Delhi High Court – Orders
Lykos India Private Limited vs Deputy Commissioner Of Income Tax … on 13 January, 2025
Author: Yashwant Varma
Bench: Yashwant Varma
$~38
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 16813/2022
LYKOS INDIA PRIVATE LIMITED .....Petitioner
Through: Mr. V. Lakshmikumaran, Mr.
Karanjot Singh Khurana, Mr.
Tanmay Bhatnagar, Mr. Snehal
Shukla & Mr. Avar Lamba,
Advs.
versus
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE
13(1), DELHI .....Respondent
Through: Mr. Abhishek Maratha, SSC
with Mr. Apoorv Agarwal, Mr.
Parth Samwal, JSCs, Ms. Nupur
Sharma, Mr. Gaurav Singh, Mr.
Bhanukaran Singh Jodha, Mr.
Himanshu Gaur, Ms. Muskaan
Goel & Mr. Kamakshraj Singh,
Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
ORDER
% 13.01.2025
1. The writ petitioner impugns the reassessment action initiated by
the respondent pertaining to Assessment Year1 2018-19. As would be
evident from a perusal of the material placed before us, the
proceedings had commenced pursuant to the issuance of a notice dated
12 March 2022 purporting to be under Section 148A(b) of the Income
Tax Act, 1961 2.
2. The allegation which stood levelled in that notice was that on
1
AY
W.P.(C) 16813/2022 Page 1 of 9
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inquiries made by the Investigation Wing, the respondent had formed
the opinion that the same indicated that the petitioner was involved in
the practice of “availing/ issuing bogus sales/ purchase bills”. Basis
the above, the petitioner was called upon to furnish a reply along with
a copy of the ledger account of the party in question, namely, RCI
Industries & Technologies Ltd.3.
3. In reply to the original notice under Section 148A(b), the
petitioner furnished a detailed response, a copy of which has been
placed before us and forms part of the record as Annexure P-6. Since
some of the disclosures made therein would have a material bearing
on the view that we ultimately propose to express, we deem it apposite
to extract the same hereinbelow:
“1. M/s Lykos India Pvt Ltd was incorporated in December, 2013.
LIPL is a subsidiary of M/s Trafigura Pte Limited, Singapore and is
engaged in the business of commodities trading of refined metals.
LIPL does not perform any manufacturing activity in India. LIPL
traded in refined metals like Aluminium, Copper, Nickel and Zinc
etc. LIPL imports/domestic purchase metals and sells them in the
India market.
2. Additionally, LIPL launched India’s first online refined metal
retail platform. LIPL supplied its customers guaranteed metal
stocks, with assurance of high quality and transparent market
pricing. The online platform will cater to small and medium sized
manufacturers with metals consignments in small quantities.
Customers have access to index-linked prices for a range of metals
-Aluminium, Copper, Nickel and Zinc etc. that can be ordered on a
need basis, purchased securely through online platform. LIPL
operates out of various locations in India for refined metals. While
LIPL corporate office is based out in Mumbai, warehouses are
spread across India to ensure robust delivery model and customer
reach covering western India through Ahmedabad (Gujarat)
whereas north India is covered through Bhiwadi (Rajasthan);
Eastern part is covered through Kolkata (West Bengal) and the
southern part through Bangalore (Karnataka).
2
Act
3
RCI IndustriesW.P.(C) 16813/2022 Page 2 of 9
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3. LIPL had e-filed the revised return of income on 31-03-2019
declaring total income at Rs 45,31,54,730/-
4. The case was selected for scrutiny and the Notice u/s 143(2) of
the Income Tax Act, 1961 was issued to LIPL on 21.09.2019. LIPL
received notice u/s 142(1) of the Act dated: 29.12.2019, 30.01.2021
and 12.02.2021 along with the questionnaire in the annexure. Copy
of the same is enclosed as Annexure-C
5. LIPL submitted the replies to all queries made by the learned
goodself.
6. That the learned goodself, passed draft order under section
143(3) of the Act dated 23.09.2021 for AY 2018-19 pursuant to
scrutiny assessment whereby addition are proposed only on account
of Transfer Pricing issue in returned of income after considering all
relevant facts and details and all the documents submitted in
response to assessment queries and also verifying the details etc as
required. Copy of the draft assessment order is enclosed as
Annexure-D.
