Full Judgment Text
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on: 09.02.2023
% Judgement pronounced on : 18.07.2023
+ ITA 191/2018
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Mr Kunal Sharma, Sr. Standing
Counsel, Ms Zehra Khan and Mr S.
Bhattacharya, Advs.
versus
SPIRIT GLOBAL CONSTRUCTION PVT.LTD ..... Respondent
Through: Mr S. Krishnan and Mr Amandeep
Mehta, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MS. JUSTICE TARA VITASTA GANJU
TABLE OF CONTENTS
Preface:………………………………………………………….……….1
Broad Facts:...……………………………………………………………3
Submissions of the Counsels:..…………………………………………..8
Analysis and Reasons:..………………….………………………………9
Conclusion:...…………………………….……………………………..13
RAJIV SHAKDHER, J.:
Preface:
1. This appeal concerns Assessment Year (AY) 2010-11. This appeal is
directed against the common order dated 04.08.2017 passed by the Income
Tax Appellate Tribunal [in short, “Tribunal”] in ITA No.730/Del/2015.
2. Via the impugned order, the Tribunal disposed of four (4) appeals
including two (2) appeals filed by the above-named appellant i.e., Spirit
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 1 of 14
Signing Date:19.07.2023
15:13:09
Global Construction Pvt Ltd [hereafter referred to as, “SGCPL”]. The other
two appeals which were disposed of by the Tribunal were preferred by Spirit
Infradevelopers Pvt. Ltd. [hereafter referred to as, “SIDPL”] and Spirit
Infrastructure Pvt. Ltd [hereafter referred to as, “SIPL”].
2.1 Pertinently, three (3) out of the four (4) appeals disposed of by the
Tribunal concerned AY 2011-12. The fourth appeal, which was preferred by
the appellant named above i.e., SGCPL, concerned AY 2010-11, the
remaining appeals as noticed above, related to AY 2011-12.
3. The record shows that on the very first day when the above-captioned
appeal and the connected appeals came up before the coordinate bench of
this court, they were admitted and a broad question of law was framed;
which was modulated on 09.02.2023, after hearing the counsel for the
parties. The relevant part of the order dated 09.02.2023 reads as follows:
6. Having heard the counsel for the parties, we are of the view, that
the question of law, as framed by the coordinate bench, needs
modulation. In fact, both counsels agree, that the following questions
of law would arise for consideration:
(i) Whether the Income Tax Appellate Tribunal [in short, “Tribunal”]
erred in admitting and adjudicating the additional ground concerning
jurisdictional defect, in the reasons recorded by the Assessing Officer,
even when no such ground was raised before the first appellate
authority i.e., the Commissioner of Income Tax (Appeals)?
(ii) Whether the Tribunal misdirected itself in law in holding that the
reasons recorded by the Assessing Officer for triggering proceedings
under Section 147/148 of the Income Tax Act, 1961 were vague, bereft
of reasons and did not establish a live link between the material
available with him and formation of [the] belief that income
chargeable to tax had escaped assessment?
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 2 of 14
Signing Date:19.07.2023
15:13:09
4. Notably, in this very order, the counsel for the parties conveyed to the
court that since facts obtaining in the instant appeal were pari materia with
those which obtained in the connected appeals, the decision taken in this
appeal would apply to the connected appeals as well. Therefore, we intend
to advert to, the facts and circumstances arising in the instant appeal.
Broad Facts:
5. The record of the instant appeal, broadly, reveals the following:
5.1 SGCPL had filed its Return Of Income [in short, “ROI”] on 12.04.2011
concerning the aforementioned AY. In the ROI, SGCPL had declared its
total income as Rs.1,04,98,240/-.
5.2 On 04.06.2011, the said ROI was processed under Section 143(1) of the
Income Tax Act, 1961[in short, “the Act”]. It appears on 19.03.2012, the
appellant/revenue conducted a search and seizure action under Section 132
of the Act against what is compendiously described as the K.J.S. Ahluwalia
Group [hereafter referred to as, “KJS Group”], which included cases
involving another group going by the name Prabhatam Group. Besides this,
a survey action under 133A was also carried out against the Spirit Global
group of companies [hereafter referred to as, “SG Group”].
