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ATC Telecom Tower Pvt. Ltd. (earlier known as Essar telecom Infrastructure Pvt. Ltd.) Versus Principal CIT-9, Mumbai

2017 (10) TMI 390 - ITAT MUMBAI

Revision u/s 263 - no source of the amount of USD 185 million - reopening of assessment initiated by AO - CIT initiating proceedings/ assuming jurisdiction/ exercising jurisdiction u/s 263 and setting aside the order passed under Section 143(3) read with Section 147 - Held that:- As deliberated on the report received from the Mauritius Revenue Authority and find ourselves to be in agreement with the Principal CIT, that independent of the aforesaid fact of non-verification of the report received .....

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ckdrop of the disclaimer forming part of his certificate, thus does not inspire much confidence and cannot be accepted without making necessary verifications of the facts mentioned therein. - We are also not impressed by the contention of the ld. A.R that the CIT-5, Mumbai while transferring the case records of the assessee to the CIT-8, Mumbai, had in his letter dated 13.08.2014 advised that as no adverse report was received from the Mauritius Revenue Authority, therefore, there was no req .....

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f the assessee was transferred. We thus are of the considered view that the advice of the CIT-5, Mumbai did not have any bearing on the assumption of jurisdiction by the CIT-8, Mumbai or the passing of the order of revision u/s 263 by the Principal CIT-9, Mumbai as regards revising of the reassessment order passed by the A.O under Sec. 147 r.w.s 143(3). We thus decline to accept the aforesaid contention so raised before us. - Principal CIT had rightly revised the reassessment order passed by .....

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der Sec. 143(3) r.w.s 147, with a direction to adjudicate afresh the issue as regards the amount of USD 185 million, claimed to have been received by the assessee as share application money from ECHL, after making necessary verifications and affording reasonable opportunity of being heard to the assessee. We thus in the backdrop of our aforesaid observations uphold the order passed by the Principal CIT-9 under Sec. 263 of the ‘Act’. - Decided against assessee. - I.T.A. No. 2706/Mum/2015 - Dated: .....

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sed under Sec. 263 by the Principal CIT, had raised before us the following grounds of appeal:- Based on the facts and circumstances of the case and in law, ATC Telecom Tower Corporation Pvt. Ltd (Appellant) craves leave to prefer an appeal against the order passed by the learned Principal Commissioner of Income-tax - 9. Mumbai ( learned CIT ) under Section 263 of the Income tax Act, 1961 ( Act ) for AY:2008-09, on the following grounds, each of which is without prejudice to one another: 1. The .....

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e books of accounts is concerned. 3. The learned CIT failed to appreciate that Section 68 of the Act has no application to facts of the case at hand. 4. The learned CIT erred in holding that ingredients of Section 68 of the Act remained unproved in the facts and circumstances of the case. 5. The learned CIT erred in holding that the assessment order was passed in a summary manner without considering the relevant aspects, details, making proper enquires and without any application of mind. The Ap .....

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essment Year: 2008-09 on 27.09.2008, declaring a loss of ₹ 48,93,08,013/-. The assessee thereafter filed a revised return of income on 30.03.2010, declaring a loss of ₹ 42,84,44,001/-. The revised return of income filed by the assessee was processed as such under Sec. 143(1) of the Act on 26.04.2010. The case of the assessee was thereafter taken up for scrutiny assessment under the Computer Assisted Selection of Cases for Scrutiny (for short CASS ) and assessment under Sec. 143(3) wa .....

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tial) information prepared by the Addl. DIT (Inv.), New Delhi, which revealed that the name of the assessee had appeared in the course of the investigations in the 2G Scam. That the information received by the A.O revealed that a consideration of ₹ 700 crores that was paid by the assessee to Loop Telecom Limited in the Financial Year 2007-08, was subsequently refunded to the assessee. As per the information, the aforesaid transaction was not properly recorded in the books of account of the .....

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ness, nature, mode and source of the transaction with reference to increase in share capital during the year under consideration. It was further observed by the A.O that though the assessee had increased its Reserves and Surplus during the year under consideration by an amount of 179,79,71,200/-, however, no evidence was filed on record which could enable the A.O to establish the identity, genuineness and creditworthiness of the transaction with reference to the increase in the Reserves and Surp .....

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of the assessee chargeable to tax had escaped assessment, therefore, reopened the its case under Sec. 147 of the Act . 4. That a perusal of the reasons to believe recorded by the A.O for reopening the case of the assessee revealed that as a result of the investigations in the 2G scam, information was shared with the office of the A.O that the transactions involving payment of an amount of ₹ 700 crores by the assessee to Loop Telecom Limited, followed by a refund of the same, were not prope .....

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mode and source of the amount involved in the transaction of ₹ 700 crores between the assessee and Loop Telecom Limited, having not been fully and truly disclosed by the assessee, thus, was required to be deliberated upon by the A.O in order to bring to tax the corresponding income, which had either wholly or partially escaped assessment. 5. The A.O reopened the case of the assessee under Sec. 147 of the Income tax Act, 1961 and a notice u/s 148, dated 20.02.2012 was issued and served on .....

