VODAFONE INDIA LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(3), MUMBAI

Assessment Year 2006-07 cuke M/s. Vodafone India Limited The DCIT Vs. Peninsusla Point, Peninsula Corporate Park, Circle-8(3)(2) Ganpatrao Kadam Marg, Lower Parel, Mumbai Mumbai 400 013 PAN: AAACH 5332 B Appellant Respondent Assessee by : Shri P.J. Pardiwala and Shri Nitesh Joshi Revenue by: Shri Parag Vyas (Special Counsel of Deptt) Date of Hearing : 14/01/2020 Date of Pronouncement : 28/08/2020 vkns'k@ ORDER

PER R.C. SHARMA, AM

1. Ground No. 1 – Order passed is bad in law and void ab-initio 1.1 On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in not treating the impugned order passed by the learned AO as bad in law and void since: (a) its perverse on facts and in law; and (b) ignores and contravenes the binding Supreme Court judgments, hence, contravenes Article 141 of the Indian Constitution Hereinafter all the grounds are without prejudice to Ground 1.

2. Ground No. 2 – Additions under section 68 of the Act – INR 7,959,683,862 2.1 On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the learned AO in making additions of INR 7,959,683,862 under section 68 of the Act. 2.2 On the facts and in circumstances of the case and in law, the learned CIT(A)/AO has completely ignored/misconstrued the irrefutable documentary evidences submitted by the Assessee which substantiate genuineness, creditworthiness and identity of the shareholders subscribing to the rights issue; 2.3 On the facts and in circumstances of the case and in law, the orders passed by both the learned CIT(A) and AO are based on whims and fancies and do not provide any cogent basis in support of the additions under section 68 of the Act. 2.4 Without prejudice to the grounds 2.1 and 2.2 above, on the facts and in circumstances of the case and in law, there is no requirement under section 68 of the Act read with proviso to section 68, to prove genuineness, creditworthiness and identity of either the source of sum invested by the non-resident entities/persons or the source of such source. The Assessee prays that the additions under section 68 of the Act of INR 7,959,683,862 be deleted.

Ground No. 3 - Re-raising of demand which was raised in the original order passed u/s 143(3) of the Act 2 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 3.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the action of the AO in re-raising the tax and interest demand in the impugned assessment order on account of the various additions made vide the original assessment order dated February 5, 2011, passed u/s 143(3) of the Act. 3.2 Without prejudice to Ground 3.1, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the AO in not reducing the demand already raised vide the original assessment order dated February 5, 2011 passed under section 143(3) read with section 144C(13) of the Act.

4. Ground No. 4 – Interest under section 220(2) of the Act 4.1 On the facts and circumstances of the case and in law, the learned AO has erred in levying interest under section 220(2) of the Act on the entire demand including the demand raised vide the original assessment order dated February 5, 2011, passed u/s 143(3) of the Act.

5. Ground No. 5 – Levy of penalty under section 271(1)(c) of the Act 5.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in dismissing the ground on initiation of penalty proceedings under section 271(1)(c) of the Act against the Appellant as premature. The Assessee prays that the learned AO be directed to drop the penalty proceedings so initiated. The Assessee craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal‟‟.

2.2 Rival contentions have been heard and records perused. Facts in brief are that the assessee, is a company incorporated in India under the Companies Act, 1956 („Co‟s Act‟), and is engaged in rendering telecommunication services in the Mumbai telecom circle including Navi Mumbai and Kalyan. For the assessment year („AY‟) under consideration, the assessee, filed its return of income on 30th November 2006 declaring „NIL‟ taxable income under the normal provisions of the Vodafone India Limited vs DCIT, Circle 8(3), Mumbai Income tax Act, 1961 („Act‟) (after claiming deduction under Section 80IA of the Act) and taxable book profit of Rs 366,30,21,560 under the provisions of Section 115JB of the Act. The tax liability on the book profits amounted to Rs 30,82,43,264. During the subject assessment year, an amount of Rs 11,11,09,816 was withheld at source and advance tax of Rs 23,70,00,000 was deposited by the assessee. Based on the same, a refund of Rs 3,98,66,552 was claimed by the assessee, in the return of the income for the subject AY. During the subject AY, the assessee made a right issue for 7,09,86,318 equity shares of Rs 10 each at a premium of Rs. 237.99 per equity share to all its existing shareholders, in the ratio of 6 equity shares for every 29 equity shares held. For the purpose of issuance of right shares, a letter of offer was given to all the shareholders of the assessee including Infrastructure Development Finance Company Limited („IDFC‟), Vilsat Investment Private Limited („VIPL‟) and Essar Teleholdings Limited („ETL‟) under the same terms of offer to subscribe to the equity shares issued by the assessee on a rights basis. The letter of offer of right shares specifically contained a clause [as required under section 81(1A) of the Co‟s Act] that a shareholder may renounce his rights to subscribe to right shares in favour of any third party. The rights were renounced by IDFC and VIPL in favour of ETL, an existing shareholder of the assessee. The assessee received a total amount of Rs 17,603.90 million on account of subscription to the said rights shares (i.e. for 70,986,318 4 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai equity shares). Out of the above, 3,44,50,106 shares amounting to Rs 7,959.60 million were subscribed to by nine Mauritius based entities, namely:

 Al-Amin Investments Ltd;  Asian Telecommunication Investments (Mauritius) Ltd;  CCII (Mauritius);  Euro Pacific Securities Ltd  Hutchison Telecommunications (India) Ltd;  Mobilvest Ltd;  Prime Metals Ltd;  Trans Crystal Ltd; and  Essar Com Ltd. The case of the assessee was selected for scrutiny assessment in 2007 and was also referred to the Transfer Pricing Officer for examination of transfer pricing aspects relating to the international transactions entered by the assessee during the subject AY. During the course of detailed scrutiny assessment, the learned Additional Commissioner of Income Tax, Range -1, Chandigarh („learned Add. CIT‟) directed the assessee to, inter-alia, file details as regards issue of right shares, which was duly complied with. Additionally, the learned Joint Commissioner of Income Tax (Transfer pricing) („learned TPO‟), also conducted enquiries with respect to issuance of right shares and after considering the details and submissions 5 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai furnished by the assessee passed an order dated 29th October 2009 under section 92CA of the Act, wherein, he proposed a transfer pricing adjustment with respect to the issue of right shares by the assessee to its associated enterprises. Subsequently, a draft assessment order dated 30th December 2009 was passed by the learned Add. CIT, against which the assessee preferred objections before the learned Dispute Resolution Panel („learned DRP‟). During the pendency of the DRP proceedings, the learned Add. CIT received certain documents from the Foreign Tax Division („FTD‟) with respect to the rights issue transaction, which was forwarded to the learned DRP without any adverse comments. The DRP vide its order dated 4th February 2011, gave partial relief, whereby, inter-alia, the transfer pricing adjustment as regards the rights shares was deleted. However, with respect to FTD documents forwarded by learned Add. CIT, the learned DRP made the following observation:

Incidentally, it may be mentioned that the Assessing Officer had forwarded copies of large number of documents received by him from Mauritius through FT & TR Division of CBDT for necessary action by the DRP without in any manner specifying as to whether any enhancement of income is warranted based on these documents and if yes, to what extent. The DRP is of the considered view that by virtue of powers vested in DRP u/s 144C(5), it cannot take upon itself the entire responsibility of Assessing Officer. The Assessing Officer is therefore, directed to examine the information at his end and take such further action as may be considered appropriate by him in accordance with the provisions of the Income Tax Act.

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai The learned Add. CIT thereafter, as per the mandate of section 144C(13)/(5) of the Act, completed the assessment, wherein a demand of Rs 297,26,54,239 was raised, however, no adverse observations/ additions was made with respect to the rights issue. 2.3 Subsequent to the above, the learned Commissioner of Income Tax-1, Chandigarh („learned CIT‟) passed an order under Section 263 of the Act, directing the learned AO to examine the „identity, creditworthiness and genuineness‟ of the transaction in respect of rights shares subscribed by the nine Mauritius based entities. Entire case of the learned CIT is hinged on the assumed direction of the learned DRP directing the learned AO to make necessary enquiry in respect of issuance of the rights shares. Further, the learned AO passed an order dated 28th March 2013 under Section 143(3) read with Section 263 of the Act, wherein, he has made an addition of Rs 795,96,83,862 under Section 68 of the Act merely on the basis that details regarding the source of source of funds of such rights shareholders has not been provided. 2.4 By the impugned order, the ld. CIT(A) confirmed the action of the AO against which the assessee is in appeal further appeal before us. 2.5 It was argued by the ld. AR that during the course of assessment hearing, the assesee has duly filed the following the documents which prove beyond doubt the identity, creditworthiness and genuineness of such right shareholders: 7 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai

A. Proof regarding the identity, creditworthiness and genuineness of the nine Mauritius based shareholders of VIL to whom rights shares were allotted in the subject financial year. B. Explanation regarding the source of funds of such shareholders C. Bank statements of the aforesaid shareholders for AY 2004-05 till AY 2006-07 D. Proof regarding the identity, creditworthiness and genuineness of the source of funds for the said shareholders. The assessee had furnished various documentary evidences to substantiate the identity, creditworthiness and genuineness of the right shareholders and also furnished detailed legal submission as to why no circumstances exists to attract provisions of section 68 of the Act. However, the learned AO has passed an order dated 28th March, 2013 under section 143(3) read with section 263 of the Act, wherein, he has made an addition of Rs 7,95,96,83,862 under section 68 of the Act merely on the basis that details regarding the source of source of funds of such rights shareholders has not been provided. Further, this action of the learned AO also undermines the order of learned TPO and learned DRP wherein the right issue made to such shareholders has been examined and verified with no adverse comments.

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.6 Our attention was invited to the judgemnt of Hon‟ble Supreme Court in the case of Vodafone International Holding B.V vs UOI (31 ITR 1) wherein the Hon‟ble Supreme Court observed as under:- ‘’A. Evolution of the Hutchison structure and the Transaction 3. The Hutchison Group, Hong Kong (HK) first invested into the telecom business in India in 1992 when the said Group invested in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) - later renamed as HEL.

4. On 12.01.1998, CGP stood incorporated in Cayman Islands, with limited liability, as an "exempted company", its sole shareholder being Hutchison Telecommunications Limited, Hong Kong ["HTL" for short], which in September, 2004 stood transferred to HTI (BVI) Holdings Limited ["HTIHL (BVI)" for short] vide Board Resolution dated 17.09.2004. HTIHL (BVI) was the buyer of the CGP Share. HTIHL (BVI) was a wholly owned subsidiary (indirect) of Hutchison Telecommunications International Limited (CI) ["HTIL" for short].

5. In March, 2004, HTIL stood incorporated and listed on Hong Kong and New York Stock Exchanges in September, 2004.

Radhakrishnan wherein it was held:-

„‟43. Corporate structure is primarily created for business and commercial purposes and multi-national companies who make offshore investments always aim at better returns to the shareholders and the progress of their companies. Corporation created for such purposes are legal entities distinct from its members and are capable of enjoying rights and of being subject to duties which are not the same as those enjoyed or borne by its members. Multi-national companies, for corporate governance, may develop structures, affiliate subsidiaries, joint ventures for operational efficiency, tax avoidance, mitigate risks etc. On incorporation, the corporate property belongs to the company and members have to direct proprietary rights to it but merely to their “shares” in the undertaking and these shares constitute items of property which are freely transferable in the absence of any express provisions to the contrary.

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 208. Nor are we inclined to accept the Advocate General's submission that the observations in paragraph 88 of the Vodafone judgment that the “call and part options were not transferred vide the SPA dated February 11, 2007 or any other document whatsoever” were observations on facts in issue and are, therefore, neither ratio nor obiter and not binding in subsequent proceedings even between the same parties. We are not entitled to restrict the ambit of the words of the Supreme Court “any other document” to mean a document prior to the transfer of the CGP share on 8 th May, 2007. The words "any other document" would certainly include the 2007 Framework agreements which were so elaborately dealt with in the judgment. If there is an ambiguity, it is for the parties to have the same clarified by the Supreme Court.

