2019 (10) TMI 434 - AT - Income Tax

Addition unexplained cash credits - addition made u/s.68 - HELD THAT - The identity of the creditors M/s Biometrix and nature, source and genuineness of the transaction is established and therefore direct that the addition made by invoking Section 68. See M/S RELIANCE UTILITIES P LTD., AND M/S RELIANCE PORTS AND TERMINALS LTD. 2017 (2) TMI 1007 - ITAT MUMBAI - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of unexplained cash credits under Section 68 of the Income Tax Act.
2. Power of the Assessing Officer (AO) to lift the corporate veil.
3. Non-submission of crucial documents by the assessee.
4. Relationship of Biometrix with Reliance group companies.
5. Valuation of Compulsory Convertible Preference Shares (CCPS).
6. Monitoring of loan terms by ICICI Bank and its impact on the genuineness of the transaction.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Unexplained Cash Credits:
The Revenue contended that the CIT(A) erred in deleting the addition of ?1851,91,30,000/- as unexplained cash credits under Section 68 of the Act. The Assessing Officer (AO) had treated the sum as unexplained cash credit due to the failure to establish the nature and genuineness of the transaction by Biometrix Marketing Private Limited, Singapore (BMPL). However, the CIT(A) found that the identity of the creditor, the nature of the amount, and the source of the funds (ICICI Bank) were established, thereby fulfilling the requirements under Section 68. The Tribunal upheld the CIT(A)'s decision, noting that the facts were identical to those in the cases of Reliance Utilities Pvt. Ltd. and Reliance Ports and Terminals Ltd., where similar additions were deleted.

2. Power of the AO to Lift the Corporate Veil:
The Revenue argued that the CIT(A) erred in holding that the AO's power to lift the corporate veil was not in question. The AO had claimed that Biometrix was a shell company created to avoid liability. However, the CIT(A) and the Tribunal found that Biometrix was a genuine entity, fulfilling all relevant criteria under the India-Singapore DTAA, and was not a shell or conduit company. The Tribunal concurred with the CIT(A) that the issue of lifting the corporate veil was not relevant for the purpose of Section 68 in this case.

3. Non-submission of Crucial Documents:
The Revenue contended that the CIT(A) erred in holding that non-submission of crucial documents like the loan account of Biometrix and its OCBC account was not necessary. The AO had argued that the absence of these documents raised doubts about the genuineness of the transaction. However, the CIT(A) and the Tribunal found that the identity of the creditor, the nature of the transaction, and the source of funds were sufficiently established through other documents, including swift messages and financial statements.

4. Relationship of Biometrix with Reliance Group Companies:
The Revenue argued that the CIT(A) ignored the fact that Biometrix was ultimately a subsidiary of a Reliance group company and was merely a conduit. The CIT(A) and the Tribunal found that Biometrix was an independent company following the laws of Singapore. The Tribunal noted that Biometrix had borrowed funds from ICICI Bank, Singapore, and invested in the assessee and other Reliance group companies as CCPS, fulfilling the requirements of Section 68.

5. Valuation of CCPS:
The Revenue contended that the CIT(A) ignored the fact that Biometrix sold CCPS at a much lower price than the market value shown to ICICI Bank. The CIT(A) and the Tribunal found that the debt-cover ratio was maintained as per the Facility Agreement, and the loan was repaid by Biometrix. The Tribunal concurred with the CIT(A) that post-investment events were not relevant for determining the source, nature, and genuineness of the transaction under Section 68.

6. Monitoring of Loan Terms by ICICI Bank:
The Revenue argued that the CIT(A) ignored flaws in monitoring the loan terms by ICICI Bank, which impacted the genuineness of the transaction. The CIT(A) and the Tribunal found that the nature and source of the funds were established, and the loan from ICICI Bank was genuine. The Tribunal noted that the complete financial flow from ICICI Bank to the assessee was documented and verified, confirming the genuineness of the transaction.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the identity of the creditor, the nature of the transaction, and the source of funds were established. The appeal of the Revenue was dismissed, and the order of the CIT(A) was confirmed. The Tribunal found that the issues raised by the Revenue were adequately addressed and that the addition under Section 68 was rightly deleted. The appeal of the Revenue was dismissed.