Case Law Details

Case Name : ACIT Vs. Veritas (India) Ltd. (ITAT Mumbai)
Appeal Number : I.T.A. No. 3276/Mum/2016 and C.O.98/Mum/2018
Date of Judgement/Order : 2010-11
Related Assessment Year : 10/01/2019
Courts : All ITAT (7345) ITAT Mumbai (2112)

Veritas (India) Ltd. Vs ACIT (ITAT Mumbai)

Conclusion: Assessee had established identity of investors and submitted documents to establish creditworthiness and the certificate issued by the Firm of Accountants for proving the movement of funds from ultimate investors to the foreign companies which establish genuineness of transactions thus,  assessee had discharged initial burden placed upon it under section 68 by proving three main ingredients, accordingly, addition made under section 68 could not be sustained.

Held: AO noticed that assessee had received funds aggregating to Rs.50.00 crores from two foreign companies  which was considered to be a tax haven. He further noticed that assessee-company had applied for post facto approval to FIPB division of Government of India for approving the receipt of Rs.50.00 crores as share capital from the above said two foreign companies. AO noticed that the FIPB division of Government of India had rejected application of assessee and further investor companies were only front companies and the real investors were different persons. AO finally took the view that assessee had established identity of investors and submitted documents to establish creditworthiness also, but failed to establish genuineness of transactions, as the remittances had not been linked to the investments made in the assessee company. Accordingly, AO assessed the share capital amount of Rs.50.00 crores received from the two foreign companies, as deemed income of assessee within the meaning of section 68 . It was held  assessee had failed to furnish financial statements of ultimate investors. In terms of sec.68, the same might not be required, as the immediate investors were foreign companies, whose source had been proved by the financial statements filed by them. The certificate issued by the Firm of Accountants proved the movement of funds from ultimate investors to the foreign companies, which invested in the shares of the assessee company. Thus, the source of sources also proved, while it may not be necessary for the purposes of sec.68. Assessee had also furnished details of commission paid by it for arranging funds. All these documents/information, proved the genuineness of transactions. Hence, AO was not right in observing that the assessee had failed to prove genuineness of the transactions. Thus, assessee had discharged initial burden placed upon it under section 68 by proving three main ingredients, accordingly, addition made under section 68 could not be sustained.

FULL TEXT OF THE ITAT JUDGEMENT

The Revenue has filed appeal and the assessee has filed cross objection challenging the order dated 22.2.2016 passed by learned CIT(A)-8, Mumbai and it relates to A.Y. 2010-11. The Revenue is aggrieved by the decision of learned CIT(A) in deleting the addition of Rs.50.00 crores made by the Assessing Officer u/s. 68 of the Act.

2. The facts relating to the issue are stated in brief. The assessee is engaged in the business of trading in industrial gas cylinders, metals and machineries. It is also engaged in the business of generation of wind power. During the course of assessment proceedings for the year under consideration, the Assessing Officer noticed that the assessee has received funds from the following companies by issuing shares to them:-

Sr. No. Name & occupation of Allottee Address of Allottee Nationality of the Allotteee Number of shares allotted Total Amount paid (including premium) (in Rs.) Total amount to be paid on calls (including premium) Out standing (in Rs.)
1. M/s. Groupe
Veritas Limited Occ: Company
712A, Embassy Centre, Nariman Point, Mumbai – 400021. Indian Body Corporate 25,000 3,12,50,000 Nil
2. M/s. Aventia Global Limited Occ:  Company Nerine Chambers, P.O.Box  905, Road Town, Tortola, British Virgin Islands. Foreign Corporate Body 1,00,000 12,50,00,000 Nil
3. M/s. Onix Assets Limited

Occ: Company

Nerine Chambers, P.O.Box 905, Road “own, “ortola, British Virgin Islands. Foreign Corporate Body 3,00,000 37,50,00,000 Nil

3. The assessee had initially issued 4,25,000 share warrants to the above said companies on 26.12.2009, which entitled them to subscribe for equivalent number of equity shares. On 27.3.2010, the above said companies surrendered share warrants and subscribed shares of equivalent number at a price of Rs.1250/- per equity share (face value of Rs.10/- and share premium of Rs. 1240/- per share).

4. The Assessing Officer noticed that the assessee has received funds aggregating to Rs.50.00 crores from two foreign companies named M/s. Aventia Global Limited and M/s Onix Assets Limited, which were registered in British Virgin Islands, which is considered to be a tax haven. The Assessing Officer further noticed that the assessee-company has applied for post facto approval to FIPB division of Government of India for approving the receipt of Rs.50.00 crores as share capital from the above said two foreign companies. The AO noticed that the FIPB division of Government of India has rejected application of the assessee for the following reasons:-

  • No financial statements of M/s. Onix Assets Limited, BVI and M/s Aventia Global Limited, BVI, has been filed to show the source of inflow of funds from the said entities to the assessee company i.e., M/s. Veritas (India) Ltd.
  • No supporting documents to substantiate the identity, creditworthiness and genuineness of the transactions has been filed except filing of Certificate of Incumbency dated 27/10/2011 issued by M/s. Nerine Trust Company (BVI) Limited, (the registered agent of foreign investor).
  • As per the certificate, the only evidential fact is that these companies are registered in BVI and had paid all their dues. Further, no information in respect of sources of funds in respect of such investments are evident from the said certificate. Further, the examination of documents reveal that in fact though investments are made by M/s. Onix Assets Limited, BVI and M/s Aventia Global Limited, BVI, but these companies received funds from their own group companies.
  • Importantly, 100% shareholding of M/s.Onix Assets Ltd., BVI has been held by M/s. Hambry Venture Incorporated, BVI. Similarly, 100% shareholding of M/s.Aventia Global Ltd., BVI has been held by M/s. Mejis Management Ltd., BVI. Interestingly all these companies including the Registered Agent having a common registered address i.e., Nerine Chamber, P.O. Box 905, Road Town, Tortola, British Virgin Islands.
  • It was also observed by the FIPB that such companies could not be located by the Indian Mission, under MEA in British Virgin Island or in the United Kingdom.