5.3 Apparently, the search and survey action brought to the fore certain
incriminating material. The said material, according to the
appellant/revenue, was suggestive of the fact that loans and advances had
been received by SGCPL from certain shell companies which were a part of
the KJS Group; the shell companies being: Tanish Tradecom Pvt. Ltd
[hereafter referred to as, “TTPL”], Puneet Oils and Chemicals Ltd [hereafter
referred to as, “POCL”].
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 3 of 14
Signing Date:19.07.2023
15:13:09
5.4 The amount said to have been received, as a loan, from TTPL and
POCL was Rs. 3.5 crores each i.e., a total of Rs. 7 crores, which was added
under Section 68 of the Act; since, according to the Assessing Officer [in
short, “AO”], it constituted unexplained credit in the books of SGPCL.
5.5 In the search and seizure action carried out on 19.03.2012, the statement
of Mr Suresh Kumar Jain was recorded, which was retracted by him within
seven (7) days i.e., on 26.03.2012.
5.6 It is this statement which, perhaps, led to the issuance of a notice dated
11.02.2014 under Section 148 of the Act. Via this notice, it was
communicated to SGPCL by the AO that he had reasons to believe that
income chargeable to tax had escaped assessment and, therefore, he
proposed to assess/reassess his income.
5.7 Therefore, SGCPL was granted five (5) days from the date of service to
file a return. It appears the SGPCL via response dated 17.02.2014 indicated
that the ROI already placed on record should be treated as its true and fair
return in response to the notice issued under 148 of the Act.
5.8 Since reasons for issuing notice under Section 148 had not been
furnished, on the very same date when the reply was filed i.e., 17.02.2014,
the respondent/assessee asked to be furnished a copy of the reasons recorded
for triggering assessment/reassessment proceedings against it.
5.9 The AO, instead of immediately furnishing reasons recorded by him for
triggering reassessment/assessment proceedings, issued two separate notices
of even date i.e., dated 19.02.2014 under Section 142(1) and 143(2) of the
Act. Evidently, the notice issued under Section 142(1) of the Act was
accompanied by a questionnaire with twenty-three (23) queries . The
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 4 of 14
Signing Date:19.07.2023
15:13:09
information and documents sought had to be provided, in person, by
26.02.2014, at the time set out in the notice.
6. Furthermore, a notice under Section 133(6) of the Act was also issued to
TTPL, POCL and another entity, going by the name Pankaj Infotech Pvt.
Ltd [hereafter referred to as, “PIPL”]. Apparently, the said notices were
neither returned nor was any reply received.
6.1 The record shows that via reply dated 18.03.2014, SGPCL responded to
the questionnaire served upon it wherein, inter alia , it was indicated that
TTPL and POCL had furnished loans to SGCPL.
6.2 The aforementioned notice issued under Section 142(1) of the Act was
followed by yet another notice dated 20.03.2014, whereby the SGCPL was
called upon to produce information and documents by 26.03.2014, once
again, at the designated hour.
6.3 The respondent/assessee filed replies to the aforesaid notices. SGCPL
filed a reply dated 26.03.2014, in which, broadly, the stand taken was that
the loans reflected a long-standing credit, received from KJS Group, which,
on a specific request of the lender i.e., KJS Ahluwalia, was repaid against
fresh loans given to it via the aforementioned companies i.e., TTPL and
POCL.
7. The AO, was not satisfied with the responses given by SGCPL and, thus,
proceeded to pass an assessment/reassessment order dated 31.03.2014.
7.1 The AO, inter alia , held that since TTPL and POCL had very meagre
income, despite which they received funds from some other private limited.
companies, which were then passed on to other companies including
SGCPL. In other words, the AO was of the opinion that the companies were
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 5 of 14
Signing Date:19.07.2023
15:13:09
paper companies which acted as conduits to facilitate loan transactions of
the kind that SGCPL claimed to have entered into with the aforementioned
two companies.
