Madras High Court
M/S.Vishwatej Developers ... vs Assistant Commissioner Of Income ... on 23 August, 2021
W.A.No.1791 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 23.08.2021
CORAM
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
Judgment Reserved On Judgment Pronounced On
10.08.2021 23.08.2021
W.A.No.1791 of 2021
and
C.M.P.No.1181 of 2021
M/s.Vishwatej Developers Private Limited,
Rep., by its Director, Mr.Muralikrishnan,
Trimex Towers, No.1, Subbaraya Avenue,
C.P.Ramaswamy Road, Alwarpet,
Chennai-600 018. .. Appellant
-vs-
1.Assistant Commissioner of Income Tax,
Company Circle V(2),
121, Nungambakkam High Road,
Chennai-600 034.
2.Assistant Commissioner of Income Tax,
Company Circle V(3),
121, Nungambakkam High Road,
Chennai-600 034.
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3.Deputy Commissioner of Income Tax,
Company Circle V(3),
121, Nungambakkam High Road,
Chennai-600 034. .. Respondents
Appeal under Clause 15 of the Letters Patent against the order dated
15.06.2021 made in Writ Petition No.1103 of 2011.
For Appellant : Mr.P.H.Aravind Pandian,
Senior Counsel
assisted by Mr.G.Baskar
For Respondents : Ms.Hema Muralikrishnan,
Standing Counsel
******
JUDGMENT
T.S.Sivagnanam, J.
This appeal, by the writ petitioner, is directed against the order dated
15.06.2021, which is a common order in two writ petitions and the appellant
has preferred this appeal as against the decision rendered in W.P.No.1103 of
2011.
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2.In this judgment, the appellant shall be referred to as “the assessee”
and the respondents as “the Revenue.
3.The assessee had challenged the assessment order passed by the
first respondent herein under Section 143(3) of the Income Tax Act, 1961
(hereinafter referred to as “the Act”) for the assessment year 2007-08.
4.The challenge to the assessment order was on the following
grounds:-
4.1.The assessee had filed their return of income on 29.09.2008
admitting loss and the return was processed under Section 143(1) on
24.08.2009. Thereafter, the case was taken up for scrutiny on 29.09.2009
by the second respondent herein and the assessee responded to the notice
issued by the authorities and filed documents and records responding to all
the queries raised. However, no order of assessment was passed by the third
respondent and while so, the first respondent issued notice under Section
143(2) on 16.10.2010 stating that the files have been transferred to him.
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4.2.The assessee appeared before the first respondent and invited the
attention of the first respondent to the documents and records, which were
placed by the assessee. The assessee would contend that the first
respondent without considering any of the documents and materials,
mechanically completed the assessment by order dated 30.12.2010,
impugned in the writ petition.
4.3.It is submitted that the first respondent had invoked Section 68 of
the Act and erroneously concluded that the entire share capital of more than
Rs.316 Crores invested by the foreign company in accordance with the
provisions of the Companies Act and complying with all the applicable
Rules and Regulations and after securing approval from the Foreign
Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI),
represents unexplained investment of the assessee. Therefore, it is
submitted that the order of assessment establishes an arbitrary approach and
total non-application of mind. Further, it is submitted that in terms of
Section 68, show cause notice was required to be issued to the assessee in
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the event, the Assessing Officer considering any credit in the books of the
assessee to represent unexplained investment of the assessee. The said
provision not only requires notice to be issued, but also explanation to be
called for from the assessee in respect of the investment and if no
explanation is offered, the Assessing Officer is entitled to treat the
investment as unexplained income of the assessee. The assessee would state
that this procedure has been given a go-by by the first respondent.
4.4.Further, it is submitted that the Assessing Authority has not
discussed the shareholders' position of the company, as it existed during the
previous year ended 31.03.2008. Further, from the details produced by the
assessee, it is seen that had it been properly perused, it would go to show
that the investment was made by the foreign company, which was controlled
by the Government of UAE and while so, the Revenue referred to financial
statement for the year ended 31.12.2008 and has come to erroneous
conclusion with regard to the shareholding of the investment company.
