Zoom Insurance Brokers Pvt. Ltd v. Assistant Commissioner Of Income Tax,Circle - 5(1), New Delhi

$~74 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 11.09.2025 +W.P.(C) 14027/2025 CM APPL. 57375/2025 ZOOM INSURANCE BROKERS PVT. LTD Through:Mr. Mukesh Gupta, Adv. .....Petitioner versus ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE - 5(1), NEW DELHI Through:Mr Anant Mann, JSC. .....Respondent CORAM:HON'BLE MR. JUSTICE V. KAMESWAR RAOHON'BLE MR. JUSTICE VINOD KUMAR V. KAMESWAR RAO, J. (ORAL) CM APPL. 57376/2025 1.Exemption allowed, subject to all just exceptions. 2.The application is disposed of. W.P.(C) 14027/2025 CM APPL. 57375/2025 (Stay) 3.The present petition has been filed by the petitioner seeking the following prayers: “1. To set aside the notice dated 24.03.2025 and 28.05.2025issued u/s 148A(1), the order passed u/s 148A(3) and noticedated 23.06.2025 issued u/s 148 of the income tax act for theassessment year 2019-20 by the respondent . 2. To stay the operations of the impugned notice dated23.06.2025 issued u/s 148 of the Income Tax Act. 3. Pass such other order or orders as this Hon’ble court maydeem fit and proper in the circumstances of the case.” 4.The present petition has been filed seeking quashing of the impugnednotices dated 24.03.2025 and 28.05.2025 issued under Section 148A(1) ofthe Income Tax Act, 1961 (‘the Act’, hereinafter); order dated 23.06.2025under Section 148A(3) of the Act pertaining to the Assessment Year 2019-20 and notice dated 23.06.2025 under Section 148 of the Act. 5.Mr. Mukesh Gupta, learned counsel for the petitioner has argued thatthe petitioner had filed its return of income on 17.10.2019 wherein thepetitioner declared the income of Rs. 3,06,93,740/- and the same was revisedon 21.12.2019 and 20.01.2020. He contends that the respondent issued anotice under Section 148A(1) of the Act wherein the respondent returnedcertain findings regarding the petitioner company being involved in a bogustransaction amounting to Rs. 82,25,822/- with IFFCO TOKYO GeneralInsurance Company Ltd (‘IFTGI’, hereinafter). He stated that the petitionercompany thereafter filed response on 15.04.2025 to the notice under Section148A(1) and was further directed to again furnish a reply on 29.05.2025 inresponse due to change of the incumbent under Section 129 of the Act. It ishis contention that the respondent passed the impugned order dated23.06.2025 under Section 148A(3) of the Act on the ground that no detailsof the commission in terms of the percentage of premium receipts wasgiven. 6.According to Mr. Gupta, this amount of Rs.82,25,822/- had alreadybeen declared by the petitioner company in its accounts and had already paidtax on the said amount. He stated that this amount was received from IFTGIas commission on the premium paid to IFTGI through the policies of the petitioner’s clients. The same has been referred to in the letter dated15.04.2025. Mr. Gupta, has alluded to the copies of the tax invoices, detailsof policies and the amount of premium received by IFTGI on such policiesand the commission that accrued to the petitioner from these policies. 7.As per Mr. Gupta, the respondent had changed its opinion afterconsidering the reply of the petitioner company dated 15.04.2025 and passedan order under Section 148A(3) of the Act on the ground that the petitionercompany had not submitted the percentage of the commission on thepremium. It is his submission that the respondent had neither directed thepetitioner company to furnish these details during the proceedings underSection 148A(1) of the Act nor the respondent was in possession of relevantmaterial based on which such a conclusion could be drawn. He stated thatthe re-opening of the assessment is bereft of evidence and further there wasno material evidence to show that an income of more than Rs. 50,00,000/-has escaped the assessment. Mr. Gupta has relied on a judgment of thisCourt in the case of Jindal Saw Limited v. Deputy/Assistant Commissionerof Income-tax [2025] 170 taxmann.com 634 (Delhi), in support of hissubmission to contest the impugned notice. 8.Having heard the learned counsel for the petitioner and perused therecord, we must at the outset refer to the notice dated 24.03.2025 issuedunder Section 148A(1) of the Act on the ground that the income subject totax has escaped assessment within the meaning of Section 147 of the Act asper “information in accordance with the risk management strategyformulated in this regard”. Further, as per the impugned notice therespondent has mentioned that a search and seizure under Section 132 of theAct on Middle Layer Business Entities (‘MLBE’, henceforth) of the insurance sector was conducted on 30.11.2022 to verify the claim of servicesagainst which these entities had received payments from the insurancecompanies. According to the notice, these MLBEs were neither authorizedto receive commission nor registered under Insurance Regulatory andDevelopment Authority of India (‘IRDAI’, hereinafter) and have acted aspass-through entities for the insurance companies. These payments weremasked under various heads such as online media expenses, advertisementservices, online marketing, marketing activities, brand promotion expense,etc., and that these were finally paid to the insurance agents or insuranceintermediaries or their nominees. Such search and seizure has covered 37MLBEs and 32 insurance companies were part of post search verification.9.According to the impugned notice, the respondents have stated thatthe insurance companies have signed several service agreements withseveral MLBEs to facilitate transfer of such payments. The notice states thatthe analysis of this financial data was carried out and has indicated that theseMLBEs do not have the capacity to render such services and the fundswhich have been received from the insurance companies were simply passedon without rendering any relevant services. The amount of Rs. 82,25,822/-from IFTGI was found to be one such transaction of the assessee company.10.The relevant paragraphs of the impugned order dated 23.06.2025reads as under: “2.1 On perusal of the information uploaded on the insightportal, it is noticed that a Search and seizure u/s 132 on MiddleLayer Business Entities (MLBEs) of Insurance Sector wasconducted on 30.11.2022 by Investigation Unit -1 and Unit-5,Mumbai under names Wings Brand Group and Ajay Mehtagroup respectively to verify the claim of services against whichthese entities have received huge payments from the insurance companies. These MLBEs were not authorized to receive thecommission since they are not registered with the IRDAI andthey acted as pass-through entities for Insurance Companies.These payments were masked as various heads of expensessuch as online media and advertisement services, onlinemarketing, marketing activities, brand promotion expense etc.These were finally paid either to Insurance agents/insuranceintermediaries/MPHsortotheirnominees.37Entities(MLBEs) were covered during search operation and 32insurance companies were covered as part of post searchverification. 2.2 The search action revealed that these MLBEs have actedmerely as pass-through entities and transferred the additionalcommission (also called as Overriding commission-ORC), overand above the IRDAI limit, to Insurance intermediaries/agents,Master Policy holders or their nominees. The evidencesgathered from different premises clearly established the nexusbetween Insurance Companies and the end beneficiaries whoare either the Insurance agents/intermediaries Master Policyholders, or their nominees. The Middle Layer Business Entitieshave shown the payments received from Insurance Companiesunder the head business promotion, marketing expenses,advertisement expense etc. and have further debited expensesunder different heads to transfer the commission over andabove the IRDAI limit to the end beneficiaries. These middlelayer entities acted as payment facilitator and passed on theamount received from insurance companies to nominees ofinsurance intermediaries and agents. 2.3 The Insurance companies have signed service agreementswith several middle layer business entities (MLBEs) fortransferring huge payments under the head marketing andbusiness promotion to various entities. Analysis of financialdata and enquiries of these entities were carried out by theInvestigation Wing which indicated that these entities are nothaving the capacity to render such services. They have receivedthe fund from the Insurance companies and simply passed onthe funds to other individuals and other business entities without receiving any services. 2.4 From the investigation report it is gathered that theassesseecompany alsofoundto be involvedin bogustransaction amounting to Rs. 82,25,822/- with IFFCO-TOKIOGeneral Insurance Company Ltd. 3. Considering the above referred credible information andanalysis, subsequent to the information, proceedings u/s 148Aof the Income-tax Act, 1961 was initiated. In view of the abovefacts and circumstances of the case, a show cause notice u/s148A(1) was issued to the assessee on 31/03/2025 requestingthe assessee company to respond by 17/04/2025, as it appearedthat income chargeable to tax has escaped assessment for thetransaction mentioned above amounting to Rs. 82,25,822/-during the year under consideration. In response of the noticethe assessee has submitted its submission on 17-04-2025.Relevant portion of the reply is reproduced as under:- “………..In the matter under consideration the assesseehas taken a written email confirmation from ITGIstating that the amount of INR 82,25,822/- as shown inthe insight portal is a genuine transaction and itpertains to the brokerage income against the premiumplaced by the assessee to ITGI on behalf of their variousclient's insurance policies. In the email confirmation received from ITGI dated14/04/2025, the officials of ITGI shared a reconciliationsummary of Form 26AS versus the amount