Delhi High Court
AGR Investment Ltd. versus Addl. Commissioner of Income Tax and Another
WP(C) No. 7517/2010
Judgment Reserved on: 9th November, 2010, Judgment Pronounced on: 7th January, 2011
ORDER
By this writ petition preferred under Article 226 of the Constitution of India, the petitioner has prayed for issue of a writ of certiorari for quashment of the notice dated 25th February, 2010 issued under Section 148 of the Income Tax Act, 1961 (for brevity „the Act?) for the assessment year 2003- 04 and further to quash the order dated 28th June, 2010 whereby the objections raised by the petitioner have been rejected.
2. It is submitted by Mr. S. Ganesh, learned senior counsel along with Mr. Satyen Sethi and Mr. Arta Trana, learned counsel appearing for the petitioner, that the assessing officer has assumed jurisdiction to initiate the proceedings under Section 147 and issued notice under Section 148 of the Act solely on the basis of certain statements recorded by the Directorate of Investigation without forming an independent opinion. It is urged by him that the expression used in Section 147 of the Act is ‘reason to believe’ and not ‘reason to suspect’ and it is the settled legal position that there should be direct nexus or live link between the materials relied upon by the revenue and the belief that income has escaped assessment. It is contended that on a bare reading of the reason to believe, it is evident that the jurisdiction to reassess the income has been assumed on the basis of unspecific and vague information which cannot justify the formation of the belief or the reason to believe that income has escaped assessment. The entire foundation of the belief that the income has escaped assessment is that “certain investigations were carried out by the Directorate of Investigation, Jhandewalan” though no particulars had been given on what basis the Directorate of Investigation had come to the conclusion that accommodation entries were given to the petitioner. It is urged that no details of the persons who supposedly alleged that the transactions of the petitioner were bogus were provided and further the nature of the alleged accommodation entries have not been referred to in the reason to believe. In essence, the submission in this regard is that there is complete absence of material which can be said to have a live link with or be the basis of formation of the purported belief or reason to believe that the petitioner’s income had escaped assessment. The allegation that the transactions entered into by the petitioner were bogus is totally without any substance in the absence of any materials/details provided. It is further submitted by the learned counsel for the petitioner that the reasons recorded must show application of mind by the assessing officer to the material produced before him on the basis of which the reason to believe is formed that income has escaped assessment and in the absence of such application of mind which is evincible from the reasons recorded, the order is vulnerable in law. It is contended by him that the assessing officer has merely blindly accepted what was allegedly intimated to him by the Directorate of Investigation without even attempting to ascertain the basis of the Directorate’s assertion that accommodation entries were given to the petitioner. It is his further submission that the objections raised by the petitioner have not been disposed of in conformity with the decision rendered by the Apex Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer & Ors., (2003) 179 CTR 11 (SC) inasmuch as there is no consideration of the basic and fundamental objections raised by the petitioner which go to the very root of the matter and would clearly reveal that no addition whatsoever could have been made to the petitioner’s income. It is canvassed by him that the decision of the Apex Court in GKN Driveshafts (India) Ltd. (supra) requires that the assessee’s objections to the reopening should be considered and disposed of in conformity with the rules of natural justice.
3. To bolster his submissions, the learned counsel for the petitioner has commended us to the decisions in ITO v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC), General Mrigendra Shum Sher Jung Bahadur Rana v. ITO, [1980] 123 ITR 329, United Electrical Co. Pvt. Ltd. v. CIT, [2002] 258 ITR 317, CIT v. SFIL Stock Broking Ltd., [2010] 325 ITR 285 (Del), Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of India, AIR 1976 SC 1785 and Union of India v. Mohan Lal Capoor, AIR 1974 SC 87.
4. M r. M .P. Si nha, learned counsel appearing for the revenue, supported the order passed by the competent authority contending, interalia, that the assessing officer has applied his independent mind and has not been solely guided by the information given by the Directorate of Investigation. It is proponed by him that the objections raised by the petitioner has been appositely dealt with and by no stretch of imagination it can be said to be a cryptic order passed in a mechanical manner. The learned counsel for the revenue would submit that what is basically contended by the learned counsel for the assessee – petitioner pertains to sufficiency of material which should not be gone into at this stage. It is put forth by him that the same has to be delved into at the time of assessment and the petitioner would be afforded adequate opportunity of hearing to explain the same. The learned counsel has further submitted that the decisions which have been placed reliance upon by the learned counsel for the petitioner are distinguishable on facts and, hence, the same really do not render much assistance to him.
5. To appreciate the controversy, it is appropriate to refer to the initial notice dated 25th February, 2010 which was sent by the assessing officer. On a perusal of the said notice, it is evident that there has been escapement of taxable income for the assessment year 2003-04 within the meaning of Section 147 of the Act. It is worth noting, there is a cavil between the revenue and the petitioner how the objections have been dealt with by the competent authority of the revenue. It is averred in the petition that the petitioner, on receipt of the notice, submitted that the return of income filed under Section 139(1) of the Act may be treated as filed in response to the notice under Section 148 of the Act and the reasons recorded for assuming jurisdiction to re-assess the income be furnished so that objections referring to the assumption of jurisdiction may be filed. On 15th March, 2010, the reason to believe, as recorded, was provided to the petitioner wherefrom it is reflecti ble that the jurisdiction was assumed on the basis of the report of the Directorate of Investigation that certain persons had given statement that the petitioner had received accommodation entries. On 20th May, 2010, the assessee requested to provide copies of the statement and the report of the DIT (Investigation) to enable him to raise objections. However, as is manifest, by letter dated 21st June, 2010, the petitioner raised the following objections:
“(i) During the year the petitioner has neither received any gift nor any share application money nor any loan.
(ii) There was no change in share capital during the year as compared to immediately preceding year. The petitioner being a public limited listed company is regulated by the rules and regulations of SEBI and cannot accept share application money or issue share capital except with the prior approval of SEB I.
(iii) Neither any loan was borrowed nor has any payment been repaid during the year. Reference was made to clause 23(a) of Tax Audit Report.
(iv) It was explained that during the year, investment in shares held by the petitioner was sold. From the audited balance sheet, it is evident that the petitioner was having shares of three limited companies, namely, Lakshmi Float Glass Limited, Bawa Float Glass Limited and KPF Finances Limited of the face value of Rs.1,40,00,000/-. It was these shares that were sold at the face value only. It is out of sale of these shares that sale to the extent of Rs.27,00,000/- has been alleged in the reasons as accommodation entry.
(v) Amount received on sale of investments was utilized to give loans and the same appear in the balance sheet under the head „loans and advances?.”
6. Upon receipt of the said objections, the same were dealt with vide Annexure P-2 dated 28th June, 2010. In paragraph 3, the authority concerned referred to its earlier decision and reproduced the same. We think it appropriate to reproduce the relevant portion of the same whereby the objections have been rejected:
“REASONS RECORDED IN WRITING FOR
REOPENING THE CASE UNDER SECTION 148
M/s AGR INVESTMENT LTD.
ASSESSMENT YEAR 2003-04
Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been i nter-al ia reported as under:
“Entries are broadly taken for two purposes:
1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc.
2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes.
It has been revealed that the following entries have been received by the assessee:
