ASST CIT 8(1)(1), MUMBAI V. RELIANCE NATURAL RESOURCES LTD, NAVI MUMBAI

ITA 1076/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0661 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 02-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B PRUSETH
• Keywords: Reopening of assessment; Unexplained cash credit; Business income; Principle of natural justice; Source of fund; Deemed to accrue or arise in india; Proportionate interest; Question of law; Capital expenditure
• Section: 143(3); 234B; 14A; 147; 68; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBERAND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1000/M/2016 ASSESSMENT YEAR: 2007-08 M/S. RELIANCE NATURAL RESOURCES LTD., H BLOCK, 1 ST FLOOR, DHIRUBHAIAMBANI KNOWLEDGE CITY, NAVI MUMBAI 400 710 PAN: AABCR 7656P VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(2), MUMBAI NOW- ASST. COMMISSIONER OF INCOME TAX, CIRCLE 8(1)(1), ROOM NO.624, 6 TH FLOOR, AAYAKARBHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO.1076/M/2016 ASSESSMENT YEAR: 2007-08 ASST. COMMISSIONER OF INCOME TAX-8(1)(1), ROOM NO.624, 6 TH FLOOR, AAYAKARBHAVAN, M.K.MARG, MUMBAI - 400020 VS. M/S. RELIANCE NATURAL RESOURCES LTD., H BLOCK, 1 ST FLOOR, DHIRUBHAIAMBANI KNOWLEDGE CITY, NAVI MUMBAI 400 710 PAN: AABCR 7656P (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRIARVINDSONDE, A.R. SHRIJITENDRASANGHAVI, A.R. SHRI DEEPAK JAIN, A.R. REVENUE BY : SHRI B. PRUSETH, D.R. DATE OF HEARING : 01.03.2017 DATE OF PRONOUNCEMENT : 12.05.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE ABOVE TITLED APPEALS ONE BY THE REVENUE AND TH E OTHER BY THE ASSESSEE HAVE BEEN PREFERRED AGAINST THE ORDER DATE D 28.12.2015 OF THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 2 COMMISSIONER OF INCOME TAX (APPEALS) - 14, MUMBAI [ HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2007-08. 2. NOW WE WILL DEAL WITH REVENUES APPEAL I.E. ITA NO.1076/M/2016. ITA NO.1076/M/2016 (REVENUES APPEAL) 3. RELIANCE NATURAL RESOURCES LTD. (RNRL) ASSESSE H AS FILED THE RETURN OF INCOME ON 31.10.2007. THE ASSESSEE IS A GROUP COMP ANY OF RELIANCE ADAG GROUP AND ENGAGED IN BUSINESS OF PROVIDING FUEL AND FACILITATION SERVICES TO POWER PLANTS. DURING THE FINANCIAL YEAR 2006-07 RE LEVANT TO A.Y. 2007-08 ASSESSEE HAS RAISED THE FUND EQUIVALENT TO US$ 300 MILLION BY ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB). THE ISSUE DATE OF BOND WAS 10.10.06 WHICH WAS MATURED ON 17.10.2011. THE FCCB MEANS A BOND EXPRESSED IN FOREIGN CURRENCY, THE PRINCIPAL AND INTEREST IN RES PECT OF WHICH IS PAYABLE IN FOREIGN CURRENCY, ISSUED BY AN ISSUING COMPANY AND SUBSCRIBED TO BY A PERSON WHO IS RESIDENT OUTSIDE INDIA, IN FOREIGN CURRENCY AND EXCHANGEABLE INTO EQUITY SHARES OF THE COMPANY AFTER A SPECIFIED PERIOD OR T O BE REDEEMED. THE ASSESSEE HAS RECEIVED PROCEEDS OF FCCB OF US$ 300 MILLION IN BARCLAYS BANK FROM BARCLAYS BANK PLC AS LEAD MANAGER FOR MAKING SUBSCR IPTION. 4. ORIGINALLY THE ASSESSMENT ORDER WAS PASSED U/S.1 43(3) DATED 07.12.2009 WHICH IS ON PAGE 14 TO 27 OF THE PAPER BOOK. THE A SSESSMENT PROCEEDINGS WERE COMPLETED ON 07.12.2009 AND IN THE SAID ASSESS MENT ORDER, FOUR ADDITIONS / DISALLOWANCES WERE MADE WHICH READ AS UNDER: FCCB ISSUE EXPENSES 28,58,28,246 LEGAL AND PROFESSIONAL FEES 49,74,139 DISALLOWANCE U/S. 14A 5,97,63,000 WITHHOLDING TAX ON FCCB INTEREST 3,35,70,044 AGAINST THE ABOVE ADDITION / DISALLOWANCE, THE ASSE SSEE HAS FILED THE APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS GRANTE D THE PARTIAL RELIEF WHICH ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 3 INCLUDED FCCB ISSUE EXPENSES TREATING SAME AS REVEN UE EXPENSES. AGAINST THE SAID ORDER, THE ASSESSEE AS WELL AS REVENUE HAS FIL ED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE AND DISMISSED THE REVENUE APPEAL. 5. THE AO HAS ISSUED THE NOTICE DATED 08.02.2013 UN DER SECTION 148 FOR REOPENING THE ASSESSMENT ORDER. THE ASSESSEE HAS F ILED THE RETURN OF INCOME IN RESPONSE TO NOTICE UNDER SECTION 148. THE ASSESSME NT WAS REOPENED ON FOLLOWING GROUNDS. 1. SOURCE OF INVESTMENT IN FCCB OF RS.1304.10 CRORE S. 2. ALLOWABILITY OF FCCB INTEREST OF RS.33,16,93,100 IN VIEW OF DIVERSION OF PROCEEDS OF FCCB FOR NON BUSINESS PURP OSE. 3. ALLOWABILITY OF FCCB EXPENSES OF RS.28,58,28,246 /- IN VIEW OF DIVERSIONS OF PROCEEDS OF FCCB FOR NON BUSINESS PUR POSE. 4. INCOME ARISING OUT OF INVESTMENT IN YIELD MANAGE MENT CERTIFICATE (YMC) AND NON REFLECTION OF LOSSES OF US$ .06 MILL IONS IN FINAL ACCOUNTS AND RETURN FOR A.Y. 2007-08. 6. THE ASSESSEE HAS OBJECTED TO REOPENING OF THE AS SESSMENT AND REQUESTED AO TO PROVIDE THE FOLLOWING DOCUMENTS: A) REPORT OF DIT (INTELLIGENCE) DATED 19.11.2010 IN RESPECT OF INVESTIGATION CARRIED OUT BY THEM. B) INVESTIGATION CARRIED OUT BY SEBI ON RECEIPT OF INFORMATION FROM FINANCIAL SERVICES, UK. THE COPY OF THE LETTER IS IN THE PAPER BOOK PAGE 82 TO 107. THE AO DID NOT PROVIDE THE SAID DOCUMENTS. HE PASS ED THE RE-ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT ON 27.3.2014 IN WHICH FOLLOWING ADDITIONS/DISALLOWANCES WERE MADE: ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 4 RS. FCCB PROCEEDS USD 300 MILLION 1304,10,00,00 0 FCCB ISSUE EXPENSES 28,58,28,246 FCCB INTEREST (INCLUDING WITHHOLDING TAX OF RS.3,35,70,044) 33,16,93,100 7. THE FACTS RELATING TO ISSUE OF FCCB: ASSESSEE HAS RAISED THE FUND BY WAY OF FCCB DURING F.Y. 2006-07 VIDE OFFERING CIRCULAR DATED 12.10.2006 ISSUED ON 16.10. 2006. RNRL HAS ISSUED THE BOND TO LEAD MANAGER I.E. BARCLAYS BANK PLC WHO AGR EED TO SUBSCRIBE AND PAY FOR THE BOND.SINGLE GLOBAL CERTIFICATE (GC) FOR FCC B FUNDS IS ISSUED AND REGISTERED IN THE NAME OF COMMON DEPOSITORY EUROCLE AR BANK AND CLEARSTREAM LUXEMBURG.THE BARCLAYS BANK PLC ('BARCLAYS'), LEAD MANAGER, AS SUBSCRIBER TO AFOREMENTIONED ISSUE, SIGNED THE SUBS CRIPTION AGREEMENT AS PER WHICH BARCLAYS AGREED TO SUBSCRIBE TO THE FCCBS OF USD 300 MILLION PROPOSED TO BE ISSUED BY RNRL. ON 12.10.2006 RNRL I SSUED OFFER DOCUMENT TO BARCLAYS (PG 155-337 OF PB). ON 16.10.2006 RNR L ISSUED A SINGLE GC REPRESENTING THE AGGREGATE PRINCIPAL OF USD 300 MIL LION AND DELIVERED IT TO DEUTSCHE BANK, LUXEMBURG ('THE REGISTRAR') OF EURO CLEAR AND CLEAR STREAM ('THE EXCHANGES') (PG 396-404 OF PB). THE REGISTRA R REGISTERED THE GC IN THE NAME OF BT GLOBENET AS THE NOMINEE OF DEUTSCHE BANK , LONDON, WHICH WAS THE COMMON DEPOSITORY ('CD') OF THE EXCHANGES AND R ELEASED THE AUTHENTICATED GC TO DB, LONDON AS THE CD OF THE EXC HANGE (PG 396-404 OF PB). RNRL INSTRUCTED THE CD (DB LONDON) TO HOLD TH E GC ON ITS BEHALF TILL BARCLAYS INSTRUCTED THE CD TO EFFECT THE PAYMENT TO RNRL AND THEREAFTER TO HOLD THE GC FOR THE ACCOUNT OF THE SUBSCRIBER I.E. BARCLAYS (PG 392 OF PB).AS PER THE PAYING, CONVERSION AND TRANSFER AGENCY AGRE EMENT DATED 16.10.2006, RNRL AGREED TO DELIVER TO THE REGISTRAR A DULY EXEC UTED GC (PG 355 OF PB). RNRL INSTRUCTED BARCLAYS (I.E. THE SUBSCRIBER) TO M AKE THE NET OF FEES PAYMENT OF USD 290.40 MILLION BY WAY OF SUBSCRIPTION FOR TH E FCCBS BARCLAYS ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 5 INSTRUCTED THE DEUTSCHE BANK AG LONDON (DB) TO RELE ASE THE NET PROCEEDS OF THE FCCBS TO THE DESIGNATED BANK ACCOUNT OF RNRL. THE SINGLE GC FOR FCCB FUNDS IS ISSUED AND REGISTERED IN THE NAME OF COMMO N DEPOSITORY FOR EUROCLEAR BANK AND CLEARSTREAM, LUXEMBERG. RNRL RECEIVED THE NET SUM OF USD 290.40 MILLION FROM BARCLAYS THROUGH THE DB AND ISS UED A RECEIPT. ON 15.10.2010 FCCBS OF USD 300 MILLION WERE TRANSFERRE D TO RELIANCE POWER LTD. UNDER THE DEMERGER SCHEME APPROVED BY THE HON' BLE BOMBAY HIGH COURT. FCCBS OF USD 100,000 WERE CONVERTED INTO SHA RES. RELIANCE POWER LTD. HAS ISSUED 43,860 SHARES TO FCCB'S HOLDERS DUR ING F.Y. 2010-11 (PG 485- 486 OF PB). ON 14.10.2011, BALANCE FCCB OF USD 299 .90 MILLION WAS REDEEMED TO THE FCCB'S HOLDERS. (PG 485-486 OF PB). 8. THE ASSESSEES CASE IS THAT THE FCCB FUND IS SUB SCRIBED BY BARCLAYS BANK AND THE ASSESSEE HAS RECEIVED THE FUND FROM BA RCLAYS BANK. THE ASSESSEE IS NOT HAVING DETAIL OF FURTHER SUBSCRIBERS OF BARC LAYS BANK AT THE TIME OF ISSUANCE OF FCCB OR THEREAFTER AND ASSESSEE IS NOT BOUND TO KEEP SUCH DETAIL. 9. IT IS THE CASE OF AO THAT THE REPORT FROM DIRECT ORATE OF DIT (INTELLIGENCE), NEW DELHI WAS RECEIVED ON 19.11.201 0 WITH REGARD TO SUSPICIOUS FINANCIAL TRANSACTIONS CARRIED OUT TO OV ERSEAS. THE INVESTIGATION CARRIED OUT BY SEBI WHEREIN IT WAS OBSERVED THAT FC CB PROCEEDS HAD BEEN USED TO INVEST IN SHARES OF RELIANCE COMMUNICATION LTD. (RCOM) THROUGH AN INVESTMENT VEHICLE, THEREBY CIRCUMVENTING THE REGUL ATIONS OF FEMA, SEBI AND OTHER REGULATORY NORMS. 10. THE AO WANTED TO VERIFY THE SOURCE OF FCCB FUND S IS UNACCOUNTED/UNEXPLAINED BY FOLLOWING FACTS: I. FCCB FUNDS OF US $ 300 MILLION WERE RAISED BY RN RL ON 16.10.06. II. ENTIRE FCCB FUND WAS HELD BY ONE ENTITY WHO WAS NOMINEE OF EUROCLEARBANK, LUXEMBOURG. ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 6 III. NO DETAILS OF THE ACTUAL BONDHOLDERS OR ULTIMA TE BENEFICIARIES HAVE BEEN PROVIDED BY THE ASSESSEE. 11. THEREFORE, ASSESSEE WAS GIVEN SHOW CAUSE NOTICE AND ASSESSEE HAS REPLIED TO SHOW CAUSE NOTICE WHICH IS REPRODUCED IN PARA 23 OF THE RE- ASSESSMENT ORDER PASSED U/S.143(3) R.W.S.147 OF THE ACT WHICH READS AS UNDER: 23. IN RESPONSE TO THIS ISSUE, ASSESSEE COMPANY H AS GIVEN IT REPLY VIDE LETTER DT.05.03.2014, WHICH IS REPRODUCED AS UNDER: A. SOURCE OF INVESTMENT IN FCCB RS.1304.10 CRS. 1. DURING THE YEAR WE HAD ISSUED FOREIGN CURRENCY C ONVERTIBLE BONDS (FCCB) VIDE OFFER DOCUMENT DATED 12.10.2006. THE BONDS WERE 4. 928% CONVERTIBLE BONDS DUE 2011 AGGREGATING TO USD 300 MILLION. COPY OF THE O FFER DOCUMENT HAS BEENFILED IN COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS VIDE LETT ER DATED 19.11.2009 AND AGAIN IN COURSE OF FILING OF OBJECTIONS TO THE REOPENING OF ASSESSMENT U/S.148 VIDE LETTER DATED 18.12.22013 FILED ON 20.12.2013. 2. IN THE REASONS RECORDED IT HAS BEEN STATED THAT NO INQUIRIES WERE CARRIED OUT WITH REGARD TO THE SOURCE OF FUNDS RAISED THROUGH FCCB. (PARA 3 OF REASONS RECORDED) 3. IN THIS CONNECTION WE ONCE AGAIN STATE THAT WE H AD SUBMITTED THE OFFER DOUCMENT VIDE OUR LETTER DATED 19.11.2009, COPY OF THE SAID LETTER IS ENCLOSED AS ANNEXURE A. IT CAN BE SEEN THAT THERE WAS SPECIFIC REPLY AS REGARDS FCCB ISSUE PURSUANT TO YOUR QUERY RAISED. WE HAD ALSO SUBMITTE D LETTER DATED 19.10.2006 OF BRODY, KIMBERLEE: LED LONDON GIVING THE DETAILS OF PROCEEDS REALIZED, EXPENSES INCURRED AND BALANCE AMOUNT TRANSFERRED TO THE BANK ACCOUNT OF THE COMPANY. 4. ATTENTION IS INVITED TO PAGE 122 OF THE OFFER DO CUMENT (ANNEXURE I OF LETTER DATED 18.12.2013) IN WHICH THE DETAILS OF SUBSCRIPT ION AND SALE OF THE FCCB HAS BEEN PROVIDED. IT IS STATED THAT COMPANY HAS ENTERE D INTO A SUBSCRIPTION AGREEMENT WITH THE MANAGER I.E. BARCLAYS CAPITAL PLC PURSUANT TO WHICH THE COMPANY AGREED TO SELL TO THE MANAGER AND THE MANAGER AGREED TO SU BSCRIBE FOR US 300 MILLION AGGREGATE PRINCIPAL AMOUNTS OF THE BONDS. IT IS ALS O STATED THAT THE MANAGER MAY FOR ITS OWN ACCOUNTS, ENTER INTO ASSET SWAPS, CREDI T DERIVATIVES OR OTHER DERIVATIVE TRANSACTIONS RELATING TO THE BONDS AND / OR THE SHA RES AT THE SAME TIME AS THE OFFER AND SALE OF THE BONDS OR IN SECONDARY MARKET TRANSA CTIONS. THIS DOCUMENT WAS ALREADY ON RECORD OF THE ASSESSING OFFICER PROVIDED BY US IN COURSE OF THE ASSESSMENT PROCEEDINGS (LETTER DATED 19. 11.2009 - ANNEXURE A TO THIS SUBMISSION). THUS IT IS NOT CORRECT ON THE PART OF THE ASSESSING OFFICER TO STATE THAT THE NAMES OF THE BONDHOLDERS ARE NOT AVAILABLE. WE HAD ALSO SUBM ITTED THE COPY OF SUBSCRIPTION AGREEMENT WITH BARCLAYS BANK PLC AS AMENDED FROM TI ME TO TIME WITH OUR LETTER DATED 18.22.2013 AS ANNEXURE 2 THERETO. WE HAVE ALSO ENCLOSED HEREWITH FOLLOWING DOCUMENTS: - ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 7 I. LETTER FROM BARCLAYS BANK PLC DATED 16.10.2006 A DDRESSED TO DEUTSCHE BANK AG, LONDON AUTHORIZING THEM TO MAKE PAYMENT TO US AGAINST THE DELIVERY OF GLOBAL CERTIFICATE. II. CONFIRMATION DATED 16.10.2006 FROM DEUTSCHE BAN K LONDON TO US AND TO BARCLAYS BANK PLC CONFIRMING THE PAYMENT MODE BY TH EM TO BARCLAYS BANK. III. LETTER DATED 16.10.2006 FROM DEUTSCHE BANK AG, LONDON AS COMMON DEPOSITORY ACKNOWLEDGING THE RECEIPT OF GLOBAL CERT IFICATE. IV. LETTER DATED 16.10.2006 FROM DEUTSCHE BANK LUXE MBOURG SA AS REGISTRAR FOR RECEIPT OF GLOBAL CERTIFICATE REPRESENTING USD 290.40 MILLION. ABOVE DOCUMENTS ARE ENCLOSED AS ANNEXURE B TO E. FROM THE ABOVE DOCUMENTS IT IS CLEAR THAT THE BONDS PROCEEDS HAVE BEEN GIVEN TO US BY BARCLAYS BANK PLC AND THE SAME HAS BEEN SOURC ED BY THEM FROM DEUTSCHE BANK LONDON. THUS THE SOURCE OF THE FUNDS IS FULLY EXPLAINED. 