AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2020 (2) TMI 1061
X X X X Extracts X X X X
X X X X Extracts X X X X
....rounds for reopening assessment in both cases are a result of the very same investigation 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 considera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2015 was framed under Section 143 (3) of the Act. After making certain disallowances, the total income 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... most of the times. 6. It is stated in the information that the amounts may have been shown as credits. / loans/ share application money raised from other countries mostly tax 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 Dire....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... via low tax jurisdiction like Dutch Antilles, British Virgin Islands, Luxemburg etc., the income has escaped assessment due to the failure of the assessee to disclose fully and truly all the material facts necessary 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion like Dutch Antilles, British Virgin Islands, Luxemburg etc., the income has escaped assessment due to the failure of the assessee to disclose fully and truly all the material facts necessary 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 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 "rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ney being credited in bank account and source thereof, then initiation of reassessment proceedings to bring to tax the share application money received by the assessee company is liable to be quashed. It is submitted that in respect of EDPL, erstwhile EDIPL as well as EHPL, share 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 secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opers Pvt. Ltd", when during the relevant assessment year, the two existed as unamalgamated/separate entities. It has been argued that for the assessment year 2012-13, (financial year 2011-12), the two entities were separate and distinct having different Permanent Account Numbers (PAN) and had filed 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 as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. (b) Whether initiation of re-assessment proceedings is merely on the basis of change of opinion which is impermissible 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 B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onary power is vested with the AO, the assesees are entitled to challenge the reopening by way of a writ petition. This is a safety measure, to warrant that exercise of power is done with circumspect and with comprehension of facts. This is the precise reason that there is a plethora of judgments on this issue that are cited by both the parties, 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. (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act that have been violated by the petitioner. In our opinion, the tangible material in the present case is information received by the AO from DIT (Intell. & Cr. Inv.). It would thus be apposite to refer to the said referred report which has been placed on record. The relevant portion of the said report is extracted herein:- "2. In the report, the 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 T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d its inability to enquire further into the sources of funding of Gold Singapore since both Darley and M/s Gemwood Invest Holdings were located outside Singapore. (iii) The IRA Singapore has mentioned in its report that a search of the internet showed that Darely is/ was controlled by Kazakhstan billionaire Timur Kulibayev. However, they were unable to comment further upon him since he was not a Singapore entity. (iv) The IRA Singapore has also given details of remittances made to M/s Gold 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an entities (which are wholly owned subsidiaries of Gold Singapore) raises serious doubts and suspicion on the genuineness of these investments. A series of transactions have been undertaken through a complex legal arrangements among entities spread across various jurisdictions to fund investments made in India. The origin of fund in the hands of companies located in tax havens with dubious antecedents and background of shareholders/promoters needs to be further investigated. The assessment in all the three companies namely 1) M/s Experion Hospitality Pvt. Ltd. (formerly, M/s Gold Resorts & Hotels Pvt. Ltd.) 2) M/ s Experion Developers International Pvt. Ltd. (formerly, M/s Gold Developers International Pvt. Ltd.) 3) M/s Experion 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings against him were dismissed by the authority in Switzerland on 27.11.2013. It has been argued that closure happened in 2013 and the department is relying on a report of 2015. However, we are of the opinion that all these aspects ought not be examined at this stage and for us the relevant question is as to whether there is indeed some tangible material having a live link to the "reasons to believe" for arriving at a prima facie opinion that the income has escaped assessment. The facts noted above clearly demonstrate that there are indeed such reasons and the test of tangible material is met. The genuineness of the transaction, as also the creditworthiness of the foreign investor is indeed in doubt - an aspect which was not examined by the Assessing Officer during the course of the original assessment proceedings.ithe 26. In RDS (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 Rosh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 27. The live-link between the said material information and the formation of the belief that taxable income has escaped assessment is the fact that EDPL received Rs. 36.910 crores and EDIPL received Rs. 183 Crores, while EHPL received Rs. 5.75 Crores, as capital investment from Gold Singapore, which - to the assessing officer, appears to be bogus entity for the reasons recorded by him. This live-link is actionable as it was found and acted upon within the period of limitation under the proviso 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 tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Bench decision of this Court in Commissioner of Income Tax v Usha International, [2012] 348 ITR 485 (Delhi), the principle of "change of opinion" was discussed extensively: "16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was 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' m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion, which is also