Case Law Details
Brief of the Case
Delhi High Court held In the case of Sabharwal Properties Industries Pvt. Ltd. vs. ITO that the reasons recorded for reopening are totally incoherent. In fact, a plain reading of reasons, gives rise to doubts whether some lines have gone missing or some punctuation marks have been left out. Grammatically also the reasons recorded make little sense. It is well settled that the reasons recorded for reopening the assessment have to speak for themselves. They have to spell out that (i) there was a failure of the Assessee to disclose fully and truly all the material facts necessary for the assessment and (ii) the reasons must provide a live link to the formation of the belief that income had escaped assessment. These reasons cannot be supplied subsequent to the recording of such reasons either in the form of an order rejecting the objections or an affidavit filed by the Revenue. Hence in the present case the essential requirements of Section 147 have not been satisfied, so reopening is not valid.
Facts of the Case
A survey operation under was conducted by the Investigation Wing on 12th December, 2013 in the premises of Sabharwal Apartments Private Limited (SAPL) and Sabharwal Properties Industries Private Limited (SPIPL). Both SAPL and SPIPL showed unsecured loans of Rs. 9.65 crore having been borrowed from Mahima Distributors Private Limited (‘MDPL’), Kolkata for AY 2011-2012. The shares of MDPL worth more than Rs. 9 crore were acquired by four companies for Rs. 37lakhs, whereas other companies which acquired shares of MDPL paid a huge premium over and above the par value of Rs.10/- per share in AY 2007-2008. The report of the Investigation Wing, Kolkata verifying the receipt of share premium by MDPL was awaited.
The investigation into the aspect of long term capital gains by the owners of properties developed by Sabharwal Group through SAPL and SPIPL was in progress. Unsecured loans “obtained by MDPL and other share holders” remained unexplained credits under Section 68. The loans received by SAPL and SPIPL in 2011-2012 before takeover of MDPL remained unexplained. The main ground of challenge is that the reasons recorded for reopening the assessments under Section 148 are ambiguous and incapable of being understood. In particular it is contended that the reasons recorded by the AO lacks clarity and it is practically impossible to derive meaning out of it and is incapable of being understood.
Held by High Court
High Court held that the reasons recorded for reopening are totally incoherent. In fact, a plain reading of it gives rise to doubts whether some lines have gone missing or some punctuation marks have been left out. Grammatically also the reasons recorded make little sense. However, this is the least of the problems. Essentially, the reasons recorded do not indicate what is basis for the reopening of the assessments.
Under Section 147 (1), the reasons recorded for reopening an assessment should state that the Assessee had failed to disclose fully and truly all the material facts necessary for his assessment in the returns as originally filed and the reasons recorded should provide a live link to the formation of the belief that income has escaped assessment. In the case of Madhukar Khosla v. Assistant Commissioner of Income Tax (2014) 367 ITR 165 (Del), it was held that in absence of reason to believe, the AO does not possess jurisdiction to reopen the assessment. There has to be a definite recording in the reasons that there was an escapement of income as a result of failure on the part of the Assessee to disclose fully and truly all the material facts necessary. Further in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), the Supreme Court reiterated that, under Section 147 of the Act, the AO does not have the power to reopen an assessment on the basis of ‘mere change of opinion’.
It is well settled that the reasons recorded for reopening the assessment have to speak for themselves. They have to spell out that (i) there was a failure of the Assessee to disclose fully and truly all the material facts necessary for the assessment and (ii) the reasons must provide a live link to the formation of the belief that income had escaped assessment. These reasons cannot be supplied subsequent to the recording of such reasons either in the form of an order rejecting the objections or an affidavit filed by the Revenue.
Even otherwise even the above reasons given subsequently do not satisfy the jurisdictional requirements of Section 147 (1) inasmuch as they do not indicate that there was a failure by the Assessee to disclose fully and truly all the material facts necessary for the assessment. The reasons also do not provide a live link to the formation of the belief that income had escaped assessment. Consequently, for the aforementioned reasons, the Court is satisfied that in the present case the essential requirements of Section 147 of the Act have not been satisfied by the Revenue.
Accordingly appeals of the assessee allowed.
