TaxTMI 
TaxTMI 
2018 (1) TMI 1509
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....icer has failed to examine the share application money received from the foreign entity, i.e., Bycell Holding AG, Switzerland, as the Assessing Officer has only verified the identity of the said entity but has failed to verify the creditworthiness of such investor and also the genuineness of the transaction. The amount of share application money received from Bycell Holding AG, Switzerland which is one of the main subject matter of present revision proceedings u/s.263 are as under:- S. No A.Y. Amount of share application money (from By Cell AG, Switzerland) 1. 2006-07 Rs. 17,68,00,000 2. 2007-08 (Rs. 4,87,97,080) [Repayment of share application money during the year, inadvertently considered as inflow by Ld. PCIT] 3. 2008-09 Rs. 70,90,15,846 4. 2009-10 Rs. 7,09,84,431 5. 2010-11 Rs. 96,36,035 3. To challenge the impugned order, the assessee has raised the following grounds which are common and are identical in all the years. A. The Ld. PCIT has erred in law and in fact in holding that the sufficient inquiries were not made to ascertain the genuineness and credit worthiness of the transactions undertaken by the Assessee in the Assessment Year 20....
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....Foreign Investment Promotion Board, (FIPB) Ministry of Finance, Government of India, the Bycell Holding AG, Switzerland applied for approval of investment to the extent of 74% in equity share of the Indian Company to undertake the business of Telecom Services in India. The said approval was accorded by FIPB vide letter dated 17.01.2006. Later on, the assessee filed another application dated 26.09.2007 by FIPB for enhancement of amount of investment in India so as to expand the area for providing telecom services in India. Necessary approval was granted by FIPB including approval dated 08.02.2008 for additional investment by the Swiss entity. Based on such approvals, M/s Bycell Holding AG, Switzerland remitted funds from overseas towards share application money/ share capital in the Indian Company from time to time which was utilized for applying of telecom licenses to the Department of Telecommunication, (DoT) Government of India. An aggregate amount of Rs. 23 crore was given to the DoT towards entry fee for obtaining UAS License for North-East, West Bengal, Orissa, Assam and Bihar service area. Later on, on account of certain security clearance issue based by Ministry of Home Affa....
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....ed from FT&TR Division, the Assessing Officer initiated the reopening of the assessments u/s. 147 vide issuance of notices u/s.148 for all the impugned Assessment Years, to verify the identity, creditworthiness of the foreign investor and the genuineness of the transaction in terms of Section 68. The relevant 'reasons recorded' by the Assessing Officer read as under:- "Return of income in this case for A.Y. 2006-07 was filed on declaring total income at Rs. 4,49,567/-. The return was processed - u/s 143(1) of the Income-tax Act at the returned income. The assessee has shown share capital of Rs. 17,30,76,920/-. Further, the assessee has shown unsecured loans amounting to Rs. 4,97,43,080/- Following information was forwarded by the OSD, Foreign Promotion Investment Board, FT&TR, CBDT to the office of the undersigned: "M/s ByCell Telecommunication India Pvt Ltd is and India company with registered and corporate office at 249, Ground floor, Okhla Industrial Estate Phase-III, New Delhi-20. The shareholders of the company are (i) M/s ByCell Holding AG, Switzerland holding 64.66% and (ii) M/s Bitcorp Pvt. Ltd. M/s ByCell Holding AG, Switzerland in turn is 97% held by M/s Tenoch Hold....
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....nies, Geneva which keeps a track record of companies with operational offices in Switzerland is reportedly not aware of the existence of this company. ii. 97% stake in ByCell Holding AG Switzerland is owned by Tenoch Holding Cyprus which is jointly owned and controlled by Andrey Polouektov and Maxim Naumchenko. Maxim Naumchenko is major shareholder in M/s ByCell Holding AG and also simultaneously holds post in a number of companies Involved in different business, including the St. Petersburg Telecom Sector, set up a company by the name of Megafon which was set up with flowing currency invested by rich individuals in St. Petersburg and this company was allegedly involved in a money laundering scandal. iii. It has come to the notice that Tenoch Holding 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 Island (50%). Both Panam and British Virgin Islands arc well known tax havens and 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 Telecom....
