ITO 15(2)(2), MUMBAI vs. LUXTRA REALTORS P.LTD, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

3.1. The ld. AO observed that during the year under consideration, the assessee had issued 80,28,179 non-cumulative preference shares of face value of Rs.1/- each at a premium of Rs.9/- each to Aanya Properties (I) Ltd., a foreign body corporate based at Port Louis, Republic of Mauritius. The assessee was asked to submit documentary evidence to prove the identity and creditworthiness of the investor together with genuineness of the transactions. The entire documentation filed by the assessee with regard to the aforesaid three ingredients of Section 68 of the Act was filed by the assessee before the ld. AO in photocopy. The ld. AO insisted for originals of the said documents which could not be produced by the assessee before the ld. AO. The ld. AO further directed the assessee to produce the key management personnel of the investor company from Mauritius to be personally present for his examination, which could not be complied with by the assessee. Based on this, the ld. AO proceeded to make the addition by treating in respect of paid up preference share capital of Rs.8,02,81,790/- as unexplained cash credit u/s.68 of the Act by observing as under:-

“5.4 The reply and documentary evidence submitted by the assessee are carefully perused. However, same are not acceptable on the following grounds; a. The assesee has submitted Xerox copies of alleged confirmation, bank account statement, certificate of incorporation, memorandum of association of M/s. Aananya Properties (1) Ltd. b. Since all the documents mentioned above were issued by foreign authorities therefore the assessee was asked to produce original documents to ascertain the genuineness of above stated documents. In response, the assessee has stated that since said documents are with the foreign entities / individuals therefore he is not in position to produce said original documents for examination. c. During the course of assessment proceedings the assessee was asked to key managerial person of the M/s. Ananya Properties (1) Ltd. for examination along with their books of accounts and related documents in respect of investment made in the assessee's shares. However the assessee has expressed its inability. d. It is observed from the balance sheet of the assessee that M/s. Aananya Properties (1) Ltd. is holding 99% of share capital of the assessee. However it is not in position to produce required documents in original for verification or present key managerial person before the undersigned for examination to protect the interest of the assessee. In normal circumstances a prudent person would have complied with above requirement to protect its interest. e. The assessee has made cryptic statement in respect of source of funds i.e. "with a view to satisfying your requirement we hereby state that M/s. Aananya Properties (1) limited (A Mauritius Based Company) is holding 100% shares of M/s. Aananya Properties (I) Limited, We have proved the genuineness of source of the funds invested in our company by M/s. Aananya Properties (1) Limited." It may be seen that holding & subsidiary companies are one and same. f. Further, the assessee was also required to produce documentary evidence such as project report, presentation, correspondence, etc. relating to investment transaction made by M/s. Aananya Properties (1) Ltd. The assessee has not been able to produce a single document to prove that process of foreign Direct Investment (FDI) in a real estate project developed by the assessee. M/s. Aananya Properties (1) Ltd. has made investment of Rs.8.02 Crores into the assessee's project however not a single piece of paper was submitted to prove that there was the FDI process continued for fairly long period. In normal circumstances, lot of correspondence, project reports, and presentations required to are to be made / given to the Foreign Entities to convince them to invest in Indian projects. In this case the assessee has received funds without any efforts. g. The assessee has stated that the funds are received through normal banking channels and with RBI's approval. But in this connection it is to be noted that the banks are not examining the source, legality, allowability of funds, nature of transaction and identity of the funds transferor. The bank is only medium of transfer of funds through which funds travel from one account to another. h. It is observed from the details filed by the assessee that though M/s. Aananya Properties (1) Ltd. has invested fairly large amount in Foreign Country i.e. India, it has given care of address. Which indicates that it do not have its own office. i. It is observed from the bank account statement of an account held by M/s. Aananya Properties (1) Ltd. with MSEC that the entries highlighted as alleged payment made to the assessee are in the name of M/s.Opulent Realtors Pvt. Ltd. as a payee. Thus the bank account statement, submitted by the assessee also do not support the assessee's contention. j. Further, section 68 of the I. T. Act, 1961 provides for additions to total income if..... a. Any sum found credited in the books of accounts maintained for any previous year, b. Assessee offers no explanation about the nature and source of the such a credit, or c. Explanation offered by assessee is not satisfactory in the opinion of the Assessing Officer. In this case the assessee has submitted Xerox copies of documents is executed in foreign country therefore, the genuineness of the documents remains to be ascertained. Further it has expressed its inability to produce original documents or responsible key managerial person for examination. Hence, the explanation offered by the assessee in respect of identity & creditworthiness of the investor, genuineness of the transaction and source of funds invested by M/s, Aananya Properties (1) Ltd. is not satisfactory. 5.5 In view of the discussion made as above, the investment made by M/s. Ananya Properties (1) Ltd. amounting to Rs.8,02,81,790/- is held as cash credit within the meaning of section 68 of the I. T. Act and same is added to the assessee's total income. Penalty proceedings u/s. 271(l)(c) of the I. T. Act are initiated separately for furnishing inaccurate particulars of income and concealment of income.

