TMI Blog2018 (1) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... in the law in so far as to further examine the source of share application money/share capital brought by non-resident entity. Here in this case the PCIT has completely ignored the factum of report received from Swiss Tax Authorities, which perhaps clinches the entire issue in favour of the assessee and has not even laid down the parameters as to what should have been the inquiry made by the AO after receiving such a report. Accordingly, the reassessment orders passed by the AO for the impugned assessment years cannot be reckoned as erroneous in so far as it is prejudicial to the interest of revenue. Share application money received from the holding foreign entity, the documents as mentioned above are sufficient to hold that transaction is genuine, and in the present case also all these documents have been placed on record at some stage or the other and therefore, on merits also the additions u/s.68 is not called for. Finding of the learned PCIT with regard to the share application money received from other Indian partner, M/s. Bitcorp India Pvt. Ltd., first of all, we find that this issue was neither there in the reasons recorded by the Assessing Officer as the informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order as it is beyond the scope of Section 263. - Decided in favour of assessee. - I.T.A. No. 2819, 2820, 2821, 2822 & 2823/DEL/2017 - - - Dated:- 24-1-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For the Appellant : Shri Ajay Vohra, Sr. Adv Shri Gaurav Jain, Adv. For the Respondent : Smt. Aparna Karan, CIT(DR) ORDER PER AMIT SHUKLA, J.M.: The aforesaid appeals have been filed by the assessee against common impugned order dated 30.03.2017, passed by Ld. Principal Commissioner of Income Tax-II, (PCIT) Delhi, under section 263 of the Income Tax Act, 1961, for the Assessment Years 2006-07; 2007-08; 2008-09; 2009-10 2010-11. 2. Since the issues involved in all the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. The entire issue which revolves around the impugned revision order u/s. 263 is that, re-assessment proceedings for the impugned Assessment Years are erroneous and prejudicial to the interest of revenue, because the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue of identity of the Assessee s shareholders, as this issue was neither mentioned in the Show Cause Notice nor brought up by the Ld. PCIT during the proceedings under Section 263. E. The order of the Ld. PCIT was passed without giving a reasonable and fair opportunity to the Assessee to respond to the issue of genuineness and creditworthiness of share application money received by the Assessee from Bitcorp Private Limited as this issue was neither mentioned in the Show Cause Notice nor during the proceedings under Section 263 before the Ld. PCIT. F. The order of the Ld. PCIT was passed mechanically without any application of mind. BRIEF FACTS BACKGROUND 4. Before dealing with the relevant issues and points as raised by the learned PCIT in the impugned order, it would be pertinent to deal with the relevant facts and backgrounds of the case as culled out from the material placed on record before us. The assessee is a private limited Company which was incorporated in India with the main object of carrying business in the field of Telecommunication Services in India. The 74% equity was held by a foreign company, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stor had invoked arbitration proceedings under bilateral treaties seeking compensation for withdrawal of approvals and refund of entry fees paid by the assessee. The said arbitration has been stated to be pending for disposal before the Permanent Court of Arbitration at Hague. 5. For the impugned assessment years regular return of income were filed and such returns were subjected to scrutiny proceedings from time to time and assessments were completed mostly u/s.143(3). In the said assessments, the amounts shown in the balance sheet towards share application money/share capital were duly accepted by the then Assessing Officer. The year-wise positions of completed assessment are as under:- S. No. AY Assessed income Remark 1. 2006-07 ₹ 4,49,567 Assessment completed vide order dated 02.04.2008 passed under section 143(3) accepting returned income 2. 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by M/s Tenoch Holdings, Cyprus the shareholding of which is equally held by M/s Quallis Inc, Panama and M/s Kynance Business Ltd, British Virgin Islands. M/s Quallis Lnc, Panama is 100% held by Mr. Maxim Naumchenko and M/s Kynance Busniess Ltd, British Virgin Islands is 100% held by Mr. Andrey poluektow. A diagrammatic representation of the corporate structure is enclosed as Annexure-1. 