Delhi HC: AO Free to Scrutinize Genuineness of Rs. 82 Lakh Brokerage Transaction under Section 148

Delhi HC: AO Free to Scrutinise Genuineness of Rs. 82 Lakh Brokerage Transaction under Section 148 

The petitioner filed its return of income for AY 2019-20, declaring Rs. 3.06 crore. It was later revised twice. In March and May 2025, notices were issued under Section 148A(1) of the Income Tax Act alleging that the petitioner was involved in a bogus transaction of Rs. 82,25,822 with IFFCO Tokio General Insurance Co. Ltd. (ITGI). The Assessing Officer (AO) relied on an investigation into Middle Layer Business Entities (MLBEs) in the insurance sector, which revealed that certain entities acted as pass-throughs for diverting overriding commissions beyond IRDAI limits.

The petitioner responded that the amount represented legitimate brokerage duly accounted for in its books, reported as income of Rs. 83,28,333 in the financials, and subjected to tax. Supporting invoices, reconciliation statements, and an email confirmation from ITGI were furnished. The AO, however, found the reply vague and evasive as no working of the commission percentage on the premium was given. Thereafter, the order dated 23.06.2025 under Section 148A(3) directed the issuance of notice under Section 148.

Main Issue: Whether the reassessment proceedings initiated against Zoom Insurance Brokers Pvt. Ltd. for AY 2019-20 were without basis, given that the brokerage income had already been declared and taxed.

HC Held: The Court observed that the case fell within Section 149(1)(b) since the alleged escaped income exceeded Rs. 50 lakh. Referring to recent judgments, including R.S. Alloys v. ITO and Majestic Handicraft Pvt. Ltd. v. DCIT, it reiterated that at the stage of Section 148A proceedings, the AO is only required to form a prima facie view whether income has escaped assessment. The sufficiency of evidence is not examined by the Court at this stage.

The Bench held that despite the petitioner’s claim of disclosure, the AO was entitled to scrutinise the genuineness of the transaction through reassessment proceedings. Since adequate opportunity had been provided and the material indicated a possible escapement of income, there was no violation of natural justice. Finding no merit in the writ petition, the Court dismissed it along with the stay application.

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