NuPower Renewables Pvt. Ltd. Vs ACIT (Bombay High Court)
FACTS –
Assessee for AY 2011-12 filed ROI declaring loss of INR 5.97 Crore, thereafter filed revised return declaring loss of INR 6.45 Crore. Assessee received INR 49,90,48,000 from M/s. Firstland, Mauritius being subscription towards compulsory convertible cumulative preference shares.
AO issued notice u/s 142 (1) on 02.08.2013 asking for various details including copy of balance sheet, profit and loss account and also asking question with reference to issuance of shares. The said notice was duly replied on 08.08.2013.
On 30.10.2013 AO issued another notice calling for further details with regard to issuance of shares. Again on 12.11.2013, AO issued another notice calling for further more details and all the notices / details were duly provided by the assessee.
Investigation wing, vide letter dated 15.03.2018, informed AO regarding receipt of INR 49.90 Crore by assessee and based on the same AO contended that assessee’s income of INR 49.90 Crore has escaped assessment within the meaning of section 147 of the Act.
HELD –
The information provided by the investigation wing is not something new to the AO. The fact that the assessee had received such share application money from Firstland was part of the assessee’s return. It is not as if the AO did not notice this information during scrutiny assessment.
The channel of movement of the fund, the source of the fund, purpose of investment and the ultimate destination of the fund, were all part of the record during the assessment proceedings. There is nothing in the reasons recorded by the Assessing Officer to suggest that, such investment is bogus.
AO cannot re-open to investigate into the source of genuineness and creditworthiness of the investor company as it would fall within the relam of fishing enquiries, which is wholly impermissible in law.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
Heard learned Counsel for the parties for final disposal of the Petition.
2 Petitioner has challenged a notice of re-opening of an assessment dated 28th September, 2018, for the Assessment Year 2011-12.
3 Brief facts are as under:
Petitioner is a Limited Company. For the Assessment Year 2011-12, the Petitioner had filed the return of income on 29th September, 2011, declaring loss of Rs.5.97 Crores (rounded of). The Petitioner had filed revised return on 31st March, 2012, declaring loss of Rs.6.45 Crores. Such return was taken in scrutiny by the Assessing Officer who passed order of assessment under Section 143(3) of the Income Tax, 1961 (in short “the Act”) on 26th December, 2013. In order to do so, he recored the following reasons:
“1. Brief details of the assessee: The original return of income was efiled on 29/09/2011, declaring total income of Rs. Nil and current year loss at Rs.5,97,19,479/. Subsequently, the revised return of income was efiled on 31-03-2012 showing total income at Rs. Nil and current year loss at Rs.6,45,41,300/. The case was selected for scrutiny for A. Y. 2011-12. The assessment was completed on 26/12/2013 determining total loss at Rs.6,45,41,300/. The company is engaged in generation and sale of electricity through wind mill.
2. Brief details of information collected/received by the AO:In this case, information has been received from ADIT (INV.) UNIT4(2), MUMBAI vide letter dated 15.03.2018, that NuPower Renewables Pvt. Ltd. has received amount of Rs.49,90,48,000/from Mauritius based Firstland Holdings Ltd. in F. Y. 2010-11 being subscription towards 0.000% Compulsory Convertible Cumulative Preference shares (4,99,048 nos.)
3. Analysis of information collected/ received: On perusal of Form 2 filed with ROC in this respect clearly indicates that 4,99,048 nos. of shares has been allotted by M/s. NuPower Renewables Private Ltd. On 31.12.2010 to Firstland Holdings Limited, Mauritius. The source, genuineness and creditworthiness of the foreign entity M/s. Firstland Holdings Limited , Mauritius remains unexplained and needs further investigation. In this respect reference to the competent authorities of Mauritius through FT & TR Division has been made.
4. Findings of the AO:- Under assessment of income to the extent of Rs. 49,90,48,000/- involving potential tax effect of Rs.16,96,26,415/.
5. Basis of forming reasons to believe and details of escapement of income:- Information has been received from ADIT(INV.) UNIT4(2), MUMBAI vide letter dated 15/03/2018, that Nu Power Renewables Pvt. Ltd., has received amount of Rs.49,90,49,000/ from Mauritius based Firstland Holdings Ltd. In F. Y. 201011 being subscription towards 0.000% Compulsory Convertible Cumulative Preference Share (4,99,048 nos.)
On perusal of Form 2 filed with ROC in this respect clearly indicates that 4,99,048 no shares has been allotted by M/s. Nu Power Renewables Pvt. Ltd., on 31.12.2010 Firstland Holdings Limited, Mauritius. The source, genuineness and creditworthiness of the foreign entity M/s. Firstland Holdings Limited, Mauritius remains unexplained needs further investigation. In this respect reference to the competent authorities of Mauritius through FT & TR Division has been made.
