Referred Sections:
Sections 147/148 of the Income Tax Act, 1961
Section 68 of the Act
Section 148 of the Income Tax.
Referred Cases / Judgments
Sheo Nath Singh vs. ACIT, 82 ITR 148 (SC);
Income Tax Officer vs. Lakhmani Mewal Das, 103 ITR 437 (SC)
Ganga Saran & Sons (P) Ltd. vs. ITO, 130 ITR 1.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 11.02.2019
% Pronounced on : 27.03.2019
+ W.P.(C)No.11572/2017 & CM No.47153/2017
MAX VENTURES INVESTMENTS HOLDINGS PVT.
LTD. (FORMERLY KNOWN AS DYNAVEST INDIA
PVT.LTD) ..... Petitioner
Through : Sh. Ajay Vohra, Sr. Advocate with Sh.
Gaurav Jain, Sh. Aniket. D. Agrawal and
Ms. Deepika Agarwal, Advs.
versus
INCOME TAX OFFICER & ANR. ..... Respondents
Through : Sh. Asheesh Jain, Sr. Standing Counsel
with Sh. Sanjay Kumar, Jr. Standing
Counsel and Sh. Dushyant Sarna, Adv.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
S. RAVINDRA BHAT, J.
1. This petition under Article 226 of the Constitution of India,
challenges a reassessment notice under Sections 147/148 of the Income Tax
Act, 1961 ("the Act" hereafter) issued to the writ petitioner.
2. The petitioner (hereafter "assessee") is a private limited company
incorporated in India under the provisions of the Companies Act, 1956 is
inter alia engaged in the business of rendering financial services. During
F.Y.2009-10, the assessee received share application money of
`87,00,00,000/- from its promoter/founder Sh. Analjit Singh towards fresh
allotment of equity shares. On 25.09.2010, the assessee filed its return of
income for the AY 2010-11 declaring a total income `37,746/. On
W.P.(C)No.11572/2017 Page 1 of 12
06.04.2011, as a part of the exercise of reorganization of the group and
consolidation of shareholding, the right to receive allotment of shares
against the said share application money of `87 crores, was transferred by
Shri Analjit Singh to his family trust, i.e. Neeman Family Foundation
through a gift. The assessees return for AY 2012-13 was selected for
scrutiny, because a substantial amount was received against unallotted
shares. On 16th February, 2015, the AO issued a questionnaire querying the
assessee why share application money of `87 crores received should not be
added to its income.
3. The assessees reply was that the share application money was
received during the A.Y. 2012-13 and that it was holding 5% of paid up
share capital of Max India Limited as promoter group entity. The allotment
of equity shares by assessee to Neeman Family Foundation, would have
resulted in change in ownership status of assessee from individual
promoters to Trust. The said allotment of shares to trust would then have
triggered the requirement of Public Offer/Announcement finder SEBI
Takeover Code, 2011. The assessee also stated that trusts already sought an
exemption from SEBI under the applicable provisions during the F.Y. 2014-
15 for allotment of shares against pending share application money, which
clarified that it would issue equity shares to Neeman Family Foundation,
after obtaining necessary approvals from SEBI in accordance with statutory
compliances. Therefore, the assessee stated that the addition of income
under Section 68 of the Act was not justified. The assessing officer (AO)
however, by an order dated 06.03.2015 added said outstanding amount of
share application money to the declared income of the assessee as
unexplained income in its hands, also holding that the benefit had been
taken by the assessee till date and in future as shares were not allotted even
after the expiry of 4 years. It was also held that the family trust did not get
W.P.(C)No.11572/2017 Page 2 of 12
any benefit having regard to the purpose it was created which showed that it
is just shifting tax burden on deemed income of trust by this route. The AO
further held that the assessee had not taken any step to increase the
authorized share capital to meet out the requirement of issue of shares as the
present authorized share capital was of `20 lakhs against share application
money of `87 crores, which was pending for allotment till the year 2015.
Further, the assessee filed application to get exemption from SEBI in the
year 2014-15 only after questionnaire/notice was issued by the AO. The
assessee appealed to the Commissioner. The CIT(A)s order dated
09.12.2016 deleted the aforesaid addition made by the ld. AO, inter alia, on
the ground that since the aforesaid share application money was not
received in the relevant AY i.e. 2012-13, the provisions of Section 68 of the
Act were not applicable in that year.
