Sabh Infrastructure Ltd. v. Asstt. Commissioner of Income-tax
[Citation -2017-LL-0925-4]

Citation 2017-LL-0925-4
Appellant Name Sabh Infrastructure Ltd.
Respondent Name Asstt. Commissioner of Income-tax
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 25/09/2017
Judgment View Judgment
Keyword Tags reopening of assessments • share application money • source of income • share capital • book entry
Bot Summary: Reasons to believe were extracted and furnished on 16th December, 2015, which state as under: Reasons recorded for initiating proceedings u/s 148 of the I.T. Act, 1961 A credible information has been received to this office from the ITO, Unit V(2), Jhandewalan Extension, New Delhi vide their letter No. F.No. The assessment u/s 143 in this case was completed on 20/12/2010 at assessed income of Rs.2,15,45,860/- Hence, I have reasons to believe that an amount of Rs.1,00,00,000/- as per reasons mentioned above, has escaped assessment in the case of Assessee relevant to AY 2008-09, within the meaning of Section 147 of the IT Act. Since, in the instant case, the period of 4 years has expired and income escaped by reasons of the failure on the part of the Assessee to show true particulars of his income, Accordingly, the case falls under Section 151 of the IT Act, 1961 the reasons are put up before CIT, Delhi VIII, New Delhi through Addl. In the present case, the reasons to believe contained the names of the very same five companies which were initially disclosed by the Petitioner during the assessment proceedings. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. The report does not form part of the reasons and neither was it annexed to the reasons. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and W.P. 1357/2016 Page 12 of 13 any enquiry conducted by the AO on the same and if so, the conclusions thereof; where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; the exercise of considering the Assessee s objections to the reopening of assessment is not a mechanical ritual.


$ 24 * IN HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1357/2016 SABH INFRASTRUCTURE LTD. Petitioner Through : Mr. Salil Kapoor, Mr. Sumit Lalchandani, Ms. Ananya Kapoor, Mr.Sanat Kapoor, Advocates. versus ASSTT. COMMISSIONER OF INCOME TAX Respondent Through : Mr. Rahul Chaudhary, Senior Standing Counel with Mr. Sanjay Kumar, Junior Standing Counsel. CORAM: JUSTICE S. MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 25.09.2017 1. Petitioner seeks quashing of notice dated 20th March, 2015 issued under Section 148 of Income Tax Act ( Act ) by Assistant Commissioner of Income Tax (hereinafter Assessing Officer AO ) and order dated 1st February, 2016 passed by AO disposing of objections filed by Petitioner to said notice. 2. Petitioner is company engaged in business of real estate and property development. It filed its return of income for Assessment Year ( AY ) 2008-09 on 30th September, 2008 declaring total income of W.P. (C) 1357/2016 Page 1 of 13 Rs.59,83,183/-. questionnaire dated 4th August, 2013 was issued to Petitioner by AO seeking details and documents as part of assessment proceedings. One such detail sought for was with respect to share application money received, if any, during year . Petitioner replied to questionnaire on 11th October, 2010. In its reply, Petitioner disclosed details of share capital allotted during AY as under:- S.NO. Name of Party Assessment No. of Shares Amount Particulars Issued 1. CHANDELIER TRACON AABCC1624N 4,000 400,000.00 PVT. LTD. WBG/W/110/2 6, HANS PUKUR LANE, ITO WD 10(2) KOLKATA-7 2. ELEGANCE TRADE & AAACE7011L 4,000 400,000.00 HOLDING PVT. LTD. WBG/W/105/3 6, HANS PUKUR LANE, ITO WD 5(3) KOLKATA-7 3. ECHOLAC VINIMAY PVT. AAACE5809N 4,000 400,000.00 LTD. WBG/N/109/2 6, HANS PUKUR LANE, ITO WD 9(2) KOLKATA-7 4. GALORE SUPPLIERS PVT. AAACG9662P 2,000 200,000.00 LTD. WBG/W/109/1 2, DIGAMBER, JAIN DC AC Cir 9 TEMPLE ROAD, KOLKATA-7 5. SUGAM COMMODEAL AAECS3360A 6,000 600,000.00 PVT. LTD. WBG/W/110/3 2, DIGAMBER, JAIN ITO WD 10(3) TEMPLE ROAD, KOLKATA-7 TOTAL 20,000 2,00,00,000.00 W.P. (C) 1357/2016 Page 2 of 13 3. On 19th November, 2010, Petitioner further submitted confirmation from said five companies along with their ITRs and PAN Cards. On 26th November, 2010, Petitioner further submitted Auditor s Reports, Balance Sheets, Particulars of P&L accounts, and Schedules of Balance Sheet and P&L Account of above named five companies. assessment order under Section 143 (3) of Act was passed by AO on 20th December, 2010, after details regarding five companies and their confirmations were submitted. assessment order, however, did not contain any discussion in respect of share application money. It thus appeared that AO accepted information furnished by Petitioner and raised no further doubt or queries in respect to same. 4. On 20th March, 2015, notice was issued under Section 148 of Act on ground that income had escaped assessment. Reasons to believe were extracted and furnished on 16th December, 2015, which state as under: Reasons recorded for initiating proceedings u/s 148 of I.T. Act, 1961 credible information has been received to this office from ITO (Inv.), Unit V(2), Jhandewalan Extension, New Delhi vide their letter No. F.No.ITO (Inv.) /Unit- V(2)/ND/SAPL & SPIPL/2014-15 dated 29.05.2014 wherein he has stated that during investigation carried out by DDIT(Inv.). Unit III (1), Kolkata, statement of Sh. Navneet Kumar Singhania, s/o Late Jawala Prasad Singhania, r/o D-6/8, Purbasha Housing Estate, Manicktala Main Road, Kankurgachi, Kolkata 700054 was recorded on oath u/s 131 of IT Act, 1961 of 18.03.2014. In his statement, Sh. Navneet Kumar Singhania admitted that he is entry operator, having his office at 5/1, Clive Row, III W.P. (C) 1357/2016 Page 3 of 13 Floor, RN-91, Kolkata -700001. He also admitted that his source of income is from commission earned in lieu of giving service in form of giving cheques to his clients in return for cash. He has also admitted that he along with his team members was operating following paper companies which had provided book entry to M/s Sabh Infrastructure Limited namely:- (a) Chandelier Tracon PL (PAN AABCC1624N) (b) Galore Suppliers PL (PAN AAACG9662P) (c) Echolac Vinimay PL (PAN AAACE5809N) (d) Sugam Commondeal PL (PAN AAECS3360A) (e) Elegance Trade & Holdings PL (PAN AAACE7011L) (f) Subhrekha Vyapaar PL (PAN AADCS8327A) During AY 2008-09 M/s Sabh Infrastructure Limited had received share premium wherein share premium of Rs.400 per share was received on nominal value per share of Rs.100 each. sum total of value of shares so subscribed was Rs.1.00crore in M/s Sabh Infrastructure Limited as details given hereunder: Date 31.03.2008 Name & Address of Company SAM + Premium No. of shares Value Investing paid per share subscribed Chandelier Tracon PL. 100+400 4000 20,00,000 6, Hans Pukur Lane, Kolkata (PAN AABCC1624N) Galore Suppliers PL. 100+400 2000 10,00,000 2 Digamber Jain Temple Road, Kolkata (PAN AAACG9662P) Echolac Vinimay PL. 100+400 4000 20,00,000 6, Hans Pukur Lane, Kolkata (PAN AAACE5809N) Sugam Commondeal PL. 100+400 6000 30,00,000 2, Digamber Jain Temple Road, Kolkata (PAN AAECS3360A) Elegance Trade & Holdings 100+400 4000 20,00,000 PL. 6, Hans Pukur Lane, Kolkata W.P. (C) 1357/2016 Page 4 of 13 (PAN AAACE7011L) 1,00,00,000 Since in light of new facts, it has been established that these companies, from whom share premium has been received by M/s Sabh Infrastructure Limited are not genuine, I am of view that Assessee has not disclosed fully and truly all material facts in its income tax return resulting in under assessment of income of Rs.1,00,00,000/- on account of share premium. assessment u/s 143 in this case was completed on 20/12/2010 at assessed income of Rs.2,15,45,860/- Hence, I have reasons to believe that amount of Rs.1,00,00,000/- as per reasons mentioned above, has escaped assessment in case of Assessee relevant to AY 2008-09, within meaning of Section 147 of IT Act. Since, in instant case, period of 4 years has expired and income escaped by reasons of failure on part of Assessee to show true particulars of his income, Accordingly, case falls under Section 151 (1) of IT Act, 1961, therefore, reasons are put up before CIT, Delhi VIII, New Delhi through Addl. CIT.(Range-22)New Delhi for necessary approval for issue of notice u/s 148 of IT Act, 1961 for purpose of reopening of assessment u/s 147 of Income Tax Act, 1961. 5. Petitioner objected to reopening of assessment under Sections 147 and 148 of Act. In said objections, Petitioner contended that reasons to believe do not contain any allegation as to what material facts and information Petitioner had failed to disclose. Apart from raising various jurisdictional objections, Petitioner also raised objections on merits. objections were rejected by AO on 1st February, 2016. W.P. (C) 1357/2016 Page 5 of 13 Submissions of Petitioner 6. Mr. Salil Kapoor, learned counsel appearing on behalf of Petitioner submits that there was no failure to disclose fully and truly all material facts, during assessment proceedings. Petitioner had candidly disclosed names of all five companies, share amount received from them as also share premium amount received. fact that Petitioner was specifically served with questionnaire seeking these details and that same were submitted to AO clearly points to satisfaction of AO during assessment proceedings. Petitioner did not merely submit details of said five companies and amounts so received but also submitted relevant documents of said five companies including letters of confirmations. Mr. Kapoor submits that all five companies are assessed to tax and hence, it was quite easy for AO to cross verify if need was felt. order under Section 143 (3) of Act having been passed in Petitioner s assessment proceedings for relevant AY and notice under Section 147 having been issued after expiry of four years from end of relevant AY, first proviso to Section 147 is squarely attracted. Therefore, there exists higher onus upon Revenue to discharge its burden of proving that there was non-disclosure by Petitioner. 7. Mr. Kapoor specifically relies on various judgments including CIT v. Kelvinator of India Ltd. (2010) 187 Taxman 312 (hereafter Kelvinator ) and judgments thereafter of this Court. He submits that on perusal of reasons to believe, it can be seen that AO has merely relied upon information received from investigation carried out by DDIT (Inv.) Unit W.P. (C) 1357/2016 Page 6 of 13 III, Kolkata, in which statement of Mr. Navneet Kumar Singhania was recorded on 18th March, 2014 under Section 131 of Act. AO came to conclusion that said five companies were paper companies without examining if said statement was enquired into. He submits that AO did not himself verify any of facts contained in said statement. He further submits that reasons per se do not refer to any investigation report of DDIT (Inv) and even if such report existed, copy thereof, was not furnished to Petitioner. Mr. Kapoor also took exception to manner of communicating reasons. AO has written letter extracting reasons for expiry of assessment instead of furnishing of copies of forms used by AO for obtaining permission of Superior Officer. Petitioner is not aware of what other information was relied upon by AO. He thus submits that notice seeking to reopen assessment under Sections 147 and 148 of Act as also order dated 1st February, 2016 disposing of objections of Petitioner deserve to be quashed. Submissions of Revenue 8. Mr. Rahul Chaudhary, learned Senior Standing counsel for Revenue defends notice as also order dated 1st February, 2016 on ground that reasons recorded clearly spell out necessity to reopen assessment. Mr. Chaudhary submits that in assessment proceedings, AO never had information that these companies were paper companies , and that this information was in fact concealed by Petitioner. Therefore, fact that AO subsequently received information that said companies were paper companies was sufficient to justify issuance of W.P. (C) 1357/2016 Page 7 of 13 notice under Sections 147 and 148 of Act. At this stage, it was not necessary for AO to make detailed enquiry into such information. Mr. Chaudhary asserted that there must have been report of investigation of DDIT on basis of which it was concluded that said five companies were paper companies . However, he was candid that reasons for reopening assessment made no reference to such report. 9. Mr. Chaudhary, further submits that Petitioner should be directed to participate in proceedings. mere issuance of notice does not itself result in conclusion that there is escapement of income. Mr. Chaudhary submits that this was not case where there was no basis for AO to reopen assessment. He relies upon CIT v. Multiplex Trading & Industrial Co. Ltd. 378 ITR 350 (hereafter Multiplex ) as also Pr. CIT v. M/s Paramount Communication Pvt. Ltd. [2017] 392 ITR 444 (Del), in support of Revenue's case. Analysis and Findings 10. law on this subject is well settled. As held in Kelvinator (supra), powers under Section 147 of Act have to be exercised after period of four years only if there is failure to disclose fully and truly all material facts and information, by Assessee. This legal position has been reiterated recently by this Court in Oracle India Pvt. Ltd. v. ACIT 2017 SCC OnLine Del 9360, Unitech Limited v. DCIT 2017 SCC OnLine Del 9408, BDR Builders and Developers Pvt. Ltd. v. ACIT 2017 SCC OnLine Del 9425 and in judgment dated 30th August, 2017 in W.P.(C) 5807/2014 (Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax). W.P. (C) 1357/2016 Page 8 of 13 11. Thus, it is also now well settled that reasons to believe have to be self explanatory. reasons cannot be thereafter supported by any extraneous material. order disposing of objections cannot act as substitute for reasons to believe and neither can any counter affidavit filed before this court in writ proceedings. 12. In present case, reasons to believe contained names of very same five companies which were initially disclosed by Petitioner during assessment proceedings. number of shares subscribed to by said companies is same and amount received has been disclosed by Assessee. There is no new material which has been found or mentioned in reasons to believe which were not contained in information provided by Assessee prior to conclusion of assessment under Section 143 (3) of Act. 13. In fact, Petitioner, after initially submitting details of companies and shares subscribed to, further provided confirmations from said companies. Petitioner also submitted copies of balance sheets of said companies for relevant AYs showing that these amounts were duly reflected therein. said companies were also assessed to tax. Thus, it appears that AO was satisfied with details and information provided by Petitioner. 14. perusal of order disposing of objections reveals that it proceeds on basis that information sought for by Petitioner which formed W.P. (C) 1357/2016 Page 9 of 13 basis for reasons to believe, including evidence collected, was required to be provided only in further assessment proceedings. said order overlooks fact that reasons for reopening do not mention as to what fact or information was not disclosed by Petitioner. This is very vital and in fact goes to root of matter. allegation that companies are `paper companies' without further facts is by itself insufficient to reopen assessments that stand closed after passing of orders under Section 143 (3) of Act. 15. assessment proceedings, especially those under Section 143 (3) of Act, have to be accorded sanctity and any reopening of same has to be on strong and sound legal basis. It is well settled that mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In this case, reasons failed to mention what facts or information was withheld by Petitioner. Merely relying upon statement of Mr. Navneet Kumar Singhania that companies in question were paper companies , by itself, is insufficient to reopen assessment, unless AO had further information that these companies were non-existent after making further inquiries into matter. It is clear that AO did not make any inquiry or investigation, if these companies were in fact paper companies . No effort has been made to establish connection between statement of Mr. Navneet Kumar Singhania and five companies. 16. Mr. Chaudhary s submission that this Court cannot dictate manner and content of what is to be written in reasons to believe is correct as W.P. (C) 1357/2016 Page 10 of 13 legal proposition. However, Court has to examine reasons to believe to see if it satisfies rigour of provisions. observations of this court in Multiplex (supra) are relevant in this respect and are set out below: 24. In our view, question whether Assessee could have been stated to disclosed fully and truly all material facts have to be examined in light of facts of each case and also reasons that led AO to believe that income of Assessee has escaped assessment. In case where primary facts have been truly disclosed and issue is only with respect to inference drawn, AO would not have jurisdiction to reopen assessment. But in cases where primary facts as asserted by Assessee for framing of assessment are subsequently discovered as false, reopening of assessment may be justified". 17. In facts of this case, primary facts have not been shown to be false. five companies do exist. They did subscribe to share capital of Petitioner. They did pay money to Petitioner. All five companies are assessed to tax. These are primary facts. reasons to believe rely upon letter received from Investigation Wing and Mr. Chaudhary submits that this letter was in fact investigation report. report does not form part of reasons and neither was it annexed to reasons. Interestingly, even counter affidavit is silent as to material which has not been disclosed by Petitioner. counter affidavit merely states that information was specific and information would be provided to Petitioner during assessment proceedings. Thus, if Revenue had any basis to show that primary facts were incorrect, same ought to have been set out in reasons to believe. That has not been done in present case. W.P. (C) 1357/2016 Page 11 of 13 18. Thus, Petitioner cannot be said to have failed to disclose fully and truly all material facts. This being jurisdictional issue, assumption of jurisdiction under Sections 147 and 148 of Act was erroneous. notice dated 20th March, 2015 and subsequent order dated 1st February, 2016 deserve to be and are hereby quashed. 19. Before parting with case, Court would like to observe that on routine basis, large number of writ petitions are filed challenging reopening of assessments by Revenue under Sections 147 and 148 of Act and despite numerous judgments on this issue, same errors are repeated by concerned Revenue authorities. In this background, Court would like Revenue to adhere to following guidelines in matters of reopening of assessments: (i) while communicating reasons for reopening assessment, copy of standard form used by AO for obtaining approval of Superior Officer should itself be provided to Assessee. This would contain comment or endorsement of Superior Officer with his name, designation and date. In other words, merely stating reasons in letter addressed by AO to Assessee is to be avoided; (ii) reasons to believe ought to spell out all reasons and grounds available with AO for re-opening assessment - especially in those cases where first proviso to Section 147 is attracted. reasons to believe ought to also paraphrase any investigation report which may form basis of reasons and W.P. (C) 1357/2016 Page 12 of 13 any enquiry conducted by AO on same and if so, conclusions thereof; (iii) where reasons make reference to another document, whether as letter or report, such document and/ or relevant portions of such report should be enclosed along with reasons; (iv) exercise of considering Assessee s objections to reopening of assessment is not mechanical ritual. It is quasi- judicial function. order disposing of objections should deal with each objection and give proper reasons for conclusion. No attempt should be made to add to reasons for reopening of assessment beyond what has already been disclosed. 20. writ petition is allowed in above terms. There will be no order as to costs. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. SEPTEMBER 25, 2017 j W.P. (C) 1357/2016 Page 13 of 13 Sabh Infrastructure Ltd. v. Asstt. Commissioner of Income-tax
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