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Sabh Infrastructure Ltd Vs. Asstt. Commissioner Of Income Tax
October, 03rd 2017

+                          W.P.(C) 1357/2016

       SABH INFRASTRUCTURE LTD.           ..... Petitioner
                    Through : Mr. Salil Kapoor, Mr. Sumit
                              Lalchandani, Ms. Ananya Kapoor,
                              Mr.Sanat Kapoor, Advocates.


       INCOME TAX                        ..... Respondent
                    Through : Mr. Rahul Chaudhary, Senior
                              Standing Counel with Mr. Sanjay
                              Kumar, Junior Standing Counsel.

        %                  25.09.2017

1. The Petitioner seeks the quashing of a notice dated 20th March, 2015
issued under Section 148 of the Income Tax Act (`Act') by the Assistant
Commissioner of Income Tax (hereinafter Assessing Officer `AO') and the
order dated 1st February, 2016 passed by the AO disposing of the objections
filed by the Petitioner to the said notice.

2. The Petitioner is a company engaged in the business of real estate and
property development. It filed its return of income for the Assessment Year
(`AY') 2008-09 on 30th September, 2008 declaring a total income of

W.P. (C) 1357/2016                                              Page 1 of 13
Rs.59,83,183/-. A questionnaire dated 4th August, 2013 was issued to the
Petitioner by the AO seeking details and documents as a part of the
assessment proceedings. One such detail sought for was with respect to
`share application money received, if any, during the year'. The Petitioner
replied to the questionnaire on 11th October, 2010. In its reply, the Petitioner
disclosed the details of share capital allotted during the AY as under:-

S.NO. Name of the Party               Assessment     No. of Shares         Amount
                                      Particulars           Issued

   1.    CHANDELIER TRACON          AABCC1624N              4,000      400,000.00
         PVT. LTD.                  WBG/W/110/2
         6, HANS PUKUR LANE,        ITO WD 10(2)

   2.    ELEGANCE TRADE &           AAACE7011L              4,000      400,000.00
         HOLDING PVT. LTD.          WBG/W/105/3
         6, HANS PUKUR LANE,        ITO WD 5(3)

   3.    ECHOLAC VINIMAY PVT.       AAACE5809N              4,000      400,000.00
         LTD.                       WBG/N/109/2
         6, HANS PUKUR LANE,        ITO WD 9(2)

   4.    GALORE SUPPLIERS PVT.      AAACG9662P              2,000      200,000.00
         LTD.                       WBG/W/109/1
         2, DIGAMBER, JAIN           DC AC Cir 9
         TEMPLE ROAD,

   5.    SUGAM COMMODEAL            AAECS3360A              6,000      600,000.00
         PVT. LTD.                  WBG/W/110/3
         2, DIGAMBER, JAIN          ITO WD 10(3)
         TEMPLE ROAD,

         TOTAL                                             20,000 2,00,00,000.00

W.P. (C) 1357/2016                                                   Page 2 of 13
3. On 19th November, 2010, the Petitioner further submitted the
confirmation from the said five companies along with their ITRs and PAN
Cards. On 26th November, 2010, the Petitioner further submitted the
Auditor's Reports, Balance Sheets, Particulars of P&L accounts, and
Schedules of Balance Sheet and P&L Account of the above named five
companies. An assessment order under Section 143 (3) of the Act was
passed by the AO on 20th December, 2010, after the details regarding the
five companies and their confirmations were submitted. The assessment
order, however, did not contain any discussion in respect of the share
application money. It thus appeared that the AO accepted the information
furnished by the Petitioner and raised no further doubt or queries in respect
to the same.

