Aparna Infra Housing Private Limited vs. Union of India

t 32es I HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE FIFTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C. V. BHASKAR REDDY Between: Aparna lnfra Housing Private Limited, 6-3-35212 and 3 Astral Heights, Road No. 1, Banjara Hills, Hyderabad, Telangana- 500034. Represented by its Director C. Venkateswara Reddy, S/o. Late Sri C. V. Krishna Reddy Aged about Years' Rl/o Hyderabad ...pETrroNER AND 1. Union of lndia, Represented by its Secretary, Department of Revenue, Ministry of Finance, North Block, New Delhi- '1 '10001. 2. Deputy Commissioner of lncome Tax, Circle 1('1 ), Hyderabad- 3. Assistant Commissioner of lncome Tax, Circle 1('1 ), Hyderabal.*arro*o=*r, Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a writ, direction or order more particularly in the nature of a writ of mandamus declaring the Order under S. 14BA(d) of the Act bearing DIN No. ITF,A/COM/F/1712022-2311044338183(1) dated 30-07-2022 passed by Respondent No. 2, and the subsequent Notice issued under S. 148 of the Act bearing DIN No.lTP A/AST/l\r/148 112022-23/1044340664(I) dated 3O-O7 -2022 passed by Respondent No. 3 as being void, illegal, arbitrary, without authority of law, violative of Article 14 of the Constitution of lndia and violative of principles of natural justice and violative of provisions of lncome Tax Act, 1961 and consequently set aside the same lA NO: 'l OF 2022 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay all further proceedings with respect to the Order under S. 14BA(d) of the Act WRIT PETITION NO: 34619 OF 2022

bearing DN No. I passed by Respond the Act boaring Dll 07-202:2 prssed by Counsel for the Pel BAICOI\A|F|17|2O22-2311O443381 83 (1' daled 30-07-2022 :nt No. 2, and the subsequent Notice rs:ued under S. 148 of No. ITBA/ASTll141148 1 12022-231101'r :i,10634('t ) dated 30- iespondent No. 3 tioner: SRI R. S. ASSOCIATES Counsel f,;r the Re: pondents: B KAVITHA YADAV (CENTR /\l- cOVT couNSEr.) The Court made thr following: ORDER

THE HON'BLE TFIE CHIEF IT]STICE UIIAI BHLryAN AND HO ,BLE S ITI UST CE C.\I.B ILAR RE D \ W.P.No. 34619 of 2022 Order, (lter tbe Hon'b/e the Lhiel Jnri,'e I 7t/ Bl,tt,ut) Flcard Mr. S.Ravr, lcarned Senior Counscl For the pcriuoncr; Mr. B.Mukherjee, lcarncd cr>unscl rcprcsentin!r the learned Assistant Solicitor Clcneral oi India ti.,r respondcnt No.1 and l\,tr. Aj^y I(umar I{ulkarni, Iearncd counscl rcprcscnting Mr. B.Narsimha Sarma, lcarned Srandint Counscl lor thc Incomc 1'ax Department appearing ftrr rcspondcnts I .\ o.2 arrd 3 2. By {liing this petition undcr r\rticlc 226 <tf the Constitution o[ India, pe ticioner sceks quashing of thc order clatcd 30.0].2022 passed by respondent No.2- Depuw Cotnmtssioner of Incomc -fax under Section 148A(d) of thc Income 'l'ax r\ct, 1961 &rie il), 'the Act' hereinafter) lor the assessmcnt vear 2016-17 and the consequential notice datcd 30.01 .2022 issucd by respondent No.3 I \ Assistant Commissioner of Incr>rnc'['ax undcr Section 148 of the Act.

2 3. Rcsiro rclent No.2 issued norice datcd (t' l'1 2021 under Secion 148 il the Act frrr the asscssmcnt velr ]f l(r.17 statrnq that he rad rca.sc,rs to beltcr.c that incomc of tht pctrtr-,ner chargeable to rax ftrr tl- : sard asscssment vear had escaperl .1 ii{rssrnent vithifl rhc n-rcanin5 of Section 147 o[ the Acr. Therclc r.. proposine to ,rss:ss/rc as css the income o[ thc petitic,ncr for the said ISSCSStTtC'It ,'car, respondent No.2 called upon r .' p cridorrcr to ;ulrmit inco rc tax return [or the said asscssrne ni i r:ar ',r.ithin thirn cla,s. Noti:c u,.as issuecl after obtaining n(]cessar\ sa jslacdon of tht highcr a rthoriry -i. In th ,- rneanwhile, f<rllowing thc de r:isi, r r r ,i the Suprcmc (.r,urt rn f nion of India v. Ashish Agarwalr, rc rrotice undcr Sectiorr 14 I oi the Act was coflstrucd to l,r I rroticc uncler Scction 1, 84(b) of the Act. Accordingl,, 1 trcs lr noticc I clztcd tll .0r .2022 was issued by respondent No.lt ro thc pcritioner calling upc r the petitioner to show cause a j tt ) rr ir ,, a noticc trncler Sr:ction 1.+ ; of the Act should not be issuecl tc, lr:rrr ftrr" tlrc rclcvant I rl;ritAppcat No \o)i ot 2OZ2 d^ted 04.(t'r.2022

