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Facts
The Revenue appealed against orders quashing the reopening of assessment and deletion of penalties levied on the assessee, an individual engaged in mining, for the AYs 2009-10 & 2010-11. The reassessment was initiated based on the Justice M.B. Shah Commission report, which alleged underreporting of iron ore production and disallowance of related expenses as illegal. The CIT(A) had condoned a 4-day delay in the department's appeal filing.
Held
The Tribunal upheld the CIT(A)'s decision to quash the reassessment proceedings under Section 147/148, finding them null and void. It was held that the Assessing Officer failed to conduct independent verification, relied solely on a discredited report (Justice M.B. Shah Commission), and the reopening was barred by limitation and failed to meet the conditions of the proviso to Section 147. Additionally, the deletion of the disallowance of expenses under Section 37(1) was upheld as no statutory violation was proven against the assessee for incurring those expenses, and the penalty appeals were dismissed as infructuous.
Key Issues
Whether the reopening of assessment under Sections 147/148 based on the Justice M.B. Shah Commission report was valid, and whether the disallowance of expenses under Section 37(1) for alleged illegal mining was justified.
Sections Cited
271(1)(c), 147, 148, 143(2), 143(3), 37, 37(1), 142(1), 139, 142, 133A, 10B, 14A
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Income Tax Appellate Tribunal, “DB” BENCH, CUTTACK
Before: SHRI DUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM
These are appeals preferred by the Revenue against the orders of the Commissioner of Income-tax (Appeals) [the learned CIT (A)](hereinafter referred to as the “ld. CIT (A)”] dated 20.03.2020, for the AY 2009-10 & 2010-11. The penalties were levied by the ACIT, Rourkela Circle u/s 271(1)(c) of the Act vide even dated 30.09.2016 for A.Ys. 2009-10 & 2010-11.
At the outset, we observe from the appeal folder that there is a delay of 4 days in filing the appeal by the department and in support of this a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approval from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The
As the facts and circumstances are similar in & 181/CTK/2020, hence, for brevity we will take for A.Y. 2009-10 and decide the issues accordingly.
4. The first issue raised by the Revenue in ground nos. 1 to 4 is against the quashing of reopening of assessment u/s 147 read with section 148 of the Act by the ld. CIT (A), thereby quashing the assessment framed by the ld. AO.
4.1. The facts in brief are that the assessee is an individual deriving income from business of mining. The assessee filed the return of income on 28.09.2009, declaring total income of ₹117,50,44,050/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) scheme and notice u/s 143(2) was issued. The ld. AO framed the assessee vide order dated 28.03.2016, determining the total income at ₹126,46,86,020/-, which was reduced by the ld. CIT (A) to ₹118,28,11,470/-. Subsequently, the Justice M.B. Shah Commission on illegal mining of Iron and Manganese Ore pointed out the assessee. It was pointed out that the discrepancy between the figure of production of Iron Ore in the books of account of the assessee and the figure submitted to Justice M.B. shah commission by the directorate of Mining & Geology. The ld. AO formed a reason to belief that assessee had escaped assessment for A.Y. 2009-10 in support of these observations of Justice M/B. Shah Commission. The ld. AO held that there was an underreporting of 4.2. In the appellate proceedings, the ld. CIT (A) held the reopening to be nullity and bad in law after obtaining the submission and contention of the assessee by observing and holding as under:-
