Sabh Infrastructure Ltd.through v. Asstt. Commissioner Ofincome Tax

$~24 *IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1357/2016 SABH INFRASTRUCTURE LTD.Through : ..... PetitionerMr. Salil Kapoor, Mr. SumitLalchandani, Ms. Ananya Kapoor,Mr.Sanat Kapoor, Advocates. versus ASSTT. COMMISSIONER OFINCOME TAX ..... RespondentThrough :Mr. Rahul Chaudhary, SeniorStanding Counel with Mr. SanjayKumar, Junior Standing Counsel. CORAM:JUSTICE S. MURALIDHARJUSTICE PRATHIBA M. SINGH O R D E R25.09.2017 % 1. The Petitioner seeks the quashing of a notice dated 20[th]March, 2015issued under Section 148 of the Income Tax Act (‘Act’) by the AssistantCommissioner of Income Tax (hereinafter Assessing Officer ‘AO’) and theorder dated 1[st]February, 2016 passed by the AO disposing of the objectionsfiled by the Petitioner to the said notice. 2. The Petitioner is a company engaged in the business of real estate andproperty development. It filed its return of income for the Assessment Year(‘AY’) 2008-09 on 30[th]September, 2008 declaring a total income of W.P. (C) 1357/2016 Rs.59,83,183/-. A questionnaire dated 4[th]August, 2013 was issued to thePetitioner by the AO seeking details and documents as a part of theassessment proceedings. One such detail sought for was with respect to‘share application money received, if any, during the year’. The Petitionerreplied to the questionnaire on 11[th]October, 2010. In its reply, the Petitionerdisclosed the details of share capital allotted during the AY as under:- 3.On19[th]November,2010,thePetitionerfurthersubmittedtheconfirmation from the said five companies along with their ITRs and PANCards. On 26[th]November, 2010, the Petitioner further submitted theAuditor’s Reports, Balance Sheets, Particulars of P&L accounts, andSchedules of Balance Sheet and P&L Account of the above named fivecompanies. An assessment order under Section 143 (3) of the Act waspassed by the AO on 20[th]December, 2010, after the details regarding thefive companies and their confirmations were submitted. The assessmentorder, however, did not contain any discussion in respect of the shareapplication money. It thus appeared that the AO accepted the informationfurnished by the Petitioner and raised no further doubt or queries in respectto the same. 4. On 20[th]March, 2015, a notice was issued under Section 148 of the Act onthe ground that income had escaped assessment. Reasons to believe wereextracted and furnished on 16[th]December, 2015, which state as under: “Reasons recorded for initiating proceedings u/s 148 ofthe I.T. Act, 1961 A credible information has been received to this office fromthe ITO (Inv.), Unit –V(2), Jhandewalan Extension, NewDelhividetheirletterNo.F.No.ITO(Inv.)/Unit-V(2)/ND/SAPL & SPIPL/2014-15 dated 29.05.2014 whereinhe has stated that during the investigation carried out by theDDIT(Inv.). Unit –III (1), Kolkata, the statement of Sh.NavneetKumarSinghania,s/oLateJawalaPrasadSinghania, r/o D-6/8, Purbasha Housing Estate, ManicktalaMain Road, Kankurgachi, Kolkata 700054 was recorded onoath u/s 131 of the IT Act, 1961 of 18.03.2014. In hisstatement, Sh. Navneet Kumar Singhania admitted that he isan entry operator, having his office at 5/1, Clive Row, III W.P. (C) 1357/2016 Page 3 of 13 Floor, RN-91, Kolkata -700001. He also admitted that hissource of income is from commission earned in lieu ofgiving service in the form of giving cheques to his clients inreturn for cash. He has also admitted that he along with histeammemberswasoperatingthefollowingpapercompanies which had provided book entry to M/s SabhInfrastructure Limited namely:- (a) Chandelier Tracon PL (PAN – ) (b) Galore Suppliers PL (PAN – ) (c) Echolac Vinimay PL (PAN – ) (d) Sugam Commondeal PL (PAN – ) (e) Elegance Trade & Holdings PL (PAN– ) (f) Subhrekha Vyapaar PL (PAN – ) W.P. (C) 1357/2016 Page 3 of 13 Floor, RN-91, Kolkata -700001. He also admitted that hissource of income is from commission earned in lieu ofgiving service in the form of giving cheques to his clients inreturn for cash. He has also admitted that he along with histeammemberswasoperatingthefollowingpapercompanies which had provided book entry to M/s SabhInfrastructure Limited namely:- (a) Chandelier Tracon PL (PAN – ) (b) Galore Suppliers PL (PAN – ) (c) Echolac Vinimay PL (PAN – ) (d) Sugam Commondeal PL (PAN – ) (e) Elegance Trade & Holdings PL (PAN– ) (f) Subhrekha Vyapaar PL (PAN – ) During the AY 2008-09 M/s Sabh Infrastructure Limited hadreceived share premium wherein share premium of Rs.400per share was received on the nominal value per share ofRs.100 each. The sum total of the value of the shares sosubscribed was Rs.1.00crore in M/s Sabh InfrastructureLimited as details given hereunder: W.P. (C) 1357/2016 (PAN – ) Since in the light of new facts, it has been established thatthese companies, from whom share premium has beenreceived by M/s Sabh Infrastructure Limited are notgenuine, I am of the view that the Assessee has not disclosedfully and truly all material facts in its income tax returnresulting in under assessment of income of Rs.1,00,00,000/-on account of share premium. The assessment u/s 143 in this case was completed on20/12/2010 at assessed income of Rs.2,15,45,860/- Hence, I have reasons to believe that an amount ofRs.1,00,00,000/- as per reasons mentioned above, hasescaped assessment in the case of Assessee relevant to AY2008-09, within the meaning of Section 147 of the IT Act. Since, in the instant case, the period of 4 years has expiredand income escaped by reasons of the failure on the part ofthe Assessee to show true particulars of his income,Accordingly, the case falls under Section 151 (1) of the ITAct, 1961, therefore, the reasons are put up before CIT,Delhi VIII, New Delhi through Addl. CIT.