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.... approval. Put up for kind perusal." (Shiv Swaroop Singh) DCIT, Circle-3(1), New Delhi. 7. Thus, the assessments were reopened to verify the source of fund received by the assessee company from Bycell Holding AG, Switzerland. During the course of re-assessment proceedings, the learned Assessing Officer had raised questionnaires to verify the transaction of foreign investment in the share application/ share holdings in the assessee company. In response to which, the assessee had also filed its respective replies/explanations and documents. All the relevant questionnaires and reply submitted by the assessee have been submitted by the Department as directed by the Bench at the time of hearing in the form of separate compilation. 8. On behalf of the assessee, Learned Senior Counsel, Shri Ajay Vohra, at the outset pointed out that following details and materials 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 applicat....
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.... through proper banking channels and after following all KYC and RBI norms and as tire source and identity of the promoter company was proved, it was not necessary to prove the source of source and the same would not have arty relevance on the nature of receipt once tire source is proved. It was submitted that the withdrawal of F1PB approval would not change the nature of receipt and could not be the sole reason to tax the receipt as unexplained 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....
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.... used for functioning of the company in India. The Federal Tax Administration Switzerland (FTA for service of exchange of information on tax matters) has however observed that the information on fiscal years prior to Fiscal year 2011/12 are not covered under the temporal scope of article 26 of the updated DTAA between Switzerland and India as held 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 ByCell Holding AG 4,87,97,080 - 4,87,97,080 - 2008-09 01.04.2007 to 31.03.2008 ByCell Holding AG - 70,90,15,846 - - 70,90....
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....SSUES RAISED BY LD. PCIT U/S 263 11. After the conclusion of the assessment in the aforesaid manner, learned PCIT under his revisionary jurisdiction u/s. 263 issued a show cause notice dated 23.02.2017 stating that order passed u/s.147/143(3) is erroneous in so far as it is prejudicial to the interest of the Revenue. His sole allegation is that the Assessing Officer has only verified the identity of the share applicant by placing reliance on documents like certificate of incorporation of Bycell Holding AG, Switzerland and copies of FIRC filed by the Assessing Officer, however he has failed to verify the second and third limb of these transactions, i.e., genuineness of the transactions and creditworthiness of the Swiss entity The relevant observations with regard to the show cause notice for each Assessment Year has been incorporated by him from pages 2 to 4 of the appellate order. After perusing the entire records, he has made certain observations in the impugned year which are basically the narration of facts and background of the case which by and large has been discussed by us in the earlier part of our order, however for the sake of ready reference some of his observations on ....
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....ointly held by (a) Qualis Incorporated, Panarna(50%) and (b) Kynance business Limited, British virgin Islands(50%).Both, Panama and are well known tax havens and there is no information about who are the owners of these two companies, which actually control M/s Bycell Holding A.G. (v) In these circumstances, F.I .P.B withdrew the approval granted earlier to the assessee, and forwarded the said inputs to this office vide its letter dated 15.05.2009 for necessary action in accordance with provisions of law. Therefore, after due examination and analysis of inputs received from FIPB, notice u/s 148 of the Income tax Act, 1961 was issued in this case for assessment years 2006-07 to 2010-11. (vi) Thereafter, vide a letter dated 06.02.2014, a request was made u/s 90 of the Income tax Act, 1961 to tax authorities in Switzerland to examine the genuineness of source of income claimed to have been received by the assessee from M/s Bycell Holding A.G. Switzerland and the actual; beneficiaries to whom share application money claimed to have been returned. (viii) Subsequently, the requisite' information was received from Switzerland tax authorities and after conducting hearing from ....
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.... funds were invested in assessee company. The AO has not taken cognizance of inputs from MHA, which constituted the vital reason for reopening of the case. In view of the facts and findings discussed above, the identity, creditworthiness and genuineness of source of share application money introduced into the books of accounts of the assessee company during the period AY-2006-07 to AY-2010-11 have not been properly inquired into and examined." 13. After considering the assessee's reply and invoking the provision of Explanation-2 to Section 263 inserted by the Finance Act, 2015, he held that the assessment orders passed u/s. 147/143(3) for the Assessment Years 2006-07 to 2010-11 are erroneous ins so far as prejudicial to the interest of Revenue as he has not done proper inquiry and accordingly, directed the Assessing Officer to pass fresh assessment orders after making proper inquiries and verification with regard to the money received during the year in the form of share application money/share capital. DOCUMENTS REQUIRED BY THE BENCH DURING THE HEARING 14. During the course of hearing, we required both the parties to furnish various documents, vide separate order sheet ent....