In view of the above, the Assessing Officer made a reference to FT and TR divisions of CBDT on 12.9.2012 seeking following information:-

a) Financial Statements of M/s. Onix Assets Limited, BVI and M/s Aventia Global Limited, BVI along with details of name and address of the promoters / directors of the said companies.

b) Supporting documents to substantiate the identity, creditworthiness and genuineness of the transactions along with supporting bank statements evidencing the flow of funds.

The Assessing Officer also conducted survey action u/s. 133A of the Act in the hands of the assessee as well as in the office of Share transfer Agent, in order to collect evidence regarding share capital received by the assessee from the above said foreign companies. During the course of survey operations, the assessing officer also recorded statements from the director of assessee-company named Shri Nitin Kumar Didwania and also from some of the officials of the assessee company.

5. After conclusion of the survey and upon examination of various materials and statements given by the director and officials, the Assessing Officer was of the view that following facts would emerge in respect of share capital money received by the assessee:-

a) Foreign companies have provided only a certificate of incorporation and no other evidence was given to establish identity of these foreign companies.

b) No financial statements/bank account statements are available with the assessee to establish creditworthiness of the foreign companies.

c) Original share certificate in respect of shares allotted to the foreign companies were found in the custody of the assessee. The Share Registrar of the assessee has also dispatched original share certificates to the address of the assessee.

d) The director of the assessee-company Shri Nitin K Didwania had stated that funds were arranged through a broker named Mr. Zaffer Ali of M/s. Zaf Business Solutions but the assessee has failed to prove in support of the same. The assessee has also failed to furnish details of directors of foreign companies and also ultimate source of funds received by the assessee.

e) During the course of survey operation, some e-mail communication between the Didwania, his employee and one Mr. Prakash regarding investment of funds by the foreign companies were found and impounded. However, Didwania failed to provide satisfactory explanation with regard to the same.

6. The Assessing Officer further noticed that the promoters of the assessee- company have also introduced share capital in the immediately preceding financial year. However, the share premium collected from them was only Rs.190/- per share on the share having face value of Rs.10/-, whereas the assessee has collected share premium of Rs.1240/- per share from the foreign investors. The Assessing Officer observed that there was no development between financial year 2008-09 and 2009-10, which would justify huge jump in the premium collected by the assessee. When the assessment proceedings were going on, the assessing officer also received a report dated 31.12.2012 titled as “Interim report” from FT & TR division of CBDT. From the report, the Assessing Officer noticed that M/s. Aventia Global Limited was having a director named M/s. Mejis Management Limited, which was holding shares on behalf of a person named Mr. Navneet Didwania, who happened to be the brother of Mr. Nitin Kumar Didwania, being the director of the assessee-company. The share capital of Onix Assets Limited was held by M/s. Hambry Venture Inc., which held shares on behalf of Smt. Deepali Didwania, wife of Mr. Navneet Didwania. On noticing the close relationship between the ultimate owners of the investor companies and the director of the assessee company, the Assessing Officer came to the conclusion that funds have been routed to the assessee company by way of layered transactions through companies incorporated in British Virgin Island (BVI), which is considered to be a tax haven. The Assessing Officer noticed that the Interim report has stated that both the companies were operating from the same address but Indian mission could not locate them either in BVI or in United Kingdom. The Assessing Officer also noticed that the report did not contain financial statements of both the investor companies, viz., M/s Onix Assets Limited and M/s Aventia Global limited.

7. In view of the above, the Assessing Officer asked the assessee to furnish details of persons ultimate investors who are behind the companies, which invested in the assessee company. The assessee furnished a certificate issued by M/s. One Partnership PAC, Singapore (an Accountant firm) certifying remittances made by Mr. Navneet Didwania and Smt. Deepali Didwania, certificate of means and creditworthiness of both above said persons. It was submitted that both the above said persons had invested money in the foreign companies which in turn, have subscribed the shares of the assessee-company. However, the Assessing Officer was not satisfied with the same and accordingly asked the assessee to furnish financial statements and also copies of returns of income filed by Mr. Navneet Didwania and Mrs. Deepali Didwania.

8. Thereafter the Assessing Officer received a letter dated 24.1.2014 written by Mr. Navneet Didwania claiming that he and his wife Mrs. Deepali Didwania are the ultimate investors in the assessee-company and investments have been made through a broker located in UAE. He also mentioned in the letter that shares were purchased out of their own resources and they are having good net worth. However, the Assessing Officer observed that Mr. Navneet Didwanai has failed to explain his sources for making investment in foreign companies.

9. It is pertinent to note that the Assessing Officer finally took the view that the assessee has established identity of investors and submitted documents to establish creditworthiness also, but failed to establish genuineness of transactions, as the remittances have not been linked to the investments made in the assessee company. The observations made by the Assessing Officer are extracted below for the sake of convenience:-

“5.20 Here in this case, though assessee has established the identity of the Investors and also submitted documents to establish the creditworthiness. But the assessee has failed to establish the genuineness of the transaction as the remittances have not been linked to the source. In absence of vital information, it can’t be accepted that assessee has discharged its onus.

