S. 147 Reopening of Bogus share capital: Though the reopening is based on information supplied by the investigation wing, the reasons do not specify that the investment was non-genuine. The AO cannot reopen to investigate into the source of genuineness and creditworthiness of the investors as it falls within the realm of fishing enquiries which is wholly impermissible in law

Heard learned Counsel for the parties for final disposal of the
Petition.
2 Petitioner has challenged a notice of reopening of an
assessment dated 28th September, 2018, for the Assessment Year 201112.
3 Brief facts are as under:
Petitioner is a Limited Company. For the Assessment Year 201112,
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
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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 31032012 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. 201112. 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. 201011
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: Underassessment 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 NuPower 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
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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.
NuPower 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 NuPower Renewables Pvt. Ltd., has received amount of
Rs.49,90,48,000/ from Mauritius based Firstland Holdings Ltd.,
in F.Y. 201011. The source, genuineness and creditworthiness of
the foreign entity M/s. Firstland Holdings Limited, Mauritius,
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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/ reassessment. 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. 201112 within the meaning of section 147 of the Act.
In this case more than four years have lapsed from the end of
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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 reopening 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, reopening
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
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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 reopening 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 background, 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
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the assessee’s balance sheet as on 31st March, 2011. This balance sheet
included the following information:
Sources of Funds Schedules 2011 2010
Shareholder’s funds 3 49,95,48,000 5,00,000
A cash flow statement as on 31st March, 2011 was also produced
which includes following information:
“C) Cash flow from financing activities:
Proceeds from issue of shares 49,90,48,000 5,00,000”
The reply also contained a schedule to the financial
statements as on 31st March, 2011, which contend the following
information:
3 Share Capital 2011 2010
Authorized
4,500,000 (2010: 4,500,000)
equity shares of Rs.10 each.
500,000 (2010: Nil)
compulsorily convertible
preference shares of Rs.1,000
each
4,50,00,000
50,00,00,000
4,50,00,000

54,50,00,000 4,50,00,000
Issued, subscribed and paidup
50,000 (2010:50,000) equity
shares of Rs.10 each, fully paid
up
(refer note I)
499,048 (2010: Nil) 0.0001%
compulsorily convertible
cumulative preference shares of
Rs.1,000 each, fully paid up
(refer note ii)
5,00,000
49,90,48,000
5,00,000

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49,95,48,000 5,00,000
Note:
(i) Of the above equity shares, 47,496 (2010:
47,496) equity shares of Rs.10 each, fully paid
up, are held by Supreme Energy Private Limited,
the Holding Company.
(ii) The company has allotted 499,048 (2010:
Nil) 0.001% compulsorily convertible
cumulative preference shares (CCPS) of
Rs.1,000 each fully paid up by way of
preferential allotment to Firstland Holdings
Limited, Mauritius on 31st December, 2010. The
said CCPS shall be converted, on conversion
date, into equity shares in accordance with the
pricing guidelines prescribed by the Reserve
Bank of India such that the price for conversion
shall always be higher than the price arrived at
pursuant to the pricing guidelines prescribed by
the Reserve Bank of India.
Where the term “Conversion Date” shall mean
the earlier of :(a) one hundred eighty (180)
days from the Commencement Date; (b) the
date when the CCPS will compulsorily be
required to be converted for the filing of the
draft red herring prospectus by the company
with the Securities and Exchange Board of India,
for the purposes of listing the securities of the
company, or such other date as may be mutually
agreed upon between the parties in writing and
where the “Commencement Date” shall mean
the date when the relevant government
authority grants a commissioning certificate in
respect of the last WEG of the last phase of the
150 MW Project.
10 On 30th October, 2013, the Assessing Officer issued yet
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another notice, calling upon Petitioner to supply further details one of
them was as under:
“ Share capital increased to Rs.499548000/ from
Rs.500000/ please explain the source of fund utilized.”
11 In another notice dated 12th November, 2013, the Assessing
Officer asked the assessee to supply the details of share capital increased
and source of the funds utilized. In response to such further notices,
assessee supplied various details under a communication dated 12th
November, 2013, in which, it was stated as under:
“ Information and details pertaining to the increase in
share capital by Rs.49,90,48,000/. The amount has been
received towards compulsorily convertible cumulative preference
shares from Firstland Holdings Limited, Mauritius. The copy of
FCGPR filed with RBI for inward remittance is attached. The
copy of Certificate of foreign inward remittance and the extract
of Bank statement is also annexed.”
Along with its letter, the Petitioner supplied the details of foreign
collaborate, which reads as under:

“3. Details of the foreign collaborator
Name: FIRSTLAND HOLDINGS LIMITED
Address: LES CASCADES EDITY CAVELL STREET
PORT LOUIS
Country: MAURITIUS
Constitution(specify
whether Foreign National/
Foreign Company/ FVCI/
FII/NRI/PIO/ others): FOREIGN COMPANY.”
12 The Petitioner had supplied the Certificate of Foreign Inward
Remittance of the said funds to the tune of Rs.49.90 Crores, equivalent to
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10,600,000.00 US$. The Petitioner also supplied the bank statement in
which, said amount was reflected. The Petitioner had also produced tax
residence certificate of Firstland. The Petitioner had also produced the
ledger account, containing share application money being credited on 7th
July, 2010 and the source thereof.
13 It was after such scrutiny that, the Assessing Officer had
passed the order of assessment, in which, he made no additions in respect
of the share application money. The entire issue was thus, scrutinized by
the Assessing Officer. Despite such scrutiny and the disclosures of the
transaction by the assessee, if the Assessing Officer was in possession of
additional information, prima facie, showing that, the entire transaction
was bogus and that, the source of fund itself was not genuine. It may still
be open for the Assessing Officer to reopen the assessment.
14 However, whether the Assessing Officer had any such
information at his command and the manner in which, the Assessing
Officer processed such additional information(s) to form a belief that,
income chargeable to tax has escaped assessment, shall have to be
gathered from reasons recorded by him for issuing the notice. In this
context, we may peruse the reasons more minutely and analyze the
contents thereof. The core of the reasons recorded by the Assessing Officer
is found in paragraph 2 thereof. In paragraph 2, the Assessing Officer has
recorded that, he has received information from the Investigation Wing
under a letter dated 15th March, 2018, stating that, the assessee had
received an amount of Rs.49.90 Crores from Firstland a Mauritius based
company towards subscription for 4,99,048 compulsorily convertible
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cumulative preference shares. The Assessing Officer does not refer to any
further information received from the Investigation Wing. In short,
according to the Assessing Officer, the information received from the
Investigation Wing, was confined to the fact that, the assessee had
received share application money to the tune of Rs.49.99 Crores from
Firstland .
15 This information is not something new to the Assessing
Officer. 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
Assessing Officer did not notice this information during scrutiny
assessment. As noted above through series of correspondence between
the assessee and the Assessing Officer, this information was highlighted
time and again. 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.
16 The rest of the reasons recorded merely refer to the Assessing
Officer’s observations in the context of the income chargeable to tax which
had escaped assessment and the reasons why he believed that, reopening
of an assessment even beyond a period of four years, in the present case ,
was permissible. In the entire reasons, from paragraph 3 onwards, there is
no reference to any additional information which was brought to the
notice of the Assessing Officer in this respect.
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17 To summarize, the reasons only refer to a simple piece of
information supplied to the Assessing Officer by the Investigation Wing,
stating that the assesseecompany had received share application money
of Rs.49.99 Crores from Firstland. To reiterate, this information is nothing
which the Assessing Officer did not have at his command when the
Assessment was framed. The reasons do not specify that the information
supplied to the Assessing Officer by the Investigation Wing, suggested that
such investment was nongenuine. In this context, Assessing Officer refers
to the requirement of verifying the genuineness of investor and
requirement of further investigation. These observations in para 3 of the
reasons, 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 reopening of the assessment. For such reasons,
impugned notice is set aside.
18 Petition is allowed.