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TMI Blog2023 (9) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in equity shares of the company. Apparently, assessee has discharged its initial onus cast upon the assessee under the provisions of section 68 of the income tax act. Therefore, we find that the assessee has fairly demonstrated the identity, creditworthiness and the genuineness of the transition by producing extensive material independently for this year also. Proviso to section 68 does not apply to a non-resident investor. Even otherwise assessee has shown nature and source of funds in the hands of Nonresident 100% holding company investor also independently. Hence, we confirm the order of the learned CIT (A) deleting the above addition. No merit in the appeal of the learned Assessing Officer. Hence, the solitary ground of appeal against the deletion of addition is dismissed. Disallowance of advertisement and sales promotion expenses - As stated that the even if there is an incidental indirect third-party benefit, it would not result into characterization of expenditure as not incurred wholly and exclusively for the business of the assessee, no disallowance in the hands of the assessee can be made - HELD THAT:- AO despite having the complete detail of such expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the learned Assessing Officer on account of Share issue receipt of ₹33,33,15,000/- received by Assessee from its Holding Company Cleartrip Inc. Mauritius. Addition is made by the LD AO based on past assessment years and deleted by the LD CIT (A) based on past years appellate orders. 04. Following solitary ground was taken as under:- Whether on the facts and in the circumstances of the case and in law, the Learned CIT (A) erred in deleting the addition made by the Assessing Officer on the issue of share premium ₹33,33,15,000/-, considering that genuineness creditworthiness of foreign entities/ ultimate investors were not properly established by the assessee and considering further that the assessee failed to discharge its onus to prove the genuineness of these transactions as the Cleartrip Inc. (Mauritius) did not have its own fund to invest and money trial revealed that main source of these funds were routed through various accounts. 05. In ITA No. 2598/Mum/2022, the assessee is aggrieved on disallowance of advertisement and sales promotion expenses of ₹22,77,70,391/- being 20 % of Total Advertisement and publicity expenses u/s 37 (1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horized dealer bank on receipt of money from cleartrip Inc., Mauritius. vi. Copy of form number FCGPR filed with Reserve Bank of India. vii. Copy of return of allotment of shares filed with the Registrar of Companies. viii. Copy of the valuation report justifying the fair price of the share. ix. Copy of bank statement of the assessee x. Copy of bank statement of Cleartrip Inc., Mauritius. xi. Copy of financial statement of cleartrip incorporation Mauritius. ix. The learned Assessing Officer asked the assessee to show the ultimate source of the funds. The learned Assessing Officer also referred matter to FT TR to ascertain the real nature of these transactions and actual source of the funds. x. The learned Assessing Officer further verified the valuation report and found that assessee has used Discounted Cash Flow (DCF) and Net Asset Value (NAV) method for valuation of shares. He noted that assessee is making constantly losses, which are increasing. He noted that assessee has determined the premium at ₹9.40 per share to bring in conformity with the issue price of ₹20. xi. He noted that the original valuation report is a cryptic two-page report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Commissioner of Income tax (Appeals). The learned CIT (A) i. vide Para no.6.3 deleted the addition of ₹33,33,15,000/- following his own finding for A.Y. 2017-18. He followed his predecessor order for A.Y. 2012-13 to A.Y. 2014-15, while deciding the deletion of the addition for A.Y. 2017-18. Thus, the addition of ₹33,33,15,000/- was deleted and the learned Assessing Officer is in appeal before us against this issue. ii. With respect to the disallowance of advertisement and sales promotion expenses under Section 37 of the Act amounting to ₹20,77,77,391/-, the learned CIT (A) vide paragraph no.7.2 held that identical issue has been decided by him for A.Y. 2015-16 confirming the disallowance of 20% of advertisement and sales promotion expenses. Accordingly, he confirmed the above disallowance and assessee aggrieved with that is in appeal before us. 09. The learned Departmental Representative arguing the appeal of the learned Assessing Officer on the issue of the deletion of addition of ₹33,33,15,000/- u/s 68 of the Act on issue of shares to assessee s holding company cleartrip Inc. Mauritius, supported the order of the learned Assessing Officer. He