TaxTMI 
TaxTMI 
2025 (7) TMI 1093
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....u/s 132(1) of the Act was conducted on 'Ruchi soya Group' on 29.01.2012 and the assessee being the group company was also covered. However during the assessment proceedings the AO was not satisfied with the explanation of share premium and consequently made addition of Rs. 10,81,38,000/- u/s 68 of the Act and further addition u/s 14A of the Act were also made. 4. On appeal, Ld. CIT(A) deleted the addition u/s 68 of the Act but sustained addition u/s 14A of the Act. 5. Now after having heard the counsels for both the parties at length, perusing the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. We found from the records that while making the additions AO has observed as under: 7.1.1. Observation in the assessment order- In the assessment order, the AO has observed as under - "During the course of assessment proceedings, it was found on perusal of the balance sheet that the assessee had increased its authorized share capital from Rs. 5,51,00,000/- (55,10,000 shares of Rs. 10/- each) to Rs. 6,11,00,000/- (61,10,000/- shares of Rs. 10/- each). The assessee was asked to submit the details of the shares allotted ....
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....he Certificate of incorporation and memorandum of association of East West Global Ltd. which has been incorporated in British Virgin Islands, the same does not even include the names of the shareholders of the company. With regard to the other company i.e. Trade Overseas Ltd., the assessee has not filed even the above said documents and as such the assessee has not been able to prove the identity of the above said companies. The assessee has not filed any evidence to prove the identity of Ms Bhavana Goel. The assessee has not furnished any evidence which goes to prove the creditworthiness of the above said parties/companies. The assessee has not been able to file the balance sheet, profit & loss account and other documents of the companies investing in the share capital of the company to prove the creditworthiness. of the companies. The bank statements filed by the assessee are only for the specific period i.e. when the payments towards the share capital had been made. The source of the credit in the bank accounts of the persons investing in the share capital of the assessee is not proved. It is seen from the bank account of Trade Overseas Ltd., that there are certain credit entrie....
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....nd source thereof of any sum credited in the books of accounts then the same is chargeable to tax as income of the assessee. The proviso to section 68 of the I.T. Act, specifies as under: Sr. No. Name of the Party Address of the Party Amount of in equity 1 Trade Overseas Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 2,50,35,141/- 2 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 1,20,60,051/- 3 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 1,07,27,800/- 4 East West Global Ltd. Meadow-2, Villa 5, Street-8, Emirates Hills, Dubai (U.A.E.) 53,93,787/- 5 Mudit Goel/Or Bhavna Goel Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 2,74,02,752/- 6 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of Internationa....
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....mpany Refer Para 14 and 15 on page 8 Bhavna Goel No evidence filed to prove the identity of Ms. Bhavna Goel Refer to item no. 1 to 4 of Table 3 on pages 6 and Para 16 on page 8 and 9 Creditworthiness of the Investors Name of the Investor Learned AO' Allegations Appellant's Rebuttals Trade Overseas Limited * No documents submitted prove creditworthiness. * Balance sheet and profit and loss and other documents of companies investing in the share capital of the Appellant. * The source of the credit in the bank accounts of investors is not proved. Refer item no. 13 and para 14 of Table 2 on page 5 and 6, para 22 on pages 9 and 10, 33 on page 14 and 15 East West Global Limited * No documents submitted prove creditworthiness. * Balance sheet and profit and loss and other documents of companies investing in the share capital of the Appellant. * The source of the credit in the bank accounts of investors is not proved Refer item no. 13 and 14 of Table 1 on page 5, para 22 on pages 9 and 10, para 34 on pages 15 and 16 Bhavna Goel * No documents submitted to prove creditworthiness. * The source of the credit in the b....
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....R 51-62 8. Confirmation of investment by the investor 19-23 9. Share Certificate issued by Appellant 212-214 10. Board resolution for allotment of shares to the investors 208 11. Form 2 - Return of Allotment filed with ROC 193-196 12. Extract of Bank Statement of the Appellant 197-207 Establishing the creditworthiness of the shareholder 13. Extract of Bank Statement of the investor reflecting payment made to the appellant 80-81 14. Audited Financial Statements for the year ended June 2013 63-79 Table 2 - In relation to shares issued to M/s Trade Overseas Limited Sr. No. Particulars Page number of the Factual Paper Book Establishing the identity of the shareholder 1. Details of name and address of the investors 82-83 2. Certificate of incorporation 84 3. Memorandum of Association and Articles of Association 85-99 Establishing the genuineness of the transaction 4. Form of application for equity shares 100-102 5. Allotment advice issued to the investors 103 6 Form FIRC 104-116 7. Form FC-GPR 117-128 8. Confirmation of investm....
