TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 575
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....e of hearing before us Ld. Counsel for the assessee pointed out from the order that on perusal of the records of the assessee, the Ld.Pr.CIT found the order passed by the AO to be erroneous and prejudicial to the interest of the revenue, for the reason that the AO had failed to make proper enquiries relating to the share capital of Rs. 1.18 crores and the share premium of Rs. 9.64 crores received by the assessee from a company namely Pacatolus SPV5, which was a resident of Mauritius. Our attention was drawn to para 2 of the order where the show cause notice issued to the assessee was reproduced as under: "The case was selected for complete scrutiny through CASS with the following reasons:- a) Large share premium received b) Difference in opening stock in current year with the closing stock of the previous year. c) Depreciation claimed at higher rates/Higher additional depreciation claimed. 4. Out of the reasons stated above, the issue of share premium has not been examined properly by the AO which has been discussed below along With the facts of the case. 5. The assessee company is said to be engaged in manufacturing different types of yarns. The company commenced its p....
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....ments are routed through these jurisdictions for avoidance of taxes and/ or for concealing the identity from the Revenue Authorities of the ultimate investor, many of whom could be the India residents, who have invested in their own companies through a process known as round-tripping. Thus, the black money generated by India is reinvested in India. In the instant case, it is quite possible that there could be the unaccounted wealth camouflaged under the guise of FDI investment and large amount of money transferred outside India might actually have returned to India through legal channel as Mauritius has been one of the popular tax havens in the world. Hence, there was need of proper investigation and the case of the assessee should have been referred to the FT & TR Division, CBDT, New Delhi for seeking specific information under the provisions of exchange of Information, article of DTAA in order to verify the genuineness of the Mauritian company which has invested in India. (iii) Last but not the least, the AO failed to ask the assessee to establish the genuineness of the transaction by revealing the ultimate source of this investment (private placement) of shares in the assessee....
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....on, raising of capital by India Companies through GDRs and investment in India stock market through participatory notes etc. FDI statistics point to the fact that Mauritius constitutes 41.80% of entire FDI received by India. It had been the topmost source of cumulative inflows in India. Mauritius with its small economy, cannot be the source of such huge investment and the investments are routed through these jurisdictions for avoidance of taxes and/ or for concealing the identity from the Revenue Authorities of the ultimate investor, many of whom could be the India residents, who have invested in their own companies through a process known as roundtripping. Thus, the black money generated by India is reinvested in India. In the instant case, it is quite possible that there could be the unaccounted wealth camouflaged under the guise of FDI investment and large amount of money transferred outside India might actually have returned to India through legal channel as Mauritius has been one of the popular tax havens in the world. A.O. miserably failed to make proper investigation in this regard and also failed to refer the case of the assessee to the FT & TR Division, CBDT, New Delhi for....
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....lready been submitted vide our reply No.CTL/lT/2015/3 dated-10.02.2015. However, ' the same is again submitted is as under :- Pacatolus SPV5 Tax Account No.27193558 4th Floor Raffles Tower, 19, Cybercity, Ebene, Mauritius. Further copy of Form No,2 filed with the Registrar of Companies. Chandigarh for allotment of 1182513 equity shares to Pacatokis, Mau enclosed herewith. As desired copy of share certificate for allotment of 1182512 equity s! issued to the subscribers is enclosed herewith. Letter dated 21-04-15 Further as desired by your goodself as per the discussion on the last date of hearing regarding the addition to Share Capital (FDI) , we are giving herein below a detailed explanation with respect to the Foreign Direct Investment of Rs. 10.82cr. received by the company during the year under consideration. It may be kindly be noted that this investment has been received under Foreign Direct Investment guidelines of Government of India duly governed by Reserve Bank of India. The process of receiving Foreign Direct Investment in India and the related formalities is explained as under:- First of all a Certificate of Foreign Inward Remittance (FIRC) is is....
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.... already been submitted to your honour vide our reply no. 8 dated 21.04.2015. 6. Referring to the above, Ld. Counsel for the assessee contended that necessary queries had been raised by the AO and due reply alongwith evidences had been filed to substantiate the genuineness of the investment received by the assessee from the Mauritius company. Ld.Counsel pointed out that admittedly the following information/documents had been filed to the AO: * Name and address of the investor * Mode of receipt of share capital and share premium by the assessee company from the Mauritian investor. Copy of form No. 2 filed by the assessee company with ROC for allotment of aforesaid equity share capital to Mauritius Investor. * Copy of share certificate issued to the investor. * Copy of FIRC issued by the remitting bank i.e. Hong Kong and Shanghai Banking Corporation Ltd. i.e. HSBC Mumbai. * Copy of FCGPR submitted to RBI regarding the above investment along with its supporting documents. * Copy of certificate of Incorporation of Investor company. * Copy of Tax Residency Certificate issued by Mauritius revenue authority * Copy of certificate issued by Chartered Accountant certifying....