(Range-22)NewDelhi for necessary approval for issue of notice u/s 148 ofthe IT Act, 1961 for the purpose of reopening of assessmentu/s 147 of the Income Tax Act, 1961.” 5. The Petitioner objected to the reopening of assessment under Sections 147and 148 of the Act. In the said objections, the Petitioner contended that thereasons to believe do not contain any allegation as to what material facts andinformation the Petitioner had failed to disclose. Apart from raising variousjurisdictional objections, the Petitioner also raised objections on merits. Theobjections were rejected by the AO on 1[st]February, 2016. Submissions of the Petitioner 6. Mr. Salil Kapoor, learned counsel appearing on behalf of the Petitionersubmits that there was no failure to disclose fully and truly all material facts,during the assessment proceedings. The Petitioner had candidly disclosedthe names of all the five companies, the share amount received from them asalso the share premium amount received. The fact that the Petitioner wasspecifically served with a questionnaire seeking these details and that thesame were submitted to the AO clearly points to the satisfaction of the AOduring the assessment proceedings. The Petitioner did not merely submit thedetails of the said five companies and the amounts so received but alsosubmitted the relevant documents of the said five companies includingletters of confirmations. Mr. Kapoor submits that all the five companies areassessed to tax and hence, it was quite easy for the AO to cross verify if theneed was felt. The order under Section 143 (3) of the Act having beenpassed in the Petitioner’s assessment proceedings for the relevant AY andthe notice under Section 147 having been issued after the expiry of fouryears from the end of the relevant AY, the first proviso to Section 147 issquarely attracted. Therefore, there exists a higher onus upon the Revenue todischarge its burden of proving that there was non-disclosure by thePetitioner. 7. Mr. Kapoor specifically relies on various judgments including CIT v.Kelvinator of India Ltd. (2010) 187 Taxman 312 (hereafter ‘Kelvinator’)and the judgments thereafter of this Court. He submits that on a perusal ofthe reasons to believe, it can be seen that the AO has merely relied uponinformation received from an investigation carried out by DDIT (Inv.) Unit W.P. (C) 1357/2016 Page 6 of 13 III, Kolkata, in which a statement of Mr. Navneet Kumar Singhania wasrecorded on 18[th]March, 2014 under Section 131 of the Act. The AO came tothe conclusion that the said five companies were ‘paper companies’ withoutexamining if the said statement was enquired into. He submits that the AOdid not himself verify any of the facts contained in the said statement. Hefurther submits that the reasons per se do not refer to any investigationreport of the DDIT (Inv) and even if such report existed, a copy thereof, wasnot furnished to the Petitioner. Mr. Kapoor also took exception to themanner of communicating the reasons. The AO has written a letterextracting the reasons for expiry of the assessment instead of furnishing ofcopies of the forms used by the AO for obtaining the permission of theSuperior Officer. The Petitioner is not aware of what other information wasrelied upon by the AO. He thus submits that the notice seeking to reopen theassessment under Sections 147 and 148 of the Act as also the order dated 1[st]February, 2016 disposing of the objections of the Petitioner deserve to bequashed. Submissions of the Revenue 8. Mr. Rahul Chaudhary, learned Senior Standing counsel for the Revenuedefends the notice as also the order dated 1[st]February, 2016 on the groundthat the reasons recorded clearly spell out the necessity to reopen theassessment. Mr. Chaudhary submits that in the assessment proceedings, theAO never had the information that these companies were ‘paper companies’,and that this information was in fact concealed by the Petitioner. Therefore,the fact that the AO subsequently received information that the saidcompanies were ‘paper companies’ was sufficient to justify the issuance of W.P. (C) 1357/2016 Page 7 of 13 the notice under Sections 147 and 148 of the Act. At this stage, it was notnecessary for the AO to make a detailed enquiry into such information. Mr.Chaudhary asserted that there must have been a report of investigation of theDDIT on the basis of which it was concluded that the said five companieswere ‘paper companies’. However, he was candid that the reasons forreopening the assessment made no reference to such report. 