7.2 In sum, the AO concluded that SGCPL had failed to discharge its onus
since it did not produce the parties for verification of creditworthiness and
genuineness of loan transactions. This is evident on perusal of the following
part of the assessment order which forms the main plank of the AO’s
conclusion:
“From the above details it can be seen that these companies are
declaring income just nominal and [in] their documents relating
to balance sheet statements, it is seen that these companies are
just receiving funds from some private limited companies and
then transferring the same to other private limited companies
which gives the idea that these companies are nothing but paper
companies created as conduit companies to facilitate these type of
transactions. Further, these investors had shown nominal income
in their returns of income which further suggested that the
companies have no legitimate income in their hands. This fact
also strengthened the fact that these investors are just conduit
companies created on paper.”
8. Being aggrieved, SGCPL carried the matter to the Commissioner of
Income Tax (Appeals) [in short, “CIT(A)”]. CIT(A), via order dated
12.12.2014, sustained the addition made by the AO.
9. SGCPL, being dissatisfied, escalated the matter to the Tribunal. In the
appeal filed with the Tribunal, SGCPL not only raised arguments concerning
the merits of the matter but also sought to plead an additional ground, which
questioned the jurisdiction of the AO to invoke the provisions of Section
148, read with Section 147 of the Act.
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 6 of 14
Signing Date:19.07.2023
15:13:09
10. A perusal of the impugned order passed by the Tribunal shows that the
additional ground was admitted, having regard to the fact that it was a pure
question of law, based on material already on record and that no new facts
were required to be investigated.
11. In reaching this conclusion, the Tribunal, inter alia , adverted to the
decision of the Supreme Court in National Thermal Power Co. Ltd. v CIT
229 ITR 383 and the judgement of the Gujrat High Court in the matter of
P.V Doshi v CIT 113 ITR 22 (Guj)
12. Furthermore, insofar as this additional ground was concerned, the
Tribunal reached the following conclusion, while perusing the reasons
recorded by the AO to trigger assessment/reassessment proceedings against
SGCPL:
(i) That the AO had failed to apply his mind was evident from the fact that
he had referred to a provision i.e., sub-clause (i) of clause (c) appended to
Explanation 2 of 147(b) of the Act, when it had been removed from the
statute more than two decades ago.
(ii) Although the reasons recorded showed that the material on record
conveyed that a search had been conducted on KJS Group and the survey
action pertained to the sister concern of the respondent/assessee, no reasons
were recorded which would point to the document that persuaded the AO to
conclude that SGPCL’s income, which was otherwise chargeable to tax, had
escaped assessment.
(iii) The reasons recorded did not indicate what prompted the AO to infer
that TTPL and POCL were dubious companies.
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 7 of 14
Signing Date:19.07.2023
15:13:09
(iv) The reasons did not disclose the source of the information and what was
the credibility and quality of such information.
13. Based on the aforesaid, the Tribunal concluded that the AO had
proceeded in a “mechanical manner”. Thus, according to the Tribunal, there
was the absence of independent application of mind by the AO, at that, he
had based his decision to reopen his assessment on the information received
from the investigation wing.
14. It is against this backdrop that the appellant/revenue has preferred the
instant appeal.
Submissions of Counsels:
15. We have perused the record. Arguments on behalf of the
appellant/revenue were advanced by Mr Kunal Sharma, while submissions
on behalf of the respondent/assessee were made by Mr S. Krishnan.
16. Mr Kunal Sharma made the following broad submissions.
(i) The Tribunal ought not to have allowed the respondent/assessee to raise
the additional ground. The objection concerning jurisdiction was raised by
SGCPL for the first time before the Tribunal. Given this position, the
Tribunal ought not to have entertained the additional ground.
(ii) The decision rendered by the Tribunal is, primarily, founded on its
decision concerning the jurisdiction of the AO to commence proceedings
against SGCPL under Section 148/147 of the Act.
(iii) SGCPL had failed to discharge its onus concerning the genuineness,
credit worthiness of the creditors. Therefore, the addition made under
Section 68 of the Act ought not to have been disturbed by the Tribunal.
(iv) The Tribunal, inter alia , ought not to have held that the AO had not
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 8 of 14
Signing Date:19.07.2023
15:13:09
applied his mind, merely, because there was reference to a provision which
had been deleted. This was an obvious mistake which could not have
invalidated the assessment/reassessment proceedings, as it fell within the
scope and ambit of 292B of the Act.
