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 45 LPA-Opening Associate CFO
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 Chetan Sabharwal Vs. Assistant Commissioner Of Income Tax, Circle 28 (1)
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Chetan Sabharwal Vs. Assistant Commissioner Of Income Tax, Circle 28 (1)
August, 13th 2019

Referred Sections:
Sections 147/148 of the Income Tax Act, 1961 (Act).
Section 143 (3) of the Act,
Section 54F (iv) of the Act.
Section 143 (2)
Section 142 (1) of the Act,
Section 131 of the Act

$~
*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                                  Reserved on: 25th July, 2019
                                  Decided on: 6th August, 2019

                              W.P. (C) 10897/2015

      CHETAN SABHARWAL                                             ..... Petitioner
                  Through:               Mr. Ajay Vohra, Senior Advocate with
                                         Mr. Pawanjit Singh Bindra,
                                         Mr. Aniket D. Agrawal and Mr. G.S.
                                         Patwalia, Advocates
                              Versus

      ASSISTANT COMMISSIONER OF INCOME TAX,
      CIRCLE 28 (1)                                  ..... Respondent
                    Through: Mr. Zoheb Hossain, Senior Standing
                             Counsel for Revenue with
                             Mr. Deepak Anand, Junior Standing
                             Counsel and Mr. Piyush Goyal,
                             Advocate.

                                        WITH

+                             W.P. (C) 10898/2015

      CHETAN SABHARWAL                                              ..... Petitioner
                  Through:               Mr. Ajay Vohra, Senior Advocate with
                                         Mr. Pawanjit Singh Bindra,
                                         Mr. Aniket D. Agrawal and Mr. G.S.
                                         Patwalia, Advocates

                              versus

      ASSISTANT COMMISSIONER OF INCOME TAX

W.P(C) 10897/2015 & connected matters                                     Page 1 of 25
      CIRCLE 28 (1)                                               ..... Respondent
                              Through:     Mr. Zoheb Hossain, Senior Standing
                                           Counsel for Revenue with
                                           Mr. Deepak Anand, Junior Standing
                                           Counsel and Mr. Piyush Goyal,
                                           Advocate.

                                        WITH

+                             W.P. (C) 11215/2015

      NITIN SABHARWAL                                                 .... Petitioner
                   Through:                Mr. Ajay Vohra, Senior Advocate with
                                           Mr. Pawanjit Singh Bindra,
                                           Mr. Aniket D. Agrawal and Mr. G.S.
                                           Patwalia, Advocates
                              Versus

      ASSISTANT COMMISSIONER OF INCOME TAX
      CIRCLE 28(1)                                 ..... Respondent
                   Through: Mr. Zoheb Hossain, Senior Standing
                            Counsel for Revenue with
                            Mr. Deepak Anand, Junior Standing
                            Counsel and Mr. Piyush Goyal,
                            Advocate.

                                        AND

+                             W.P. (C) 11220/2015

      NITIN SABHARWAL                                                ..... Petitioner
                   Through:                Mr. Ajay Vohra, Senior Advocate with
                                           Mr. Pawanjit Singh Bindra,
                                           Mr. Aniket D. Agrawal and Mr. G.S.
                                           Patwalia, Advocates

W.P(C) 10897/2015 & connected matters                                      Page 2 of 25
                              Versus

      ASSISTANT COMMISSIONER OF INCOME TAX,
      CIRCLE 28(1)                                 ..... Respondent
                   Through: Mr. Zoheb Hossain, Senior Standing
                            Counsel for Revenue with
                            Mr. Deepak Anand, Junior Standing
                            Counsel and Mr. Piyush Goyal,
                            Advocate.

      CORAM:
      JUSTICE S. MURALIDHAR
      JUSTICE TALWANT SINGH

                                        JUDGMENT

Dr. S. Muralidhar, J.:
1. These four writ petition arise out of a common set of facts and seek similar
reliefs pertaining to the reopening of assessments earlier made for the
Assessment Years (AY) 2008-09 and 2009-10 under Sections 147/148 of the
Income Tax Act, 1961 (Act). They are accordingly being disposed of by this
common judgment.


2. Mr. Chetan Sabharwal has filed two writ petitions - W.P. (C) No.10898/2015
which challenges the notice dated 31st March, 2015 issued by the
Respondent/Assistant Commissioner of Income Tax (ACIT) under Section 148
of the Act seeking to reopen the assessment for AY 2008-09 and the
consequential order dated 24th September, 2015 disposing of its objections and



W.P(C) 10897/2015 & connected matters                                Page 3 of 25
W.P. (C) No. 10897/2015 which challenges an identical notice and the order
disposing of its objections for the AY 2009-10.


3. Mr. Nitin Sabharwal, the brother of Mr. Chetan Sabharwal, has filed the
other two writ petitions. While W.P.(C) 11220/2015 challenges notice dated
31st March, 2015 issued under Section 148 of the Act and the order dated 24th
September, 2015 passed by the Respondent ACIT disposing of the objections
for AY 2008-09, W.P.(C) No. 11215/2015 seeks similar relief qua the notice
and order of the same dates for AY 2009-10.