5.21 Unless the assessee could establish a link between the genuine source of fund and the remittance, the same can’t be accepted as the ‘genuine’ as the vital link of source is missing.

5.22 Further, the above conclusion drawn by the Department gathers more strength due to other circumstantial evidences which prove the assessee deliberately concealed the real ‘identity’ of the foreign investor. The various details which were filed during the course of assessment proceedings in fact were submitted as Department could establish that investment had come from the close relations but assessee had tried to take a stand that investment were made by independent parties incorporated at BVI.

5.23 Keeping in view, the all facts available on records it can safely be concluded that the investment was an arranged affairs between the assessee and the family of brother of the Director Shri Nitin Didwania. But to conceal the identity, which might had raised suspicion, front companies M/s. Onix Assets Limited and M/s. Aventia Global Limited were created and money was routed through these British Virgin Island companies. The actual collusion was evident when all shares in physical form were recovered from the assessee’s own premise and despite being questioned about the identity of the ‘investor’, gross ignorance was expressed. Further, the shares have been acquired at very high rate of Rs.1,240/-per shares of face value of Rs. 10/-, whereas in the preceding year, directors had subscribed the shares at Rs. 190/- per share. The payment of very high premium (more than 6 times) appears to be unreasonable as there is no significant change in the nature of business, income from business etc. Further, non submission of any evidence to establish that the investments was made from the known sources of income of Shri Navneet & Mrs. Deepali Didwania (despite: being asked specifically), conclusively proves that whole transaction is a device to introduce Unaccounted money’ as ‘Share Capital/Share Premium’ in the books of account.

5.24 In light of the above, assessee failed to establish that the investment which was received through maze of companies in turn related to close relation of the director has come through known and declared sources. In fact, the trail of money becomes incomplete as assessee fails to adduce any cogent evidences as to source of the same. Accordingly, the same is considered as deemed income within the meaning of section 68 of the Act. Accordingly, an addition of Rs.50,00,00,000/- is made to the total income of the assessee under the head “Income from Other Source”

10. Accordingly, the Assessing Officer assessed the share capital amount of Rs.50.00 crores received from the two foreign companies, cited above, as deemed income of the assessee within the meaning of section 68 of the Act.

11. In the appellate proceedings, the Ld CIT(A) deleted the addition and hence the revenue has filed this appeal. Before Ld CIT(A), the assessee had also raised a legal issue urging that the assessment order passed by AO is barred by limitation. Since the Ld CIT(A) has rejected the same, the assessee has filed cross objection challenging the said decision of Ld CIT(A).

12. We shall first take up the appeal filed by the revenue. The Ld D.R supported the order passed by the AO. He submitted that the assessee has issued share capital to the two foreign companies without obtaining due approval from FIPB division of Government of India. He submitted that the application of the assessee for post-facto approval has since been rejected by FIPB. He further submitted that the assessee has allotted shares to the companies incorporated in BVI, which is a tax haven. Those companies are only front companies and the real investors are different persons, which fact has since been found by the department through its investigation. He submitted the companies located in BVI, the shareholder companies are having common addresses. He submitted that these company’s addresses could not be identified by the Indian Mission. He further submitted that the survey operations revealed that the share certificates issued to foreign companies were lying with the assessee only. He further submitted that the assessee has claimed to have procured funds through a broker located in Dubai, but the ultimate investor was residing in Singapore. Those ultimate investors are found to be close relatives of the director of the assessee company. The Ld D.R submitted that despite these facts, the director of the company has claimed ignorance about ultimate investors and when he was confronted with the report given by FT & TR division, he came out with truth. He submitted that if the transactions had been true transactions, there was not necessity for the assessee to hide the details of real investors. He submitted that the entire transactions were only arranged affairs only in order to route the assessee’s own money by way of share capital. He further submitted that the financial statements of the two investor companies were not forwarded to the AO by FT & TR division. Further, the financial statements of the ultimate investors were also not furnished to the AO by the assessee. Further the assessee has also not furnished copies of bank statements of both the investor companies as well as the ultimate investors. The assessee also could not furnish proper explanations with regard to the so called brokers who had arranged funds for the assessee.

13. The Ld D.R further submitted that the assessee had issued shares at a premium of Rs.190/- per share to the promoters in the immediately preceding year. However, there is no justification for determining the share premium amount at Rs.1,240/- on the shares issued to the foreign companies. The Ld D.R accordingly conducted that the assessee could not offer proper explanations on various queries raised by the AO and also did not prove the credit worthiness of the investors as well as the ultimate investors. Accordingly he submitted that the assessee has failed to prove the genuineness of the transactions as well as the credit worthiness of the investor companies and the ultimate investors. The Ld D.R also placed his reliance on the decision rendered by co-ordinate bench in the case of ITO vs. Spartacus Farms (P) Ltd (2018)(91 taxmann.com 15), wherein the addition made u/s 68 of the Act in respect of share application money received by the assessee was sustained by the Tribunal, when the assessee was not able to furnish the financial statements, addresses of the NRI investor. Accordingly he submitted that the addition made by the AO should be sustained.

