Touchstone Holdings Pvt. Ltd v. Income Tax Officer, Delhi And Others

$~13 *IN THE HIGH COURT OF DELHI AT NEW DELHI +WPC 13102/2022 TOUCHSTONE HOLDINGS PVT. LTD...... Appellant Through: Mr Salil Aggarwal Senior Advocatewith Mr Madhur Aggarwal, Advocate.with Mr Madhur Aggarwal, Advocate. versus INCOME TAX OFFICER, DELHI AND OTHERS..... Respondent Through: Mr Puneet Rai, Senior Standing CounselWith Ms Adeeba Mujahid, Jr St. Counsel forIncome Tax Dept. Along with Mr Nikhil Jain,Advocate.With Ms Adeeba Mujahid, Jr St. Counsel forIncome Tax Dept. Along with Mr Nikhil Jain,Advocate. % Date of Decision: 9[th]September, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (Oral): 1.Present writ petition has been filed challenging the Order dated 20[th]July, 2022, passed under Section 148A(d) of the Income Tax Act 1961, (‘theAct’), Notice dated 20[th]July, 2022 issued under Section 148 of the Act forthe Assessment Year (‘AY’) 2013-14 and the CBDT Instruction No. 1/2022dated 11[th]May, 2022. 2.Learned Senior Counsel for the petitioner states that the informationregarding the petitioner’s alleged transaction with M/s BDR Builders and WPC 13102/2022 DevelopersPrivateLtd.forthepurchaseofsharesamountingtoRs.69,93,00,000/- is factually wrong as there was no transaction of any saleor purchase of shares in the assessment year under consideration. He statesthat the petitioner has no concern with the transactions set out in Noticedated 1[st]June, 2022, as the same were undertaken by petitioner'sshareholders and the assessee has no concern with these transactions. 3.He also submits that as per the first proviso to Section 149 of the Act(as amended by Finance Act, 2021), no notice for re-assessment can beissued for assessment year 2013-14, as the time limit for initiating theproceedings expired on 30[th]March, 2020, as per the provisions of Section149 (as it stood prior to its amendment by Finance Act, 2021). He, therefore,contends that the present proceedings initiated by the respondent inpursuance of the initial notice dated 29[th]June, 2021, and judgment of theSupreme Court in Union of India Vs. Ashish Agarwal reported in 2022SCC OnLine SC 543 are time barred. 4.Learned Senior Standing Counsel for the Revenue, Mr. Puneet Raisubmits that Section 3 of Taxation and Other Laws (Relaxation andAmendment of Certain Provisions) Act, 2020 (‘TOLA’) applies to theunamended provisions of Section 149 of the Act (as it stood prior to itsamendment by Finance Act, 2021) and therefore, the initial notice dated29th June, 2021, and the proceedings taken in continuation as per thejudgment of Ashish Agarwal (supra) are not time barred. He further statesthat the information pertaining to the petitioner, which is a part of the BDRGroup is duly reflected in the investigation report and the said BDR Groupis in the business of providing accommodation entries and as per theRevenue, the petitioner received bogus share premium and capital of Rs. WPC 13102/2022 69.93 crores. He stated that in these facts, no interference is warranted inwrit proceedings. 5.We have heard the learned counsel for the parties and perused thepaper-book. This Court finds that the petitioner has not brought on recordanything to prove that the reassessment proceedings are being undertaken inan arbitrary manner. WPC 13102/2022 69.93 crores. He stated that in these facts, no interference is warranted inwrit proceedings. 5.We have heard the learned counsel for the parties and perused thepaper-book. This Court finds that the petitioner has not brought on recordanything to prove that the reassessment proceedings are being undertaken inan arbitrary manner. 6.In the information shared with the assessee vide Notice dated 1[st]June, 2022 it was stated that the transaction of sale and purchase of sharesheld by the assessee by M/s Bagh Kothi Invest & Finance Private Limitedand M/s Nandi Mercantile Pvt. Ltd. on 28.03.2013 is under scrutiny. Thenotice states that the creditworthiness and genuineness of this transaction ofsale and purchase was not established. It was further stated that thepetitioner-assessee is a part of the BDR group and it had received sharepremium to the tune of Rs. 69.93 crores from S.K. Jain group of companies,which are in the business of providing accommodation entries in the form ofinter-alia bogus share capital. In support of the information, the AssessingOfficer ('AO') relied upon the report of the Investigation Wing, Delhi and asurvey report in the case of BDR Group. 7.The petitioner in its reply has contended that the said informationeven if assumed to be correct, evidences that the transactions which areunder scrutiny was undertaken between its shareholders and no amount wasreceived by the assessee and therefore, the provisions of Section 68 of theAct are not attracted as no share application money or share capital or sharepremium was received by the assessee in the relevant assessment year. 8.The AO after considering the reply dated 15[th]June, 2022 of thepetitioner, in the impugned Order referred to the survey action carried out on WPC 13102/2022 13[th]December, 2018 on the premises of the entities belonging to the BDRGroup and in fact survey was also conducted at the premises of the assessee.The said survey as per the AO resulted in impounding of incriminatingdocuments which disclosed that the BDR Group of companies are engagedin unaccounted cash transactions and one of the modus used by the saidcompanies is to provide bogus share capital and bogus share premium toother companies. The AO has summarised the findings against the assesseeat paragraph 6.2 of the impugned Order, which read as under: “6.2 Following are the relevant findings with respect to the assesseeM/s Touchstone Holding Pvt. Ltd. (PAN: ): This company is a group company of BDR group. This companyitself appears in the list of SK Jain related entities. The financialprofile of M/s Touchstone Holdings P Ltd does not show anysignificant business activity. It must be noticed that shares of thecompany were acquired by the persons belonging to the targetgroup (i.e. BDR Group) in FY 2014-15.itself appears in the list of SK Jain related entities. The financialprofile of M/s Touchstone Holdings P Ltd does not show anysignificant business activity. It must be noticed that shares of thecompany were acquired by the persons belonging to the targetgroup (i.e. BDR Group) in FY 2014-15. The changes in shareholding pattern can be seen in detail from theInvestigation Report in this case.Investigation Report in this case. It can be seen that how shareholding was acquired by the BDRgroup. The purpose for the BDR group to acquire the shares ofthis company is that the company has huge share premium to thetune of Rs. 69.93 crores. The Share premium was received on26.03.2010.group. The purpose for the BDR group to acquire the shares ofthis company is that the company has huge share premium to thetune of Rs. 69.93 crores. The Share premium was received on26.03.2010. The changes in shareholding pattern can be seen in detail from theInvestigation Report in this case.Investigation Report in this case. It can be seen that how shareholding was acquired by the BDRgroup. The purpose for the BDR group to acquire the shares ofthis company is that the company has huge share premium to thetune of Rs. 69.93 crores. The Share premium was received on26.03.2010.group. The purpose for the BDR group to acquire the shares ofthis company is that the company has huge share premium to thetune of Rs. 69.93 crores. The Share premium was received on26.03.2010. The three entities from whom Share Premium was received belongto S.K. Jain group of companies and have been in the business ofproviding accommodation entries in the form of bogus sharecapital/share premium/unsecured loans. Further all these threecompanies are also in confirmed list of SFIO investigationdatabase of Shell Companies. Notice u/s 131(1A) also remainsuncomplied in case of all the three entities.to S.K. Jain group of companies and have been in the business ofproviding accommodation entries in the form of bogus sharecapital/share premium/unsecured loans. Further all these threecompanies are also in confirmed list of SFIO investigationdatabase of Shell Companies. Notice u/s 131(1A) also remainsuncomplied in case of all the three entities. These shares were subsequently purchased by M/s BaghKotiInvest & Finance P Ltd. and M/S Nandi Mercantiles P Ltd. on28.03.2013. Notice u/s 131(1A) was issued to know about theircreditworthiness and genuineness of such transactions along withInvest & Finance P Ltd. and M/S Nandi Mercantiles P Ltd. on28.03.2013. Notice u/s 131(1A) was issued to know about theircreditworthiness and genuineness of such transactions along with WPC 13102/2022 the price at which shares of M/s Touchstone Holdings P Ltd. wereacquired by them. However, no response has been received fromthem till date. Therefore, the provisions of Section 56(2)(viia) isattracted in the case of M/S BaghKoti Invest & Finance P Ltd. andM/S Nandi Mercantiles P Ltd. and remedial action as per theprovisions of the Act may be taken for the income of theseshareholders for AY 2013-14. Considering the financial profile and lack of creditworthiness ofabove entities, provisions of Sec68/69/69C of the Income Tax Actmay also be considered w.r.t. the source of investment in hands ofshareholders of M/S Touchstone Holdings P Ltd. i.e. M/SBaghKoti Invest & Finance P Ltd. and M/S Nandi Mercantiles PLtd. for A.Y. 2013-14.above entities, provisions of Sec68/69/69C of the Income Tax Actmay also be considered w.r.t. the source of investment in hands ofshareholders of M/S Touchstone Holdings P Ltd. i.e. M/SBaghKoti Invest & Finance P Ltd. and M/S Nandi Mercantiles PLtd. for A.Y. 2013-14. In addition to above, it was noted that the 92,020 shares weretransferred in total by Kanak Mehta, Prem Kumar Mcheto, VARealcon P Ltd to family member of BDR group i.e. ShashankGupta durinq F.Y. 2013-14. Notice u/s 131(1A) were issued in thecase of Kanak and Prem Kumar Mehta regarding the price atwhich such shares were transferred, however the same cameunserved. It may be noted that the remaining members of BDRfamily acquired shares of M/S Touchstone Holdings P Ltd. duringF.Y. 2014-15 at RS.10 per share.transferred in total by Kanak Mehta, Prem Kumar Mcheto, VARealcon P Ltd to family member of BDR group i.e. ShashankGupta durinq F.Y. 2013-14. Notice u/s 131(1A) were issued in thecase of Kanak and Prem Kumar Mehta regarding the price atwhich such shares were transferred, however the same cameunserved. It may be noted that the remaining members of BDRfamily acquired shares of M/S Touchstone Holdings P Ltd. duringF.Y. 2014-15 at RS.10 per share. In view of the above fact of transfer of shares to have been madeto the assessee M/s Touchstone Holdings Pvt. Ltd. Delhi (PAN: ) at a value which is inconsistent with Section 56 ofthe Income-tax Act, 1961, it is clear that the amount of Rs.-69,93,00,0001 along with the whole transaction should be”-scrutinized in light of the provisions of Incometax Act, 1961. (Emphasis supplied) It has been concluded by the AO that the transfer of shares held by thepetitioner-assessee has been carried out at a value which is inconsistent withSection 56 of the IT Act and the said transactions require examination.9.Upon a perusal of the impugned Order read along with the letter of WPC 13102/2022 Page 5 of 10 investigation wing placed on record, this Court prima facie does not find anymerit in the submissions of the counsel for the petitioner that the assesseehas no concern with the transactions. The contention of Revenue that M/sBDR Builders & Developers Pvt. Ltd. uses layered transactions forproviding accommodation entries and the assessee and its shareholders arepart of beneficiaries of the said transactions and the petitioner's denial of thesame cannot be examined in writ proceedings. The facts are seriouslydisputed by both the parties. 10.With respect to the petitioner’s challenge to the initiation of the re-assessment proceedings on the merits of the allegation, it would be relevantto refer to the judgment in the case of Raymond Woollen Mills Ltd. vs. ITOAnd Ors., [1999 236 ITR 34 SC] wherein the Supreme Court had held asunder:- “3. In this case, we do not have to give a final decision as towhether there is suppression of material facts by theassessee or not. We have only to see whether there wasprima facie some material on the basis of which theDepartment could reopen the case. The sufficiency orcorrectness of the material is not a thing to be consideredat this stage. We are of the view that the court cannotstrike down the reopening of the case in the facts of thiscase. It will be open to the assessee to prove that theassumption of facts made in the notice was erroneous. Theassessee may also prove that no new facts came to theknowledge of the Income-tax Officer after completion ofthe assessment proceeding. We are not expressing anyopinion on the merits of the case. The questions of fact andlaw are left open to be investigated and decided by theassessing authority. The appellant will be entitled to take allthe points before the assessing authority. The appeals aredismissed. There will be no order as to costs.” (emphasis supplied) WPC 13102/2022 11.This Court is of the view that the aforesaid facts put forth are disputedquestions of facts, which cannot be adjudicated by a writ court exercisingjurisdiction under Article 226 of the Constitution. 12.The Supreme Court in Commissioner of Income Tax and Ors. v.Chhabil Das Agarwal, (2014) 1 SCC 603 has held that as the Act of 1961provides complete machinery for assessment/reassessment of tax, theassessee is not permitted to abandon that machinery and invoke writjurisdiction of High Court under Article 226. The present case does not fallunder the exceptional grounds on which a writ jurisdiction of the Court canbe invoked. 13.Further, the contention of the learned Senior Counsel for thepetitioner that the present proceedings are time barred is not correct in thefacts of the case, which pertains to AY 2013-2014 and reassessmentproceedings were initiated during the time limit extended by TOLA. Theprovision of Section 149, as it read prior to its amendment by Finance Act,2021 reads as under: “Time limit for notice. 149. (1) No notice under Section 148 shall be issued for the relevantassessment year,- (a) if found years have elapsed from the end of the relevantassessment year, unless the case falls under clause (b) and clause (c); 13.Further, the contention of the learned Senior Counsel for thepetitioner that the present proceedings are time barred is not correct in thefacts of the case, which pertains to AY 2013-2014 and reassessmentproceedings were initiated during the time limit extended by TOLA. Theprovision of Section 149, as it read prior to its amendment by Finance Act,2021 reads as under: “Time limit for notice. 149. (1) No notice under Section 148 shall be issued for the relevantassessment year,- (a) if found years have elapsed from the end of the relevantassessment year, unless the case falls under clause (b) and clause (c); (b) if four years, but not more than six years, have elapsed from theend of the relevant assessment year unless the income chargeable totax which has escaped assessment amounts to or is likely to amountto one lakh rupees or more for that year; …” The time limit for issuing notice under unamended Section 149 which wasfalling from 20th March 2020 till 31st March 2021 was extended by Section WPC 13102/2022 3 of TOLA read with Notification No. 20/2021 dated 31st March, 2021, andNotification No. 38/2021 dated 27th April, 2021, until 30th June, 2021. 14.The initial notice in the present proceedings was issued on 29[th]June,2021 i.e. extended time limit. The said notice was quashed by this Courtfollowing its judgment in Mon Mohan Kohli Vs. Assistant Commissioner ofIncome Tax and Another, reported in 2021 SCC OnLine Del 5250 as themandatory procedure of Section 148A of the Act was not followed beforeissuing the said notice. In the said judgment, this Court struck down theExplanations A(a)(ii) and A(b) to the said notifications. However, therelevant portion of the notification which extended the time limit forissuance of time barring reassessment notices until 30[th]June, 2021 was notstruck down by this Court and in fact, this Court categorically held atparagraph 98 that power of re-assessment that existed prior to 31st March2021 stood extended till 30th June 2021. The said paragraph reads as under:- “98.It is clarified that the power of reassessment that existedprior to 31[st]March, 2021 continued to exist till the extendedperiod i.e. till 30[th]June, 2021; however, the Finance Act, 2021 hasmerely changed the procedure to be followed prior to issuance ofnotice with effect from 1[st]April, 2021.” Subsequently, Supreme Court in Ashish Agarwal (supra) held that theSection 148 notices issued between 1[st]April 2021 to 30[th]June, 2021, will bedeemed to have been issued under Section 148A of the Act and therefore thenotice dated 29th June, 2021, issued to the petitioner stood revived. 