Income Tax Appellate Tribunal - Chandigarh
M/S Color Textiles Limited (Since ... vs Ito, W-6(2), Ludhiana on 5 December, 2018
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए", च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH 'A', CHANDIGARH ीमती दवा संह, याय!क सद"य एवं, एवं ीमती अ नपणा$ ू ग&ता ु , लेखा सद"य BEFORE: SMT.DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM आयकर अपील सं./ ITA No.1514/Chd/2017 नधा रण वष / Assessment Year : 2013-14 M/s Colors Textiles बनाम The Income Tax Officer, Limited, 84, Industrial Ward-6(2), Ludhiana. Area-A, Ludhiana.
(Since amalgamated
with Lotus Texpark
Ltd.)
थायी लेखा सं./PAN NO: A A D C 8 7 5 0 B
अपीलाथ /Appellant यथ /Respondent
नधा रती क ओर से/Assessee by : S h r i A s h w a n i K u ma r , C A
राज व क ओर से/ Revenue by : Shri Gulshan Raj, CIT DR
सनवाई
ु क तार#ख/Date of Hearing : 26.09.2018
उदघोषणा क तार#ख/Date of Pronouncement : 05.12.2018
आदे श/Order
PER ANNA PURNA GUPTA, A. M. :
The present ap peal has been fi l ed by the as sessee
agai nst the order p a s s e d b y t he Ld . P r i n ci p a l C o mm i s s i o n e r of I nc o m e Ta x - 3 , Ludhiana, (in short " P r . CI T" ) dated 6.9.2017 passed u/s 263 of the I ncome Ta x Act, 1961 ( herei nafter referred to as 'Act') .
2. Th e a s s e s s e e h as r a i s e d t h e f o l l o w i n g g r o un d s be f o r e us:
"1. That order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Principal C o mmi s s i o n e r o f In c o me T ax -
3 , L u d h i an a i s ag ain s t l a w an d f ac ts o n th e f il e in as much as he was not justified to arbitrarily hold that assessment order dated 05.05.2015 was erroneous in as much as prejudicial to the interest of the Revenue.
2 ITA No.1514/Chd/2017
A.Y.2013-14
2. That he was not justified to hold that Ld. Assessing Officer did not examine th e i s s u e o f sh ar e p r e mi u m r e c e iv e d b y th e ap p e l l an t c o mp an y. "
3. D u r i n g t he c o u rse o f h e a ri n g b ef or e u s L d . C o u n sel f o r t h e a s s e ss e e p oi n t e d o u t f r o m t he o r d e r t h a t on p e r u s a l of t h e r e c or d s of th e a s s e ss e e , t h e L d . P r . CI T f ou n d t h e o rd e r p a s s e d b y t h e AO t o b e e r r o n e ou s a n d p r e j u d i ci a l t o t h e i n t e r e s t o f t he r e v e n u e , f or t h e r e a s o n t h a t t he A O h a d failed to make proper enquiries r e l a t i ng to the share c a p i t a l o f R s . 1 . 18 c r o r e s a nd t h e s h a r e p r e mi u m o f R s . 9 . 6 4 c r o r e s r e c e i v e d b y t h e a s s e s s e e f r o m a c o m p an y n a m e l y P a c a t o l u s SP V 5 , w h i c h w a s a re s i d e n t o f M au ri t i u s . O u r a t t e n t i o n w a s d ra w n t o p a r a 2 of t h e o r d e r w he r e t h e s h o w c a u s e n o t i c e i ss u e d t o t h e ass e s s e e w a s r e p ro d u c e d a s under:
"T he c as e was s e l e c te d f o r co mp l e te s c r u ti n y th r o u g h C A S S wi t h th e following reasons:-
a) Large share premium received
b) Difference in opening stock in current year with the closing stock of the previous year.
c ) Depreciation claimed at higher rates/Higher additional d e p r e c i a ti o n c l ai me d .
4. Out of the reasons stated above, the issue of share premium has not been examined properly by the AO which has been discussed below along With the facts of the case.
5. The assessee company is said to be engaged in manufacturing different types of yarns. The company commenced its production activities on 01.02.2013 i.e. during the previous year under consideration. The assessee company has received during the previous year 2012-13, Foreign Direct Investment (FDI) of Rs.10.82 crores comprising of share capital of Rs.1.18 crore and share premium of Rs.9.64 crores from a company, namely, M/s Pacatolus S P V 5 , 4 " f l o o r , Raf f l e s T o we r , 1 9 C yb e r c i ty, E b e n e , M au r i ti u s , wh i c h is a resident of Mauritius. During the assessment proceedings, the assessee had submitted the following 3 ITA No.1514/Chd/2017 A.Y.2013-14 information/documents in support of receipt of investment from Mauritius Company;-
a) Name and address of the investor
b) Mode of receipt of share capital and share premium by the assessee company from the Mauritian investor.
c) Copy of form No. 2 filed by the assessee company with ROC for allotment of aforesaid equity share capital to Mauritius Investor.
d) Copy of share certificate issued to the investor.
e) Copy of FIRC issued by the remitting bank i.e. Hong Kong and S h an g h a i B an k in g C o r p o r ati o n L td . i . e .
H S B C M u mb ai .
f) Copy of FCGPR submitted to RBI regarding the above investment along with its supporting documents.
g) Copy of certificate of Incorporation of Investor company.
h) Copy of Tax Residency Certificate issued by Mauritius revenue authority
(i) However, the AO did not ask for the establishment of credibility of the company from the assessee or enquire the same from the Mauritius Taxation Authorities. The AO has not enquired whether the office of the company existed at the address provided by the assessee or not. It was also not tried to ascertain whether the said company is registered/functioning in its country or not. ( ii) In the 'Wh ite p aper on Bl ack Money' publ ished in May2012, the Finance Ministry has identified various routes through which the black money originated in India is returned to it. The unaccounted money transferred outside India come back to India through various methods such a hawala, mispricing, FDI, through beneficial tax jurisdiction, raising of capital by India Companies through GDRs and investment in India stock market through participatory notes etc. FDI statistics point to the fact that Mauritius constitutes 41.80% of entire FDI received by India. It had been the topmost source of cumulative inflows in India. Mauritius with its small economy, cannot be the source of such huge in v e s t me n t an d th e in v e s t me n ts ar e r o u te d th r o u g h th e s e jurisdictions for avoidance of taxes and/ or for concealing the identity from the Revenue Authorities of the ultimate investor, many of whom could be the India residents, who have invested in their own companies through a process known as round-tripping. Thus, the black money generated by India is reinvested in India. In the instant case, it is quite possible that there could be the unaccounted wealth camouflaged under the guise of FDI investment and large amount of money transferred 4 ITA No.1514/Chd/2017 A.Y.2013-14 outside India might actually have returned to India through legal channel as Mauritius has been one of the popular tax havens in the world. Hence, there was need of proper investigation and the case of the as s e s s e e should have been referred to the FT & TR Division, CBDT, New Delhi for seeking specific inf o r mat i o n u n d e r th e provisions of exchange of Information, article of DTAA in order to verify the genuineness of the Mauritian company which has invested in India.
