AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 16
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....7/2016, 165/2016, 166/2016, 173/2016, 174/2016, 190/2016, 191/2016, 192/2016, 198/2016, 199/2016, 207/2016, 224/2016, 225/2016, 226/2016, 227/2016, 261/2016, 262/2016, 263/2016, 264/2016, 265/2016, 270/2016, 271/2016, 272/2016, 604/2016, 605/2016, 606/2016, 651/2016, 674/2016, 777/2016, 791/2016, 866/2016, 879/2016, 880/2016, 881/2016, 882/2016, 883/2016 And 1104/2017. Sesa Sterlite Limited, Sociedade de Formento Industrial Pvt. Ltd., M/s Gangadhar Narsingdas Agrawal (HUF), V.M. Salgaocar & Brother Pvt. Ltd., M/s V.M. Salgaocar Sales International, Ms. Neelam Ajit Phatharpekar, Mr. Ajit R. Phatharpekar, Aniket Ajit Phatharpekar, Pooja Aniket Phatarpekar, M/s Karishma Goa Mineral Trading Pvt. Ltd., D.B. Banododkar & Sons Pvt. Ltd., M/s. Ramacanta Velingkar Minerals, Shri Ramakanta V.S. Velingkar, Vedanta Ltd., Rajaram Bandekar (Sirigao) Mines Pvt. Ltd., M/s. Infrastructure Logistics Pvt Ltd., M/s Fomento Resources Pvt. Ltd., Shantadurga Transport Company Private Limited, Damodar Mangalji & Company Ltd., Chowgule & Co. Pvt. Ltd., On And Offshore Hitech Engineers Pvt. Ltd., V.G.M. Exports, Vasantram Mehta & Co. Pvt Ltd., Bandekar Brothers Pvt. Ltd. Panduronga Timblo Industries, Ses....
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....nder-pricing of export goods and also that the businesses conducted by the Assessees were illegal and hence, their income ought to be brought to tax not as business income but as income from other sources. On the other hand, there are some petitions where the allegation of illegality does not find place in the reasons recorded for reopening notices issued under Section 148. 3. Since Writ Petition No.329 of 2015 involves all four aspects referred to above, and since the basis of reassessment proposed in that case is the same as in the case of the other petitions, wherever applicable, though individual facts and figures may be different, this Writ Petition is taken as a lead case and the controversy is discussed in the light of the facts and circumstances stated in it. Separate references arc made to individual petitions of the other groups, wherever there arc individual elements to be distinguished as noted in the following order. 4. The petitioner is a mining concessionaire or lessee carrying on business of mining and production as well as export/trading of iron ore. For the assessment year 2008-09, the petitioner filed its return of income declaring a total income of Rs. 463....
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....s finding inter alia violation of various statutes and other infirmities. 7. The first two reports were considered by the Supreme Court, when it heard a public interest litigation filed by Goa Foundation under Article 32 of the Constitution of India purportedly on the basis of those two reports and praying inter alia for directions to Union of India as well as State of Goa to take steps for termination of mining leases issued in the State in violation of various laws and for incidental and consequential reliefs. In answer, it was pointed out by the mining lessees that there was a serious violation of principles of natural justice vis-a-vis the mining lessees. It was submitted that neither did the commission issue any notice under Section 8-B of the Commission of Inquiry Act giving a reasonable opportunity of hearing to the lessees or to produce evidence in their defence nor did the commission permit them to cross- examine witnesses or address the commission and be represented by legal practitioners. It was submitted that the inquiry and the findings arrived at by the commission in its reports were thus contrary to the provisions of Section 8-B and 8-C of Commission of Inquiry Ac....
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....necessary for the assessment. In support of reason (i), it was stated that the third report of Shah Commission on illegal mining and exports of iron and manganese ore in the State of Goa had disclosed that for the same period and for the same corresponding grade, the Assessee's prices were less than the market prices and that prima facie the Assessee had under-invoiced its exports. A chart of such instances of under-invoicing of exports forming part of the report of Shah Commission (third report), was set out in the reasons. It was submitted that these instances were not noticed till the report of Shah Commission was made available to the Assessing Officer. Reason (ii) pertained to the Supreme Court order in the Goa Foundation petition, which had held all deemed mining leases to have finally expired on 22/11/2007 and mining by lessees after 22/11/2007 to be illegal. It was submitted that based on this order of the Supreme Court, income accruing during financial year 2007-08 relevant to assessment year 2008-09 could not be said to be legitimate business income and was required to be treated as income from other sources. In support of reason (iii) it was alleged that having re....
