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TMI Blog2016 (3) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... t facts are as under: 2.1 Both the Assessees (Rajiv Agarwal - Petitioner in W.P.(C) No.9659/2015 and Vijay Laxmi Agarwal - Petitioner in W.P.(C) No.9661/2015) were at the material time - during the Financial Year 2007-08 - directors of a company, namely, M/s Scan Holdings (P) Ltd (hereafter "SHPL"). The said Assessees filed their return of income for the AY 2008-09 disclosing income from salaries from SHPL as well as income under the heads 'Income from House Property' and 'Income from Other Sources'. 2.2 Apparently, there is some dispute between the company M/s SHPL and its erstwhile auditor, Naveen Chaudhary, with regard to the remuneration payable to the said auditor. The Court was also informed that a complaint alleging misconduct on the part of Naveen Chaudhary was filed by Rajiv Agarwal before the Institute of Chartered Accountants of India (ICAI). The Board of Discipline of the ICAI, in its order dated 3rd February, 2011 found the said Chartered Accountant guilty of "other misconduct" within the meaning of Clause (2) of Part IV of First Schedule to the Chartered Accountants Act, 1949 and his name was removed/suspended from the rolls of ICAI for a period of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed to tax as the case was not selected under scrutiny assessment. Therefore, I have reasons to believe that the assessee has not offered the income referred above which needs to be scrutinized and hence income as above has escaped assessment within the meaning of section 147(b) of the I. T. Act, 1961 in the interest of revenue/to protect the revenue. The case of assessee was not assessed u/s 143(3) of the Act and Since 4 years has lapsed and the case falls under section 151 (2) of the I. T. Act, 1961, therefore, the reason are put up before Addl. CIT, Range-22, New Delhi for necessary approval for issuing notice u/s 148 of the I. T. Act, 1961." 2.5 The reasons recorded in the case of Vijay Laxmi Agarwal, Petitioner/Assessee in W.P.(C) No.9661/2015, but for the figure of her returned income, is identical to the reasons as recorded in the case of Rajiv Agarwal. 2.6 The Assessees, by separate letters dated 15th May, 2015, filed their objections to the reasons recorded for re-opening of the assessments and raised several contentions. It was, inter alia, contended by the Assessees that the complaint on the basis of which their assessments were sought to be re-opened was malafide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing for the Assessees/Petitioners has contended that the entire exercise of initiating re-assessment proceedings is based on a mere suspicion and the AO had no material to form a reason to believe that income of the Assessees had escaped assessment. He contended that a mere complaint by a person could not possibly constitute tangible material on the basis of which the AO could form a belief that income of the Assessees has escaped assessment. He relied upon the decision of this Court in CIT v. Atul Jain (2008) 299 ITR 383(Delhi) and drew the attention of this court to paragraph 16 and 17 which read as under: "16. In United Electrical Co. Pvt. Ltd. v. Commissioner of Income Tax (2002) 258 ITR 317, this Court considered the entire issue afresh. It was observed that the expression "reason to believe" occurring in Section 147 of the Act is crucial. Reference was made to Bawa Abhai Singh v. Deputy Commissioner of Income Tax (2002) 253 ITR 86 wherein it was observed that "reason to believe" postulates a foundation based on information and a belief based on reasons. In so far as "information" is concerned, a Division Bench of this Court held in L.R. Gupta v. Union of India : [1992] 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Rajeev Agarwal is absent, the same must fail on this ground alone. 8. In the case of Vijay Laxmi Agarwal, the Assessee had filed objections before the AO on 15th May, 2015 and had informed the AO that SHPL had assigned a Keyman Policy to the said Assessee for a consideration of Rs. 2,08,000/- and the surrender value of the said policy as on 23rd October, 2007 was Rs. 2,07,236/- and thus, there was no question of any income arising or accruing to the Assessee on account of that transaction. A perusal of the AO's order dated 11thSeptember,2015 rejecting the objections raised by the Assessees indicate that the AO had simply ignored the facts pointed out and simply proceeded on the basis that those were not required to be considered at that stage and would be considered during the re-assessment proceedings. 9. In our view, the proceedings for re-assessment under Section 147 commenced by the AO are fundamentally flawed for several reasons. First of all, it is apparent that the proceedings have been initiated merely on an unsubstantiated complaint. It is now well settled by a number of decisions that concluded assessments cannot be re-opened merely on suspicion and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial on the basis of which re-assessment proceedings can be initiated must be credible material which could lead to such belief. Clearly, an unsubstantiated complaint cannot be the sole basis for forming a belief that income of an assessee has escaped assessment. Even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an assessee has escaped assessment, form a believe that income of the Assessee has escaped assessment. Plainly, in this case, the Assessee had not acquired any material to form such belief. On the contrary, when it is pointed out to the AO that SHPL had not assigned any policy to Rajeev Agarwal, the said fact was completely overlooked. Similarly, in the case of Vijay Laxmi Agarwal, the AO failed to take into account the fact that the Assessee had paid a sum of Rs. 2,08,000/-, which was more than surrender value of the policy, for assignment of the policy in her favour. This too was completely ignored by the AO. 12. Thirdly, the procedure for providing reasons to believe to an assessee and thus enabling him to file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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