(iii) Last but not the least, the AO failed to ask the assessee to e s ta b l is h th e g e n u i n e n e s s of th e tr an s ac t io n b y r e v e al in g th e ultimate source of this investment (private placement) of s h ar e s in th e as s e s s e e c o mp an y. "
4. L d . c o u ns e l fo r th e a s s e ss e e th e re a f t e r co n t e n de d t h a t t h i s c o n t en t i o n o f t h e L d . Pr . CI T w a s d e m o n st r at e d b e f o r e h i m t o b e i n co r re c t b y po i n t i ng o u t f r o m t h e r e co r d s o f t h e a s s e s s e e th a t p ro p e r e n q u i r i e s ha d b e e n c o nd u c te d b y t he A O d u r i n g a ss e ss m e n t p r o ce e d i ng s . B u t , i t w a s po i n t e d o u t, t h a t t h e L d . P r .CI T h e l d t h a t t h e s a m e w a s n o t s u f f i c i e nt s i n c e as p e r t h e L d . Pr . CI T, t h e A O s ho u l d h a ve i n q u i r ed i n t o t h e c r e di b i l i t y o f t h e c o m pa n y a n d a l s o wh e t h e r t he s a i d i n v e s t or c om p a n y a c t u a l l y e x i s t e d o r n o t . L d . C o u n s el s t a t e d t ha t t h e re a s o n f o r t h e L d. P r . CI T h o l d i n g so w a s t h e i n f o r m a ti o n i n h i s p o s se s s i o n, f r o m th e W h i te P a p e r o n B l a c k M on e y pu b l i s h e d b y th e F i n a n c e M i n i s tr y i n Ma y 2 0 1 2 , t h a t b l a ck m o n e y o r i g i n at e d i n I n d i a w as r e t u r n i ng t h r o u g h v a ri o u s r o u t e s f r o m ou t si d e I n d i a b y h a wa l a , G D R s p a r t i c i p at o r y n ot e s , FDI e tc . Ou r a t t e nt i o n w a s d r a w n t o t h e f i n d i n g s o f t h e L d . P r . CI T at para 4 of the order as under:
"I have carefully considered assessee's submissions which are not acceptable on the issue that Assessing Officer has failed to examine the issue of share premium properly as the "Large Share Premium received" was the one of the reason for selection of assessee's case for scrutiny 5 ITA No.1514/Chd/2017 A.Y.2013-14 through CASS. The assessee company has received during the previous year 2012-13. Foreign Direct Investment (FDI) of Rs.10.82 crores comprising of share capital of Rs.1.18 crore and share premium of Rs.9.64 crores from a c o m p a n y , n amel y, M/s P ac atolus SPV5, 4th f loor, Raf f les Tower, 19Cybercity, Ebene, Mauritius, which is a resident of Mauritius. A.O. did not bother to ask for the establishment of credibility of the company from the assessee or enquire the same from the Mauritius Taxation Authorities. A.O. failed to do so. A.O. also failed to enquire whether the o f f ic e of th e c o mp an y e x i s te d at th e ad d r e s s p r o v id e d b y th e as s e s s e e o r n o t. It was also not tried by the A.O. to ascertain whether the said company is registered/functioning in its country or not. It is failure on the part of A.O. in the eyes of law.
In the 'White paper on Black Money' published in May 2012, the Finance Ministry has identified various routes through which the black money originated in India is returned to it. The unaccounted money transferred outside India come back to India through various methods such as hawala, mispricing, FDI, through beneficial tax jurisdiction, raising of capital by India Companies through GDRs and investment in India stock market through participatory notes etc. FDI statistics point to the fact that Mauritius constitutes 41.80% of entire FDI received by India. It had been the topmost source of cumulative inflows in India. Mauritius with its small e c o n o my , c an n o t b e th e s o u r c e of s u c h h u g e in v e s t me n t an d th e i n v e s tme n ts are routed through these jurisdictions for avoidance of taxes and/ or for concealing the identity from the Revenue Authorities of the ultimate i n v e s to r , man y o f wh o m c o u l d b e th e In d i a r e s id e n ts , wh o h av e i n v e s te d in th e i r o wn c o mp an i e s th r o u g h a p r o c e s s kn o wn as r o u n d - tr ip p i n g . T h u s , th e black money generated by India is reinvested in India. In the instant case, it is quite possible that there could be the unaccounted wealth camouflaged u n d e r th e g u i s e o f F D I i n v e s t me n t an d l ar g e a mo u n t o f mo n e y tr an s f e rr e d o uts id e In d i a mi g h t ac tu al l y h av e r e tu r n e d to In d i a th r o u g h l e g al c h an n e l as Mauritius has been one of the popular tax havens in the world. A.O. miserably failed to make proper investigation in this regard and also failed to refer the case of the assessee to the FT & TR Division, CBDT, New Delhi for seeking specific information under the provisions of exchange of Information, article of DTAA in order to verify the genuineness of the Mauritian company which has invested in India. This issue completely r e ma i n e d u n atte n d e d b y th e A . O . It i s e v id e n t th a t th e as s e s s me n t h as b e e n c o mp l e te d in th i s c as e wi th o u t ap p l ic a t i o n o f min d b y th e A . O . in the assessee company. A.O. did not bother to examine this issue. It was failure on the part of A.O. in the eyes of law.
With regard to the issues discussed above, A.O. has accepted the replies furnished by the assessee without any 6 ITA No.1514/Chd/2017 A.Y.2013-14 verification / investigation / e n q u ir i e s . I t i s a f ai l u r e o n h is p ar t i n th e e ye s o f l a w. I t is e v id e n t th a t th e assessment order passed by the A.O. without making inquiries/verifications and investigations. A.O. miserably failed to look into these issues and framed assessment without application of mind. A.O. has simply relied upon whatever submissions have been made by the assessee and accepted them. The A.O. failed to make independent enquiries/verifications/investigations while framing the assessment but he failed to do so and f r a me d as s e s s me n t wi th o u t ap p l ic a t i o n o f mi n d . "
5. L d . C o u n s el f o r t h e a s s e s se e t h er e a f t e r de m o n s t ra t ed b e f o r e u s t h a t du e a n d p r op e r i n q u i r i e s w e r e con d u c t e d by t h e A O r e g a r di ng t h e i m p u g n ed i s s u e . O u r at t e nt i o n was d r a w n t o t h e q ue r i e s a n d n o t i c es i s s u e d du r i n g a s s e s s m e nt p r o c e e d i ng s a n d t h e r e p l i e s f i l e d t h e r e t o as u n d er:
N o t i c e d at e d 2 3- 1 2 - 2 0 1 4 " 18. In regard to share premium received, you are required to supply the following information as per the table below:-
Reply filed dated 10-02-15 5 .Detail of share premium received in the desired format is as under:-
Sr.No. Name of PAN & Address No. of Amount Total Amount Mode of Investor of the Investor shares received amount received as payment issued against received. share each premium share
1. Pecatolus Tax Account No.- 1182513 91.50 108200000 96374810 Through SPV5 27193558, 4th Banking Floor, R a f f l l e s Channel T o we r , 1 9 Cybercity, Ebene, Mauritius Notice dated 06-04-15 5 . Y o u ar e r e q u ir e d to s u b mi t th e c o p y of ap p l ic a t io n f r o m th e s u b s c r ib e r s ) to th e share capital issued and alongwith share certificates issued during the year under assessment alongwith complete addresses of the application.7 ITA No.1514/Chd/2017
A.Y.2013-14 Reply dated 13-04-15 5 . T h e a d d r e s s o f P a c a to l u s i . e . th e s u b s c r i b e r s to t h e s h a r e c a p i t a l h a s a l r e a d y been submitted vide our reply No.CTL/lT/2015/3 dated-10.02.2015. However, ' the same is again submitted is as under :-
Pacatolus SPV5 Tax Account No.27193558 4th Floor Raffles Tower, 19, Cybercity, Ebene, Mauritius.
Further copy of Form No,2 filed with the Registrar of Companies. Chandigarh for allotment of 1182513 equity shares to Pacatokis, Mau enclosed herewith.
As desired copy of share certificate for allotment of 1182512 equity s! issued to the subscribers is enclosed herewith.
