NAVJYOTI FARMING PRIVATE LIMITED,BELAPUR vs. ITO, WARD -3 , PANVEL

Facts of the case, in brief, are that the assessee is a company engaged in the business of all kinds of farming, horticulture, sericulture, pisiculture, dairy, gardening and other agricultural related activities. It filed its return of income on 27.09.2012 declaring total income at ‘Nil’ after setting off of current year’s loss of Rs.99,419/- against the income received from short term capital gains. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Subsequently, the case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) of the Act dated 07.08.2013 were issued and served on the assessee, in response to which the assessee filed the requisite details from time to time. The Assessing Officer completed the assessment u/s 143(3) of the Act on 11.03.2015 accepting the returned income filed by the assessee.

Subsequently, the case of the assessee was reopened by recoding reasons as per the provisions of section 147 of the Act and notice u/s 148 of the Act dated 29.03.2019 was issued and served on the assessee. The assessee filed objections in response to the notice issued u/s 148 of the Act. The Assessing Officer disposed off the said objections by passing a speaking order. Thereafter, statutory notices u/s 142(1) of the Act were issued and served on the assessee, in response to which the assessee filed the requisite details from time to time. The Assessing Officer completed the assessment u/s 143(3) of the Act on 30.12.2019 determining the total income of the assessee at Rs.82,74,00,000/- wherein he made addition of Rs.16,54,00,000/- u/s 68 of the Act being the share capital and share application money received from five companies and addition u/s 68 of the Act being unsecured loan of Rs.66,20,00,000/- from two companies, the details of which are as under:

Before the Ld. CIT(A) / NFAC, the assessee, apart from challenging the addition on merit, challenged the validity of re-assessment proceedings. However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and upheld the action of the Assessing Officer in reopening the assessment u/s 147 of the Act as well as in making the addition u/s 68 of the Act.

Referring to the decision of the Hon’ble Bombay High Court in the case of Yashoda Shivappa Nagangoudar vs. ITO (2022) 138 taxmann.com 296 (Bom), he submitted that the Hon’ble jurisdictional High Court following the decision in the case of CIT vs. Jet Airways (I) Ltd. (supra) has held that if income, escapement of which was basis of reopening of assessment was not assessed or reassessed, it would not be open to Assessing Officer to independently assess any other income which comes to his notice subsequently in course of reopening proceedings as having escaped assessment. He accordingly submitted that on this ground also, the reopening of assessment made by the Assessing Officer and upheld by the Ld. CIT(A) / NFAC is not in accordance with law.

In his third plank of argument, the Ld. Counsel for the assessee submitted that during the course of original assessment proceedings all these issues were looked after by the then Assessing Officer. Referring to page 225 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the letter dated 13.11.2014 filed by the assessee before the Assessing Officer wherein the assessee had given the details of increase in share capital, confirmations, bank statements, ITRs in respect of those parties from whom share application money has been received during the year. Referring to page 227 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the questionnaire issued by the Assessing Officer. Referring to pages 228 and 229 of the paper book, the Ld. Counsel for the assessee submitted that vide letter dated 11.03.2015 the assessee had filed the requisite details wherein the assessee had given the creditworthiness and capacity of the shareholders by filing the confirmations, bank statements, their ITRs and Balance Sheets. Further, the entire amount was received from the group companies and there was no cash deposited in the bank account prior to the money coming to the assessee company. He submitted that the assessments in all those cases have also been completed u/s 143(3) of the Act and no addition has been made in their hands. Therefore, the reopening of assessment on the basis of information obtained from the Investigation Wing is nothing but a change of opinion.

Referring to the decision of the Hon’ble Bombay High Court in the case of Godrej Projects Development (P.) Ltd. vs. ITO (2024) 159 taxmann.com 32 (Bom), he submitted that the Hon’ble High Court in the said decision has held that where the Assessing Officer issued a reopening notice on ground that share premium amount received over and above intrinsic value of shares was income which had escaped assessment, since issue was subject of consideration while passing assessment order u/s 143(3), reopening of assessment being merely on basis of change of opinion, was liable to be quashed and set aside. He submitted that similar view on account of invalidity of reopening of assessment on account of change of opinion has been held by the Hon’ble Bombay High Court in the case of Gaurang Manhar Gandhi vs. ACIT (2024) 298 Taxman 452 (Bom).

So far as the merit of the case is concerned, the Ld. Counsel for the assessee referring to page 78 of the paper book drew the attention of the Bench to the Annexure to the notice issued u/s 142(1) wherein vide clause No.6 the Assessing Officer has asked the following questions: “6. Please give the details of investment made by you including investment made in shares/debentures along with the following information with supporting documents:  Amount of investments made;  Source of investments made;  Mode of payments made to Share Broker with evidence,

