Delhi HC Upholds Notice issued u/s 148A(b) of Income Tax Act in absence of Submission of Details of Commission on percentage of Insurance premium receipts [Read Order]

The Delhi High Court upheld the notice issued under section 148A(b) of the Income Tax Act, 1961, in the absence of the submission of Details of the commission on the percentage of insurance premium receipts.

Zoom Insurance Brokers Pvt. Ltd, the petitioner filed the petition to quash the impugned notices dated 24.03.2025 and 28.05.2025 issued under Section 148A(1) of the Income Tax Act, 1961 (‘the Act’); order dated 23.06.2025 under Section 148A(3) of the Act pertaining to the Assessment Year 201920 and notice dated 23.06.2025 under Section 148 of the Act.

Mr. Mukesh Gupta, counsel for the petitioner has argued that the petitioner had filed its return of income on 17.10.2019 wherein the petitioner declared the income of Rs. 3,06,93,740/- and the same was revised on 21.12.2019 and 20.01.2020. He contended that the respondent issued a notice under Section 148A(1) of the Act wherein the respondent returned certain findings regarding the petitioner company being involved in a bogus transaction amounting to Rs. 82,25,822/- with IFFCO TOKYO General Insurance Company Ltd (‘IFTGI’).

He stated that the petitioner company thereafter filed response on 15.04.2025 to the notice under Section 148A(1) and was further directed to again furnish a reply on 29.05.2025 in response due to change of the incumbent under Section 129 of the Act. It is his contention that the respondent passed the impugned order dated 23.06.2025 under Section 148A(3) of the Act on the ground that no details of the commission in terms of the percentage of premium receipts was given.

According to Mr. Gupta, this amount of Rs.82,25,822/- had already been declared by the petitioner company in its accounts and had already paid tax on the said amount. He stated that this amount was received from IFTGI as commission on the premium paid to IFTGI through the policies of the petitioner’s clients. The same has been referred to in the letter dated 15.04.2025. Mr. Gupta, has alluded to the copies of the tax invoices, details of policies and the amount of premium received by IFTGI on such policies and the commission that accrued to the petitioner from these policies.

As per Mr. Gupta, the respondent had changed its opinion after considering the reply of the petitioner company dated 15.04.2025 and passed an order under Section 148A(3) of the Act on the ground that the petitioner company had not submitted the percentage of the commission on the premium. It is his submission that the respondent had neither directed the petitioner company to furnish these details during the proceedings under Section 148A(1) of the Act nor the respondent was in possession of relevant material based on which such a conclusion could be drawn.

He stated that the re-opening of the assessment is bereft of evidence and further there was no material evidence to show that an income of more than Rs. 50,00,000/has escaped the assessment. Mr. Gupta has relied on a judgment of this Court in the case of Jindal Saw Limited v. Deputy/Assistant Commissioner of Income-tax [2025] , in support of his submission to contest the impugned notice.

Having heard the counsel for the petitioner and perused the record, we must at the outset refer to the notice dated 24.03.2025 issued under Section 148A(1) of the Act on the ground that the income subject to tax has escaped assessment within the meaning of Section 147 of the Act as per “information in accordance with the risk management strategy formulated in this regard”. Further, as per the impugned notice the respondent has mentioned that a search and seizure under Section 132 of the Act on Middle Layer Business Entities (‘MLBE’,) of the insurance sector was conducted on 30.11.2022 to verify the claim of services against which these entities had received payments from the insurance companies.

According to the notice, these MLBEs were neither authorized to receive commission nor registered under Insurance Regulatory and Development Authority of India (‘IRDAI’,) and have acted as pass-through entities for the insurance companies. These payments were masked under various heads such as online media expenses, advertisement services, online marketing, marketing activities, brand promotion expense, etc., and that these were finally paid to the insurance agents or insurance intermediaries or their nominees. Such search and seizure has covered 37 MLBEs and 32 insurance companies were part of post search verification.

According to the impugned notice, the respondents have stated that the insurance companies have signed several service agreements with several MLBEs to facilitate transfer of such payments. The notice states that the analysis of this financial data was carried out and has indicated that these MLBEs do not have the capacity to render such services and the funds which have been received from the insurance companies were simply passed on without rendering any relevant services. The amount of Rs. 82,25,822/from IFTGI was found to be one such transaction of the assessee company.

This is a legitimate income within IRDAI rules and regulations and the same has also been declared in our profit and loss account.Please find attached here with a list of invoices alongwith copies of invoices (backed up by insurer statements) that were raised on Iffco-Tokio General Insurance Company Ltd during the period from 1st of April 2018 to 31st of March 2019, (AY 2019-20). The total of all these invoices is INR. 83,28,333/- and the same amount has been appropriated as income in the profit and loss account for the FY 2018-19 (AY 2019-

20).

It is seen from the above that the contention of the petitioner in respect of the sum of Rs. 82,25,822/- being an amount which has been declared in books and return of income tax and as such the impugned notice which alleges that such an amount has escaped the assessment is clearly untenable, is concerned the issue need to be seen in facts for which it is imperative that the notice is issued to elicit a reply and to check whether the sum of Rs. 82,25,822/- is a result of a spurious transaction, resulting in the income escaping assessment/Tax. Such an exercise shall be undertaken by the Assessing Officer, and surely not by the Court.

A division bench of Justice V. Kameswar Rao and Justice Vinod Kumar observed that the reference made in the case of Jindal Saw Limited can be distinguished on facts in as much as the notice under Section 148A(b) was issued on account of undeclared/unexplained income whereas, the assessee in that case had sufficiently explained the amount and the impugned order in that case was seen to be at variance with the allegations made in the impugned notice in the said case.

In the absence of merit in this petition, the court dismissed the petition along with the accompanying application for stay.

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