Letter dated 21-04-15 Further as desired by your goodself as per the discussion on the last date of hearing regarding the addition to Share Capital (FDI) , we are giving herein below a detailed explanation with respect to the Foreign Direct Investment of Rs.10.82cr. received by the company during the year under consideration. It may be kindly be noted that this investment has been received under Foreign Direct Investment guidelines of Government of India duly governed by Reserve Bank of India. The process of receiving Foreign Direct Investment in India and the related formalities is explained as under:-
First of all a Certificate of Foreign Inward Remittance (FIRC) is issued by the remitting bank which in our case is Hongkong and Shanghai Banking Corporation Limited (HSBC), Mumbai. A copy of this certificate is enclosed as per Annexure A. A perusal of this certificate shows that it has full details about the r e m i t t e r a n d th e r e c i p i e n t wh i c h i n c l u d e s : -
(a)Name of the both party
(b)Their address
(c)Amount remitted
(d)Bank account details of both the parties
(e) Purpose for which this money has been remitted Subsequent to the receipt of this certificate the recipient i.e Colors T e x t i l e s L i m i te d ( a s s e s s e e c o mp a n y ) h a d a s t a t u to r y o b l i g a t i o n to f i l e full details of the remittance to Reserve Bank of India in duly prescribed annexure V & VI along with the copy of FIRC This form also has all the details of investor. A copy of the letter along with all the annexures and supports, filed with Reserve Bank of India is placed on record as per Annexure B. On receipt of this letter Reserve Bank of India gives a certificate and a s s i g n s a D IN ( U n i q ue I d e n t if i c a t i o n N u m b e r ) to a p a r t i c u l a r i n v e s to r . The copy of the certificate is enclosed as Annexure C. This completes the process of Regulatory requirements of a particular investment. After going 8 ITA No.1514/Chd/2017 A.Y.2013-14 through all the evidence, details and above submissions we hope that the process of the Foreign Direct Investment stands duly explained and established, All the above documents in original referred to in the process of Foreign Direct investment are being produced herewith for your verification.
Also submitted that the copy of share certificate issued to pecatouls SPV5 and copy of form~2 filed with Registrar of companies has already been filed vide reply no. 7 dated 13.04.2017 and now the below mentioned documents are enclosed herewith for your kind consideration:-
(i) Copy of Certificate of Incorporation of Pecatolus SPV 5
(ii) Copy of Tax Residence Certificate (TRC) of Pecatolus SPV 5 issued by Mauritius Revenue Authority,
(iii) Copy of Form - FCGPR submitted to Reserve Bank of India (RBI) through receiving bank i.e Canara Bank
(iv) Copy of Valuation Report.
Hope your honor will find the above in order and in case any other document/information is required by your honour, the same may please be asked Letter dated 30-04-15 1 . Certificate from CA with complete computation of fair market value of the shares at the time of issuance of shares to the company M/s Pecatolus has already been submitted to your honour vide our reply no. 8 dated 21.04.2015.
6. R e f e r r i n g to t h e a b o v e , L d . C o un s e l f o r t h e a sse s s e e c o n t e n d e d th a t n e c e s s a r y qu e r i e s h a d b e e n r ai s e d b y t h e A O a n d d u e r epl y a l o n g w i t h e vi d e n c e s h ad b e en f i l e d t o s u b s t a n t i a t e t h e g e n u i n e n e s s o f t h e i n v e s t m en t re c e i v e d b y the a s s es s e e fro m the Ma u r i t i u s c o m p a ny . Ld . C o u n s e l pointed out that admittedly t he f o l l o w i ng i n f o r m a ti o n / d o cu m e n t s h ad b e e n f i l e d to t h e A O :
• Name and address of the investor
• Mode of receipt of share capital and share premium
by the assessee company from the Mauritian investor. Copy of form No. 2 filed by the assessee company with ROC for allotment of aforesaid equity share capital to Mauritius Investor.
• Copy of share certificate issued to the investor. 9 ITA No.1514/Chd/2017
A.Y.2013-14 • Copy of FIRC issued by the remitting bank i.e. Hong Kong and S h a n g ha i B a n k i n g C or po r a t i o n L t d. i . e . H S B C M u m ba i .
• Copy of FCGPR submitted to RBI regarding the above investment along with its supporting documents. • Copy of certificate of Incorporation of Investor company. • Copy of Tax Residency Certificate issued by Mauritius revenue authority • Copy of certificate issued by Chartered Accountant certifying the fair value of shares /premium at which shares were issued to the Mauritian Company I t w as c o n t e n d ed t h a t t h e a b o ve a d e q u a t e l y p ro v e d t he g e n u i n e n es s of the tr a n s a c ti on and th e AO had du l y c o n s i d e r ed / e x am i n e d a n d be i ng s a t i s f i e d w i t h t h e s a me h a d m a d e n o f u rt h e r e n q ui r i e s .
7. L d . C o u n s el f o r th e a s s e s s e e c on te n d e d t h a t t h e vi e w o f the AO was plausible also si n c e in the c a se of Lotus I n te g r a t ed Te x p a r k Limited, a company with which the a s s e s s e e c o m p a ny g o t s u bs e q u e nt l y a m a l ga m a t e d, a d d i t i on o n a c c o u n t o f s ha r e c a p i t al i s s u ed t o a M a u r i t i a n c o m p a ny f o r i d e n t i c a l r e as o n s o f n o t e s t ab l i s h i n g i t s c r e di b i l i t y a nd i d e n t i t y, w a s m ad e i n t h e pr e c e d i n g y e a r s, i .e . A .Y . 2 0 1 0 -11 & 2 0 1 1 - 1 2 , w h i ch w a s d e l e t e d by t h e I TA T. I t w a s p o i n t ed o u t t h a t i d e n t i cal d o c u m e n t s w e re f i l e d i n t h a t c as e a l s o b y the a s s es s e e in d i s c h ar g e of onus to e st ab l i s h th e g e n u i n e n es s o f t h e t r a n s a c t i o n , w h i c h w e r e f o u nd s u f f i c i e nt b y t h e I TA T f o r e s t a b l i s hi n g t h e s a m e . C o p y o f H i g h c o u r t o r d e r a p p ro v i n g t h e s c h e m e o f am a l g a m a t i o n o f th e a s s e s s ee c o m p a n y w i th L ot u s I n t e g r at e d wa s f i l e d . C op y o f t h e o r d e r o f I TA T i n t h e c a s e o f L o t u s I n te g r a t e d w a s a l so f i l e d a n d o u r a t te n t i o n wa s d r a w n t o t h e f a c t o f t h e c as e a n d t h e 10 ITA No.1514/Chd/2017 A.Y.2013-14 r e l e v a n t fi n d i n g i n t h e o r d er d e l et i n g t h e a dd i t i o n m a d e on a c c o u n t o f s ha r e c a p i t a l r e c ei v e d f r o m M a u r i t i a n C o m p a n y as under:
"10. We have considered the rival submissions. It is not in dispute that the assessee has allocated 740000 shares to M/s Glacis Investment Limited at premium. The Assessing Officer has not disputed the shares issued to this company at premium value. No investments have been made in this regard. The Id. DR also admitted that the reasons for issuing the shares to the subscriber company at paid up value and at premium have not been investigated by the Assessing Officer at assessment stage. The assessee has filed copy of the certificate of incorporation of M/s Glacis Investment Limited which is a registered company in Republic of Mauritius. The Id. CIT(Appeals) considering the subscriber company to be a company being legal entity held that the identity of the shareholder is proved. The assessee also filed copy of the Tax Residence Certificate issued by Mauritius Revenue authorities, certifying that M/s Glacis Investment Limited incorporated in Mauritius is a company resident in Mauritius for income tax purposes under the Income Tax Act. The assessee also produced the certificate of Reserve Bank of India in which the Reserve Bank of India by referring to letter of the assessee has referred to the transaction held between assessee and M/s Glacis Investment Limited, Mauritius for issuing the shares at paid up value and premium for 740000 equity shares were recorded by the Reserve Bank of India in their records. The Id. DR submitted that the name of M/s Glacis Investment Limited is wrongly recorded in the Reserve Bank of India certificate. It appears to be typographical error and is not having much significance on the same because the assessee has issued 740000 equity shares to the shareholder company which is the same and only transaction carried out between the assessee and the shareholder company. The assessee also f iled copy of the share certificate to show that actual share certificates 740000 in number have been issued to the shareholder company. The shareholder company has also issued a confirmatory letter in favour of the assessee certifying that M/s Glacis Investment Limited has invested Rs. 3,70,00,000/- for allotment of 740000 equity shares in assessment year under appeal. The Republic of Mauritius also certified that Global Business License under Financial Services Act have been granted to M/s Glacis Investment Limited. The balance sheet of the shareholder company M/s Glacis Investment Limited is also filed on record which is admitted as additional evidence which proved that the principal activity of this company is that of investment holding and was having the sufficient funds/assets to make investment in assessee company and that the investment made in assessee company have 11 ITA No.1514/Chd/2017 A.Y.2013-14 been certified in the balance sheet. The bank statement of the assessee is also filed on record which support the contention of the assessee that Rs. 3,70,00,000/- have been invested by shareholder company in assessee company through transfer entries i . e . banking channels. The decisions relied upon by Id. counsel for the assessee clearly support the contention of the assessee that assessee has proved the credit worthiness of the shareholder company and genuineness of the transaction in the matter. The documentary evidences produced on record also support the contention of assessee that the shareholder company M/s Glacis Investment Limited, Mauritius has made investment in assessee company in 740000 equity shares by investing Rs.3,70,00,000/-. The shareholder company also filed confirmation to that effect which is supported by Tax Residence Certificate, allotment of share certificates and Global Business License granted by Republic of Mauritius and the bank statement of the assessee.