17. Mr S. Krishnan refuted the submissions made by Mr Sharma.
17.1 According to Mr Krishnan, the Tribunal had got it right in entertaining
the additional grounds concerning jurisdiction, as no fresh facts were
required to be examined. Mr Krishnan submitted that all that the Tribunal
was required to look at were the reasons for reassessment placed on record
by the AO.
17.2 Mr Krishnan stated that objections to the reasons recorded could be
raised at any stage, which included the appellate stage, as it brought to the
fore the absence of jurisdictional prerequisites for invoking Section 148/147
of the Act based on the record available with the Tribunal. [See CIT v
Expeditors International India (P) Ltd. (2012) 205 taxman 107 (Delhi)
(Mag.), Inventors Industrial Corpn. Ltd. v CIT (1992) 194 ITR 548
(Bombay), Abdul Majid v Commissioner of Income Tax, Lucknow ( 2006)
153 taxman 131 (Allahabad), CIT v Trilokchand Swaroop Chand (1998)
98 taxman 82 (MP)].
17.3 Section 292B would have no application, given the fact that the
mistake made by the AO, while referring to a deleted provision, was
inextricably linked to the observation made by him that SGCPL had failed to
disclose truly and fully, all material facts.
Analysis and Reasons:
18. Having heard the counsels for the parties and perused the record, it is
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 9 of 14
Signing Date:19.07.2023
15:13:09
quite evident that the foundation of the impugned order is its decision
concerning what the Tribunal considered the absence of jurisdictional
prerequisites for triggering assessment/reassessment proceeding against
SGCPL. [See Jute Corporation Of India v CIT 187 ITR 688. , CIT v
Expeditors International India (P) Ltd. (2012) 205 taxman 107 (Delhi)
(Mag.) and National Thermal Power Co. Ltd. v CIT 229 ITR 383].
18.1 The explanation given by SGCPL concerning the subject transaction
i.e., the loan that it obtained from TTPL and POCL, lost much of its
significance.
18.2 The Tribunal, as noticed above, felt impelled to allow admission of
the additional ground as it went, according to it, to the root of the
jurisdiction of the AO to trigger assessment/reassessment proceedings.
19. In our view, the Tribunal was right in entertaining the additional
ground, for the reason that no fresh material or facts were required to be
collated and/or ferreted out. The Tribunal had to form a view based on the
reasons recorded by the AO for the initiation of proceedings under Section
147/148 of the Act against SGCPL.
20. The reasons, metaphorically speaking, are the main key which unlocks
the door that allows the AO to enter the arena concerning the
commencement of reassessment proceedings qua an assessee.
20.1 The other keys, of course, inter alia , are related to limitation and
approval. Insofar as the period in issue is concerned, after the expiry of four
(4) years from the end of the relevant AY, the AO is required to form an
opinion that the respondent/assessee had failed to disclose, truly and fully,
all material facts necessary for his assessment for the AY in issue. The other
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 10 of 14
Signing Date:19.07.2023
15:13:09
grounds generally available to the AO for reopening are the failure of the
respondent/assessee to either file a return under Section 139 or in response
to a notice under Section 142(1) or 148 of the Act.
21. In this particular case, SGCPL had indicated to the AO that the return
already filed should be treated as a return filed in response to the notice
issued under Section 148 of the Act. Furthermore, the AO did, in a sense,
pay ostensible obeisance to the provisions of Section 147 of the Act (as
obtaining at the relevant point in time) by recording that SGCPL had failed
to disclose, truly and fully, all material facts.
22. That said, the AO grievously erred in referring to sub-clause (i) of
clause (c) appended to Explanation 2 to Section 147 of the Act, which had
been removed from the statute with effect from 01.04.1989.
23. Furthermore, Section 292B of the Act can have no application in the
instant case, as a perusal of the reasons placed on record seems to indicate
that the AO did attempt to tie in the said provision with his assertion that the
respondent/assessee had failed to disclose, truly and fully, all material facts
concerning the AY in issue.
23.1 A mistake, which can be corrected under Section 292B of the Act,
should be such that if excised it does not change the tenor and scope of the
documents/proceedings referred to therein i.e., the return of income,
assessment, notice, summons or other proceedings, taken, furnished or made
or issued or taken or purported to have been furnished or made or issued or
taken against the assessee under the provisions of the Act.
