JSW Minerals Trading Private Limited Vs Assessment Unit (Bombay High Court)
Bombay High Court quashed the assessment order and demand notice against JSW Minerals Trading Private Limited for AY 2020-21 after holding that an addition of ₹302.27 crore based on undisclosed CBEC import data violated principles of natural justice. The Assessing Officer noticed a difference between imports of ₹1,520.29 crore appearing in CBEC data and purchases of ₹1,218.03 crore disclosed by the assessee. Despite repeated requests, however, the Department did not furnish the detailed breakup or underlying CBEC data necessary to enable the assessee to reconcile the alleged difference.
The Court observed that it was impossible for the assessee to properly explain the discrepancy without particulars of the import bills and purchase values relied upon by the Assessing Officer. Significantly, the show-cause notice proposed an addition under Section 69A as unexplained money, whereas the final assessment made the addition under Section 69 as unexplained investment. The Court also noted that the assessee had partially reconciled ₹270.94 crore and that the same purchases had been scrutinised in transfer-pricing proceedings and accepted at arm’s length.
Holding that general aggregate information without particulars, supporting evidence or adequate opportunity for reconciliation could not constitute valid material for making the addition, the High Court set aside the assessment and demand. The matter was remanded for fresh assessment. The Assessing Officer was directed to furnish the complete CBEC information and detailed breakup, specify the provisions proposed to be invoked, grant at least 15 working days for reply and provide a personal hearing. If judicial decisions are relied upon, at least seven days’ notice must be given to the assessee to respond. The fresh assessment was directed to be completed by 31 March 2026.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard Mr.Mistri, the learned Senior Counsel for the Petitioners and Ms.Ruju Thakker, the learned Counsel for the Respondents. An affidavit-in-reply dated 5th December 2023 has been filed by the Respondents, and an affidavit-in-rejoinder dated 28th December 2023 has been filed by the Petitioner. As pleadings are complete, with the consent of the parties the Petition is taken up for final disposal.
2. In the above Petition, Rule was issued on 7th November 2023 and interim relief was granted staying the impugned order (Exhibit-A) dated 29th September 2023 and impugned Demand Notice (Exhibit-B) dated 29th September 2023.
3. The above Writ Petition is filed challenging the assessment order dated 29th September 2023 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (for short “the Act”), issued by Respondent No.1 for Assessment Year 2020-21. In the Assessment Order, Respondent No.1 made an addition of Rs.302,26,74,069/- under Section 69 of the Act based on the difference between the invoice value of imports as per the data received from the Central Board of Excise and Customs (“CBEC”) (Rs.1520,29,89,300/-) and the purchase value of imports disclosed by the Petitioner in it’s return of income (Rs.1218,03,15,231/-).
4. The Petitioner has challenged the said assessment order primarily on the ground that it had requested full details of the import-export data allegedly received by/available to Respondent No.1 from the CBEC, which was in the exclusive knowledge and possession of Respondent No.1, and which formed the sole basis for the addition of Rs.302,26,74,069/- but was never provided the same. The Petitioner points out that it would be impossible for it to explain/reconcile the alleged variation in the value of imports, without full details of the invoice value of imports as per CBEC data.
5. The facts of the present case are that the Petitioner filed its return of income for Assessment Year 2020-21 on 16th January 2021, declaring its total income as Rs.Nil (having incurred a loss of Rs.37,08,74,848/-). The case of the Petitioner was picked up for scrutiny under the faceless assessment provisions set out in Section 144B of the Act vide notice dated 29th June 2021 issued under Section 143(2).
