TaxTMI 
TaxTMI 
2018 (1) TMI 1509
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....terest of revenue, because the Assessing Officer 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 worth....
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....held by Mr. Andrey Polvektow. Considering the fact that foreign investment in telecomm sector was regulated by 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 ....
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....on of source of funds of the investment made by Bycell Holding AG, Switzerland in the assesseecompany. Based on the aforesaid information received 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....
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....i. While ByCell Holding AG is based in Zug, Switzerland, it does not have significant presence there, and the Swiss address provided by the company is only a postal address without any physical office and staff. The Registrar of Companies, 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 Pana....
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....to the tax escaped assessment is more than one lakh rupees as per section 149 of the I.T. Act, the prior approval of the worthy CIT, Delhi-1, New Delhi is required for the issue of the notice u/s 148 as per section 151(2) of the I.T. Act 1961. Hence the same is put up for your kind 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 ....
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.....2014 in order to verify the identity and credit worthiness of the holding company ByCell Holding AG and its promoters. 3. In response to the queries the assessee filed replies from time to time which include the Certificate of Incorporation of ByCell AG. Switzerland, the details of the share application money received during the year, copies of the FIRC etc. It was submitted that the amount had come 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....
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....cation India Pvt Ltd. The details of the receipts for share application money, shares allotted and money returned from the promoter company have been provided. It is also been mentioned in the report that in view of refusal of India authorities to grant the telecom license the funds were returned in part by Bycell Telecommunications India Private Limited to Bycell AG, Switzerland and in turn to the investors with exception of the amount 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 Shar....
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....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/- Amount Refunded -67,87,97,080/- Balance - 28,66,39,232/- Shares Allotted for Rs. -19,98,75,660) In view of the above, no adverse view is taken in this case. Sd/- Dy. Commissioner of Income Tax, Circle-5(1), New Delhi. ISSUES 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 ....
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....s address provided is merely a postal address, without any physical presence or staff. The registrar of companies, Geneva which keeps a track record of companies with operational address in Switzerland is reportedly not aware of existence of the said company. ii. 97% stake in Bycell Holding A.G is owned by M/s Tenoch Holding, Cyprus which is jointly owned and controlled by Audrey Polouektev and Maxim Naumchenko. Maxim Naumchenko is also a major shareholder in M/s Bycell Holding A.G and also a number of other businesses including St Petersburg telecom sector. iii. It has also come to the notice that M/s Tenoch Holding, Cyprus is jointly 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 exam....
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....g AG in Switzerland, and whether the credentials of that company are genuine and reliable. 2. No enquiries were made with the relevant banks to obtain the bank statements of M/s Bycell Holding AG, Switzerland which could have lead to trail of source of funds in the bank accounts of M/s Bycell Holding, AG. 3. Despite specific information on record, particularly the inputs received from Ministry of Home Affairs as discussed in preceding paragraphs, the AO has not made any enquiries regarding genuineness and creditworthiness of the company M/s Tenoch Holding, Cyprus which holds more than 97% shareholding M/s M/s Bycell Holding, AG., and which was the actual source from which 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....
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....ssment proceedings. The said date chart specifically for the Assessment Year 2006-07 is reproduced herein below, which is almost identical with the other Assessment Years:- Date Particulars - The appellant filed return of income declaring income of Rs. 4,49,567. November 2005 to Feb 2008 ByCell Holding AG, Switzerland filed application for FIPB approval for 74% foreign investment in telecom sector in India (in the appellant Company). After due verification of all the details and after obtaining mandatory requisite security clearances, FIPB approval was issued in favour of the investor Company. 02.04.2008 Original assessment, after due verification of records, was completed under section 143(3) of the Income Tax Act, 1961 ("the Act") (Original 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 mat....
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....the appellant. The assessing officer had, in para 2.1, categorically stated that the enquiries made to verify the identity and creditworthiness of the share application money received from the foreign holding company. It would be pertinent to note that before conclusion of the assessment the assessing officer had sought a report from the FT & TR Division, CBDT (the very wing which had directed the Department/ assessing officer to examine the issue, as explained above) in respect of the share application money received by the appellant from ByCell Holding AG, Switzerland. The penultimate paragraph of the reassessment order clearly states that the report was received by the assessing officer from the FT & TR Division, CBDT. After considering the report and the details filed by the appellant, no doubts about 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....
