Delhi High Court
Synfonia Tradelinks Pvt Ltd vs Income Tax Officer, Ward-22(4) on 26 March, 2021
Equivalent citations: AIRONLINE 2021 DEL 408
Author: Rajiv Shakdher
Bench: Rajiv Shakdher, Talwant Singh
$-J-1
+ IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on 15.03.2021
Judgement pronounced on 26.03.2021
+ W.P.(C) 12544/2018
SYNFONIA TRADELINKS PVT LTD .....Petitioner
Through: Mr. Udaibir Singh Kochar and
Ms. Kunjala Bhardwaj, Advs.
versus
INCOME TAX OFFICER, WARD-22(4) .....Respondent
Through: Ms. Vibhooti Malhotra and Mr.
Shailendra Singh, Adv.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MR. JUSTICE TALWANT SINGH
RAJIV SHAKDHER, J.: -
TABLE OF CONTENTS
Preface ............................................................................................................... 2
Background facts ............................................................................................... 2
Submissions made on behalf of the assessee ...................................................... 5
Submissions advanced on behalf of the Revenue ............................................... 7
Analysis and Reasons ...................................................................................... 10
Conclusion ....................................................................................................... 20
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By:VIPIN KUMAR RAI
Signing Date:26.03.2021
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Preface: -
1. This writ petition is directed against notice dated 31.03.2018, issued
under Section 148 of the Income Tax Act, 1961 [hereafter referred to as 'the
Act'], and the sanction accorded by respondent no. 2 i.e. the Principal
Commissioner of Income Tax, Delhi-VIII on 29.03.2018 for issuance of notice
under Section 148 of the Act. The assessee, being aggrieved, has moved this
court via the instant writ petition.
Background facts: -
2. To adjudicate upon the writ petition, the following broad facts are
required to be noticed:
2.1. The assessee before us is a private limited company going by the name
Synfonia Tradelinks Pvt. Ltd. The assessee was incorporated on 28.05.1993
under the Companies Act, 1956 albeit under the name Synfonia
Pharmaceuticals Pvt. Ltd. On 31.03.2015, the assessee changed its name to
Synfonia Tradelinks Pvt. Ltd.
2.2. The income tax return for the assessment year [in short 'AY'] 2010-2011
along with the balance sheet as on 31.03.2010 was filed by the assessee, on
23.09.2010.
2.3. Insofar as the succeeding year was concerned, which is also the AY in
issue i.e. AY 2011-2012, the income tax return was filed on 29.08.2012 by the
assessee along with the balance sheet as on 31.03.2011. Returns for the
aforementioned AY(s) were filed via electronic mode.
2.4. On 31.03.2018, which was the last date on which the limitation was to
expire, a notice under Section 148 of the Act was issued by respondent no.1,
wherein respondent no.1 inter alia stated that he had reason to believe that
income chargeable to tax qua AY 2011-2012 had escaped assessment within the
meaning of Section 147 of the Act. Accordingly, the assessee was directed to
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file a return in the prescribed form for the said AY as respondent no.1 proposed
to assess/re-assess the income/loss for the concerned AY.
2.5. The record shows that the assessee had, perhaps, written to respondent
no.1 on 03.04.2018 to close the reassessment proceedings as the notice under
Section 148 qua AY 2011-2012 was time-barred having been served upon him
after the expiry of the prescribed limitation. As indicated above, the limitation
for issuance of notice expired, concededly, on 31.03.2018. This aspect finds
mention in the assessee's communication dated 23.04.2018 addressed to
respondent no.1. Besides this, the said communication went on to state, that
without prejudice to its contention that the notice under Section 148 of the Act
was time-barred, it had enclosed a copy of the income tax return qua AY 2011-
2012.
2.6. In addition to the aforesaid, the assessee also called upon respondent no.1
to furnish a copy of the reasons based on which he believed that the assessee's
income for AY 2011-2012 had escaped assessment. The communication
concluded with a request to respondent no.1 to furnish a copy of the approval,
granted by respondent no.2, for initiating proceedings under Section 147 of the
Act.
2.7. Since respondent no.1 did not furnish a copy of the proceedings in which
he had documented his reasons for initiating proceedings under Section 147 of
the Act, the assessee escalated the matter, by writing to the Assistant
Commissioner of Income Tax [in short 'ACIT'] vide communication dated
09.06.2018. In this communication, while flagging the issue that the assessee
has not been furnished reasons for initiating proceedings under Section 147 of
the Act, reference was also made to the fact that the assessee's case had also
been picked up for initiating proceedings under Section 147 in AY 2009-2010
and AY 2010-2011 when additions amounting to Rs. 3,06,00,000/- and Rs.
