Karnataka High Court
M/S. Deccan Mining Syndicate Private ... vs The Deputy Commissioner Of Income-Tax on 17 October, 2025
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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NC: 2025:KHC:41997
WP No. 16256 of 2016
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF OCTOBER, 2025
BEFORE
THE HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
WRIT PETITION NO. 16256 OF 2016 (T-IT)
BETWEEN:
M/S. DECCAN MINING SYNDICATE PRIVATE LIMITED
REPRESENTED BY ITS MANAGING DIRECTOR,
SRI. RAJENDRA JAIN,
AGED ABOUT 51 YEARS,
NO.S-7, 2ND FLOOR, ESTEEM ARCADE,
NO.26, RACE COURSE ROAD,
BANGALORE - 560 001.
...PETITIONER
(BY SRI. A. SHANKAR, LEARNED SENIOR COUNSEL FOR
SRI. M LAVA, ADVOCATE)
AND:
THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-2(1)(1), ROOM NO.217,
2ND FLOOR, BMTC BUILDING,
Digitally 80 FEET ROAD, 6TH BLOCK, KORAMANGALA,
signed by BANGALORE - 560 095.
CHANDANA ...RESPONDENT
BM
(BY SRI. E.I. SANMATHI, ADVOCATE)
Location:
High Court of THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE
Karnataka
CONSTITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS
OF THE PETITIONERS CASE AND AFTER EXAMINING THE
LEGALITY AND VALIDITY THERE OF QUASH AND SET ASIDE THE
NOTICE DATED 05.09.2014 ISSUED BY RESPONDENT UNDER
SECTION 148 OF THE ACT TO REOPEN THE ASSESSMENT FOR
THE ASSESSMENT YEAR 2009-10 ENCLOSED AND MARKED AS
ANNEXURE-A BEARING NO. AAACD7081R/DCIT-C-
11[1]/BLR/148/2014-15 DATED 05.09.2014 ISSUED BY RESPONDENT
UNDER SECTION 148 OF THE ACT TO REOPEN THE ASSESSMENT
FOR THE ASSESSEMENT YEAR 2009-10 TOGETHER WITH THE
ORDER OF RESPONDENT DTD24.2.2016 DEALING WITH THE
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NC: 2025:KHC:41997
WP No. 16256 of 2016
HC-KAR
PETITIONERS OBJECTIONS ENCLOSED AS ANNEXURE-G
BEARING F.NO.AAACD7081R/DCIT-C-2[1][1]/2009-10 AND ETC.,
THIS PETITION, COMING ON FOR HEARING, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
ORAL ORDER
In this petition, the petitioner seeks the following reliefs:
"a) Issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner's case and after examining the legality and validity thereof quash and set aside the notice dated 05/09/2014 issued by Respondent under section 148 of the Act to reopen the assessment for the assessment year 2009-10 enclosed and marked as Annexure- "A" bearing No. AAACD7081R/DCIT-C-11[1]/BLR/148/2014-15 dated 05/09/2014 issued by Respondent under section 148 of the Act to reopen the assessment for the assessment year 2009-10 together with the order of Respondent dated 24/02/2016 dealing with the Petitioner's objections enclosed as Annexure - "G"
bearing F.No. AAACD7081R/DCIT-C-2[1][1]/2009-10;
(b) Issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India ordering and directing Respondent to forthwith -3- NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR withdraw and cancel the notice dated 05/09/2014 enclosed as Annexure- "A" bearing AAACD7081R/DCIT-C-11[1]/BLR/148/2014-15 dated 05/09/2014 issued by Respondent under section 148 of the Act to reopen the assessment for the assessment year 2009-10 together with the order of Respondent dated 24/02/2016 dealing with the Petitioner's objections enclosed as Annexure "G" bearing F.No. AAACD7081R/DCIT-C-2[1][1]/2009-10;
(c) Issue a Writ of Prohibition or a writ in the nature of Prohibition or any other appropriate writ, order or direction under Article 226 of the Constitution of India ordering and directing Respondent to permanently refrain from giving effect to and/or proceeding further by way of reassessment or otherwise in any manner in respect of the notice dated 05/09/2014 enclosed as Annexure-"A" bearing No. AAACD7081R/DCIT-C- 11[1]/BLR/148/2014-15 dated 05/09/2014 issued by Respondent under section 148 of the Act to reopen the assessment for the assessment year 2009-10 together with the order of Respondent dated 24/02/2016 dealing with the Petitioner's objections enclosed as Annexure bearing F.No. AAACD7081R/DCIT-C-2[1][1]/2009-10;
d) Declare that the Respondent erred in law in invoking the provisions section 148 read with section 147 of the Act on mere surmise conjunctures and suspicion which resulted in reasons to suspect without having -4- NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR any reasons to believe as contemplated under the provisions of section 147 of the Act.
(e) And pass such other orders as this Hon'ble Court deems fit and proper in the interest of justice and equity."