reported onincome tax insight portal. In the reconciliation receivedover the mail, the difference is on account of creditmemos which are not reported in Form 26AS butreported on insight portal. The assesee hereby further states that they havereported a taxable income of Rs. 83,28,333/- asbrokerage (basis on the monthly statements receivedfrom the ITGI) in their Audited Financials of AY 19-20.A reconciliation of reported income versus the amountreported in the Insight portal is as below: It can be verified from the above reconciliation thatduring the Financial Year 2018-19 (AY 2019-20), theassesseehasreportedataxableincomeofRs.83,28,333/-which is higher than the amount of Rs.82,25,822/- as reported on Insight portal of the IncomeTax department.2. This is a legitimate income within IRDAI rules andregulations and the same has also been declared in ourprofit and loss account. 3. Please find attached here with a list of invoices alongwithcopiesofinvoices(backedupbyinsurerstatements) that were raised on Iffco-Tokio GeneralInsurance Company Ltd during the period from 1st ofApril 2018 to 31st of March 2019, (AY 2019-20). Thetotal of all these invoices is INR. 83,28,333/- and thesame amount has been appropriated as income in theprofit and loss account for the FY 2018-19 (AY 2019-20). 4. So, all the relevant documents have been reconciledand are matching with each other confirming that anamount of Rs. 83,28,333/- is the only amount receivedfrom ITGI against the premium placed by us to themthrough the policies of our various clients. And thisamount has already been accounting in our profit andloss statement and due tax has already been paid on thesame. Also, it would not be out of place to mention thatthroughout the life span of our existence, we ascompany have remained profitable, deposited our taxesdiligently and have contributed significantly to the causeofthecountry.Last5yearsdataisself-explanatory and have been reproduced below for yourkind perusal: - Further kindly note below points also: 4. So, all the relevant documents have been reconciledand are matching with each other confirming that anamount of Rs. 83,28,333/- is the only amount receivedfrom ITGI against the premium placed by us to themthrough the policies of our various clients. And thisamount has already been accounting in our profit andloss statement and due tax has already been paid on thesame. Also, it would not be out of place to mention thatthroughout the life span of our existence, we ascompany have remained profitable, deposited our taxesdiligently and have contributed significantly to the causeofthecountry.Last5yearsdataisself-explanatory and have been reproduced below for yourkind perusal: - Further kindly note below points also: a) Any income/payment which we have received fromITGI have been booked in our profit and loss accountand tax has been paid on the same. (Annexure 4a to 4cInvoice copies with ITGI statements) b) We have no relationship whatsoever with WingsBrand Group and Ajay Mehta group herein referred asMLBES. c) We have not received any income/payment directly orindirectly through any of these MLBES. d) As per our limited knowledge the practice ofadditionalcommissionsoverandaboveIRDAIprescribed norms were prevalent in retail insurancebusiness and not in corporate or group insurancebusiness. e) We are a IRDAI broker whose more than 99% ofbusiness is group business and not retail business. f) We categorically deny our involvement in any bogustransaction and all the above submissions are evident ofthe same. In view of above stated facts, we pray that your Honorshall accept our submission as our true and correctsubmission. The notice under section 148 of the Income Tax Act,1961 should not be issued as there is no suppression ofincome and that we have earned only the legitimatebrokerage as per prescribed IRDA guidelines which hasbeen fully disclosed in the return of income filed with the Income Tax Authorities for the AY 2019-20. We assure you of our full cooperation in this matter andare committed toproviding all necessary informationand documentation……” Alongwith the above reply, documents in support of assessee’sclaim was also furnished 4. The entire submissions of the assessee have been consideredand carefully gone through and it is found that the reply of theassessee is vague and inconclusive. ITGI’s email confirmation(14/04/2025) is a self-serving document without third-partyverification which can not be relied upon. Similarly, theinvoices furnished alone does not prove the genuineness oftransactions. 4.1 The core issue as mentioned in the showcause notice hasnot at all been addressed as no comment has been made withregard to percentage of commission received from IFFCOTokyo General Insurance Company Ltd(ITGI) and has givenvery vague reply stating: “ as per our limited knowledge the practice of additionalcommissions over and above IRDAI prescribed norms wereprevalent in retail insurance business and not in corporate orgroup insurance business”. No working of commission in terms of % of premium receiptshas been given. Mere denial of the issues involved isinsufficient to accept the plea of the assessee. In light of thesame, the reply of the assessee is considered evasive and devoidof substantial documentary evidence and therefore can not beaccepted. 