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2024 Supreme(P&H) 881
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
SHEEL NAGU, CJ., JAGMOHAN BANSAL, J.
Commissioner of Income Tax-II, Amritsar – Appellant
Versus
M/s. Sachdeva & Sons – Respondents
ITA-254 of 2006 (O&M) WITH ITA-253 of 2006 (O&M)
Decided On : 11-07-2024
Ms. Urvashi Dhugga, Advocate; For the Appellant
Ms. Radhika Suri, Senior Advocate with Ms. Parnika Singla, Advocate and Mr. Sidhant Suri, Advocate for the respondent
Demand under the Income Tax Act cannot be made based on dropped proceedings from another agency, requiring independent evidence for tax assessments.
Headnote:(A) Income Tax Act, 1961 - Section 260A - Appeal against order of Income Tax Appellate Tribunal - The Tribunal accepted the Assessee's appeal for the assessment year 1988-89, dismissing the Revenue's appeal based on insufficient evidence from Enforcement Directorate - The foundation for the Income Tax Department's demand was wiped out as the Enforcement Directorate dropped proceedings against the Assessee. (Paras 2, 4, 9)
(B) Legal Principle - Demand under the Income Tax Act cannot be made based on proceedings initiated by another agency that have been dropped. (Paras 6, 7)
Facts of the case:
The Assessee filed a return declaring income of Rs. 1,48,675/- for the assessment year 1988-89. The Enforcement Directorate alleged under-invoicing of exports, but later dropped proceedings against the Assessee. The Income Tax Department initiated proceedings based on these dropped allegations.
Findings of Court:
The Tribunal found that the Income Tax Department's demand was based solely on dropped proceedings, thus lacking merit.
Issues: The main issues were whether the Tribunal's order was perverse and if the Income Tax Department could make demands based on dropped proceedings.
Ratio Decidendi: The court ruled that the Income Tax Department could not create a demand based on proceedings that had been dropped by the Enforcement Directorate, affirming the principle that demands must have a valid foundation.
Result: Appeals dismissed.
JUDGMENT
Jagmohan Bansal, J. (Oral)
By this common order, both the captioned appeals are adjudicated. For the sake of brevity and convenience, the facts are borrowed from ITA No.254 of 2006.
2. The appellant through instant appeal under Section 260A of the Income Tax Act, 1961 (for short 1961 Act') is seeking setting aside of order dated 07.09.2005 passed by Income Tax Appellate Tribunal (for short 'Appellate Tribunal') in ITA No.138(ASR)/2003 for the assessment year 1988-89 whereby appeal of the Assessee has been accepted.
3. The appeal was admitted by this Court vide order dated 17.08.2006 to consider following questions of law: -
"1. Whether in the facts and circumstances of this case order of Income-tax Appellate Tribunal, is perverse on the ground that basis of assessment did not exist after FERA Proceedings were quashed by Special Director in the Enforcement Directorate ignoring the evidence of Revenue Department that appeal against that order has been filed by FERA Authorities with Appellate Tribunal for Foreign Exchange, New Delhi.
2. Whether in the facts and circumstances of the case Income-tax Appellate Tribunal, is legally justified in dismissing Revenue appeal for A.Y. 1988-89 when there was independent evidence indicating under invoicing of export by the assessee apart from confessional statement of partner Sh. Ashok Kumar.
3. Whether in the facts and circumstances of the case the Income-tax appellate Tribunal, is legally correct in holding that the learned Commissioner of Income Tax (Appeal) had quashed the assessment as the same was barred by limitation, whereas the learned Commissioner of Income Tax (Appeals) held that the question of limitation became infructuous and academic in nature as the reassessment proceedings had already been quashed on some other ground."
4. The respondent-Assessee for the assessment year 1988-89 filed its return on 05.08.1988 wherein it declared income of Rs. 1,48,675/-. The officers of Enforcement Directorate searched different premises of the respondent-Assessee on 31.05.1997 alleging that it has mis-declared value of goods exported by it. During the course of investigation, Enforcement Directorate recorded different statements of officials of respondent-Assessee. Based on documents seized during search and statements of different officials of respondent-Assessee, the Enforcement Directorate issued 6 show cause notices alleging that respondent-Assessee has mis-declared value of goods exported by it. It is apt to mention here that respondent-Assessee had exported rice. The Enforcement Directorate was not alleging that the value declared by respondent-Assessee was on the higher side whereas allegation was that respondent-Assessee had under-valued the goods. The show cause notice was not based upon shipping bills and other export documents whereas it was based upon documents resumed during search. The show cause notices issued by Enforcement Directorate came up for consideration before Special Director, Directorate of Enforcement who vide order dated 20.02.2002 dropped the proceeding against all the noticee(s) holding that the statements recorded during search or thereafter are not duly supported by independent evidence, thus, are uncorroborated. He further concluded that documents on record are not sufficient to conclude that noticee(s) have mis-declared value of goods exported by them. He compared value of goods declared by noticee(s) with the maximum value as well as value notified by the Central Government. In the interregnum, the appellant-Income Tax Department initiated proceedings under Section 148 of 1961 Act alleging that respondent-Assessee has mis-declared value of goods exported by it. The assessment proceedings were initiated on the basis of show cause notice issued by Enforcement Directorate. The Assessing Officer made additions on the basis of record of Enforcement Directorate. The respondent-Assessee preferred an appeal before the first Appellate authority i.e. Commissione
