Delhi High Court

Agr Investment Ltd. vs Addl. Commissioner Of Income Tax & ... on 7 January, 2011

Author: Dipak Misra,Chief Justice

*                 HIGH COURT OF DELHI AT NEW DELHI

                                           Judgment Reserved on: 9th November, 2010
%                                          Judgment Pronounced on: 7th January, 2011

+         WP(C) No.7517/2010

          AGR INVESTMENT LTD.                                          ..... Petitioner
                      Through:                      Mr. S. Ganesh, Sr. Adv. with
                                                    Mr. Satyen Sethi, Mr. Arta Trana,
                                                    Advocates
                  Versus

          ADDL. COMMISSIONER OF INCOME TAX
          AND ANOTHER                             ....Respondents

                   Through:     Mr. M.P. Sharma , Advocate

           CORAM:
           HON'BLE THE CHIEF JUSTICE
           HON'BLE MR. JUSTICE MANMOHAN

1. Whether reporters of the local papers 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 the Digest? Yes

DIPAK MISRA, CJ

By this writ petition preferred under Article 226 of the Constitution of

India, the petitioner has prayed for issue of a writ of certiorari for quashment

of the notice dated 25th February, 2010 issued under Section 148 of the

Income Tax Act, 1961 (for brevity „the Act‟) for the assessment year 2003-

04 and further to quash the order dated 28th June, 2010 whereby the

objections raised by the petitioner have been rejected.

1 th Corrected vide order dated 18 February, 2011.

2. It is submitted by Mr. S. Ganesh, learned senior counsel along with

Mr. Satyen Sethi and Mr. Arta Trana, learned counsel appearing for the

petitioner, that the assessing officer has assumed jurisdiction to initiate the

proceedings under Section 147 and issued notice under Section 148 of the

Act solely on the basis of certain statements recorded by the Directorate of

Investigation without forming an independent opinion. It is urged by him

that the expression used in Section 147 of the Act is „reason to believe‟ and

not „reason to suspect‟ and it is the settled legal position that there should be

direct nexus or live link between the materials relied upon by the revenue

and the belief that income has escaped assessment. It is contended that on a

bare reading of the reason to believe, it is evident that the jurisdiction to

reassess the income has been assumed on the basis of unspecific and vague

information which cannot justify the formation of the belief or the reason to

believe that income has escaped assessment. The entire foundation of the

belief that the income has escaped assessment is that "certain investigations

were carried out by the Directorate of Investigation, Jhandewalan" though

no particulars had been given on what basis the Directorate of Investigation

had come to the conclusion that accommodation entries were given to the

petitioner. It is urged that no details of the persons who supposedly alleged

that the transactions of the petitioner were bogus were provided and further

the nature of the alleged accommodation entries have not been referred to in

the reason to believe. In essence, the submission in this regard is that there

is complete absence of material which can be said to have a live link with or

be the basis of formation of the purported belief or reason to believe that the

petitioner‟s income had escaped assessment. The allegation that the

transactions entered into by the petitioner were bogus is totally without any

substance in the absence of any materials/details provided. It is further

submitted by the learned counsel for the petitioner that the reasons recorded

must show application of mind by the assessing officer to the material

produced before him on the basis of which the reason to believe is formed

that income has escaped assessment and in the absence of such application

of mind which is evincible from the reasons recorded, the order is vulnerable

in law. It is contended by him that the assessing officer has merely blindly

accepted what was allegedly intimated to him by the Directorate of

Investigation without even attempting to ascertain the basis of the

Directorate‟s assertion that accommodation entries were given to the

petitioner. It is his further submission that the objections raised by the

petitioner have not been disposed of in conformity with the decision

rendered by the Apex Court in GKN Driveshafts (India) Ltd. v. Income Tax

Officer & Ors., (2003) 179 CTR 11 (SC) inasmuch as there is no

consideration of the basic and fundamental objections raised by the

petitioner which go to the very root of the matter and would clearly reveal

that no addition whatsoever could have been made to the petitioner‟s

income. It is canvassed by him that the decision of the Apex Court in GKN

Driveshafts (India) Ltd. (supra) requires that the assessee‟s objections to the

reopening should be considered and disposed of in conformity with the rules

of natural justice.