re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its Cayman Island holding company. v. To substantiate the identity of ultimate shareholders, she submitted the list of shareholders in Cayman Island Company and their profiles. vi. She referred to the financial statements of Cleatrip Inc., Mauritius and the bank statement of Mauritius entity along with the bank statement of Assessee to show the sources of fund in the bank account of Mauritius Company. This was shown to prove the creditworthiness of the investors. vii. To show the genuineness of the transaction, she referred to the foreign inward remittance certificate issued by the banks being an authorized dealer, form no. FCGPR filed with the Reserve Bank of India and Valuation Report issued by SLM Company LLP Chartered Accountant. She referred to the valuation report stating that NAV of the assessee company is derived at ₹2.42 per share for which the balance sheet of the assessee is used. For the valuation, according to Discounted Cash Flow method, she stated that valuation is ₹16.38 per share. She referred to Paragraph no.3.4 to show that how the valuer has derived at fair value of shares. She stated that the valuer has arrived at the valuation of an ave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as certificate of incorporation, certificate of incumbency, etc. to establish the identity of Cleartrip Inc, Mauritius and Cleartrip Inc, Cayman Island. Ld. AR submitted that to prove Source of Source assessee has submitted documents to establish identity of immediate and ultimate investors. It's not required to establish source of source. Further, Ld. AR submitted that transactions are genuine as they have been undertaken through normal banking channels. Copies of FIRCs and bank statements of Assessee and Mauritian entity submitted. Copies of FC-GPR and Form 2 filed before regulatory authorities submitted to establish genuineness. Ld. AR further submitted that issuance of shares at a premium is a commercial decision. Companies Act, 1956 also does not prescribe any limit on premium. Financial statements of Cleartrip Mauritius submitted to establish its Creditworthiness. 23. Considered the rival submissions and material placed on record. We observe from the various documents and submissions made before us that the assessee has received Share Capital along with Share premium from its holding company based in Mauritius. The Holding company in turn received the relevant fundin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholder, number of shares issued, face value of such shares and issue price etc. To prove the identity of the investor assessee submitted certificate of incorporation issued by Republic of Mauritius of the investor dated 23rd day of September 2005. Assessee also submitted the certificate of current standing of the entity showing that Cleartrip incorporation Mauritius was duly incorporated under the provisions of The Companies Act 2001 on 23rd day of September 2005 as Category 1 Global Business Company. The certificate was dated 18th day of September 2017. Assessee also submitted the Tax Residency Certificate dated 27/11/2015 of the investor having tax account number 25078149 which was valid for the period of 25 November 2015 24 November 2016. The assessee also submitted the identity of holding company of the investor company i.e. Cleartrip incorporation Cayman Island by submitting the certificate of incorporation dated 23 September 2005. Shareholder register of the various investors in the investor company as well Cayman Island was also submitted. It was shown that Cleartrip incorporation Cayman Island is the major shareholder in the investor. The assessee also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial independently for this year also. Proviso to section 68 does not apply to a non-resident investor. Even otherwise assessee has shown nature and source of funds in the hands of Nonresident 100 % holding company investor also independently. Hence, we confirm the order of the learned CIT (A) deleting the above addition. Accordingly, we do not find any merit in the appeal of the learned Assessing Officer. Hence, the solitary ground of appeal against the deletion of addition of ₹33,33,15,000/- is dismissed. 013. Accordingly, ITA No.2941/Mum/2022 filed by the learned Assessing Officer is dismissed. 