“I have perused the facts of the case and have examined the detailed submissions of the assessee. The assessment record of the assessee for AY.- 2009-10 was also requisitioned from the office of the DCIT, Rourkela Circle, Rourkela and was inspected. Now, the exercise of the re-opening of the assessment proceedings of the assessee for AY- 2009-10 suffers from certain fatal shortcomings which are examined hereunder: (a) The assessing Officer has based the entire re-assessment proceedings u/s. 147 on the report of the justice M.B. Shah Commission report on Illegal mining in the state of Odisha which was placed in the public domain in the months of July 2013 and October 2013. The Assessing Officer, without any independent application of mind, accepted the Commissions finding that the assessee had indulged in illegal mining of iron ore to the extent of 1,86,000 Metric tonnes. The Assessing Officer made no attempt to reconcile the production data furnished by the assessee in her H-1 report submitted to the Indian Bureau of Mines with the data shown by her in her tax audit report in Form 3CD. The Assessing Officer also failed to take cognizance of the decision of the Supreme Court in the case of Goa Foundation v/s. Union of India & others pronounced on 11/11/2013 in which the apex court cast aspersions on the findings of the Justice M. B. Shah Commission report by observing that the Commission had reached its findings without giving an opportunity to the affected parties to respond and had thus violated the provisions of sections 8B and 8C of the Commissions of Inquiry Act, 1952. In paragraph 11 of the said judgement, the apex court observed as under-:
4.4. This issue has also been decided by the coordinate bench of the Tribunal in the case of M/s Tarini Minerals Pvt. Ltd., passed in ITA
9. Perusal of Ground No.1 shows that the revenue has challenged the order of the Id CIT(A) in respect of quashing of the reopening. We find that at page 5 of 15 of the impugned order, the Id CIT(A) has examined the issue of reopening of assessment and has categorically given finding that the entire reassessment proceedings u/s.147 is based on report of Justice M.B.Shah Commission in regard to illegal mining in the State of Odisha which was placed in the public domain in the months of July, 2013 and October, 2013. Ld CIT (A) further goes on to hold that without any independent application of mind, the AO has accepted the Commissions finding that the assessee had indulged in illegal mining of iron ore. Id CIT (A) has categorically given a finding that the AO has made no attempt to reconcile the production data furnished by the assessee in its H-1 report submitted to the Indian Bureau of Mines with the data shown by it in its tax audit report. Ld CIT (A) has further noted that the AO has failed to take the cognizance of the decision of Hon'ble Supreme Court in the case of Goa Foundation vs Union of India & others, in which the Hon'ble Supreme Court has cast aspersions on the findings of the Hon'ble Justice M.B.Shah Commission report in so far as the report had been made without giving an opportunity to the affected parties to respond. Ld CIT(A) while quashing the reopening of assessment has given a categorical finding that the AO has accepted information from outside source without subjecting it to critical scrutiny and that the AO's "reason to believe" that income had escaped assessment was not based on an independent application of mind to the facts available. The revenue, admittedly has not been able to dislodge any of the categorical findings of the Id CIT(A). This being so, we find no error in the order of the Id CIT(A) in quashing the reopening of assessment. Consequently, Ground No.1 of revenue stands dismissed. 4.5. The revenue has also taken the above decision of the Tribunal before the Hon’ble Jurisdictional High Court, however, the Ho’ble Jurisdictional High Court has also upheld the view taken by the Tribunal and dismissed the appeal of the revenue vide Judgment dated 11.03.2025, rendered in of 2022.
The issue raised by the Revenue in ground no.5 & 6 is against the order of CIT (A) deleting the addition of ₹93,25,00,000/- on account of illegal mining by holding that there is no difference between production as per Form H vis a vis figure shown in the Audit Report.
5.1. The facts in brief are that the ld. AO during the course of assessment proceedings noted that the assessee has shown lesser than the quantity of production of iron ore as compared to production data given by DMG data including production of iron ore from Unchabali iron ore mines which was not recorded in the books of account of the assessee and consequently the same was treated as production/ sales outside the books of account and amount equivalent to the market price of iron ore, which comes to 93,25,00,000/- was added to the income on account of differential figure of production of 1,86,000 Metric tons.
