reopened.