Case Law Details
Brief facts are that the Reliance Utilities Private Limited, the assessee, is a private limited company filed its return of income for the assessment year 2008-09 on 29.09.2008 declaring a total income of Rs. 1,69,52,9 19. The assessment was completed by an assessment order u/s. 143(3) of the Act dated 27.12.20 10.The assessee during the previous year relevant to the assessment year 2008-09 had credited a transaction in its books for the receipt of Rs. 700 crores from Biometrix Marketing Private Limited, Singapore (in short “Biometrix”) towards subscription of Compulsorily Convertible Preference Shares (in short “CCPS“) against which the assessee had allotted seven crores CCPS of Rs. 10 each at a premium of Rs. 90 per share to Biometrix. This transaction was investigated by the Investigation Wing of the Income Tax Department, Mumbai upon receipt of commercial intelligence report dated 10.08.2012 from the High Commission of India, Singapore. The AO has summarized the observations in the said report that the source of funds of Biometrix, which invested Rs 700 crores in the CCPS issued by the assessee and also in other group companies (in all aggregating to USD 1627.24 millions),needs further investigation considering that the said company incorporated under the laws of Singapore had a paid-up capital of Singapore Dollars 1,10,000 only and its shares were held by two corporate entities, of which one entity in Singapore held 91% of the shares. The ultimate owner of the two companies in Singapore i.e. Biometrix and its shareholder entity is an individual based in Mumbai holding 100% of the capital. The quantum of investment made by Biometrix which was the largest FDI from Singapore to India, given its small capital base and other facts such as a single room office in Singapore remaining closed most of the time which reinforced that Biometrix is a small company, made it highly probable that Biometrix may have raised loans from Singapore or from other countries mostly tax havens and hence the report stated that the ultimate source needs to be ascertained.
The investigation wing of the Income Tax Department, Mumbai carried out the investigation in the matter and the findings in its report dated 10.07.20 12 are extracted by the AO in para 10 of the assessment order. It was ascertained that the investment made by Biometrix in the CCPS of the assessee through the Foreign Direct Investment route was not out of equity capital of Biometrix but was out of a loan of USD 1700 million taken by Biometrix from ICICI Bank, Singapore. The said loan was secured by contractually binding a group company of the assessee to purchase the CCPS upon exercise of option to sell those shares by Biometrix. The investigation wing had also obtained copies of acknowledgements of the income tax returns and goods & services tax returns filed by Biometrix with the authorities in Singapore. It was also observed that Biometrix subsequently repaid the loan to ICICI Bank, Singapore by selling the investments it made in the CCPS to other group companies of the assessee and the said group companies which purchased the CCPS from Biometrix have provided the details and explained the sources for the monetary consideration paid to Biometrix. Upon receipt of the above investigation report from DGIT (Inv.), Mumbai, the AO recorded the reasons, which essentially are the findings in the reports of the High Commission of India, Singapore and the Investigation Wing mentioned hereinabove. Stating that the new information received clearly cast a doubt on the creditworthiness of Biometrix as well as the ultimate source of Rs 700 crores, based on the said information, the AO issued the notice u/s 148 dated 04.01.2013 with the reason to believe that income to the tune of Rs. 700 crores has escaped assessment for the assessment year under consideration. The assessee requested that the original return filed on 29.09.2008 be treated as the return filed in response to the notice u/s 148 of the Act. The AO provided a copy of reasons recorded as requested by the assessee on 19.08.2013. The assessment was taken up by issuing a notice u/s. 143(2) of the Act on 20.09.20 13. The Investigation Wing in Mumbai vide letter dated 10.09.20 13 requested that the assessment be kept in abeyance till further communication is issued to the AO. The Investigation Wing forwarded another report dated 05.02.20 14 to the AO, which apart from the findings in its first report dated 10.07.20 12, carried the details of the subsequent transactions of the purchase of CCPS from Biometrix by the group companies of the assessee and that the purchasers of CCPS have explained that the consideration was paid out of the proceeds from sale of units of mutual funds. The report stated that Biometrix had entered into separate Investment Agreement with the assessee and other group companies. It also stated that a Put & Call Option Agreement was entered into by Biometrix with a group company of the assessee, which gave Biometrix the right to sell the CCPS and that the loan from ICICI Bank was secured by assigning the rights in the Investment Agreement, the Put and Call Option Agreement and the charge was filed with the authority in Singapore. The report also stated how ICICI bank had sanctioned a loan of USD 1.2 billion on 28.06.2007 and a further sum USD 0.5 billion on 07.11.2007 and as per the documents filed by ICICI Bank, actual borrower was to be a SPY in a tax efficient jurisdiction. After reviewing the financial statements of Biometrix, the report also drew an inference that Biometrix is essentially a shell company. Further, Biometrix paid interest and loan repayment to ICICI Bank where as it received a lower consideration from the sale of CCPS it held in various group companies. There is also information gathered from Singapore regarding the identity of the shareholders of Biometrix, which are corporate entities, the individuals who had invested in one such shareholder entity in Singapore and the mode used for such investment. The report also states that the bank account statement of Biometrix, its financial accounts and KYC documents could not be obtained from the investee companies, which include the assessee. The report also narrated the failed attempts to obtain information about the identity of current shareholders and directors in the corporate entity in Singapore, which held substantial shares in Biometrix. These information and efforts of the Investigation Wing are outlined by the AO in the order in Para 16 to 32 of the Assessment Order.
