TaxTMI 
TaxTMI 
2019 (12) TMI 959
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Rs. 155 Crores towards share capital and share premium u/s.68 of the Act in the facts and circumstances of the case. 2.2. The assessee has raised the following grounds in this regard:- 1. " Upholding the addition of Rs. 155 Crores to the income of the assessee company made u/s.68 of the Income Tax Act. 2. Upholding an unwarranted & legally untenable addition of Rs. 155 Crores u/s.68 of the Income Tax Act, without considering the fact that genuineness of the transaction, creditworthiness & identity of the creditors were established in adequate & appropriate manner. The assessee had discharged the onus cast on it to establish the bonafides of the transaction. 3. Holding that the assessee company has not discharged the burden cast upon it u/s.68 of the Income Tax Act without appreciating that the amended provisions of Section 68 in respect of examining the source of the source for subscription of share capital and share premium are not applicable to non-residents and in the case of assessees company the share capital and the premium aggregating to Rs. 155 Crores was received by the assessee from Rabana Holdings Ltd., Mauritius, a non-resident enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 6554039.07 16/10/2013 3234142.65 Total 25171596.31 3.2. The assessee submitted the Foreign Inward Remittance Certificate(FIRC). The tax residency certificate issued by Mauritian authorities; FCGPR return filed with RBI in the context of allotment of shares under FDI route, copy of Board resolution indicating the shares offered, share price premium, Board resolution for allotment of shares to M/s. Rabna Holdings Ltd. along with copy of return filed with Registrar of companies in that regard. The assessee also stated that the entire transactions of receipt of share capital and share premium under FDI route had been duly approved by the Reserve Bank of India. The ld. AO however, sought to examine the veracity of the documents filed by the assessee by making reference to foreign tax division of Central Board of Direct Tax (FT & TR division) u/s.90 of the Act read with Article 26 of Double Tax Avoidance Agreement with Mauritius pertaining to exchange of information or documents and received replies thereon. From the report received from FT & TR division after making enquiries with Mauritian tax authorities, information pertaining to the Directors of M/s.Rabna H....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This goes to prove that M/s.Rabna Holdings Ltd. and M/s. Amas Ltd., are part of the same group. 3.3. The ld. AO later observed in his order that M/s. Amas Ltd., is incorporated in Bahamas and that on perusal of offshore leaks data base of International Consortium of Investigative Journalists (ICIJ) shows one entity by name M/s.Amas Ltd., in the "Bahamas Leaks". The ld. AO concluded that source of money that had emanated from Bahamas (which is tax haven) through M/s. Amas Ltd., cannot be accepted as a genuine transaction. The ld. AO concluded that receipt of funds in the form of share capital and share premium has been structured by the assessee company from its group entities based in Mauritius and other tax havens such as Bahamas. He also observed that since M/s. Amas Ltd., features in the list of entities discovered as a result of investigation carried out by ICIJ in Bahamas leaks and therefore the ultimate source of the funds used for making investments into the assessee company remain suspect. He concluded that no attempt had been made whatsoever by the assessee company to provide necessary documentary evidences to establish the creditworthiness of the subscriber of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Ld. AO of the presumption u/s.68 of the Income Tax Act cannot be applicable to the assessee's case. Firstly the origin of the source is not located in India. Secondly, Rabna Holdings Ltd. is a Tax Resident of Mauritius holding a valid Tax Residency- Certificate of Mauritius. Thirdly, it is not a "related party" of the assessee company. Fourthly, the source of investment by Rabna Holdings 14x1. i.e. source of source is also proved by the document available on record and that only Amas Ltd. is from Bahamas by itself cannot be held against the assessee, especially, when there has never been any remittance from India from at any given point of time. This is contrary to basic tenants of justice that unless otherwise proved person is non-guilty. Here the assessee company has given all the direct evidence and coupled with circumstantial evidence even the "non-guilty" status is also fully established. c) It may not be out of context to mention that once an assessee has a Tax Residency Certificate, it is an evidence not just a residence of a tax payer but also g beneficial owner of income. In this context, reliance is placed on of the Bombay High Court decision rendered in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case." e) Mumbai Tribunal in ITA No.: 3212/Mum/2014 (Sunshine Metals & Alloys) pet their order dtd.12.10.2018 has deleted an addition made u/s.68 of the Income Tax Act in respect of bogus share capital & share premium by holding that if (a) the assessee has furnished the name, address and PAN and share application forms to prove that the shares were allotted to the applicant and (b) the bank statements show that money was received through banking channels, there were no immediate withdrawals to suggest that the share application amounts have been returned back to these parties in cash, it means that the assessee has discharged