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....oduced the certificate of Reserve Bank of India in which the Reserve Bank of India by referring to letter of the assessee has referred to the transaction held between assessee and M/s Glacis Investment Limited, Mauritius for issuing the shares at paid up value and premium for 740000 equity shares were recorded by the Reserve Bank of India in their records. The Id. DR submitted that the name of M/s Glacis Investment Limited is wrongly recorded in the Reserve Bank of India certificate. It appears to be typographical error and is not having much significance on the same because the assessee has issued 740000 equity shares to the shareholder company which is the same and only transaction carried out between the assessee and the shareholder company. The assessee also filed copy of the share certificate to show that actual share certificates 740000 in number have been issued to the shareholder company. The shareholder company has also issued a confirmatory letter in favour of the assessee certifying that M/s Glacis Investment Limited has invested Rs. 3,70,00,000/- for allotment of 740000 equity shares in assessment year under appeal. The Republic of Mauritius also certified that Global B....
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....sessee has also proved the credit worthiness of the shareholder company, therefore, authorities below were not justified in making the huge addition against the assessee. Considering the totality of the facts and circumstances on the basis of the evidences on record and in the light of the judicial pronouncements noted above, we are of the view that assessee has been able to prove the identity of the creditor which is not in dispute, credit worthiness of the shareholder company and genuineness of the transaction in the matter. Therefore, addition of Rs. 3.70 Cr under section 68 of the Act is wholly unjustified. We, accordingly, set aside the orders of authorities below and delete addition of Rs. 3.70 Cr. In the result, ground No. 1 of appeal of the assessee is allowed." 8. Ld. counsel for the assessee therefore contended that the enquiry conducted by the AO and the reply filed by the assessee alongwith evidences was sufficient to satisfy about the genuineness of the transaction and the Ld.Pr.CIT had erred in stating that proper and adequate enquiries had not been conducted in the present case. Ld. counsel for the assessee stated that in the above facts & circumstances the order ....
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.... to the Commissioner to assume the jurisdiction under section 263 of the Act to revise every order of the Assessing Officer to reexamine the issues already examined during the course of assessment proceedings. The Hon'ble Mumbai Income-tax Appellate Tribunal has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. ITO (2016) 70 TAxmann.com 227 to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court, according to which the Commissioner has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The Tribunal has further held that the intention of the Legislature could not have been to enable the learned Principal company of Income-tax to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the A.O. is not sustainable in law since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Commissioner referred to in section 263 of the Act has to be understoo....
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....ion money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] (emphasis supplied) 12. Ld.Counsel pointed out that it was only in the case of credits received from residents that the source of source was required to be explained and since in the present case the same had been received from a non-resident company the onus was not on the assessee to explain the source of the source. Therefore Ld. counsel for the assessee contended that the Ld.Pr.CIT had erred in holding the order of the AO erroneous on account of the fact that he had....
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....aken cognizance of. 15. We have heard the rival contentions carefully. We find merit in the contentions of the Ld. Counsel for the assessee that the power exercised by the Ld Pr CIT in the present case to revise the order of the AO u/s 263 of the act was not as per law. As per the provisions of the section 263 the revisionary powers can be exercised by the Commissioner on being satisfied of the existence of the twin condition of there being (a) an error in the order of the AO and (b) such error causing prejudice to the interest of the revenue. The said section clarifies that where in a situation an assessment order is passed without making necessary enquiries it shall be an order erroneous and prejudicial to the interests of the revenue. In the present case we find the Ld.Pr. CIT has found the order passed by the AO to be erroneous for the above reason only. But considering the facts of the case and the discussion by the Ld.Pr.CIT in the order, we are not convinced that the inquiry conducted by the AO was inadequate. 16. As per the Ld. Pr CIT the issue of share capital introduced during the year from a company M/s. Pacatolus SPV 5, MAURITIUS comprising of share capital 1.18 crore....
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....IRC issued by the bank remitting the money from Mauritius to India i.e. HSBC, Hong Kong-Shanghai Banking Corporate Limited, and copy of the FCGPR submitted to RBI by Canara Bank, the accepting bank. The letter issued by RBI allocating a unique Identification number to the transaction, thus confirming that the transaction is taken on record, further corroborates the genuineness of the transaction. Moreover the certificate of the chartered accountant certifying the manner of determining the fair market value of share of Assessee Company, justifies the premium also received. Therefore, the documents filed before the AO sufficiently establishes the identity of the investor, that it is a company incorporated in Mauritius and also a tax resident of Mauritius, the genuineness of the transaction, that it had invested in share capital of the assessee company and also the justification for the premium. No infirmity has been pointed out in the above documents by the Ld.Pr.CIT. With all the above documents found to be in order, the AO, we hold, was rightly satisfied with the genuineness of the share capital received and we do not find any reason for the AO to have made any further inquiry reg....
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.... general information, the Ld.Pr.CIT has made his own derivations that money coming through Mauritius is largely tainted, on the reasoning that 48% of the FDI in India is from Mauritius, which being a small economy cannot be the source of such huge investment. Thus it is merely suspicion of the Ld. Pr.CIT that the money received in the present case by way of share capital is the unaccounted income of the assessee itself. This is evident from the fact that the Ld.Pr.CIT himself states "In the instant case it is quite possible that there could be unaccounted wealth camouflaged under the guise of FDI investment and large amount of money transferred outside India might actually have returned to India through legal channel as Mauritius has been one of the popular tax havens of the world" Mere suspicion cannot be the basis for rejecting the information and documents filed by the assessee and holding them to be insufficient for establishing the genuineness of the transaction. The inquiry conducted by the AO cannot be termed inadequate merely because the Ld.Pr.CIT suspected the transaction to be tainted. It is settled law that jurisdiction u/s 263 for revising order of the AO cannot be assu....