A case of un-necessary litigation (can also be regarded as frivolous case and abuse of process of law) in case before honorable Supreme Court in case of Pr. CIT vs. RAWMIN MINING AND INDUSTRIES P. LTD.

[DEVKUMAR KOTHARI]

Case under discussion:

Tribunal order in ITA No.420/Rjt/2018 for the A.Y.2010-11. (ITAT RAJKOT) under “E” Court at Ahmedabad dated 27th May, 2019.(unreported and not available)

THE PR. COMMISSIONER OF INCOME TAX VERSUS M/S RAWMIN MINING AND INDUSTRIES P. LTD. - 2020 (1) TMI 1115 - GUJARAT HIGH COURT

THE PR. COMMISSIONER OF INCOME TAX VERSUS M/S RAWMIN MINING AND INDUSTRIES P. LTD. - 2020 (12) TMI 1403 - SC ORDER (LB)

THE PR. COMMISSIONER OF INCOME TAX VERSUS M/S RAWMIN MINING AND INDUSTRIES P. LTD. - 2024 (9) TMI 32 - SC ORDER

Related laws and provisions:

The Income-tax Act, 1961 – S. 145

The Commissions of Inquiry Act, 1952 sections  3,  8B,8C

The Customs Act – section 28

Main points:

The case involved only question of facts and no question of law was involved. Even facts found by Tribunal  were not challenged.

SLP was dismissed upon hearing by SC (LB) on  16.12.20  4 counsels appeared for Appellant –PCIT. And no one for respondent. SLP was dismissed for low tax effect.

MA filed in 2021 heard on 09.08.2024 by two judges.

 6 Counsels appeared for Appellant. No one seems to be out of team of counsels who appeared in hearing of SLP ( doubt is about one due to prefix Mr. and Ms. In two cases before the same name  Mr. Gargi Khanna Adv.  ( in SC MA case) and Ms. Gargi Khanna, Adv – in SC (LB in SLP case)

 For respondents 6 counsels appeared in MA and  objection of respondent was directed to be provided to the Appellant.  However, it seems proper objection was not raised otherwise, they could have made out a case of misleading the SC by counsels of Applicant and dismissal of MA.

Matter of appeal before the Supreme Court:

The appeal was against judgment of honorable Gujarat High Court reported as

THE PR. COMMISSIONER OF INCOME TAX VERSUS M/S RAWMIN MINING AND INDUSTRIES P. LTD. [2020 (1) TMI 1115 - GUJARAT HIGH COURT] . This appeal  was against judgment of Rajkot Bench of ITAT.

Judgment of ITAT:

Related judgment of ITAT is not available on this website and is also not shown in citations. Therefore Learned Author made attempt to search at website of ITAT.

For the  Appeal Number: ITA 420/RJT/2018 as referred to in the Judgment of the High Court , on search on website of ITAT author noticed that  pronouncement of order is  dt. 26.03.2019 date of order 27.05.2019 but the order and order sheets are  not found on website of ITAT in search with ITA number and Rajkot bench. Therefore, author has made request to the concerned authorities to upload the judgment.

 On reading of the judgment of the High Court and relevant portion of order of ITAT as mentioned therein, it appears that The matter related with allegation and addition by  tax department about under invoicing leading to tax avoidance.

It seems that the allegation was made and then  the addition was made solely based on information found in reports and information etc. provided or gathered from other agencie as discussed below.

UOI got information that certain companies have extracted excess minerals and ores from the mines situated in Odisha, Goa and Jharkhand etc. That lead to appointment of  The Inquiry Commission of Justice M.B. Shah  to find out extra exploitation of mines whereby extra minerals were being extracted by the Companies and exported  by adopting means of  under-invoicing etc.

It appears that the  addition was also  made ignoring documents , and explanations submitted by assesses. The addition was made solely based on application of some of findings or observations of the said Commission

Per author:

Addition  may also  be based on  some other agencies or tax  departments of  country. It will be clear if order of ITAT is found. Meanwhile based on judgment of the High Court, this write-up is prepared.  Information from the  judgment: ( with highlights added by author are given below:

   “ 2. The Revenue has proposed the following question as the substantial question of law arising out of the impugned order passed by the Tribunal;

“Whether in the circumstances and the facts of the case and in law, the Appellate Tribunal has erred in deleting the addition of ₹ 3,46,66,804/- on account of under invoicing of exports of iron ores?”