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....t was clear that the department was indulging in a fishing inquiry and did not have any reason to believe escapement of income which could form the basis of a valid reassessment notice. It was submitted that there was no direct nexus between the material available to the Assessing Officer and the formation of his belief concerning escapement of income on the basis thereof. The Assessee also objected to the. basis suggested by the Assessing Officer for treating its income as income from other sources. The Assessee requested the Assessing Officer to pass a speaking order in this behalf. 10. The objections raised by the Assessee were considered and dealt with by respondent no.2 in his order dated 20/02/2015. Respondent no.2, inter alia, observed that the commission report was not prepared merely on the basis of hearsay or conjectures but on the basis of facts collected from the concerned authorities or the lessees. It was observed that as per the third report of the commission, there was under-invoicing of exports of iron ore, which was quantified and calculated year-wise. Respondent no.2 observed that under-invoicing was apparent from the evidence obtained from the concerned autho....
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....se. Learned Counsel submits that at any rate, there is no direct nexus or live link between the information said to be available to the Assessing Officer and the formation of his belief that income has escaped assessment. So far as the alleged ground of illegality of the business is concerned, learned Counsel submits that, in the first place, at the relevant time, that is to say, either during the relevant previous year or at the time of assessment, all concerned proceeded on the basis that the business of mining and export/trade of ore was perfectly legitimate. It is submitted that only when the Supreme Court decided the Goa Foundation petition on 21/04/2014 that the question of illegality of mining activities on account of expiry of deemed leases arose for the first time. Learned Counsel submits that at any rate, the Mines and Minerals (Development and Regulation) Act, 1957 was amended after the Supreme Court judgment in Goa Foundation case extending the periods of mining leases and even the State of Goa subsequently renewed the period of lease in case of mining lessees in Goa including the petitioner herein and that at the date of the reopening notice there was a valid lease in ....
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....t proceedings. As observed by the Supreme Court in the case of Commissioner of Income Tax, Gujarat V/s. A. Raman and Co. [1968 (67) ITR 11], the condition which invests the Income Tax Officer with jurisdiction of reassessment has two branches: (i) that the Income Tax Officer has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession that he has reason so to believe. The expression "information", in the context in which it occurs, must, as explained by the Supreme Court, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If, as a result of such information, the Income Tax Officer has a reason to believe that income chargeable to tax had escaped assessment, he has jurisdiction to assess or reassess the income under Section 147 of the Act. The information, thus, is the starting point and the formation of belief the end point, so far as re- opening of assessment is concerned. The High Court, exercising jurisdiction under Article 226 of the Constitution of India, has power to set aside a....
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....hing but a matter of expression of opinion by the commissioner. As this Court has explained in the case of Fomento Resources Private Ltd. & Anr. V/s. Union of India & Ors., Writ Petition No.606 of 2014 decided on 2nd July, 2019 where this very report of Shah Commission was a matter of direct challenge by the mining lessees and exporters, including the Assessee herein, facts found, as also conclusions drawn, by a Commission of Inquiry are not judicial pronouncements. The report of the Commission neither constitutes a binding judgment nor a definitive pronouncement. The Commission, as held by the Supreme Court in the State of Karnataka V/s. Union of India (1977) 4 SCC 608, is required to submit its report, which may or may not be accepted by the appointing authority. If it is not accepted, it has no legal consequences. The Commission, in other words, has no power to adjudicate in the sense of passing an order which can be enforced. What the Commission says is merely an expression of its opinion; it lacks both finality and authoritativeness. The differences in export prices of various exporters, so far as iron ore is concerned, may be matters of fact, which are said to have been deriv....
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....ssee's prices were lower than other exporters. Even if it is assumed that so far as this fact is concerned, the information contained in the report of Shah Commission by itself can be treated as information available to the Assessing Officer within the meaning of Section 147, the further information, however, that there was therefore under-invoicing of exports by the Assessee does not simply follow from this primary information. There is nothing whatsoever in the impugned notice issued by the Assessing Officer to indicate that he has applied his mind to this aspect of the matter. Learned counsel for the Revenue relies on the case of Calcutta Discount Company Ltd., Vs Income Tax Officer (1961) 41 ITR 191 (SC); to support his contention that it is not only the primary facts but inference to be drawn from such facts which also can form part of the material on which the Assessing Officer may form his belief. Learned counsel is right there. As the Supreme Court has explained in this case, from the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the Assessing Authority has to draw inferenc....
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....idual export contract is a function of various parameters as claimed by the Assessee, and as indicated whilst noting the Assessee's objections to the re-opening notice. But, these arc matters of merit and need not engage us today, except the fact that the Commission's conclusion that any particular price was the market price was itself a matter of conjecture and hardly a primary fact. For our purposes, even if we assume that the Assessee's export prices were in fact so less, there is nothing to indicate that any particular income has accrued to anyone as a result of such difference in prices. There is, thus, no direct nexus or live link between the difference in prices and escapement of income. There is, in other words, no way the Assessing Officer could have formed a belief that any income has escaped assessment simply on the basis of the differences in the export prices of the Assessee when compared to others. 19. Learned Counsel for the revenue places strong reliance on the case of Central Provinces Manganese Ore Co. Ltd. V/s. Income Tax Officer (1991) 191 ITR 0662. Relying on this case, it is submitted that based on export prices showing a systematic lesser value....