1.13 M/s ByCell Holding A.G. Switzerland was granted Foreign Collaboration Approval vide No. 24(2006)/ 382 (2005) dated 17.01.2006 to undertake the activities of offering CGM based cellular telephone services in India in thirteen states across the five circle of Assam, Bihar, Jharkhand, North East, Orissa and West Bengal. Vide amendment letter dated J2.02.2007 the shareholding pattern of the implemented company i.e., ByCell Telecommunication India Pvt Ltd was noted by FIPB as under:- i. M/s ByCell Holding AG, Switzerland: 64.66% ii. M/s Bitcorp Private Limited (Indian Promoter): 35.34% 1.14 The M/s ByCell Telecommunications India Pvt Ltd vide letter dated 26.09.2007 has sought the following permission from FIPB: i. To undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there is no information about who are the owners of Quallis Incorporated and Kynance Business Limited and what is the sources of funds for these two companies which control ByCell Telecommunications India Limited. 1.18 FIPB in its I36 meeting held on 11-05-2005 deliberated the issued raised by MHA and has withdrawn the approval granted by it earlier. Department of Revenue forwarded the following comments to FIPB for its reviewing: M/s ByCell Holding AG, Switzerland was formed in 2005 with 100 shares of CHF 1,000 each. It is stated that M/s ByCell Holding AS has already invested in M/s ByCell Telecommunication India Private Limited loan amount of over ₹ 120 crores as FDI. No supporting documents like balance sheet etc., have been provided to examine the company's capacity to invest that amount. Moreover, the share capital of the holding company of ByCell Holding AG i.e., Tenoch Holding, Cyprus is only EUR 17,100 and neither its financial statements are given nor the financial statements of M/s Kynance Business Ltd, BVI and M/s Quallis Inc, Panama. Further it is stated that the source of funds for the investment by Mr. Maxim V Naumchenko and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als were furnished by the assessee company before the Assessing Officer during the course of assessment/reassessment proceedings to establish the identity/creditworthiness of the foreign investor and the genuineness of the transaction. Financial statements of the appellant wherein details/ amounts of share application money received and shares allotted were duly reflected; Approval obtained from FIPB by the foreign investor appellant; RBI approval for allotment for shares by the appellant company in favour of the foreign investor; Copy of FIRCs establishing the source of foreign remittance and receipt of funds through banking channel; Incorporation certificate, Memorandum Articles of Association of the foreign investor, ByCell Holding AG, Switzerland. Explanation qua source of funds of the foreign investor, in the form of loans and advances from its holding company, i.e., Tenoch Holding Ltd, Cyprus. Incorporation certificate, Memorandum Articles of Association of Tenoch Holding Limited, Cyprus, Nicosia, from whom ByCell Holding AG had received the loan for further investment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed cash credit. It was also argued that if the identity of the non-resident remitter is established and the money has come through normal banking channels it cannot be treated as deemed income under section 68 or 69 of the income tax act 1961. The assessee relied on several rulings to drive home the aforesaid arguments which are on record. 3.1 The details brought on record by the assessee have been verified and submissions considered. The information received from FT TR is also on record and not being discussed in detail as it is covered under the confidentiality obligations as per the DTAA between the Swiss Confederation and the republic of The Government of India. After examination of details filed and discussion with the AR, returned income of ₹ 4,49,567/- is accepted. 10. One very important fact as culled out from the aforesaid reading of the assessment order besides considering the documents and evidences filed by the assessee was that, the Assessing Officer in the course of his enquiry had referred the matter to FT TR CBDT for exchange of information from Swiss Tax Authorities in order to verify the identity and creditworthines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Swiss Federal Administrative Court in its Decision A-4232/2013 of 17th December 2013. On verification of the, submissions and financial statements of the assessee company regarding the receipt of share application money, shares allotted and amount returned the following year wise details are gathered: Asst. Year Period Name of the Company Opening Balance Share Application Money Received Shares Allotted Share Application Money Returned Remaining Share Application Money 2006-07 01.04.2005 to 31.03.2006 ByCell Holding AG Nil 17,68,00,000 12,80,02,920 (Including 74,000 recd. from initial subscriber) Nil 4,87,97,080 2007-08 01.04.2006 to 31.03.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually is 7,09,84,431/- while shown in the report as amounting to 70,90,15,846/-. However the column of remaining application money at the end of the year confirms that the same is an error, hence no adverse view is taken. The informationn received from FT TR is on record and has not being discussed in detail in the order in view of the confidentiality obligations as per article 26 on exchange of information in the DTAA between the Swiss Confederation and the Republic of The Government of India. It is seen that an amount of ₹ 23 crores paid as license entry fee is lying as with the Department of Telecom Government of India as of date for which the promoters of ByCell AG have initiated arbitration proceedings against Government of India under UNCITRAL Arbitration rules, 1976 on 04.10.2010 and the matter is pending before, The permanent .court of Arbitration, The international Court of Justice, The Hague, Netherlands. The breakup of the total receipts and payments from ByCell AG till date is as is as follows: Total Amount Received - 96,54,36,312/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn Collaboration approval by FIPB, Ministry of Finance vide letter dated 17.01.2006 so as to undertake the activities of offering CGM based cellular telephone services in thirteen States. (iii) Bycell Telecommunications India Private Limited vide its letter dated 26.09.2007 sought permission from FIPB to undertake activities of offering GSM based cellular telephone services under UAS license agreement all over India and permission for foreign equity participation of 74%, i.e., amounting to USD 500 Million in next 3-5 years in the form of addition to paid-up capital of the company. The approval of government of India was conveyed to the company on 14.02.2008. (iv) Subsequently, Ministry of Home Affairs furnished specific inputs to F.I.P.B from the security perspective which cast serious aspersions regarding genuineness of the source of investment made in the assessee company, which are elaborated as under:- i. While Bycell Holding is based in Zug Switzerland, it does not have any significant presence there and the Swiss address provided is merely a postal address, without any physical presence or staff. The registrar of companies, Geneva whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditworthiness have not been submitted during the course of assessment proceedings like bank statement, income tax return, balance sheets, etc., which have not been analyzed by the AO. Apart from that, Assessing Officer has not made any inquiry by issuing a notices u/s. 133(6). Similarly with regard to the share application money by Bycell Holding AG, Switzerland, the Assessing Officer has only examined the preliminary information but no documentary evidence in support of the genuineness and creditworthiness have been found on record. Here again the bank statement of the share applicant money has not been brought on record including P L account and balance sheet of M/s. Bycell Holding AG, Switzerland. Based on the perusal of the assessment record, he held that following issues have remained unverified during the course of assessment proceedings:- 1. No enquiries have been conducted to ascertain whether any business activity was carried out by M/s Bycell Holding AG in Switzerland, nature of business activities carried out by that company, details of directors staff employed by M/s Bycell Holding AG in Switzerland, and whether the credentials of that company are genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal assessment proceedings as well as re-assessment proceedings (submitted by Ld. CIT DR); fourthly, copies of audited financial statement of Bycell Holding AG, Switzerland along with English translation for all the Assessment Years so that availability of funds with the Bycell Holding AG, Switzerland can be seen (submitted by assessee); lastly, copies of FIRCs which have been filed before the Assessing Officer during the course of re-assessment proceedings relating to remittance of funds by Bycell Holding AG, Switzerland (submitted by assessee). All these documents have been filed before us by the respective parties on the basis of which we have heard both the parties at length. ARGUMENTS ON BEHALF OF THE ASSESSEE 15. Before us, learned Senior Counsel, Shri Ajay Vohra after explaining the entire facts and material placed on record in this case, gave following sequence of events to explain the entire facts and material which was filed by the assessee before the Assessing Officer to prove the genuineness of the transaction and how this issue has been examined by the Assessing Officer during the course of two round of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the face of the balance sheet and Schedule 1 thereto. 07.01.2014 In response to the queries of the assessing officer the appellant filed: Details of FDI received from ByCell Holding AG, Switzerland along-with relevant Foreign Inward Remittance Certificate (FIRC); - Approval issued by RBI for issuance of equity shares in favour of ByCell Holding AG, Switzerland 15.01.2014 The appellant explained the source of funds received by the appellant from ByCell Holding AG, Switzerland. 