014. In the appeal of the assessee in ITA No. 2598/Mum/2022, the solitary ground raised is disallowance of advertisement and sales promotion expenses of ₹20,77,70,391/-. Facts show that assessee has incurred Advertisement and publicity expenses. The LD AO held that assessee along with its fellow subsidiaries of cleartrip is doing worldwide business, so the benefits of this expense have gone to subsidiaries. Hence, 20 % if such expenses were disallowed by the LD AO and CIT (A) confirmed it. Both the lower authorities confirmed their action based on the findings in earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site: www.cleartrip.com and it is not meant to service only the Indian customers. It is a global web site and unlike territory based sites which provides the services only to the extent of Indian territory. We also observe that anybody would like to use the facility anywhere in the world has to book through the common web site as stated above. It was also informed and submitted that the services are provided mainly to the customers in India and UAE. For UAE customers, there is separate website called www.cleartrip.ae. We observe that even to use the above said site the customers has to utilize the main site www.cleartrip.com and it will reroute the customers to other sites. Therefore all the services are rendered through main web platform i.e., www.cleartrip.com. It is also observed that all the cost relating to the above platform are recorded in the books of the assessee. It was also submitted that the relevant cost of advertisement made in the UAE are separately booked in the subsidiary entity in the UAE. There is no connection for the services offered in the Indian platform. However, we observe that the business of the entire group concerns are carried through this one platfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the direction of the Ld CIT(A). 019. During the year the assessee has debited the advertisement and sales promotion expenses of ₹ 1,038,851,955/ . The learned assessing officer following the assessment order is for assessment year 2012 13 and 2013 14 to 2015 2016 made disallowance of 20% of such expenditure amounting to ₹ 207,770,391/ . When the matter reached before the learned CIT A he also following his own order in assessee s own case for earlier years confirm the above disallowance. The coordinate bench has also decided the issue for assessment years 2012 13, 2013 14, 2014 15 and 2015 16. Before the coordinate bench, the assessee submitted that the conditions for allowance of expenditure under section 37 of the Income Tax Act are satisfied in the case of the assessee. Assessee has incurred this expenditure for its own benefit and its own business. It was further that stated that the even if there is an incidental indirect third-party benefit, it would not result into characterization of expenditure as not incurred wholly and exclusively for the business of the assessee, no disallowance in the hands of the assessee can be made. The coordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bench for assessment year 2012 13. Firstly, the ad hoc disallowance made by the learned assessing officer and confirmed by the learned CIT A is not sustainable. The coordinate bench in assessee s own case also confirms this for earlier year. Now coming to the disallowance of expenditure, we find that assessee has submitted the details of such expenditure to the assessing officer. Assessing officer straightway issued show cause notice that why the identical disallowance should not be made in the present assessment year which was made in the earlier assessment years. As per letter dated 20 June 2019, assessee submitted the details of advertisement and sales promotion expenditure categorized party wise into various heads. Assessee specifically objected that disallowance might not be made in the assessment of current year on account of several reasons. The learned assessing officer despite having the complete detail of such expenditure could not give any independent finding on examination of such detail that the expenditure incurred by the assessee is not wholly and exclusively incurred for the purpose of the business of the assessee. Though assessee denied that there is any bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Mauritius. The learned assessing officer based on the assessment orders of its earlier year made an addition of ₹ 387,547,500/ under section, 68 of The Income Tax Act and applied the provisions of section 115BBE of the act. ii. The assessee has also incurred the advertisement and sales promotion expenditure amounting to ₹ 1,097,769,117/ . Based on the earlier years assessment order the learned assessing officer disallowed 20% of such expenditure amounting to ₹ 219,553,823/ . iii. The assessee has also debited a sum of ₹ 6,065,232/ to the profit and loss account because of employee stock option scheme cost. The AO noted that it has been granted by the ultimate holding company i.e. clearTrip incorporation Cayman Island. The assessee explained that wherever the holding entity grants such benefit to the employees of the subsidiary entity, the cost of such ESOP needs to be recorded as an expense in the profit and loss account of the subsidiary entity. It was further stated that such benefit granted to the employees of the assessee entity in order to compensate them and ensure continuity of the services to the assessee. It is a salary or employees co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of ₹ 219,553,823 ii. disallowance of employee stock option expenses claimed of ₹ 6,065,232 iii. disallowance of payments made to tech process payment services Ltd and M/s Avenue India private limited of ₹ 198,284,197/ iv. addition on account of unexplained share capital and premium received from holding company under section 68 of the income tax act of ₹ 387,547,500 024. Assessee aggrieved with assessment order preferred an appeal before the learned CIT A. He passed an appellate order dated 29/8/2022. The learned that CIT A i. deleted the addition under section 68 of the income tax act of ₹ 387,547,500 based on the findings given in the appellate order in assessee s own case by the learned CIT F for assessment year 2017 18 holding that assessee has proved the identity, creditworthiness of the investor and genuineness of the transaction. ii. With respect to the disallowance of advertisement and sales promotion expenses under section 37 of the income tax act of ₹ 219,553,823, he followed his own decision in assessee s own case for earlier years and confirmed the disallowance being 20% of the advertisement and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to FT TR division but it is still awaited. 028. The learned authorized representative submitted that identical details are available in paper book filed for assessment year 2018 19 containing 63 pages wherein complete details with respect to the identity of the investor, identity of the ultimate holding company, identity of ultimate shareholders in ultimate holding company to prove the identity of the investor. To prove the creditworthiness of the investor, the financial statement and bank statement of the investor along with the source of the funds available with the investor are also evidenced. With respect to the genuineness of the transaction, assessee submitted the valuation report, foreign inward remittance certificate as well as the relevant declarations filed with the reserve bank of India or allotment of the shares was also placed. She referred to the several documents referred to in the paper book to show the identity, creditworthiness of the investor is proved and genuineness of the transaction is also established. Therefore, it was submitted that assessee has discharged initial onus cast upon the assessee to prove the identity and creditworthiness of the investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares. The valuation was derived at by taking into consideration the average of the net asset value method and the discounted free cash flow method. In view of the above facts independently for assessment year 2018 19 assessee has established identity and creditworthiness of investor and genuineness of the transaction. Further orders of the coordinate bench in assessee s own case on identical facts and circumstances with respect to the allotment of share to the holding company of the assessee in earlier Assessment Years, we do not find any infirmity in the order of the learned CIT A in deleting the addition of ₹ 387,547,500. Accordingly, solitary ground of appeal raised by the learned AO in his appeal is dismissed. 030. In the result, appeal of the learned assessing officer in ITA number 2601/M/2022 is dismissed. 031. Assessee has filed appeal against the confirmation of the following three disallowances by the learned CIT A: i. ground number 1 ad hoc disallowance of advertisement and sales promotion expenses being 20% of the total expenditure ii. ground number 2 disallowance of ESOP expenses holding it to be a capital expenditure iii. ground numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round number 2 of the appeal of the assessee is allowed. 037. Ground number [3] of the appeal of the assessee is with respect to the disallowance of expenditure paid to two parties [1] Techprocess process payment services Ltd and [2] Avenue India private limited amounting to ₹ 15.64 crores and ₹ 4.18 crores. These expenses are disallowed by the learned assessing officer holding that the assessee has failed to substantiate these expenditure as both these parties did not respond to the notices under section 133 (6) of the act and assessee also failed to file confirmation of the above parties. Further, the learned assessing officer found that both these entities did not file the return of income despite being huge amount paid by the assessee to them. Therefore the disallowance resulted under section 37 (1) of the act. Before the learned CIT A assessee explained that both these entities of amalgamated with other entities and for this reason perhaps, the parties could not respond to the notices under section 133 (6) of the act. Further, the returns of income after the amalgamation are required to be filed by the amalgamated companies. In view of corporate restructuring ..... X X X X Extracts X X X X X X X X Extracts X X X X
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