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....the reopening notice. These facts are entirely distinguishable. In our case, there is no systematic undervaluation of export prices. In fact, as pointed out by Mr. Pardiwala, there have been cases where the export prices of the petitioner are taken to be market prices and on the basis of those prices, under-invoicing has been claimed vis-a-vis other exporters. So much for systematic under-valuation. There is no finding by a court of law or a statutory authority as a matter of fact that there was any under-invoicing. The so called finding is by a commission of inquiry; that commission has itself made it clear in its very opening statement that it was not in a position to finalize illegalities or irregularities with regard to the export of iron ore by individual lessees or their representatives or traders comprehensively due to time constraints. It is at best a tentative opinion expressed by a Commission of inquiry without affording any opportunity to the concerned exporters to explain the material used against them. Besides, there is no case of related parties to whom such exports were made. At least, the reopening notice and the reasons indicated by the Assessing Officer do not ind....
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....tive satisfaction on the part of the Income Tax Officer. It must be held in good faith; it cannot be merely a pretense. It is open to the Court to examine whether the reason has a rational connection with or relevant bearing on the formation of the belief; it must not be extraneous or irrelevant for the purpose. In the present case, as we have noted above, the reason has no such bearing or rational connection with the formation of the belief. It is purely speculative on the part of the Assessing Officer to form a belief of escapement of income from taxation simply on the basis of lesser export prices charged by the Assessee. There is no material or even suggestion that any income corresponding to the so- called under-invoicing of exports was in fact received by any party or by the Assessee through any backdoor method. In the premises, there is no legitimate reason to believe which can sustain the impugned notice issued by the Assessing Officer. 21. The other main objection of the Assessee is that there was no belief on the part of the Assessing Officer that escapement of income had arisen by reason of any failure on the part of the Assessee to make a return under Section 139 or ....
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....is submitted on behalf of the revenue at the Bar that the mining activity itself being an illegal activity, expenditure incurred by the Assessee for it is not deductible. There is no such ground alleged in the reopening notice or the reasons indicated in support of the notice. For the first time, a faint suggestion to this effect was made in the order passed by the Assessing Officer on the objections communicated by the Assessee. As our Court in the case of Hindustan Lever Ltd. V/s. R.B. Wadkar (2004) 268 ITR 332 (Bombay) has made it clear, the reasons, with a view to assess their reasonableness, are required to be read as they are recorded by the Assessing Officer; no substitution or deletion is permissible; no addition can be made to those reasons; and no inference can be allowed to be drawn based on these reasons which is not recorded. It is for the assessing officer to form an opinion as to whether there was escapement of income from assessment and whether such escapement occurred from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year; and it is for him to put his opinion on record i....
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....time of the original assessment, the Court held that there was nothing on record to show that the Petitioner had received any undisclosed sums beyond the record and which were suppressed during the self-assessment/ audit assessment proceedings or had concealed any turnover. This latter part of the reasoning of the Orissa High Court does support the Petitioner's case even in these matters. Learned Counsel appearing in WP No. 120 of 2016 refers to the case of Hemant Traders Vs Income Tax Officer (2015) SCC Online Bom 4244. In that case, reassessment was initiated by issuance of a notice under Section 148 (2) in pursuance of a survey action under Section 133A of the Act. The Court held that neither the survey report nor any other material indicated that any income chargeable to tax has escaped the assessment in the relevant assessment year. It was submitted by the Revenue that even if that was so, the writ jurisdiction of the Court should not be exercised to interfere with a notice at the threshold. The Court negatived this contention, observing inter alia that once the Court found that the foundation or basis for initiating of reassessment proceedings did not contain the requisit....
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.... be assessed as income from other sources. The reopening notices in these cases are solely on the ground of under-invoicing of exports. This aspect of the controversy has already been dealt with above in connection with Writ Petition No.329 of 2015 and these petitions also deserve to be allowed on that basis. Mr. Chaitanya, learned Counsel appearing for the Petitioners in Writ Petition No.866 of 2016 makes a few additional submissions. It is, firstly, submitted that though the re-opening notice is issued four years after the end of the relevant assessment year, there is not even an averment in the reasons stated for issuance of the notice that there was any non- disclosure on the part of the Petitioners. Learned Counsel relies on the cases of Hubtown Ltd. Vs. Deputy Commissioner of Income-tax (2016) 74 taxmann.com 18 (Bombay) and Akshar Developers Vs. Assistant Commissioner of Income-tax (2019) 411 ITR 602. in support of his case. The notice in the present case is indeed deficient and cannot sustain reassessment in accordance with the law stated in these cases. Learned Counsel also relies on the case of Assistant Commissioner of Income-tax Vs. Dhariya Construction Co. [2010] 328 IT....