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with a view to ensure that in the serious matter of 2G spectrum scam a comprehensive and coordinated investigation be conducted by CBI and the enforcement directorate without any hindrance, had issued certain specific directions. The A.O further observed that pursuant to the investigations carried out on the basis of the aforesaid order of the Hon ble Apex Court, the CBI had filed a charge sheet dated 21.10.2009 in the court of Special Judge (2G spectrum), Patiala House Court, New Delhi, which .....

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of investigations carried out by the said directorate, naming the petitioner as being involved in the transactions having tax implications, which were required to be verified by the assessing officers by carrying out further verifications/ investigations by initiating necessary action, as deemed fit under the Income Tax Act. It was thus stated by the A.O that in the background of the aforesaid development and information obtained there from, and in order to assist in the Hon ble Supreme Court m .....

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n the backdrop of the aforesaid facts called upon the assessee to furnish complete details of the source from where the amount of ₹ 700 crores was advanced to M/s Loop Telecom Limited, in order to facilitate making of payment by the latter towards licence fees for grant of Unified Access Service License (for short UASL ) to the Department of Telecommunications (for short DOT ). The A.O also called upon the assessee to explain as to why no interest income was charged from Loop Telecom Limit .....

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ove advance in order to secure an order for providing passive telecom in structure and related operations and maintenance services to LTL. The copy of aforesaid MOU is enclosed as Annexure. 1 Statement of account of LTL providing the payment and refund details is enclosed as Annexure-2: Statement of account of Loop Telecom Ltd.(LTL) Date Particulars Amount paid/(Received)(in Rs.) 10.01.2008 Paid to LTL 3,925,000,000 11.01.2008 Paid to LTL. 3,075,000,000 26.02.2008 Received from LTL (50,000,000) .....

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hich was accounted in AY: 2009-10. As the assessee had received the funds from ECHL as share application money towards subscription of shares, no interest was payable. 7. The A.O deliberating on the aforesaid reply of the assessee, observed that the assessee had advanced a sum of ₹ 700 crores to Loop Telecom Limited in order to secure a business deal entered into with the said company for providing passive Infrastructure facility and maintenance services in all the 21 circles allotted to i .....

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India. The A.O further referred to the flow of inter company funds which were received by the assessee and advanced to Loop Telecom Ltd., as under: ECHL, Mauritius ETLPL(Assessee) LTL Cr. Dr. (Paid to LTL) 10.01.2008 Recd. ₹ 392.49 Crores Rs.392.5 Crores Paid 11.01.2008 Recd. ₹ 333.63 Crores Rs.307.5 Crores 8. That it was observed by the A.O that though the assessee had claimed to have received a sum of ₹ 726.12 crores from Essar Communications Holding Limited, Mauritius (for .....

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drop of the aforesaid facts held a strong conviction that the flow of funds were inescapably directed to make available funds to Loop Telecom Limited, in order to facilitate making of payment of UASDL fees to the DOT. The A.O further referring to the facts pertaining to the termination of memorandum of understanding (for short MOU ) between the assessee and Loop Telecom Limited, observed that as the UASL license could not be allotted to the latter within the time frame stipulated in the MOU , th .....

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aforesaid amount of ₹ 700 crore. The A.O after making certain other additions reassessed the total loss of the assessee at ₹ 12,98,66,740/-, vide his order passed under Sec. 143(3) r.w.s 147, dated. 28.03.2013. 9. The Commissioner of Income Tax-8-Mumbai (for short CIT ), after the culmination of the aforesaid reassessment proceedings by the A.O vide his order u/s 143(3) r.w.s. 147, dated 28.03.2013, called for the records of the assessee. The CIT after deliberating on the records of .....

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ation of the source of payment of an amount of ₹ 700 crores by the assessee to Loop Telecom Limited, was on the following grounds: (i) The amount of ₹ 726 crores which was claimed by the assessee company to have been received as share application money from ECHL was not disclosed by the assessee in the relevant part of the balance sheet explaining the source of funds. (ii) That as it was the claim of the assessee before the A.O, that an amount of ₹ 726 crores was received from .....

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ation Avoidance Agreement between India and Mauritius. However, as the information was not received by the A.O in time, a further reminder was issued by the A.O on 05.03.2013 for obtaining the information. The information was received by the A.O only as on 28.03.2013, which was the date on which the A.O had passed the reassessment order under Sec. 143(3) r.w.s 147 of the Act . Thus, the A.O had passed the reassessment order without waiting for and examining the information received from the Maur .....

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O had no material on record to come to the conclusion that sources of share application money from ECHL was properly explained. (iv) That as per the information received from the Mauritius Revenue Authorities, out of 12,43,07,689/- US dollars (2,95,90,743/- US dollars returned) claimed by the assessee to have been received from ECHL, only 85,00,000 US dollars were received through the bank accounts of ECHL. The information received from the Mauritius Revenue Authorities revealed that the balance .....

