Bombay High Court
Pr. Commissioner Of Income-Tax-8 vs Reliance Natural Resources Ltd on 17 January, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
Digitally signed
by MEERA
2024:BHC-OS:947-DB
MEERA MAHESH
JADHAV
MAHESH Date: 1/6 15-itxa-1136-18.doc
JADHAV 2024.01.19
11:15:57
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1136 OF 2018
The Pr. Commissioner Of Income Tax-8 Mumbai ...Appellant
Versus
Reliance Natural Resources Ltd. ...Respondent
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Mr. Suresh Kumar for Appellant.
Mr. R. A. Dada, Senior Advocate a/w Mr. Niraj Sheth i/b Mr. Balasaheb
Yewale for Respondent.
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CORAM : K. R. SHRIRAM &
Dr. NEELA GOKHALE, JJ.
DATED : 17th JANUARY 2024 P.C. :
1 The following six questions of law are proposed:
i) "Whether on the facts and in circumstances of the case, Hon'ble ITAT has justified in deleting the addition of FCCB proceeds of Rs.
1304,10,00,000/- u/s. 68 of the Act?
ii) Whether on the facts and in circumstances of the case, Hon'ble ITAT has justified in deleting the addition of FCCB proceeds of Rs.1304,10,00,000/- u/s. 68 of the Act without appreciating the fact that the assessee had failed to discharge its onus of establishing the identity creditworthiness and genuineness of the actual holders of individual certificates collectively represented by single global certificate which is prerequisite condition of section 68 of the Act?
(iii) Whether on the facts and in circumstances of the case, Hon'ble ITAT was justified in not appreciating that Deutsche Bank Luxembourg SA - Registrar, the agent of the assessee, responsible for maintaining the name of the subscriber register was not provided by the assessee, whereas assessee was duty bound to produce such subscriber register from its agent and order of ITAT is perverse to that extent?
(iv) Whether on the facts and in circumstances of the case, Hon'ble ITAT has justified in not appreciating that the provisions of section 114(g) of the Indian Evidence Act which clearly lays down that if a fact in knowledge of a party is not explained, adverse inference can be drawn against the party possessing the knowledge facts/information?
(v) Whether on the facts and in circumstances of the case, Hon'ble Meera Jadhav ::: Uploaded on - 19/01/2024 ::: Downloaded on - 19/01/2024 22:37:56 ::: 2/6 15-itxa-1136-18.doc ITAT has justified in holding that subscribers to the bonds are the lead managers and beneficial bondholders as these findings are irrelevant for the purpose of Section 68 of the I.T. Act, 1961.?
(vi) Whether on the facts and in circumstances of the case, Hon'ble ITAT has justified in allowing the issue expenses and interest expenses to the extent such funds were deployed for business purpose without appreciating that entire expenses are warranted to disallowed in light of failure to establish the genuineness of FCCB funds in the first place?"
If we consider these six substantial questions of law proposed, what in effect requires to be considered is the proposed question no.(i) only.
2 Respondent-assessee had raised funds through Foreign Currency Convertible Bonds (FCCB) during financial year 2006-07 relevant to A.Y.- 2007-08. Assessee had received proceeds of FCCB of US$ 300 million in Barclays Bank as lead manger. Assessee had entered into a subscription agreement with Barclays Bank on 10 th October 2006. Assessee issued the offer document to Barclays Bank clarifying that the bond will be represented by a single global certificate. The terms and conditions of the bond were given as per schedule to the subscription agreement provided that bonds were to be issued in registered form in denomination of US$ 100 each. It also provided that no individual certificate in respect of interest in any bond was to be issued in exchange of global certificate except in the circumstances provided in the clause.
