Full Judgment Text
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 21 August 2024
Judgment pronounced on: 02 September 2024
+ W.P.(C) 13273/2018
WELL TRANS LOGISTICS INDIA PVT. LTD. ..... Petitioner
Through: Dr. Rakesh Gupta, Mr.
Somil Agarwal & Mr.
Dushyant Agarwal, Advs.
versus
ADDL.COMMISSIONER OF INCOME TAX &
ORS ...... Respondents
Through: Mr. Shlok Chandra, Sr.SC
with Ms. Madhavi Shukla,
Jr.SC, Ms. Priya Sarkar,
Jr.SC and Mr. Sudarshan
Roy, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
J U D G M E N T
RAVINDER DUDEJA, J.
1. The instant writ petition has been filed with the following
prayer:-
“1. To set-aside the impugned notice dated 22.03.2018 issued u/s
148 of the Income Tax Act, 1961 for A.Y. 2011-12 issued by
respondent no. 1 and letter dated 13.11.2018 by Joint Commissioner
of Income Tax, Special Range -9, New Delhi.
2. To issue a writ, direction or order in the nature of Certiorari,
Mandamus or any other appropriate writ, direction or order quashing
the impugned notice dated 22.03.2018 issued u/s 148 of the Income
Tax Act, 1961 by respondent 1 and letter dated 13.11.2018 by the
Joint Commissioner of Income Tax i.e. respondent 1.
3. To stay the operation of the further proceedings in pursuance to
Signature Not Verified
W.P. (C)13273/2018 Page 1 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
notice dated 22.03.2018 issued u/s 148 and letter dated 13.11.2018
as an Interim Relief.”
FACTUAL BACKGROUND:
2. Petitioner is engaged in the business of freight forwarding. In
consideration of the services performed in the business carried on by
the petitioner company, customers make payment of the service charges
and other charges, to the petitioner company, both by cheques and/or
through banking channels including electronic transfers and in some
cases by cash and in many cases by the combination of cheques and
cash.
3. Petitioner company filed its return of income for the Assessment
Year [ “AY” ] 2011-12 on 30.09.2011. Respondent No. 1 reopened the
assessment of AY 2011-12 under Section 147 of the Income Tax Act,
1961 [ “Act” ] by issuing notice under Section 148 of the Act on the
ground that income has escaped assessment.
4. Petitioner company after filing the return of income in response
to notice under Section 148 of the Act, requested for the reason
recorded, which was supplied vide letter dated 20.07.2018 by the
respondent.
5. It has been stated that on the sole basis of information received
from the Deputy Director of Income Tax [ “DDIT” ], vide letter dated
29.11.2013 and extracted in the Reason, the respondent formed ‘reason
to believe’ that income to the extent of cash deposited in the bank
account of the petitioner company has escaped assessment.
6. The petitioner filed objections to the reopening of the assessment
vide its letter dated 11.11.2018, submitting, inter alia , that “reason”
recorded is solely based on the DDIT’s letter and that too dated
Signature Not Verified
W.P. (C)13273/2018 Page 2 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
29.11.2013 and that there is no independent exercise of quasi-judicial
power on the part of the Assessing Officer and that the belief of
escapement of income was in fact the belief of DDIT and not of the
respondent Assessing Officer. It was also submitted by the petitioner in
its objections that the cash deposits in the bank account, being part of
books of accounts and being out of service charges income, which has
already been accounted for as income in the profit and loss account,
could not have led for forming ‘reason to believe’ of escapement of
income. It was also submitted in the objections that there is no date on
the reason recorded and hence it cannot be ascertained as to whether the
reason was recorded prior to the issue of notice under Section 148 of
the Act.
7. The objections were disposed of vide letter dated 13.11.2018
without dealing with any of the objections raised by the petitioner
company as to the reopening of the assessment. Instead, the respondent
Assessing Officer mentioned that the Assessee had not filed the details
asked for in the assessment proceedings.
8. Feeling aggrieved, petitioner filed the present writ petition for
quashing for impugned notice dated 22.03.2018 issued under Section
148 of the Act.