18.02.2014 The appellant filed:- - Details of Bitcorp Pvt. Ltd. from ROC master data, certificate of incorporation and proof of PAN; Details of share application money received from ByCell Holding AG, Switzerland February/ March 2015 The appellant filed: Certificate of incorporation, Memorandum and Articles of Association of ByCell Holding AG, Switzerland; Certificate of incorp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 30.03.2017 Impugned order under section 263 of the Act passed by the PCIT setting aside the reassessment order dated 30.03.2015 holding that the assessing officer did not make enquiry relating to business, directors staff, credential of the investor companies. The CIT directed the assessing officer to make necessary enquiries and verification on: (a) Source of funds received by the appellant company from ByCell Holding AG, Switzerland; (b) Source of funds received by the appellant company from Bitcorp Pvt Ltd. (India promoter), which was not part of the notice under section 263 of the Act nor any opportunity was granted to the appellant in this regard during the revisionary proceedings. 16. From the above, Mr. Vohra submitted that here in this case, the issue of share application money/share capital was not only examined during the course of the original assessment proceedings but very extensively during the course of reassessment proceedings also, because the case was reopened u/s.148 specifically in the case of ByCell Holdings AG, to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that it is quite settled proposition that the twin condition as envisaged in Section 263, i.e., firstly, it is erroneous and secondly, it is prejudicial to the interest of the Revenue should be satisfied simultaneously and in support he relied upon various decisions including that of Hon'ble Supreme Court in the case of Malabar Industries Company Ltd. Vs. CIT, 243 ITR 83 (SC); CIT vs. Kwality Steel Suppliers Complex, 395 ITR 1 (SC); CIT vs. Max India Limited, 295 ITR 282 (SC). Here in this case, the assessment order cannot be held to be erroneous, as the AO has passed the order after carrying out detail inquiry and duly examining the evidences. 18. Mr. Vohra s second limb of argument was that the ld. PCIT cannot set aside the assessment merely because, according to him inquiry should have been conducted in a particular manner or any further inquiry ought to have been done by the Assessing Officer. Inadequacy of inquiry cannot be the ground for acquiring jurisdiction u/s.263. Apart from that, the learned PCIT prima facie should have recorded his findings on merits before setting aside the assessment and that to be after conducting some kind of inquiry especia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect to the impugned amount of share application money received from the foreign investor, viz. identity and creditworthiness of the foreign investor and genuineness of the transaction, were satisfied in the instant case. Be the case as it may, since the appellant had, as explained above, during the course of reassessment proceedings discharged the initial burden placed on it by establishing the identity, creditworthiness of the investor as also genuineness of the transaction, the burden shifted to the assessing officer/ Revenue to conduct further enquiries to corroborate the aforesaid transaction. Considering that the aforesaid investment was received from the foreign investor, the assessing officer, while discharging the burden shifted on him, followed the only available recourse of conducting necessary enquiries qua establishing identity and creditworthiness of the foreign investor, by making reference to the FT TR Division of the CBDT, which was a competent forum to conduct further necessary enquiries from the foreign investor through the foreign tax division of the other country i.e., Switzerland in the present case, in exercise of power available u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial against the appellant being on record. In that view of the matter, the jurisdiction assumed by the CIT is clearly flawed, being contrary to the law laid down by the apex Court in Malabar Industrial Co. Ltd. (supra) and followed in Max India (supra) and Kwality Steel Suppliers (supra). Re: Order cannot be set aside for making further enquiries: It is also important to note that in the impugned order, it is not the case of the CIT that the appellant had not discharged its initial / primary onus; on the contrary the CIT has merely directed the assessing officer to make further enquiries qua (i) source of funds received by the appellant company from its holding company ByCell Holding AG, Switzerland; and (ii) source of funds received by the appellant company from Bitcorp Pvt. Ltd. (Indian promoter) for the purposes of section 68 of the Act. In the context of section 68 of the Act, the Courts have in the