Synfonia Tradelinks Pvt Ltd Vs ITO (Delhi High Court)
1. The reasons which lead to the formation of opinion or belief that the assessee’s income chargeable to tax has escaped assessment should be inextricably connected. In other words, the reasons for the formation of opinion should have a rational connection with the formation of the belief that there has been an escapement of income chargeable to tax.
2. The expression “reason to believe” is stronger than the word ‘satisfied‘. The belief should be based on material that is relevant and cogent.
3. The process of reassessment cannot be triggered based on a mere suspicion. The expression ‘reason to believe’ which is found in Section 147 of the Act does not have the same connotation as “reason to suspect”
4. The order recording reasons should fill this chasm. The material brought to the knowledge of the assessing officer should have nexus with the formation of belief that the taxable income of the assessee escaped assessment; the link being the reasons recorded, in that behalf, by the assessing officer.
5. Thus, if one were to apply the aforestated principles, it would be clear as daylight that the order recording reasons discloses complete non-application of mind
6. The Court is duty-bound to exercise its powers under Article 226 where ever it finds that a statutory authority has exercised its jurisdiction either irregularly or acted in a matter in which it had no jurisdiction or committed a breach of the principles of natural justice
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Preface: –
1. This writ petition is directed against notice dated 31.03.2018, issued under Section 148 of the Income Tax Act, 1961 [hereafter referred to as ‘the Act’], and the sanction accorded by respondent no. 2 i.e. the Principal Commissioner of Income Tax, Delhi-VIII on 29.03.2018 for issuance of notice under Section 148 of the Act. The assessee, being aggrieved, has moved this court via the instant writ petition.
Background facts: –
2. To adjudicate upon the writ petition, the following broad facts are required to be noticed:
2.1. The assessee before us is a private limited company going by the name Synfonia Tradelinks Pvt. Ltd. The assessee was incorporated on 28.05.1993 under the Companies Act, 1956 albeit under the name Synfonia Pharmaceuticals Pvt. Ltd. On 31.03.2015, the assessee changed its name to Synfonia Tradelinks Pvt. Ltd.
2.2. The income tax return for the assessment year [in short ‘AY’] 2010-2011 along with the balance sheet as on 31.03.2010 was filed by the assessee, on 23.09.2010.
2.3. Insofar as the succeeding year was concerned, which is also the AY in issue i.e. AY 2011-2012, the income tax return was filed on 29.08.2012 by the assessee along with the balance sheet as on 31.03.2011. Returns for the aforementioned AY(s) were filed via electronic mode.
2.4. On 31.03.2018, which was the last date on which the limitation was to expire, a notice under Section 148 of the Act was issued by respondent no.1, wherein respondent no.1 inter alia stated that he had reason to believe that income chargeable to tax qua AY 2011-2012 had escaped assessment within the meaning of Section 147 of the Act. Accordingly, the assessee was directed to file a return in the prescribed form for the said AY as respondent no.1 proposed to assess/re-assess the income/loss for the concerned AY.
2.5. The record shows that the assessee had, perhaps, written to respondent no.1 on 03.04.2018 to close the reassessment proceedings as the notice under Section 148 qua AY 2011-2012 was time-barred having been served upon him after the expiry of the prescribed limitation. As indicated above, the limitation for issuance of notice expired, concededly, on 31.03.2018. This aspect finds mention in the assessee’s communication dated 23.04.2018 addressed to respondent no.1. Besides this, the said communication went on to state, that without prejudice to its contention that the notice under Section 148 of the Act was time-barred, it had enclosed a copy of the income tax return qua AY 20112012.
2.6. In addition to the aforesaid, the assessee also called upon respondent no.1 to furnish a copy of the reasons based on which he believed that the assessee’s income for AY 2011-2012 had escaped assessment. The communication concluded with a request to respondent no.1 to furnish a copy of the approval, granted by respondent no.2, for initiating proceedings under Section 147 of the Act.
