Delhi High Court – Orders
Jyoti Bhatia vs Assistant Commissioner Of Income Tax … on 5 March, 2025
Author: Yashwant Varma
Bench: Yashwant Varma
$~44
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 10073/2023
JYOTI BHATIA .....Petitioner
Through: Mr. Nikunj Maheshwari, Adv.
versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE
25(1) NEW DELHI & ORS. ....Respondents
Through: Mr. Ruchir Bhatia, SSC, Mr.
Anant Mann and Pratyuksh
Gupta, JSCs and Ms. Aditi
Sabharwal, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
ORDER
% 05.03.2025
1. The writ petitioner impugns a reassessment action as
commenced by the respondents under Section 148 of the Income Tax
Act, 19611 and pertaining to Assessment Year2 2018-19.
2. The proceedings themselves were commenced on the basis of a
notice referable to Section 148A(b) and where the following allegation
came to be laid: –
“As per information available with this office, you have claimed
fictitious losses of Rs. 2,53,45,154/- in equity/derivatives trading
during the year under consideration. In this regard a letter has sent
to M/s J M Financial Asset Management Ltd. and reply received on
16/03/2022. Therefore, you are required to submit your comments
with documentary evidences in support of your claim. You are also
show cause as to why notice u/s 148 of the Act should not be
issued on the basis of information received, either by email or
through speed post. If you fail to submit reply within time allowed,
it will be presumed that you have nothing to say in this regard and1
Act
2
AYW.P.(C) 10073/2023 Page 1 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:51
necessary proceedings as Income Tax Act, 1961 shall be initiated.”
3. As is evident from the above, the formation of opinion of
income having escaped assessment was based on what the respondents
sought to describe as “claimed fictitious losses” in the course of
trading of equity and derivatives. The petitioner, responding to the
same, filed a detailed reply. However, and ultimately when the final
order under Section 148A(d) came to be passed, the respondents have
observed as follows:-
“It is replied by the assessee on 28.03.2022 that investment of Rs.
3,50,00,000/- made on 23.03.2018 in JM Equity Hybrid Fund and
same day earned dividend of Rs. 1,41,87,139/- and further invested
Rs. 2,80,00,000/- on 28.03.2018 and earned dividend of Rs. 1,
11,58,015/- on the same day. The assessee has submitted copy of
bank statement and a/c statement of JM Financial Mutual Fund and
requested to drop the proceedings.
The contention of the assessee considered and not found
acceptable. In the case of the assessee under reference, the
dividend received is from sham transactions generated using
colorable devices. The dividend received is not on account of
appreciation of the investment and as such, it can’t qualify as
dividend. Therefore, dividend received of Rs. 2,53,45,154/- should
be taxed in the hands of the assessee.”
4. We find from the record that the petitioner had while
responding to the notice under Section 148A(b), alluded to the
investments that had been made in JM Equity Hybrid Fund and of the
dividend earned therefrom. It had also made appropriate disclosures
with respect to investments made on 28 March 2018 and the
consequential dividends which had accrued on those investments.
5. However, the respondent has clearly changed course while
passing the final order under Section 148A(d) by now alleging that the
dividend has been received from “sham transactions generated using
colourable devices”. It is further alleged by the respondent that the
W.P.(C) 10073/2023 Page 2 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:51
dividend as received is not on account of appreciation of investments
and would thus not qualify as such.
6. It is thus ex facie apparent that the reasoning assigned in the
order under Section 148A(d) is de hors the allegations which had
come to be originally laid against the writ petitioner while issuing
notice under Section 148A(b). It is this which constrains us to observe
that the formation of opinion cannot be based on a set of reasons
which are of changing hues. We bear in consideration the following
observations that we had rendered in ATS Infrastructure Limited v.
Assistant Commissioner of Income Tax Circle 1 (1) & Ors.3 in this
regard: –
“6. Our Court in Commissioner of Income Tax-II v. Living Media
India Ltd. had pertinently observed that additional reasons cannot
be provided or recorded by the Assessing Officer subsequent to the
issuance of a notice under Section 148 of the Act. We deem it
apposite to quote the following passage from that decision:–
“13. With regard to the additional reasons which were
recorded subsequent to the issuance of notice under
section 148 of the said Act, we have already observed that
this could not have been done by the Assessing Officer.
The validity of the proceedings initiated upon a notice
under section 148 of the said Act would have to be judged
from the stand point of the reasons which existed at the
point of time when the section 148 notice was issued. The
additional reasons cannot be provided or recorded
subsequent to the issuance of notice under section 148. It
is, of course, open to the Assessing Officer, if some other
information comes within his knowledge to issue another
notice under section 148 for different reasons. But that is
not the case here. On the basis of the very same notice
issued under section 148, the Assessing Officer has
recorded additional reasons subsequent to the issuance of
notice and this is impermissible in law.”
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
3
2024 SCC OnLine Del 5048
W.P.(C) 10073/2023 Page 3 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:52
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-tax5.
“11. Reading the reasons of the Assessing Officer, it is
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 ofW.P.(C) 10073/2023 Page 4 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:52
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. The 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 in-built 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 theW.P.(C) 10073/2023 Page 5 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:52
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
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.”
xxxx xxxx xxxx
W.P.(C) 10073/2023 Page 6 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:52
11. We also find merit in the submission of Mr. Kantoor who drew
our attention to the First Proviso to Section 148 which reads as
under:–
“148. Issue of notice where income has escaped
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 it
comes 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.”
We are thus of the considered opinion that the reassessment action
would not sustain.
7. We, accordingly, allow the instant writ petition and quash the
order referable to Section 148A(d) dated 07 April 2022 and notice
under Section 148 of even date. We, however, leave it open to the
respondents to draw proceedings afresh if otherwise permissible in
law.
YASHWANT VARMA, J.
HARISH VAIDYANATHAN SHANKAR, J.
MARCH 05, 2025/nd
W.P.(C) 10073/2023 Page 7 of 7
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.
The Order is downloaded from the DHC Server on 12/03/2025 at 21:16:52