the primary onus cast upon it to prove the identity, capacity and genuineness of the transaction, thereby deleting the addition made u/s,68 of the Income Tax Act. f) As stated by the AO at Para 4.3.2 & 4.3.3 of the assessment order, the FT&TR has explained that the investment made by Rabna Holdings L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 September 7998 authorising the company to raise share capital upto USD 3 Lakhs. (ii) Amendment to FIPB approval dt 09-06-2004 (iii) FIPB approval did 20-12-2005 received by the company authorizing to raise share capital upto Rs. 600 Crores (iv) Copy of certificates of incorporation of shareholders (v) Confirmation given by remitter towards remittance for share capital (vi) Copy of FIRC (vii) Copy of bank statements (viii) Copy of Form 2 filed with ROC 8. The Tribunal considered the contentions of the assessee that:- (ii) The assessing officer has failed to consider the Honble Supreme Court judgment in the case of Lovely Exports and various other Judgments which describe the primary burden cast on the assessee while proving the share application money. Ignoring various documents procured from FIPB confirmations, ROC records, vehement insistence has been made only on the bank statements of the shareholders. According to Id. Counsel when the burden of the assessee can be amply proved from the documents filed by it, cash credit/share application money cannot be held to be non-genuine without adjudicating....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Delhi High Court approved the principles as laid down by (CBDT Circular Ko.S dtd.20.02.I969 that if money has come from non-residents through banking channel, source of source cannot be questioned) and the ITAT decision of Finlay and Saraswati but also relied on the Delhi High Court decision in Divine Leasing & Finance Ltd. - 299 ZTR 268, where the High Court had held as follows; "13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. the case of priva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....confirming Delhi High Court decision. j) The Mumbai ITAT in its decision dtd. 10th l Nov. 2O17 passed in the case of Manjari Stud Farm Pvt Ltd. ITA no. 3842/Mum/2017 and ITA No. 4329/Mum/2012. The relevant conclusion of the case is given below: Genuineness of the share capital contribution; Notes that subsequent communication from Mauritius Revenue Authorities which was received through FT & TR division contained information like return filed by the Mauritian company, name, address and citizenship of directors, copy of share certificate issued by the assessee, bank statements and financial statements of the Mauritian company, thus, holds that the communication by Mauritian authorities clearly proved that the assessee had received funds from such entity; TTAT further rejects Revenue's claim for the need of further enquiry with regard to the genuineness of transactions and creditworthiness of the parties, opines that **once communication received from the designated authority through FT & TR which is the authorised agency for exchanging information between two countries u/s 90 and such information has been received through proper channel, then there is no scope ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame and designation of the person signing those letters were not mentioned. Those letters were notarized in India. The ld. CIT(A) observed that how the letters signed on behalf of the entities registered in Mauritius and Bahamas were notarized in India. Since those letters contained certain deficiencies as listed above, the ld. CIT(A) observed that they do not have any evidentiary value. Accordingly, the ld. CIT(A) concluded that assessee had failed to provide details regarding source of funds and financials of M/s. Amas Ltd despite the fact that it is claimed to be related party of the shareholder of the assessee company. The ld. CIT(A) observed with regard to reliance placed by the assessee on Circular No.5/1969 dated 20/02/1969 that on examination of the contents of the Circular it is evident that the same was issued in altogether different context which is entirely different from the facts of the case of the assessee. The ld. CIT(A) further observed as under:- "Moreover, provisions of section 68 of the IT Act empower the AO to examine the identity of the party, the genuineness of the transaction and the creditworthiness of the party in whose name any sum is found credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ETALS LTD. vs. UNION OF INDIA AND ORS (2013) 359 ITR 0450 (Bom) and the decision of honourable Delhi High Court in the cases of COMMISSIONER OF INCOME TAX vs. NOVA PROMOTERS & FINLEASE (P) LTD (2012) 342 ITR 0169 and CIT Vs N.R, Portfolio (P.) Ltd. [2014] 42 taxmann.com 339 (Delhi). In view of these facts, the addition of Rs. 155,00,00,000/- made by the AO u/s 68 of the IT Act is upheld and these grounds of appeal are dismissed. 