6. During the year under consideration, the Petitioner had entered into various international transactions, including the ‘purchase of finished goods’ amounting to Rs.1041,48,67,611/- with its associated enterprises namely JSW International Tradecorp Private Limited. The case of the Petitioner was referred to the Deputy Commissioner of Income Tax, Transfer Pricing, DC/ACIT TP 2(3)(1), Mumbai (“TPO”) to determine the arm’s length price with reference to the said international transactions. The TPO vide its order dated 12th May 2023 passed under Section 92CA (3) of the Act, accepted that the international transactions as reported by the Petitioner in Form 3CEB are at an arm’s length price. The Petitioner argued that though the TPO accepted the purchase value in the transfer pricing assessment, however, Respondent No.1 denied the purchase values in the assessment.
7. Be that as it may, a notice under Section 142(1) dated 18th November 2021 was issued by Respondent No.1 on various issues including the following:
“7. As per the ITR, purchases shown by you is Rs.1,218,03,15,231/-. However, as per the data with us, the imports made by you is Rs.1,520,29,89,300/-during the year. Reconcile the difference along with necessary documentary evidences”.
8. The said notice was duly dealt with by the Petitioner vide its reply dated 30th November 2021 requesting for the details/data on the basis of which the aforesaid difference in import purchases had been alleged/computed by Respondent No.1. The Petitioner also stated that it could not find any discrepancies as per the audited books of accounts and the return filed.
9. Thereafter, another notice was issued under section 142(1) requiring the Petitioner to re-submit the details as per reply filed on 30th November 2021. The Petitioner filed another reply in response to a notice dated 20th June 2023 issued under Section 142(1) of the Act resubmitting the details filed earlier, including requesting for the details/data on the basis of which the aforesaid difference in purchases has been computed by Respondent No.1. It once again reiterated that it could not find any discrepancies as the per audited books of accounts and the return filed.
10. Respondent No. 1 then issued a show cause notice dated 6th September 2023 requiring the Petitioner to respond by 11th September 2023 (thereby allowing only 5 days’ time – including a Saturday and Sunday) and proposing inter-alia an addition of Rs.302,26,74,069/- under Section 69A of the Act (Unexplained Money) based on the difference between the invoice value of imports as per the data received from CBEC (Rs.1520,29,89,300/-) and the purchase value shown in the ROI (Rs. 1218,03,15,231/-).
11. On 11th September 2023, the Petitioner sought 7 days’ time to file a reply. However, Respondent No. 1 vide letter dated 12th September 2023 issued at 17:06 IST granted only a 3 days’ adjournment, requiring that the reply be provided by 14th September 2023.
12. The Petitioner filed a reply on 14th September 2023, objecting to the proposed variations and again requested inter-alia that the breakup of the alleged difference in purchase value of Rs.302,26,74,069/- be provided and also submitted reconciliation (to the best of its ability with the limited details/data available) for purchases worth Rs.270,94,21,668/- out of the alleged difference of Rs.302,26,74,069/- as stated by Respondent No.1.
13. Instead of providing the breakup of the purchase value as requested by the Petitioner repeatedly, without providing an opportunity of personal hearing through video conference, and without considering the Petitioner’s request for additional time, Respondent No. 1 passed the impugned assessment order dated 29th September 2023 under Section 143(3) read with Section 144B, and inter-alia made an addition of Rs. 302,26,74,069/- under Section 69 (Unexplained Investment) – notably different from the show cause notice which proposed an addition under Section 69A (Unexplained Money) on account of difference between purchase values as shown by the Petitioner and the invoice value of imports as per import export data received from the CBEC. Respondent No.1 also failed to consider that even if any addition were to be made, it could only be to the extent of Rs.31,32,52,401/- (Rs.302,26,74,069/- minus Rs.270,94,21,668/-) i.e. to the extent of partial reconciliation as provided by the Petitioner.