12. In the present case, assessee company had received money on allotment of shares from M/s Glacis Investment Limited through banking channel and furnished complete details of the shareholder, no addition would be made under section 68 of the Act, in the absence of any positive material or evidence to indicate that the shareholder company was benamidar or fictitious company or that any part of the share capital represented the assessee's own income from undisclosed sources. The assessee on the basis of the documentary evidence on record has been able to prove that Non Resident Company i. e. M/s Glacis Investment Limited was an existing company and that the shareholder company made investment in the assessee company would prove that assessee received genuine share application money from this non-resident company. Thus, assessee had established the identity of the shareholder company and that transaction was genuine. The assessee has also proved the credit worthiness of the shareholder company, therefore, authorities below were not justif ied in making the huge addition against the assessee.
Considering the totality of the facts and circumstances on the basis of the evidences on record and in the light of the judicial pronouncements noted above, we are of the view that assessee has been able to prove the identity of the creditor which is not in dispute, credit worthiness of the shareholder company and genuineness of the transaction in the matter. Therefore, addition of Rs. 3.70 Cr under section 68 of the Act is wholly unjustified. We, accordingly, set aside the orders of authorities below and delete addition of Rs. 3.70 Cr. In the result, ground No. 1 of appeal of the assessee is allowed."
8. L d . c o u n s el f o r t h e a s s e s se e t h er e f o r e c on t e n d e d t h at t h e e n q u i r y c o n du c t e d b y t h e A O a n d t h e r e p l y f i l e d b y t h e 12 ITA No.1514/Chd/2017 A.Y.2013-14 assessee a l o n g wi t h evidences was s u ff i c i e nt to s a t i sf y a b o u t t h e g e n u i ne n e s s o f th e t r a ns a c t i o n an d t h e L d . P r . CI T h a d e r r e d i n s ta t i n g t h a t p r o pe r a n d a d e q u a t e e n q u i r i es h a d n o t b e e n c on d u c t e d i n t h e pr e s e n t ca s e . L d . c o u n s e l f o r t h e a s s e s s e e s t ate d t h a t i n t h e a bo v e f a c t s & c i r c um s t a n c e s the o r d e r p a ss e d b y t h e A O c o u l d n o t b e h e l d t o be e r r o n e o u s s o a s t o c a u s e p r e j u di c e t o t h e R e v e n ue a n d t h e a s s u m p t i on o f j ur i s d i c t i o n b y t h e L d . P r . CI T, u / s 2 6 3 o f t h e A c t t o r e v i se t h e o r d e r o f t h e A O w a s t h e r e f or e no t a s p e r l a w . R e l i a nc e w as p l a c e d b y t h e Ld . c o u n s e l f o r the a s s e s s e e on the f o l l o w i ng case laws in support of the a b o ve c o n t e n t i on :
1. C o mmi s s i o n e r of In c o me T ax vs H in d u s tan M ar k e ti n g & A d v e r ti s i n g C o . L td . ( 2 0 1 2 ) 3 4 1 IT R 1 8 0 ( D e l h i)
2. C o mmi s s i o n e r of In c o me T ax v s A n i l K u mar S h ar ma ( 2 0 1 1 ) 3 35 IT R 83 ( D e l h i)
3. C o mmi s s i o n e r o f In c o me T ax v s Sunbeam A u to L i mi te d ( 2 0 1 1 ) 33 2 IT R 1 67 ( D e l h i)
4. C o mmi s s i o n e r o f In c o me T ax v s D e e p ak M i t tal ( 2 0 1 0 ) 3 24 IT R 41 1 ( P u n jab an d H ar y an a) I t w a s a l so c o nt e n d e d t h a t i n t h e p r e s e n t c a se t h e L d . P r . CI T h ad on l y e x p re s s e d t he v i e w t h a t t h e A O s h o u l d h a v e c o n d u ct e d t h e i n q u i r y i n a p a r t i c u l ar m a n ne r , w i t h o ut h i m s e l f c o n d uc t i n g a n y i n q u i r y i n o r d e r t o s h o w t h a t t h e o r d e r p a ss e d b y t h e A O w as e r ro n e o u s . Th e r e f or e a l s o ,i t w a s c o nt e n d e d, th a t t h e a s s um p t i o n o f j u r i sd i c t i on u / s 2 63 i n t h e p r e s en t ca s e w a s b a d i n l a w . R e l i a n c e w a s p l a c e d on t h e f o l l o w i n g c a se l a w i n s u p p o rt o f t h e a bo v e c on te n t i o n :
C IT v s S un b e a m A u to L td . ( 2 0 1 1 ) 33 2 IT R 1 67 13 ITA No.1514/Chd/2017 A.Y.2013-14
9. L d . c o u n s e l f o r th e a s s e s s e e f u r th e r c o n t e n de d t ha t t h e L d . P r . CI T h a d s ta t e d t h a t th e f a ct s o f t h e c as e w as s q u a r e l y c o v e r e d by E x p l a n a t i o - 2 t o s ect i o n 2 6 3 a s p e r w h i c h a n order p as s e d by the as s e s s i n g officer is d e em e d to be e r r o n e o u s i n s o f a r a s p re j u d i ci a l t o t he i n t e re s t o f t he revenue if it is p a s s ed w i t h ou t making en qu i r i e s or v e r i f i c at i o n w h i ch s h o u l d h a v e be e n m a d e . L d . co u n s e l f o r t h e a s s es s e e con t e n d e d t h a t the s a i d e x p l a n at i o n w a s no t a t t r a c t e d i n t he p r e s e n t ca s e s i nc e s u f f i ci e n t en qu i r i e s h ad been c o n du c t e d and the Ld. P r . CI T h i m s el f had n ot c o n d u c t e d a n y i n q u i r i e s p o i nt i ng o u t t h e e r r o r i n t h e o r d e r o f t h e A O . Re l i a nc e w a s p l a c e d o n t h e f ol l o w i n g c as e l a w s i n s u p p o r t of t h e ab o v e c o n te n t i o n.
1. N a r a y a n Ta t u R an e v s I n co m e Ta x O f f i c e r ( 2 0 1 6 ) 7 0 Ta x m a n n . c o m 2 27 ( M u m)
2. A m i r a F o od s P v t. L t d . v s Th e P r . CI T ( 2 0 1 8 ) 6 3 I TR ( Tr i b ) 3 5 5 ( D e l ) O u r a t t e n t i on w a s s p e c i f i c al l y dr a w n t o t h e r e l e v a n t p o r t i o n of t h e o rd e r a s u nd e r :
"18. The l e ar n e d counsel f or th e as s e s s e e s u b mi t te d th at e v e n th o u g h th e r e h as b e e n an a me n d me n t i n th e p r o v is io n s o f se c tio n 2 6 3 o f th e A c t b y wh i c h E x p l an at i o n 2 is in s e r te d wi th e f f ect f ro m J u n e 1 , 20 1 5 b u t th e s ame d o e s n o t g iv e u nf e tte r e d p o we r s to th e C o mmi s s io n e r to as s u me th e ju r i s d ic t io n u n d e r s e c tio n 2 6 3 of th e A c t t o r e v is e e v e r y o r d e r of th e A s s e s s i n g O f f ice r to r e - e x ami n e th e i s s u e s al r e ad y e x a mi n e d d u r in g th e c o u r s e of as s e ss me n t p r o c e e d in g s . T h e H o n ' b l e M u mb a i In c o me - tax A p p e l l ate T r i b u n al h as d e al t wi th E x p l an at i o n 2 as i n s e r te d b y th e F in an c e A c t, 2 0 1 5 in th e c as e of N ar ay an T a tu R an e v . IT O ( 2 0 1 6 ) 7 0 T A x ma n n . c o m 2 2 7 to h o l d th a t th e s a i d E x p l an a t io n c an n o t b e s ai d to h av e o v e r r id d e n th e l a w as i n te r p r e te d b y th e H o n ' b l e D e l h i H ig h C o u r t, ac c o r d in g to wh i c h th e C o mmi s s i o n e r h as to c o n d u c t an e n q u i r y an d v e r if ic at i o n to e s tab l i s h 14 ITA No.1514/Chd/2017 A.Y.2013-14 an d show th a t th e as s e s s me n t order is u n s u s ta i n ab l e in l a w. T he T r ib u n al h as f u r th e r h e l d th at th e in t e n tio n o f th e L e g i s l atu r e c o u l d n ot h av e b e e n to e n ab l e th e l e ar n e d P r in c ip al c o mp an y o f In c o me - tax to f in d f au l t wi th e ac h an d e v e r y as s e s s me n t o r d e r , wi th o u t c o n d u c tin g an y e n q u ir y o r v e r if ic at i o n in o r d e r to e s tab l i s h th at th e A . O . is n o t s u s ta i n ab l e i n l a w s i n c e s u c h an i n te r p r e ta ti o n wi l l l e ad to u n e n d in g l i ti g a t i o n an d th e r e wo u l d n o t b e an y p o in t o f f in al i ty in th e l e g al p r o c e e d in g s . T he o p in i o n o f th e C o mmi s s io n e r r ef e r r e d to in s e c tio n 2 6 3 o f th e A c t h as to b e u n d e r s to o d as l e g al an d ju d ic i o u s o p in i o n an d n o t ar b i tr ar y o p in io n .
3. I n di a n F a r m er s & F e r t i l i z er s C oo p e r a t i v e Li m i t ed v s Th e P r . CI T- 1 1 i n I TA N o . 2 4 8 7/D e l / 2 0 1 6 .
10. O u r a t t e n t i on w a s s p e c i f i c al l y dr a w n t o t h e r e le v a n t p o r t i o n o f t h e or d e r o f t h e H o n ' b l e H i g h C o u rt affirming t h e f i n di n g s o f th e Tr i b u n a l th a t w h e r e i t h as be e n f o u nd t h a t d e t ai l e d i nqu i r i e s h av e b e e n h e l d b y th e A O , t h e o r d e r c a n n o t b e he l d to b e e r r o ne o u s or p r e j u d i c i a l t o th e i n t e r es t o f t h e Re v e n u e u n d e r E x pl a n a t i o n 2 t o s e c t i o n 2 6 3 o f th e A c t , a s un d e r :
" 1 7 . B e f or e c on c l u d in g we wo u l d al s o l ik e to d e al wi th th e r e c e n t in s e r ti o n o f Ex p l an a t i o n 2 to S e c ti o n 2 6 3 o f th e A c t. W e h a v e al r e ad y h e l d ab o v e th a t i n r e s p e c t o f b o th th e is s u e s i . e . al l o wi n g c r e d i t o f d e e me d tax e s p aid o n d iv id e n d i n O man as we l l as c ap i t al i z at i o n o f in te r e s t u / s
3 6 ( 1 ) ( i i i ) d e t ai l e d e n q u ir ie s as we l l v e r if ic a ti o n h av e b e e n mad e b y th e A O . F u r th e r i t i s al s o n o t th e c as e o f th e L d . P r . C IT th a t t h e r o d is n o t i n ac c o r d an c e wi th an y i n s tr u c ti o n d ir e c ti o n i s s u e d b y th e B o ar d o r is n o t i n ac c o r d an c e wi th an y d e c is i o n o f H o n 'b l e D e l h i H ig h C o u r t o r th e A p e x C o u r t o f In d i a. A c c o r d in g l y th e o r d e r p as s e d b y th e A O c an n o t b e r e g ar d e d as d e e me d to b e e r r o n e o u s o r p r e ju d i c i al to th e in te r e s t o f th e R e v e n u e u n d e r E x p l an a t io n 2 o f th e A c t. "
11. L d . c o u n s e l f o r th e a s s e s s e e f u r th e r c o n t e n de d t ha t t h e L d . P r . CI T h a d he l d t h e o r d er o f t h e A O t o b e e r r o n e o u s s i n c e h e h a d not e n q u i r e d i n t o th e s o u r c e o f t h e s o u r c e o f 15 ITA No.1514/Chd/2017 A.Y.2013-14 i n v e s t m e nt m a d e b y t h e M a u r i t i us c o m p a n y . L d . Co u n s e l f o r t h e a s s e ss e e c o nt e n d e d t ha t a s pe r t h e a me n d e d p r o v i s i o ns o f s e c t i o n 68 o f th e A c t , t h e i nv e st o r c o m p a n y, b e in g a n o n -
resident, the so u r c e of s o ur c e was not r e q ui r e d to be e x p l a i n e d by t he a s s e s s e e. L d . c o u n s e l f o r the a s s e s s e e d r e w o u r a t te n t i o n t o t h e a m e n de d p r o v i s i on s o f s e c t i o n 68 w h i c h w er e a p p l i c a b l e i n t h e p re se n t c a s e a s u nde r :
"68.Where any sum is found credited in the books of an assessee maintained for any previous year, and assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer], satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:
Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless--
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] (emphasis supplied)
12. L d . C o u n s el p o i n te d o u t th a t i t wa s o n l y i n t he ca s e o f c r e d i t s r e ce i v e d f r o m r e s i d e nt s t h a t t h e s o u r ce o f s o u r ce w a s r e qu i r e d t o b e e x p l a i n e d a nd s i n c e i n t h e pr e s e n t c a s e t h e s a m e h a d be e n r e c ei v e d f r om a n o n- r e s i de nt c o m p a ny t h e o n u s w a s n ot o n t h e a s s e s see t o e x p l a i n th e s o u r c e o f 16 ITA No.1514/Chd/2017 A.Y.2013-14 the s o u rc e . Th e r e f o r e Ld. co u n s e l fo r the a s s e s s ee c o n t e n d e d t h a t th e L d . P r. CI T h a d e r r e d i n h ol d i n g t h e o rd e r o f t h e A O er r o n eo u s o n a c c o u nt o f t h e f a c t t h a t h e h a d n o t l o o k e d i n t o t h e so u r c e o f s o u r c e o f t h e i n v e s t m e nt m a d e b y t h e M a u r i t i u s com p a n y . L d . D R o n t h e ot h e r h a n d p oi n te d o u t f r o m t h e o r de r o f t h e L d . P r . C I T i t s e l f t h a t t he c a s e w a s s e l e c t e d fo r s c ru t i n y t h r ou g h CA S S f o r t h e r e as o n s w h i c h i n c l u d e d l a r g e sh a r e p r e mi u m rec e i v e d b y t h e a ss e s s e e . L d .
D R p o i n t e d o u t th a t t h e L d . P r . C I T h a d a d eq u a te l y p o i n t ed o u t h o w s u ff i c i en t a n d p r o p er en q u i r i e s h a d n o t b e e n m a de b y t h e A O i n t h i s r e g a r d a n d t her e f o r e t h e o rd e r p a s s e d b y t h e A O h a d b e e n r i g h t l y h e l d t o be e r r o n e ou s s o as t o c a u s e p r e j u d i c e t o t he i n t e r e s t o f t h e r e v e n u e . L d . D R a l s o d r e w o u r a t te n t i o n t o t h e f i n d i ng s of t h e L d . P r .CI T wi t h r e ga r d t o t h e W h i t e P ap e r o n b l a c k m on e y p u b l i s h ed i n M a y 2 0 1 2 b y t h e F i na n c e M i n i s t r y i d e n t i f yi n g v a r i ou s r o u te s t h r o u g h w h i c h b l ac k m on e y o r i g i n a t e d i n I n d i a i s r e t u rn e d t o I n di a and which included M a u r i t i us a s o n e o f t h e s o u r c e o f r o u t i n g su c h b l ac k m o n e y .
13. L d . D R s t a te d t h at i n t h i s a l a rm i ng s i t u a t i on t h e Ld . P r . C I T a t p a r a 7 o f t h e o rd e r ha d he l d t h a t t h e A O h a d f a i l ed t o e x a m i n e t h e i s s u e o f s h a r es i s s u e d a t p r e mi u m t o t h e Mauritius co mp a n y . Ld.DR pointed out that the c r e d i t w o rt h i n e ss of the M a u ri t i u s c om p a n y and t he e x i s t e n c e o f t h e c o m p a n y h a d a l s o n o t b e e n e x a m i n e d by t h e A O . L d . DR c o n t e n d e d th a t t h e A O h a d a c ce p t e d t he r e p l y f i l ed b y t he a s s e s s e e wi t h ou t m a k i n g a ny en q u i r y o r 17 ITA No.1514/Chd/2017 A.Y.2013-14 i n v e s t i g at i o n o r e v e n w i t h o u t a p p l y i n g h i s m i n d . L d . D R s u p p o r t e d th e o rd e r o f t h e L d .P r .C I T f o r t h e a bo ve r e a s o n s a n d r e l i e d on th e f o l l o w i n g c as e l a w s i n s upp o r t o f h i s c o n t e n t i on s :
1. Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1(SC)
2. R aj man d i r E s ta t e s ( P . ) L td . V s P C IT [ 7 0 t ax man n . c o m 1 2 4 ( C al c u tt a) / [ 2 0 1 6 ] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512
3. Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 2 4 5 T ax man 1 2 7 (SC)
4.U Deniel Merchants Pvt Ltd Vs ITO (SC)
14. L d . D R f u r t he r d i s t i n g u i s he d t h e c a s e l a w s r e l i e d u p o n b y t h e L d . co u ns e l f o r t h e a s s es s e e s t at i n g t h at t h e y h a d been p a s se d with r e fe r e n c e to c l a u se © and (d) of Explanation to section 263, while in the present case it was c l a u s e ( a ) o f t h e e x p l a n a t i o n t o se c t i o n 2 6 3 wh i ch h a d b e e n a t t r a c t e d. H e fur t h e r d r e w o u r a t t e n t i o n t o t h e K Y C p a p e r o f t h e i n v e s t o r co m p a n y p o i n ti n g o u t t h a t i t c a r r i e d n o d a t e , n o s t a m p a n d no p l a c e a n d h e nc e c o u l d n o t b e r e l i e d u p o n o r t a k e n c o g n i zan c e o f .
15. W e h a v e h e a r d t h e r i v a l c o n t e n ti o n s c a r e f u l l y. W e f i n d m e r i t i n t he c o n te n t i o n s o f t h e L d. C o u n s e l fo r t h e a s s e s s ee t h a t t h e p o w e r e x e r c i s e d b y t he L d P r CI T i n th e p r e s e nt c a s e t o r e v i s e th e o r d e r o f t he A O u / s 2 6 3 o f th e a c t w a s n o t a s p e r l a w . A s p e r t h e pr o v i s i o n s o f t he s e c ti o n 2 6 3 t h e r e v i s i o n ar y p o w er s c a n b e e x e r ci s e d b y t h e C o mm i s s i o n e r o n b e i n g s a t i sf i ed o f t h e e x i s t e nc e o f t h e t w i n co n d i t i o n o f 18 ITA No.1514/Chd/2017 A.Y.2013-14 t h e r e be i n g ( a ) an e r r o r i n t h e o rd e r o f t h e A O and ( b ) s u c h e r r o r c a u si n g p re j u d i c e t o t h e i nt e r e s t o f th e r e ve n u e . Th e said section clarifies t ha t wh e r e in a s i tu a t i o n an a s s e s s m e nt o r de r is p as s e d without making n e c e s s ar y e n q u i r i e s i t s h a l l b e an o r de r err o n e o u s a n d p r e j u d i c i a l t o t h e i n t e re s t s of th e r e v e n ue . I n th e p r e s e nt c a s e w e f i n d th e L d . P r . CI T h a s f o u n d t he o r de r p a s s e d b y t h e A O t o b e e r r o n e o u s f o r t he a b o v e r e a s o n o n l y . B u t c o n s i d e r i n g t he f a c t s o f t h e c a s e a n d t h e d i s c u s si o n b y t h e L d . P r .C I T i n t he o r d e r , w e a r e n ot c o n v i nc e d th a t t h e i nq u i r y c o nd u c t e d by t h e A O w as i n ade q u a t e .
16. As per the Ld . Pr CI T the i ss u e of share ca p i t a l i n t r o d u c ed d u r i ng t h e y e a r f r o m a c o m p a n y M / s . P a c a t o l us S P V 5 , M A U RI TI U S c o m p r i s i n g of s h a r e c a p i t al 1. 1 8 c r o r e s and share premium of 9.6 crores was not s u f f i c i e nt l y / a de qu a t e l y e x am i n e d b y t h e A O . Th e s p e c i f i c c h a r g e a ga i n s t th e A O v i z- a - v i z t h e i n a d eq u a c y o f e n q u i ry w a s t h a t t h e AO d i d n o t b o t he r t o a s k t h e as s e s s e e for e s t a b l i s hi n g th e c r e d i b i l i t y o f t h e c o m p a n y n o r d i d h e m ak e e n q u i r y o f t h e sa m e f r o m t h e Ma u r i t i u s Ta x a t i on a u t h o r i t y a n d f u r t h e r t ha t t h e A O f a i l e d to e n q u i r y w h et he r t h e s a i d c o m p a n y ac t u a l l y e x i s t e d o r n ot .
