G S BUILDWELL PRIVATE LIMITED,DELHI vs. INCOME TAX OFFICER, WARD 10(1), DELHI, DELHI

Aggrieved by the order of Ld. CIT(A), assessee preferred the present appeal before the Tribunal by taking various grounds of appeal.

Before us, the Ld. AR of the assessee submits that the case of assessee was earlier selected for scrutiny for the reason “large share capital” and the original assessment was completed after making independent inquiries by issue summons u/s 133(6) of the Act to the share applicants. The applicants in response to the notices issued, had filed the necessary details and after considering those submissions, the AO has taken no adverse inference with respect to the share capital received by the assessee during the year under appeal. Thereafter, solely based on the information received from the Investigation Wing, the AO has initiated the reassessment proceedings by recording the reasons. Ld. AR submits that in the reasons recorded, the AO simply reproduced the information supplied by the Investigation Wing without making any independent inquiry whatsoever before initiating the proceedings u/s 148 of the Act. Ld. AR further submits that when the assessment was completed u/s 143(3) vide order dated 26.03.2015 and as per AO, search was carried out in the case of Shri Himanshu Verma on 29.03.2012 and the information collected during the search was circulated to various Range heads vide letter dated 20.02.2014, therefore, it cannot be said that such information was not available with the Assessing Officer when the assessment order was passed u/s 143(3) of the Act.

Ld. AR further submits that the lower authorities have reopened the case of the assessee on mere borrowed satisfaction and no independent satisfaction was recorded by making any independent inquiry by the AO. He therefore, prayed that the reopening of the assessment is mere change of opinion as the assessee has disclosed all the material facts necessary for the completion of assessment. Once the assessee has submitted all the primary facts related to the assessment, it is the duty of the Assessing Officer to rebut the same by placing on record contrary evidences which has not been done in Page | 3 the case. Therefore, the reopening done is mere change of opinion and deserves to be hold bad in law. He prayed accordingly. Ld. AR also filed a detailed written submission in this regard which reads as under: “From the facts available on record, it is a case where there was assessment u/s 143(3) completed prior to initiation of reassessment proceedings. Interestingly the assessment u/s 143(3) was based on the selection of the case under CASS with the reason "Large Share Premium". Kindly refer to the observation of the Ld AO in the first para of the reason for reopening and also first para of reassessment order. Based on the above reason, there remains no doubt that for verification of share premium, issue of the acceptance of share capital was also to be examined as share premium is collected fresh capital only and this issue was, in fact, examined during the original assessment proceedings. Since that is the case, the Ld. AO had no jurisdiction to initiate reassessment proceedings, after expiry of four years, in view of the first proviso to section 147 of the Act, unless there is allegation made by the Ld. AO while initiating action u/s 147 of IT Act attributing failure of the assessee to disclose fully and truly all material facts for its assessment. Although in the reason recorded there is bald statement that there is a such failure on the part of the assessee in disclosing information or material regarding the activities of Sh. Himanshu Verma and usage of the companies by him for providing accommodation entries. But the Ld. AO does not dispute the fact that these transactions for which reopening has been done were duly disclosed by the appellant for which enquiry was conducted during original assessment through notice u/s 133(6) of IT Act (PB 50). On the allegation of the Ld. AO in the reason recorded that the fact that the Himanshu Verma was accommodation entry provider through companies having no business of their own, the appellant seeks to place reliance in the case of Gateway Leasing P Ltd vs ACIT W.P.(C) 2518 of 2019 dt: 11.03.2020 (Bon) held that the Dept's argument that though the assessee disclosed details of the transactions pertaining to purchase and sale of shares, it did not disclose the real colour / true character of the transactions and, therefore, did not make a full and true disclosure of all material facts which was also overlooked by the AO, is not correct. The assessee disclosed the primary facts to the AO & also explained the queries put by the AO. It cannot be said that the assessee did hot disclose fully and truly all material facts necessary for the assessment. In the landmark decision, the Hon'ble Apex Court in the case of NDTV vs DCIT 424 ITR 607(2020)(SC) has been very categorical that the duty of the assessee is only to declare primary facts and the secondary facts needed be discovered by the AO through necessary enquiry. Further, reliance is placed in the decision of Radhika Roy and Dr Prannoy Roy vs DCIT W.P.(c) No.10527/2017 dated 19.01.2026 (Del).