9. Respondents filed counter affidavit stating that petition is
misconceived and is not maintainable. It is stated that the impugned
notice has been issued in consonance with the provisions of the statute
and the same satisfied the jurisdictional requirement prescribed under
the law. It has also been stated that the writ petition cannot be
entertained as there is an equally efficacious remedy of appeal available
Signature Not Verified
W.P. (C)13273/2018 Page 3 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
to the petitioner.
10. It has been further stated that the reasons recorded specifically
take note that credible information has emerged on account of enquiry
conducted by DDIT, whereby, it was found that a total cash of Rs.
5,76,91,714/- has been deposited in petitioner’s different bank
accounts for the financial year 2010-11. It is further stated that
petitioner has failed to explain the source of cash deposited into its
bank accounts as no details of parties, in respect of whom the said cash
had been received, was furnished by the petitioner.
11. It is further stated that on a perusal of the return filed by the
petitioner and the report of DDIT, Investigation Unit-1(1), Revenue had
reasons to believe that the income to the tune of Rs. 3,22,07,477/- for
the AY 2010-11 had escaped assessment.
12. It is stated that in this case, scrutiny assessment under Section
143(3) was never done, so there was no occasion for the AO to enquire
about the true nature and source of credits. It is stated that there is an
independent application of mind before recording the reason. Hence,
the petitioner’s contention that the reason recorded was solely based on
DDIT’s letter dated 29.11.2013 and that the “reason recorded is
mechanical and without application of mind” is not correct.
13. With regard to the date of recording of reason, it has been stated
that the reason stated to the Assessee is an annexure to the proposal for
obtaining approval under Section 151 of the Act and that notice under
Section 148 of the Act was issued on 22.03.2018 and approval under
Section 151 of the Act was granted by PCIT on 21.03.2018.
14. It has thus been prayed that the present writ petition ought to be
Signature Not Verified
W.P. (C)13273/2018 Page 4 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
dismissed.
15. In its rejoinder, petitioner company reiterated that reassessment
proceedings have been initiated without independent application of
mind by the AO and therefore liable to be quashed.
SUBMISSIONS
16. While relying upon the several decisions of this Court, learned
counsel for the petitioner has submitted that the reason recorded as to
the belief of escapement of income should be an independent belief of
the Assessing Officer and should not be borrowed belief of some other
Authority and therefore, reasons recorded must reflect the due and
independent application of mind. It is further submitted that recording
of reasons to believe is just not an empty or idle formality but forms a
sole foundation of the assumption of jurisdiction under Section 147 and
validity of assumption of jurisdiction under Section 147 has to be seen
with reference to the reasons recorded only.
17. Referring to the reasons recorded by the Assessing Officer in the
present case, it is submitted that the Assessing Officer has merely relied
upon the information received from DDIT and has not given any
independent reason for forming the belief and therefore there is no
independent application of mind.
18. Countering the above submissions, learned counsel representing
the Revenue has argued that it was only through information received
from the Investigating Wing that the Revenue came to know about the
nature and source of credits and after going through the records, the
Assessing Officer formed the belief regarding the assessment of
income. It is submitted that in the reasons for issuance of notice under
Signature Not Verified
W.P. (C)13273/2018 Page 5 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
Section 148 (Annexure-A), it is clearly recorded that the reasons to
believe the escapement of income of the Assessee was based on the
return of income filed and the report of the DDIT, which clearly reveals
the application of mind by the Assessing Officer and hence the
petitioner’s contention that the reason recorded was solely based on
DDIT’s letter or that reassessment was opened mechanically and
without application of mind is not correct. It is argued that the
information supplied by the DDIT (Investigation) was examined in the
light of information available on record in the form of the ITR and
therefore “reasons to believe” do not suffer from any illegality. The
learned counsel further submits that the adequacy or sufficiency of the
material on the basis of which the belief was formed by the Assessing
Officer for the reopening of the assessment could not be inquired into at
this stage.