under noted cases unanimously held that where the Revenue does not bring on record any contrary material and fails to discharge the onus that shifted to the Revenue, post discharge of initial/ primary onus by the assessee, the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y ByCell Holding AG, Switzerland; and (ii) from Bitcorp Pvt. Ltd. (Indian promoter), as held by the Hon ble apex Court in Malabar Industrial and Max India Limited {supra). Re: No prima facie finding by the CIT; On perusal of the impugned order passed under section 263 of the Act, it would be appreciated that the CIT has simply set aside the reassessment order(s) passed by the assessing officer on the ground that necessary inquiries qua source of funds were not conducted during the course of assessment proceedings without himself conducting any inquiry whatsoever or rendering any independent finding qua share application money/ contribution towards share capital received from ByCell Holding, AG constituting unexplained moneys of the appellant which, as explained above, is impermissible in law. [refer DG Housing, CIT v. Delhi Airport Metro and CIT v. Modicare Ltd. (supra)]. Re: Invocation of Explanation 2 to section 263 not valid: In the impugned order passed under section 263 of the Act, the CIT, in support of the assumption of jurisdiction under the said section in the present case, has relied upon the provisions of Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and outside the scope of section 263 of the Act in as much as the said findings have been given in violation of principles of natural justice, which vitiates the impugned order qua the aforesaid issue. Reliance, in this regard, is placed on the following decisions: CIT v. Amitabh Bachchan: 384 ITR 200 (SC) Commissioner of Customs v. Toyo Engg. India Ltd. [2006] 7 SCC 592 PCIT v. Krishak Bharti Co-operative Ltd.: 395 ITR 572 (Del.) CIT v. Ashish Rajpal: 320 ITR 674 (Delhi) CIT v. Contimeters Electricals (P.) Ltd.: 317 ITR 249 (Delhi) Maxpak Investment v. ACIT: 104 TTJ 881 (Del.)/13 SOT 67 (Del.) CIT v. Jagadhri Electric Supply Industrial Co.: 140 ITR 490 (P H.) CIT v. R.G. Umaranee [2003] 262 ITR 507 2 (Mad.) Being so, in view of the legal position elaborated supra, the action of the CIT in setting aside the reassessment order qua funds received from the India promoter is illegal and bad in law. That apart, the reassessment proceedings under section 147/148 of the Act were, as is evident from the reasons recorded by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 1TD 131 (Coch.) Gift Land Handicrafts v. CIT: 108 TTJ 312 (Del.) Peerless General Finance Investment Co. v. ACIT: 96 TTJ 834 (Kol) Rajasthan Spinning Weaving Mills v. DCIT: 281 ITR 177 (Raj.) Smt. N. Sasikala v. DCIT: 115 TTJ 563 (Chenn.) In view of the above, the impugned order passed by the CIT to the extent of setting aside the issue of verifying source of funds received from the Bitcorp Private Limited is beyond jurisdiction, illegal and bad in law. ARGUMENTS ON BEHALF OF THE REVENUE 20. On the other hand, learned CIT-DR after explaining the facts and background of the case, submitted that, when the assessment was reopened u/s.147 by the Assessing Officer solely on the basis of information received through FT TR, that genuineness and creditworthiness of the share application money/share capital needs to be examined, then the Assessing Officer under the law was required to carry out necessary inquiries not only for establishing the identity and creditworthiness of the foreign entity but also to examine the genuineness of the transaction. The Assessing Officer has onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecom Sector. (iii) Andrery Polouektov, who is the Director of the Indian Venture and is also a partner with Naumchenko in ByCell Holding, was earlier associated with a company called Gamma Group which was set up with funds from individuals involved in the telecom sector in St. Petersburg. The Gamma group further set up a company by the name of Megafon which was set up with floating currency invested by rich individuals in St. Petersburg and this company was allegedly involved in a money laundering scandal. (iv) It has come to the notice that Tenoch Holdings Cyprus, which holds 97% stake in ByCell AG Switzerland, is jointly held by (a) Quallis Incorporated, Panama (50%) and; (b) Kynance Business Limited, British Virgin Islands (50%). Both Panama and British Virgin Islands are well known tax havens and there is no information about who are the owners of Quallis Inc. and Kynance Business Limited and what is the source of funds for these two companies which control ByCell Telecommunications India Limited. 3. Issue required to the examined as per the inputs provided by MHA comments of Department of Revenue as under:- (i) The sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A. Y. 2006-07 on P-64 of paper book in which name of the remitter is shown Frixan Services Ltd. Nicosia, Cyprus not ByCell AG Switzerland. This shows the state of affair of assessee regarding investment is share capital. 