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that assessee has failed to disclose all the material facts necessary for the assessment at the time of original assessment proceedings and therefore, the AO has rightly invoked the provisions of section 148 of the Act. Regarding the objections raised against reopening of the assessment, the ld. Sr. DR placed comments before us and the report submitted by the AO which reads as under:

We have heard the rival submissions and perused the material available on records. In the instant case, the assessment was originally completed u/s 143(3) wherein the AO after examining all the submissions filed by the assessee and after making independent enquiries and verification by issue summons u/s 133(6) of the Act, reached to the conclusion that the share capital received during the year, was from genuine sources. Thereafter, based on the information received from the Investigation Wing, the AO framed an opinion that the share capital received from two companies is not genuine and mere accommodation entries and proceeded to reopen the assessment. The reason recorded before issue of notice u/s 148 of the Act, as placed at pages 22-25 is reproduced as under :

Though in the reasons recorded, the AO observed that assessee has filed all the information however, requisite full and true disclosure of material facts necessary for assessment has not been made. While observing so, the AO has made an error of fact that the information gathered by the Investigation Wing during the course of search in the case of Shri Himanshsu Varma was already available with the Assessing Officer when the original assessment order was passed. In the case of Himanshu Varma, search was conducted u/s 132 of the Act on 29.03.2012 and the list of all beneficiaries was supplied to various Range heads vide communication dated 20.02.2014. Therefore, the said information was available with the AO when the original assessment order was passed. This fact is accepted by the Co-ordinate Bench of ITAT, Delhi in the case of DCIT Vs. BDR Builders & Developers P. Ltd. in ITA No. 1177/Del/2021. The AO has failed to consider such information while completing the assessments though he has made independent inquiries from all the share applicants and had issued summons to them u/s 133(6) of the Act. It is further observed that assessee has filed all the relevant details to establish the genuineness of the transactions of the share application money received by filing their confirmations, copy of member register, Balance Sheets, bank statements, ITR of both the applicants, which are placed at pages 50 to 89 of PB. Thus, the assessee has duly discharged the burden casted upon it. Once the assessee has supplied all the information to the Assessing Officer who has taken a plausible view, based on the information which was already available at the time of framing the assessment u/s 143(3), reopening of the case of assessee is mere change of opinion. In case the assessment order was found to be erroneous or passed without Page | 18 making requisite enquiries or verification, the proper course of action would be to invoke the provision section 263 which has not been done in the instant case.

The Honorable Bombay High Court in the case of Gateway Leasing Private limited versus ACIT in WP(C) No. 2518 of 2019 dated 11.03.2020 has held as under: 27. “At this stage, we may briefly refer to the relevant legal provisions. 28. Section 147 of the Act deals with "income escaping assessment". Section 147 says that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147 of the Act. 28.1 The first proviso to section 147 is important. As per this proviso, where an assessment under sub-section(3) of section 143 or section 147 has been made for the relevant assessment year, no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 28.2 Section 149 deals with time limit for notice under section 148. As per clause (a) of sub-section (1), no notice under section 148 shall be issued for the relevant assessment year, if four years have elapsed from the end of the relevant assessment year unless the case falls under clause (b) or clause (c). Clause (b) says that no notice shall be issued if four years have elapsed but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Clause (c) deals with a situation where limitation is extended upto sixteen years but the escaped income must relate to any asset located outside India. 29. Insofar the present case is concerned, the assessment year is 2012- 13. The assessment year ends on 31-3-2013. In this case impugned notice under section 148 of the Act was issued on 31-3-2019. Therefore, it is a case of re-opening of assessment under section 149 (1) (b) of the Act after expiry of four years but before expiry of six years. 29.1 Of course the limitation point though pleaded in the writ petition, has been given up by the Petitioner following filing of affidavit by the Respondents which clearly shows that the re-opening notice was issued within the limitation period of six years.

In such a case, the first condition for invoking section 147 is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for the relevant assessment year. The second condition is that the Assessing Officer must arrive at the satisfaction that income chargeable to tax has escaped assessment for the said assessment year by reason of the failure on the part of the assessee to make a return under section 139 or to respond to a notice under section 142(1) or section 148 or due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.

