STAR WIRE INDIA LIMITED,DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 22(2), NEW DELHI, DELHI

CO 71/DEL/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax, Circle 22(2), New Delhi, as the appellant, and M/s. Star Wire India Ltd., as the respondent. The appeals pertain to the reassessment orders for the Assessment Years 2013-14, 2014-15, and 2015-16, which were challenged by the Revenue against the decisions of the Commissioner of Income Tax (Appeals), NFAC, Delhi. The primary issues revolved around the validity of the reassessment proceedings initiated by the AO based on alleged bogus transactions and other discrepancies. The Tribunal examined whether the AO had the authority to make additions on grounds not originally specified for the reassessment and whether the reassessment was based on a mere change of opinion rather than new tangible material.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 42244 (ITAT-DELHI)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Other Referred Cases: Yashoda Shivappa Nagangoudar vs. Commissioner of Income Tax, Jet Airways (1) Ltd vs. Commissioner of Income Tax, Atlas Cycle Industries vs. Commissioner of Income Tax, Ranbaxy Laboratories Ltd. vs. Commissioner of Income Tax, Mohmed Juned Dadani vs. Commissioner of Income Tax, Adhunik Niryat Ispat Ltd. vs. Commissioner of Income Tax, Abdul Rashid Sofi vs. Commissioner of Income Tax, Double Dot Finance Ltd. vs. Commissioner of Income Tax, Krishna Diagnostic Pvt Ltd vs. Commissioner of Income Tax, ATS Infrastructure Ltd. vs. Commissioner of Income Tax, Banyan Real Estate Fund Mauritius vs. Commissioner of Income Tax, Mehak Finvest Pvt. Ltd. vs. Commissioner of Income Tax, Majinder Singh Kang vs. Commissioner of Income Tax, N. Govind Raju vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: ASHWINI KUMAR
• Keywords: Set aside; Difference of opinion; Change of opinion; Reassessment proceedings; Salary income; Bogus purchase; Tax effect; Gift; Search and seizure; Reason to believe; Double taxation relief; Permanent establishment; Tangible material; Borrowed satisfaction; Bogus
• Section: 147; 148; 143(3); 143(2); 250; 143(1); 22; 13; 20

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No. 2731, 2737 & 2738/Del/2024 A.Y.2013-14, 2014-15 & 2015-16 Deputy Commissioner of Income Tax, Circle 22(2),New Delhi Vs. M/s. Star Wire India Ltd., 35, Link Road, 2nd Floor,Lajpat Nagar New Delhi-110024 PAN: AAECS1124Q (Appellant) (Respondent) C.O. No. 70, 71 & 72/Del/2024, A.Y. 2013-14, 2014-15, 2015-16 (Arising out of ITA No. 2731, 2737 & 2738/Del/2024) M/s. Star Wire India Ltd. 35, Link Road, 2nd Floor, Lajpat Nagar, Delhi-110024 PAN: AAECS1124Q Vs. Deputy Commissioner of Income Tax, Circle 22(2),New Delhi (Appellant) (Respondent) Revenue by Ms. Jaya Chaudhary, CIT(DR) Assessee by Shri Ashwini Kumar, Adv. Date of Hearing 16/12/2024 Date of Pronouncement 31/12/2024 ORDER PER AVDHESH KUMAR MISHRA, AM Common grounds and facts arise in these above captioned appeals of the Revenue and Cross Objections (hereinafter, the ‘C.Os.’) of the ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 2 assessee; therefore, these appeals and C.Os. were heard together and are being disposed off by this common order. 2. The above captioned appeals of Assessment Years (hereinafter, the ‘AY’) 2013-14, 2014-15 & 2015-16 arise against orders dated 21.12.2023 of the Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter, the “CIT(A)”]. Against these appeals of the Revenue, the assessee preferred Cross Objections. 3. Similar grounds were taken in all appeals and C.Os. For brevity, grounds taken by the Revenue in appeal of AY 2013-14 are extracted here under: ITA No. 2731/Del/2024, AY 2013-14: “1. Ld. CIT(A) has erred in deleting the disallowance of bogus purchases of Rs. 2,33,81,685/- made by the assessee which were not substantiated by documentary proof by the assessee. 2. Ld. CIT(A) has erred in deleting the addition of Rs. 18,72,63,613/- of profit earned on suppressed sales out of variation in stock. 3. Ld. CIT(A) has erred in deleting the addition of Rs. 2,12,82,436/- out of excessive expenditure on stores and spares.” 3.1 Grounds of C.0. No.70/Del/2024 read as under: 1. That the order dated 21.12.2023 passed under section 250 of the Income Tax Act, 1961 (hereinafter, the “Act”) by the ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 3 Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file as much as he was not justified to hold that the ground challenging the initiation of proceedings u/s 148 has no merit by ignoring the fact that- i. Information on the basis of which satisfaction was recorded that there is reason to believe that income amounting to Rs.4,61.00,000/- has, allegedly, escaped assessment is factually incorrect; ii. Additions have not been made on the ground on which reassessment proceedings have been initiated but on entirely different grounds; iii. reassessment proceedings are based on change of opinion and accordingly not amounting to escapement of income; iv. Re-assessment proceedings initiated based on reason to suspect and not reason to believe. 