7. Assessee failed to explain the source of investment by ByCell AG, Switzerland and Bitcorp Pvt. Ltd. The genuineness of transaction is also doubtful as the FIPB approval withdrawn only on the basis of the information provided by assessee in respect of investment as FDI. 8. Assessee failed to satisfy the conditions as per provision of section 68. It has to prove identity, creditworthiness and genuineness of the transaction in respect of the amount credited in its books of account as share capital. 9. FIPB is the deciding authority in respect of investment of foreign entity in India but it does not examine the source of investment (share capital) whether it is from disclosed sources or undisclosed sources. FIPB approval is subject to Indian laws. Assessee has claimed that creditworthiness and genuineness of the transaction proved as amount received through banking channels and FIRCs are there. It is worthwhile to menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares and, therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied; their reluctance and hiding may reflect on genuineness of transaction and creditworthiness of creditors - Held, yes - Whether creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances require that there should be some more evidence of positive nature to show that subscribers had made genuine investment or had acted as angel investors after due diligence or for personal reasons - Held, yes [Paras 13-18] [Matter remanded] 3. CIT Vs. Bikram Singh, Delhi High Court, 2017, ITA 55/2017. The use of deceptive loan entries to bring unaccounted money into banking channels plagues the legitimate economy of our country. The mere fact that the identity of the lenders is established payments are made by cheques does not mean they are genuine. If the lenders do not have the financial strength to lend such huge sums and if there is no explanation as to their relationship with the assessee, no collateral security and no agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tands conclusively proved. In any case, he submitted that assessee has also filed the copies of balance sheets for all the years under dispute as directed by this Bench, which clearly points out that money given for share capital is duly reflected in the balance sheets for various years and also provides the source of funds with M/s. Bycell Holdings AG, which was from loan by its holding company M/s Tenoch Holdings Ltd. Cyprus. Apart from that, certificate of foreign inward remittances also categorically proves that the money has come from the foreign entity towards share capital through its banks. Thus, the entire onus upon which lied upon the assessee not only stands discharged in terms of Section 68; but also the Assessing Officer who has completed the assessment after carrying out inquiries by seeking the information from the Swiss Tax Authorities who have verified and certified the transaction, then it cannot be held that the Assessing Officer has neither carried out any inquiry nor has applied his mind while deciding the issue of share capital. DECISION 24. We have heard the rival submissions, perused the relevant findings given in the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70,90,15,846 Assessments under sections: (i) 143(3); (ii) 147/143(3). 4. 2009-10 7,09,84,431 Assessments under sections: (i) 143(3); (ii) 147/143(3). 5. 2010-11 96,36,035 Assessments under sections: (i) 143(1); (ii) 147/143(3). 25. As discussed in the earlier part of the order, the assessee company was incorporated for providing telecom services in India in which, 74% equity was held by a foreign company, viz., M/s. Bycell Holdings AG; and remaining 26% was held by an Indian Company, viz., M/s. Bitcorp Pvt. Ltd. For making the investment in the equity share capital in the Indian Company, M/s. Bycell Holdings AG filed application before the FIPB for seeking approval and the said approval was accorded by FIPB from time to time. On the basis of said approvals, M/s. Bycell Holdings AG remitted to the Indian comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Association of M/s. Bycell Holdings AG; explanation regarding the source of funds of foreign investor which was in the form of loan and advance from its holding company, i.e., Tenoch Holding, Cyprus; and lastly, incorporation certificate and Memorandum of Association of Tenoch Holding, Cyprus from whom M/s. Bycell Holdings AG has received the loan for further investment in the Indian Company. The Assessing Officer after examining such material and record produced before him during the course of re-assessment proceedings, made further inquiry by seeking information from Switzerland Tax Authorities through proper channel of FT TR division of CBDT, for exchange of information so as to verify the identity, source of funds and creditworthiness of the holding