4. There is one distinguishing feature in the two sets of petitions. While the
assessments in the case of Mr. Chetan Sabharwal for the two AYs in question
in the first instance by the Assessing Officer (AO) were scrutiny assessments
under Section 143 (3) of the Act, as far as Mr. Nitin Sabharwal is concerned,
there was no scrutiny assessment for the two AYs. Intimations accepting his
returns were sent to him under Section 143 (1) of the Act.


Background facts
5. The background facts are that on 19th October 2007, the two Petitioners i.e.
Mr. Chetan Sabharwal and Mr. Nitin Sabharwal, and two other shareholders -
Mr. Kabul Chawla and his wife Mrs. Anjali Chawla - entered into a Share
Purchase Agreement (SPA) with GYS Real Estate Private Limited (GYS) for
sale of 30 lakhs equity shares of M/s. Pawan Impex Private Limited (Pawan
Impex) for a consideration of Rs.97.50 crores. 7.5 lakhs equity shares of Pawan
W.P(C) 10897/2015 & connected matters                                Page 4 of 25
Impex were held by Mr. Chetan Sabharwal and Mr. Nitin Sabharwal. Pursuant
thereto each of them received an advance of Rs.27.50 crores (1/4th Shares of the
total of Rs.110 crores remitted to all share holders) against the sale of equity
shares of Pawan Impex after the pledging of 30% equity shares and furnishing
of an irrevocable bank guarantee of Rs.52 Crores.


6. In terms of Article 1.1 read with Article IV of the SPA, the date of
completion of the sale transaction (defined under the SPA as ,,closing) was to
occur upon fulfilment of certain conditions by these two Petitioners and the
other shareholders (the sellers). Upon such closing, each of the Petitioners
along with the other shareholders was to deliver, inter alia, transfer deeds and
share certificates including the 30% equity shares originally pledged, to GYS
and thereafter the sale transaction would be deemed to complete.







7. It may be noted that the aggregate payment which was agreed to be paid by
GYS for the entire shares of Pawan Impex was Rs.195 crores, when this was
reduced by a sum of Rs.63.79 crores which was the unsecured loan in the books
of Pawan Impex. On the closing date, the consideration received was Rs.195
crores minus Rs.63.79 crores.


8. GYS was paid a further sum of Rs.3 crores on account of the estimated cost
of construction. The net sale consideration was arrived at Rs.1,28,20,66,501/-
and the proportionate sale consideration for each of the two Petitioners worked
out to Rs.32,05,16,625/-. Each of the Petitioners paid Rs.49,20,250/- towards
W.P(C) 10897/2015 & connected matters                                 Page 5 of 25
brokerage/commission/professional fees for obtaining services for sale of 7.5
lakh equity shares. Deducting this from the gross consideration, the net sale
consideration in the hands of each of the Petitioners was Rs.31,55,96,376/-.This
was shown in the computation of each of their returns as Long Term capital
gain (LTCG) and offered for tax in the AY 2009-10.


9. The further facts relevant to the sale of shares of Pawan Impex are that a No
Objection Certificate/consent letter was issued by the NOIDA Authority in
terms of Article 4 clause 4.2 (a) of the SPA on 22nd May, 2008 approving the
change in constitution of Pawan Impex. At the Annual General Meeting
(AGM) of Pawan Impex conducted on 29th September 2008, the new Directors
were appointed and the previous Directors, viz., the two Petitioners and Mr.
Kabul Chawla and Smt. Anjali Chawla ceased to be Directors. This took effect
from 23rd June, 2008 as was noted in the Form 20-B dated 30th September,
2008 filed with the Registrar of Companies (ROC). On 17 and 19th November,
2008 the shares of Pawan Impex dematerialised upon a request by GYS and
transferred to Religare Securities limited, depository under NSDL, and an
associate company of the Religare group. Each of the Petitioners deposited
Rs.28 crores and Rs.3,91,50,000/- on 25th and 26th September, 2009 in the
capital gain savings bank account in accordance with Section 54F (iv) of the
Act.


10. Under a separate SPA the equity shares of M/s.SVIIT Software Pvt. Ltd.
(SVIIT Software) held by the two Petitioners and two others - Mr. Kabul
W.P(C) 10897/2015 & connected matters                                 Page 6 of 25
Chawla and Mrs. Anjali Chawla -were agreed to be sold to GYS for an
aggregate consideration of Rs.60 crores. As far as the two Petitioners were
concerned, each of them held 2.5 lakhs equity share of SVIIT Software. They
were paid an advance of Rs.22.50 crores after pledging of 40% of the shares of
SVIIT Software. Each of them received Rs.5,62,50,000/- for the respective 2.5
lakhs equity shares. Thereafter GYS also made a further payment of Rs.18.00
crores in terms of Article 3.2 (b) (i) of the SPA. Each of the Petitioners
accordingly received Rs.10,12,50,000/- (5,62,50,000 + 4,50,00,000) being 1/4th
of Rs.18.00 crores.


