M/S AADHI ENTERPRISES PRIVATE LIMITED, CHENNAI V. ACIT, CENTRAL CIRCLE-3(1), CHENNAI

ITA 308/CHNY/2023

AI Insights

The case revolves around the appeal by Aadhi Enterprises Pvt. Ltd. against the order of the Commissioner of Income Tax (Appeals), which confirmed the addition made by the Assessing Officer under Section 68 of the Income Tax Act, treating the funds utilized for purchasing land as unexplained cash credits. The funds were received from Pacatolus Investments Ltd., a Mauritius-based company, as FDI. The Tribunal examined the evidences, including the valuation report and the due diligence conducted by the investor, and found that the assessee had established the source of source of the funds, thus reversing the earlier decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132733 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-07-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 09-03-2023
• Other Referred Cases: PCIT vs NRA Iron & Steel P Ltd, Mr. Deepak Talwar vs DCIT, PCIT vs R.M.Commercial P Ltd, PCIT-1 vs Ami Industries (India) P Ltd, Chemicon Engineering Consultant (P) Ltd vs ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Income from undisclosed sources; Double taxation relief; Principle of natural justice; Source of fund; Corroborative evidences; Valuation report; Onus to prove; Unabsorbed depreciation; TDS; Set aside; Bogus
• Section: 68; 148; 132; 90; 153A; 37(1); 250; 143(2); 208; 264; 139(1); 43; 48; 13; 22; 20

Judgement Text

अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ᮰ीमहावीर ᳲसह, उपा᭟यᭃ एवं᮰ी मनोज कुमार अᮕवाल, लेखा सद᭭यके समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 308/CHNY/2023 िनधाᭅरण वषᭅ/Assessment Year: 2016-17 Aadhi Enterprises Pvt. Ltd., No.1-130, Perambur Barracks Road, Pattalam, Chennai – 600 112. PAN: AANCA 0382P v. The ACIT, Central Circle-3(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri B. Ramakrishnan, FCA Shri S. Neelakantan, FCA Shri Shrenik Chordia, CA ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri S. Senthil Kumaran, CIT सुनवाई कᳱ तारीख/Date of Hearing : 11.07.2023 घोषणा कᳱ तारीख/Date of Pronouncement : 23.08.2023 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), Chennai in ITBA/APL/M/250/2022-23/1049990433(1) dated 22.02.2023. The assessment was framed by the ACIT, Central Circle 3(1), Chennai for the assessment year 2016-17 u/s.153A of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 19.08.2021. 2 I.T.A. No.308/CHNY/2023 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the addition made by AO of funds utilised for purchase of land out of investment made by Pacatolus Investments Ltd. (in short ‘Pacatolus’) as cash credit treating the same as bogus and unexplained u/s.68 of the Act. For this, assessee has raised following grounds:- 2. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.278,32,93,118/- being the investment by M/s.Pacatolus Investments Limited treated as bogus investment and consequently taxed u/s 68 of the Act as unexplained cash credits. 3. For that the Learned Commissioner of Income Tax (Appeals) failed to consider that the Appellant has satisfied the primary test of establishing the identity of the Investor with proofs of their Incorporation, their Legal Existence and thus, the onus thereafter shifts to the Assessing Officer u/s 68 of the Act. 4. For that the Learned Commissioner of Income Tax (Appeals) and Assessing Officer were carried away by the alleged movement of funds after the appellant company paid to vendor of the property being M/s. Chennai Properties and Investments Limited, instead of the source of the said funds proved by the appellant as genuine and consequently erred in concluding that the investments made by M/s.Pacatolus Investments Limited as bogus. 5. For that the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition without appreciating the fact that the Assessing Officer had failed to demonstrate the flow charts and tables with any documentary or evidentiary supporting/evidences. 6. For that the Learned Commissioner of Income Tax (Appeals) and the Assessing Officer failed to provide a copy of the evidences, received from the references made by the Assessing Officer through the FT & TR division of the CBDT to the foreign jurisdictions which supports the case of the appellant, which is against the principles of Natural Justice. 