Sabh Infrastructure Ltd. vs Asstt. Commissioner Of Income Tax

S.NO.,Name of the Party,"Assessment

Particulars","No. of Shares

Issued",Amount

1.,"CHANDELIER TRACON

PVT. LTD.

6, HANS PUKUR LANE,

KOLKATA-7","AABCC1624N

WBG/W/110/2 ITO

WD 10(2)","4,000","400,000.00

2.,"ELEGANCE TRADE &

HOLDING PVT. LTD.

6, HANS PUKUR LANE,

KOLKATA-7","AAACE7011L

WBG/W/105/3 ITO

WD 5(3)","4,000","400,000.00

3.,"ECHOLAC VINIMAY

PVT. LTD.

6, HANS PUKUR LANE,

KOLKATA-7","AAACE5809N

WBG/N/109/2 ITO

WD 9(2)","4,000","400,000.00

4.,"GALORE SUPPLIERS

PVT. LTD.

2, DIGAMBER, JAIN

TEMPLE ROAD,

KOLKATA-7","AAACG9662P

WBG/W/109/1 DC

AC Cir 9","2,000","200,000.00

5.,"SUGAM COMMODEAL

PVT. LTD.

2, DIGAMBER, JAIN

TEMPLE ROAD,

KOLKATA-7","AAECS3360A

WBG/W/110/3 ITO

WD 10(3)","6,000","600,000.00

,TOTAL,,"20,000","2,00,00,000.00

,Date,31.03.2008,,

Name & Address of

Company

Investing","SAMÂ +Â

Premium

paid per share","No.   of  Â

shares

subscribed",Value,

Chandelier Tracon PL.

6, Hans Pukur Lane,

Kolkata (PAN â€

AABCC1624N)",100+400,4000,"20,00,000",

Galore Suppliers PL.

2   Digamber  Â

Jain   Temple Road,

Kolkata

(PAN â€" AAACG9662P)",100+400,2000,"10,00,000",

Echolac Vinimay PL.

6, Hans Pukur Lane,

Kolkata (PAN â€

AAACE5809N)",100+400,4000,"20,00,000",

Sugam Commondeal PL.

2,  Digamber Â

Jain  Temple Road,

Kolkata

(PAN â€" AAECS3360A)",100+400,6000,"30,00,000",

Elegance Trade &

Holdings PL.

6, Hans Pukur Lane,

Kolkata (PAN â€

AAACE7011L)",100+400,4000,"20,00,000",

,,,"1,00,00,000",

Submissions of the Revenue,,,,

Mr. Rahul Chaudhary, learned Senior Standing counsel for the Revenue defends the notice as also the order dated 1st February, 2016 on the ground",,,,

that the reasons recorded clearly spell out the necessity to reopen the assessment. Mr. Chaudhary submits that in the assessment proceedings, the AO",,,,

never had the information that these companies were ‘paper companies’, and that this information was in fact concealed by the Petitioner.",,,,

Therefore, the fact that the AO subsequently received information that the said companies were ‘paper companies’ was sufficient to justify the",,,,

issuance of the notice under Sections 147 and 148 of the Act. At this stage, it was not necessary for the AO to make a detailed enquiry into such",,,,

information. Mr. Chaudhary asserted that there must have been a report of investigation of the DDIT on the basis of which it was concluded that the,,,,

said five companies were ‘paper companies’. However, he was candid that the reasons for reopening the assessment made no reference to",,,,

such report.,,,,

Mr. Chaudhary, further submits that the Petitioner should be directed to participate in the proceedings. The mere issuance of the notice does not",,,,

itself result in a conclusion that there is escapement of income. Mr. Chaudhary submits that this was not a case where there was no basis for the AO,,,,

to reopen the assessment. He relies upon CIT v. Multiplex Trading & Industrial Co. Ltd. 378 ITR 350 (hereafter ‘Multiplex’) as also the Pr.,,,,

CIT v. M/s Paramount Communication Pvt. Ltd. [2017] 392 ITR 444 (Del), in support of the Revenue's case.",,,,

Analysis and Findings,,,,

The law on this subject is well settled. As held in Kelvinator (supra), the powers under Section 147 of the Act have to be exercised after a period",,,,

of four years only if there is a failure to disclose fully and truly all material facts and information, by the Assessee. This legal position has been",,,,

reiterated recently by this Court in Oracle India Pvt. Ltd. v. ACIT 2017 SCC OnLine Del 9360, Unitech Limited v. DCIT 2017 SCC OnLine Del",,,,

9408, BDR Builders and Developers Pvt. Ltd. v. ACIT 2017 SCC OnLine Del 9425 and in judgment dated 30th August, 2017 in W.P.(C) 5807/2014",,,,

(Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax).,,,,

Thus, it is also now well settled that the reasons to believe have to be self explanatory. The reasons cannot be thereafter supported by any",,,,

extraneous material. The order disposing of the objections cannot act as a substitute for the reasons to believe and neither can any counter affidavit,,,,

filed before this court in writ proceedings.,,,,

In the present case, the reasons to believe contained the names of the very same five companies which were initially disclosed by the Petitioner",,,,

during the assessment proceedings. The number of shares subscribed to by the said companies is the same and the amount received has been,,,,

disclosed by the Assessee. There is no new material which has been found or mentioned in the reasons to believe which were not contained in the,,,,

information provided by the Assessee prior to the conclusion of assessment under Section 143 (3) of the Act.,,,,

In fact, the Petitioner, after initially submitting the details of the companies and the shares subscribed to, further provided confirmations from the",,,,

said companies. The Petitioner also submitted copies of the balance sheets of the said companies for the relevant AYs showing that these amounts,,,,

were duly reflected therein. The said companies were also assessed to tax. Thus, it appears that the AO was satisfied with the details and information",,,,

provided by the Petitioner.,,,,

A perusal of the order disposing of the objections reveals that it proceeds on the basis that the information sought for by the Petitioner which,,,,

formed the basis for the reasons to believe, including the evidence collected, was required to be provided only in the further assessment proceedings.",,,,

The said order overlooks the fact that the reasons for reopening do not mention as to what fact or information was not disclosed by the Petitioner.,,,,

This is very vital and in fact goes to the root of the matter. An allegation that the companies are `paper companies' without further facts is by itself,,,,

insufficient to reopen assessments that stand closed after passing of orders under Section 143 (3) of the Act.,,,,

The assessment proceedings, especially those under Section 143 (3) of the Act, have to be accorded sanctity and any reopening of the same has",,,,

to be on a strong and sound legal basis. It is well settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and,,,,

not merely reasons to suspect that income has escaped assessment. In this case, the reasons failed to mention what facts or information was withheld",,,,

by the Petitioner. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were ‘paper companies’,",,,,

by itself, is insufficient to reopen the assessment, unless the AO had further information that these companies were non-existent after making further",,,,

inquiries into the matter. It is clear that the AO did not make any inquiry or investigation, if these companies were in fact ‘paper companies’.",,,,

No effort has been made to establish the connection between the statement of Mr. Navneet Kumar Singhania and the five companies.,,,,

Mr. Chaudhary’s submission that this Court cannot dictate the manner and content of what is to be written in the reasons to believe is correct,,,,

as a legal proposition. However, the Court has to examine the reasons to believe to see if it satisfies the rigour of the provisions. The observations of",,,,

this court in Multiplex (supra) are relevant in this respect and are set out below:,,,,

“24. In our view, the question whether the Assessee could have been stated to disclosed fully and truly all material facts have to be",,,,

examined in the light of facts of each case and also the reasons that led the AO to believe that income of an Assessee has escaped,,,,

assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the AO",,,,

would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the Assessee for framing of,,,,

assessment are subsequently discovered as false, the reopening of assessment may be justified"".â€​",,,,

In the facts of this case, the primary facts have not been shown to be false. The five companies do exist. They did subscribe to the share capital",,,,

of the Petitioner. They did pay the money to the Petitioner. All the five companies are assessed to tax. These are the primary facts. The reasons to,,,,

believe rely upon a letter received from the Investigation Wing and Mr. Chaudhary submits that this letter was in fact an investigation report. The,,,,

report does not form part of the reasons and neither was it annexed to the reasons. Interestingly, even the counter affidavit is silent as to the material",,,,

which has not been disclosed by the Petitioner. The counter affidavit merely states that the information was specific and the information would be,,,,

provided to the Petitioner during the assessment proceedings. Thus, if the Revenue had any basis to show that the primary facts were incorrect, the",,,,

same ought to have been set out in the reasons to believe. That has not been done in the present case.,,,,

Thus, the Petitioner cannot be said to have failed to disclose fully and truly all the material facts. This being a jurisdictional issue, the assumption of",,,,

jurisdiction under Sections 147 and 148 of the Act was erroneous. The notice dated 20th March, 2015 and the subsequent order dated 1st February,",,,,

2016 deserve to be and are hereby quashed.,,,,

Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the",,,,

reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are",,,,

repeated by the concerned Revenue authorities. In this background, the Court would like the Revenue to adhere to the following guidelines in matters",,,,

of reopening of assessments:,,,,

(i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the",,,,

Superior Officer should itself be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name,",,,,

designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided;",,,,

(ii) the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment - especially in those,,,,

cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the,,,,

basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof;",,,,

(iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report",,,,

should be enclosed along with the reasons;,,,,

(iv) the exercise of considering the Assessee’s objections to the reopening of assessment is not a mechanical ritual. It is a quasi-judicial function.,,,,

The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to,,,,

the reasons for reopening of the assessment beyond what has already been disclosed.,,,,

The writ petition is allowed in the above terms. There will be no order as to costs.,,,,