IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nWRIT PETITION NO. 3618 OF 2018
\nNuPower Renewables Pvt. Ltd., .. Petitioner.
\nv\/s.
\nAsst. Commissioner of Income Tax
\n1(2)(2) & Others .. Respondents.
\nMr. Percy Pardiwalla, Sr. Advocate with Mr. Jeet Kamdar i\/b. Mr. Sameer
\nDalal, for the Petitioner.
\nMr. Sham Walve, for Respondent Nos 1 to 3.
\nCORAM: AKIL KURESHI &
\nM.S.SANKLECHA, JJ.
\nDATE : 7th MARCH, 2019.
\nP.C:
\nHeard learned Counsel for the parties for final disposal of the
\nPetition.
\n2 Petitioner has challenged a notice of reopening of an
\nassessment dated 28th September, 2018, for the Assessment Year 201112.
\n3 Brief facts are as under:
\nPetitioner is a Limited Company. For the Assessment Year 201112,
\nthe Petitioner had filed the return of income on 29th September,
\n2011, declaring loss of Rs.5.97 Crores (rounded of). The Petitioner
\nhad filed revised return on 31st March, 2012, declaring loss of
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\nRs.6.45 Crores. Such return was taken in scrutiny by the Assessing
\nOfficer who passed order of assessment under Section 143(3) of the
\nIncome Tax, 1961 (in short \u201cthe Act\u201d) on 26th December, 2013. In
\norder to do so, he recored the following reasons:
\n\u201c1. Brief details of the assessee: The original return of
\nincome was efiled on 29\/09\/2011, declaring total income of
\nRs. Nil and current year loss at Rs.5,97,19,479\/. Subsequently,
\nthe revised return of income was efiled on 31032012 showing
\ntotal income at Rs. Nil and current year loss at Rs.6,45,41,300\/.
\nThe case was selected for scrutiny for A. Y. 201112. The
\nassessment was completed on 26\/12\/2013 determining total loss
\nat Rs.6,45,41,300\/. The company is engaged in generation and
\nsale of electricity through wind mill.
\n2. Brief details of information collected\/received by the AO:
\nIn this case, information has been received from ADIT (INV.)
\nUNIT4(2), MUMBAI vide letter dated 15.03.2018, that NuPower
\nRenewables Pvt. Ltd. has received amount of Rs.49,90,48,000\/
\nfrom Mauritius based Firstland Holdings Ltd. in F. Y. 201011
\nbeing subscription towards 0.000% Compulsory Convertible
\nCumulative Preference shares (4,99,048 nos.)
\n3. Analysis of information collected\/ received: On perusal of
\nForm 2 filed with ROC in this respect clearly indicates that
\n4,99,048 nos. of shares has been allotted by M\/s. NuPower
\nRenewables Private Ltd. On 31.12.2010 to Firstland Holdings
\nLimited, Mauritius. The source, genuineness and creditworthiness
\nof the foreign entity M\/s. Firstland Holdings Limited , Mauritius
\nremains unexplained and needs further investigation. In this
\nrespect reference to the competent authorities of Mauritius
\nthrough FT & TR Division has been made.
\n4. Findings of the AO: Underassessment of income to the
\nextent of Rs. 49,90,48,000\/ involving potential tax effect of
\nRs.16,96,26,415\/.
\n5. Basis of forming reasons to believe and details of
\nescapement of income: Information has been received from
\nADIT(INV.) UNIT4(2), MUMBAI vide letter dated 15\/03\/2018,
\nthat NuPower Renewables Pvt. Ltd., has received amount of
\nRs.49,90,49,000\/ from Mauritius based Firstland Holdings Ltd.
\nIn F. Y. 201011 being subscription towards 0.000% Compulsory
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\nConvertible Cumulative Preference Share (4,99,048 nos.)
\nOn perusal of Form 2 filed with ROC in this respect clearly
\nindicates that 4,99,048 no shares has been allotted by M\/s.
\nNuPower Renewables Pvt. Ltd., on 31.12.2010 Firstland Holdings
\nLimited, Mauritius. The source, genuineness and creditworthiness
\nof the foreign entity M\/s. Firstland Holdings Limited, Mauritius
\nremains unexplained needs further investigation. In this respect
\nreference to the competent authorities of Mauritius through FT &
\nTR Division has been made.
