Wtax/1313/2019 Of Deepak Gupta v. Assistant Commissioner Income Tax And 2 Others

Court No. - 7 Case :- WRIT TAX No. - 1313 of 2019Petitioner :- Deepak GuptaRespondent :- Assistant Commissioner Income Tax And 2 OthersCounsel for Petitioner :- Suyash AgarwalCounsel for Respondent :- S.S.C. Hon'ble Biswanath Somadder,J.Hon'ble Ajay Bhanot,J. 1.The Revenue drew proceedings against the petitioner-assessee forreassessment of income which had allegedly escaped assessment for theAssessment Year 2012-13. The petitioner has assailed various orderstaken out by the Revenue at different stages in pursuance of thereassessment proceedings initiated under the relevant provisions of theIncome Tax Act, 1961 (hereafter referred to as (I.T. Act, 1961) 2.The petitioner has assailed the notice issued under Section 142(1) of the I.T. Act, 1961 dated 22.10.2019 requiring the petitioner tofurnish details, documents and accounts which were necessary toprocess the case under the relevant provisions of law. The petitioner hasalso impugned the “reasons to believe” recorded on 22.03.2019 by theassessing officer to support the formation of opinion of the Revenue asrequired under Section 147 of the I.T. Act, 1961. Lastly the petitionerhas laid a challenge to the orders dated 28.10.2019 and 26.11.2019disposing of the objections of the petitioner against the issuance of thenotice under Section 148 of the I.T. Act, 1961 for the Assessment Year2012-13. 3.Sri R.R. Agarwal, learned Senior Counsel assisted by Sri SuyashAgarwal, learned counsel for the petitioner contends that the onlysubmission made on behalf of the petitioner is that the mandatory priorapproval required under Section 151 of the I.T. Act, 1961 from thePrincipal Commissioner, Income Tax, Noida, was not obtained beforeinitiation of the aforesaid reassessment proceedings. In the absence ofsuch approval under Section 151 of the I.T. Act, 1961 from thecompetent authority the proceedings against the petitioner which areassailed in the instant writ petition, have no legs to stand on and aredevoid of jurisdiction. This is the sole submission made by the learnedSenior Counsel for the petitioner. 4.Per contra, learned counsel for the Revenue, Sri Subham Agarwalcalls attention to various assertions made in the orders impugned dated28.10.2019 and 26.11.2019 to contend that the requisite approval fromthe competent authority under Section 151 of the I.T. Act, 1961 wastaken prior to the initiation of the proceedings in the mannercontemplated by law. He further contends to the material on the basisof which the satisfaction was arrived at by the authorities to come tothe conclusion that income of the petitioner had escaped assessment forthe Assessment Year 2012-13 was credible and duly considered by theRevenue before initiating reassessment proceedings. 5.Heard learned counsel for the parties. 6.The sole contention of the petitioner-assessee that prior approvalrequired from the competent authority under Section 151 of the I.T. Act, 1961 was not obtained before issuing notice under Section 148 ofthe I.T. Act, 1961 will be considered first. The objection in this regardwas also taken by the assessee before the authorities below. It wasraised in the objections against issuance of notice under Section 148 ofthe I.T. Act, 1961. 7.The assessing authority dealt with the aforesaid objectionregarding grant of prior approval by the competent authority underSection 151 of the I.T. Act, 1961 before issuance of notice underSection 148 of the I.T. Act, 1961. The assessing authority in its orderdated 28.10.2019 specifically recorded “Further, the notice u/s 148 wasissued after taking prior approval u/s 151 from the Ld. Pr.Commissioner of Income Tax, Noida.” 8.Similarly the order dated 19.11.2019 disposing of the self sameobjection of the petitioner-assessee against the issuance of notice underSection 148 of the I.T. Act, 1961 stated as follows: 7.The assessing authority dealt with the aforesaid objectionregarding grant of prior approval by the competent authority underSection 151 of the I.T. Act, 1961 before issuance of notice underSection 148 of the I.T. Act, 1961. The assessing authority in its orderdated 28.10.2019 specifically recorded “Further, the notice u/s 148 wasissued after taking prior approval u/s 151 from the Ld. Pr.Commissioner of Income Tax, Noida.” 