5. In this case income likely to escape is more than Rs.50 lakhsand the same is represented in the form of transaction orentries as mentioned above which shows the income chargeableto tax, which has escaped assessment, amounts to more thanfifty lakhs rupees. Thus, the assessee’s case is covered underprovision of section 149 (1)(b) of the Income Tax Act, 1961.Accordingly, it is concluded that it is a fit case for issuingnotice u/s 148 of the Act for A.Y. 2019-20. 6. Accordingly, after considering the facts of the case, asmentioned above, it is concluded that this case is a fit case for issuing notice u/s 148 of the I.T. Act.” 5. In this case income likely to escape is more than Rs.50 lakhsand the same is represented in the form of transaction orentries as mentioned above which shows the income chargeableto tax, which has escaped assessment, amounts to more thanfifty lakhs rupees. Thus, the assessee’s case is covered underprovision of section 149 (1)(b) of the Income Tax Act, 1961.Accordingly, it is concluded that it is a fit case for issuingnotice u/s 148 of the Act for A.Y. 2019-20. 6. Accordingly, after considering the facts of the case, asmentioned above, it is concluded that this case is a fit case for issuing notice u/s 148 of the I.T. Act.” 11.We have recently decided a matter which squarely covers the issue inthe case of R S Alloys v. Income Tax Officer Ward 63(1) Delhi and Anr. 2025 SCC OnLine Del 5798 “29. The conclusion of the AO is that mere maintenance of thedocuments and books of accounts provided by the assessee doesnot mean that there are no discrepancies in the sales andpurchases made by the assessee. He has laid stress on the factthat M/s. Karthik Alloys Pvt. Ltd. was a defaulter and debtor ofhuge payments towards a second party on account of non-payment against purchases. He also stated that these factsfurther weaken the stand of the assessee that M/s. KarthikAlloys Pvt. Ltd. has made genuine transactions with theassessee amounting to Rs. 88,86,000/-. In fact he has also notedthat the order passed by the NCLAT, Mumbai Bench in the caseof Karthik Alloys Pvt. Ltd. would also show that it was not in aposition to make huge transactions and ultimately to runbusiness and it only suggested that M/s. Karthik Alloys Pvt. Ltd.hadfinancialcrisesduringtherelevantyearunderconsideration. It was also noted that M/s. Karthik Alloys Pvt.Ltd. had filed return of income only for the year 2018-2019showing ‘nil’ income and ‘nil’ profit before tax. In other words,huge business transactions undertaken by the entity does notappear commensurate with the ITR filed by the said entity. 30. Suffice it to state, while the petitioner contends that thetransaction relating to the amount of Rs. 88,86,000/- isgenuine, it is the stand of the respondents that it is a shamtransaction whereby M/s. Karthik Alloys Pvt. Ltd. has issuedbogus bills to the assessee in order to suppress actual incomeby claiming Input Tax Credit in GST returns. This is a purequestion of fact and needs to be looked into and enquiredscrupulously and it is necessary to issue notice primarily tocarry out the reassessment proceedings and ascertain as towhether the said transaction needs to be added to income forthe purpose of tax or not. In fact, the Revenue has takenprecisely this stand in these proceedings, that on the basis of the documentary evidence filed by the assessee and afterhearing it, such an exercise needs to be carried out. 31. Having said that, it is also apposite to mention here thatthere is no violation of the principles of natural justice, asalleged by the assessee. It is based on the notice dated28.03.2025, to which response was filed by the assessee thatthe reassessment order has been passed. 32. It is not the case of the assessee that no opportunity ofhearing was granted by the AO pursuant to the notice underSection 148A(1) of the Act, which resulted into the order underSection 143A(3) of the Act. It is also not contested that thepresent action has been taken based on the informationavailable with the respondent under Risk Management Strategyformulated by the CBDT, which is recognised under Section148(3)(i) of the Act. It is in pursuance of this that therespondent has taken a view that that income chargeable to taxhas escaped assessment in the case of the assessee during therelevant AY. A reference to the same has been made in the showcause notice issued under Section 148A(1) of the Act, whichreads as under:— 32. It is not the case of the assessee that no opportunity ofhearing was granted by the AO pursuant to the notice underSection 148A(1) of the Act, which resulted into the order underSection 