11. As far as the SPA concerning the shares of SVIIT Software was concerned,
the closing happened in January, 2009. GYS made a payment of Rs.18.99
crores for repayment of the unsecured loan standing in the books of SVIIT
Software. Further an amount of Rs.60.00 lakhs was to be paid to GYS on
account of estimated cost of construction of building as per terms of SPA and
certain other expenses such as brokerage etc. were also deductable. Thus the
net consideration receivable from GYS for the sale of 10 lakhs share of SVIIT
Software was Rs.40,40,84,770/-. The net proportionate sale consideration for
the sale of 2.5 lakhs equity shares owned by each of these Petitioners came to
Rs.10,10,21,192/-. Each of the Petitioners paid Rs.15.00 lakhs towards
brokerage/commission/professional fee for the sale of the above shares and this
was deducted from the gross consideration hereinabove. The net sale
consideration of Rs.9,95,21,193/- was shown in the computation of LTCG and
offered for tax for the assessment year 2009-10.
W.P(C) 10897/2015 & connected matters                                Page 7 of 25
12. On 30th September, 2009 the AGM of the SVIIT Software was conducted
noting the cessation of the earlier Directors i.e. Mr. Kabul Chawla, Smt. Anjali
Chawla and Mr. Chetan Sabharwal with effect from 17th January, 2009 and the
appointment of the new Directors.


13. On 21st April 2010, the two Petitioners largely purchased undivided and
undefined half share in a residential property being No. 7, Sikandra Road, New
Delhi built on a plot measuring 7.1 acres for an aggregate consideration of
Rs.61.00 crores. This property was purchased out of capital gains arising in the
hands of the two Petitioners from sale of shares of Pawan Impex and SVIIT
Software within a period of two years. Accordingly, each of the Petitioners
claimed the benefit of Section 54F of the Act.


14. On 25th September 2008, Mr. Chetan Sabharwal filed his return of income
for A.Y.2008-09 declaring a total loss of Rs.90,37,369/-. In the return e-filed in
Form ITR-4 the particulars of the tax audit report obtained was filed and in part
A-BS at column 3(d)1(A), a sum of Rs.37,64,40,000/- was shown under the
head ,,sundry creditors which included a sum of Rs.37,62,50,000/- being a
liability in the name of GYS.


15. Return of Mr. Chetan Sabharal was picked up for scrutiny and a notice
under Section 143 (2) dated 9th August, 2009 was issued by the ACIT, Circle-
25, New Delhi.        On 6th August, 2010 a questionnaire was issued by the
Assessing Officer (AO) to Mr. Chetan Sabharwal under Section 142 (1) of the
W.P(C) 10897/2015 & connected matters                                   Page 8 of 25
Act where 56 queries were raised, inter alia, requiring him to explain the nature
of the transaction with GYS and requiring him to file a Memorandum of
Association (MOA) and ROC returns for the last five years of the said GYS.
On 5th October, 2010 Mr. Chetan Sabharwal replied to these queries.


16. Following this on 30th December, 2010, the AO issued summons under
Section 131 of the Act to Pawan Impex, GYS and SVIIT Software. These
parties filed their respective replies on 16th December, 2010. More documents
were placed on record by Mr. Chetan Sabharwal on 20th December, 2010. On
22nd December 2010, the AO framed an assessment under Section 143(3) of the
Act qua the return filed by Mr. Chetan Sabharwal. The assessment order was in
one page and the material portion is in para 3 which reads as under:
      "After examination of the submissions of the Assessee and
      discussion with the authorized representative of the Assessee.
      Assessed at loss of Rs.90,37,369/- under Section143(3) of the Act.
      Thus, the return as filed was accepted without change."

17. As far as AY 2009-10 is concerned Mr. Chetan Sabharwal filed his return
of income declaring a net income of Rs.1,17,21,750/-. The exemption claimed
of Rs.31,04,70,241/- and the LTCG of Rs.3,87,14,131/- was shown in the
return. This was set off against the short-term capital loss on sale of quoted
share and on sale/redemption of mutual funds. It is stated that LTCG of
Rs.40,38,40,170/- was declared by Mr. Chetan Sabharwal in the return for AY
2009-10 on sale of equity shares of Pawan Impex and SVIIT Software. Of the
aforementioned capital gains a sum of Rs.31,91,50,000/- was deposited in the

W.P(C) 10897/2015 & connected matters                                  Page 9 of 25
capital gain account scheme and therefore reduction to the tune of Rs.
31,04,70,241/- was claimed under Section 54F of the Act.