9. Mr. Chaudhary, further submits that the Petitioner should be directed toparticipate in the proceedings. The mere issuance of the notice does notitself result in a conclusion that there is escapement of income. Mr.Chaudhary submits that this was not a case where there was no basis for theAO to reopen the assessment. He relies upon CIT v. Multiplex Trading &Industrial Co. Ltd. 378 ITR 350 (hereafter ‘Multiplex’) as also the Pr. CITv. M/s Paramount Communication Pvt. Ltd. [2017] 392 ITR 444 (Del), insupport of the Revenue's case. Analysis and Findings 10. The law on this subject is well settled. As held in Kelvinator (supra), thepowers under Section 147 of the Act have to be exercised after a period offour years only if there is a failure to disclose fully and truly all materialfacts and information, by the Assessee. This legal position has beenreiterated recently by this Court in Oracle India Pvt. Ltd. v. ACIT 2017SCC OnLine Del 9360, Unitech Limited v. DCIT 2017 SCC OnLine Del9408, BDR Builders and Developers Pvt. Ltd. v. ACIT 2017 SCC OnLineDel 9425 and in judgment dated 30[th]August, 2017 in W.P.(C) 5807/2014(Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax). W.P. (C) 1357/2016 Page 8 of 13 Analysis and Findings 10. The law on this subject is well settled. As held in Kelvinator (supra), thepowers under Section 147 of the Act have to be exercised after a period offour years only if there is a failure to disclose fully and truly all materialfacts and information, by the Assessee. This legal position has beenreiterated recently by this Court in Oracle India Pvt. Ltd. v. ACIT 2017SCC OnLine Del 9360, Unitech Limited v. DCIT 2017 SCC OnLine Del9408, BDR Builders and Developers Pvt. Ltd. v. ACIT 2017 SCC OnLineDel 9425 and in judgment dated 30[th]August, 2017 in W.P.(C) 5807/2014(Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax). W.P. (C) 1357/2016 Page 8 of 13 11. Thus, it is also now well settled that the reasons to believe have to beself explanatory. The reasons cannot be thereafter supported by anyextraneous material. The order disposing of the objections cannot act as asubstitute for the reasons to believe and neither can any counter affidavitfiled before this court in writ proceedings. 12. In the present case, the reasons to believe contained the names of thevery same five companies which were initially disclosed by the Petitionerduring the assessment proceedings. The number of shares subscribed to bythe said companies is the same and the amount received has been disclosedby the Assessee. There is no new material which has been found ormentioned in the reasons to believe which were not contained in theinformation provided by the Assessee prior to the conclusion of assessmentunder Section 143 (3) of the Act. 13. In fact, the Petitioner, after initially submitting the details of thecompanies and the shares subscribed to, further provided confirmations fromthe said companies. The Petitioner also submitted copies of the balancesheets of the said companies for the relevant AYs showing that theseamounts were duly reflected therein. The said companies were also assessedto tax. Thus, it appears that the AO was satisfied with the details andinformation provided by the Petitioner. 14. A perusal of the order disposing of the objections reveals that it proceedson the basis that the information sought for by the Petitioner which formed W.P. (C) 1357/2016 Page 9 of 13 the basis for the reasons to believe, including the evidence collected, wasrequired to be provided only in the further assessment proceedings. The saidorder overlooks the fact that the reasons for reopening do not mention as towhat fact or information was not disclosed by the Petitioner. This is veryvital and in fact goes to the root of the matter. An allegation that thecompanies are `paper companies' without further facts is by itselfinsufficient to reopen assessments that stand closed after passing of ordersunder Section 143 (3) of the Act. 15. The assessment proceedings, especially those under Section 143 (3) ofthe Act, have to be accorded sanctity and any reopening of the same has tobe on a strong and sound legal basis. It is well settled that a mere conjectureor surmise is not sufficient. There have to be reasons to believe and notmerely reasons to suspect that income has escaped assessment. In this case,the reasons failed to mention what facts or information was withheld by thePetitioner. Merely relying upon the statement of Mr. Navneet KumarSinghania that the companies in question were ‘paper companies’, by itself,is insufficient to reopen the assessment, unless the AO had furtherinformation that these companies were non-existent after making furtherinquiries into the matter. It is clear that the AO did not make any inquiry orinvestigation, if these companies were in fact ‘paper companies’. No efforthas been made to establish the connection between the statement of Mr.Navneet Kumar Singhania and the five companies. 