4. Aggrieved, the assessee is in appeal before us. 5. We have heard rival submissions and perused the materials available on record. The primary facts stated hereinabove together with various documentary evidences placed on record before the lower authorities remain undisputed and hence, the same are not reiterated for the sake of brevity. We find from the perusal of the aforesaid narrated facts supported with documentary evidences that M/s.Rabna Holdings Ltd., a Mauritius based entity, a group company of Hinduja group had invested in share capital of the assessee company. M/s.Rabna Holdings Ltd. had received loan from M/s. Amas Ltd., a company incorporated in Bahamas. This loan was utilised by M/s.Rabna Holdings Ltd. to make investment in sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....This proves the genuineness of the transactions carried out by the assessee. It is not in dispute that M/s.Rabna Holdings Ltd. had borrowed loan from M/s. Amas Ltd., a company incorporated in Bahamas, which fund has been used for making investments in shares in assessee company. This fact is duly confirmed by Mauritius tax authorities and FT & TR division of CBDT on which fact there is no dispute. This proves the creditworthiness of the share subscriber i.e., M/s.Rabna Holdings Ltd. Hence, it could be safely concluded that assessee had duly established the three necessary ingredients of Section 68 of the Act i.e., identity of the share subscriber, genuineness of the transaction and creditworthiness of the share subscriber. 5.1. We are unable to persuade ourselves to accept to the argument of the ld. DR that assessee had not furnished the copy of income tax return of M/s.Rabna Holdings Ltd. for the relevant year and the intimation, if any, issued by Mauritian tax authorities to M/s.Rabna Holdings Ltd. for the relevant year and hence, the source of funds and creditworthiness of M/s.Rabna Holdings Ltd. cannot be accepted. In this regard, we hold that merely because the invest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee is with regard to the addition made under the head 'income from house property' in respect of unit No.701 in the building Marvella. 6.1. The brief facts of this issue are that the assessee was asked to submit details and workings of house property income offered to tax with cogent supporting documents during the course of assessment proceedings. The assessee replied that in respect of vacant premises in the building Marvela aggregating to the carpet area of 13272 sq.ft in respect of unit No.701, Annual Letting Value (ALV) was considered at Rs.Nil as the said premises remain vacant throughout the year. The assessee also submitted that the building in which the above vacant premises are situated was occupied majorly by Hinduja Healthcare Ltd which runs the hospital in the said premises. Hence, no other tenant was willing to occupy the vacant premises i.e. Unit No.701. Accordingly, the assessee was forced to offer the vacant premises to Hinduja Healthcare Ltd., and after making some structural corrections to suit the requirements of Hinduja Healthcare Ltd. The structural corrections carried out by the assessee took considerable time and hence till such time,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....701 was let out on 01.01.2015 after making it fit for nurses of the hospital. Hence for reasons stated above, Unit No.701 remained vacant in the F.Y. 2013 - 14. The ld. CIT(A) directed the ld. AO to work out the rental income only in respect of 1365 sq. ft as against 13,272 sq. ft . In this entire CIT(A)‟s order, there was no mention about the claim made by the assessee regarding section 23(1)(c) of the Act. 7. Aggrieved the assessee is in appeal before us. 8. We have heard rival submissions. It is pertinent to understand the provisions of Section 23 of the Act which reads as under:- Act 23: 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd derive rental income thereon. But due to circumstances beyond its control, it could not do so till 31/12/2014 in respect of unit no. 701 alone and ultimately the said unit after making certain structural corrections had been let out to Hinduja Healthcare Ltd., from 01/01/2015 onwards and rental income derived thereon. Hence, for A.Y.2014-15, this property was not let out as it was remaining vacant and hence, the annual letting value in terms of Section 23(1)(c) of the Act should have to be determined at Rs. Nil. In view of the aforesaid observations and respectfully following the judicial precedents hereinabove, we direct the ld. AO to determine the Annual Letting Value (ALV) of Unit No.701 at Rs. Nil and delete the addition made thereon. Accordingly, the ground No.5 raised by the assessee is allowed. 9. The ground No.6 with regard to disallowance made u/s.14A of the Act under normal provisions of the Act. The ground No.7 is with regard to disallowance u/s.14A of the Act vis-à-vis computation of book profit u/s.115JB of the Act. 9.1. The brief facts of this issue are that the assessee derived tax free income of Rs. 22,93,75,890/- by virtue of share in partners....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard rival submissions. We find that assessee has also raised additional ground on the issue of disallowance u/s.14A of the Act. "Grounds of Appeal - 14A 1. On the facts and circumstances of the case and in law the learned Assessing Officer (AO) ought to have had that the under 14A of the Act (if any) should be computed: i)By excluding those investments on which no tax free income has accrued / been received during the year in accordance with inter alia the decision of the Special Bench of the ITAT is Vireet Investment Pvt. Ltd. - 165 ITD 27 (Delhi) and Bombay High Court in Ballarpur Industries Ltd., Income Tax appeal No.51 of 2016. ii) By applying the principle that when the assessee has sufficient interest free funds available, this is a presumption that the same has been utilized in making investments, and any disallowance of interest ought to be computed taking the same into account - HDFC Bank Ltd. (Bom) - 383 ITR 529 and Sintex Industries Ltd. - 93 taxman.com (SC). 2. The learned AO & CIT(A) ought to have held that notwithstanding the facts that the assessee had computed a disallowance u/s.!4A of Act, the same ought to have been bas....