2,30,62,500/- respectively had been made. Furthermore, the assessee pointed
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out that its share capital, which included reserves and surplus as on 31.03.2010,
amounted to Rs. 3,87,78,048/-; a figure which had remained consistent since the
financial year [in short 'FY'] 2005-2006.
2.8. Even while this request was pending, the assessee was served with a
notice dated 02.08.2018 under Section 143(2) of the Act vis-à-vis AY 2011-
2012 as also a notice of even date i.e. 02.08.2018 for the said AY under Section
142(1) of the Act.
2.9. Finally, on 14.09.2018, the petitioner was furnished, the reasons for
issuance of notice under Section 148 of the Act. In response to the same, the
assessee filed its objections. Respondent no.1 vide order dated 08.10.2018
rejected the objections preferred by the assessee. This order was handed over to
the chartered accountant of the assessee on 12.10.2018.
3. It is in these circumstances that the assessee was propelled to move this
court by way of the instant writ petition. The court, while issuing notice dated
26.11.2018, which was accepted by the counsel for the revenue, made the
following observations:
"Issue Notice. Mr. Deepak Anand, Jr. Standing Counsel accepts notice.
This Court is of the opinion that the petitioner/applicant's grievance is
with respect to non-application of mind by the concerned officer (A.O.) to
issue the impugned notice under Sections 147/148 is prima facie
warranted and justified.
In these circumstances, the respondents are hereby restrained from
passing a final order in the re-assessment proceedings during the
pendency of the present writ petition.
The Revenue is directed to produce the original file for consideration on
the next date of hearing.
List on 11th February, 2019.
Dasti."
4. Since then, respondent no.2 has filed a counter-affidavit on behalf of the
revenue.
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Submissions made on behalf of the assessee: -
5. Arguments in the matter on behalf of the assessee have been advanced by
Mr. Udaibir Singh Kochar, while on behalf of the revenue submissions have
been made by Mr. Shailendra Singh.
6. Briefly, Mr. Kochar made the following submissions:
i. That respondent no. 2, who is the sanctioning authority under Section 151
of the Act, has not applied his mind to the reasons, supposedly, recorded
by respondent no.1. Respondent no.2 has simply rubber-stamped the
reasons by simply writing, "approved".
ii. Furthermore, the assessee has also gone on to aver that, the approval for
issuance of notice under Section 148 of the Act, and commencement of
proceedings under Section 147 of the Act were sought by ACIT and not
by respondent no.1. It is averred by the assessee that since the notice was
issued after the expiry of four years from the end of the relevant
assessment year under the provisions of Section 151 of the Act, the ACIT
had no role to play in the process of grant of sanction.
iii. There was a total non-application of mind by both respondent no.1 and
respondent no.2, inasmuch as they did not correlate the information
received from the Additional Director of Income Tax (Investigation) Unit
2(1) [in short 'ADIT'], and that which was available in the income tax
return and the balance sheet filed by the assessee. It was submitted that
not only the information concerning the authorized capital, issued and
subscribed paid-up capital and share premium account was wrongly
recorded but also an error as gross as that which pertained to its year of
commencement of business had crept in the order recording reasons. It
was submitted that respondent no.1 proceeded on the basis that FY 2010-
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2011 was the assessee's first year of business whereas the assessee's
incorporation took place as far back as 28.05.1993.
a) In support of the aforesaid plea, the reference was made to the
following facts and figures:
Figures referred to in the order containing Correct figures as per return
reasons recorded by respondent no. 1
Authorised Capital Authorised Capital
Rs. 1,25,00,000/-
Rs. 25,00,000/-
Issued and Subscribed Paid-up Capital Issued and Subscribed Paid-up Capital
Rs. 16,00,000/- Rs. 24,15,200/-
Share Premium Account Share Premium Account
Rs. 14,83,40,250/-
Rs. 3,66,16,800/-
iv. Although respondent no.1 in the notice issued under Section 148 of the
Act has referred to the report of the ADIT, there is no discussion qua the
said report in the order recording reasons. Therefore, it is difficult to
discern from the order recording reasons as to what was the basis of the
formation of belief by respondent no.1 that the assessee's income
chargeable to tax had escaped assessment.
