> v. Deputy Commissioner Of Income Tax, Circle 13 (1), New Delhi And Anr

$~55 *IN THE HIGH COURT OF DELHI AT NEW DELHI+W.P.(C) 609/2024KORDIENT VENTURES PVT. LTD...... Petitioner ..... PetitionerThrough:Mr.VineetBhatia,Mr.Aamnaya Jaganath, Mr. KeshavGarg, Mr. Bipin Punia, Advs. versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 13(1), NEW DELHI AND ANR...... RespondentThrough:Mr.ShlokChandra,Sr.Standing Counsel, Ms. MadhaviShukla, JR Standing Counsel,Ms. Priya Sarkar, JR StandingCounsel,Mr.UjjawalJain,Adv. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE PURUSHAINDRA KUMARKAURAV O R D E R %16.01.2024 1.The petitioner challenges the initiation of proceedings underSection 148 of the Income Tax Act, 1961 [“Act”]. The issuance of aShow Cause Notice under Section 148A(b) of the Act dated 04 March2023 is not disputed by the petitioner. The reassessment proceedingshave come to be initiated pursuant to the material gathered withrespect to Shri Dinesh Chand (Proprietor of M/s Manvee Traders) andthe allegation that the firms of the aforenoted person were used for thepurposes of generation of false invoices and in order for variousbeneficiaries, including the petitioner to avail of Input Tax Credit[“ITC”]. 2.From a reading of the order ultimately passed under Section 148A(d) of the Act, we find that while considering the objectionswhich were raised, the Assessing Officer has found as under:- “6.In response to the Notice u/s 148A(b) dated 04.03.2023,assessee submitted its reply on 11.03.2023, and submitted that: “We had not received nor aware of any notice or email forA.Y.2019-20 DIN ITBA/INV/F/17/2022-23/1047093762(1)dt 07-10-22 and moreover The Proported information isincorrectIhavenotransactionwithaforesaidsuppliers/customer. The Proported information is incorrect I have no transactionwith aforesaid suppliers/customer and to substantiate mybonafide I am enclosing you following documents as under: 1. Balance sheet for AY :2019-20 Annex-1 2.Income tax return acknowledgement AY: 2019-20 vide e-filing no. 240333321311019 Dated: 31.10.2019 Annex-2filing no. 240333321311019 Dated: 31.10.2019 Annex-2 3. GST R1 for the period FY : 2018-19 Annex-3 4. GSTR 3 B for the period FY : 2018-19 Annex-4 5. GST Certificate Annex -5 There is Nil sales as per GSTR 3 B and The GSTR 1 also showsthere is no purchase from the supplier/customer nor we have takenany input Credit form the mentioned unknown companies.” Reply of the assessee has been considered u/s 148A(c) and primafacie found not on the merit as per facts and information availablewith office (which has already been communicated to the assessee)for the following reasons: The assessee, M/s Kordient ventures has contended that theinformation is incorrect and it had no transaction with aforesaidsuppliers/customer. However it has failed to provide thesupporting documents.information is incorrect and it had no transaction with aforesaidsuppliers/customer. However it has failed to provide thesupporting documents. As per note 19 of notes to balance sheet there are purchases ofRs. 16,72,674. However assesse has not provided the details ofparties from whom these purchases have been made. Furtherthere are no sales made during the period. Therefore purchasesare being made but revenues are not being booked indicatingthat these purchases are bogus. No explanation is provided as towhy there is a huge addition to stock and why stock is notconverted to sales.Rs. 16,72,674. However assesse has not provided the details ofparties from whom these purchases have been made. Furtherthere are no sales made during the period. Therefore purchasesare being made but revenues are not being booked indicatingthat these purchases are bogus. No explanation is provided as towhy there is a huge addition to stock and why stock is notconverted to sales. Further, from the information available with this office, M/sFortune Graphics Ltd (PAN: ) has reported totalPurchases of Rs. 48,80,48,040/- under GSTR-1 with theassessee, M/s Kordient Ventures Private Limited. Therefore, thecontention of assesse is not acceptable.Fortune Graphics Ltd (PAN: ) has reported totalPurchases of Rs. 48,80,48,040/- under GSTR-1 with theassessee, M/s Kordient Ventures Private Limited. Therefore, thecontention of assesse is not acceptable. Assessee has failed to provide the details of purchases, invoicesand bank statements. Only a blurred sheet of Allahabad bankaccount has been provided wherein no details are providedrelated to from whom money is being received or to whom it isbeing paid. Copy of cash flow statement has not been provided.and bank statements. Only a blurred sheet of Allahabad bankaccount has been provided wherein no details are providedrelated to from whom money is being received or to whom it isbeing paid. Copy of cash flow statement has not been provided. 