BHARAT FRITZ WERNER LTD V. DEPUTY COMMISSIONER OF INCOME TAX

WP/57135/2018

AI Insights

The case revolves around the reassessment notice issued to Bharat Fritz Werner Ltd by the Deputy Commissioner of Income Tax, which was challenged in the High Court of Karnataka. The reassessment was based on alleged discrepancies in the financial transactions between the petitioner and its associated enterprise, MMG, particularly concerning a loan and its interest payments. The Income Tax Department argued that the transactions were not adequately disclosed, warranting a reassessment under Sections 147 and 148 of the Income Tax Act. However, the petitioner contended that all necessary disclosures were made, and the transactions were subject to prior scrutiny, thus no new grounds for reassessment existed. The court examined the submissions and found that the conditions for reassessment were not satisfied, leading to the quashing of the reassessment notice and orders.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 754164 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-04-2022
• Assessment Year: misc
• Other Referred Cases: CIT v Rajesh Jhaveri Stock Brokers Pvt
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: T SURYANARAYANA; TANMAYEE RAJKUMAR
• Keywords: Audit certificate; Interest Taxation; International transaction; Loan Advance; Reassessment; Transfer pricing; Form No.3CEB
• Section: 147; 148; 143(3); 143(2); 143(1); 69; 92CA; 226

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF APRIL 2022 BEFORE THE HON’BLE MR. JUSTICE B. M. SHYAM PRASAD WRIT PETITION NO.57135/2018 (T-IT) BETWEEN : BHARAT FRITZ WERNER LTD OFF TUMKUR ROAD, BANGALORE – 560 022. REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, MR.SUJAY DASGUPPA AGED 49 YEARS. ... PETITIONER (BY SRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1)(2), ROOM NO.242, 2ND FLOOR, BMTC DEPOT BUILDING, 80 FEET ROAD, KORAMANAGALA, BENGALURU – 560 095. 2. PRINCIPAL COMMISSIONER OF INCOME-TAX-1 BMTC BUILDING, KORAMANGALA 6TH BLOCK, BENGALURU – 560 085. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADVOCATE) 2 THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER BEARING F NO. BH5723/12-13 DCIT C-2(1)(2) BLR/2018-19 DATED 2.11.2018 [ANNEXURE-Q] PASSED BY THE R-1 REJECTING THE PETITIONERS OBJECTION AS TO HER JURISDICTION AND LIMITATION IN RESPECT OF THE ASSESSMENT YEAR 2012-13; QUASH THE NOTICE BEARING NO. BH5723A/12-13/DCIT,C1(1)(2) BLR/2017- 18 DATED 29.1.2018 [ANNEXURE-E] ISSUED BY THE R-1 UNDER SECTION 148 READ WITH SECTION 147 OF THE ACT FOR ASSESSMENT YEAR 2012-13; QUASH THE ORDER BEARING F NO. BH5723/12-13/DCIT,C1(1)(2) BLR/2018-19 DATED 02.11.2018 [ANXEURE-R] PASSED BY THE R-1 MAKING A REFERENCE TO THE TPO. THIS PETITION HAVING BEEN HEARD AND COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THIS COURT MADE THE FOLLOWING: O R D E R The petitioner has impugned the notice dated 29.01.2018 [Annexure-E] issued under the provisions of Section 147 of the Income Tax Act, 1961 [for short, ‘the I-T Act’] proposing reassessment for the Assessment Year 2012-13, and the orders dated 02.11.2018 [Annexures – Q and R] by the Deputy Commissioner of Income Tax, Circle 1(1)(2) - the first respondent - rejecting the petitioner’s objections for reopening the assessment and disposing of the petitioner’s objection to 3 the proposed ‘Transfer Pricing Reference’ under Section 92CA of the I-T Act. The petitioner has also sought for declaration that the proceedings initiated by the first respondent for reassessment under Sections 147 read with 148 of the I-T Act is without jurisdiction and even otherwise barred by limitation. 2. During the assessment year 2012-13, the petitioner has received a sum of Rs.49,58,482/- from M/s Matec Maschinenbau GmbH [the petitioner’s Associated Enterprise and hereafter referred to as “MMG”] as interest on the loan extended by the petitioner. The petitioner has reflected the receipt of interest in the Return and has also filed the Auditor’s Certificate in Form No.3CEB [Annexure-A] disclosing certain details of the transaction. During this Assessment Year, the petitioner has purchased 90% of the shares of MMG for an amount of Rs.92,68,49,551/-, and this transaction 4 is also reflected in the balance sheet for the year ending 31.03.2012. 