Referring to page 82 of the paper book, the Ld. Counsel for the assessee submitted that vide reply dated 28.10.2019, the assessee has made full disclosure to the Assessing Officer regarding the queries raised by him. Referring to pages 83 to 87 of the paper book, he drew the attention of the Bench to the notice u/s 142(1) along with the questionnaire dated 05.11.2019 issued by the Assessing Officer. Referring to page 88 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply dated 29.11.2019 filed by the assessee. Referring to pages 89 to 91 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the show cause notice dated 11.12.2019 issued by the Assessing Officer. Referring to pages 92 to 93 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply dated 13.12.2019. He submitted that thereafter the Assessing Officer passed the order on 30.12.2019 wherein he made addition u/s 68 of the Act. He submitted that when the assessee has discharged the onus cast upon it by producing the relevant details i.e. identity and creditworthiness of the share applicants / loan creditors and genuineness of the transactions, the Ld. CIT(A) / NFAC was not justified in sustaining the addition made by the Assessing Officer. He accordingly submitted that both legally and factually, the reopening of assessment is invalid and the addition made u/s 68 of the Act has to be deleted.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). He submitted that the Assessing Officer after recording reasons has reopened the assessment by following the due procedure of law. Further, although no addition has been made on the basis of which the case was reopened, however, since the Assessing Officer had accepted the source of such investment, therefore, he did not make addition to avoid double addition. He however, has given reasons for making addition u/s 68 of the Act in respect of share application money and the loan creditors. Referring to the order of the Ld. CIT(A) / NFAC, he submitted that the Ld. CIT(A) / NFAC has exhaustively considered each and every share applicant and the loan creditors and sustained the addition on account of non proving of their creditworthiness by the assessee. He submitted that since the order of the Ld. CIT(A) / NFAC is in accordance with law, therefore, the same should be upheld and the grounds raised by the assessee should be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the original assessment for assessment year 2012-13 was completed u/s 143(3) of the Act on 11.03.2015 accepting the returned income at Nil. Subsequently, on the basis of information obtained from the Investigation Wing, the Assessing Officer reopened the assessment by recording the following reasons: “11. Reasons for reopening of the assessment in the case of M/s Navjyoti Farming Private Limited for A.Y.2012-13 u/s 147 of the Act. 1. Brief Details of the assessee: The assessee is a Private Limited Company and was deriving income by the way of trading in non-trade investments and dividends The assessee company has filed the return of income for AY 2012-13 on 27-09-2012 declaring an income of Rs.0/-. For the year under consideration the case was selected for scrutiny under CASS for reason "Large Share Premium received in this case, order u/s 143(3) of the IT Act, 1961 was passed on 11-03-2015 and the returned of Income was accepted. 2. Brief Details of information collected / received by the AO: Information was received from Dy Director of Income Tax, Unit 1(1), Mumbai in the assessee's case wherein it has been reported that huge amounts of bank account transactions were carried out by one M/s. Concise Exim Private Limited with many concerns and one of the company is M/s Navjyoti Farming (P) Limited, i.e. the assessee company. The DDIT (Inv) has further reported that a perusal of financials reported of M/s Concise Exam (P) Limited reveals that it is not having fixed assets and showing meager income. However, it had carried out huge banking transactions. The assessee company i.e. M/s. Navjyoti Farming (P) Limited has invested in shares of M/s Concise Exim (P) Limited. The details of bank transactions between M/s Concise Exim (P) Limited and M/s Navyoti Farming (P) Limited (the assessee company) are as under: S No Date Amount Received in M/s. Concise Exim (P) Limited from the assessee company 01 26-03-2012 Rs.36,00,00,000/- The DDIT has further informed that from perusal of the pattern of transactions it appears that rotation of huge amounts of funds have taken place without any economic rationale and the assessee company is one of the company in net work of companies which is engaged in rotation of huge funds without any business activity/genuine economic rationale 3. Analysis of information collected / received: The assessee is a private limited company. As per the information received, M/s. Concise Exim (P) Limited has carried out transactions with many concerns and one of them is the assessee company M/s. Navjyoti Farming (P) Limited. The assessee company has invested in shares of M/s. Concise Exim (P) Limited. However, it is seen that M/s. Concise Exim (P) Limited is having no fixed assets and showing a very meager income. However, it has shown huge amount of bank account transactions it seems that only rotation of huge amounts of funds have taken place without any economic rationale and the assessee company is also one of the network of companies which is engaged in rotation of funds without any business activity. 4 Enquiries made by the AO as sequel to information collected / received: In this case, on the basis of the identical information received from the DDIT(Inv.) Mumbai, the assessment for the A.Y 2011-12 was re-opened by the assessing officer at Mumbai ITO 10(3)(1) Mumbai with the prior approval of the Pr. Commissioner of Income tax-10, Mumbai. The case was subsequently transferred to this ward and the assessment was completed. During the course of assessment proceedings, detailed enquiries were made in respect of the sources of funds for investment by the assessee company. The claim of the assessee that funds were received by way of share application money from various other companies was proved to be false and addition was made in the hands of the assessee company in AY 2011- 12.