3.2. The assessee agitated the addition before the ld. CIT(A) and stated that the following documents were submitted before the ld. AO, which was also submitted in the form of paper book before the ld. CIT(A):- i. Confirmation of Aanya Properties (I) Ltd. confirming the investments made in the Appellant company (Annexure 7(iii) of paper book) ii. Bank statements of Aanya Properties (I) Ltd. reflecting such investments made (Annexure 7(iv) to 7(vi) of paper book) iii. Copy of certificate of incorporation of Aanya Properties (I) Ltd. (Annexure- 7(viii) of paper book) iv. Copy of Memorandum of Association of Aanya Properties (I) Ltd. (Annexure 7(ix) of paper book) v. Bank statement of the Appellant company reflecting the payment received from Aanya Properties (I) Ltd. (Annexure 8(xxxvi) of paper book) vi. Bank statements of Aanya Holding Ltd reflecting payments made to Aanya Properties (I) Ltd. (Annexure 8(xlii) of paper book) vii. Foreign Inward remittance certificates in respect of remittance by Aanya Properties (I) Ltd. (Annexure 8(xlvi) of paper book) viii.Copy of FIPB approval for condonation of Delay in FDI and copy of compounding application to CEFA cell of Reserve Bank of India (Annexure 9(i) of paper book) ix. The proof of basis of share premium amount in the Form of Certificates by a Chartered Accountant. (Annexure 3(xxxiv) of paper book) x. Financial statement ofAanya Properties (I) Ltd. reflecting such investments and source of funds (Annexure 8(iii) to 8(xxxv) of paper book) xi. Shareholding list of the Appellant company (Annexure 2(xviii) of paper book) xii. Shareholding list of Aanya Properties (I) Ltd. (Annexure 8(ii) of paper book) xiii. List of ultimate beneficiary owners of Aanya Holdings Ltd (Mauritius) (Annexure 8(iii) of paper book). This company holds 100% shares of Aanya Properties (I) Ltd. which in turn holds shares in the Appellant company which is subject of dispute before your honour.

3.3. The ld. CIT(A) placed reliance on the following decisions:- a. Hon’ble Delhi High Court in the case of CIT vs. Shivdhooti Pearls and Investment Ltd. reported in 64 Taxman 329. b. Hon’ble Delhi High court in the case of Mod Creations (P) Ltd., vs. ITO reported in 354 ITR 282. c. Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd., reported in 299 ITR 268. d. Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd., reported in 216 CTR 195 (SC)