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SD 6918904 13.09.2006 Investment in equity shares. 2. USD 5479985 04.10.2006 Investment in equity shares. 3. USD 3408800 28.02.2007 Investment in equity shares. 4. USD 70409257 09.01.2008 Investment in equity shares.(out of USD 100,000,000 remitted, shares for USD 70,409,257 were allotted and the balance money was refunded by ETIPL. (vi) That neither the source of receipt of share application money received by the assessee from ECHL was properly explained by the assessee, nor the same could be g .....

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ing the money and the genuineness of the transaction. The CIT further observed that as the money credited in the books of account of the assessee and the capacity of the persons giving the money and genuineness of the transaction were neither verified by the A.O nor proved to his satisfaction, therefore, the order of the A.O was not only erroneous but also prejudicial to the interest of the revenue. 11. The assessee in its reply to the SCN , submitted before the CIT that the A.O had during the c .....

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stablished, then no addition in respect of such amounts would be called for under Sec. 68 in the hands of the corporate entity. That as regards the information received by the A.O from the Mauritius Revenue Authorities, it was submitted that as the same was not made available to the assessee, therefore, it was unable to comment as regards the same. That replying to the observations of the CIT as regards the amount of USD 10,00,00,000 received by the assessee directly from EGL, it was submitted t .....

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as per the mandate of Sec. 68, now when the first and the immediate source of the cash credits, i.e share application money received by it was explained to the satisfaction of the A.O during the course of the reassessment proceedings, therefore, it could not be called upon to explain the source of sources of the share application money received by it. Thus, in the backdrop of the aforesaid submissions the assessee had tried to impress upon the CIT that now when the onus cast upon it in respect o .....

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ng on the contentions of the assessee in the backdrop of the facts borne from the record, however, did not find favour with the same and concluded that the reassessment order passed by the A.O under Sec. 143(3) r.w.s 147, dated. 28.03.2013 was erroneous and prejudicial to the interest of the revenue, on the following grounds: (i) That the original assessment which was earlier completed by the A.O vide order passed by him under Sec. 143(3), dated. 29.12.2010, was reopened under Sec. 147, primaril .....

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by the assessee was from the amount of the share application money of ₹ 726 crores (USD 185 million) received by it from ECHL, a Mauritius based company, therefore, the A.O in order to verify the international money trail and source of money made a reference vide letter dated. 22.11.2012 to the Jt. Secretary, FT & TR Division, CBDT, New Delhi, requesting that the information may be obtained from the authorities in Mauritius under the specific articles dealing with Exchange of Informati .....

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the capacity or creditworthiness of ECHL so as to prove the genuineness of the transaction beyond doubt, in terms of the mandate of Sec. 68. (iii) The information received from the Mauritius Revenue Authorities was in itself found to be incomplete, as the same neither did specify the source nor as to how the money was received by the assessee company. It was observed by the Principal CIT that as per the information received from Mauritius Revenue Authorities, the total disbursement made by ECHL .....

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t statement as claimed in the report was found enclosed alongwith the aforesaid information so received. (v) That though it was claimed that there was direct transfer of funds by EGL on behalf of ECHL out of share application money receivable by ECHL from EGL, but however, neither the details as regards the same were made available on the record by the assessee during the course of the reassessment proceedings, nor were enquired into by the A.O. 13. Thus, in the backdrop of the aforesaid facts i .....

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oceedings raised any specific queries as regards the alleged funds received from EGL, nor any such details were furnished by the assessee on its own with the A.O. The Principal CIT observed that it was for the very first time during the course of the revision proceedings before him, that the assessee had vide its letter dated 15.12.2015 placed on record a copy of the letter dated. 12.11.2014 received from ECHL, wherein the latter had confirmed the investment of USD 185 million towards subscripti .....

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rther observed that the assessee during the course of the revision proceedings had for the very first time placed on his record another letter dated. 27.01.2015 explaining the source of the share application money received by the assessee company from ECHL. It was observed by the Principal CIT that out of the total amount of USD 185 million, an amount of USD 100 million as claimed by the assessee was directly remitted by EGL on 09.01.2008, as advance towards issue of shares on behalf of ECHL to .....

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itius Revenue Authorities. (ii) the A.O had not made proper enquiries with regard to the preliminary or basic facts about the source of the share application money found credited in the books of account of the assessee, inasmuch as out of USD 185 million, the assessee itself for the first time during the revision proceedings had admitted that a sum of USD 100 million was received directly from EGFL (allegedly claimed to be on behalf of EHCL), but no further enquiries to ascertain the veracity of .....

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p of his aforesaid conviction, the Principal CIT set aside the reassessment order with a direction to the A.O to pass a fresh order, as per law, after making necessary enquiries and investigations and affording reasonable opportunity of being heard to the assessee. 16. Aggrieved, the assessee had assailed the order passed by the Principal CIT under Sec. 263 of the Act , before us. The Authorised representative (for short A.R ) for the assessee Sh. Porus F. Kaka, the ld. Senior Counsel, took us t .....

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initiated the revision proceedings under Sec. 263 to look into the sources of the source of the entity from whom the share application money was received by the assessee. The ld. A.R submitted that the A.O had during the course of the reassessment proceedings called for all the relevant details in respect of the share application money received by the assessee, and only after deliberating at length on the same to his satisfaction, not drawn any adverse inferences in the hands of the assessee. Th .....