2.12 In view of above documentary evidences filed before the AO, it was argued by the ld. AR of the assessee that the source of funds utilized by the shareholders of the assessee to subscribe to the rights issue was clearly established. 2.13 The ld. AR further contended that all the above documents were obtained by the Indian Revenue Department itself from the Mauritius Revenue Authorities after conducting a detailed investigation. Despite of the same, the learned AO has not been able to create an iota of doubt that the share subscription money actually belonged to the Appellant or has a source in India. 2.14 As per ld. AR of the assessee that the AO has recognized and accepted that the money have been received by companies incorporated in Mauritius i.e. non-residents and such investor companies have taken loan from their sister/group concern to finance the same, however, after accepting such fact the AO has 16 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai exceeded his jurisdiction to examine the source of source of such non-resident companies and in essence has tried to bring into the Indian Tax net the alleged undisclosed foreign income of the non-resident which has no nexus with an Indian source. 2.15 Our attention was invited to Circular No 5 of 1969, dated 20th February 1969 issued by Central Board of Direct Taxes, wherein it is categorically mentioned that income/funds brought into India by a non-resident, cannot be liable to taxed in India. Relevant extracts of the circular is as under:

1. It has been represented to the Board that persons of Indian origin residing abroad but intending to return to India and settle here permanently, apprehend that the money brought in or remitted from abroad by such persons might be subjected to income-tax in India. The apprehension appears to be due to lack of information regarding the correct legal position about the taxability of the remittances of money from abroad. The general position, in this regard, is clarified below.

2. Money brought into India by non-residents for investment or other purposes is not liable to Indian income-tax. Therefore, there is no question of a remittance into the country being subjected to income-tax in India. The question of assessment to tax arises only when there is no evidence to show that the amount, in question, in fact represents such remittance. In other words, in the absence of proper supporting evidence, the taxpayers’ story that the money has been brought into India from outside may be disbelieved by the Income-tax Officer who may then proceed to hold that the money had in fact been earned in India. 3. If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin of the money or assets brought in. It is only in case where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of the money, that the department has to make enquiries about the source thereof. Even in these cases, …………………………….”

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.16 In view of the above submissions, it was vehemently argued by the ld.AR that legal position is well settled and applying the same to the facts of the instant case of the asessee , no income can be brought to tax under Indian Tax laws as it is undisputed that money/subscription have come from proper banking channels after due approval of Reserve Bank of India („RBI‟) and Foreign Investment Promotion Borad („FIPB‟) and it is only the source of source of the non-resident right shareholders which is being doubted. Reliance in this regard is placed on the following judicial precedents:

 M/s Russian Technology Center (P) Ltd Vs DCIT, New Delhi, 145 ITD 88 (Tribunal Delhi), wherein, after examining the judicial precedents on the subject and after recording that fact that share application money received from the non-residents, Hon‟ble Tribunal held that such money cannot come under the ambit of Section 68 or can be taxed in India in any case. The relevant observation of the Tribunal is as under: “11.5 We find merit in the contentions of learned counsel and reliance on the decisions of the Tribunal in the cases of Finlay CorporationLtd. (supra), Smt. Susila Ramasamy (supra) and Saraswati Holding Corpn. Inc. (supra) and the import of CBDT circular referred to above. Whenever remittances are made by the non-resident holding company for purchase of shares of its subsidiary in India, the money undoubtedly is capital in the nature and if documents like FIRC etc. are produced, it can safely be stated that the said money came in through banking channels. 11.6 In the absence of any evidence to show that the money remitted by the non-resident accrued in India, it cannot be held to be taxable in India. Hence, moneys remitted by non-residents whose identity is not in question through their bank accounts outside India have to be held as capital receipts not exigible to tax. It therefore naturally follows that if the identity of the non-resident remitter is established and the money has come in through banking channels, it would constitute a capital receipt and ordinarily cannot be treated as deemed income under s. 68 or 69 of the Act. This is clarified by the CBDT circular itself. ”  DCIT v Finlay Corporation Limited 86 ITD 626 [Delhi Tribunal]. The Tribunal after considering the scope of Section 5(2) of the Act and relying on the Circular 5 of 1969 categorically held that Section 68 of the Act has no application to the non-residents. The relevant observation of the Hon‟ble Tribunal is as under:

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai "As regards the question whether there is any conflict between provisions of section 5(2) and provisions of section 68 or 69, it is the settled legal position that burden is on the revenue to prove that income of an assessee falls within the net of taxation. Once it is so proved, then the burden is on the assessee to prove that such income is exempt from taxation. Section 5(2) being charging section, the burden is on the revenue to prove that the income of the non-resident falls within the ambit of such section. On the other hand, the Legislature has cast the onus on the assessee to explain the source of money falling within the ambit of section 68 or 69. These sections are of universal application and do not make any distinction between a resident or non-resident. Therefore, there is a conflict between the provisions of section 5(2) on the one hand and the provisions of section 68 or 69 on the other hand with reference to the burden of proof. Hence, if there is any cash credit in the books of account of the non-resident, then the source and genuineness of the same will have to be proved by him. For the similar reasons, the non-resident would be required to prove the source of investment made by him in India. However, the conflict between the provisions is only with reference to the onus and not to the issue of taxability of income. The onus is shifted under section 68 or 69 only with reference to the income, which is otherwise taxable in the hands of non-resident under section 5(2). Therefore, the issue whether the income of a non-resident is taxable or not is still to be decided with reference to the provisions of section 5(2) and the provisions of section 68 or 69 cannot enlarge the scope of section 5(2). What is not taxable under section 5(2) cannot be taxed under the provisions of section 68 or 69. Under section 5(2), the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way of remittances. If such income is shown in the books of account then it cannot be taxed in India merely because the assessee is unable to prove the source of such entry. Therefore, the same cannot be taxed under section 68 merely on the ground that the assessee fails to prove the genuineness and source of such cash credit. Therefore, the provisions of section 68 or 69 would be applicable in the case of non-resident only with reference to those amounts whose origin of source can be located in India. Therefore, the provisions of section 68 or 69 have limited application in the case of a non-resident."

