Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on: 09.10.2023
% Judgement pronounced on: 17.11.2023
+ W.P.(C) 10802/2018
SARASWATI PETROCHEM PVT. LTD. ..... Petitioner
Through: Ms Rano Jain, Advocate with Mr
Venketesh Chaurasia, Ms Ipsita
Gupta and Ms Renu Arora,
Advocates.
versus
INCOME TAX OFFICER, WARD 22(3) ..... Respondent
Through: Mr Prashant Meharchandani, Sr.
Standing Counsel with Mr Akshat
Singh, Jr. Standing Counsel with Ms
Ritika Vohra, Adv.
CORAM:
HON'BLE MR JUSTICE RAJIV SHAKDHER
HON'BLE MR JUSTICE GIRISH KATHPALIA
RAJIV SHAKDHER, J.:
I. Prefatory facts:
1. This writ petition is directed against proceedings triggered qua the
petitioner/assessee under Section 148 of the Income-tax Act, 1961 [hereafter
referred to as “the Act”].
2. The record shows that the Assessing Officer (AO) initiated
assessment/reassessment proceedings vis-à-vis the petitioner/assessee
concerning Assessment Year (AY) 2011-12 via notice dated 31.03.2018,
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issued under Section 148 of the Act [hereafter referred to as the “impugned
notice”].
3. For adjudication of the instant writ action, the following broad facts
are required to be noticed.
4. The petitioner/assessee filed its Return on Income (ROI) concerning
the AY mentioned above on 01.07.2011. This ROI was processed under
Section 143(1) of the Act.
5. Six years and nine months after the ROI for AY 2011-12 was filed, the
petitioner/assessee was, as indicated above, served with the impugned notice
by the AO. The impugned notice was premised on the Assessing Officer‟s
(AO) belief, based on the reasons he recorded [although not communicated
with the said notice], that income, otherwise chargeable to tax in AY 2011-
12, had escaped assessment.
6. The petitioner/assessee was, thus, via the impugned notice, called
upon to file an ROI in the prescribed form for the AY in issue within thirty
(30) days.
7. The petitioner/assessee complied with the direction issued to it and,
accordingly, filed the ROI on 05.04.2018, which declared the same income
that had been disclosed while filing the original ROI on 01.07.2011.
8. Since the AO had failed to furnish the document containing „reason to
believe‟, which formed the basis for triggering reassessment proceedings
against the petitioner/assessee, a request in that regard was made on
05.04.2018. The request made by the petitioner/assessee was followed by
two reminders dated 01.06.2018 and 15.06.2018.
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9. The AO, on 26.06.2018, finally responded to the request made and
furnished a copy of the document in which „reason to believe‟ had been
recorded.
10. This propelled the petitioner/assessee to file its objections dated
08.09.2018.
11. The AO disposed of the objections on 24.09.2018. The dismissal of
the objections via order dated 24.09.2018 constrained the petitioner/assessee
to take recourse to the instant writ action.
11.1 Notice in the writ petition was issued on 09.10.2018. While issuing
notice in this writ petition, the court restrained the respondent/revenue from
passing final orders in the reassessment proceedings during the pendency of
the writ petition.
12. The said interim order was made absolute, albeit during the pendency
of the writ petition, on 08.02.2023.
II. Submissions on behalf of Counsel:
13. Ms Rano Jain advanced arguments on behalf of the
petitioner/assessee, assisted by Mr Venkatesh Chaurasia, while on behalf of
the respondent/revenue, submissions were advanced by Mr Prashant
Meharchandani.
14. Ms Jain made the following submissions:
(i) Information based on which the AO formed 'reason to believe'
that income otherwise chargeable to tax had escaped
assessment had not been furnished by him to the
petitioner/assessee. The „reason to believe,‟ as recorded by the
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AO, alludes to the communication dated 12.03.2018 received
from the Income Tax Officer (Nahan) and an FIR and
chargesheet filed by the Central Bureau of Investigation (CBI),
which included the names of the Directors of the
petitioner/assessee, i.e., Krishan Kumar Bansal, Chhabil Das
Bansal, and Surender Pal Bansal. Neither the communication
dated 12.03.2018 nor the FIR and chargesheet have been
furnished to the petitioner/assessee.