3. The petitioner’s Return is initially processed under Section 143(1) of the I-T Act, but upon issuance of notices under Section 143(2) of the I-T Act, the petitioner’s Return is taken up for scrutiny. The assessment order is passed on 05.02.2015 under Section 143(3) of the I-T Act making certain additions and disallowances. It is undisputed that the Assessing Officer [AO] has brought to tax an amount of Rs.54,53,449/- computed as interest on the loan extended to MMG. The AO has taken the view that the petitioner has utilized interest-bearing advances in extending loans to its sister concerns and as such, the aforesaid amount must be brought to be tax. 4. The petitioner has impugned the assessment order before the Commissioner of Income Tax (Appeals). It is presently stated that during the pendency of this 5 petition the Commissioner of Income Tax (Appeals) has disposed of such appeal by order dated 31.07.2019. The petitioner and the Revenue have challenged Order dated 31.07.2019 before the Income tax Appellate Tribunal. These corresponding appeals have also been disposed of on 30.09.20211. 5. The petitioner is issued with the impugned notice dated 29.01.2018 [Annexure- E] proposing reassessment which is beyond 4 years from the relevant date. In response to the petitioner’s Communication dated 28.02.2018 [Annexure –F] requesting for reasons recorded to initiate proceedings under Section 147 of the I-T Act and for a copy of the sanction for initiation of the said proceedings, the petitioner is issued with communication dated 19.09.2018 [Annexure-G] 1 The appeal before the Commissioner of Income Tax (Appeals) and the further proceedings in ITA Nos. 2046-2049/2019 & ITA Nos.2244-2247/2019 have culminated with the conclusion that because the petitioner had its own funds in excess of the loans advanced, there should not be such disallowance. 6 informing the petitioner that the reasons for the proposed reassessment are: [a] The loan advanced by the petitioner to its Associated Enterprise [MMG] amounted to an ‘international transaction’ which was required to be referred to the Transfer Pricing Officer [TPO] and such reference was not made during the original assessment proceedings; [b] The value of the petitioner’s investment in MMG as disclosed in its books of accounts did not tally with the amount of share capital and reserves/surplus reflected in MMG’s books, and that portion of the investment recorded in the petitioner’s books which is in excess of the values reflected in MMG’s books would be liable to be treated as income under section 69 of the I-T Act. 6. The petitioner, with issuance of notice dated 28.09.2018 under Section 143(2) of the I-T Act requiring it to produce any evidence in support of its Return, has 7 filed objections to the proposal to refer the matter to the TPO even before the disposal of the petitioner’s objections to the reasons offered for the proposed reassessment. After certain correspondences for details and application under the provisions of the Right to information Act 2005, the petitioner has filed interim objections dated 16.10.2018 to the proposed reassessment contending inter alia that: [a] The notice for reassessment is issued beyond the period of 4 [four] years from the relevant date, and none of the conditions that would justifying assumption of jurisdiction to invoke the provisions of section 148 of the I-T Act are satisfied. The reasons recorded do not even indicate that the AO has concluded that the petitioner had failed to disclose, either truly or fully, material facts; [b] The petitioner has furnished a complete set of financials, including the subsidiaries’ financials, and the 8 impugned proceedings are based on these very financials and therefore, there cannot be allegations of failure to disclose; [c] The difference in the value of investment recorded in the respective books by the petitioner and MMG is because the petitioner has purchased shares from third parties and the premium paid by the petitioner for the said shares would not be, and is not required, to be recorded in the MMG’s books; [d] The provisions of section 69 of the I-T Act, demonstrably would not apply to the facts of the case even at the threshold. 7. In the meanwhile, the petitioner has also responded to the Show Cause notice issued for reference of the petitioner’s case to the Transfer Pricing Officer [TPO] for determination of Arm’s Length Price. The petitioner has responded to such Show Cause notice stating that in the absence of transfer pricing parameter in the Assessment Order dated 05.02.2015, 9 there cannot be a reference. The petitioner has contended that a reference to the TPO can be justified only when there is an opinion that it is necessary and expedient, and that the same question i.e., the question of advances to MMG is considered resulting in certain disallowance by the AO in the proceedings under Section 143 (2) of the I-T Act; therefore, no useful purpose would be served. 