\n6. Escapement of income chargeable to tax in relation to any
\nassets (including financial interest in any entity) located outside
\nIndia: Not applicable.
\n7. Findings of the AO on true and full disclosure of the
\nmaterial facts necessary for assessment under Proviso to section
\n147: Findings on examination of records and verification thereof
\nthat the assessee had not disclosed fully and truly all material
\nfacts necessary for his assessment or that the facts of the case are
\ncovered by the explanation 1 to section 147 of the Act.
\n8. Applicability of the provisions of section 147\/151 to the
\nfacts of the case: In this case a return of income was filed for the
\nyear under consideration and regular assessment u\/s. 143(3) was
\nmade on 26.12.2013. Since, 4 years from the end of the relevant
\nyear has expired in this case, the requirements to initiate
\nproceeding u\/s. 147 of the Act are reason to believe that income
\nfor the year under consideration has escaped assessment because
\nof failure on the part of the assessee to disclose full and truly all
\nmaterial facts necessary for his assessment for the assessment
\nyear under consideration. It is pertinent to mention here that
\nreasons to believe that income has escaped assessment for the year
\nunder consideration have been recorded above (refer paragraphs
\n2,3 and 5). I have carefully considered the assessment records
\ncontaining the submissions made by the assessee in response to
\nvarious notices issued during the assessment proceedings and have
\nnoted that the assessee has not fully and truly disclosed the
\nfollowing material facts necessary for his assessment for the year
\nunder consideration.
\nThe NuPower Renewables Pvt. Ltd., has received amount of
\nRs.49,90,48,000\/ from Mauritius based Firstland Holdings Ltd.,
\nin F.Y. 201011. The source, genuineness and creditworthiness of
\nthe foreign entity M\/s. Firstland Holdings Limited, Mauritius,
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\nremains unexplained and needs further investigation. In this
\nrespect reference to the competent authorities of Mauritius
\nthrough FT & TR Division has been made.
\nIt has been resulted in underassessment of income to the extent of
\nRs.49,90,48,000\/ involving potential tax effect of
\nRs.16,96,26,415\/.
\nIt is evident from the above facts that the assessee had not truly
\nand fully disclosed material facts necessary for his assessment for
\nthe year under consideration thereby necessitating reopening u\/s.
\n147 of the Act.
\nIt is true that the assessee has filed a copy of annual report and
\naudited P & L A\/c. and balance sheet along with return of income
\nwhere various information\/ material were disclosed. However,
\nthe requisite full and true disclosure of all material facts necessary
\nfor assessment has not been made as noted above. It is pertinent
\nto mention here that, even though the assessee has produced
\nbooks of accounts, annual report, audited P & L a\/c and balance
\nsheet or other evidence as mentioned above, the requisite material
\nfacts as noted above in the reasons for reopening were embedded
\nin such a manner that material evidence could not be discovered
\nby the AO and could have been discovered with due diligence,
\naccordingly, attracting provisions of Explanation 1 of section 147
\nof the Act.
\nIt is evident from the above discussion that in this case, the issues
\nunder consideration were never examined by the AO during the
\ncourse of regular assessment\/ reassessment. This fact is
\ncorroborated from the contents of notices issued by the AO u\/s
\n143(2)\/142(1) and order sheet entries dated 31.10.2013 to
\n26.12.2013 recorded during the 143(3) proceedings. It is
\nimportant to highlight here that material facts relevant for the
\nassessment on the issue(s) under consideration were not filed
\nduring the course of assessment proceeding and the same may be
\nembedded in annual report, audited P & L A\/c. balance sheet and
\nbooks of account in such a manner that it would require due
\ndiligence by the AO to extract these information. For aforestated
\nreasons, it is not a case of change of opinion by the A.O.
\nIn view of the above facts, I am satisfied that the assessee’s income
\nof Rs.49,90,48,000\/ or above, has escaped assessment for the
\nA.Y. 201112 within the meaning of section 147 of the Act.