5. WE HAVE TO BRING TO YOUR ATTENTION THE DECISION OF INCOME TAX APPELLATE TRIBUNAL 'D' BENCH IN THE CASE OF RELIANCE COMMUNICATIONS LT D. (RCOM) IN ITA NO.2915 /MUM / 2012. IN THIS CASE ALSO THE DEPORTMENT HAD A PPLIED PROVISIONS OF SECTION 68 IN RESPECT OF ISSUE OF FCCB BY RCOM. FACTS OF RCOM AND OURS ARE IDENTICAL AND IN SUPPORT THEREOF WE HAD SUBMITTED COPY OF THE OFFER DOCUMENT OF RCOM WITH OUR LETTER DATED 18.12.2013 ASANNEXURE 3 THERETO. IN RCOM THE MATTER OF APPLICABILITY OF SECTION 68 I N RESPECT OF THE FCCB PROCEEDS RECEIVED BY THEM WAS A MATTER OF REVISION PROCEEDIN GS U1S.263 OF THE ACT. RCOM HAS ISSUED SIMILAR FCCB DURING F.Y.2006-07 RELEVANT TO A.Y.200708. THE ISSUE OF APPLICABILITY OF SECTION 68 WAS CONSIDERED BY COMMI SSIONER OF INCOME TAX WHO IN THE ORDER U1S.263 HAD SET ASIDE THE ASSESSMENT TO C ARRY OUT INVESTIGATION AS REGARDS THE SUBSCRIBERS OF FCCB. THE MATTER OF ORDER U1S.263 WAS CHALLENGED BY RCOM BEFORE INCOME TAX APPELLATE TRIBUNAL. TRIBUNAL VIDE ORDER DATED 5.2.2013 IN ITA NO.2915 / MUM 12012 HAS HELD THAT THE MANAGERS TO THE ISSUE HAD SUBSCRIBED TO TH E FCCB AND THAT IT WAS THE MANAGERS' SOLE DISCRETION / OBLIGATIONS TO FIND THE CUSTOMERS IF IT WANTED. IT FURTHER HELDTHAT THE MONEY WAS ACTUALLY RECEIVED FROM AND O N BEHALF OF THE MANAGER TO THE ISSUE. TRIBUNAL NOTED THAT THE GLOBAL CERTIFICATE W AS ISSUED IN THE NAME OF THE MANAGER. REFERENCE IS MADE TO THE PARA 5.5 AND 5.6 OF THE SAID TRIBUNAL ORDER. TRIBUNAL THEREFORE HELD THAT THE DEPARTMENT WAS NOT JUSTIFIED INPUTTING OBLIGATION ON THE ASSESSEE TO PROVE THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF THE SUBSEQUENT SUBSCRIBERS, WHICH WAS BEYOND THE REACH OF THE ASSESSEE. A COPY OF THE SAID TRIBUNAL ORDER WAS ENCLOSED WITH LETTER DATED 18.12.2013 AS ANNEXURE 4 THERETO. THUS THE MATTER OF APPLICABILITY OF SECTION 68 HAS ALREADY BEEN CONSIDERED BY TRIBUNAL IN THE SAME FACTS AS OURS AND HAS HELD THA T BASED ON THE DOCUMENTS RELEVANT TO FCCB ISSUE, THE SUBSCRIBER TO THE BONDS IS THE MANAGER TO THE ISSUE. IN OUR CASE MANAGER TO ISSUE OF FCCB WAS BARCLAYS CAPI TAL PLC. AS STATED EARLIER THIS IS EVIDENT FROM PAGE 122 OF THE OFFER DOCUMENT. WE THE REFORE SUBMIT THAT THE REASONS RECORDED AS REGARDS NON AVAILABILITY OF THE NAME OF BAND HOLDERS IS NOT CORRECT IN AS MUCH AS THE NAME WAS AVAILABLE IN THE OFFER DOCUMENT AND THE SAME ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 8 WAS AVAILABLE AT THE TIME WHEN THE ORIGINAL ASSESSM ENT WAS FRAMED AND ALSO AVAILABLE NOW. FURTHER THE PAYMENT BY BARCLAYS BANK AND THEIR SOURCE IS ALSO EXPLAINED BY EVIDENCE. 6. THE REASONS RECORDED FURTHER PROVIDES THAT THE D ETAILS OF THE ULTIMATE BENEFICIARIES HAVE NOT BEEN PROVIDED. WE SUBMIT THA T WHAT IS IMPORTANT IS THE PERSON MAKING PAYMENT TO US AND NOT THE SUBSEQUENT TRANSFER OF THE BONDS BY THE ORIGINAL SUBSCRIBER. AS FAR AS WE ARE CONCERNED THE FUNDS WERE GIVEN BY BARCLAYS CAPITAL AND IF THEREAFTER THEY HAVE ENTERED INTO FU RTHER TRANSACTIONS FOR TRANSFER OF THEIR BENEFICIAL INTEREST IN THE BONDS, THE SUBSEQU ENT ACQUIRERS OF THE BONDS ARE NOT MATERIAL TO THE ISSUE OF APPLICABILITY OF SECTION 6 8 IN OUR CASE. 7. WE THEREFORE SUBMIT THAT ALL MATERIAL / EVIDENCE NECESSARY FOR THE PURPOSE OF ASSESSMENT ARE SUBMITTED. WE HAD ENTERED INTO A SUBSCRIPTION AGREEMENT WITH THE MANAGER I.E. BARCLAYS BANK PLC IN RESPECT OF SU BSCRIPTION OF THE BONDS. AS PER AMENDED AND RESTATED SUBSCRIPTION AGREEMENT DATED 1 0. 10.2006 (FILED WITH LETTER DATED 18. 12.2013 AS ANNEXURE 2) WE HAD AGREED TO S ELL TO THE MANAGER AND THE MANAGER HAD AGREED TO SUBSCRIBE FOR US$300 MILLION AGGREGATE PRINCIPAL AMOUNT OF THE BONDS AS SET OUT IN THE SUBSCRIPTION AGREEMENT (PAGE 122 OF THE OFFER DOCUMENT - ANNEXURE I OF LETTER DATED 18.12.2013). AS PER THE SAID SUBSCRIPTION AGREEMENT, ISSUER (I.E. THE COMPANY) HAD AGREED TO ISSUE THE BONDS AND MANAGER (I.E. BARCLAYS BANK PLC) AGREED WITH THE ISSUER TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS AND PAY FOR THE BONDS. (PARA 1. 1 OF SUBSCRIPTION AGREEMENT). IN TERMS OF THE SUBSCRIPTION AGREEMENT, THE MANAGER I. E. BARCLAYS BANK PLC PAID TO THE ISSUER AN AMOUNT OF US$ 290,400,400 AFTER DEDUC TING THEIR COMMISSION AND EXPENSES. IT CAN BE FURTHER SEEN FROM THE PAGE 122 OF THE OFFER DOCUMENT THAT MANAGER - BARCLAYS BANK PLC MAY, FOR ITS OWN ACCOUN TS ENTER INTO ASSET SWAPS, CREDIT DERIVATIVES OR OTHER DERIVATIVE TRANSACTIONS RELATING TO THE BONDS AND / OR THE SHARES AT THE SAME TIME AS THE OFFER AND SALE OF TH E BONDS OR IN SECONDARY MARKET TRANSACTIONS. AS A RESULT OF SUCH TRANSACTIONS, THE MANAGER (OR ITS AFFILIATES) MAY HOLD LONG OR SHORT POSITIONS IN SUCH BONDS OR DERIV ATIVES OR IN THE SHARES. THESE TRANSACTIONS MAY COMPRISE A SUBSTANTIAL PORTION OF THE OFFERING AND NO DISCLOSURE WILL BE MADE OF SUCH POSITIONS. THE MANAGER (OR ITS AFFILIATES) MAY HAVE PURCHASED BONDS AND BEEN ALLOCATED BONDS FOR ASSET MANAGEMENT AND/OR PROPRIETARY PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION. RELEVANT EXTRACT FROM THE SUBSCRIPTION AGREEMENT BE ING PARA 1.1 IS REPRODUCED HEREUNDER:- SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS O F THIS AGREEMENT AND TO AGREEMENT AND EXECUTION OF THE PRICING LETTER (AS D EFINED IN CLAUSE 1.8), THE ISSUER AGREES TO ISSUE THE BONDS AND THE MANAGER AGREES WI TH THE ISSUER TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS TO SUBSCRIBE AND PAY FOR THE BONDS ON THE CLOSING DATE AT THE ISSUE PRICE OF 100 PER CENT, OF THE AGG REGATE PRINCIPAL AMOUNT OF THE BONDS LESS THE COMMISSION AND CONCESSION REFERRED T O IN CLAUSE 5.' 8. WE THEREFORE SUBMIT THAT THE OFFER DOCUMENT, SUB SCRIPTION AGREEMENT AND THE DOCUMENTS SPECIFIED IN PARA 4 ABOVE (ANNESURE A ) CLEARLY PROVIDE THAT THE BONDS WERE ORIGINALLY SUBSCRIBED BY BARCLAYS BANK P LC AND THEREAFTER THEY MAY ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 9 HAVE DISPOSED OFF TRANSFER, SOLD TO VARIOUS BOND HO LDERS TO WHICH WE ARE NOT PRIVY TO THE DETAILS. 9. WE UNDERSTAND THAT YOU HAD MADE REFERENCE TO FT & TR SECTION OF CENTRAL BOARD OF DIRECT TAXES FOR EXCHANGE OF INFORMATION U NDER INDIA -UK TREATY. WE ARE NOT AWARE AS TO WHETHER YOU HAVE RECEIVED ANY INFOR MATION UNDER THE SAID REFERENCE. WE HAVE TO REQUEST YOU TO PROVIDE THE OU TCOME OF THE SAID REFERENCE. WE SUBMIT THAT THE ABOVE FACTS WILL CLEARLY COME OU T IN THE SAID REFERENCE MADE TO UK TAX AUTHORITIES. 10. IN VIEW OF THE ABOVE WE SUBMIT THAT THE NATURE AND SOURCE OF FUNDS HAVE BEEN FULLY EXPLAINED. WE THEREFORE SUBMIT THAT NO A DDITION SHOULD BE MADE IN RESPECT OF THE PROCEEDS OF FCCB CREDITED TO OUR BOO KS AS THE SAID BONDS WERE SUBSCRIBED BY BARCLAYS BANK PLC WHOSE IDENTITY AND CREDITWORTHINESS IS ALREADY PROVIDED IN THE OFFER DOCUMENT AT PAGE 76 TO 79. 12. THE AO WAS OF A VIEW THAT ACTUAL BENEFICIARIES OF FCCB FUNDS IS WITHIN THE KNOWLEDGE OF ASSESSEE COMPANY SINCE PURPOSE OF RAISING THE FUND WAS INDIRECTLY TO INVEST IN THE SHARES OF RCOM WHICH IS OTHERWISE WAS NOT PERMISSIBLE. THUS, BY WITHHOLDING THE DETAIL OF RE AL SUBSCRIBERS, THE ASSESSEE COMPANY HAS FAILED TO EXPLAIN THE NATURE AND SOURCE OF FCCB FUND OF US$ 300 MILLION AND FAILED TO DISCHARGE THE ONUS UNDER SECT ION 68 OF THE ACT. ACCORDINGLY, SUM OF RS.1304.10 CRORES WAS ADDED UND ER SECTION 68 OF THE ACT AND DEEMED TO BE INCOME OF THE ASSESSEE. 13. THE MATTER WAS CARRIED TO LD. CIT(A) AND THE LD . CIT(A) HAS DELETED THE ADDITIONS BY OBSERVING AS UNDER: 8.4 I HAVE CONSIDERED THE SUBMISSION. PERUSAL OF T HE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS CONSIDERED THE FCCB PROCEEDS AS UNEXPLAINED CASH CREDITS ON THE GROUND THAT THE SOU RCE THEREOF IS UNEXPLAINED. ASSESSING OFFICER CONTENDS THAT THE ACTUAL BENEFICI ARIES OF FCCB FUNDS ARE WITHIN THE KNOWLEDGE OF THE APPELLANT AS THE FUNDS WERE IN DIRECTLY USED FOR INVESTMENT IN SHARES OF RELIANCE COMMUNICATIONS LTD. THE MAIN CONTENTION OF THE ASSESSING OFFICER ARE AS UNDER: - I) DETAILS OF ACTUAL BONDHOLDERS OR ULTIMATE BENEFI CIARIES HAVE NOT BEEN PROVIDED BY THE APPELLANT. II) THE APPELLANT WAS BOUND TO MAINTAIN A REGISTER WHEREIN THE NAME AND ADDRESS OF THE BONDHOLDER WAS TO BE SPECIFICALLY ME NTION. III) PAYMENT OF PRINCIPAL AND ACCRUED INTEREST WAS TO BE MADE BY TRANSFER TO THE REGISTER ACCOUNT OF THE BONDHOLDER WHICH MEA NS THAT THE APPELLANT WAS CR ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 10 IN POSSESSION OF THE INFORMATION REGARDING THE ULTI MATE INVESTOR IN FCCB. AS AGAINST THE ASSESSING OFFICER'S CONTENTION THE A PPELLANT SUBMITTED THAT THEYHAD SUBMITTED VARIOUS DOCUMENTS TO PROVE THAT T HE SUBSCRIBERS TO THE BONDS WERE BARCLAYS CAPITAL PLC. THE APPELLANT POIN TS OUT THAT THEY HAVE SUBMITTED COPY OF OFFER DOCUMENT, COPY OF SUBSCRIPT ION AGREEMENT WITH BARCLAYS, COPY OF CORRESPONDENCE BETWEEN BARCLAYS B ANK AND DEUTSCHE BANK REGARDING TRANSFER OF FUNDS FROM BARCLAYS BANK ACCO UNT WITH DEUTSCHE BANK, ISSUE OF GLOBAL CERTIFICATE IN NAME OF BT GLOBENET NOMINEES LTD., RECEIPT OF THE GLOBAL CERTIFICATE BY DEUTSCHE BANK LUXEMBOURG SA. THE APPELLANT FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD MADE REFER ENCE THROUGH FT & TR FOR OBTAINING INFORMATION ABOUT THE SUBSCRIBERS OF THE BONDS. THE SAID INFORMATION WAS NOT RECEIVED TILL THE DATE OF PASSI NG OF THE ORDER. THE APPELLANT MADE APPLICATION UNDER RTI TO ASSESSING O FFICER AND THEREAFTER APPEALED TO THE APPELLATE AUTHORITY UNDER RTI ACT F OR OBTAINING THE COPY OF INFORMATION RECEIVED FROM UK TAX AUTHORITY. ASSESSI NG OFFICER IN HIS COMMUNICATION TO THE APPELLATE AUTHORITY UNDER RTI CONFIRMED THE RECEIPT OF THE SAID INFORMATION. THE APPELLANT SUBMITTED THAT NOTHING ADVERSE IS FOUND IN THE SAID COMMUNICATION AGAINST HIM . THE APPELLANT SUBMITTED THAT THEY MADE DETAILED SUBMISSIONS AS TO WHY THE SECONDARY SOURCE AND THE SECONDARY BENEFICIARIES ARE NOT RELEVANT TO THE ISSUE OF SECT ION 68 UNDER THE FACTS OF THE CASE. IT WAS ALSO CLAIMED THAT THE SCHEME UNDER WHI CH THE FCCBS ARE ISSUED ALSO RECOGNIZE THE FACT OF NON AVAILABILITY OF THE NAMES OF THE SUBSEQUENT BONDHOLDERS WHEN IT PROVIDES THAT FOR THE PURPOSE O F WITHHOLDING TAX THE TAX TREATY OF THE COUNTRY OF THE RESIDENCE OF THE DEPOS ITORY WILL HAVE TO BE RECKONED. THUS THE SCHEME WHEN PROMULGATED IN 1993 ALSO CONSIDERED THE FACT THAT THE NAMES OF THE SUBSEQUENT BONDHOLDERS W ILL NOT BE AVAILABLE AND WHAT IS RELEVANT TO THE ISSUER COMPANY IS THE ONLY DEPOSITORY. THE APPELLANT HAD ALSO RELIED UPON THE DECISION OF TRIBUNAL IN CA SE OF RELIANCE COMMUNICATION LTD. ITA NO.2915 / MUM / 2012 IN WHIC H ON IDENTICAL FACTS THE APPLICABILITY OF SECTION 68 WAS QUASHED. HB' TRIBUN AL HAS HELD THAT THE SUBSCRIBERS TO THE BONDS ARE THE MANAGER TO THE ISS UE AND THE NAMES OF THE SUBSEQUENT SUBSCRIBERS ARE IRRELEVANT FOR THE PURPO SE OF SECTION 68 . THE APPELLANT DURING THE COURSE OF APPELLATE PROCEE DINGS HAS ADDRESSED THE ISSUES RAISED BY THE AO IN THE ASSESSMENT ORDER. THE SUBMI SSION IN THIS REGARD IS REPRODUCED ABOVE. THE APPELLANT HAS SUBMITTED THE C OPY OF OFFER DOCUMENT DATED OCTOBER 2006, SUBSCRIPTION AGREEMENT, COPY OF PAYIN G, CONVERSION AND TRANSFER AGENCY AGREEMENT, LETTERS FROM BARCLAYS BA NK PLC DATED 16/10/2006 ADDRESSED TO DEUTSCHE BANK AG LONDON AUTHORIZING TH EM TO MAKE PAYMENT TO ASSESSEE AGAINST DELIVERY OF GLOBAL CERTIFICATE, CO NFIRMATION DATED 16/10/2006 FROM DEUTSCHE BANK TO THE ASSESSEE AND TO BARCLAYS BANK PLC CONFIRMING THE PAYMENT MADE BY THEM TO BARCLAYS BANK, LETTER DATED 16/10/2006 FROM DEUTSCHE BANK AG LONDON AS COMMON DEPOSITORY ACKNOW LEDGING THE RECEIPT OF GLOBAL CERTIFICATE, LETTER DATED 16/10/2006 FROM DE UTSCHE BANK LUXEMBERG SA AS REGISTRAR FOR RECEIPT OF GLOBAL CERTIFICATE REPR ESENTING 290.40 MILLION US$, COPY OF GLOBAL CERTIFICATE ISSUED BY DEUTSCHE BANK LUXEMBERG SA IN THE NAME OF B T GLOBNET NOMINEES LTD. OF UK SUBMITTED VIDE L ETTER DATED 18/03/2014, COPY OF SCHEME I.E. ISSUE OF FOREIGN CURRENCY CONVE RTIBLE BONDS AND ORDINARY ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 11 SHARES THROUGH DEPOSITORY RECEIPTS MECHANISM SINCE 1993. AS PER PAGE 122 OF THE OFFER DOCUMENT, THE COMPANY HAS ENTERED INTO A SUBSCRIPTION AGREEMENT WITH THE MANAGER I.E. BARCLA YS CAPITAL PLC PURSUANT TO WHICH THE COMPANY AGREED TO SELL TO THE MANAGER AND MANAGER AGREED TO SUBSCRIBE PRINCIPLE AMOUNT OF THE BONDS AMOUNTING T O 300 MILLION US$ IN AGGREGATE. IT IS ALSO STATED THAT THE MANAGER MAY O N ITS OWN ACCOUNTS ENTER INTO ASSET SWAP, CREDIT DERIVATIVES OR OTHER DERIVATIVES TRANSCRIPTION RELATING TO THE BONDS/OR SHARES AT THE SAME TIME OFFER AND SELL ALL THE BONDS IN ANY SECONDARY MARKET TRANSACTIONS. THE ASSESSEE STATED THAT SUBSE QUENT SALE OF THE BONDS BY THE MANAGER IS NOT RELEVANT FOR THE PURPOSE OF SOUR CE OF FUNDS VIS--VIS THE COMPANY AS THE FUNDS HAVE NOT BEEN RECEIVED FROM SU BSEQUENT HOLDERS IF ANY BUT FROM THE BARCLAYS. ORIGINAL SUBSCRIBER TO THE B ONDS ARE BARCLAYS CAPITAL PLC I.E MANAGER TO THE FCCB ISSUE AND THIS DOCUMENT WAS ALREADY AVAILABLE TO THE A.O AND THEREFORE IT IS NOT CORRECT TO SAY THAT THE NAMES OF THE BONDHOLDERS IS NOT AVAILABLE. PARA 2.1 OF PAGE 32 OF THE OFFER DOCUMENTS SAYS THA T BOND CERTIFICATE WILL BE ISSUED TO EACH BOND HOLDER IN RESPECT OF IT S REGISTERED HOLDING OF THE BONDS. FURTHER UPON ISSUE OF BOND, SAME WILL BE REP RESENTED BY THE GLOBAL CERTIFICATE DEPOSITED WITH COMMON DEPOSITORY AND RE GISTERED IN THE NAME OF NOMINEE OF THE COMMON DEPOSITORY. IT IS FURTHER PRO VIDED THAT EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE GLOBAL CERTI FICATE, OWNERS OF INTEREST IN BOND REPRESENTED BY THE GLOBAL CERTIFICATE WILL NOT BE ENTITLED TO RECEIVE DISTINCTIVE CERTIFICATE IN RESPECT OF THEIR INDIVID UAL HOLDING OF BOND. THE CIRCUMSTANCES UNDER WHICH THE BOND HOLDER IS EN TITLED TO RECEIVE INDIVIDUAL DISTINCTIVE CERTIFICATE IS SPECIFIED ON PAGE 101 OF THE OFFER DOCUMENT UNDER THE HEAD EXCHANGE AND REGISTRATION OF TITLE. SAME IS REPRODUCED AS UNDER: 'OWNERS OF INTERESTS IN THE BONDS IN RESPECT OF WHI CH THE GLOBAL CERTIFICATE IS ISSUED WILL ONLY BE ENTITLED TO HAVE TITLE TO THE BONDS REGISTERED IN THEIR NAMES AND TO RECEIVE INDIVIDUAL DEFINITIVE CE RTIFICATES IF EITHER EUROCLEAR OR CLEARSTREAM (OR ANY OTHER CLEARING SYSTEM AS SHA LL HAVE BEEN DESIGNATED BY THE COMPANY AND APPROVED BY THE TRUSTEE ON BEHALF O F WHICH THE BONDS EVIDENCED BY THIS GLOBAL CERTIFICATE MAY BE HELD) I S CLOSED FOR BUSINESS FOR A CONTINUOUS PERIOD OF 14 DAYS (OTHER THAN BY REASON OF HOLIDAYS, STATUTORY OR OTHERWISE) OR ANNOUNCES AN INTENTION PERMANENTLY TO CEASE BUSINESS OR DOES IN FACT DO SO. IN SUCH CIRCUMSTANCES, THE COMPANY WILL CAUSE SUFFI CIENT INDIVIDUAL DEFINITIVE CERTIFICATES TO BE EXECUTED AND DELIVERED TO THE RE GISTRAR FOR COMPLETION, AUTHENTICATION AND DISPATCH TO THE RELEVANT BONDHOL DERS. A PERSON WITH AN INTEREST IN THE BONDS IN RESPECT OF WHICH THIS GLOB AL CERTIFICATE IS ISSUED MUST PROVIDE THE REGISTRAR WITH A WRITTEN ORDER CONTAINI NG INSTRUCTIONS AND SUCH OTHER INFORMATION AS THE COMPANY AND THE REGISTRAR MAY REQUIRE TO COMPLETE, EXECUTE AND DELIVER SUCH INDIVIDUAL DEFINITIVE CERT IFICATES.' ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 12 THE ASSESSEE THEREFORE SUBMITS THAT THE NAME OF BON D HOLDERS HAS BEEN DULY PROVIDED TO THE AO. THE BONDS ARE SUBSCRIBED BY BAR CLAYS BANK AND REPRESENTED BY ONE GLOBAL CERTIFICATE. AS PER THE I NTERNATIONAL PRACTICE, INTEREST IN GLOBAL CERTIFICATE AND THE BOND IS TRAN SFERRED THROUGH THE SYSTEM OF CLEARING. EUROCLEAR MAINTAINS DETAILS OF SUBSEQUENT TRANSFER OF BONDS FROM ONE PERSON TO ANOTHER. THE DETAILS OF WHICH ARE MENTION ED IN PARA 102 OF THE OFFER DOCUMENT UNDER THE TITLE TRANSFERS. THE ASSESSEE ST ATES THAT 'TRANSFER OF INTEREST IN THE BONDS REPRESENTED BY THE GLOBAL CER TIFICATE WILL BE EFFECTED THROUGH THE RECORDS OF EUROCLEAR AND CLEARSTREAM LU XEMBOURG AND THEIR RESPECTIVE PARTICIPANT WITH ACCORDANCE WITH THE RUL ES AND PROCEDURES OF EUROCLEAR AND CLEARSTREAM LUXEMBOURG AND THEIR RESP ECTIVE DIRECT AND INDIRECT PARTICIPANT. THUS THE BONDS ARE NOT TRANSFERRED BUT WHAT IS TRANSFERRED IS INTEREST IN BONDS. THEREFORE THE BOND CONTINUE TO R EMAIN IN NAME OF ONE PERSON THOUGH THE INTEREST IN BONDS MAY GET DIVIDED BETWEEN VARIOUS INDIVIDUAL BUYERS. DETAILS OF SUCH BENEFICIAL INTER EST IS MAINTAINED THROUGH DEPOSITORY AND NOT BY THE COMPANY. THIS SYSTEM IS S IMILAR TO THE SHARES OF INDIAN COMPANY ISSUED TO DEPOSITORY ACCOUNTS WHO HA VE THE SUB-ACCOUNTS OF EQUITY HOLDERS. WHENEVER TRANSFER OF SHARES HAPPENS BETWEEN TWO SHAREHOLDERS THE SAME IS REGISTERED THROUGH THE DEP OSITORY AND DO NOT COME TO THE COMPANY. ONLY DIFFERENCE BETWEEN THE DEMAT SYST EM IN INDIA AND DEPOSITORY ABROAD IS THAT THE NAMES OF THE SUBSEQUE NT HOLDERS ARE PROTECTED BY THE RELEVANT LAWS OF THE COUNTRY WHERE THE DEPOS ITORY IS SITUATED.' PARA 2.1 OF THE OFFER DOCUMENTS PROVIDED FOR MAINTE NANCE OF REGISTER OF THE BOND HOLDERS. HOWEVER, THIS REGISTER IS MAINTAI NED BY THE REGISTRAR AND NOT THE COMPANY. IN THIS CASE, DEUTSCHE BANK LONDON SA IS THE REGISTRAR WHICH MAINTAINS SUCH REGISTER AND THE COMPANY DOES NOT MA INTAIN IT. IT IS THEREFORE SUBMITTED THAT THE A.O HAS MADE A PRESUMPTION THAT THE COMPANY WAS BOUND TO MAKE THE PAYMENT OF PRINCIPAL AND INTEREST DIREC TLY TO EACH BONDHOLDER AND THEREFORE THE COMPANY MUST BE IN POSSESSIONOF DETAI LS REGARDING ULTIMATE INVESTOR IN FCCB. IT IS SUBMITTED THAT THE CONTENTI ON OF THE A.O IS NOT CORRECT AND THAT 'PAYMENT OFPRINCIPAL IN RESPECT OF BOND RE PRESENTED BY THE GLOBAL CERTIFICATE WILL BE MADE TO THE ORDER OF PRINCIPAL AGENT OR PAYEE AGENT AS NOTIFIED TO THE BOND HOLDERS. IN THIS CONNECTION WE INVITE YOUR ATTENTION TO THE SCHEME UNDER WHICH THE FCCB BONDS ARE ISSUED I.E. I SSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES (THROUGH DEPO SITORY MECHANISM) SCHEME 1993 NOTIFIED VIDE NOTIFICATION NO.G.S.R. 70 0(E) DATED 12 TH NOVEMBER, 1993. THE SAID SCHEME IS ANNEXED AS ANNEXURE 6 . IN PARA 10 OF THE SAID NOTIFICATION IT IS PROVIDED THAT THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE COUNTRY OF RESIDENC E OF OVERSEAS DEPOSITORY BANK IS APPLICABLE IN RESPECT OF MATTER OF INTEREST ON FCCB. THUS IT IS VERY CLEAR THAT THE INTEREST IS PAYABLE TO THE DEPOSITORY WHO IN TURN MAKES THE PAYMENT TO VARIOUS BENEFICIAL INTEREST OWNERS OF THE BONDS. THE BONDS ARE REGISTERED IN THE NAME OF GLOBAL DEPOSITORY AND ONLY WHEN THE BON DHOLDERS CONVERTS THE BONDS INTO SHARES, THE INFORMATION THEREOF IS RECEI VED US. THEREFORE THE APPELLANT SUBMITS THAT THEY HAVE ENTE RED INTO A SUBSCRIPTION AGREEMENT WITH THE MANAGER I.E. BARCLAYS BANK PLC I N RESPECT OF SUBSCRIPTION OF THE BONDS. AS PER THE SUBSCRIPTION AGREEMENT DAT ED 10/10/2006 THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 13 ASSESSEE HAS AGREED TO SELL TO THE MANAGER AND THE MANAGER HAS AGREED TO SUBSCRIBE FOR 300 MILLION US$ AGGREGATE PRINCIPLE A MOUNT OF THE BONDS AS PER THE SUBSCRIPTION AGREEMENT (PAGE 122 OF THE OFFER D OCUMENT) AND THE COMPANY HAD AGREED TO ISSUE THE BONDS AND THE MANAG ER I.E. BARCLAYS BANK PLC AGREED WITH THE ISSUER TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS AND PAY FOR THE BONDS (PARA 1.1 OF THE SUBSCRIPTION AGREEMENT). THE BARCLAYS BANK PLC PAID 290,400,400 US$ AFTER DEDUCTING THEIR COMMISSION AND EXPENSES. THE BARCLAYS BANK PLC MAY FOR ITS OWN ACC OUNT ENTERED INTO ASSET SWAP CREDIT DERIVATIVES OR OTHER DERIVATIVES TRANSA CTION RELATING TO THE BONDS OR THE SHARES AT THE SAME TIME AS THE OFFER AND SAL E OF THE BONDS IN SECONDARY MARKET CONDITIONS. THE MANAGER MAY HOLD LONG OR SHO RT DECISIONS IN SUCH BONDS OR DERIVATIVES OR IN THE SHARES AND NO DISCLO SER WILL BE MADE OF SUCH DECISIONS. THE EXTRACT OF PARA 1.1 OF THE SUBSCRIPT ION AGREEMENT IS AS UNDER 'SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND TO AGREEMENT AND EXECUTION OF THE PRICING LETTER (AS D EFINED IN CLAUSE 1.8), THE ISSUER AGREES TO ISSUE THE BONDS AND THE MANAGER AG REES WITH THE ISSUER TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS TO SUBSCRIBE AND PAY FOR THE BONDS ON THE CLOSING DATE AT THE ISSUE PRICE OF 100 PER CENT, OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS LESS THE COMMISSION A ND CONCESSION REFERRED TO IN CLAUSE 5.' THE APPELLANT HAS ALSO REFERRED TO THE ORDER OF LD. CIT(A) AGAINST ORIGINAL ASSESSMENT ORDER PASSED IN THIS CASE. A COPY OF ORD ER WAS ENCLOSED ALONG WITH THE SUBMISSIONS. IN THE ORIGINAL ASSESSMENT PROCEED INGS, THE FCCB ISSUE EXPENSES WERE DISALLOWED AS THE SAME WERE TREATED A S CAPITAL EXPENDITURE. IN THE APPELLATE ORDER PASSED BY THE LD CIT(A) IN APPE AL NO.CIT(A)-13/ADDL CIT 7(2)/185/09-10 DATED 26/10/2010, THE LD.CIT(A) HELD THAT FCCB WAS IN THE NATURE OF DEBENTURE/ BORROWED FUNDS AND NOT SHARE C APITAL AND HENCE FCCB ISSUE EXPENSES WERE ALLOWABLE AS REVENUE EXPENDITUR E. THE LD.CIT(A) ALSO NOTED THAT IT WAS NOT MANDATORY THAT SHARES HAS TO BE ISSUED AGAINST FCCB BORROWED. THE EXTRACT FROM THE APPELLATE ORDER IS R EPRODUCED AS UNDER: ' (A) THE AMOUNT HAS BEEN RECEIVED TOWARDS ISSUE OF B ONDS AND NOT SHARE CAPITAL ASPERPARA 6 OF THE TERMS AND CONDITIO NS OF ISSUE OF BONDS OFFERING CIRCULAR DATED 12/10/2006,IT HAS BEEN PROV IDED THAT: 1 BOND HOLDERS HAVE THE RIGHT TO CONVERT THE BONDS INTO SHARES AT ANY TIME DURING THE CONVERSION PERIOD. 2 THE RIGHT OF THE BONDHOLDER TO CONVERT THE BONDS INTO SHARES IS CALLED THE CONVERSION RIGHT. SUBJECT TO ANY UPON COMPLIANC E WITH THE PROVISIONS OF THIS CONDITION, THE CONVERSION RIGHT ATTACHING TO ANY BOND MAY BE EXERCISED, AT THE OPTION OF THE HOLDERTHEREO F, AT ANY TIME (SUBJECT TO THE NEXT PARAGRAPH) ON AND AFTER 27 NOV EMBER 2006 UPTO THE CLOSE OF BUSINESS (AT THE PLACE WHERE THE CERTI FICATE EVIDENCING SUCH BOND IS DEPOSITED FOR CONVERSION) ON 10 OCTOBER 201 1 (BUT EXCEPT AS PROVIDED IN CONDITION 6.1.4 AND CONDITION 10, IN NO EVENT THEREAFTER) OR IF SUCH BOND SHALL HAVE BEEN CALLED FOR REDEMPTION BY THE ISSUER BEFORE THE MATURITY DATE, THEN UPTO THE CLOSE OF BUSINESS (AT THE PLACE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 14 AFORESAID) ON THE SEVENTH DAY (AT THE PLACE AFORESA ID) PRIOR TO THE DALE FIXED FOR REDEMPTION THEREOF PROVIDED THAT IN EACH CASE, IF THE FINAL SUCH DATE FOR EXERCISE OF THE CONVERSION RIGHT IS N OT A BUSINESS DAY AT THE PLACE AFORESAID, THEN THE PERIOD FOR EXERCISE O F CONVERSION RIGHT BY BONDHOLDERS SHALL END ON THE IMMEDIATELY PRECEDING BUSINESS DAY AT THE PLACE AFORESAID. (B) THUS IT IS CLEAR THAT THES E BONDS ARE NOT MANDATORILY CONVERTIBLE IN SHARES. AS SUCH THE NATU RE OF THESE FCCB5 BONDS IS IN THE NATURE OF DEBENTURES/ BORROWED FUND S AND NOT SHARE CAPITAL. IT IS THEREFORE NOTED THAT THE LD.CIT(A) I N THE PREVIOUS YEAR AFTER GOING THROUGH THE SCHEME HAS HELD THAT IT IS IN THE NATURE OF BORROWED FUNDS AND NOT SHARE CAPITAL. THE APPELLANT ALSO SUB MITTED THAT SUBSEQUENTLY THE BONDS WERE TRANSFERRED TO RELIANCE POWER LTD UNDER DEMERGER SCHEME APPROVED BY HB' BOMBAY HIGH COURT V IDE ORDER DATED 15 TH OCTOBER 2010 AND THE BORROWINGS WERE REPAID ON MATU RITY AS PER DETAILS IN THE CASE OF RELIANCE POWER LTD. THE APPELLANT HAS ALSO REFERRED TO THE DECISION OF HON'BLE ITAT IN THE CASE OF RELIANCE COMMUNICATION LTD. IN ITA NO.2915/MUM/2012 AY.2007-08 DATED 05/02/2013. THE FACTS IN THIS CASE ARE SIMILAR. IN THE CASE OF RELIANCE COMMUNICATION LTD., THE ISSUE WAS THAT THE ASSESSEE COMPANY CLAIMED TO HAVE RAISED FUNDS TO THE TUNE OF RS.6485 CORES BY WAY OF FOREIGN CURRENCY CONVERTIBLE BONDS. ASSESSMENT WAS COMPLETED AND THE REAFTER THE LD.CIT PASSED AN ORDER U/S.263 OF THE ACT CONTENDING THAT INVESTIGATION WAS NOT CARRIED OUT BY THE AO TO ESTABLISH THE NAME, ADDRES S, GENUINENESS AND CREDIT WORTHINESS OF THE ACTUAL SUBSCRIBER FCCB IN TERMS O F SECTION 68 OF THE ACT. HON'BLE ITAT AFTER ELABORATELY DISCUSSING THE CASE OBSERVED AS UNDER: 5. FOREIGN CURRENCY CONVERTIBLE BONDS 5.1. THE FACTUAL MATRIX AS REGARDS THIS ITEM IS THA T THE ASSESSEE RAISED FUNDS THROUGH THREE ISSUES OF FCCBS DURING THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. FCCB ME ANS A BOND EXPRESSED IN FOREIGN CURRENCY, THE PRINCIPAL AND IN TEREST IN RESPECT OF WHICH IS PAYABLE IN FOREIGN CURRENCY, ISSUED BY AN ISSUING COMPANY AND SUBSCRIBED TO BY A PERSON WHO IS RESIDENT OUTSIDE I NDIA, IN FOREIGN CURRENCY AND EXCHANGEABLE INTO EQUITY SHARES OF THE COMPANY AFTER A SPECIFIED PERIOD OR TO THE REDEEMED. THE ASSESSEE R ECEIVED PROCEEDS OF FCCB ISSUES IN DEUTSCHE BANK, SINGAPORE (DB)OF US$ 500 MILLION;AND JP MORGAN NEW YORK AND HONG KONG ANDSHANGHAI BANKING C ORPORATION OF US$ 1000 MILLION. THESE FCCBSWERE SUBSCRIBED TO BY THE LEAD MANAGERS NAMELY, DEUTSCHE BANK HONG KONG (DB HK) FOR US$ 500 MILLION; JP MORGAN SECURITIES LTD. U.K. AND HONG KONG AND SHANG HAI BANKING CORPORATION FOR US$] 000 MILLION. 5.2. THE AO ENQUIRED ABOUT THIS ASPECT OF THE MATTE R AND THE ASSESSEE FURNISHED ITS REPLY DATED 17.4.2009, A COP Y OF WHICH HASBEEN PLACED AT PAGE 25 OF THE PAPER BOOK (PB). BY THE SA ID REPLY, THE ASSESSEE SUBMITTED THAT IT ISSUED FCCBS IN THREE TR ANCHES AGGREGATING TO US$ 1500 MILLION. THE NAME AND ADDRESS OF THE SU BSCRIBERS TO THE THREE TRANCHES OF FCCBS AND THE CORRESPONDING AMOUN TS WERE DULY ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 15 INDICATED BY SHOWING NAME AND ADDRESS OF THE SUBSCR IBERS SUCH AS DB HKFOR THE FCCB US$ 500 MILLION. THE DETAILS OF THE BANK IN WHICH THE PROCEEDS OF FCCBS WERE PARKED IN THE FOREIGN COUNTR IES AND FROM WHERE THESE WERE TRANSFERRED TO INDIAN BANK, WERE ALSO FU RNISHED. ALONG WITH THE SAID REPLY, THE ASSESSEE SUBMITTED COPIES OF OF FER MEMORANDUM OF THE FCCBS ISSUED, GLOBALCERTIFICATE ALONG WITH THE REGISTRARS CONFIRMATION OF ENTRIES OF THE BONDHOLDER IN REGIST ER, FOREIGN INWARD REMITTANCE CERTIFICATE AND THE DETAILS OF FCCBS AS PER THE OFFER DOCUMENTS AND GLOBAL CERTIFICATES. 5.3. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE THREE FCCB ISSUES ARE SIMILAR. FOR THE SAKE OF CONVENIENCE AND ON REPRESENTATIVE BASIS, THE PARTIES CHOSE TO TAKE UP THE FCCB ISSUE OF US$ 500 MILLION WITH DB HK AS LEAD MANAGER FOR MAKING T HEIR RESPECTIVE SUBMISSIONS. THE ASSESSEE ENTERED INTO A SUBSCRIPTI ON AGREEMENT WITH DB HK ON 21.3.2006, AS PER WHICH DB HK AGREED TO SU BSCRIBE TO THE FCCB ISSUE OF US$ 500 MILLION. AS PER CLAUSE-I OF T HE AGREEMENT, THE ASSESSEE AGREED TO ISSUE THE BONDS AND THE LEAD MAN GER AGREED TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS TO SUBSCRIBE AND PAY FOR THE BONDS ON THE CLOSING DATE AT THE ISSUE PRICE OF HUNDRED PER CENT OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS LESS TH E COMMISSION AND CONCESSION REFERRED TO IN CLAUSE-5. AS PER CLAUSE 1 .2, THE ISSUER ASSESSEE UNDERTOOK TO PREPARE AND DELIVER TO THE LE AD MANAGER ANOFFERING CIRCULAR NOT LATER THAN FOUR BUSINESS DA YS PRIOR TO THE CLOSING DATE. THE ASSESSEE ISSUED OFFERING DOCUMENT DT.05.0 5.2006 TO DB HK, CLARIFYING THAT THE BONDS WOULD BE REPRESENTED BY S INGLE GLOBAL CERTIFICATE (GC). UPON ISSUANCE, THE BONDS WERE REP RESENTED BY A GLOBAL CERTIFICATE DEPOSITED WITH A COMMON DEPOSITA RY. THE TERMS AND CONDITIONS OF THE BONDS GIVEN AS PER SCHEDULE-1 TO THE AGREEMENT PROVIDE THAT THE BONDS WERE TO BE ISSUED IN THE REG ISTERED FORM IN THE DENOMINATION OF US$ 1000 EACH. AS PER CLAUSE 3.2, N O INDIVIDUAL CERTIFICATES IN RESPECT OF INTEREST (SHARE) IN ANY BONDS WERE TO BE ISSUED IN EXCHANGE FOR THE GLOBAL CERTIFICATE EXCEPT IN TH E CIRCUMSTANCES PROVIDED IN CLAUSE 3.3. ACCORDING TO CLAUSE 3.3, IN DIVIDUAL CERTIFICATES WERE TO BE ISSUED ONLY IN THE PRESCRIBED CIRCUMSTAN CES, SUCH AS, THE COMMON DEPOSITARY OR ANY SUCCESSOR TO THE COMMON DE POSITARY NOTIFYING TO THE COMPANY IN WRITING THAT IT IS AT A NY TIME UNWILLING OR UNABLE TO CONTINUE TO ACT AS A DEPOSITARY AND A SUC CESSOR DEPOSITARY IS NOT APPOINTED BY THE COMPANY WITHIN 90 DAYS OR EURO CLEAR, CLEARSTREAM LUXEMBOURG (STOCK EXCHANGE) IS CLOSED FOR BUSINESS FOR A CONTINUOUS PERIOD OF 14 DAYS, ETC. AS PER THE PAYING, CONVERSI ON AND TRANSFER AGENCY AGREEMENT DATED 9.5.2006, A COPY OF WHICH HA S BEEN PLACED IN THE PB, THE ASSESSEE COMPANY AGREED TO DELIVER TO T HE REGISTRAR A DULY EXECUTED GC. SUCH GC WAS ISSUED ON 09.05.2006, BEIN G THE CLOSING DATE OF FCCB, AND DELIVERED TO DB, LUXEMBURG (REGISTRAR). A COPY OF THE GLOBAL CERTIFICATE ISSUED BY THE ASSESSEE IN THE NAME OF B TGLOBENET NOMINEES LIMITED FOR US$ 500 MILLION IS AVAILABLE AT PAGES 4 2 ONWARDS OF PB. IT WAS REGISTERED IN THE NAME OF BT GLOBENET AS THE NO MINEE OF DB ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 16 LONDON, WHICH WAS THE COMMON DEPOSITORY. THE REGIST RAR AUTHENTICATED THE GLOBAL CERTIFICATE UPONHE WRITTEN ORDER OF THE COMPANY AND ARRANGED FOR THE DELIVERY OF THE GLOBAL CERTIFICATE TO THE DEPOSITARY. THE ASSESSEE INSTRUCTED DB LONDON TO HO LD THE GC ON ITS BEHALF TILL DB HK INSTRUCTS IT TO EFFECT THE PAYMEN T AND THEREAFTER TO HOLD IT FOR THE SUBSCRIBER, THAT IS, DB HK. PAYMENT OF US$497.500 MILLION (NET AFTER DEDUCTION OF EXPENSES AND COMMISSION) WA S MADE BY DB HK THAT IS, THE SUBSCRIBER, ON THE INSTRUCTIONS OF THE ASSESSEE. COPIES OF THE LETTER AUTHORIZING PAYMENT AND THE CROSS RECEIPT IN RESPECT OF US$ 497,500,000 ARE AVAILABLE AT PAGES 61 AND 62 OF PB. THE ASSESSEE RECEIVED SUCH PAYMENT ON 09.05.2006 WHICH WAS REFLE CTED IN ITS BOOKS OF ACCOUNT. THE ASSESSEE DULY INFORMED THE RESERVE BAN K OF INDIA (RBI) ABOUT SUCH ISSUES OF FCCBS FROM TIME TO TIME AT THE RELEVANT STAGES. IT CAN BE NOTICED FROM LETTER DOTED 28.3.2005 ISSUED B Y RBI AUTHORIZING THE ASSESSEE TO ISSUE FCCBS UNDER AUTOMATIC APPROVA L ROUTE. 5.4. THE CASE OF ID. CIT IS THAT THE AO SHOULD HAVE EXAMINED THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF THE ACT UAL SUBSCRIBERS' TO THE FCCB ISSUE IN TERMS OF SECTION 68. IN HIS OPINION, THE ACCEPTANCE BY THE AO OF THE ASSESSEE'S CONTENTION THAT THE AMOUNT WAS EV ENTUALLY RECEIVED FROM DB HK, THE SUBSCRIBER, WAS NOT APPROPRIATE. NO W THE QUESTION ARISES AS TO WHETHER THE ID. CIT WAS JUSTIFIED IN H OLDING THAT THE ONUS U/S 68 OF THE ACT COULD HAVE BEEN DISCHARGED ONLY O N PROVING THREE PRE- REQUISITES - IDENTITY, CAPACITY AND CREDITWORTHINES S - IN RESPECT OF ACTUAL SUBSCRIBERS AND NOT DB HK, WHO UNDERTOOK TO SUBSCRI BE TO THE FCCB AND REMITTED THE PROCEEDS AFTER PARTLY FINDING SOME FUR THER SUBSCRIBERS AND PARTLY ITSELF SUBSCRIBING TO THE FCCB. 5.5. SECTION 68 OF THE ACT CLEARLY PROVIDES THAT WH ERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NA TURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, I N THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITE D MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THATPRE VIOUS YEAR. A BARE PERUSAL OF THIS PROVISION DIVULGES THAT THERE IS AN OBLIGATION ON THE ASSESSEE TO PROVE THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF THE PERSON FROM WHOM THE MONEY IS ACTUALLY RECEIVED. AT THE COST OF REPETITION, WE SUMMARIZE THE ENTIRE PROCEEDINGS IN RESPECT OF FCCB OF US$ 500 MILLION WHICH WAS UNDERTAKEN TO BE SUBSCRIB ED TO BY DB HK. A GC FOR THE WHOLE ISSUE WAS ISSUED IN FAVOUR OF THE NOMINEE OF DB HK WHO COULD HAVE EITHER SUBSCRIBEDTO ALL THE BONDS IT SELF OR SOLICITED CUSTOMERS. ITWAS THE SOLEDISCRETION/ OBLIGATION OF THE DB HK TO FIND SUCH CUSTOMERS, IF ITWANTED. ADMITTEDLY, DB HK SUBS CRIBED TO/COLLECTED THE SUM IN RESPECT OF US$ 500 MILLION AND AFTER DED UCTION OF THEIR COMMISSION, REMITTED THE BALANCE USD 497,500,000 TO THE ASSESSEE. 5.6. IT IS PALPABLE FROM THE ABOVE NARRATION OF FAC TS THAT THE ASSESSEE WAS CONCERNED WITH AND DID ACTUALLY RECEIVE US$ 497 .500 MILLION FROM AND ON BEHALF OF DB HK, WHICH WAS DULY RECORDED IN ITS NAME. IT IS NOT UNDERSTANDABLE, IN THE FACTS AND CIRCUMSTANCES OF T HE EXTANT CASE, THAT HOW THE ASSESSEE COULD HAVE ENTERED THE NAMES AND A DDRESSES OF THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 17 ACTUAL SUBSCRIBERS IN ITS BOOKS OF ACCOUNT, WHEN TH E SUBSCRIBER, AS FAR AS THE ASSESSEE IS CONCERNED, WAS DB HK. THE GLOBAL CE RTIFICATE WAS ISSUED BY THE ASSESSEE IN THE NAME OF DB HK. IT WAS FOR DB HK TO SUBSCRIBE TO THE ENTIRE FCCB OR FIND CUSTOMERS FOR A PART OR TOT AL OF SUCH ISSUE. THE DECISION ON INVITING OTHER CUSTOMERS FROM OUTSIDE I NDIA TO SUBSCRIBE TO THE FCCB AND TO WHAT EXTENT WAS THE SOLE RESPONSIBI LITY OF DB HK, WITHOUT ANY INSTRUCTIONS OR INVOLVEMENT OF THE ASSE SSEE IN INDIA. IN SO FAR AS THE ASSESSEE IS CONCERNED, IT WAS ONLY SUPPO SED TO GET THE AMOUNT AGAINST FCCB FROM DB HK, WHICH IT, IN FACT, RECEIVED. THE FACT THAT GLOBAL CERTIFICATE WAS ISSUED IN THE NAME OF N OMINEE OF DBHK AMPLY PROVES THAT IT WAS THE OBLIGATION OF DB HK TO PAY TOWARDS FCCB ISSUE OF US$ 500 MILLION. THE ID. CIT HAS NOT REFER RED TO ANY MATERIAL WHICH INDICATES THAT THE ASSESSEE HAD DETAILS OF TH E ACTUAL SUBSCRIBERS AT THE TIME OF ISSUANCE OF FCCB OR IT WAS OBLIGED T O KEEP SUCH DETAILS. NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE EVEN BY THE ID. DR TO SHOW THAT AT THAT STAGE THE ASSESSEE HAD ANY DIRECT CONT ACT WITH THE ACTUAL SUBSCRIBERS TO THE FCCB, DIFFERENT FROM DB HK. IT C AN BE OBSERVED FROM THE DETAILS OF THE SHARES ISSUED, ON CONVERSION OF FCCB AT A MUCH LATER STAGE, THAT DB HK ITSELF OPTED TO SUBSCRIBE FOR A C ERTAIN PART OF THE FCCB AND ISSUED A PORTION THEREOF TO OTHER CUSTOMERS WHO ALSO HAPPEN TO BE INTERNATIONAL FINANCIAL INSTITUTIONS ONLY. AT THE S TAGE OF ISSUANCE OF BONDS, THERE WAS PRIVITY OF CONTRACT BETWEEN THE AS SESSEE AND DB HK ON ONE HAND AND BETWEEN DB HK AND ACTUAL SUBSCRIBER S ON THE OTHER. IT WAS THE DUTY OF DB HK TO EVENTUALLY GET THE SHARES ALLOTTED OR REFUND GRANTED TO ITSELF AND OTHER INTERNATIONAL FINANCIAL INSTITUTIONS AT THE RELEVANT POINT OF TIME. IT WAS ONLY AT THE STAGE OF ISSUANCE OF SHARES OR THE GRANTING OF REFUND, THAT THE ASSESSEE WAS TO DO THE NEEDFUL UPON INTIMATION BY DB HK ABOUT THE PERSONS WHO HAD PURCH ASED SEPARATE INTEREST (SHARES) IN THE GC. IT IS A MATTER OF RECO RD THAT THE ASSESSEE ISSUED SHARES ON CONVERSION TO CERTAIN PARTIES, SUC H AS, JP MORGAN SECURITIES LTD., THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED AND DB HK ITSELF IN NEXT YEAR ON VARIOUS DA TESFROM 18.10.2007 TO 31.1.2008. ONLY ON THE ISSUANCE OF SHARES, THESE INTERNATIONAL FINANCIAL INSTITUTIONS COULD BE SAID TO HAVE COME I NTO DIRECT CONTACT WITH THE ASSESSEE COMPANY. AT THE STAGE OF ISSUANCE OF B ONDS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION, SUCH CUSTOMERS OF DB HK WERE NOTENTITLED TO DIRECTLY APP ROACH THE ASSESSEE COMPANY IN RESPECT OF ANY MATTER CONCERNING THE ISS UANCE OF BONDS. WHEN SUCH IS THE SITUATION, WE FAIL TO APPRECIATE A S TO HOW THE ASSESSEE COULD RECORD THE NAMES OF ACTUAL SUBSCRIBERS OTHER THAN DB HK IN ITS BOOKS OF ACCOUNT AND FURTHER PROVE THEIR IDENTITY, CAPACITY AND CREDIT WORTHINESS. ON A SPECIFIC QUERY FROM THE BENCH, THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT BRING TO OUR NOTICE ANY STATUTORY REQUIREMENT OR GUIDELINE ISSUED BY THE RB I OR ANY OTHER GOVERNMENT AUTHORITY FASTENING OBLIGATION ON THE AS SESSEE TO MAINTAIN A RECORD OF THE ACTUAL SUBSCRIBERS AT THAT STAGE AN D RECORD IN THEIR NAMES INSTEAD OF DB HK, WHO ACTUALLY SIGNED SUBSCRI PTION AGREEMENT WITH THE ASSESSEE. DURING THE CURRENCY OF THE GC, O NLY DB HK REMAINED THE SUBSCRIBER TO THE FCCB ISSUE OF THE ASSESSEE. T HE ASSESSEE WAS ONLY ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 18 REQUIRED TO PROVE THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF DB HK WHO SUBSCRIBED TO ITS FULL ISSUE OF FCCB (SOME PART DIRECTLY AND SOME PART THROUGH ITS OWN CUSTOMERS), WHICH IS NOT IN DO UBT. THE FACT THAT THE ASSESSEE RECEIVED THE AMOUNT OF SUBSCRIPTION OF BONDS FROM DB HK HAS NOT BEEN DENIED BY ID CIT. THE FURTHER FACT THA T GLOBAL CERTIFICATE IN RESPECT OF BONDS WAS ISSUED IN FAVOUR OF DB HK AND UPON CONVERSION OF SUCH BONDS, SOME OF THE SHARES WERE ISSUED IN FAVOU R OF DB HK AND REMAINING IN FAVOUR OF OTHER INTERNATIONAL FINANCIA L INSTITUTIONS HAS ALSO NOT BEEN DISPUTED BY THE ID. CIT. IN OUR CONSIDERED OPINION, THE ASSESSEE ADEQUATELY DISCHARGED THE ONUS CAST UPON I T IN TERMS OF SECTION 68. THE PROBE SUGGESTED BY THE ID. CIT COUL D HAVE BEEN POSSIBLE IN THE ASSESSMENT OF DB HK, WHO EVENTUALLY PARTLY S UBSCRIBED TO THE BONDS ITSELF AND PARTLY ISSUED THESE TO THE INTERNA TIONAL FINANCIAL INSTITUTIONS. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT WAS NOT JUSTIFIED IN PUTTING OBLIGATIO N ON THE ASSESSEE TO PROVE THE IDENTITY, CAPACITY AND CREDITWORTHINESS O F THE ACTUAL SUBSCRIBERS, WHICH FACT WAS BEYOND ITS REACH AT THE RELEVANT TIME. WE, THEREFORE, DO NOT APPROVE THE STAND TAKEN BY ID. CI T ON THIS ISSUE.' THE AO HOWEVER DID NOT CONSIDER THE ORDER CONTENDIN G THAT THIS WAS RELATED MATTER U/S.263. HOWEVER, THE FACT REMAINS THAT THE ISSUE IS IDENTICAL IN BOTH THE CASES WHERE THE ISSUE IS REGARDING THE SUBSCRIP TION OF THE FOREIGN CURRENCY CONVERTIBLE BONDS IN CONTEXT OF SECTION 68 OF THE A CT. DIVERSION OF THE PROCEED FOR NON-BUSINESS PURPOSE DOES NOT TAINT THE SOURCE OF FUND. HON'BLE TRIBUNAL, IN THIS CASE HAS ALREADY HELD THAT BY FURNISHING TH E DETAILS OF THE ORIGINAL SUBSCRIBER THE ASSESSEE HAS DULY DISCHARGED ITS ONU S. THE APPELLANT HAS FURTHER SUBMITTED I) LETTER FROM BARCLAYS BANK PLC DATED 16/10/2006 A DDRESSED TO DEUTSCH BANK AG LONDON AUTHORIZING THEM TO MAKE PAYMENT TO THEM AGAINST THE SAID OF GLOBAL CERTIFICATE. II) CONFIRMATION DATED 16/10/2006 FROM DEUTSCH BANK LUXEMBERG SA AS REGISTRAR IN RECEIPT OF GLOBAL CERTIFICATE REPRESEN TING 290.40 MILLION US$. THE APPELLANT THEREFORE SUBMITTED THAT THE BOND PROCEED S HAVE BEEN GIVEN TO THEM BY BARCLAYS BANK PLC AND IN VIEW OF THE DECISI ON OF THE JURISDICTIONAL ITAT IN THE CASE REFERRED ABOVE, IT IS ESTABLISHED THAT THE ASSESSEE HAS DULY DISCHARGED ITS ONUS. THE APPELLANT HAS GIVEN POINT WISE REPLY TO ALL TH E ALLEGATIONS OF THE A.O AS REPRODUCED ABOVE WHICH ARE SELF EXPLANATORY. IN VIEW OF THE SUBMISSION MADE BY THE APPELLANT, T HE CASE WAS DISCUSSED WITH THE AO ALSO. IT IS NOTED THAT THE IN FORMATION RECEIVED SO FAR ON THIS ISSUE, AS ALSO DISCUSSED WITH THE A.O IS NOT S O AS TO DRAW ANY ADVERSE INFERENCE ON THE ISSUE OF FURTHER BENEFICIAL OWNERS OF THE FCCB AND IN THE CONTEXT OF SECTION 68 OF THE IT ACT. FURTHER A.O OR CONCERNED AUTHORITY HAVE ALSO NOT FOUND ANY INFORMATION OR DOCUMENT IN THIS CONTEXT MORE THAN OR OTHERWISE THAN THE MATERIAL / INFORMATION EXISTING AT THE TIME OF ASSESSMENT WHICH COULD GIVE RISE TO ANY ACTIONABLE CAUSE AND A NTICIPATORY PROPOSITIONS ARE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 19 NOT LIABLE TO BE CONSIDERED IN EXISTING FACTS AND C IRCUMSTANCES OF THE CASE. LOOKING INTO THE OVERALL FACTS OF THE CASE IT IS TH EREFORE NOTED THAT THE APPELLANT HAS DULY DISCHARGED ITS ONUS BY FILING TH E DETAILS OF THE SUBSCRIBER. NO ADVERSE INFERENCE AGAINST THIS SUBMISSION HAS BEEN NOTED BY THE AO. HB' JURISDICTIONALTRIBUNAL HAS ALREADY HELD IN EXACTLY SIMILAR CASE OF RCOM THAT UNDER SUCH CIRCUMSTANCES, SECTION 68 OF THE ACT CAN NOT BE INVOKED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT IS NOT PRIVY TO THE SUBSEQUENT HOLDERS OF THE BOND IF ANY AND FURTHER A S HELD BY HB' TRIBUNAL IN SUCH MATTER ONLY THE ORIGINAL SUBSCRIBER IS RELEVAN T. LDCIT(A) ALSO IN THE APPELLATE ORDER AGAINST THE ORIGINAL ASSESSMENT ORD ER HAS HELD THAT THE TRANSACTION IS IN THE NATURE OF BORROWING AND THERE FORE ISSUE EXPENSES CAN NOT BE HELD AS CAPITAL IN NATURE. THERE IS NO INSTANCE OF PAYMENT MADE BY THE COMPANY TO ANY OTHER PERSON. THE A.O HAS ALSO TALKE D ABOUT THE DEPLOYMENT OF FUND. AS PER SEBI REPORT THE MONEY RAISED BY FCC B HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE BUT WAS USE D TO INVEST IN THE SHARES OF GROUP COMPANY. HOWEVER THIS ASPECT IS IRRELEVANT TO THE ISSUE WHICH IS SECTION 68 OF THE I T ACT 1961. THE ISSUE IS DIRECTLY COVER ED BY THE DECISION OF HB' JURISDICTIONAL ITAT (SUPRA) AND IS BINDING IN NATUR E. SINCE THE FACTS OF THE CASE IS IDENTICAL TO THAT OF RELIANCE COMMUNICATION LTD. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF HB JURISDICTIONAL ITAT ( SUPRA) THE ADDITION MADE BY THE A.O IS HEREBY DELETED FOR THE REASONS AS DISCUS SED ABOVE AND AS PER LAW APPLICABLE IN THIS BEHALF AS HELD BY HB ITAT IN TH E CASE OF RELIANCE COMMUNICATION LTD. THIS GROUND OF APPEAL IS THEREFO RE ALLOWED. 14. THE LD. D.R. ARGUED THAT ASSESSEE HAS NOT PROVI DED DETAILS OF ACTUAL BONDHOLDERS TO WHOM THE LEAD MANAGER IS BARCLAYS BA NK HAS ULTIMATELY TRANSFERRED THE BONDS. AS PER THE LD. D.R. IDENTIT Y, CREDITWORTHINESS AND GENUINENESS HAS TO BE LOOKED INTO VIS--VIS THE SUB SEQUENT BONDHOLDERS COLLECTIVELY REPRESENTED BY GLOBAL CERTIFICATE. LD . D.R. EMPHASIZED THAT THE LEAD MANAGERS ARE NOT THE SUBSCRIBERS OR AT LEAST T HE ULTIMATE SUBSCRIBERS. HE FURTHER SUBMITTED THAT ASSESSEE WAS REQUIRED TO CAU SE THE REGISTER OF THE BONDHOLDERS TO BE MAINTAINED BY THE REGISTRAR. AS PER THE LD. D.R., THE FAILURE OF THE ASSESSEE TO PRODUCE THE NAMES OF THE SUBSEQU ENT BONDHOLDERS AND FAILURE TO GIVE THEIR CREDITWORTHINESS JUSTIFIES THE INVOCA TION OF SECTION 68 OF THE ACT. LD. D.R. SUBMITTED THAT THE LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUND THAT SECTION 68 IS NOT APPLICABLE IN THE CASE OF RC OM WHICH LD. CIT(A) HAS RELIED UPON, WHEREIN THE ORDER IS UNDER SECTION 263 OF THE ACT AND IT IS PERTAINING TO REVISION OF THE ORDER, THEREFORE, LD. CIT(A) SHOULD HAVE NOT FOLLOWED THE ORDER OF TRIBUNAL IN RCOM. THE LD. D .R. FURTHER SUBMITTED ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 20 THAT IF THE PROVISIONS OF SECTION 68 ARE APPLIED TO THE FCCB PROCEEDS, THE INTEREST EXPENSES AND FCCB EXPENSES WERE ALSO TO BE DISALLOWED AS NON GENUINE. 