THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 20.05.2013
+ ITA 608/2012
COMMISSIONER OF INCOME TAX - IV ... Appellant
versus
M/s INSECTICIDES (INDIA) LTD. ... Respondent
+ ITA 609/2012
COMMISSIONER OF INCOME TAX - IV ... Appellant
versus
M/s INSECTICIDES (INDIA) LTD. ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr N. P. Sahni with Mr Ruchesh Sinha
For the Respondent : Mr K.V.S Gupta
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. These appeals by the revenue are directed against the order dated
12.10.2011 passed by the Income Tax Appellate Tribunal, New Delhi in
ITA Nos. 2332-2333/Del/2010 relating to the assessment years 2002-03
ITA 608-609/2012 Page 1 of 9
and 2003-04 (respectively). In both these appeals the issue relates to the
validity of the reassessment proceedings under Section 147 of the Income
- tax Act, 1961 (hereinafter referred to as "the said Act").
2. Insofar as assessment year 2002-03 is concerned, the original
assessment under Section 143(3) of the said Act was completed on
29.11.2004. The notices under Section 148 were issued on 21.09.2006.
As regards, assessment year 2003-04, there was no assessment under
Section 143(3) of the said Act, however, an intimation under Section
143(1) thereof had been issued. The notice under Section 148 seeking to
re-open the assessment was issued on 17.10.2006.
3. The reasons indicated behind the re-opening of the assessments
were identical in both the cases. We are setting out below the reasons
given in respect of the assessment year 2002-03. They are as under:-
"It has been informed by the Director of Income-tax
(Inv.), New Delhi vide letter dated 16.6.2006 that the
above named company was involved in giving and taking
bogus entries/transactions during the F.Y. 2001-02.
From the information gathered by the DIT(Inv.)-1,
New Delhi that the assessee was involved in giving and
taking accommodation entries only and represented
unsecured money of the assessee company is actually
unexplained income of the assessee company. The assessee
company has failed to disclose fully and truly all the
ITA 608-609/2012 Page 2 of 9
material facts and source of these funds routed through
bank accounts of the assessee company. I, therefore have
reasons to believe that the income has escaped assessment
within the meaning of section 147 of the I.T. Act, 1961 for
the asstt. Year referred above.
Hence notice u/s 148 is issued."
The respondent / assessee had filed objections against the said notices
under Section 148 of the said Act. However, without disposing of those
objections by reasoned order, the Assessing Officer framed reassessment
orders on 15.10.2007 in respect of both the years. By virtue of the
reassessment orders, the Assessing Officer made an addition of ` 30 lakhs
in respect of the assessment year 2002-03 and an addition of ` 35 lakhs in
respect of the assessment year 2003-04. Essentially, the Assessing
Officer held that the said sums of money represented income of the
assessee from undisclosed sources which had been shown as share
application money. In other words, the Assessing Officer held the said
sums to be bogus entries.
4. Being aggrieved by the said orders passed by the Assessing
Officer, the respondent / assessee preferred appeals. Those appeals were
allowed by the Commissioner of Income Tax (Appeals) by a common
order dated 06.01.2011. Insofar as the assessment year 2002-03 was
concerned, the CIT (Appeals) held that the reassessment proceedings
were bad inasmuch as it amounted to a mere change of opinion. The
findings of the CIT (Appeals) to this effect were as under:-
ITA 608-609/2012 Page 3 of 9
"The submissions made on behalf of the appellant
company and reasons recorded by the Ld AO have been
carefully perused. On consideration, I find that the issue
of share capital and share application money has come up
in the regular assessment proceedings and the appellant
company, vide its letter dated 09.11.2004, had submitted
detailed written reply along with necessary details of
share capital, share holding pattern and confirmation of
the persons contributing to share capital along with proof
of filing of their income tax return, PAN nos.
Ward/Circle/Range etc. Further, this fact was again
brought to the notice of Ld AO, vide appellant's letter
dated 28.08.2007, while filing the objections to the
reopening the assessment for the assessment year under
consideration. On a perusal of the said letter it is seen
that not only the issue was examined by the AO but also
the claim of the appellant company was accepted in the
original assessment. In this factual position, it cannot be
held that the issue of share capital of ` 30 lacs was not
examined and decided by the Ld AO at the time of the
regular assessment. I also find myself in agreement with
the Ld counsel that no fresh material, let alone tangible
material, has come to his possession so as to
empower/enable the AO to take recourse to the
provisions of section 147 of the IT Act, 1961. Therefore,
ITA 608-609/2012 Page 4 of 9
the reopening of assessment is based merely on change of
opinion, which I am afraid, is not sustainable in law.
Therefore, in the light of the judgment relied upon by the
ld counsel, I have no hesitation in holding that the
reopening of assessment in terms of section 147 of the
Act is not sustainable in law."
5. In respect of both the assessment years, the CIT (Appeals) held in
favour of the assessee on merits also.
6. Being aggrieved by the deletion of the addition made by the CIT
(Appeals), the revenue preferred the above mentioned appeals before the
Tribunal. As mentioned above, the Tribunal rejected those appeals and
that is how the revenue has filed these appeals before us.
