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TMI Blog2019 (12) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... remium u/s.68 of the Act in the facts and circumstances of the case. 2.2. The assessee has raised the following grounds in this regard:- 1. " Upholding the addition of Rs. 155 Crores to the income of the assessee company made u/s.68 of the Income Tax Act. 2. Upholding an unwarranted & legally untenable addition of Rs. 155 Crores u/s.68 of the Income Tax Act, without considering the fact that genuineness of the transaction, creditworthiness & identity of the creditors were established in adequate & appropriate manner. The assessee had discharged the onus cast on it to establish the bonafides of the transaction. 3. Holding that the assessee company has not discharged the burden cast upon it u/s.68 of the Income Tax Act without appreciating that the amended provisions of Section 68 in respect of examining the source of the source for subscription of share capital and share premium are not applicable to non-residents and in the case of assessees company the share capital and the premium aggregating to Rs. 155 Crores was received by the assessee from Rabana Holdings Ltd., Mauritius, a non-resident entity. 4. Upholding the addition u/s.68 of the Act: i) On factually inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities; FCGPR return filed with RBI in the context of allotment of shares under FDI route, copy of Board resolution indicating the shares offered, share price premium, Board resolution for allotment of shares to M/s. Rabna Holdings Ltd. along with copy of return filed with Registrar of companies in that regard. The assessee also stated that the entire transactions of receipt of share capital and share premium under FDI route had been duly approved by the Reserve Bank of India. The ld. AO however, sought to examine the veracity of the documents filed by the assessee by making reference to foreign tax division of Central Board of Direct Tax (FT & TR division) u/s.90 of the Act read with Article 26 of Double Tax Avoidance Agreement with Mauritius pertaining to exchange of information or documents and received replies thereon. From the report received from FT & TR division after making enquiries with Mauritian tax authorities, information pertaining to the Directors of M/s.Rabna Holdings Ltd., its shareholders, its source of funds for making investments in India were placed on record. The ld. AO made the following observations on facts in his assessment order:- (a) A reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Investigative Journalists (ICIJ) shows one entity by name M/s.Amas Ltd., in the "Bahamas Leaks". The ld. AO concluded that source of money that had emanated from Bahamas (which is tax haven) through M/s. Amas Ltd., cannot be accepted as a genuine transaction. The ld. AO concluded that receipt of funds in the form of share capital and share premium has been structured by the assessee company from its group entities based in Mauritius and other tax havens such as Bahamas. He also observed that since M/s. Amas Ltd., features in the list of entities discovered as a result of investigation carried out by ICIJ in Bahamas leaks and therefore the ultimate source of the funds used for making investments into the assessee company remain suspect. He concluded that no attempt had been made whatsoever by the assessee company to provide necessary documentary evidences to establish the creditworthiness of the subscriber of shares along with nature of the transaction especially in view of the fact that foreign entities involved are group companies and specific observations have been made with regard to suspect nature of funds originating in tax haven being used for making said investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not a "related party" of the assessee company. Fourthly, the source of investment by Rabna Holdings 14x1. i.e. source of source is also proved by the document available on record and that only Amas Ltd. is from Bahamas by itself cannot be held against the assessee, especially, when there has never been any remittance from India from at any given point of time. This is contrary to basic tenants of justice that unless otherwise proved person is non-guilty. Here the assessee company has given all the direct evidence and coupled with circumstantial evidence even the "non-guilty" status is also fully established. c) It may not be out of context to mention that once an assessee has a Tax Residency Certificate, it is an evidence not just a residence of a tax payer but also g beneficial owner of income. In this context, reliance is placed on of the Bombay High Court decision rendered in the matter of DCIT v. Universal International Music BV - 31 Taxmann.com 223 and Mumbal Tribunal in the matter of HSBC Bank Mauritius Ltd. v. DCIT (Int'l Taxation - 2 (2)12), Mumbai. - ITA No.I708/Mum/2016 read with MA No,: 221/Mum/2017. d) The assessee company vide communication did, 16.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als & Alloys) pet their order dtd.12.10.2018 has deleted an addition made u/s.68 of the Income Tax Act in respect of bogus share capital & share premium by holding that if (a) the assessee has furnished the name, address and PAN and share application forms to prove that the shares were allotted to the applicant and (b) the bank statements show that money was received through banking channels, there were no immediate withdrawals to suggest that the share application amounts have been returned back to these parties in cash, it means that the assessee has discharged the primary onus cast upon it to prove the identity, capacity and genuineness of the transaction, thereby deleting the addition made u/s,68 of the Income Tax Act. f) As stated by the AO at Para 4.3.2 & 4.3.3 of the assessment order, the FT&TR has explained that the investment made by Rabna Holdings Ltd. is funded out of loan from Amas Ltd. Bahamas, This further stands confirmed by the confirmation statement given by Amas Ltd. Bahamas in its communication dtd.28.02.2018 to Rabna Holdings Ltd., Mauritius that for investing in the shares of HRVL (the assessee), the said Amas Ltd. had given a loan to Rabna Holdings Ltd. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emittance for share capital (vi) Copy of FIRC (vii) Copy of bank statements (viii) Copy of Form 2 filed with ROC 8. The Tribunal considered the contentions of the assessee that:- (ii) The assessing officer has failed to consider the Honble Supreme Court judgment in the case of Lovely Exports and various other Judgments which describe the primary burden cast on the assessee while proving the share application money. Ignoring various documents procured from FIPB confirmations, ROC records, vehement insistence has been made only on the bank statements of the shareholders. According to Id. Counsel when the burden of the assessee can be amply proved from the documents filed by it, cash credit/share application money cannot be held to be non-genuine without adjudicating them and picking up the non-filing of bank statements of shareholders. The assessing officer has a quasi judicial duty to weigh the quality of evidence produced before it and if it is sufficient to discharge the burden of assessee, the same cannot be cryptically disregarded in the pretext of document which was not filed by the assessee." 9. It then concluded that- 11.7. Taking into consideration of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. the case of private placement the legal regime would not be the same, A delicate balance must be maintained while walking the tightrope of Sections 58 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee: if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mauritian company, name, address and citizenship of directors, copy of share certificate issued by the assessee, bank statements and financial statements of the Mauritian company, thus, holds that the communication by Mauritian authorities clearly proved that the assessee had received funds from such entity; TTAT further rejects Revenue's claim for the need of further enquiry with regard to the genuineness of transactions and creditworthiness of the parties, opines that **once communication received from the designated authority through FT & TR which is the authorised agency for exchanging information between two countries u/s 90 and such information has been received through proper channel, then there is no scope for the AO to conduct further enquiries with regard to the creditworthiness of the parties." k) The entire case of the AO is based on his contentions that since the company giving loan to the source of assessee company's FDI investor is in "Bahamas", it is a tainted transaction. There cannot be a more baseless addition. One cannot come to a conclusion that all companies in "Bahamas" are with tainted money, There has to be at least some evidence to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and financials of M/s. Amas Ltd despite the fact that it is claimed to be related party of the shareholder of the assessee company. The ld. CIT(A) observed with regard to reliance placed by the assessee on Circular No.5/1969 dated 20/02/1969 that on examination of the contents of the Circular it is evident that the same was issued in altogether different context which is entirely different from the facts of the case of the assessee. The ld. CIT(A) further observed as under:- "Moreover, provisions of section 68 of the IT Act empower the AO to examine the identity of the party, the genuineness of the transaction and the creditworthiness of the party in whose name any sum is found credited in the books of account of the assessee. In the modern times, where the money-laundering has become a sophisticated activity and layering is used to hide the actual nature of the transaction, AO cannot be said to be exceeding his jurisdiction if he is trying to examine the source of money which is received by the appellant from an entity which is used as a pass - through entity and which does not have the capacity to advance the money in its own right. There cannot be any presumption that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard rival submissions and perused the materials available on record. The primary facts stated hereinabove together with various documentary evidences placed on record before the lower authorities remain undisputed and hence, the same are not reiterated for the sake of brevity. We find from the perusal of the aforesaid narrated facts supported with documentary evidences that M/s.Rabna Holdings Ltd., a Mauritius based entity, a group company of Hinduja group had invested in share capital of the assessee company. M/s.Rabna Holdings Ltd. had received loan from M/s. Amas Ltd., a company incorporated in Bahamas. This loan was utilised by M/s.Rabna Holdings Ltd. to make investment in share capital of the assessee company. Hence, the source of funds for the assessee company is established beyond doubt. The assessee is required to explain the nature and source of credit appearing in its books in the form of share capital and share premium in the light of provisions of Section 68 of the Act. The nature of credit is in the form of share capital and share premium. The source of credit is money received from M/s.Rabna Holdings Ltd., a Mauritius based entity. In the instant case, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y concluded that assessee had duly established the three necessary ingredients of Section 68 of the Act i.e., identity of the share subscriber, genuineness of the transaction and creditworthiness of the share subscriber. 