$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P. (C) No. 10507/2016
SKY VIEW COUNSULTANTS PVT. LTD. ..... Petitioner
Through: Dr. Rakesh Gupta, Mr.Somil
Agarwal, Mr. Rohit Kumar Gupta,
Ms.Monika Ghai, Ms. Syamalima,
Advocates.
versus
INCOME TAX OFFICER, WARD 23 (4) & ANR. ..... Respondents
Through: Mr. Rahul Kaushik, Senior Standing
Counsel for the Income Tax
Department.
CORAM: JUSTICE S. MURALIDHAR
JUSTICE PRATHIBA M. SINGH
ORDER
% 07.09.2017
Dr. S. Muralidhar, J.:
1. The challenge in this writ petition is to the notice dated 29th March 2016
issued by the Income Tax Officer Ward 23(4), New Delhi (hereafter
Assessing Officer - `AO') under Section 148 of the Income Tax Act, 1961
(`Act') seeking to reopen the Petitioner's assessment for the Assessment
Year (`AY') 2009-10. A challenge is also laid to the letter dated 4th July
2016 rejecting the objections filed by the Petitioner to the reopening of the
assessment.
2. The facts in brief are that the Petitioner, Sky View Consultants Private
W.P.(C) 10507/2016 Page 1 of 10
Limited, is engaged in the consultancy business and looking after `product
promotion and sales services' of products being marketed by Seagram India
Limited, presently known as Pernod Ricard India Limited (PRIL). The
Petitioner filed its return for the AY 2009-10 on 24th October 2009 declaring
an income of Rs. 13,59,848/-. The said return was processed under Section
143 (1) of the Act.
3. On 29th March 2016, the AO issued the impugned notice under
Section 148 of the Act proposing to reopen the assessment for AY 2009-10.
The reasons recorded by the AO on 10th March, 2016 for reopening of the
assessment, as communicated to the Petitioner, were broadly as under:
(i) A Tax Evasion Petition (`TEP') had been received by the investigation
wing of the Income Tax Department to the effect that the Petitioner had
collected money from its Principal (PRIL) and thereafter issued account
payee cheques in the name of various sub-contractors (allegedly bogus
entities). Cash was withdrawn from the said accounts by self-cheques and
distributed in the Defence canteens as bribes. On the basis of the said TEP,
the assessment of the Petitioner for the AY 2007-08 was reopened by an
order passed by the Commissioner of Income Tax (CIT) under Section 263
of the Act. It was further noted that for the AY 2008-09, proceedings under
Section 147 of the Act were in progress. Even for the AY in question i.e. the
AY 2009-10, a perusal of the Profit and Loss (P&L) Account for the year
ending 31st March, 2009 showed that the Petitioner was claiming an expense
of Rs.2,41,79,349/- on account of `contractor's charges'. This was in fact the
bribe amount distributed by it.
W.P.(C) 10507/2016 Page 2 of 10
(ii) The second reason was that the Income Tax Officer (Investigation) [ITO
(Inv)] OSD-I, Unit-3, New Delhi issued the summons under Section 131
(1A) of the Act on 4th March, 2015 calling upon the Petitioner to provide the
necessary details so that independent enquiries could be conducted from the
third parties. The ITO (Inv) in his report stated that the Petitioner has neither
provided any justification with documentary evidence nor the details of the
parties to whom the contract charges were paid. From both the above
documents and the report of the ITO (Inv) it was inferred that `the modus
operandi of the Assessee in the AY 2009-10 is the same as was in AY 2007-
08 and 2008-09'. It was further inferred that the aforementioned sum of
Rs.2,41,79,349/- had been used by the Petitioner for `non business
purposes', thus concealing its true income.
(iii) The third reason was that the Director General of Income Tax (DGIT)
(Vigilance) by letter dated 2nd November, 2011 had also suggested that the
claim of expenses made by the Petitioner would have to be examined. This
was after a detailed inquiry into a complaint against the then AO of Circle 8
(1), New Delhi, who happened to be the AO of the Petitioner.
4. The AO concluded that he had reason to believe that the contractor's
charges shown in the Petitioner's P&L Account were bogus and the
Petitioner had wilfully and knowingly concealed its particulars of income to
avoid tax and that income of Rs.2,41,79,349/- chargeable to tax had escaped
assessment for AY 2009-10.