The key or crucial expressions appearing in section 147 are "reason to believe" and "failure to disclose fully and truly all material facts necessary for assessment". 31.1 Before dilating on these two expressions, it would be apposite to refer to section 148 of the Act, which deals with issue of notice where income has escaped assessment. As per sub-section (1), before making the assessment, re-assessment or re-computation under section 147, a notice in the prescribed form is required to be served upon the assessee by the Assessing Officer, calling upon him to file return of income in terms of such notice within the period specified and in such event the return so filed would be construed to be a return filed under section 139. As per sub-section (2) of the said section, the Assessing Officer shall before issuing any notice under section 148, record his reasons for doing so. 31.2 In GKN Driveshafts (India) Ltd. (supra), Supreme Court held that when a notice under section 148 of the Act is issued, the proper course of action for the assessee is to file the return and if he so desires, to seek the reasons for issuing the notice. If sought for, Assessing Officer is bound to furnish the reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to the notice in which event the Assessing Officer would be under an obligation to dispose of the same by passing a speaking order.

Reverting back to the two expressions as noticed above, we may mention that these two expressions were examined and interpreted in great detail by the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das[1976] 103 ITR 437. That was also a case where notice under section 148 of the Act was put to challenge. Though provisions of section 147 of the Act as it existed then have since been reconstructed and have undergone change, the two key expressions continue to retain their relevance in so far section 147 of the Actis concerned. It may further be noticed that in Lakhmani Mewal Das (supra), Supreme Court was considering validity of notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year. Supreme Court observed that in such a case, two conditions would have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice. These two conditions are -1. He must have reason to believe that income chargeable to tax has escaped assessment; and2. He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return under section 139 for the assessment year under consideration or to disclose fully and truly all material facts necessary for his assessment for that year. 32.1 Both the two conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. Supreme Court observed that duty is cast upon the assessee to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer the books of account or other evidence from which material evidence with due diligence could have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law but the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. If the Income-tax Officer draws an inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment. 32.2 The grounds or reasons which led to formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds for the Income- tax Officer to form the above belief that would be sufficient to clothe him with jurisdiction to issue notice. However, sufficiency of the grounds is not justiceable. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant. To this limited extent, initiation of proceedings in respect of income escaping assessment is open to challenge in a court of law. 32.3 Dilating further, Supreme Court held that reasons for formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been Page | 21 escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. But it has to be borne in mind that it is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant formation of the belief relating to escapement of income. Moreover, powers of the Income-tax Officer to reopen assessment, though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". Reopening of assessment after the lapse of many years is a serious matter.

It may be mentioned here that the proposition of law enunciated in Lakhmani Mewal Das (supra) has withstood the test of time and is being consistently applied while examining challenge to a notice issued undersection 148 of the Act.

In Prashant S. Joshi v. ITO [2010] 189 Taxman 1/324 ITR 154, this Court observed that the basic postulate which underlines section 147 is formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. In other words, the Assessing Officer must have reason to believe that income chargeable to tax for a particular assessment year has escaped assessment for the relevant assessment year before he proceeds to issue notice under section 148. The reasons which are recorded by the Assessing Officer for re- opening an assessment are the only reasons which can be considered when the formation of the belief is impugned. Recording of reasons distinguishes an objective from a subjective exercise of power and is a check against arbitrary exercise of power. The reasons which are recorded cannot be supplemented subsequently by affidavits. The question as to whether there was reason to believe within the meaning of section 147 that income has escaped assessment must be determined with reference to the reasons recorded by the Assessing Officer. Even in a case where only an intimation is issued under section 143(1), the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment.

Having discussed the above, we may once again revert back to the reasons furnished by Respondent No. 2for re-opening of assessment under section 147 of the Act. After referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs.23,98,014.00 and therefore, Respondent No. 2 concluded that he had reasons to believe that this amount had escaped assessment within the meaning of section 147 of the Act.

First of all it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where- after the Assessing Officer had concluded the assessment proceedings by passing assessment order under section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings.

