9911796707
TMI Blog2020 (2) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and inquiry carried out by the DIT (Intell. & Cr. Inv.), New Delhi. The reasons recorded for reopening the assessment in respect of both the petitioners are also similar, except for certain distinguishing facts. Besides, the petitioners raise similar grounds of challenge, and therefore it is considered appropriate to dispose of both the petitions by way of a common judgment. 2. For the purpose of disposal of present petitions, the facts in W.P.(C)11302/2019 are being noted extensively. The essential differences are noted separately. W.P.(C) 11302/2019 3. Petitioner is a private limited company engaged in the business of construction-development projects. Pursuant to a scheme of amalgamation approved by this Court vide order dated 20.12.2012, M/s. Experion Developers International Pvt. Ltd [hereinafter referred to as 'EDIPL', the erstwhile assessee], amalgamated with M/s. Experion Developers Pvt. Ltd. [hereinafter referred to as 'EDPL', the successor-in-interest and Petitioner herein] with effect from 01.04.2012. During the financial year relevant to the assessment year under consideration i.e. AY 2012-13, (FY 2011-12) the Petitioner and the erstwhile-assessee, EDIPL, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come was assessed as Rs. 23,60,539/- and the said order is also presently subject matter of a pending appeal. In this case as well, respondent no. 1 has issued notice dated 31.03.2019 under section 148 of the Act, assuming jurisdiction to reopen the assessment, which forms the subject matter of challenge in the petition. Reasons for reopening 7. Along with the notice issued under Section 148 of the Act, the respondent also furnished copy of the recorded reasons which disclose that an information has been received from DIT (Intell. & Cr. Inv.), New Delhi on 30.03.2015 regarding funds received by the assessee from a foreign entity. The DIT (Intell. & Cr. Inv.), New Delhi has carried out the investigation and detailed inquiry regarding the funds received by the Experion Group Company in India from it's parent company which did not have sufficient funds of its own to make such investments. The recorded reasons for reopening the assessment in W.P.(C) - 11303/2019 are as under; "1. Brief Details Inv), New, Delhi on 30.03.2015 regarding funds received by the assessee from foreign entities The DIT has carried out investigation and detailed enquiry regarding funds received by, Experio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax heavens to form a circuitous route, and on analysis by the Assessing officer, it is actually found that over a period of time, the credits into the books of accounts of the investing entity have been made as share application money or advances and the fact that the share application money remains outstanding over a long time itself is not how a genuine investment is normally made, because shares are normally issued after the application is made, or the amount is refunded back. On the basis of enquiries conducted by DIT (Intell. & Cr. Inv.), New Delhi, the observations are as follows:- 1. The movement in share capital in Gold Singapore shows that in the initial years, the funding came from Darley Investment Service Inc, (Darley) and Merix International Ventures Limited. Darley and Merix. Subsequently transferred their share in Gold Singapore through a complex series of financial arrangments involving many entities finally to M/s. Gemwood Invest Holdings Ltd. 2. When the Directorate issued summons to Sh. Arvind Tikoo the Director and the main person behind the group, the reply was evasive in most of his replies, on the plea that he is an NRI, the foreign assets were not disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its assessment. Thus, this specific condition for reopening is hereby fulfilled in the instant has failed to disclose such material facts on its own earlier. The case is square & covered under provisions of section 147 of income tax Act, 1961. It is also stated that the reassessment proceedings are proposed to be initiated in the case of Experion Developers Private Limited, for funds received by it as an independent entity as well as the successor in interest of amalgamated company Experion Developers International Private Limited, which in AY 2012-13 was a separate entity. In this case, since more than four years have elapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue notice under section 148 of the act is being obtained separately from Pr. Commissioner of Income Tax, Delhi03, New Delhi as per the provisions of section 151 of the Act." (Emphasis supplied) 8. The recorded reasons in respect of W.P.