15. ON THE OTHER HAND, THE LD. A.R. HAS SUBMITTED B EFORE US THAT ASSESSEE WAS NOT GIVEN COPY OF THE SEBI REPORT AND REPORT OF DIT (INTELLIGENCE) NEW DELHI. THE ASSESSEE SUBMITTED THAT NON GIVING THE REPORT OF SEBI AND DIT (INTELLIGENCE) WHICH IS EXTENSIVELY USED IN REASSES SMENT PROCEEDING HAS RENDERED THE ASSESSMENT BAD IN LAW. THE LD. A.R. S UBMITTED THAT THE AO HAS MADE THE ADDITION ON THE GROUND THAT THE SOURCE OF THE ABOVE FUND HAS NOT BEEN FULLY AND CORRECTLY EXPLAINED AND THE SAME WAS TREA TED AS UNEXPLAINED CASH CREDIT. THE ASSESSEE IN HIS BALANCE SHEET HAS SHOW N AS UNSECURED LOAN TO THE TUNE OF RS.1304.10 CRORES. ASSESSEE HAS DEBITED FC CB INTEREST AND FCCB ISSUE EXPENDITURE IN PROFIT AND LOSS ACCOUNT. THE LD. A.R. SUBMITTED THAT FCCB FUND OF US$ 300 MILLIONS WERE RAISED BY RNRL O N 16.10.2006 AND ENTIRE FCCB FUND WAS HELD BY ONE ENTITY WHO WAS NOM INEE OF EUROCLEAR BANK. NO DETAIL OF ACTUAL BOND HOLDER OR ULTIMATE BENEFIC IARIES HAS BEEN PROVIDED TO THE ASSESSEE. THE ASSESSEE COMPANY MAINTAINED THE REGISTER WHEREIN THE NAME AND ADDRESS OF THE BONDHOLDER IS MENTIONED. ALL AL ONG ASSESSEES STAND IS THAT IT IS A GLOBAL PRACTICE THAT A SINGLE GLOBAL CERTIF ICATE OF FCCB FUND IS ISSUED AND REGISTERED IN THE NAME OF COMMON DEPOSITORY FOR EUR OCLEAR AND CLEARSTREAM AND HELD FOR THE ACCOUNT OF BONDHOLDER IN INTERNATI ONAL CENTRAL SECURITY DEPOSITOR EUROCLAEAR AND CLEARSTREAM LUXEMBURG. TH E ASSESSEE STATED THAT AS PER THE CERTIFICATE, THE GLOBAL CERTIFICATE REPRESE NTING THE BONDS WAS ISSUED TO M/S. BT GLOBENET NOMINEE LTD., LONDON. ASSESSEE IS HAVING A SINGLE GLOBAL CERTIFICATE ON BEHALF OF BONDHOLDER AND FCCB ISSUER DOES NOT HAVE ANY ACCESS TO INFORMATION ABOUT BONDHOLDERS. THE ASSESSEE HAS SUBMITTED THE COPY OF LETTER FROM BARCLAYS BANK ADDRESSED TO DEUTSCHE BAN K, AG LONDON AUTHORIZED AGAINST GLOBAL CERTIFICATE AND THE CONFIRMATION DAT ED 16.10.2006 FROM DEUTSCHE BANK, LONDON TO BARCLAYS BANK PLC CONFIRMING THE PA YMENT MADE BY THEM TO ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 21 BARCLAYS BANK. THE LETTER DATED 16.10.2006 FROM TH E DEUTSCHE BANK, LONDON HAS COMMON DEPOSITORY ACKNOWLEDGING THE RECEIPT OF GLOBAL CERTIFICATE. THE DEUTSCHE BANK SA IS A REGISTRAR FOR RECEIPT OF GLOB AL CERTIFICATE REPRESENTING USD 300 MILLIONS. FROM THIS, IT IS CLEAR THAT THE BOND PROCEEDS HAVE BEEN GIVEN TO ASSESSEE BY BARCLAYS BANK PLC AND SAME HAS THE SOURCE FROM THEIR ACCOUNT WITH DEUTSCHE BANK, LONDON. THUS THE SOURC E OF FUND IS FULLY EXPLAINED. 16. THE LD. A.R. LASTLY SUBMITTED THAT A BOND CERTI FICATE IS ISSUED IN RESPECT OF REGISTER HOLDING OF THE BOND, THE BOND WAS REPRE SENTED BY THE GLOBAL CERTIFICATE DEPOSITED WITH COMMON DEPOSITORY AND RE GISTERED IN THE NAME OF NOMINEE OF COMMON DEPOSITARY. THE OWNER OF INTERES T IN THE BOND IN RESPECT OF WHICH THE GLOBAL CERTIFICATE ISSUED WILL BE ENTI TLED TO HAVE A TITLE ON THE BOND REGISTERED IN THE NAME AND TO RECEIVE THE INDIVIDUA L CERTIFICATE IF EITHER EUROCLEAR ANDCLEARSTREAM IS CLOSED FOR BUSINESS FOR CONTINUOUS PERIOD OF 14 DAYS. THE AO INSISTED FOR THE REGISTER BUT THE REG ISTER IS MAINTAINED BY THE HOLDER OF THE GLOBAL CERTIFICATE AND GLOBAL CERTIFI CATE ISSUED IN THE NAME OF EUROCLEAR AND CLEARSTREAM, LUXUMBERG AND IT IS THE EUROCLEAR WHO MAINTAINS THE DETAILS OF SUBSEQUENT TRANSFER OF BONDS FROM ON E PERSON TO ANOTHER. THE BONDS ARE NOT TRANSFERRED BUT THE TRANSFER IS OF IN TEREST IN THE BOND. THEREFORE, BOND REMAINS IN THE NAME OF ONE PERSON THROUGH THE INTEREST IN BOND MAY BE DIVIDED BETWEEN VARIOUS INDIVIDUAL BUYERS. THE ASS ESSEE IS NOT BOUND TO KEEP THE REGISTER OF ULTIMATE INTEREST IN THE BOND HOLDE RS. 17. THE LD. A.R. FURTHER SUBMITTED THAT SIMILAR ISS UE HAD COME UP BEFORE INCOME TAX APPELLATE TRIBUNAL IN CASE OF RELIANCE C OMMUNICATION IN ITA NO.2915/M/2012 WHEREIN SIMILAR FCCB WAS ISSUED BY R ELIANCE COMMUNICATION LTD. THE FACTS OF THE RELIANCE COMMU NICATION LTD. AND ASSESSEE ARE IDENTICAL. IN RELIANCE COMMUNICATION LTD. THE MATTER OF APPLICABILITY OF SECTION 68 IN RESPECT OF FCCB PROC EEDS RECEIVED BY THEM WAS ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 22 THE MATTER OF REVISION UNDER SECTION 263 OF THE ACT . THE ISSUE OF APPLICABILITY OF SECTION 68 WAS CONSIDERED AND MATTER WAS SET ASI DE BY COMMISSIONER AS TO MAKE INVESTIGATION AS REGARDS SUBSCRIBER OF FCCB. THE MATTER WAS DECIDED BY THE TRIBUNAL AND TRIBUNAL HAS HELD THAT THE SUBSCRI BER OF FCCB WAS THE LEAD MANAGER TO THE ISSUE WHOSE IDENTITY AND CREDITWORTH INESS WAS WELL KNOWN. THEREFORE, SECTION 68 WAS HELD NOT APPLICABLE. IT WAS FURTHER POINTED OUT THAT THE DEPARTMENT HAS FILED THE APPEAL IN HONBLE BOMB AY HIGH COURT AND HONBLE BOMBAY HIGH COURT HAS DISMISSED THE DEPARTM ENTS APPEAL. THEREAFTER, THE MATTER WENT TO HONBLE SUPREME COUR T AND HONBLE SUPREME COURT HAS ALSO DISMISSED THE APPEAL OF THE DEPARTME NT. THE LD. A.R. THEREFORE SUBMITTED THAT IN THIS CASE THE ISSUE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT, THEREFORE, THE DEPARTMENTS APPEAL M AY BE DISMISSED. 18. THE LD. A.R. SUBMITTED THAT THE ISSUE IN THE AP PEAL IS COVERED BY THE DECISION OF TRIBUNAL IN CASE OF RELIANCE COMMUNICAT ION LTD. THEREFORE, CIT(A) IS JUSTIFIED IN HIS ACTION AND APPEAL MAY BE DISMISSED. THE LD. A.R. HAS SUBMITTED CHART GIVING FACTS IN CASE OF RCOM AN D THE FACTS IN ASSESSEES CASE. FOR UNDERSTANDING THE FACTS, WE REPRODUCE TH E SAME AS UNDER: DESCRIPTION OF EVENTS ISSUE OF FCCB OF USD 300 MILLION RELIANCE NATURAL RESOURCES LIMITED ('RNRL') RELIANCE COMMUNICATIONS LIMITED ('RCOM') PARTICULARS PARTICULARS 10.10.2006 21.03.2006 LEAD MANAGER BARCLAYS BANK PLC ('BARCLAYS'), LEAD MANAGER, AS SUBSCRIBER TO AFOREMENTIONED ISSUE, SIGNED THE SUBSCRIPTION AGREEMENT AS PER WHICH BARCLAYS AGREED TO SUBSCRIBE TO THE FCCBS OF USD 300 MILLION PROPOSED TO BE ISSUED BY RNRL (PG 338-352 OF PB) DEUTSCHE BANK HONG KONG (DB HK), LEAD MANAGER, AS SUBSCRIBER TO AFOREMENTIONED ISSUE, SIGNED THE SUBSCRIPTION AGREEMENT AS PER WHICH DB HK AGREED TO SUBSCRIBE TO THE FCCBS OF USD 500 MILLION PROPOSED TO BE ISSUED BY RCOM (PARA 5.3, PG 5) 12.10.2006 05.05.2006 OFFER DOCUMENT RNRL ISSUED OFFER DOCUMENT TO BARCLAYS (PG 155-337 OF PB) RCOM ISSUED OFFER DOCUMENT TO DB HK (PARA 5.3, PAGE 5 & 6) 16.10.2006 09.05.2006 GLOBAL CERTIFICATE RNRL ISSUED A SINGLE GLOBAL CERTIFICATE ('GC') REPRESENTING THE AGGREGATE PRINCIPAL OF USD 300 MILLION AND DELIVERED IT TO DB, LUXEMBURG ('THE REGISTRAR') OF RCOM ISSUED A SINGLE GC REPRESENTING THE AGGREGATE PRINCIPAL OF USD 500 MILLION AND DELIVERED IT TO DB, LUXEMBURG ('THE REGISTRAR') OF EURO CLEAR AND CLEAR ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 23 EURO CLEAR AND CLEAR STREAM ('THE EXCHANGES') (PG 396-404 OF PB) STREAM ('THE EXCHANGES') (PARA 5.3, PAGE 5 & 6) COMMON DEPOSITORY THE REGISTRAR REGISTERED THE GC IN THE NAME OF BT GLOBENET AS THE NOMINEE OF DB, LONDON, WHICH WAS THE COMMON DEPOSITORY ('CD') OF THE EXCHANGES AND RELEASED THE AUTHENTICATED GC TO DB, LONDON AS THE CD OF THE EXCHANGE. (PG 396- 404 OF PB) THE REGISTRAR REGISTERED THE GO IN THE NAME OF BT GLOBENET AS THE NOMINEE OF DB, LONDON, WHICH WAS THE COMMON DEPOSITORY ('CD') OF THE EXCHANGES AND RELEASED THE AUTHENTICATED GO TO DB, LONDON AS THE CD OF THE EXCHANGE (PARA 5.3, PAGE 6) INSTRUCTIONS TO HOLD G L O B A L CERTIFICATE RNRL INSTRUCTED THE CD (DB LONDON) TO HOLD THE GC ON ITS BEHALF TILL BARCLAYS INSTRUCTED THE CD TO EFFECT THE PAYMENT TO RNRL AND THEREAFTER TO HOLD THE GC FOR THE ACCOUNT OF THE SUBSCRIBER I.E. BARCLAYS (PG 392 OF PB) ROOM INSTRUCTED THE CD (DB LONDON) TO HOLD THE GO ON ITS BEHALF TILL DB HK INSTRUCTED THE CD TO EFFECT THE PAYMENT TO ROOM AND THEREAFTER TO HOLD THE GO FOR THE ACCOUNT OF THE SUBSCRIBER I.E. DB HK (PARA 5.3, PAGE 7) INSTRUCTION TO DELIVER GLOBAL CERTIFICATE AS PER THE PAYING, CONVERSION AND TRANSFER AGENCY AGREEMENT DATED 16.10.2006, RNRL AGREED TO DELIVER TO THE REGISTRAR A DULY EXECUTED GC. (PG 355 OF PB) AS PER THE PAYING, CONVERSION AND TRANSFER AGENCY AGREEMENT DATED 9.5.2006, RCOM AGREED TO DELIVER TO THE REGISTRAR A DULY EXECUTED GO. (PARA 5.3, PAGE 6) INSTRUCTION FOR PAYMENT FROM SUBSCRIBER TO ISSUER OF FCCB RNRL INSTRUCTED BARCLAYS (I.E. THE SUBSCRIBER) TO MAKE THE NET OF FEES PAYMENT OF USD 290.40 MILLION BY WAY OF SUBSCRIPTION FOR THE FCCBS RCOM INSTRUCTED DB HK (I.E. THE SUBSCRIBER) TO MAKE THE NET OF FEES PAYMENT OF USD 497.5 MILLION BY WAY OF SUBSCRIPTION FOR THE FCCBS (PARA 5.3, PAGE 7) INSTRUCTIONS FOR RELEASING OF FUNDS FROM LEAD MANAGER BARCLAYS INSTRUCTED THE CD TO RELEASE THE NET PROCEEDS OF THE FCCBS TO THE DESIGNATED BANK ACCOUNT OF RNRL DB HK INSTRUCTED THE CD TO RELEASE THE NET PROCEEDS OF THE FCCBS TO THE DESIGNATED BANK ACCOUNT OF RCOM (PARA 5.3, PAGE 7) FUND RECEIVED RNRL RECEIVED THE NET SUM OF USD 290.40 MILLION FROM BARCLAYS THROUGH THE CD AND ISSUED A RECEIPT ROOM RECEIVED THE NET SUM OF USD 497.5 MILLION FROM DB HK THROUGH THE CD AND ISSUED A RECEIPT FOR THE SAME (PARA 5.3, PAGE 7) 15.10.2010 DEMERGER SCHEME FCCBS OF USD 300 MILLION WERE TRANSFERRED TO RELIANCE POWER LTD. UNDER THE DEMERGER SCHEME APPROVED BY THE HON'BLE BOMBAY HIGH COURT - - - 14.10.2011 FROM 18.10.2007 TO 31 .01 .2008 CONVERSION OF FCCB INTO SHARES FCCBS OF USD 100,000 WERE CONVERTED INTO SHARES RELIANCE POWER LTD. HAS ISSUED 43,860 SHARES TO FCCB'S HOLDERS DURING F.Y. 2010-11. (PG 485 - 486 OF PB) ROOM ISSUED EQUITY SHARES ON CONVERSION OF BONDS TO VARIOUS BOND HOLDERS (PARA 5.6, PAGE 11) 14.10.2011 09.05.2011 REDEMPTION OF FCCBS BALANCE FCCB OF USD 299.90 MILLION WAS REDEEMED TO THE FCCB'S HOLDERS. (PG 485-486 OF PB) RCOM REPAID THE FCCB TO OF DEUTSCHE BANK AG, LONDON, PRINCIPAL AGENT AS PER THE PAYING, CONVERSION AND TRANSFER AGENCY AGREEMENT DATED 09.05.2006 B ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 24 19. THE LD. AR SUBMITTED THAT IN THE ABOVE FACTS OF RCOMS CASE, TRIBUNAL HAS HELD THAT THE PROVISIONS OF SECTION 68 ARE NOT APPLICABLE. THE LD. A.R. FURTHER POINTED OUT THAT THE ORDER OF TRIB UNAL IN RCOM CASE WAS NOT MERELY ON APPLICABILITY OF SECTION 263 BUT THE TRIBUNAL WENT TO THE FACTS OF THE ISSUANCE OF FCCB AND CONSIDERED THE APPLICAB ILITY OF PROVISIONS OF SECTION 68 IN THE SAID FACTS AND CAME TO CONCLUSION THAT THE SUBSCRIBERS TO THE BONDS WERE LEAD MANAGER AND THE SOURCE THEREOF IS F ULLY EXPLAINED THE LD. A.R. HAS ALSO SUBMITTED A CHART SUMMARIZING THE DEC ISION OF TRIBUNAL IN RCOMS CASE AND HOW THE FACTS OF RCOM ARE SIMILAR T O THE FACTS OF THE ASSESSE. THE SAME ARE GIVEN HEREUNDER:- SR. NO. RCOM RNRL PARTICULARS ITAT ORDER PARTICULARS PAPER BOOK 1. RCOM RAISED FUNDS BY WAY OF FCCB DURING F.Y. 2006-07 FROM DB HK, JP MORGAN USA AND DB HONG KONG OF USD 500 MILLION EACH. PG 4 PARA 5.1) RNRL RAISED FUNDS BY WAY OF FCCB DURING F.Y. 2006-07 VIDE OFFERING CIRCULAR DT.12.10.2006, ISSUED ON 16.10.2006 155- 337 2. RCOM ISSUED FCCB AND LEADMANAGER AGREED TO SUBSCRIBE AND PAY FOR THEBONDS ISSUED BY ROOM. PG 5 (PARA 5.3) RNRL ISSUED BONDS ANDLEADMANAGER I.E. BARCLAYSBANK AGREED TO SUBSCRIBEAND PAY FOR THE BONDS 338- 352 3. RCOM ISSUEDDOCUMENTDT. 05.05.2006 TO DB HK (LEAD MANAGER)CLARIFYING THAT BONDS WILL BEREPRESENTED BY SINGLE GLOBALCERTIFICATE (GO) DEPOSITEDWITH A COMMON DEPOSITORY. PG 5 & 6 (PARA 5.3) SINGLE GC FOR FOOB FUNDSIS ISSUED AND REGISTERED INTHE NAME OF COMMONDEPOSITORY FOR EUROCLEARBANK ANDCLEARSTREAM, LUXEMBURG. 396- 404 4 AS PER CLAUSE 3.2, NOINDIVIDUAL CERTIFICATESRESPECT OF INTEREST (SHARE) INANY BONDS WERE TO BE ISSUEDIN EXCHANGE FOR THE GLOBALCERTIFICATE EXCEPT IN THECIRCUMSTANCES PROVIDED INCLAUSE 3.3. ACCORDING TOCLAUSE 3.3, INDIVIDUALCERTIFICATES WERE TO BE ISSUEDONLY IN THE PRESCRIBED CIRCUMSTANCES, SUCH AS, THE COMMON DEPOSITARY OR ANY SUCCESSOR TO THE COMMON DEPOSITARY NOTIFYING TO THE COMPANY IN WRITING THAT IT IS AT ANY TIME UNWILLING OR UNABLE TO CONTINUE TO ACT AS A DEPOSITARY AND A SUCCESSOR DEPOSITARY IS NOT APPOINTED BY THE COMPANY WITHIN 90 DAYS OREUROCLEAR, CLEARSTREAM LUXEMBOURG (STOCK EXCHANGE) IS CLOSED FOR BUSINESS FOR A CONTINUOUS PERIOD OF 14 DAYS, ETC. PG 6 IN (PARA 5.3) 3.2.1. DEFINITIVE CERTIFICATESIN RESPECT OF INTERESTS IN ANYBONDS WILL NOT BE ISSUED INEXCHANGE FOR INTEREST IN THEBONDS EVIDENCED BY THEGLOBAL CERTIFICATES EXCEPT INTHE CIRCUMSTANCES PROVIDEDIN CLAUSE 3.2.2. 355- 356 ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 25 5 AS PER THE PAYING,CONVERSION AND TRANSFERAGENCY AGREEMENT DATED 9.52006, ROOM AGREED TODELIVER TO DB LUXEMBURG (THEREGISTRAR) A DULY EXECUTEDGC. PG 6 (PARA 5.3) AS PER THE PAYING,CONVERSION AND TRANSFERAGENCY AGREEMENT DATED 1610.2006, RNRL AGREEDTO DELIVER TO DB LUXEMBURG(THEREGISTRAR)A DULYEXECUTED GC. 353- 391 6 GC WAS ISSUED IN THE NAMEOF BT GLOBENETNOMINEESLIMITED, NOMINEE OF DEUTSCHE BANK LONDON WHICH WAS COMMONDEPOSITORY. PG 6 (PARA 5.3) GC WAS ISSUED IN THE NAMEOF BT GLOBENET NOMINEESLIMITED, LONDON NOMINEE OFDB LONDON WHICH WASCOMMON DEPOSITORY. 