 (Observation of author- there is no challenge about facts found as wrong or perverse)

5. On the basis of the report given by Justice M.B. Shah Commission, it has come to the notice of the Department that the respondent-assessee was one of such exporters who had exported 44,000 WMT's of iron ore. Therefore, the Assessing Officer, on the basis of such report, came to the conclusion that the export price was quoted at 30% lessser than the base value. Accordingly, he recorded reasons demonstrating escapement of income and reopened the assessment.

6. The Assessing Officer, therefore, made an addition on the basis of the aforesaid report of Justice M.B. Shah Commission.

10. Being dissatisfied, the assessee carried the matter further in appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal, after taking into consideration the submissions made by the assessee, confirmed the decision of the CIT (A) for reopening the assessment. The Tribunal, however, on merits of the case, reversed the findings of the CIT (A) by observing as under;

15. We have considered rival submissions and gone through the record carefully. Short question for our adjudication is, whether solely on the basis of Hon'ble Mr. Justice M.B. Shah Commission report can it be construed that the assessee has exported iron ore by under-invoicing the price, which requires to be added in the taxable income ?

16. First contention raised by the Ld.counsel for the assessee was that the assessee has maintained proper books of accounts, which were audited and its books have not been rejected. Section 145 provide the mechanism how to compute the income of the Assessee. According to Sub-section 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance wth the method of accountancy employed by an Assessee regularly, subject to sub-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard required to be followed by any class of Assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting Standard notified by the Central Government from time to time. Sub clause 3 provides a situation, that is, if the Assessing Officer is unable to deduce the true income. On the basis of method of accountancy followed by an Assessee than he can reject the book result and assess the income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua those defects. If the assessee failed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income.

17. In light of the above, if we peruse the record, then it would reveal that the Ld. AO has nowhere expressed his inability to deduce true income from the books of the assessee. He has not rejected the book results for determining the suppressed sales. The next contention raised by the Ld. counsel for the assessee was that in order to substantiate genuineness of its transaction, it has submitted the following documents:

Xxx List of various documents  normally kept is given. Which is not reproduced herein the article for brevity.

18. All these documents are available on paper book. The Ld. counsel for the assessee also produced extract of Customs Act specifically section 28. He submitted that the assessee has presented the above documents to the custom authorities; it had paid export duty on declared export price value, which has been finally assessed by the custom authorities. Certificate to this effect is available on page 110.66 of the paper book, wherein Shri P.K. Shanna, Superintendent of Customs, Customs House, Marmagoa had issued a letter dated 28.4.2010 intimating the assessee qua finalization of provisional assessed shipping bill no.5024727 dated 15.1.2010 vide vessel MV Bonasia. Vide this shipping bill, the assessee has exported 44,000 MTs of iron ore. According to section 28 of the Customs Act, the limitation to recover duty by rejection of declared value has expired. Hence, the assessed duty has become final, and no question of under-invoicing under Custom Act can be raised now, Consequently, there cannot be any inquiry under-Income Tax Act.

19. It was also pointed out that during the course of reassessment proceedings or in the remand report submitted before the Ld.CIT(A), the A0 unable to lay his hand on any evidence exhibiting under-invoicing by the assessee. The AO is solely harboured upon Commission’s report. It is pertinent to observe that a charge of suppressed sales carried out by the assessee has been raised by the AO against it. It is the duty of the AO to prove the prima facie that such a charge can be leveled against the assessee, only thereafter it can be called for disproving that. The AO assumed charge and thereafter put a negative burden upon the assessee to prove that it has not exported iron ores by under-invoicing. This cannot be enforced in law. It is the AO who has to first prove the factum of under-invoicing done by the assessee with the support of reliable evidence in law. With regard to the alleged report of Hon’ble M.B.Shah Commission, it was contended that this report was challenged before the Hon’ble Supreme Court by way of writ petition. Government of India and other law enforcement agencies took the stand that on the basis of this report they are not going to take any action, rather they will investigate the issue further. This stand of Solicitor General as well as Advocate General appearing for the State of Goa have been noted down by the Hon’ble Supreme Court in the judgment, which is reflected in para 10. It is worth to take note of this finding as under:

“10. Mr. Mohan Prasaran, learned Solicitor General for the Union of India, on the other hand, submitted that as the notification dated 22.11.2010 of the Central Government appointing the Justice Shah Commission under Section 3 of the Commissions of Inquiry Act, 1952 would show, reports were received from various State Governments of widespread mining of iron ore and manganese ore in contravention of the MMDR Act, the Forest (Conservation) Act, 1980 and the Environment (Protection) Act, 1986 or other Rules and Licenses issued thereunder and for this reason, the Central Government appointed the Justice Shah Commission for the purpose of making inquiry into these matters of public importance. He submitted that after the Justice Shah Commission submitted the report pointing out various illegalities, the Union Government has kept the environment clearances in abeyance and it will legal action on the basis of its own assessment of the facts and not on basis of the facts as found in the Justice Shah Commission’s report. Similarly, Mr. Atmaram N.S. Nadkarni, the Advocate General appearing for the State of Goa, submitted that after going through the report of the Justice Shah Commission, the State Government has suspended all mining and transportation of ores and no legal action will be taken against the mining lessees on the basis of the findings in the Justice Shah Commission’s report unless due opportunity is given to the mining lessees to place their defence against the findings of the Justice Shah Commission.

11. We find that Section 8B of the Commissions of Inquiry Act, 1952 provides that if a person is likely to be prejudicially affected by the inquiry, the Commission shall give to that person a reasonable opportunity of being heard and to produce evidence in his defence and Section 8C of the Commissions of Inquiry Act, 1952 provides that every such person will have a right to cross-examine and the right to be represented by a legal practitioner before the Commission. As the State Government of Goa has taken a stand before us that no action will be taken against the mining lessees only on the basis of the findings in the report of the Justice Shah Commission without making its own assessment of facts and without first giving the mining lessees the opportunity of hearing and the opportunity to produce evidence in their defence, we are not inclined to quash the report of the Justice Shah Commission on the ground that the provisions of Sections 8B and 8C of the Commissions of Inquiry Act, 1952 and the principles of natural justice have not been complied with. At the same time, we cannot also direct prosecution of the mining lessees on the basis of the findings in the report of the Justice Shah Commission, if they have not been given the opportunity of being heard and to produce evidence in their defence and not allowed the right to cross-examine and the right to be represented by a legal practitioner before the Commission as provided in Sections 8B and 8C respectively of the Commissions of Inquiry Act, 1952.“

