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Unitech Holdings Limited Vs. Deputy Commissioner Of Income Tax
May, 12th 2016
       IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Judgment delivered on: 04.05.2016

+       W.P.(C) 12325/2015 & CM No. 32738/2015

UNITECH HOLDINGS LIMITED                                 ..... Petitioner

                          versus

DEPUTY COMMISSIONER OF INCOME TAX                        ..... Respondent

Advocates who appeared in this case:
For the Petitioner   : Mr Salil Aggarwal, Mr Prakash Kumar and
                       Mr Madhur.
For the Respondents  : Mr Dileep Shivpuri, Senior Standing counsel
                       with Mr Sanjay Kumar.

CORAM:
JUSTICE S.MURALIDHAR
JUSTICE VIBHU BAKHRU

                              JUDGMENT

VIBHU BAKHRU, J

1.      Unitech Holdings Limited (hereafter 'the Assessee') has filed the

present petition under Article 226/227 of the Constitution of India

impugning a notice dated 11th December, 2014 issued under Section 148

of the Income Tax Act, 1961 (hereafter 'the Act') initiating re-assessment

proceedings for Assessment Year (AY) 2010-11. The Assessee further

impugns an order dated 9th November, 2015 disposing of the Assessee's

objections to the initiation of re-assessment proceedings.




W.P.(C) 12325/2015                                               Page 1 of 18
2.      The Assessee is a Non Banking Financial Company (NBFC) and is

wholly owned subsidiary of Unitech Limited, a widely held public

company, which is engaged in, inter alia, the business of construction and

development of real estate.


3.      The Assessee filed its return of income for AY 2010-11 on 12th

October, 2010 declaring an income of Rs.35,22,210/-. The said return

was picked up for scrutiny and, thereafter, an assessment order under

Section 143(3) of the Act was passed on 26 th March, 2013 assessing the

Assessee's income at Rs.8,84,66,800/-.


4.      Aggrieved by the aforesaid assessment order, the Assessee

preferred an appeal before the Commissioner of Income Tax (Appeals)

[hereafter 'CIT(A)']. The said appeal was allowed by CIT(A) by an order

dated 28th March, 2014 and all additions and disallowances made by the

Assessing Officer (hereafter 'AO') were deleted.


5.       Thereafter, the Assessee received the impugned notice dated 11th

December, 2014 under Section 148 of the Act, inter alia, stating that the

AO has reason to believe that the Assessee's income chargeable to tax in

respect of AY 2010-11 had escaped assessment within the meaning of

Section 147 of the Act and proposing to initiate the re-assessment



W.P.(C) 12325/2015                                             Page 2 of 18
proceedings. By the said notice, the Assessee was called upon to furnish a

return of income for AY 2010-11 within a period of 30 days from the date

of service of the said notice.


6.      The Assessee requested for the reasons recorded for initiating re-

assessment proceedings, which were furnished by the AO under the cover

of a letter dated 1st July, 2015. On receipt of the aforesaid reasons, the

Assessee filed its objections which were disposed of by the impugned

order dated 9th November, 2015.


7.      The reasons recorded by the AO for initiation of the re-assessment

proceedings indicate that during the assessment proceedings pertaining to

the Assessee's holding company, Unitech Limited, it was noticed that

Unitech Limited had transferred shares in three joint venture companies,

namely, Unitech Developers & Projects Limited, Unitech Hi-Tech

Structures Limited and Unitech Realty Projects Limited, to the Assessee.

The said shares were transferred at the cost price reflected in the books of

M/s Unitech Limited, which was significantly lower than the book value

of those shares calculated on the basis of the net worth of the said

companies.




W.P.(C) 12325/2015                                               Page 3 of 18
8.      According to the AO, the book value of the shares of the aforesaid

three companies transferred by M/s Unitech Limited on the date of the

transfer/sale - as on 31st March, 2010 - was Rs.3,61,40,20,487/- and the

said shares were transferred at the cost price of Rs.41,15,79,320/-. The

AO alleged that no working of the fair value of the said shares in question

was available at the time of sale/transfer for justifying the value at which

they were transacted and on the said basis, the AO recorded that "I have

reasons to believe that the difference in the book value of the shares and

the cost incurred by the assessee to purchase them is income of the

assessee u/s 28(iv) of the Income Tax Act, which has escaped

assessment".


