Sarthak Securities Co Pvt Ltd v. Income Tax Officer Ward 7

judgment."

¶23The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established

fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted.

¶24Resultantly, the initiation of proceedings under Section 147 and issuance of notice under Section 148 of the Act are hereby quashed. In the facts and circumstances of the case, there shall be no order as to costs.

CHIEF JUSTICE

OCTOBER 18, 2010/vk

MANMOHAN, J.

* THE HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on: 9th September, 2010 % Judgment Pronounced on: 18th October, 2010 + WP(C) No.6087/2010 SARTHAK SECURITIES CO. PVT. LTD. ..... Petitioner Through: Mr. Udaibir Singh Kochar, Adv. versus INCOME TAX OFFICER-WARD 7(3) ..... Respondent Through: Ms. Rashmi Chopra, Adv. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes DIPAK MISRA, CJ By this writ preferred under Article 226 of the Constitution of India, the assessee-petitioner has prayed for issue of a writ of certiorari for quashment of the notice dated 25th March, 2010, Annexure P-II, issued under Section 148 of the Income Tax Act, 1961 (for brevity "the Act") pertaining to the assessment year 2003-04 by the Income Tax Officer, the 1st respondent herein. 2. The facts which are imperative to be unfurled are that the assessee- petitioner filed its return for the assessment year 2003-04 on 31st March, 2004 declaring an income of Rs. 15,360/-. The said return was processed and intimation under Section 143(1) was issued on 6th April, 2004 accepting the return. As put forth, the petitioner decided to issue shares in accordance with its Memorandum and Articles of Association during the previous year relevant to the assessment year 2003-04 and for the said purpose approached a number of prospective investors. Four private limited companies, namely, Nishant Finvest Pvt. Ltd., Shri Dinanath Luhhariwal Spinning Mills Pvt. Ltd., Division Trading Pvt. Ltd and K.R. Fincap Pvt. Ltd., decided to invest in the shares of the petitioner company. As pleaded, after observing all the legal formalities, the assessee-petitioner allotted the shares to these four companies on 31st March, 2003. The amount invested by the said companies are Rs.2,50,000/-, Rs.2,50,000/-, Rs.3,00,000/- and Rs.2,50,000/- respectively. The above-named companies were active as per the records of the Registrar of Companies (ROC) and are assessed to income-tax and have been allotted permanent account numbers by the Income Tax Department. 3. As pleaded, on 25th March, 2010, a notice under Section 148 of the Act was issued by the respondent No.1 to the petitioner alleging that he had reason to believe that the income chargeable to tax for the assessment year 2003-04 had escaped assessment within the meaning of Section 147 of the Act and, accordingly, he required the petitioner to file the return for the said assessment year. In response to the said notice, the assessee-petitioner requested vide letter dated 28th April, 2010 to treat the return of income filed on 31st March, 2004 to be the return which would deem to have been filed in compliance with the notice. The assessee-petitioner also requested the respondent to provide a copy of the reasons recorded under Section 148(2) and the approval for issuance of notice. The respondent furnished the reasons recorded by him vide letter dated 21st July, 2010. While furnishing the reasons, the respondent also initiated assessment proceedings by issuing formal notices. The assessee through his authorized representative raised objections to the initiation of the proceedings under Section 147 of the Act on the foundation that the same had not been initiated in accordance with law. Be it noted, in the objections, many a ground was raised and reliance was placed on the decision rendered by the Apex Court in CIT v. Lovely Exports (P) Ltd., 216 CTR 195 (SC) and on the decision of this Court in CIT v. SFIL Stock Broking Ltd. (ITA No.1056/2009). 4. The respondent No.1, by order dated 25th August, 2010, rejected the objections raised by the petitioner and issued notices for fixing the hearing to 27th August, 2010. 5. Be it noted, the matter was finally heard with the consent of the learned counsel for the parties. We have heard Mr. Udaibir Singh Koch