(C) 11303/2019 are identical, except for the differences noted hereinbelow: "1. During the year under consideration, the company M/s Gold Hotels & Resort Pte. Ltd, hereinafter referred as Gold Singapore has made an alleged investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby fulfilled in the instant has failed to disclose such material facts on its own earlier. The case is square & covered under provisions of section I47 of income tax Act, 1961. In this case, since more than four years have elapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue notice under section 148 of the act is being obtained separately from Pr. Commissioner of Income Tax, Delhi-03, New Delhi as per the provisions of section 151 of the Act." Common submissions of the Petitioners in W.P.(C) 11302/2019 & 11303/2019 9. Petitioners contend that reassessment proceedings have been initiated on the basis of "reasons to believe" that are invalid, without reference to any fresh tangible material and are shorn of independent application of mind. Under the scheme of the Act, the assessing officer can initiate proceedings under section 147 of the Act only if he has "reason to believe" that any income of the assessee has escaped assessment. Such belief has to be arrived at by the assessing officer on the basis of tangible/ reliable information in the possession of the assessing officer. In terms of section 148 of the Act, the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are application money received from Gold Singapore and subscription to share capital by Gold Singapore is fully disclosed in the audited financial statement and the income tax return form of the relevant financial year. Further, relying on the decision of the Supreme Court in CIT vs Kelvinator of India Ltd: 320 ITR 561 (SC), it is argued by the petitioner that there can be no review of an assessment in the guise of reopening and that a bare review without any tangible material would amount to abuse of power. There was no fresh/ tangible material with the AO and for the said reason, too, the assumption of jurisdiction by Respondent No.1 to reopen proceedings for assessment year 2012-13 is invalid and unsustainable. 12. Furthermore, it was submitted that in the present case, sanction has been obtained from 'Additional Commissioner of Income Tax', i.e. respondent no. 2, which is not as per the mandate of section 151 of the Act. In this regard, it was submitted that obtaining sanction from an officer who does not have jurisdiction over the matter is not justified and thus vitiates the legality of the proceedings. Further, the sanction was granted mechanically, without any application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led separate returns of income and were assessed separately, and thus issuance of a single notice is a jurisdictional error. In the reasons recorded, the name of the assessee is recorded as "M/s. Experion Developers Pvt. Ltd. (Earlier known as Gold Developers Pvt. Ltd.), including its role as successor in interest of Experion Developers (International) Pvt. Ltd. which has amalgamated into M/s Experion Developers Pvt. Ltd." It was argued that pursuant to amalgamation, if the amalgamating company and amalgamated company both are intended to be assessed by the Revenue then, in such case, as per the provisions of section 170(2) of the Act, separate notices are required to be issued viz. one in the name of amalgamated company in its independent capacity and another in the name of amalgamated company as successor in interest of the amalgamating company, so that the same culminate into separate assessment orders, qua the income of amalgamated company and amalgamating company. In this regard, reliance has been placed on the decision of this Court in PCIT v Maruti Suzuki India Ltd. 397 ITR 681 (Del) and CIT v K Adinarayana Murty 65 ITR 607 (SC). Contentions of the Respondent 14. Per contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible in law. (c) Whether initiation of re-assessment proceedings is barred by limitation, as prescribed in proviso to Section 147 of the Act. (d) Whether proper sanction as required under Section 151 of the Act was obtained or not. 16. In addition to the aforesaid questions, in W.P. (C) 11302/2019, an additional question (e) that arises for our consideration is as to whether the common reassessment notice issued in the name of EDPL for reopening of assessment proceedings in respect of both EDPL and EDIPL is bad in law, in as much as whether separate notices were required to be issued in the name of (i) EDPL in its individual capacity and, (ii) EDPL, as successor-ininterest of EDIPL . 17. Having summed up the grounds of challenge, we now proceed to deal with each of them comprehensively. (a). WHETHER THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED WITHOUT ANY VALID "REASONS TO BELIEVE"; WITHOUT REFERENCE TO ANY FRESH TANGIBLE MATERIAL, AND; WITHOUT ANY INDEPENDENT APPLICATION OF MIND 18. We have perused the reasons recorded by the Revenue to re-open the assessment for the assessment year 2012-13; the objections to reopening filed by the assessee/petitioner to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and we have to repeatedly navigate through the various views expressed by the court. 