M/S. ARSHIYA RAIL INFRASTUCTURE LTD.,MUMBAI vs. DY CIT - CC-6(4), MUMBAI

The brief facts of the case, as emanating from the record, are: The assessee is a private limited company incorporated in India and is engaged in the business of operating and maintaining the infrastructure facility etc. to Indian Railways. For the year under consideration, assessee filed its return of income on 30/09/2012 under section 139(1) of the Act declaring net loss at Rs. 21,79,30,180 and book profit at Rs. 7,67,96,699. The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the assessee on 06/08/2013. Thereafter, notice under section 142(1) of the Act was issued on 12/01/2015 along with a detailed questionnaire and various details, including details of sundry debtors, were sought from the assessee. The assessee, inter-alia, provided the details of sundry debtors as well as details of ageing of sundry debtors. After considering the submission of the assessing, the Assessing Officer vide order dated 28/03/2015 passed under section 143(3) of the Act assessed the total loss at Rs. 21,22,43,006 under normal provisions of the Act and book profit at Rs. 8,14,83,873 under section 115 JB of the Act, after adding the disallowance made under section 14A r/w Rule 8D. In appeal against the aforesaid assessment order passed under section 143(3) of the Act, partial Page | 2

Thereafter, on 27/03/2019, notice under section 148 of the Act was issued and reassessment proceedings in the case of the assessee were initiated on the basis of information received from DDIT (Investigation), Kolkata regarding certain paper/shell companies i.e. Silverson Logistics Private Ltd and Kalyani Vincom Private Ltd, whose bank accounts were alleged to have been used merely for transaction of layering of funds and assessee being one of the beneficiaries of such a transaction. Accordingly, the Assessing Officer was of the view that income totalling to Rs. 9,81,60,144 has escaped assessment, as assessee has failed to disclose truly and fully material facts. The assessee filed detailed objections against reopening of assessment, which were disposed off vide order dated 10/11/2019. The Assessing Officer issued notice under section 142(1) of the Act seeking information about the aforesaid two entities. In reply thereto, assessee Page | 3

During the course of hearing, learned Authorised Representative („learned AR‟) submitted that all the details were furnished by the assessee during the course of original assessment proceedings and thus, there is no failure on behalf of the assessee to disclose truly and fully all material facts. Learned AR further submitted that assessment has been completed twice in the case of the assessee i.e. under section 143(3) as well as under section 153C of the Act after consideration of details. Learned AR also submitted that M/s. Arshiya Rail Infrastructure Ltd. ITA no.574/Mum./2021 all the sales pertain to the previous years and therefore, addition cannot be made in the year under consideration.

On the other hand, learned Departmental Representative by vehemently relying upon the orders passed by the lower authorities submitted that reassessment proceedings were initiated on the basis of specific information received from DDIT (Investigation), Kolkata and thus, same have been validity initiated.

We have considered the rival submissions and perused the material available on record. In the present case, the assessment in the case of the assessee was not only completed under section 143(3) of the Act, but the same was also done under section 153C of the Act. During each assessment proceedings, be it under section 143(3) or under 153C of the Act, information/details were sought by the Assessing Officer vide notices issued under section 143(2) of the Act. After considering of the submissions filed by the assessee, in pursuant of aforesaid notices, assessment order under section 143(3) of the Act was passed by the Assessing Officer after making disallowance under section 14A read with rule 8D. Similarly, order under section 153C r/w section 143 (3) of the Act was passed. However, after the expiry of 4 years from the end of the relevant assessment year, notice under section 148 of the Act was issued on 27/03/2019 alleging that income chargeable to tax has escaped assessment. While initiating the reassessment proceedings, the Assessing Officer recorded following reasons for reopening the assessment: Page | 5

Subsequently, information has been received from the office of the Deputy Director of Income Tax (Inv.), Unit 2(), Kolkata that on perusal and analysis of the Bank Statement of Account No.695205127912 with Kolkata-NS Road branch which was opened on 20.08.2010 in the name of Silverson Logistics Private Limited [AAOCS6924L], it was noted that the said account was being frequently credited followed by immediate transfer of funds to various parties. It was further observed by the Investigation Wing that though a huge amount of credit entries is observed from its bank account, Silverson Logistics Private Limited has shown to have turnover and fixed assets at ZERO and has shown to have profit before tax only to the tune of Rs.3,259/- and Rs.2,462/- for A. Ys. 2012-13 & 2013-14 respectively. Summons were issued to the Principal Officer of the company by the DDIT but the same was returned unserved by the postal authorities. Further, it was learnt that the said company and the other inter-linked companies did not manufacture any product or deal in any product or render any services. Prima facie, it appeared that these companies were running on papers only and that their bank accounts were being used for layering of funds only. The DDIT, after having made analysis of the bank accounts of various entities including that of Silverson Logistics Private Limited, concluded that the said bank accounts including that of Silverson Logistics Private Limited had been used merely for layering of funds. The DDIT identified the beneficiaries of such transactions of layering of funds through the bank account of Silverson Logistics Private Limited, which also included the name of the present assessee, Arshiya Rail Infrastructure Limited [AAGCA96488], which has been benefitted by a sum of Rs.5,54,21,934/-. 2.1 Though the assessment has been carried out in the instant case before as well as after the search action, the assessee has failed to disclose truly and fully material facts necessary for its assessment. In view of these facts, I have reason to believe that the income amounting to Rs.5,54,21,934/- chargeable to tax has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961.