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through the copy of letter dated. 16.10.2014 that was filed by the assessee with the CIT in its reply to the SCN . It was submitted by the ld. A.R that the assessee had in the course of the reassessment proceedings furnished with the A.O the complete details of the shareholders (name, address and percentage holding), details of subscribers of the share capital, number of shares, amount of share capital, amount of securities premium etc. It was further submitted by the ld. A.R that the complete d .....

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tails of the share application money received by the assessee from ECHL, a Mauritian company, alongwith the bank statement evidencing the identity of the share applicant, genuineness of the infusion of funds by way of share application money were furnished to the satisfaction of the A.O. The ld. A.R further took us through the reply dated. 15.12.2014 furnished by the assessee to the SCN issued by the CIT. It was averred by the ld. A.R that during the course of the revision proceedings it was sub .....

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ties; and (iii). the letter written by the FTD to the A.O with respect to the response received from the Mauritius Tax Authorities, alongwith the date of receipt of the same by the A.O were however not made available. The ld. A.R further drew our attention to the copy of the resolutions each dated. 28.05.2008 pertaining to the allotment of 10000000 equity shares and 45500000 equity shares of ₹ 10/- each by the assessee company to Essar Communication Holding Ltd (ECHL), at a premium of S .....

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GL, and in lieu of the said remittance by the latter, shares were allotted by ECHL to EGL. It was submitted by the ld. A.R that the copy of the bank statement of American Express Bank Ltd for subscription of USD 85,000,000 was enclosed by the Mauritius Revenue Authority, alongwith its aforesaid letter. The ld. A.R submitted that the aforesaid letter of Mauritius Revenue Authority further mentioned that the other payments were made directly by EGL to the assessee on behalf of the company, viz. EC .....

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pany as earlier known) on 09.01.2008, while for the balance amount of USD 85 million was transferred by EGL to ECHL on 10.01.2008. That as per the certificate the source of the infusion of USD 185 million was received by EGL through its overseas Essar entities, the ultimate source of which was the loan raised from Standard Chartered Bank (London). The ld. A.R had on the basis of his contentions tried to impress upon us, viz. (i). that the A.O had during the course of the reassessment proceedings .....

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f the amount of USD 185 million received by the assessee as advance from ECHL for investment in equity shares of the assessee company was established beyond any scope of doubt. 17. The ld. A.R took us through the operative part of the order passed by the Principal CIT. The ld. A.R submitted that the concluded assessment of the assessee that was framed by the A.O vide his order passed under Sec. 143(3), dated. 29.12.2010, was reopened on the ground that there was failure on the part of the assess .....

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77; 700 crores was paid to Loop Telecom Limited). It was submitted by the ld. A.R that it was beyond comprehension that now when the concluded assessment was reopened for verifying the nature, mode and source of the share application money received by the assessee (from which amount of ₹ 700 crores was given to Loop Telecom Limited), how could the very issue which formed the foundation of such proceedings would have escaped attention and not deliberated upon by the A.O during the course of .....

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oning for initiating the revision proceedings by the Principal CIT was devoid of any logical reasoning. The ld. A.R rebutted the observations of the Principal CIT that as the reassessment order was required to be passed by the A.O latest by 31.03.2013, therefore, the A.O without waiting for the report of the Mauritius Revenue Authorities, had thus hushed through the matter and concluded the reassessment vide his order dated 28.03.2013. The ld. A.R submitted that the said observation of the Princ .....

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w, submitted that it was incorrect on the part of the Principal CIT to hold that the A.O apprehending barring of the time limitation contemplated under the law for passing of the reassessment order, had thus hushed through the proceedings. It was submitted by the ld. A.R that as a matter of fact, the A.O after thorough application of mind to the facts and issue before him had framed the reassessment, being well aware that the time limitation for passing of the reassessment order already stood ex .....

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gh a letter dated. 13.08.2014, which we find is a letter addressed by the CIT-5, Mumbai to the CIT-8, Mumbai, while transferring the assessment folder of the assessee to the latters office. That in the aforesaid letter it was stated by the CIT-5, Mumbai that a perusal of the report received from Mauritius Revenue Authority revealed that there was no adverse report in respect of receipt of share application money by the assessee from ECHL, the source of which was the amounts received from EGL. Th .....

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enue in itself was satisfied that the source of the share application money received by the assessee was found to be well in order, and in the absence of an adverse report, no proceedings for the year under consideration were called for in the hands of the assessee. 18. The ld. A.R further taking support from the judgments of the Hon ble Supreme Court in the case of CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR (SC) 195 and CIT v. Stellar Investment Ltd. [2001] 251 ITR 263 (SC), therein averred .....

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td. [1994] 205 ITR 98 (Del), wherein it was held that if the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the company would be regarded as a capital receipt. Thus, in the backdrop of the aforesaid judicial pronouncements it was averred by the ld. A.R that now when it stood established beyond any scope of doubt, that the amount of USD 185 million was received by the assessee company from ECHL by way of share .....