3 I.T.A. No.308/CHNY/2023 3. Brief facts are that the assessee, a private limited company, named as Aadhi Enterprises Pvt. Ltd. (AEPL), incorporated on 14.11.2014, is carrying on the business of developing high-end luxury apartments in South Madras. The assessee filed its return of income u/s. 139(1) of the Act for the relevant assessment year 2016-17 on 20.10.2016. Subsequently, a search action was carried out on the business premises of the assessee company u/s.132 of the Act on 09.11.2017 along with residential premises of the Directors of the assessee company. During the course of search, Income-tax Department found and seized certain loose sheets pertaining to assessee company vide Annexure ID mark ANN ‘A’-I. Consequent to search, a notice u/s.153A of the Act was issued to the assessee on 03.07.2018 and in response to this notice, the assessee filed its return of income on 19.07.2018 declaring total income at ‘nil’ under normal provisions of the Act and declaring income of Rs.45,76,264/- under MAT provisions as declared in the original return of income. Subsequently, notice u/s. 143(2) of the Act was issued to the assessee on 21.08.2019. 3.1 During the course of assessment proceedings, the AO required the assessee to explain the source of funds utilized for purchase of land of Rs.278,32,93,118/-. The AO noted the facts that the 4 I.T.A. No.308/CHNY/2023 assessee company AEPL was incorporated by Shri Sunil Khetpalia along with Shri Manish Parmar having 50% share each and introduced share capital of Rs.10 crores and also obtained unsecured loan through various banks amounting to Rs.43,85,48,001/-. The assessee AEPL entered into an agreement with Chennai Properties and Investments Pvt. Ltd., (CPIL) for purchase of plot of land ad-measuring 79 grounds and 2,222 sq.ft., located at Santhome High Road, MRC Nagar, Chennai on 16.03.2015 for a sale consideration of Rs.380 crores [property called as ‘Firhaven’]. The assessee, under this agreement, transferred an amount of Rs.15 crores to CPIL as advance on the date of agreement. General Power of Attorney was given to the directors of the assessee company on 01.04.2015 and 06.04.2015 for getting necessary approvals. The possession of the property was also given to the the assessee company. The AO noted that the assessee company had borrowed funds from Mauritius based investment company namely Pacatolus, by entering into agreement dated 14.11.2015 and obtained amount of Rs.278,32,93,118/- as FDI [bifurcation of this amount is Rs.98,30,83,118/- as equity share in the assessee company and a sum of Rs.180,02,06,000/- as debenture]. For acquiring 24% shares of the assessee company, Pacatolus paid this sum of Rs.98,30,831,118/- in the bifurcation of 5 I.T.A. No.308/CHNY/2023 shares of 31,61,052 @ Rs.10 each and premium thereon @ Rs.301/- per share amounting to Rs.95,14,82,597/-. The balance sum of Rs.180,02,06,000/- was received by the assessee company as long term borrowings. This whole transaction happened during financial year 2015-16 relevant to this assessment year 2016-17. The AO noted that during financial year 2017-18 relevant to assessment year 2018-19, the assessee company has issued debentures of Rs.180,02,06,000/- in favour of Pacatolous. The AO noted that the assessee company after receiving FDI, transferred a sum of Rs.297.50 crores of advances to CPIL [during financial year 2014-15 amounting to Rs.15 crore and during financial year 2015- 16, Rs.282.50 crores]. The AO noted that CPIL made repayment of Rs.42.67 crores during financial year 2016-17 relevant to assessment year 2017-18 to the assessee company. In term of the above facts, the AO required the assessee to explain source of funds utilized for the purchase of land for this assessment year 2016-17 relevant to financial year 2015-16 amounting to Rs.278,32,93,118/. The AO noted that the entire FDI investments is controlled by the assessee company and for this, he reasoned that as and when CPIL received money from the assessee, immediately funds were transferred to some other shell companies, which in turn, in some cases have been received by the concerns controlled by the 6 I.T.A. No.308/CHNY/2023 directors of the assessee company. He also discussed that the deal between CPIL and assessee-company did not materialize due to dispute and both parties approached for arbitration. The Arbitration award was delivered on 19.03.2018 by virtue of which, CPIL had to sell part of ‘Firhaven’ i.e., 40 grounds for Rs.170 crores and also return back excess advance of Rs.84.83 crores to the assessee company. The AO also noted that the unaccounted fund / money was routed through Pacatolous, through entities located in various countries and the same was transferred to the assessee company by Pacatolous. Hence, to verify source of FDI, matter was referred to FT&TR (Foreign Tax & Tax Research) division of Income-tax Department in Mauritius. It was gathered that the money routed through Pacatolous was bogus FDI and hence, in this assessment year, the AO added an amount of Rs.278,32,93,118/- as unexplained cash credit being source of funds utilized for purchase of land u/s.68 of the Act. For this, the AO concluded as under:- “19. From the above, it is evident that the M/s. Chennai Properties and Investment Limited had no business transaction with the other party and the company had no control over the bank operation since the signed blank cheques were given to the promoters of M/s. Aadhi Enterprises Private Limited and they had transferred the amount to various persons and entities. The above facts and statements prove that the transaction was nothing but a sham. Conclusion: In view of the incriminating documents found during the course of search & seizure operation, findings during the post search proceedings and the information gathered during the course of assessment proceedings (both 7 I.T.A. No.308/CHNY/2023 source of funds of M/s. AEPL and application of sales proceeds by M/s. CPIL) as discussed in the foregoing paras, it is very much evident that the assessee has routed its unaccounted income of Rs. 278,32,93,118/- through various foreign companies and brought back the same as FDI through a Maritius based company namely M/s. Pacatolus Investment Limited, Mauritius to the tune of Rs. 278,32,93,118/- during the year under consideration. Therefore, the amount of Rs. 278,32,93,118/- received as FDI is treated as Unexplained Cash Credit' as per the provision of Sec.68 of the Income Tax Act, 1961 and added back to the total income of the assessee.” Aggrieved, assessee preferred appeal before CIT(A). 4. The CIT(A) after considering the submissions of the assessee and assessment order, confirmed the action of the AO by observing in para 7.15 to 7.37 as under:- 7.15 Then the assessee produced the documents that the source for the investment is from Pacatolus Growth Fund (PGF), which is an investment fund and the PIL is a special purpose vehicle for investment in AEPL. The assessee is able to show the adequacy of funds with PGF for investment in PIL which has given the money to AEPL. Thus, the assessee was successfully able to shift the onus to the AO. 7.16 Now, the AO has traversed various documents, transactions of different entities and demonstrated that it is not an independent investment decision of PGF to invest in AEPL through PIL but specific amount of money received from specific entity by PGF has been specifically invested in AEPL and that PGF is only a channel for investment. This has raised a very serious suspicion before the AO about the actual capacity of PIL and also the genuineness of the transaction. Before the AO, the assessee has not been able to clear this aspect. Therefore, the onus is now on the assessee to produce the actual source of the investment and the genuineness of the transaction, i.e., the investor has made due diligence for making the FDI in AEPL. 8 I.T.A. No.308/CHNY/2023 7.17 In this connection, the AO relying on the Bank statement of M/s Pacatolus Investment Ltd, M/s Pacatolus Growth Fund, M/s Rosalie Holdings Ltd, M/s Shs Opecs Investment Ltd Reg Ptg, M/s BMS Holdings Limited, M/s Silver Premium Enterprises Ltd and M/s Keystone corporate services Ltd highlighted that the funds were layered from different entities and also confirmed that Pacatolus Investment Ltd was not the actual source of the fund through PGF. In this connection, the reply of the assessee is totally evasive and it only states in the reply that "M/s Pacatolus was not the actual source of fund and the funds were layered through multiple entities is an unsubstantiated allegation not backed by any solid evidence to prove the same. ." As mentioned earlier, the assessee by providing the documents that PGF is the parent company of PIL, has admitted that the source of the money is not PIL. In the circumstances, the statement of the assessee is hollow. The AO in paragraph 8.13 of the assessment order has clearly identified the pattern of transfer from M/s Rosalie Holdings Ltd, a British Virgin Island company (a known tax haven) to PGF through M/s Shs Opes Investment Ltd Red Ptg. Further, in paragraphs 8.14 to 8.19 of the assessment order, the AO has brought out specifically about the facts that the amounts received in M/s Rosalie Holdings Ltd originated from M/s BMS Holdings Ltd, M/s Silver Premium Enterprises Ltd and M/s Keystone Corporate Services Ltd. Thus, the AO clearly substantiated the fact about the layering of the funds that had been transferred through multiple entities. 