Delhi High Court
Commissioner Of Income Tax vs Rainee Singh on 20 August, 2009
Author: A.K.Sikri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No.566/2009
August 20, 2009
COMMISSIONER OF INCOME TAX ...Appellant
Through: Ms. P.L.Bansal , Mr. Paras
Chaudhary and Ms. Anshul Sharma,
Advocates
VERSUS
RAINEE SINGH ....Respondent
Through: Mr. Rakesh Gupta and Ms. Aarti
Saini, Advocates
CORAM:
HON'BLE MR. JUSTICE A. K. SIKRI
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
1. Whether the Reporters of local papers may be allowed to see
the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in the Digest?
%
A.K. SIKRI, J(Oral)
CM No. 5809/2009 (Exemption)in I.T.A.No. 566/2009
Exemption sought is granted subject to all just exceptions.
ITA 566/2009 Page 1
Application is disposed of.
I.T.A.No. 566/2009
1 A notice under Section 147 of the Income Tax Act was issued to the
assessee herein on 4.3.2005 seeking to reopen the assessment. In the said
notice, the following reasons were given by the A.O.
"The Sahara Group had made certain land deals in Gurgaon
wherein certain plots of agricultural land were purchased in the
name of certain employees of various Sahara Companies. It
was found that two Sahara companies had advanced loan
aggregating to Rs.31.93 cr. From F.Y. 1997-98 to F.Y. 1999-
2000 to the employees of the Sahara Group for the purchase of
233 plots of agricultural land at Chauma Village at Tehsil
Gurgaon. The amount of loan sanctioned to the employees
against the equitable mortgages of lands were deposited in their
bank accounts and therefore, the payments were made to the
sellers through Mrs. Rainee Singh, Proprietor Rainee's
Creation, New Delhi. However, the arrangements were so
made that while the payments to the sellers aggregated to
Rs.24.55 crs. Mrs. Rainee Singh paid Rs.6.30 crs out of the
payments received from the employees, to a loss making
company M/s Rathi Ispat Ltd. The company M/s Rathi Ispal
Ltd. has not furnished any evidence of having rendered of any
kind of services rendered in relation to the land deals. Further,
Mrs.Rainee Singh has also only shown a surplus of just Rs.1.07
crs. Out of the land transactions. It is thus apparent that Mrs.
Rainee Singh has diverted her income amounting to Rs.6.30
crores by way of showing the bogus payment of Rs.6.30 crores
to M/s Rathi Ispal Ltd which is a loss making company.
Presumably, the sum of Rs.6.30 crores might have been taken
back in cash from M/s Rathi Ispat Ltd. by Mrs. Rainee Singh,
ITA 566/2009 Page 2
Proprietor M/s Rainee Creationg."
2 It is clear from the aforesaid order that the A.O. proceeded on the
following two assumptions.
(1) The assessee herein had diverted her income amounting to
Rs.6.30 crores by way of showing the bogus payment of that
amount to M/s Rathi Ispat Ltd. which was a loss making
company.
(2) The presumption was drawn that M/s Rathi Ispat Ltd would
have returned back that amount to the assessee in cash.
3 In appeal filed by the assessee against that order, the assessee pointed
out that the aforesaid payment made by the assessee to M/s Rathi Ispat Ltd.
was not a bogus payment and it was against the services rendered by M/s
Rathi Ispat Ltd. The CIT(A), after considering the matter in detail, allowed
the said appeal and quashed the assessment proceedings inter alia on the
following grounds.
(a) A finding of fact was recorded that M/s Rathi Ispat Ltd. was not a loss
making company and in fact in all three years it had earned profits. Profits
earned before payment of tax were as under:-
Assessment year 1997-1998 - Rs.1,00,30,467/-
ITA 566/2009 Page 3
Assessment year 1998-1999 - Rs.1,19,49,220/-
Assessment year 1999-2000 - Rs.1,32,84,376/-
(b) M/s Rathi Ispat Ltd. had also paid tax on the aforesaid income which
included the income received from the assessee herein in the form of against
the services rendered to the assessee. From this, the CIT(A) recorded that
when the income was taxed at the hands of M/s Rathi Ispat Ltd, it clearly
points to the genuineness of the transaction which had even been accepted
by the department.
(c) Finding of fact is also recorded that M/s Rathi Ispat Ltd. had actually
rendered services to the appellant. In arriving at this conclusion, the CIT(A)
took into consideration various documents, submitted before it and the
discussion in this behalf is reproduced in the following manner.