143A(3) of the Act. It is also not contested that thepresent action has been taken based on the informationavailable with the respondent under Risk Management Strategyformulated by the CBDT, which is recognised under Section148(3)(i) of the Act. It is in pursuance of this that therespondent has taken a view that that income chargeable to taxhas escaped assessment in the case of the assessee during therelevant AY. A reference to the same has been made in the showcause notice issued under Section 148A(1) of the Act, whichreads as under:— “2. Information available with this office under riskmanagement strategy formulated by CBDT suggeststhatincomechargeabletotaxhasescapedassessment in the case of assessee during therelevant assessment year. Copy of case relatedinformation as downloaded from the Insight Portalin your case is also annexed herewith.” If that be so, initiation of the reassessment proceedings cannotbe faulted.”be faulted.” (Emphasis supplied) 12.In another judgment on a similar issue a co-ordinate Bench of thisCourt in the case titled Majestic Handicraft Private Limited v. Dy.Commissioner of Income Tax 2024 SCC OnLine Del 8858 held as under: “19. At the stage of issuance of notice under Section 148 of theAct, the AO is required to have reasons to assume that theAct, the AO is required to have reasons to assume that the income of the assessee has escaped assessment. Section 148Aof the Act sets out a mechanism for ensuring that the AO'sdecisions are not based on any unfounded suspicion. Thescheme thus, entails a preliminary enquiry, which in this casewas done by the department. It is then followed by a noticeunder Section 148A(b) of the Act to enable the assessee torespond to the information that is available. The AO is requiredto consider the assessee's response under Section 148A(c) ofthe Act in taking an informed decision whether it is a fit case toreopen the assessment by passing an order under Section148A(d) of the Act. This exercise is for a limited scope ofmerely determining whether the assessment is required to bereopened. It does not foreclose the assessee's contentionregarding the genuineness of the ITRs.All rights andcontentions of an assessee to support its declaration of ITR isavailable to the assessee. 20. At the stage of Section 148A of the Act, the AO is merelyrequired to form a view whether he has reasons which indicatethat the assessee's income has escaped assessment. In thepresent case, there is material on record - the sufficiency ofwhich, this court is not required to examine - which bears a livenexus to the opinion that the petitioner's income has escapedassessment. The material indicates that there is evidence thattwo of the entities from whom the petitioner had procuredmaterials arenot genuine.Thebank accounts indicatematching of inflows and outflows coupled with the highturnover in a short span of time. This provides the reasons forthe AO to question the purchases that are declared by thepetitioner.” 13.It is seen from the above that the contention of the petitioner inrespect of the sum of Rs. 82,25,822/- being an amount which has beendeclared in books and return of income tax and as such the impugned noticewhich alleges that such an amount has escaped the assessment is clearlyuntenable, is concerned the issue need to be seen in facts for which it is imperative that the notice is issued to elicit a reply and to check whether thesum of Rs. 82,25,822/- is a result of a spurious transaction, resulting in theincome escaping assessment/Tax. Such an exercise shall be undertaken bythe Assessing Officer, and surely not by this Court. 13.It is seen from the above that the contention of the petitioner inrespect of the sum of Rs. 82,25,822/- being an amount which has beendeclared in books and return of income tax and as such the impugned noticewhich alleges that such an amount has escaped the assessment is clearlyuntenable, is concerned the issue need to be seen in facts for which it is imperative that the notice is issued to elicit a reply and to check whether thesum of Rs. 82,25,822/- is a result of a spurious transaction, resulting in theincome escaping assessment/Tax. Such an exercise shall be undertaken bythe Assessing Officer, and surely not by this Court. 14.Suffice to state that the reliance placed by Mr. Gupta on the judgmentin the case of Jindal Saw Limited (supra) can be distinguished on facts in asmuch as the notice under Section 148A(b) was issued on account ofundeclared/unexplained income whereas, the assessee in that case hadsufficiently explained the amount and the impugned order in that case wasseen to be at variance with the allegations made in the impugned notice inthe said case. Needless to state, the reliance placed by Mr. Gupta on thisjudgment is misplaced. 15.In view of the above, we find no merit in this petition and the same isdismissed along with the accompanying application for stay. V. KAMESWAR RAO, J SEPTEMBER 11, 2025 rt VINOD KUMAR, J