company, M/s. Bycell Holdings AG and its promoters. The said information was duly received to the Assessing Officer vide letter dated 04.02.2015 through FT TR which was received from their counter parts in Switzerland. The Swiss Tax Authorities have categorically stated that M/s. Bycell Holdings AG is registered in Zug Switzerland. The said company though had no revenue but had assets from investors in the form of a subordinated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h The company has strictly speaking no income, but has assets from its investors. In the context of a subordinated and conditioned loan from its sole shareholder Tenoch Holdings Limited, Nicosia, Cyprus, ByCell Holding AG received the assets which they then invested in the Indian company ByCell Telecommunications India Private Limited. 1. Details of where the money has gone, which was returned by ByCell Telecommunication India Private Limited to ByCell AG Switzerland, year-wise details of which are mentioned below: Asst Year Period Opening Balance Share application money received Share allotted Share Application money returned Remaining Share application money 2006-2007 01/04/2005 31/03/2006 Nil 176800000 128,002,920 + 7400 Purchased from initial subscribers Nil 4897,080 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Telecommunications India Private Limited to ByCell Holding AG were reimbursed to the shareholder and therefore to the investors who provided these funds, with the exception of marginal amounts used for the functioning of this company. ByCell Holding AG stated that the figures in the above mentioned table for the time period from 1 April 2011 to 31 March 2012 could not be located in their books. They did however state that one transaction took place on 19 April 2011 when ByCell Telecommunications India Private Limited transferred the amount of $ 4 026 815.00 to ByCell Holding AG. On the 26 April 2011 an amount of $ 4 003 000.00 was transferred by ByCell Holding AG to Tenoch Holdings Limited, Nicosia, Cyprus. With regard to the aforementioned information we would like to draw your attention to the restrictions on the usability of the transmitted information as well as the confidentiality obligations under the administrative assistance provisions of the applicable agreement (Article 20 Paragraph 2 TAAA) in connection with Article 26 DBA CH-IN. Please do not hesitate to contact us should you have any further questions. Kindly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned PCIT though has acknowledged the aforesaid information received from Switzerland Tax Authorities requisitioned by CBDT itself, but nowhere has commented or given any finding as to how the said information received from Swiss Tax Authority does not either prove the source or creditworthiness of the investor or the genuineness of the transaction. Great emphasis has been laid by the learned PCIT as well as the learned CIT-DR before us that bank accounts of the M/s. Bycell Holdings AG has not been brought on record during the assessment proceedings so that the genuineness of the financial transaction can be verified and also the copy of audited balance sheets. Whence the money is flowing from the books of the investor as certified by Swiss Tax Authorities from their financial accounts including the source of their funds for investing in Indian Company and remittances are certified from FIRCs issued by respective banks of the investor and the investee duly approved by RBI, then how mere not filing of bank statement vitiates the onus of proving the source. Further, nowhere in the impugned order learned PCIT has even uttered a whisper as to what kind of further inquiry was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. 30. Under the deeming provision of section 68 as was applicable at the relevant time, the person in whose books of account any sum is found credited during the relevant previous year, was require to explain the nature and source of such credit. For proving the source, the courts since time immemorial have laid down that assessee needs to prima facie prove the identity and creditworthiness of the creditor and the genuineness of the transaction. Once it is prima facie established by the assessee, then onus shifts upon the Assessing Officer to rebut such evidence if he is not satisfied with the explanation based on the evidence filed, by bringing cogent material on record after carrying out necessary inquiry. If the AO fails to unearth any incriminating material to dislodge assessee s evidence, then he cannot obdurately disbelieve the transaction on his suspicion. Inquiry should be made to examine whether the creditor/lender or investor is legally identified and has the creditworthiness to lend/ advance or give the money. The proving of source is limited qua the creditor/lender/investor. It cannot be extended to look the source of fund of such person unless, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestor stands