"After execution of the MOU whenever a piece of land was
registered with the effort of M/s Rathi Ispat Ltd in the name
of appellant's nomine, a letter was written by M/s Rathi Ispat
Ltd. to the appellant along with the relevant invoice for
making balance payment to M/s Rathi Ispat Ltd. During the
course of appellate proceedings copy of all such letters and
respective invoices were furnished which prove beyond doubt
that it was as a result of positive involvement of M/s Rathi
Ispat Ltd that different pieces of land could be got registered
in the name of appellant's nominee i.e M/s Sahara India
Housing Ltd. All the payments were made by the appellant
through account payee cheque and this is found properly
recorded in the books of accounts of the appellant as well as
in the books of accounts of M/s Rathi Ispat Ltd. It is
ITA 566/2009 Page 4
verifiable from the books of accounts of the appellant with
reference to individual ledger account of the persons from
whom the land was purchased and payment was made to
them by appellant. Whenever such payment was made by the
appellant to M/s Rathi Ispat Ltd it was sent through a letter.
Copy of all such letters were submitted by the appellant
during the appellate proceedings. Each letter indicates the
date, number and amount of the pay order and the bank on
which it was drawn. Likewise whenever such payment was
received a receipt was issued by M/s Rathi Ispat Ltd
acknowledging the payment and all these find place in the
books of M/s Rathi Ispat Ltd and their bank account. It
would also be pertinent to mention here that the assessment
of M/s Rathi Ispat Ltd was also completed by the DCIT,
Circle 15(1) New Delhi under Section 147/143(3) wherein all
these transactions were examined in detail. Copy of
assessment order for assessment year 2000-01 dated
10.3.2006 is placed on record. This order very specifically
discuss in details that a sum of Rs.1,47,52,572/- had accrued
to M/s Rathi Ispat Ltd against which they had received a sum
of Rs.1,03,73,510/- from M/s Rainees Creations and all
payments had been received through account payee cheque
and deposited in various accounts maintained by them. It
also discuss that copy of account of M/s Rainees Creations
was also filed which corroborates that the payment had
actually been made by the appellant. This order also speaks
that all these amounts had been credited in sales and service
account maintained by the assessee i.e M/s Rathi Ispat Ltd.
Thus all these overwhelming evidences prove beyond doubt
that not only effective services were rendered by M/s Rathi
Ispat Ltd. to the appellant, the payments made to them by the
appellant were genuine and cannot be termed as bogus
payment as held by the Assessing Officer."
4 The department filed appeal against this order before the I.T.A.T but
unsuccessfully in as much as the said appeal has been dismissed by the
ITA 566/2009 Page 5
Tribunal while its order dated 25.8.2008 inter alia recorded as under:-
"6. We have carefully considered the rival submissions
and perused the records. As could be noticed from the
reasons recorded by the ld ACIT the reopening of assessment
was based on mere suspicion and the use of the expression
"presumably, the sum of Rs.6.30 crores might have been
taken back in cash...." Clearly shows that the A.O. has not
made any effort to satisfy himself as to whether the
information received from the office of the
DGIT(investigation) has some basis or not and thus it is to be
held that the reassessment proceedings are initiated in a
mechanical manner on vague grounds. In the light of the
decision of the jurisdictional High Court (supra), as well as
the decision of the Hon'ble P.& H.High Court(supra), we are
of the view that the reopening of assessment, based on mere
suspicion, is invalid in law and therefore unable to be
quashed. As declared in the Open Court we hold that the
reopening of assessment is bad in law and therefore the
reassessment proceedings are hereby quashed. In view of our
conclusion that the reopening is bad in law, it is not necessary
for us to go into the other issues on merits, urged by the
Revenue. In the result the appeals filed by the Revenue are
treated as dismissed and the Cross Objections filed by the
assessee are allowed for the reasons stated above."
5 The submission of learned counsel for the appellant is that it was not
open to the CIT(A) or for that matter the Income Tax Appellate Tribunal to
go into the merits of this case at this stage when notice under Section 147 of
the Income Tax was issued.
6 However, when we put specific query to learned counsel for the
appellant as to whether the aforesaid facts particularly, the fact that M/s
ITA 566/2009 Page 6
Rathi Ispat Ltd. was not a loss making undertaking and it had paid the taxes
on the amount received from the assessee herein, it could not be disputed by
the learned counsel. Thus, we find from this that the very basis for initiating
proceedings under Section 147 is on wrong premise as it is neither factually
correct that M/s Rathi Ispat Ltd. was a loss making company and on the
other hand it also stands established that the payment was received by M/s
Rathi Ispat Ltd. for the services rendered by it to the assessee which had
been shown as income in its return and duly taxed by the Income Tax
Department.
7 In these circumstances, we are of the opinion that no question of law
much less substantial question of law arises and the appeal is an abuse of the
process of law.
8 Dismissed.
A.K.SIKRI, J
VALMIKI J.MEHTA, J
August 20, 2009
ib
ITA 566/2009 Page 7