2.17 As per ld. AR of the assessee in view of the above discussion, it is clear that where the identity of non-resident is established and the genuineness of the transaction is proved, no addition u/s 68 of the Act can be made. 2.18 It was further contended by the ld. AR of the assessee that even where it is assumed that such non-resident investors did not have a valid source, then too, no addition can be made into the hands of Indian taxpayer, unless it is established by the tax department that the source of such funds was in India and 19 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai through the subject assessee only, otherwise, any addition of such income will make the Act extra-jurisdictional i.e. making a sum taxable in India, which neither has any source nor has been received in India by such non-resident. 2.19 By inviting our attention to the amendment made by Finance Act, 2012, which was effective from 01-04-2013, it was contended by the ld. AR that as per amended provisions the assessee is required to establish just the first leg of the source of investor [not applicable for the subject AY], the AO is still not empowered or have jurisdiction to examine the source of funds for a non-resident investor whose identity is manifest. Hence, any exercise to examine the same is entirely ex-jurisdictional and ultra-vires the Act. The same is evident from the perusal of section 68 of the Act. 2.20 It was argued by the ld. AR of the assessee that as per the provisions of the Section 68 of the Act (as it prevailed for the year under consideration), addition can be made under the said section where the assessee does not offer any explanation regarding the nature and source of sums received or the explanation provided by the assessee is not satisfactory in the opinion of AO which in turn is required to be formed objectively with reference to the material available on record. The aspects which require consideration are identity and creditworthiness of the creditor and genuineness of the transaction. In the instant case, the assessee has filed sufficient documentary evidence 20 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai which establishes beyond doubt, the identity of the existing shareholders, genuineness of the transaction and creditworthiness of these investors. 2.21 With regard to the identity and genuineness of the transactions, the contention of the ld. AR was that increase in share capital was not on account of new shareholders being brought in, rather it was a rights issue which was extended to the existing shareholders. Thus, the balance sheet of the Assesee and the shareholders register evidence that these same parties were already subscribers to the share capital and hence such shareholders already stood identified and accepted. Therefore, once in earlier years the AO had accepted such fact then there remains no question of any doubt on the same. As per the ld. AR of the assessee the shareholding structure and investment through Mauritius based entities (in respect of which additions has been made under section 68 of the Act) has already been validated by the Hon‟ble Apex Court in the landmark judgment in the case of Vodafone International Holding B.V v UOI (341 ITR 1) – refer page 30 and 31 of the case law wherein the investment structure has been reproduced. The structure clearly identifies:

 Hutchison Telecommunications International Ltd, as the ultimate holding company;  Hutchison Telecommunications International (Cayman) Holdings Limited, as an intermediate holding company; and  8 Hutchison group entities [viz., Trans Crystal Ltd, Al-Amin Investments Ltd, Euro Pacific Securities Ltd, Prime Metals Ltd, Mobilvest Ltd, CCII (Mauritius), Asian Telecommunication Investments (Mauritius) Ltd and Hutchison Telecommunications (India) Ltd)] as shareholders in the assessee. It is humbly submitted that the investment by Hutchison was subject matter of 21 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai consideration before the Hon‟ble Supreme Court and hence, investment by Essar Com Ltd, which was a part of the Essar Group was not reflected in the ownership structure.

2.22 In this regard, the Hon‟ble Apex Court has categorically not only validated such investments in the assessee but also the shareholding structure for such investments. Further the Hon‟ble Court in the context of corporate structure had made the following observations and had acknowledged legality of multi-layer corporate structure as under:- „‟Corporate structure created for genuine business purposes are those which are generally created or acquired; at the time when investment is being made or further investments are being made; or at the time when Group is undergoing financial or other overall restructuring‟ or when operations, such as consolidation, are carried out, to clean-defused or over-diversified. Sound commercial reasons like hedging business risks, hedging political risk, mobility of investment, ability to raise loans from diverse investments, often underlie creation of such structure. In transnational investments, the use of a tax neutral and investor-friendly countries to establish SPV is motivated by the need to create a tax efficient structure to eliminate double taxation wherever possible and also plan their activities attracting no or lesser tax so as to give maximum benefit to the investors. Certain countries are exempted from capital gain, certain counties are partially exempted and, in certain countries, there is nil tax on capital gain. Such factors may go in creating a corporate structure and also restructuring.‟‟ 2.23 By inviting our attention to the following documents filed before the lower authorities, the ld. AR of the assessee contended that the identity and genuineness of the right shareholders is clearly established from the following irrefutable documentary evidences (enclosed in paperbook volume II and III):

 Letter of offer issued to all the shareholders for issuance of right shares; Letter of acceptance issued by the right shareholders accepting the offer:  Letter issued by the Assessee intimating allotment of right shares;  Vodafone India Limited vs DCIT, Circle 8(3), Mumbai Financial Statements of all such right shareholders for Calendar Year („CY‟) 2005  and 2006 (covering CY 2004 to 2006) which demonstrates that loan taken from the intermediate holding company was utilized for the purpose of subscribing to the rights shares; Tax Returns of all such right shareholders for Mauritian AY 2006-07 (Period 1 July  2005 to 30 June 2006) and 2007-08 (Period 1 July 2006 to 30 June 2007); Letters of Mauritius Revenue Authorities stating that such rights shareholders have  subscribed to the rights issue through proper banking channels and are tax residents of Mauritius; Bank Statements of all such rights shareholders at least covering period 30 September  2003 to 27 March 2007 (except for Essar Com Ltd.); Certificate of Incorporation of all such right shareholders;   Tax Residency Certificates of all such right shareholders; 2.24 With regard to the creditworthiness of the shareholders, the ld. AR of the assessee contended that the letters issued by Mauritius Revenue Authorities which not only establish, beyond doubt, the identity and genuineness of the aforesaid entities, but also establish the source of funds/ creditworthiness. The letters categorically establish the following:

 the payment of right shares was made by telegraphic transfer;  the funds enabling investment were obtained through financing transaction with other group companies;  the entity is a tax resident of Mauritius. Additionally, it may be noted that Mauritius Revenue Authorities in their letter have not given any adverse comments on the identity and working of the entities or source of their funds. In this context, the ld. AR of the assessee highlighted that a perusal of the financial statements of the eight rights shareholders (all except Essar Com Ltd.) for financial year ending December 2005 makes it evident that the source of funds utilized by the said shareholders to subscribe to the rights issue 23 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai was loan taken from the intermediate holding company, Hutchison Telecommunications International (Cayman) Holdings Limited. 2.25 The ld. AR of the assessee further submitted that the assessee along-with their fellow subsidiaries and holding companies, were part of the Hutchison Whampoa Group, a Hong Kong based conglomerate which was listed on the main board of the Hong Kong Stock Exchange at relevant point in time and operated five core business divisions in 42 countries including ports and related services; telecommunications, property and hotels, etc. Thus, there cannot be an iota of doubt regarding the creditworthiness of the said companies and their ability to subscribe to the rights issue of the assessee‟s equity shares. A perusal of the balance sheet of Hutchison Whampoa Group for the year ended December 31, 2005 (Page 560 and 561 of the Paperbook- Volume II) reveals the following information:

Hutchison Whampoa Limited (Extract from Financial Statements for the year ended December 2005) Particulars Year 2004 Year 2005 (HK$ Millions) (HK$ Millions) Gross Turnover 134,595 182,584 Profit before taxation 3,706 11,527 Total Asset less current liabilities 555,934 512,058 Total non-current liabilities 276,140 258,429 Net Worth 279,794 253,629 Also, the fact that Hutchison Telecommunications International Limited („HTIL‟), besides being a part of the Hutchison Whampoa Limited („HWL‟) Group and 24 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai ultimate holding company of the eight Hutchison group right shareholders, is a leading international provider of mobile and fixed-line telecommunications services with operations in eight countries and territories, amply proves the creditworthiness of HTIL. A perusal of the balance sheet of HTIL for the year ended December 31, 2005 (Page 758 and 759 of the Paperbook- Volume II) reveals the following information:

Hutchison Telecommunications International Ltd (Extract from Financial Statements for the year ended December 2005) Particulars Year 2004 (HK$ Year 2005 (HK$ Millions) Millions) Gross Turnover 14,845 24,356 Profit before taxation 479 636 Total Asset 40,720 59,591 Total Liabilities 25,854 39,769 Net Worth 14,866 19,822 It is apparent from the above information that the shareholding entities subscribing to the rights shares of the assessee were a part of a large conglomerate of companies with abundant financial resources. This clearly establishes the identity of such shareholders sand their creditworthiness and the ability to subscribe to the rights issue of the assessee‟s equity shares. 2.26 As regards investment by Essar Com Ltd, the creditworthiness and source of the funds is evidenced from the financial statement as under:  The financial statement for the period 1st January 2005 to 31st March 2006 (refer page 1569 and 1572), shows that Essar Com Ltd raised the following loans: 25 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai  loan amounting to USD 2,47,86,471 from Essar Infrastructure Holdings Limited.  loans amounting to USD 14,00,00,000 were raised from financial institutions  Investments in the right shares were financed from the aforesaid loans. Thus, based on the above, it is manifest that the assessee has not only furnished irrefutable documentary evidence to establish identity and genuineness of shareholders but has also established the source of funds of such shareholders. Therefore, since the assessee has fully discharged its onus in this regard, there is clearly no case of unexplained credit in the present case. 2.27 Further, addressing the scope of first proviso to Section 68 of the Act w.e.f. 01-04-2013, the ld. AR contended that first of all the proviso is not applicable for the year under consideration, since it applies for and from the Assessment Year 2013-2014. Secondly, even otherwise it is submitted that the said first proviso to section 68 is applicable only in cases where the share application money/share capital is received from a “resident”. In the instant case, the amounts have been received from “non-residents” and hence even on this count the said proviso would not apply. Reliance in this regard is placed on the following:

2.28 On the other hand, it was argued by the ld. Counsel appearing on behalf of the Revenue that the assessee was unable to prove the genuineness and creditworthiness of the share applicants. Therefore, applying the judicial pronouncement laid down by Hon‟ble Supreme Court in the case of NRA Steel, 607 CTR 353, the AO is duty bound investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers and ascertain whether the transaction is genuine or these are bogus entries of name-lenders. He further contended that while investigation in terms of the principles laid down by the Hon‟ble Supreme Court in NRA case may be necessary in respect of the eight entities where funds are stated to have been transferred from Hutchison Telecommunications International Ltd. By way of loan from ABN Ambro Bank Vodafone India Limited vs DCIT, Circle 8(3), Mumbai (which itself is stated to have been repaid by another loan from a group company). In respect of investment from Essar Com Ltd. as can be observed from page 1569 of the compilation submitted by the assessee, the liabilities of Essar Comm Ltd. at the relevant period are around 20 times the shareholder‟s interest and the creditworthiness of Essar Com Ltd. is in serious doubt and the ultimate source of investment is not satisfactorily proved. Hence, the addition to that extent may be sustained. 2.29 We have considered the rival contentions and carefully gone through the orders of the authorities below. We have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld DR during the course of hearing before us in the context of factual matrix of the case. From the record, we found that during the subject AY, the assessee made a rights issue of 7,09,86,318 equity shares of Rs 10 each at a premium of Rs 237.99 per equity share to all its existing equity shareholders in the ratio of 6 equity shares for every 29 equity shares held by them. For the purpose of issuance of right shares, a letter of offer was given to all the shareholders of the assessee. The assessee received a total amount of Rs 17,603.90 million on account of subscription to the said rights shares (i.e. for 70,986,318 equity shares). Out of the above, 3,44,50,106 shares amounting to Rs 7,959.60 million were subscribed to by nine Mauritius based entities, namely: 28 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai  Al-Amin Investments Ltd;  Asian Telecommunication Investments (Mauritius) Ltd;  CCII (Mauritius);  Euro Pacific Securities Ltd  Hutchison Telecommunications (India) Ltd;  Mobilvest Ltd;  Prime Metals Ltd;  Trans Crystal Ltd; and  Essar Com Ltd During the course of assessment proceedings, the Assessee was asked to substantiate the identity, creditworthiness and genuineness of such right shareholders and also asked to explain the identity, creditworthiness and genuineness of such source of right shareholders. In reply, the Assessee furnished the following documentary evidences:-

 Financial Statements of all such right shareholders for FY 2004-05 and 2005-06  Tax Returns of all such right shareholders for FY 2004-05 and 2005-06;  Letters of Mauritius Revenue Authorities stating that such rights shareholders have subscribed to the rights issue through proper banking channels and are tax residents of Mauritius;  Bank Statements of all such rights shareholders for AY 2004-05 and 2006-07;  Certificate of Incorporation of all such right shareholders;  Tax Residency Certificates of all such right shareholders;  Copy of the application made by VIL before the Foreign Investment Promotion Board („FIPB‟) and approval thereof. However, the AO despite of the various irrefutable documentary evidences furnished before his office during the course of hearing has summarily rejected the submissions of the Assessee, merely on the basis that details regarding the source of source of funds of such rights shareholders i.e ultimate origin of funds have not Vodafone India Limited vs DCIT, Circle 8(3), Mumbai been provided and has made addition of Rs 7,95,96,83,862 under Section 68 of the Act. 2.30 It is evident from a bare reading of Section 68 that the section seeks to tax sums found credited in the books of accounts of an assessee which satisfy the following conditions:

- Where the assessee does not offer any explanation regarding the nature and source of such sum; or - If the explanation is not satisfactory in the opinion of the assessing officer.

Thus, the provisions of Section 68 of the Act suggests that there has to be credit of amounts in the books maintained by the assessee, that such credit has to be of a sum during the previous year, and that the assessee offers no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Further, the expression „the assessee offers no explanation‟ means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. Additionally, the opinion of the AO is 30 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. Reference in this regard is placed Hon‟ble Apex court judgment in the case of CIT v P.Mohanakala (291 ITR 278), wherein the Hon‟ble Apex Court held as under “14. The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances section 68 of the Act would come into play? That a bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessees; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.”