14. The Learned AR submitted that the assessee is a listed company, meaning thereby it is a widely held company. He submitted that the assessee furnished a letter dated 20.11.2013 to the AO during the course of assessment proceedings, wherein it furnished all the details including financial statements of both the investor companies. He submitted that the Assessing Officer did not consider the detailed replies given by the assessee as well as documents furnished by the assessee in order to prove the genuineness of share capital received by it from both the foreign companies. The learned AR submitted that letter mentioned above is placed in page no.1 of the paper book. The Learned AR submitted that financial statements of M/s Onix Assets Limited are placed from page No. 28 of the paper book and the financial statements of M/s. Aventia Global Limited are placed from page No. 60 of the paper book. The Learned AR submitted that these financial statements would show that the assessee has proved creditworthiness of both investors. The Learned AR submitted that the Assessing Officer was, in fact, satisfied with the identity and creditworthiness of the investors. He was of the view that genuineness of the transactions has not been proved. However, the details of the investor companies and also the details of ultimate investors have been furnished to the AO. Further the assessee has also furnished a certificate obtained from an Accountant showing the movement of the funds from ultimate investor to the investor companies and from investor-companies to the assessee-company. The ultimate investor has also written directly to the Assessing Officer confirming the transactions. The assessee also furnished copies of correspondences that took place between the assessee and the agent, commission paid to the agent for arranging share capital. The assessee has also furnished certificate obtained from bank for the funds received by it. Accordingly, learned AR submitted that there is no reason to suspect genuineness of the transactions as the assessee has proved movement of funds from the ultimate investors to the assessee-company.

15. With regard to the premium charged by the assessee, the learned AR submitted that Hon’ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 690 has held that share premium received by the assessee has also to be considered as cash credit and examined on the parameters of section 68 of the Act. He submitted that quantum of share premium is a matter to be decided between the assessee- company and investor company on commercial principles and the same cannot be questioned by the Assessing Officer. The Learned AR submitted that the assessee is a listed company. The average price of the equity shares of the assessee company was quoted in the stock exchange at Rs. 380/- in the year 2009 and at Rs. 7478/- in the month of May, 2010. Accordingly, the learned AR submitted that the premium of Rs. 1240/- collected by the assessee cannot be considered to be unreasonable. The Learned AR further submitted that during the year under consideration the assessee has also allotted shares at the very same rate of Rs. 1250/- per share to an Indian company and the same has been accepted by the AO.

16. With regard to rejection of application seeking post-facto approval by FIPB Board of Government of India, the learned AR submitted that the application of the assessee was rejected two times for want of certain details. Hence the assessee has applied for the approval for the third time before FIPB and it has not so far received any negative reply from them. He submitted that in any case decision taken by FIPB may not relevant for the purpose of section 68 of the Act.

17. The Learned AR further submitted that the first proviso inserted to section 68 of the Act cannot be applied to the assessee for more than one reasons. First of all, the said proviso shall take effect from 1.4.2013 only and hence it will not apply to the year under consideration. Secondly, the said proviso shall apply only to a resident shareholder and not to a non-resident shareholder. In the instant case, the shares have been purchased by non­resident shareholders. Thirdly, it would apply only to a closely held company, whereas the assessee herein is a widely held company. Accordingly, he submitted that all the reasons given by the AO to make the impugned addition would fail and the decision rendered by learned CIT(A) should be upheld.

18. We have heard the rival contentions and perused record. We notice that the Ld CIT(A) has passed a detailed and reasoned order in this regard. For the sake of convenience, we extract below relevant observations made by learned CIT(A):-

5.2.1 This ground pertains to addition under section 68 of the Act of Rs. 50,00,00,OOO/- being investments made by non-residents. I have gone through the detailed submission made, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. The appellant during the impugned year, had issued and allotted 4,25,000 warrants convertible into equity shares of Rs.10/-each to below mentioned companies:

Sr.
No.
Name of the party No. of
shares
Issue Price
1 Group Veritas Limited 25,000 1 ,250/-
2 Onix Assets Ltd (BVI company) 3,00,000 1 ,250/-
3 Aventia Global Ltd (BVI
company)
1,00,000 1 ,250/-

5.2.2 Out of above, total shares issued to non-residents during the year, shares issued to BVI companies for an amount of Rs 50 Cr (4,00,000 * 1.250/-) is the subject matter of the appeal. It is observed that the assessing officer has invoked the provisions of section 68 of the Act and made an addition of the total equity share capital and securities premium amount of Rs. 50 cr. by holding that the said investment remains unexplained cash credit as genuineness of the transactions is not proved on following reasons:

(i) During the survey proceedings, the original warrants, and share certificates were found to be in the custody of appellant company rather than dispatching the same to investors;

(ii) The foreign companies have invested in the equity share capital at a premium of Rs 1,2407- per share which is not justifiable giving the appellant’s company’s scale of operation and net worth;

(iii) The true identity of ultimate shareholders of above mentioned investment was deliberately concealed by appellant company and the funds were routed through layered transactions in companies incorporated in British virgin Island which is a tax haven;

(iv) Neither the investors nor the appellant company able to establish the source of funds in the hands of investors;

(v) The contradictory statements of appellant company and Investors emerged whereby both of them claimed that the broker viz. Zaf Business Solutions, Dubai, was acting on their behalf:

(vi) The investors in realty acquired only 5% stake in the company which does not provide any say in management to the investors and therefore such high premium is not justifiable.

5.2.3 On the other hand, the appellant submitted that the assessing officer has wrongly invoked provisions of Section 68. It has been submitted that the assessing officer failed to consider the Appellant’s submission on each of the above points. The facts were also brought to the attention of assessing officer to counter his above allegations as follows:

(i) In regard to custody of physical share warrants and share certificates, it was explained and confirmed by the ultimate investor Mr. Navneet Didwania vide his letter dated 24.01.2014 addressing to Assessing Officer that Appellant Company was authorized through his broker to retain the share certificates for dematerialization and split formalities completion.