20. In light of the above judicial principles, the crux lies in the recorded reasons which shed light on the mind of the AO and having perused the same in the instant case, we are not persuaded with Mr. Vohra's submission that the observations of the AO are based purely on conjunctures and surmises, without reference to any tangible material. At this stage, we may refer to our decisions in Vedanta Ltd v. Assistant Commissioner of Income Tax in W.P. (C) 13036/2019 decided on 20.12.2019 and also in RDS Project Ltd. in W.P. (C) 11274/2019 decided on 23.10.2019 wherein we have extensively examined the case law on this issue. 21. In the above judgments, we have noted the views of the Supreme Court in Assistant CIT v. Rajesh Jhaveri Stock Broker Pvt. Ltd. (2008) 14 SSC 208, wherein it has been held that the expression "reason" in Section 147 of the Act means a "cause" or "justification". The Assessing Officer can be said to have reason to believe that income has escaped assessment, if he has a cause or justification to know, or suppose, that income has escaped assessment. 22. It is also apposite to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... First Secretary (Economic) observed that the investment made by the Singapore entity needed to be examined for the following reasons: (i) The equity of the.87 million USD which is very small in comparison to the investment investing company M/s Gold Hotels & Resort Pte. Ltd., hereinafter referred as Gold Singapore is 5 million USD as against the above investment of 163. (ii) Gold Singapore is owned by on share holder M/s Gemwood Invest Holdings Limited having address in British Virgin Island. (iii) The Directors of Gold Singapore are Name Nationality Address Arvind Tiku Indian National 329, River Valley Road #25-02, Yong Ann Park, Singapore 238361 Yap Chee Keong Michael Singapore Citizen 77 Marine Drive #9-48 Singapore 440077 (iv) Mr. Arvind Tiku is the key person who managed the investments. (v) It is possible that the amounts may have been shown all credits/ loans raised from other countries mostly tax havens to form a circuitous route. (vi) Gold had not filed the annual accounts and its business premises consisted of just one room which was found closed most of the times. (vii) The details of the Indian companies which received inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old Resorts & Hotels Pvt. Ltd. For acquisition of its shares as on 31.03.2011 in a statement which is enclosed as per Annexure-3 of this report. (v) The IRA Singapore has forwarded Financial statements of Gold Singapore from 29.03.2006 (date of Incorporation) to 31.03.2007 and for the year ended on 31.03.2008, 31.03,2009 & 31.03.2010, As per the statement, Gold Singapore has following subsidiaries in India: Sl. No. Name of the company Director Director Director Director Director 1 Gold Resorts and Hotels Pvt. Ltd. Arvind Tiku Jitendra Kumar Jain Suneet Puri - - 2 Gold Developers Private Limited Arvind Tiku Hemant Tikoo Rakesh Kaul Sanjay Kumar Bakliwal Basaavaraddi Krishnaradd Malagi 3 Gold Developers (International) Pvt. Ltd. Arvind Tiku Sunnet Puri Rakesh Jain - - (vi) The following companies in India are wholly owned subsidiaries of Gold Resorts and Hotels Pvt. Ltd. Sl. No. Name of the company Director Director Director Director 1. Gold Resorts and Hotel (Jaipur) Pvt. Ltd. Jitendra Kumar Jain Suneet Puri Sanjay Maheshawar Hemant Tikoo 2. Gold Resorts and Hotels (Chandigarh) Pvt. Ltd. Jitendra Kumar Jain Suneet Puri Sanjay Maheshaw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rion Developers Pvt. Ltd. (formerly, M/s Gold Developers Pvt. Ltd.) which have received funds needs to be reopened under section 147 read with section 149(1)(c) of the Income Tax Act, 1961 to investigate the genuineness of such funds and the creditworthiness of the investing entities. The year wise details of investments received by the Indian entities in whose hands the cases are required to be re-opened are given in Annexure-8." (Emphasis supplied) 25. This report, whereby it is revealed that "Gold Singapore" does not appear to be carrying out regular business activities in Singapore and the series of transactions undertaken through complex legal arrangements among entities spread across various jurisdictions to fund investments made in India, justifies the AO to form a "reason to believe" to investigate the genuineness of the funds and creditworthiness of the investing entities. The year-wise details of investments received by the Indian entities whose cases are required to be re-opened are given in the report and the same read as under: "Annexure-8 