2019 (4) TMI 63 - HC - Income Tax

Unexplained credit u/s 68 - issuance of preference shares to P5 Asia Holding Investment (Mauritius) Ltd (P5AHIML) - AO alleges that only a sum of ₹ 7.31 crores received from P5AHIML for its own operation, the balance amount was transferred to Idea Cellular Ltd (holding company) or to Idea Cellular Infrastructure Services Ltd for the purpose of other investment - the Assessing Officer in his remand report agreed that the investments were genuine - investment made by P5AHIML was done registering itself with SEBI and after obtaining necessary approvals from Ministry of Finance - CIT(A) dismissed the appeal for wanty of time as it was direct by High Court to pass order within 3 months - Tribunal after detailed inquiry allowed the appeal HELD THAT - at every stage, the full inquiry of source of funds and other relevant factors in relation to the investment in question was carried out. The Assessing Officer himself carried out a detailed inquiry. His initial suspicion or in other words starting point of inquiry on the basis that apparently the investor was investing huge amount which may prima facie appear to be without adequate possible returns, may be fully justified. However, when all the relevant factors are properly explained, including the fact that the payment of dividend was not the sole attraction for the investor and that the investor could expect a fair return on the investment, of course, subject to vagaries of the any business decision, the Assessing Officer had to advert to all such materials on record in proper perspective. As noted by the Tribunal, all necessary permissions and clearances were granted by the Government of India and other government authorities for such investment. The source of the funds in the hands of P5AHIML was also verified. The Assessing Officer himself was also prima facie of the belief that the materials on record prove genuineness and financial capacity of the persons making investment. Tribunal carried out the detailed inquiry into all aspects of the matter and noticed no suspicious movement of the funds. Merely because the investment was considerably large and as noted, several corporate structures were either created or came into play in routing the investment in the assessee through P5AHIML would not be sufficient to brand the transaction as colourable device. - Appeal of department is dismissed.

Summary

Issues Involved:
1. Whether the Tribunal was correct in deleting the addition of ?2098.25 crores made under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Tribunal's Deletion of Addition under Section 68:
The primary issue revolves around the Tribunal's decision to delete the addition of ?2098.25 crores made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO questioned the genuineness of the transaction where M/s. Aditya Birla Telecom Ltd issued preference shares to P5 Asia Holding Investment (Mauritius) Ltd (P5AHIML) at a high premium.

Facts and AO's Findings:
The assessee company issued 19,25,000 preference shares at ?10,890 per share, receiving a total of ?2098.25 crores. The AO initiated an inquiry into the transaction, questioning the identity, financial capacity, and genuineness of the investor, P5AHIML. The AO cited several reasons for his suspicion:
- Only ?7.31 crores were used for the assessee’s operations, with the rest transferred to other group companies.
- The AO found no apparent reason for P5AHIML to invest such a large amount without significant returns.
- The assessee failed to produce the assessment order of P5AHIML.
- The AO suspected the transaction was a colorable device, not a genuine transaction.

CIT(A) and Tribunal's Observations:
The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee to produce additional documents, calling for a remand report from the AO, but ultimately upheld the AO's order due to ongoing investigations. The Tribunal, however, reversed this decision, concluding that all three ingredients of Section 68—identity, genuineness, and creditworthiness—were duly established. The Tribunal noted that:
- P5AHIML was a registered Foreign Venture Capital Investor with SEBI and had necessary approvals from the Foreign Investment Promotion Board.
- The investment was made by Providence Equity Partners, a global private investment group, and all relevant details were submitted during assessment proceedings.
- The Tribunal found that the investment was genuine, with the investor expecting returns through capital appreciation when the preference shares converted to equity.

Revenue's Argument and Tribunal's Detailed Inquiry:
The Revenue argued that the AO's conclusion was justified, relying on the Supreme Court's decision in Pr. CIT Vs. NRA Iron & Steel (P) Ltd. to support the inquiry into the genuineness of the transaction. The Tribunal, however, conducted a thorough review, noting that:
- The investment was made after proper registration and approvals.
- The financial statements of P5AHIML disclosed the flow of funds.
- The Tribunal verified permissions for fund remittances and other documents, finding no suspicious movement of funds.

Conclusion:
The Tribunal found that the AO's initial suspicion was justified but ultimately, all relevant factors were properly explained, including the investor's expectation of returns beyond dividends. The Tribunal's detailed inquiry and verification of documents led to the conclusion that the transaction was genuine and not a colorable device. The High Court upheld the Tribunal's decision, dismissing the Revenue's appeal.

Final Judgment:
The Income Tax Appeal was dismissed, supporting the Tribunal's decision to delete the addition of ?2098.25 crores under Section 68 of the Income Tax Act, 1961.