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TMI Blog2021 (3) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... s ₹ 25,95,277/-. 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 GORDHANDAS BHANJI. [ 1951 (11) TMI 17 - SUPREME COURT] and MOHINDER SINGH GILL ANR. [ 1977 (12) TMI 138 - SUPREME COURT] Notice issued under Section 148 was barred by limitation - 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 peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reserves and surplus as on 31.03.2010, amounted to ₹ 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- -vis AY 20112012 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 reasons recorded by respondent no. 1 Correct figures as per return Authorised Capital ₹ 1,25,00,000/- Authorised Capital ₹ 25,00,000/- Issued and Subscribed Paid-up Capital ₹ 16,00,000/- Issued and Subscribed Paid-up Capital ₹ 24,15,200/- Share Premium Account ₹ 14,83,40,250/- Share Premium Account ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings under Section 147 of the Act since all that respondent 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 ₹ 38,071/- and ₹ 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 report received 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 ₹ 26,93 ,500/- Considering the above referred credible information, and enquiries and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 premium, loans and advance in lieu of cash via front/non-listed companies controlled by dummy directors to the tune of nearly ₹ 100 crores which included the assessee. It is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording 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 ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation; 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 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 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 ₹ 25,95,277/- whereas in the order recording reasons, penned by respondent no.1, the escaped income was quantified as ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 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 selfimposed 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 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 Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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