3 The payment of US$ 290.40 million was made by way of subscription for FCCB which assessee has received from Barclays Bank through Deutsche Bank and issued a receipt on 15 th October 2010. FCCB of US$ 300 million Meera Jadhav ::: Uploaded on - 19/01/2024 ::: Downloaded on - 19/01/2024 22:37:56 ::: 3/6 15-itxa-1136-18.doc were transferred to Reliance Power under demerger scheme approved by Hon'ble Bombay High Court on 15 th October 2011. The FCCB of US$ 100,000/- were converted into shares in Reliance Power Ltd. and 43862 shares were issued to FCCB holders during F.Y. 2010-11. Balance FCCB of US$ 299.90 millions were redeemed to FCCB holder. 4 The Assessing Officer (AO) in the original assessment order has accepted that assessee has received this amount of US$ 300 millions from Barclays Bank. The assessment was completed under section 143(3) of the Income Tax Act 1961 (the Act) on 7th December 2009. The AO has examined the same and accepted that assessee has received the amount from Barclays Bank. Notice under Section 148 of the Act was issued and during the reassessment proceedings, the AO applied Section 68 of the Act on the ground that assesseee has failed to explain the nature and source of the fund. The AO has treated Rs.1304.10 crores as deemed income of assesssee on the ground that assessee has not supplied information about details of actual bond holders and ultimate beneficiaries and, therefore, it was added under Section 68 of the Act.
5 Against this order, assessee preferred an appeal to Commissioner of Income Tax (Appeals) (CIT(A)), who allowed the appeal relying upon the order passed in the matter of Reliance Communication Ltd, where similar issue had come up for consideration. The revenue impugned the order of CIT(A) before the Income Tax Appellate Tribunal (ITAT), which dismissed Meera Jadhav ::: Uploaded on - 19/01/2024 ::: Downloaded on - 19/01/2024 22:37:56 ::: 4/6 15-itxa-1136-18.doc the appeal of the revenue by an order pronounced on 12 th May 2017. It is this order that is impugned in this appeal.
6 It was submitted on behalf of the revenue that assessee had not provided details of actual bondholders to whom the lead manager Barclays Bank had ultimately transferred the bonds. The identity, creditworthiness and genuineness has to be looked into vis à vis the subsequent bondholders collectively represented by global certificate. It was also submitted that the lead managers are not the subscribers or at least the ultimate subscribers and assessee was required to cause the register of the bondholders to be maintained by the Registrar. The failure to produce the names of the subsequent bondholders and failure to give their creditworthiness justifies the invocation of section 68 of the Act. It was also submitted that if the provisions of Section 68 of the Act are applied to FCCB proceeds, the interest expenses and FCCB expenses were also to be disallowed as non- genuine.
7 A similar issue on similar facts had come up before the Tribunal in the case of Reliance Communication - ITA No.2915/M/2012 for AY-2007-
08. Assessee in that case also had raised a sum of Rs.6485 crores by way of FCCB and the AO wanted to verify the source of FCCB fund, name and address, genuineness and creditworthiness and actual subscribers. In that case, the Tribunal held that assessee had adequately discharged the onus cast upon it. The Tribunal also held that assessee did not have the Meera Jadhav ::: Uploaded on - 19/01/2024 ::: Downloaded on - 19/01/2024 22:37:56 ::: 5/6 15-itxa-1136-18.doc obligation to prove the identity, capacity and creditworthiness of actual subscriber which fact was beyond the reach at the relevant time. The Tribunal, while deciding the issue came to a conclusion that assessee was only required to prove the identity, capacity and creditworthiness of the entity that subscribed to its issue of FCCB, which is not in doubt. Assessee having received the amount of subscription of the fund from the said entity, has also not been denied. The fact that global certificate in respect of the bonds was also issued to the said entity, is also not disputed and, therefore, the Tribunal accepted that assessee has adequately discharged the onus cast upon it in terms of Section 68 of the Act. The Tribunal concluded that assessee did not have an obligation to prove the identity, capacity and creditworthiness of the actual subscriber, i.e., the sources source. 8 The said order in the case of Reliance Communication Ltd passed by the Tribunal was impugned by the revenue in this court under Section 260A of the Act. The same issue as raised in case at hand was raised therein. The appeal was dismissed, against which an SLP was preferred by the revenue. The SLP also came to be dismissed.
9 The Tribunal in the case at hand has concluded and rightly so that the facts in the case of Reliance Communication Ltd are similar to assessee's case in the case at hand and the ground raised by revenue were also identical. Therefore, on facts the Tribunal correctly came to the conclusion that the nature and source of funds of FCCB is fully explained and the Meera Jadhav ::: Uploaded on - 19/01/2024 ::: Downloaded on - 19/01/2024 22:37:56 ::: 6/6 15-itxa-1136-18.doc addition under Section 68 of the Act made by the AO in the reassessment proceedings was not correct.
10 In the circumstances, we find no reason to interfere in the order of the Tribunal impugned in this appeal.
11 Appeal dismissed.
(Dr. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Meera Jadhav
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