9.      Mr Salil Aggarwal, learned counsel appearing for the Assessee

referred to a questionnaire dated 23rd January, 2012 issued by the AO

during the course of the assessment proceedings for AY 2010-11, which

required the Assessee to furnish several details including: (i) certified

copy of the audited Balance Sheet and Profit and Loss Account for the

Financial Year 2009-10 along with all Schedules, Annexures, Auditor's

Report and Notes to the Accounts; (ii) details of business activities; (iii)

evidence of assets purchased/sold during the year above Rs.1,00,000/-;




W.P.(C) 12325/2015                                               Page 4 of 18
and details of transactions with parties covered under Section 40A(2)(b)

of the Act along with copies of the Accounts.


10.     Mr Aggarwal stated that the queries raised by the AO were duly

responded to and referred to in the letter dated 20th February, 2013

enclosing therewith various documents including copy of Ledger Account

of M/s Unitech Limited, which indicated entries pertaining to purchase of

the shares in question, as well as a statement indicating the details of the

shares purchased. He laid emphasis on the opening words of the said

letter dated 20th February, 2013 which indicated that the said letter was in

compliance with the AO's demand for additional information. He

contended that it was evident that the Assessee had made full disclosure

in respect of the transactions of purchase of the shares in question and the

same had been examined by the AO during the assessment proceedings.

He contended that in the given circumstances, it was clear that the

impugned re-assessment proceedings were initiated only on a change of

opinion which was not permissible.


11.     Mr. Aggarwal referred to the decisions of the Supreme Court in

CIT v. Kelvinator of India Ltd.: (2010) 320 ITR 561(SC), and

Commissioner of Income-tax v. Usha International Ltd.: (2012) 348




W.P.(C) 12325/2015                                               Page 5 of 18
ITR 485 (SC) in support of his contention that the proceedings for re-

assessment could not be initiated on the ground of change of opinion.


12.     Next, Mr Aggarwal contended that there was no tangible material

on the basis of which the AO could reasonably form a belief that the

income of the Assessee had escaped assessment. He argued that the sale

of shares by Unitech Ltd. at their cost price could not possibly lead to an

inference that the income of the Assessee, under Section 28(iv) of the

Act, had escaped assessment.


13.     Countering the arguments advanced by Mr Aggarwal, Mr Dileep

Shivpuri, learned Senior Standing Counsel contended that the AO of

Unitech became aware that the shares of the three companies in question

had been transferred to the Assessee at a value below their book value,

during the course of the assessment proceedings relating to that company.

He submitted that this fact was not disclosed by the Assessee during the

course of its assessment proceedings for AY 2010-11 and was not in

knowledge of the AO at the material time. He contended that, therefore,

this information would constitute tangible material for re-opening of the

assessment.







W.P.(C) 12325/2015                                              Page 6 of 18
14.     Mr. Shivpuri further submitted that the letter dated 20 th February,

2013 relied upon on behalf of the Assessee, only indicated that the

Assessee had disclosed the shares purchased by it and the value at which

such purchase had been made. However, the fair value of the said shares

was not disclosed and, therefore, no opinion could have been formed by

the AO in that regard. He contended that in the given circumstances, the

question of change of opinion did not arise and the AO could not be

faulted for initiation of reassessment proceedings. He also referred to

Explanation 1 to Section 147(1) of the Act and on the strength of the

same, contended that furnishing of a statement of the shares purchased

would not necessarily amount to disclosure within the meaning of first

proviso to Section 147(1) of the Act.


15.     Mr Shivpuri also referred to the decision of the Supreme Court in

ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.: (2007) 291 ITR 500

(SC) and contended that at the stage of initiation of proceedings, the AO

was only required to form a prima facie opinion that the Assessee's

income had escaped assessment and the AO was not required to take a

final decision at that stage.


16.     Next, he referred to the decision of the Supreme Court in Income

Tax Officer v. Selected Dalurband Coal Co. P. Ltd.: (1996) 217 ITR


W.P.(C) 12325/2015                                               Page 7 of 18
597 (SC) in support of his contention that the veracity or correctness of

information received for reopening the assessment would only be

determined during the course of the proceedings and not at the stage of

initiation of reassessment proceedings. He earnestly contended that the

opinion that Assessee's income had escaped assessment was the

subjective opinion of the AO and if he had formed such an opinion on the

basis of material available, the question whether the said material was

sufficient or could lead to such opinion, could not be made the subject

matter of enquiry by this court. He emphasised that so long as the AO

considered the material to be sufficient to form an opinion, the same

could not be questioned and all that was required to be looked into was

whether there was any nexus between the material discovered and the

AO's opinion. He submitted that, in the present case, the AO had felt that

the sale of the shares in question below their respective book values

indicated escapement of income and this opinion could not be questioned.