(ii) It is a case of „borrowed satisfaction‟. The AO needed to
independently verify the information and the material that had
reached him.
(iii) The facts recorded in the document containing 'reason to
believe' do not have a nexus with the AY in issue. A close
perusal of the details given in the document containing „reason
to believe‟ would show that the petitioner/assessee had received
monies in two bank accounts maintained with the Pitampura
and Pushpanjali Enclave branches of HDFC Bank during the
periods spanning between 22.06.2009 and 08.12.2009 and
05.01.2010 and 18.02.2010 respectively. These periods concern
the Financial Year (FY) 2009-10 [AY 2010-11] and not the
period in issue, i.e., FY 2010-11 and AY 2011-12.
(iv) The AO has not applied his mind. In the first tabular chart in the
document containing the „reason to believe‟, the RTGS receipt
in the petitioner‟s/assessee‟s Pitampura bank account, against
the date 08.12.2009, entry 15, shows that the amount ostensibly
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received was Rs. 1,95,00,000/- while the cumulative balance of
entries 1 to 15 is also shown as Rs. 1,95,00,000/-.
(v) A perusal of paragraph 3.2 of the „reason to believe‟, recorded
by the AO, would show that while he concluded that there had
been an increase in the 'source of funds' amounting to Rs.
61,87,061/- received against share capital, security premium,
share application money, and long-term unsecured loans in the
AY in issue, i.e., AY 2011-12, in comparison to the preceding
AY, i.e., AY 2010-11, there is nothing to show that he had, with
him, tangible evidence that would have him believe that
„income chargeable to tax had escaped assessment‟. The sine
qua non for triggering the assessment proceedings is not a
„reason to suspect‟ but a „reason to believe‟ that income
chargeable to tax has escaped assessment. That reassessment
proceedings have been triggered based on mere suspicion is
evident from the following observations made by the AO in
Paragraph 3.2 of the document containing „reason to believe‟,
wherein, in the context of the transfer of funds to a bank
account of the petitioner/assessee, the AO notes, “ …may be in
the guise of Share Capital, including Share Premium, bogus
sales to M/s Para Impex Chem, or Long term loans or all… ”.
(vi) The assertion that one of the bank accounts was not disclosed
by the petitioner/assessee in the original ROI is incorrect. In the
document containing „reason to believe‟, the AO alludes to the
account bearing no. 0711290000020 maintained with the
Pushpanjali branch of HDFC bank, which, according to him,
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had not been disclosed by the petitioner/assessee while filing its
ROI. However, a perusal of the ROI, along with the balance
sheet appended thereto, would show that a disclosure of the
aforementioned bank account was made.
(vii) There is nothing to suggest that the petitioner/assessee had any
hand in depositing cash in the bank account of the entity going
by the name Para Impex Chem, which was then transmitted to
the subject bank accounts of the petitioner/assessee. In other
words, no material was available with the AO suggesting that
the money received by the petitioner/assessee via RTGS in the
two accounts maintained with HDFC Bank represented its
undisclosed income.
15. Mr Meharchandani‟s submissions can be broadly paraphrased as
follows:
(i) The petitioner/assessee had received cumulative amounts of Rs.
1,95,00,000/- and 15,20,000/- in the two bank accounts
maintained with HDFC Bank from Para Impex Chem.
(ii) A comparison of the ROIs filed for AY 2010-11 and 2011-12
would show that there had been an increase in the „source of
funds‟ in the AY in issue, i.e., AY 2011-12, to the extent of Rs.
61,87,061/-. The information received by ITO
(Nahan)/ADIT(Inv)/Unit-4(2), New Delhi revealed that the
petitioner/assessee was frequently disclosing its undisclosed
income in the form of share capital, share application money,
share premium, and long-term unsecured loans by routing it
through third parties.