396- 404 7 RCOM INSTRUCTED THE CD (DEUTSCHE BANK LONDON) TO HOLD THE GC ON ITSBEHALF TILL DB HK INSTRUCTEDTHE CD TO EFFECT THE PAYMENTTO ROOM AND THEREAFTER TOHOLD THE GC FOR THE ACCOUNTOF THE SUBSCRIBER I.E. DB HK PG 7 (PARA 5.3) RNRL INSTRUCTED THE COMMON DEPOSITORY (DB LONDON) TO HOLD THE GLOBAL CERTIFICATE ON ITS BEHALF TILL BARCLAYSINSTRUCTED THE CD TO EFFECTTHE PAYMENT TO RNRL ANDTHEREAFTER TO HOLD THE GO FORTHE ACCOUNT OF THESUBSCRIBER I.E. BARCLAYS 392 8 IT IS NOT UNDERSTANDABLE, INTHE FACTS AND CIRCUMSTANCESOF THE CASE, THAT HOW ROOM COULD HAVE ENTERED THENAMES AND ADDRESSES OF THEACTUAL SUBSCRIBERS IN ITS BOOKS OF ACCOUNT, WHEN THE SUBSCRIBER, AS FAR AS THE ROOM IS CONCERNED, WAS DB HK. THE GO WAS ISSUED BY THERCOM IN THE NAME OF DBHK. IT WAS FOR DB HK TOSUBSCRIBE TO THE ENTIRE FCCB ORFIND CUSTOMERS FOR A PART OR TOTAL OF SUCH ISSUE. THE DECISION ON INVITING OTHERCUSTOMERS FROM OUTSIDE INDIATO SUBSCRIBE TO THE FCCB ANDTO WHAT EXTENT WAS THE SOLE RESPONSIBILITY OF DB HK, WITHOUT ANY INSTRUCTIONS OR INVOLVEMENT OF THE ASSESSEE IN INDIA. IN SO FAR AS THE ASSESSEE IS CONCERNED, IT WAS ONLY SUPPOSED TO GET THE AMOUNT AGAINST FCCB FROM DB HK, WHICH IT, IN FACT, RECEIVED. THE ID. CIT HAS NOT REFERRED TO ANY MATERIAL WHICH INDICATES THAT THE ASSESSEE HAD DETAILS OF THE 'ACTUAL SUBSCRIBERS' AT THE TIME OF ISSUANCE OF FCCB OR IT WAS OBLIGED TO KEEP SUCH DETAILS. NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE EVEN BY THE ID. DR TO SHOW THAT AT THAT STAGE THE ASSESSEE HAD ANY DIRECTCONTACT WITH THE ACTUAL SUBSCRIBERS TO THE FCCB, DIFFERENT FROM DB HK. PG 8 & 9 (PARA 5.6) IN RNRL CASE, THE ONLYSUBSCRIBER IS BARCLAYS. GC WAS ISSUED IN THE NAMEOF BT GLOBENET NOMINEESLIMITED (NOMINEE) IN THE PRESENT CASE ALSO, RNRL HAS RECEIVED FUNDS FROM SUBSCRIBERS BARCLAYS. IN RNRL CASE ALSO THE ACTUAL SUBSCRIBER IS BARCLAYS AND DETAILS OF FURTHER SUBSCRIBES BY BARCLAYS AT THE TIME OF ISSUANCE OF FCCB IS NOT AVAILABLE AND RNRL IS NOT OBLIGED TO KEEP SUCH DETAILS. 9 IT WAS ONLY AT THE STAGE OF ISSUANCE OF SHARES OR THE GRANTING OF REFUND, THAT THE ASSESSEE WAS TO DO THE NEEDFUL UPON INTIMATION BY DB HK ABOUT THE PERSONS WHO HAD PURCHASED SEPARATE INTEREST (SHARES) IN THE GC. PG 10 (PARA 5.6) FCCBS OF USD 100,000 WERE CONVERTED INTO SHARES AND RELIANCE POWER LTD. HAS ISSUED 43,860 SHARES TO FCCB'S HOLDERS DURING F.Y. 2010-11. 485- 486 ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 26 IT IS A MATTER OF RECORD THAT THE ASSESSEE ISSUED SHARES ON CONVERSION TO CERTAIN PARTIES, SUCH AS, JP MORGAN SECURITIES LTD., THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED AND DB HK ITSELF IN NEXT YEAR ON VARIOUS DATES FROM 18.10.2007 TO 31.1.2008. ONLY ON THE ISSUANCE OF SHARES, THESE INTERNATIONAL FINANCIAL INSTITUTIONS COULD BE SAID TO HAVE COME INTO DIRECT CONTACT WITH THE ASSESSEE COMPANY. AT THE STAGE OF ISSUANCE OF BONDS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT CONSIDERATION, S UC H CUSTOMERS OF DB HK WERE NOT ENTITLED TO DIRECTLY APPROACH THE ASSESSEE COMPANY IN RESPECT OF ANY MATTER CONCERNING THE ISSUANCE OF BONDS. WHEN SUCH IS THE SITUATION, WE FAIL TO APPRECIATE AS TO HOW THE ASSESSEE COULD RECORD THE NAMES OF ACTUAL SUBSCRIBERS OTHER THAN DB HK IN ITS BOOKS OF ACCOUNT AND FURTHER PROVE THEIR IDENTITY, CAPACITY AND CREDIT WORTHINESS. BALANCE FCCB OF USD 29 9. 9 0 M IL LIO N WA S REDEEMED TO THE FCCB'S HOLDERS IN F.Y. 2011-12. 20. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. THE ASSESSEE HAS RAISED FUNDS BY ISSUE OF FCCBS DURING THE PREVI OUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAS RECEIVED PROCEEDS OF FCCB ISSUE OF US$ 300 MILLIONS FROM BARCLAYS BANK A S LEAD MANAGER. ASSESSEE HAS ENTERED INTO A SUBSCRIPTION AGREEMENT WITH BARCLAYS BANK ON 10.10.2006. AS PER THE SUBSCRIPTION AGREEMENT ASSE SSEE AGREED TO ISSUE THE BOND AND LEAD MANAGER AGREED TO SUBSCRIBE AND SUBSC RIBER AGREED TO PAY FOR BOND ON CLOSING DATE OF ISSUE OF PRICE OF 100% OF A GGREGATE PRINCIPAL AMOUNT OF BOND LESS COMMISSION AND CONCESSION REFERRED IN CLAUSE 1.2. THE ISSUER ASSESSEE UNDERTOOK TO PREPARE AND DELIVER TO THE LE AD MANAGER AND OFFERING CIRCULAR NOT LATER THAN FOUR BUSINESS DAYS PRIOR TO THE CLOSING DATE. THE ASSESSEE ISSUED THE OFFERING DOCUMENT TO BARCLAYS B ANK DATED 12.10.2006 CLARIFYING THAT THE BOND WILL BE REPRESENTED BY SIN GLE GLOBAL CERTIFICATE. UPON ASSURANCE, THE BONDS WERE REPRESENTED BY GLOBAL CER TIFICATE DEPOSITED WITH A COMMON DEPOSITORY. THE TERMS AND CONDITIONS OF BON D GIVEN AS PER SCHEDULE TO THE AGREEMENT PROVIDE THAT BONDS WERE TO BE ISSU ED IN REGISTERED FORM IN DENOMINATION OF US$ OF 100 EACH. AS PER CLAUSE 3.2 , NO INDIVIDUAL CERTIFICATE IN RESPECT OF INTEREST IN ANY BOND WAS TO BE ISSUED IN EXCHANGE FOR THE GLOBAL ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 27 CERTIFICATE EXCEPT IN CIRCUMSTANCES PROVIDED IN THE CLAUSE. THE INDIVIDUAL CERTIFICATES WERE ISSUED ONLY IN PRESCRIBED CIRCUMS TANCES SUCH AS COMMON DEPOSITORY OR ANY SUCCESSOR TO THE COMMON DEPOSITOR Y NOTIFIED TO THE ASSESSEE COMPANY IN WRITING THAT IN ANY TIME UNWILLING OR UN ABLE TO CONTINUE TO ACT AS A DEPOSITORY AND SUCCESSOR DEPOSITORY IS NOT EMBEDDED BY THE ASSESSEE COMPANY WITHIN 90 DAYS OR EUROCLEAR AND CLEARSTREAM, LUXEMB URG (STOCK EXCHANGE) IS CLOSED FOR A BUSINESS FOR A CONTINUED PERIOD OF 14 DAYS. AS PER PAYEE, CONVERSION AND TRANSFER AGENCY AGREEMENT DATED 16.1 0.2006 BEING THE CLOSING DATE OF FCCB AND DELIVERED TO DB LUXEMBURG REGISTRA R, A COPY OF CERTIFICATE ISSUED BY ASSESSEE IN THE NAME OF BT GLOBENET NOMIN EE LTD OF DB LONDON IS THE COMMON DEPOSITORY. THE REGISTRAR AUTHENTICATED THE GLOBAL CERTIFICATE UPON WHICH THE WRITTEN ORDER OF THE COMPANY AND ARRANGED FOR THE DELIVERY OF GLOBAL CERTIFICATE TO DEPOSITORY. THE ASSESSEE INSTRUCTED DB LONDON TO HOLD THE GC ON HIS BEHALF TILL BARCLAYS BANK INSTRUCTED IT TO E FFECT THE PAYMENT AND THEREAFTER HOLD IT FOR SUBSCRIBER I.E. BARCLAYS BAN K. THE PAYMENT OF US$ 290.40 MILLIONS WAS MADE BY WAY OF SUBSCRIPTION FOR FCCB. THE ASSESSEE HAS RECEIVED US$ 290.40 MILLION FROM BARCLAYS BANK THRO UGH DEUTSCHE BANK AND ISSUED A RECEIPT ON 15.10.2010. FCCB OF US$ 300 MI LLION WERE TRANSFERRED TO RELIANCE POWER UNDER DEMERGER SCHEME APPROVED BY HO NBLE BOMBAY HIGH COURT ON 15.10.2011. THE FCCB OF US$ 1 LAKH WERE C ONVERTED INTO SHARES IN RELIANCE POWER LTD. AND ISSUED 43862 SHARES TO FCCB HOLDERS DURING F.Y. 2010-11. BALANCE FCCB OF US$ 299.90 MILLIONSWERE R EDEEMED TO FCCB HOLDER. 21. THE AO IN THE ORIGINAL ASSESSMENT ORDER HAS ACC EPTED THAT ASSESSEE HAS RECEIVED THIS AMOUNT OF US$ 300 MILLIONS FROM BARCL AYS BANK. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 07.12.2009. THE AO HAS EXAMINED THE SAME AND ACCEPTED THAT ASSESSEE HAS RECEIVED US$ 300 MILLION FROM BARCLAYS BANK. AFTER REOPENING THE AS SESSMENT THE AO HAS CONSIDERED THE REPORT OF SEBI AND REPORT OF DIT(INT ELLIGENCE). THE COPY OF THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 28 REPORT OF SEBI AND DIT (INTELLIGENCE) WAS NOT SUPPL IED TO THE ASSESSEE. IN THE ASSESSMENT ORDER THE AO HAS NOT PROVIDED ANY DOCUME NTARY EVIDENCE TO SHOW THAT THERE WAS ANY ADVERSE EVIDENCE AGAINST THE ASS ESSEE COMPANY. THE AO WANTED TO VERIFY THE DETAIL OF ACTUAL HOLDER AND UL TIMATE BENEFICIARY WHICH WAS NOT PROVIDED BY THE ASSESSEE. THE ASSESSEE DID NOT MAINTAIN REGISTER WHEREIN THE NAME AND ADDRESS OF THE BONDHOLDER WAS SPECIFIC ALLY MENTIONED AND PAYMENT OF PRINCIPAL AND ACCRUED INTEREST WAS TO BE MADE TO REGISTERED ACCOUNT HOLDER WHICH MEANS THE ASSESSEE WAS NOT IN POSSESSI ON OF INFORMATION REGARDING ULTIMATE INVESTOR OF FCCB. AGAINST THIS, THE ASSESSEE HAS SUBMITTED VARIOUS DOCUMENTS TO PROVE THAT BARCLAYS BANK PLC I S THE SUBSCRIBER. THE ASSESSEE HAS SUBMITTED COPY OF OFFERED DOCUMENT, CO PY OF SUBSCRIPTION AGREEMENT WITH BARCLAYS, COPY OF CORRESPONDENCE BET WEEN BARCLAYS BANK AND DEUTSCHE BANK REGARDING TRANSFER OF FUNDS OF BARCLA YS BANK ACCOUNT WITH DEUTSCHE BANK, ISSUE OF GLOBAL CERTIFICATE IN THE N AME OF BT GLOBENET NOMINEE LTD. AND RECEIPT OF GLOBAL CERTIFICATE BY D EUTSCHE BANK, LUXEMBURG. WE FIND THAT ASSESSEE HAS SUBMITTED THE INFORMATION REGARDING THE SOURCE OF THE FUND AND ASSESSEE HAS SUBMITTED ALL THE EVIDENCES B EFORE AO AND ASSESSEE HAS PROVED THE SOURCE OF FCCB FUNDS. THE AO HAS APPLIE D SECTION 68 ON THE GROUND THAT ASSESSEE HAS FAILED TO EXPLAIN THE NATU RE AND SOURCE OF THE FUND. WE FIND THAT ASSESSEE HAS EXPLAINED THE NATURE AND SOURCE OF THE FUND AND IT CANNOT BE ADDED UNDER SECTION 68. WE FIND THAT THE AO HAS TREATED RS.1304.10 CRORES AS DEEMED INCOME OF THE ASSESSEE ON THE GROU ND THAT ASSESSEE HAS NOT SUPPLIED THE INFORMATION ABOUT DETAIL OF ACTUAL BON D HOLDER AND ULTIMATE BENEFICIARY, THEREFORE IT WAS ADDED UNDER SECTION 6 8 OF THE ACT. WE FIND THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN TH E CASE OF RELIANCE COMMUNICATION LTD. IN ITA NO.2915/M/2012 FOR AY 200 7-08 DATED 05.02.2013. THE FACTS OF THIS CASE ARE SIMILAR TO THE FACTS OF THE ASSESSEES CASE. IN THE RELIANCE COMMUNICATION CASE ASSESSEE HAS RAISED THE FUND OF RS.6485 CRORES BY WAY OF FCCB AND THE AO WANTED TO VERIFY THE SOURCE OF FCCB FUND, NAME AND ADDRESS, GENUINENESS OF CREDITW ORTHINESS AND ACTUAL ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 29 SUBSCRIBER. THE TRIBUNAL IN ITS ORDER HAS HELD THA T ASSESSEE HAS ADEQUATELY DISCHARGED THE ONUS CAST UPON IT. IN TERMS OF SECT ION 68 THE PROBE SUGGESTED BY CIT COULD HAVE BEEN POSSIBLE IN THE ASSESSMENT OF D B HK WHO EVENTUALLY PARTLY SUBSCRIBED TO THE BOND ITSELF AND PARTLY ISS UED THIS TO INTERNATIONAL FINANCIAL INSTITUTION. THE TRIBUNAL HAS FURTHER HE LD THAT LD. CIT (A) WAS NOT JUSTIFIED IN PUTTING THE OBLIGATION ON THE ASSESSEE TO PROVE THE IDENTITY, CAPACITY AND CREDITWORTHINESS OF ACTUAL SUBSCRIBER WHICH THE FACT WAS BEYOND THE REACH AT THE RELEVANT TIME. IN THE INSTANT CASE, THE FACTS ARE SIMILAR IN THE A SSESSEES CASE. IN THE ASSESSEES CASE, THE FACTS ARE THAT THE ASSESSEE HA S RECEIVED NET OF US$ 290.40 MILLION FROM BARCLAY BANK FROM DEUTSCHE BANK AG LON DON. SUBSCRIPTION AGREEMENT DATED 10.10.2006 PROVIDES THAT ISSUER I.E . THE ASSESSEE AGREES TO ISSUE THE BONDS AND THE MANGER I.E. BARCLAY BANK PL C AGREES WITH THE ISSUER TO SUBSCRIBE AND TO PAY FOR OR TO PROCURE SUBSCRIBERS TO SUBSCRIBE AND TO PAY FOR BONDS AT THE ISSUE PRICE 100% OF THE AGGREGATE PRIN CIPAL AMOUNT OF THE BONDS LESS THE COMMISSION. IN THE OFFERING CIRCULAR DATE D 12.10.2006 IN THE CHAPTER SUBSCRIPTION AND SALE AT PAGE 122 OF THE OFFERING CIRCULAR, IT IS PROVIDED THAT THE ASSESSEE HAS ENTERED INTO SUBSCRIPTION AGREEMEN T WITH BARCLAY BANK PLC AS PER WHICH THE ASSESSEE HAS AGREED TO SELL TO THE MANAGER I.E. BARCLAY BANK PLC AND BARCLAY BANK PLC HAS AGREED TO SUBSCRIBE FO R US$ 300 MILLION AGGREGATE PRINCIPAL AMOUNT OF THE BONDS. IT FURTHE R PROVIDES THAT THE MANAGER I.E. BARCLAY BANK PLC OR ITS AFFILIATES MAY, FOR IT S OWN ACCOUNTS, ENTER INTO ASSET SWAPS, CREDIT DERIVATIVES OR OTHER DERIVATIVE TRANSACTIONS RELATING TO THE BONDS AND / OR THE SHARES AT THE SAME TIME AS THE O FFER AND SALE OF THE BONDS OR IN SECONDARY MARKET TRANSACTIONS. AS A RESULT OF S UCH TRANSACTIONS, THE MANAGER OR ITS AFFILIATES HOLD LONG OR SHORT POSITI ONS IN SUCH BONDS OR DERIVATIVES OR IN THE SHARES. THESE TRANSACTIONS C OMPRISE A SUBSTANTIAL PORTION OF THE OFFERING AND NO DISCLOSURE MADE OF SUCH POSI TIONS. THE MANAGER OR ITS AFFILIATES HAVE PURCHASED BONDS AND BEEN ALLOCATED BONDS FOR ASSET ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 30 MANAGEMENT AND / OR PROPRIETARY PURPOSES AND NOT WI TH A VIEW TO DISTRIBUTION. A BOND CERTIFICATE ISSUED TO EACH BONDHOLDER IN RES PECT OF ITS REGISTER HOLDING OF BONDS. EACH BOND AND ITS CERTIFICATE NUMBERED S ERIALLY WITH AN IDENTIFYING NUMBER WHICH IS RECORDED ON THE RELEVANT CERTIFICAT E AND IN THE REGISTER OF BONDHOLDER WHICH THE ISSUER KEPT BY THE REGISTRAR. THE ISSUER KEPT THE SPECIFIED OFFICE OF THE REGISTRAR A REGISTER ON WHI CH ENTERED THE NAMES AND ADDRESSES OF THE HOLDERS OF THE BONDS AND THE PARTI CULARS OF THE BONDS HELD BY THEM AND OF ALL TRANSFERS OF THE BONDS. FROM THE F ACTS AND THE DOCUMENTS SUBMITTED BY THE ASSESSEE WITH REGARD TO TRANSFER O F FUNDS BY BARCLAYS BANK WE HOLD THAT ASSESSEE HAS RECEIVED THE AMOUNT FROM BAR CLAYS BANK AND DISCHARGED THE BURDEN BY PROVIDING ALL THE INFORMATION / DOCUM ENTS. THUS, ASSESSEE WAS ONLY REQUIRED TO PROVE THE IDENTITY AND CREDITWORTH INESS OF BARCLAYS BANK WHO SUBSCRIBED TO ISSUE OF FCCB WHICH IS NOT IN DOUBT. THEREFORE, IN OUR OPINION, ASSESSEE HAS ADEQUATELY DISCHARGED ONUS CAST UPON I T UNDER SECTION 68. SECTION 68 OF THE ACT CLEARLY PROVIDES THAT WHERE ANY SUM I S FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YE AR, 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 OFFI CER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF PREVIOUS YEAR. A BARE PERUSAL OF THIS PROVISION DIV ULGES THAT THERE IS AN OBLIGATION ON THE ASSESSEE TO PROVE THE IDENTITY, C APACITY AND CREDIT WORTHINESS OF THE PERSON FROM WHOM THE MONEY IS ACTUALLY RECEI VED BUT NOT SOURCES SOURCE. WE FIND THAT SIMILAR ISSUE IS DECIDED BY TH E CO-ORDINATE BENCH IN CASE OF RCOM WHEREIN THE TRIBUNAL HAS CLEARLY HELD THAT SECTION 68 DOES NOT APPLY TO THE FACTS OF THIS CASE BY OBSERVING AS UNDER: 5.1. THE FACTUAL MATRIX AS REGARDS THIS ITEM IS TH AT THE ASSESSEE RAISED FUNDS THROUGH THREE ISSUES OF FCCBS DURING THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. FCCB MEANS A B OND EXPRESSED IN FOREIGN CURRENCY, THE PRINCIPAL AND INTEREST IN RESPECT OF WHICH IS PAYABLE IN FOREIGN CURRENCY, ISSUED BY AN ISSUING COMPANY AND SUBSCRIB ED TO BY A PERSON WHO IS RESIDENT OUTSIDE INDIA, IN FOREIGN CURRENCY AND EXC HANGEABLE INTO EQUITY SHARES OF THE COMPANY AFTER A SPECIFIED PERIOD OR TO THE R EDEEMED. THE ASSESSEE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 31 RECEIVED PROCEEDS OF FCCB ISSUES IN DEUTSCHE BANK, SINGAPORE (DB)OF US$ 500 MILLION;AND JP MORGAN NEW YORK AND HONG KONG ANDSHA NGHAI BANKING CORPORATION OF US$ 1000 MILLION. THESE FCCBSWERE SU BSCRIBED TO BY THE LEAD MANAGERS NAMELY, DEUTSCHE BANK HONG KONG (DB HK) FO R US$ 500 MILLION; JP MORGAN SECURITIES LTD. U.K. AND HONG KONG AND SHANG HAI BANKING CORPORATION FOR US$] 000 MILLION. 