19. It is in the above background that the Court is called upon to
examine whether the reasons recorded by the Assessing Officer for
reopening the assessment for the afore-mentioned assessment year
satisfies the requirement of law.
ANALYSIS & CONCLUSION
20. There are large number of cases explaining the legal
requirement that is to be satisfied by the Assessing Officer for valid
assumption of jurisdiction under Section 147 of the Act to reopen the
assessment. The power to reopen the assessment under Section 147 is a
potent power and cannot be exercised lightly. Said power cannot be
invoked casually or mechanically. Formation of belief by the Assessing
Officer that income has escaped assessment is the heart of the
Signature Not Verified
W.P. (C)13273/2018 Page 6 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
provision. The reasons recorded must be based on some tangible
material and the same should be evident from the reading of the reasons
and this constitutes the mandatory requirement of Section 147 of the
Act.
21. It is well settled through number of decisions that concluded
assessments cannot be reopened merely on suspicion and the Assessing
Officer must have “reason to believe” that income has escaped
assessment and this is quite different from merely having a reason to
suspect. The Supreme Court in the case of ITO v. Lakhmani Mewal
Das (1976) 103 ITR 437 (SC), had explained the same in the following
words:-
"The powers of the Income-tax Officer to reopen assessment, though
wide, are not plenary. The words of the statute are 'reason to believe'
and not reason to suspect' The reopening of the assessment after the
lapse of many years is a serious matter. The Act, no doubt,
contemplates the reopening of the assessment if grounds exist for
believing that income of the assessee has escaped assessment. The
underlying reason for that is that instances of concealed income or
other income escaping assessment in a large number of cases come
to the notice of the Income-tax authorities after the assessment has
been completed. The provisions of the Act in this respect depart
from the normal rule that there should be, subject to right of appeal
and revision, finality about orders made in judicial and quasi-judicial
proceedings. It is, therefore, essential that before such action is taken
the requirements of the law should be satisfied."
22. Dealing with an identical question, this Court in the case of
Principal Commissioner of Income Tax vs. Meenakshi Overseas
Pvt. Ltd. (2017) 395 ITR 677 , on the facts of the said case observed as
under:-
“19. A perusal of the reasons as recorded by the Assessing Officer
reveals that there are three parts to it. In the first part, the Assessing
Officer has reproduced the precise information he has received from
the Investigation Wing of the Revenue. This information is in the
Signature Not Verified
W.P. (C)13273/2018 Page 7 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
form of details of the amount of credit received, the payer, the
payee, their respective banks, and the cheque number. This
information by itself cannot be said to be tangible material.
20. Coming to the second part, this tells us what the Assessing
Officer did with the information so received. He says: "The
information so received has been gone through". One would have
expected him to point out what he found when he went through the
information. In other words, what in such information led him to
form the belief that income escaped assessment. But this is absent.
He straightaway records the conclusion that "the abovesaid
instruments are in the nature of accommodation entry which the
assessee had taken after paying unaccounted cash to the
accommodation entry given (sic giver)". The Assessing Officer adds
that the said accommodation was "a known entry operator" the
source being "the report of the Investigation Wing.
21. The third and the last part contains the conclusion drawn by the
Assessing Officer that in view of these facts, "the alleged transaction
is not the bona fide one. Therefore, I have reason to believe that an
income of Rs. 5,00,000 has escaped assessment in the assessment
year 2004-05 due to the failure on the part of the assessee to disclose
fully and truly all material facts necessary for its assessment..."
22. As rightly pointed out by the Income-tax Appellate Tribunal, the
"reasons to believe" are not in fact reasons but only conclusions, one
after the other. The expression "accommodation entry" is used to
describe the information set out without explaining the basis for
arriving at such a conclusion. The statement that the said entry was
given to the assessee on his paying "unaccounted cash" is another
conclusion the basis for which is not disclosed Who is the
accommodation entry giver is not mentioned. How he can be said to
be "a known entry operator" is even more mysterious. Clearly the
source for all these conclusions, one after the other, is the
investigation report of the DIT. Nothing from that report is set out to
enable the reader to appreciate how the conclusions flow therefrom.
23. Thus, the crucial link between the information made available to
the Assessing Officer and the formation of belief is absent. The
reasons must be self-evident, they must speak for themselves. The
tangible material which forms the basis for the belief that income
has escaped assessment must be evident from a reading of the
reasons. The entire material need not be set out. However,
something therein which is critical to the formation of the belief
must be referred to. Otherwise the link goes missing.
xxxxx xxxxxx xxxxxx
26. The first part of section 147(1) of the Act requires the Assessing
Officer to have "reasons to believe" that any income chargeable to
tax has escaped assessment. It is thus formation of reason to believe
Signature Not Verified
W.P. (C)13273/2018 Page 8 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
that is subject matter of examination. The Assessing Officer being a
quasi- judicial authority is expected to arrive at a subjective
satisfaction independently on an objective criteria. While the report
of the Investigation Wing might constitute the material on the basis
of which he forms the reasons to believe the process of arriving at
such satisfaction cannot be a mere repetition of the report of
investigation. The recording of reasons to believe and not reasons to
suspect is the pre-condition to the assumption of jurisdiction under
section 147 of the Act. The reasons to believe must demonstrate link
between the tangible material and the formation of the belief or the
reason to believe that income has escaped assessment.
xxxxx xxxxxx xxxxxx
36. In the present case, as already noticed, the reasons to believe
contain not the reasons but the conclusions of the Assessing Officer
one after the other. There is no independent application of mind by
the Assessing Officer to the tangible material which forms the basis
of the reasons to believe that income has escaped assessment. The
conclusions of the Assessing Officer are at best a reproduction of the
conclusion in the investigation report. Indeed it is a "borrowed
satisfaction". The reasons fail to demonstrate the link between the
tangible material and the formation of the reason to believe that
income has escaped assessment.”
23. Coming back to the present case, the reasons recorded by the
Assessing Officer for issuance of notice under Section 148 for
reopening of assessment under Section 147 of the Act for AY 2011-12
are extracted below:-
“Annexure 'A'
Reasons for Issue of Notice U/s 148 for reopening of assessment
u/s 147 of IT Act 1961 for the A.Y. 2011-12 in the case of M/s
Well Trans Logistics Pvt. Ltd.
An information in the case of assessee company was received from
the DDIT, Investigation, Unit (1), Delhi vide letter F. No.
DDIT(Inv.)/Unit-1(1) 2013-14/541 dated 29.11.2013 in which the
following information was provided:
"An inquiry in this case was conducted by this office. It was
found that the assessee company is engaged in the business of
freight forwarding in which it is approached by interested
exporters/importers for transporting their cargo from one
place to another and in this process, the company facilitates
Signature Not Verified
W.P. (C)13273/2018 Page 9 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
the transportation by booking the services with shipping line ,
transporters and custom brokers. It was submitted by the
assessee that it holds following bank accounts:
Sr. No. Bank Account No.
1. ICICI Bank 103705000028
2. ICICI Bank 629405039955
3. HDFC Bank Ltd. 02738300000016
4. HSBC Bank 130062276002
5. ICICI Bank Ltd. 057805000811
6. ICICI Bank 643805051012
As per submission made by the assessee company, total cash of Rs.
3,76,91,714/- has been deposited in its different bank accounts in
F.Y. 2010-11 respectively. The assessee was asked to explain the
source of cash, details of parties along with address from whom cash
has been received. However, the assessee failed to furnish the same.
Subsequently, the statement of Shri Sumit Bhayana, Director
holding 67% shares of the assessee company was recorded on oath
on 04.10.2013.
The assessee while recording statement on oath was confronted with
the issue of cash deposits in their bank account and was asked to
explain the source of cash. The assessee accordingly admitted that
the cash deposited into the bank accounts are business receipts
which has been received from brokers acting on behalf of exporters/
importers und this consists of 10 to 15% of their business. The
assessee was subsequently asked to give details viz. name and
address of such brokers from which cash was received. The assessee
admitted that no details in respect of such brokers are admitted that
no commission is paid to such brokers, as they themselves negotiate
the deal with exporters/ importers and after setting aside their margin
of profit, the business is assigned to the assessee company.