Further, even on the facts stated by the first respondent, the investment
company has substantial resources far in excess of the the investment made
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in the assessee company. Further, the Assessing Officer has not even
noticed that the investment by the foreign company has been made pursuant
to the approval by the FIPB and the Government of India in terms of
approval dated 19.05.2008, that the remittance of fund from abroad is
through normal banking channel, that the investment by the foreign
company has been approved by the RBI, and that the foreign inward
remittance certificate has been issued by the authorized dealers (Banks) in
respect of the share capital invested by the foreign company. Further, the
shareholders agreement between the Indian promoter and the oversees
investor was also on record. Apart from that, there was a Memorandum of
Understanding (MoU) and Joint Venture (JV) Agreement between the
foreign investor and the Tamil Nadu Industrial Development Corporation
(TIDCO). The Assessing Officer failed to advert to any of the documents
while completing the assessment. Further, the assessee had furnished the
audited financial statements of the foreign investor, its Memorandum of
Articles and certificate of incorporation etc., and these documents were
never adverted to by the Assessing Officer.
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4.5.Further, it is submitted that Section 68 only requires the assessee
to prove the sources of investment and nothing more. Therefore, it is
contended that the assessment is bad in law, is in violation of the principles
of natural justice and is in gross violation of the provisions of the Act and
therefore, liable to be set aside.
5.The Revenue resisted the prayer sought for by the assessee by
raising a preliminary objection with regard to the maintainability of the writ
petition on the ground that as against the order of assessment, the assessee
has a remedy of filing of an appeal before the appellate authority and
therefore, the writ petition was liable to be dismissed as not maintainable.
6.On facts, it was contended that the assessee had stated in the writ
petition that during the period from March, 2007 to April, 2008, Rakeen (P.)
Ltd., Mauritius had received a remittance of US$ 12,35,00,000
(Rs.316,36,35,930/-) from its parent company in UAE, viz., RAK Properties
P J K UAE and the said amount was partly invested in the share capital of
the assessee-company by the Mauritius Government. According to the
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Revenue, this averment is incorrect, since it is the UAE company that had
invested in the assessee-company. The financial statement of the UAE
company for the period ending 31.12.2008 confirms that the UAE company
had only invested in the assessee-company and this would go to show that
the Mauritius company had been used by the UAE company to hoodwink
the taxing authorities in India whereas, it is actually the UAE company
which has made the investment in the assessee-company.
7.Further, with regard to the transfer of the case to the file of the first
respondent, the Revenue contended that consequent to the transfer, the first
respondent issued notice under Section 129 read with Section 143(2) and it
is not a fresh notice under Section 143(2) as alleged by the assessee. It is
submitted that the assessee was given an opportunity of hearing and the
Authorized Representative of the assessee has signed the order sheet which
will go to show that hearing was granted to the assessee. Further, the
addition towards share application money was made only after examination
of all the documents, which were placed by the assessee at the time of
assessment proceedings and it is incorrect to state that the documents were
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not considered by the Assessing Officer. Further, it is submitted that
particulars of Mauritius company were called for to examine the issue of
addition of share application money and the assessee's representative had
made submissions during the hearing, which was granted and also relied on
certain decisions. Further, it is submitted that the assessee was put on
notice about the impugned addition during the course of hearing on
27.12.2010 and the assessment was finalized on 30.12.2010. The assessee
could not satisfactorily explain the nature and source of the receipt.
8.It is further submitted that the assessee had received crores of
rupees as funds and not offered the same to tax and it cannot plead hardship
without producing evidence regarding the availability of funds. On the
above pleadings, the writ petition was heard by the learned Single Bench
and by the impugned order, the writ petition has been dismissed primarily
on the ground that the assessee was not justified in not availing the appellate
remedy provided under section 246A of the Act. Assailing the correctness
of the said order, the appellant is before us by way of this appeal.