5.1. We are unable to persuade ourselves to accept to the argument of the ld. DR that assessee had not furnished the copy of income tax return of M/s.Rabna Holdings Ltd. for the relevant year and the intimation, if any, issued by Mauritian tax authorities to M/s.Rabna Holdings Ltd. for the relevant year and hence, the source of funds and creditworthiness of M/s.Rabna Holdings Ltd. cannot be accepted. In this regard, we hold that merely because the investor had not filed its income tax returns, it does not make the entire transactions bogus or the said investor non-existent. If an investor company in Mauritius had not filed its income tax return, then it is for the Mauritian tax authorities to take necessary action against the said company and assessee cannot be faulted for the same. With regard to another observation made by the ld. CIT(A) that the letters filed in page 65 & 66 of the paper book by M/s.Rabna Holdings Ltd. and M/s. Amas Ltd., duly confirming the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Letting Value (ALV) was considered at Rs.Nil as the said premises remain vacant throughout the year. The assessee also submitted that the building in which the above vacant premises are situated was occupied majorly by Hinduja Healthcare Ltd which runs the hospital in the said premises. Hence, no other tenant was willing to occupy the vacant premises i.e. Unit No.701. Accordingly, the assessee was forced to offer the vacant premises to Hinduja Healthcare Ltd., and after making some structural corrections to suit the requirements of Hinduja Healthcare Ltd. The structural corrections carried out by the assessee took considerable time and hence till such time, the said property was remaining vacant. The assessee in these peculiar facts and circumstances treated the ALV of the said property i.e., Unit No.701 at Rs. Nil u/s. 23(1)(c) of the Act. The assessee also placed reliance on certain co-ordinate bench decisions of this Tribunal along with Bangalore Tribunal and Lucknow Tribunal in support of its contentions. The ld. AO applied the provisions of Section 23(4)(b) of the Act and applied fair market value of the said property and arrived at the rate per sq.ft of Rs. 900 thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Section 23 of the Act which reads as under:- Act 23: 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : (emphasis supplied by us) Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l precedents hereinabove, we direct the ld. AO to determine the Annual Letting Value (ALV) of Unit No.701 at Rs. Nil and delete the addition made thereon. Accordingly, the ground No.5 raised by the assessee is allowed. 9. The ground No.6 with regard to disallowance made u/s.14A of the Act under normal provisions of the Act. The ground No.7 is with regard to disallowance u/s.14A of the Act vis-à-vis computation of book profit u/s.115JB of the Act. 9.1. The brief facts of this issue are that the assessee derived tax free income of Rs. 22,93,75,890/- by virtue of share in partnership firm. The assessee made suo moto disallowance in the return income u/s.14A of the Act r.w.r.8D of the rules in the sum of Rs. 3,09,60,385/-. The said disallowance admittedly included the disallowance made towards interest without considering the decision of Hon'ble Jurisdictional High Court in the case of HDFC Bank reported in 383 ITR 529. The ld. AO proceeded to make computation under rule 8D(2) of the rules as under:- Under Rule 8D(2)(i) Rs. 2,056/- Under Rule 8D(2)(ii) Rs. 2,94,01,007/- Under Rule 8D(2)(iii) Rs. 1,24,75,692/- Total Rs. 4,18,78,755/- Less-Disallowance made By the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) By applying the principle that when the assessee has sufficient interest free funds available, this is a presumption that the same has been utilized in making investments, and any disallowance of interest ought to be computed taking the same into account - HDFC Bank Ltd. (Bom) - 383 ITR 529 and Sintex Industries Ltd. - 93 taxman.com (SC). 2. The learned AO & CIT(A) ought to have held that notwithstanding the facts that the assessee had computed a disallowance u/s.!4A of Act, the same ought to have been based on the well settled and binding law laid down by the courts and Tribunal." 11.1. We find that these additional grounds go to the root of the matter and does not require any verification of facts and hence, the same are admitted and taken up for adjudication. 11.2. We find at the outset that the disallowance made by the assessee suo moto in the sum of Rs. 3,09,60,385/- was made as per computation mechanism provided in rule 8D(2) of the rules by considering the net interest i.e., interest paid less interest received under second limb of rule 8D(2) of the rules. From the perusal of the balance sheet, we find that assessee had got sufficient own funds in its kitty and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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