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....pplication money to the Indian Company and this is an investment company which in turn has received the funds from its holding company, M/s Tenoch Holdings Cyprus. Even the FIRCs issued by RBI contains name of remitter as Frixan Services Ltd., Nicosia Cyprus. Bycell Holding AG, Switzerland has initially obtained loan from its holding company Tenoch Holding Cyprus. The report obtained through FT&TR clearly mentions that Bycell Holding AG, Switzerland has arranged fund as subordinated loan from its sole share holders, i.e., Tenoch Holdings Cyprus for the purpose of investment in the Indian Company. Thus, the documentary evidences which has been sought by the Assessing Officer through CBDT goes to prove the source of funds and in fact, even the source of the source stands proved, as ByCell Holdings AG has received the funds from Cyprus 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 pr....
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....acts of the present case, as explained above, since all the necessary documents and explanation to establish the identity, creditworthiness of the foreign investor and genuineness of the transaction were furnished by the appellant, the initial burden placed upon on the appellant was discharged. It would further be pertinent to point out that the appellant never shied away from disclosing the identity of the foreign investors to the Government, inter alia, by way of (i) filing FIPB applications seeking approval of foreign investment in the Indian company; (ii) applying for telecom licenses and payment of license fee therefor; (iii) filing various writ petition(s) before the Delhi High Court against withdrawal of FIPB approval; (iv) and invoking arbitration proceedings before PCA, etc. It is submitted that, if the appellant had entered into any suspicious transaction 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 contou....
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....sessment order(s) and also recorded office note to that effect before accepting the said transaction. Having regard to the aforesaid documents placed on record by the appellant, specific report of the FT & TR Division and the fact that amendment to section 68 of the Act by insertion of the proviso thereto was also not applicable since reassessments completed under section 147 pertain to assessment years 2006-07 to 2010-11 and the share capital/ application moneys in question were received from a nonresident investor, the assessing officer rightly accepted the amounts remitted by ByCell Holding AG, Switzerland as genuine and did not make addition to the income of the appellant under section 68 of the Act. In light of the aforesaid documents forming part of the assessment records, on the basis of examination of which the CIT issued notice under section 263 and having regard to the settled legal 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 cont....
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....hout even pointing out how the assessing officer was to proceed to conduct enquiries in a foreign jurisdiction, other than invoking the Exchange of Information article in the DTAA, which had already been done. Matter debatable- jurisdiction under section 263 cannot be assumed: The question whether addition under section 68 of the Act was not to be made or the assessing officer was to be directed to carry further enquiries, specially once it is accepted that (i) the assessee had discharged the initial burden cast upon the appellant (ii) the report received from the Foreign Tax office pursuant to ex-parted reference made by the assessing officer confirmed the stand of the assessed, and (iii) there was material to the contrary on record, may, at the highest, be regarded as debatable, on which there can conceivably be two opinions. In that view of the matter, the CIT could not have assumed jurisdiction under section 263 of the Act to set aside the reassessment(s) and direct 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.....
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.... Share application money/ capital from Bitcorp India Pvt. Ltd. (Indian partner) In the facts of the present case, show cause notice dated 8.3.2017 was issued by the CIT under section 263, requiring the appellant to show cause as to why the reassessment order(s) under section 147 of the Act be not regarded as erroneous and prejudicial to the interest of revenue for lack of conducting necessary enquiries qua source of funds received from ByCell Holdings AG, Switzerland (refer page 152 of paper book) which was duly responded by the appellant vide reply dated 21.03.2017 It is submitted that, neither in the aforesaid notice nor during the course of hearing, any query was raised with respect to share application money received from the Indian partner, viz., Bitcorp Pvt. Ltd. However, in the impugned order dated 30.03.2017, the CIT had, without affording any opportunity of being heard to the appellant, set aside the reassessment order, inter alia, for verification of source of funds received by the appellant from Bitcorp India 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 violatio....
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....s conducted by the assessing officer during the course of re-assessment proceedings. In that view of the matter, since inquiries on the aforesaid issue of share application money received from Bitcorp India Private Limited were beyond the scope of jurisdiction under section 147, no error can be attributed to the assessing officer in not making inquiries on the aforesaid issue or not making any addition thereof under section 68 in the reassessment order(s) passed under section 147 of the Act. Reliance in this regard is placed on the following decisions, wherein it has been held that what the assessing officer could not directly do, the CIT cannot indirectly do the same in exercise of power under section 263 of the Act: * CIT v. Software Consultants: 341ITR 240 (Del.) * Abad Fisheries v. DCIT: 80 ITD 153 (Coch.) affirmed by Ker. HC in 246 CTR 513. * Simbhaoli Industries Ltd. v. DCIT: 78 ITD 161 (Del.)(SB) * Paul John, Delicious Cashew Co.: 94 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 & Weav....
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....n 24.07.2009. 2. Approval was withdrawn on the basis of inputs furnished by Ministry of Home Affairs to FIPB from the security angle regarding the investment as under:- (i) While ByCell Holding AG is based in ZUG, Switzerland, it does not have significant presence there, and the Swiss address provided by the company is only a postal address without any physical office and staff. The Registrar of Company, 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 of Cyprus which is jointly owned and controlled by Andrey Polouektov and Maxim Naumchenko. Maxim Naumchenko is a major shareholder in M/s ByCell Holding AG and also simultaneously holds posts in a number of companies involved in different business, including the St. Petersburg Telecom 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....
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..... Once the appropriate agencies have found it unsafe to allow inroads on the country to a particular foreign entity, merely because such foreign entity undergoes a mutation would not change the position. Such mutation cannot wash away the taint which investment was found to be suffering." Since the investments which were made in the form of share capital not found genuine. FIPB approval, payment received through banking channel & FTRC could not make it explained. Assessee tried to prove genuineness and creditworthiness without furnishing any evidence in support of its contention. Even Hon'ble High Court of Delhi while dismissing appeal of assessee against FIPB approval given observation about tainted investment. 6. Assessee has shown investment in share capital from ByCell AG Switzerland, whereas it is observed that assessee has filed one FIRC certificate 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....
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....Delhi High Court, 2013, 30 taxmann.com 292. Where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. 2. CIT vs. Navodaya Castle Pvt. Ltd., Delhi High Court, 2014, [2014] 50 taxmann.com 110 (Delhi) Section 68 of the Income-tax Act, 1961 - Cash credits (Share application money) - Assessment year 2002-03 - Whether certificate of incorporation, PAN, etc., are relevant for purpose of identification, but have their limitation when there is evidence and material to show that subscriber was a paper company and not a genuine investor - Held, yes - Whether in case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares 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....
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.... writ petitions, and lastly, the assessee before the Ld. PCIT or before this Tribunal has not filed any document like, statement of bank account, copy of return, etc. in support of the creditworthiness of the subscriber companies from whom it has received the share capital and in support she has relied upon various judgments on powers of Ld. PCIT under section 263 and on Section 68. REJOINDER BY ASSESSEE 23. In Rejoinder, Mr. Vohra submitted that when the information received from the Swiss Tax Authorities to the Government of India, clearly gives the details of the transaction and also the source of the funds, then their remains no doubt about the source of the money received and the creditworthiness of the M/s. Bycell Holdings AG which stands 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 th....
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....2007-08 4,87,97,080 Assessments under sections: (i) 143(3); (ii) 147/143(3). The amount of Rs. 4,87,97,080 has been inadvertently mentioned as inflow of share application money, which in fact is repayment/ outflow by the assessee company to the for eignentity. 3. 2008-09 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 company (assessee), fun....
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..../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 and conditional loa....
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....ted 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 2007-2008 01/04/2006 31/03/2007 48,797,080 Nil Nil 48,797,080 Nil 2008-2009 01/04/2007 31/03/2008 Nil 709,015846 Nil Nil 7095,846 2009-2010 01/04/2008 31/03/2009 709,015,846 709015,846 71872540 Nil 708,127,537 2010-2011 01/04/2009 31/03/2010 708,127,537 9636,035 Nil Nil 717,763,572 2011-2012 01/04/2011 to 31/03/2012 717,763,572 Nil Nil 450,000,000 267,763,572 ....
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....p; Sd/- Miek Haller Nina Ulrich Deputy Head SEI &....
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....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 to be done by the Assessing Officer especially when the Swiss Authority have clearly confirmed, firstly, the source of fund of M/s. Bycell Holdings AG for investing in share applicati....
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....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 is found by the AO that money of the assessee has been circuitously routed through that person. If there is no material to doubt the creditor's source then it has to be accepted. Proving of source of the....
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.... 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, the share application money/share capital has been given out of its declared sources in its books of account. Thus, under amended provision also the addition could not have been made and AO has rightly accepted the ....
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.... 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 individuals. On this premise, she submitted that the Assessing Officer should have inquired about the entire link while examining the creditworthiness of the foreign entities. We are unable to appreciate such kind of remote link especially whe....
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....IPB 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 dated 10.12.2005 authorizing the assessee company to raise capital upto Rs. 600 crores, copy of certificates of incorporation of share holders, copy of bank statement, copy of Form 2 filed before ROC, copies of Certificates of (i) Incorporation of RTCF....
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....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 reassessment proceedings u/s.147, i.e., "reasons recorded" nor arising from the reassessment order, then without there being any adverse material on record and without issuing any show cause notice to the assessee on this point, learned PCIT cannot set aside this issue on the ground....