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....the provisions of section 68 of the Act which reads as follows: - Where any sum is found credited in the books of an Appellant maintained for any previous year, and the Appellant offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory, the sum so credited may be charged to income-tax as the income of the Appellant of that previous year. 6. Section 68 of the Act is an anti-tax evasion provision and was incorporated into the Act to obviate the possibility of the introduction of unaccounted /undisclosed money in the books of accounts. The object behind the insertion of Section 68 in the Act is to assess such income when it surfaces and assess it in the hand soft he person in whose book it surfaces. The above section, as applicable for the year under appeal, casts an onus upon an Assessee, the duty to adequately, satisfactorily, and substantively explain the source of any cash credit in his books of accounts and no further. 7. As laid down by various Courts the three important ingredients of section 68 of the Act are proof of identity and creditworthiness of the investor a....
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....f share application money received from 2 Foreign companies, it can be seen from the above table 1 and Table 2 that a plethora of documents have been submitted to prove the identity of both the companies. The list of documents is reproduced hereunder for quick reference: * Certificate of Incorporation, * Memorandum of Understanding('MOA'), * Articles of Association('AOA'), The above documents were already submitted during the assessment proceedings. Further learned AO's allegation that COI and AOA of Trade Overseas Limited is not filed is factually incorrect since the same is already placed on its record. Allegation by learned AO - COI and MOA does not include the name of shareholders of East West Global Limited 10. Learned AO's allegations that MOA and AOA do not contain the name and address of the shareholder are merely a conjecture. Certificate of Incorporation is a statutory document issued by the Authorities of BVI in accordance with their legal requirements. As per the domestic law of the investor's country there are formats / templates for MOA and AOA and FICs have complied to such formats and templates in which there is ....
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....banking channels and the transaction has been confirmed by the parties thereto and not been repudiated in any manner the question of creditworthiness itself gets answered in the affirmative. 15. In this connection, it is respectfully submitted that the provisions of Section 68 of the Act, as applicable to the year under appeal, did not put the onus on the Appellant to prove the source of source in case of non-residents in order to prove the credit worthiness of the investors. In other words, the provisions of Section 68 of the Act, as in operation for the year under review, only mandate the source to be proved which onus had clearly been discharged by the Appellant Company. The learned AO was not justified in putting more onerous conditions than what is provided under the law. 16. In the instant case, there is no material on record to prove or even remotely suggest that the amounts received have emanated from the coffers of the Appellant Company. In fact, it may be reiterated that the share application money was received through normal and regular banking channels, which fact stands duly corroborated and confirmed by the documents duly placed on record. A....
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....er, the amount of USD 500,000 invested in the Appellant company only accounted for ~ 3.23% of her total net worth. This makes it amply clear that Ms. Bhavna Goel had adequate creditworthiness and a substantial amount of net worth for investing in shares of the Appellant. Thus, the above submission clearly establishes and proves the creditworthiness of the investors beyond doubt. No requirement to prove source of source in case of non-resident 20. The learned AO has referred to the proviso to section 68 of the Act, the extract of which is reproduced herein below. "............. Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation....
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....r from the plain reading of the first proviso. 24. Thus, the Legislature has restricted the application of the first proviso to only resident investors by deploying the specific words 'being a resident' after the words 'the person'. Even after the first proviso came into effect from AY 2013-14, the same is not applicable to non-residents and foreigners. There is no ambiguity whatsoever in the abovementioned proviso being not applicable to share capital investment made by Non-residents and foreigners. 25. The learned AO has alleged that the bank statements do not contain the details of the funds brought by the foreign investors. It is submitted that the Appellant is only obliged to explain the source and not the source of the source. The proviso to section 68 does not apply to foreign investors. The proviso restricts the applicability to 'Resident Investors' and is not applicable to Non-resident Investors. The Appellant has submitted all the requisite details about the identity, genuineness, and creditworthiness of the transactions along with supporting as mentioned herein above. The Appellant is not under obligation to explain the source of source that to....
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....gements in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export(supra) which holds the fields and is binding. "In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with such a liability under Sections 68 and 69 of the Act." (Emphasis supplied) It should also be noted that the Special Leave Petition filed before the Hon'ble Supreme Court by the Revenue against the above decision of the Hon'ble Delhi High Court has been subsequently dismissed by their Lordships of the Hon'ble Supreme Court and as such the decision....