v. Respondent no.1 erred in rejecting the objections raised by the assessee
by relying upon a purported statement of one, Mr. Pradeep Kumar Jindal,
who had allegedly provided accommodation entries to the assessee
without furnishing a copy of the statement made by the said person.
vi. Respondent no. 2, via the counter-affidavit, has attempted to justify the
issuance of notice under Section 148 of the Act by adverting to matters
which are not found in the order recording reasons for initiating
proceedings under Section 147 of the Act. The revenue cannot supply
reasons by way of counter-affidavit which were not available at the time
of issuance of a notice under Section 148 of the Act.
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vii. We may note, at this juncture, that the grounds set forth hereafter are the
grounds incorporated in the writ petition which were not articulated
during the submissions made in the Court before us:
a) The assessee has averred that while the reasons, which were
furnished to the assessee, were recorded by ITO Ward 22(4), the
reasons, purportedly given for obtaining approval of respondent
no.2, were recorded by ITO Ward 22(2).
b) Besides this, the assessee has also averred that although, according
to the revenue, the sanction was accorded by respondent no.2
before the issuance of the notice dated 31.03.2018 under Section
148 of the Act, the order granting sanction was served upon it only
on 01.11.2018 and that too, after repeated requests. According to
the assessee, the inordinate delay in the dispatch of the sanction
order was suggestive of the fact that the sanction was not granted
before the issuance of a notice under Section 148 of the Act. In
support of this submission, reliance was placed on the judgement
of the Supreme Court rendered in State of Andhra Pradesh v. M.
Ramakishtaiah & Co. [1994] 93 STC 406(SC).
Submissions advanced on behalf of the Revenue: -
7. On the other hand, Mr. Shailendra Singh, submitted that respondent no.1
had reasons to believe that the taxable income of the assessee, for the concerned
AY 2011-2012, had escaped assessment.
7.1. Mr. Singh contended that notwithstanding the obvious errors in the order
recording reasons passed by respondent no.1, concerning assessee's authorized
capital, issued and subscribed paid-up capital, the share premium account and
the year of its incorporation, no fault could be found in the initiation of
reassessment proceedings under Section 147 of the Act since all that respondent
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no.1 was required to demonstrate that the formation of the belief that the taxable
income had escaped assessment was not based on reasons which were either
arbitrary or irrational. To demonstrate that the formation of the belief, as
discernible from the order recording reasons, was neither arbitrary nor
irrational, a reference was made to the following portion of the said order :
"Further, on perusal of return of income filed by the assessee for A.Y 2010-11 and
A.Y 201l-12 it has been observed that the assessee has shown unsecured loans of Rs.
38,071/- and Rs. 25,57,206/- respectively. Thus there is substantial increase in the
unsecured loans during A.Y. 2011-12.
A careful scrutiny of information received from the investigation wing and
reportreceived from Investigation Wing. New Delhi subsequent analysis of report of
investigation wing, data of transactions and verification of ITR lead to an irresistible
conclusion that the assessee company has taken accommodation entry at least up to the
amount of Rs.26,93 ,500/-
Considering the above referred credible information, and enquiries and analysis
subsequent to the information. I have reason to believe that an amount at least of
Rs.26,93,500/- & Commission @ 2.5% amounting to Rs 67,338/- (Total Rs.27,60,838/-)
has escaped assessment in case the of M/s SYNFONIA TRADELINKS PVT. LTD for the
A. Y 2011-12 within the meaning of Section 14 7/148 of Income-tax Act, 1961."
7.2. The submission advanced was that the assessee had taken
accommodation entries from, one, Mr. Pradeep Kumar Jindal in lieu of cash via
dummy companies/entities which was reflected in the balance sheets of the
assessees as unsecured loans. It was contended that this fact was discovered
upon search being conducted at the premises of Mr. Pradeep Kumar Jindal on
18.11.2015.
7.3. Mr. Singh attempted to explain away the assertion made in the order
recording reasons "Thus the assessee company has taken bogus share
capital/share premium account from the above said entry providers amounting
to Rs.26,93,500/-" by submitting that the reference to share capital/share
premium account was an inadvertent error.
