TaxTMI 
TaxTMI 
2018 (12) TMI 575
X X X X Extracts X X X X
X X X X Extracts X X X X
....received by the appellant company." 3. During the course 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved 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 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, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ginated in India is returned to it. The unaccounted money transferred outside India come back to India through various methods such as hawala, mispricing, FDI, through beneficial tax jurisdiction, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ibers) to the share capital issued and alongwith share certificates issued during the year under assessment alongwith complete addresses of the application. Reply dated 13-04-15 5. The address of Pacatolus i.e. the subscribers to the share capital has already 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 not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ank of India (RBI) through receiving bank i.e Canara Bank (iv) Copy of Valuation Report. Hope your honor will find the above in order and in case any other document/information is required by your honour, the same may please be asked Letter dated 30-04-15 1. Certificate from CA with complete computation of fair market value of the shares at the time of issuance of shares to the company M/s Pecatolus has 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. * C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of M/s Glacis Investment Limited which is a registered company in Republic of Mauritius. The Id. CIT(Appeals) considering the subscriber company to be a company being legal entity held that the identity of the shareholder is proved. The assessee also filed copy of the Tax Residence Certificate issued by Mauritius Revenue authorities, certifying that M/s Glacis Investment Limited incorporated in Mauritius is a company resident in Mauritius for income tax purposes under the Income Tax Act. The assessee also produced 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l represented the assessee's own income from undisclosed sources. The assessee on the basis of the documentary evidence on record has been able to prove that Non Resident Company i.e. M/s Glacis Investment Limited was an existing company and that the shareholder company made investment in the assessee company would prove that assessee received genuine share application money from this non-resident company. Thus, assessee had established the identity of the shareholder company and that transaction was genuine. The assessee 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 author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the AO. Reliance was placed on the following case laws in support of the above contention. 1. Narayan Tatu Rane vs Income Tax Officer (2016) 70 Taxmann.com 227(Mum) 2. Amira Foods Pvt. Ltd. vs The Pr.CIT (2018) 63 ITR(Trib)355(Del) Our attention was specifically drawn to the relevant portion of the order as under: "18. The learned counsel for the assessee submitted that even though there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 is inserted with effect from June 1, 2015 but the same does not give unfettered powers 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isions of section 68 which were applicable in the present case as under: "68.Where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer], satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....06 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512 3. Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC) 4.U Deniel Merchants Pvt Ltd Vs ITO (SC) 14. Ld.DR further distinguished the case laws relied upon by the Ld. counsel for the assessee stating that they had been passed with reference to clause(c) and (d) of Explanation to section 263, while in the present case it was clause(a) of the explanation to section 263 which had been attracted. He further drew our attention to the KYC paper of the investor company pointing out that it carried no date, no stamp and no place and hence could not be relied upon or taken 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the name and address of the investor company and certifying that it is a company incorporated in Mauritius as per its laws and is a resident of Mauritius for Income Tax purposes. The genuineness of the transaction, that share capital was received from the said investor company can be sufficiently gathered from the copy of return filed to the Registrar of Companies in form No.2, submitting the said fact of receipt of share capital from the investor company and also from the copy of share certificates issued to it. That money was genuinely received on account of share capital from the said investor is evidenced by the copy of documents submitted by the remitting and accepting bank to RBI as per the FDI norms governing the impugned transaction i.e. FIRC 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 charter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntry through FDIs, GDRs, etc. from outside the country. There is no specific information in the possession of the Ld. Pr.CIT either vis-à-vis Mauritius companies adopting such modes in general or even vis-à-vis the specific investor company involved in the present case i.e. M/s Pacatolus SPV5 . This, general information in his possession logically called for enquiry regarding genuineness of such transaction. And this is what has specifically been done in the present case, with the assessee's case being selected for scrutiny solely for the purpose of verifying the genuineness of the share capital received by the assessee from the Mauritius company, which as we have held above the assessee duly established. 18. Moreover, we find, that from this 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....