17.     At the outset, we must note that the impugned notice under Section

148 of the Act has been issued within a period of four years at the end of

the relevant AY and, therefore, the first proviso to Section 147(1) of the

Act is not attracted; it is not necessary to establish that the income

chargeable to tax had escaped assessment by reason of the failure on the



W.P.(C) 12325/2015                                              Page 8 of 18
part of the Assessee to disclose fully and truly all material facts necessary

for his assessment. Consequently, Explanation 1 to Section 147(1) of the

Act - which provides that the production before the AO of accounts or

other evidence from which material evidence could with due diligence

have been discovered by the AO would not necessarily amount to

disclosure for the purposes of the proviso to Section 147(1) of the Act - is

not relevant for the purposes of this petition.


18.     Now, turning to the facts of the present case, it cannot be disputed

that the transaction of purchase of the shares of the three joint venture

companies were subject matter of enquiry by the AO. The questionnaire

dated 23rd January, 2012 specifically called upon the Assessee to disclose

several details including transactions with related parties along with the

copies of the relevant accounts. Indisputably, details of such transaction

had been furnished along with the Ledger Accounts of various parties and

that included the Ledger Account of Unitech Limited in the books of the

Assessee. A bare perusal of the Ledger Accounts produced by the

Assessee indicates that the transaction relating to purchase of the shares

in question is reflected in those accounts. It is also apparent that the AO

had made enquiries and had called upon the Assessee to furnish further




W.P.(C) 12325/2015                                                Page 9 of 18
information in response to which the Assessee had filed the letter dated

20th February, 2013. The relevant extract of which is reproduced below:-


         "In response to your additional requirements, enclosed
         please find following documents/information as required.
                 xxxx         xxxx         xxxx         xxxx
                 xxxx
                 2)     Copy of Ledger A/c of M/s Unitech Ltd in the
                        books of the assessee company for the F/Y
                        2007-08, 2008-09 and 2009-10.        Annex-2

                        In this regard, most humbly it is submitted that
                        the assessee company is a Non-Banking
                        Finance Company (NBFC Company) and is
                        investment arm of Unitech Ltd. Unitech Ltd
                        being 100% holding company of the assessee
                        company, transferred some investments related
                        with some of the companies to the assessee
                        company as on 30.03.10 & 31.03.10. The detail
                        of such transfers is although reflected in the
                        ledger a/c of Unitech Ltd which is enclosed
                        here-in-above and is further specified as per the
                        detail enclosed herewith.              Annex-3
                        Further to above, it is brought to your kind
                        notice that at the end of the F/y 2009-10, the
                        assessee company became the 100% holding
                        company of Bengal Unitech Universal
                        Townscape Ltd and it is therefore advances of
                        Rs. 39.11 Cr was transferred to the assessee
                        company from Unitech Ltd and ledger A/c of
                        Unitech Ltd in the books of the assessee
                        company       was      credited    accordingly.
                        Simultaneously Share Capital of this company
                        was transferred to the assessee company on the
                        same day."




W.P.(C) 12325/2015                                                   Page 10 of 18
19.     Annexure 3 to the aforementioned letter dated 20th February, 2013

indicated the details of transfer of investment as on 30 th March, 2010 and

31st March, 2010 and is reproduced below:-


                                      ANNEXURE - 3

DETAILS OF TRANSFER OF INVESTMENT AS ON 30.03.2010 & 31.03.2010

30.03.2010           Unitech Amusement Parks Limited           250000000
                     Unitech Sai Private Limited               138600000

                                                               388600000


31.03.2010           Unitech Hitech Structures Limited            308320
                     Unitech Developers & Projects Limited      11103990
                     Unitech Realty Private Limited             400167010