4. On 28th March, 2017, the AO issued a notice of reassessment, under
Section 148 of the Income Tax. The relevant extracts of the "reasons to
believe" issued to the assessee, in support of the notice are reproduced
below:
"3.1 The assessee during the course of stay proceedings for
recovery of outstanding demand raised for A.Y. 2012-13 filed
certain documents as piece of evidence that share application
money has been received from Sh. Analjit Singh during F.Y.
2009-10. In support of its claim the assessee filed copies of
extracts of the minutes of the meeting of the Board of Directors
of M/s Max Venture Investment Holdings Pvt. Ltd.
It was quite surprising that the meeting of board of director was
held on 06.01.2010 and 20.04.2010 under the name of M/s Max
Venture Investment Holdings Pvt Ltd. and Sh. Sanjiv Malik has
signed the Board meeting. While on 06.01,2010 and 20.04.2010
neither M/s Max Venture Investment Holdings Pvt. Ltd. was in
existence nor Sh. Sanjeev Malik was the director of that
company. The name of company was M/s Dynavast India Pvt.
Ltd. and this name was subsequently changed to Max Venture
W.P.(C)No.11572/2017 Page 3 of 12
Investment Holdings Pvt. Ltd. Sh. Sanjiv Malik was appointed as
director of the company on 28.12.2013. Which mean that the
assessee has submitted the document which was created after the
happening of events thus it does not support its theory of share
application money provided by Sh. Analjit Singh.
3.2 It is observed that the authorized share capital of the
assessee company was Rs. 20 lakh as on 31.03.2009 and issued
capital was Rs 1,00,000/-. The balance capital to be issued was
Rs. 19 lakh. The assessee company is receiving Rs. 87 crore as
Share application money against the pending share capital of Rs.
19 lakh meaning by that assessee is getting a premium of Rs.
4568947/- on the face value of share of Rs. 10 i.e. 457 times the
face value. While the financials of the assessee company does not
support such high valuation.
Summary of evidences relating to the assessee
4.1 The claim of the assessee was that an amount of Rs 87 Crore
was received from Sh. Analjit Singh in F.Y. 2009-10 while
documentary evidences does not support the claim of the
assessee for the reasons discussed below:-
i. The submission of the assessee that it has received share
application money was not backed by any evidence as these facts
were never intimated to the department during the course of
assessment proceedings for A.Y. 2012-13. The assessee merely
relied upon its submission that it has riot received any Share
application money during the relevant year i.e. 2012-13.
ii. The assessee failed to submit any evidence that Sh. Analjit
Singh has provided any share application money during 2009-10,
2010-11 & 2011-12. Contrary to this the evidences submitted, by
the assessee to support its claim of Share application money
provided by Sh. Analjit Singh does not stand the scrutiny of the
law;
iii. During the course of recovery proceeding, it has been
observed that the assessee has submitted documents in support of
its claim that money has been provided by Sh. Analjit Singh in
2009. But these evidences cannot be relied upon for the following
reasons:-
(a) The assessee submitted the copies of extract of minutes of
meeting of Board of Directors of M/s Max Venture Investment
W.P.(C)No.11572/2017 Page 4 of 12
Holdings Pvt. Ltd. From examination of the copies of extracts of
the minutes of the meeting, of the Board of Directors It. was
observed that the meeting of board of director was held on
06.01.2010 and 20.04.2010 under the name of M/s Max. Venture
Investment Holdings Pvt. Ltd. and Sh. Sanjiv Malik has signed
the Board meeting. While on 06.01.2010 and 20.04.2010 neither
M/s Max Venture Investment Holdings Pvt. Ltd. was in existence
nor Sh. Sanjeev Malik was the director of that company. The
name of company was M/s Dynavast India Pvt. Ltd. and this
name was subsequently changed to Max Venture Investment
Holdings Pvt. Ltd. -and Sh. Sanjiv Malik was appointed as
director of the company on 28.12.2011.
(b) The above fact means that the assessee has submitted the
document which was created after the happening of events. Thus
it does not support its theory of share application money
provided by Sh. Analjit Singh.
iv. Further, the contradictory submission of the assessee and M/s
Neeman Family Foundation further strengthens the view that the
credits of Rs. 87 Crore were not genuine. As per the submission
filed by the assessee dated 13.7.2016 "Sh. Analjit Singh had vide
gift dated 6.4.2011 conveyed the rights to allotment of shares
against the aforesaid application money to Neeman Family
foundation without consideration. As per assessee version Sh.
