ACIT Vs Kansur Developers India Pvt. Ltd. (ITAT Bangalore)
ITAT Bangalore held that provisions of section 68 of the Income Tax Act are not applicable to the remittance made in India by non-resident.
Facts-
Revenue has preferred the present appeal on the ground that CIT(A) erred in deleting ‘Addition u/ s 68 of the Income Tax Act,1961 amounting to Rs.4,07,88,170/ – without appreciating the fact that except for the identity, the assessee has not been able to establish the creditworthiness of the person advancing the loan and also the genuineness of the transaction.
Revenue has also raised the ground that CIT(A) erred in not appreciating that the said investor Shri Samyakant C Veera has invested of about 53.34 million US $ whereas his net income over a period of 6 proceedings years in US was only 3.3 million US$ as revealed from his tax returns filed with US Revenue authorities and hence his creditworthiness has not been proved.
Conclusion-
Section 68 is not applicable to remittance made in India by non-resident as seen from the proviso to section 68 which has been inserted w.e.f. assessment year 2013-14 by Finance Act, 2012. According to the said proviso, if an assessee company, in which public are not substantially interested, receives money by way of share capital or share premium or any such amount by whatsoever name called, then the source of funds of resident shareholder has to be established by the assessee in order to get out of the kin of the deeming provision u/s 68 of the Act. Hence, the proviso speaks of the source being established only when the shareholder is a resident of India. There is no such requirement, if the shareholder is a non-resident, therefore, the creditworthiness of the shareholders, if he is non-resident, does not have to be established by the assessee in respect of remittance received by him or it. Being so, in the present cases, only identity and creditworthiness of investor and genuineness of the transactions for explaining the credit in the books of account of the assessee is sufficient, and the onus does not extend to explain the source of funds in the hands of the investor. Thus, the proviso to section 68 of the Act is applicable to residents only, who are required to substantiate “source of source of funds”. This additional burden cast upon by the proviso was not applicable to non-resident investors. Accordingly, we confirm the deletion of addition made by the Ld. CIT(A). Hence, all the appeals filed by the revenue are dismissed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals by the revenue are directed against orders of CIT(A)-11, Bangalore dated 28.2.2018 for the assessment years 2009-10, 2012-13 & 2008-09 in respect of above two assessees and the Cross objections filed by the assessees against the appeals of the revenue. The grounds raised by the revenue in its appeals are common in nature except figures and hence we reproduce herewith grounds of appeal in ITA No.1441/Bang/2018 for the A.Y. 2009-10 as follows:-
1. On the facts and circumstances of the case, the Ld CIT(A) erred in deleting ‘Addition u/ s 68 amounting to Rs.4,07,88,170/ – without appreciating the fact that except for the identity, the assessee has not been able to establish the creditworthiness of the person advancing loan and also genuineness of the transaction.
2. On the facts and circumstances of the case, the Ld CIT(A) erred in holding that the assessee has proved the creditworthiness of the person advancing the loan merely relying on the fact that the said person has been held to a large tax defaulter by the US Revenue authorities ignoring the fact that the said fact does not conclusively prove that the said person has any large real income and cannot be a proof of his creditworthiness on stand alone basis.
3. On the facts and circumstances of the case, the Ld CIT(A) erred in not appreciating that the said investor Shri Samyakant C Veera has invested of about 53.34 million US $ whereas his net income over a period of 6 proceedings years in US was only 3.3 million US$ as revealed from his tax returns filed with US Revenue authorities and hence his creditworthiness has not been proved.
2. The assessees have raised Cross objections wherein following common grounds are raised which are herein below:-
1. The order of the learned Commissioner of Income Tax (Appeals) is opposed to the facts of the case and law applicable to it.
2. The learned Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer of invoking the provisions of section 147 of the act for the A.Y.2009-10 dismissing the grounds of appeal of the respondent on the legality of the action of the Assessing Officer in invoking the said provisions.
