2020 (1) TMI 1115 - HC - Income Tax

Under invoicing of exports of iron ores - addition on the basis of the report of Inquiry Commission of Justice M.B. Shah - HELD THAT - Tribunal has taken into consideration the applicability of the report of the Justice M.B. Shah Commission so as to make addition of the alleged amount under-invoicing by the Assessing Officer. We are in agreement with the findings recorded by the Tribunal, referred to above, and, therefore, no question of law, much less the substantial question of law arises.

Issues Involved:
1. Whether the Income Tax Appellate Tribunal erred in deleting the addition of ?3,46,66,804/- on account of under-invoicing of exports of iron ores.

Issue-wise Analysis:

1. Reopening of Assessment:
The Revenue reopened the assessment based on the report by Justice M.B. Shah Commission, which indicated that the respondent-assessee, a company engaged in manufacturing and trading of iron ore, was involved in under-invoicing its exports. The Assessing Officer (AO) concluded that the export price was quoted at 30% less than the base value, leading to an alleged income escapement.

2. Tribunal’s Consideration of the Report:
The Tribunal scrutinized whether the Justice M.B. Shah Commission report alone could substantiate the claim that the assessee under-invoiced its exports. The Tribunal noted that the assessee maintained proper books of accounts, which were audited and not rejected. The AO did not express any inability to deduce true income from these books, nor did he reject the book results for determining suppressed sales.

3. Evidence and Documentation:
The assessee provided various documents to substantiate the genuineness of its transactions, including sales purchase contracts, letters of credit, shipping bills, custom duty challans, bills of lading, certificates of analysis, invoices, and bank realization credit advices. These documents were presented to the custom authorities, and export duty was paid on the declared export price, which was finally assessed by the custom authorities.

4. Legal Provisions and Precedents:
The Tribunal highlighted that under Section 145 of the Income Tax Act, income must be computed according to the method of accountancy followed by the assessee. The AO must point out defects in the accounts and seek explanations. If the AO fails to do so, income cannot be determined based on book results alone.

5. Supreme Court Observations:
The Tribunal referred to the Supreme Court's observations in a related case, where it was noted that the Justice Shah Commission's report could not be the sole basis for legal action without further investigation and due process. The report was meant to set the investigation machinery in motion but was not equivalent to a decree.

6. Comparative Analysis and Methodology:
The Tribunal found discrepancies in the methodology adopted by the Commission. The Commission's comparison of export rates was inconsistent, and the rates considered for under-invoicing were not uniformly benchmarked. The Tribunal noted that the assessee's export rates were comparable or higher than those of other companies, and the export agreement rates should be considered in the context of the market conditions at the time of the agreement.

7. Conclusion and Findings:
The Tribunal concluded that the AO failed to provide any evidence of under-invoicing by the assessee. The report by the Justice M.B. Shah Commission could not be treated as conclusive evidence of under-invoicing. The Tribunal deleted the addition made by the AO, as there was no reliable evidence supporting the claim of under-invoicing.

Final Judgment:
The High Court agreed with the Tribunal's findings and concluded that no substantial question of law arose from the Tribunal's decision. The appeal was dismissed with no order as to costs.

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