8.Similarly the order dated 19.11.2019 disposing of the self sameobjection of the petitioner-assessee against the issuance of notice underSection 148 of the I.T. Act, 1961 stated as follows: “In this regard, please find the copy of approval taken from higher authoritiesand copy of statement of Shri Ashok Kumar Kayan.”and copy of statement of Shri Ashok Kumar Kayan.” 9.The findings returned by the authorities in the orders disposing ofthe objections of the petitioner under Section 148 of the I.T. Act, 1961are official acts and hence attract the presumption of correctness intheir favour. This legal presumption of correctness is the prop and thepillar of legitimacy of all official acts. The presumption is rebuttable.However, the burden lies upon the petitioner to rebut the presumption.The petitioner on his part has taken the following plea in the writ petition to rebut the said presumption: “That the order of the respondent no.1, dated 28.10.2019 in para 3.2 asstated that it is supplying the copy of the approval of the respondent no. 2,granted u/s 151 (1) of the Act, after accepting the objection of the petitionerrelating to the decision of Sabh Infrastructure Ltd. (Supra) & Godawari Saraf(Supra) but no such approval was appended along with the objection dated26.11.2019, as such the petitioner has reason to believe that no suchmandatory approval as provided u/s 151 (1) of the Act, has been granted bythe respondent no. 2, in pursuance of the guidelines of Sabh Infrastructure Ltd.(supra).” 10.We are afraid the aforesaid pleading is deficient and does not atall discharge the burden of proof which lay squarely upon the petitionerto reverse the presumption of correctness of the findings in the orderspassed by the revisional authorities in discharge of their official duties.There is no reason or basis to decline the presumption of correctness infavour of the said findings so recorded in the orders passed by therevisional authorities regarding approval under Section 151 of I.T. Act,1961 before initiation of proceedings under Section 148 of the I.T. Act,1961. This Court has not been shown any reason or material to doubtthe correctness of the finding recorded in the orders dated 28.10.2019and 26.11.2019 that the notice under Section 148 of the I.T. Act, 1961was issued after taking prior approval under Section 151 of the I.T. Act,1961 from the Ld. Pr. Commissioner of Income Tax, Noida. This findinghas not been shown to be perverse in any manner and is not liable to beinterfered with by this Court. The argument on behalf of the petitioneris accordingly rejected. 11.There is more to the controversy. 12.The “reasons to believe” of the Assessing Officer that income hadescaped assessment have been recorded in meticulous detail on22.03.2019 by the assessing authority. The material on which such“reasons to believe” were founded are also disclosed in the order. Theorder dated 22.03.2019 passed by the Deputy Commissioner of IncomeTax, Circle-1, Noida, regarding sufficiency of “reasons to believe” onwhich foot the proceedings under Section 147 of the I.T. Act, 1961 areliable to be initiated, contains a recital regarding information fromcredible sources regarding tax fraud in the case of M/s DLS Exports Pvt.Ltd. and related beneficiaries. 11.There is more to the controversy. 12.The “reasons to believe” of the Assessing Officer that income hadescaped assessment have been recorded in meticulous detail on22.03.2019 by the assessing authority. The material on which such“reasons to believe” were founded are also disclosed in the order. Theorder dated 22.03.2019 passed by the Deputy Commissioner of IncomeTax, Circle-1, Noida, regarding sufficiency of “reasons to believe” onwhich foot the proceedings under Section 147 of the I.T. Act, 1961 areliable to be initiated, contains a recital regarding information fromcredible sources regarding tax fraud in the case of M/s DLS Exports Pvt.Ltd. and related beneficiaries. 