24. The reasons for reopening, and, thus, concluding that there had been a
failure on STCPL’s part to disclose, were the following:
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 11 of 14
Signing Date:19.07.2023
15:13:09
(i) Search and seizure operation 19.03.2012 conducted vis-à-vis KJS group.
(ii) survey action conducted on SGCPL’s sister concern, SIPL.
(iii) documents seized during the aforementioned survey action.
(iv) information received that SGCPL had raised a loan from TTPL and
POCL, which were dubious entities.
24.1 It is these observations, in the reasons recorded by the AO, which,
apparently, persuaded him to issue a notice under Section 148 of the Act to
SGCPL. Thus, for the sake of convenience, the reasons recorded by the AO
which form the main basis of the assessment/reassessment proceeding, are
set forth hereafter:
"Reasons for [the] issue [ sic issuance]of notice u/s 148 of the Act in
the case of M/s Spirit Global Constructions P. Ltd. A. Y. 2010-11 The
above mentioned assessee filed its return of income for the Assessment
Year 2010-11 on 12.4.2011 which was further processed u/s 143(1) of
the Act on 4.6.2011. A search and seizure operation was conducted on
KJS Ahluwalia and related groups on 19.3.2012. A survey action was
also conducted on the premise Plot no. 9, Sector B1, LSC Vasant Kunj,
New Delhi 70 in respect of M/s Spirit Infrastructure Pvt. Ltd. During
the search and survey Operation several documents have been
seized/impounded.
In respect of the above mentioned assessees information has been
received that this company has raised loans from KJS Ahluwalia group
mainly through Kolkata based dubious entities namely M/s Tanish
Tradecom P. Ltd. M/s Puneet Oils & Chemicals P. Ltd. From the above
I have reason to believe that such loans raised by M/s Spirit Global
Constructions Pvt. Ltd. for the A. Y. 2010-11 has escaped assessment by
reason of the failure on the part of the assessee to disclose fully and
truly all material facts for his assessment and the same needs to be
assessed/reassessed as per the provisions of sub clause (i) of clause (c)
to Explanation 2 to Section 147 (b) of the Act in the A. Y. 2010-11. Issue
notice u/s 148 of the Act for the Assessment Year 2010-11. ”
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 12 of 14
Signing Date:19.07.2023
15:13:09
25. Clearly, the reasons disclosed and placed on record do not allude to the
material that was available to the AO which persuaded him to form a belief
that income in the concerned AY, pertaining to SGCPL, which was
otherwise chargeable to tax, had escaped assessment.
25.1 While the reasons placed on record by the AO referred to information
received by the AO that SGCPL had raised a loan from KG Group, through
TTPL and POCPL, there was no reference to how he had, at that juncture,
formed a view that they were “dubious entities”.
25.2 In other words, the reasons did not advert to the material that was
available to him and which persuaded him to form a belief that income
chargeable to tax had escaped assessment.
26. That this was a jurisdictional prerequisite is a well-established principle,
as reason to suspect is qualitatively different from reason to believe. The
statutory [prerequisite] condition was not met by the AO before entering the
realm of reassessment/assessment proceedings. [See Chuggamal Rajpal v
S.P. Chaliha and Ors. (1971) 1 SCC 453, Synfonia Tradelinks Pvt. Ltd. v
Income Tax Officer 2021 SCC Online Del 2692 , ITO v Lakhmani Mewal
Das 103 ITR 437].
26.1 Since this is a consistent view that the courts have taken, we are not
inclined to rule otherwise and interdict the decision of the Tribunal.
Conclusion:
27. Given the foregoing discussion, the questions of law as framed are
answered in favour of the respondent/assessee and against the
appellant/revenue.
28. The appeal is disposed of in the aforesaid terms. There shall be no
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 13 of 14
Signing Date:19.07.2023
15:13:09
order as to costs.
(RAJIV SHAKDHER)
JUDGE
(TARA VITASTA GANJU)
JUDGE
th
JULY 18 , 2023
Signature Not Verified
Digitally Signed By:ATUL
JAIN
ITA 191/2018 Pg. 14 of 14
Signing Date:19.07.2023
15:13:09