(ii) To prove that M/s. Zaf Business Solutions was acting as an agent between investors and Appellant Company, confirmation from Mr Zaffar Ali Shaikh, Managing Director of M/s. ZAF Business Solution has been submitted and also document proof has been submitted for payment of AED 1,97,461 as commission towards its charges for the service rendered.

(iii) As regard payment of high premium for acquiring a minority stake, it was submitted that, the decision 10 invest at a particular price or to acquire a particular stake in a company is a commercial decision based on negotiations between the investor and investee. Further, it was submitted that the market price of equity shares of Appellant Company were consistently above issue price post the allotment of above shares which even went to all time high of Rs 8.256A per share as on 10.05.2010. Market Price of shares of assessee company was Rs.8,256 as on 10.05.2010 for which necessary evidence in form of screenshot of moneycontol.com has also been submitted by the appellant company. Even the current price of the script on Bombay Stock Exchange is around Rs.147/-after split i.e. in other words, value will be Rs. 1.470/-before spilt which is also higher than the subscribe price.

5.2.4 Further, it has been submitted that the assessing officer’s contention is factually incorrect as the investors jointly acquired the shares to the extent of 16% of share capital of Appellant Company and not 5% as alleged by AO. It has been submitted that appellant has satisfied and explained the nature and source of the transaction by submitting the following documents:

(a)  Reg. Identity Of Shareholders;-

(i) Self-certified copies of Identity cards of investors issued by Govt of Singapore;

(ii) Audited Balance Sheet of M/s. Onix Assets Limited for year ended 30/09/2012;

(iii) Audited Balance Sheet of M/s. Aventia Global limited for year ended 30/09/2012;

(iv) Certificate of incumbency issued by Intertrust Corporate service (BVI) Limited;

(v) Declaration of Trust dated 25th October, 2011 issued by M/s. Hambry Venture Incorporated, the shareholder of M/s. Onix Assets Limited;

(vi) Declaration of Trust dated 25th October, 2011 issued by M/s. Mejis Management Limited, the shareholder of M/s. Aventia Global Limited;

(vii) Copy of KYC forms submitted by investors viz. Aventia Global Limited and Onix Assets Limited to Banks;

(viii) Copy of Notices of Assessment Years from 2009-2013 from Inland Revenue Authority of Singapore for Mr. Navneet Didwania and Mrs. Deepali Didwania.

(b) Reg. Credit Worthiness of Shareholders:-

(i) Certificate in original duly notarised and apostilled, issued by the Certified Public Accountants in Singapore of Mr Navneet Didwania and Ms Deepali Didwania for proof of investment made by ultimate investor.

(ii) Certificate in original duly notarised and apostilled, issued by the Certified Public Accountants in Singapore certifying investment by ultimate investors,

(iii) Certificate in original duly notarised and apostilled, issued by the Certified Public Accountants in Singapore of means & creditworthiness of ultimate investor.

(iv) Audited Balance Sheet of M/s. Onix Assets Limited for year ended 30/09/2012

(v) Audited Balance Sheet of M/s. Aventia Global Limited for year ended 30/09/2012

(vi) Notarised copy of CA certificate on means and credit worthiness in favour of investors;

(vii) Notarised Copy of reinvestment deposit statement of investors with Axis Bank, Singapore and Bank of India, Singapore which aggregate to $11.4 million;

(viii) Notarised copy of personal financial statement with Bank of East Asia for SGD 31.5 million as on 2009.

(c) Genuineness of Transactions:-

(i) Copies of swift advises and FIRCs establishing remittance and flow of funds from the ultimate investors account to Appellant’s bank account;

(ii) Form FC-GPR submitted to RBI & Swift copies;

(iii) Certificate in original duly notarised and apostilled, issued by the Certified Puoiic Accountants in Singapore of Mr Navneet Didwania and Ms Deepali Didwania for proof of investment made by ultimate investor;.

(iv) Certificate in original duly notarised and apostilled, issued by the Certified Public Accountants in Singapore certifying investment by ultimate investors;

(v) Copy of Annual Returns for year ended March, 2010 & March, 2011 of Appellant Company thereby showing proper receding of said share transaction in books of accounts;

(vi) Form A 2, Debit Note of the Broker, Form 15 CA and Form 15CB;

(vii) Copy of pricing Certificate from statutory auditors of the Company.

5.2.5 Further, in order to establish the nexus between source of source of funds and to prove the genuineness of the transaction, the appellant company has submitted a statement of movement of funds from Bank Accounts of Mr. Navneet Didwania and Mrs. Deepali Didwania to Bank Accounts of Aventia Global Limited and Onix Assets Ltd. and ultimately to the Bank Accounts of Appellant Company.

5.2.6 The assessing officer had not pointed out any discrepancy in documents furnished by the appellant on record. Further, the documents relied before me goes to the root of the case and are necessary to be considered while deciding the appeal. On perusing of the documents furnished on the record, it is observed that the appellant has filed Identity Cards of the investors issued by Govt. of Singapore, Certificate of Incorporation of the BVI companies, and financials of the BVI Companies and other documents which establishes the identity of the shareholders. With regard to creditworthiness of the shareholders, the appellant company has submitted deposits statements and personal financial statements of the ultimate investors, audited balance sheet and financials of the BVI companies which establishes the creditworthiness of the shareholders. Further, the AO has also accepted the identity and creditworthiness of the shareholders as stated in his order in Para No.5.20 on Page No. 36. In view of that, the appellant has reasonably discharged its onus to prove the identity and creditworthiness of the shareholders as required u/s 68 of the Act and therefore, provisions of section 68 invoked in this case.

5.2.7 The above proposition is also in terms of the rulings given in the following decisions of the Courts and Tribunals:

(i) ITO v. M/s. Superline Construction P.Ltd. (I.T.A. No. 3645/M/2008), wherein the Hon’ble Mumbai ITAT

(ii) M/s. Orchid Industries Pvt. Ltd. v. DCIT (I.T.A. No. 867/M/2012), wherein the Hon’ble Mumbai ITAT

(iii) CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195 (SC)

(iv) Commissioner of Income Tax v. Orissa Corp. Pvt. Ltd.[1986] 25 TAXMAN 80F (SC)

(v) CIT .v. Nishan Indo Commerce Ltd. (2014) 101 DTR 413 (Cal.)(HC)

(vi) The Comm. of Income Tax v. Pranav Foundations Ltd [T.C.(A).No.262 of 2014 (dated 12.08.2014)]

(vii) Commissioner of Income-tax (Central) v. Som Tobacco India Ltd [2014] 42 taxmann.com 310 (Allahabad HC)

(viii) Russian Technology Centre (P.) Ltd. V. Deputy Commissioner of Income-tax [2013] 37 taxmann.com 400 (Delhi – Trib.)

(ix) High Court of Madhya Pradesh in case of Commissioner of Incometax, Bhopal (M.P.) v. Peoples General Hospital Ltd [2013] 35 taxmann.com 444 (Madhya Pradesh)

(x) Patel Vishnubhai Kantilal & Co. v. Income-tax Officer [2013] 33 taxmann.com 244 (Ahmedabad – Trib.)

(xi) Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs Divine Leasing And Finance Ltd [(2007) 207 CTR Del 38, 2008 299 ITR 268 Delhi]

(xii) CIT vs. Goa Sponge and Power Ltd. (Appeal No. 16 of 2012)(Bombay High Court)

(xiii) CIT vs. Creative World Telefilms Ltd. 333 ITR 100 (Bombay High Court)

(xiv) SDB Estate Pvt. Ltd. vs. ITO – ITA No. 584/M/2015

(xv) CIT vs Victory Spinning Mills Ltd. (2014) 90 CCH 55 (Mad-High Court)

(xvi) CIT vs Dwarkadhish Investment Pvt Ltd. 330 ITR 298 (Delhi High Court)

(xvii) IT vs. Yacmet Packaging India Pvt Lid. 80 CCH 065 (All – HC)

(xviii) ACIT vs Venkateshwar Ispat Pvt. Ltd. 319 ITR 393 (Chhatisgarh High Court)

(xix) Mod Creations Pvt Ltd. vs. ITO – (2011) 354 ITR 282 (Delhi HC)

5.2.8 As regard to the genuineness of the transactions, the assessing officer has failed to appreciate that the appellant has substantiated the transactions by submitting the Bank Statements, SWIFT copies and Share Capital Ledger A/cs of the appellant company, Financials of Onix Assets Ltd. and Aventia Global Ltd., and Certificate of movement of funds from One Partnership Pac, CA in Singapore. Further, the documents submitted by the Appellant Company or the investors were duly certified by the High Commission of India, Singapore and the Ministry of Foreign Affairs at Singapore as well as by the Singapore Academy of Law which in itself shows the genuineness with regard to the documents so submitted. On the other hand, while frisking the said disallowance, assessing officer has not brought any material to the contrary. He has merely stated that the Assessee was not able to prove the genuineness and source of investments in the hands of share applicants. Even all information as called by him during survey and summon proceedings u/s. 133 of the Act were duly submitted to AO. The assessing officer has not disputed the correctness of the above stated documents which reasonably establishes the genuineness of the transaction. Further, appellant’s bonafide and genuineness is further established from the facts that the investors have also filed a suit against the appellant company for refund of the funds invested by them in the appellant company. Accordingly, the appellant has discharged its onus to prove the genuineness. The assessing officer had not discharged its onus and had not brought any contrary material to record and to disprove the transaction and involvement of unaccounted money belonging to the appellant. The assessing officer is not correct in simply brushing aside such documents, thus the addition made is assessment u/s 68 needs to be deleted.

5.2.9 Further, where the matter concerns money receipts by way of Share Capital from investors through banking channel, the Assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor proved, no further burden lies on the assessee to prove whether that person itself has invested the said money or some other person has made investment in the name of that person. The burden then shifts on to the revenue to establish that such investment has come from the Assessee-company itself.

5.2.10 In the instant case, the appellant has submitted the details of movement of funds from ultimate investors to the appellant company through banking channels. Appellant has already established the identity of the shareholders. Therefore, addition cannot be made in such case where investment is funded through banking channels. This is also supported by various decisions as under:

(i) Shree Barkha Synthetics Ltd. v. Asstt. CIT [2006] 155 Taxman 289 (Raj.)

(ii) Commissioner of Income-tax -1 v. Apex Therm Packaging (P.) Ltd [2014] 42 taxmann.corn 473 (Gujarat HC)

(iii) CIT vs. Gangeshwari Metal Pvt. Ltd. 361 ITR 10 (Delhi High Court)

(iv) CIT vs Samir-Bio Tech Pvt. Ltd. (2010) 325 ITR 294 (Delhi HC)

(v) Tolaram Daga v. CIT (1966) 59 ITR 632 (Assam),

(vi) Addi. CIT v. Hanuman Agarwal [1985] 151 ITR 150 Patna High Court

(vii) Labh Chand Bohra v. ITO [2008] 219 CTR 571 (Raj.) (via) Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gau.),

(ix) Gujarat High Court in the case of DCIT v. Rohini Builders [2002] 256 ITR 360

(x) CIT v. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159(Guj.)

