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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the revenue and the C.O. is filed by the assessee and these are directed against the order of ld. CIT(A)-11, Bangalore dated 28.02.2018 for Assessment Year 2008-09.
The grounds raised
by the revenue in its appeal are as under. “1. On the facts and circumstances of the case, the Ld CIT(A) erred in deleting addition u/s 68 amounting to Rs. 4,06,98,770/- without appreciating the fact that except for the identity, the assessee has not been able to establish the creditworthiness ofthe person advancing loan C.O. No. 106/Bang/2018 Page 2 of 13 and also genuineness of the transaction.
2. On the facts and circumstances of the case, the Ld CIT(A) erred in holding that the assessee has proved the creditworthiness of the person advancing the loan merely relying on the fact that the said person has been held to a large tax defaulter by the US Revenue authorities ignoring the fact that the said fact does not conclusively prove that the said person has any large real income and cannot be a proof of his creditworthiness on standalone basis.
3. On the facts and circumstances of the case, the Ld CIT(A) erred in not appreciating that the said investor Shri Samyakant C Veera has invested of about 53.34 million US $ whereas his net income over a period of 6 proceedings years in US was only 3.3 million US$ as revealed from his tax returns filed with US Revenue authorities and hence his creditworthiness has not been proved.”
3. Similarly, the grounds raised by the assessee in its C.O. are as under. “1. The order of the learned Commissioner of Income Tax (Appeals) is opposed to thefacts of the case and law applicable to it.
2. The learned Commissioner of Income Tax (Appeals) erred in upholding the actionof the Assessing Officer of invoking the provisions of section 147 of the act for theA.Y.2008-09 dismissing the grounds of appeal of the respondent on the legality ofthe action of the Assessing Officer in invoking the said provisions.
3. The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law that, the provisions of section 147 of the act cannot be invoked on meresuspicions and relying solely on an alleged report from investigation wing, withoutany independent evidence, the said provisions could not have been invoked.
4. The learned Commissioner of Income Tax (Appeals) erred in not appreciating theposition of law that, in the absence of reason to believe and without any evidenceto form such reason to believe that, income chargeable to tax has escapedassessment, the Assessing Officer could not have invoked the provisions ofsection 147 of the act.
5. The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law that, the reason to believe for issue of notice U/s.147 of the act should beon the basis of tangible material and not on presumptions and on just an opinionwhich is not supported by evidences the provisions of section 147 of the act couldnot have been invoked.
6. The learned Commissioner of Income Tax (Appeals) erred in C.O. No. 106/Bang/2018 Page 3 of 13 ignoring the positionof law laid down by Hon'ble Supreme Court in the case of Indian & Eastern NewsPaper Society V. CIT (1979) 119 ITR 996 (SC), wherein it is held that, opinion ofan audit party cannot be basis for reopening and on the same lines opinion ofinvestigation wing can also be not a basis for reopening U/s.147 of the act.
The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law laid down in the following decisions, wherein it is held that, on meresuspicion no reopening is possible U/s.147 of the act, since the satisfaction isbased on "reason to believe" and not 'reason to suspect" i) CIT V. Jeskaran huvalka (1970) 76 ITR 128 (AP) ii) N. Sundareswaram V. CIT (1972) 84 ITR 173 (Ker) iii) Smt. Hemlata Agarwal V. CIT (1967) 64 ITR 428 (All) iv) ITO V. Lakshmani Mewal Das (1976) 103 ITR 437 (SC) v) India Finance & Construction Co., (P) Ltd V. B.N.Panda, DCIT (1993) 200 ITR 710 (Bom) 8. The learned Commissioner of Income Tax (Appeals) erred in ignoring the ratio laid down by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax V. RMG Polyvinyl (I) Ltd (2017) 83 Taxmann.com 348 (Delhi), wherein it is held that, the information received from Investigation Wing could not be said to be tangible material per se without a further enquiry being undertaken by the Assessing Officer to establish link between "tangible material" and formation of reason to believe that, income chargeable to tax had escaped assessment for the purpose of the provisions of section 147 of the act.
9. The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law laid down by Gujarat High Court in the case of Gaurav Contracts Co., V.DCIT (2015) 64 Taxmann.com 333 (Guj), wherein it is held that, an opinion of anaudit party cannot be basis for reason to believe for the purpose of the provisionsof section 147 of the act.
The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law laid down by Hon'ble High Court of Delhi in the case of Pr.Commissioner ofIncome Tax - 6, Vs. Meenakshi Overseas Private Limited (2017) 82Taxmann.com 300 (Delhi), wherein it is held that, reassessment resorted to on thebasis of information from investigation wing without independent application ofmind to the tangible material is not justified and all the more so in the absence ofany such tangible material.
11. The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law laid down by Hon'ble High Court of C.O. No. 106/Bang/2018 Page 4 of 13 Bombay in the case of Nu PowerRenewables (P) Ltd V.DCIT, Circle- 1(2)(a) (2018) 94 Taxmann.com 29 (Bombay),wherein it is held that, relying only upon information received from DDIT andwithout independently applying mind, re-assessment cannot be resorted to.
12. The learned Commissioner of Income Tax (Appeals) erred in ignoring the positionof law laid down by Hon'ble High Court of Bombay in the case of PrincipleCommissioner of Income Tax-5 V. Shodiman Investments (P) Ltd (2018) 93Taxmann.com 153 (Bombay), wherein it is held that, reopening notice issued byAssessing Officer on the basis of intimation from DDIT, Investigation, is in breachof settled position of law that, a reopening notice has to be issued by theAssessing Officer on his own satisfaction and not on borrowed satisfaction.
The learned Commissioner of Income Tax (Appeals) erred in not following the ratiolaid down by ITAT, Delhi Bench in the case of RMG Polyvinyl (I) Ltd V. DCIT,Circle 15(1), New Delhi (2017) 88 taxmann.com 351 (Delhi-Trib), wherein it is heldthat, where the Assessing Officer had not applied his mind and mechanicallyissued notice U/s.148 of the act on the basis of information received from the DITInvestigation, the reassessment is bad in law and deserves to be quashed.
The learned Commissioner of Income Tax (Appeals) erred in ignoring the ratio laiddown by the Hon'ble Delhi Tribunal in the case of Monarch Educational Society V.ITO (Exemption) (2015) 57 Taxmann.com 141 (Delhi) wherein it is held that, simplyreproducing details received from Director of Income Tax, Investigation without anyverification would not be sufficient reason to believe for the purpose of invoking theprovisions of section 147 of the act.
The learned Commissioner of Income Tax (Appeals) erred in not following the ratiolaid down by ITAT, Delhi Bench 'A' in the case of Bir Bahadur Singh Sijwali V. ITOWard-1, Haldwani (2015) 53 Taxmann.com 366 (Delhi Trib).
The respondent craves permission to add, delete or alter any of the grounds at thetime of hearing.”