2. Heard learned counsel for the petitioner and learned counsel for the respondent and perused the material on record.
3. In addition to reiterating the various contentions urged in the memorandum of petition and referring to the material on record, learned counsel for the petitioner invites my attention to the notice under Section 148 of the Income Tax Act, 1961 (for short "the I.T. Act") dated 05.09.2014 in order to point out that the said notice was based on Justice M.B. Shah Enquiry Commission for Illegal Mining of Iron Ore and Manganese and Under Invoicing, as borne out from the report of the said Commission in pursuance of which the respondent issued the aforesaid notice, which is the basis for the respondent to issue the said notice to the petitioner. In this context, it is submitted that in the case of Sesa Sterile Ltd. Vs. ACIT - (2019) 417 ITR 334 (Bom.), the Division Bench of Bombay High Court has categorically held that the respondent-Revenue would not be entitled to place reliance on the Justice M.B. Shah's -5- NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR Enquiry Commission Report for the purpose of issuance of notice under Section 148 of the I.T. Act and reopen the assessment and institute the proceedings against the petitioner. It is further pointed out that the aforesaid judgment of Bombay High Court in Sesa Sterlite's case (supra), tagged along with other identical matters has been dismissed by the Apex Court in SLP No.4575/2020 and connected matters in which ACIT Vs. Sesa Sterlite's case being SLP (C) No.5482/2020, vide final order dated 05.03.2025. It is also submitted that the aforesaid judgment in Sesa Sterlite's case (supra), has been followed by the Bombay High Court and Allahabad High Court and Gujarat High Court in the following judgments:
(i) ACIT Vs. M/s. Venture Real Estate & Another -
Speal Leave to Appeal (C) No.4575/2020 dated 05.03.2025.
(ii) Sociedade de Fomento Industrial (P) Ltd. Vs. ACIT (2024) 464 ITR 261 (Bom.).
(iii) Mudra Exports Vs. DCIT (2024) 161 taxmann.com 811(All.).
(iv) Balaji Mines and Minerals Pvt. Ltd. And Others v.
ACIT (TS-5200-HC-2024 (Bombay)-O) -6- NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR In view of the above judgments, It is submitted that the impugned notice and all further proceedings thereto including the impugned order deserves to be quashed.
4. Per contra, learned counsel for the respondent submits that there is no merit in the petition and the same is liable to be dismissed.
5. Before adverting to the rival contentions, it is necessary to extract the reasons recorded in writing by the respondents, which form the basis of the impugned notice at Annexure-E dated 02.11.2015, which are as hereunder:
"To The Principal Officer, M/s Deccan Mining Syndicate Pvt Ltd # S-7, 2nd Floor, Esteem Arcade #26, Race Course Road, Bangalore - 560001 Sir, Sub:- Reasons recorded for issue of notice u/s 148 for A.Y. 2009-10 in your own case -
regarding -
Ref:- Your letter Ref/DMSPL/DCIT/2015-16 dated 12-10-2015 ********** Please refer to the above subject.-7-
NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR
2. Your request for reasons recorded for issue of notice u/s 148 for A.Y. 2009-10 in your own case has been considered. The reasons recorded by the AO for reopening the assessment is as reproduced below:
"The assessee is a private limited company engaged in the export of iron ores from its mines at Sandur, Bellary District and is assessed in this Circle vide PAN No.AAACD7081R. Consequent to the search operation u/s 132 conducted on 3.3.2010, a notice u/s 153A was issued to the assessee for AY 2009-10 and the assessee has filed the return of income on 14.12.2010 declaring a taxable income of Rs.18,88,55,530-00. Subsequently, the Assessment was completed u/s 143(3) r.w.s. 153A of the Act on 30.09.2011, computing the taxable income at Rs.51,71,93,963-00.
A letter has been received from the Addl. CIT, Range-11, Bangalore in F.No.8/Conf.Mtrs/Addl.CIT/R-11/2014-15 dt. 04.08.2014, enclosing the report in the matter of M B Shah Commission Report on illegal mining in Goa. Justice M B Shah Commission of Enquiry for illegal mining of iron ore and manganese, appointed by the Government of India, in its Volume- 1 of Third Report on illegal mining of iron and manganese ores in the state of Goa submitted in October 2013, has reported that the export data have been finalized after analysis of the comparison of the export data of one company with the other, concluding that there is large scale under invoicing committed by the assessee company while exporting the iron ore. It is reported that there was an under invoicing to the extent of 54% as compared to the average sale price as per the details table below:
Sl. Shipping Name & FE Quantit FOB Value FOB Count % of under
No. bill date Address Conte y (Rs.) rate ry to invoicing as
of the nt (%) export per which compare to
exportee ed WMT export average sale
(WMT) (Rs.) ed FOB price
for same
grade and
period (Rs.)
13 02.12.2008 Deccan 62 51300 91231920 1778.4 China 54
Mining
Syndicate
(P) Ltd
Taking this into account, the actual sale value of the above transaction will be Rs.19,83,30,260-00 (Rs.91231920 x 100 / 46) -8- NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR and the concealed value of sale price will be Rs.10,70,98,340/- (Rs.19,83,30,206 - Rs. 9,12,31,920). This has resulted in under assessment to the extent of Rs.10,70,98,340/-. In view of the above, the taxable income to this extent has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the AY 2009-10.