Findings of the A.O. As per information received from Dy Director of Income Tax (Inv), Mumbai, the assessee company has made an investment in shares of M/s Concise Exim (P) Limited amounting to Rs.36,00,00,000/-. As stated above, during the course of the re-assessment proceedings for AY 2011-12, a similar claim of investment in the shares of M/s. Concise Exim (P) Limited was dealt with in detail. The source of investment was enquired into and the claim of the assessee that the same was out of the share application money received by it from various other concerns was proved to be false and incorrect. The financial position of the companies, from whom share application money was claimed to have been received by the assessee company, was found to be weak and these companies have shown a very meagre income in the earlier and subsequent years Thus, the sources of investment by the assessee company was held to be unexplained. In the similar manner, the sources of investment made by the assessee company during the year under consideration i.e. A.Y. 2012-2013 amounting to Rs.36,00,00,000/- remain unexplained.

Basis of forming reason to believe and details of escapement of income: The assessee is a private limited company. As per the information received from the DDIT (Inv), Mumbai that M/s. Concise Exim (P) Limited has carried out transactions with many concerns and one of them is the assessee company M/s Navjyoti Farming (P) Limited. The assessee company has made a payment of Rs.36,00,00,000/- during the year relevant to A.Y. 2012-13 towards investment in shares of M/s Concise Exam (P) Limited. However, it is seen that M/s. Concise Exam (P) Limited is having no fixed assets and showing a very meagre income. However, it has shown huge amount of bank account transactions. It seems that only rotation of huge amounts of funds have taken place without any economic rationale and the assessee company is also one of the network of companies which is engaged in rotation of funds without any business activity. A similar claim of investment by the assessee company in the shares of M/S.Concise Exim (P) Limited in AY 2011-12 during re-assessment proceeding was dealt with in detail. The source of investment was enquired into and the claim of the assessee that the same was out of the share application money received by it from various other concerns was proved to be false and incorrect. The financial position of the companies, from whom share application money was claimed to have been received by the assessee company was found to be weak and these companies have shown a very meagre income in the earlier and subsequent years. Thus, the sources of investment by the assesses company was held to the unexplained. In the similar manner, the sources of investment made by the assessee company during the year under consideration i.e. A.Y.2012-2013 amounting to Rs.36,00,00,000/- remain unexplained. In view of above facts and material evidences, I have reason to believe that sources of investment in the shares of M/s Concise Exim (P) Limited amounting to Rs.36,00,00,000/- have remained unexplained and assessee's income to the extent of the same i.e. Rs.36,00,00,000/- for the AY 2012-13 has escaped assessment.

Applicability of the provisions of section 147/151 to the facts of the case: In this case, it is pertinent to mention here that the assessee has filed return of income for the year under consideration and regular assessment u/s. 143(3) was made on 11-03-2015. Since, 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceeding u/s. 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly

A perusal of the above reasons shows that the case was re-opened on the ground that the assessee has invested an amount of Rs.36,00,000/- in shares of M/s. Concise Exim (P.) Ltd. and the assessee has not truly and fully disclosed all material facts necessary for completion of assessment for the year under consideration.

However, a perusal of the assessment order shows that no addition has been made by the Assessing Officer on account of investment in shares of M/s. Concise Exim (P.) Ltd. for which the case was reopened but the Assessing Officer has made some other addition. Therefore, the question that arises as to whether when no addition has been made by the Assessing Officer on account of which the case was reopened, then can the Assessing Officer make some other addition which comes to his notice subsequently in course of re-assessment proceedings as having escaped assessment.

We find the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (supra) has held that after insertion of Explanation 3 to section 147 by Finance (No.2) Act, 2009, with effect from 01-04-1989, section 147 has an effect that Assessing Officer has to assess or reassess income (‘such income’) which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings. However, if after issuing a notice u/s 148, he accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary.

We find the Hon’ble High Court of Delhi in the case of Ranbaxy Laboratories Ltd. vs. CIT (supra) has upheld the decision of the Tribunal in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive.

We find the Hon’ble High Court of Gujarat in the case of CIT vs. Mohmed Juned Dadani (supra) has held that when on ground on which reopening of assessment was based, no addition was made by Assessing Officer, he could not make additions on some other grounds which did not form part of reasons recorded by him.

We find the Hon’ble Bombay High Court in the case of Yashoda Shivappa Nagangoudar vs. ITO (supra) has held that if income, escapement of which was basis of reopening of assessment was not assessed or reassessed, it would not be open to Assessing Officer to independently assess any other income which comes to his notice subsequently in course of reopening proceedings as having escaped assessment.

The various other decisions relied on by the Ld. Counsel for the assessee also supports its case to the proposition that when no addition has been made on account of which the case was reopened, the Assessing Officer cannot make any other addition without issuing a fresh notice u/s 148 of the Act.

In view of the above discussion and in absence of any addition made by the Assessing Officer on account of which the case was reopened, the other addition made by the Assessing Officer u/s 68 of the Act, in our opinion, in the order passed u/s 147 r.w.s. 143(3) of the Act is not in accordance with law. Accordingly, the re- assessment order passed by the Assessing Officer and upheld by the Ld. CIT(A) / NFAC is invalid. Since the assessee succeeds on the legal ground i.e. on the validity of re-assessment proceedings, therefore, the grounds challenging the addition on merit become academic in nature and therefore, we are not deciding the same.

In the result, the appeal filed by the assessee is allowed.