4. On 20th March, 2015, a notice was issued under Section 148 of the Act on
the ground that income had escaped assessment. Reasons to believe were
extracted and furnished on 16th December, 2015, which state as under:
            "Reasons recorded for initiating proceedings u/s 148 of
            the I.T. Act, 1961

            A credible information has been received to this office from
            the ITO (Inv.), Unit ­V(2), Jhandewalan Extension, New
            Delhi vide their letter No. F.No.ITO (Inv.) /Unit-
            V(2)/ND/SAPL & SPIPL/2014-15 dated 29.05.2014 wherein
            he has stated that during the investigation carried out by the
            DDIT(Inv.). Unit ­III (1), Kolkata, the statement of Sh.
            Navneet Kumar Singhania, s/o Late Jawala Prasad
            Singhania, r/o D-6/8, Purbasha Housing Estate, Manicktala
            Main Road, Kankurgachi, Kolkata 700054 was recorded on
            oath u/s 131 of the IT Act, 1961 of 18.03.2014. In his
            statement, Sh. Navneet Kumar Singhania admitted that he is
            an entry operator, having his office at 5/1, Clive Row, III
W.P. (C) 1357/2016                                                   Page 3 of 13
            Floor, RN-91, Kolkata -700001. He also admitted that his
            source of income is from commission earned in lieu of
            giving service in the form of giving cheques to his clients in
            return for cash. He has also admitted that he along with his
            team members was operating the following paper
            companies which had provided book entry to M/s Sabh
            Infrastructure Limited namely:-
               (a) Chandelier Tracon PL (PAN ­ AABCC1624N)
               (b) Galore Suppliers PL (PAN ­ AAACG9662P)
               (c) Echolac Vinimay PL (PAN ­ AAACE5809N)
               (d) Sugam Commondeal PL (PAN ­ AAECS3360A)
               (e) Elegance Trade & Holdings PL (PAN­AAACE7011L)
               (f) Subhrekha Vyapaar PL (PAN ­ AADCS8327A)

            During the AY 2008-09 M/s Sabh Infrastructure Limited had
            received share premium wherein share premium of Rs.400
            per share was received on the nominal value per share of
            Rs.100 each. The sum total of the value of the shares so
            subscribed was Rs.1.00crore in M/s Sabh Infrastructure
            Limited as details given hereunder:

                                 Date           31.03.2008
     Name & Address of Company SAM + Premium No. of shares              Value
     Investing                   paid per share subscribed
     Chandelier Tracon PL.           100+400         4000             20,00,000
     6, Hans Pukur Lane, Kolkata
     (PAN ­ AABCC1624N)
     Galore Suppliers PL.            100+400         2000             10,00,000
     2 Digamber Jain Temple
     Road, Kolkata
     (PAN ­ AAACG9662P)
     Echolac Vinimay PL.             100+400         4000             20,00,000
     6, Hans Pukur Lane, Kolkata
     (PAN ­ AAACE5809N)
     Sugam Commondeal PL.            100+400         6000             30,00,000
     2, Digamber Jain Temple
     Road, Kolkata
     (PAN ­ AAECS3360A)
     Elegance Trade & Holdings       100+400         4000             20,00,000
     6, Hans Pukur Lane, Kolkata

W.P. (C) 1357/2016                                                   Page 4 of 13
     (PAN ­ AAACE7011L)

            Since in the light of new facts, it has been established that
            these companies, from whom share premium has been
            received by M/s Sabh Infrastructure Limited are not
            genuine, I am of the view that the Assessee has not disclosed
            fully and truly all material facts in its income tax return
            resulting in under assessment of income of Rs.1,00,00,000/-
            on account of share premium.
            The assessment u/s 143 in this case was completed on
            20/12/2010 at assessed income of Rs.2,15,45,860/-
            Hence, I have reasons to believe that an amount of
            Rs.1,00,00,000/- as per reasons mentioned above, has
            escaped assessment in the case of Assessee relevant to AY
            2008-09, within the meaning of Section 147 of the IT Act.
            Since, in the instant case, the period of 4 years has expired
            and income escaped by reasons of the failure on the part of
            the Assessee to show true particulars of his income,
            Accordingly, the case falls under Section 151 (1) of the IT
            Act, 1961, therefore, the reasons are put up before CIT,
            Delhi VIII, New Delhi through Addl. CIT.(Range-22)New
            Delhi for necessary approval for issue of notice u/s 148 of
            the IT Act, 1961 for the purpose of reopening of assessment
            u/s 147 of the Income Tax Act, 1961."