7.Thus income of Rs. 48,80,48,040/- is chargeable to tax forthis year and has escaped assessment. Hence, it is concluded thatthis is a fit case for issuing Notice u/s 148 of the I.T. Act, 1961. 8.Accordingly, it is concluded that this is a fit case forissuing notice u/s 148 of the I.T. Act.” 3.When the writ petition was argued before us, learned counselfor the petitioner had reiterated the contention that it had notransaction with Fortune Graphics Limited and that the entries asappearing in GSTR-1 were made unilaterally. It was also submittedthat the petitioner had not availed of any ITC benefits in respect of thesubject transaction. In fact, one of the contentions which wasaddressed before us was that the petitioner was ready and willing toconcede to a reversal of the entries as evidenced from the GSTR-1. 4.In our considered opinion, the aforesaid submissions do notappear to raise a substantial jurisdictional challenge and pertainprincipally to allegations of fact. The petitioner has failed to provideany plausible explanation for the transaction which stood reflected inthe GSTR-1 forms. 5.As is evident from a reading of the order dated 16 March 2023issued under Section 148A(d) of the Act, the Assessing Officer hastaken into consideration facts which would clearly be germane for thepurposes of examining whether there was material to suggest that income of the petitioner had escaped assessment. 6.We take note of the following principles which would govern achallenge to the initiation of reassessment proceedings in Article 226of the Constitution as laid down in Experion Developers P. Ltd v.Assistant Commissioner of Income Tax & Ors [2020 SCC OnlineDel 2588] and Synfonia Tradelinks Pvt. Ltd v. Income-tax Officer& Anr [2021 SCC Online Del 2692] “Experion Developers P. Ltd v. Assistant Commissioner of IncomeTax & Ors 20. In the light of the above judicial principles, the crux lies in therecorded reasons which shed light on the mind of the AssessingOfficer and having perused the same in the instant case, we are notpersuaded with Mr. Vohra's submission that the observations of theAssessing Officer are based purely on conjectures and surmises,without reference to any tangible material. At this stage, we mayrefer to our decisions in Vedanta Ltd. v. Asst. CIT (W. P. (C) No.13036 of 2019 dated December 20, 2019) and also in RDS ProjectLtd. v. Asst. CIT (2020) 421 ITR 624 (Delhi) (W. P. (C) No.11274 of 2019 dated October 23, 2019) wherein we haveextensively examined the case law on this issue. 21. In the above judgments, we have noted the views of theSupreme Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers P.Ltd. (2007) 291 ITR 500 (SC) ; (2008) 14 SCC 208 wherein it hasbeen held that the expression "reason" in section 147 of the Actmeans a "cause" or "justification". The Assessing Officer can besaid to have reason to believe that income has escaped assessment,if he has a cause or justification to know, or suppose, that incomehas escaped assessment. 21. In the above judgments, we have noted the views of theSupreme Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers P.Ltd. (2007) 291 ITR 500 (SC) ; (2008) 14 SCC 208 wherein it hasbeen held that the expression "reason" in section 147 of the Actmeans a "cause" or "justification". The Assessing Officer can besaid to have reason to believe that income has escaped assessment,if he has a cause or justification to know, or suppose, that incomehas escaped assessment. 22. It is also apposite to note the observations of the SupremeCourt in Sri Krishna P. Ltd. v. ITO (1996) 221 ITR 538 (SC)wherein, it was emphasised that at this stage, the test is not as towhether there has been any escapement of income, but whetherthere exist "reasons to believe" that the income chargeable to taxhas escaped assessment. 