18. As far as AY 2009-10 is concerned, notice under Section 143 (3) of the Act
was issued by the AO on 15th September, 2010. Likewise, a questionnaire was
issued on 16th November, 2010 raising various queries, to which Mr. Chetan
Sabharwal replied on 2nd November, 2011. On 19th December, 2011, the
Assessment order was framed by the AO. It was noted in this assessment order
about the Assessee having invested in various mutual funds and about having
paid credit card bills. The order noted that the case had been discussed with the
Assessees AR in detail with reference to the various expenses debited in the
Profit and Loss (P&L) Account. The computation showed income from the
business, income from other sources and finally the assessment was framed at
an income of Rs.1,17,21,750/-.There was no discussion as such as regards the
LTCG.


19. Turning now to the facts concerning Mr. Nitin Sabharwal, he filed his
return of income for AY 2008-09 declaring an income of Rs.1,40,04,720/-. This
included interest income earned by him on FDRs in American Express Bank
made with advance received from GYS. According to Mr. Nitin Sabharwal
since in terms of Article IV of the SPAs, the share purchase culminated only in
FY 2008-09 relevant to AY 2009-10, he reflected the capital gain on sale of the
equity share in his return in the subsequent AY 2009-10. As far as his return for


W.P(C) 10897/2015 & connected matters                                 Page 10 of 25
AY 2008-09 was concerned, intimation under Section 143(1) of the Act was
issued by the AO on 26th October, 2009.


20. For AY 2009-10, Mr. Nitin Sabharwal filed his return of income on 30th
September, 2009 declaring a total income of Rs.89,67,577/-. In this return he
disclosed his LTCG of Rs.3,87,14,131/- after claiming the set off in the sum of
Rs.31,04,70,241/-. In this case too, intimation under Section 143(1) was issued
by the AO.


Notices under Section 147/148 of the Act
21. On 31st March, 2015 notice under Section 148 of the Act was issued by the
AO to each of the Petitioners separately for the two AYs stating that he had
reason to believe that income chargeable to tax for the two AYs had escaped
assessment within the meaning of Section 147 of the Act, therefore he proposed
to assess/reassess the income. It must be noticed here that this notice was issued
after four years after the completion of the respective financial years in which
the assessments were complete. This fact is relevant as far as Mr. Chetan
Sabharwal is concerned since in his case the assessments for the two AYs were
finalized upon scrutiny under Section 143(3) of the Act. However, as already
noticed, in the case of Mr. Nitin Sabharwal ,since only intimations were sent
under Section 143(1) in respect of the returns filed by him for the two AYs, this
aspect is not relevant.




W.P(C) 10897/2015 & connected matters                                  Page 11 of 25
22. Each of the Petitioners applied for inspection of the file which was carried
out on 16th April, 2015. Each of the Petitioners on 23rd April, 2015 wrote to the
AO stating that return already filed by each of them should be treated as return
filed as a response to the notice under Section 148 of the Act. Each of them
requested for a copy of the reasons recorded.


Reasons for reopening assessments
23. On 24th April, 2015, the reasons recorded by the AO were served on each of
the Petitioners. The reasons read as under:
 "REASONS FOR RE-OPENING OF ASSESSMENT FOR A.Y. 2009-
 10.

 The letter DG/LKO/D/44Nol.204/2011-12 dated 15-10-2015 from the
 O/o DGIT(Inv.), Lucknow to The Deputy Secretary (Inv .IV) and other
 correspondence in this regard mentions that the enquiries conducted by
 the Investigation Unit, NOIDA revealed that Mr. Chetan Sabharwal
 [PAN-AATPS3048P] and his brother, Mr. Nitin Sabharwal [PAN-
 ABKPS7284D] jointly purchased one half share of property No.7,
 Sikandra Road, New Delhi in April 2010.The total consideration for
 purchase of this property incurred by these two persons was
 Rs.64,69,25,000/-. The property was purchased through auction made
 at the directions of the DelhiHigh Court. Enquiries revealed that the
 major source of investment has come from sale proceeds of shares of
 M/s Pawan Impex Pvt. Ltd. and M/s SVIIT Software Pvt. Ltd.

 Shares of M/s Pawan Impex Pvt. Ltd. and M/s SVIIT Software Pvt. Ltd.
 were sold by Mr. Chetan Sabharwal and Mr. Nitin Sabharwal to M/s
 GYS Real Estate Pvt. Ltd. [a Fortis Group Company]. The shares were
 sold through Share Purchase Agreement dated ·19-10-2007.



W.P(C) 10897/2015 & connected matters                                 Page 12 of 25
 Enquiries conducted revealed that a total consideration of Rs.195 crores
 was to be paid by M/s GYS Real Estate Pvt. Ltd. to the shareholders of
 M/s Pawan Impex Pvt. Ltd.