(xi) Commissioner of Income-tax v. Expo Globe India Ltd. (361 ITR 147) (Delhi HC).

5.2.11 There is also force in arguments of the authorised representative that the addition u/s 68 cannot be made as share premium money is high and not justified since amendment in provisions of Section 68 inserted by Finance Act 2012 has been made applicable only from 01.04.2013 and not applicable for AY 2010-11. The said view had been adopted in 2 jurisdictional Mumbai, ITAT decisions in the case of M/s. Gagandeep infrastructure Pvt. Ltd. – 5784/M/2011 – Mum ITAT and M/s. Green Infra Ltd. vs. ITO – 38 Taxmann 253 – Mumbai ITAT wherein it was held that it is prerogative for the board of directors of the company to decide the share premium and it is the wisdom of the share applicants whether they want to subscribe to such heavy premium or not. The revenue authorities cannot question the charging of such huge premium without any bar from any legislative law of land. Further, there is also force in arguments of the AR that the amendment in provisions of section 68 is not applicable in the appellant’s case since the Appellant is a Public listed Co. and investing companies are non-resident.

5.2.12 I have considered the findings of the entire facts and circumstances of the case as well as the Judicial Pronouncements referred and relied above. One of the main objections of assessing officer was that the investment in shares of appellant company is not genuine as the source of funds has not been established. I do not agree with the said objection of the assessing officer as it is settled law that the assessee is not required to explain the source of source of funds to establish the genuineness of the transaction. This is supported by the ruling given in the decision in case of Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam), irrespective of that, the appellant company has submitted Bank Statements, Swift copies and Share Capital Ledger A/cs of the appellant company, Financials of Onix Assets Ltd. and Aventia Global Ltd., and Certificate of movement of funds from One Partnership Pac, CA in Singapore which is duly notarized and apostilled. The appellant company has demonstrated and proved the source of receipt for investment in respect of warrants/equity shares by giving a statement showing the movement of funds from Mr. Navneet Didwania and Mrs. Deepali Didwania to Aventia Global ltd. and Onix Assets Ltd. and from Aventia Global Ltd. and Onix Assets Ltd., along with bank statements of the appellant company snowing that the remittance was eventually made to the Bank Accounts of the appellant company. The same explains the movement/source of funds which ultimately proves the genuineness of the transaction as the investment was properly linked to the source. The same was also submitted before assessing officer and the AO has not brought any contrary material on record and only on mere allegation and suspicion, the submission of the appellant company has been rejected by the assessing officer.

5.2.13 Thus, in the instant case, the transactions have been genuinely carried out by the assessee who has proved the source of investments. The assessing officer’s contention that the genuineness of the transaction cannot be proved by the appellant on the reasoning that the source of funds is not proved by the appellant is incorrect. Appellant has submitted appropriate documents to establish the genuineness of the transaction which is objected by the assessing officer. Further, money is remitted by non-residents, whose identity is not in question, through their bank accounts outside India and accordingly cannot be treated as income under section 68 of the Act. In light of the above findings, factual matrix and legal position, I accordingly hold that the appellant company, has discharged its onus as required u/s 68 of the Act. The assessing officer had not brought any contrary material on the record to disprove the transaction and had not established that the appellant has introduced unaccounted money in garb of share application. Accordingly, i hold that the addition made in assessment of share application money of Rs.50 Crores cannot be sustained and is hereby deleted. I direct the assessing officer to delete the additions u/s 68 of Rs.50 Crores. In the result, the said ground of appellant’s appeal is hereby allowed.

19. We noticed that the assessee, vide its letter dated 20.11.2013, has furnished financial statements of both the investor companies. We noticed that the Assessing Officer has failed to examine the same. However, a perusal of the financial statements of both the companies would show that they were having funds for making investment into assessee-company and hence creditworthiness of the investors cannot be doubted with. In fact the Assessing Officer was also satisfied with the creditworthiness of the investor companies even though he did not examine financial statements. Hence the AO was not right on facts in observing that the financial statements of investor companies have not been given. What we notice that the FT & TR division did not send the financial statements to the AO, while the assessee has furnished the same to him.

20. During the course of assessment proceedings, we notice that the assessee has furnished details of ultimate investors and also certificate obtained from a firm of Accountants. The said certificate gave details of movement of funds from the ultimate investors to the investor companies and from the investor companies to the assessee company. The same is extracted by learned CIT(A) at page No. 21 of his order as under:-