7. Your learned goodself has already verified all the details for the
year under consideration during the original assessment u/s 143(3)
of the Act.
8. Further, as your learned goodself has raised some specific query
in this Notice as issued under clause (b) of section 148A of the
Income-tax Act,1961 and alleged that LIPL was involved in the
practice of availing /issuing bogus sales/purchase bills from RCI
Industries and Technologies Ltd to the tune of INR 1,58,55,222. At
the outset we deny all such allegations as LIPL is law abiding
assesse and is not involved in such kind of alleged activities.
Further, we would also like to submit that during the year under
consideration, LIPL has not purchased any goods from the RCI
Industries and Technologies Ltd and thus not able to determine
from where the same amount (ie. INR 1,58,55,222) was picked and
determined by your goodself. However, during the year under
consideration, LIPL has sold goods to M/s RCI Industries and
Technologies Ltd and a copy of Ledger of M/s RCI Industries and
Technologies Ltd enclosed Annexure-E alongwith sample sales
bills enclosed as Annexure-F. Furthermore, from the aforesaid
ledger also, LIPL is not able to figure out from where your learned
goodself has picked the amount (ie. INR 1,58,55,222) mentioned in
this Notice as issued under clause (b) of section 148A of the
Income-tax Act,1961.”
4. As is evident from a reading of the disclosures made in that
communication, the petitioner had stated that it was an online portal
working as a virtual exchange for procurement of refined metals. It
W.P.(C) 16813/2022 Page 3 of 9
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had explained its activities as extending to the administration of that
platform which constituted an avenue for small and medium sized
manufacturers to acquire refined metal consignments.
5. From the reply which was submitted, we further gather that the
petitioner had filed a Return of Income for AY 2018-19 declaring its
total income to be INR 45,31,54,730/-. Pursuant to the scrutiny
proceedings which were initiated, the matter also appears to have been
referred for the consideration of the Transfer Pricing Officer. On
conclusion of proceedings, a Draft Assessment Order is stated to have
been framed on 23 September 2021. This was followed by a final
order of assessment which would have perhaps been ultimately framed
and drawn with reference to Section 144C of the Act.
6. Of crucial significance is the stand which was taken by the writ
petitioner and stands reflected in para 8 of its response and wherein it
was asserted that it had not undertaken any transactions with RCI
Industries to the tune of INR 1,58,55,222/-, as alleged. In fact, it had
also placed on the record and for the consideration of the respondents
the ledger pertaining to that entity along with its reply.
7. The response of the writ petitioner, however, has come to be
cursorily rejected by the Assessing Officer 4 while passing the order
under Section 148A(d) and where it has held as follows:
“4.1 Reply furnished by the assessee has been considered u/s
148A(c) and found not on merit because. The enquiries made by
the Investigation Wing indicate that the company involved in the
practice of availing /issuing bogus sales/purchase bills.
Thus, in view of the facts and information available with this office
(which has already been communicated through opportunity of
being heard), it is established that the assessee has no proper
explanation for issue discussed above. It is also evident from
information available with Assessing Officer that the income4
AOW.P.(C) 16813/2022 Page 4 of 9
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chargeable to tax for this year has escaped assessment.
Accordingly, it is concluded that this is a fit case for issuing notice
u/s 148 of the I.T. Act.
This order is being passed with prior approval of the Specified
Authority.”
8. As is ex facie evident, all that the AO has chosen to observe
while considering the objections which had been preferred is that the
reply was found to be “not on merit”.
9. Suffice it to note that there has been an abject failure on the part
of the AO to either engage with or examine the disclosures which
were made by the writ petitioner in its reply dated 19 March 2022.
The AO has also woefully failed to make appropriate or adequate
disclosures with respect to what may have been found by the
Investigation Wing and which would have possibly constituted the
basis for the formation of the requisite opinion under Section 148A(b).
10. We take note of the following observations in the judgement
rendered by us in ATS Infrastructure Limited vs Assistant
Commissioner of income Tax Circle 1 (1) Delhi and Ors 5 and
which the AO would have been well advised to bear in consideration:-
“7. It becomes pertinent to observe that the validity of the
proceedings initiated upon a notice under Section 148 of the Act
would have to be adjudged from the stand point of the reasons
which formed the basis for the formation of opinion with respect
to escapement of income. That opinion cannot be one of changing
hues or sought to be shored upon fresh reasoning or a felt need to
make further enquiries or undertake an exercise of verification.