4. The relevant facts giving rise to these appeals are tabulated hereunder: S. N. AY Income as per original ITR (Rs.) Income assessed originally assessment completed u/s Reassessed income (Rs.) 1. 2013-14 12,9,55,170/- 12,9,55,170/- 143(1) 35,28,82,904/- 2. 2014-15 19,35,99,000/- 19,35,99,000/- 143(3) 41,87,68,353/- 3. 2015-16 18,70,70,490/- 18,70,70,490/- 143(1) 48,87,28,188/- 4.1 The Assessing Officer (hereinafter ‘AO’), based on the information that the assessee was involved in booking fictitious profit/loss in equity/derivative trading in these years, which resulted escapement of income, reopened these cases. The reopened assessments were completed vide order passed under section 147 r.w.s. 144B of the Income Tax Act, ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 4 1961 (hereinafter ‘the Act’) on 29.05.2023 wherein additions on issues; such as bogus purchases (labour expenses) and variation in stock, stores & spares, etc. However, the AO did not make any addition on the reason based on which these cases were reopened for reassessment but he made additions on other issues which were not included in the reasons recorded for reopening these cases. In appeal, the assessee succeeded in all these years. Aggrieved, the Revenue filed appeals and the assessee preferred C.Os. against all appeals. 5. Since, the C.Os. raise legal issue; therefore, the Ld. Authorized Representative (hereinafter ‘AR’) of the assessee was heard first. It was submitted that the basic reasoning for reopening of the assessment proceedings was incorrect and flawed, since the so-called \"credible information\" was actually incredible which strikes at the root of the re- assessment proceedings. It was further contended that the AO did not confront with the \"alleged bogus transactions” for which these cases were reopened as no incriminating evidence was ever shared with the assessee during the proceedings 148A of the Act and even during the reassessment proceedings. It was specifically admitted that no addition had been made on the reasoning on which reassessment proceedings were initiated in these years. However, the additions on entirely different issues/grounds were made in instant cases. ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 5 5.1 The Ld. AR argued that the AO had to assess or reassess or recompute income on the issues which formed belief of escapement ofincome from assessment and only if he did so, he could travel beyond the reasoning recorded for reopening the case, otherwise not. It was argued that if the AO held that income, for which he had initially formed a reason to believe that it had escaped assessment, had, as a matter of fact, not escaped assessment, it was not open to the AO to assess some other income. To buttress the above contention, the Ld. AR placed reliance on the following decisions: - (i) Yashoda ShivappaNagangoudar [(2022) 138 taxmann.com 296 (Bombay); (ii) Jet Airways (1) Ltd [(2011) 331 ITR 236 (Bombay); (iii) Atlas Cycle Industries [(1989) 180 ITR 319 (P & H); (iv) Ranbaxy Laboratories Ltd. (2011) 336 ITR 136 (Delhi); (v) Mohmed Juned Dadani [(2014) 355 ITR 172 (Gujarat); (vi) Adhunik NiryatIspat Ltd. [(2008) 170 Taxman 470 (Delhi) (vii) Abdul Rashid Sofi (Order dated 20.09.2022 passed by the Hon'ble ITAT Amritsar in I.T.A Nos. 02 & 03/Asr/2021) (viii) Double Dot Finance Ltd. [(2013) 214 Taxman 47 (Bombay). (ix) Krishna Diagonistic Pvt Ltd. [(2023) 151 taxmann.com 499 (Delhi)) (x) ATS Infrastructure Ltd. [(2024) 166 taxmann.com 61 (Delhi)] ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 6 (xi) Banyan Real Estate Fund Mauritius [Order dated 05.08.2024 passed by Hon'ble Delhi High Court in W.P.(C) 10485/2023]. 5.2 The Ld. AR also drew our attention to the decision of the Hon’ble Delhi High Court in the case of ATS Infrastructure Ltd. (supra) and Banyan Real Estate Fund Mauritius (supra). The emphasis on the relevant finding of these decisions were placed, which read as under: ATS Infrastructure Ltd. [WP(C) 10485/2023]: “24. This clearly appeals to reason, since Section 147 of the Act embodies a power to assess, reassess as well also to recompute. Consequently, and once that power is validly invoked, the original assessment would cease to exist in the eyes of law. Undoubtedly, once an assessment already made comes to be reopened, the AO stands empowered statutorily to undertake an assessment afresh in respect of the entire income which may have escaped assessment. However, the only additional caveat which Ranbaxy Laboratories Ltd. enters is with respect to a situation where, in the course of reassessment, the AO ultimately comes to the conclusion that no additions or variations were warranted in respect of the heads or items of income which had formed the basis for initiation of action under Section 148 of the Act. It is in the aforesaid backdrop that the Court in Ranbaxy Laboratories Ltd. proceeded on facts to hold that since no additions had ultimately been made in respect of items such as club fees, gifts and presents, and which constituted the basis for initiation of reassessment, it would not be open to the AO to revise or modulate findings on any other head or items that may have been dealt with in the original assessment. 