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....al assessment order) accepting the income returned by the appellant. May 2009 FIPB approval withdrawn on the basis that Ministry of Home Affairs ("MHA") had withdrawn the security clearance. 15.05.2009 After withdrawal of FIPB approval on the basis of inputs from the MHA regarding investments received from ByCell Holding AG, Switzerland, the Foreign Tax and Tax Research (FT&TR) Division of CBDT referred the matter to the CCIT/ income tax Department requesting related examination of source of funds of investment made by (a) ByCell Holding AG, Switzerland; and (b) Bitcorp Pvt Ltd. (India promoter), in the appellant company. 14.03.2013 Purely on the basis of information from the FT & TR Division, CBDT, the assessing officer reopened the case of the appellant under section 147/148 of the Act for the specific purpose of examination of source of funds received by the appellant from the foreign investor. Examination of details/ replies filed during reassessment proceedings 22.11.2013 Appellant filed the audited financial statement for the relevant year. Complete details of share capital/ application money is reflected on the face of the balance sheet and Schedule 1 theret....
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.... the identity and creditworthiness of the investor and the genuineness of the transaction were left. In light of this specific report, the assessing officer had accepted the returned income. 08.03.2017 Show cause notice under section 263 of the Act issued by PCIT on the ground that only identity of the foreign investor, ByCell Holding AG, Switzerland, was examined by the assessing officer but genuineness of transaction & creditworthiness of ByCell Holding AG, Switzerland was not verified. 21.03.2017 The appellant duly responded to the aforesaid notice issued under section 263 of 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....
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....us entity, its holding company. When source is explained from the balance sheet of the foreign entity, then creditworthiness automatically stands established. Once these evidences and documents have been appreciated by the Assessing Officer, then it cannot be held that the Assessing Officer has failed to carry out any inquiry or has not applied his mind properly on the facts and material on record while framing the assessment. 17. He further submitted 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 ....
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....with alleged non-existent investors, the appellant would not have risked the same by applying to Government for necessary approvals, issue of licenses and then raising disputes with Government at different stages. In that view of the matter, it is the respectful submission of the appellant that the entire contours of section 68 of the Act with respect 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 i....
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.... position qua section 68 of the Act, it could not be said that the assessment order(s) passed by the AO accepting as genuine the amounts received from ByCell Holding AG, Switzerland, was erroneous much less prejudicial to the interest of the Revenue, in the absence of any contrary material 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....
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....t the AO to make further enquiries qua verification into source of funds received by the appellant company (i) from its holding company 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 jurisdictio....
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....a Pvt. Ltd. as well, which is beyond jurisdiction 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 assessing officer (refer pages 44-46 of the paper book), initiated ....
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.... (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 only examined the identity and factum of remittance of the money by relying on FIPB approval and FIRC Certificates. The Assessing Officer has miserably failed to carry out any inquiry to examine the creditworthiness and th....
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.... 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 source of funds for the foreign investment in M/s ByCell Telecommunications India Pvt. Ltd. by M/s ByCell Holding AG, Switzerland. This may lead to examination of source of funds of M/s Tenoch Holdings, Cyprus, M/s Quallis Inc. Panama, M/s Kynance Business Ltd., British Virgin Islands, Mr. Mamim Naumchenko and Mr....
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....ul 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 mention here that amount received through banking channel could not make it genuine because bank does not examine the source of funds for which FIRC is issued. 10. In this case, the issue which was required to be examined as per the inputs received were the source of funding from Tenoch holding Cyprus M/s Quallis Inc. Panama, M/s Kynance Business Ltd., British Virgin Islands, Mr. Mamim Naumchenko and Mr. Andr....