Under the circumstances, I have the reason to believe that the taxable income to the extent of Rs.10,70,98,340-00 has escaped assessment within the meaning and scope of section 147 of the Income Tax Act, 1961 for the AY 2009-10."
3. It is further directed that notice u/s 142(1) may be complied with and documents as called for in the notice u/s 142(1) dated 05.10.2015 may be submitted by 09-11-2015.
Yours faithfully, Sd/-
(Dr. K.J. Divya, I.R.S.) Deputy commissioner of Income-tax, Circle -2(1)(1), BANGALORE"
6. The reasons recorded by the respondent for issuance of notice under Section 148 of the I.T. Act, for the assessment year 2009-10 to the petitioner will clearly indicate that the basis for issuance of notice was none other than the ones recorded in Sesa Sterlite's case (supra) and independent decision was barred by the respondent is factually incorrect and contrary to the reasons recorded in Sesa Sterlite's case (supra).-9-
NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR
7. In Sesa Sterlite's case (supra), the Division Bench of Bombay High Court held as under:
"14. For any reassessment, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for any assessment year. Such reason to believe, which is the foundation of Section 147, is formed on the basis of information extraneous to the original assessment proceedings. As observed by the Supreme Court in the case of CIT v. A. Raman and Co. [1968] 67 ITR 11, the condition which invests the Income Tax Officer with jurisdiction of reassessment has two branches: (i) that the Income Tax Officer has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession that he has reason so to believe. The expression "information", in the context in which it occurs, must, as explained by the Supreme Court, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If, as a result of such information, the Income Tax Officer has a reason to believe that income chargeable to tax had escaped assessment, he has jurisdiction to assess or reassess the income under Section 147 of the Act. The information, thus, is the starting point and the formation of belief the end point, so far as reopening of assessment is concerned. The High Court, exercising jurisdiction under Article 226 of the Constitution of India, has power to set aside a reopening notice, if these conditions precedent for
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR the exercise of jurisdiction do not exist. The Court, thus, has to first see whether the officer had in his possession any information as explained in Raman and Co.(supra) and whether from that information he could have formed the belief that income chargeable to tax had escaped assessment. As explained by the Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, the reasons for formation of such belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of income of the assessee from assessment in the particular year. In case such reassessment is to be made in respect of an assessment made under Sub-section (3) of Section 143 or 147 after the expiry of four years from the end of the relevant assessment year, the Assessing Officer must additionally believe that the escapement of income had occurred as a result of the Assessee's failure to disclose fully and truly all material facts necessary for the assessment. No doubt, the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on whether action should be initiated for reopening assessment. At the same time, it is to be borne in mind, as explained in Lakhmani Mewal Das (supra), that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of belief relating to escapement of income from the
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR assessment. These then are the parameters for the Court to assess the legality of any reopening notice.
15. Let us now see what was the information or material available to the Assessing Officer and which is disclosed in the reasons to believe stated in the original order sheet. The information is said to be the Shah Commission report, which inter alia reported under-invoicing of exports by the exporters of iron ore mentioned in it including the Assessee herein. If one has regard to the Shah Commission report and its use made in the reopening notice, it is at once apparent that under-invoicing in the concerned exports is nothing but a matter of expression of opinion by the commissioner. As this Court has explained in the case of Fomento Resources (P.) Ltd. v. Union of India [Writ Petition NO.606 of 2014, decided on 2-7-2019] where this very report of Shah Commission was a matter of direct challenge by the mining lessees and exporters, including the Assessee herein, facts found, as also conclusions drawn, by a Commission of Inquiry are not judicial pronouncements. The report of the Commission neither constitutes a binding judgment nor a definitive pronouncement. The Commission, as held by the Supreme Court in the State of Karnataka v. Union of India [1977] 4 SCC 608, is required to submit its report, which may or may not be accepted by the appointing authority. If it is not accepted, it has no legal consequences. The Commission, in other words, has no power to adjudicate in the sense of passing an order which can be enforced. What the Commission says is merely an expression of its opinion; it lacks both finality and authoritativeness. The differences in
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR export prices of various exporters, so far as iron ore is concerned, maybe matters of fact, which are said to have been derived by Shah Commission from the material available in public domain, but the Commission's conclusion on the basis of these differences in prices that there was under-invoicing, is a matter of conclusion drawn by the commission. This conclusion is purportedly drawn on the basis of the primary facts of differences in export prices; and it is a deduction by the Commissioner by way of an expression of his opinion, as we have explained above. That per se cannot be treated as a primary fact, on the basis of which any belief can be formed by the assessing authorities. Besides, it must be noted that when the Shah Commission matters were argued before this Court, the Union of India made an express statement on the same lines as was made before the Supreme Court in the Goa Foundation petition. Learned Counsel appearing for the Union stated before this Court, and which statement has been noted in our orders dated 02/07/2019, that the Union would not take any action against mining lessees or traders for exports of ore only on the basis of the Commission's report without making its own assessment of facts and without first giving opportunity of producing evidence to the affected parties. For the reasons stated above, which bear generally on the status of the Commission's report and its findings, as well as the statement made by the Union of India as noted above, it is impermissible to the department to act exclusively on the basis of the Commission's report. It must make its own assessment of facts before any action is initiated. In the
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR present case, since it is a reopening notice under Section 148, it may not be necessary to give any pre-notice opportunity of hearing or producing of evidence to the affected parties. The notice itself admits of a cause being shown by the affected parties, namely, in the present case, the Assessee. It is, however, imperative that the Assessing Officer must apply his own mind and make his own assessment of facts before he issues any notice under Section 148.
