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2024 (5) TMI 167 - HC - Income TaxReopening of assessment - reasons for re-opening within or beyond 4 years - reasons to believe - basic contentions of the revenue for re-opening the assessment is that firstly under-invoicing of export and failure on the part of assessee to disclose fully and truly all material and commission paid to the foreign agents - HELD THAT - As already dealt with the reasons for re-opening of the assessment on the basis of material borrowed from DRI authorities and how it cannot be considered as tangible material having a live link for the purpose of forming independent opinion of the AO, which is infact not formed in all the matters. Thus, as far as the re-opening on the basis of borrowed material from DRI is concerned, we are firm on our opinion that such material without application of mind of the Assessing Officer could not have been directly borrowed and used. As far as the report of Justice M.B. Shah Commission is concerned, the Co-ordinate Bench of this Court 2019 (8) TMI 16 - BOMBAY HIGH COURT (S.C. Gupte N.D. Sardessai, JJ.) clearly observed that the third report of Justice M.B. Shah Commission contains merely the expression of its opinion and it lacks finality as well as authoritativeness. Only on the basis of expression of such opinion by the commission, there cannot be any prima facie belief which could be recorded by the Assessing Officer, without any independent material for the purpose of re-opening. In the present matters, the reasons for re-opening clearly goes to show that Assessing Officer, except borrowing the information from the third report of Justice M.B. Shah Commission, failed to record independently to his own satisfaction any reason so as to direct re-opening of assessment. We do not see any reason independently forming opinion by the Assessing Officer, apart from what was borrowed from the Justice M.B. Shah Commission report. Thus, such reasons which are not having any application of mind as well as any independent material and reason to believe, cannot be construed as legal reasons for re-opening of the assessment. Finally, in some matters it is claimed that the assessee failed to disclose fully and truly the material findings that beyond 22.11.2007, the mining activities were illegally continued. In all these matters, the returns were filed somewhere in the year 2009-10, even though, there was no such decision passed by the Apex Court holding that mining leases beyond 2007 were illegal. It is a fact that for making disclosure truly and fully the assessee must have the knowledge of it. It is necessary to note here that the case of Goa Foundation Vs. Union of India 2015 (8) TMI 723 - SUPREME COURT . While deciding the said petition, the Supreme Court observed that the mining leases in Goa expired in the year 1997 and thereafter, renewal could have been granted only for 20 years upto 2007. Thus, the Apex Court observed that from November 2007 all mining leases in Goa are required to be considered as illegal for the simple reason that there was no power to renew such leases beyond 20 years. The fact remains that these observations of the Apex Court are in connection with mining leases, however, the Apex Court no where expressed that till the date of such decision i.e. 21.04.2014, the mining activities carried on by the lease-holders were considered to be illegal. The illegality of the lease is one thing and carrying out business activities on assuming that such leases exists is another thing. Similarly, business activities were carried out and Iron Ore was extracted, sold, exported till all the activities came to a grinding hold. The lease-holders paid royalty, customs duty, other charges to the Government till such activities were stopped. Extraction of Iron Ore including export and payment of remaining charges to the concerned department till 2014 were not declared as illegal. Even this fact, that the mining leases beyond 2007 were not legal, was even not known to the Assessing Officer himself, till such declaration came from the Apex Court in the year 2014. Thus, claiming that the assessee failed to disclose truly and fully that such activities were illegally carried out and that too while filing returns for the assessment year 2009-10 would not arise. In this regard the observation in the case of Calcutta Credit Corporation 1969 (12) TMI 30 - CALCUTTA HIGH COURT would clearly attract. Thus, we are of the considered opinion that notices issued for re-opening and assessment in all these matters failed to satisfy twin conditions. The Assessing Officer, therefore, could not have exercised jurisdiction for re-opening of assessment which were concluded way back. The additional affidavit filed in two petitions cannot be looked into for the above reason as Revenue or the AO is not entitled to supplement material beyond the reasons recorded at the time of issuance of notice under section 147/148 of Income Tax Act. We hold that the impugned re-opening notices and the orders passed rejecting the objection needs interference and are required to be quashed and set aside. Decided in favour of assessee.
Issues Involved:
1. Legality of the re-opening of assessments u/s 147 of the Income Tax Act. 2. Validity of the reasons for re-opening based on Justice M.B. Shah Commission Report. 3. Validity of the reasons for re-opening based on information from the Directorate of Revenue Intelligence (DRI), Mumbai. 4. Whether the assessee failed to disclose fully and truly all material facts necessary for assessment. Summary: Issue 1: Legality of the re-opening of assessments u/s 147 of the Income Tax Act The court examined whether the re-opening of assessments for various assessment years was legally justified. The re-opening was based on notices issued u/s 148 of the Income Tax Act, claiming that income chargeable to tax had escaped assessment. The court emphasized that for re-opening beyond four years, two conditions must be met: the Income Tax Officer must have reason to believe that income had escaped assessment, and this escapement was due to the assessee's failure to disclose fully and truly all material facts. The court found that these conditions were not satisfied in the present cases. Issue 2: Validity of the reasons for re-opening based on Justice M.B. Shah Commission Report The court noted that the reasons for re-opening were largely based on the Justice M.B. Shah Commission Report, which highlighted under-invoicing of exports and illegal mining activities beyond 22.11.2007. However, it was observed that the report merely expressed opinions without finality or authoritativeness. The court held that reliance solely on the Shah Commission Report, without independent application of mind by the Assessing Officer, could not justify the re-opening of assessments. Issue 3: Validity of the reasons for re-opening based on information from the Directorate of Revenue Intelligence (DRI), Mumbai The court scrutinized the reasons for re-opening based on information from the DRI, which indicated under-invoicing of exports and commission paid to foreign agents. It was found that the Assessing Officer did not conduct an independent inquiry and merely borrowed information from the DRI. The court ruled that such borrowed material, without independent reasoning, could not be considered as tangible material for re-opening assessments. Issue 4: Whether the assessee failed to disclose fully and truly all material facts necessary for assessment The court examined whether the assessee had failed to disclose material facts, particularly regarding the legality of mining activities beyond 22.11.2007. It was noted that the Supreme Court's decision declaring mining leases beyond 2007 illegal was made in 2014, and the assessee could not have known this at the time of filing returns. The court held that the assessee could not be faulted for not disclosing facts that were not known or declared illegal at the time of filing returns. Conclusion: The court concluded that the re-opening notices and the orders rejecting the objections lacked legal basis. The reasons for re-opening were either borrowed from other reports without independent application of mind or based on facts not known to the assessee at the time of filing returns. Consequently, the court quashed and set aside the re-opening notices and the orders rejecting the objections filed by the petitioners. The petitions were allowed, and the rule was made absolute with no orders as to cost.
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