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....ture 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, the transactions have to be treated as bogus unexplained credits. 4. Dhingra Global Credence (P.) Ltd. Vs ITO, ITAT Delhi, 2009,1 ITR(T) 529. Where basic identity of respective share applicants itself was not proved, addition of share application money allegedly received from them was justified. 5. CIT Vs Empire Builtech (P.) Ltd., Delhi High Court, 2014, 366 ITR 110 Under section 68 it is not sufficient for assessee to merely disclose address and identities of shareholders; it has to show gen....
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....e 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 order as well as the material placed on record. The core issue before us is, whether the Ld. PCIT was justified in law and on facts in exercising his revisionary jurisdiction u/s 263 for cancelling and setting aside the reassessment order which was reopened u/s 147 for examining the share application money received from a holding foreign entity, ByCell Holdings AG, Switzerland; on the ground that Assessing Officer has not conducted proper inquiry in so far as to establish the creditworthiness of the investor. For coming to his conclusion he has by and large incorporated the facts as have been incorporated in the "reasons recorded" whi....
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....rance raised by the Ministry of Home Affairs, FIPB withdrew the approval granted to the assessee for carrying out telecom operations in India with foreign equity participations. Against such withdrawal of approval the assessee company had approached the Hon'ble Delhi High Court under writ jurisdiction, which was dismissed by the Hon'ble High Court on the ground that the Court will not interfere in the policy decision of the Government of India. At present the matter is subjudice in arbitration proceedings before the Permanent Court of Arbitration at Hague. In all the years before us, the original assessments were completed u/s. 143(3) barring for the Assessment Year 2010-11, wherein the return was accepted u/s. 143(1). In all such assessments, the amount of share application money stood accepted. Later on, in the wake of withdrawal of approval by FIPB, FT&TR division of CBDT referred the matter to the concerned CCIT for conducting necessary examination and verification of source of funds of investment made by M/s. Bycell Holdings AG in the Indian Company. Based on this information, all the assessments were reopened u/s.147 as per the 'reasons recorded' (reproduced in the fo....
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.... returned from the promoter company was duly provided. This fact has been noted by the Assessing Officer in his 'office note' as reproduced in the earlier part of the order. Such an information was made available by Swiss Authorities from the Financial Statements of ByCell Holdings AG. Based on this information AO had accepted the source of funds, creditworthiness of the investor and genuineness of the transaction. 26. We had also directed the learned CIT-DR to produce the relevant copy of said information received from Switzerland Authorities with regard to M/s. Bycell Holdings AG. In response, the Department has produced the said report, which for the sake of ready reference is reproduced herein below:- "6 NOV 2014 Administrative assistance in accordance with the Agreement dated 2 November 1994 between the Swiss Confederation and the Republic of India for the avoidance of double taxation with respect to taxes on income (DTA CH-IN, SR 0.672.942.31) concerning M/s By Cell Telecommunications India Pvt. Ltd. Dear Mr. Ranjan, We refer to the aforementioned requests for information. Based on Article 26 DTA CH-IN we can provide you with the following information for the....
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....e mentioned amount, ByCell Holding AG claims that the Indian authorities refused to provide ByCell Telecommunications India Private Limited with a mobile phone license. In this context, certain portions of the invested assets were returned (mainly by bank deposit guaranties). The Indian authorities hold funds which were transferred by ByCell Telecommunications India Private for fees related to licenses, but that these had not been issued up to today. The original owner of these funds is ByCell Holding AG. According to the decision of the shareholders, and in the absence of any debts or other investment purposes, the funds returned by ByCell 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....
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.... it is registered in the commercial registry as well as with the Tax Office at Zug Switzerland. Hence Tax Resident of Switzerland. * Sources from where it has made investment in the Indian Company is from the assets received from its investors by way subordinated and conditioned loan from its sole shareholder, Tenoch Holdings Ltd. Nicosia, Cyprus. Thus, the source from where the funds have been invested has been provided. * Year wise details of money gone to Indian Company from Swiss Company and later on returned back have been duly elaborated. * Part of the funds returned by the Indian Company has been reimbursed to the shareholders and Indian Authorities have still hold part of the funds which were transferred by ByCell Indian Company for fees and license to DoT. The aforesaid facts clearly establish the nature and source of funds received by ByCell Telecommunications India (Pvt.) Ltd., i.e., assessee from its holding company. Ld. AO, when in wake of such credible material has accepted the share application/share capital made by Swiss Entity in the Indian Company, coupled with other material placed by assessee before him, then we do find any infirmity in his order eith....