Ultimately, the Court would be primarily concerned with whether
the reasons which formed the bedrock for formation of the
requisite opinion are tenable and sufficient to warrant invocation
of Section 148 of the Act.
8. We in this regard find the following pertinent observations
which appear in a decision of the Bombay High Court in Indivest
Pe. Ltd. v. Additional Director of Income-tax
“11. Reading the reasons of the Assessing Officer, it is
5
2024 SCC OnLine Del 5048
W.P.(C) 16813/2022 Page 5 of 9
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evident that there is absolutely no tangible material on the
basis of which the assessment for the assessment year
2006-2007 could have been reopened. Upon the return of
income being filed by the assessee both in the electronic
form and subsequently in the conventional mode, the
assessee received an intimation under section 143(1). The
Assessing Officer would have been legitimately entitled to
issue a notice under section 143(2) within the statutory
period. That period has expired. We must clarify that the
non-issuance of a notice under section 143(2) does not
preclude the Assessing Officer from reopening the
assessment under section 147. For that matter, as has been
held by the Supreme Court in Asst. CIT v. Rajesh Jhaveri
Stock Brokers P. Ltd., (2007) 291 ITR 500 (SC), the
failure of the Assessing Officer to take steps under section
143(3) will not render the Assessing Officer powerless to
initiate reassessment proceedings even when an intimation
under section 143 (1) has been issued. But it is also a
settled principle of law that when the Assessing Officer
issues a notice under section 148, at that stage the only
question is whether there was relevant material on which a
reasonable person could have formed a requisite belief
(Rajesh Jhaveri (supra). At that stage, an established fact
of the escapement of income does not have to be proved,
since it is not necessary that the Assessing Officer should
have finally ascertained that income has escaped
assessment. The nature of the jurisdiction of the Assessing
Officer which was dealt with by the judgment of the two
learned judges of the Supreme Court in Rajesh Jhaveri’s
case was revisited in a decision of three learned judges in
CIT v. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC).
The Supreme Court has held that though after April 1,
1989, a wider power has been conferred upon the
Assessing Officer to reopen an assessment, the power
cannot be exercised on the basis of a mere change of
opinion nor is it in the nature of a review. The Supreme
Court has laid down the test of whether there is tangible
material on the basis of which the Assessing Officer has
come to the conclusion that there is an escapement of
income. The Supreme Court held thus (page 564):
“However, one needs to give a schematic
interpretation to the words ‘reason to believe’ failing
which, we are afraid, section 147 would give
arbitrary powers to the Assessing Officer to reopen
assessments on the basis of ‘mere change of
opinion’, which cannot be per se reason to reopen.
We must also keep in mind the conceptual difference
between power to review and power to reassess. TheW.P.(C) 16813/2022 Page 6 of 9
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Assessing Officer has no power to review; he has the
power to reassess. But reassessment has to be based
on fulfilment of certain precondition and if the
concept of ‘change of opinion’ is removed, as
contended on behalf of the Department, then, in the
garb of reopening the assessment, review would take
place. One must treat the concept of ‘change of
opinion’ as an inbuilt test to check abuse of power
by the Assessing Officer. Hence, after April 1,
1989, the Assessing Officer has power to reopen,
provided there is ‘tangible material’ to come to the
conclusion that there is escapement of income from
assessment. Reasons must have a live link with the
formation of the belief. Our view gets support from
the changes made to section 147 of the Act, as
quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only
deleted the words ‘reason to believe’ but also
inserted the word ‘opinion’ in section 147 of the
Act. However, on receipt of representations from the
companies against omission of the words ‘reason to
believe’, Parliament reintroduced the said expression
and deleted the word ‘opinion’ on the ground that it
would vest arbitrary powers in the Assessing
Officer”
12. If the test of whether there exists any tangible material
were to be applied in the present case, it would be evident
that the Assessing Officer has not acted within his
jurisdiction in purporting to reopen the assessment in
exercising the powers conferred by section 148. There was
a disclosure clearly by the assessee that it is a body
corporate incorporated in Singapore, the principal business
of which is to invest in Indian securities; that the assessee
is a tax resident of Singapore and that the profits which the
assessee realised from its transactions in securities