Regarding the appeal of the revenue, it was submitted by ld. DR of revenue that the only issue involved is regarding deletion of the addition made by the AO of Rs. 4,06,98,770/- and this addition was made by the AO u/s. 68 of IT Act. It was submitted by him that it is noted by the AO on page no. 4 of the assessment order that the investor in question Shri Samyak C Veera had C.O. No. 106/Bang/2018 Page 5 of 13 incurred huge losses in the year 2003, 2004 and 2006 and in the year 2005 also, the income reported was only $19,075/- whereas the loss reported in the year 2003 was $53,416,406, in the year 2004, loss reported was $1,643,264 and in the year 2006, loss reported was $1,568,428. It was also submitted by him that it is noted by the AO in Para 8 of the assessment order that the assessee was asked to furnish the details along with the cash flow statement for the earlier years linking the same for the subject remittances and the assessee has failed in submitting any of such details. It was submitted by ld. DR of revenue that in the absence of cash flow statement, this claim of assessee is not acceptable that the investor has made his investment out of income of earlier years. He submitted that under these facts, the order of CIT(A) should be reversed and that of AO should be restored. As against this, the ld. AR of assessee supported the order of CIT(A). He also submitted that on pages 12 to 14 of paper book is the copy of Bank statement of investor Mr. Samyak Chandrakant Veera and in particular, our attention was drawn to entry on 31.05.2007 on page no. 12 of the paper book and it was pointed out that as per this entry, there is a remittance of $1,000,006.53 to assessee company i.e. Jaico Realtors Private Limited. He further submitted that on page no. 15 of paper book is the copy of FIRC in support of remittances and as per the same, remittance of $999970/- was received on 05.06.2007 and the same was converted to Indian Rupees equivalent to Rs. 4,06,98,779/- at Rs. 40.70 per US Dollar. It was submitted that these evidences clearly establish that the money in question was received by the assessee company from abroad through proper banking channel and therefore, the addition made by the AO is not justified and the same was rightly deleted by CIT(A). At this juncture, the bench pointed out that as per recent judgment of Hon’ble Apex Court rendered in the case of Pr. CIT Vs. NRA Iron & Steel Pvt. Ltd. in SLP(Civil) No. 29855 of 2018 as per judgment dated 05.03.2019, the issue regarding receipt of capital was decided against the assessee. The bench wanted to know from the ld. AR of assessee as to what is the submissions in this regard. In reply, he submitted that this judgment is not applicable in the C.O. No. 106/Bang/2018 Page 6 of 13 present case because the facts are different. He pointed out that in that case, the shares were issued at a very high premium of Rs. 190/- per share, even though the face value of the share was Rs. 10/- per share whereas in the present case, the premium received is only Rs. 50/- per share as against the face value of shares at Rs. 100/- each.
We have considered the rival submissions. First of all, we reproduce para no. 6 from the assessment order because we find that in this para, the AO has noted the loss and income declared by the remitter during Calendar year 2000 to 2006. This para reads as under.
6. During the course of assessment, the assessee was asked to prove thegenuineness of the transaction along with the relevant documentary evidences.The assessee has informed that the assessee company has received investmentstowards share capital and share premium from Sri Samyak C Veera, who is a non-resident and the funds are received in foreign exchange through banking channels.The assesses has furnished copies of the FIRC, foreign bank statement of theremitting share holder and copies of income tax returns for period ended31.12.2000, 31.12.2001, 31.3.2002 and the Closing Agreement on FinalDetermination Covering Specific Matters for these years in Form 906, issued on31.10.2011 by the Department of Treasury, Internal Revenue Service, USA. Theassessee has furnished the income details of Sri Samyak C Veera as per US Tax returns, as here below: Year Income as per USTax returns in $ 2000 14,396,216 2001 16,410,419 2002 29,114,644 Income as reported - (-)53,416,406 2003 (Gross income 4,183,594 - Losses 57,600,000) Income as reported - (-) 1,643,264 2004 (Gross income 41,471- Losses 1,684,735) Income as reported - 19,075 2005 (Gross income 22,075 - Losses 3,000) Income as reported - (-) 1,568,428 2006 (Gross income 77,836 – Losses 1,650,264)