3. To bolster his submissions, the learned counsel for the petitioner has

commended us to the decisions in ITO v. Lakhmani Mewal Das, [1976] 103

ITR 437 (SC), General Mrigendra Shum Sher Jung Bahadur Rana v.

ITO, [1980] 123 ITR 329, United Electrical Co. Pvt. Ltd. v. CIT, [2002]

258 ITR 317, CIT v. SFIL Stock Broking Ltd., [2010] 325 ITR 285 (Del),

Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of

India, AIR 1976 SC 1785 and Union of India v. Mohan Lal Capoor, AIR

1974 SC 87.

4. Mr. M.P. Sinha, learned counsel appearing for the revenue, supported

the order passed by the competent authority contending, interalia, that the

assessing officer has applied his independent mind and has not been solely

guided by the information given by the Directorate of Investigation. It is

proponed by him that the objections raised by the petitioner has been

appositely dealt with and by no stretch of imagination it can be said to be a

cryptic order passed in a mechanical manner. The learned counsel for the

revenue would submit that what is basically contended by the learned

counsel for the assessee - petitioner pertains to sufficiency of material which

should not be gone into at this stage. It is put forth by him that the same has

to be delved into at the time of assessment and the petitioner would be

afforded adequate opportunity of hearing to explain the same. The learned

counsel has further submitted that the decisions which have been placed

reliance upon by the learned counsel for the petitioner are distinguishable on

facts and, hence, the same really do not render much assistance to him.

5. To appreciate the controversy, it is appropriate to refer to the initial

notice dated 25th February, 2010 which was sent by the assessing officer.

On a perusal of the said notice, it is evident that there has been escapement

of taxable income for the assessment year 2003-04 within the meaning of

Section 147 of the Act. It is worth noting, there is a cavil between the

revenue and the petitioner how the objections have been dealt with by the

competent authority of the revenue. It is averred in the petition that the

petitioner, on receipt of the notice, submitted that the return of income filed

under Section 139(1) of the Act may be treated as filed in response to the

notice under Section 148 of the Act and the reasons recorded for assuming

jurisdiction to re-assess the income be furnished so that objections referring

to the assumption of jurisdiction may be filed. On 15th March, 2010, the

reason to believe, as recorded, was provided to the petitioner wherefrom it is

reflectible that the jurisdiction was assumed on the basis of the report of the

Directorate of Investigation that certain persons had given statement that the

petitioner had received accommodation entries. On 20 th May, 2010, the

assessee requested to provide copies of the statement and the report of the

DIT (Investigation) to enable him to raise objections. However, as is

manifest, by letter dated 21st June, 2010, the petitioner raised the following

objections:

"(i) During the year the petitioner has neither received any gift nor any share application money nor any loan.

(ii) There was no change in share capital during the year as compared to immediately preceding year. The petitioner being a public limited listed company is regulated by the

rules and regulations of SEBI and cannot accept share application money or issue share capital except with the prior approval of SEBI.

(iii) Neither any loan was borrowed nor has any payment been repaid during the year. Reference was made to clause 23(a) of Tax Audit Report.

(iv) It was explained that during the year, investment in shares held by the petitioner was sold. From the audited balance sheet, it is evident that the petitioner was having shares of three limited companies, namely, Lakshmi Float Glass Limited, Bawa Float Glass Limited and KPF Finances Limited of the face value of Rs.1,40,00,000/-. It was these shares that were sold at the face value only. It is out of sale of these shares that sale to the extent of Rs.27,00,000/- has been alleged in the reasons as accommodation entry.

(v) Amount received on sale of investments was utilized to give loans and the same appear in the balance sheet under the head „loans and advances‟."

6. Upon receipt of the said objections, the same were dealt with vide

Annexure P-2 dated 28th June, 2010. In paragraph 3, the authority concerned

referred to its earlier decision and reproduced the same. We think it

appropriate to reproduce the relevant portion of the same whereby the

objections have been rejected:

"REASONS RECORDED IN WRITING FOR REOPENING THE CASE UNDER SECTION 148 M/s AGR INVESTMENT LTD.

ASSESSMENT YEAR 2003-04

Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. 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 expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.