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he explanation of the assessee company as regards the nature and source of the amount credited in its books of account (not being company in which public are substantially interested) by way of share application money, share capital or share premium or any such amount by whatever name called, would bring the assessee company within the sweep of Sec. 68 in respect of the said amount. It was averred by the ld. A.R that as the first proviso had prospectively been made available on the statute vide .....

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h was introduced vide the Finance Act, 2012 w.e.f 1st April, 2013, would be effective only from the Assessment Year 2013-14 onwards. Alternatively, the ld. A.R further submitted that the said first proviso would only be applicable where the person in whose name such credit is recorded in the books of account of the assessee company is a resident . Thus, it was submitted by the ld. A.R that for both of the aforesaid reasons the first proviso would not be applicable in the case of the assessee com .....

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. 28.03.2013, therefore, the Principal CIT could not have characterised the reassessment order passed by the A.O as erroneous for not invoking the first proviso, as the same was not available on the statute at the relevant point of time when the reassessment order was passed. 20. That it was further submitted by the ld. A.R that inadequate enquiries by the A.O cannot form a basis for assumption of jurisdiction by the CIT for revising the order passed by the A.O. It was thus the contention of the .....

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urisdiction under Sec. 263. The ld. A.R in order to fortify his aforesaid contention, relied upon the following judicial pronouncements: (i) Mrs. Khatiza S. Oomerbhoy [2006] 100 ITD 173 (Mum) (ii) Commissioner Of Income-tax v. Fine Jewellery (India) Ltd. [2015] 372 ITR 303 (Bom) (iii) Small Wonder Industries v. CIT-24, Mumbai (ITA No. 2464/Mum/2013; dated. 24.02.2017)(Mum) (iv) Commissioner of Income-tax v. Anil Kumar Sharma [2011] 335 ITR 83 (Delhi). 21. That it was further submitted by the ld. .....

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The ld. A.R taking support from the order of the Hon ble High Court of Bombay in the case of Commissioner of Income-tax, Central -III v. Nirav Modi [2016] 71 taxmann.com272 (Bombay)submitted that where the A.O after making detailed enquiries in respect of certain cash credits appearing in the books of account of the assessee, took a view that the assessee had duly proved the identity, source and creditworthiness of the parties and accepted the genuineness of the transaction, the CIT without ind .....

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to the issues. In the backdrop of the aforesaid facts, it was thus averred by the ld. A.R that even a non-speaking order passed by an A.O cannot form the basis for revision under Sec. 263. The ld. A.R placed heavy reliance on the judgment of the Hon ble jurisdictional High Court in the case of Nirav Modi (supra),to support his contention that now when in the present case the A.O in the course of the reassessment proceedings had called for, verified and on being satisfied as regards the source o .....

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e Commissioner Of Income-tax, Central-III v. Nirav Modi (SLP (C) CC No(s). 23490/2016; dated. 14.12.2016. 22. The ld. A.R culminating his contentions, therein submitted that the Principal CIT had wrongly assumed jurisdiction in exercise of the powers vested with him under Sec. 263 and had wrongly set aside the reassessment order passed by the A.O under Sec. 147 r.w.s 143(3), for the following reasons : (i) The full details as regards the share application money was called for by the A.O and furn .....

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nue Authority, was in no way adverse. The ld. A.R in support of his contention relied on the letter dated. 13.08.2014, addressed by the CIT-5, Mumbai to the CIT-8, Mumbai, while transferring the assessment folder to the latters office. The CIT-5, had observed that a perusal of the information received from Mauritius Revenue Authorities revealed that there was no adverse report in respect of receipt of share application money by the assessee from ECHL, the source of which was the amounts received .....

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h had been made available on the statute vide the Finance act, 2012, with prospective effect from 01.04.2013, was not applicable to the case of the assessee for three reasons, viz. (i). the proviso which was applicable prospectively w.e.f 01.04.2013, thus, would not apply to the case of the assessee; (ii). the proviso was applicable only where the person in whose name such credit is recorded in the books of the company is a resident , thus, on the said count also was not applicable to the case o .....

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Authority which was called for by the A.O, was in itself received on the day on which the reassessment order was passed by the A.O, viz. 28.03.2013, therefore, the order passed by the A.O without waiting for and verifying the said report, clearly rendered the reassessment order passed by the A.O, without making any enquiry as regards the source of the share application money, as erroneous and prejudicial to the interest of the revenue. It was averred by the ld. D.R that the failure on the part .....

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e reassessment order on the said issue, with a direction to the A.O to adjudicate the same afresh after making necessary verifications and affording reasonable opportunity of being heard to the assessee. The ld. D.R in support of his aforesaid contention relied on the judgment of the Hon ble High Court of Madhya Pardesh in the case of CIT v. Deepak Kumar Garg [2008] 299 ITR 435 (MP).The ld. D.R submitted that as the appeal of the assessee was devoid and bereft of any force of law, therefore, the .....

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ised representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that the ld. A.R for the assessee had assailed the validity of the order passed by the Principal CIT on multiple grounds. Per contra, it is the case of the ld. D.R that the Principal CIT after deliberating on the records of the assessee, therein finding that the reassessment order passed by the A.O under Sec. 147 r.w.s 143(3) on 29.12.2010 was erroneous and prejudi .....

