COMMISSIONER OF INCOME vs. M/S MYSORE MINERALS LTD

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF MARCH 2017 PRESENT THE HON'BLE MR. JUSTICE JAYANT PATEL AND THE HON’BLE MR. JUSTICE N.K. SUDHINDRARAO I.T.A. No.146/2013 c/w I.T.A. Nos.147-148/2013

In ITA No.146/2013

BETWEEN

TAX-III, QUEENS ROAD

BANGALORE.

OF INCOME TAX, CIRCLE-12(1) BANGALORE.

…APPELLANTS (By Sri E I SANMATHI, ADVOCATE)

AND

M/s. MYSORE MINERALS LTD., No.39, M.G.ROAD BANGALORE – 560 001. …RESPONDENT (By Sri A.SHANKAR & Sri M.LAVA, ADVOCATES)

THIS APPEAL IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 02/11/2012 PASSED IN ITA No.351/BANG/2011 FOR THE ASSESSMENT YEAR 2005-06 PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, (ii) SET ASIDE THE

COMMON ORDER DATED 02/11/2012 PASSED BY THE ITAT, ‘C’ BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA No.351/BANG/2011 AS SOUGHT FOR IN THIS APPEAL.

In ITA Nos.147-148/2013

BETWEEN

TAX-III, QUEENS ROAD

BANGALORE.

OF INCOME TAX, CIRCLE-12(1) BANGALORE.

…APPELLANTS (By Sri E I SANMATHI, ADVOCATE)

AND

M/s. MYSORE MINERALS LTD No.39, M.G.ROAD BANGALORE – 560 001. …RESPONDENT (By Sri A.SHANKAR & Sri M.LAVA, ADVOCATES)

THESE APPEALS ARE FILED UNDER SECTION 260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 02/11/2012 PASSED IN ITA No.733/BANG/2010 AND ITA 680/BANG/2010, FOR THE ASSESSMENT YEAR 2006-07 PRAYING TO (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, (ii) SET ASIDE THE COMMON ORDER DATED 02/11/2012 PASSED BY THE ITAT, ‘C’ BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA No.733/BANG/2010 AND ITA 680/BANG/2010 AS SOUGHT FOR IN THIS APPEAL.

THESE APPEALS COMING ON FOR HEARING THIS DAY, JAYANT PATEL J., MADE THE FOLLOWING:

JUDGMENT

All the appeals are preferred by the Revenue wherein, two questions are raised. But, in our view, only one question arises for consideration and the same is as under; “ Whether on the facts and circumstances of the case, the Tribunal’s order can be said as perverse in nature as the materials on record proved that assessee company sold C-ore to M/s. Kalyani Steels at rates much lower than the market rates and further findings of the Karnataka Lokayuktha also supported findings of the assessing authority?”

Kalyani Steels Ltd below market price, we agree with the observations of the Assessing Officer that the price charged for C-ore is below the market price. We also observe that the Assessing Officer has recorded that the Karnataka Lokayukta in its report on the Mining Scam alleged malpractices on the part of the officials of the assessee company. From the submissions made by the assessee, a Govt. of Karnataka Undertaking, it can be inferred that the sales of C-ore to Kalyani Steels Ltd. are supported by invoices raised, entries in the books of accounts audited by Chartered Accountants. The system of accounting followed by the assessee is the Mercantile System as per the provision of section 145 of the Act and we find that no fault has been found therein nor has it been rejected. Nowhere in the order of assessment or the material on record do we find anything to establish that there were any realization on account of sales beyond what is recorded in the books of accounts. As per the I.T. Act, 1961 profits from business are to be computed under section 28 of the Act as per the accounting policies mandated by section 145 of

the Act which in the assessee’s case is the Mercantile System. The scope of total income is also defined under section 5 of the Act. The I.T Act, 1961 is very clear that what is to be taxed is the real income of an assessee and not notional or hypothetical income and it does not permit an Assessing Officer to compute income without any evidence. There is no finding by the Assessing Officer that the assessee has sold its C-ore at a price less than that agreed to in the contract entered into with M/s. Kalyani Steels Ltd. or that it has realized from M/s. Kalyani Steels Ltd. additional amounts on such sales which it had not recorded in its books. The assessee is legally bound to abide with the terms of the contractual obligations arising out of its agreement to sell C-ore to M/s. Kalyani Steels Ltd. and the contract entered into being legal and valid, it cannot be brushed aside. After taking into account the facts and circumstances of the case on this issue, we find that no evidence whatsoever has been brought on record by the Assessing Officer to establish that the assessee has realized from the sale of C-ore to M/s. Kalyani Steels Ltd.

more than what is recorded in the assessee’s books of account. In this view of the matter, the addition made on account of sales to M/s. Kalyani Steels Ltd. below market rate, in our considered opinion is not founded on sound and accepted accounting and legal principles and is therefore liable to be deleted. We, therefore, find no reason to interfere with the decision of the learned CIT(Appeals) in deleting the addition of Rs.15,51,45,117. The grounds at S.Nos.2 and 3 raised by revenue are accordingly dismissed.”

(emphasis supplied)

The aforesaid show that the Tribunal has found that there is no material on record to establish that there was realization of higher amount on account of the sale.

higher amount received of the property, merely because in the report of Lokayuktha, it had transpired that the property was sold at a lower price would not be a ground to assess the tax on hypothesis and surmises. The condition precedent for taxing a particular amount is the generation of income. If there is no material to show that any additional income was generated, naturally, the Tribunal was right in not interfering with the view taken by the CIT (Appeals) in deleting the addition made by the Assessing Officer.

All appeals are disposed of accordingly.

Sd/- JUDGE

Sd/- JUDGE mv