25. The position in law which emerges from the aforesaid discussion is that while it is true that the AO would have to establish that reassessment is warranted on account of information in its ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 7 possession which appears to indicate that income chargeable to tax had escaped assessment, once the assessment itself is reopened it would not be confined to those subjects only. This would, however, be subject only to one additional rider and that being if, in the course of reassessment, the AO ultimately comes to conclude that no additions or modifications are warranted under those heads, it would not be entitled to make any additions in respect of other items forming part of the original return. 26. This position in law also finds resonance in the judgment of the Punjab and Haryana High Court in Majinder Singh Kang Versus Commissioner of Income-tax and Another11 and where it was observed:- \"8. Learned counsel for the assessee submitted that the Assessing Officer had reopened the assessment by issuing notice under section 148 of the Act on the ground that the income from salary, perquisites and unexplained cash deposits in various accounts along with interest thereon had escaped assessment. The counsel urged that the Assessing Officer, however, while passing the reassessment order had sought to make addition of another amount without any addition having been made on the ground on the basis of which reassessment had been initiated. According to the learned counsel, no reassessment order could be passed by the Assessing Officer. Learned counsel for the assessee relied upon the following observations made by this court in CIT v. Atlas Cycle Industries [1989] 180 ITR 319 (page 322): \" ...we are of the view that the Tribunal was right in cancelling the reassessment as both the grounds on which reassessment notice was issued were not found to exist, and the moment such is the position, the Income-tax Officer does not get the jurisdiction to make a reassessment.\" 9. Support was also drawn from the decision of the Rajasthan High Court in CIT v. Shri Ram Singh (2008) 306 ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 8 ITR 343 (Raj) wherein judgment of this court in Atlas Cycle Industries' case (1989) 180 ITR 319 (P&H) was followed.\" xxxxxxxxxxxx 12. A plain reading of Explanation 3 to section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued in case during the reassessment proceedings, he arrives at a conclusion that some other income has escaped assessment which comes to his notice during the course of proceedings for reassessment under section 148 of the Act. The provision nowhere postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initiated, that the Assessing Officer can make additions on any other ground on the basis of which income may have escaped assessment. The reassessment proceedings, thus, in the present case cannot be held to be vitiated.” 27. For the sake of completeness, we may note that a Division Bench of this Court had expressed certain doubts with respect to the view taken by the Court in Ranbaxy Laboratories Ltd. This becomes evident upon a consideration of the opinion expressed by the Court in Principal Commissioner of Income Tax vs. Jakhotia Plastics Pvt. Ltd. 12 The Court in Jakhotia Plastics had expressed certain reservations with respect to what it viewed as undue importance having been placed by the Bombay High Court on the words \"and also\" in Jet Airways (I) Ltd. 28. In light of the above, the Court in Jakhotia Plastics had observed that since there was some doubt as to the accuracy of the interpretation accorded in Ranbaxy Laboratories Ltd., it would be appropriate for the matter being placed for the consideration of a larger Bench. This becomes evident from a reading of paragraphs 13, 14 and 15 of the report and which are extracted hereinbelow:- ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 9 \"13. This Court specifically is of the opinion that the Karnataka High Court's view in the case of N. Govindaraju (supra) is a more accurate one. In this Court's view the emphasis placed in Jet Airways's case (supra) on \"and also\" undermines the essential Order dated 22.01.2018 in ITA 727/2017 objective of Section 147 of the Act and unduly restricts and narrows it. The circumstance clarifies existence of an additional power to bring to tax other sums. This per se would not mean that the sums or amounts sought to be brought to tax in a reassessment notice (which are ultimately not the subject of the final reassessment orders), act as a limitation. 