6. Escapement of income chargeable to tax in relation to any assets (including financial interest in any entity) located outside India: Not applicable.
7. Findings of the AO on true and full disclosure of the material facts necessary for assessment under Proviso to section 147: Findings on examination of records and verification thereof that the assessee had not disclosed fully and truly all material facts necessary for his assessment or that the facts of the case are covered by the explanation 1 to section 147 of the Act.
8. Applicability of the provisions of section 147/151 to the facts of the case:- In this case a return of income was filed for the year under consideration and regular assessment u/s. 143(3) was made on 26.12.2013. Since, 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceeding u/s. 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose full and truly all material facts necessary for his assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2,3 and 5). I have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed the following material facts necessary for his assessment for the year under consideration.
The Nu Power Renewables Pvt. Ltd., has received amount of Rs.49,90,48,000/ from Mauritius based First land Holdings Ltd., in F.Y. 2010-11. The source, genuineness and creditworthiness of the foreign entity M/s. First land Holdings Limited, Mauritius, remains unexplained and needs further investigation. In this respect reference to the competent authorities of Mauritius through FT & TR Division has been made.
It has been resulted in underassessment of income to the extent of Rs.49,90,48,000/ involving potential tax effect of Rs.16,96,26,415/.
It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration thereby necessitating reopening u/s. 147 of the Act.
It is true that the assessee has filed a copy of annual report and audited P & L A/c. and balance sheet along with return of income where various information/ material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that, even though the assessee has produced books of accounts, annual report, audited P & L a/c and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly, attracting provisions of Explanation 1 of section 147 of the Act.
It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of regular assessment/re-assessment. This fact is corroborated from the contents of notices issued by the AO u/s 143(2)/142(1) and order sheet entries dated 31.10.2013 to 26.12.2013 recorded during the 143(3) proceedings. It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in annual report, audited P & L A/c. balance sheet and books of account in such a manner that it would require due diligence by the AO to extract these information. For aforestated reasons, it is not a case of change of opinion by the A.O.
In view of the above facts, I am satisfied that the assessee’s income of Rs.49,90,48,000/ or above, has escaped assessment for the A.Y. 2011-12 within the meaning of section 147 of the Act.
In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s. 148 has been obtained separately from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act.”
4 Upon being supplied the reasons, the Assessee raised objection to the notice of re-opening of an assessment under a communication dated 5th October, 2018. Such objections were rejected by the Assessing Officer by an order dated 22nd November, 2018, upon which, this Petition has been filed.
5 Appearing for the Petitioner, learned Counsel Shri Pardiwalla, Sr. Counsel, raised following contentions:
(i) The impugned notice has been issued beyond a period of four years from the end of the relevant Assessment Year. There was no failure on the part of the assessee to declare fully and truly all material facts;
(ii) The ground on which the Assessing Officer wishes to rely upon was examined by the Assessing Officer during scrutiny assessment. Without their being any new or additional material, re-opening assessment on the basis of said ground, is not permissible;
(iii) Counsel contended that, the Assessing Officer desire to carry out enquiries.
6 On the other hand, learned Counsel Shri Walve for the Department oppose the Petition, contending that, the Assessing Officer has recorded elaborate reasons for issuing impugned notice. The genuineness of the investments made in the AssesseeCompany by Mauritius based Company, was never at issue before the Assessing Officer during original scrutiny assessment. Subsequent to passing of the order of assessment, the Assessing Officer received additional information through the investigation wing of the Department on the basis of which, impugned notice of re-opening of assessment has been issued. Petition may, therefore, be dismissed.
7 The reasons recorded by the Assessing Officer proceed on one ground namely- an investment of Rs.49.90 Crores (rounded of) made by a Mauritius based Company called – Firstland Holdings Limited (herein after referred as Firstland) towards share allocation money in Compulsory Convertible Cumulative Preference Shares, issued by the AssesseeCompany. According to such reasons, the Assessing Officer had received information from the investigation wing of the department, on the basis of which, he records that, the source, genuineness and creditworthiness of the foreign entity remains unexplained and needs further investigation.
8 With this back-ground, we may peruse the material which was brought during the course of original scrutiny assessment. The Assessing Officer had issued notice under Section 142(1) of the Act, on 2nd August, 2013, asking for various details from the assessee, which included the following:-
“ copy of balance sheet and profit and loss account alongwith all annexure.
Whether the company has issued any fresh share during the year or raised any amount by way of debenture/FD etc. If so, how the issue expenses have been dealt with in the accounts.”
9 Such notice was replied by the assessee under a letter dated 8th August, 2013. This contained various annexures. One of them, being the assessee’s balance sheet as on 31st March, 2011. This balance sheet included the following information:
