2024 (7) TMI 1056 - HC - Income Tax

Income tax proceedings based on show cause notice from the Enforcement Directorate FERA Proceedings - Misdeclaration of value of goods exported - Assessee had under-valued the goods - show cause notice was not based upon shipping bills and other export documents whereas it was based upon documents resumed during search - HELD THAT - Enforcement Directorate has dropped proceedings against the respondent-Assessee and the matter stands settled between the respondent-Assessee and Enforcement Directorate. The foundation of proceedings under 1961 Act stands wiped out, thus, there is no ground to make additions in the returned income of the respondent-Assessee. The Appellate Tribunal has further recorded finding to the effect that documents resumed by Enforcement Directorate related to subsequent assessment years and Income Tax Department cannot make additions in the returned income of a particular year with respect to which documents do not relate. Thus, no factual or legal infirmity in the impugned orders passed by Appellate Tribunal as basis of assessment did not exist after FERA Proceedings were quashed by Special Director in the Enforcement Directorate.

Issues:
1. Appeal against order passed by Income Tax Appellate Tribunal for the assessment year 1988-89.
2. Questions of law considered by the Court.
3. Allegations of mis-declaration of value of goods exported by the respondent-Assessee.
4. Proceedings initiated by the Income Tax Department based on show cause notice issued by Enforcement Directorate.
5. Appellate Tribunal's decision favoring the respondent-Assessee.
6. Appeal by the Income Tax Department against the Appellate Tribunal's order.

Analysis:

1. The appellant filed an appeal under Section 260A of the Income Tax Act, 1961, seeking to set aside the order passed by the Income Tax Appellate Tribunal for the assessment year 1988-89. The Tribunal had accepted the appeal of the Assessee, leading to the current appeal before the High Court.

2. The Court admitted the appeal to consider various questions of law, including the validity of the Tribunal's decision in light of evidence from the Revenue Department and the dismissal of the Revenue appeal despite indications of under-invoicing by the Assessee.

3. The respondent-Assessee had declared income for the relevant year but faced allegations of mis-declaration of the value of goods exported. The Enforcement Directorate initiated proceedings based on statements and documents seized during searches, leading to show cause notices being issued.

4. Subsequently, the Income Tax Department initiated proceedings based on the Enforcement Directorate's show cause notice, making additions to the Assessee's income. The Appellate Tribunal later allowed the Assessee's appeal, citing lack of independent investigation by the Income Tax Department.

5. The Income Tax Department appealed the Tribunal's decision, arguing that a revision against the Enforcement Directorate's order was pending before the Appellate Tribunal for Foreign Exchange, indicating that the proceedings were not conclusively settled.

6. During the proceedings, it was revealed that the Enforcement Directorate had dropped the proceedings against the Assessee on merits, and the revision filed by the Enforcement Directorate had been dismissed by the Appellate Tribunal for Foreign Exchange.

7. The Senior Advocate for the Assessee argued that demand under the Income Tax Act cannot be based on proceedings that have been dropped by another department or agency. As the Enforcement Directorate's proceedings were concluded, there was no basis for creating a demand under the Income Tax Act.

8. After hearing arguments from both sides and examining the records, the Court concluded that the Income Tax Department's demand was solely based on the Enforcement Directorate's actions, which had been resolved. Therefore, there was no justification for making additions to the Assessee's income.

9. The Court upheld the Appellate Tribunal's decision, emphasizing that the Income Tax Department could not make additions based on documents that did not pertain to the relevant assessment year. The appeals by the Income Tax Department were dismissed for lacking merit.

10. In light of the above analysis and findings, the Court dismissed the appeals by the Income Tax Department, stating that there were no factual or legal shortcomings in the Tribunal's orders.

11. The Court also disposed of any pending applications related to the case.

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