prejudicial to the interest of the Revenue, can be made subject matter of adjudication under Section 263 of the Act. 18. In New Light Trading Co. v. CIT [2002] 256 ITR 391/[2011] 117 Taxman 741, a Division Bench of this Court had referred to decision of the Supreme Court in CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13 / 103 Taxman 294 and the following observations were made:- "In the case of P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13, the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... are of the opinion that AO's decision is to be governed by the mandate of the statute that requires him to have "reason to believe", and not to conclusively establish the fact of escapement of income. Therefore, even if scrutiny assessment has been undertaken in the first place, if significant new material is found in the form of information, the assessing officer can form a belief that the income of the petitioner has escaped assessment, and reopen assessment. It is also trite law that for cases relating to inter alia, share application money, three vital aspects have to be considered by the Assessing Officer, namely (i) the identity of the investors; (ii) the credit worthiness of the investors; and (iii) the genuineness of the transaction. Ex-facie, the order of assessment which was passed by the Assessing Officer under Section 143(3), does not indicate that all these aspects were gone into. Today, there is serious doubt 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r." Therefore, no action under Section 147 can be taken beyond the said period of four years unless and until the conditions precedent mentioned in the proviso are satisfied. The first condition is that income chargeable to tax must have escaped assessment. The second condition is that such escapement from assessment must be by reason of failure on the part of the assessee to, inter alia, disclose fully and truly all material facts necessary for his assessment for that assessment year. If either of these two conditions is missing, the exception to the bar setup in the proviso, does not get triggered. The consequence being that the assessment cannot be reopened." (Emphasis supplied) 36. The expression "fully and truly disclose all material facts" has been discussed in multiple decisions of this Court as well as the Apex Court. In Honda Siel Power Products Ltd v. Dy. CIT [2012] 340 ITR 53 (Delhi), it was explained as to what is the meaning of the 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... statement and the return of income filed by the petitioners. In the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 it was held by the Supreme Court that "where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of the "true" and "full" facts in the case and the Income Tax Officer would have the jurisdiction to reopen the concluded assessment in such a case". In the present case, the return of income merely lists Gold Singapore as the holding company and the Notes to the audited financial statement merely mention that securities application money has been received from the Holding Company, being Gold Singapore. The genuineness of this transaction as also the creditworthiness of the investor are doubtful in the present case and, therefore, mere mention of the said transaction does not amount to "full" and "true" disclosure. Therefore, this amounts to the fulfilment of the second condition, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) when the reasons on the basis on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. The decision in United Electrical Co. Pvt. Ltd. (supra), as relied upon by the petitioner is distinguishable from the present case, as in the said case, there was no material on record to provide foundation for Assessing Officer's reasons to believe. Therefore, it was held that the recording of the satisfaction by the AO was unjustified and without independent application of mind. However, there is no requirement to provide elaborate reasoning to arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the AO. Similarly, in Virbhadra Singh v Deputy Commissioner, Circle Shimla [2017] 88 taxmann.com 888 (Himachal Pradesh) where the competent authority was in agreement with the reasons assigned by the 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", t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mmissioner of Income Tax v K. Adinarayana Murty [1967] 65 ITR 607 (SC). The relevant portion of the said judgment is extracted hereunder: "Under the scheme of the Income Tax Act the 'Individual' and the "Hindu Undivided Family" are treated as separate units of assessment and if a notice under Section 34 of the Act is wrongly issued to the assessee in the status of an 'individual' and not in the correct status of "Hindu Undivided Family" the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction. It was contended by Mr S.T. Desai on behalf of the assessee that the return was filed by the assessee in response to the first notice in the character of "Hindu Undivided Family". But the submission of the return by the assessee will not make any difference to the character of the proceedings in pursuance of the first notice which must be held to be illegal and ultra vires for the reasons already stated. We are therefore of the opinion that the Income Tax Officer was legally 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny i.e. the petitioner. However, we cannot construe Section 170 (2) of the Act in the manner, the petitioner has urged. The aforesaid provision nowhere requires that two separate notices and separate assessment order are to be passed. On the contrary, the petitioner as a successor would also be liable for the income of the previous year in which the succession took place upto the date of the succession. We are therefore unable to understand as to what purpose would be served by two separate assessment orders. Pertinently, as of now, we are only concerned with the requirement of issue of two separate notices under Section 147/148 and we cannot find any such requirements emanating from Section 170 (2) of the Act. 46. Similarly, in the case of K. Adinarayana Murty (supra), notice was wrongly issued on an HUF in the status of an "individual" while the entity was being assessed in the status of an HUF. In the present case, there is no infirmity in the name and status of the entity in whose name the notice has been issued. 47. This Court in BDR Builders & Developers (P) Ltd. V Assistant Commissioner of Income Tax [2017] 85 taxmann.com 146 (Delhi), has considered the question of iss....