A d m i t t e dl y , th e f o l l o w i n g d o cum e n t s / i n fo r m a t i o n v i z - a- v i z t h e s h a re c a pi t al s o i n t r o d uc e d d u r i n g th e y ea r h a d b ee n f i l e d b y t h e a ss es s e e b e f or e t h e AO :
• Name and address of the investor 19 ITA No.1514/Chd/2017 A.Y.2013-14 • Mode of receipt of share capital and share premium by the assessee company from the Mauritian investor.
Copy of form No. 2 filed by the assessee company with ROC for allotment of aforesaid equity share capital to Mauritius Investor.
• Copy of share certificate issued to the investor.
• Copy of FIRC issued by the remitting bank i.e. Hong Kong and S h a n g ha i B a n k i n g C or po r a t i o n L t d. i . e . H S B C M u m ba i .
• Copy of FCGPR submitted to RBI regarding the above investment along with its supporting documents.
• Copy of certificate of Incorporation of Investor company.
• Copy of Tax Residency Certificate issued by Mauritius revenue authority • Copy of certificate issued by Chartered Accountant certifying the fair value of shares /premium at which shares were issued to the Mauritian Company
17. C l e a r l y, t h e i d en t i t y of t he i n ve s t o r co m p a n y, i s d u l y p r o v e d b y t h e Cer t i f i c a te o f I n c o rp o r a t i o n i s s u e d a s p e r t he l a w s o f t h e c o unt r y a n d th e Ta x R e s i d e n c y c e r t i f i c a t e i s s ue d b y t h e M a u r i ti a n R e v e n u e a u t ho ri t i e s , g i v i n g t h e n a m e a n d a d d r e s s o f t h e i n v e s t o r c o m p an y a n d c e r t i f y i n g th a t i t i s a c o m p a n y i n c or p or a t e d i n M a u r i ti u s a s p e r i t s l a ws a n d is a resident of Mau r i t i u s for I n co m e Ta x purposes. Th e g e n u i n e n es s of the t r a n s a ct i on , that s h a re capital w as r e c e i v e d f ro m t he s a i d i n v e s to r co m p a n y c a n b e su f f i c i e nt l y g a t h e r e d fr o m th e c o p y o f re t u rn f i l e d t o th e Re g i s t r a r of C o m p a n i e s i n f orm N o . 2 , s u b m i t ti n g t h e s ai d f a ct o f r e c e i pt o f s h a re c ap i t a l f r o m t h e i n v e sto r c o m pa n y an d a l s o f r o m t h e c o p y o f s h a re c e r t i f i c a te s i s su e d t o i t . Th a t m o n e y w a s g e n u i n e l y r e c e i ved o n a c c o u nt o f s h a r e c a p i t a l f rom t h e s a i d i n v e s t o r i s e v i den c e d b y t h e c o py o f documents submitted b y t h e r e m i t t i n g a n d a c c e p t i n g ba n k t o R B I a s pe r t h e F D I 20 ITA No.1514/Chd/2017 A.Y.2013-14 n o r m s g o v er n i n g t h e i m p u g n ed t ra n s a c t i o n i . e . FI R C i s s u ed b y t h e b a n k r em i t t i n g t h e m o ne y f r o m M a ur i t i u s t o I n d i a i . e . H S BC , H on g K o n g - S h a ng h a i B a n k i n g C o r p o rat e L i m i te d , and copy of the FCGPR s ub m i t te d t o R BI b y C an a r a B a n k, t h e a c c e p ti n g ba n k . Th e l e t t e r i s s u e d b y R BI al l o c a t i n g a unique I d e nt i f i ca t i o n n u m b er to the t r a n s a ct i o n , thus c o n f i r m i ng t h a t t h e t r a n s a c ti o n i s t a k e n o n r e c o rd , f u r t h e r c o r r o b o r at e s t h e g e n u i n e n e s s of t h e t r a n s a c t i o n. M o r e o v e r t h e c e r t i f i ca t e of t h e c h a r t e r e d a c c o u n t a n t c e rt i f y i n g t he m a n n e r o f d e t e rm i n i n g t h e f a i r m a r k e t v a l u e of s h a r e o f Assessee C o m p an y , j u s ti f i e s t he p r e m i um a l so r e c e i v ed . Th e r e f o r e , t h e do c u m e n t s f i l e d b e f o r e t h e A O su f f i c i e nt l y e s t a b l i s he s t h e i d e n t i t y o f t h e i nv e s t o r , t ha t i t i s a c o m p a ny i n c o r p o r at e d in Mauritius and also a tax resident of M a u r i t i u s, t he ge n u i n e n e ss o f t he t r a n sa c t i o n, th a t i t h ad i n v e s t e d i n s ha re c a p i t a l o f t h e a s s e s s e e c om p a ny a n d a l s o t h e j u s t i fi c a t i on f o r t h e p r em i um . N o i n f i r m i t y h a s b e e n p o i n t e d ou t i n th e a b o v e d o c u me n t s b y t h e L d. Pr . CI T. W i t h a l l t h e a b o v e d oc u m e n t s f o u nd t o b e i n o r d e r , th e A O , w e h o l d , w a s r i g h t l y s a t i s f i ed w i t h the g e n u i n e ne s s o f t h e s h a r e c a p i t a l r e c e i ve d a n d w e d o n ot f i n d a n y r e a s o n f or t h e AO to have made any further i n q ui r y regarding t he i n v e s t or company. As po i n t e d out by the L d . C o u n se l for t he a s s e s s e e , t h e I TA T h a d h e l d i de n t i c a l d o c u m e nt s f i l e d a s s u f f i c i e nt f o r e s ta b l i s h i n g g e n u i ne n e s s o f s h a r e ap p l i c a t i on money re c e i v e d by L ot u s I n te g r a t e d Ta x p a r k Ltd., a c o m p a n y w i t h wh i c h t h e a s s e ss ee c o m p a n y g o t am a l g a m a t ed s u b s e q u e nt l y , fr o m a M au r i t i u s c o m p a ny in p r e c e d i ng 21 ITA No.1514/Chd/2017 A.Y.2013-14 y e a r s , a n d d el et e d a d d i t i on m ad e o n a c c o u n t o f share c a p i t a l f o r i de n t i c a l r e a s o n s t h at i t s i d e n t i t y a n d c r e d i b i l i t y w a s n o t a d e qu a te l y e s t a b l i s h e d . Th e v i e w t a k e n b y t h e A O , i n b e i n g s u f f i ci en t l y s a t i s fi e d a bo u t t h e g e n u i n en e s s o f t h e s h a r e c ap i t a l r ec e i v e d fr o m th e M a u r i t i a n c omp a n y , c an w i t h o u t a n y d o ub t t h e re f o r e b e sa i d t o b e a pl a us i b l e vi e w . Th e L d . P r . CI T, w e f i n d , i n t h e p r e s e n t ca s e h as s o u g h t to t h e r e f o r e i m p o s e h i s v i e w r e g ar di n g t h e i n a d eq ua c y o f t h e i n q u i r y c o nd u c te d b y e x e r c i si n g h i s p o w e r s u n de r s e c t i on 2 6 3 , w h i c h c a nn o t b e d o n e . T h e r e l i a n c e p l ace d b y t h e L d . C o u n s el f o r th e a s s e s s e e o n th e d e c i s i o n o f th e H o n , b l e D e l h i Hi g h C ou rt i n t he c a se o f S u n B e a m A u t o( s u p r a ) is a p t w h e r e i n i t ha s b e e n h e l d t ha t i f t h e r e w a s a n i n q u i r y , e v e n i f i n a d eq u at e , t h a t w o ul d b y i t s e l f n o t g i v e an o c c a s i o n t o t h e C o m m i ss i o n e r t o p a s s a n o r d e r u / s 2 6 3 o f t h e A c t , m e r e l y b ec a u s e h e h a s a d i f f e re nt o p i n i o n i n t he m a t t e r .