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order passed under Sec. 143(3), dated. 29.12.2010, was reopened on the ground that there was failure on the part of the assessee to fully and truly disclose all the material facts in respect of the nature, mode and source of the amount of ₹ 700 crores which was advanced by the assessee to Loop Telecom Limited. In the backdrop of the aforesaid facts, it was averred by the ld. A.R that the revision proceedings had been embarked upon by the Principal CIT on the very same ground that the A.O .....

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ened for verifying the nature, mode and source of the amount of ₹ 700 crores which was advanced by the assessee to Loop Telecom Limited, the said issue which formed the very foundation of initiation of such reassessment proceedings itself would had escaped attention and not deliberated upon by the A.O during the course of the said reassessment proceedings. We have given a thoughtful consideration to the aforesaid contention of the ld. A.R. That at the first blush the contention advanced by .....

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claimed by the assessee to have been received in advance from ECHL for making investment in shares of the assessee company), then if not beyond comprehension, but the least expected, the A.O while framing the reassessment could not have lost sight of the said very basis on which the case of the assessee was reopened. Be that as it may, we cannot however remain oblivious of fact that mistakes do emerge from orders passed by the Assessing officers, thus rendering them amenable for revision by the .....

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ce, once on the deliberation of the facts by us herein below, it emerges that the reassessment order passed by the A.O is erroneous and prejudicial to the interest of the revenue. (ii) The ld. A.R had further averred before us that the first proviso of Sec. 68 which was made available on the statute vide the Finance act, 2012, with prospective effect from 01.04.2013, was not applicable to the case of the assessee for three reasons, viz. (i). the proviso which was applicable prospectively w.e.f 0 .....

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ve applicability, the reassessment order passed by the A.O on 28.03.2013 could not be revised for not invoking of the proviso by the A.O, as the same was not available on the statute at the time when the reassessment order was passed. The ld. A.R in order to drive home his contention that the first proviso which was made available on the statute vide the Finance Act, 2012, was applicable prospectively w.e.f 01.04.2013, had relied on the judgment of the Hon ble High Court of Bombay in the case of .....

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consideration, viz. Assessment Year 2008-09. But then, we find that neither the Principal CIT in his order passed under Sec. 263 had applied the first proviso of Sec. 68 to the case of the assessee, nor is it the case of the revenue before us. We find that the Principal CIT in his order passed under Sec. 263 had only looked into the basic scheme of Sec. 68, and in the backdrop of the facts emerging from the records before him, had observed that the assessee had failed to satisfy the conditions .....

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to have established the Nature and Source of the amount of USD 185 million as was credited in its books of account during the year, and was claimed by it to have been received as an advance from ECHL for making investment in its equity shares. We find that the Principal CIT while verifying the fact as to whether the assessee had discharged the onus as stood cast upon it, had strictly confined himself to the basic scheme of Sec. 68. We are of the considered view that the Principal CIT being well .....

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dmit the aforesaid contention of the ld. A.R (iii) The ld. A.R had further submitted before us that as per the settled position of law, in a case where share application money is received by a company from alleged bogus shareholders, who had been identified, there the department though remains well within its jurisdiction to reopen the individual assessments of such shareholders in accordance with law, but, the amount of the share application money cannot be regarded as the undisclosed income of .....

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nt of USD 185 million was received by the assessee company from ECHL by way of share application money, therefore, in the light of the duly identified shareholder, viz. ECHL, the amount of share subscription received by the assessee company from ECHL cannot be assessed as an unexplained cash credit in the hands of the assessee. We have given a thoughtful consideration to the facts of the case, and are of the considered view that the claim of the ld. A.R that the amount of USD 185 million was rec .....

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dance with law, however, the same cannot be regarded as the undisclosed income of the assessee company. We are of the considered view that after the judgments of the Hon ble Supreme Court in the case of Lovely Exports (P) Ltd. (supra) and Stellar Investment Ltd (supra), the aforesaid issue is no more res integra and stands settled. We are of the considered view that as observed by us hereinabove, the claim of the assessee that the amount of USD 185 million was received by it as share application .....

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on in revising the reassessment order that was passed by the A.O under Sec. 143(3) r.w.s 147, dated.28.03.2013, or not. We are of the considered view that our scope of adjudication has to remain strictly confined for adjudicating the validity of the order of revision passed by the Principal CIT under Sec. 263. We are afraid that the contention of the ld. A.R that the amount of the share application money received by the assessee company in light of the aforesaid settled position of law could not .....

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her of the view that the aforesaid contention so raised before us is seriously premature, and seeking an adjudication on the same by us, would be nothing short of putting the cart before the horse. We thus in the backdrop of our aforesaid observations, thus, refrain from entertaining the aforesaid contention raised by the ld. A.R before us. (iv) The ld. A.R had further submitted before us that as the assessee in compliance of the mandate of Sec. 68, had in the course of the reassessment proceedi .....

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ssioner of Income-tax, Central-III v. Nirav Modi [2016] 71 taxmann.com 272 (Bombay), the mandate of Sec. 68 does not call for an enquiry of the sources of source. However, the fact as to whether the Principal CIT in the present case had embarked into any such exercise of making an enquiry into the sources of the source from whom the amount of USD 185 million was received by the assessee, would emerge only after a careful deliberation of the facts of the case. We find that the assessee had averre .....