In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent No. 2 could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent No. 2 could not have assumed jurisdiction and issued the impugned notice under section 148 of the Act.”

The Hon’ble Apex Court in the case of NDTV Vs DCIT reported in 424 ITR 607 (SC) has held as under : 33. “In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No.1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee.”

In the original assessment proceedings, the AO after considering all the material, has framed an opinion that the income declared by the assessee is true and correct. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. Not only material facts were disclosed by the assessee but also they were fully scrutinized by the AO in the original assessment proceedings and figure of income as well as the deductions were worked out by the AO. The issue of receipt of share capital was the only reason for scrutiny and the genuineness of all the share capital was duly examined. Now AO has tried to cover up the error and omission by way of reopening the assessment without any fresh material which is nothing but mere change of opinion. No new information and/ or tangible material was found and the formation of any opinion based on same facts which were then available with the AO at the time of original assessment is not permissible. The hon’ble Apex court in the case of CIT Vs. Kelvinator of India Ltd reported in (2010) 187 Taxmann312 (SC) has held as under “ the assessing officer has no power to review; he has the power to re-assess, but re-assessment has to be based on fulfilment of certain pre -condition and if the concept of ‘change of opinion’ is removed, then, in the garb of re-opening the assessment, the 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.”

Further from the perusal of the reasons recorded it is observed that there was information received by the AO from the Investigation Wing of escapement of income as per the provisions of section 147 of the Income Tax Act, 1961. As per the information, the assessee has received share capital from two companies of Rs. 5.00 crores which are managed by Shri Himanshu Verma. During the course of reassessment proceedings, before proceeding further, the AO recorded his reasons to believe that income has escaped assessment to the tune of Rs.5.00 crores. The AO has simply recorded that the assesses has received accommodation entries by way of share capital.

Clearly, in this case, the Assessing Officer has not acquired any material to form such belief. There is not even a line of reason which may justify the formation of the belief. Consequently, we are satisfied that reopening of assessment for the assessment year in question by the Assessing Officer does not satisfy the requirement of law in terms of Section 147 & 148 of the Act.”

Further in the case of Movish Realtech (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 152 reported in taxmann.com 666 (Delhi), the Hon’ble Jurisdictional High Court in the head note of the decision held as under: "Where reassessment proceedings, was initiated against assessee pursuant to a search conducted at AFL Ltd. whereby it was alleged by revenue that bogus accommodation entry was provided by AFL Ltd. to assessee and said fact was confirmed by accommodation entry provider, 'R', since foundation for triggering reassessment proceedings qua assessee was statement of 'R' and said statement, by itself did not lend any clarity as to whether Assessing Officer had underlying material available with him for reaching a conclusion that income chargeable to tax qua assessee had escaped assessment, reassessment proceeding was to be set aside"

In the case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. reported in [2017] 82 taxmann.com 300 (Delhi), the Hon’ble Jurisdictional High Court has held as under: 24. “The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have “reasons to believe” that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. ….. …… 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a ‘borrowed satisfaction’. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.”

The Hon’ble Supreme Court in the case of DCIT vs Rakesh Ramanlal Shah reported in 477 ITR 296 (SC) has held that AO reopened the assessment on borrowed satisfaction without establishing the live link between the information and material on record and dismissed the SLP filed by the Revenue. The Hon’ble Jurisdictional Delhi High Court in the case of Sanjay Kaul vs ITO in Writ Petition (C) No.11198/2019 dated 30.05.2025 has held that re-opening based on general information from the Report of Investigation Wing is bad in law.

In view of the above discussion and respectfully following the above-mentioned decisions of Hon’ble Supreme Court and of the Jurisdictional High Court, we are of the considered view that the reopening is done on mere change of opinion and the AO has also failed to establish the nexus between the tangible material available and the reason to believe that income has escaped the assessment. Accordingly, the reassessment order passed is liable to be set aside and quashed. The Ground of appeal Nos. 2 to 4 of the assessee are thus, allowed.

Since we have already allowed the appeal of the assessee on the issue of reopening the assessment by allowing Grounds of appeal Nos. 2 to 4 of the assessee, the remaining grounds of appeal taken by the assessee are become academic.

In the result, appeal of the assessee is allowed.