HYDERABAD, JUNE 30, 2014: THE issue before the Bench is - Whether when the original assessment was completed after a scrutiny, the AO has the powers to resort to re-assessment on the basis of Lokayukta's and Newspaper Reports on alleged suppression of sales. And the answer favours the Revenue.
Facts of the case
Assessee, a public sector undertaking, is engaged in the business of mineral exploration and extraction. Assessee filed its returns for the impugned assessment years and the assessment was completed originally under section 143(3). Subsequently, on the basis of information obtained through news papers followed by the report of Lokayukta of Karnataka received/obtained by the A.O. and also enquiries made in this regard from the Director's of the Company, assessment was reopened under section 147 of the Act by issuing notice under section 148 and reassessment was completed. During the course of assessment proceedings the AO alleged that the assessee has under invoiced its sale price of export which export were made to Japan and Korea and on the basis of the lokayukta report the AO made addition to the returned income of the assessee- CIT(A) affirmed the addition discarding the submissions of the assessee- Matter reached to the ITAT wherein the assessee challagned the action of the under section 147 and also the merits of the case by pointing out that while making the addition the AO has overlooked the fact that the assessee had never exported the goods directly rather through MMTC and the long term contracts with the foreign buyers were entered into by MMTC and approved by the Govt of India hence no addition can be made merely on the basis of Lokayukta report which is a mere opinion and formed on wrong premise in as much while preparing the report the Lokayukta has taken spot price of the goods prevailed in china and the assessee had in fact exported the goods to Japan and Korea under long term contractual supplies.
After hearing the parties the ITAT held that,
++ before reopening the assessment, A.O. has in fact got the reports from the newspapers and then A.O. also mentioned in the assessment order the steps taken for obtaining the information from Lokayukta, various enquiries caused including statements recorded from the Officers involved in export of iron ore before reopening assessment. As already pointed out by the CIT(A), proceedings for A.Y. 2009-10 were also pending at that point of time. Therefore, we are of the opinion that A.O. has prima facie belief to reopen the assessment under section 147. At the stage of reopening the assessment, it is not necessary to examine the quantum of escapement. What is required to be verified is whether there is any belief for coming to a decision whether income has escaped assessment. On the basis of the information available in the form of newspaper reports and also report of Lokayukta, we are of the opinion that there is prima facie belief for reopening the assessment;
++ the issue in this appeal is whether A.O. is correct in making the addition on the so-called suppression of sales. We are not convinced with the action of the A.O. First of all, the comparison between spot price of China in which assessee hardly indulges in any transaction with that of long term contracts with companies in Japan and Korea on five year agreement, which was duly approved by the Government of India is not appropriate. Moreover, assessee is not involved directly in exports of goods. Power to export was given to MMTC, through which assessee channels its exports. As admitted by the Directors and as stated by the company, there were negotiations with the foreign buyers and generally for five year contract period with quantum and prices are bench marked on international prices and decided accordingly;
After hearing the parties the ITAT held that,
++ before reopening the assessment, A.O. has in fact got the reports from the newspapers and then A.O. also mentioned in the assessment order the steps taken for obtaining the information from Lokayukta, various enquiries caused including statements recorded from the Officers involved in export of iron ore before reopening assessment. As already pointed out by the CIT(A), proceedings for A.Y. 2009-10 were also pending at that point of time. Therefore, we are of the opinion that A.O. has prima facie belief to reopen the assessment under section 147. At the stage of reopening the assessment, it is not necessary to examine the quantum of escapement. What is required to be verified is whether there is any belief for coming to a decision whether income has escaped assessment. On the basis of the information available in the form of newspaper reports and also report of Lokayukta, we are of the opinion that there is prima facie belief for reopening the assessment;
++ the issue in this appeal is whether A.O. is correct in making the addition on the so-called suppression of sales. We are not convinced with the action of the A.O. First of all, the comparison between spot price of China in which assessee hardly indulges in any transaction with that of long term contracts with companies in Japan and Korea on five year agreement, which was duly approved by the Government of India is not appropriate. Moreover, assessee is not involved directly in exports of goods. Power to export was given to MMTC, through which assessee channels its exports. As admitted by the Directors and as stated by the company, there were negotiations with the foreign buyers and generally for five year contract period with quantum and prices are bench marked on international prices and decided accordingly;
++ assessee always entered into long term contracts through MMTC and honoured those contracts at the price negotiated. A.O. also acknowledges the receipt of the communication from the Under Secretary, Government of India of the various Cabinet notes and the approval of prices including the agreements entered by the parties. These cannot be brushed aside;
++ assessee's case is much better than the above case as the facts in that case are that assessee entered into agreement with a private company whereas this assessee has entered into long term contract with foreign buyers which were duly negotiated and finally approved by Government of India. We, therefore, find no reason to confirm the addition of the above amount, as the assessee company had furnished all the details required by the A.O. and assessee has accounted for all the amounts it received. There is no iota of information that assessee or any agent received any amount over and above the amounts accounted in the books of accounts. Moreover, I.T. Act does not permit making additions on hypothetical income particularly, as suppression of sales when there is no evidence at all. Additions cannot be made on presumptions and hypothesis.
Regards
Prarthana Jalan
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