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(iii) Upon receipt of the information, the AO made enquiries and,
thereafter, addressed a letter dated 20.03.2018 to the
petitioner/assessee, calling upon it to furnish documents and
information adverted to therein by 26.03.2018. Amongst others,
the petitioner/assessee was asked to explain and provide details
of financial transactions held during FY 2010-11 with Mr Ram
Singh, proprietor of Para Impex Chem. As the
petitioner/assessee did not respond to the communication dated
20.03.2018, the AO had no option but to trigger reassessment
proceedings against the petitioner/assessee by issuing the
impugned notice.
(iv) The commencement of the reassessment proceeding is aligned
with the provisions of Sections 147 and 148 of the Act and the
law stated by the courts in that behalf.
III. Analysis and Reasons:
16. Having heard the submissions made by learned counsel for the parties
and perused the record, the following undisputed facts have come to the
fore:
(i) Cash deposits were found in the accounts maintained by Para
Impex Chem [whose proprietor was one Mr Ram Singh] with
ICICI Bank, from which monies were remitted, via RTGS, to
two bank accounts maintained by the petitioner/assessee with
HDFC bank.
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(ii) In the account bearing number 01582320002572 [hereafter
referred to as the “first bank account”] maintained with the
New Delhi Pitampura branch of the HDFC bank, the
petitioner/assessee, between 22.06.2009 and 08.12.2009,
received a cumulative amount of Rs. 1,95,00,000/-.
(iii) Likewise, in the account bearing number 07112790000020
[hereafter referred to as the “second bank account”], which the
petitioner/assessee maintained with the Pushpanjali Enclave
New Delhi branch of the HDFC bank, the cumulative amount
received was Rs. 15,20,000/-, in the periods spanning between
05.01.2010 and 18.02.2010.
(iv) A comparison of the amounts shown against share capital,
security premium, share application money, and long-term
unsecured loans for AY 2010-11 and 2011-12 would indicate
that a cumulative increase in the source of funds had taken
place to the extent of Rs. 61,87,061/-.
(v) The petitioner/assessee refuted the assertion that it had received
the notice dated 20.03.2018 before the issuance of the
impugned notice. A perusal of the notice dated 20.03.2018,
when compared with the ROI submitted for AY 2011-12, would
show that the address given in the notice dated 20.03.2018 was
incomplete.
(vi) The income declared in the original ROI dated 01.07.2011 and
the subsequent ROI filed pursuant to the issuance of the
impugned notice remained the same. The petitioner/assessee
had declared an income of Rs. 9,60,199/- [Rs. 9,60,200/-] in
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both ROIs. Although, the original return was processed under
Section 143(1) of the Act.
(vii) The AO had not furnished either a copy of the letter dated
12.03.2018 received from the ITO (Nahan) or the copy of the
intimation received from the ADIT(Inv)/Unit-4(2), New Delhi
along with the document containing the „reason to believe‟.
Likewise, the AO did not supply copies of the FIR and
chargesheet while furnishing the document containing the
„reason to believe‟.
17. It is against the backdrop of these facts that one must arrive at a
conclusion as to whether the AO had triggered the reassessment proceedings
in accordance with well-established principles enunciated by the courts.
17.1 The first and foremost principle of law, to which the AO must be
wedded, is the obligation cast on him to furnish material and information
that helped him to form a belief that income, otherwise chargeable to tax,
had escaped assessment. Admittedly, the AO had in his possession a letter
dated 12.03.2018 addressed to him by ITO (Nahan), which in turn contained
the intimation supplied by ADIT (Inv)/Unit-4(2). It appears that the
information furnished suggested that cash deposits had been made in the
account bearing no. 083005000211 maintained with the ICICI bank by Ram
Singh, the proprietor of Para Impex Chem, out of which monies were
remitted via RTGS to the two bank accounts of the petitioner/assessee
maintained with HDFC Bank. Neither the letter nor the intimation of the
ADIT(Inv)/Unit-4(2), New Delhi was furnished to the petitioner/assessee.