 Similarly, share purchase agreement was signed in the case of SVIIT
 Software Pvt. Ltd. Total sale consideration of Rs.60.00 crores was
 determined. The total long term capital gain derived by Mr. Chetan
 Sabharwal was worked out to Rs.40,38,40,170/- out of which a sum of
 Rs.31,91,50,000/- was deposited in the Capital Gains Saving Bank A/c
 before 30th September 2009 and the deduction u/s 54F of the Income
 Tax Act, 1961 was claimed. Similarly, Mr. Nitin Sabharwal has shown
 capital gains of Rs. 40,40,84,770/- out of which Rs. 35,80,97,629/~ was
 deposited in the Capital Gains Saving Bank A/c before 30th September
 2009 and the deduction u/s 54 F of the Income Tax Act, 1961 was
 claimed. Mr. Chetan Sabharwal and Mr. Nitin Sabharwal have also
 purchased 1/4th share each in the Property No. 7, Sikandara Road, New
 Delhi vide sale deed dated 21.04.2010 for Rs.9,33,69,928/- each.

 Mr. Nitin Sabharwal and Mr. Chetan Sabharwal along with the other
 shareholders (Mr. Kabul Chawla and Smt Anjali Chawla) of Pawan
 Impex Pvt Ltd have entered into share purchase agreement dated 19th
 day of October, 2007 with GYS Real Estate Pvt. Ltd which determined
 the sale of 30,00,000 fully paid up equity shares of Pawan Impex Pvt
 Ltd for a total consideration of Rs.1,95,00,000/- to GYS Real Estate
 Pvt. Ltd.

 Further, vide share purchase agreement dated 19-10-2007 entered
 between the equity shareholders of SVIIIT Software Pvt. Ltd. and GYS
 Real Estate Pvt. Ltd. 10,00,000 equity shares were to be sold.

 After enquiries by the Investigation Unit, NOIDA about the value of
 shares of M/s Pawan Impex Pvt. Ltd. and SVIIT Software Pvt. Ltd. It
 has been reported that:



W.P(C) 10897/2015 & connected matters                                Page 13 of 25
 "It can be prima facie concluded that the value of shares are overvalued
 to the extent of Rs.109,80,000/- (in the case of M/s Pawan Impex Pvt.
 Ltd.) and of Rs. 40,40,28,0001- (in the case of M/s SVIIT Software Pvt.
 Ltd.) going by the cost of land and building which is much lower than
 the transaction amount of Rs.195,00,00,000/- in the case of M/s Pawan
 Impex Pvt. Ltd. plus Rs.60,00,00,000/- in the case of M/s SVIIT
 Software Pvt. Ltd. "

 On further perusal of the information and mentioned above the shares
 have been overvalued and the capital gains were adjusted in future
 years and the deductions were also claimed u/s 54 AY 2008-09,
 relevant to FY 2007-08, when the SPA was made AY 2009-10, relevant
 to FY 2008-09 considered necessary & 54F deduction claimed;

 The implication is as follows:

 Share purchase agreement entered in FY 07-08 relevant to AY 08-09.
 The consideration for the sale of shares has been received majorly in
 FY 08-09 relevant to A Y 09-10 and deduction u/s 54F was claimed on
 the same.

 With respect to the share transactions, the capital gain earned &
 deduction on the same claimed. I have the reasons to believe that
 substantial amount has escaped assessment during the Assessment
 Years 2008-09 and 2009-10."

24. Each of the Petitioners submitted their objections to the reopening of
assessment by letters dated 20th May, 2015. By detailed speaking order dated
24th September 2015, the AO rejected the objections. Thereafter, the present
petitions were filed.




W.P(C) 10897/2015 & connected matters                                Page 14 of 25
The present petitions
25. On 24th November, 2015, while directing notices to be issued in the
petition, the Court directed that further proceedings pursuant to the notice dated
31st March, 2015 for each of the AYs would remain stayed. The interim order
was made absolute on the following date i.e. 27th April, 2016.







26. Pursuant to the notice issued, counter-affidavits have been filed by the
Respondents to which rejoinders have been filed by the Petitioners. It must be
noted at this stage that on 1st February, 2018, the following order was passed in
the writ petitions filed by Mr. Chetan Sabharwal:
       "Returns for the Assessment Years (,,AY) 2008-2009 and 2009-
       2010 were subject-matter of orders under Section 143(3) of the
       Income Tax Act, 1961. First question which arises is whether it is
       a case of examination and change in opinion.

       Learned counsel for the petitioner submits that the reopening is
       after four years and therefore, the question of failure on part of the
       assessee has to be examined.

       Learned counsel for the respondent states that in this case, report
       was received from the Investigation Wing, Lucknow and,
       therefore, there was fresh evidence and material, which became the
       basis for reopening of the assessment. For the AY 2008-2009,
       income from capital gains from sales of shares was not declared.
       Income from capital gains arose in the said year and not in the
       assessment year 2009-2010.

       We have merely recorded the submissions made and not
       commented on merits. Learned counsel would be ready for
       arguments on the issues raised.

W.P(C) 10897/2015 & connected matters                                    Page 15 of 25
       Learned counsel for the respondent would produce original records
       on the next date of hearing.

       Relist on 11.4.2018."

27. At a subsequent hearing on 11th April, 2018, the Court was informed that
while the report received from the Investigation Wing, Lucknow was available
but the records relating to first assessment under Section 143(3) of the Act were
not. The Court then directed that the said record should be available at the time
of hearing.


28. On 25th July, 2019, the files of the Department including the report of the
Investigation Wing, Lucknow and the assessment records were made available
and were perused by the Court.


Submissions on behalf of the Petitioners
29. Mr. Ajay Vohra, learned Senior Counsel appearing for the Petitioners
submitted that the reopening of the assessments in both sets of cases was bad in
law. He submitted that the common ground that would apply to both sets of
petitions was that in order to justify the reopening of the assessment, there had
to be a rational/intelligible nexus between the material relied upon and the
reasons to believe that income had escaped assessment. In the present case, the
reasons to believe do not demonstrate how income had escaped assessment in
the hands of the Petitioners. He placed reliance on the decisions in CIT v.
Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), Madhukar Khosla v. ACIT

W.P(C) 10897/2015 & connected matters                                 Page 16 of 25
[2014] 367 ITR 165 (Del), Sabharwal Properties Industries Pvt. Ltd. v. ITO
[2016] 382 ITR 547 (Del).


30. Mr. Vohra further submitted that the report of the Investigation Wing could
not ipso facto constitute ,,tangible material without having any link with the
,,reasons to believe. Reliance was placed on the decisions in ACIT v. Dhariya
Construction Co. [2010] 328 ITR 515 (SC), Pr. CIT v. RMG Polyvinyl (I) Ltd.
[2017] 396 ITR 5 (Del), Pr. CIT v. Meenakshi Overseas (P.) Ltd., [2017] 395
ITR 677 (Del), Mahashay Chunnilal v. DCIT [2014] 362 ITR 314 (Del) and
Prabhu Dayal Rangwala v. CIT [2015] 373 ITR 596 (Del).


31. Specific to the case of Mr. Chetan Sabharwal, he submitted that the reasons
do not state that there was absence or failure on the part of the Assessee to
disclose fully and truly all material facts in relation to the assessment of
income. In support of this submission, he relied on the decisions in ACIT v.
ICICI Securities Primary Dealership Ltd. [2012] 348 ITR 299 (SC), CIT v.
Mr. Tirath Ram Ahuja [2008] 306 ITR 173 (Del), CIT v. Purolator India Ltd,
[2012] 343 ITR 155 (Del), Xerox Modicorp v. DCIT [2013] 350 ITR 308
(Del), Tata Business Support Services v. DCIT [2015] 232 TAXMAN 702
(Bom). Reliance was also placed on the decisions in Wel Intertrade (P) Ltd. v.
ITO [2009] 308 ITR 22 (Del), CIT v. Indian Farmers Fertilizer Cooperative
Ltd. [2008] 171 Taxman 379 (Del), Haryana Acrylic Manufacturing
Company v. CIT [2009] 308 ITR 38 (Del) and Atma Ram Properties (P) Ltd.
v. DCIT [2012] 343 ITR 141 (Del).
W.P(C) 10897/2015 & connected matters                                Page 17 of 25
32. Mr. Vohra further submitted that re-assessment was initiated on the basis of
mere change of opinion and this was impermissible in law. Reliance is placed
on the decisions in Maruti Suzuki India Ltd. v. DCIT [2013] 356 ITR 209,
Mohan Gupta (HUF) v.CIT [2014] 366 ITR 115, Tractebel Industry Engg. v.
Asst. Director of Income Tax [2011] 198 Taxman 408 (Del) and CIT v. Atul
Kumar Swami [2014] 362 ITR 693(Del).


33. Adverting to the merits of the cases, Mr. Vohra submitted that since the sale
of shares is completed only during the Financial Year 2008-09 in terms of the
SPAs relevant to AY 2009-10. LTCG could be declared only in the return for
AY 2009-10. Accordingly, he submitted that there was no question of any
failure by Mr. Chetan Sabharwal to disclose any material facts. He questioned
the rationale of the AO forming an opinion that income had escaped
assessment, when in fact, even assuming the so called over valuation of the
shares purchased, the resultant income was in any event disclosed and tax paid
thereon. He pointed out that the factum of sale of shares of Pawan Impex and
SVIIT Software was not doubted by the AO even in the impugned orders.


34. Mr. Vohra further placed before the Court documents relating to the re-
opening of assessment in the case of GYS. GYS had also filed three writ
petitions in which, notices were issued by this Court on 2nd March, 2016 and in
the interim, it was directed that the orders may be passed in the assessment
proceedings by the AO which would be subject to the outcome of the writ
petition. In the re-assessment proceedings, the income originally declared in the
W.P(C) 10897/2015 & connected matters                                 Page 18 of 25
initial returns was accepted as such in the case of GYS and on 30th August,
2016 the writ petitions were dismissed as withdrawn. According to Mr. Vohra,
this is another reason why there was no purpose to be served in the re-opening
of the assessments in the case of the Petitioners, since all these transactions
were inter related and the explanation offered in the case of GYS has already
been accepted by the Revenue.


35. Mr. Vohra also placed reliance on the recent judgment of the High Court of
Bombay at Goa dated 9th July, 2019, in W.P.(C) No.141/2015 and batch (Sesa
Sterlite Ltd. v. The Assistant Commissioner Income Tax) where again the
challenge to re-opening of the assessments under Section 147/148 of the Act
based on the report of a Commission of Inquiry was rejected. He submitted that
the investigation report in the present case per-se could not constitute relevant
material for reopening the assessments unless the reasons disclosed the live link
in the report and reasons to believe that income had escaped assessment.


Submissions on behalf of the Revenue
36. Mr. Zoheb Hossain, learned Senior Standing counsel for the Revenue, at the
outset submitted that the cases of Mr. Chetan Sabharwal are different from that
of Mr. Nitin Sabharwal. In the case of Mr. Nitin Sabharwal, since the initial
assessments were accepted as such by sending him intimations under Section
143 (1) of the Act, the proviso to Section 147 of the Act could not be attracted.
He placed reliance on the decision in DCIT v. Zuari Estate Development and
Investment Company (2015) 15 SCC 248 and CIT v. Rajesh Jhaveri Stock
W.P(C) 10897/2015 & connected matters                                 Page 19 of 25
Brokers Pvt. Ltd. (2008) 14 SCC 208, to contend that insofar as the earlier
assessments in the case of Mr. Nitin Sabharwal was not under Section 143(3)
of the Act but the return was accepted under section 143(1) of the Act, there
was no question of a notice under Section 147/148 of the Act constituting a
,,change of opinion.          Further, in his cases the mere fact that there was
investigation report which was made available to the Revenue subsequent to
the completion of the assessments was in itself sufficient for formation of an
opinion that income had escaped assessment.


37. As far as both cases were concerned, Mr. Hossain maintained that at the
present stage the Court only had to be satisfied prima-facie that there was
sufficient material for reopening of the assessment. Referring to the assessment
orders passed by the AO under Section 143 (3) of the Act in the cases of Mr.
Chetan Sabharwal, Mr. Hossain pointed out that there is absolutely no
discussion in the orders themselves on the aspects now highlighted in the
reasons for reopening of the assessments. He placed reliance on the decision in
Income Tax Officer Ward No. 16(2) v. Tecspan India Pvt. Ltd. (2016) 6 SCC
685.


38. As far as the scope of the present proceedings are concerned, he placed
reliance on the decision in M/s. Phool Chand Bajrangi Lal v. ITO (1993) 4
SCC 77and submitted that the fresh information in the form of the investigation
report clearly demonstrated that the initial disclosure regarding the price of
shares was not true and complete and the said report therefore formed a real
W.P(C) 10897/2015 & connected matters                                 Page 20 of 25
basis for re-assessment. Reliance was also placed on the decision in Income
Tax Officer, Calcutta v. Selected Dalurband Coal Co. Pvt. Ltd. (1997) 10
SCC 68 in support of the contention that the report of the investigation could
occasion a reasonable belief that the income had escaped assessment. He
submitted that at this stage, the Court would not go into the merits of the matter
beyond being satisfied that there was sufficient basis for the reopening of the
assessment.

39. As far as non-stating of the exact words regarding failure by the Assessees
to make a full disclosure of all materials, he submitted that reasons to believe
had to be read as a whole and it cannot be a mere incantation of the words in
the statute as that would render the exercise meaningless. According to him, if
read as a whole, there was sufficient indication in the reasons to believe that
indeed the true and correct material particulars have not been disclosed by the
assessee. Reliance was also placed on the decisions of this Court in Unitech
Wireless Pvt. Ltd. v. ACIT (2014) 362 ITR 417 (Del), Raymond Woolen Mills
v. ITO (2008) 14 SCC 218 and AGR Investment Ltd. v. Addl. Commissioner
of Income Tax (2011) 333 ITR 146 (Del).

Analysis and reasons
40. To begin with, this Court underscores the difference in the two sets of cases
on the aspect of ,,change of opinion. As far as the case of Mr. Nitin Sabharwal
is concerned, as already highlighted, his returns for the two AYs in question
were accepted as such and intimation was sent to him under Section 143 (1) of

W.P(C) 10897/2015 & connected matters                                  Page 21 of 25
the Act. Consequently, there was no occasion for the AO to form any opinion
in the first place. Therefore, there was no question of change of opinion in his
cases as far as the notice under Section 147/148 of the Act is concerned. His
position has been sufficiently explained in the decision in CIT v. Rajesh
Jhaveri Stock Brokers (supra) which is followed in DCIT v. Zuari Estate
Development & Investment Company. This has also been highlighted by this
Court in Indu Lata Rangwala v. CIT (2016)384 ITR 337.


