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TMI Blog2016 (3) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... hu Bakhru, JJ. For the Petitioner : Mr S. Krishnan, Advocate For the Respondents : Mr Dileep Shivpuri, Senior Standing Counsel and Mr Sanjay Kumar, Junior Standing Counsel ORDER 1. These petitions have been filed by the Assessees, inter alia, impugning separate notices dated 31st March, 2015 issued under Section 148 of the Income Tax Act (hereinafter the Act ) for Assessment Year (AY) 2008-09 and further proceedings initiated pursuant thereto. At the request of the Assessees, the reasons for re-opening the assessments was disclosed to them. The said reasons as provided to the Assessees indicate that proceedings for re-assessments were initiated on the basis of a complaint received by the Income Tax Authorities. Since the reasons disclosed as well as the issues involved are similar, these petitions were heard together. 2. Briefly stated the relevant facts are as under: 2.1 Both the Assessees (Rajiv Agarwal Petitioner in W.P.(C) No.9659/2015 and Vijay Laxmi Agarwal - Petitioner in W.P.(C) No.9661/2015) were at the material time during the Financial Year 2007-08 - directors of a company, namely, M/s Scan Holdings (P) Ltd (hereafter SHPL ). The said Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stated that the company (M/s Scan Holdings Pvt Ltd) in the which Shri Rajiv Agarwal is one of the Director of the Company has paid premium for the policies of directors amounting to ₹ 20 lakh up to financial year 2007-08 (i.e. AY 2008-09) and claimed as business expenses. Before it is due for maturity and liable for tax, the policies were shown as sold in FY 2007-08 for a meager amount of ₹ 4.16 lakhs to its directors. It has been used to tooi to avoid tax and transferred the money to its directors without payment of tax. The exact amount of each director is still to be quantified. therefore, it is clear that un quantified income in this case but quantified income of ₹ 20,00,000/- (in the case of both the Directors of the company) has escaped assessment because the assessee has not disclosed fully and truly all material facts in the return of income and the same could not be verified/assessed to tax as the case was not selected under scrutiny assessment. Therefore, I have reasons to believe that the assessee has not offered the income referred above which needs to be scrutinized and hence income as above has escaped assessment within the meaning of section 147( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere rejected by the AO by separate orders dated 11th September, 2015 which are more or less similarly worded. The AO held that the sufficiency or the correctness of the material for re-opening could not be questioned. The request of the Assessees to be provided a copy of the complaint on the basis of which the assessments were sought to be re-opened was also rejected. The AO after referring to several decisions, including the Supreme Court and this court, held that since the reports were not scrutinized under Section 143(3), a deeper scrutiny was required. The Assessee's contention that there was no failure on their part to truly and fully disclose all material facts was rejected by holding that whether omission was deliberate or inadvertent was not relevant and that the AO would have jurisdiction to re-open the assessments if there was omission or failure on the part of the Assessees. 3. Mr S. Krishnan, learned counsel appearing for the Assessees/Petitioners has contended that the entire exercise of initiating re-assessment proceedings is based on a mere suspicion and the AO had no material to form a reason to believe that income of the Assessees had escaped assessment. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gregating ₹ 20 lakhs had been paid, was sold to the Assessees for a sum of ₹ 4.16 lakhs and this transaction had resulted in an income of ₹ 20 lakhs arising in the hands of both the Directors. Insofar as Rajeev Agarwal is concerned, it is not disputed that no policy was assigned and no such transaction as recorded by the AO in the reasons to believe that the income had escaped assessment was entered into by Rajeev Agarwal with SHPL. In the circumstances, the fundamental premise on which the assessment of Rajeev Agarwal was sought to be re-opened is bereft of any factual foundation. We note that Rajeev Agarwal had specifically pointed out the said fact in his objections against the reasons recorded by the AO. However, the same was neither considered nor adverted to by the AO in its order dated 11th September, 2015 disposing of the said objections. 7. Since the foundation on the basis of which re-assessment proceedings have been initiated in the case of Rajeev Agarwal is absent, the same must fail on this ground alone. 8. In the case of Vijay Laxmi Agarwal, the Assessee had filed objections before the AO on 15th May, 2015 and had informed the AO that SHPL had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no material which could possibly lead the AO to suspect that income had escaped assessment. This is quite apparent from the fact that the AO was also clueless of the fact that no such transaction as alleged had in fact been entered into between SHPL and Rajeev Agarwal. In Rajesh Jhaveri Stock Brokers (supra), the Supreme Court had explained that the expression reason to believe would mean justification to know or suppose that income had escaped assessment. While, it is correct that it is not necessary for the AO to finally ascertain whether income had escaped assessment, nonetheless, the AO must have sufficient cause to believe that it has. 11. Secondly, the AO s belief that income of an Assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a 'close nexus' or live link between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which re-assessment proceedings can be initiated must be credible material which could lead to such belief. Clearly, an unsubstantiated complaint cannot be the sole basis for formin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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