3. The learned Commissioner of Income Tax (Appeals) erred in ignoring that, the Assessing Officer recorded satisfaction on wrong set of facts that, the appellant had not filed the return at all, whereas the appellant in fact had already filed the return of income within the due date and under the circumstances, the reopening was bad in law and deserved to be annulled.
4. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law that, the provisions of section 147 of the Act cannot be invoked on mere suspicions and relying solely on an alleged report from investigation wing, without any independent evidence, the said provisions could not have been invoked.
5. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the position of law that, in the absence of reason to believe and without any evidence to form such reason to believe that, income chargeable to tax has escaped assessment, the Assessing Officer could not have invoked the provisions of section 147 of the act.
6. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law that, the reason to believe for issue of notice u/s 147 of the Act should be on the basis of tangible material and not on presumptions and on just an opinion which is not supported by evidences the provisions of section 147 of the Act could not have been invoked.
7. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by Hon’ble Supreme Court in the case of Indian & Eastern News Paper Society V. CIT (1979) 119 ITR 996 (SC). wherein it is held that, opinion of an audit party cannot be basis for reopening and on the same lines opinion of investigation wing can also be not a basis for reopening U/s.147 of the act.
8. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down in the following decisions, wherein it is held that. on mere suspicion no reopening is possible U/s.147 of the act, since the satisfaction is based on “reason to believe” and not “reason to suspect”
i) CIT V. Jeska ran Bhuvalka (1970) 76 ITR 128 (AP)
ii) Sundareswaram V. CIT (1972) 84 ITR 173 (Ker)
iii) Hemlata Agarwal V. CIT (1967) 64 ITR 428 (All)
iv) ITO V. Lakshmani Mewal Das (1976) 103 ITR 437 (SC)
v) India Finance & Construction Co., (P) Ltd V. B.N.Panda, DCIT (1993) 200 ITR 710 (Born)
9. The learned Commissioner of Income Tax (Appeals) erred in ignoring the ratio laid down by Hon’ble High Court of Delhi in the case of Principal Commissioner of Income Tax V. RMG Polyvinyl (I) Ltd (2017) 83 Taxmann.com 348 (Delhi), wherein it is held that, the information received from Investigation Wing could not be said to be tangible material perse without a further enquiry being undertaken by the Assessing Officer to establish link between “tangible material” and formation of reason to believe that income chargeable to tax had escaped assessment for the purpose of the provisions of section 147 of the act.
10. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by Gujarath High Court in the case of Gaurav Contracts Co., V. DCIT (2015) 64 com 333 (Guj). wherein it is held that, an opinion of an audit party cannot be basis for reason to believe for the purpose of the provisions of section 147 of the act
11. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by Hon ‘ble High Court of Delhi in the case of Pr.Commissioner of Income Tax — 6, Vs. Meenakshi Overseas Private Limited (2017) 82 com 300 (Delhi), wherein it is held that, reassessment resorted to on the basis of information from investigation wing without independent application of mind to the tangible material is not justified and all the more so in the absence of any such tangible material.
12. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by Hon ‘ble High Court of Bombay in the case of Nu Power Renewables (P) Ltd V.DCIT, Circle-1(2)(a) (2018) 94 com 29 (Bombay), wherein it is held that, relying only upon information received from DDIT and without independently applying mind, re-assessment cannot be resorted to.
13. The learned Commissioner of Income Tax (Appeals) erred in ignoring the position of law laid down by Hon ‘ble High Court of Bombay in the case of Principle Commissioner of Income Tax-5 V. Shodiman Investments (P) Ltd (2018) 93 com 153 (Bombay), wherein it is held that, reopening notice issued by Assessing Officer on the basis of intimation from DDIT, Investigation, is in breach of settled position of law that, a reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction.
14. The learned Commissioner of Income Tax (Appeals) erred in not following the ratio laid down by ITAT. Delhi Bench in the case of RMG Polyvinyl (I) Ltd V. DCIT. Circle 15(1), New Delhi (2017) 88 com 351 (Delhi-Trib), wherein it is held that, where the Assessing Officer had not applied his mind and mechanically issued notice U/s.148 of the act on the basis of information received from the DIT Investigation, the reassessment is bad in law and deserves to be quashed.
15. The learned Commissioner of Income Tax (Appeals) erred in ignoring the ratio laid down by the Hon’ble Delhi Tribunal in the case of Monarch Educational Society V. ITO (Exemption) (2015) 57 com 141 (Delhi) wherein it is held that, simply reproducing details received from Director of Income Tax, Investigation without any verification would not be sufficient reason to believe for the purpose of invoking the provisions of section ‘147 of the act
16. The learned Commissioner of Income Tax (Appeals) erred in not following the ratio laid down by ITAT. Delhi Bench ‘A’ in the case of Bir Bahadur Singh Sijwali V. ITO Ward-1, Haldwani (2015) 53 com 366 (Delhi Trib).
17. The respondent craves permission to ad, delete or alter any of the grounds at the time of hearing.
2.1 The assessee has raised additional grounds of appeal in cross objections, which are reproduced as under:-
“The Appellant has filed Cross Objection on 06.08.2018 before Hon’ble ITAT. While filing the same, we have 16 grounds of appeal. The last of the grounds is as under: –
“16. The respondent craves permission to add, delete or alter any of the grounds at the time of hearing”.
The Appellant is taking the following Additional Grounds of Cross Objections on point of law.
1. The learned Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in invoking the provisions of section 147 of the act for the A.Y.2008-09 ignoring the fact that, the proceedings were initiated on the basis of certain seized material and consequential enquiries and therefore under law the proceedings should have been initiated under the provisions of section 153C of the act.
2. The learned Commissioner of Income Tax (Appeals) erred in holding that, the reopening U/s.147 of the act is valid ignoring the position of law that, the provisions to be invoked was the provisions of section 153C of the act and therefore the proceedings U.sl 147 initiated are bad in law and deserve to be annulled.”
2.2 At the time of hearing, the Ld. A.R. has not pressed the legal issue in all the COs filed by the assessee, however, he only supported the deletion of addition made by Ld. CIT(A) on merit.
ITA No.1441/Bang/2018 for the AY 2009-10:-
3. Since issue in all appeals are common, for brevity, we consider the facts and grounds in ITA No.1441/Bang/2018 for adjudication.
Facts of the case are as follows:-
3.1 The issue involved in the appeal is the investment of Rs. 3,94,77,984/- (US Dollars $ 9,39,952) by a nonresident. non-citizen. Sri. Samyak Chandrakanth Veera in shares of the company M/s. Kansur Developers (P) Ltd. The Assessing Officer in the order of assessment dated 31 12.2015 has added the said investment under the provisions of section 68 of the Income-tax Act,1961 [‘the Act’ for short]. On appeal the Ld. C1T(A) in his order in ITA No. 355/Deputy Commissioner of Income-tax/CC-1(4)/CIT(A)-11/2015-16 dated 10.02.2016 has deleted the addition made. The revenue is now in this appeal before the Tribunal contesting the deletion made by the Ld. CIT(A).
4. The Ld. D.R. submitted that Shri Samyak C. Veera has invested in various companies of an amount of 53,341,067 USD up to assessment year 2012-13 as against the income of 33,122,56 USD. According to him, the judgement relied by the assessee’s counsel in the case of M/s. Jaico Realtors Pvt. Ltd. in ITA No.1444/Bang/2018 dated 8.5.2019 cannot be applied to the facts of the present case. Further, he submitted that as per records, assessee has received a sum of 939952 USD (Rs.4,07,88,170/-) from Samyak C. Veera, a share capital and share premium and his return of income from the year 2000 to 2006 is only 3312256 USD and he has no enough sources to invest in the assessee’s company and in certain years he has also incurred loss to the tune of 56,628,098 USD. As such, he is not in a position to make an investment of above amount in the assessee’s company. According to Ld. D.R., the assessee has not proved the sources of Shri Samyak C. Veera to make such huge investment in assessee’s company and he has made following investments for which Shri Samyak C. Veera have no source of income:-