W.P.(C) 10507/2016 Page 3 of 10
5. As noted earlier, the objections filed by the Assessee to the re-opening of
the assessment were disposed of by the AO by the impugned letter dated 4th
July 2016. One of the objections raised was that the entire exercise
undertaken by the ITO (Inv) by invoking Section 131(1A) of the Act was
without jurisdiction since that provision could not have been invoked
without him being duly authorised. On this issue, in the impugned order
dated 4th July 2016, the AO noted that the said information received from
the ITO (Inv) was not the sole basis for reopening the assessment. It was
stated that the AO had applied his mind, collected the bank statements,
analysed the Financial Accounts and correlated the same with the TEP
report. The case was reopened with the prior approval of the Principal CIT.
Reliance was placed on the decision in AGR Investments Ltd. v. Additional
CIT [2011] 333 ITR 146 (Del) in support of the proposition that
`information received from investigation wing can be used for re-opening of
the case.' It was asserted that there was `live and tangible nexus between the
information and belief formed which has been arrived at after independent
evaluation of the information by the AO.'
6. This Court has heard the submissions of Dr. Rakesh Gupta, learned
counsel appearing for the Petitioner, and Mr. Rahul Kaushik, learned Senior
Standing Counsel for the Revenue.
7. In the counter affidavit filed on behalf of the Revenue, reference, inter
alia, is made to the fact that the proceedings under Section 147 of the Act
for AY 2008-09 resulted in an assessment order under which it was held that
none of the entities in whose names cheques were issued are shown to be
W.P.(C) 10507/2016 Page 4 of 10
genuine entities. The said assessment order is dated 30th March 2016. In fact,
Mr. Kaushik places considerable reliance on this assessment order to urge
that the re-opening the assessment for the present AY, i.e. AY 2009-10 was
more than vindicated by the said assessment order which, according to him,
was not challenged by the Petitioner by way of a writ petition.
8. Dr. Gupta, on the other hand, pointed out that this Court has to necessarily
examine the reasons recorded by the AO on 10th March, 2016 which make
no reference, and obviously so, to an order that was passed subsequent to the
date of recording of the reasons on 30th March, 2016. Secondly, he points
out that the said assessment order for AY 2008-09 was in fact challenged by
the Petitioner by filing an appeal before the CIT (A) and, therefore it was
incorrect to say that the said order was not challenged.
9. On this issue, it requires to be noted that the settled legal position is that
when a challenge is laid to the reopening of an assessment under Section
147 of the Act, the Court has to examine only the reasons recorded by the
AO and nothing else. In Northern Exim Pvt. Ltd. v. Deputy Commissioner
of Income Tax [2013] 357 ITR 586 (Del), this Court reiterated the well
settled legal position that "we have to be guided only by the reasons
recorded for the assessment and not by the reasons or explanations given by
the AO at a later stage in respect of notices of the assessment". After
referring to a large number of decisions, this Court explained:
"The ratio laid down in all these cases is that, having
regard to the entire scheme and purpose of the Act, the
validity of the assumption of jurisdiction under Section
W.P.(C) 10507/2016 Page 5 of 10
147 can be tested only by reference to the reasons
recorded under Section 148(2) of the Act and the
Assessing Officer is not authorized to refer to any other
reason even if it can be otherwise inferred and/or
gathered from the records. He is confined to the
recorded reasons to support the assumption of
jurisdiction. He cannot record only some of the reasons
and keep the others up his sleeves to be disclosed before
the Court if his action is ever challenged in a Court of
law."
10. Recently, this Court in WP (C) 7828/2010 Oracle India Pvt Limited Vs.
ACIT, by the judgement dated 26th July, 2017 has further elaborated on the
`reasons to believe' as under:
"....27. A second aspect of the matter is that the above
jurisdictional requirement should be shown to have been
fulfilled from the reasons for re-opening of the
assessment. In other words, the reasons must speak for
themselves. The mandatory jurisdictional requirement in
W.P.(C) 7828/2010 Page 18 of 29 terms of the first
proviso to Section 147 of the Act will not be fulfilled if
the reasons do not themselves clearly indicate that there
was in fact a failure by the Assessee to make a full and
true disclosure of all material facts. The reasons have to
explain what the material was that was not disclosed by
the Assessee which the Assessee ought to have disclosed
in the first instance. This should be apparent from a
reading of the reasons themselves. The reasons have to go
beyond merely repeating the language of the provision
regarding the failure of the Assessee to make a full and
true disclosure of material facts. They should indicate in
what manner was there such a failure.
28. In many of the cases, where the re-opening of an
assessment is challenged, the Revenue tries to make up
for the obvious defect in the reasons themselves which do
W.P.(C) 10507/2016 Page 6 of 10
not spell out the reasons by providing a justification at the
stage of disposal of the objections or later in the counter-
affidavit when the re-opening is challenged by a writ
petition. This, again, is impermissible in law. Since the
reasons must speak for themselves, a subsequent attempt
to supply the omission at the stage of an order disposing
of the objections raised by the Assessee or providing
them in the counter-affidavit in reply to the writ petition
or even worse, making good that defect in the course of
arguments before the Court, will simply not suffice...."
