East Delhi Leasing Pvt. Ltd. Vs ITO (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal quashed the reassessment of East Delhi Leasing Pvt. Ltd. for Assessment Year 2010-11, holding that the Assessing Officer had assumed jurisdiction under Section 147 on suspicion rather than on a legally sustainable “reason to believe”. The assessee, engaged in financing and leasing, had filed its return declaring nil income. Based on information from the Investigation Wing concerning regular RTGS credits and debits and total bank deposits of Rs. 7,56,49,303, the AO reopened the assessment. The recorded reasons treated the movement and rotation of funds among related entities as unexplained and proposed the bank credits as unexplained credits under Section 68. During reassessment, however, the AO examined share application money and ultimately added Rs. 5.42 crore under Section 68, despite the assessee furnishing financial statements, returns, bank statements, confirmations and share application forms of the investors.
The Tribunal found that the Investigation Wing information merely reflected inflow and outflow of funds and did not state that those transactions represented the assessee’s income. Considering the nature of the assessee’s financing and leasing business, movement of funds by itself could not establish escapement of income. Relying particularly on the Supreme Court’s principle that suspicion, however strong, cannot substitute legal proof, the Tribunal held that the information could at best generate a reason to suspect and invite enquiry, not a reason to believe that taxable income had escaped assessment. It further held that there was no live link or rational nexus between the material available and the AO’s formation of belief.