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....ses only when there is no evidence to show that the amount, in question, in fact represents such remittance. In other words, in the absence of proper supporting evidence, the taxpayers' story that the money has been brought into India from outside may be disbelieved by the Income-tax Officer who may then proceed to hold that the money had in fact been earned in India. 3. If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin of the money or assets brought in. It is only in case where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of the money, that the department has to make enquiries about the source thereof." (Emphasis Supplied) The Hon'ble Delhi High Court in CIT v. Russian Technology Centre Pvt. Ltd. (ITA Nos.547, 549 & 555 of 2013) per their order dated 15 December 2016, while dismissing the appeal filed by the Department upheld the ITAT order reported i....
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....of the Appellant - Rs. 2,50,35,142 3. 06-Nov-12 National Steel and Agro Industries Ltd 1,59,979 Preference Dividend 4. 08-Dec-12 Angelique International Limited 5,86,542 Export Commission 5. 08-Dec-12 Angelique International Limited 7,24,144 Export Commission 6. 12-Jan-13 Universal Infrastructure Middle East FZE 2,39,945 Outstanding Export Revenue realized 7. 14-Jan-13 Benco Finance and investment 250,000 Investment in shares of the Appellant - Rs. 1,36,10,947 Total 22,00,555 7,25,000 Allegation by learned AO-Certain credit entries from National Steel and Agro industries in the Bank of Trade Overseas Limited 30 The learned AO in the assessment order has stated that certain credits in the bank account of Trade Overseas Limited are appearing in the name of National Steel & Agro Industries Limited which is a related party. It may be noted that Trade Overseas Limited has invested in preference shares issued by National Steel & Agro Industries Limited, a related party. National Steel & Agro Industries Limite....
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.... the Appellant company. b) Copy of FIRC and FC-GPR Copy of FIRC in relation to remittances received along with a copy of Form FC-GPR in respect of the shares invested has already been submitted with Your Honors. c) The bank statement submitted of Ms. Bhavna Goel contains her name, address, and account number. At the same time, the learned AO overlooked the vital fact that Ms. Bhavna Goel is the daughter of Mr. Santosh Shahra, a director / promoter of the Appellant company. 32 The above-mentioned facts prove beyond doubt the identity, creditworthiness, and genuineness of the investment made by FIC. 33. It is pertinent to note that several group companies held shares of the Appellant. Complete details thereof are disclosed at Note 2 - 'Share Capital' of the financial statements of the Appellant for FY 2012-13 (kindly refer page 185 of FPB). Amongst various shareholders, the new shareholders viz. i) Trade Overseas Limited ii) East West Global Limited and iii) Bhavna Goel had all invested in shares of the Appellant at Rs. 100 per share through private placement route. Details of the said investment is as below: Name of Investors Status....
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.... recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P.) Ltd. (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either nonexistent or lacked creditworthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case." (Emphasis supplied) 37 In respect of shareholders paying the high premium, Hon'ble Madras High Court in the case of Lalitha Jewellery Mart (P.) Ltd. v. Deputy Commissioner of Income-t....
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.... the matter, the Ld Counsel explained that it is a settled law that where two views are possible, the view favorable to the assessee should be adopted as held by Hon'ble Supreme Court in case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192." 39 Applying the aforesaid decisions, since the Appellant has furnished the financial statements / net worth certificate, bank statements, mca / fema filings, etc. in respect of the share monies received and shares allotted, the identity, creditworthiness and genuineness of the transaction stands established. accordingly, the addition made under section 68 of the act by the learned ao ought to be deleted. 40 Further, it is settled law that in the matter of cash credit, the initial onus lies on the Assessee to prove the genuineness of the transaction along with the identity of the lender/investor and his creditworthiness. In the present case, the learned AO has not brought on record any new material or evidence to prove that the share application money is on account of alleged Unexplained Credit. 41 The action of the learned Ld.AO is based on mere "appearances" and blatantly ignores the actual ground realities. ....
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....en disputed/challenged in any manner * Investors have positively confirmed the fact of making the investment * Audited financial statements, net-worth certificate, and relevant bank statements have been furnished establishing the identity, creditworthiness, and genuineness of transactions. * there is neither shred/iota of evidence to prove that the funds received actually emanated from the coffers of the Appellant Company nor has the learned AO been able to bring any evidence on record to prove the same. 47. In view of the above, it is humbly prayed that the Appellant, having explained the share application money received during the year under consideration, the addition made under section 68 of the Act amounting to Rs. 10,78,41,369/- may kindly be deleted. 7. We have also evaluated the provisions of Sec. 68 of the Act, wherein it has been specifically mentioned that "where any sum is found credited in the books of assessee and the assessee offered no explanation about the nature and source thereof from the explanation offered by him is not in the opinion of the AO satisfactory, then the sum so credited may be charged as income for the previou....