14. Having regard to the facts, this Court is of the opinion that since there is some doubt as to the accuracy of the interpretation in the case of Ranbaxy Laboratories Limited (supra) and which was subsequently followed in the case of Monarch Educational Society (supra), the appropriate course would be to refer the issue to a larger Bench. 15. The following issue is accordingly framed for reference to the Full Bench i.e. whether the view expressed in the case of Ranbaxy Laboratories Limited (supra) [following Jet Airways's case (supra) of the Bombay High Court and followed later in Monarch Educational Society's case (supra)] with respect to the interpretation of Section 147 read with Explanation (3) of the Act, is restrictive, so as to sustain only additions made in the course of reassessment proceedings subject to the additions of amounts adverted to in the reassessment notice in the \"reasons to believe\" under Sections 147/148 of the Act and notice pursuant thereof ?\" However, the aforesaid reference ultimately came to be closed on 07 February 2020 on account of low tax effect. 29. In our considered opinion, and bearing in mind the import of Explanation 3 as well as the language in which Section 147 of the Act ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 10 stands couched, we find no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. We also bear in consideration the said decision having been affirmed and approved subsequently in … 387 ITR 416 (Delhi) and Commissioner of Income-tax vs. Software Consultants… 341 ITR 240 (Delhi). 30. We thus, come to the conclusion that the enunciation with respect to the indelible connection between Section 148A(b) and Section 148 A(d) of the Act are clearly not impacted by Explanation 3. As we read Sections 147 and 148 of the Act, we come to the firm conclusion that the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the AO and which could be invoked once an assessment has been validly reopened. 31. Explanation 3, or for that matter, the Explanation which presently forms part of Section 147, would come into play only once it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in light of principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the AO in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated. 32. Explanation 3, cannot consequently be read as enabling the AO to attempt to either deviate from the reasons originally recorded for initiating action under Section 147/148 of the Act nor can those Explanations be read as empowering the AO to improve upon, supplement or supplant the reasons which formed the bedrock for initiation of action under the aforenoted provisions. 33. The writ petitions are accordingly allowed and the impugned notices and orders in each of the above-captioned writ petitions are quashed. The impugned orders under Section 148A(d) dated 31.07.2022 [W.P.(C) 3807/2023], 23.07.2022 [W.P.(C) 3804/2023], and 29.07.2022 [W.P. (C) 3808/2023], respectively as well as the notices under Section 148 dated 31.07.2022 [W.P.(C) ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 11 3807/2023], 23.07.2022 [W.P.(C) 3804/2023], and 29.07.2022 [W.P.(C) 3808/2023], respectively are hereby quashed.” Banyan Real Estate Fund Mauritius [WP(C) 10485/2023] “28. Before concluding, and in our considered opinion, the impugned action is liable to be faulted since it clearly suffers from the following foundational illegality. As was rightly contended by Mr. Singh, the reasons which weigh upon an Assessing Officer proposing to reopen an assessment and form the bedrock of a notice under Section 148A(b) of the Act alone are germane for the purposes of evaluating the validity of that action. It is those set of reasons and which form the basis for the Assessing Officer forming an opinion that income liable to tax has escaped assessment alone which would merit examination and evaluation. A decision to reopen or reassess cannot be based or sought to be justified either on additional reasons or those which may be supplied subsequently while disposing of objections preferred by an assessee. The statutory scheme of reassessment neither sanctions vacillation nor can a decision to trigger reassessment be sustained based upon an attempted supplementation aimed at bolstering or buttressing the original opinion. The reasons on the basis of which a reassessment is proposed to be initiated is not a field of shifting sand and which authorises the AO to continually alter the basis on which the action is sought to be initiated. 