14. This Court, in the interim order passed on 07th November 2023, recorded it’s prima facie view that the basis upon which the assessment order had held that the petitioner failed to reconcile the difference between purchase value and import invoice value was unjustified, particularly given that the petitioner had repeatedly sought necessary and crucial information which the Assessing Officer failed to provide. This Court, therefore, issued Rule and admitted the writ petition for hearing. Pending the hearing and final disposal of the petition, this Court granted interim relief in terms of prayer clause (d). The relevant extract of the interim order is as under:
“3. Having considered the petition, we gave an opportunity to Mr.Singh to take instructions as to whether the assessment order could be quashed and set aside and the matter remanded to the department for denovo consideration. This was because we were prima facie satisfied that the basis on which the assessment order states that petitioner failed to reconcile the difference between purchase value shown by assessee in ROI and the invoice value of imports as per the data received from CBEC was unjustified. Petitioner had repeatedly asked for information and details as to how the Assessing Officer is making such an allegation about difference in purchase value and to provide material which the Assessing Officer has failed to and neglected to provide. We suggested to counsel that instead of staying the order if we could quash and remand the order for denovo consideration then at least assessment proceedings can go ahead and the state’s interest will not be prejudiced by a stay order. Since Mr. Singh was insistent on filing an affidavit in reply opposing the petition, we have no choice but to admit the petition and stay the impugned assessment order.”
15. The Petitioner also has drawn our attention to the assessment order for the subsequent year under Section 143(3) read with Section 144B of the Act, for the Assessment Year 2022-23, raising a similar issue in respect of the difference in value of import purchases as per data received from CBEC and the value as declared by the Petitioner in the return of income. However, for that year full details were provided by the 1st Respondent enabling the Petitioner to reconcile the figures, and ultimately, the submissions made by the Petitioner were accepted and the proposed addition was dropped. It is pertinent to note that in that year, Respondent No.1 had provided the data/full and complete details, as received from CBEC, which was relied upon for issuing the scrutiny notice.
16. Based on the affidavit-in-reply dated 5th December 2023, learned counsel for the Revenue respectfully submits that the Petitioner had not requested the data received from the CBEC at any point in time. It is urged that it is evident from the record that the assessing officer proceeded on the bona fide assumption that the information furnished by CBEC was correct and reliable. The assessing officer, in discharging his statutory duty, was entitled to place reliance upon such official information, notwithstanding that the CBEC communication did not disclose the breakup of the total values. It was urged that there had been no violation of the principles of natural justice and the record showed that adequate opportunity had been granted to the Petitioner.
17. Counsel for the Respondent further contended that no independent reconciliation of the said data was carried out by the assessee, despite being afforded adequate opportunity. The assessing officer has rightly observed that the assessee failed to reconcile the quantum of purchases as reflected in the CBEC data with the figures disclosed in its own books of account. It was urged that the partial reconciliation did not contain any evidence supporting the same. She submits that the burden squarely lay upon the assessee to establish the correctness of its disclosures and to reconcile any apparent discrepancy. The mere absence of detailed import documentation from CBEC cannot absolve the assessee of its statutory obligation to substantiate its claim. Accordingly, Respondent No.1 was justified in drawing an adverse inference against the assessee for non-compliance, and in proceeding to frame the assessment on the basis of the information available from CBEC, was the submission.
18. Having heard the parties, we are of the view that we need not go into all the grounds and rival contentions urged before us. This Petition may be disposed off on the short ground of violation of the principles of natural justice. In the notice dated 18th November 2021, Respondent No.1 required the Petitioner to reconcile the stated difference between purchases shown by the Petitioner in its return of Rs 1218,03,15,231, and “…data with us … Rs.1520,29,89,300…”. Other than this aggregate figure, no details were set out in the notice. The Petitioner’s reply dated 30th November 2021, though scanty, notes that no discrepancy appeared from it’s books and requested Respondent No.1 to provide more clarity and guidance so as to answer the query. Thereafter it was only on 20th June 2023 that Respondent No.1 required the responses of the Petitioner to be re-filed. On 6th September 2023, Respondent No.1 issued a show cause notice which yet again set out the aggregate figures of imports, and without any details whatsoever, stated the difference of Rs.302,26,74,069/- remained unverified, and required the Petitioner to show cause why the same should not be treated as unexplained money as per Section 69A of the Act. Reply to the show cause notice was sought by 11:42 hours on 11th September 2023. On the Petitioner’s request, an adjournment was granted upto 14th September 2023. On this date the Petitioner replied to the best of it’s ability, given that no details of the data used by Respondent No.1 was provided. All these facts narrated hereinabove are undisputed.