proved and onus that lied upon the assessee and AO stood discharged. Further it is not necessary, whether the M/s. Bycell Holdings AG was having its own revenue from operation or not but if the funds have been given from the loan taken from the holding company, it suffices the test of creditworthiness for proving the source. Whether the Tenoch Holding had the creditworthiness to give such amount to M/s. Bycell Holdings AG to prove the credit of share application money in the books of account of the Indian company, as held by us, was not the requirement either under the facts of the case or under the law. 31. Even under the amended provision of section 68, brought by the Finance Act, 2012, w.e.f. 01.04.2013, whereby proviso has been inserted qua the deeming fiction on share application money, share capital, share premium or any such credit, has been made applicable to resident entity only and not to nonresident entity. This inter-alia means that deeming fiction cannot be extended to non-resident entities. Be it as may be, under the amended law also the onus stands discharged as the investor company has explained the nature and source of credit, that is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O and to draw adverse inference, in our opinion cannot be the sole deciding factor when the foreign bank as well as the Indian bank have duly confirmed the transaction by the flow of money from Switzerland to India. In such circumstances it cannot be said that bank statement was required to see the genuineness or the creditworthiness. Here in this case the creditworthiness is further borne out from the balance sheets of ByCell Holdings AG, (the English version of which was produced before us by the assessee as per our direction along with the original balance sheet which was in French). From the perusal of the balance sheet, we find that the entire share application money given to the Indian company has been duly reflected including the loan taken from its holding company in Cyprus. This proves the link of money flown from the coffers of its holding company, M/s. Tenoch Ltd. Cyprus to M/s. Bycell Holdings AG. During the course of the hearing the ld. CIT-DR tried to impress upon the fact that M/s. Tenoch Ltd. Cyprus was the holding company further held by M/s. Quallis Inc, Panama and M/s. Kyanance Business Ltd, British Version Island and both these companies were held by some indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of Hon ble Jurisdictional High Court. In this case, the assessee company had received various amounts from its holding foreign company to its subsidiary. The assessee to prove the genuineness and identity of the shareholder furnished FIPB approval copy of certificate of incorporation of shareholders copy of bank statement and copy of Form-II filed before ROC and balance sheets. Despite all those evidences the Assessing Officer had made the addition which was confirmed by the ld. CIT (A), however the Tribunal had deleted the said addition. In the wake of this background the Hon'ble High court has observed and held as under:- 12. The preceding enumeration of the circumstances of the case show that the assessee had furnished all relevant data before the AO and the CIT(A), which, however, were not inquired into by the AO. Instead he obdurately adhered to his first impression and/or initial understanding that the entire transaction was neither creditworthy nor genuine. The assessee relied upon the documents to prove that the monies had been received through banking channels from its principal and other related companies; it had submitted the FIPB Approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 147 only to examine the source of share application money/share capital of the non-resident entity and without there being any tangible material on record that the share application money received from M/s. Bitcorp India Pvt. Ltd. is not genuine, the Assessing Officer under the law was not required to conduct any roving and fishing inquiry within the scope of re-assessment proceedings which is circumscribed or limited only to the issues raised and reason to believe entertained in the reasons recorded ; or in the terms of Explanation-3 to Section 147, i.e., on the issue which comes to the notice of the Assessing Officer during the course of re-assessment proceedings. Not only that, we find that even the learned PCIT while issuing the show cause notice to the assessee u/s.263, no issue with respect to share application received to India partners, viz. M/s. Bitcorp India Pvt. Ltd. was raised by him. It is also not coming from the impugned order as to what was the adverse material available in the assessment record or coming to his notice with regard to the share application money received from M/s. Bitcorp Pvt. Ltd. Once this issue is neither flowing from the initiation of reas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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