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on a perusal of the facts pertaining to receipt of USD 185 million, which as claimed by the assessee was received as advance for share application money from EHCL, for making of investment in the equity of the assessee company. We find that as claimed by the ld. A.R, the assessee had during the course of the reassessment proceedings furnished details with the A.O in respect of the amount of USD 185 million, which as claimed by the assessee was the share application money received by it from ECH .....

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rnished details of the shareholders (name, address and percentage holding), details of subscribers of the share capital, number of shares, amount of share capital, amount of securities premium, copies of the resolutions, each dated. 28.05.2008, pertaining to the allotment of 10000000 equity shares and 45500000 equity shares of ₹ 10/- each by the assessee company to Essar Communication Holding Ltd (ECHL) at a premium of ₹ 90/- per share etc. It was further submitted by the ld. A.R tha .....

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of the A.O during the course of reassessment proceedings, which was accepted by him and no adverse inferences as regards the same were drawn in the hands of the assessee. Be that as it may, we however find that as per the information received from the Mauritius Revenue Authorities, out of the amount of 12,43,07,689/- US dollars (2,95,90,743/- US dollars returned) claimed by the assessee to have been received from ECHL, only 85,00,000 US dollars were received through the bank accounts of ECHL. Th .....

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unt of USD 185 million had emerged for the first time from the report of the Mauritius Revenue Authorities, which was received only as on 28.03.2013 by the Joint Secretary (FT&TR), Division, CBDT, New Delhi, from the Mauritius Revenue Authority. We find that a bare perusal of the information received from the Mauritius Revenue Authorities revealed that the source of funds of USD 185 million claimed by the assessee to have been received during the year under consideration as share application .....

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ry first time from the information received from the Mauritius Tax Authorities on 28.03.2013, was neither examined nor verified by the A.O, who had already framed the reassessment vide his order passed under Sec. 147 r.w.s 143(3), on the same date. We further find that as observed by the Principal CIT during the course of the revision proceedings, the Authorised representative for the assessee had categorically admitted before him that neither the A.O had during the course of the reassessment pr .....

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ceived from ECHL, wherein the latter had confirmed the investment of USD 185 million towards subscription of shares of the assessee alongwith the source of the funds of such investment. We further find that the assessee had again for the very first time during the course of the revision proceedings before the Principal CIT, placed on his record another letter dated. 12.11.2014 which was received by ECHL from EGL, alongwith a certificate dated 11.11.2014 issued by Mazars, Chartered Accountants, M .....

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sue of shares on behalf of ECHL to the assessee company. We have deliberated on the aforesaid facts and have given a thoughtful consideration to the same. We are of the considered view that the genesis of the entire sequence of the aforesaid events was the information received on 28.03.2013 by the Joint Secretary (FT&TR), CBDT, New Delhi, from the Mauritius Revenue Authority. We find that the aforesaid information pertaining to the source of the amount of USD 185 million was never there befo .....

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n the backdrop of the aforesaid facts, now when the source of the amount of USD 185 million was neither furnished by the assessee before the A.O during the course of the reassessment proceedings, nor was verified by him on his own, therefore, we do not find any infirmity in the order of the Principal CIT, therein directing the A.O to verify the source of the amount of USD 185 million received by the assessee. Before parting, we may further observe that the amount of USD 185 million which is clai .....

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directions of the Principal CIT to the A.O to also make necessary verifications as regards the amounts received from EGL, which as observed by us hereinabove to the extent of USD 100 million happens to be the first or immediate source of the amount received by the assessee, therefore, cannot be faulted with. Be that as it may, in the backdrop of the aforesaid state of facts, we are not persuaded to accept the contention of the ld. A.R that the Principal Commissioner of Income-tax had embarked i .....

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he Mauritius Tax Authorities. It was observed by the Principal CIT that the A.O had not made proper enquiries with regard to the preliminary or basic facts about the source of the share application money found credited in the books of account of the assessee, inasmuch as out of USD 185 million, the assessee itself for the first time during the revision proceedings had admitted during the course of the revision proceedings that a sum of USD 100 million was received directly from EGL (allegedly cl .....

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2.2010, was reopened under Sec. 147, on the basis of information received from the DGIT(Inv), New Delhi, which revealed that the source of advances of ₹ 700 crores given by the assessee company to Loop Telecom Limited was not properly examined/verified by the A.O while framing the assessment. The Principal CIT observed, that as the primary issue which had weighed in the mind of the A.O while reopening the concluded assessment of the assessee was to verify the source of the amount of ₹ .....

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ned from the revenue authorities in Mauritius, under the specific articles dealing with Exchange of Information as per the terms of the India-Mauritius Double Taxation Avoidance Agreement . The A.O at whose behest the very process of verification of the claim of the assessee that the amount of USD 185 million credited in its books of account during the year was the share application money received from ECHL, was triggered, realizing that there was delay on the part of the Mauritius Revenue Autho .....