19. On examining these undisputed facts, apart from the question of whether sufficient time was allowed to the Petitioner, we are of the view that it is impossible for the Petitioner to reconcile and/or explain the alleged difference between the figures of imports as per the ITR/accounts of the Petitioner, and the data of the CBEC, in the absence of complete details of the break up of the CBEC data being furnished to the Petitioner. Further, a plain reading of the impugned order clearly indicates that Respondent No.1 has proceeded to make an addition without providing or even referring to the breakup or details of the difference in the alleged purchase value of imports of the assessee/Petitioner. It is also relevant to consider the fact that in transfer pricing proceedings these very purchases were scrutinised and held to be at arm’s length price. We, therefore, find considerable force in the arguments canvassed on behalf of the Petitioner that there has been a breach of principles of natural justice, and on this count alone, the entire addition made and the assessment proceedings are vitiated. We also say this because Respondent No.1 simply relied upon the information provided by the CBEC on the assumption that the figure mentioned by the CBEC was the actual figure of imports required to shown by the Petitioner in it’s ITR, notwithstanding that it had not disclosed the details of any import bills and that no breakup value of the import purchases was given, and further by not even providing the information as was received from the CBEC to the Petitioner, before passing the assessment order under Section 143(3) read with Section 144B of the Act.
20. In view of what is set out above, we find merit in the contention of the Petitioner that the Impugned Order dated 29th September 2023 (Exhibit A), and the Impugned Demand Notice dated 29th September 2023 (Exhibit B), is unsustainable and has been passed in violation of the principles of natural justice. It is obvious that Respondent No.1 must disclose complete details of any material it is relying upon, to hold that additional purchases have been made over and above the disclosed purchases, and the legal basis to make such an addition. In the present case, the only basis for the addition is the aggregate purchase figures communicated by the CBEC, which do not disclose any particulars of import bills or details of additional purchases made. Such general information, without details, without a proper opportunity to set out a reconciliation, and without any supporting evidence, cannot constitute valid material for the purpose of making an addition under the Act.
21. In view of the foregoing discussion, we hereby quash and set aside the assessment order passed under Section 143(3) read with Section 144B of the Act dated 29th September 2023 (Exhibit A), and thenotice of demand under Section 156 of the Act dated 29th September 2023 (Exhibit B).
22. We now remand the matter back to the file of Respondent No.1. He shall issue a fresh Show Cause Notice to the Petitioner with respect to the addition of Rs.302,26,74,069/-, bringing out clearly the provision/(s) under which he proposes to make the addition, provide the detailed break-up of the import value of purchases including the copy of information as received from CBEC, and grant sufficient time of at least 15 working days to file a reply to the notice. Before passing the assessment order, a personal hearing shall be granted to the Petitioner. If any decisions are relied upon, then the Petitioner will be given adequate notice of the same, and not less than 7 days, to counter such judgments. The addition in respect of any alleged unreconciled difference between the value of imports in the fresh assessment order passed, shall be by a speaking order which will deal with all the submissions of the Petitioner. The assessment order shall be passed on or before 31st March 2026.
23. We clarify that we have expressed no opinion on the merits of the addition of Rs.302,26,74,069/- made in the impugned order, and have disposed of this Petition on the sole ground of violation of the principles of natural justice by failing to provide the detailed breakup of the value difference. Any other addition made in the impugned order dated 29th September 2023 may be repeated in the fresh Assessment Order to be passed pursuant to our directions hereinabove after hearing the Petitioner. All contentions of the parties in respect of the additions in the impugned order are expressly kept open.
24. Rule is accordingly made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
25. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