5.2. THE AO ENQUIRED ABOUT THIS ASPECT OF THE MATTE R AND THE ASSESSEE FURNISHED ITS REPLY DATED 17.4.2009, A COP Y OF WHICH HASBEEN PLACED AT PAGE 25 OF THE PAPER BOOK (PB). BY THE SAID REPL Y, THE ASSESSEE SUBMITTED THAT IT ISSUED FCCBS IN THREE TRANCHES AGGREGATING TO US$ 1500 MILLION. THE NAME AND ADDRESS OF THE SUBSCRIBERS TO THE THREE TR ANCHES OF FCCBS AND THE CORRESPONDING AMOUNTS WERE DULY INDICATED BY SHOWIN G NAME AND ADDRESS OF THE SUBSCRIBERS SUCH AS DB HKFOR THE FCCB US$ 500 M ILLION. THE DETAILS OF THE BANK IN WHICH THE PROCEEDS OF FCCBS WERE PARKED IN THE FOREIGN COUNTRIES AND FROM WHERE THESE WERE TRANSFERRED TO INDIAN BANK, W ERE ALSO FURNISHED. ALONG WITH THE SAID REPLY, THE ASSESSEE SUBMITTED COPIES OF OFFER MEMORANDUM OF THE FCCBS ISSUED, GLOBALCERTIFICATE ALONG WITH THE REGISTRARS CONFIRMATION OF ENTRIES OF THE BONDHOLDER IN REGISTER, FOREIGN INWA RD REMITTANCE CERTIFICATE AND THE DETAILS OF FCCBS AS PER THE OFFER DOCUMENTS AND GLOBAL CERTIFICATES. 5.3. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE THREE FCCB ISSUES ARE SIMILAR. FOR THE SAKE OF CONV ENIENCE AND ON REPRESENTATIVE BASIS, THE PARTIES CHOSE TO TAKE UP THE FCCB ISSUE OF US$ 500 MILLION WITH DB HK AS LEAD MANAGER FOR MAKING THEIR RESPECTIVE SUBMISSIONS. THE ASSESSEE ENTERED INTO A SUBSCRIPTION AGREEMENT WITH DB HK ON 21.3.2006, AS PER WHICH DB HK AGREED TO SUBSCRIBE TO THE FCCB ISSUE OF US$ 500 MILLION. AS PER CLAUSE-I OF THE AGREEMENT, THE ASSESSEE AGRE ED TO ISSUE THE BONDS AND THE LEAD MANGER AGREED TO SUBSCRIBE AND PAY FOR OR TO PROCURE SUBSCRIBERS TO SUBSCRIBE AND PAY FOR THE BONDS ON THE CLOSING DATE AT THE ISSUE PRICE OF HUNDRED PER CENT OF THE AGGREGATE PRINCIPAL AMOUNT OF THE BONDS LESS THE COMMISSION AND CONCESSION REFERRED TO IN CLAUSE-5. AS PER CLAUSE 1.2, THE ISSUER ASSESSEE UNDERTOOK TO PREPARE AND DELIVER TO THE LEAD MANAGER AN OFFERING CIRCULAR NOT LATER THAN FOUR BUSINESS DAYS PRIOR TO THE CLOSING DATE. THE ASSESSEE ISSUED OFFERING DOCUMENT DT.05.05.2006 TO DB HK, CLARIFYING THAT THE BONDS WOULD BE REPRESENTED BY SINGLE GLOBAL CER TIFICATE (GC). UPON ISSUANCE, THE BONDS WERE REPRESENTED BY A GLOBAL CE RTIFICATE DEPOSITED WITH A COMMON DEPOSITARY. THE TERMS AND CONDITIONS OF THE BONDS GIVEN AS PER SCHEDULE-1 TO THE AGREEMENT PROVIDE THAT THE BONDS WERE TO BE ISSUED IN THE REGISTERED FORM IN THE DENOMINATION OF US$ 1000 EAC H. AS PER CLAUSE 3.2, NO INDIVIDUAL CERTIFICATES IN RESPECT OF INTEREST (SHA RE) IN ANY BONDS WERE TO BE ISSUED IN EXCHANGE FOR THE GLOBAL CERTIFICATE EXCEP T IN THE CIRCUMSTANCES PROVIDED IN CLAUSE 3.3. ACCORDING TO CLAUSE 3.3, IN DIVIDUAL CERTIFICATES WERE TO BE ISSUED ONLY IN THE PRESCRIBED CIRCUMSTANCES, SUC H AS, THE COMMON DEPOSITARY OR ANY SUCCESSOR TO THE COMMON DEPOSITAR Y NOTIFYING TO THE COMPANY IN WRITING THAT IT IS AT ANY TIME UNWILLING OR UNABLE TO CONTINUE TO ACT AS A DEPOSITARY AND A SUCCESSOR DEPOSITARY IS NOT A PPOINTED BY THE COMPANY WITHIN 90 DAYS OR EUROCLEAR, CLEARSTREAM LUXEMBOURG (STOCK EXCHANGE) IS CLOSED FOR BUSINESS FOR A CONTINUOUS PERIOD OF 14 D AYS, ETC. AS PER THE PAYING, CONVERSION AND TRANSFER AGENCY AGREEMENT DATED 9.5. 2006, A COPY OF WHICH ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 32 HAS BEEN PLACED IN THE PB, THE ASSESSEE COMPANY AGR EED TO DELIVER TO THE REGISTRAR A DULY EXECUTED GC. SUCH GC WAS ISSUED ON 09.05.2006, BEING THE CLOSING DATE OF FCCB, AND DELIVERED TO DB, LUXEMBUR G (REGISTRAR). A COPY OF THE GLOBAL CERTIFICATE ISSUED BY THE ASSESSEE IN THE NA ME OF BT GLOBENET NOMINEES LIMITED FOR US$ 500 MILLION IS AVAILABLE AT PAGES 4 2 ONWARDS OF PB. IT WAS REGISTERED IN THE NAME OF BT GLOBENET AS THE NOMINE E OF DB LONDON, WHICH WAS THE COMMON DEPOSITORY. THE REGISTRAR AUTHENTICA TED THE GLOBAL CERTIFICATE UPONHE WRITTEN ORDER OF THE COMPANY AND ARRANGED FOR THE DELIVERY OF THE GLOBAL CERTIFICATE TO THE DEPOSITARY. THE AS SESSEE INSTRUCTED DB LONDON TO HOLD THE GC ON ITS BEHALF TILL DB HK INSTRUCTS I T TO EFFECT THE PAYMENT AND THEREAFTER TO HOLD IT FOR THE SUBSCRIBER, THAT IS, DB HK. PAYMENT OF US$497.500 MILLION (NET AFTER DEDUCTION OF EXPENSES AND COMMIS SION) WAS MADE BY DB HK THAT IS, THE SUBSCRIBER, ON THE INSTRUCTIONS OF THE ASSESSEE. COPIES OF THE LETTER AUTHORIZING PAYMENT AND THE CROSS RECEIPT IN RESPEC T OF US$ 497,500,000 ARE AVAILABLE AT PAGES 61 AND 62 OF PB. THE ASSESSEE RE CEIVED SUCH PAYMENT ON 09.05.2006 WHICH WAS REFLECTED IN ITS BOOKS OF ACCO UNT. THE ASSESSEE DULY INFORMED THE RESERVE BANK OF INDIA (RBI) ABOUT SUCH ISSUES OF FCCBS FROM TIME TO TIME AT THE RELEVANT STAGES. IT CAN BE NOTICED F ROM LETTER DOTED 28.3.2005 ISSUED BY RBI AUTHORIZING THE ASSESSEE TO ISSUE FCC BS UNDER AUTOMATIC APPROVAL ROUTE. 5.4 THE CASE OF ID. CIT IS THAT THE AO SHOULD HAVE EXAMINED THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF THE ACTUAL SUBSC RIBERS' TO THE FCCB ISSUE IN TERMS OF SECTION 68. IN HIS OPINION, THE ACCEPTANCE BY THE AO OF THE ASSESSEE'S CONTENTION THAT THE AMOUNT WAS EVENTUALLY RECEIVED FROM DB HK, THE SUBSCRIBER, WAS NOT APPROPRIATE. NOW THE QUESTION A RISES AS TO WHETHER THE ID. CIT WAS JUSTIFIED IN HOLDING THAT THE ONUS U/S 68 O F THE ACT COULD HAVE BEEN DISCHARGED ONLY ON PROVING THREE PRE-REQUISITES - I DENTITY, CAPACITY AND CREDITWORTHINESS - IN RESPECT OF ACTUAL SUBSCRIBERS AND NOT DB HK, WHO UNDERTOOK TO SUBSCRIBE TO THE FCCB AND REMITTED THE PROCEEDS AFTER PARTLY FINDING SOME FURTHER SUBSCRIBERS AND PARTLY ITSELF SUBSCRIBING TO THE FCCB. 5.5. SECTION 68 OF THE ACT CLEARLY PROVIDES THAT WH ERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN 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 O F THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. A BARE PERUS AL OF THIS PROVISION DIVULGES THAT THERE IS AN OBLIGATION ON THE ASSESSEE TO PROV E THE IDENTITY, CAPACITY AND CREDIT WORTHINESS OF THE PERSON FROM WHOM THE MONEY IS ACTUALLY RECEIVED. AT THE COST OF REPETITION, WE SUMMARIZE THE ENTIRE PRO CEEDINGS IN RESPECT OF FCCB OF US$ 500 MILLION WHICH WAS UNDERTAKEN TO BE SUBSC RIBED TO BY DB HK. A GC FOR THE WHOLE ISSUE WAS ISSUED IN FAVOUR OF THE NOM INEE OF DB HK, WHO COULD HAVE EITHER SUBSCRIBED TO ALL THE BONDS ITSELF OR S OLICITED CUSTOMERS. IT WAS THE SOLE DISCRETION/OBLIGATION OF THE DB HK TO FIND SUC H CUSTOMERS, IF IT WANTED. ADMITTEDLY, DB HK SUBSCRIBED TO/COLLECTED THE SUM I N RESPECT OF US$ 500 MILLION AND AFTER DEDUCTION OF THEIR COMMISSION, RE MITTED THE BALANCE USD 497,500,000 TO THE ASSESSEE. ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 33 5.6. IT IS PALPABLE FROM THE ABOVE NARRATION OF FAC TS THAT THE ASSESSEE WAS CONCERNED WITH AND DID ACTUALLY RECEIV E US$ 497.500 MILLION FROM AND ON BEHALF OF DB HK, WHICH WAS DULY RECORDED IN ITS NAME. IT IS NOT UNDERSTANDABLE, IN THE FACTS AND CIRCUMSTANCES OF T HE EXTANT CASE, THAT HOW THE ASSESSEE COULD HAVE ENTERED THE NAMES AND ADDRESSES OF THE ACTUAL SUBSCRIBERS IN ITS BOOKS OF ACCOUNT, WHEN THE SUBSCRIBER, AS FA R AS THE ASSESSEE IS CONCERNED, WAS DB HK. THE GLOBAL CERTIFICATE WAS ISSUED BY THE ASSESSEE IN THE NAME OF DB HK. IT WAS FOR DB HK TO SUBSCRIBE TO THE ENTIRE FCCB OR FIND CUSTOMERS FOR A PART OR TOTAL OF SUCH ISSUE. THE DECISION ON INVITING OTHER CUSTOMERS FROM OUTSIDE INDIA TO SUBSCRIBE TO THE FCCB AND TO WHAT EXTENT WAS THE SOLE RESPONSIBILITY OF DB HK, WITHOUT ANY INSTRUCTIONS O R INVOLVEMENT OF THE ASSESSEE IN INDIA. IN SO FAR AS THE ASSESSEE IS CON CERNED, IT WAS ONLY SUPPOSED TO GET THE AMOUNT AGAINST FCCB FROM DB HK, WHICH IT, I N FACT, RECEIVED. THE FACT THAT GLOBAL CERTIFICATE WAS ISSUED IN THE NAME OF N OMINEE OF DB HK AMPLY PROVES THAT IT WAS THE OBLIGATION OF DB HK TO PAY T OWARDS FCCB ISSUE OF US$ 500 MILLION. THE ID. CIT HAS NOT REFERRED TO ANY MA TERIAL WHICH INDICATES THAT THE ASSESSEE HAD DETAILS OF THE 'ACTUAL SUBSCRIBERS ' AT THE TIME OF ISSUANCE OF FCCB OR IT WAS OBLIGED TO KEEP SUCH DETAILS. NO MAT ERIAL HAS BEEN BROUGHT TO OUR NOTICE EVEN BY THE ID. DR TO SHOW THAT AT THAT STAG E THE ASSESSEE HAD ANY DIRECT CONTACT WITH THE ACTUAL SUBSCRIBERS TO THE FCCB, DI FFERENT FROM DB HK. IT CAN BE OBSERVED FROM THE DETAILS OF THE SHARES ISSUED, ON CONVERSION OF FCCB AT A MUCH LATER STAGE, THAT DB HK ITSELF OPTED TO SUBSCR IBE FOR A CERTAIN PART OF THE FCCB AND ISSUED A PORTION THEREOF TO OTHER CUSTOMER S WHO ALSO HAPPEN TO BE INTERNATIONAL FINANCIAL INSTITUTIONS ONLY. AT THE S TAGE OF ISSUANCE OF BONDS, THERE WAS PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND DB HK ON ONE HAND AND BETWEEN DB HK AND ACTUAL SUBSCRIBERS ON THE OTHER. IT WAS T HE DUTY OF DB HK TO EVENTUALLY GET THE SHARES ALLOTTED OR REFUND GRANTE D TO ITSELF AND OTHER INTERNATIONAL FINANCIAL INSTITUTIONS AT THE RELEVAN T POINT OF TIME. IT WAS ONLY AT THE STAGE OF ISSUANCE OF SHARES OR THE GRANTING OF REFUND, THAT THE ASSESSEE WAS TO DO THE NEEDFUL UPON INTIMATION BY DB HK ABOUT THE P ERSONS WHO HAD PURCHASED SEPARATE INTEREST (SHARES) IN THE GC. IT IS A MATTE R OF RECORD THAT THE ASSESSEE ISSUED SHARES ON CONVERSION TO CERTAIN PARTIES, SUC H AS, JP MORGAN SECURITIES LTD., THE HONG KONG AND SHANGHAI BANKING CORPORATIO N LIMITED AND DB HK ITSELF IN NEXT YEAR ON VARIOUS DATES FROM 18.10.200 7 TO 31.1.2008. ONLY ON THE ISSUANCE OF SHARES, THESE INTERNATIONAL FINANCIAL I NSTITUTIONS COULD BE SAID TO HAVE COME INTO DIRECT CONTACT WITH THE ASSESSEE COMPANY. AT THE STAGE OF ISSUANCE OF BONDS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSME NT YEAR UNDER CONSIDERATION, SUCH CUSTOMERS OF DB HK WERE NOT ENTITLED TO DIRECT LY APPROACH THE ASSESSEE COMPANY IN RESPECT OF ANY MATTER CONCERNING THE ISS UANCE OF BONDS. WHEN SUCH IS THE SITUATION, WE FAIL TO APPRECIATE AS TO HOW T HE ASSESSEE COULD RECORD THE NAMES OF ACTUAL SUBSCRIBERS OTHER THAN DB HK IN ITS BOOKS OF ACCOUNT AND FURTHER PROVE THEIR IDENTITY, CAPACITY AND CREDIT W ORTHINESS. ON A SPECIFIC QUERY FROM THE BENCH, THE LEARNED DEPARTMENTAL REPRESENTA TIVE COULD NOT BRING TO OUR NOTICE ANY STATUTORY REQUIREMENT OR GUIDELINE ISSUE D BY THE RBI OR ANY OTHER GOVERNMENT AUTHORITY FASTENING OBLIGATION ON THE AS SESSEE TO MAINTAIN A RECORD OF THE ACTUAL SUBSCRIBERS AT THAT STAGE AND RECORDI NG THEIR NAMES INSTEAD OF DB HK, WHO ACTUALLY SIGNED SUBSCRIPTION AGREEMENT WITH THE ASSESSEE. DURING THE CURENCY OF THE GC, ONLY DB HK REMAINED THE SUBSCRIB ER TO THE FCCB ISSUE OF THE ASSESSEE. THE ASSESSEE WAS ONLY REQUIRED TO PRO VE THE IDENTITY, CAPACITY AND CREDITWORTHINESS OF DB HK WHO SUBSCRIBED TO ITS FUL L ISSUE OF FCCB (SOME PART DIRECTLY AND SOME PART THROUGH ITS OWN CUSTOMERS), WHICH IS NOT IN DOUBT. THE FACT THAT THE ASSESSEE RECEIVED THE AMOUNT OF SUBSCRIPTI ON OF BONDS FROM DB HK HAS ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 34 NOT BEEN DENIED BY LD CIT. THE FURTHER FACT THAT GL OBAL CERTIFICATE IN RESPECT OF BONDS WAS ISSUED IN FAVOUR OF DB HK AND UPON CONVER SION OF SUCH BONDS, SOME OF THE SHARES WERE ISSUED IN FAVOUR OF DB HK A ND REMAINING IN FAVOUR OF OTHER INTERNATIONAL FINANCIAL INSTITUTIONS HAS ALSO NOT BEEN DISPUTED BY THE ID. CIT. IN OUR CONSIDERED OPINION, THE ASSESSEE ADEQUA TELY DISCHARGED THE ONUS CAST UPON IT IN TERMS OF SECTION 68. THE PROBE SUGG ESTED BY THE LD. CIT COULD HAVE BEEN POSSIBLE IN THE ASSESSMENT OF DB HK, WHO EVENTUALLY PARTLY SUBSCRIBED TO THE BONDS ITSELF AND PARTLY ISSUED TH ESE TO THE INTERNATIONAL FINANCIAL INSTITUTIONS. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT WAS NOT JUSTIFIED IN PUTTING OBLIGATIO N ON THE ASSESSEE TO PROVE THE IDENTITY, CAPACITY AND CREDITWORTHINESS OF THE ACTU AL SUBSCRIBERS, WHICH FACT WAS BEYOND ITS REACH AT THE RELEVANT TIME. WE, THEREFOR E, DO NOT APPROVE THE STAND TAKEN BY ID. CIT ON THIS ISSUE. 22. WE ARE OF THE VIEW THAT ASSESSEE HAS RECEIVED U S$ 290.40 MILLION AFTER DEDUCTION OF THEIR COMMISSION FROM BARCLAY BANK WHI CH WAS DULY RECORDED IN THE BOOKS OF THE ASSESSEE.THE ASSESSEE HAS GIVEN DO CUMENTARY EVIDENCE BEFORE US TO SHOW THAT BARCLAY BANK HAS ACCEPTED THE OFFER ED DOCUMENT OF THE ASSESSEE COMPANY. WE FIND THAT CIT(A) HELD THAT THE FACTS OF THE RELIANCE COMMUNICATIONS CASE AND ASSESSEES CASE ARE SIMILA R TO WHICH WE SUBSCRIBE. THEREFORE, WE ARE OF THE VIEW THAT CIT(A) IS JUSTIF IED IN DELETING THE ADDITION U/S.68. 23. WE FIND THAT THE TRIBUNALS DECISION WAS CHALLE NGED BEFORE HONBLE BOMBAY HIGH COURT. IN APPEAL MEMO UNDER SECTION 26 0A, THE DEPARTMENT HAS RAISED THE ISSUE OF ACTUAL SUBSCRIBERS IDENTITY, C APACITY AND GENUINENESS AS CAN BE SEEN FROM THE SUBSTANTIAL QUESTION OF LAW AS WEL L AS THE GROUNDS OF APPEAL RAISED IN THE APPEAL MEMO WHICH READS AS UNDER: A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE TRIBUNAL WAS JUSTIFIED CANCELLING ORDER U/S 263 ON THE ISSUE OF FCCB EVEN THOUGH THE ACTUAL SUBSCRI BER'S IDENTITY, CAPACITY AND GENUINENESS OF TRANSACTIONS WERE NOT C OLLECTED AND ESTABLISHED BY THE AO? B) .. C) .. ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 35 DEPARTMENT IN SLP FILED AGAINST THE ORDER OF BOMBAY HIGH COURT HAS TAKEN THE FOLLOWING SPECIFIC QUESTIONS OF LAW:- (VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE HONBLE HIGH COURT HAS NOT ERRED IN UPHOLDING THE O RDER OF THE LD. TRIBUNAL ON THE GROUND THAT THERE WAS NO ERROR OF L AW IN ITS ORDER ON THE ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS (FC CBS) WITHOUT APPRECIATING THAT THE ASSESSEE / RESPONDENT HEREIN HAD NOT DISCHARGED ITS ONUS OF FURNISHING THE ACTUAL SUBSCR IBERS IDENTITY, CAPACITY AND GENUINENESS OF THE TRANSACTION, WHICH IS PREREQUISITE UNDER SECTION 68 OF THE INCOME TAX ACT, 1961? (VII).. (VIII) WHETHER THE HONBLE HIGH COURT HAS NOT ERRED IN NOT APPRECIATING THAT UNDER SECTION 68 OF THE INCOME TA X ACT, 1961, IT IS NOT SUFFICIENT FOR AN ASSESSEE TO DISCLOSE THAT CRE DITS IN THEIR BOOKS HAD BEEN RECEIVED THROUGH BANKING CHANNELS; THE IDE NTITY AS WELL AS THE CREDITWORTHINESS OF THE ACTUAL SUBSCRIBERS MUST NEVERTHELESS BE PROVED? THE HONBLE SUPREME COURT OF INDIA IN ITS JUDGMENT FOR SPECIAL LEAVE TO APPEAL (C) .. CC NO(S). 