20. In the light of the above, let us examine the report. Whether it can be used against the assessee and solely on the basis of it, it can be established that the assessee has under-invoiced its export. According to the Ld. counsel for the assessee, the methodology adopted by the Commission itself is improper and its comparison is misplaced. Under invoicing has been worked out qua the assessee at page no.236. Before that we would like to take note of three-four serial numbers in order to appreciate the error. We would like to make comparative analysis of certain exports made by other assessees. It is pertinent to note that the assessee has exported FD grade 58 iron ore. Therefore, we take note of rate of this grade noticed by the Commission with regard other parties. For example, Sesa Goa Ltd., has exported FE grade 58 vide two shipping bills bearing no. 5024395 and 5024397 on 10.12.2009. The rates were 2179.04 WMT. On the same day, this concern has exported same quality of iron ore at the rate of 3008.73. Thereafter, Commission noticed export was made by the Sesa Goa Ltd. on 15.12.2009 FE grade 58 at the rate of 2222 per MT. The next rate noticed by the Hon’ble Commission on 15.12.009 pertained to Chowgule & Co. P. Ltd. It relates to FE grade 58 and this concern exported at the rate of 2492.98. On 12.1.2010 Sesa Goa again exported FE 588 grade at the rate of 2120.76. The rates of the assessee which have been considered by the Hon’ble Commission are of 15.1.2010, FE 58 grade at the rate of ₹ 2604/-. If all these rates are being compared, then it would reveal that on 10.12.2009, the Commission has accepted reasonable rate at 3008/- and compared other rates from this. But on 15.12.2009 it accepted the rate at 2492. It worked out under-invoicing by ₹ 270 per WMT when rates of Sesa Goa and Chowgule were compared. Chowgule exported at the rate of 2492 per WMT. Sesa Goa exported the same grade of iron ore at 2222.26 per WMT. Under-invoicing has been worked at the rate of 270 per MT. For benchmarking, rate of ₹ 2492 was considered as reasonable rate. If this rate is being compared with the rates of the assessee on 15.1.2010, then rate of assessee was ₹ 2604/-. It is higher than the Chowgule & Co. In that case Chowgule & Co. should also be considered for under-invoicing. But it was not recommended. Apart from this discrepancy, the assessee has contended that rates considered by the Hon’ble Commission for compression were adopted on 15.1.2010. The assessee has entered into an agreement for export on 4.1.2010. The rates of 4.1.2010 should have been compared. The Commission has accepted two different rates in the case of Seasa Goa i.e. on 15.12.2009 and 10.12.2009. In other words, in time span of 5 days, if two different rates can be accepted as reasonable, and benchmarking was considered at 2492 per MT then why it is not possible that at the time of business, sale agreement with the importer rates applicable on 4.1.2010 were not according to the market conditions. There is no comparative price stated by the Commission on 4.1.2010. It is also important to note that value cannot be judged on one factor only. Price depends on many factors and terms of sale contract. It is also pertinent to observe that the assessee is a trader and not a miner. It has purchased goods from the open market and exported. It has exported a single shipment to world renowned large multi-national company and it is not a sister concern of the importer. The goods were sold at arms length. It has purchased royalty paid iron ore and evidence to this effect has been brought to our notice and available on page no.113 to 129 of the paper book. Therefore, we are of the view that report which has been termed by the Commission itself as tentative report could be setting the investigation machinery in motion. But it cannot be treated equivalent to a decree which is required to be executed as it is, more so, in the light of finding recorded by the Hon’ble Supreme Court and the stand taken by the respective States. The AO has miserably failed to collect any evidence against the assessee demonstrating the fact that it has underinvoiced its export and therefore, received unaccounted sale proceeds. The undisclosed sales cannot be worked out on the basis of this report, and no addition required to be made in the absence of any evidence. We allow this fold of contention raised by the assessee and delete the addition. “

Judgment  of the High Court:

11. Thus, the 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.

12. 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. Accordingly, the appeal is dismissed with no order as to costs.

Observation of learned author:

In the proposed substantial question of law there is no challenge of findings given by Tribunal as erroneous , wrong or perverse in any manner.

The addition was not made based on any independent enquiry and finding of the Ld. AO. As per well settled legal position such additions are void.

 Therefore, findings recorded by the Tribunal were pure finding of facts and were not challenged. Therefore, it cannot be said that there  was any question of law. Accordingly the judgment of the High Court is correct and it  did not require to be challenged without challenging facts found  by the Tribunal. Therefore, this is a case of un-necessary litigation.

Original order on SLP passed by larger bench of three judges:

Coming to the judgment / order of the Supreme Court rendered by larger bench of three judges we find as follows:

The case was represented for the Petitioner by four learned and senior counsels namely :

1.  Mr. Jayant Sud, ASG

 2. Mr. K. Radhakrishnan, Sr. Adv.

3. Ms. Gargi Khanna, Adv.

4.Mrs. Anil Katiyar, AOR

Respondent was not represented.

The ORDER was passed by the honorable Supreme Court after hearing the  counsel.

The Court made the following.

The special leave petition is dismissed on the ground of low tax effect.

However, the question of law is left open.

Observations of author:

The Court made order after hearing counsels. As appears that learned counsels have not challenged facts found by Tribunal and the fact that tax effect is low.

Author feels that it is high time , that honorable Supreme Court have a relook on  the policy of keeping substantial question of law open. We find that in many cases in similar facts, and circumstances SLP was dismissed without any rider as to whether Substantial Question of Law is kept open. And  in some similar cases SLP is dismissed and question of law is kept open.

Therefore, question is whether it is  proper for  The honorable Supreme Court to note that  

“ the question of law is left open.”

Without deciding whether, there was indeed a substantial question of law, how a question of law can be kept open?

This question need to be considered/ reconsidered  by honorable Supreme Court.

Why a review petition in nature of Miscellaneous application (MA) was filed ?