8. The first respondent, by the impugned orders dated 2.11.2018 [Annexure- Q and R], has rejected the petitioner’s objections to refer the petitioner’s loan transaction with MMG to the TPO and to the reasons offered for the proposed reassessment. The first respondent has opined that the Auditor’s Certificate in Form 3CEB includes only the interest amount of Rs.49.59 lakhs but does not indicate the loan transaction of Rs.20.75 crores. The petitioner is at fault in not disclosing the amount lent to MMG in Form No. 10 3CEB. The loan transaction of Rs.20,74,77,900/-2 falls within the provisions of section 92CA of the I-T Act and the assessment is completed without determination of Arm's Length Pricing. As such, it is inevitable that the assessment must be reopened for reassessment. 9. The first respondent has further opined that the petitioner’s investment in MMG is approximately Rs.93 crores but MMG’s financials show a total investment of Rs.24 crores3, and the petitioner’s explanation that the shares have been purchased from individuals and not from the company and hence the premium paid will not be disclosed in the MMG’s financials may be true but that can only be confirmed in the reassessment proceedings after examination of the documents. 2 The corresponding figures are: advance of Rs.20.74,77,900/- and interest of Rs.49,58,482/- 3 The corresponding figures are: Rs.92,68,49,551/-and Rs.24,26,89,746/-. 11 10. As regards the reference to the TPO, the first respondent has opined that the petitioner has disclosed only interest payment transaction in the Auditor’s Certificate in Form No.3CEB, and this may have persuaded the AO not to refer the transaction to the TPO; if the petitioner had mentioned both the loan amount and the interest received in Form 3CEB, the AO would have referred the transaction to the TPO. The first respondent has also opined that with the latest instructions in No.3/2016 on Transfer Price Reference, and because the Arms Length Pricing is not determined on account of the petitioner’s failure to disclose the loan transaction which is in excess of Rs.20 crores, the reference to TPO will be justified. Further, the first respondent has opined that because the reassessment proceedings are pending, the AO’s jurisdiction to refer under Section 92CA of the I-T Act is not restricted. 12 11. Sri T. Suryanarayana, the learned Senior Counsel for the petitioner, submits that the first respondent could have assumed jurisdiction for reopening the assessment after the expiry of 4 years from the end of the Assessment Year 2012-13, as contemplated under the proviso to Section 147 of the I-T Act, only if it can be demonstrated that notwithstanding the assessment under Section 143(3) of the I-T Act some income chargeable to tax has escaped assessment because the petitioner has failed to disclose fully and truly all material facts necessary for the assessment in this assessment year. However, the proposed assessment is because of alleged discrepancies in the Auditor’s Certificate in Form No.3CEB and in the petitioner’s and its subsidiary’s financials. These documents were available to the AO right through and therefore, there cannot be an allegation of failure to disclose. In fact, the first respondent in the reasons recorded for reassessment has not even mentioned that 13 the petitioner has failed to disclose either fully or truly material facts. 12. Sri T Suryanarayana elaborates that the proposed reassessment is ostensibly for the reason that the petitioner has not disclosed the loan of Rs.20,74,77,900/- extended to its Associated Enterprise [MMG] and there is difference in the petitioner’s investment in purchasing MMG’s shares as per the respective financials of the petitioner and MMG. The first respondent does not rely upon any further information other than the financials already produced to substantiate these reasons. Therefore, the very issuance of notice for initiation of proceedings under Section 147 of the I-T Act is without jurisdiction. 13. Sri T.Suryanarayana next submits that reassessment would be permissible only if it can be demonstrated that the first respondent has reason to believe that the income chargeable to tax has escaped 14 assessment, but in the facts and circumstances of the case it cannot be reasonably opined that this requirement is established. In support of this canvass, he relies upon the following circumstances: [a] The petitioner’s advance of Rs.20,74,77,900/- to its Associated Enterprise [MMG] was subject matter of scrutiny under Section 143(2) of the I-T Act. The AO, during the proceedings under Section 143(2) of the I-T Act, called upon the petitioner to justify advances to ‘its sister companies’ putting the petitioner on notice that the failure to justify the lending would result in the interest on such lending being brought to tax. [b] The petitioner has justified lending a sum of Rs.20,74,77,900/- [also mentioned as Rs.21,40,68,782/- in the Assessment Order 15 dated 05.02.2015] referring to the disallowance of notional interest during the previous reassessment years. The AO, upon consideration of the justification furnished by the petitioner, disallowed the interest and brought to tax under Section 36(1)(iii) of the I-T Act on the ground that the petitioner had utilised interest-bearing advances to lend to its sister concerns4. 