13.The enquiry made in pursuance of the aforesaid informationrevealed that one Devesh Upadhyay a well known Kolkata based entryoperator admitted that he used the bank accounts of the companieswhich were under his sole control and management for layering thefunds and providing accommodation entries in the form of bogus ShareCapital/Premium, bogus LTCG/STCG. Statements of Ashok Kayan,Bikash Surekha and Sunil Kayan were also recorded on oath underSection 131 of the I.T. Act, 1961. The said persons in their statementsadmitted that their bank accounts were used for layering funds andproviding accommodation entries in the form of bogus ShareCapital/Premium, bogus LTCG/STCG to several beneficiaries. The nameof the petitioner appeared in the list of the beneficiaries. 14.In the face of such statements and evidences it was recommendedthat during assessment proceedings the Assessing Officer is required to record the statements again for corroborating the evidences socollected. 15.In the wake of such material emanating from the said enquiry theDeputy Commissioner of Income Tax, Circle-1, Noida recorded hissatisfaction and set forth his “reasons to believe” regarding theescapement of tax in the following manner: “ I have perused the above information and it is seen that the name of assesseeShri Deepak Gupta is appearing at Sr. No. 125 and it is seen that the assesseeis one of the beneficiaries and received Rs. 49,10,240/- from the sale proceedsof the shares of M/s DLS Exports Pvt. Ltd. From the enquiries conducted, it hasbeen established that M/s DLS Exports Pvt. Ltd, was involved in layering offunds and providing accommodation entries in the form of bogus LTCG/STCLto several beneficiaries and assessee is one of them. I have analysed the detailsfrom the return filed by the assessee for A.Y. 2012-13 and it is seen that theassessee has not declared any Capital Gain in his return of income. It is clearfrom the details available on record that the assessee has concealed the capitalgain of Rs. 40,10,240/- has escaped assessment for AY 2012-13 with themeaning of provisions of Section 147 of the I.T. Act, 1961.” 16.Accordingly proceedings under Section 147 of the I.T. Act, 1961were initiated to assess the escaped income for Assessment Year 2012-13. 17.At this stage it would be apposite to reflect on some relevantaspects of the statements given by Ashok Kumar Kayan under Section131 of the I.T. Act, 1961 under oath before the income tax authority atKolkata which was part of the investigations which led to unearthing ofthe surreptitious transactions which facilitated the escapement ofassessment. In the telling of the said Ashok Kumar Kayan under oaththe modus of operandi of the parties to the bogus transactions to facilitate escapement of income was thus described: “Q.7 Please state the modus of operandi in respect to providing bogusLTCG/STCL through Penny Stock. 16.Accordingly proceedings under Section 147 of the I.T. Act, 1961were initiated to assess the escaped income for Assessment Year 2012-13. 17.At this stage it would be apposite to reflect on some relevantaspects of the statements given by Ashok Kumar Kayan under Section131 of the I.T. Act, 1961 under oath before the income tax authority atKolkata which was part of the investigations which led to unearthing ofthe surreptitious transactions which facilitated the escapement ofassessment. In the telling of the said Ashok Kumar Kayan under oaththe modus of operandi of the parties to the bogus transactions to facilitate escapement of income was thus described: “Q.7 Please state the modus of operandi in respect to providing bogusLTCG/STCL through Penny Stock. Ans. I would like to state that there was a syndicate working in Penny Stock.At first level, client with unaccounted cash approach to the entry operators forgetting LTCG. The entry operator in turn approach a set of broker who are intheir network. The brokers work in co-ordination with each other so thattrades are time synchronised and the scrips remains with cartel of broker andentry operator only. The share prices are rigged so that a penny stock gets ahigh value over a period of one year. Once, the scrips are retain beyond aperiod of one year in the clients accounts they are sold to some jammakharchicompany which are operated by the same set of entry operator so the client getLTCG. Further, since the jammakharchi client has purchased the scrips at thehigher rate, the rates are lowered over a period of time so that they get capitallosses which they can claim in their return of income. Hence, while theindividual clients incur long term capital gain, the jamma kharchi companyclients earns short term capital loss and there is tax evasion at both the levels.” 