Year wise details of investment/ capital received by Indian Companies to be considered for reopening of case u/s 147 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), we have extensively referred to the recent decision of the Supreme Court in Principal Commissioner of Income Tax (Central)- I v. NRA Iron & Steel Pvt. Ltd., (2019) 412 ITR 161 (SC) decided on 05.03.2019. In the said decision, Supreme Court also took note of its earlier decision in Kale Khan Mohammad Harif v. CIT, (1963) 50 ITR 1 (SC), and Roshan Di Hatti v. CIT, (1977) 107 ITR (SC), wherein it had laid down that the onus of proving the source of money found to have been received by the assessee, is on the assessee. Once the assessee has submitted the documents relating to identity of the payer, genuineness of the transaction, and creditworthiness of the payee, then the AO must conduct an inquiry and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source of investment made; the genuineness of the transaction, and; the creditworthiness of the payer, it is open to the revenue to hold that such investment is the income of the assessee, and that there would be no further burden on the revenue to show that the income is from any particular source. The Supreme Court also observed that with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso to Section 147 of the Act. 28. Mr. Vohra has also attempted to demonstrate that the information provided in the report is merely based on internet searches, and argues that it is whimsical, unsubstantiated allegations, without an iota of evidence to show that the share capital received by the petitioner can be taxed as income in the hands of the petitioner company. 29. We do not agree with this submission of the Petitioner. There is sufficient material disclosed in the investigation report to say that the creditworthiness of the investor company is doubtful. Moreover, the responses of Mr. Arvind Tiku also appear to be evasive. We cannot lose sight of the fact that apparently, the parent company itself, does not have sufficient funds to invest such huge amounts in Indian subsidiaries, and the funds are routed through a web of entities spread across various jurisdictions, mostly in tax havens. The investments so made, are required to be investigated and the credit worthiness of the investing company is in jeopardy, in view of the information received from the investigation wing. This exercise can be undertaken during the re-reassessment proceedings to finally determine if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression 'material facts' means those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment. 17. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same may come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee." 19. As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment." (Emphasis supplied) 33. As already discussed above, in the present case, new facts, material or information have come to the knowledge of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt relating to credit-worthiness of the share applicant/investor, in view of the investigation report noted above and clarity can only come in by way of reassessment. Therefore, the recorded reasons are not mere change of opinion. (c) WHETHER INITIATION OF RE-ASSESSMENT PROCEEDINGS IS BARRED BY LIMITATION AS PRESCRIBED IN PROVISO TO SECTION 147 OF THE ACT 34. The first proviso to section 147 provides that where an assessment under sub-section (3) of section 143, or this section, has been made for the relevant assessment year, no action shall be taken under this section 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. The Explanation 1 to the proviso to section 147 is also relevant and reads as follows: "Explanation 1.-Production before the Assessing Officer of account books or other eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression "disclose fully and truly all material facts" appearing in Section 147 of the said Act. In that decision, this Court observed as under:- "12. The law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be full and true. Material facts are those facts which if taken into accounts they would have an adverse affect on assessee by the higher assessment of income than the one actually made. They should be proximate and not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of assessee. The latter confers jurisdiction to reopen assessment." 