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9.It is submitted by the learned Senior Counsel for the appellant that
the learned Single Bench erred in dismissing the writ petition without taking
note of the fact that no sufficient opportunity was granted to the assessee
during the assessment proceedings and since the assessment was getting
time barred, it was hastily and hurriedly completed on 31.12.2010 without
even conducting any enquiry on account of lack of time. Further, it is
submitted that the Assessing Officer failed to issue show cause notice
before making an assessment by invoking Section 68 of the Act and this
being a statutory requirement, non-compliance of the same will vitiate the
entire addition. Further, on facts, it is submitted that the investment was
made by a foreign company, which was controlled by the Government of
Ras Al Khaimah, UAE and cannot be treated as unexplained investment
under Section 68 of the Act. Further, the entire share capital having been
invested by foreign company and having been approved by FIPB,
remittance of funds from abroad being through normal banking channel
after grant of approval by RBI cannot be treated as unexplained investment
of the assessee. Further, in spite of production of foreign inward remittance
certificate issued by the authorized dealers (Banks) in respect of the share
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capital investment by the foreign company, the investment cannot be treated
as unexplained investment. Further, it is submitted that Section 68 of the
Act could have never been invoked, as the assessee has categorically
established the identity of the investor, the creditworthiness of the investor
and the genuineness of the transaction and these aspects were not taken into
consideration when the writ petition was heard and dismissed. Further, the
learned Writ Court ought to have seen that the assessee had produced
voluminous materials and documents before the Assessing Officer, which
were never adverted to and in particular, the certificate of incorporation of
Rakeen Private Limited, tax residency certificate of Rakeen Private Limited
and licence issued by Government of Ras Al Khaima – RKA investment
authority to Rakeen Development PJSC.
10.Further, it is submitted that the assessee has produced balance
sheet of Rakeen Private Limited, Mauritius and Rakeen PJSC, UAE as at
31.12.2007 and that of Rakeen Private Limited as at 31.12.2008 to establish
the creditworthiness of the investors and without taking note of these
materials, the Writ Court had dismissed the writ petition on the ground of
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availability of alternate remedy, when the case of the assessee is that these
documents were never considered by the Assessing Officer. Further, the
learned Writ Court ought to have noted that there were no complicated facts
which are required to be adjudicated and since the approval has been issued
by FIPB and RBI, it will clearly go to show that the addition made under
Section 68 is not sustainable. Further, the learned Writ Court ought to have
followed the decision of the High Court of Bombay in PCIT vs. Aditya
Birla Telecom Ltd., [Income Tax Appeal No.1502 of 2016 dated
26.03.2019] where the facts were identical. Further, the learned Writ Court
had relied on a decision in W.P.No.3144 of 2016 dated 15.04.2021, which is
not applicable to the facts of the assessee's case.
11.The learned Senior Counsel for the appellant had painstakingly
taken us through the findings recorded by the Assessing Officer and the
various documents, which were referred to by him in the course of argument
to establish that the assessee had proved the creditworthiness of the
investors, it has established the identity of the investors, the genuineness of
the transaction and apart from producing approval of FIPB and RBI and the
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funds were routed through normal banking channel and the banks, viz., the
authorized agents have given foreign inward remittance and ignoring all
thee documents, the assessment was completed and therefore, the learned
Writ Court ought to have interfered with the assessment order impugned in
the writ petition.
12.Mrs.Hema Muralikrishnan, learned Standing Counsel appearing
for the respondents sought to sustain the order passed in the writ petition
reiterating that the appeal remedy provided to the assessee under Section
246A of the Act is an effective remedy and factual details cannot be agitated
by the assessee in a writ petition and it is incorrect to state that there are no
complication on facts, as the entire issue revolves around facts and the
Assessing Officer has considered all the documents and the stand taken by
the assessee and has discussed with regard to the nature of investment as
well as the creditworthiness of the Dubai company in the assessment order
and if according to the assessee, the order is erroneous, then the assessee
has to challenge the same by filing an appeal before the appellate authority
and the writ petition was rightly dismissed by the learned Writ Court.
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13.In support of her contention, the learned counsel placed reliance
on the decision of the High Court of Gujarat in Blessing Construction vs.
Income-tax Officer reported in (2013) 32 taxmann.com 366 (Guj.)
wherein, it was held that the genuineness of the transaction having not been
established, addition was justified.
13.1.Reliance was placed on the decision in CIT vs. N.R.Portfolio
(P.) Ltd. reported in (2014) 42 taxmann.com 339 (Delhi) for the
proposition that creditworthiness and genuineness of share money depends
on nature of relationship between the parties, object, terms and quantum of
investment, types of investor, creditworthiness of recipient etc.