\nIn this case more than four years have lapsed from the end of
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\nassessment year under consideration. Hence necessary sanction to
\nissue notice u\/s. 148 has been obtained separately from Principal
\nCommissioner of Income Tax as per the provisions of section 151
\nof the Act.\u201d
\n4 Upon being supplied the reasons, the Assessee raised
\nobjection to the notice of reopening of an assessment under a
\ncommunication dated 5th October, 2018. Such objections were rejected by
\nthe Assessing Officer by an order dated 22nd November, 2018, upon
\nwhich, this Petition has been filed.
\n5 Appearing for the Petitioner, learned Counsel Shri Pardiwalla,
\nSr. Counsel, raised following contentions:
\n(i) The impugned notice has been issued beyond a period of four years
\nfrom the end of the relevant Assessment Year. There was no failure
\non the part of the assessee to declare fully and truly all material
\nfacts;
\n(ii) The ground on which the Assessing Officer wishes to rely upon was
\nexamined by the Assessing Officer during scrutiny assessment.
\nWithout their being any new or additional material, reopening
\nassessment on the basis of said ground, is not permissible;
\n(iii) Counsel contended that, the Assessing Officer desire to carry out
\nenquiries.
\n6 On the other hand, learned Counsel Shri Walve for the
\nDepartment oppose the Petition, contending that, the Assessing Officer
\nhas recorded elaborate reasons for issuing impugned notice. The
\ngenuineness of the investments made in the AssesseeCompany by
\nMauritius based Company, was never at issue before the Assessing Officer
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\nduring original scrutiny assessment. Subsequent to passing of the order of
\nassessment, the Assessing Officer received additional information through
\nthe investigation wing of the Department on the basis of which, impugned
\nnotice of reopening of assessment has been issued. Petition may,
\ntherefore, be dismissed.
\n7 The reasons recorded by the Assessing Officer proceed on one
\nground namely an investment of Rs.49.90 Crores (rounded of) made by
\na Mauritius based Company called \u2013 Firstland Holdings Limited (herein
\nafter referred as Firstland) towards share allocation money in Compulsory
\nConvertible Cumulative Preference Shares, issued by the AssesseeCompany. According to such reasons, the Assessing Officer had received
\ninformation from the investigation wing of the department, on the basis of
\nwhich, he records that, the source, genuineness and creditworthiness of
\nthe foreign entity remains unexplained and needs further investigation.
\n8 With this background, we may peruse the material which
\nwas brought during the course of original scrutiny assessment. The
\nAssessing Officer had issued notice under Section 142(1) of the Act, on 2nd
\nAugust, 2013, asking for various details from the assessee, which included
\nthe following:
\n\u201c copy of balance sheet and profit and loss account
\nalongwith all annexure.
\nWhether the company has issued any fresh share during the
\nyear or raised any amount by way of debenture\/FD etc. If so,
\nhow the issue expenses have been dealt with in the accounts.\u201d
\n9 Such notice was replied by the assessee under a letter dated
\n8th August, 2013. This contained various annexures. One of them, being
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\nthe assessee’s balance sheet as on 31st March, 2011. This balance sheet
\nincluded the following information:
\nSources of Funds Schedules 2011 2010
\nShareholder’s funds 3 49,95,48,000 5,00,000
\nA cash flow statement as on 31st March, 2011 was also produced
\nwhich includes following information:
\n\u201cC) Cash flow from financing activities:
\nProceeds from issue of shares 49,90,48,000 5,00,000\u201d
\nThe reply also contained a schedule to the financial
\nstatements as on 31st March, 2011, which contend the following
\ninformation:
\n3 Share Capital 2011 2010
\nAuthorized
\n4,500,000 (2010: 4,500,000)
\nequity shares of Rs.10 each.