18.A perusal of the “reasons to believe” required under Section 147of the I.T. Act, 1961 and stated in the order dated 22.03.2019establishes the fact that the escapement of the income of the petitionerfrom assessment for the relevant assessment years was part of a largernetwork which facilitated defrauding of the Revenue on an organisedand systematic basis. The authority had credible material before it tocome to this conclusion. Further the authority while recording itsreasons under Section 147 of the I.T. Act, 1961 on 22.03.2019 dulyapplied its mind to all the relevant materials in the record. 19.The scope of the expression “reason to believe” and the nature ofthe belief formed by the assessing officer that the income for anyassessment year has escaped assessment arose for consideration before the Hon'ble Supreme Court in Assistant Commissioner of Income TaxVs Rajesh Jhaveri Stock Brokers (P) Ltd. reported at (2007) 291 ITR500. The Hon'ble Supreme Court in Asstt. CIT Vs Rajesh Jhaveri StockBrokers (P) Ltd (supra) held thus: 19.The scope of the expression “reason to believe” and the nature ofthe belief formed by the assessing officer that the income for anyassessment year has escaped assessment arose for consideration before the Hon'ble Supreme Court in Assistant Commissioner of Income TaxVs Rajesh Jhaveri Stock Brokers (P) Ltd. reported at (2007) 291 ITR500. The Hon'ble Supreme Court in Asstt. CIT Vs Rajesh Jhaveri StockBrokers (P) Ltd (supra) held thus: “Section 147 authorises and permits the Assessing Officer to assess or reassessincome chargeable to tax if he has reason to believe that income for anyassessment year has escaped assessment. The word 'reason' in the phrase'reason to believe' would mean cause or justification. If the Assessing Officerhas cause or justification to know or suppose that income had escapedassessment, it can be said to have reason to believe that an income had escapedassessment. The expression cannot be read to mean that the Assessing Officershould have finally ascertained the fact by legal evidence or conclusion........Atthat stage, the final outcome of the proceeding is not relevant. In other words,at the initiation stage, what is required is 'reason to believe', but not theestablished fact of escapement of income. At the stage of issue of notice, theonly question is whether there was relevant material on which a reasonableperson could have formed a requisite belief. Whether the materials wouldconclusively prove the escapement is not the concern at that stage. This is sobecause the formation of belief by the Assessing Officer is within the realm ofsubjective satisfaction.” 20.Dealing with the scheme of Section 147 to 163 in a compositefashion was considered by the Hon'ble Bombay High Court in PrashantS. Joshi Vs Income Tax Officer, Ward 19 (2)(4), reported at (2010)324 ITR 154. The Hon'ble Bombay High Court elucidated the scope ofthe provisions as under: “9. Section 147 provides that if the Assessing Officer has reason to believe thatany income chargeable to tax has escaped assessment for any assessment year,he may subject to the provisions of Sections 148-163, assess or reassess suchincome and also any other income chargeable to tax, which has escapedassessment and which comes to his notice subsequently in the course of theproceedings under the section. The first proviso to Section 147 has noapplication in the facts of this case. The basic postulate which underlines Section 147 is the formation of the belief by the Assessing Officer that anyincome chargeable to tax has escaped assessment for any assessment year. TheAssessing Officer must have reason to believe that such is the case before heproceeds to issue a notice under Section 147. The reasons which are recordedby the Assessing Officer for reopening an assessment are the only reasonswhich can be considered when the formation of the belief is impugned. Therecording of reasons distinguishes an objective from a subjective exercise ofpower. The requirement of recording reasons is a check against arbitraryexercise of power. For it is on the basis of the reasons recorded and on thosereasons alone that the validity of the order reopening the assessment is to bedecided. The reasons recorded while reopening the assessment cannot beallowed to grow with age and ingenuity, by devising new grounds in repliesand affidavits not envisaged when the reasons for reopening an assessmentwere recorded. The principle of law, therefore, is well settled that the questionas to whether there was reason to believe, within the meaning of Section 147that income has escaped assessment, must be determined with reference to thereasons recorded by the Assessing Officer. The reasons which are recordedcannot be supplemented by affidavits. The imposition of that requirementensures against an arbitrary exercise of powers under Section 148.” 21.Similarly the Division Bench of the Hon'ble Bombay High Court in N.D. Bhatt, IAC Vs I.B.M. World Trading Corporation reported at(1995) 216 ITR 811, construed the ambit of Section 148 and observedas under: 21.Similarly the Division Bench of the Hon'ble Bombay High Court in N.D. Bhatt, IAC Vs I.B.M. World Trading Corporation reported at(1995) 216 ITR 811, construed the ambit of Section 148 and observedas under: “ It is also well settled that the reasons for reopening are required to berecorded by the assessing authority before issuing any notice under section148 by virtue of the provisions of section 148 (2) at the relevant time. Onlythe reason so recorded can be looked at for sustaining or setting aside a noticeissued under section 148. In the case of Equitable Investment Co. (P.) Ltd. vs.ITO [1988] 174 ITR 714 a Division Bench of the Calcutta High Court hasheld that where a notice issued under section 148 of the IT Act, 1961, afterobtaining the sanction of the CIT, is challenged, the only document to belooked into for determining the validity of the notice is the report on the basisof which the sanction of the CIT has been obtained. The IT Department cannotrely on any other material apart from the report.” 22.The same principal was reiterated in another Division Benchjudgment of the Hon'ble Bombay High Court in Hindustan Lever Ltd.Vs R.B. Wadkar reported at (2004) 268 ITR 332. “...the reasons are required to be read as they were recorded by the AO. Nosubstitution or deletion is permissible. No additions can be made to thosereasons. No inference can be allowed to be drawn based on reasons notrecorded. It is for the AO to disclose an open his mind through reasonsrecorded by him. He has to speak through his reasons.... The reasons recordedshould be clear and unambiguous and should not suffer from any vagueness.The reasons recorded must disclose his mind. Reasons are the manifestation ofmind of the AO. The reasons recorded should be self-explanatory and shouldnot keep the assessee guessing for the reasons. Reasons provide link betweenconclusion and evidence. The reasons recorded must be based on evidence. TheAO, in the event of challenge to the reasons must be able to justify the samebased on material available on record.... That vital link is the safeguardagainst arbitrary reopening of the concluded assessment. The reasons recordedby the AO cannot be supplemented by filing affidavit of making oralsubmission, otherwise, the reasons which are lacking in material particularswould get supplemented, by the time the matter reaches to the Court, on thestrength of affidavit or oral submissions advanced.” 23.In the light of the facts found in the earlier part of the judgmentand the position of law distilled in the immediately precedingparagraphs, this Court finds that the satisfaction arrived at by theauthority satisfies all the requirements of law as contemplated underSection 147 of the I.T. Act, 1961 and explained by judicialpronouncements in that regard. 24.The petitioner was granted full opportunity to state his casebefore the authorities in his objections against the issuance of noticeunder Section 148 of the I.T. Act, 1961 for the Assessment Year 2012-13. The petitioner duly availed the aforesaid remedy. The authorities while deciding the objections of the petitioner passed detailed speakingorders which again reflect due application of mind on the facts andmaterial in the record. 24.The petitioner was granted full opportunity to state his casebefore the authorities in his objections against the issuance of noticeunder Section 148 of the I.T. Act, 1961 for the Assessment Year 2012-13. The petitioner duly availed the aforesaid remedy. The authorities while deciding the objections of the petitioner passed detailed speakingorders which again reflect due application of mind on the facts andmaterial in the record. 25.The Deputy Commissioner of Income Tax, Circle-5(1) (1),Gautam Buddh Nagar while disposing of the aforesaid objection of thepetitioner against issuance of the notice under Section 148 in its orderdated 26.11.2019 considered the objections of the petitioner. Theobjections of the petitioner were dealt with on a point to point basis.While passing the order dated 26.11.2019 the competent RevenueAuthority found that necessary pre-requisite of Section 147 that “thereshould be an escapement of income” stood fulfilled. The reasonsrecorded in that regard were found to be valid. The authority alsonoticed the admission of the assessee that he had “incurred Long TermCapital Gain of Rs. 47,43,264/- during Financial Year 2011-12,however, the same has not been disclosed in his ITR.” 26.The validity of the refusal of the request of the petitioner to crossexamine Ashok Kumar Kayan, Sunil Kumar Kayan, Devesh KumarKayan whose statements were part of the material, was also affirmed inthe following terms; “ In this regard, it is clarified that the undersigned cannot compel any otherperson for such cross examination as all these persons are not residing within200 km. From the office of the undersigned. Therefore they cannot besummoned/called upon for such cross examination. The Income Tax Act, 1961does not have any provision which may empower the undersigned to enforcethe cross examination of a third party by the assessee. However, thestatements of Shri Ashok Kumar Kayan are being provided to the assessee for ready reference.” 27.No provision was pointed out during the course of the argumentwhich could compel us to take a differing view from that of theauthority passing the order dated 26.11.2019. 28.Before parting, we would like to deal with another issue in theinterest of justice. We have already found as a matter of fact that therecital in the order dated 28.10.2019 as well as order dated 26.11.2019that the due approval under Section 151 of the I.T. Act, 1961 was takenfrom the competent authority is not liable to be interfered with in lightof the insufficient pleadings. However, the nature of right of theassessee to be provided a copy of the order of prior approval underSection 151 of the I.T. Act, 1961 as understood by the authority passingthe order dated 28.10.2019 has to be adverted to. The authority denieda copy of the approval granted by the competent authority underSection 151 of the I.T. Act, 1961 to the petitioner for the followingreasons: “ However, the AR of the assessee has contested that the copy of approval wasnot provided with the reasons recorded. In this regard, it is informed that theapprovals taken from higher authorities are internal matter of the departmentfor communication hence, the same cannot be provided. Further, the assesseehas cited case law of Hon'ble Delhi High Court in support of his claim. It ishereby clarified that the case law of Hon'ble Delhi High Court is not binding onthe undersigned. However, if the assessee has case laws of jurisdictional HighCourt or Hon'ble Supreme Court, the same may be communicated accordingly.Therefore, the above ground of the assessee is not acceptable hence rejected.” 29.The aforesaid finding of the Revenue authority is unsustainable in law. Approval under Section 151 of the I.T. Act, 1961, prior to initiation 29.The aforesaid finding of the Revenue authority is unsustainable in law. Approval under Section 151 of the I.T. Act, 1961, prior to initiation of proceedings under Section 148 of the I.T. Act, 1961 is a jurisdictionalpre-requisite. In the absence of such approval the proceedings wouldfall to the ground for want of jurisdiction. As such, the assessee is fullyentitled to a copy of the order passed under section 151 of the I.T. Act,1961 and correspondingly, the Assessing Officer is obliged to hand-overa copy of the same, as and when the assessee seeks for it. 30.There is no infirmity in the reassessment proceedings and thesame are not liable to be interfered with. 31.The writ petition is accordingly disposed of finally. 32.Let a copy of this judgment and order be transmitted by theRegistry to the Principal Commissioner of Income Tax, Uttar Pradesh,for circulation. Order Date :- 17.01.2020Pravin (Biswanath Somadder,J.) (Ajay Bhanot,J.)