13.2.For the same proposition, reliance was placed on the decision in
the case of Rajmandir Estates (P.) Ltd. vs. PCIT, Kolkata reported in
(2016) 70 taxmann.com 124 (Cal.). This judgment was affirmed by the
Hon'ble Supreme Court reported in (2017) 77 taxmann.com 285 (SC).
14.On the above grounds, the learned Standing Counsel seeks to
sustain the order passed in the writ petition.
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15.Heard Mr.P.H.Aravind Pandian, learned Senior Counsel assisted
by Mr.G.Baskar, learned counsel for the appellant and Ms.Hema
Muralikrishnan, learned Standing Counsel for the respondents.
16.Section 68 of the Act deals with “cash credits”. It states that
where any sum is found credited in the books of assessee maintained for any
previous year, and the assessee offers no explanation about the nature and
source thereof 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 as the income of the assessee of that previous year.
17.The first argument of the appellant is that no show cause notice
was issued before the addition was made by resorting to Section 68 of the
Act. 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
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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.
The Assessing Officer has discussed about the two companies, viz., the
Mauritius company and the Dubai company and pointed out that from the
balance sheet of the assessee-company, a sum of Rs.127,52,05,650/- was
received as share capital from the Mauritius company and Vishwatej Project
Pvt. Ltd., which was incorporated on 10.01.2007. The assessee was called
upon to furnish the source for the above amount, which was received as
share capital. The assessee explained stating that the company was
incorporated on 20.02.2007 in the name of Rakindo Developers Pvt. Ltd.,
and later changed as Rakindo Kovai Township Ltd. The Assessing Officer
questioned the source for the fund for the share application money and the
assessee stated that an amount of Rs.127,47,05,650/- was received from
M/s.Rakeen (P.) Ltd., Mauritius and Rs.5,00,000/- was received from Indian
Promoter. The Assessing Officer has stated that there was no proof filed by
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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.
18.Next the 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 such submission being made, the Assessing Officer verified
the consolidated financial statement for the year ended 31.12.2008 and
found that the percentage has got reduced to 19% from 48% thereby
converting them as minority shareholders. It was further stated that that
similar disinvestment was also done by Pak Properties PJSC and Pak
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Airways JSC from 26% to 10.5% each respectively. Thus, the Assessing
Officer has concluded that the erstwhile major shareholders have diverted
their investment in the concern. Further, M/s.Al Hamra Real Estate
Developers had purchased 49% shareholding in Rakeen Developers PJSC
(FZC), Dubai and become major shareholder in the group and RAK
Investments is holding 11.0% share in the said company and thus, they have
a major role to play in the day-to-day affairs of the company and it is no
more a Government company. However, the Assessing Officer has
recorded that it is seen from the above mentioned documents that during the
year, the original shareholders have transferred their shares to the extent of
60% and retained only 40% and therefore, they became minority and did not
have any say in the company's business.
19.Further, the Assessing Officer pointed out that though the name of
Rakeen (P.) Ltd., Mauritius appeared at 35 of notes, on a perusal of the
consolidated balance sheet of the Dubai company as on 31.12.2008, it is
seen that nothing is mentioned about the investment in the Mauritius
company by the Dubai company and as per the details filed before the
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Income Tax Department, it shows that US$ 12,35,00,000 was received from
Rakeen Developers PJSC (FZC) by Rakeen (P.) Ltd. Thus, the Assessing
Officer concluded that the value of US$ 12,35,00,000 is more than dhirams
for which Rakeen Developers PJSC (FZC) do not have the source to fund it.
Thus, the Assessing Officer concluded that the transfer of amount from
Rakeen Developers PJSC (FZC) to Rakeen (P.) Ltd., has not been proved.
20.Further, the consolidated balance sheet of the Dubai company
ended 31.12.2008 was again examined wherein, it was found that an amount
of AED 457,413,538 was shown to have invested in the shares of the
associated/equity accounted investees and when compared to the previous
year, it was found that Rakeen Developers PJSC (FZC) had invested AED
424,205,882 during the year. Therefore, the Assessing Officer pointed out
that the funds have been directly invested by the Dubai company whereas,
the assessee stated that the funds have been provided by the Dubai company
to the Mauritius company and from Mauritius to the Indian companies. If it
is so, it should have been reflected in the balance sheet of the Dubai
company either as loan or in the form of investment in shares in the name of
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the Mauritius company and on perusal of the consolidated balance sheet
ended 31.12.2008, more particularly, note 14 and 22, it does not indicate
either the loan or investment in the name of the Mauritius company.
Therefore, the Assessing Officer concluded that the assessee has not proved
the genuineness and creditworthiness of the Mauritius company and
therefore, the entire share application money was treated as undisclosed
income and added to the returned income by applying Section 68 of the Act.
21.Further, the balance sheet of the assessee-company was also
examined and it was found that the foreign promoter has brought in
Rs.127.52 Crore as share application money and the Indian
promoters/shareholders should have made an equivalent contribution.
However, only Rs.1,00,000/- was shown to have been brought in the form
of share capital by the Indian promoters. Further, the Assessing Officer on
verification has stated that the assessee-company had converted 20 shell
companies to acquire lands and the source for acquisition of lands is none
other than the amounts advanced by floating 20 shell companies by the
group of the assessee-company and the details were mentioned in the
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annexure to the assessment order. With these observations and findings, the
assessment has been completed.
22.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.
23.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.
24.We are conscious of the fact that the writ petition was of the year
2011 and was pending before this Court all these years. Under normal
circumstances, the Writ Court will not relegate the parties to avail the
alternate remedy, as it will be too harsh on the writ petitioner to avail the
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alternate remedy after nearly 10 years. However, in the instant case, we
have no other option because, the entire controversy is factual. The onus is
on the assessee to establish the genuinity of the transaction and the source
of the investment. To dislodge the findings recorded by the Assessing
Officer, a deeper examination into the facts has to be done and such exercise
cannot be undertaken in a writ petition. That apart, there is an allegation
that the assessee has floated 20 shell companies for the purpose of raising
funds for acquisition of the lands. The Assessing Officer has gone on
record to state that the Dubai company, which was stated to be a
Government company, is no longer a Government company on account of
the change in the shareholder pattern. To dislodge these findings, the
assessee has to necessarily bring in facts and documents to establish their
stand and this cannot be permitted to be done in a writ petition. As
mentioned above, the onus to prove the identity, the creditworthiness and
genuineness of the transaction is solely on the assessee and merely because
statutory approvals have been obtained by the assessee, viz., FIPB and RBI
will not sanctify the transaction especially when according to the Assessing
Officer they are all unexplained investment. The explanation offered by the
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assessee was found to be not acceptable. Therefore, if according to the
assessee, the finding of fact recorded by the Assessing Officer is incorrect,
then it is all the more necessary for the assessee to approach the appellate
authority and dislodge such findings of fact recorded by the Assessing
Officer. Thus, we are of the clear view that the assessee cannot be
permitted to avoid the appellate remedy available under the Act.
25.For all the above reason, the writ appeal fails and the same is
dismissed with an observation that if the assessee is aggrieved by the
assessment order, it is well open to the assessee to file a statutory appeal and
if the assessee wishes to do so, then the appellate authority while computing
limitation shall exclude the period from the date of filing of the writ petition
till the receipt of the certified copy of this judgment. No costs.
Consequently, connected miscellaneous petition is closed.
(T.S.S., J.) (S.S.K., J.)
23.08.2021
abr
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To
1.The Assistant Commissioner of Income Tax,
Company Circle V(2),
121, Nungambakkam High Road,
Chennai-600 034.
2.The Assistant Commissioner of Income Tax,
Company Circle V(3),
121, Nungambakkam High Road,
Chennai-600 034.
3.The Deputy Commissioner of Income Tax,
Company Circle V(3),
121, Nungambakkam High Road,
Chennai-600 034.
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T.S.Sivagnanam, J.
and
Sathi Kumar Sukumara Kurup, J.
(abr)
Pre-delivery Judgment made in
W.A.No.1791 of 2021
23.08.2021
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