Delhi High Court

Jsrs Udyog Limited & Another vs Income-Tax Officer on 10 December, 2008

Author: Rajiv Shakdher

THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment delivered on: 10.12.2008

+ WP(C) 8688/2008

JSRS UDYOG LIMITED & ANOTHER ... Petitioners

- Versus -

INCOME-TAX OFFICER ... Respondent
Advocates who appeared in this case :-
For the Petitioners : Mr C.S. Aggarwal, Sr Advocate with Mr Prakash Kumar
For the Respondent : Mr Sanjeev Sabharwal

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether Reporters of local papers may be allowed
to see the judgment ? YES

2. To be referred to the Reporter or not ? YES

3. Whether the judgment should be reported in Digest ? YES

BADAR DURREZ AHMED, J (ORAL)

1. By way of this writ petition, the petitioner seeks the

quashing of the impugned notice dated 28.03.2008 under Section

148 of the Income-tax Act, 1961 (hereinafter referred to as „the

said Act‟) as well as the order passed by the Assessing Officer on

28.11.2008 disposing of the objections to the initiation of re-

assessment proceedings preferred by the petitioner / assessee.

WP(C) 8688/08 Page No. 1 of 11
2. We have heard the learned counsel for the parties. The facts

are that the original assessment was framed under Section 143(3)

of the said Act on 05.03.2003. In the course of the assessment

proceedings, the Assessing Officer had raised certain queries,

inter alia, with regard to the share application money received by

the assessee from Solo-Mio Marketing Pvt Ltd. In response to the

queries raised by the Assessing Officer, the assessee submitted a

reply dated 10.02.2003. A copy of the said reply has been placed

as Annexure-4 at page 75 of the present paper book. On going

through the said reply, we note that the petitioner had clearly

disclosed the names and addresses of the directors of the assessee

/ petitioner company. The petitioner had also stated categorically

that no loans had been accepted by it during the year under

consideration and that there was an increase of Rs 64,75,000/- in

the share capital of the company. It was also stated that all the

share application money had come from companies which were

duly registered under the Companies Act, 1956 and that each one

of them was legal entity. It was also stated that the applicants had

confirmed their investments through duly attested affidavits.

Specifically, with regard to the investment made by Solo-Mio

Marketing Pvt. Ltd, the petitioner gave the following response:-
"2. NAME AND M/S SOLO-MIO MARKETING PRIVATE LIMITED,
ADDRESS OF THE L-132, SHASTRI NAGAR, DELHI - 110 052.
INVESTOR / SHARE
HOLDER

NO. OF SHARES 50,000 Equity Shares of Rs. 10 each.

WP(C) 8688/08 Page No. 2 of 11
HELD

AMOUNT Rs.3,00,000/- Through Cheque No.436482 dated
RECEIVED & 12.03.2001 and Rs. 2,00,000/- Through Cheque
MODE OF No.436483 dated 12.03.2001 drawn on Bank of India,
PAYMENT Parliament Street, New Delhi.

SOURCE The applicant had received back re-payment of Loan of
WHEREFROM THE Rs.3,00,000/- through Cheque No.459673 dated
APPLICANT HAD 11.03.2001, Rs. 5,00,000/- through Cheque No.459674
RECEIVED FUNDS dated 12.03.2001, Rs. 2,00,000/- through Cheque
No.459672 dated 07.03.2001 from M/s. Flowtech Air
(P) Ltd., drawn on Canara Bank, South Extn. New
Delhi, Rs. 90,000/- From M/s MJM Investments
through Cheque No.444851 dated 09.03.2001 and Rs.
60,000/- from M/s. Nikki Drugs & Chemicals Pvt. Ltd.,
through Cheque No.317104 dated 09.03.2001 drawn on
Bank of India, Bank Street, Karil Bagh, New Delhi -
110 005.

SUPPORTING 1. The applicant is a legal entity, a company duly
EVIDENCE RELIED incorporated under Indian Companies Act.
UPON
2. The Applicant is a regular Income Tax Assessee
on P.A. No.AAACS9707P. [Thus the identity of
the investor is established and known to the
department.]

3. The Payment has been received through Banking
Channels. [Copy of relevant extract of their Bank
A/c is enclosed.]

4. The Applicant made investment after a due
authority drawn from meeting of Board of
Directors. (Copy of the same is enclosed.)

5. Certificate from the Debtors, who had re-paid the
Loan to the Applicant / Investor is enclosed. This
shows the source of credit entry in the Bank A/c of
the Applicant / Investor out of which Application
money was paid to the Assessee.