18. Moreover, the premi ses on whi ch the Ld. Pr.CI T has rested hi s case for more i nvesti gati on on the i ssue of share capi tal recei ved by the asses see from the Mauri ti an company, i s based on general i nformati on i n the form of Whi te Paper i ssued by the Mi ni str y of Fi nance i n 2012, regardi ng unaccounted weal th generated in I ndi a, bei ng routed back to t he countr y thro ugh FDI s, GDRs, etc. from outsi de the countr y. There i s no speci fi c i nformation i n the possessi on of t he Ld. Pr.CI T ei ther vi s-à-vi s Mauriti us compani es adopti ng such modes i n general or eve n vis-à-vi s the speci fi c i nvestor company i nvol ved i n the present case 22 ITA No.1514/Chd/2017 A.Y.2013-14 i .e. M/s Pacatolus SPV5 . Thi s, general i nformati on i n hi s possessi on l ogi cal l y cal l ed for enqui r y regardi ng genui neness of such transacti on. And thi s i s what has speci fi cal l y been done i n the pre sent case, wi th the assessee's case bei ng sel ected for scruti ny sol el y for the purpose of veri f yi ng the genui neness of the share capi tal recei ved by the assessee from the Mauri tius company, which as we have hel d above the assessee dul y establ i shed.
18. Moreover, we fi nd, that from thi s general i nformati on, the Ld.Pr.CI T has made hi s o wn deri vati ons that mone y comi ng through Mauri ti us is l argel y tai nte d, on the reasoni ng that 48% of the FDI in I ndi a i s from Mauri ti us, whi ch bei ng a smal l economy cannot be the source of such huge i nvestment. Thus i t i s me rel y suspi ci on of the Ld. Pr.CI T that the mone y recei ved in the present case by wa y of share capi tal i s the unaccounted i ncome of the assessee i tsel f. Thi s is evi dent from th e fact that the Ld.Pr.CI T hi msel f states " In the ins tan t c ase it is qu i te po ss ibl e th at there coul d be un accoun ted we al th c amo uf l aged under the gu ise of FDI i nves tmen t and l arge amo un t of mone y tr ansf erred outs i de Ind i a migh t ac tu al l y h ave re turned to Ind i a through l eg al ch annel as M aur itius h as been one of the po pul ar tax h ave ns of the wo rl d" Mere suspi ci on cannot be the basi s for re jecti ng the i nformati on and documents fi l ed by the assessee and hol di ng them to be i nsuffi ci ent for establ i shi ng the genui neness of the transacti on. The i nqui r y conducted by the AO cannot be termed i nadequate merel y 23 ITA No.1514/Chd/2017 A.Y.2013-14 because the Ld.Pr.CI T suspected the transacti on to be tai nted. It is settl ed law that juri sdi cti on u/s 263 for revi si ng order of the AO cannot be assumed for making further i nqui ri es. There has to be a defi ni te fi nding of error based on material evi dences and not on suspi ci on. The Ld. Pr.CI T has to come to the concl usi on and hi msel f deci de that the order i s erro neous, by condu cti ng necessar y i nqui ri es, i f requi red and necessar y, before the order u/s 263 i s passed. The Commi ssi on er cannot remand the matter to the AO to deci de whether the fi ndi ngs recorded are erroneous.
19. Further, si nce we have hel d t hat adequate i n quiri es were conducted by the AO r egardi ng the sh are capi tal recei ved from the Mauri ti us company, the order cannot be sai d to be erroneous even as per Expl anati on 2 to secti on
263. Al so, as ri ghtl y poi nted out by the Ld.Counsel for the assessee, the I TAT ,i n the case of Nara yan Tatu Rane( supra) has hel d that the sai d e xpl anati on does not overri de the requi rement of l a w that there ha s to be a defi ni t e fi ndi ng of error i n the or der of the AO, by the CI T, fo r assumi ng juri sdi cti on u/s 263 of the Act, a nd merel y e xpr essi ng the vi e w that the i nqui r y of the AO was i nadequate, wi thout the CI T hi msel f con ducti ng necessar y i nqui ri es to sho w the fi ndi ng of the AO as erroneous, cannot be the i nterpretati on of the Expl anati on.
20. Further the spe ci fi c charge, vi s a vi s, i nadequ ac y of i nqui r y conducted by the AO, i s wi th regard to no inqui r y bei ng made regardi ng the credi bi l i t y of the i nvestor 24 ITA No.1514/Chd/2017 A.Y.2013-14 company. I n thi s regard, we agre e wi th the Ld C ounsel for the assessee, th at the credi t st andi ng i n the n ame of the i nvestor who i s a non resi dent , the onus to e xpl ai n the source of the source di d not l a y wi th the assessee, as per secti on 68 of the Act. Therefore the AO on bei ng sati sfi ed wi th the genui neness of the transacti on, bei ng carri ed out through banki ng channel s, was not requi red to inquire i nto the source of the source and therefore the i nqui r y coul d not be sai d to be i nadequate on thi s count.
21. I n vi e w of the above, we hol d t hat the sati sfacti on of the Assessi ng Offi cer regardi ng the genui neness of the share capi tal recei ved by the assessee from the Mauri ti an company was reasonabl e consi deri ng the documents fi l ed and more i mportantl y consi deri ng the fact that on the basi s of i denti cal documentati on the I . T.A. T. had hel d i denti cal transacti on to be genui ne i n the case of a company whi ch the assessee company was subsequentl y was amal gamated wi th. The Ld. P r.CI T has not poi nted out why any further enqui r y was requi red to be made. I t i s not a case where any i nfi rmi t y has been poi nted out in the documents submi tted by the assessee or for that matter, the huge share premi um has not been justi fi ed. I f that be the case then of course, the sati sfacti on of the Assessi ng Offi cer coul d not said to be reasonabl e and defi ni tel y i n such a case the enqui ry of the Assessi ng Offi cer woul d have b een cl earl y defi ci ent. Tha t e xactl y i s the fact and si tuati on i n whi ch the Hon'bl e Ape x Court and vari ous other courts have uphel d the order passed 25 ITA No.1514/Chd/2017 A.Y.2013-14 u/s 263 of the Pr. CI T i n vari ous cases ci ted by the Revenue before us. But in the present case, the i denti t y, the genui neness and even the share premi um recei ved has been establ i shed and justi fi ed. No reason remai ns for doubti ng the transacti on. The Ld.Pr.CI T ha s rested hi s case for more i nqui r y i n the matter, merel y on the basi s of suspici on that the transacti on ma y be tai nted. Thi s we hol d, ca nnot be the basi s for hol di ng the enqui r y conducted by the AO as i nsuffi ci ent and the order consequentl y passed as erroneous for the purpose of assumi ng juri sdi cti on u/s 263 of the Act.
We therefore set asi de the order of the Ld.Pr.CI T.
22. I n the resul t, the appeal of the assessee i s all o wed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
दवा संह अ नपणा$
ू ग&ता
ु
(DIVA SINGH ) (ANNAPURNA GUPTA)
याय!क सद"य/ Judicial Member लेखा सद"य/ Accountant
Member
दनांक /Dated: 5th December, 2018
*रती*
आदे श क त*ल+प अ,े+षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय-त
ु / CIT
4. आयकर आय-त
ु (अपील)/ The CIT(A)
5. +वभागीय त न0ध, आयकर अपील#य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानसार ु / By order, सहायक पंजीकार/ Assistant Registrar 26 ITA No.1514/Chd/2017 A.Y.2013-14