                                                                411579320




20.     It is apparent from the above that the transaction dated 31 st March,

2010 relating to transfer of investments in the three companies

aggregating to Rs.41,15,79,320/- was a subject matter of enquiry by the

AO. The AO having enquired into the transaction of sale and purchase,

and having examined the values at which the transactions had taken place

had not raised any further issue with regard to the transactions in

question. It plainly follows from the above that AO had satisfied himself

as to the entire transaction of purchase of shares including the



W.P.(C) 12325/2015                                                Page 11 of 18
consideration thereof which was duly reflected in the statement furnished

by the Assessee. Although the working relating to the books value of the

shares - assuming that that is relevant - is not available, it must be

presumed that the AO had satisfied himself as to the value of the

transaction and also that the same were held as investments by the

Assessee. This is so because the transaction itself had been enquired into

and the value at which the shares are transferred as well as the nature of

those assets in the hands of the Assessee ­ whether held as investments or

as stock in trade - were plainly the most important aspects of the

transaction. Thus, it must be accepted that the AO, after application of

mind, had accepted that the shares in question were acquired by Assessee

from M/s Unitech Limited at their cost price and were held as

investments by the Assessee. It has been held in a number of decisions

that once it is shown that the AO had enquired into the transactions, it

must be assumed that he had examined the relevant aspects even though

the same have not been expressly referred to in the assessment order. In

Usha International Ltd. (supra), a Full Bench of this Court observed that

there may be cases where the AO may not have raised any written queries

but the issue may be so obvious and apparent that it would be contrary

and opposed to human conduct to assume that the same had not been

considered by the AO.

W.P.(C) 12325/2015                                             Page 12 of 18
21.     In this view, we are unable to accept that AO had not formed an

opinion as to various aspects of the transaction in question, including its

value insofar as it is relevant for assessing the Assessee's income.

Consequently, we must accept the contention that the impugned notices

have been occasioned by a change of opinion. It is trite that a mere

change of opinion cannot constitute a reason for re-opening the

assessment. This has been authoritatively held by the Supreme Court in

Kelvinator of India Limited (supra) in the following words:-


         "6. On going through the changes, quoted above, made to
         section 147 of the Act, we find that, prior to the Direct
         Tax Laws (Amendment) Act, 1987, reopening could be
         done under the above two conditions and fulfilment of the
         said conditions alone conferred jurisdiction on the
         Assessing Officer to make a back assessment, but in
         section 147 of the Act (with effect from 1st April, 1989),
         they are given a go-by and only one condition has
         remained, viz., that where the Assessing Officer has
         reason to believe that income has escaped assessment,
         confers jurisdiction to reopen the assessment. Therefore,
         post-1st April, 1989, power to reopen is much wider.
         However, one needs to give a schematic interpretation to
         the words " reason to believe" failing which, we are
         afraid, section 147 would give arbitrary powers to the
         Assessing Officer to reopen assessments on the basis of "
         mere change of opinion", which cannot be per se reason
         to reopen. We must also keep in mind the conceptual
         difference between power to review and power to
         reassess. The Assessing Officer has no power to review ;
         he has the power to reassess. But reassessment has to be


W.P.(C) 12325/2015                                               Page 13 of 18
         based on fulfilment of certain preconditions and if the
         concept of "change of opinion" is removed, as contended
         on behalf of the Department, then, in the garb of
         reopening the assessment, review would take place. One
         must treat the concept of "change of opinion" as an in-
         built test to check abuse of power by the Assessing
         Officer. Hence, after 1st April, 1989, the Assessing
         Officer has power to reopen, provided there is "tangible
         material" to come to the conclusion that there is
         escapement of income from assessment. Reasons must
         have a live link with the formation of the belief. Our view
         gets support from the changes made to section 147 of the
         Act, as quoted hereinabove. Under the Direct Tax Laws
         (Amendment) Act, 1987, Parliament not only deleted the
         words "reason to believe" but also inserted the word
         "opinion" in section 147 of the Act. However, on receipt
         of representations from the companies against omission
         of the words "reason to believe", Parliament reintroduced
         the said expression and deleted the word "opinion" on the
         ground that it would vest arbitrary powers in the
         Assessing Officer."


22.     The aforesaid view has been reiterated in several decisions

thereafter. Thus the impugned notice is liable to be set aside for this

reason alone. However, for the sake of completeness, it would be

necessary to address the issue, whether the AO had any tangible material

for forming a belief that Assessee's income had escaped assessment.


23.     It is well established that the AO's belief that an Assessee's income

has escaped assessment is a matter of his subjective opinion and a Court






W.P.(C) 12325/2015                                                Page 14 of 18
would not supplant its view over that of the AO. However, the question

whether the material could reasonably lead to a belief that an Assessee's

income had escaped assessment would certainly be open for examination.