Date of
receipt
Our Bank,
branch &
account No.
Amount in USD
Amount in INK
Name of the Remitter
Remitter Bank & Branch
Date   of Remittance
Source  of funds in remitter account
Date & Amount
24/12/09
State Bank of Indore, DN Road branch, Mumbai A/c No.  63002727231
2009646
93790179
Onix  Assets  Ltd
Standard  Chartered  Bank A/c No. 01-7- 021545-8
23/12/09
Ms  Deepali  Didwania  “through  her UBS AG A/c
23/12/09  52015992.78
18/03/10
ICICI Bank Ltd, Backbay Reclamation branch, Mumbai A/c No. 039305003184
100000
4537000
Onix  Assets  Ltd
Standard  Chartered  Bank A/c No. 01-7-  021545-8
16/03/10
Ms Deepali  Didwania  Through  her  Barclays  Bank A/c
04/12/09  $29992.78 & 16/03/10  $69992.91
25/03/10
ICICI Bank Ltd, Backbay  Reclamation  branch, Mumbai  A/c No.  039305003184
2.000,000
9,10,85,000
Onix Assets  Ltd
Standard  Chartered  Bank  A/c No. 01-7-  021545-8
22/03/10
Ms Deepali Didwania  Through her  Standard  Chartered Bank A/c
19/03/10
$700000
Ms Deepali Didwania  Through her UBS AG A/c
19/03/10
$1299992.91
26/03/10
ICICI Bank Ltd, Backbay  Reclamation  branch, Mumbai A/c No.  039305003184
4,100,000
18,60,99,000
Onix  Assets  Ltd
Standard Chartered  Bank  A/c No. 01-7- 021545-8
23/03/10
Ms Deepali Didwania Through  her Barclays  Bank A/c
23/03/10 $949992.91
Ms Deepali Didwania  Through  her DBS Bank Ltd  A/c
23/03/10  $1150000
Ms Deepali  Didwania  Through her Bank Sarasin & CIE AG  A/c
13/03/10
$2000000
Total
8,209,646
37,55,11,179
24/12/09
State Bank of Indore, D N  Road  branch, Mumbai  A/c No.  63002727231
669,882
3,12,63,193
Aventia Global Ltd
Standard Chartered Bank A/c No. 01-7-  021342-0
23/12/200 9
ivi r Navneet Didwania through his Barclays Bank account
22/12/09
$672020
17/03/10
ICICI Bank Ltd Backbay Reclamation branch, Mumbai A/c No. 039305003184
2.070,000
939,15,900
Aventia Global Ltd
Standard Chartered Bank A/c No. 01-7- 021342-0
11/03/10
Mr Navneet Didwania through his Barclays Bank account
10/03/10
$2060020
Total
2,739,882
12,51,79,093
Grand Total
10,949,528
50,06,90,272

Above said table would show movement of funds from ultimate investors to the assessee-company. Further the movement has taken place through banking channels only. Further the ultimate investors have also written letters directly to the assessing officer confirming the transactions. We notice that the AO did not rebut any of the details furnished by the assessee. The AO has observed that the assessee has failed to furnish the financial statements of investor companies and, as noticed earlier, the same is contrary to the facts available on record. The AO has observed that the bank statements of investor companies were not furnished to him. We notice that the assessee has furnished bank certificates and also certificate from a firm of Accountants certifying the movement of funds through banking channels. We notice that the AO did not bring any material to show that the documents furnished by they are not reliable, which would have warranted further probe. During the course of arguments, the Ld A.R submitted that the assessee has furnished all the details available with it in order to discharge the burden placed upon it u/s 68 of the Act. We find merit in the said contentions. When it is shown that the funds have been routed through banking channels through available documents and when the said documents were not found fault with, in our view, there is no reason to suspect the genuineness of the transactions.

21. The AO has observed that the assessee has failed to furnish financial statements of ultimate investors. In terms of sec.68, the same may not be required, as the immediate investors are foreign companies, whose source has been proved by the financial statements filed by them. The certificate issued by the Firm of Accountants proves the movement of funds from ultimate investors to the foreign companies, which invested in the shares of the assessee company. Thus, the source of sources also proved, while it may not be necessary for the purposes of sec.68 of the Act. The assessee has also furnished details of commission paid by it for arranging funds. All these documents/information, in our view, prove the genuineness of transactions. Hence, we are of the view that the Assessing Officer was not right in observing that the assessee has failed to prove genuineness of the transactions.

22. As contended by learned AR, proviso to section 68, inserted w.e.f. 1.4.2013, requires the assessee to prove sources of source. The above said proviso shall apply to funds collected by a closely held company from resident shareholders. Hence, the same will not be applicable to the assessee as the assessee is a publicly held company and investors are non-resident assessees. Further, the said proviso shall take effect from AY 2013-14 onwards only.

23. The AO has also observed that the FIPB division of Government of India has rejected the application of the assessee seeking post-facto approval of share capital received by it twice. The Ld A.R submitted that the assessee has made application seeking approval for the third time and it has not received any reply thereon. In any case, as rightly contended by Ld A.R, the approval or rejection of the post-facto application of the assessee may not be relevant for the purposes of sec.68 of the Act.

24. The Hon’ble Bombay High Court has held in the case of Gagandeep Infrastructure Ltd (supra) that the share capital/share premium received by the assessee has to be examined in terms of sec.68 only. From the foregoing discussions, we are of the view that the assessee has proved the three main ingredients that are required to be proved u/s 68 of the Act, viz., the identity of the investors, the creditworthiness of the investors and genuineness of transactions.

25. Hence we are of the view that the assessee has discharged the initial burden placed upon it u/s 68 of the Act by proving the three main ingredients, whereas the AO has failed to discharge the burden shifted to his shoulders. The various grounds taken by the AO for making addition u/s 68 of the Act have been found to be not correct in the discussions made in the preceding paragraphs. Accordingly we are of the view that the Ld CIT(A) was justified in deleting the addition of Rs.50.00 crores made u/s 68 of the Act. Accordingly we uphold the order passed by Ld CIT(A) on this issue.

26. In the cross objection, the assessee has raised a legal ground urging that the assessment order is barred by limitation. We have earlier noticed that the Ld CIT(A) has rejected the same and hence the assessee has filed the cross objection urging the said legal issue. Since we have upheld the order of Ld CIT(A) in deleting the addition made u/s 68 of the Act, in our view, it would be an academic exercise to adjudicate the legal ground urged by the assessee. Accordingly we decline to adjudicate the same.

27. In the result, the appeal of the revenue as well as the cross objection of the assessee are dismissed.

Order has been pronounced in the Court on 10.1.2019.

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