17.2 Although the petitioner/assessee has also flagged the issue that copies
of the FIR and the chargesheet filed by CBI were not furnished to it, we do
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not lay much store by this assertion made in the behalf as, in the ordinary
course, this information would have been made available to the
petitioner/assessee, as it is not disputed by it that the names of its directors
were included in the list of accused. That said, as indicated above, the
petitioner/assessee was entitled to receive copies or relevant extracts from
the letter dated 12.03.2018 and the intimation of the ADIT (Inv)/Unit-4(2).
17.3 Furthermore, the AO could have only considered the information
concerning the period in issue, FY 2010-11 (AY 2011-12). However, the
remittances received via RTGS from Para Impex Chem in the two bank
accounts maintained by the petitioner/assessee with the HDFC Bank
concerned the preceding period, i.e., FY 2009-10 (AY 2010-11). The AO
was also unaware of the 'nature' of the deposits in the two HDFC banks
received by the petitioner/assessee, which is evident from the following
observations made by him: " …may be in the guise of Share Capital,
including Share Premium, bogus sales to M/s Para Impex Chem, or Long
term loans or all… ”.
17.4 Lastly, the mere increase in the source of funds from the previous AY
amounting to Rs. 61,87,061/- in the form of share capital, security premium,
share application money, and long-term unsecured loans without
corroborating evidence, in itself, cannot be the basis of the belief that
income, otherwise chargeable to tax, had escaped assessment.
17.5 It is evident that the AO had, perhaps, no tangible material available
with him to form a belief that income, otherwise chargeable to tax, had
escaped assessment. The phraseology used by the AO reveals that he
„suspected‟ that income chargeable to tax had escaped assessment.
Therefore, according to us, this approach of the AO breached the other well-
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established principle of law that suspicion and conjecture cannot form the
basis for triggering reassessment proceedings qua an assessee.
18. In our view, the AO did not employ diligence while triggering the
reassessment proceedings against the petitioner/assessee. It appears that
because AO realized that the information received by him from ITO (Nahan)
via letter dated 12.03.2018 concerned the preceding period, he attempted to
commence reassessment proceedings under Section 147/148 of the Act by
simply comparing the „source of funds‟ reflected under various heads in the
balance sheets for the preceding AY and the AY in issue. Furthermore, that
there was a gap in the enquiry is evident from the following. First, the
respondent/revenue emphasized the fact that information was sought from
the petitioner/assessee via notice dated 20.03.2018 before it issued the
impugned notice on 31.03.2018. The notice dated 20.03.2018 could not have
reached the petitioner/assessee [and nothing to the contrary has been placed
on record by the respondent/revenue] as concededly, it did not bear the
complete address of the petitioner/assessee. Second, the AO did not even
have the list of shareholders of the petitioner/assessee, as indicated in the
„reason to believe‟.
19. We are of the opinion that the AO did not have the tangible material
on record that could have persuaded him to form a belief that income,
otherwise chargeable to tax, had escaped assessment. The AO did not carry
forward the enquiry process once he had received communication from ITO
(Nahan). As noticed above, the AO did not furnish either the letter dated
12.03.2018 received from ITO (Nahan) or the relevant intimation received
from the ADIT(Inv)/Unit-4(2) New Delhi, along with the document
containing „reason to believe.‟ Had the AO furnished the documents, he
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would have been able to reach a firmer conclusion that crossed the threshold
of suspicion and conjecture.
IV. Conclusion:
20. Thus, for the foregoing reasons, we are inclined to quash the
impugned notice issued to the petitioner/assessee under Section 148 of the
Act.
21. It is ordered accordingly.
22. The writ petition is disposed of in the aforesaid terms.
23. Parties will, however, bear their respective costs.
(RAJIV SHAKDHER)
JUDGE
(GIRISH KATHPALIA)
JUDGE
NOVEMBER 17, 2023 / tr
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