6. Affidavit by the Investor confirming these facts in
is enclosed."

3. We also note that the petitioner had also filed the affidavit

of Mr K.K. Bansal, who was the director of M/s Solo-Mio

Marketing Pvt. Ltd confirming that the said company had

purchased 50,000 fully paid up equity shares of Rs 10 each of the

petitioner company at par during the financial year which ended

on 31.03.2001 and relevant to the assessment year 2001-02. The

affidavit also disclosed that the payments towards the share

WP(C) 8688/08 Page No. 3 of 11
application money were made through two separate cheques,

details of which were given in the said affidavit. The PAN

number of the investor company, i.e., Solo-Mio Marketing Pvt.

Ltd was also clearly disclosed in the said affidavit. After having

received this explanation and information from the assessee, the

Assessing Officer framed the assessment order on 05.03.2003. In

the assessment order itself, it was noted as under:-

"... The details and documentary evidence of share
application money pending for allotment in the
previous year have been filed alongwith documentary
evidence from subscribers. It has been stated that
funds available with the company has been advanced
to various persons and the company has earned interest
income of Rs. 7,44,691/- on such advances."

4. The Assessing Officer issued the notice under Section 148

of the said Act on 28.03.2008 beyond the period of four years. As

such, the proviso to Section 147 would become applicable. Under

the proviso itself, it is necessary that before any action is initiated,

it must be pointed out that the assessee had failed to make a true

and full disclosure of all the material facts. In the reasons

recorded in writing for re-opening the case under Section 148 of

the said Act, there is no allegation that the petitioner did not make

a full and true disclosure of all the material facts. In fact, in our

view, the reasons recorded are quite general and vague as would

be apparent from a plain reading of the same. The reasons

recorded are as under:-

WP(C) 8688/08 Page No. 4 of 11
"REASONS RECORDED IN WRITING FOR
REOPENING THE CASE U/S 148
M/s JSRS Udyog Limited
A.Y. 2001-02

Information has been received from the
Investigation Wing of Income-tax Department, New
Delhi regarding beneficiaries and operators of
accommodation entries in Delhi.

In the said information, it has been inter alia
reported as under:-
"Entries are broadly taken for two purposes

1. To plough back unaccounted black money for the
purpose of business or for personal needs such as
purchase of assets etc., in the form of gifts, share
application money, loans etc.
2. To inflate expenses in the trading and profit and
loss account so as to reduce the real profits and
thereby pay less taxes.

The specific information provided by the
Investigation Wing of Income-tax Department, New
Delhi is enclosed as per Annexure.

In view of the specific information received as
above from Investigation Wing of Income-tax
Department, New Delhi, I have sufficient reason to
believe that the assessee company M/s JSRS Udyog
Pvt. Limited has indulged in receiving
accommodation entries and the total amount of
payment received by the assessee company amounting
to Rs.8,00,000/- is bogus and represents the
undisclosed income / income from other sources of the
assessee company, which has not been offered to tax
by the assessee in its return filed.

Accordingly, I have reason to believe that income of
Rs.8,00,000/- has escaped assessment as the assessee
company has understated its returned income for the
AY 2001-02 by an amount of Rs.8,00,000/-.
(Hemant Kumar)
Income-Tax Officer
Ward 4(1), New Delhi"

WP(C) 8688/08 Page No. 5 of 11
"Annexure"
BENEFIC BENEFI BENEFICIAR VALUE INSTRU DATE NAME OF BANK BRANCH A/C NO.
IARY‟S CIARY Y BANK OF MENT ON ACCOUNT FROM OF ENTRY
NAME BANK BRANCH ENTRY NO. BY WHICH HOLDER OF WHICH ENTRY GIVING
NAME TAKEN WHICH ENTRY ENTRY ENTRY GIVING ACCOUNT
ENTRY TAKEN GIVING GIVEN BANK
TAKEN ACCOUNT

JSRS OBC GHAZIABAD 300000 413946 11-Apr-00 SOLO-MIO BOI KAROL 11266 CD
UDYOG MARKETING BAGH
LTD P. LTD.
JSRS OBC GHAZIABAD 300000 436482 13-Mar-01 SOLO-MIO BOI KAROL 11266 CD
UDYOG MARKETING BAGH
LTD P. LTD. BOI
JSRS OBC GHAZIABAD 200000 436483 13-Mar-01 SOLO-MIO BOI KAROL 11266 CD
UDYOG MARKETING BAGH
LTD P. LTD.

5. It is apparent from the reasons recorded and the Annexure

referred to therein that the entire issue revolves around three

transactions. A payment of Rs 3 lakhs received in April, 2000 from

Solo-Mio Marketing Pvt. Ltd and further payments of Rs 3 lakhs

and Rs 2 lakhs received by the petitioner in March, 2001 from the

same Solo-Mio Marketing Pvt. Ltd. In the objections filed by the

petitioner to the said reasons, the petitioner had, inter alia,

explained the same by stating that all the three amounts were

received towards share application money. However, the amount of

Rs 3 lakhs, which was received in April, 2000, pertains to the

previous year. In the year in consideration, only two payments of

Rs 3 lakhs and Rs 2 lakhs had been received from Solo-Mio

Marketing Pvt. Ltd towards share application money in respect of

the 50,000 equity shares referred to in the petitioner‟s letter dated

10.02.2003 in response to the queries raised by the Assessing

Officer in the course of the original assessment proceedings.

