2024 (9) TMI 214 - HC - Income Tax

Reopening of assessment u/s 147 - accrual of income/undisclosed income - amount paid by the petitioner for obtaining mining rights in the e-auctions - HELD THAT - The aforementioned sum was not the revenue earned by the petitioner-assessee from the sale of iron ore and other non-ferrous metals which may have been mined or extracted but the bid amount which was submitted to the Department of Mines and Geology for the purposes of acquiring the right to mine. It becomes pertinent to note that despite the aforesaid aspect having been duly highlighted by the writ petitioner in its response to the original notice as well as in the present proceedings, the AO has continued to take the wholly untenable stand that INR 6,81,90,364/- constitutes income, the source of which is liable to be examined and reassessed. As we peruse the contents of the reasons for reopening and which form a part of our digital record, it is manifest that the entire assumption of jurisdiction is based on a wholly erroneous view of the aforesaid amount constituting the income of the assessee. Regard must be had to the fact that the Department of Mines and Geology had merely provided to the AO the total amount paid by the petitioner for obtaining mining rights in the e-auctions which were conducted. The said amount clearly cannot be countenanced to be the income of the assessee for the relevant A.Y. The income of the assessee would only be that which was garnered from the sale of iron ore and other non-ferrous metals. The fact of INR 167,75,60,000/- representing the amounts paid by the petitioner for earning mining rights alone could not be disputed by Mr. Chandra, learned counsel appearing for the respondents. Notice u/s 148 set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Legitimacy of the reassessment proceedings initiated based on the notice.
3. Determination of whether the amount INR 6,81,90,364/- constitutes undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30 March 2019 issued under Section 148 of the Income Tax Act, 1961, which pertains to the Assessment Year (A.Y.) 2012-13. The notice was based on information received from the Department of Mines and Geology, Karnataka, regarding iron ore mines e-auctioned during the Financial Year (FY) 2011-12. The respondents formed an opinion that there was a non-disclosure of income amounting to INR 6,81,90,364/-, based on the discrepancy between the bid money deposited (INR 167,75,60,000/-) and the disclosed iron ore sales (INR 160,93,69,636/-).

2. Legitimacy of the reassessment proceedings initiated based on the notice:
The reassessment action initiated was based on the belief that the petitioner had undisclosed income. The respondents relied on the information provided by the Department of Mines and Geology and a letter dated 05 March 2019 from JDIT (I&CI), Bengaluru. The Assessing Officer (AO) issued a notice under Section 133(6) to the petitioner, seeking details and documents related to the iron ore e-auctioned during FY 2011-12. The petitioner provided the required information, including details of iron ore production, purchases, export/sales, and stock, which were accepted in the assessment order dated 27 February 2017.

3. Determination of whether the amount INR 6,81,90,364/- constitutes undisclosed income:
The primary contention was whether the bid amount of INR 167,75,60,000/- constituted the income of the petitioner for the relevant A.Y. The petitioner argued that this amount was not the revenue earned from the sale of iron ore but the bid amount submitted for acquiring mining rights. The actual revenue from mining activity was INR 160,93,69,639/-, which had been duly disclosed. The court found that the AO's assumption that INR 6,81,90,364/- constituted undisclosed income was erroneous. The Department of Mines and Geology had only provided the total amount paid by the petitioner for mining rights, which could not be considered as income.

Outcome:
The court concluded that the reassessment action was based on a wholly erroneous view of the amount constituting the income of the assessee. The notice under Section 148 was quashed and set aside, and the writ petition was allowed.