\n500,000 (2010: Nil)
\ncompulsorily convertible
\npreference shares of Rs.1,000
\neach
\n4,50,00,000
\n50,00,00,000
\n4,50,00,000<\/p>\n
54,50,00,000 4,50,00,000
\nIssued, subscribed and paidup
\n50,000 (2010:50,000) equity
\nshares of Rs.10 each, fully paid
\nup
\n(refer note I)
\n499,048 (2010: Nil) 0.0001%
\ncompulsorily convertible
\ncumulative preference shares of
\nRs.1,000 each, fully paid up
\n(refer note ii)
\n5,00,000
\n49,90,48,000
\n5,00,000<\/p>\n
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\n49,95,48,000 5,00,000
\nNote:
\n(i) Of the above equity shares, 47,496 (2010:
\n47,496) equity shares of Rs.10 each, fully paid
\nup, are held by Supreme Energy Private Limited,
\nthe Holding Company.
\n(ii) The company has allotted 499,048 (2010:
\nNil) 0.001% compulsorily convertible
\ncumulative preference shares (CCPS) of
\nRs.1,000 each fully paid up by way of
\npreferential allotment to Firstland Holdings
\nLimited, Mauritius on 31st December, 2010. The
\nsaid CCPS shall be converted, on conversion
\ndate, into equity shares in accordance with the
\npricing guidelines prescribed by the Reserve
\nBank of India such that the price for conversion
\nshall always be higher than the price arrived at
\npursuant to the pricing guidelines prescribed by
\nthe Reserve Bank of India.
\nWhere the term \u201cConversion Date\u201d shall mean
\nthe earlier of :(a) one hundred eighty (180)
\ndays from the Commencement Date; (b) the
\ndate when the CCPS will compulsorily be
\nrequired to be converted for the filing of the
\ndraft red herring prospectus by the company
\nwith the Securities and Exchange Board of India,
\nfor the purposes of listing the securities of the
\ncompany, or such other date as may be mutually
\nagreed upon between the parties in writing and
\nwhere the \u201cCommencement Date\u201d shall mean
\nthe date when the relevant government
\nauthority grants a commissioning certificate in
\nrespect of the last WEG of the last phase of the
\n150 MW Project.
\n10 On 30th October, 2013, the Assessing Officer issued yet
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\nanother notice, calling upon Petitioner to supply further details one of
\nthem was as under:
\n\u201c Share capital increased to Rs.499548000\/ from
\nRs.500000\/ please explain the source of fund utilized.\u201d
\n11 In another notice dated 12th November, 2013, the Assessing
\nOfficer asked the assessee to supply the details of share capital increased
\nand source of the funds utilized. In response to such further notices,
\nassessee supplied various details under a communication dated 12th
\nNovember, 2013, in which, it was stated as under:
\n\u201c Information and details pertaining to the increase in
\nshare capital by Rs.49,90,48,000\/. The amount has been
\nreceived towards compulsorily convertible cumulative preference
\nshares from Firstland Holdings Limited, Mauritius. The copy of
\nFCGPR filed with RBI for inward remittance is attached. The
\ncopy of Certificate of foreign inward remittance and the extract
\nof Bank statement is also annexed.\u201d
\nAlong with its letter, the Petitioner supplied the details of foreign
\ncollaborate, which reads as under:
\n\u201c3. Details of the foreign collaborator
\nName: FIRSTLAND HOLDINGS LIMITED
\nAddress: LES CASCADES EDITY CAVELL STREET
\nPORT LOUIS
\nCountry: MAURITIUS
\nConstitution(specify
\nwhether Foreign National\/
\nForeign Company\/ FVCI\/
\nFII\/NRI\/PIO\/ others): FOREIGN COMPANY.\u201d
\n12 The Petitioner had supplied the Certificate of Foreign Inward
\nRemittance of the said funds to the tune of Rs.49.90 Crores, equivalent to
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\n10,600,000.00 US$. The Petitioner also supplied the bank statement in
\nwhich, said amount was reflected. The Petitioner had also produced tax
\nresidence certificate of Firstland. The Petitioner had also produced the
\nledger account, containing share application money being credited on 7th
\nJuly, 2010 and the source thereof.
\n13 It was after such scrutiny that, the Assessing Officer had
\npassed the order of assessment, in which, he made no additions in respect
\nof the share application money. The entire issue was thus, scrutinized by
\nthe Assessing Officer. Despite such scrutiny and the disclosures of the
\ntransaction by the assessee, if the Assessing Officer was in possession of
\nadditional information, prima facie, showing that, the entire transaction
\nwas bogus and that, the source of fund itself was not genuine. It may still
\nbe open for the Assessing Officer to reopen the assessment.