11. In the present case, the fact that the assessment order passed after the re-
opening of the assessment for AY 2008-09 may have found the entities to
whom the Petitioner issued cheques to be fictitious cannot be looked into for
the simple reason that it was an order passed 21 days after the reasons in the
present case were recorded for re-opening of the assessment for AY 2009-
10. In any event, this will not answer one of the principal grounds urged by
Dr. Gupta that the tangible material that is required to be shown for
justifying the re-opening of assessment has to be relevant to the AY in
question, i.e. AY 2009-10.
12. In Commissioner of Income Tax v. Gupta Abhushan (P)Ltd. [2009]
312 ITR 166 (Del), it is emphasised that information relating to one AY will
not automatically become relevant for re-opening the assessment for another
AY. If that would be the position, then the re-opening would be only on the
basis of suspicion and not `belief'. This decision in fact reiterated what was
earlier explained by the Bombay High Court in Ramkrishna Ramnath v.
Income Tax Officer [1970] 77 ITR 995 (Bom).
W.P.(C) 10507/2016 Page 7 of 10
13. There is no answer by the Revenue to the Petitioner's contention that the
TEP pertained only to two FYs and therefore only corresponded to two AYs,
i.e. AY 2007-08 and 2008-09. Further, it is not disputed that the original
assessment order for AY 2007-08 was passed by the AO on 11th December,
2009. It was re-opened by the CIT (A) by the order dated 28th March 2012
under Section 263 of the Act. This resulted in a further assessment order
dated 28th March 2013 by the AO under Section 143 (3) read with Section
263 of the Act. Only 7% of the 'contractor's expenses' was disallowed and
added back. Therefore, even for AY 2007-08, the TEP did not result in
adding back the entire amount. The decision in AGR Investments Ltd. v.
Additional CIT (supra) only lays down a general proposition regarding
assessments being reopened on the basis of reports of investigation. It does
not obviate the need to show that there is tangible material relevant to the
AY in question that warrants reopening of the assessment for that particular
AY.
14. More importantly, it is not understood how despite being aware of the
above orders pertaining to AY 2007-08, the AO in his reasons for reopening
the assessment for AY 2009-10 did not refer to them while recording his
reasons on 10th March 2016. Clearly this was an instance of non-application
of mind by the AO to the relevant material. Since the AO failed to justify his
reasons to believe that income has escaped assessment for AY 2009-10 on
the basis of the TEP pertaining to AY 2007-08, it was all the more important
for the AO to refer to all the subsequent developments in relation to
reopening of the assessment for AY 2007-08.
W.P.(C) 10507/2016 Page 8 of 10
15. As already pointed out hereinabove, the Revenue has no answer to the
submission that the entire exercise undertaken by the ITO (Inv.) was without
jurisdiction. Which is why in the counter affidavit filed in the present writ
petition, the stand taken by the Revenue is that it is not the only reason for
re-opening the assessment. The fact remains that it could not form tangible
material for re-opening the assessment. The fact remains that the power
under Section 131 (1A) can be exercised only by officers named therein and
they are all officers in the Department superior to the ITO. If the ITO had to
exercise the powers under that provision, he had to be duly authorized to do
so. He clearly was not and, therefore, the reports submitted by him could not
have formed the valid basis for re-opening the assessment.
16. The third material referred to in the reasons for reopening the
assessment, is the investigation undertaken by the DGIT (Vigilance) into the
conduct of the erstwhile AO of the Petitioner. A perusal of the letter dated
2nd November 2011 written by the Director (Vigilance) to the DGIT
(Vigilance) does not throw any light on any material relevant to AY 2009-
10. In fact, the concluding paragraph of the said letter a request is made for
reopening of the assessment for the AY 2007-08 by invoking Section 263 of
the Act. This explains why that route was resorted to for AY 2007-08.
17. This Court is therefore satisfied that the jurisdictional requirement for
reopening of the assessment for AY 2009-10 has not been fulfilled in the
present case. Consequently, the notice dated 29th March 2016 issued by the
AO under Section 148 of the Act as well as the consequent order dated
4th July 2016 of the AO rejecting the Petitioner's objections, are hereby
W.P.(C) 10507/2016 Page 9 of 10
quashed.
18. The writ petition is allowed in the above terms with no orders as to costs.
S. MURALIDHAR, J.
PRATHIBA M. SINGH, J.
SEPTEMBER 07, 2017
j
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