Applying the above principle in the instant case of the Assessee, it is apparent from the perusal of the impugned order that the conclusion arrived by the AO is not only subjective but also completely ignores the material available on record and the explanation offered by the Assessee. The AO in the impugned order has not been able to contravene the facts and/or the explanation offered by the Assessee but has merely based his order on the following two patently wrong assumptions:

1. Firstly, the identity, creditworthiness and genuineness of the source of source of i.e., the ultimate origin of such funds have not been established; and 2. Secondly, Mauritius is a tax heaven.

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.31 We also observed that the increase in share capital was not on account of any new shareholders being brought in, rather it was a rights issue which was extended to the existing shareholders. The balance sheet of the Assessee and the Shareholders register evidence that these same parties were already subscribers to the share capital and hence already stood identified and accepted. Therefore, once in earlier year the AO has accepted such fact then there remains no question of any doubt on the same. 2.32 From the record, we found that the identity and genuineness of the said entities is clearly established from the following documents which has been conveniently ignored by the AO.

Financial Statements (attached as Annexure 8a to 8i of paper book)  Tax Returns (attached as Annexure 9a to 9i of paper book)  Letters of Mauritius Revenue Authorities (attached as Annexure 10a to 10i);  Bank Statements (attached as Annexure 11a to 11h)  Additionally, to further establish the identity and genuineness of the shareholding entities, the Certificate of Incorporation and Tax Residency Certificates of each of the said entities were also furnished by the Assessee. The Copies of the same are attached as Annexure 12a to 12i and 13a to 13i respectively. Further, we observed that the Foreign Investment Promotion Board („FIPB‟), Ministry of Finance, Government of India has also granted approval in respect of such entities, which Vodafone India Limited vs DCIT, Circle 8(3), Mumbai itself establishes the identity and genuineness of such shareholders. Copy of FIPB application made by the assessee and approval is placed on record as per Annexure 14 and 15 respectively. 2.34 As per our considered view, the aforesaid documents clearly establishes the identity and genuineness of the shareholders, and in any case the letters issued by Mauritius Revenue Authorities to the Foreign Tax Division, categorically prove that aforesaid parties are tax residents of Mauritius and hence the identity and genuineness of these entities is beyond doubt. 2.35 We further observed that the letters issued by Mauritius Revenue Authorities (Annexure 10a to 10i), not only establish, beyond doubt, the identity and genuineness of the aforesaid entities, but also establish the source of funds/creditworthiness. The letters categorically establish the following:

 The payment of right shares was made by telegraphic transfer;  The funds enabling investment were obtained through financing transaction with other group companies;  The entity is a tax resident of Mauritius. Additionally, it may be noted that Mauritius Revenue Authorities in their letter has not given any adverse comments on the identity and working of the entities or source of their funds. Further, from a perusal of the financial statements of the aforesaid nine shareholders for Financial Year ending December 2005 (Annexure 8a to 8i), it is apparent that the source of funds utilized by the said shareholders to Vodafone India Limited vs DCIT, Circle 8(3), Mumbai subscribe to the rights issue was the recovery of a loan given by eight of the nine shareholders, i.e. all except Essar Com Ltd, to their respective fellow subsidiaries. This fact is evident from the notes to accounts appearing in the financial statements of the respective entities. Relevant extracts of the financial statements are attached as Annexure 8a to 8i. It is also apparent from the financial statements of the respective entities that the loan was extended to the fellow subsidiaries by utilizing funds arising out of a loan taken, by the respective entities, from their intermediate holding companies. To illustrate, in the case of Mobilvest Ltd, the flow of the transaction was as under:

In the period 1st January 2005 to 31st December 2005, Mobilvest Ltd raised a loan - amounting to USD 3,72,15,000 from its intermediate holding company. - In the same period, a loan of USD 3,72,14,249 was extended, by Mobilvest, to its fellow subsidiary. The loan amount was recovered from the fellow subsidiary on 19th December - 2005 and the same amount, i.e. USD 3,72,14,249 was invested in the shares of VIL, issued on a rights basis, on the same day.

A similar flow of transactions took place in all of the shareholding entities and is fully reflected in the financial statements of the respective entities. Thus, the source of funds utilized by the shareholders of the appellant to subscribe to the rights issue is clearly established from the above discussions and illustration. In the instant case, since the identity of the shareholders has already been established, the Vodafone India Limited vs DCIT, Circle 8(3), Mumbai office of the learned AO did not have locus standi to make an addition under section 68 of the Act. Reliance in this regard is placed on the the recent judgment of Hon‟ble Delhi High Court in the case of CIT vs Pondy Metal and Rolling Mill (ITA 788 of 2006) which dealt with a case similar to the present one i.e. investments made by a Mauritius based company. The Hon‟ble Delhi High Court held that once the identity of the investor has been manifest and is proved, the investment cannot be said to be the undisclosed income of the assessee. It is noteworthy that the departmental SLP against the aforesaid Delhi High Court decision has been dismissed by the Hon‟ble Supreme Court (SLP(C) 12680/2007).Further, it is well settled that where the proper identity of such shareholders has been provided by the recipient company, no additions can be made in hand of the recipient company. Reliance in this regard is placed on the Hon‟ble Supreme Court judgment in the case of CIT v Lovely Exports 216 CTR 195, wherein it has been held that where the names of the shareholders are given, the department cannot treat such subscription of shares as undisclosed income under section 68 of the Act of the recipient company. Further, reliance in this regard is also placed on the Hon‟ble Supreme Court judgment in the case of CIT v Steller Investments Ltd 251 ITR 263, wherein, the Hon‟ble Supreme Court affirmed the following conclusion of the Hon‟ble Delhi High Court:

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai “In the present case, the subscribed capital of the assessee had been increased. The ITO assessed the company and accepted the increase in the subscribed capital. The Commissioner came to the conclusion that the Assessing Officer did not carry out detailed investigation inasmuch as there is a device of converting black money by issuing shares with the help of formation of investment company. The Commissioner further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment.