We find that the Applicant / revenue has filed a MA against the order of SC (LB) dt. 16.12.2020 discussed above  vide Miscellaneous Application No. 1987/2021 in SLP(C) No. 12639/2020 considered by the honorable Supreme Court  in 

THE PR. COMMISSIONER OF INCOME TAX VERSUS M/S RAWMIN MINING AND INDUSTRIES P. LTD. - 2024 (9) TMI 32 - SC ORDER

In the proceedings in the MA we find  the following  six counsels have appeared on behalf of the Applicant:

1. Mr. Rupesh Kumar, Sr. Adv.

2. Mr. Raj Bahadur Yadav, AOR

3. Mr. Gargi Khanna, Adv.                  

4. Mr. Chandra Kant Sharma, Adv.

5. Mr. Udai Khanna, Adv.

 6. Mr. Vishnu Shankar Jain, Adv

It seems that  there is no  counsel  appearing  in MA  out of the team  who   appeared before SC(LB).

Since revenue has filed MA , the assessee has also to appoint a team of four  counsels who appeared are as follows for the Respondent  in MA:

1. Mr. Shamik Shirishbhai Sanjanwala, AOR

2.Mr. Prabhakar Yadav, Adv.

3.Mr. Shubhangi Agarwal, Adv.

4.Mr. Abhishek Jamalpur, Adv

The question is why any of counsels who represented the Revenue in SLP is not representing the revenue in MA.

It may be simply to avoid question from their lordships as to why he did not pointed out at the time of  hearing and representation of r SLP  the pleas which is now taken in MA was not taken at the time of hearing of SLP itself.

From the order of the Supreme Court on MA :

ORDER

UPON hearing the counsel the Court made the following.

The Revenue has filed this miscellaneous application for restoration of the SLP which was dismissed on 16.12.2022 on the ground of low tax effect. Now the miscellaneous application is filed for restoration of the SLP and the plea is founded on the Circular dated 28.08.2018 which sets out the circumstances where notwithstanding the low tax effect, the Revenue is required to contest the matter. More specifically the Revenue relies on the Clause (e) of the Circular, which reads as under:-

“(e) Where addition is based on information received from external sources in the nature of ** low enforcement agencies** such as CBI/ ED/ DRI/ SFIO/ Directorate General of GST Intelligence (DCG).”

The respondent (assessee) has however contested the prayer for restoration. The copy of the counter affidavit be furnished to the learned counsel for the petitioner.

Unquote – observations of learned Author:

** per author (sic. It should be  law enforcement agencies.

About MA which is  based on circular:

The circular about low tax effect  is  dt. 28.08.2018 which  was   in existence when case of SLP was heard and  dismissed  on   December 16, 2022  by the SC (LB).

The question is why the learned team of counsels was not able to raise this aspect on 16.12.2022 before the SC (LB).

The another aspect is as to question   whether that learned counsels who  filed  and are  representing the revenue  for MA are misleading the honorable Supreme Court?

In view of the learned  author this seems so because:

The clause (e)  of the  circular relied on , is to carve out an exception in the following cases:

) Where addition is based on information received from external sources in the nature of law **enforcement agencies such as

CBI

 ED

 DRI

 SFIO

 Directorate General of GST Intelligence (DCG).

Whereas  the case being contested in the MA and which was contested in SLP was  not based on any information received from any of law enforcement agencies mentioned in the circular or even any other law enforcement agencies.

The case contested in SLP and again contested in MA is  based on report of  The Inquiry Commission of Justice M.B. Shah.

This Commission was appointed under the provisions of Section 3 of the Commissions of Inquiry Act, 1952.

And that such  Commission cannot be considered a law enforcement agencies in any manner.

.Particularly on interpretation of clause (e) of the said circular we find that law enforcing agencies have been mentioned in exhaustive manner and it does not include The Inquiry Commission of Justice M.B. Shah or any other such Commission appointed under     the  Commissions of Inquiry Act, 1952 or any other such enactment.

Therefore, in considered view of learned author, it appears to be a case of the Petitioner  Pr. CT/ Revenue/ UOI  and  team of counsels have  tried to mislead the honorable Supreme Court by filing the said MA and making misleading representations.

The respondents can take this stand at the time of hearing of MA .