7.4. According to Mr. Singh, the accommodation entries were reflected in the
return of the assessee which is accompanied by its balance sheets in the form of
unsecured loans. It was, thus, the contention of Mr. Singh that at the stage of
initiation of reassessment proceedings, all that one is required to enquire is
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whether or not prima facie material was available, which could form the basis
for reassessment. Mr. Singh emphasized the fact that, at this stage, the court
was not required to examine the sufficiency or correctness of the material,
which formed the edifice for the formation of the belief that the assessee's
taxable income had escaped assessment. In support of this plea, reliance was
placed by Mr. Singh on the judgment of the Supreme Court rendered in
Raymond Wooden Mills Limited v. Income Tax Officer, Central Circle XI,
Range Bombay and Ors., (2008) 14 SCC 218
7.5. Mr. Singh drew our attention, as noted above, to that part of the order
recording reasons which bore the heading "analysis of information" to
emphasize the fact that reassessment proceedings had been initiated as
respondent no.1 suspected the genuineness of the loans received during the
subject AY.
7.6. In sum, Mr. Singh argued that there was cogent material available for
respondent no.1 to form a belief that the assessee's taxable income had escaped
assessment. This information, according to Mr. Singh, which was received from
the office of the ADIT and the report generated thereafter and its analysis
formed the basis of respondent no.1's belief that the assessee's income
chargeable to tax had escaped assessment.
7.7. Mr. Singh went on to state that respondent no.2 had given his approval to
initiation of proceedings against the assessee only after satisfying himself that a
case was made out for initiation of proceedings under the provisions of Section
147 of the Act.
8. We may record here that a perusal of the counter-affidavit filed by
respondent no.2 would show that the revenue has denied the allegation levelled
against it that a breach of principles of natural justice had occurred by adverting
to the fact that it had furnished the relied upon documents (i.e. the information
received from the investigation wing and the statements of Mr. Pradeep Kumar
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Jindal and his associates i.e. Shri Laxman Singh Satyapal and Ms. Meera
Mishra) to the authorized representative of the assessee at the proceedings held
before the respondent no.1 on 12.10.2018.
Analysis and Reasons: -
9. We have heard the learned counsel for the parties and perused the record.
Before we proceed further, it would be helpful if we were to set forth certain
well-established principles enunciated by the courts over the years vis-à-vis
initiation of proceedings under Section 147 of the Act.
(i) The reasons which lead to the formation of opinion or belief that the
assessee's income chargeable to tax has escaped assessment should be
inextricably connected. In other words, the reasons for the formation of opinion
should have a rational connection with the formation of the belief that there has
been an escapement of income chargeable to tax (See: ITO v. Lakhmani Mewal
Das, 1976 3 SCC 757]
(ii) The expression "reason to believe" is stronger than the word "satisfied".
The belief should be based on material that is relevant and cogent. (See: Ganga
Saran & Sons Pvt. Ltd. v. ITO, 1981 3 SCC 143].
(ii) (a) The assessing officer should have reasons to believe that the taxable
income has escaped assessment. The process of reassessment cannot be
triggered based on a mere suspicion. The expression "reason to believe" which
is found in Section 147 of the Act does not have the same connotation as
"reason to suspect". The order recording reasons should fill this chasm. The
material brought to the knowledge of the assessing officer should have nexus
with the formation of belief that the taxable income of the assessee escaped
assessment; the link being the reasons recorded, in that behalf, by the assessing
officer.
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(iii) The AO is mandatorily obliged to record reasons before issuing notice to
the assessee under Section 148(1) of the Act. This is evident from the bare
perusal of sub-section (2) of Section 148 of the Act.
(iv) No notice can be issued under Section 148 of the Act by the A.O. after
the expiry of four years from the end of the relevant AY unless the Principal
Chief Commissioner or Chief Commissioner or Principal Commissioner or
Commissioner arrives at a satisfaction based on the reasons recorded by the
A.O. that it is a fit case for issuance of a notice under Section 148 of the Act.
[See: Section151(1) of the Act].
(v) The limitation for issuance of notice under Section 148 as prescribed
under Section 149 of the Act commences from the date of its issuance while the
time limit for passing the order of assessment, reassessment, computation and
re-computation as prescribed under Section 153 of the Act commences from the
date of service [See: R.K. Upadhyay v. Shanab Bhai P. Patel, (1987) 3 SCC 96].
(vi) A jurisdictional error would occur, which can be corrected by a writ
court, if reasons to believe are based on grounds that are either arbitrary and/or
irrational. (See: Sheo Nath Singh v. Appellate ACIT, Calcutta (1972) 3 SCC
234].