16. In the present case, as we have noted above, the only primary fact which was available in public domain and which is made part of the Shah Commission report is the differences in export prices charged by the Assessee to its counter parties abroad as compared to other exporters, in the cases referred to in Shah Commission report, and noted in the reopening notice; the Assessee's prices were lower than other exporters. Even if it is assumed that so far as this fact is concerned, the information contained in the report of Shah Commission by itself can be treated as information available to the Assessing Officer within the meaning of Section 147, the further information, however, that there was therefore under-invoicing of exports by the Assessee does not simply follow from this primary information. There is nothing whatsoever in the impugned notice issued by the Assessing Officer to indicate that he has applied his mind to this aspect of the matter. Learned counsel for the Revenue relies on the case of Calcutta Discount Company Ltd., v. ITO [1961] 41 ITR 191 (SC) to support his contention that it is not only the primary facts but inference to be drawn from such
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR facts which also can form part of the material on which the Assessing Officer may form his belief. Learned counsel is right there. As the Supreme Court has explained in this case, from the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the Assessing Authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw a proper legal inference on whether any income has escaped assessment. But then, any inference to be drawn from the primary facts in possession of the Assessing Officer must be such as might follow from those primary facts; it cannot be a matter of conjecture or surmise and in any event, the officer has to apply his mind to arrive at such inference.
17. As the Supreme Court has explained in the case of A. Raman and Co. (supra), the law does not oblige a trader to make maximum profit out of his trading transactions. It is the income which accrues to a trader which is taxable in his hands; not the income which he could have, but has not earned. No doubt, by adopting a device, if it is made to appear that income which really belonged to the assessee had been earned by some other person or by the Assessee in some other form or means, that income may be brought to tax in the hands of the Assessee and if such income has escaped tax in a previous assessment, a case for reassessment under Section 147(b) maybe made out. There is nothing, however, in the reasons indicated by the Assessing Officer in the present case to suggest that any
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR such income has accrued to any person or the Assessee. The reasons do not indicate that the Assessing Officer has formed any belief that under-pricing was adopted by the Assessee as a device by which income had accrued to any other person or the Assessee himself in any other form and such income had escaped assessment.
18. In any event, as we have explained above, there must be a direct nexus or live link between the information found by the Assessing Officer and the escapement of income arising in the case. In the present case, all that was available to the Assessing Officer was the information that the export prices recovered by the Assessee were less in some cases than the market prices said to be prevailing on those days. This information itself is highly doubtful, since there is nothing to indicate that there was any particular market price as at the relevant date which ruled or which alone was the correct price. The export prices of other exporters, considered in Shah Commission report, do not suggest even a trend to indicate any particular market price. Besides, the price in an individual export contract is a function of various parameters as claimed by the Assessee, and as indicated whilst noting the Assessee's objections to the reopening notice. But, these are matters of merit and need not engage us today, except the fact that the Commission's conclusion that any particular price was the market price was itself a matter of conjecture and hardly a primary fact. For our purposes, even if we assume that the Assessee's export prices were in fact so less, there is nothing to indicate that any particular income has accrued to anyone as a result of such difference in
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR prices. There is, thus, no direct nexus or live link between the difference in prices and escapement of income. There is, in other words, no way the Assessing Officer could have formed a belief that any income has escaped assessment simply on the basis of the differences in the export prices of the Assessee when compared to others.
19. Learned Counsel for the revenue places strong reliance on the case of Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 59 Taxman 17/191 ITR 662 (SC). Relying on this case, it is submitted that based on export prices showing a systematic lesser value as compared with the prevailing market prices for the same quality of goods, a reopening notice could indeed be issued under Section 148. In Central Provinces Manganese Ore Co. Ltd. (supra), the facts were quite peculiar. The appellant before the Court was a non- resident company having its office in London. It also had an office in India at Nagpur and was assessed to income tax in Nagpur. It had been the practice of the appellant to produce before the Income Tax Officer relevant books kept at its local office at Nagpur and balance sheets, trading accounts and profit and loss accounts at its head office in London. The customs authorities came to know that the appellant had declared very low prices in respect of all its consignments of manganese ore exported out of India. It was also found that most of its export was only to 2 to 3 buyers, who in turn did not purchase ore from any other company except the appellant. After due inquiry/investigation, customs authorities had found that the appellant was systematically showing lesser value for the manganese ore exported as compared
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR with the prevailing market prices for the same grade of manganese ore. The customs authorities accordingly came to a definite conclusion that the prices mentioned in the relevant contracts between the Assessee and its buyers were lesser than contemporaneous market prices and it was found as a fact that the appellant company was indulging in under-invoicing. Final orders were accordingly passed under the Customs Act. It is in the context of these facts that the Supreme Court countenanced a reopening notice under Section 148 in that case. It is to be noted, firstly, that what the customs authorities found was by way of an order passed under law; it was a final order of Collector of Customs, and it found under-invoicing as a matter of fact. Secondly, the facts disclosed peculiar circumstances such as all consignments of exports being systematically priced at lesser value. Thirdly, it must be noticed that these exports were made to related parties who did not buy from any other source. In the light of these circumstances, which were found as matters of fact, and that in a quasi, judicial order, which had attained finality, the Supreme Court found formation of belief by the Assessing Officer as having a reasonable connection with the information available to him and did not find fault with the reopening notice. These facts are entirely distinguishable. In our case, there is no systematic undervaluation of export prices. In fact, as pointed out by Mr. Pardiwala, there have been cases where the export prices of the petitioner are taken to be market prices and on the basis of those prices, under-invoicing has been claimed vis-a-vis other exporters. So much for systematic under-valuation.
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR There is no finding by a court of law or a statutory authority as a matter of fact that there was any under-invoicing. The so-called finding is by a commission of inquiry; that commission has itself made it clear in its very opening statement that it was not in a position to finalize illegalities or irregularities with regard to the export of iron ore by individual lessees or their representatives or traders comprehensively due to time constraints. It is at best a tentative opinion expressed by a Commission of inquiry without affording any opportunity to the concerned exporters to explain the material used against them. Besides, there is no case of related parties to whom such exports were made. At least, the reopening notice and the reasons indicated by the Assessing Officer do not indicate any of these things. In the absence of these and such other materials, the simple and bare primary fact of the Assessee having charged lesser export prices from its counter-parties as compared to some other exporters, is no basis for formation of any belief that any income has escaped assessment to tax.
20. The judgments in cases of Phool Chand Bajrang Lal v. ITO [1993] 69 Taxman 627/203 ITR 456 (SC), I.P. Patel & Co. v. Dy. CIT [2012] 27 taxmann.com 200/346 ITR 207 (Guj.), ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC), Rattan Gupta v. Union of India [1998] 234 ITR 220 (Delhi), AGR Investment Ltd. v. Addl. CIT [2011] 9 taxmann.com 62/197 Taxman 177/333 ITR 146 (Delhi), Raymond Wollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC), cited by learned
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR Counsel for the revenue, bear on the aspect of sufficiency or otherwise of the material used for formation of belief. These judgments make it clear that what can be submitted to judicial scrutiny is whether or not there was material on the basis of which belief could have been formed about escapement of income from assessment, and not whether the material was actually adequate or sufficient for formation of such belief. There is no quarrel with this proposition here. Here, we are precisely concerned with whether or not such belief could have been formed on the basis of such material as was available with the Assessing Officer. In every State action or order submitted to judicial scrutiny, the matter is assessed from the point of view of Wednesbury unreasonableness. The focus of the scrutiny is, firstly, on whether the authority has kept itself within the four corners of law and, secondly, and even if it has so kept itself, whether it has nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. A reopening notice issued under Section 148 of the Income Tax Act is no exception to this rule. The Courts have made it clear time and again that belief under Section 147 of the Act is not a matter of a mere opinion of the Assessing Officer. It must be demonstrably shown that the material used by Assessing Officer is reasonably capable of formation of his belief that income has escaped assessment. As the Supreme Court observed in Lakhmani Mewal Das(supra), belief does not mean a purely subjective satisfaction on the part of the Income Tax Officer. It must be held in good faith; it cannot be merely a pretence. It is open to the Court to
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR examine whether the reason has a rational connection with or relevant bearing on the formation of the belief; it must not be extraneous or irrelevant for the purpose. In the present case, as we have noted above, the reason has no such bearing or rational connection with the formation of the belief. It is purely speculative on the part of the Assessing Officer to form a belief of escapement of income from taxation simply on the basis of lesser export prices charged by the Assessee. There is no material or even suggestion that any income corresponding to the so-called under-invoicing of exports was in fact received by any party or by the Assessee through any backdoor method. In the premises, there is no legitimate reason to believe which can sustain the impugned notice issued by the Assessing Officer.
21. The other main objection of the Assessee is that there was no belief on the part of the Assessing Officer that escapement of income had arisen by reason of any failure on the part of the Assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully or truly all material facts necessary for the assessment. It is not good enough for the Assessing Officer to simply make a bald assertion that escapement of income is as a result of failure on the part of the assessee to fully and truly disclose all material facts. He must indicate, however briefly, what is it that was not disclosed and which gives the Assessing Officer reason to believe that income has escaped assessment. The entire case of the revenue is founded on the so-called under- invoicing of exports. It is difficult to fathom what information
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR or particulars was the Assessee expected to disclose in its assessment insofar as the export prices charged by it are concerned and which is now available to the Assessing Officer so as to enable him to form a belief that income has indeed escaped assessment.
22. When we come to the third reason alleged by the Assessing Officer for reopening the case, namely, illegality of the business and taxation of income derived from it as income from other sources, the department is on an even thinner ground. In the first place, when the income from the activity of mining and export of ore arose and also when it was assessed to tax, there was nothing to suggest that the activity was illegal. Six years later, when the Supreme Court decided the case of Goa Foundation, and declared that deemed mining leases had already expired and mining carried out thereafter was illegal, the question of illegality of the activity arose for the first time. But be that as it may, even if it is assumed that at all times the activity carried on by the Assessee, through which income was said to have accrued to it, was in violation of law, that does not alter the character of the activity. Income earned from the activity is still very much business income and any expenditure made for the activity is business expenditure. Section 37(1) of the Act refers to expenditure incurred by an Assessee "for any purpose which is an offence" or "which is prohibited by law".
Such expenditure is not deemed to be incurred for the purpose of business and no deduction or allowance can be made in respect of such expenditure. This does not imply that the character of the very activity itself changes having
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR regard to the legality or otherwise of the activity. It is submitted on behalf of the revenue at the Bar that the mining activity itself being an illegal activity, expenditure incurred by the Assessee for it is not deductible. There is no such ground alleged in the reopening notice or the reasons indicated in support of the notice. For the first time, a faint suggestion to this effect was made in the order passed by the Assessing Officer on the objections communicated by the Assessee. As our Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bom.) has made it clear, the reasons, with a view to assess their reasonableness, are required to be read as they are recorded by the Assessing Officer; no substitution or deletion is permissible; no addition can be made to those reasons; and no inference can be allowed to be drawn based on these reasons which is not recorded. It is for the Assessing Officer to form an opinion as to whether there was escapement of income from assessment and whether such escapement occurred from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year; and it is for him to put his opinion on record in black and white. The reasons recorded must disclose his mind and they should be self- explanatory. The reasons recorded cannot be supplemented by the time the matter reaches the Court by filing of any affidavit or making any oral submission. In the premises, it is not open to the revenue to seek to sustain the re-opening notice on a new reason, namely, disallowance of deduction of expenditure since the whole activity was illegal.
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR
23. In the premises, the impugned notice issued by the Assessing Officer under Section 148 of the Act cannot be sustained and must be set aside.
24. The following companion writ petitions, Writ Petition Nos.1015, 1016, 328, 329, 955, 959, 1019 of 2015, 3, 5, 22, 23, 99, 100, 113, 116, 117, 120, 133, 142, 166, 190, 191, 224, 225, 261, 263, 270 of 2016 are all matters which involve all four aspects referred to above as in the case of Writ Petition No.329 of 2015. Mr. Diniz appearing in WP Nos.22 and 23 of 2016 and Ms. Kakodkar appearing in WP No.120 of 2016 make additional submissions in support of their respective cases.
Mr. Diniz relies on the case of Sarada Mines (P.) Ltd. v. State of Orissa [W.P. (C) No. 24421 of 2012, dated 20-4- 2017], decided by Orissa High Court. The case was in respect of value added tax under Odisha Value Added Tax Act, 2004. There was a tax evasion report in that case against the assessee. Based on the report, reassessment proceedings were initiated against the assessee. This was also a mining lease case and concerned trade of iron ore. The error purportedly discovered by the Assessing Authority was on a reconsideration of the same material which was before the Authority at the time of the original assessment. The Court held that reopening in the case was on a mere change of opinion and was impermissible. The Court held that the factual background, which remained the same, could not constitute new/fresh information under Section-43(l) of the Odisha Act, for initiating reassessment proceedings. The
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR main controversy in the matter concerned the quality of ore sold by the Petitioner. What the assessee claimed to have sold was "Run of Mines" (ROM) ore. Based on a fresh analysis of material on record, the Assessing Authority came to the conclusion that what was sold was not ROM but Calibrated Lump Ore (CLO). Apart from holding that this new conclusion was impermissible, being based on the same material which was available at the time of the original assessment, the Court held that there was nothing on record to show that the Petitioner had received any undisclosed sums beyond the record and which were suppressed during the self-assessment/audit assessment proceedings or had concealed any turnover. This latter part of the reasoning of the Orissa High Court does support the Petitioner's case even in these matters. Learned Counsel appearing in WP No. 120 of 2016 refers to the case of Hemant Traders v. ITO [2015] 59 taxmann.com 234/375 ITR 167 (Bom.). In that case, reassessment was initiated by issuance of a notice under Section 148(2) in pursuance of a survey action under Section 133A of the Act. The Court held that neither the survey report nor any other material indicated that any income chargeable to tax has escaped the assessment in the relevant assessment year. It was submitted by the Revenue that even if that was so, the writ jurisdiction of the Court should not be exercised to interfere with a notice at the threshold. The Court negatived this contention, observing inter alia that once the Court found that the foundation or basis for initiating of reassessment proceedings did not contain the requisite satisfaction or reason for belief, the
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR Court was required to step in and at the threshold itself; it could not allow the officer to continue the proceedings which might result into undue harassment or embarrassment to the assessee. This part of the observation of the Court does support the assessee's case even in these matters. We are fortified in taking the view that we have taken in this group of writ petitions by these authorities cited additionally on behalf of the assessees.
25. The following writ petitions, Writ Petition Nos.102, 325,327, 956, 958 of 2015, and Writ Petition Nos.4, 6, 15, 16, 17, 24, 25, 101, 102, 114, 115, 118, 141, 143, 144, 145, 150, 165, 167, 207, 226, 227, 777, 791 of 2016, are all cases where reassessment notices are issued within four years from the end of the relevant Assessment Years. There is no requirement or failure on the part of the assessee to disclose fully and truly material facts in these cases. So far as the information and belief formed on such information of escapement, of income from taxation, however, are concerned, the above discussion in Writ Petition No. 329 of 2015 squarely applies to these cases. Mr. Rivankar appearing in WP No.791 of 2016, makes a few additional submissions. Learned counsel submits that in his case, the assessee is a mere trader and not a mining lessee and that there is accordingly no case for any illegal activities so far as his business is concerned. Learned counsel submits that there is no response on the part of the Revenue to this aspect of the Petitioner's case. This is one more instance which exposes lack of application of mind on the part of the Revenue before issuing reopening notices. For the same
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR reasons, as are discussed above in case of Writ Petition No.329 of 2015, reopening notices even in this group of petitions deserve to be set aside.
26. The following petitions, Writ Petition Nos.9, 12, 123, 124, 75, 80, 105,106, 110, 148, 149, 192, 604, 605, 606, 651, 674, 866 of 2016, are all matters where reassessment proceedings are initiated under the proviso to Section 147 of the Act, since four years have already expired from the end of the relevant assessment years in all these cases. The distinguishing feature of this group of petitions, however, is that there is no allegation in these cases that there was any income derived from illegal activities, which needs to be assessed as income from other sources. The reopening notices in these cases are solely on the ground of under- invoicing of exports. This aspect of the controversy has already been dealt with above in connection with Writ Petition No.329 of 2015, and these petitions also deserve to be allowed on that basis. Mr. Chaitanya, learned Counsel appearing for the Petitioners in Writ Petition No.866 of 2016 makes a few additional submissions. It is, firstly, submitted that though the re-opening notice is issued four years after the end of the relevant assessment year, there is not even an averment in the reasons stated for issuance of the notice that there was any non-disclosure on the part of the Petitioners. Learned Counsel relies on the cases of Hubtown Ltd. v. Dy. CIT [2016] 74 taxmann.com 18 (Bom.) and Akshar Developers v. Asstt. CIT [2019] 103 taxmann.com 162/411 ITR 602 (Bom.) in support of his case. The notice in the present case is indeed deficient and cannot sustain
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR reassessment in accordance with the law stated in these cases. Learned Counsel also relies on the case of Asstt. CIT v. Dhariya Construction Co. [2011] 197 taxmann.com 202/[2010] 328 ITR 515 (SC) to assail reliance by the Revenue on the opinion of Shah Commission so far as the alleged case of under-invoicing is concerned. In that case, the opinion of District Valuation Officer (DVO) was held per se as no information for the purposes of reassessment under Section 147. It is quite plain that as in that case, even here the expression of opinion by Shah Commission on the alleged under-invoicing of exports cannot qualify as information so as to sustain a belief on the part of the Assessing Officer of income having escaped assessment.
27. The following cases, Writ Petition Nos.8, 10, 11, 125 of 2016, 1020 of 2015, 1022 of 2015, 173 of 2016, 174 of 2016, are on the same footing as the group of petitions referred to in the paragraph above inasmuch as the reopening is only on the basis of under-invoicing of exports and not accrual of income from illegal activities. They are, however, all cases of reopening within four years from the end of the relevant Assessment Years. For the reasons stated above, even these petitions deserve to be allowed and reopening notices quashed.
28. The following petitions, Writ Petition Nos.141 and 233 of 2015, and Writ Petition Nos. 198,199, 262, 264, 265, 271, 272, 879, 880, 881, 882, 883 of 2016, are all petitions where reopening notices contained additional reasons involving issues under Section 10B of the Act or Section 14A of the
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR Act or commission paid to foreign agents, etc. These petitions deserve to be detagged from the group of petitions to be disposed of by this order.
29. Rule is accordingly made absolute and Writ Petition Nos.102 of 2016, 325, 327, 328, 329, 955, 956, 958, 959, 1015, 1016, 1019, 1020, 1022 of 2015, and Writ Petition Nos. 3, 4, 5, 6, 8, 9, 10, 11, 12,15,16,17, 22, 23, 24, 25, 75, 80, 99,100,101,102,105,106,110,113, 114, 115, 116, 117, 118, 120, 123, 124, 125, 133, 141, 142, 143, 144, 145, 148, 149, 150, 165, 166, 167, 173, 174, 190,191, 192, 207, 224, 225, 226, 227, 261, 263, 270, 604, 605, 606, 651, 674, 777, 791, 866 of 2016 and 1104 of 2017 are allowed by quashing and setting aside notices of reopening under Section 148 which have been challenged therein. No order as to costs.
30. Writ Petition Nos. 141 and 233 of 2015 and Writ Petition Nos. 198, 199, 262, 265, 271, 272, 879, 880, 881, 882 and 888 of 2016, are detagged. These shall come up for hearing in due course."
8. The aforesaid judgment was followed by Allahabad High Court in the case of Mudra Exports (supra), wherein it is held as under:
"22. The entire opinion of the Commission and the recital made in the "reasons to believe" recorded by the petitioner as also reasons recorded by that authority while rejecting the objections raised by the petitioner are directed and confined solely to the observations made by the Commission. The
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR Report is not before us in entirety. To the extent it has been relied by the assessing authority, it only admits of a possibility of higher realizations having been made. Even that possibility exists not on the strength of any material discovered by the commission of higher realizations made by exporters (including the petitioner) but on a presumptuous basis solely by comparing the invoice price with the prevailing international price. Hence, that presumption/ opinion howsoever considered is not based on any hard evidence (either oral or documentary) of any higher price realized. Rather, it is conjectural and in any case on suspicion.
23. In absence of any statutory principle and further in absence of any precedential law in that regard, the presumption drawn in the Report insofar as it has been relied by the assessing authority, cannot be acted upon. To that extent, the Report remains a pure subjective opinion and nothing more. Though other actions may have been taken in furtherance of that Report to ascertain the correct facts, those are not subject matter of these proceedings. In the context of the strict test of "reason to believe" prescribed under the Act, it would be dangerous and impermissible to read that purely subjective opinion of the Commission as a finding of any receipt more than the invoice price.
24. To that extent the decision of the Hon'ble Supreme Court in Dhariya Construction Company (supra) remains relevant. Though that Civil Appeal was dismissed by a short order, the reasoning contained therein is relevant. In paragraph 1 of
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR that two paragraph order of the Hon'ble Supreme Court it was observed as below:-
"1. Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation officer (DVO). The opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-Tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment.
2. Civil appeal is, accordingly, dismissed. No order as to costs."
25. An opinion expressed by an expert howsoever, revered and respected remains only an opinion. In the context of the Report relied by learned counsel for the revenue, it was wholly subjective. The only fact that was considered and found in existence by the Commission was of the invoice price disclosed by the petitioner being lower than the prevailing international price of that commodity. No other fact was gone into or brought out in the Report to suggest that the invoice price was deliberately suppressed or that actual consideration received was more. The vital fact of value/ price realized by the petitioner against the invoice issued, was neither gone into nor any definite opinion was expressed thereto. In any case, no material was discovered by the Commission, as may support that "belief".
26. That vital fact fell within the domain of the assessing authority. It is that fact alone which may have given rise to a reason to believe that income had escaped assessment at
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR the hands of the petitioner. Since there is no material in that regard, we find that the present re-assessment proceedings have been initiated without any relevant material coming to the hands of the assessing authority to form any "reason to believe" as to escapement. Once the tangible/ relevant material itself is missing, there arose no occasion with the assessing authority to form any "reason". In absence of material and reasons what arose was a simple subjective "belief" based on no objective/ tangible material or reason. It was inactionable.
27. In exactly similar facts, the Bombay High Court has also quashed re-assessment proceedings, in Sesa Sterlite Limited (supra) andSociedade de Famento Industrial Pvt. Ltd. (supra). We are in agreement with that view. For the reasons noted above, we find re-assessment proceedings initiated against the petitioner for the Assessment Year 2011- 12 were wholly without jurisdiction. It also being beyond the pale of doubt- unless jurisdiction is first clearly established, the re-assessment- proceedings may not survive and an assessee may not be forced to participate in the same. The writ petition is allowed, the re-assessment proceedings are quashed. No order as to costs."
9. As stated supra, the aforesaid judgment of the Bombay High Court was confirmed by the Apex Court in Venture Real Estate's case (surpa) including the case of Sesa Sterlite's case (supra), vide final order dated 05.03.2025, thereby affirming the
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NC: 2025:KHC:41997 WP No. 16256 of 2016 HC-KAR views taken by both Bombay and Allahabad High Courts. Under these circumstances, I am of the considered opinion that the show cause notice and all further proceedings deserve to be quashed.
10. In the result, I pass the following:
ORDER
(i) The petition is allowed.
(ii) The impugned notice at Annexure-A dated 05.09.2014 and the impugned order at Annexure-G dated 24.02.2016, are hereby quashed.
Sd/-
(S.R.KRISHNA KUMAR) JUDGE BMC List No.: 2 Sl No.: 60