l assessmcnt year. 'I'hc notice \\ras issucd based upon the follou.ing inlormadon and matcrial gatherccl bv respt.,ndent No.2: As pcr thc informarion receivcd from ADIT (I&CI)- I, Hyderabad, the asscssee hacJ granted gr^r",1,." ". collateral security in Favr>ur of the bankers of M/s. Aparna Urban Inlrastructure Pvt. Ltcl., rvhich is a sister concern, in conncction with funded and unfunded ctedit facilities whose closing balance as at 31-03-2016 stands at Rs.159 crores and it had purchascd thc stakc o[ M/s. Pond Holdings Inc., N'lauritius during F,Y. 2015-16. Thus, effectively the original sharc holders and thc parent company which holds 5004 stake have uscd M/s. Pond Holdings Inc. as their Benamr and routed their funds through the FII. 5. Pctitioner submitted replv dated 11.06.2022 to the said notlce. Howevcr, respondcnt No.2 passcd thc impugned order dated 30.07.2022 under Section 148A(d) of the Act declining tcr accept the reply of the petitioner. \ 6. In the order dated 30.01 .2022, rcspondent No.2 hcld 4s lollows: "The reply filed b1, thc assessec has been examined and found not acceptable lor foll<xving reasons. The assessee apart from erplaining the

.1 gcn( ral tuncuonalitics and cxpansion plarrr tbr rts l;usi rt:ss, has not submitrcd anv substantizl r 2ltcdal cvid rnces against thc reasonS mendoned in tlr: troricc sucl ;rs due diligence rcport, details o[ .,]( rrrides olti ctl to bankcrs wlrrlc granung gu:rrr,'tcc as coll tcral securin, in favour of the trzrrkcr of \I/ .\plrna Urban Infrastructurc Pvt [,trl k,r buvir-rg thc assessec company's own shares from \ /s l)rrnd I Io Jrngs Inc. illauritius. 'fhe assesscc compan], lurr rcr not submitted anv material r:r,ir I :rrce of bus ncss transacrion with NI/s Pond Holcinqs lrrc. N,la rritius accounting e ntries of above n r:ntione d trar sactl()n in thc bcloks of accounts oI tlLe a sses.sce. cor r[)any. '['hc assessee company further r re nric,ned ln thc reply that the assessee c()nrl, urv has ap; roached JN{ trinancials, in turn JNI ftnar<ials has int oduccd l\.{organ Stanley Real Estate iirrrl. in turn Nll RI)Ir has appointed E&Y fot finar<.i,rls due dil qerrce ^nd AZB for legal due dilisenc,: iLnd l}om asl rssee company side has appoint(.(l [)uva As iociates, finally investment was propose(t thrrtugl its SI)V POND Holding Inc and accordinq v recr:ived an amount of Rs.139.75 crores by 3 share hr,lderr; ancl R: 2 I 1 crores as share subscription. I't.rc t,nurc su rmissions of thc assesscc compan)' is u irhout anv l;z,is and rvithout anv documentafi oi material I

evidences. I-Ience, the submissions can n<-rr bc accepted on record. In the absencc of an1, rnatcrial and clocumentaq' evidences, it is not possiblc to acccpr rhe c()ntenrion of the assessee company that the rvholc investrnent or the purchase of shares was executed in a fair manncr for business purposc of thc ,.\parna group. C)n the contrary, based on the material available on record, it is apparent that the entire transactions involved with N{/s Pond Holdings Inc, Mauritius is nothing but a Round-tripping transactrons. As seen from the audit report of A.Y. 2016-11 , there are only two sharcholders having 500/o cach 35,42,707 shares @ its.10, ui), Iv{/s Aparna Constructions & Estates Pvt Ltd and M/s Amara Urban Infrastrucrure ])vt. Ltd. Further it is obscrved that as at 31.03.2015,507, stake in time company rvas held by M/s Pond Holdings Inc., Mauritius and during the year the state was acquired by M/s Aparna Utban Infrasuucture Pvt. Ltd, Further on perusal o[ the audit rcport undcr related party ffansactions, it is seen that the assessce had ganted guarantee as collateral securiry in favour o[ the banker of M/s r\parna Urban infrastrucrure Pvt Ltd in connection with funded and unfunded credit Facilities whose closing balance ^s ^t 30.03.2016 stands at Rs. 159,00,000 thereby violating the t \

6 f ro 1si()rrs of Scc.185 oi (-ompanics Act, 2C I .i. It is perr 1lent to rnetrtion that the said con-r1 a y aad acq ritcd 500/u stake in thc assessee compalr during the , ear undcr iiinsidcration. .\s secn from the audit report fcrr .\Y 2010 17 lilc, I rrl<rng rvrth return o[ income lor A.\. 2r)1.6-17, rhc asscssec l"rad grantcd guarantee as r:ollateral sec rrirv in favour o[ the bankcrs of M/; t\perna Url an [nfrastructure P\rt l,td in connec, ion .vith Fur .lcd and unfunded crcdit facilities whor r: closing bal ,ncc as at 31 .03.2016 stands at Rs. 159,(t( .00,01D/- an( thc said company which is a sister conccrn had pu chasccl thc stake of N{/s Pond [-lok ingi Inc. Mz Lrritius- Thus, effectively the origin sh: i::r'holders an, thc parent company which holds 50'lo r take rave usr cl \,{/s Pond Holdings Inc., Mauritius, arrl routed tht ir tirnds through the said company l)uring F.Y.2015-16, M/s Pond Ho[<ings Inc.. N{. uritius, had sold its stake to assess,r3's sister co rcern i.e., M/s Aparna Urban Infrastnl,:rurc Pvt Lt l, thcrcby cffectivelv bringing back th: ass(rssee cc rpany as group comPany. In view of dre abovc, It is clear rhat tlr,: ass3ssce cc rpany has no further explanation to c,fr,:r for the re rsons mcnrioned in the notice issued LI, ; 14tir\(b) oj the IT ,\ct. Hencc, the income chargcrt:le to tax ol lls.'l .59 crotc has cscaped asscssmcnl in the lrands I

7 1 of thc asscssee for thc \.Y.201 6-1,7 an<l I am satisfied that this information fulfills all the criteria lor issuance o[ notice U/s 148 o[ I'l Act for the A.Y. 20't6-17. This order is passed with the prior apptoval of the Principal Commissioner of Income Tax-1, Hydcrabad. Thus, according to respondent No.2, it was a case of round- tripping transactions lcadirrg to cscapcment o[ incornc of thc pctitioncr from assessmcnt. I{oldrng that incomc of, Rs. i 59 crore s chargeable to tax had escaped assesslncnt in thc hands of thc assessec (petitioner) for the asscssment ycar 201,6-1,7, respondent No.2 recordcd his satisfaction that it was a f,tt casc [or issuance of nolice under Section 148 ol the Act. The afloresaid ordcr rvas passed alter obtaining the approval of thc Principal (lommissioncr 8. Pursuant thereto, the consequential notice under Section 148 of thc Act has bccn issucd. 9. Learncd Scnior Counsel lor thc pet-itioner has drawn thc I \ attention of the Court to the languagc emplovcd 111 oI Income Tax-I, Hyderabad.

8 Scctior 1+9 l)nr) oI thc .\ct ancl subrnits there fir, r-. that there are srqrritlcant cl stinguishing leaturcs in thc aforesarci 't rvi;ion, rvhich iracl undcrl onc change. 'f hcse aspects woLrl-1 have to ltnd refLcct-u,n c tl'rcr in thc shorvcause notice issue.l undcr Section l,+rli\(b) of he l\ct or in thc order passed under li.:ction 14BA(d) ot rlrr' \ct. F[, has rclerrcd to thc notice dated 0 ] .(l( ".:.:02'.2 to contcnd thrLt thcrc s n<> pirta .[acic sxisfacaon oF rcspr,,rdcnt No.2 that in<:orne of thc pctitior-rer chargcable to tax firr ,.hc rele-,'ant rrsricssnlcnt vc lr hacl e scepccl asscssmcnt, which r, thc .rine q//d ttltx [<rr sccking rcopcning oI concludcd assessmcnt I C . Wc I ave alreadv mcntioncd about the in i,rl notice issued urLclcr Sccr ron 148 of thc Act datec] 01.04.20. l, ruhich cleatly mcntioncd that rcspondcnt No.2 had rcas,n,, to believc that incornc o' the petitioner chargcable to tax for the rel'evant as scssrncnl r ea r lrad cscaped assessme nt wit h ir r thc meaning of Sirction 1.1 ,rf the Act. Ir-r thc case of Union o{ [ndia v. Ashish Aganval 1 supra), Supreme Court clarillecl t rLt such a notice issut:d pos 31..03.2021 should bc construcd r(, l)c a notice under I

9 Section 148A oi thc Act as a onedmc measurc. r\ccordingl1,., thc subsequent noticc undcr Secrion 148,\(b) o[ the Act rvas issued oo01.06.2022. 'l'hc noticc dated 01 .06.2022 rvould havc to bc rczrd ln conjunction with the earlier notice dated 01.04.2021. 'Ihc reasons to belicve that incomc chargeablc to tax had escaped assessment finds reflecrion in thc grounds mcntioncd in thc noticc dated 01.06.2022, rvhicl.r rve have alrcacly extracted supra. 11. In its replv to thc show causc notice, petitioner did not rarsc thc ground non-compiiance to the provisions o I as to Section 149(1)(b) of the Act. T'hercfore, respondent No.2 had nr.r occasion to deal wlth thc same. Nonethelcss, in the impugned order dared 30.07.2022, rcspondent No.2 has givcn adequate reasons as to why present is a fit case [<ir issuancc of not-ice undcr Section 148 of the Act. 12. In a proceeding undcr Arttcle 226 o[ the Constitution of India, the Higl.r Coult would not entef lnto an examlnafton as to sufficiency or adequacy of thc rcasons mcntioned. -l'he reasons mengioncd must havc a nexus rvith tl're beLicI that income

:: l0:: r--haruacrble ro t:rx has cscapcd lsscssment. 'fil:tt aPlrrt, we Ina\/ rnention th it \r,e arc at a stage of issuance ,i n,rticc undcr .icc.uon l-18 oi thc ,\ct. '['hc procccdirrgs prior t])(:rcto have becn principle s o natural justice are dulv complied rvitlr bv the assessing aurh<;riq, kr cping ir-r mlnd thc dccision o[ thc SLtyrrcrnc (]ourt in GKN Driv:shafts (India) Ltd vs Incomc TzL;. Officer2, rvhich ha r not, [>e 'n statutorilv incorporated in the Act. Lniriatcd ur,ier Scction 148A oI the Act on 1 ro ensure that 13. ,\t th s stxgc, wc are o[ tl-rc view that it rv: r.rld not at all be 2 12001)259 IIR i,(sc) lu:.trficd tc intcrdict thc rcspondents lrom l): oca.,11rrt further pL rsuant t( [hc noticc dated 30.07.2022 issueJ rrrder Secaon 148 c,f thc ,\ct 1t.. I'l,xr, 'ver, peritioncr woulcl bc at libcrrv t _ sulrmit rcplv to thc aforcs rid notice urging all legally perrnir r,rtrlc c()ntcnuons rvhcrcaltlcr re spondcnts No.2 and 3 shall take ap 1:r'opriate decision il accot.lar cc wrth law

::ll:: 15. Wc makc it clcar thar rve havc not cxprcssed any opinion on merit and all contendons are ke;lt open' t6. Sub ject to tl-Ie above , the writ pcridon is dismissed' Nc> COSTS As a sequel, rnisccllaneous periuons, pending if anv' stand dismissed. SDi.B.SATYAVATHI DEPUTY,-BEGISTRAR L1I) SECTION OFFICER To, //TRUE COPYii 1. One CC to SRl. R.S. ASSOCIATES Advocate IOPUC] 2. One CC to Sri B.Mukherjiee, Advocate IOPUCI 3. One CC to Sri B.Narasimha Sarma,SC for income Tax [OPUC] 4. Two CD Copies 5. Two Spare Copies tvlBC PS P t'( (r I lt

HIGH COURT DATED:05/09/2022 r',L } ,,,r Ir ;\l {' *{.. {3 / -a/ r.'' l. - a" ORDER v'/P.1,1o.3,46'l I of 2022 D|SMlSSll'l:, rHt: WRIT PETITION \ryITHOUT COSTS (s( ,\*"