9.1. Thus, if one were to apply the aforestated principles, it would be clear as
daylight that the order recording reasons discloses complete non-application of
mind. The reason we say so is discernible from the following:
9.2. Respondent no.1 in paragraphs 2 and 3 of the order recording reasons has
unequivocally stated that under the heading "Details of information received
regarding escapement of income and analysis" that material impounded during
the search conducted at the premises of Mr. Pradeep Kumar Jindal had, inter
alia, revealed that he had made investments in the form of share capital, share
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premium, loans and advance in lieu of cash via front/non-listed companies
controlled by dummy directors to the tune of nearly Rs.100 crores which
included the assessee. It is in this context that in the order recording reasons,
the following table is set out:
S.No. Beneficiaries Name of Entry Date Amount (Rs.)
Provider
i. Synfonia Pharmaceuticals Pvt. Dume Footwears 09.06.2010 17,00,000
Ltd. Pvt. Ltd.
Name changed to Synfonia
Tradelinks Pvt. Ltd.
ii. Synfonia Pharmaceuticals Pvt. Dume Footwears 09.06.2010 5,00,000
Ltd. Pvt. Ltd.
iii. Synfonia Pharmaceuticals Pvt. Dume Footwears 22.06.2010 1,00,000
Ltd. Pvt. Ltd.
Synfonia Pharmaceuticals Pvt. Focus Industrial 24.05.2010 43,500
Ltd. Resources Ltd.
Synfonia Pharmaceuticals Pvt. Pawansut Holdings 24.05.2010 3,50,000
Ltd. Ltd.
Total 26,93,500/-
The table extracted above, as noted in the earlier part of the judgment, is
followed by the following assertion which is made in the order recording
reasons:
"Thus, the assessee company has taken bogus share capital/share premium from the
said entries providers amounting to Rs.26,93,500/-."
9.3. Furthermore, respondent no.1 in no uncertain terms, has indicated in the
order recording reasons that the information which triggered the initiation of
proceedings qua the assessee under Section 147 of the Act was received upon a
search being carried out at the residence of Mr. Pradeep Kumar Jindal. While a
general statement had been made that Mr. Pradeep Kumar Jindal had provided
accommodation entries in the form of share capital/share premium, loans and
advances, in lieu of cash, qua a large number of beneficiaries through his front
companies, insofar as the assessee was concerned, it was emphasized that the
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accommodation entry was reflected in its books in the form of bogus "share
capital and share premium".
9.4. Respondent no.1, in paragraph 4 of the order recording reasons, in no
uncertain terms alludes to the fact that the information was received from the
investigation wing. The emphasis was laid on the fact that the entry providers
were three companies i.e. Dume Footwears Pvt. Ltd., Focus Industrial
Resources Ltd. and Pawansut Holdings Ltd. A perusal of the order recording
reasons shows that the purported investments made via these entities were
quantified at Rs.26,93,500/-. This information which was the underlining
material based on which proceedings under Section 147 of the Act were
triggered was correlated with the return of income filed by the assessee for the
concerned AY i.e. AY 2011-2012. In correlating the information, concededly,
respondent no.1 made errors with regard to the basic information provided by
the assessee in its balance sheet for the year ending on 31.03.2011 concerning
authorized share capital, issued and subscribed paid-up share capital, share
premium and even as regards the year in which the assessee had been
incorporated. The facts and figures have already been recorded in paragraphs 2
to 2.9 above. Therefore, the correlation between the underlying material and
the information which was available in the balance sheet of the assessee was
clearly not made.
9.5. Mr. Singh, in a desperate attempt to salvage the situation, drew our
attention to the unsecured loans shown in the income tax returns of the assessee
for AYs 2010-2011 and 2011-2012 amounting to Rs.38,071/- and
Rs.25,57,206/- respectively. Apart from anything else, simple math would
show that the cumulative total of these figures is Rs.25,95,277/- and not
Rs.26,93,500/- which, according to respondent no. 1, is the unexplained credit
in the books of accounts of the assessee and, hence, required to be added under
Section 68 of the Act. Therefore, for Mr. Singh to say that these are inadvertent
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errors and hence should be ignored, in our opinion, is an argument that is
completely misconceived. As indicated above, if the information received (from
the investigation wing) was that the accommodation entries, in lieu of cash,
were taken in the form of share capital and share premium they could certainly
not be linked to unsecured loans received in AYs 2010-2011 and 2011-2012.