14. Sri T Suryanarayana submits that these circumstances demonstrate that the question of advances by the petitioner to MMG was specifically considered and a certain decision taken. As such, the assessment cannot be revisited either on the ground that the petitioner did not disclose the transaction or that the AO has reasons to believe that income 4 The subject matter of the appeal before the Commissioner of Income Tax (Appeals)-1 and further proceedings as referred to above 16 chargeable to tax has escaped assessment. As regards the reasons offered by the AO viz. that the petitioner did not disclose the underlying loan transaction in the Auditors Certificate in Form 3CEB, Sri T Suryanarayana submits that all the details as prescribed in this prescribed Form are furnished indicating the nature of transaction, rate of interest and the method of determining Arm’s Length Price. Therefore, it cannot be argued that the petitioner had not disclosed, either fully or truly, material information preventing the AO in exercising his discretion in adherence with the CBDT’s instructions to refer the transaction to the TPO. 15. Sri T Suryanarayana submits that the reason that the purported difference in the values between petitioner’s and MMG’s financials as regards the petitioner’s investment for purchase of shares would be liable to be treated as income under Section 69 of the I- T Act [one of the reasons offered to justify reassessment] 17 cannot be accepted, firstly because it cannot even be disputed that the premium paid for purchase of shares to shareholders will not be reflected in the MMG’s financials and secondly, the threshold requirements to apply the deeming provisions of Section 69 of the I-T Act are not established. 16. Sri T Suryanarayana canvasses that the Revenue does not dispute the petitioner’s contention that, in disclosing the investment of Rs. 92,87,42,526/- for purchase of MMG’s shares, the petitioner has also included the premium paid to the shareholders who have transferred the shares; and such premium will not be, and need not be, reflected in the MMG’s financials. If this is not disputed there is no cause for reassessment on the ground that there is unexplained investment. For the purposes of bringing any investment to tax under Section 69 of the I-T Act, it must be 18 demonstrated inter alia that [a] the investments are made from a source of income not recorded in the books of accounts and [b] if the assessee fails to offer explanation about the nature and source of the investments. It is uncontested that the petitioner had surplus income and this income is applied to purchase shares on payment of premium. Sri T Suryanarayana has referred to the details as furnished in the petitioner’s Annual Report for the relevant assessment year 2012-2013 in this regard. 17. Sri K V Aravind, the learned counsel for the Revenue, submits that in terms of CBDT’s Instruction No.3/2003 dated 20.05.2003, which was in vogue as of the date of the concerned assessment year, the AO should have picked the petitioner’s case for reference to TPO because the loan transaction exceeded Rs.5 crores. The petitioner cannot controvert that the loan of Rs.20,74,77,900/- advanced to MMG is not specifically 19 mentioned in the Auditor’s Certificate in Form No.3CEB. The fact that the petitioner did not disclose the loan transaction of Rs.20,74,77,900/- and the petitioner only mentioned the interest of Rs.49,58,482/-, has led the AO to believe that the petitioner’s case would not be covered under the instructions. 18. Sri K V Aravind submits that disallowance of interest in terms of the assessment order dated 05.02.2018 could vary if there is an opinion by the TPO on the interest charged and therefore could be escapement of income from tax. If the petitioner cannot dispute this fact, the threshold requirements of failure to fully and truly disclose material facts and reason to believe some income has escaped tax are established. As such, the reassessment proceedings are justifiably commenced for reference to TPO and consequential adjustments. 