5. The Petitioner objected to the reopening of assessment under Sections 147
and 148 of the Act. In the said objections, the Petitioner contended that the
reasons to believe do not contain any allegation as to what material facts and
information the Petitioner had failed to disclose. Apart from raising various
jurisdictional objections, the Petitioner also raised objections on merits. The
objections were rejected by the AO on 1st February, 2016.

W.P. (C) 1357/2016                                                  Page 5 of 13
Submissions of the Petitioner
6. Mr. Salil Kapoor, learned counsel appearing on behalf of the Petitioner
submits that there was no failure to disclose fully and truly all material facts,
during the assessment proceedings. The Petitioner had candidly disclosed
the names of all the five companies, the share amount received from them as
also the share premium amount received. The fact that the Petitioner was
specifically served with a questionnaire seeking these details and that the
same were submitted to the AO clearly points to the satisfaction of the AO
during the assessment proceedings. The Petitioner did not merely submit the
details of the said five companies and the amounts so received but also
submitted the relevant documents of the said five companies including
letters of confirmations. Mr. Kapoor submits that all the five companies are
assessed to tax and hence, it was quite easy for the AO to cross verify if the
need was felt. The order under Section 143 (3) of the Act having been
passed in the Petitioner's assessment proceedings for the relevant AY and
the notice under Section 147 having been issued after the expiry of four
years from the end of the relevant AY, the first proviso to Section 147 is
squarely attracted. Therefore, there exists a higher onus upon the Revenue to
discharge its burden of proving that there was non-disclosure by the

7. Mr. Kapoor specifically relies on various judgments including CIT v.
Kelvinator of India Ltd. (2010) 187 Taxman 312 (hereafter `Kelvinator')
and the judgments thereafter of this Court. He submits that on a perusal of
the reasons to believe, it can be seen that the AO has merely relied upon
information received from an investigation carried out by DDIT (Inv.) Unit
W.P. (C) 1357/2016                                                   Page 6 of 13
III, Kolkata, in which a statement of Mr. Navneet Kumar Singhania was
recorded on 18th March, 2014 under Section 131 of the Act. The AO came to
the conclusion that the said five companies were `paper companies' without
examining if the said statement was enquired into. He submits that the AO
did not himself verify any of the facts contained in the said statement. He
further submits that the reasons per se do not refer to any investigation
report of the DDIT (Inv) and even if such report existed, a copy thereof, was
not furnished to the Petitioner. Mr. Kapoor also took exception to the
manner of communicating the reasons. The AO has written a letter
extracting the reasons for expiry of the assessment instead of furnishing of
copies of the forms used by the AO for obtaining the permission of the
Superior Officer. The Petitioner is not aware of what other information was
relied upon by the AO. He thus submits that the notice seeking to reopen the
assessment under Sections 147 and 148 of the Act as also the order dated 1st
February, 2016 disposing of the objections of the Petitioner deserve to be

Submissions of the Revenue
8. 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
W.P. (C) 1357/2016                                                Page 7 of 13
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.

9. 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
10. 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).
W.P. (C) 1357/2016                                                 Page 8 of 13
11. 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.

12. 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.

13. 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.

14. 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
W.P. (C) 1357/2016                                                 Page 9 of 13
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.

15. 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.

16. 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
W.P. (C) 1357/2016                                                 Page 10 of 13
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"."

17. 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.
W.P. (C) 1357/2016                                                     Page 11 of 13
18. 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.

19. 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
W.P. (C) 1357/2016                                                  Page 12 of 13
            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

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

                                                      S. MURALIDHAR, J.

                                                 PRATHIBA M. SINGH, J.

SEPTEMBER 25, 2017

W.P. (C) 1357/2016                                                 Page 13 of 13
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