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2021 (8) TMI 1124 - HC - Income TaxAddition u/s 68 - share capital of more than ₹ 316 Crores invested by the foreign company in assessee - argument of the appellant is that no show cause notice was issued before the addition was made by resorting to Section 68 - HELD THAT - The statutory provision does not specifically state that a show cause notice is required to be issued. What is required is that where any sum is found credited in the books of the assessee and it is pointed out by the Assessing Officer, the assessee is required to offer an explanation about the nature and source thereof and if the assessee offers no explanation or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax. Admittedly, in the instant case, the assessee has been put on notice and the assessee had participated in the assessment proceedings and submitted their explanation. AO questioned the source for the fund for the share application money and the assessee stated that an amount of ₹ 127,47,05,650/- was received from M/s.Rakeen (P.) Ltd., Mauritius and ₹ 5,00,000/- was received from Indian Promoter. The Assessing Officer has stated that there was no proof filed by the assessee to substantiate its existence and claimed to have 100% share capital transferred from Rakindo Developers PJSC (FZE) Dubai. Further, the company has no entity, but it is just a conduit to transfer funds to India from Mauritius and this, according to the Assessing Officer, is evident from the consolidated balance sheet of the Dubai company. Assessing Officer proceeds to analyse the Dubai company and has mentioned that on perusal of the balance sheet of the Dubai company, it is noticed that the promoters of the Dubai company had diverted/transferred funds to various concerns during the year. Once again, the assessee has been called upon to explain and the assessee was represented by an authorized representative, who had stated that Reyada Investment Ltd., was holding 48% of shares in the Dubai company originally. On a perusal of the above findings, as recorded by the Assessing Officer, it will be evidently clear that the entire controversy involved in the matter is fully factual. We do not agree with the submission that the assessee did not have adequate opportunity to put forth their case, as the Assessing Officer has recorded that the assessee has been represented by the authorized representative and if according to the assessee, the documents have not been properly appreciated or to be appreciated in the manner as decided by the assessee, it is for the assessee to agitate the same before the appellate authority and there is no justifiable or valid reason for the assessee to bypass the appellate remedy available under the Act. - Decided against assessee.
Issues Involved:
1. Challenge to the assessment order under Section 143(3) of the Income Tax Act, 1961. 2. Invocation of Section 68 of the Income Tax Act regarding unexplained investments. 3. Maintainability of the writ petition due to the availability of an alternate appellate remedy. 4. Adequacy of opportunity provided to the assessee during assessment proceedings. 5. Examination of the identity, creditworthiness, and genuineness of the transaction. Detailed Analysis: 1. Challenge to the Assessment Order: The assessee challenged the assessment order passed by the first respondent under Section 143(3) of the Income Tax Act for the assessment year 2007-08. The primary contention was that the assessment was completed mechanically without considering the documents and records submitted by the assessee. The assessee argued that the entire share capital of more than ?316 Crores invested by a foreign company, which complied with all applicable rules and regulations, was erroneously treated as unexplained investment under Section 68 of the Act. 2. Invocation of Section 68 of the Income Tax Act: The assessee contended that the first respondent erroneously concluded that the share capital represented unexplained investment. The assessee argued that Section 68 requires a show cause notice to be issued and an explanation to be called for, which was not done. The assessee had provided substantial evidence, including approvals from the Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI), audited financial statements, and other relevant documents to prove the legitimacy of the investment. However, the Assessing Officer did not consider these documents and concluded that the investment was unexplained. 3. Maintainability of the Writ Petition: The Revenue raised a preliminary objection regarding the maintainability of the writ petition, arguing that the assessee had an alternate remedy of filing an appeal before the appellate authority under Section 246A of the Act. The writ petition was dismissed by the Single Bench primarily on this ground, stating that the assessee should have availed the appellate remedy. 4. Adequacy of Opportunity Provided to the Assessee: The assessee argued that no sufficient opportunity was granted during the assessment proceedings and that the assessment was completed hastily without conducting a proper inquiry. The Revenue countered this by stating that the assessee was given an opportunity of hearing, and the Authorized Representative of the assessee had signed the order sheet, indicating that a hearing was granted. The Revenue also contended that all documents submitted by the assessee were examined before making the addition towards share application money. 5. Examination of the Identity, Creditworthiness, and Genuineness of the Transaction: The Assessing Officer examined the financial statements of the foreign company and concluded that the investment was not genuine. The Officer noted discrepancies in the shareholding patterns and questioned the source of funds. The assessee argued that the investment was made by a foreign company controlled by the Government of UAE, and all necessary approvals were obtained. The assessee also provided balance sheets and other documents to establish the creditworthiness of the investors. However, the Assessing Officer found these explanations unsatisfactory and treated the share application money as undisclosed income. Conclusion: The Court concluded that the entire controversy involved factual issues that required a deeper examination, which could not be undertaken in a writ petition. The Court held that the assessee had adequate opportunity to present their case during the assessment proceedings and that the proper course of action was to file an appeal before the appellate authority. The writ appeal was dismissed, and the assessee was directed to avail the statutory appellate remedy, with the period of limitation being computed excluding the time during which the writ petition was pending.
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