On perusal of the profit & Loss' account for F.Y. 2010-11. it was
further observed that an amount of Rs. 93,71,791/- has been debited
as expense under the head commission paid. The assessee was
accordingly asked to explain such expense. In response to this the
assessee admitted that in cases where business is directly with
exporters/ importers, in small percentage of such cases, brokers
introduces the assessee company with concerned exporters/
importers and in such cases commission are paid to brokers and TDS
is also deducted.
The assessee was also asked to explain the rotation of funds in their
own bank accounts as alleged in the STR. In response to this, the
assessee admitted that they have branches in Delhi, Ludhiana &
Mumbai and the funds are transferred into their own bank accounts
Signature Not Verified
W.P. (C)13273/2018 Page 10 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
to meet various expenses or any other immediate requirement of
funds at a particular place.
In this regard, it is important to note that the assessee company has
failed to explain the source of cash deposited into their bank
accounts as no details in respect of the parties from whom such cash
has been received has been furnished. From the statement recorded
on oath, it has also come to the fore that no commission has been
given to brokers in cases where payments has been received in cash
and at the same time where payments have been received in cheques,
the commission has been paid to brokers. This further creates
suspicion regarding the genuineness of cash transactions in the bank
accounts of the assessee company. This fact was also confronted to
the assessee, however the assessee reiterated the earlier stand that in
cases where payments are received in cash, the brokers assign the
business after setting aside profit margin."
After going through the Return of Income filed and the reports of
DDIT. Investigation, Unit-I(1), Delhi, I have reason to believe
income to the tune of Rs. 5,76,91,714/- of the assessee company for
the A.Y. 2011-12, has escaped assessment.
Since more than 4 years from the end of the relevant assessment
year have elapsed, approval of Pr. Commissioner of Income Tax,
Delhi-09, is solicited in terms of the Provisions of Section 151(1) of
the Act.”
24. We may note that the Assessing Officer after reproducing the
information received from DDIT, (Investigation) Unit, drew the
conclusion of escapement of income. In the case of Asst. CIT v.
Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 IR 500 (SC) , the
Supreme Court had explained that expression “reason to believe” would
mean justification to know or suppose that income had escaped
assessment. While, it is correct that it is not necessary for the Assessing
Officer to finally ascertain whether income had escaped assessment,
nonetheless, the Assessing Officer must have sufficient cause to believe
that it has.
25. In the present case, as may be seen, there is no “close nexus” or
“live link” between tangible material and the reason to believe that
Signature Not Verified
W.P. (C)13273/2018 Page 11 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18
income has escaped assessment. The information received from the
Investigating Unit of the Revenue cannot be the sole basis for forming a
belief that income of the assessee has escaped assessment. Having
received information from the Investigating Wing, it was incumbent
upon the Assessing Officer to take further steps, make further enquiries
and garner further material and if such material indicate that the income
of the assessee has escaped assessment and then form a belief that the
income of the assessee has escaped assessment.
26. Clearly, in this case, the Assessing Officer has not acquired any
material to form such belief. There is not even a line of reason which
may justify the formation of the belief. Consequently, we are satisfied
that reopening of assessment for the assessment year in question by the
Assessing Officer does not satisfy the requirement of law in terms of
Section 147 & 148 of the Act.
27. Consequently, the writ petition is allowed. The impugned
reassessment notice dated 22.03.2018 issued under Section 148 of the
IT Act and further proceedings, if any, initiated pursuant to the said
notice dated 22.03.2018 are set aside.
RAVINDER DUDEJA, J.
YASHWANT VARMA, J.
02 September 2024/ RM
Signature Not Verified
W.P. (C)13273/2018 Page 12 of 12
Digitally Signed
By:SUNITA KUMARI
Signing Date:02.09.2024
15:38:18