Wp/3493/2018 Of Asset Reconstruction Company India Pvt Ltd v. Deputy Commissioner Of Income Tax Circle 6(1)(2) And 2 Ors

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3493 OF 2018 Asset Reconstruction Company India Pvt. Ltd. … Petitioner V/s. Deputy Commissioner of Income-tax- Circle6(1)(2), Mumbai and ors.… Respondents --- Mr.Jitendra Jain i/by Mr.Atul Jasani for the Petitioner.Mr.N.C.Mohanty for the Respondents. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : JANUARY 24, 2019. P.C.:- 1.Rule having been issued previously, we have heard learnedcounsel for the parties on final hearing. 2. Petitioner has challenged a notice of reopening ofassessment dated 30[th] March, 2018. 3. Brief facts are as under:- Petitioner is Asset Reconstruction Company India Private 264 wp 3493-18-o Limited (“ARCIL” for short) and is engaged in the business ofsecuritisation and asset reconstruction and also acts as trusteesfor the non-performing financial assets acquired from the variousbanks and financial institutions. 4.For the assessment year 2011-12, the petitioner had filedreturn of income on 30[th] September, 2011 declaring income ofRs.79.23 crores. The return was taken in scrutiny by the AssessingOfficer who passed the order of assessment under Section 143(3)of the Income Tax Act (“the Act” for short) on 25[th] March, 2014.To reopen such assessment the Assessing Officer issued theimpugned notice which as can be seen was done beyond theperiod of four years from the end of assessment year. In order toissue the notice, the Assessing Officer had recorded followingreasons:- “The assessee, M/s Asset Reconstruction CompanyIndia Ltd. assessed with the charge of the ACIT6(1)(2),Mumbai, filed its return of income on14.10.2010 at Rs.86,82,25,240/- Assessment u/s143(3) of the Act was completed on 26.03.2013determining total income at Rs.89,66,70,995/- asper ITD system.2.Vide letter dated 25.03.2017, the DCIT CC2(2), Mumbai has informed that M/s AssetIndia Ltd. assessed with the charge of the ACIT6(1)(2),Mumbai, filed its return of income on14.10.2010 at Rs.86,82,25,240/- Assessment u/s143(3) of the Act was completed on 26.03.2013determining total income at Rs.89,66,70,995/- asper ITD system.2.Vide letter dated 25.03.2017, the DCIT CC2(2), Mumbai has informed that M/s Asset Reconstruction Company India Ltd. has haddealings with M/s Avance Technologies Ltd. whichwas indulged in providing bogus accommodationentries. The copy of the said letter dated25.03.2017 is enclosed for ready reference. 3.As per letter dated 25.03.2017, a search u/s132 of the Act was carried out at the residenceand various premises of Shri Shirish C. Shah whohappened to be the main person engaged inproviding bogus accommodation entries like longterm capital gain, share capital with huge sharepremium, turnover, loan etc. Shri Shirish C Shah,directly and indirectly controlled more than 200companies which included some of the publiclimited companies also. An enquiry was madewith M/s Asset Reconstruction Company IndiaLtd. regarding the nature of transactions with M/sAvance Technologies Ltd. during FY 2010-11(relevant to AY 2011-12). M/s AssetReconstruction Company India Ltd. explainedthat they had purchased Non Performing Assets(NPA) of M/s Avance Technologies Ltd fromAllahabad Bank in the year 2009. Against thesame, M/s Avance Technologies Ltd had paidRs.2.70 Cr to M/s Asset Reconstruction CompanyIndia Ltd. However, as M/s Avance TechnologiesLtd was engaged in providing bogusaccommodation entries to various parties inconnivance with Shri Shirish C Shah, the claimof M/s Asset Reconstruction Company India Ltd.may be investigated. 4.In view of the above and based on thematerial evidence available on record, prima facie,it is seen that the assessee, M/s AssetReconstruction Company India Ltd has haddealings with Avance Technologies Ltd., whichwas indulged in providing bogus accommodationentries and that income chargeable to tax to thetune of Rs.2.70 Crore has escaped assessment in F.Y. 2010-11 i.e. A.Y. 2011-12. 5.In view of the above, I have reason tobelieve that income chargeable to tax has escapedassessment within the meaning of section 147 ofthe Income Tax Act, 1961 on account of theabove mentioned transaction and that thisescapement is due to the failure of the assesseecompany to disclose fully and truly all materialfacts relevant to the determination of its correctincome. It is clear from the above that the incomechargeable to tax has escaped assessment forthe amount of One Lac Rupees or more in thisassessment year, AY 2011-12. Thus, I am satisfied that this is a fit casefor issue of notice u/s 148 of the Income Tax Act,1961. Accordingly, the case may kindly be re-opened u/s 147 of the Income Tax Act, 1961 andnotice u/s 148 may be issued to bring to tax theincome so escaped for the assessment year, AY2011-12.” 