By TIOL News Service

NEW DELHI, SEPT 07, 2017: THE ISSUE BEFORE THE COURT IS - Whether 'tax evasion petition' by itself could consitute tangible material for forming reasons to believe, and hence, reopening proceedings initiated at the instance of Officer, who himself is facing disciplinary proceedings, deserves to be sustained. NO is the verdict.

Facts of the case:

During the subject year, a Tax Evasion Petition was received, which alleged that Juhi Dixit had received rent of Rs. 90,000 per month from SHPL from 1st January 2008 to 31st March 2008, without letting out her property at all. It was alleged that by showing it as let out, the Assessee claimed interest on loan of Rs. 3,05,953, thereby showing a total loss of Rs. 2,42,953 under the head "income from house property". The further allegation in TEP was that SHPL purchased 'key man insurance policy' for the financial year 2004-05 and paid premium amounting to Rs. 20,70,036 for AYs 2005-06, 2006-07 and 2007-08 and sold the same to the shareholder/director during FY 2007-08 for a meagre amount of Rs. 4,16,000/-. Accordingly, a sum of Rs. 16,54,036 was proposed to be treated as perquisite in the hands of the Assessee. Thus it was alleged that income of Rs. 16,54,036/- had escaped assessment under the head salary and Rs. 1,80,000 under the head 'income from house property'. In the case of Rajiv Agarwal, i.e., Assessee's husband, it was alleged that payments for Rs. 1,45,25,137 by way of cheques were made during the FY 2008-09 to M/s. Brigade Enterprises Limited on behalf of Rajiv Agarwal and Vijay Laxmi Agarwal without deduction of tax and that this was deemed dividend u/s 2(22)(e). Further reason given was that the Directors of the company had incurred Rs. 3 crore on construction/interior of residential house at Paschim Vihar, New Delhi, and yet no amount was declared in book. The real source of that expenditure was "the matter of investigation. The findings in this regard was that "the exact amount of each director was still to be quantified, therefore, it was clear that unquantified income in this case but quantified income of Rs. 5,50,000/- had escaped assessment because the Assessee had not disclosed fully and truly all material facts in the return of income. Accordingly, reopening proceedings were initiated.

High Court held that,

++ it is seen that the issue concerning deemed dividend u/s 2(22)(e) which was adduced for the reopening of the assessment for AY 2008-09, has been comprehensively negatived by this Court and by allowing writ petitions filed by Rajiv Agarwal and Vijay Laxmi Agarwal by order dated 16th March 2016 in Writ Petition (Civil) Nos. 9659-9661 of 2015. As regards the insurance premium, it was pointed out that the AO had completely overlooked the fact that provision of key man insurance under the Act was held to be non-taxable by the High Court in the decision in CIT v. Rajan Nanda - 2012-TIOL-321-HC-DEL-IT. Moreover, the CBDT itself had clarified that income arising from assignment of keyman insurance policies in the assignees' hands would be taxable at all from AY 2012-13. Further, the Tax Evasion Petition was never provided to the Assessee despite several requests. Also the TEP by itself would not constitute tangible material for forming the reasons to believe. Indeed, the reasons to believe appear to be a mere reproduction of the complaint itself. The Revenue failed to show the nexus between the material, if any, and the formation of belief. Importantly, the disposal of the objections did not address any of the issues raised by the Petitioner. The Court is satisfied that as far as Juhi Dixit is concerned, the jurisdictional requirement u/s 148(1) has not been fulfilled;

++ as far as the cases of Rajiv Agarwal and Vijay Laxmi Agarwal are concerned, the explanation offered regarding purchase of property has not been dealt with in the impugned order. Here again, the purpose of providing a forum to the Petitioners to object to the reopening of the assessment and dealing the objections by a reasoned order, has been rendered meaningless by the AO. In all three matters, the fact of the proceedings having been initiated at the instance of Officer, who himself is facing disciplinary proceedings, has not been addressed. In the circumstances, the Court is satisfied that there was no valid justification for the AO to have issued the impugned notices to the Petitioners seeking to reopen the assessment for the AY in question.

( See 2017-TIOL-1769-HC-DEL-IT)