This is an essential safeguard which is built in the language of Section

147 of the Act. As explained in ITO v. Lakhmani Mewal Das: (1976)

103 ITR 437 (SC), the words used in Section 147 of the Act are 'reason

to believe' and not 'reason to suspect'. Clearly, the tangible material

available with the AO should be such as to reasonably lead the AO to

believe that Assessee's income had escaped assessment. Even though

such opinion may be his subjective opinion, nonetheless, it cannot be

arbitrary or whimsical and must be one which a person could reasonably

form on the basis of some tangible material. In Rajesh Jhaveri Stock

Brokers Pvt. Ltd. (supra), the Supreme Court has explained that "the

word 'reason' in the phrase 'reason to believe' would mean cause or

justification". Thus, the AO must have cause or justification to believe

that the income had escaped assessment. Thus, even though, the AO is

not required to finally conclude at the stage of issuance of notice under

Section 148 of the Act that the Assessee's income has escaped

assessment, nonetheless, he must - on the basis of material in his

possession - reasonably form a belief that the Assessee's income had

escaped assessment.

W.P.(C) 12325/2015                                             Page 15 of 18
24.     In Lakhmani Mewal Das (supra), the Court had explained that the

material available with the AO must have a live link with formation of

belief that the Assessee's income had escaped assessment.


25.     Applying the aforesaid principles, in the facts of the present case, it

is difficult to accept that the sale of shares by Unitech Limited at its cost

price which is lower than the book value of the shares would result in

income (equivalent to the difference between the book value of the shares

and the cost price at which they were sold) in the hands of the Assessee.

The shares of the three companies in question are held as investments by

the Assessee and duly reflected by the Assessee as such. No objection has

been raised by the AO in this regard. In the circumstances, we find it

difficult to comprehend as to how the acquisition of investments by the

Assessee could lead to an inference that the Assessee had earned income

under Section 28(iv) of the Act - value of any benefit or perquisite arising

from business or profession - chargeable under the head profits and gains

of business or profession.


26.     The reliance placed by Mr Shivpuri on the decision of the Supreme

Court in Selected Dalurband Coal Co. P. Ltd. (supra) is also misplaced.

In that case, the AO was in the possession of a letter of the Chief Mining

Officer which indicated that a joint inspection of the Assessee's mines


W.P.(C) 12325/2015                                                  Page 16 of 18
have been undertaken by the officers of the Mining Department and the

representatives of the assessee (in that case) and it was found that

1,36,390 metric tonne of excess coal had been raised and 387 metric

tonne of surface coal was short. The State of West Bengal had, thus,

decided to charge royalty on the excess raising and the shortage in surface

coal which were, apparently, not reflected in the books. Clearly, the fact

that coal in excess of the declared quantity had been raised and 387

metric tonne of surface coal was short would lead to an inescapable

conclusion that coal had been sold outside the books and income resulting

therefrom had escaped assessment. Thus, plainly, the material available

with the AO had a logical link with the AO's belief that the assessee's

income had escaped assessment. It is, in that context, that the Supreme

Court held that the fact whether allegations made in the letter of the Chief

Mining Officer were correct or not would be a subject matter of the

proceedings. However, the letter gave a reasonably specific estimate of

excessive coal mining resulting in a belief that the Assessee's income had

escaped assessment. In that case, the nexus between material available

with the AO and the belief that the Assessee's income had escaped

assessment was clearly established. This is not so, in the present case.




W.P.(C) 12325/2015                                               Page 17 of 18
27.     Mr Shivpuri's contention that AO's opinion is not amenable to

judicial review and thus the material on which such opinion is formed

also cannot be made a subject matter of enquiry, is without merit. Whilst,

we agree that the AO's belief that income of an assessee has escaped

assessment is a matter of his subjective satisfaction, the question whether

such belief could be reasonably formed and whether the material

available with the AO could possibly lead to such belief can certainly be

enquired into.


28.     In view of the aforesaid, the impugned notice and the proceedings

initiated pursuant thereof are quashed. The petition is allowed. The

pending application also stands disposed of. However, the parties are left

to bear their own costs.




                                                   VIBHU BAKHRU, J



                                                   S.MURALIDHAR, J
MAY 04, 2016
RK




W.P.(C) 12325/2015                                              Page 18 of 18

 
 
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