2.7. Since respondent no.1 did not furnish a copy of the proceedings in which he had documented his reasons for initiating proceedings under Section 147 of the Act, the assessee escalated the matter, by writing to the Assistant Commissioner of Income Tax [in short ‘ACIT’] vide communication dated 09.06.2018. In this communication, while flagging the issue that the assessee has not been furnished reasons for initiating proceedings under Section 147 of the Act, reference was also made to the fact that the assessee’s case had also been picked up for initiating proceedings under Section 147 in AY 2009-2010 and AY 2010-2011 when additions amounting to Rs. 3,06,00,000/- and Rs. 2,30,62,500/- respectively had been made. Furthermore, the assessee pointed out that its share capital, which included reserves and surplus as on 31.03.2010, amounted to Rs. 3,87,78,048/-; a figure which had remained consistent since the financial year [in short ‘FY’] 2005-2006.
2.8. Even while this request was pending, the assessee was served with a notice dated 02.08.2018 under Section 143(2) of the Act vis-à-vis AY 20112012 as also a notice of even date i.e. 02.08.2018 for the said AY under Section 142(1) of the Act.
2.9. Finally, on 14.09.2018, the petitioner was furnished, the reasons for issuance of notice under Section 148 of the Act. In response to the same, the assessee filed its objections. Respondent no.1 vide order dated 08.10.2018 rejected the objections preferred by the assessee. This order was handed over to the chartered accountant of the assessee on 12.10.2018.
3. It is in these circumstances that the assessee was propelled to move this court by way of the instant writ petition. The court, while issuing notice dated 26.11.2018, which was accepted by the counsel for the revenue, made the following observations:
“Issue Notice. Mr. Deepak Anand, Jr. Standing Counsel accepts notice.
This Court is of the opinion that the petitioner/applicant’s grievance is with respect to non-application of mind by the concerned officer (A.O.) to issue the impugned notice under Sections 147/148 is prima facie warranted and justified.
In these circumstances, the respondents are hereby restrained from passing a final order in the re-assessment proceedings during the pendency of the present writ petition.
The Revenue is directed to produce the original file for consideration on the next date of hearing.
List on 11th February, 2019.
Dasti.”
4. Since then, respondent no.2 has filed a counter-affidavit on behalf of the revenue.
Submissions made on behalf of the assessee: –
5. Arguments in the matter on behalf of the assessee have been advanced by Mr. Udaibir Singh Kochar, while on behalf of the revenue submissions have been made by Mr. Shailendra Singh.
6. Briefly, Mr. Kochar made the following submissions:
i. That respondent no. 2, who is the sanctioning authority under Section 151 of the Act, has not applied his mind to the reasons, supposedly, recorded by respondent no.1. Respondent no.2 has simply rubber-stamped the reasons by simply writing, “approved”.
ii. Furthermore, the assessee has also gone on to aver that, the approval for issuance of notice under Section 148 of the Act, and commencement of proceedings under Section 147 of the Act were sought by ACIT and not by respondent no.1. It is averred by the assessee that since the notice was issued after the expiry of four years from the end of the relevant assessment year under the provisions of Section 151 of the Act, the ACIT had no role to play in the process of grant of sanction.
iii. There was a total non-application of mind by both respondent no.1 and respondent no.2, inasmuch as they did not correlate the information received from the Additional Director of Income Tax (Investigation) Unit 2(1) [in short ‘ADIT’], and that which was available in the income tax return and the balance sheet filed by the assessee. It was submitted that not only the information concerning the authorized capital, issued and subscribed paid-up capital and share premium account was wrongly recorded but also an error as gross as that which pertained to its year of commencement of business had crept in the order recording reasons. It was submitted that respondent no.1 proceeded on the basis that FY 2010-2011 was the assessee’s first year of business whereas the assessee’s incorporation took place as far back as 28.05.1993.
a) In support of the aforesaid plea, the reference was made to the following facts and figures:
