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2016 (3) TMI 972 - DELHI HIGH COURT

2016 (3) TMI 972 - DELHI HIGH COURT - TMI - Reopening of assessment - failure to consider the objections filed by the Assessees - Held that:- Revenue's contention that the AO is not required to apply his mind to the facts in relation to the escapement of income at the stage of considering objections is wholly without merit. Whilst, the AO is not expected to finally decide whether income of an assessee has escaped assessment at the stage of considering the objections he, nonetheless, has to consi .....

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5, W. P. (C) 9661/2015 & CM No. 23059/2015 - Dated:- 16-3-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Petitioner : Mr S. Krishnan, Advocate For the Respondents : Mr Dileep Shivpuri, Senior Standing Counsel and Mr Sanjay Kumar, Junior Standing Counsel ORDER 1. These petitions have been filed by the Assessees, inter alia, impugning separate notices dated 31st March, 2015 issued under Section 148 of the Income Tax Act (hereinafter the Act ) for Assessment Year (AY) 2008-09 and further procee .....

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rwal - 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 disp .....

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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 three months. The appeal against the said order was rejected by the Appellate Authority by an order dated 24th September, 2011. 2.3 It is contended on behalf of the Assessees that in view of disputes/animosity, Shri Naveen Chaudhary has made repeated complaints to various authorities in order to harass the Assessees; and the complaint made to the Income Tax A .....

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ed for the reasons for re-opening of their assessment. In response to the aforesaid request, the AO by separate letters dated 27th April 2015 provided the reasons as requested by the Assessees. In the case of Rajeev Agarwal, the Assessee/Petitioner in W.P. (C) No.9659/2015 the reasons recorded reads as under: "Income Tax Return Jar the A.Y 2008-09 was filed by the assessee on 29.07.2008 declaring income of ₹ 14,64,950/-. In this case, the information in the form of complaint of tax ev .....

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Y 2007-08 for a meager amount of ₹ 4.16 lakhs to its directors. It has been used to tooi to avoid tax and transferred the money to its directors without payment of tax. The exact amount of each director is still to be quantified. therefore, it is clear that un quantified income in this case but quantified income of ₹ 20,00,000/- (in the case of both the Directors of the company) has escaped assessment because the assessee has not disclosed fully and truly all material facts in the re .....

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d 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 .....

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the fundamental premise on the basis of which his assessments were sought to be re-opened was factually erroneous. Insofar as Vijay Laxmi Agarwal is concerned, she stated that during the Financial Year 2007-08, a Keyman Insurance Policy (Policy No.122936684) was assigned to her against a consideration of ₹ 2,08,000/- (Rupees Two Lakhs and Eight Thousand) and the surrender value of the said policy at the material time was ₹ 2,07,236/- (Rupees Two Lakhs Seven Thousand Two Hundred and T .....

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the concluded assessments could be re-opened. They also sought a copy of the complaint dated 10th December, 2014 referred to by the AO in the reasons recorded by him. 2.8 The objections raised by both the Assessees were rejected by the AO by separate orders dated 11th September, 2015 which are more or less similarly worded. The AO held that the sufficiency or the correctness of the material for re-opening could not be questioned. The request of the Assessees to be provided a copy of the complai .....

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he AO would have jurisdiction to re-open the assessments if there was omission or failure on the part of the Assessees. 3. Mr S. Krishnan, learned counsel appearing 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 mat .....

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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] 194 ITR 32 (Delhi) that: The expression 'information' must be something more than a mere rumour or a gossip .....

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ssioner of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) and contended that at the stage of issuing a notice under Section 148, the AO was not required to apply its mind to determine whether the income of the Assessee had escaped assessment but was only required to form a prima facie view. He contended that the question whether any taxable income arose in the hands of the Assessee which had escaped assessment would be finally determined during the re-assessment pro .....

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of both the Directors. Insofar as Rajeev Agarwal is concerned, it is not disputed that no policy was assigned and no such transaction as recorded by the AO in the reasons to believe that the income had escaped assessment was entered into by Rajeev Agarwal with SHPL. In the circumstances, the fundamental premise on which the assessment of Rajeev Agarwal was sought to be re-opened is bereft of any factual foundation. We note that Rajeev Agarwal had specifically pointed out the said fact in his obj .....

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L had assigned a Keyman Policy to the said Assessee for a consideration of ₹ 2,08,000/- and the surrender value of the said policy as on 23rd October, 2007 was ₹ 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 .....

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ve "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 Income Tax Officer, Calcutta & Ors. 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 .....

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, 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. 10. In the present case, it is doubtful whether the AO even had any ground to suspect that income had escaped assessment. Apparently, apart from an unsubstantiated complaint there was no material which could possibly lead the AO to suspect that income had escaped assessment. .....

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the AO must have sufficient cause to believe that it has. 11. Secondly, the AO s belief that income of an Assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a 'close nexus' or live link between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which re-assessment proceedings can be initiated must be credible material which could lea .....

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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 ₹ 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 .....

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