IN HIGH COURT OF DELHI AT NEW DELHI Decided on: 19th February, 2019 W.P.(C) 11511/2016 IHHR HOSPITALITY PVT. LTD. ..... Petitioner Through: Mr.Mayank Nagi, Advocate versus ADDITIONAL COMMISSIONER OF INCOME TAX ..... Respondent Through: Mr.Sanjay Kumar, Standing Counsel CORAM: HON BLE MR. JUSTICE S. RAVINDRA BHAT HON BLE MR. JUSTICE PRATEEK JALAN S. RAVINDRA BHAT, J. (OPEN COURT) % 1. assessee challenges notice under Section 148 of Income Tax Act, 1961, in respect of assessment completed for A.Y. 2011-2012 complaining that Revenue/respondent exceeded liberty granted by statute, and that invocation of power was not based upon any fresh or tangible material but re-appreciation of existing material which was available in course of original scrutiny assessment. 2. assessee is into hospitality business. During relevant assessment year it had filed return on 30.09.2011 declaring 76,94,77,310/- as losses. Its case was selected for scrutiny under Section 143(3) and assessment framed on 17.02.2014. AO accepted total losses of 76,94,77,310/-. During course of scrutiny W.P.(C) 11511/2016 Page 1 of 5 assessment, queries were addressed to assessee with respect to certain amounts claimed towards misappropriation and alleged losses, which was sought to be adjusted in taxable income. AO issued these letters on 15.05.2013, which was replied on 06.09.2013 and further on 13.09.2013 and 26.09.2013. Similar letters were addressed with respect to other details such as employee wise salary, reconciliation of tax deduction with income, details of interest proceeds etc. During course of proceedings AO indeed, on 20.01.2014, recorded as follows: Shri Arun Magon, CA attended and discussed case. He is requested to furnish following details: (i) Note on nature of fraud (ii) Details of secured loan (iii) Agreement of management fee & Tech fee (iv) Clarification on auditor comments on nonphysical verification of fixed assets. Adj. to 05.02.2014. Again hearing was conducted on 05.02.2014 and whereby AO recorded that all necessary details have been furnished. In this background, scrutiny assessment was completed on 17.02.2014. 3. reasons to believe recorded by AO in respect of impugned reassessment notice, in present case, reads as follows: M/s IHHR Hospitality Pvt. Ltd. A.Y. 2011-12 Reasons recorded for issue of notice u/s 148 of IT Act, 1961 In this case, assessee filed its return of income on 30.09.2011 declaring total loss of Rs.76,94,77,310/-. W.P.(C) 11511/2016 Page 2 of 5 Subsequently, case was selected for scrutiny assessment and assessment u/s 143(3) was completed on 17.02.2014 accepting total loss of Rs.76,94,77,310/- as claimed by assessee in return of income. Further, on perusal of assessment record it came to notice of undersigned that assessee in its P&L A/c has made provision of Rs. 4221.29 lakh (Rs. 1675.50 lakh relating to fixed assets, Rs. 2113.39 lakh relating to loan and advances and Rs. 432.40 lakh relating to overstatement of expenditure) on account of misappropriation. However, assessee has adjusted amount of Rs.432.40 lakh for taxation under income from other source on a/c of overstatement of expenses. However, balance provision for Rs.37,38,89.000/- (Rs.42,21,29,000-43240000) has not been offered for taxation. Since provision was unascertained liability as well as capital expenses, same should have been disallowed and added back to total income of assessee, being inadmissible expenses. But, assessee has not disallowed same in its computation of income. Therefore, Rs.37,38,89,000/- has escaped assessment for A.Y. 2011-12. I have reasons to believe that assessee has failed to disclose fully and truly all material and facts necessary for assessment for AY. 2011-12. Based on above facts and circumstance of case, I have reasons to believe that income of assessee to extent of Rs. 37,38,89,000/- (Rs.42,21,29,000-43240000) which was chargeable to tax has escaped assessment for AY 2011-12 on account of failure on part of assessee to disclose fully and truly all material facts necessary for assessment. Issue notice u/s 148 of Income Tax 1961. 4. It is contended that Revenue could not have validly sought recourse to power to reassess under Section 147/148. Learned counsel argues that even though notice was issued during four year period, W.P.(C) 11511/2016 Page 3 of 5 nevertheless it was not based upon any allegation of withholding of material facts or documents, which could have been possibly only ground for valid reassessment. Learned counsel cited Commissioner of Income Tax vs. Kelvinator of India Ltd. 320 ITR 561 (SC) in this regard and submitted that in absence of tangible material with Revenue, reassessment is in present case unsustainable and requires to be quashed. 5. Learned counsel for Revenue submitted that lack of discussion in AO s scrutiny order meant that he had not properly applied his mind to circumstances. AO, therefore, acted within its rights in concluding that assessee had not offered amounts in question [ 42.21 crore] for taxation and in these circumstances, reassessment notice should not be interfered with. 6. It is far too well settled that any notice under Section 147/148 is to be premised on fresh or tangible material made available with Revenue within time granted or within extended time under Section 147. only other circumstance when it can seek recourse to reassessment power is if material documents, having significance on reassessment, are withheld or improperly disclosed. duty of AO, it has been repeatedly emphasised from decision of Supreme Court in Calcutta Discount Co.Ltd. vs. Income Tax Officer, Companies District-I, Calcutta (1961) 41 ITR 191 is to truly assess income disclosed by assessee. corresponding duty or responsibility of assessee is to disclose all material facts. Once that duty is discharged, inability of AO to carry out task assigned to him by statute properly does not authorize second opinion, based upon which AO can issue reassessment notice. W.P.(C) 11511/2016 Page 4 of 5 7. In present case, it is plain that reassessment notice was based upon second opinion or revisiting of same facts by subsequent Assessing Officer and no more. For these reasons, reassessment notice has to be quashed. 8. writ petition has to succeed. reassessment notice and all further proceedings are hereby quashed. S. RAVINDRA BHAT, J PRATEEK JALAN, J FEBRUARY 19, 2019 hkaur W.P.(C) 11511/2016 Page 5 of 5 IHHR Hospitality Pvt. Ltd. v. Additional Commissioner of Income-tax