\n14 However, whether the Assessing Officer had any such
\ninformation at his command and the manner in which, the Assessing
\nOfficer processed such additional information(s) to form a belief that,
\nincome chargeable to tax has escaped assessment, shall have to be
\ngathered from reasons recorded by him for issuing the notice. In this
\ncontext, we may peruse the reasons more minutely and analyze the
\ncontents thereof. The core of the reasons recorded by the Assessing Officer
\nis found in paragraph 2 thereof. In paragraph 2, the Assessing Officer has
\nrecorded that, he has received information from the Investigation Wing
\nunder a letter dated 15th March, 2018, stating that, the assessee had
\nreceived an amount of Rs.49.90 Crores from Firstland a Mauritius based
\ncompany towards subscription for 4,99,048 compulsorily convertible
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\ncumulative preference shares. The Assessing Officer does not refer to any
\nfurther information received from the Investigation Wing. In short,
\naccording to the Assessing Officer, the information received from the
\nInvestigation Wing, was confined to the fact that, the assessee had
\nreceived share application money to the tune of Rs.49.99 Crores from
\nFirstland .
\n15 This information is not something new to the Assessing
\nOfficer. The fact that the assessee had received such share application
\nmoney from Firstland was part of the assessee’s return. It is not as if the
\nAssessing Officer did not notice this information during scrutiny
\nassessment. As noted above through series of correspondence between
\nthe assessee and the Assessing Officer, this information was highlighted
\ntime and again. The channel of movement of the fund, the source of the
\nfund, purpose of investment and the ultimate destination of the fund,
\nwere all part of the record during the assessment proceedings. There is
\nnothing in the reasons recorded by the Assessing Officer to suggest that,
\nsuch investment is bogus.
\n16 The rest of the reasons recorded merely refer to the Assessing
\nOfficer’s observations in the context of the income chargeable to tax which
\nhad escaped assessment and the reasons why he believed that, reopening
\nof an assessment even beyond a period of four years, in the present case ,
\nwas permissible. In the entire reasons, from paragraph 3 onwards, there is
\nno reference to any additional information which was brought to the
\nnotice of the Assessing Officer in this respect.
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\n17 To summarize, the reasons only refer to a simple piece of
\ninformation supplied to the Assessing Officer by the Investigation Wing,
\nstating that the assesseecompany had received share application money
\nof Rs.49.99 Crores from Firstland. To reiterate, this information is nothing
\nwhich the Assessing Officer did not have at his command when the
\nAssessment was framed. The reasons do not specify that the information
\nsupplied to the Assessing Officer by the Investigation Wing, suggested that
\nsuch investment was nongenuine. In this context, Assessing Officer refers
\nto the requirement of verifying the genuineness of investor and
\nrequirement of further investigation. These observations in para 3 of the
\nreasons, would not further the case of the Revenue, these being no
\ninformation with the Assessing Officer, prima facie, indicating that the
\ninvestments were not genuine. The investigation into the source of
\ngenuineness and creditworthiness of the investor company would fall
\nwithin the relam of fishing enquiries, which is wholly impermissible in law
\nin the context of the reopening of the assessment. For such reasons,
\nimpugned notice is set aside.
\n18 Petition is allowed.
\n(M.S.SANKLECHA,J.) (AKIL KURESHI,J.)<\/p>\n","protected":false},"excerpt":{"rendered":"
The reasons do not specify that the information supplied to the Assessing Officer by the Investigation Wing, suggested that such investment was non\u00ad genuine. In this context, Assessing Officer refers to the requirement of verifying the genuineness of investor and requirement of further investigation. These observations would not further the case of the Revenue, these being no information with the Assessing Officer, prima facie, indicating that the investments were not genuine. The investigation into the source of genuineness and creditworthiness of the investor company would fall within the relam of fishing enquiries, which is wholly impermissible in law in the context of the re\u00adopening of the assessment<\/p>\n