It has been revealed that the following entries have been received by the assessee:

       Beneficiary‟s          Beneficiary‟s   Beneficiary‟s      Value
       Name                   Bank Name       Bank Name          Entry Taken

       AGR Investment Ltd.    SBI        Pahar Ganj              400000
       AGR Investment Ltd.    SBI        Pahar Ganj              300000
       AGR Investment Ltd.    SBI        Pahar Ganj              300000
       AGR Investment Ltd.    SBI        Pahar Ganj              500000
       AGR Investment Ltd.    SBI        Pahar Ganj              700000
       AGR Investment Ltd.    SBI        Pahar Ganj              500000
                                         Total                   2700000

Instrument No. by Date on which Name of Account which entry taken Entry taken Holder of entry giving account 141581 23-May-02 SAAR Enterprises Pvt. Ltd.

       141852            28-May-02       SAAR Enterprises
                                         Pvt. Ltd.
       141957            28-May-02       Tulip Engg. Pvt.
                                         Ltd.
       141854            9-Jun-02        SAAR Enterprises
                                         Pvt. Ltd.
       141955            9-Jun-02        Tulip Engg. Pvt.
                                         Ltd.
       141959            20-Jun-02       Tulip Engg. Pvt.
                                         Ltd.
       Bank from which Branch         of A/c No. entry giving
       entry given       entry    giving account
                         bank
       Corpn. Bank       Paschim Vihar 52116
       Corpn. Bank       Paschim Vihar 52116
       Corpn. Bank       Paschim Vihar 52174
       Corpn. Bank       Paschim Vihar 52116
       Corpn. Bank       Paschim Vihar 52174
       Corpn. Bank       Paschim Vihar 52174

The transactions involving Rs.27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed.

On the basis of this new information, I have reason to believe that the income of Rs.27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148.

xxx xxx

i) The reasons recorded by the Assessing Officer amply "demonstrate" that income has escaped assessment, there is adequate "reason to believe" that income has escaped assessment, as the report of DIT(Inv) has specifically pointed out that the receipts are bogus; they are mere accommodation entries and this channel has been utilized by the assessee to introduce its own unaccounted money in its books of accounts. In this respect, it would be pertinent to cite here the case of IPCA Laboratories Ltd. vs. DCIT (2001) 251 ITR 420 (Bombay).

ii) It would be pertinent to state here as under:-

Assessee must disclose all primary facts fully and truly - The words „omission or failure to disclose fully and truly all material facts necessary for his assessment for that year‟ postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision on the question before the assessing authority lies on the assessee - Calcutta Discount Co. Ltd. vs. ITO [1961] 41 ITR 191 (SC); Indian Oil Corporation v. ITO [1977] 106 ITR 1 (SC); ITO v. Lakhmani Mewal Das (supra)."

7. The questions that emerge for consideration are whether there has

been application of mind or change of opinion, whether the objections have

been properly dealt with and whether there is a mere suspicion or reason to

believe. Regard being had to the aforesaid issues, we think it appropriate to

refer to certain citations in the field.

8. In Raymond Woolen Mills Ltd. v. Income Tax Officer & Ors.,

[1999] 236 ITR 34 (SC), while dealing with the validity of commencement

of re-assessment proceedings under Section 147 of the Act, the Apex Court

has held that there is prima facie some material on the basis of which the

Department could re-open the case. The sufficiency or correctness of the

material is not a thing to be considered at that stage.

9. The High Court of Gujarat in Praful Chunilal Patel v. Assistant

Commission of Income Tax, [1999] 236 ITR 832 has opined that in terms

of the provision contained in Section 147, the Assessing Officer should have

reason to believe that any income chargeable to tax has escaped assessment.

The word „reason‟ in the phrase „reason to believe‟ would mean cause or

justification. If the assessing officer has a cause or justification to think or

suppose that income has escaped assessment, he can be said to have a reason

to believe that such income had escaped assessment. The words „reason to

believe‟ cannot mean that the assessing officer should have finally

ascertained the facts by legal evidence. They only mean that he forms a

belief from the examination he makes and if he likes from any information

that he receives. If he discovers or finds or satisfies himself that the taxable

income has escaped assessment, it would amount to saying that he had

reason to believe that such income had escaped assessment. The

justification for his belief is not to be judged from the standards of proof

required for coming to a final decision. A belief, though justified for the

purpose of initiation of the proceedings under Section 147, may ultimately

stand altered after the hearing and while reaching the final conclusion on the

basis of the intervening enquiry. At the stage where he finds a cause or

justification to believe that such income has escaped assessment, the

assessing officer is not required to base his belief on any final adjudication

of the matter.

10. In Ganga Saran & Sons P. Ltd. v. ITO & Ors., [1981] 130 ITR 1

(SC), it has been held thus:

"It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under S. 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under S.147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under

S.147(a). It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid."

11. In Birla VXL Ltd. v. Assistant Commissioner of Income Tax, [1996]

217 ITR 1 (Guj.), a Division Bench of the Gujarat High Court has opined

thus:

"Explanation 2 to Section 147 of the Act, as appended to newly substituted section 147 makes certain provisions, where in certain circumstances, the income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under the said provision. Another requirement which is necessary for assuming jurisdiction is that the Assessing Officer shall record his reasons for issuing notice. This requirement necessarily postulates that before the Assessing Officer is satisfied to act under the aforesaid provisions, he must put in writing as to why in his opinion or why he holds belief that income has escaped assessment. "Why" for holding such belief must be reflected from the record of reasons made by the Assessing Officer. In a case where Assessing Officer holds the opinion that because of excessive loss or depreciation allowance income has escaped assessment, the reasons recorded by the Assessing Officer must disclose that by what process of reasoning he holds such a belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the Assessing Officer to take action under sections 147 and 148 of the Act. We are also of the opinion that, howsoever wide the scope of taking action under section 148 of the Act be, it does not confer jurisdiction on a change of opinion on the

interpretation of a particular provision from that earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment at a lower rate or for applying the other provisions of Explanation 2, there must be material that have nexus to hold opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier.

[Emphasis added]

12.\ In Sheo Narain Jaiswal & Ors. v. Income Tax Officer & Ors., [1989]

176 ITR 352 (Patna), it was held that reassessment proceedings can be

initiated under Section 147(a) of the Act if the Income-tax Officer has

reason to believe that there has been escapement of income and that the said

income escaped assessment by reason of the omission or failure on the part

of the assessee to disclose fully and truly all material facts necessary for the

assessment for that period or year. Both the conditions are conditions

precedent for the assumption of jurisdiction under Section 148 of the Act.

13. In Phool Chand Bajrang Lal & Anr. v. Income Tax Officer & Anr.,

[1993] 203 ITR 456 (SC), the Apex Court has held thus:

"From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains

chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief..."

[Emphasis supplied]

14. In Anant Kumar Saharia v. Commissioner of Income Tax & Ors.,

[1998] 232 ITR 533 (Gauhati), it was held as follows:

"The belief is that of the Assessing Officer and the reliability or credibility or for that matter the weight that was attached to the materials naturally depends on the judgment of the Assessing Officer. This court in exercise of power under Article 226 of the Constitution of India cannot go into the sufficiency or adequacy of the materials. After all the Assessing Officer alone is entrusted to administer the impugned Act and if there is prima facie material at the disposal of the Assessing Officer that the income chargeable to income-tax escaped assessment this court in exercise of power under Article 226 of the Constitution of India should refrain from exercising the power. In the instant case, the case of the petitioner was fairly considered and thereafter the above decision is taken."

[Underlining is ours]

15. In Bombay Pharma Products v. Income Tax Officer, [1999] 237 ITR

614 (MP), it was held as follows:

It is also established that the notice issued under Section 148 of the Act should follow the reasons recorded by the Income-tax Officer for reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Whether such reasons are sufficient or not, is not a matter to be decided by the court. But the existence of the belief is subject to scrutiny if the assessee shows circumstances that there was no material before the Income-tax Officer to believe that the income had escaped assessment."

[Emphasis added]

16. In H.A. Nanji & Co. v. Income Tax Officer, [1979] 120 ITR 593

(Calcutta), it has been held that at the time of issue of notice of

reassessment, it is not incumbent on the ITO to come to a finding that

income has escaped assessment by reason of the omission or failure of the

assessee to disclose fully and truly all material facts necessary for

assessment. It has been further held that the belief which the ITO entertains

at that stage is a tentative belief on the basis of the materials before him

which have to be examined and scrutinised on such evidence as may be

available in the proceedings for reassessment. The Division Bench held that

there must be some grounds for the reasonable belief that there has been a

non-disclosure or omission to file a true or correct return by the assessee

resulting in escapement of assessment or in under-assessment. Such belief

must be in good faith, and should not be a mere pretence or change of

opinion on inferential facts or facts extraneous or irrelevant to the issue and

the material on which the belief is based must have a rational connection or

live link or relevant bearing on the formation of the belief.

17. In N.D. Bhatt, Inspecting Assistant Commissioner, Income Tax

& Another. v. I.B.M. World Trade Corporation, [1995] 216 ITR

811(Bombay), it has been held thus:

"It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustaining or setting aside a notice issued under section

148."

18. In Hindustan Lever Ltd. v. R.B. Wadkar, [2004] 268 ITR 332 (Bom),

a Division Bench has opined thus:-

".... the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must

disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment."

[underlining is ours]

19. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock

Brokers P. Ltd, [2007] 291 ITR 500 (SC), it has been ruled thus:-

"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by

the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO, [1991] 191 ITR 662, for initiation of action under Section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction."

[Emphasis supplied]

20. In this context, we may refer with profit to a Division Bench decision

of this Court in SFIL Stock Broking Ltd. (supra), wherein the Bench was

dealing with the validity of the proceedings under Section 147 of the

Act. The Bench reproduced the initial issuance of notice and

thereafter referred to the reasons for issue of notice under Section 148

which was provided to the assessee. Thereafter, the Bench referred to the

decisions in CIT v. Atul Jain, 299 ITR 383 (Del), Rajesh Jhaveri Stock

Brokers Pvt. Ltd (supra), Jay Bharat Maruti Ltd. v. CIT, 223 CTR 269

(Del) and CIT v. Batra Bhatta Company, 174 Taxman 444 (Del) and

eventually held thus: -

"9. In the present case, we find that the first sentence of the so-called reasons recorded by the

Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income Tax to initiate proceedings under Section 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons:-

"Thus, I have sufficient information in my possession to issue notice u/s 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above."

10. From the above, it is clear that the Assessing Officer referred to the information and the two directions as „reasons' on the basis of which he was proceeding to issue notice under Section

148. We are afraid that these cannot be the reasons for proceeding under Section 147/148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions. From the so- called reasons, it is not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on facts. The law is well settled. There is no substantial question of law which arises for our consideration."

[Emphasis is ours]

21. At this juncture, it is profitable to refer to the authority in GNK Driveshafts (India) Ltd. v. Income Tax Officer and Others, (2003) 179 C54 (SC) 11 wherein their Lordships of the Apex Court have held thus:-

"5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."

21. In Sarthak Securities Co. Pvt. Ltd. v. ITO, Writ Petition

No.6087/2010, decided on 18th October, 2010, a Division Bench of this

Court, after reproducing Section 147 of the Act and relying on certain

decisions in the field, expressed the view as follows:

"23. `The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither

the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted."

22. The present factual canvas has to be scrutinized on the touchstone of

the aforesaid enunciation of law. It is worth noting that the learned counsel

for the petitioner has submitted with immense vehemence that the petitioner

had entered into correspondence to have the documents but the assessing

officer treated them as objections and made a communication. However, on

a scrutiny of the order, it is perceivable that the authority has passed the

order dealing with the objections in a very careful and studied manner. He

has taken note of the fact that transactions involving Rs.27 lakhs mentioned

in the table in Annexure P-2 constitute fresh information in respect of the

assessee as a beneficiary of bogus accommodation entries provided to it and

represents the undisclosed income. The assessing officer has referred to the

subsequent information and adverted to the concept of true and full

disclosure of facts. It is also noticeable that there was specific information

received from the office of the DIT (INV-V) as regards the transactions

entered into by the assessee company with number of concerns which had

made accommodation entries and they were not genuine transactions. As we

perceive, it is neither a change of opinion nor does it convey a particular

interpretation of a specific provision which was done in a particular manner

in the original assessment and sought to be done in a different manner in the

proceeding under Section 147 of the Act. The reason to believe has been

appropriately understood by the assessing officer and there is material on the

basis of which the notice was issued. As has been held in Phool Chand

Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar

Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of

the Constitution of India pertaining to sufficiency of reasons for formation of

the belief, cannot interfere. The same is not to be judged at that stage. In

SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not

discernible whether the assessing officer had applied his mind to the

information and independently arrived at a belief on the basis of material

which he had before him that the income had escaped assessment. In our

considered opinion, the decision rendered therein is not applicable to the

factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt.