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TMI Blog2011 (1) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Satyen Sethi, Mr. Arta Trana, Advocates Through: Mr. M.P. Sinha, Advocate THE CHIEF JUSTICE, MR. JUSTICE MANMOHAN 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amental 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 petitioners income. It is canvassed by him that the decision of the Apex Court in GKN Driveshafts (India) Ltd. (supra) requires that the assessees 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan. (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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation 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 failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 theAssessing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame 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. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score. 23. In the case at hand, as we find, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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