29. These fundamental precepts assume added significance when viewed in light of the right to object which stands statutorily conferred upon an assessee. If the ultimate decision to justify initiation of reassessment be based on entirely new or previously undisclosed material or reasoning, it would clearly result in deprivation of a right to effectively object to the proposed action. It is these aspects which constrain us to come to the conclusion that the impugned action is rendered wholly unsustainable. 30. The aforenoted imperatives were duly highlighted by us in our recent decision in ATS Infrastructure Limited Vs. Assistant ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 12 Commissioner of Income Tax Circle 1(1) Delhi &Ors.10 and where we had an occasion to deal with a similar challenge. While ruling on these aspects, we in ATS Infrastructure Limited had observed as follows:- \"6. Our Court in Commissioner of Income Tax-II Vs. Living Media India Ltd. had pertinently observed that additional reasons cannot be provided or recorded by the Assessing Officer4 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 2024:DHC:5474-DB 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 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 ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 13 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. Vs. Additional Director of Income-tax and Ors.5 \"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 2006-07 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 ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 14 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. 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 ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 15 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 realized 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 ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 16 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.\" xxxxxxxxxxxx 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, - xxxxxxxxxxxx Provided that no notice under this section shall be issued unless there is information with the Assessing ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 17 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.” 31. When tested on the aforesaid principles, it becomes manifest that the impugned action is rendered wholly untenable. While the original SCN had proceeded on the basis that the petitioner was a non-filer and the subject income constituting remittances made to a foreign entity, it was clearly established that a return had in fact been filed and duly acknowledged. The petitioner had not made any remittances to third parties. In fact it had earned revenue from the sale of shares which were claimed exempt from taxation by virtue of Article 13(4) of the DTAA. Once the aforesaid explanation was proffered, the AO then proceeded to hold that the petitioner was not entitled to treaty benefits, a charge which was not even laid in the original SCN or which could be said to have constituted the basis for the formation of opinion that reassessment was warranted. In fact the petitioner was not even made aware of the view which the AO was inclined to take in this regard. The AO then sought to salvage the reopening by requiring the petitioner to furnish further particulars with respect to the allotment of shares in terms of the Scheme of Arrangement. Suffice it to note that the original SCN not only failed to refer to this Scheme, a reading thereof leaves us with the definite impression that the AO was perhaps not even aware of those ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 18 developments. We are thus constrained to hold that the impugned action when tested in light of the above and the legal principles which stand enunciated in respect of the authority to reassess cannot sustain. 32. We accordingly allow the writ petition and quash the impugned order under Section 148A(d) of the Act dated 27 April 2023 and impugned notice under Section 148 of the Act dated 27 April 2023. For reasons aforenoted, we also set aside the original SCN under Section 148A(b) dated 24 March 2023. We, however, accord liberty to the respondents to initiate proceedings afresh if otherwise permissible in law.” 5.3 The Ld. AR argued that the AO had mechanically recorded the reason for reopening the case. It was contended that the AO had not verified the veracity of the information received from the Investigation Wing of the Income Tax Department. No independent verification/ enquiriesby any degree of application of mind was conducted/carried out by the AO. The AO did not bring anything on record on the basis of which any nexus could have been established between the information received from the Investigation Wing of the Income Tax Departmentand the escapement of income. 