41. As far as the case of Mr. Chetan Sabharwal is concerned, the original
assessment orders for both AYs under Section 143(3) of the Act do not give
any indication on the AO having formed any opinion whatsoever on the basis
of which the reopening has been ordered.            In this context the following
observations in Income Tax Officer Ward No. 16 (2) v. Techspan India Pvt.
Ltd. are relevant.
      "18. Before interfering with the proposed reopening of the
      assessment on the ground that the same is based only on a change in
      opinion, the court ought to verify whether the assessment earlier
      made has either expressly or by necessary implication expressed an
      opinion on a matter which is the basis of the alleged escapement of
      income that was taxable. If the assessment order is non-speaking,
      cryptic or perfunctory in nature, it may be difficult to attribute to the
      assessing officer any opinion on the questions that are raised in the
      proposed reassessment proceedings. Every attempt to bring to tax,
      income that has escaped assessment, cannot be absorbed by judicial
      intervention on an assumed change of opinion even in cases where
      the order of assessment does not address, itself to a given aspect
      sought to be examined in the reassessment proceedings."


W.P(C) 10897/2015 & connected matters                                      Page 22 of 25
42. Consequently, even in the cases of Mr. Chetan Sabharwal in view of the
fact that the original assessment orders are totally silent on this aspect of the
matter, it cannot be said that the reason to believe constitutes a ,,change of
opinion.


43. At this juncture it must be stated that on a perusal of the report of the
investigation which was produced before this Court, it appears prima facie that
there was sufficient material to justify the reopening of the assessment in both
sets of cases. Further, upon reading the reasons to believe as a whole the ,,live
link between the material in the form of the investigation report and the
formation of belief that income that has escaped assessment is prima facie
discernable. The Court hastens to add that this is a prima facie view which is
all that is necessary at this stage.


44. The Court in this context would like to refer to the following observations
of the Supreme Court in ITO v. Selected Dalurband Coal Limited (supra)
where it was considering the effect of a letter of the Chief Mining Officer
which emerged after the conclusion of the assessments:
      "After hearing the learned Counsel for the parties at length, we are
      of the opinion that we cannot say that the letter aforesaid does not
      constitute relevant material or that on that basis, the Income-tax
      officer could not have reasonably formed the requisite belief. The
      letter shows that a joint inspection was conducted in the colliery of
      the respondent on January 9, 1967 by the officers of the Mining
      Department in the presence of the representatives of the assessee
      and according to the opinion of officers of the Mining Department;

W.P(C) 10897/2015 & connected matters                                  Page 23 of 25
      there was under reporting of the raising figure to the extend
      indicated in the said letter. The report is made by Government
      Department and that too after conducting a Joint inspection. It gives
      a reasonably specific estimate of the excessive coal mining said to
      have been done by the respondent over and above the figure
      disclosed by it in its returns. Whether the facts stated in the letter
      are true or not is not the concern at this stage. It may well be that the
      assessee may be able to establish that the fact stated in the said letter
      are not true but that conclusion can be arrived at only after making
      the necessary enquiry. At the stage of the issuance of the notice, the
      only question is whether there was relevant material, as stated
      above, on which a reasonable person could have formed the
      requisite belief. Since, we are unable to say that the said letter could
      not have constituted the basis for forming such a belief, it cannot be
      said that the issuance of notice was invalid. Inasmuch as, as a result
      of our order, the reassessment proceedings have now to go on we do
      not and we ought not to express any opinion on merits ."

45. Unlike in other writ petitions where a similar challenge is made to the
reopening of assessments by issuing notice under Section 148 of the Act, where
the Court invariably directs as an interim measure that the re-assessment
proceedings may go on but no final order should be passed during the pendency
of the petition, in the present case the Court ordered a total stay of further
proceedings pursuant to the impugned notices dated 31 st March 2015. This in
effect meant that the re-assessment proceedings before the AO did not progress.


46. With the Court disinclined to interfere at this stage for the reasons
explained above, it would be open to the two Petitioners to advance all the
arguments made by them in these petitions, except the point that the reopening

W.P(C) 10897/2015 & connected matters                                      Page 24 of 25
constitutes a change of opinion, before the AO. This would include the point
urged by Mr. Chetan Sabharwal that the reopening is bad in law because the
reasons do not expressly state that there was a failure on his part to disclose
fully and truly all material facts in relation to his assessment.


47. Consequently, this Court would not like to further dwell on the other points
urged before this Court on behalf of the Petitioners or express a view one way
or the other on them except to hold that at this stage the Court, prima facie,
finds no merit in the contention that there is no live nexus between the material
relied upon and the reasons to believe that income has escaped assessment in
both sets of cases.


48. The writ petitions are accordingly dismissed. The interim orders are
vacated.



                                                            S. MURALIDHAR, J.


                                                           TALWANT SINGH, J.

August 06, 2019
mr




W.P(C) 10897/2015 & connected matters                                 Page 25 of 25

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