3.4. The ld. CIT(A) further observed as under:- 2.4.7 If above referred principles are applied to the facts and circumstances of the case under consideration, it becomes absolutely clear that the appellant had discharged its onus and burden of proof. Not only had it furnished the trail of banking transactions, it had also produced copies of Form-FCGPR submitted to the RBI evidencing receipt of funds from the foreign entity. Further, confirmation of the said entity was also furnished before the Ld AO which has not been negated by him. Thus, the identity of the creditor, its creditworthiness and genuineness of the transaction stands explained and if the Id. AO still harboured any doubts about the creditworthiness or identity of the creditor, he had all the right under the Act to hold further inquiry and confront the appellant with such inquiry. To the contrary, Id AO did not make any attempt to discharge his burden to rebut the evidences produced by the appellant and made the addition merely on the basis of a suspicion. It is trite law that the AO cannot brush aside the evidences submitted during assessment proceedings and make additions on mere whims and fancies. Even the Hon'ble Supreme Court in the case of State of Kerala v. C. Velukutty Co. [1966] 60 ITR 239 has held that the judgment is a faculty to decide the matters with wisdom truly and legally and not to depend on the arbitrary caprice of a Judge, but on settled and invariable-principles of justice. 2.4.8 Further, Hon'ble Supreme Court in the case of Mahabir Prasad Santosh Kumarv. State of U.P. AIR 1970 SC 1302 has observed as under: "Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim, if the order is subject to appeal, the necessity to record reasons is greater, for without recorded reasons the appellate authority has no material on which it " may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just." 2.4.9 On weighing the pros and cons, I am of the considered view that Ld. AO has given a go by to the known canons of jurisprudence by completely ignoring the evidence produced by the appellant. He has not even adverted to the fact that RBI had taken cognisance of the Form-FCGPR. I find that, though not required, the appellant has, in fact, given the source of source and hence, the addition made by the Ld. AO cannot stand the test of legal scrutiny. I am also fortified in my above view by the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income-tax v, Tania Investments (P.) Ltd 322 ITR 394 (Bom) and the Hon'ble Mumbai Bench of ITAT in the case of Income-tax Officer 9(1)-1 v. Anant Shelters (P.) Ltd [2012J 20 taxmann.com 153 (Mum.) 2.4.10. It is also seen that the Hon'ble Mumbai Bench of ITAT was seized of the issue of cash credit from a foreign country in the case of ACIT vs M/s Linfox Logistics (I) Pvt. Ltd. in where vide order dated 30.09.2015, the Hon'ble Tribunal deleted the addition made on the basis of the FIRC issued by the Bank in the following terms: "7. We have carefully considered the rival submissions. During the year under consideration the assessee company received a sum of Rs. 1,02,78,000/-, which was claimed to be received from its parent company i.e. M/s,Linfox International Group Pty. Ltd., Australia. In support of such credit, assessee furnished before the lower authorities a copy of the FIRC issued by the Bank. The CIT(A) has noticed that the copy of FIRC furnished by the assessee reflects the name of the assessee as the beneficiary and the name of the sender/remitted. M/s. Linfox International Group Pty. Ltd., Australia was also mentioned. It is also noticed by the CIT(A) that FIRC shows purpose of the remittance as "towards share application". Quite clearly, the impugned sum has been received by the assessee through banking channels, and the material on record clearly brings out source as well as the nature of the amount received. Under these circumstances, in our view, the CIT(A) made no mistake in holding that the identity and creditworthiness of the creditor and genuineness of the transaction stood satisfactorily explained. In the absence of any credible material with the Revenue to disprove the findings of the CIT(A), we hereby affirm the same. Thus, on this aspect the Revenue fails." 2.4.11. Similarly in the case of CIT vs Tulip Finance Ltd. [2009] 178 Taxman 182 (Delhi), the Hon'ble Delhi High Court confirmed the finding of the ITAT on the oasis of remittance certificates submitted to the RBI and in doing so it was, inter alia, held as under: - "3....... As regards the remaining shareholder, that is S, it was noted that he was an NRI and the share capital of Rs. 15 lacs received from him was through his NRE account. The remittances were through three separate cheques, of which details were available. The assessee had also filed bank certificates submitted to the RBI presumably for the purpose of remittance of dividend to said S. In the light of such evidence, the CIT(A) as also the Tribunal had come to a conclusion of fact that the assessee had discharged the burden which lay upon it for establishing the identity of the shareholders as well as the genuineness of the transactions. As such, the Tribunal confirmed the findings of the CIT(A) and deleted the addition which had been made by the AO. It is obvious that the findings returned by the CIT(A) as well as the Tribunal are pure findings of fact and no question of law arises on this issue." 2.4.12 In the case of CIT vs Peoples General Hospital ltd. [2013] 35 taxmann.com 444 (Madhya Pradesh), Hon'ble High Court confirmed the deletion of addition on the basis of the fact that the foreign company was not found to be a bogus company and that the money was transmitted through banking channels. In doing so, it was, inter alia, held as under: 'In the case of CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008], the Apex Court specifically held that if the identity of the person providing share application money is established, then the burden is not on the assessee to prove the creditworthiness of the said person. However, the department can proceed against the said, company in accordance with law. [Para 16] The position of the present case is identical. It is not the case of any of the parties that the company in Sharjah is a bogus company or a non-existent company and the amount which was subscribed by the said company by way of share subscription was in fact the money of the assessee. In the present case, the assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine, though as per contention of the assessee the creditworthiness of the creditor was also established. In the present case, in the light of the judgment of Lovely Exports (P.) Ltd. (supra), only establishment of the identity of the investor is to be seen. The Delhi High Court also, in the case of CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268/12007] 158 Taxman 440, considering a similar question held that the assessee-company, having received subscriptions from the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. [Para 16] In view of law laid down by the Apex Court, the substantial questions framed in these appeals do not arise for consideration. Accordingly, all these appeals are dismissed with no order as to costs." 2.4.13 It is thus apparent that the source of the funds which was routed through banking channels and reported to the RBI stands explained. If Ld. AO wanted to bring certain other information or evidence on record to negate the appellant's claim," he was not precluded from doing so. However, as brought out earlier, it is seen that he has not even cared to discuss the facts available on record and has merely gone by his whims and fancies. Accordingly, in view of the overwhelming factual and legal support in favour of the appellant, Ground Nos. 2 and 3 are allowed.

b. Aanya Properties (I) Ltd., shares were held by Aanya Holding Ltd, which again a Mauritius based company. The ld. AO had recorded in his order by wrongly mentioning the fact that assessee had given vide its letter dated 24/03/2015 that Aanya Properties (I) Ltd., was holding 100% shares of Aanya Holding Ltd., and that the holding and subsidiary companies are one and the same. This is completely factually incorrect statement made by the ld. AO. In support of this, the ld. AR drew our attention to page 59 of the paper book wherein the subject mentioned letter dated 24/03/2015 was placed on record. In the said letter, it has been specifically mentioned by the assessee that Aanya Holding Ltd. was holding 100% shares of Aanya Properties (I) Ltd. The ld. AR argued that the ld.AO had deliberately recorded false facts in his order in order to reach a pre-conceived destination to make an addition towards the receipt of preference share capital somehow. c. The ld. AR also stated that previous name of the assessee M/s. Opulent Realtors Pvt. Ltd. The said name was changed to Luxora Realtors Pvt. Ltd. w.e.f. 21/02/2011 and also drew our attention to fresh certificate of incorporation consequent upon change of name was obtained from Registrar of Companies, Maharashtra, Mumbai. d. The ld. AR stated that correspondingly the name changed from Opulent Realtors Pvt Ltd to Luxora Realtors Pvt. Ltd. was not effected by the assessee with its bankers. Hence the bank accounts were continued in the old name of the assessee company i.e. Opulent Realtors Pvt. Ltd. Accordingly, the receipt of preference share capital was also received and credited in the bank account of Opulent Realtors Pvt. Ltd. He stated that there could not be any infirmity in the said action thereby leading to drawing adverse inference in the hands of the assessee company. The ld. AR defended the arguments of the ld. DR that money was received only from Aanya Properties (I) Ltd., and not from Opulent Realtors Pvt. Ltd., as wrongly understood by the ld. AO and by the ld. DR. The ld. AR further argued that no deficiencies whatsoever were found on the documentary evidences as illustrated supra were found by the ld. AO. The ld. AR further placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. reported in 394 ITR 680; PCIT vs. Paradise Inland Shipping P. Ltd. reported in 400 ITR 439(Bom) and decision of Hon’ble Delhi High Court in the case of CIT vs. Russian Technology Centre (P) Ltd. 300 CTR 501 which in turn approved the two Tribunal decisions of Delhi Tribunal reported in 155 TTJ 316 and 193 TTJ 565 among other decisions.

5.2. We have heard rival submissions. The facts stated hereinabove and the arguments of the ld. AR remain undisputed and hence, the same are not reiterated for the sake of brevity. We are satisfied that the ld. AO had made several factual errors in his assessment order where incorrect assumptions of facts have been rightly pointed out by the ld. AR hereinabove. None of these arguments were controverted by the ld. DR before us. We find that money received in the form of preference share capital has come through FDI route with the proper approval of FIPB and RBI by filing requisite statutory forms and complying with the requisite conditions prescribed thereon. Hence, there is no question of doubting the genuineness of the said transactions. We find that the assessee has received preference share capital from Aanya Properties (I) Ltd. which is holding 31% equity in the assessee company which means the preference share capital is received from the existing share holder of the assessee company. The assessee has given various documentary evidences pertaining to the investor company i.e. Aanya Properties (I) Ltd. proving the identity and creditworthiness thereon. Hence the three necessary ingredients of Section 68 of the Act have been duly complied with by the assessee in the instant case. We are inclined to appreciate the contentions of the ld. AR that merely because the original documents were not submitted before the ld. AO, the photo copy of the said documents cannot be summarily brushed aside and ignored in order to draw the adverse inference against the assessee company.

5.3. We also appreciate the fact that the key management personnel of Aanya Properties (I) Ltd. is stationed at Mauritius and merely because of his non-appearance before the ld. AO, no adverse inference could be drawn against the receipt of preference share capital by doubting the veracity of the same, without rebutting various documentary evidences that are already available on record. Since this is more of a factual issue, we do not deem it fit to adjudicate the various decisions relied upon by the ld. AR before us.

5.4. In view of these facts, there is no need for setting aside of this appeal to the file of the ld. AO as prayed by the ld. DR as it would only tantamount to giving second innings to the ld. AO, which in our considered opinion, would not serve any purpose, as no second view is possible in the instant case and as these details were already before the ld. AO. In view of the aforesaid observations, in the facts and circumstances of the case, we do not find any infirmity in the order of the ld. CIT(A) who had appreciated the entire facts and documentary evidences available on record, granting relief to the assessee. Accordingly, the grounds raised by the revenue are dismissed.

Order pronounced in the open court on this 19/06/2019