20 19. Sri K V Aravind submits that on the face of the records i.e., the petitioner’s 51st Annual Report, which is relevant to the subject Assessment Year, indicates that the petitioner has shown a trade investment in the subsidiary [MMG] in a sum of Rs.92,68,49,551/-, and in the enclosed MMG’s statements, the shareholders fund and the share capital are shown in a sum of Rs.6,15,51,777/- and Rs.24,22,87,057/-. The sum total of these amounts would be far less than Rs.92,68,49,551/- mentioned by the petitioner. As such, the reassessment proceedings would be justified and in any event, it would always be open to the petitioner to demonstrate that it has paid premium to certain individuals for purchase of shares from the shareholders. 20. Sri K V Aravind relies upon the settled proposition that at the threshold stage when the reassessment proceedings are commenced, it is to be 21 seen whether there is prima facie case for reassessment, and the possible final outcome of reassessment cannot be a reason for scuttling the proceedings. He contends that, in the facts and circumstances of the present case, this threshold requirement is established and therefore, this Court must not interfere at this stage. He relies upon the decision of the Hon’ble Apex Court in CIT v Rajesh Jhaveri Stock Brokers Pvt5. 21. Sri T Suryanarayana and Sri K V Aravind do not dispute that if the petitioner succeeds in establishing that the impugned reassessment proceedings is without jurisdiction, the order dated 02.11.2018 (Annexure-R) for reference of the petitioner’s loan transaction with MMG to TPO will have to fail, and they also do not contest that the petitioner’s grievance that the reassessment proceedings is without jurisdiction will have to be assessed on the prima facie 5 2008 (14) SCC 208 22 scale but in the light of the facts and circumstances of the case. 22. The Hon’ble Supreme Court CIT v Rajesh Jhaveri Stock Brokers Pvt6., has held as follows: “At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. The Hon’ble Supreme Court has also held that: “The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such 6 ibid 23 substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147, existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147.” 24 23. The present case is admittedly covered by the proviso to Section 147 of the I-T Act and therefore, the question for consideration is: Whether the Revenue can establish the twin conditions viz., the respondent has reason to believe that income chargeable to tax has escaped assessment, and such escapement is because of either omission or failure by the petitioner to disclose fully or truly all material facts necessary for assessment in that year. 24. The first respondent has initiated proceedings for reopening of the assessment for the Assessment Year 2012-13 insofar as the petitioner’s loan transaction with MMG on twin grounds; The first respondent has reasoned that the petitioner has not disclosed advance to the Associated Enterprise (MMG) in the Auditors Certificate in Form No.3CEB and because the advance amount is not specifically mentioned in this certificate, the AO could not refer the petitioner’s loan transaction 25 with MMG to the TPO. The first respondent has also opined that if there is a TPO reference and re- adjudication, the disallowance towards interest will have to be reassessed. 25. However, it is undisputed that the petitioner has enclosed Auditor’s Certificate in Form No. 3CEB in the prescribed format furnishing the details of the transaction as required i.e., the nature of transaction, the rate of interest, interest computed and the method adopted in determining Arm’s Length Price. There is no allegation that the petitioner has omitted or not disclosed any particular detail as required in this Form. 26. Further, it is undisputed that the petitioner’s loan transaction with MMG was examined in the proceedings under Section 143(2) of the I-T Act. The petitioner with the issuance of the notice under Section 143(2) is called upon to justify the advance to MMG, 26 and after considering the petitioner’s justification with reference to the disallowance of notional interest during the previous assessment years, the AO has disallowed interest in the premise that the petitioner has utilized loan bearing advances to lend loan to its associated enterprise, MMG. This circumstance clearly demonstrates that the value of the petitioner’s advance to MMG was available with the AO and has received consideration. 27. In the light of these undisputed circumstances, it cannot be opined that the petitioner had either omitted or failed to disclose the advance/loan transaction with MMG. As such, it must be concluded that the Revenue has failed to establish one of the necessary conditions viz., that the petitioner has either omitted or failed to disclose fully or truly material circumstances. In that event the first respondent could not have assumed jurisdiction for reassessment and 27 issued the impugned notice dated 29.01.2018 (Annexure-E). 