Applicability of the provisions of Section 147/151 to the facts of the case: In this case, the return of income was filed for the year under consideration and the scrutiny assessment u/s. 143(3) has also taken place but the assessee has failed to disclose truly and fully material facts necessary for its assessment. In view of the above, the provisions of clause (c) of Explanation [2] to Section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income totaling Rs.9,81,60,144/- [5,54,21,934 +4,27,38,210] chargeable to tax has escaped assessment. Hence, it is a fit case for issue of notice u/s.148 of the Act.”

Thus, on the basis of information received from DDIT (Investigation), Kolkata, Assessing Officer alleged that the assessee is a beneficiary of Page | 7

Vide reasons recorded for reopening the assessment, Assessing Officer has alleged that assessee is a beneficiary in transaction of layering of funds through the bank account of Silverson Logistics Private Ltd. and in this regard, the assessee has failed to disclose truly and fully all material facts. We find that during the course of scrutiny assessment proceedings, vide notice dated 12/01/2015 issued under section 142(1) of the Act, the assessee was, inter-alia, asked to provide the details of sundry debtors such as name and address, amount outstanding. Further, the assessee was also asked to separately indicate creditors outstanding for more than 3 years (copy of the aforesaid notice forms part of the paper book from page No. 2 – 4). We find that details of sundry debtors were provided by the assessee, at page 7 and 8 of the paper book, wherein, the assessee had specifically mentioned, Silverson Logistics Private Ltd, as one of the debtor from whom amount of Rs. 2,43,24,868 in respect of rail freight and related services was due. The assessee further submitted that the said payment was received on 28/04/2011, i.e. during the relevant financial year. We find that as required, assessee also separately provided details of debtors, including in the case of Page | 9

Further, in respect of alleged transactions with Kalyani Vincom Private Ltd, it has been the submission of the assessee that the assessee has not entered into any transaction with the said entity. From page No. 7 of the assessment order passed under section 143 (3) r/w section 147 of the Act, it is evident that Assessing Officer, while disposing of the objection against initiation of reassessment proceedings, agreed with the aforesaid submission of the assessee and observed as under: “Further as response submitted by the assessee that they have not entered into any transaction with respect to Kalyani Vincom Pvt Ltd during the year under scrutiny has been accepted.”

However, despite the aforesaid acceptance of the fact, the Assessing Officer during the course of reassessment proceedings alleged that the funds were transferred from Kalyani Vincom Private Ltd to Highland Transport Private Ltd and Neelanchal Roadways Private Limited, which were later on transferred to the assessee. In this regard, it is pertinent to note that the reasons recorded by the Assessing Officer while reopening the assessment did not have mention of assessee‟s transaction with these entities. It is M/s. Arshiya Rail Infrastructure Ltd. ITA no.574/Mum./2021 evident from record that it is only during the course of reassessment proceedings Assessing Officer alleged the transfer of funds from Kalyani Vincom Private Ltd to these 2 entities, which were subsequently transferred to the assessee. It is settled that the reasons recorded for reopening the assessment are to be read as they were recorded by the Assessing Officer and same cannot be supplemented. In this regard, following observations of Hon‟ble jurisdictional High Court in Hindustan Lever Ltd vs ACIT, [2004] 268 ITR 332 (Bombay) become relevant:

We find that even in respect of Highland Transport Private Ltd and Neelanchal Roadways Private Limited, the assessee provided the details of same amount due from them in its reply to notice issued under section Page | 11

Thus, from the above it is evident that the details pertaining to the amount due from these entities were provided by the assessee during the course of scrutiny assessment proceedings and said details were accepted by the Assessing Officer under section 143(3) of the Act. Therefore, in view of the details available on record it cannot be said that assessee has failed to provide fully and truly all material facts necessary for his assessment in the present case. Further, as is evident from the record the amount due from these entities pertains to the previous financial year and assessee being an Indian company has already paid the taxes thereon, since it follows the mercantile system of accounting. Therefore, we are of the considered view that conditions laid down in 1st proviso to section 147 of the Act are not satisfied in the present case. Thus, the reassessment proceedings under section 147 of the Act, in the present case, are set aside being bad in law. Accordingly, the impugned order passed by the learned CIT(A), inter-alia, upholding the order passed under section 143(3) r.w.s. 147 of the Act is set aside. As a result, ground No. 1 raised in assessee‟s appeal is allowed.

Since, challenge to jurisdiction under section 147 has been decided in favour of the assessee, the other grounds raised in the assessee‟s appeal are rendered academic in nature in the present case and therefore need no separate adjudication.