Facts of the Case

The petitioner, Well Trans Logistics India Pvt. Ltd., is engaged in the business of freight forwarding. It filed its return of income for Assessment Year 2011-12 on 30.09.2011. The assessment was sought to be reopened by issuance of notice dated 22.03.2018 under Section 148 of the Income-tax Act, 1961 on the ground that income had escaped assessment.

The reopening was based on information received from the Deputy Director of Income Tax (Investigation) by letter dated 29.11.2013, alleging that cash deposits aggregating to ₹5,76,91,714 were made in the petitioner’s bank accounts during Financial Year 2010-11. The Assessing Officer recorded reasons stating that the petitioner failed to explain the source of cash deposits and formed a belief that income to that extent had escaped assessment.

Upon request, the reasons recorded were supplied. The petitioner filed objections contending that the cash deposits were business receipts already recorded in the books of account, that the reasons were solely based on Investigation Wing information without independent application of mind, and that the reasons did not disclose any live link between material and belief of escapement. The objections were disposed of by a cryptic order dated 13.11.2018 without dealing with the specific objections raised.

Aggrieved, the petitioner filed a writ petition seeking quashing of the reassessment notice and proceedings.

Issues Involved

Whether the reassessment proceedings initiated under Sections 147 and 148 were valid when the reasons recorded were based solely on information received from the Investigation Wing
Whether the Assessing Officer had independently applied his mind to the material before forming a belief that income had escaped assessment
Whether the reasons recorded demonstrated a live link or close nexus between tangible material and the formation of belief

Petitioner’s Arguments

The petitioner argued that the reasons recorded reflected borrowed satisfaction, as the Assessing Officer merely reproduced the Investigation Wing’s report without any independent analysis. It was contended that cash deposits were admittedly business receipts already accounted for in the profit and loss account, and therefore could not form the basis of escapement of income. It was further argued that the reasons consisted of conclusions rather than reasons and failed to meet the statutory requirement of “reason to believe”.

Respondent’s Arguments

The Revenue contended that the Assessing Officer had examined the Investigation Wing report along with the return of income and other records before forming the belief. It was argued that adequacy or sufficiency of material could not be examined at the stage of reopening and that the absence of a scrutiny assessment earlier justified initiation of reassessment proceedings.

Court Order / Findings

The Delhi High Court examined the reasons recorded and reiterated that the power to reopen assessment is a potent power and cannot be exercised mechanically. The Court held that “reason to believe” requires justification based on tangible material and cannot be equated with mere suspicion.

Relying on the Supreme Court decision in ITO v. Lakhmani Mewal Das and the Delhi High Court ruling in Principal Commissioner of Income Tax v. Meenakshi Overseas Pvt. Ltd., the Court held that information from the Investigation Wing by itself cannot constitute tangible material unless the Assessing Officer independently examines it and establishes a live link between such material and the belief of escapement.

The Court found that in the present case, the Assessing Officer had merely reproduced the Investigation Wing information and drawn conclusions without conducting any further inquiry or analysis. There was no independent application of mind and no close nexus between the material and the belief that income had escaped assessment. The reasons recorded were found to be conclusory and reflective of borrowed satisfaction.

Important Clarification

The High Court clarified that while Investigation Wing inputs may trigger inquiry, they cannot be the sole basis for reopening. The Assessing Officer must independently verify the information, gather further material if necessary, and record reasons demonstrating a clear and live link between tangible material and the belief of escapement of income. Reopening based on borrowed satisfaction is impermissible in law.

Final Outcome

The writ petition was allowed. The Delhi High Court quashed the reassessment notice dated 22.03.2018 issued under Section 148 and all proceedings initiated pursuant thereto, holding that the reopening did not satisfy the jurisdictional requirements under Sections 147 and 148 of the Income-tax Act.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770193241_WELLTRANSLOGISTICSINDIAPVT.LTD.VsADDL.COMMISSIONEROFINCOMETAXORS..pdf 

 

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