28. The Revenue relies upon Instruction in No.3/2003 to justify reassessment on the ground that the petitioner did not specifically mention the loan/ advance amount Rs.20,74,77,900/- but only mentioned the interest component of Rs.49,58,482/- and therefore, the AO, who was bound to refer every case where the aggregate of the transaction was more than Rs.5 Crore as of that day, did not consider the case for reference to TPA as contemplated under Section 92CA of the I-T Act. The merit of this assertion must be necessarily examined in the light of the Instruction No.3/2003 which reads as under:- “In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information 28 regarding international transaction can be gathered is Form No. 3CEB filed with the return which is in the nature of an accountant’s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant’s report. The assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage. “ 29. Indeed, this Instruction in No.3/2003 mandates that if the aggregate of the international transactions is more than Rs. 5 crores, the AO must refer the case to the TPO. However, this mandate is preceded by instruction to the AO to form a prime facie belief on whether a reference is considered necessary 29 and significantly, it is stated that the details for such belief can be found in the accountant’s report filed along with the Return. When it is undisputed that the petitioner has furnished every detail as required in the prescribed Form, and the AO in the proceedings under Section 143(2) of the I-T Act examined the very transaction, the Revenue cannot dispute that the value of the loan/advance could be within the knowledge of the AO. In fact, it is obvious on perusal of the Assessment Order dated 05.02.2015 that the interest on this very loan/advances is brought to tax with reference to the value of this transaction. The details for disallowance, including the value of the loan transaction, are mentioned in a tabular column in the Assessment Order dated 15.02.2015. Therefore, it would be reasonable to opine that the AO, upon examination of the transaction, found no prima facie reason for referring the loan transaction to the TPO. 30 30. The first respondent has next reasoned that the petitioner has indicated an investment of Rs. Rs.92,68,49,551/- in its Books of Accounts/ 51st Annual Report to purchase the shares of MMG, but the MMG’s financials, which is part of the petitioner’s said Annual Report, for the relevant assessment year indicate that the investment is only in a sum of Rs.24 crore. Thus there is an unexplained investment which will have to be brought to tax as contemplated under Section 69 of the I-T Act. 31. As rightly argued by Sri T Suryanarayana, the Revenue must, to treat the value of any investment as income under section 69 of the I-T Act, necessarily establish that source of income for investment is not recorded in the books of accounts and the explanation as regards the source of income for such investment is either not offered or if offered, is not satisfactory. The provisions of Section 69 of the I-T Act reads as follows: 31 “Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” 32. The Revenue does not dispute that both the source of income and the subject investment are mentioned in the books of accounts, and the Revenue also does not contend that the petitioner did not have the necessary resources to make such investment. Importantly, the Revenue does not contend that the payment of premium by the petitioner to MMG’s shareholders for purchase of the shares will not be reflected in the MMG’s financials. The petitioner’s objections in this regard are rejected only on the ground 32 that the explanation could be considered at the time of reassessment. 33. For the foregoing, this Court must opine that the question framed for consideration must be answered in favour of the petitioner concluding that the Revenue has failed to establish that the petitioner has either omitted or failed to disclose material circumstances or that there is reason even for a subjective belief that any income has escaped tax. Therefore, the following: ORDER The petition is allowed. The impugned order dated 02.11.2018 in F.No.BH5723/12- 13/DCIT, C1(1)(2). BLR/2018-19 (Annexure-Q); the notice dated 29.01.2018 in No.BH575723A /12-13/DCIT, C.1(1)(2).BLR /2017-18 (Annexure-E) and the order dated 2.11.2018 in 33 No.BH5723/12-13/DCIT, C.1(1)(2).BLR/2018-19 (Annexure-R) are quashed. SD/- JUDGE NV* "