From the figures noted by the AO in this para of assessment order, it is seen that the total income reported during this period i.e. in four calendar years i.e. 2000,2001,2002 and 2005 is to the extent of $ 5,99,40,354 and C.O. No. 106/Bang/2018 Page 7 of 13 the loss reported by the remitter in the years 2003,2004 and 2006 was to the extent of $ 5,66,28,098 and even after adjusting the losses in the subsequent years, the net income of the remitter is seen to be $ 33,12,256 whereas the remittance by him to the present assessee in the present year is only $1,000,006.53. Hence it is seen that the net income after adjusting losses incurred by the remitter in the calendar years 2003,2004 and 2006 also, the net income was many times more than the amount of remittance received by the assessee from this remitter. Regarding the applicability of the judgment of Hon’ble Apex Court rendered in the case of Pr. CIT Vs. NRA Iron & Steel Pvt. Ltd. (supra), we find that in that case, the shares in question were issued at a very high premiumat Rs. 190/- per share, even though the face value of the share was Rs. 10/- per share whereas in the present case, the premium received is only Rs. 50/- per share as against the face value of shares at Rs. 100/- per share. Hence the amount of such premium is 50% of the face value in question in the present case whereas the amount of premium in that case was 19 times of the face value of shares. It is also seen that in that case, it is noted by Hon’ble Apex Court in para 9 of the judgment that the AO made an independent and detailed enquiry, including survey of the so called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions and the field reports revealed that the share-holders were either non-existent or lacked credit-worthiness. In the present case, this is not the case of the AO that the remitter is non-existent and the only objection of the AO is this that in view of losses incurred by that remitter in the years 2003, 2004 and 2006, the credit-worthiness of the remitter is in doubt. But we have seen that even after reducing the amount of losses incurred by the remitter in these three years i.e. 2003, 2004 and 2006, the remitters was having net income of $ 33,12,256 during the period from 01.01.2000 to 31.12.2006 and the assessee has received remittance of only $ 10 Lakhs approx. Under these facts, in our considered opinion, this judgment of Hon’ble Apex Court C.O. No. 106/Bang/2018 Page 8 of 13 rendered in the case of Pr. CIT Vs. NRA Iron & Steel Pvt. Ltd. (supra) is not applicable in the present case.
7. Now we reproduce para 5.4 from the order of CIT(A) which is available on page nos. 35 to 39 of the order of CIT(A). This para reads as under. “5.4 I have considered the grounds of appeal
and also the submissions filed by the appellant. Ihave also considered the ratios laid down in the various decisions and relied upon by theappellant. The grounds of the appellant are disposed off as under: - GROUNDS 2, 3 & 4 The only issue involved in these grounds of appeal is the addition of Rs.4,06,98,779/-brought to tax by invoking the provisions of section 68 of the act. As brought out in the factsthe amount represents share capital introduced by Sri. Samyak Chandrakanth Veera a non- resident, non-citizen in the appellant company. The submissions of the appellant have been considered. All the documents furnished duringthe course of hearing by the AR of the appellant and also his oral arguments have beenconsidered. The funds remitted by Mr. Samyak Chandrakant Veera towards the share capital is as under: Originatingcountry Date Amount Relevant Remitterdetails Source of ofremittance inUS$ F. Y. bankaccount Samayakant JP Morgan, USA 06.06.2007 9,99,970 2007-08 Veera ChaseBank Total 9,99,970 It is a decided position of law that, in respect of cash credits brought into the books, the onus ison the assessee to prove the following.
1. Identity of the creditor
2. Genuineness of the transaction
3. Credit worthiness of the creditor After examining the documents produced by the appellant during the course of assessment ofwhich the copies were produced before the undersigned and considering the submissions ofthe appellant's representative, the findings on the above three issues are as under: -
1. Identity of the creditor In support of the identity of the creditor, the Income Tax returns of the creditor whichwas filed in United States of America has been C.O. No. 106/Bang/2018 Page 9 of 13 produced, wherein USA Social Security no. and the citizen ship of the person has been disclosed. Further, theinvestigation wing of the department also verified the fact. The Assessing Officer has not given any findings against the identity of the creditorand has accepted the identity of the creditor. As far as the identity of the creditor is concerned there is no dispute.