5.4 It was argued that the satisfaction was in the nature of a \"borrowed satisfaction”. It was categorically submitted that there were discrepancies/flaws in the procedure followed while issuing notice under section 148A(b) of the Act and passing the order under section 148A(d) of ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 19 the Act in the AY 2013-14. The assessee was issued a noticedated 26.05.2022 under section 148A(b) of the Act where the material and basis for issuing of such notice were provided as follows:- (i) Alleged involvement of Shri Mohinder Kumar Gupta, a Director of the Company in hawala transactions, sending cash to Swiss Banks and entering fake bills; (ii) The alleged involvement of the Company in Ludhiana City Centre Scam which took place way back in 2007. However, the AO passed an order dated 26.07 2022under section 148A(d) of the Act for the AY 2013-14, wherein the following mistakes/ discrepancies/errors were noticed:- (i) The AO mentioned that the case was not assessed under section 143(3) of the Act whereas factually the assessment was framed under section 143(3) of the Act vide order dated 20.08.2015; (ii) The AO mentioned booking of fictitious profit/loss in equity derivatives trading amounting to Rs. 4,61,00,000/- on the basis of information flagged by the Directorate of Income-tax (Systems). However, no mention of the same was there in the notice issued under section 148A(b) of the Act. Accordingly, the AO expanded the reasons for reopening while passing the order under section ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 20 148A(d) of the Actin respect of which the notice under section 148A(b) of the Actwas never issued to the assessee. 5.5 The Ld. AR further contended that the reassessment proceedings were based on change of opinion and thus, the same was bad in the eyes of the law. The reassessment power of the AO had to re-assess the escaped income and not to review or change his opinion on a matter which had already been deliberated upon and examined, in particular, when an assessment had been completed after scrutiny of books/records and examination of books of accounts under section 143(3) of the Act. In support of the argument, the Ld. AR placed reliance on the following decisions: - (i) Kelvinator of India Ltd [(2010) 320 ITR 561 (SC)] (ii) Usha International Ltd. [(2012) 348 ITR 485 (Delhi)] (iii) Marico Ltd.[(2020) 425 ITR 177(Bom)] SLP dismissed by the Supreme Court [(2020) 117 Taxmann.com 244 (SC)] (iv) Orient News Prints Ltd. [(2017) 393 ITR 527 (Guj)]. 6. On the other hand, the Ld. Commissioner of Income Tax- Departmental Representative (hereinafter ‘CIT-DR’) drew our attention to the Explanation of Section 147 of the Act and submitted that the AO had ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 21 all the powers to examine and to make any addition even other than the reasoning recorded for reopening the assessment. In this regard, the Ld. CIT-DR, placing reliance on the decisions of the Hon’ble Punjab & Haryana High Court in the cases of Mehak Finvest Pvt. Ltd., 367 ITR 769 (SLP file against this order was dismissed by the Hon’ble Supreme Court) & Majinder Singh Kang, 25 taxman.com 124 and decision in the case of N. Govind Raju 60 taxman.com 333 (Kar), requested that the impugned order deserved to be set aside with upholding of all assessment orders. 7. We have heard both the parties and have perused the material available on the record. We also perused the above referred case laws. We find force in the arguments/contentions/submissions of the Ld. AR. We are of the considered view that this case is squarely covered by the decision of the Hon’ble Delhi High Court in the case of ATS Infrastructure Ltd. (supra) wherein the case of Manjinder Singh Kang (supra) and N. Govind Raju (supra) were discussed and distinguished. Further, the case of Mehak Finvest P. Ltd. (supra) are also held distinguishable on the facts of the case.The decision of the Hon’ble Delhi High Court in the case of ATS Infrastructure Ltd. (supra)are binding in natureas the AO was situated within the territorial and subjective jurisdiction of theHon’ble Delhi High Court. We therefore, following the reasoning given by the Hon’ble Delhi High Court in its decision in the case of ATS Infrastructure ITA No.2731, 2737 & 2738/Del/2024, C.O. No. 70, 71 & 72/Del/2024 22 Ltd. (supra), hold that there were no infirmities in the impugned orders and we thus, decline to interfere with. Further, we hold that reassessment orders in these cases were bad in the eyes of the law and therefore, these are hereby quashed. Accordingly, we dismiss all appeals of the Revenue and allow COs of the assessee. 8. In the result, all appeals of the Revenue are dismissed and all COs of the assessee are allowed as above. Order pronounced in open Court on 31st December, 2024 Sd/- Sd/- (SATBEER SINGH GODARA) (AVDHESH KUMAR MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31/12/2024 Binita, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(Appeals) 5. CIT-DR ASSISTANT REGISTRAR ITAT, NEW DELHI "