15.Consequently, since the time period for issuance of reassessmentnotice for assessment year 2013-14 stood extended until 30[th]June, 2021, the WPC 13102/2022 first proviso of Section 149 (as amended by the Finance Act, 2021) is notattracted in the facts of this case. It would be relevant to refer to the saidproviso, which reads as under: “Time Limit for notice. Section 149. (1) No notice under section 148 shall be issued for therelevant assessment year,-relevant assessment year,- (a)if three years have elapsed from the end of the relevant assessmentyear, unless the case falls under clause (b);year, unless the case falls under clause (b); 15.Consequently, since the time period for issuance of reassessmentnotice for assessment year 2013-14 stood extended until 30[th]June, 2021, the WPC 13102/2022 first proviso of Section 149 (as amended by the Finance Act, 2021) is notattracted in the facts of this case. It would be relevant to refer to the saidproviso, which reads as under: “Time Limit for notice. Section 149. (1) No notice under section 148 shall be issued for therelevant assessment year,-relevant assessment year,- (a)if three years have elapsed from the end of the relevant assessmentyear, unless the case falls under clause (b);year, unless the case falls under clause (b); (b)if three years, but not more than ten years, have elapsed from theend of the relevant assessment year unless the Assessing Officer hasin his possession books of account or other documents or evidencewhich reveal that the income chargeable to tax, represented in theform of asset, which has escaped assessment amounts to or is likelyto amount to fifty lakh rupees or more for that year:end of the relevant assessment year unless the Assessing Officer hasin his possession books of account or other documents or evidencewhich reveal that the income chargeable to tax, represented in theform of asset, which has escaped assessment amounts to or is likelyto amount to fifty lakh rupees or more for that year:Provided that no notice under section 148 shall be issued at any timein a case for the relevant assessment year beginning on or before 1[st]day of April, 2021, if such notice could not have been issued at thattime on account of being beyond the time limit specified under the-in a case for the relevant assessment year beginning on or before 1[st]day of April, 2021, if such notice could not have been issued at thattime on account of being beyond the time limit specified under the-provisions of clause (b) of subsection (1) of this section, as they stoodimmediately before the commencement of the Finance Act, 2021:….”immediately before the commencement of the Finance Act, 2021:….” (Emphasis Supplied) As noted above, the time limit for initiating assessment proceedings for AY2013-14 stood extended till 30[th]June, 2021. The petitioner does not disputethe said facts, consequently, the reassessment notice dated 29th June, 2021,which has been issued within the extended period of limitation is not timebarred. 16.The petitioner’s challenge to the paragraph 6.2. (i) of the CBDTInstruction No. 1/2022 dated 11[th]May, 2022 is not maintainable. Thecontention of the petitioner that assessment for AY 2013-14 became timebarred on 31[st]March, 2020 is incorrect. The time period for assessmentstood extended till 30[th]June, 2021. The initial reassessment notice for AY WPC 13102/2022 2013-14 has been issued to the petitioner within the said extended period oflimitation. The Supreme Court has declared that the said reassessment noticebe deemed as a notice issued under Section 148A of the Act and permittedRevenue to complete the said proceedings. In this case, the income allegedto have escaped assessment is more than 50 lakhs and therefore, the rigourof Section 149(1)(b) of the Act (as amended by the Finance Act, 2021) hasbeen satisfied. 17.Accordingly, the present writ petition along with the pendingapplication is dismissed. However, this Court clarifies that the AssessingOfficer shall decide the matter on its own merits without being influencedby any observation made in the present order except the issue of limitation. MANMEET PRITAM SINGH ARORA, J SEPTEMBER 08, 2022kv/pkv MANMOHAN, J WPC 13102/2022