2. Genuineness of the transaction The transactions are through banking channels. Copy of the foreign bank accountthrough which the amounts have been remitted to the bank account of the appellantcompany has been furnished. The appellant has also furnished the Foreign InwardRemittance Certificates issued by recipient bank in support of the transaction. TheFIRCs certificates clearly indicates, name of the remitter, the fund transferred fromwhich country, from which bank and recipient bank as detailed below. Name of Date Amount Receiving Remitting the Indian Rs. ofremittance inUS$ bank bank remitter JP Morgan Sri Chase Indian Samayaka 06.06.2007 999970 4,06,98,779/- Bank, NA, Bank nth Veera New York NY The appellant company has also intimated the Reserve Bank of India of thetransaction. These documents have been examined by me. The Assessing Officer also does not dispute the genuineness of the transaction. Under the circumstances, as far as the genuineness of the transaction is concernedthere is no dispute.
3. Credit worthiness of the creditor The only issue to be examined in the appeal is the credit worthiness of the shareholder. The findings of the Assessing Officer in the assessment are only on this issue. TheAssessing Officer states that, the sources of the creditor are not proved withsupporting evidences. The Assessing Officer also states that, the appellant has notproduced the statement of affairs and also the cash flow statement of the investor. Itis on these grounds that, the Assessing Officer has concluded that, the creditworthiness of the C.O. No. 106/Bang/2018 Page 10 of 13 creditor is not established and therefore the sources are notexplained. It is vehemently argued by the appellant's representative that, it is not the appellant'sresponsibility to produce the statement of affairs and also the cash flow statement ofthe investor. It is argued on behalf of the appellant that, copies of income tax returnsof the investor Sri. Samyak Chandrakanth Veera was filed during the course ofhearing. As per these returns the investor has huge income but claimed certaindeductions which is eligible under the law of that country (USA). Such claim hasbeen disallowed by the Inter Revenue Service of USA and assessed huge incomewhich resulted in a huge tax demand. The fact that, substantial income is assessedis established. The fact of its taxability being under dispute also confirms that, theinvestor had enough of sources. This fact is evident from form no.4549-A "Income Tax Discrepancy Adjustments" forthe year ended 31.12.2000, 31.03.2001 & 31.03.2002, dated 06.09.2011 detailed asunder: - Income Rate of Income in Year ending determined in conversion Indian Rupees US$ to INR 31.12.2000 141,86,897 46.75 66,32,37,435 31.03.2001 164,10,419 48.18 79,06,53,987 31.03.2002 291,14,644 48.03 139,83,76,351 Total 59,11,960 285,22,67,773 The Closing agreement of final determination covering specific matters in form 906 of department of treasury - internal revenue service, dated 31.10.2011 duly signed by Commissioner of Internal Revenue Service & Annexure to such closing agreement also discloses various entities in which Mr. Samyak Chandrakant Veera has invested and income earned has been placed on records. As Mr. Samyaka Chandrakant Veera has not paid tax demanded as per investigation wing of the department and same has been informed to the Assessing Officer that, he is a tax defaulter in USA It was argued by the AR that, the huge income earned by Mr. Samyak C Veera during those years was available with Mr. Samyak C Veera for investments till the disputes are closed in 2011 The Assessing Officer states that, the investment is in 2007-2008, whereas theevidences are for the years 2000, 2001 & 2002 and therefore without a cash flow itcannot be accepted that the investor had enough of sources. The Assessing Officer has insisted on the cash flow and has concluded
C.O. No. 106/Bang/2018 Page 11 of 13 that, therewere no sources to the investor for the A.Y.2008-09. The arguments of theappellant's representative is that, the Assessing Officer has not made any furtherenquiries to find out the sources of the investor for the said year. It is pointed out bythe AR of the appellant that, the foreign bank account copy of the investor wasproduced from which account the funds are remitted to the banks in India. Since theevidences in the form of bank accounts are furnished the Assessing Officer should not have rejected the appellant's contention in a summary way without making enquiries on his own. The appellant had produced the bank accounts of the investor Mr. Samyak C Veera in support of the investment made. The entries were availablein the said bank accounts. All the bank accounts are foreign bank accounts and thetransactions are in the nature of interbank transfers. Instead the assessing Officerhas directed the appellant to produce the cash flow of the investor, which is not in therealm and control of the investor, and thereafter giving a finding that, such cash flow was not furnished has concluded that the investor is not credit worthy. I, find force in the argument of the appellant's representative that, the appellantcannot be called upon to produce the cash flow statement of the investor. Since, thecopy of the bank account has been produced it was for the Assessing Officer tomake enquiries before arriving at conclusions. In the light of the above facts, considering the impeccable evidences such as US Tax Returns, copies of bank account of the investor, intimation to RBI and also copy of FIRC, which have been perused and examined by me, I hold that, the appellant has proved the identity of the investor, the genuineness of the transaction and also prima facie the credit worthiness of the investor. There is no basis for the Assessing Officer to conclude that, the credit worthiness of the investor isnot established. The appellant has prima facie established the credit worthiness of the investorand therefore in the absence of any other evidence brought in by the Assessing Officer to provethe contrary, it has to be concluded that, the credit worthiness of the investor is also established. In view of the above facts and submissions, I hold that prima facie the identity of the investor isestablished, the genuineness of the transaction proved and also the credit worthiness of thecreditor established. Under the circumstances, above, since the basic requirements for the provisions of section 68 ofthe act, were satisfied, there was no case for the Assessing Officer to invoke the provisions ofsection 68 of the act and consider the share capital of Rs.4,06,98,779/- as income of C.O. No. 106/Bang/2018 Page 12 of 13 theappellant. GROUNDS - 5 & 6 The grounds relate to the extent of proof that the appellant can be called upon to produce and theextent of onus cast on the appellant. The appellant's representative argues that, the following documents have been produced insupport of the transactions. v) Copies of FIRCs issued by the receiving bank. vi) Copies of the foreign bank accounts in support of the moneys transferred. vii) Copy of the letter filed by the company for having received foreign inward remittanceswith RBI. viii)Copies of the Income Tax Returns filed in US by Mr. Samyak Chandrakanth Veera. ix) Confirmation letter from Mr. Samyak Chandrakanth Veera.”
As per above discussion, we find that the only objection of the AO is this that the credit-worthiness of the investor is in doubt and this observation of the AO is on this basis alone that the investor has incurred huge losses in calendar years 2003, 2004 and 2006. But we have seen that even after reducing the losses incurred in these three years from the income earned by the investor in 2000, 2001, 2002 and 2005, net income of the investor comes to $ 33,12,256 as against remittance by him of only about $ 10 Lakhs. Hence in our considered opinion, the addition made by the AO is not justified simply on this basis that since the investor has incurred losses and the assessee has not furnished cash flow statement, there is no credit- worthiness of the investor. In our considered opinion, this objection of the AO is not valid for making addition of this huge amount particularly when the investor has remitted money from abroad through proper banking channel and even after adjusting or reducing the losses incurred by investor in three years i.e. 2003, 2004 and 2006 also, the remaining income of four years i.e. 2000, 2001, 2002 and 2005 is more than three times of the remittance received by the present assessee from the investor abroad. Considering these facts, we find no reason to interfere in the order of CIT(A) on this issue.
In the result, the appeal of the revenue is dismissed.
C.O. No. 106/Bang/2018 Page 13 of 13 10. Now we take up the C.O. filed by the assessee. We find that the only issue raised by assessee in this C.O. is regarding validity of reopening of the assessment. But since the issue on merit is decided by CIT(A) in favour of the assessee and we decline to interfere in the order of CIT(A) on that aspect of the matter, the issue raised by the assessee in its C.O. has become of academic nature only. In our considered opinion, no decision is called for on this aspect of the matter. These grounds of assessee in C.O. have become infructuous and are dismissed accordingly.
In the result, the C.O. filed by the assessee is dismissed.
In the combined result, both the appeal filed by the revenue and the C.O. filed by the assessee are dismissed. Order pronounced in the open court on the date mentioned on the caption page.