TMI Blog2011 (1) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ough: Mr. M.P. Sinha, Advocate THE CHIEF JUSTICE, MR. JUSTICE MANMOHAN DIPAK MISRA, CJ By this writ petition preferred under Article 226 of the Constitution of India, the petitioner has prayed for issue of a writ of certiorari for quashment of the notice dated 25th February, 2010 issued under Section 148 of the Income Tax Act, 1961 (for brevity the Act) for the assessment year 2003-04 and further to quash the order dated 28th June, 2010 whereby the objections raised by the petitioner have been rejected. 2. It is submitted by Mr. S. Ganesh, learned senior counsel along with Mr. Satyen Sethi and Mr. Arta Trana, learned counsel appearing for the petitioner, that the assessing officer has assumed jurisdiction to initiate the proceedings under Section 147 and issued notice under Section 148 of the Act solely on the basis of certain statements recorded by the Directorate of Investigation without forming an independent opinion. It is urged by him that the expression used in Section 147 of the Act is reason to believe and not reason to suspect and it is the settled legal position that there should be direct nexus or live link between the materials relied upon by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he very root of the matter and would clearly reveal that no addition whatsoever could have been made to the petitioners income. It is canvassed by him that the decision of the Apex Court in GKN Driveshafts (India) Ltd. (supra) requires that the assessees objections to the reopening should be considered and disposed of in conformity with the rules of natural justice. 3. To bolster his submissions, the learned counsel for the petitioner has commended us to the decisions in ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC), General Mrigendra Shum Sher Jung Bahadur Rana v. ITO, [1980] 123 ITR 329, United Electrical Co. Pvt. Ltd. v. CIT, [2002] 258 ITR 317, CIT v. SFIL Stock Broking Ltd., [2010] 325 ITR 285 (Del), Siemens Engineering Manufacturing Co. of India Ltd. v. Union of India, AIR 1976 SC 1785 and Union of India v. Mohan Lal Capoor, AIR 1974 SC 87. 4. Mr. M.P. Sinha, learned counsel appearing for the revenue, supported the order passed by the competent authority contending, interalia, that the assessing officer has applied his independent mind and has not been solely guided by the information given by the Directorate of Investigation. It is proponed by him that the objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year as compared to immediately preceding year. The petitioner being a public limited listed company is regulated by the rules and regulations of SEBI and cannot accept share application money or issue share capital except with the prior approval of SEBI. (iii) Neither any loan was borrowed nor has any payment been repaid during the year. Reference was made to clause 23(a) of Tax Audit Report. (iv) It was explained that during the year, investment in shares held by the petitioner was sold. From the audited balance sheet, it is evident that the petitioner was having shares of three limited companies, namely, Lakshmi Float Glass Limited, Bawa Float Glass Limited and KPF Finances Limited of the face value of Rs.1,40,00,000/-. It was these shares that were sold at the face value only. It is out of sale of these shares that sale to the extent of Rs.27,00,000/- has been alleged in the reasons as accommodation entry. (v) Amount received on sale of investments was utilized to give loans and the same appear in the balance sheet under the head loans and advances." 6. Upon receipt of the said objections, the same were dealt with vide Annexure P-2 dated 28th June, 2010. In paragraph 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52116 Corpn. Bank Paschim Vihar 52116 Corpn. Bank Paschim Vihar 52174 Corpn. Bank Paschim Vihar 52116 Corpn. Bank Paschim Vihar 52174 Corpn. Bank Paschim Vihar 52174 The transactions involving Rs.27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of Rs.27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148. xxx xxx i) The reasons recorded by the Assessing Officer amply "demonstrate" that income has escaped assessment, there is adequate "reason to believe" that income has escaped assessment, as the report of DIT(Inv) has specifically pointed out that the receipts are bogus; they are mere acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and if he likes from any information that he receives. If he discovers or finds or satisfies himself that the taxableincome has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief, though justified for the purpose of initiation of the proceedings under Section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the assessing officer is not required to base his belief on any final adjudication of the matter. 10. In Ganga Saran Sons P. Ltd. v. ITO Ors., [1981] 130 ITR 1 (SC), it has been held thus: "It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escaped assessment. "Why" for holding such belief must be reflected from the record of reasons made by the Assessing Officer. In a case where Assessing Officer holds the opinion that because of excessive loss or depreciation allowance income has escaped assessment, the reasons recorded by the Assessing Officer must disclose that by what process of reasoning he holds such a belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the Assessing Officer to take action under sections 147 and 148 of the Act. We are also of the opinion that, howsoever wide the scope of taking action under section 148 of the Act be, it does not confer jurisdiction on a change of opinion on the interpretation of a particular provision from that earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment at a lower rate or for applying the other provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief " [Emphasis supplied] 14. In Anant Kumar Saharia v. Commissioner of Income Tax Ors., [1998] 232 ITR 533 (Gauhati), it was held as follows: "The belief is that of the Assessing Officer and the reliability or credibility or for that matter the weight that was attached to the materials naturally depends on the judgment of the Assessing Officer. This court in exercise of power under Article 226 of the Constitution of India cannot go into the sufficiency or adequacy of the materials. After all the Assessing Officer alone is entrusted to administer the impugned Act and if there is prima facie material at the disposal of the Assessing Officer that the income chargeable to income-tax escaped assessment th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reason so recorded can be looked at for sustaining or setting aside a notice issued under section 148." 18. In Hindustan Lever Ltd. v. R.B. Wadkar, [2004] 268 ITR 332 (Bom), a Division Bench has opined thus:- " . the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction." [Emphasis supplied] 20. In this context, we may refer with profit to a Division Bench decision of this Court in SFIL Stock Broking Ltd. (supra), wherein the Bench was dealing with the validity of the proceedings under Section 147 of the Act. The Bench reproduced the initial issuance of notice and thereafter referred to the reasons for issue of notice under Section 148 which was provided to the assessee. Thereafter, the Bench referred to the decisions in CIT v. Atul Jain, 299 ITR 383 (Del), Rajesh Jhaveri Stock Brokers Pvt. Ltd (supra), Jay Bharat Maruti Ltd. v. CIT, 223 CTR 269 (Del) and CIT v. Batra Bhatta Company, 174 Taxman 444 (Del) and eventually held thus: - "9. In the present case, we find that the first sentence of the so-called reasons recorded by theAssessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and the third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs." 21. In Sarthak Securities Co. Pvt. Ltd. v. ITO, Writ Petition No.6087/2010, decided on 18th October, 2010, a Division Bench of this Court, after reproducing Section 147 of the Act and relying on certain decisions in the field, expressed the view as follows: "23. `The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessing officer and there is material on the basis of which the notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the assessing officer was made aware of the situation and further the reason recorded does not indic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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