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horities, therefore, the failure on the part of the A.O to wait for, examine and verify the aforesaid information which was called for by the A.O himself, therefore, due to the non-verification of the nature and source of the amount of USD 185 million by the A.O, on the said count itself rendered the reassessment order passed by him as erroneous and prejudicial to the interest of the revenue. (vi) We further find that the Principal CIT, independent of the aforesaid fact of non-verification of th .....

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ly explained. We find that in the backdrop of the aforesaid facts, it was further observed by the Principal CIT that neither the source of the share application money received by the assessee from ECHL was properly explained by the assessee, nor it could be gathered from the information received by the A.O from the Mauritius Revenue Authorities. There was also no evidence as to how the money was acquired by EGL. We find that the Principal CIT had further observed, that as per the information rec .....

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ctly on behalf of ECHL by the latters holding company, viz. EGL, directly to the assessee. The Principal CIT had further observed that though the information received from the Mauritius Revenue Authorities referred to part payment of the investment made by ECHL by its parent company viz. EGL, which is stated to have been transferred through American Express Bank Ltd., but no such bank account statement, as claimed, was found enclosed alongwith the report of the Mauritius Revenue Authority. We fu .....

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into by the A.O. We find that the Principal CIT, on the basis of his aforesaid observations had concluded that as the A.O had not examined the information received from the Mauritius Revenue Authorities, therefore, the same had remained unverified and not subject to any enquiry by him while passing the reassessment order. Thus, in the backdrop of his aforesaid observations, it was concluded by the Principal CIT that the non-verification and non application of mind by the A.O rendered the reasses .....

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ned under Sec. 147 on the basis of information received from the DGIT(Inv),New Delhi, that the source of advances of ₹ 700 crores given by the assessee company to Loop Telecom Limited were not properly examined/verified by the A.O while framing the assessment. That as the primary issue which had weighed in the mind of the A.O while reopening the concluded assessment of the assessee was to verify the source of the amount of ₹ 700 crores advanced to Loop Telecom Limited, which as claim .....

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ormation as per the terms of the India-Mauritius Double Taxation Avoidance Agreement , and the claim of the assessee that the amount of USD 185 million credited in its books of account was the share application money received from ECHL, may thus be verified. We find that as the necessary information was not forthcoming, therefore, the A.O who had triggered the seeking of the aforesaid information from the Mauritius Revenue Authorities, being well aware of the fact that the said information was i .....

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Revenue Authority, passed the reassessment order. We are of the considered view that now when the assessee in the course of the reassessment proceedings had submitted before the A.O that the amount of USD 185 million was received by it as share application money from ECHL, a Mauritius based company, therefore, the A.O after deliberating on the material placed on record by the assessee, realizing well that the said claim of the assessee could not be summarily accepted on the very face of it, had .....

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ssessee in respect of the source of the amount of USD 185 million, was well recognized by the A.O. We further find that as the necessary information was not forthcoming, therefore, the A.O who had triggered the seeking of the said information from the Mauritius Revenue Authorities, being well aware of the fact that the said information was indispensably required to facilitate verification of the aforesaid claim of the assessee, therefore, issued a reminder on 05.03.2013 for obtaining the informa .....

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ormation, so that the verification of the claim of the assessee as regards the source of the amount of USD 185 million could be brought to a logical end. But then, surprisingly the A.O did not wait for the information from the Mauritius Revenue Authority, and aborting the very process of seeking of the requisite information, which in itself was triggered by him, followed by a reminder, passed the reassessment order on 28.03.2013, i.e on the same date on which the report was received from the Mau .....

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us as an order passed by him without making any verification as regards the nature and source of the amount of USD 185 million which was claimed by the assessee as having been received as share application money from ECHL. We may further observe that there is nothing available on record which could persuade us to conclude that some information/material independent of the seeking of the information from the Mauritius Revenue Authority was gathered by the A.O, which thus rendered the very requirem .....

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on money from ECHL. We thus are of the considered view that in the backdrop of the aforesaid facts, it can safely be concluded that the reassessment order passed by the A.O was erroneous and prejudicial to the interest of the revenue. We are of the considered view that as observed by us hereinabove, that as the A.O who had himself triggered the seeking of the aforesaid information from the Mauritius Revenue Authority, which was followed by a reminder from him, was however most surprisingly abort .....

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source of the amount of USD 185 million without making any verification as regards the same, therefore, is clearly a case of non-application of mind by the A.O. That in the backdrop of the aforesaid facts, we are of the considered view that the proposition of law as laid down by the Hon ble High Court of Bombay in the case of Commissioner of Income-tax, Central-III v. Nirav Modi [2016] 71 taxmann.com272 (Bombay), as had been relied upon by the assessee before us, is found to be distinguishable o .....

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itworthiness of the persons giving the share application money. We are further of the considered view that the certificate of Mazar, Chartered accountants, Mauritius, to which our attention was drawn by the ld. A.R, in the backdrop of the fact that the latter had categorically stated as not being the Chartered accountant of EGL, as well as in the backdrop of the disclaimer forming part of his certificate, thus does not inspire much confidence and cannot be accepted without making necessary verif .....

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