9.6. It is pertinent to note that in the objections filed by the assessee, an
attempt has been made to explain the purported accommodation entries by
stating therein that the advances had been given to the 5 companies adverted to
in the order recording reasons which were received back on the dates given in
the said order. The assessee also went on to state, in its objections, that the
opening balance (as on 01.04.2010) and closing balance (as on 31.03.2011) of
the share premium account (Rs. 3,66,16,800/-) and the share capital account
(Rs. 24,15,200/-) remained unchanged. In other words, the emphasis was that
there was no increase in the share capital or the share premium account, as
alleged, or at all. In the order passed by the assessing officer dated 08.10.2018,
whereby, the objections of the assessee were rejected; none of this has been
dealt with. Therefore, in our view, while the assessing officer may suspect that
the taxable income of the assessee escaped assessment, he could not have
formed a belief qua the same based on the material which is, presently, on
record.
9.7. Therefore, in our opinion, the formation of belief by respondent no.1 that
income of the assessee chargeable to tax had escaped assessment, was
unreasonable and irrational, as it could not be related to the underlining
information; something which is discernible from a bare reading of the order
recording reasons.
9.8. This apart, what is even more disconcerting is the fact that respondent
no.2, who accorded sanction for triggering the process under Section 147 of the
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Act, simply rubber-stamped the reasons furnished by respondent no.1 for
issuance of notice under Section 148 of the Act.
9.9. The provisions of Section 151(1) of the Act required respondent no.2 to
satisfy himself as to whether it was a fit case in which sanction should be
accorded for issuance of notice under Section 148 of the Act and, thus,
triggering the process of reassessment under Section 147. The sanction-order
passed by respondent no.2 simply contains the endorsement 'approved'.
10. In our view, the sanction-order passed by respondent no.2 presents,
metaphorically speaking 'the inscrutable face of sphinx' (See: Breen v.
Amalgamated Engineering Union [1971] 2 QB 17500; Also see: State of H.P.
v. Sardara Singh, (2008) 9 SCC 392). In our view, the satisfaction arrived at by
the concerned officer should be discernible from the sanction-order passed
under Section 151 of the Act. In this context, the observations made by the
Supreme Court in Chhugamal Rajpal vs. S.P. Chaliha, (1971) 1 SCC 453
being apposite are extracted hereafter :
"... Further the report submitted by him under Section 151(2) does not mention
any reason for coming to the conclusion that it is a fit case for the issue of a
notice under Section 148. We are also of the opinion that the Commissioner has
mechanically accorded permission. He did not himself record that he was
satisfied that this was a fit case for the issue of a notice under Section 148. To
Question 8 in the report which reads "whether the Commissioner is satisfied that
it is a fit case for the issue of notice under Section 148", he just noted the word
"yes" and affixed his signatures thereunder. We are of the opinion that if only he
had read the report carefully, he could never have come to the conclusion on the
material before him that this is a fit case to issue notice under Section 148. The
important safeguards provided in Sections 147 and 151 were lightly treated by
the Income Tax Officer as well as by the Commissioner. Both of them appear to
have taken the duty imposed on them under those provisions as of little
importance. They have substituted the form for the substance. "
[Emphasis is ours]
10.1. Also see the observations made in the judgment of the Division Bench of
this Court in The Central India Electric Supply Co. Ltd. vs. Income Tax
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
19:59:43
Officer, Company Circle - X, New Delhi & Anr., (2011) SCC OnLine Del 472
: (2011) 333 ITR 237.
"19. In respect of the first plea, if the judgments in Chuggamal Rajpal's case (supra);
Chanchal Kumar Chatterjee's case (supra); and Govinda Choudhury & Sons's case
(supra) are examined, the absence of reasons by the assessing officer does not exist.
This is so as along with the proforma, reasons set out by the assessing officer were, in
fact, given. However, in the instant case, the manner in which the proforma was
stamped amounting to approval by the Board leaves much to be desired. It is a case
where literally a mere stamp is affixed. It is signed by a Under Secretary underneath a
stamped 'Yes' against the column which queried as to whether the approval of the
Board had been taken. Rubber stamping of underlying material is hardly a
process which can get the imprimatur of this Court as it suggests that the
decision has been taken in a mechanical manner. Even if the reasoning set out by
the ITO was to be agreed upon, the least, which is expected, is that an
appropriate endorsement is made in this behalf setting out brief reasons.
Reasons are the link between the material placed on record and the conclusion
reached by an authority in respect of an issue, since they help in discerning the
manner in which conclusion is reached by the concerned authority. Our opinion is
fortified by the decision of the Apex Court in Union of India v. M.L. Capoor and Ors.
MANU/SC/0405/1973 : AIR 1974 SC 87 wherein it was observed as under:
27. ... We find considerable force in the submission made on behalf of the
Respondents that the "rubber-stamp" reason given mechanically for the
supersession of each officer does not amount to "reasons for the proposed
supersession". The most that could be said for the stock reason is that it is a
general description of the process adopted in arriving at a conclusion. ... ... ...
...
28. ... If that had been done, facts on service records of officers considered by
the Selection Committee would have been correlated to the conclusions
reached. Reasons are the links between the materials on which certain
conclusions are based and the actual conclusions. They disclose how the mind
is applied to the subject matter for a decision whether it is purely
administrative or quasi-judicial. They should reveal a rational nexus between
the facts considered and the conclusions reached. Only in this way can
opinions or decisions recorded be shown to be manifestly just and reasonable.
...
(emphasis supplied)
This is completely absent in the present case. Thus, we find force in the contention
of learned Counsel for the Appellant that there has not been proper application
of mind by the Board and if a proper application had taken place, there would
have been no reason to re-open the closed chapter in view of what we are setting
out hereinafter."
[Emphasis is ours]
W.P.
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
19:59:43
10.2. We may also note that apart from respondent no.2, the order, according
sanction also bears an endorsement of the ACIT. For the sake of convenience,
the said endorsement is set forth hereafter:
"On perusal of information received from the investigation wing & reasons recorded
by AO, I am satisfied that Rs. 27,60,838/- has escaped taxation.
Approval for reopening may be granted."
10.3. There is no explanation by the revenue as to why approval of ACIT was
taken in the instant case. Even if we were to assume for the moment that the
approval of the ACIT was rightly taken, a bare perusal of the endorsement
would show that there is no application of mind as to whether the information
received by the AO had any nexus with the formation of honest belief that the
assessee's taxable income had escaped. What is glaring is that the ACIT notes
that income to the tune of Rs.27,60,838/- had escaped taxation whereas, in the
order recording reasons, the taxable income has been quantified as
Rs.26,93,500/-. As noted above, based on the arguments of Mr. Singh that the
escaped income should be related to unsecured loans, there is in play a third
figure which is Rs.25,95,277/-.
10.4. The reliance placed by Mr. Singh on paragraphs 40 to 43 of the judgment
of a division bench of this court in Experion Developers Pvt. Ltd. and Ors. vs.
Assistant Commissioner of Income Tax and Ors. [2020] 422 ITR 355(Delhi)
in support of his submissions that the order granting sanction for initiation of
proceedings under Section 147 was valid is misconceived as a careful perusal of
paragraph 42 of the said judgment would show that the learned judges were of
the view that there was no requirement to provide elaborate reasoning while
granting approval if the principal commissioner was satisfied with the reasons
recorded by the AO. In that case, while according sanction, the principal
commissioner had at least paid lip service to the provision by noting "I am
satisfied that it is a fit case for notice under Section 148". In the instant case,
respondent no.2, i.e. the principal commissioner, has not even made such an
W.P.
Signature Not (C) 12544/2018
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
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endorsement. This apart, the endorsement of the ACIT should have indicated to
respondent no.2 if nothing else that there was something amiss when the
escaped income is quantified as Rs. 25,95,277/- whereas in the order recording
reasons, penned by respondent no.1, the escaped income was quantified as
Rs.26,93,500/-.
10.5. As noted above, in the instant case, because of the failure on the part of
respondent no.1 to correlate the information received with the ostensible
formation of belief by him, respondent no.2 attempted to connect, via her
counter-affidavit, that the escaped income with the "suspicious" unsecured loan
entries reflected in the assessee's returns for AY 2010-2011 and 2011-2012. As
correctly argued by Mr. Kochar, the counter-affidavit and the submissions made
across the bar cannot be used to sustain the impugned actions. The order
recording reasons and the order granting sanction should speak for themselves.
(See observations made Commissioner Of Police, Bombay vs Gordhandas
Bhanji AIR 1952 SC 16 and Mohinder Singh Gill and Ors. vs. The Chief
Election Commissioner, New Delhi and Ors. (1978) 1 SCC 405)
10.6. Insofar as the ground taken in the writ petition is concerned, that the
notice issued under Section 148 was barred by limitation, we are of the view
that this submission advanced on behalf of the assessee is not sustainable. As
noticed above, the limitation provided under Section 149 of the Act for issuance
of notice commences from the date when the notice is issued and not when the
notice served. The record presently, before us shows that the notice was issued
on 31.03.2018. Therefore, this submission made on behalf of the petitioner is
rejected.
10.7. The other argument advanced on behalf of the assessee that the notice
under Section 148 was issued by an AO Ward No.22(4) while the order
recording reasons was issued by another officer is not borne out from the
record.
W.P.
Signature Not (C) 12544/2018
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
19:59:43
10.8. This brings us to another ground raised in the writ petition, which is, that
there was a huge time lag between the issuance of the impugned notice under
Section 148 of the Act and the date when the order recoding reasons was
furnished to the authorized representatives of the petitioner. While the assessee
is, in our view, right in contending that if the time lag is huge, it does point in
the direction that the order was ante-dated, a final view on this aspect could
have only been taken if the original record was examined by us. Since the
revenue has denied the allegation levelled against it and Mr. Kochar did not
press this issue during the hearing, we can't reach a definitive view on this
aspect of the matter based on the record available before us Therefore, this
submission, made on behalf of the assessee, cannot be accepted.
11. Given the aforesaid, we are also of the view that since respondent no.1
was unable to link the information received with the formation of belief, a
jurisdictional error did occur, which, this Court, is empowered to correct, by
exercising its powers under Article 226 of the Constitution of India (See:
Calcutta Discount Co. Ltd. vs. Income Tax Officer, Companies District I
Calcutta and Another, (1961) 2 SCR 241).
11.1. Although Mr. Singh did argue that the assessee should be relegated to
statutory remedies, in our view, a case is made out for interference at this stage
itself. According to us, relegating a party to an alternative remedy is a self-
imposed limitation which, however, does not denude the court of its powers
under Article 226. The Court is duty-bound to exercise its powers under Article
226 where ever it finds that a statutory authority has exercised its jurisdiction
either irregularly or acted in a matter in which it had no jurisdiction or
committed a breach of the principles of natural justice.
11.2. Before we conclude, we must also indicate that the order recording
reasons neither discusses the contents of the report received from the
investigation wing or the statements made by Mr. Pradeep Kumar Jindal and his
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Signature Not (C) 12544/2018
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
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associates. The order recording reasons, merely, indicates that the formation of
belief is based on these sources. Furthermore, although, there is a reference to
Shri Laxman Singh Satyapal and Ms. Meera Mishra in paragraph 3.14 of the
counter-affidavit, as persons, whose statements were also recorded during the
search, which formed the basis of initiation of proceedings under Section 147 of
the Act, there is no reference to them in the order recording reasons.
11.3. Besides this, the revenue has taken the position that not only the report of
the investigation wing but also the statements of Mr. Pradeep Kumar Jindal and
his aforementioned associates were furnished to the authorized representative of
the assessee in the proceedings held before respondent no.1 on 12.10.2018 (See
para 3.6 of the counter-affidavit). The proceedings sheet of 12.10.2018 [which
is appended with the counter-affidavit] does not refer to this fact. Therefore,
apart from anything else, a case could have been made out also of breach of
principles of natural justice. For the reasons best known, Mr. Kochar did not
press this issue. We need not elaborate any further on this aspect of the matter
as our decision does not turn on whether or not there has been a breach of
principles of natural justice.
Conclusion: -
12. Thus, for the foregoing reasons, we are inclined to quash the impugned
notice dated 31.03.2018 issued under Section 148 of the Act as well as the order
granting sanction issued by respondent no.2. It is ordered accordingly. Parties
will bear their own cost.
W.P.
Signature Not (C) 12544/2018
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Digitally Signed
By:VIPIN KUMAR RAI
Signing Date:26.03.2021
19:59:43
13. The case papers shall stand consigned to record.
RAJIV SHAKDHER, J.
TALWANT SINGH, J.
MARCH 26, 2021 Click here to check the corrigendum, if any W.P. Signature Not (C) 12544/2018 Verified Page 21 of 21 Digitally Signed By:VIPIN KUMAR RAI Signing Date:26.03.2021 19:59:43