Synfonia Tradelinks Pvt Ltd vs. Income Tax Officer, Ward-22(4) - (High Court of Delhi) (26 Mar 2021)

Process of reassessment cannot be triggered on a mere suspicion

MANU/DE/0599/2021

Direct Taxation

Present writ petition is directed against notice dated 31st March, 2018, issued under Section 148 of the Income Tax Act, 1961 (IT Act) and the sanction accorded by Respondent no. 2 i.e. the Principal Commissioner of Income Tax, Delhi on 29th March, 2018 for issuance of notice under Section 148 of the Act. The assessee, being aggrieved, has moved present Court via the instant writ petition.

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. The assessing officer should have reasons to believe that the taxable income has escaped assessment. 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 IT Act does not have the same connotation as "reason to suspect". 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.

The formation of belief by Respondent no.1 that, income of the assessee chargeable to tax had escaped assessment, was unreasonable and irrational, as it could not be related to the underlining information; something which is discernible from a bare reading of the order recording reasons.

Respondent no.2, who accorded sanction for triggering the process under Section 147 of the Act, simply rubber-stamped the reasons furnished by Respondent no.1 for issuance of notice under Section 148 of the IT Act. The provisions of Section 151(1) of the Act required Respondent no.2 to satisfy himself as to whether it was a fit case in which sanction should be accorded for issuance of notice under Section 148 of the IT Act and, thus, triggering the process of reassessment under Section 147 of the IT Act. The sanction-order passed by Respondent no.2 simply contains the endorsement 'approved'.

Since Respondent no.1 was unable to link the information received with the formation of belief, a jurisdictional error did occur, which, this Court, is empowered to correct, by exercising its powers under Article 226 of the Constitution of India, 1950.

Relegating a party to an alternative remedy is a self- imposed limitation which, however, does not denude the Court of its powers under Article 226 of the Constitution. The Court is duty-bound to exercise its powers under Article 226 of the Constitution 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.

The order recording reasons neither discusses the contents of the report received from the investigation wing or the statements made by Pradeep Kumar Jindal and his associates. The order recording reasons, merely, indicates that the formation of belief is based on these sources. Furthermore, although, there is a reference to Laxman Singh Satyapal and Meera Mishra in the counter-affidavit, as persons, whose statements were also recorded during the search, which formed the basis of initiation of proceedings under Section 147 of the IT Act, there is no reference to them in the order recording reasons. The impugned notice issued under Section 148 of the IT Act as well as the order granting sanction issued by Respondent no.2 is quashed.

Tags : NOTICE ISSUANCE LEGALITY