21779/2016 (ARISING OUT OF IMPUGNED FINAL JUDGMENT AND ORDER DATED 28/03/2016 IN ITA NO.1816/ 2013 PASSED BY THE HIGH COURT OF BOMBAY) IN THE CASE OF COMMISSIONER O F INCOME TAX -10, MUMBAI VS. M/S. RELIANCE COMMUNICATION LTD. PASSED THE ORDER WHICH READS AS UNDER: ORDER DELAY CONDONED. WE FIND NO REASON TO ENTERTAIN THIS SPECIAL LEAVE P ETITION, WHICH IS, ACCORDINGLY, DISMISSED. PENDING APPLICATION(S), IF ANY, SHALL STAND DISPOS ED OF. THUS THE ORDER OF TRIBUNAL IN CASE OF RCOM HAS ATT AIN FINALITY. SINCE THE FACTS IN CASE OF RCOM ARE SIMILAR TO THE FACTS OF THE ASSESSEES CASE, FOLLOWING THE SAID DECISION OF TRIBUNAL WHICH IS FI NALLY APPROVED BY THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 36 HONBLE SUPREME COURT, THE REVENUES APPEAL AS REGA RDS ADDITION U/S.68 IS DISMISSED. 24. THE REVENUE HAS ALSO RAISED THE GROUND CHALLENG ING THE FINDING OF THE CIT(A) THAT SUBSCRIBERS TO BONDS ARE LEAD MANAGER A ND BENEFICIAL BOND HOLDERS ARE IRRELEVANT FOR THE PURPOSE OF SECTION 68. WHIL E DECIDING THE MAIN GROUND RELATING TO APPLICABILITY OF SECTION 68, WE HAVE HE LD THAT IN THE FACTS AND CONSIDERING THE EVIDENCES PRODUCED BY THE ASSESSE, THE SUBSCRIBERS TO BONDS WERE BARCLAYS BANK AND SOURCE OF SOURCE I.E. BENEFI CIAL BOND HOLDERS IF ANY WHO MAY HAVE GIVEN FUNDS TO BARCLAYS BANK IS IRRELE VANT. THE LD. A.R. HAS RELIED UPON VARIOUS DECISIONS OF SUPREME COURT, BOM BAY HIGH COURT AND OTHER COURTS HOLDING THAT SOURCE OF SOURCE IS NOT THE CRI TERIA TO BE CONSIDERED IN APPLICABILITY OF SECTION 68. AS HELD BY TRIBUNAL I N CASE OF RCOM THAT THE SOURCE OF SOURCE ISSUE IS TO BE ADDRESSED IN THE AS SESSMENT OF DB (IN RCOM CASE), IN THE ASSESSEES CASE THE SAME HAS TO BE CO NSIDERED IN THE ASSESSMENT OF BARCLAYS BANK AND NOT IN THE ASSESSEES CASE. 25. THE NEXT GROUNDS OF APPEAL OF THE REVENUE IS AG AINST THE DELETION OF FCCB ISSUE EXPENSES AND FCCB INTEREST. THE AO HAD DISALLOWED THE FCCB ISSUE EXPENSES OF RS.285828246 AND FCCB INTEREST OF RS.331693100. THE AO HAS DISALLOWED THE ABOVE EXPENSES RELATING TO FC CB ON THE PREMISE THAT THE FCCB FUNDS ARE NON GENUINE AS HELD BY HIM WHILE MAKING THE ADDITION OF FCCB PROCEEDS U/S.68. SINCE WE HAVE HELD THAT THE NATURE AND SOURCE OF F UNDS OF FCCB IS FULLY EXPLAINED AND THAT THE ADDITION U/S.68 WAS RIGHTLY DELETED BY CIT(A), THE ADDITION OF FCCB EXPENSES AND FCCB INTEREST ARE ALS O RIGHTLY DELETED BY CIT(A). CIT(A) HAS PARTIALLY UPHELD THE DISALLOWAN CE OF FCCB INTEREST AND FCCB EXPENSES ON THE REASON OF DEPLOYMENT OF THE FU NDS IN VARIOUS SECURITIES. THE SAID ADDITION IS A SUBJECT MATTER OF ASSESSEES APPEAL AND IS SEPARATELY ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 37 DECIDED IN SUBSEQUENT PARAS. THUS, THE ADDITION OF FCCB INTEREST AND FCCB EXPENSES DELETED BY CIT(A) IS CORRECT AS ADDITION U /S.68 RELATING TO FCCB FUNDS IS DELETED. 26. IN THE RESULT, ALL GROUNDS RAISED IN DEPARTMEN TS APPEAL ARE DISMISSED. 27. NOW ASSESSEES APPEAL I.E. ITA NO.1000/M/2016 I S BEING DISPOSED OF AS UNDER: ITA NO.1000/M/2016 (ASSESSEES APPEAL) 28. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE REOPENING OF THE ASSESSMENT. IN GROUND NO.2, THE ASSESSEE HAS CHALL ENGED THE RE-ASSESSMENT ORDER IS BAD-IN-LAW AS THE AO HAS VIOLATED THE PRIN CIPLE OF NATURAL JUSTICE. IN GROUND NO.5, THE ASSESSEE HAS CHALLENGED THE REOPEN ING OF ASSESSMENT IN RESPECT OF DISALLOWANCE OF PART OF FCCB INTEREST BY CLAIMING THAT UNDER THIRD PROVISO TO SECTION 147 THE ASSESSMENT COULD NOT HAV E BEEN REOPENED. IN GROUND NO.9, THE ASSESSEE HAS CHALLENGED THE REOPEN ING OF ASSESSMENT IN RESPECT OF DISALLOWANCE OF PART OF FCCB EXPENSES BY CLAIMING THAT UNDER THIRD PROVISO TO SECTION 147 THE ASSESSMENT COULD NOT HAV E BEEN REOPENED. 29. SINCE THE VIEW TAKEN BY LD. CIT(A) ON MERITS HA S BEEN UPHELD AND SINCE WE HAVE SEPARATELY DELETED THE ADDITION CONFIRMED B Y CIT(A) IN RESPECT OF PART OF FCCB INTEREST AND PART OF FCCB EXPENSES, WE ARE OF THE VIEW THAT THE ISSUE CONTESTED BY THE ASSESSEE RELATING TO THE VALIDITY OF REOPENING OF ASSESSMENT DOES NOT REQUIRE ADJUDICATION AS THE SAME WOULD RES ULT IN AN ACADEMIC EXERCISE. 30. THE ASSESSEE IN GROUND NO.3, 4 AND 6 HAS CHALLE NGED THE ADDITION CONFIRMED BY CIT(A) OUT OF FCCB INTEREST PAID. 31. THE AO IN HIS REASONS RECORDED HAS LAID GREAT E MPHASIS ON APPLICATION OF FUNDS. THE AO IN THIS REGARD HAS RELIED UPON TH E REPORT OF SEBI AND REPORT ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 38 OF DIT (INTELLIGENCE), NEW DELHI. AS PER AO, THE F UNDS RAISED BY ISSUE OF FCCB WERE USED FOR INVESTMENT PURPOSES OUTSIDE INDI A AND THE SAME WERE USED IN VARIOUS YIELD MANAGEMENT CERTIFICATES (YMCS ). THE AO IN COURSE OF RE-ASSESSMENT PROCEEDINGS REFERRED TO VARIOUS INVES TMENTS FOR DIFFERENT PERIOD THE CHART OF WHICH APPEARS ON THE PAGE 18 OF THE RE -ASSESSMENT ORDER. THE REASONING OF THE AO IS THAT THE FCCB FUNDS WE REUSE D IN BUSINESS AND THE SAME HAS BEEN DIVERTED FOR NON BUSINESS PURPOSES BY INVESTING THE FUNDS IN YMCS. AO HAD DISALLOWED THE ENTIRE FCCB INTEREST O N THE GROUND THAT THE FCCB FUNDS WERE FOUND TO BE NON GENUINE AND ADDITIO N WAS MADE U/S.68. THUS THE CLAIM OF THE AO WAS THAT THE ENTIRE FCCB I NTEREST IS DISALLOWABLE AS NON GENUINE EXPENDITURE FOLLOWING THE ADDITION U/S. 68 OF THE FCCB FUNDS. 32. THE LD. A.R. SUBMITTED THAT CIT(A) HAS ALREA DY HELD THAT PROVISIONS OF SECTION 68 ARE NOT APPLICABLE TO FCCB FUNDS AND THE REFORE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE OF INTEREST. HE FURTHER POINTED OUT THAT CIT(A) HAS DIRECTED TO RESTRICT THE DISALLOWANCE FOR THE PERIO D OF UTILIZATION OF FCCB FUNDS FOR NON BUSINESS PURPOSE I.E. INVESTMENT IN YMCS. AS PER LD. A.R. THE FUNDS RAISED BY ISSUE OF FCCB WERE INVESTED IN VARIOUS IN VESTMENT VEHICLES WHICH WAS RESULTING IN INCOME AND WAS OFFERED TO TAX. TH E ASSESSEE HAS OFFERED TO TAX THE INCOME FOR THE PERIOD FOR WHICH THE INVESTMENTS WERE MADE IN YMCS. THE CLAIM OF THE ASSESSEE REGARDING INTEREST IS JUSTIFI ED U/S.36 AS THE INTEREST INCOME IS OFFERED TO TAX AS BUSINESS INCOME AND THE AO HAS ACCEPTED THE SAME BOTH IN ORIGINAL ASSESSMENT AS WELL AS RE-ASSESSMENT ORDER. THE LD. A.R. FURTHER POINTED OUT THAT EVEN IF THE INVESTMENT INCOME IS T O BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, THE PROPORTIONATE INTERE ST IS ALLOWABLE U/S.57(III). THE LD. AR THEREFORE SUBMITTED THAT THE ORDER OF CI T(A) HAS TO BE REVERSED. 33. THE LD. DR RELIED UPON THE ORDER OF CIT(A). HE FURTHER SUBMITTED THAT THE CLAIM CANNOT BE ADMITTED BOTH U/S.36 AS WELL AS U/S.57(III). ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 39 34. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE ASSESSEE HAS OFFERED TO TAX THE INVESTMENT INCOME W HICH IS NOT DISPUTED BY THE A.O. THE AO HAS ALSO TAXED THE INVESTMENTS INCOME AS BUSINESS INCOME BOTH IN ORIGINAL ASSESSMENT AND RE-ASSESSMENT. AFTER TA XING THE INCOME FROM APPLICATION OF FUNDS, THE AO CANNOT TURN HIS BACK A ND CLAIM THAT THE EXPENDITURE ON BORROWING IS NOT ALLOWABLE AS BUSINE SS EXPENSE. THE ASSESSEE HAS BEEN REQUESTING THE AO TO PROVIDE THE COPY OF R EPORT OF SEBI AND REPORT OF DIRECTOR OF DIT (INTELLIGENCE) WHICH IS THE BASIS F OR REOPENING THE ASSESSMENT AS WELL AS MAKING THE ADDITION. THE SAME HAS NOT B EEN SUPPLIED TO THE ASSESSE. NO ADVERSE EVIDENCE HAS BEEN CONFRONTED TO THE ASSE SSE. THE PERUSAL OF THE ASSESSMENT ORDER ALSO DOES NOT REVEAL ANY ADVERSE E VIDENCE. THE FINDING OF THE AO IN THIS REGARD IS UNSUPPORTED BY ANY EVIDENCE. CONSIDERING THE ABOVE AND THE FACT THAT INCOME FROM INVESTMENTS HAS BEEN OFFE RED TO TAX AND THE SAME HAS BEEN TAXED AS BUSINESS INCOME, THERE IS NO JUSTIFIC ATION FOR DISALLOWANCE OF SOCALLED PROPORTIONATE INTEREST. WE THEREFORE HOLD THAT THE ORDER OF CIT(A) UPHOLDING THE DISALLOWANCE OF PROPORTIONATE INTERES T IS TO BE REVERSED. WE HOLD ACCORDINGLY. 35. THE ASSESSEE IN GROUND NO.7 AND 8 HAS CHALLENGE D THE ADDITION CONFIRMED BY CIT(A) OUT OF FCCB EXPENSES. 36. CIT(A) HAS CONFIRMED THE DISALLOWANCE OUT OF FC CB EXPENSES IN THE RATIO OF FCCB INTEREST DISALLOWED TO TOTAL INTEREST CLAIMED. AS PER CIT(A), THE FACTS AND CIRCUMSTANCES AS DISCUSSED IN CONTEXT OF FCCB INTEREST EXPENSE IS EQUALLY APPLICABLE TO FCCB EXPENSES. HE ACCORDINGLY DISALLOWED THE FCCB EXPENSES IN THE RATIO OF FCCB INTEREST EXPENSES DIS ALLOWED TO TOTAL FCCB INTEREST EXPENSES CLAIMED. AS STATED IN RESPECT OF FCCB INTEREST THE AO HAS DISALLOWED ENTIRE FCCB EXPENSES ON THE GROUND THAT FCCB FUNDS HAVE BEEN CONSIDERED TO BE NON GENUINE AND PROVISIONS OF SECT ION 68 WERE APPLIED. CIT(A) HAS TREATED THE FCCB FUNDS AS PROPERLY EXPLA INED AND HAS DELETED THE ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 40 FCCB EXPENSES EXCEPT A PART THEREOF WHICH WAS DISAL LOWED AS THE FUNDS WERE USED FOR INVESTMENTS PURPOSE OUTSIDE INDIA WHICH AS PER HIM WAS NON BUSINESS PURPOSE. 37. THE LD. AR SUBMITTED THAT THE SAID PROPORTIONAT E DISALLOWANCE OF EXPENSES IS INCORRECT AND STATED THAT SUBMISSION AS REGARDS FCCB INTEREST EQUALLY APPLIES TO FCCB EXPENSES. 38. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT CIT(A) HAS DISALLOWED THE PROPORTIONATE AMOUNT BASE D ON THE FCCB INTEREST DISALLOWED. IN EARLIER PARA WE HAVE HELD THAT FCCB INTEREST IS NOT DISALLOWABLE AND THEREFORE WE HAVE REVERSED THE ORDER OF CIT(A) ON THE DISALLOWANCE OF FCCB INTEREST. BASED ON SAME REASONING, PROPORTION ATE FCCB EXPENSES IS ALSO NOT DISALLOWABLE AND THEREFORE THE ORDER OF CI T(A) IN THIS REGARD IS ALSO REVERSED. 39. GROUND NO.10 IS REGARDING CHARGING OF INTEREST U/S.234B. THE AO HAS NOT DISCUSSED THE LEVY OF INTEREST IN THE RE-ASSESS MENT ORDER. HOWEVER, THE AO CHARGED THE INTEREST U/S.234B AMOUNTING TO RS.381,7 9,84,083. THE AO PASSED ORDER U/S.154 WHEREBY HE REDUCED THE INTEREST CHARG ED U/S.234B TO RS.226,75,11,014. THE GROUND OF THE ASSESSEE IS TH AT INTEREST WAS CHARGED FOR THE FIRST TIME IN THE ORDER U/S.147 AS THERE WAS NO CHARGE OF INTEREST IN THE ORDER U/S.143(3) IN RESPECT OF ORIGINAL ASSESSMENT. 40. THE LD. CIT(A) RELIED UPON THE DECISION OF SOUT H INDIAN BANK LTD. 191 TAXMAN 301 (KER).CIT(A) HAD REJECTED THE SUBMISSION OF THE ASSESSEE THAT THE INTEREST CANNOT BE LEVIED FOR THE FIRST TIME IN THE ORDER U/S.147. CIT(A) THEREFORE DIRECTED THE AO TO TAKE THE ACTION IN ACC ORDANCE WITH LAW. ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 41 41. THE LD. AR SUBMITTED THAT IN THE ORIGINAL ASSES SMENT, THE INTEREST U/S.234B WAS NOT CHARGEABLE AS THE ADVANCE TAX PAID WAS MORE THAN THE ASSESSED TAX. IN THE RE-ASSESSMENT U/S.147, ADDITI ONS WERE MADE AND THEREFORE THE ASSESSED TAX WAS IN EXCESS OF THE ADVANCE TAX P AID. AS PER THE LD. AR, SECTION 234B(3) REFERS TO INCREASE OF INTEREST AND DOES NOT PERMIT CHARGING OF INTEREST FOR THE FIRST TIME. AS PER THE LD. AR, EX PLANATION 2 TO SECTION 234B IS APPLICABLE ONLY WHEN THERE IS ONLY ASSESSMENT ORDER U/S.147 WITHOUT THERE BEING AN ORDER U/S.143(3) OR INTIMATION U/S.143(1). IN THE ASSESSEES CASE THOUGH THE RE-ASSESSMENT U/S.147 WAS FOR THE FIRST TIME, IT WAS PRECEDED BY AN ORDER U/S.143(3) AND THEREFORE THE EXPLANATION 2 TO SECTION 234B CANNOT COME INTO PLAY. 42. THE LD. DR RELIED UPON THE ORDER OF CIT(A) AND THE DECISION IN CASE OF SOUTH INDIAN BANK LTD. 43. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. CONSIDERING OUR DECISION ON GROUNDS RAISED BY DEPARTMENT AND BY THE ASSESSEE, THE ADDITIONS MADE IN THE RE-ASSESSMENT ORDER ARE NOT SUSTAINED W ITH THE RESULT THE INCOME COMPUTATION REVERTS BACK TO THE ORIGINAL ASSESSMENT WHERE THE INTEREST WAS NOT LEVIED. CONSIDERING THE ABOVE POSITION, WE ARE OF THE VIEW THAT THE ISSUE BECOMES ACADEMIC AND ACCORDINGLY THE ORDER OF THE C IT(A) IN THIS ISSUE IS SET ASIDE. 44. IN GROUND NO.11 THE ASSESSEE HAS CHALLENGED THE CHARGE OF INTEREST U/S.234D. THE AO HAS NOT SEPARATELY DISCUSSED THE CHARGE OF INTEREST U/S.234D IN THE RE-ASSESSMENT ORDER. CIT(A) DIRECTED THE AO TO TAKE ACTION AS PER LAW AS IN HIS OPINION CHARGING OF INTEREST BEING CONSEQ UENTIAL IN NATURE. 45. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS NO T CONSIDERED THE PROVISIONS OF SECTION 234D(1)(B). AS PER THE SAID PROVISIONS, INTEREST IS ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 42 CHARGEABLE WHEN THE AMOUNT REFUNDED U/S.143(1) EXCE EDS THE AMOUNT REFUNDABLE ON REGULAR ASSESSMENT. THE ASSESSEE POI NTED OUT THAT IN THEIR CASE REFUND GRANTED U/S.143(1) WAS RS.83,60,109 AND INTE REST U/S.234D THEREON WAS CHARGED AT RS.1,67,202 IN THE ORIGINAL ASSESSMENT O RDER. SUBSEQUENTLY, THERE WERE FURTHER REFUNDS BUT THE SAME WERE NOT GRANTED U/S.143(1). IT WAS THEREFORE SUBMITTED THAT CHARGE OF INTEREST U/S.234D SHOULD B E RESTRICTED TO RS.1,67,202 BEING THE INTEREST ON REFUND GRANTED IN INTIMATION U/S.143(1) AND FOUND TO BE EXCESSIVE. 46. THE LD. DR RELIED UPON THE ORDER OF CIT(A). 47. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. THIS ISSUE REQUIRES VERIFICATION OF FACTS AS TO HOW MUCH REFUN D WAS GRANTED U/S.143(1) WHICH WAS SUBSEQUENTLY RECOVERED IN REGULAR ASSESSM ENT. ACCORDINGLY THE AO IS DIRECTED TO VERIFY THE FACTS AND RESTRICT THE CH ARGE OF INTEREST ON REFUNDS GRANTED IN INTIMATION U/S.143(1) WHICH HAS BEEN REC OVERED IN REGULAR ASSESSMENT. 48. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.05.2017. SD/- SD/- (RAJESH KUMAR) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.05.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI ITA NO.1000/M/2016 ITA NO.1076/M/2016 M/S. RELIANCE NATURAL RESOURCES LTD. 43 THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT.REGISTRAR, ITAT, MUMBAI.