Analjit Singh has given gift to M/s Neeman Family Foundation,
while M/s Neeman Family Foundation vide its reply dated
9.12.2014 has submitted the copy of balance sheet as on
31.03.2012 and income and expenditure account for the year
ended on 31.03.2012. As per this balance sheet Neeman Family
Foundation has submitted that Donation received till 31.3.2012
was Rs. 89.16 crores. M/s Neeman Family foundation has never,
stated that it has received gift. Hence M/s Neeman Family
foundation in its return of income provided receipt of donation
and no gift was declared by it. This clearly indicates that there is
contradiction between, the submission of the assessee and
documents submitted before the income tax department.
4.2 The assessee failed to prove that whether that share
application money has ever been returned by the assessee or not
to Sh. Analjit Singh.
W.P.(C)No.11572/2017 Page 5 of 12
Reason for formation of belief:
5.1 I have carefully perused and considered the return of income
of the assessee, various information provided by the assessee and
various documents submitted by the assessee before the
department from time to time. It has been observed that various
contradictions were observed leading to credits of Rs. 87 crores
being share application money received by the assessee during
financial year 2009-10. On the basis of material available with
the undersigned it was clear that the transactions with respect to
credits of Rs. 87 crores is not genuine and thus can be basis of
reason-for formation of belief that the income has been escaped
assessment.
5.2. From the documents submitted by the assessee during
various proceedings for A.Y. 2012-13 and return of income for
A.Y. 2010-11 it was clear that the transaction entered by the
assessee relating to receipt of share application of Rs. 87 crore is
under doubt. Section 68 of the Act provides that if the identity
and creditworthiness of person and genuine of the transaction is
not proved than the sum has to be treated as income. Prima facie
on the basis of information available on records and findings of
the Ld. CIT(A)-3's order dated 09.12.2016, it was clear that the
income of Rs. 87 crore being receipt of share application money
has escaped assessment.
5.3 All the documents relied upon while forming the belief has
been annexed and the detail of which is as under:
i. Copy of extract of minute of meeting of Board dated 6.1.2010
as Annexure 1
ii. Copy of extract of minute of meeting of Board dated 06.1.2010
as annexure 2
iii. Copy of letter dated 9.12.2014 of M/s Neeman Family
Foundation including balance sheet and income and expenditure
account addressed to ITO w 7(4) in response to notice u/s 133(6)
as annexure 3
iv. Copy of assessee's letter dated 13.7,2016 application for stay
as annexure 4
W.P.(C)No.11572/2017 Page 6 of 12
Income Chargeable to tax escaping assessment
6.1 Keeping in view all above, I have reason to believe that an
amount of Rs 87,00,00,000/- has escaped assessment in case the
of M/s Max Ventures Investment Holdings Pvt. Ltd. for the A/Y
2010-11 within the meaning of Section 147/148 of Income-tax
Act, 1961."
5. Mr. Ajay Vohra, learned senior counsel appearing for the assessee,
impugned the reassessment notice and urged that when the scrutiny
assessment for AY 2011-12 had examined the matter and the addition
made, on the same ground, was deleted on appeal, the revenue could not
resuscitate the same issue, without any new material. It was submitted that
the revenues argument that the CIT (A) had issued directions to re-examine
the accounts, is an ill-founded submission, unsupported by any such
observation in the Appellate Commissioners order.
6. It is urged that in the facts of the present case, the assessee received
share application money from its founder and promoter, i.e., Shri. Analjit
Singh, whose identity and creditworthiness is admittedly not in doubt,
including by the AO. The reasons recorded doubt the source of receipt of
said share-application money from Mr. Singh on various paltry and
erroneous reasons explained above, which are factually incorrect and
illegal, made on mere pretence with an intent to reopen the concluded
assessment; to conduct roving and fishing enquiries and treat the receipt of
share application money as unexplained income under Section 68 through
reassessment proceedings under section 147 of the Act which is
impermissible in law.