WP(C) 8688/08 Page No. 6 of 11
According to the petitioner, there had been a complete, full and true

disclosure of all the material facts and the assessment was framed

by the Assessing Officer after being fully satisfied with the details

and documentary evidence with regard to share application money

which had been submitted by the petitioner. It was contended that

the initiation of re-assessment proceedings was nothing but mere

change of opinion and, in any event, it was not permissible because

the pre-condition of there being a lack of full and true disclosure on

the part of the petitioner had not been satisfied.

6. The Assessing Officer did not agree with the objections raised

by the petitioner and passed the following order on 28.11.2008:-

"F.No.ITO/Ward 4(2)/2008-09/190

Office of the Income tax Officer,
Ward 4(2),
Room No.413A, C.R. Building,
New Delhi

Dated:- 28th November, 2008.

The Principal Officer,
M/s JSRS Udyog Ltd.,
H-3/41, Sector-18, Rohini,
Delhi-110085.

Sir,
Sub:-Reply to your letter dated 24/11/2008 in respect of
objections for validity of the initiation of proceedings u/s.
147 of I.T. Act for the Asstt. Year 2001-02 - regarding -
--------------

Please refer to the above.

In this connection, it is to inform you that original assessment in this case was completed u/s. 143(3) on 05/03/2003. Later on, in this case information from the Investigation Wing of the Income-tax

Department, Jhandewalan, New Delhi was received that the assessee has indulged in receiving accommodation entries. The details of accommodation entries are given as under:-

1. Rs.3,00,000/- was received from M/s. Solo Mio Marketing Pvt. Ltd. Ch. No.413946 dated 11/04/2000 drawn on Bank of India, Karol Bagh, New Delhi Bank A/c. No.11266 CD which was deposited in the A/c. of M/s. JSRS Udyog Ltd. in O.B.C. Bank, Ghaziabad (UP).

2. Rs.3,00,000/- was received from M/s. Solo Mio Marketing Pvt. Ltd. Ch. No.436482 dated 13/03/2001 drawn on Bank of India, Karol Bagh, New Delhi Bank A/c. No.11266 CD which was deposited in the A/c. of M/s. JSRS Udyog Ltd. in O.B.C. Bank, Ghaziabad (UP).

3. Rs.2,00,000/- was received from M/s. Solo Mio Marketing Pvt. Ltd. Ch. No.436483 dated 13/03/2001 drawn on Bank of India, Karol Bagh, New Delhi Bank A/c. No.11266 CD which was deposited in the A/c. of M/s JSRS Udyog Ltd. in O.B.C. Bank, Ghaziabad (UP).

During the course of investigation made by the Investigation Wing has found these entries are bogus / sham transactions and informed the concerned Assessing Officer for necessary action in the matter.

Therefore, the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment as the assessee company has failed to disclose fully and truly all material facts necessary for assessment year 2001-02.

Under the circumstances, the Assessing Officer has initiated the proceedings u/s. 147/148 of the I.T. Act with the prior approval of the Commissioner of Income-tax, Delhi-II, New Delhi within the time prescribed under the provisions of section 149 read with section 151 of the I.T. Act, 1961.

Therefore, your application vide letter dated 24/11/2008 objecting the validity of initiation of proceedings u/s. 147/148 of the I.T. Act is not acceptable and is hereby rejected.

Yours faithfully,

-Sd-

( Suresh Mamtani ) Income-tax Officer, Ward-4(2), New Delhi."

7. We are of the opinion that the said order has, first of all, not

dealt with any of the objections raised by the petitioner. Secondly,

the order is nothing but a repetition of what is given in the

purported reasons. There is no indication of any specific

information with regard to any accommodation entry being

provided by the assessee / petitioner. Apart from merely saying

that the receipts of the share application money were bogus and

sham transactions, there is nothing indicated either in the reasons or

in the impugned order dated 28.11.2008 to enable us to arrive at

such a conclusion. In a recent decision in the case of Haryana

Acrylic Manufacturing Company v. CIT [WP(C) 4074/2007

decided on 03.11.2008], in a somewhat similar circumstances, we

had made the following observations:-

"18. Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147.

19. Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied:

(a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and

(b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:

(i) 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

(ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the 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. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts ?

20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section

147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the

reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd (supra) we had agreed with the view taken by the Punjab & Haryana High Court in the case of Duli Chand Singhania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated 29.03.2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 02.03.2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above."

8. We feel that the present case is entirely covered by that

decision. Consequently, we set aside the order dated 28.11.2008

and quash the impugned notice under Section 148 dated

28.03.2008. There shall be no order as to costs.

This writ petition stands allowed as indicated above.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J December 10, 2008 dutt