16. Mr. Chaudhary’s submission that this Court cannot dictate the mannerand content of what is to be written in the reasons to believe is correct as a W.P. (C) 1357/2016 Page 10 of 13 16. Mr. Chaudhary’s submission that this Court cannot dictate the mannerand content of what is to be written in the reasons to believe is correct as a W.P. (C) 1357/2016 Page 10 of 13 legal proposition. However, the Court has to examine the reasons to believeto see if it satisfies the rigour of the provisions. The observations of thiscourt in Multiplex (supra) are relevant in this respect and are set out below: “24. In our view, the question whether the Assesseecould have been stated to disclosed fully and truly allmaterial facts have to be examined in the light of factsof each case and also the reasons that led the AO tobelieve that income of an Assessee has escapedassessment.In a case where the primary facts havebeen truly disclosed and the issue is only with respectto the inference drawn, the AO would not have thejurisdiction to reopen assessment. But in cases wherethe primary facts as asserted by the Assessee forframing of assessment are subsequently discovered asfalse, the reopening of assessment may be justified".” 17. In the facts of this case, the primary facts have not been shown to befalse. The five companies do exist. They did subscribe to the share capital ofthe Petitioner. They did pay the money to the Petitioner. All the fivecompanies are assessed to tax. These are the primary facts. The reasons tobelieve rely upon a letter received from the Investigation Wing and Mr.Chaudhary submits that this letter was in fact an investigation report. Thereport does not form part of the reasons and neither was it annexed to thereasons. Interestingly, even the counter affidavit is silent as to the materialwhich has not been disclosed by the Petitioner. The counter affidavit merelystates that the information was specific and the information would beprovided to the Petitioner during the assessment proceedings. Thus, if theRevenue had any basis to show that the primary facts were incorrect, thesame ought to have been set out in the reasons to believe. That has not beendone in the present case. W.P. (C) 1357/2016 Page 11 of 13 18. Thus, the Petitioner cannot be said to have failed to disclose fully andtruly all the material facts. This being a jurisdictional issue, the assumptionof jurisdiction under Sections 147 and 148 of the Act was erroneous. Thenotice dated 20[th]March, 2015 and the subsequent order dated 1[st]February,2016 deserve to be and are hereby quashed. 19. Before parting with the case, the Court would like to observe that on aroutine basis, a large number of writ petitions are filed challenging thereopening of assessments by the Revenue under Sections 147 and 148 of theAct and despite numerous judgments on this issue, the same errors arerepeated by the concerned Revenue authorities. In this background, theCourt would like the Revenue to adhere to the following guidelines inmatters of reopening of assessments: (i) while communicating the reasons for reopening the assessment,the copy of the standard form used by the AO for obtaining theapproval of the Superior Officer should itself be provided to theAssessee. This would contain the comment or endorsement of theSuperior Officer with his name, designation and date. In otherwords, merely stating the reasons in a letter addressed by the AOto the Assessee is to be avoided; (ii) the reasons to believe ought to spell out all the reasons andgrounds available with the AO for re-opening the assessment -especially in those cases where the first proviso to Section 147 isattracted. The reasons to believe ought to also paraphrase anyinvestigation report which may form the basis of the reasons and W.P. (C) 1357/2016Page 12 of 13 any enquiry conducted by the AO on the same and if so, theconclusions thereof; (ii) the reasons to believe ought to spell out all the reasons andgrounds available with the AO for re-opening the assessment -especially in those cases where the first proviso to Section 147 isattracted. The reasons to believe ought to also paraphrase anyinvestigation report which may form the basis of the reasons and W.P. (C) 1357/2016Page 12 of 13 any enquiry conducted by the AO on the same and if so, theconclusions thereof; (iii) where the reasons make a reference to another document,whether as a letter or report, such document and/ or relevantportions of such report should be enclosed along with the reasons;(iv) the exercise of considering the Assessee’s objections to thereopening of assessment is not a mechanical ritual. It is a quasi-judicial function. The order disposing of the objections shoulddeal with each objection and give proper reasons for theconclusion. No attempt should be made to add to the reasons forreopening of the assessment beyond what has already beendisclosed. 20. The writ petition is allowed in the above terms. There will be no order asto costs. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. SEPTEMBER 25, 2017j W.P. (C) 1357/2016