7. It is argued that since the transfer of right to be allotted with equity
shares against share application money by Mr. Singh to Neeman Family
Foundation was subject to permission from SEBI under the Takeover Code
regulations, the entire facts relating to aforesaid investment of `87 cores by
W.P.(C)No.11572/2017 Page 7 of 12
Mr. Singh in the assessee were even disclosed to SEBI. Reference in this
regard is made to the application dated 26.11.2014 filed by Neeman Trust
for exemption from SEBI Takeover Code Regulations, which was allowed
by SEBI by order dated 04.10.2016. Accordingly, the factum of investment
of `87 crores by Mr. Singh in the Petitioner company has been disclosed at
several places and therefore the impugned re-assessment proceedings
initiated raising doubt on the source of such receipt are erroneous and
illegal grounds, which deserves to be quashed.
8. It is urged that that validity of the assumption of jurisdiction under
Section 147 has to be tested on the basis of ,,reasons to believe formed
before issuing notice under Section 148 of the Act. In other words, valid
,,reasons to believe is sine qua non for assuming jurisdiction under Section
147 of the Act. If the ,,reasons to believe are not valid or are mere pretense
or lack due application of mind by the assessing officer, the re-assessment
proceedings initiated under Section 147 of the Act would not be valid.
Learned counsel relied on Sheo Nath Singh vs. ACIT, 82 ITR 148 (SC);
Income Tax Officer vs. Lakhmani Mewal Das, 103 ITR 437 (SC) and
Ganga Saran & Sons (P) Ltd. vs. ITO, 130 ITR 1. The following
observations in Laksmani Mewal Das, are relied upon:
"The grounds or reasons which lead to the formation of the
belief contemplated by section 147(a) of the Act must have a
material bearing on the question of escapement of income of the
assessee from assessment because of his failure or omission to
disclose fully and truly all material facts. Once there exist
reasonable grounds for the Income tax Officer to form the above
belief that would be sufficient to clothe him with jurisdiction to
issue notice. Whether the grounds are adequate or not is not a
matter for the court to investigate. The sufficiency of the grounds
which induce the Income-tax Officer to act is, therefore, not a
justiciable issue. It is, of course, open to the assessee to contend
that the Income-tax Officer did not hold the belief that there had
been such non-disclosure. The existence of the belief can be
W.P.(C)No.11572/2017 Page 8 of 12
challenged by the assessee but not the sufficiency of the reasons
for the belief. The expression "reason to believe" does not mean
a purely subjective satisfaction on the part of the Income-tax
Officer. The reason must be held in good faith. It cannot be
merely a pretence. It is open to the court to examine whether the
reasons for the formation of the belief have a rational connection
with or a relevant bearing on the formation of the belief and are
not extraneous or irrelevant for the purpose of the section. To
this limited extent, the action of the Income-tax Officer in starting
proceedings in respect of income escaping assessment is open to
challenge in a court of law."
9. The revenue contests the writ petition; urging that the reassessment
notice is valid and within the bounds of law. It is submitted that the
reasoning of the CIT (A) and the documents furnished during miscellaneous
proceedings, became a starting point for examining the assessees returns.
In this regard, it is submitted that contradictions were clearly noticed by the
AO while reopening the case of assessee thereby doubting not only the
identity of the share applicant but also the genuineness of the transactions.
In the opening part of the reason recorded, the AO demonstrated that
assessee was in receipt of share application money of `87 crore against the
authorized share capital of `20,00,000/-. The assessee had issued capital of
`1,00,000/- thereby assessee had option to issue share capital of
`19,00,000/- only. Against this `19,00,000/-, it received `87 crores
meaning thereby that it might have issued the shares at a premium of
`4568.95/- against the face value of `10 each thereby issuing the share at
457 times the face value of shares. But the valuation of the assessee did not
justify such a high valuation. Even its Net Asset Value at the time of receipt
of share application money as per Rule 11UA of the Income Tax Rule, 1962
comes at `318/-per share against the receipt of share application money at a
price of `4570/- per shares.
W.P.(C)No.11572/2017 Page 9 of 12
10. It is submitted that the assessee gave various contradictory evidences to
prove the genuineness of the credits of `87 crores in its books during the
course of assessment proceedings for A.Y 2012-13 and also during the
course of stay proceedings. It is argued that no evidence to prove the source
of receipt of share application money was ever produced by the assessee.