37. Explanation 1 to the proviso to section 147 elaborates on the meaning of the phrase "disclosure" as mentioned in the proviso. Reference may be made to the decision of this Court in Rose Serviced Apartments (P.) Ltd. v. Deputy Commissioner of Income-tax [2011] 9 taxmann.com 199 (Delhi), wherein it was observed that from a reading of the said Explanation, it is clear that that mere production of books of account or other material from which the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, that is, failure to disclose fully and truly all material facts, relevant for his assessment in that assessment year. 39. Thus, on fulfilment of the second condition, the bar to reopening of proceedings after expiry of four years from the date of final assessment order, under the proviso, does not apply and the initiation of proceedings is not barred by limitation. (d) WHETHER PROPER SANCTION AS REQUIRED UNDER SECTION 151 OF THE ACT WAS OBTAINED OR NOT 40. It is a requirement for issuance of notice for reopening of assessment proceedings under section 151 of the Act that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for issuance of such notice. 41. In the recorded reasons also, it has been noted that "necessary sanction to issue notice under section 148 of the Act is being obtained separately from Pr. Commissioner of Income Tax, Delhi-03, New Delhi as per the provisions of section 151 of the Act". In its reply on this issue, in the order dated 25.9.2019 dismissing objections of the petitioners to the notice under section 148, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, so placed before him, which came to be considered and sanction accorded with proper application of mind, by recording "I am satisfied that it is a fit case for issuance of notice u/s 148", the issuance of notice under section 147/148 was held to be valid. 43. Therefore, it is clear that necessary sanction for issuance of notice under section 148, as required under section 151 had been obtained. (e) WHETHER NOTICE ISSUED IN THE NAME OF EXPERION DEVELOPMENT PVT. LTD. (EDPL) IS BAD IN LAW AS SEPARATE NOTICES WERE REQUIRED TO BE ISSUED TO EDPL IN ITS INDIVIDUAL CAPACITY AND AS THE SUCCESSOR-ININTEREST OF EDIPL 44. Petitioner has placed reliance on Principal Commissioner of Income Tax-6, New Delhi v Maruti Suzuki [2017] 85 taxmann.com 330 (Delhi) where two entities namely, Suzuki Powertrain India Ltd. (SPIL) and Maruti Suzuki India Ltd (MSIL) had amalgamated into MSIL and assessment order under section 143 (3) had been passed in the name of SPIL, which entity had ceased to exist on the date of the assessment order. In these circumstances, the Court held the said assessment order to be without jurisdiction. The relevant portion of the said judgment is extracted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in ignoring the first notice issued under Section 34 of the Act and the return filed by the assessee in response to that notice and consequently the assessment made by the Income Tax Officer in pursuance of the second notice issued on February 12, 1958 was a valid assessment. 45. On the basis of the aforenoted judgment, challenge whereto by the Revenue before the Supreme Court resulted in dismissal, and further relying upon Section 170 (2) of the Act, Mr. Vohra has contended that separate notices are required to be issued viz. one in the name of amalgamated company in its independent capacity and another in the name of amalgamated company as successor-in-interest of an amalgamating company. We are not impressed with Mr. Vohra's contentions. In Maruti Suzuki (supra), this Court while relying upon its earlier decision in Dimension Apparels (P) Ltd. (supra), has dealt with Section 170 (1) and 170 (2), on an entirely different issue, which is clearly discernible from the portion of the judgment extracted herein above. In Dimension Apparels (P) Ltd (supra), the Court has held that the text of Section 170 (2) makes it clear that assessment must be made on the successor (i.e. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court in BDR Builders & Developers (P) Ltd. V Assistant Commissioner of Income Tax [2017] 85 taxmann.com 146 (Delhi), has considered the question of issue of notice in the context of amalgamation. In the said case, a company VBPPL amalgamated with the petitioner company therein (BDR Builders & Developers) on 01.04.2012 and notice for reopening of assessment under section 148 was issued in the name of VBPPL on 03.04.2012. It was held that on the date of said reassessment order, VBPPL had ceased to exist as an entity and therefore, notice issued in the name of VBPPL was void. Thus, once, the amalgamating company has merged with the amalgamated entity, it ceases to exist in its individual capacity. In the present case also, on the date of issue of reassessment notice, i.e. 31.03.2019, EDIPL had ceased to exist as a separate entity (w.e.f. 01.04.2012). Therefore, for reopening of assessment proceedings in respect of EDIPL, now merged with EDPL, a notice can only be issued in the name of the merged entity. There is no requirement to issue two separate notices in the name of amalgamated company (i) as successor-in-interest of the amalgamating company and (ii) in its individual capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
