Experion Developers Pvt. Ltd. Vs ACIT (Delhi High Court)
Conclusion: Reopening of assessment was justified in case of EDPL as there were sufficient ‘reasons to believe’ that income had escaped assessment and the bar to reopening of proceedings after expiry of four years from the date of final assessment order, under the proviso, did not apply in assessee’s case and there was 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 capacity as EDIPL had ceased to exist as a separate entity.
Held: Assessee was a private limited company engaged in the business of construction-development projects. Pursuant to a scheme of amalgamation approved, M/s. Experion Developers International Pvt. Ltd [“EDIPL”] was amalgamated with M/s. Experion Developers Pvt. Ltd. [“EDPL“] the successor-in-interest. During the assessment year under consideration, EDPL was the only surviving entity, it alone filed return of income declaring loss of Rs.7,82,95,075/-. The return of income was processed and assessment order dated 19.03.2015 was passed under Section 143(3). During the year under consideration, the company M/s Gold Hotels & Resort Pvt. Ltd had made an alleged investment of Rs. 36.910 crores in the assessee company EDPL and Rs. 183 crores in the company that had amalgamated into this company namely, EDIPL. AO was not aware of the fact that the investments into the assessee companies had been made from an entity which did not have funds of its own to invest such huge amounts, and that the investing entity had only been used as a conduit to route funds through complex transactions via low tax jurisdiction thus, AO reopened assessment. Assessee company contended that the re-assessment proceedings had been initiated without any valid “reasons to believe”and initiation of re-assessment proceedings was barred by limitation and proper sanction as required under Section 151 of the Act was not obtained. Also, the common reassessment notice issued in the name of EDPL for reopening of assessment proceedings in respect of both EDPL and EDIPL was bad in law as separate notices were required to be issued in the name of (i) EDPL in its individual capacity and, (ii) EDPL, as successor-in-interest of EDIPL . It was held if indeed, the investing entities did not have any creditworthiness to make such huge investments into the assessee company, there would be sufficient cause or justification for the AO to attribute the income to assessee. Thus, there were sufficient “reasons to believe” that such income had escaped assessment and to reopen the assessment proceedings. Also, AO had sufficient tangible materials and was justified in issuing the notice for assessment. The bar to reopening of proceedings after expiry of four years from the date of final assessment order, under the proviso, did not apply in assessee’s case. The approval/sanction had been obtained from both, the Addl. Commissioner of Income Tax as well as Principal Commissioner of Income Tax, which was the appropriate authority for issuance of such sanction. 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 was 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 capacity, as the amalgamated company (EDPL) has taken over the liabilities of the amalgamating company (EDIPL) and the notice mentions the liabilities of EDIPL as it accrued pre-amalgamation in its individual capacity.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. The present petitions under Article 226 /227 of the Constitution of India are directed against two separate notices both dated 31.03.2019 issued by respondent No.1 under Section 148 of the Income Tax Act (hereinafter referred to as “the Act”), for the assessment year (AY) 2012-13 and the orders dated 25.09.2019 disposing of the objections filed by the respective petitioners and also the proceedings emanating therefrom. The grounds 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 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 P.(C)11302/20 19 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 „EDIPLthe 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 separate/independently assessable assessees. For the assessment year under consideration, i.e., AY 20 12-13, as Petitioner (EDPL) was the only surviving entity, it alone filed return of income declaring loss of Rs.7,82,95,075/-. The return of income was selected for scrutiny and after making certain disallowances, the total income was assessed at Rs. 90,15,239/- and assessment order dated 19.03.2015 was passed under Section 143(3) of the Act. The said order is presently subject matter of a pending appeal.
4. Subsequently, Respondent No.1 issued the impugned notice dated 3 1.03.2019 under section 148 of the Act along with a copy of the reasons recorded, proposing to reassess the income of the Petitioner for the assessment year 2012-13. In response to the aforesaid notice, the Petitioner filed the letter dated 29.04.2019 submitting copy of return e-filed on 25.04.2019 declaring loss of Rs.7,82,95,075/-. The recorded reasons are primarily based on the ground that the investing / parent company, M/s. Gold Hotels & Resort Pte. Ltd. (also referred to as “Gold Singapore”), had made investment of Rs.36.91 crores in the Petitioner Company (EDPL) and Rs. 183 crores in erstwhile EDIPL, though the said investing company did not appear to be carrying out any regular business activities in Singapore and has been floated to act as a conduit to funnel funds into Indian companies. The source of investment in the assessee company raises serious doubts and suspicion regarding the genuineness of investments. The assessee is a beneficiary of these credits and has failed to disclose material facts earlier. Therefore, there are 3rOHsoVs to EOliOLOH that the 1’OtitiLVOrLs income has escaped assessment.
5. Petitioner vide letter dated 10.05.2019 filed legal objections to initiation of the impugned reassessment proceedings, that were rejected vide the impugned order dated 25.09.2019 (received on 25.09.2019).
W.P.(C)-1 1303/2019
6. The petitioner in this case (Experion Hospitality Pvt Ltd, hereinafter, 3+31′ ), also a private limited company engaged in the business of construction/development projects, filed return of income declaring loss of 3 ,93 ,181,429/-, for the assessment year under consideration (AY-20 12- 13). The case was selected for scrutiny and assessment order dated 19.03.2015 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 from foreign entities The DIT has carried out investigation and detailed enquiry regarding funds received by, Experion Group companies in India, From their parent company, which did not have sufficient funds of its own to make such investments. These inquiries were conducted after commercial intelligence was received by Jt. secy. (Ft & TR)- II, CBDT from The First Secretary (Economic) in High commission of India, at Singapore, vide letter dated 31/10/2011, that an entity M/s Gold Hotels & Resort Pte. Ltd, a Singapore based company, had made large investments in Indian entity namely, M/s. Experion Developers Pvt. Ltd. and M/s. Experion Developers International Pvt. Ltd. (formerly known as Gold Developers International .Pvt. Ltd.)(Now merged with M/s. Experion Developers Pvt. Ltd.)
According to the report, it was observed that:
1. During the year under consideration, the company M/s Gold Hotels & Resort Pte. Ltd , hereinafter referred as Gold Singapore has made an alleged investment of Rs. 36.910 crores in the assessee company EDPL and Rs. 183 crores in the company that has amalgamated into this company namely, EDIPL.
2. As per the information, Gold Singapore is owned by only one share holder M/s Gem wood lnvest Holdings Ltd. having address in British Virgin Island.
3. The Directors of Gold Singapore include the following:
