AHA HOLDINGS PRIVATE LIMITED,MUMBAI vs. CIRCLE 6(1)(1), MUMBAI

Having considered rival contentions and perused materials on record, we are of the view that the assessee has made out a case for condonation of delay. Therefore, being satisfied with the sufficiency of reasons leading to delay in filing the appeal, we are inclined to condone the delay and admit the appeal for adjudication on merits.

Briefly stated, the assessee is a resident corporate entity. For the assessment year under dispute, assessee had filed its return of income on 13.10.2016 declaring loss of Rs.13,29,01,477/-. The return so filed by the assessee was picked up for scrutiny and in course of assessment proceeding, the Assessing Officer (AO) called upon the assessee to furnish necessary informations/details. On verifying the details, he found that during the survey action undertaken u/s.133A of the Act in the business premises of the assessee on 22.09.2016, it was found that the assessee had made huge investments in M/s Chandra Net Pvt. Ltd. (‘CNPL’) acquiring 28,00,000 shares for consideration of Rs.2,80,00,000/- on 29.03.2010. He further noticed that the assessee had advanced huge loan aggregating to Rs.37,07,44,850/- to ‘CNPL’. Further, loans aggregating to Rs.10,76,06,867/- have been advanced to another company M/s Manekchand Pannachand Trading Investment Company Pvt. Ltd. (‘MPTICPL’). He further found that one Mr. Abhishek Javeri, son-in-law of one of the major stakeholders and Managing Director of the assessee company is a director in other two companies. Thus, he entertained doubts regarding the genuineness of the transactions.

Though, the assessee submitted that the transactions are genuine, however, the AO was not convinced. Ultimately, he completed the assessment disallowing the write off of loans and advances of Rs. 47,83,51,717/- to ‘CNPL’ and MPTICPL. Assessee contested the disallowance/addition by filing an appeal before learned First Appellate Authority and being successful there, before the Tribunal. During the pendency of the appellate proceedings, assessment of the assessee for the impugned assessment year was reopened on the allegation of escapement of income due to claim of set off of long-term capital loss of Rs.4.78 crores on sale of shares of ‘CNPL’. However, the AO ultimately completed the reassessment u/s. 143(3) r.w.s. 147 of the Act accepting the return of income filed by the assessee.

Post completion of reassessment, learned PCIT called for and examined the assessment records in exercise of power confer u/s. 263 of the Act. While doing so, he was of the view that the assessment order passed u/s. 143(3) r.w.s. 147 of the Act is erroneous and prejudicial to the interest of the revenue as the AO without making proper enquiry and without considering the fact that in the assessment order passed u/s. 143(3) of the Act the AO has assessed the total income of Rs.30,58,10,226/- has accepted the returned income at NIL. Further, he observed, the issue relating to set off of long-term capital loss of Rs.4.78 crores on sale of shares ‘CNPL’ at Rs.1/- per share to a related party was not properly enquired into by the AO, particularly, in the context of disallowance of write off of loan advanced by assessee to CNPL. Accordingly, he issued a show cause notice to the assessee to explain why the assessment order should not be revised. In response to the show cause notice, the /Mum/2025 AHA Holdings Pvt. Ltd. assessee filed detailed submission objecting to the assumption of jurisdiction u/s. 263 of the Act. It was the case of the assessee before learned PCIT that in course of assessment proceeding, the AO has made full length enquiry on the issue and being satisfied with the materials brought on record, has completed the assessment accepting the returned income. Learned PCIT, however, was not convinced with the submissions of the assessee and held that the assessment order passed is erroneous and prejudicial to the interest of the revenue, in so far as non-disallowance of short- term capital loss claimed on sale of shares of CNPL. Accordingly, he set aside the assessment order with a direction to make enquiry in the matter and reassess the income after disallowing the set off of short-term capital loss.

Before us, learned counsel appearing for the assessee drew attention to the reasons recorded for reopening of assessment and submitted that the reopening was made on the allegation of escapement of income from chargeability to tax of an amount of Rs.4,78,92,404/- being short-term capital loss claimed by the assessee on sale of shares of CNPL. Further allegation of escapement of income was with reference to non-disallowance of expenditure of Rs.1,80,68,977/-. Drawing our attention to the show cause notice issued by the AO in course of reassessment proceeding as well as reply furnished by the assessee, learned counsel submitted, after thoroughly verifying the materials brought on record by the assessee and making proper enquiry, the AO completed the assessment accepting the returned income. He submitted, while deciding the appeal of the assessee challenging the addition made by the AO in the original assessment order, the Tribunal has deleted /Mum/2025 AHA Holdings Pvt. Ltd. the addition. In this context, he drew our attention to the order dated 13.03.2025 of the Coordinate Bench in ITA No. 4344/Mum/2024. Thus, he submitted, the very basis on which learned PCIT has invoked jurisdiction u/s. 263 of the Act is no more available. Thus, he submitted, the order passed u/s. 263 of the Act has to be set aside.