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....om the Assessing Officer or what kind of further inquiry was required to be done or otherwise the entire source of the share capital made in the Indian company would be disbelieved. 29. Here in this case the entire exercise of doubting the genuineness of the transaction is from the fact that the Ministry of Home Affairs have raised the issue of security concern, on the basis of which FIPB approval was withdrawn. However, this fact alone does not ipso facto can lead to an inference that entire share application money received from the foreign entity has become non genuine. When the money was invested there was a due approval by Govt. Of India (FIPB) which was given for obtaining telecom license with DoT and the flow of transaction was duly certified by FIRC Certificate which was placed on record not only before the Assessing Officer but also before the learned PCIT. These FIRCs duly provide the source of entity who has given the money and also the person who had received the money in India and the purpose for which the said money was given. Further, much has been harped upon by the Ld. PCIT and ld. CIT-DR who tried to impress upon us that, M/s. Tenoch Holdings Ltd. Cyprus was just....
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....quirement of law to be adhered by the Assessing Officer. Nothing has been brought on record by the Ld. PCIT or the Ld. CIT DR that assessee's own money has been routed through multi layered entities or money has flown from the coffers of the assessee. Here in this case it has already been found that when license was cancelled by FIPB, the money has been refunded back to the shareholders. This further proves that it was not the assessee's money brought under the garb of share application money. Swiss entity is major shareholder of the Indian Company which was established solely with a view to carry out telecom business in India post granting of license by DoT and it is an admitted fact that it could not carry out the operation after cancellation of license, which dispute between Assessee Company and Govt. Of India is before International Court of Arbitration. All the doubt by Ld. PCIT is based on suspicion and surmise sans any material. As regard the allegation that creditworthiness of M/s. Bycell Holdings AG was not looked into or examined by the Assessing Officer, it is seen from the from records that the Assessing Officer did not just merely accepted the assessee's explanation or....
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....es for the source of providing loan to its Swiss holding Company by the Tenoch Holding Ltd.? Then in that case, he should have himself invoked his powers under the treaty provision with Cyprus to obtain further information through CBDT. He has not made any kind of inquiry to dislodge AO's inquiry or finding, which in terms of Section 263, is required if he deems necessary, albeit has simply discarded the AO's effort without any cogent material brought on record by him. In various judgments as highlighted by the learned senior counsel, it has been categorically held that, under section 263, Ld. CIT if required, himself has to undertake a minimal inquiry and give reasons for coming to the conclusion that assessment order was erroneous and prejudicial to the interest of the revenue. There has to be some finding on merits after carrying out necessary inquiry. This proposition has been explained in the judgment of ITO vs. DG Housing Projects Ltd. reported in 343 ITR 329 (Del); DIT Vs. Jyoti Foundation reported in 357 ITR 388 (Del.); CIT vs. Delhi Airport Metro Express (P) Ltd., in ITA No.705/2017; CIT vs. Modicare Ltd in ITA No.759/2016. Thus, the impugned order of Ld. PCIT cancelling a....
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....s, the contention raised by the learned CIT-DR about the background of the persons who were holding Tenoch Holding Ltd. through their companies will not make much difference 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 Learned 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 Assessing Officer 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. 33. Lastly, at the time of hearing, Ld. Counsel for the assessee has strongly relied upon the judgment of ITAT Delhi Bench in the case of Russian Technology Centre vs. DCIT, reported in 155 TTJ 316, to contend that on similar set and circumstances, the identity of the non-resident remitter and source of funds stood established through FIPB approval and FIRCs issued by the authorised dealer,....
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....f the settled dicta in Divine Leasing (supra). It is only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the bank(s) to ascertain the truth of the assessee's claims. Having not done so, he was not justified in disregarding the assessee's contentions that the infusion of monies into its accounts was legitimate. Consequently, the AO was not justified in making additions of the various sums under Section 68 of the Act." This judgment merely corroborates our finding on merits that the 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. 34. Now in so far as the observation and the 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 ....