7. We may point out at this juncture itself that the Tribunal did not go
into the question of merits. It only examined the question of the validity
of the proceedings under Section 147 of the said Act. The Tribunal, in
essence, held that the purported reasons for reopening the assessments
were entirely vague and devoid of any material. As such, on the available
material, no reasonable person could have any reason to believe that
income had escaped assessment. Consequently, the Tribunal held that the
proceedings under Section 147 of the said Act were invalid.
ITA 608-609/2012 Page 5 of 9
8. The Tribunal gave detailed reasons for concluding that the
proceedings under Section 147 were invalid. Instead of adding anything
to the said reasons, we think it would be appropriate if the same are
reproduced:-
"In the case at hand, as is seen from the reasons recorded
by the AO, we find that the AO has merely stated that it
has been informed by the Director of Income-tax (Inv.),
New Delhi, vide letter dated 16.06.2006 that the above
named company was involved in giving and taking bogus
entries/transactions during the relevant year, which is
actually unexplained income of the assessee company.
The AO has further stated that the assessee company has
failed to disclose fully and truly all material facts and
source of these funds routed through bank account of the
assessee company. In the reasons recorded, it is nowhere
mentioned as to who had given bogus entries/transactions
to the assessee or to whom the assessee had given bogus
entries or transactions. It is also nowhere mentioned as to
on which dates and through which mode the bogus
entries and transactions were made by the assessee. What
was the information given by the Director of Income-tax
(Inv.), New Delhi, vide letter dated 16.06.2006 has also
not been mentioned. In other words, the contents of the
letter dated 16.06.2006 of the Director of Income-tax
(Inv.), New Delhi have not been given. The AO has
ITA 608-609/2012 Page 6 of 9
vaguely referred to certain communications that he had
received from the DIT(Inv.), New Delhi; the AO did not
mention the facts mentioned in the said communication
except that from the informations gathered by the DIT
(Inv.), New Delhi that the assessee was involved in
giving and taking accommodation entries only and
represented unsecured money of the assessee company is
actually unexplained income of the assessee company or
that it has been informed by the Director of Income-tax
(Inv.), New Delhi vide letter dated 16.06.2006 that the
assessee company was involved in giving and taking
bogus entries/transactions during the relevant financial
year. The AO did not mention the details of transactions
that represented unexplained income of the assessee
company. The information on the basis of which the AO
has initiated proceedings u/s 147 of the Act are
undoubtedly vague and uncertain and cannot be
construed to be sufficient and relevant material on the
basis of which a reasonable person could have formed a
belief that income had escaped assessment. In other
words, the reasons recorded by the AO are totally vague,
scanty and ambiguous. They are not clear and
unambiguous but suffer from vagueness. The reasons
recorded by the AO do not disclose the AO's mind as to
what was the nature and amount of transaction or entries,
ITA 608-609/2012 Page 7 of 9
which had been given or taken by the assessee in the
relevant year. The reasons recorded by the AO also do
not disclose his mind as to when and in what mode or
way the bogus entries or transactions were given or taken
by the assessee. From the reasons recorded, nobody can
know what was the amount and nature of bogus entries or
transactions given and taken by the assessee in the
relevant year and with whom the transaction had taken
place. As already noted above, it is well settled that only
the reasons recorded by the AO for initiating proceedings
u/s 147 of the Act are to be looked at or examined for
sustaining or setting aside a notice issued u/s 148 of the
Act. The reasons are required to be read as they were
recorded by the AO. No substitution or deletion is
permissible. No addition can be made to those reasons.
Therefore, the details of entries or amount mentioned in
the assessment order and in respect of which ultimate
addition has been made by the AO, cannot be made a
basis to say that the reasons recorded by the AO were
with reference to those amounts mentioned in the
assessment order. The reasons recorded by the AO are
totally silent with regard to the amount and nature of
bogus entries and transactions and the persons with
whom the transactions had taken place. In this respect,
we may rely upon the decision of Hon'ble jurisdictional
ITA 608-609/2012 Page 8 of 9
Delhi High Court in the case of CIT vs. Atul Jain (2000)
299 ITR 383, in which case the information relied upon
by the AO for initiating proceedings u/s 147 of the Act
did indicate the source of the capital gain and nobody
knew which shares were transacted and with whom the
transaction has taken place and in that case there were
absolutely no details available and the information
supplied was extremely scanty and vague and in that light
of those facts, the Hon'ble Jurisdictional Delhi High
Court held that initiation of proceedings u/s 147 of the
Act by the AO was not valid and justified in the eyes of
law. The recent decision of Hon'ble jurisdictional High
Court of Delhi in the case of Signature Hotels (P) Ltd.
(supra) also supports the view we have taken above."
9. We do not see any reason to differ with the view expressed by the
Tribunal. No substantial question of law arises for our consideration.
The appeals are dismissed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
VIBHU BAKHRU, J
MAY 20, 2013
SU
ITA 608-609/2012 Page 9 of 9
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