ITAT Mumbai on Revision under Section 263 for Joint Venture Funding: Goldcity Properties Pvt. Ltd. Vs PCIT

1. Background of the Dispute

The appeal in Goldcity Properties Pvt. Ltd. Vs PCIT (ITAT Mumbai) arose from a revisionary order passed by the Principal Commissioner of Income Tax-14, Mumbai (PCIT) under Section 263 of the Income Tax Act 1961 for Assessment Year 2011-12. The order under challenge was dated 31.03.2019.

The assessee, Goldcity Properties Pvt. Ltd., was engaged in consultancy services and had filed its return of income on 20.09.2011, declaring a total income of Rs. 40,033. This return was initially processed under Section 143(1) on **11.01.2012`.

Subsequently, the assessment was reopened under Section 147 on 23.03.2016, primarily on the basis of alleged accommodation entry information relating to a sum of Rs. 7.25 crore received from Minaxi Suppliers Private Ltd. (MSPL). The reassessment culminated in an order under Section 143(3) read with Section 147 on 29.12.2016, wherein the Assessing Officer (AO) accepted the returned income without making any addition.

Later, a second reopening was initiated by issue of notice under Section 148 on **30.03.2018`. Those reassessment proceedings were ultimately dropped, and no fresh addition or reassessment order was passed.

Despite this, the PCIT invoked his revisionary jurisdiction under Section 263 to revise the reassessment order dated 29.12.2016 on the ground that the AO had not conducted an adequate or independent enquiry into the funds received from MSPL. This led to the present appeal before the ITAT Mumbai.

The Tribunal had to decide whether the PCIT was justified in invoking Section 263 in the facts of this case, particularly when the AO had already examined the very transaction in detail during reassessment.

2. Procedural History and Key Dates

2.1 Original Return and Intimation

  • The assessee filed its return of income for AY 2011-12 on 20.09.2011, declaring income of Rs. 40,033.
  • This return was processed under Section 143(1) on **11.01.2012`.

2.2 First Reopening under Section 147

The AO reopened the assessment by issuing a notice under Section 148 on 23.03.2016, after recording reasons based on investigation in the case of Shri Sanjoy Kumar, proprietor of KJM International. The investigation allegedly revealed a money-laundering/entry-providing network involving:

  • Large cash deposits in accounts held with ICICI Bank, Kolkata.
  • Layering of funds through multiple entities having no genuine business.
  • Funds eventually moving to various “beneficiaries”, one such route being through M/s Minaxi Suppliers Private Ltd.

In those reasons, the AO recorded that:

  • An amount of Rs. 7.25 crore had been received from M/s Minaxi Suppliers Private Ltd..
  • MSPL was viewed as the last intermediary entity before the funds reached the beneficiary.
  • The AO formed a belief that the assessee had under-assessed tax of Rs. 2,46,42,750 and income had escaped assessment within the meaning of Section 147 read with Explanation 2(b).

2.3 First Reassessment Order (29.12.2016)

During the reassessment proceedings pursuant to this first notice:

  • The AO issued a detailed notice under Section 142(1) dated 13.10.2016.
  • Specific queries were raised regarding:
    • The exact nature of transactions with MSPL; and
    • Complete bank statements in relation to these transactions.

The assessee replied on 21.10.2016 and 16.12.2016, submitting documentary support including:

  • Ledger account of MSPL in assessee’s books.
  • Explanation that the Rs. 7.25 crore represented capital contribution under a joint venture agreement, not a revenue receipt.
  • Documents to establish the identity, genuineness and creditworthiness of MSPL, such as:
    • Copy of income tax acknowledgement for AY 2011-12.
    • Audited financial statements for year ended 31.03.2011.
    • Assessment orders under Section 143(3) for AY 2010-11 and AY 2012-13 in MSPL’s case.
    • Company master data as per MCA records.
    • Details of directors.

After considering these submissions, the AO completed reassessment under Section 143(3) read with Section 147 on 29.12.2016, accepting the returned income with no addition in respect of the MSPL transaction.

2.4 Second Reopening (Notice dated 30.03.2018)

A second notice under Section 148 was issued on 30.03.2018 in the name of Goldcity Properties Pvt. Ltd. (the Tribunal notes that the assessee contended that this was issued in the name of a non-existent entity, as Goldcity had merged with Supergold Properties Pvt. Ltd. with effect from 01.04.2016).

The recorded reasons again revolved around:

  • Information from ADIT (Inv), Unit 2(1), Kolkata about alleged shell company networks, involving one Lalit Sharma in cash routing.
  • The assessee’s balance sheet reflecting loans and advances of Rs. 17.23 crore, with no turnover, leading to suspicion that funds were routed and sources of funds were not satisfactorily explained.

The AO again issued notices under Section 142(1) and obtained detailed submissions and evidences, including:

  • Incorporation documents of MSPL.
  • PAN.
  • Memorandum and Articles of Association.
  • Income tax returns, financials, directors’ report and auditors’ report of MSPL.
  • Assessment orders for MSPL for AY 2010-11 and AY 2012-13.
  • An affidavit dated 18.12.2018 from MSPL confirming that the Rs. 7.25 crore represented joint venture contribution.

These reassessment proceedings were, however, dropped under Section 152(2) on 28.12.2018, as noted by the PCIT in his order. No reassessment order adverse to the assessee was passed for this second reopening.

3. PCIT’s Assumption of Jurisdiction under Section 263

3.1 Show Cause Notice under Section 263

The PCIT issued a show cause notice dated 06.03.2019, proposing to revise the reassessment order dated 29.12.2016 under Section 263. Key allegations in the show cause notice:

  • The first reopening was specifically to verify the transaction of Rs. 7.25 crore received from MSPL.
  • According to the PCIT, the AO did not make proper, specific or independent enquiries into:
    • The genuineness of the transaction; and
    • The source of funds in the hands of MSPL.
  • The PCIT alleged that the AO had acted solely on the basis of assessee’s submissions without verifying the investigation inputs or making further inquiries with banks or MSPL.

On this basis, the PCIT proposed that the reassessment order was both:

  • Erroneous; and
  • Prejudicial to the interests of the Revenue

within the meaning of Section 263.

3.2 Assessee’s Reply before PCIT

In reply dated 22.03.2019, the assessee contended:

  1. Complete enquiry in first reassessment

    • In the first reassessment (notice dated 23.03.2016), the AO had expressly asked about the MSPL transaction via Section 142(1).
    • The assessee submitted detailed documentation and explanations, including bank statements, ledgers and joint venture details.
    • The reassessment order dated 29.12.2016 was passed after full verification and no addition was made.