5. Upon being supplied the reasons, the assessee raisedobjections to the notice of reopening by the letter dated 24[th]September, 2018 and 17[th] October, 2018. Such objections werehowever rejected by an order dated 3[rd] October, 2018 by theAssessing Officer. Hence the Petition. 6.We have heard learned counsel for the parties atconsiderable length. If we peruse the reasons, the stand of the Priya Soparkar 564 wp 3493-18-o Assessing Officer is that he received information from theInvestigation Wing that one S.C.Shah is a main person who isengaged in providing bogus accommodation entries throughseveral companies controlled by him. It was found that ARCILhad entered into transactions with one M/s Avance TechnologiesLimited (“Avance” for short). ARCIL had purchased Non-Performing Asset (NPA ) of said Avance from Allahabad Bankin the year 2009. Against this, Avance had paid a sum of Rs.2.70crores to ARCIL. According to the information of the AssessingOfficer, Avance was engaged in providing bogus accommodationentries at the instance of said S.C.Shah. On the basis of suchinformation, the Assessing Officer was prima facie of the viewthat the assessee i.e. ARCIL has dealing with Avance which inturn has indulged in dealing with various accommodation entriesand therefore, income chargeable to tax of Rs.2.70 crores hadescaped assessment. 7.In our opinion, the very premise of Assessing Officer to forma belief that income chargeable had escaped assessment iscompletely invalid. As per the information received by thea belief that income chargeable had escaped assessment iscompletely invalid. As per the information received by the 7.In our opinion, the very premise of Assessing Officer to forma belief that income chargeable had escaped assessment iscompletely invalid. As per the information received by thea belief that income chargeable had escaped assessment iscompletely invalid. As per the information received by the Assessing Officer and to which the assessee raised its nodispute, the assessee had as an Asset Reconstruction Companydealt with Avance. Avance was a borrower of Allahabad Bank.The assessee purchased NPA from Allahabad Bank. By way ofrecovery, Avance paid a sum of Rs.2.70 crores to the assessee.Whatever be the nature of existence of Avance, its dealingswith other individual entities and dealings of said S.C.Shah, wesimply fail to appreciate how the Assessing Officer in thepresent case asserts that in case of the assessee incomechargeable to tax has escaped assessment. Even going by theinformation at the command of the Assessing Officer, theassessee having purchased the NPA from Allahabad Bank,received the payment of Rs.2.70 crores from Avance. This hasnothing to do with the alleged dubious dealings of Avance at theinstance of S.C.Shah. In clear terms, the very formation of thebelief by the Assessing Officer that income chargeable to tax inthe hands of the assessee had escaped assessment, lacksvalidity. 8.The department as well as the counsel for the revenue Priya Soparkar 764 wp 3493-18-o have tried to improve upon the reasons stated by the AssessingOfficer by suggesting that it would be necessary to verifywhether such income was offered to tax by the assessee orwhether the Trustee for whom assessee claims would havereceived the income had offered the same to tax. None of theseelements find place in the reasons recorded by the AssessingOfficer. As is well settled by series of judgments of various Courts;that notice of re-opening of assessment can be supported on thebasis of reasons recorded by the Assessing Officer for this purpose.Reliance can be placed on the decision of the Court in case ofHindustan Lever Ltd. Vs. R.B.Wadkar, Assistant Commissionerof Income-Tax and ors.[1]. Thus, the notice of reopening ofassessment need to be judged only on the basis of reasonsrecorded by the Assessing Officer. When the reasons do notrecord any other element of income chargeable to tax havingescaped assessment, it would not possible for the revenue tobring such element into consideration either through affidavit ororal arguments. We have examined the reasons and find thatthese reasons simply do not provide the live link to the Priya Soparkar formation of belief by the Assessing Officer that assessee's income chargeable to tax has escaped assessment. In the result, impugned notice is set aside. Petition is disposed of. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.) ….