“I have perused the facts of the case and the detailed submissions tendered by the assessee. The essentially arbitrary nature of the discrepancy of 1,86,000 Metric tonnes pointed out by the Justice Shah Commission has been ably highlighted by the assessee's counsel. The 'conversion ratio' which relates the size of the Pit to the amount of Iron ore that can reasonably be excavated from it is the critical factor which underlies the allegation of over production levied on the assessee. The counsel submitted that the technical team appointed by the Justice Shah Commission chose a low conversion ratio which led them to believe that the production of Iron ore could not have come only from the Pit at Unchabali and therefore must have come from an area outside the licensed mining area. The assessee's counsel further stated that the actual conversion ratio was much higher than that adopted by the technical team and more importantly submitted that this ratio was adopted arbitrarily without giving an opportunity to the assesee to voice her objections. The Supreme Court has, in fact, cast aspersions on the Justice Shah Commission report on its failure to give the mining lessees an opportunity of being heard and has set up a Central Empowered Committee (CEC) to furnish a fresh report on illegal mining in Odisha. In the light of these facts, it is clear that the allegation of excess production of Iron ore levied on the assessee lacks credibility. Further, on examination of Form H-1 for AY.- 2009-10 submitted to the Indian Bureau of Mines (IBM) the production of Iron ore stands at 14,34,950 Metric tonnes and this is the very same figure reported by the assessee inher Audit report in Form 3CD for AY. 2009-10. As per the CBDT's instruction no 14/2015, Annual return in Form H-1 to IBM should be compared with details submitted to the Income Tax authorities to detect suppression. Clearly, in this case the figure in Form H-1 submitted to IBM and the figure in Form 3CD submitted to the IT Authorities tally. Hence, the addition to income made by the AO on account of suppressed production is baseless and is not supported by evidence. The counsel for the assessee also submitted that the assessee had appealed to the Mining Tribunal set up under the Ministry of Steel and Mines against the order of the State Govt. of Odisha in letter no. 7574/S & M/IV (AB) SM-19/10 dt. 25.11.2010 passed by the Under Secretary, Department of Steel and Mines, Govt of Odisha wherein the assessee had been charged with carrying out illegal mining for the period May, 2008 to September 2009. This appeal was filed u/s. 30 of the Mines and Minerals (Development and Regulation) Act, 1957.
“7. We have considered the rival submissions. At the outset, the revenue has submitted that the reliance of the Id. CIT(A) on the ex- parte order in the case of Tarini Minerals Pvt. Ltd., wherein the coordinate bench of the Tribunal, where the undersigned is also a party, admittedly, cannot be considered because it is a decision rendered without hearing both the parties to the appeal. The said decision in the case of Tarini Minerals Pvt. Ltd. was in respect of 5.5. Considering the facts and circumstances of the instant issue before us in the light of the decision of the coordinate bench in assessee’s own case as well as in the case of related party, which has been affirmed by the High Court as stated hereinabove and respectfully following the same, we are inclined to uphold the order of the ld.CIT(A) on this issue by dismissing the ground Nos.5 & 6 of the revenue’s appeal.
The ground no.7 is against the order of ld. CIT (A) deleting the addition of ₹9129,42,25,780/- as made by the assessee on account of illegal expenses in the light of explanation to Section 37(1) of the Act.
6.1. The facts in brief are that the ld. AO during the course of assessment proceedings noted that assessee got environmental clearance without having forest clearance under F.C. Act, 1980 in violation of Circular no.J-11015/12/94/1A.II(M) dated 17.06.1996 of 6.2. In the appellate proceedings, the ld. CIT (A) deleted the addition by observing and holding as under:-
“The final ground of appeal relates to the disallowance of expenses of Rs. 129,42,25,780/- u/s. 37 of the I.T Act, 1961 by holding them to be 'illegal expenses. I have perused the facts of the case and have examined both the assessment order u/s. 147/143(3) dt. 28/03/2016 and the detailed submissions tendered by the counsel for the assessee. The line of reasoning followed by the AO in her assessment order is that since the assessee has indulged in 'illegal' mining, therefore all the expenses corresponding to this illegally mined tron ore would also be 'illegal in nature and thus liable to be disallowed as per the Explanation to Section 37(1) of the LT Act, 1961 Since the AO has invoked the Explanation to section 37(1) of the LT Act, 1961 16 make the disallowance, it is necessary to examine the said statute in detail to see whether the expenditure of Rs. 129,42,25,780/ incurred by the assessee falls within its ambit Section 7. The issues raised in this appeal is similar to one as decided by us in for A.Y. 2009-10. Accordingly, our decision would, mutatis mutandis, apply to this appeal of assessee in ITA No. A.Ys. 2009-10 &2010-11 & 182/CTK/2020
8. As we have already deleted the quantum appeal upholding the appellate order passed by the ld CIT(A) by dismissing the revenue’s appeal for both the assessment years, Consequently the penalty appeals become infructuous and hence are dismissed.
In the result, all the four appeals of the Revenue are dismissed.