Accordingly, assessment proceedings were conducted in view of the aforesaid information in the possession of the AO. The notice dated 09.06.20 14 had a questionnaire calling for complete details / supporting evidences in respect of receipt of investments amounting to Rs 700 crores from Biometrix and thus the assessee was required to prove the identity and creditworthiness of the investor and the genuineness of the aforesaid transaction. The assessee filed a reply on 24.11.2014 explaining that the assessee issued 7 crores CCPS of Rs. 10/- each at a premium of Rs. 90/- each to Biometrix. An Investment Agreement between the assessee, Biometrix and persons named as promoters dated 3 1.08.2007 was furnished. Copies of the share certificates issued to Biometrix for the CCPS allotted were also furnished. It was stated that the investment made by Biometrix fell under the automatic route of Foreign Direct Investment under the Foreign Exchange Management Act, 1999 (“FEMA”) and it was not necessary to obtain the approval of Foreign Investment Promotion Board. The assessee also submitted the form filed with Reserve Bank of India on the issue of CCPS along with the acknowledgment for filing the same. The terms of the issue of CCPS were explained and the valuation report of S.R. Batliboi & Co was furnished. The assessee explained its understanding that Biometrix had obtained a loan from ICICI Bank, Singapore for making the investment in the CCPS and stated that it is not in possession of any correspondence in this regard. The bank statements of the assessee were furnished and credit entries for the receipt of Rs. 700 crores from Biometrix were identified in the bank statements.
The AO also made reference through FT & TR Division of the CBDT to Inland Revenue Authority in Singapore (“IRAS”) on 13.03.2014. The reference was made as per requirement for exchange of information in relation to investments made by Biometrix in four reliance group companies including assessee. IRAS provided information pertaining to Biometrix, viz, the tax residency certificate, List of Directors and employees, Financial Statements and Income Tax Returns, Director’s resolutions/KYC documents, ICICI bank statements with details of inward credits, disbursement related documents, loan principal and interest related documents, credit appraisal note and facility documents. On finding that complete information as sought was not provided by IRAS including the bank statement of Biometrix tracing the receipt of loan amounts and the repayment of interest & principal. The AO made another reference through FT & TR Division to IRAS. IRAS provided further information that loan was disbursed by ICICI Bank, Singapore Branch to the bank account of Biometrix held in Overseas Chinese Corporation Bank, Singapore (“OCBC”). Following this a fresh reference was made to IRAS through the Competent Authority on 16.09.20 14. The bank statement of the account held by Biometrix in OCBC sent by IRAS contained entries only from 01.0 1.2008. It was not possible to obtain the bank statement pertaining to earlier period as per the India Singapore Exchange of Information Protocol. The AO made enquiries from assessee and issued summons under section 131 of the Act to directors of Biometrix who were resident in India, the shareholders of the parent entity of Biometrix and officials of ICICI Bank Limited. While the directors and shareholders of Biometrix omitted to attend and ICICI Bank Limited expressed inability to divulge information on account of restrictions imposed by Banking Secrecy Act of Singapore in respect of bank account statements and KYC documents of Biometrix. The AO also found that the receipt of share application money by the assessee for the issue of CCPS is an international transaction between two associated enterprises which the assessee failed to report in the prescribed form and with the prior approval of the CIT, the AO referred the transaction to Transfer Pricing Officer for determination of arm’s length price. The TPO issued an Order u/s 92CA of the Act dated 29.01.2015 confirming that the transaction has been done at arms length price. The TPO also suggested that the source of the loan has to be examined by the AO. The AO analysed the material gathered from ICICI Bank, the other group companies of the assessee and information received from IRAS through FT & TR division confirmed that loan amounts aggregating to USD 1700,000,000 were remitted by ICICI Bank, Singapore Branch on various dates between 18.09.2007 to 12.12.2007 to the bank account of Biometrix with OCBC. The audited financial statements of Biometrix as at 30th September 2008 showed entries for Secured Term Loan of USD 1700,000,000 obtained for financing its long term investments and the Long Term Investments available for sale amounting to USD 1650,125,325. From the Facility Agreement entered into between Biometrix and ICICI Bank, the AO inferred that the loan has been advanced to Biometrix by ICICI Bank Limited through its overseas branches and ICICI Bank, Singapore Branch had also acted as an agent for facilitating the loan. In other words, ICICI Bank, Singapore Branch handled the disbursements, collection of interest and principal repayments. After examining various documents in relation to the loan, the AO found that ICICI Bank, Singapore Branch had not monitored the loan it granted to Biometrix strictly as per the terms of the contract.
Hence, the AO added the amount of Rs. 700 crores received by the assessee and invested by Biometrix in the CCPS issued by the assessee as income of the assessee as unexplained cash credit u/s. 68 of the Act. According to the AO the nature and genuineness of the transaction of investment in the CCPS of the assessee was not explained as required in Section 68 of the Act. The AO has stated that the assessee, the investor i.e. Biometrix, shareholders and directors of the investor, ICICI Bank, Singapore and other group companies of the assessee have not provided information to his satisfaction. Aggrieved, assessee preferred appeal before CIT(A).
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