23. There are several judgments of the Supreme Court and of theHighCourtswhichhaveextensivelydeliberatedontheconstruction of the expression "reason to believe" (Ref : G. S.EngineeringandConstructionCorporationv.DeputyDIT(International Taxation) (2013) 357 ITR 335 (Delhi)). The scope ofjudicial review under article 226 of the Constitution of India has also now been well recognized. In a nutshell, the courts haveapplied the test of reasonableness, holding that the recordedreasons to believe must suggest and disclose that the belief is thatof an honest and reasonable person, based on reasonable grounds.The discretion vested under the scheme of the Act has alsoprompted the courts to put a cautionary note in several judgmentsthat while exercising judicial review, although the court canexamine whether the "reasons to believe" satisfy the conditions,however, the declaration or sufficiency of the "reasons to believe"cannot be investigated.” “Synfomia Tradelinks Pvt. Ltd v. Income Tax Officer 9. We have heard the learned counsel for the parties and perusedthe record. Before we proceed further, it would be helpful if wewere to set forth certain well-established principles enunciated bythe courts over the years vis-a-vis initiation of proceedings undersection 147 of the Act. (i) The reasons which lead to the formation of opinion or belief thatthe assessee's income chargeable to tax has escaped assessmentshould be inextricably connected. In other words, the reasons forthe formation of opinion should have a rational connection with theformation of the belief that there has been an escapement ofincome chargeable to tax(See : ITO v. Lakhmani Mewal Das[1976] 103 ITR 437 (SC) ; (1976) 3 SCC 757). (ii) The expression "reason to believe" is stronger than the word"satisfied". The belief should be based on material that is relevantand cogent.(See : Ganga Saran and Sons Pvt. Ltd. v. ITO [1981]130 ITR 1 (SC) ; (1981) 3 SCC 143). (ii) (a) The Assessing Officer should have reasons to believe thatthe taxable income has escaped assessment. The process ofreassessment cannot be triggered based on a mere suspicion. Theexpression "reason to believe" which is found in section 147 of theAct does not have the same connotation as "reason to suspect". Theorder recording reasons should fill this chasm. The materialbrought to the knowledge of the Assessing Officer should havenexus with the formation of belief that the taxable income of theassessee escaped assessment; the link being the reasons recorded,in that behalf, by the Assessing Officer. (iii) The Assessing Officer is mandatorily obliged to record reasonsbefore issuing notice to the assessee under section 148(1) of theAct. This is evident from the bare perusal of sub-section (2) ofsection 148 of the Act. (iv) No notice can be issued under section 148 of the Act by theAssessing Officer after the expiry of four years from the end of therelevant assessment year unless the Principal Chief CommissionerorChiefCommissionerorPrincipalCommissionerorCommissioner arrives at a satisfaction based on the reasonsrecorded by the Assessing Officer that it is a fit case for issuance of a notice under section 148 of the Act. (See: section 151(1) of theAct). (iii) The Assessing Officer is mandatorily obliged to record reasonsbefore issuing notice to the assessee under section 148(1) of theAct. This is evident from the bare perusal of sub-section (2) ofsection 148 of the Act. (iv) No notice can be issued under section 148 of the Act by theAssessing Officer after the expiry of four years from the end of therelevant assessment year unless the Principal Chief CommissionerorChiefCommissionerorPrincipalCommissionerorCommissioner arrives at a satisfaction based on the reasonsrecorded by the Assessing Officer that it is a fit case for issuance of a notice under section 148 of the Act. (See: section 151(1) of theAct). (v) The limitation for issuance of notice under section 148 asprescribed under section 149 of the Act commences from the dateof its issuance while the time limit for passing the order ofassessment, reassessment, computation and recomputation asprescribed under section 153 of the Act commences from the dateof service (See : R. K. Upadhyaya v. Shanabhai P. Patel [1987] 166ITR 163 (SC) ; (1987) 3 SCC 96).(vi) A jurisdictional error would occur, which can be corrected by awrit court, if reasons to believe are based on grounds that are eitherarbitrary and/or irrational. (See : Sheo Nath Singh v. AppellateAsst. CIT [1971] 82 ITR 147 (SC) ; (1972) 3 SCC 234).” 7.Accordingly, and in view of the above, we find no merit ininstant writ petition which shall stand dismissed on the aforesaidterms. YASHWANT VARMA, J JANUARY 16, 2024Neha PURUSHAINDRA KUMAR KAURAV, J