5. In our opinion, no question of law arises and the petition is, therefore, dismissed.”

Further reliance is laid on the very recent decision of the Hon‟ble Delhi Tribunal in the case of M/s Russian Technology Center (P) Ltd Vs DCIT, New Delhi, ITA 4932, 4933/Del/2011, wherein on the similar facts, the Tribunal has categorically held that share application money received from the non-residents after due approval by FIPB cannot be taxed under Section 68 of the Act. The relevant facts and conclusion as recorded by the Tribunal is as under :

“8. Apropos the merits of the additions on account of cash credits /share application money, learned counsel for the assessee contends that soon after its incorporation, the assessee company sought approval of the Foreign Investment Promotion Board (FIPB) for raising share capital up to USD 3 lacs. The approval was granted vide letter dt. 16th Sept., 1998 by FIPB. An amendment in the said approval was sought by the assessee for permitting RTCHL to acquire equity of the assessee company to the extent of 94.97 per cent and also allow the foreign company called M/s Protex Trading Company Ltd. to Vodafone India Limited vs DCIT, Circle 8(3), Mumbai acquire 5 per cent of the total capital in the assessee company. This approval was granted by FIPB on 9th June, 2004. 8.1 The FIPB further authorized the assessee company to raise capital up to Rs. 600 crores without approaching it for further approvals. This approval was given vide letter dt. 20th Dec., 2005. The assessee also filed the certificate of incorporation of RTCHL and a detailed confirmation by RTCHL and M/s Protex Trading Company Ltd. confirming the remittance of Rs. 54,44,000 towards share capital of the assessee company. The assessee contended that the money came in through banking channels and a copy of the FIRC was also filed wherein it was specifically stated that the monies have come in towards share capital in the assessee company and the same had been remitted by RTCHL. The name of the bank involved was also given in the certificate. The assessee company filed documentary evidence to show that the increase in share capital was intimated to the RoC in the requisite form. 8.2 This was sought to be explained by the assessee by submitting following documents before the AO : (i) FIPB approval dt. 16th Sept., 1998 authorising the company to raise share capital up to USD 3 lakhs. (ii) Amendment to FIPB approval dt. 9th June, 2004. (iii) FIPB approval dt. 20th Dec., 2005 received by the company authorizing to raise share capital up to Rs. 600 crores. (iv) Copy of certificates of incorporation of shareholders. (v) Confirmation given by remitter towards remittance for share capital. (vi) Copy of FIRC. (vii) Copy of bank statements. (viii) Copy of Form 2 filed with ROC. 8.3 Thus, the assessee before AO provided all possible information which was humanly possible in the matter to discharge primary onus cast by s.

Similar, observations have been made in the following cases.  CIT v Creative World Telefilms Ltd (333 ITR 100) (Jurisdictional Bombay High Court)  CIT v. Dwarkadhish Investment (P) Ltd. – Del HC  S. Hastimal v. CIT[1963] 49 ITR 273 (Mad.)  Tolaram Daga v. CIT[1966] 59 ITR 632 (Assam)  CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC)  Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.) 38 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.37 We also place reliance on the judgment of the Hon'ble Supreme Court in P. K.Noorjahan (237 ITR 570) (SC) to bring home the point that every case of cash credit does not have to be taxed under Section 68 of the Act. The word used in the section is „may‟ and Section 68 cannot be applied mechanically in the case of the assessee. The AO must also consider the attending circumstances before pressing into service Section 68. In the case of the assessee, there could possibility be no allegation that the assessee was earning money outside the books of account and bringing it as its share capital. Hence, Section 68 would not apply to the case of the assessee. Further Hon‟ble Delhi High Court in the case of CIT Vs Divine Leasing & Finance Limited (158 Taxmann 440) laid down following proposition in the context whether receipt of share capital is genuine one or not  The identity of the subscriber; The genuineness of the transaction, namely, whether it has been transmitted through  banking or other indisputable channels;  The creditworthiness or financial strength of the subscriber; If relevant details of the address or PAN identity of the subscriber are furnished to the  department along with copies of the shareholders register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. Applicability of the principles enunciated in the instant case Vodafone India Limited vs DCIT, Circle 8(3), Mumbai In the instant case as discussed above, the Appellant during the assessment  proceedings proved the identity and genuineness of the right issue by submitting various documents as mentioned above, which is even acknowledged by the learned AO in his assessment order. Further, regarding the creditworthiness of the transaction, the appellant submitted the  bank statements and financial statements showing the source of the funds in the hands of the shareholders which very clearly proved the creditworthiness of the transactions. Further apart from the above documents the appellant also submitted the letters of the Mauritius Revenue Authorities, Tax residency certificates of the right shareholders, certificate of incorporation and copy of the application made by the Appellant before the Foreign Investment Promotion Board and its approval.  However the learned AO without proper appreciation of the material on record and other attending circumstances available on record formed an opinion on the realm of surmises, conjectures and suspicion that the appellant has not proved the creditworthiness of the shareholders.

2.38 With regard to the Revenue‟s arguments regarding genuineness of the transactions, we observed that the assessee had filed letters issued by Mauritius Revenue Authorities which not only establish, beyond doubt, the identity and genuineness of the aforesaid entities, but also establish the source of funds/ creditworthiness. The letters categorically establish the following:

The payment of right shares was made by telegraphic transfer;  The funds enabling investment were obtained through financing transaction with  other group companies; The entity is a tax resident of Mauritius.  Additionally, it may be noted that Mauritius Revenue Authorities in their letter have not given any adverse comments on the identity and working of the entities or source of their funds. The assessee had also submitted the financial statements of Vodafone India Limited vs DCIT, Circle 8(3), Mumbai the aforesaid nine shareholders for Financial Year ending December 2005 from which it is apparent that the source of funds utilized by the said shareholders to subscribe to the rights issue was the recovery of a loan given by eight of the nine shareholders, i.e. all except Essar Com Ltd, to their respective fellow subsidiaries. This fact is evident from the notes to accounts appearing in the financial statements of the respective entities. It is also apparent from the financial statements of the respective entities that the loan was extended to the fellow subsidiaries by utilizing funds arising out of a loan taken, by the respective entities, from their intermediate holding companies. To illustrate, in the case of Mobilvest Ltd, the flow of the transaction was as under:

In the period 1st January 2005 to 31st December 2005, Mobilvest Ltd raised a loan  amounting to USD 3,72,15,000 from its intermediate holding company. In the same period, a loan of USD 3,72,14,249 was extended, by Mobilvest, to its  fellow subsidiary. The loan amount was recovered from the fellow subsidiary on 19th December 2005  and the same amount, i.e. USD 3,72,14,249 was invested in the shares of VIL, issued on a rights basis, on the same day.