constituted its profits from business. The assessee stated
that it had no permanent establishment in India as defined
in article 5 of the DTAA and that based on the provisions
of article 7 the profits of Rs. 131.70 crores from
transactions in Indian securities were not liable to tax in
India. The only basis on which the assessment is sought to
be reopened is on the assumption that the provisions of
section 115AD would stand attracted. That is on the
assumption that the assessee is an FIL Though the
attention of the Assessing Officer was drawn to the fact
that the assessee is not an FII and that the provisions of
section 115AD would not be attracted, the Assessing
Officer persisted in rejecting the objections to the
W.P.(C) 16813/2022 Page 7 of 9
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reopening of the assessment. In the order disposing of the
objections which were raised by the assessee, the
succeeding Assessing Officer has clearly attempted to
improve upon the reasons which were originally
communicated to the assessee. The validity of the notice
reopening the assessment under section 148 has to be
determined on the basis of the reasons which are disclosed
to the assessee. Those reasons constitute the foundation of
the action initiated by the Assessing Officer of reopening
the assessment. Those reasons cannot be supplemented or
improved upon subsequently. While disposing of the
objections of the assessee, the Assessing Officer has
purported to state that the assessee had filed only sketchy
details in its return filed in the electronic form. As we have
noted earlier, the relevant provisions expressly make it
clear that no document or report can be filed with the
return of income in the electronic form. The assessee has
an opportunity to do so during the course of the
assessment proceedings if a notice is issued under section
143(2). The Assessing Officer was, in our view, not
entitled, when he disposed of the objections to travel
beyond the ambit of the reasons which were disclosed to
the assessee. For all these reasons, we are of the view that
the exercise of the jurisdiction under section 147 and
section 148 in the present case is without any tangible
material. The notice of reopening does not meet the
requirements as elucidated in the judgment of the Supreme
Court in Kelvinator of India Ltd., (2010) 320 ITR 561
(SC) For these reasons, we make the rule absolute by
quashing and setting aside the notice dated March 16,
2011, and the order passed by the Assessing Officer on
December 20, 2011″
****
10. Our attention was lastly drawn to the recent judgment passed
by this Court in Catchy Prop-Build Pvt. Ltd. v. Assistant
Commissioner of Income-tax. We deem it apposite to extract the
following passage from the decision:
“8. This court is further of the opinion that if the
foundational allegation is missing in the notice issued
under section 148A(b) of the Act, the same cannot be
incorporated by issuing a supplementary notice”.
11. We also find merit in the submission of Mr. Kantoor who drew
our attention to the First Proviso to Section 148 and which reads as
under:–
“148. Issue of notice where income has escaped
W.P.(C) 16813/2022 Page 8 of 9
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assessment-
Before making the assessment, reassessment or
recomputation under Section 147, and subject to the
provisions of Section 148A,-
xxxx xxxx xxxx
Provided that no notice under this section shall be issued
unless there is information with the Assessing Officer
which suggests that the income chargeable to tax has
escaped assessment in the case of the assessee for the
relevant assessment year and the Assessing Officer has
obtained prior approval of the specified authority to issue
such notice.”
12. As is manifest from the above, the Proviso again ties the
initiation of action to the existence of information which already
exists or is in the possession of the AO and on the basis of which
we come to form the opinion that income liable to tax has escaped
assessment. The provision thus fortifies our view that the
foundational material alone would be relevant for the purposes of
evaluating whether reassessment powers were justifiably invoked.
Accordingly, and for all the aforesaid reasons we find ourselves
unable to sustain the impugned reassessment action.”
11. Accordingly, and for all the aforesaid reasons, we find
ourselves unable to sustain the final order referrable to Section
148A(d) as well as the consequential notice under Section 148 of the
Act.
12. The writ petition is consequently allowed and the impugned
order as well as notice dated 27 March 2022 for AY 2018-19 are
hereby quashed. The matter shall stand revived before the AO from
the stage of issuance of the Section 148A (b) notice who shall proceed
afresh bearing in mind the observations appearing hereinabove.
YASHWANT VARMA, J.
HARISH VAIDYANATHAN SHANKAR, J.
JANUARY 13, 2025/kk
W.P.(C) 16813/2022 Page 9 of 9
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