Strongly relying upon the observations of learned PCIT, learned DR submitted, the fact that the AO has disallowed the write off of loan advanced by the assessee to related entities was completely ignored by the AO while completing the reassessment. He submitted, even the issue with reference to which the AO made the reopening was not properly enquired into in the context of the genuineness of the loan transaction. Therefore, he submitted, learned PCIT having found that due to lack of enquiry has rightly concluded that the assessment order passed is erroneous and prejudicial to the interest of revenue. In support of such contention, learned DR relied upon the decision of the Hon’ble Supreme Court in the case of CIT, Mumbai vs. Amitabh Bachhan [2016] 69 taxmann.com 170 (SC).

We have considered rival submissions in the light of decisions relied upon and perused the materials on record. Undisputed facts are, originally, in assessee’s case assessment was completed u/s. 143(3) of the Act vide order dated 31.12.2018. While completing the assessment, the AO had treated the loan advanced aggregating to Rs.47,83,51,717/- and subsequent write off of such loan by the assessee as part of an arrangement to create business loss in the same year in which capital gain arises to avail benefit of set off. Accordingly, he disallowed the write off of loans and advances of Rs.47,83,51,717/- resulting in determination of positive income of Rs. /Mum/2025 AHA Holdings Pvt. Ltd. 30,58,10,230/-. However, the assessee contested the addition/disallowance before the Frist Appellate Authority and being unsuccessful there, before the Tribunal. In the meanwhile, the AO initiated proceeding u/s. 147 of the Act alleging escapement of the following income: (i) set off of capital loss of Rs.4,78,92,404/- is not allowable as the valuation of shares sold at substantially low value was not properly examined and (ii) expenditure incurred of Rs.1,80,68,937/- towards project written off should have been disallowed.

Based on the aforesaid reasoning, the AO reopened the assessment u/s. 147 of the Act and called for necessary details from the assessee. In response, the assessee furnished requisite details. After examining the details, the AO ultimately completed the assessment vide order dated 30.03.2022 passed u/s. 147 r.w.s. 144B of the Act accepting the returned income. Learned PCIT was of the view that the assessment order so passed is erroneous and prejudicial to the interest of the revenue as the AO, before allowing set off of short term capital loss of Rs.4.78 crores, has not properly enquired into and examined the issue. In this context, it would be worthwhile to take note of the show cause notice issued by learned PCIT in course of proceeding under section 263 of the Act, which is reproduced hereunder:- ……2. On perusal of assessment order u/s 147 rws 143(3) dated 30.03.2022, it is observed that the order is erroneous and prejudicial to the interest of revenue for the following reasons: 2.1 On verification of the records, it is seen that the AO while passing the order u/s 143(3) on 31.12.2018, had disallowed the write off of loans and advances amounting to Rs. 47,83,51,717/-, and assessed the total income at Rs. 30,58,10,230/-. The AO during the original assessment /Mum/2025 AHA Holdings Pvt. Ltd. proceedings, disallowed the loans given by the assessee company to its subsidiaries, including Rs.37.07 crores advanced to Chandra Net Private Limited (CNPL), citing poor financials of the subsidiaries. However, vide order passed u/s. 147 rws 143(3) on 30.03.2022, the AO has erroneously accepted the returned income at Nil. 2.2 Similarly, it is seen that you have claimed set off of long term capital loss of Rs.4.78 crore on sale of shares of CNPL for just Rs.1 to a related party. Since the loan advanced by you to CNPL was disallowed, the above LTCL claim of Rs.4.78 Crs ought to have been disallowed. However, vide order passed u/s. 147 rws 143(3) on 30.03.2022, the AO, citing paucity of time has erroneously accepted the returned income at Nil………..”

As could be seen from the show cause notice reproduced above, the fundamental reason, based on which, learned PCIT held the assessment order to be erroenous and prejudicial to the interest of the revenue is, while allowing set off of short term capital loss of Rs.4.78 crores on sale of shares of ‘CNPL, the AO has failed to take note of the fact that the write off of loan provided to ‘CNPL and another entity were disallowed by the AO in the original assessment order. Thus, the sole basis on which, learned PCIT invoked the provisions of Section 263 of the Act and ultimately set aside the assessment order is on the reason that the AO has not verified and disallowed the claim of short term capital loss on sale of shares of ‘CNPL’. Pertinently, the appeal filed by the assessee challenging the disallowance of write off of loans advance to ‘CNPL’ and MPTICPL came up for consideration before the Tribunal.

While deciding the issue in the order referred to elsewhere in the order, the Tribunal held that claim of write off of loans by the assessee is allowale and /Mum/2025 AHA Holdings Pvt. Ltd. accordingly deleted the addition. Thus, post the decision of the Tribunal the very basis on which learned PCIT assumed jurisdiction u/s. 263 of the Act does not exist. That being the case, the impugned assessment order cannot be held as erroenous and prejudicial to the interest of the revenue. Accordingly, we quash the order passed u/s. 263 of the Act and restore the assessment order.