A similar flow of transactions took place in all of the shareholding entities and is fully reflected in the financial statements of the respective entities which are placed on record. Thus, the source of funds utilized by the shareholders of the assessee Vodafone India Limited vs DCIT, Circle 8(3), Mumbai to subscribe to the rights issue is clearly established from the above discussions and illustration. 2.39 Further more, we observed that that Section 68 would not apply to remittances made in India by non-resident is strengthened by the proviso to Section 68 inserted w.e.f. A.Y. 2013-14. According to the said proviso, if an assessee company, in which public are not substantially interested, receives money by way of share capital, then the source of funds of resident share holder has to be established by the assessee in order to get out of the kin of the deeming provision under section 68. The proviso talks of the source being established only when the shareholder is a resident of India. There is no such requirement if shareholder is a non-resident. Hence, the creditworthiness of the shareholders, if he is a non-resident, does not have to be established by the assessee in respect of remittance received by him. For this purpose, reliance is placed on the judgment of the Hon‟ble Delhi Tribunal in the case of M/s Russian Technology Center (P) Ltd Vs DCIT, New Delhi, (supra), wherein the Hon‟ble tribunal observed that the provisions of Section 68 though inserted w.e.f. 01.04.2013 also reveals the legislative intent that if the shareholder is a non-resident and the money is by way of remittance from his account, the rigor of Section 68 would not be applicable. 2.40 From the record, we also found that assessee submitted the bank account statements for the nine Mauritius entities for the period relevant to AY 2004-05 to 42 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2006-07. From the perusal of the same it is evident that all these entities had received funds from their group companies, through proper banking channels. In this connection, it is observed that during the subject financial year, the assessee (earlier known as Hutchison Essar Limited) and the aforesaid nine shareholders of the assessee, along-with their fellow subsidiaries and holding companies, were all part of the Hutchison Whampoa Group. Hutchison Whampoa is a well known Hongkong based conglomerate which is listed on the main board of the Hong Kong Stock Exchange and operates five core business divisions in 42 countries including ports and related services; telecommunications, property and hotels, etc. This fact is evident from the annual report and financial statements of Hutchison Whampoa for year ending December 2005. 2.41 Further more the perusal of the notes to accounts of the Financial Statements of each of the nine right shareholders of the Appellant (copies of financial statements attached as Annexure 8a to 8i), it is apparent that Hutchison Telecommunications International Ltd („HTIL‟), a part of the Hutchison Whampoa Group, was the ultimate holding company for such entities. Hutchison Telecommunications International Ltd („HTIL‟) is a company incorporated in the Cayman Islands and was listed on the Honk Kong Stock Exchange as well as the New York Stock Exchange during such period. The fact that HTIL, besides being a part of the Hutchison Whampoa Group, is a leading international provider of 43 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai mobile and fixed-line telecommunications services with operations in eight countries and territories, amply proves the creditworthiness of HTIL. A perusal of the balance sheet of HTIL for the year ended December 2005 reveals the following information:

Hutchison Telecommunications International Ltd (Extract from Financial Statements for the year ended December 2005) Particulars Year 2004 (HK$ Millions) Year 2005 (HK$ Millions) Gross Turnover 14,845 24,465 Total Asset 40,720 59,591 Total Liabilities 25,584 39,769 Net Worth 15,136 19,822 It is apparent from the above information that the shareholding entities subscribing to the rights shares of the assessee were a part of a large conglomerate of companies with abundant financial resources. There arises no doubt regarding either the identity or genuineness of such shareholders or their creditworthiness and ability to subscribe to the rights issue of the assessee‟s equity shares. Hence, there does not arise any occasion to question the source of funds used by these entities for subscribing to right shares of the asessee. In light of our above discussions, it is abundantly clear that the assessee has fully complied with all the conditions laid down by Section 68 of the Act by providing all explanations regarding the receipt of funds on account of issue of rights shares to its existing shareholders.

Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.42 In the instant case, from the documents furnished before lower authorities it is abundantly clear that the assessee has not only furnished irrefutable documentary evidence to establish identity and genuineness of shareholders but has also established the source of funds of such shareholders. Therefore, since the assessee has fully discharged its onus in this regard, there is clearly no case of unexplained credit. 2.43 We further observed that the observation of the AO is totally unjustified inasmuch as the learned AO has not brought on record any material to substantiate his allegation that the appellant had taken a route of tax haven for issue of share capital in VIL. We also observed that the entire shareholding structure of the assessee including the entities to whom the right shares were allotted, were examined by the Hon‟ble Supreme Court in the case of Vodafone International Holding B.V v UOI 341 ITR 1. Wherein the Hon‟ble Supreme Court has categorically not only validated such investments in the appellant but also the shareholding structure for such investments. 2.44 We further observed that the recent judgment of the Hon‟ble Bombay High Court in the case of Vodafone India Service Private Limited vs UOI & Ors (WP 488 of 2012), wherein the Hon‟ble jurisdictional High Court has categorically laid down that the judgment of the Hon‟ble Supreme Court has to be taken into Vodafone India Limited vs DCIT, Circle 8(3), Mumbai cognizance by the AO and any failure to do so would amount to judicial indiscipline . 2.45 Further more, the landmark judgment of the Hon‟ble Apex court in the case of UOI v. Azadi Bachao Andolan [2003] 132 Taxman 373 (SC), wherein the Hon‟ble Court has validated the investments made through Mauritius and has held taking advantage of existing provision of Double Taxation Avoidance Agreement is, per se, not illegal. In any case, the Hon‟ble Supreme Court in the case of Vodafone International Holding B.V (supra) has already validated their investment structure, hence the learned AO was clearly precluded from questioning the same. 2.46 With regard to the observations of the AO that the balance in the bank accounts on a day before the funds were invested in the assessee and the day after the investment was made was meager which establishes the fact that the transaction was undertaken by the assessee to evade taxes. We observed that this finding of the AO nowhere establishes that the transaction was undertaken by the assessee to evade taxes. The AO has failed to take into consideration the submission of the assessee as well as the letters of the Mauritius Revenue Authorities where it is evidently mentioned that the source of funds enabling the investments in the assessee was obtained through financing transaction with other group companies. 46 Vodafone India Limited vs DCIT, Circle 8(3), Mumbai 2.47 Before parting, it is noted that the order is being pronounced after ninety (90) days of the hearing. However, taking note of extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days to be excluded. For coming to such a conclusion, we rely upon the decision of the Coordinate Bench of the Mumbai Tribunal in the case of DCIT vs JSW Limited in & 6103/Mum/2018, Assessment Year 2013-14, order dated 14th May, 2020. As a result, the appeal of assessee is allowed.