The assessee has for the first time filed the "gift deed" dated 06.04.2011 as
"Annexure G" to the Writ Petition before this court. This gift deed was not
filed by the assessee before Ld. A.O. Further a gift is one which is out of
natural love and affection and not out of any compulsion. But the gift deed
dated 06.04.2011 between Sh. Analjit Singh and Neeman Family
Foundation was devoid of all these ingredients of gift, as it was made for
furthering the family arrangements and was thus out of compulsion. In such
circumstances, doubting the genuineness of the transactions cannot be
stated to be out of context. It is also an admitted fact that the assessee has
not issued the shares even till date and the reason stated by the assessee is
that permission would be required from the SEBI. But it is relevant to note
that the share application money was received in F.Y. 2009-10 and it was
only on 26.11.2014, when the assessee filed a Petition before SEBI. The
assessee failed to elaborate as to why no shares were issued from F.Y.
2009-10 to 2014-15. The contradiction itself established that the transaction
pertaining to credit of `87 crores was not genuine.
11. Commissioner of Income Tax v. Kelvinator, (2010) 320 ITR 561
(SC) is now the ruling precedent on what are valid considerations that
would justify issuance of a reassessment notice, under Section 147/148.
These are briefly, when full disclosure of material facts is not made during
the original assessment (such as when essential documents are not produced
or shown); etc. The Supreme Court held that the A.O. has power to re-open
the assessment if there is tangible material to conclude, prima facie that
W.P.(C)No.11572/2017 Page 10 of 12
there has been escapement of income. However, the court cautioned that the
power of reassessment is not one of review and that it does not admit of
formation of a second opinion. The scope of the phrase "reason to believe"
was examined by the Supreme Court previously in M/s. Phool Chand
Bajrang Lal and Anr. v. Income Tax Officer and Anr., (1993) 203 ITR 456
(SC). In Phool Chand, the court made observations which remain
undisturbed in Kelvinator:
"Thus, where the transaction itself on the basis of subsequent
information, is found to be a bogus transaction, the mere
disclosure of that transaction at the time of original assessment
proceedings, cannot be said to be disclosure of the "true" and
"full" facts in the case and the I.T.O. would have the jurisdiction
to reopen the concluded assessment in such a case. It is correct
that the assessing authority could have deferred the completion
of the original assessment proceedings for further enquiry and
investigation into the genuineness to the loan transaction but in
our opinion his failure to do so and complete the original
assessment proceedings would not take away his jurisdiction to
act under Section 147 of the Act, on receipt of the information
subsequently".
12. Clearly therefore, when the Revenue gets hold of information or
material which tends to or has the potential of undermining its findings
(previously made in the assessment proceedings) and have an important
bearing, invocation of the power to reassessment is warranted. Now in the
present case, the Revenue presses several such circumstances: one, that the
SEBI application was made in 2014 after a questionnaire was issued by the
AO; two there was nothing to justify the premium of 457 per cent over the
face value of the shares even the market value of the share according to
the Revenue on the date of issue of the shares was only `318/- per share.
Three, the SEBI approval was given much later; four, when the authorized
W.P.(C)No.11572/2017 Page 11 of 12
capital of company was `20 lakhs (mostly paid) the necessity for issuing
shares worth `87 crores remained unanswered.
13. In the opinion of this court, the reassessment notice in this case was
clearly warranted. Though the assessee had sought to explain that the share
application amounts were received and later the shareholding rights were
transferred by Mr. Analjit Singh to his family trust. The identity of Shri
Analjit Singh was known; however, looking at the transaction (i.e.
allotment of shares vastly in excess of the authorized capital, in the absence
of any SEBI approval and retention of that money by the assessee which did
not show any reason for issuing the shares) the other ingredients of Section
68 (i.e. genuineness of the transaction or credit and the credit worthiness of
the individual providing the money) were apparently not established. In the
light of these circumstances, and on an application of the law in Phool
Chand Bajrang Lal, the Revenue was justified in issuing the impugned
notice.
14. As a result of the foregoing discussion, the writ petition has to fail;
the interim order is hereby vacated; the revenue is at liberty to issue the
final reassessment order, within two weeks. The writ petition is dismissed
in these terms.
S. RAVINDRA BHAT
(JUDGE)
PRATEEK JALAN
(JUDGE)
MARCH 27, 2019
W.P.(C)No.11572/2017 Page 12 of 12
|