7.18 In the circumstances, duty is cast upon the assessee to come clear about the source of the funds which it did not do. The assessee has not discharged the shifted burden of proof on it. Rather it is the assessee which has not substantiated that Pacatolus is the real source of the invested money. Similar is the case of the Beneficial Owner of M/s Rosalie Holdings Ltd, BVI, Shri Jamie Williams Tamuara Joseph, in whose name a red flag has been raised by ICIJ (International Consortium of Investigative Journalists) which has pioneered studies about off-shore entities. In this regard, the assessee's claim that it is unsubstantiated claim of the AO does not discharge its onus. Whether Mr Sivasankaran is a shareholder of the company where Mr Jamie is a treasurer should be within the knowledge of the assessee company. The assessee should either deny or agree to the facts. When the AO has clearly brought out the facts, it is imperative that the assessee should either deny with evidence or furnish explanation about the actual source of the funds. Neither is the case here. Therefore, the assessee 9 I.T.A. No.308/CHNY/2023 has failed to prove the creditworthiness and genuineness of the transaction directly. 7.19 Now, the important issue of valuation is taken up for consideration. The assessee has freedom to choose valuation method of his choice. But what is required that the valuation method employed is fair and correct as per law. In this context, the valuation report given for the purpose of investment is taken into consideration. 7.20 In respect of the valuation of the shares of the assessee company M/s Aadhi Enterprises Ltd, a valuation report dated 12th November, 2015 by Mr.K.Parthasarathy, FCA partner in CNGSN & Associates LLP, Chartered Accountants, Chennai 600017 was produced. According to this valuation report, the valuation is done as under: i. Purpose of valuation: The audit firm, M/s CCNGSN & Associates LLP, Chennai approached by Pacatolous Growth Fund to determine the fair value of the equity share of AEPL for the proposed investment in AEPL. ii. Background: AEPL has entered into an agreement of sale in March- 2015 for purchase of 79 grounds at "Firhaven" at Santhome High Road, Chennai for total consideration of Rs.380 Cr. and intends to develop a luxury residential project. Out of the total consideration of Rs.380 cr., AEPL has till 30th September 2015 paid a sum of Rs.69.25 crores and the balance is payable at the time of execution & registration of the sale deed. The development plans for the project has been submitted with the CMDA for approval. iii. Valuation method: the valuer considered NAV method and DCF method to be the appropriate for the purpose of the valuation. iv. It claims to have taken the land with registration cost as the basis of NAV method and future free cash flow projections and discounts as the basis for DCF method. v. The valuer determined the fair value of the company after considering the value as per NAV and DCF method is Rs.410 cr. The summary of the valuation on NAV and DCF methods and the fair value of the company are provided in the Annexure to the report. The fair value of the equity share of Aadhi Enterprises P Ltd is Rs.311/-. Valuation Summary Valuation based on 10 I.T.A. No.308/CHNY/2023 DCF method 41,000 Rs.Lakhs NAV method 41,420 Rs.Lakhs Post money valuation (Average) 41,000 Rs.Lakhs Proposed equity investment by the investor 9,840 Rs.Lakhs Pre money valuation 31,160 Rs. Lakhs Existing No. of equity shares* 10,010,000 Nos. Value/share 311.29 Rs. *Existing No. of equity shares is based on the resolution passed by the company for the allotment of equity shares out of the share application money of Rs. 10 cr. invested by the promoters Mr.Maneesh Parmar and Mr.Sunil Khetpalia. 7.21 The documents claimed to have been relied on by the valuer for the valuation are unaudited financial statements of AEPL for FY 2014-15, provisional financials for the half year ended 30.09.2015, other information and explanation obtained from the company officials during valuation process. 7.22 Except for the above, the valuer has not relied on any other document. For the purpose of DCF method it has shown NPV of Rs.40682 lakhs at discount rate of 16%. For this purpose, the assessee has taken the total cost of the project at Rs.934.97 crores and cash collection of Rs.1665.38 crores showing net flow of Rs.730.42 crores. After the discount rate of 16%, the NPV is arrived at Rs.40682 lakhs or Rs.406.82 crores. In effect, the profit margin is shown at whopping figure of 78.12% and at the discount rate at 43.51%. 7.23 The Technical Guide on valuation of ICAI (2009 edition), has given that the following guidelines should be followed by the valuer in respect of "Cash Flow Projections", - 2.10 The first and most critical input of the Discounted Cash Flow model is the cash flow projections. As stated earlier, the Discounted Cash Flow value is as good as the assumptions used in developing the projections. These projections should reflect the best estimates of the management and 11 I.T.A. No.308/CHNY/2023 take into account various macro and micro-economnic factors affecting the business. Some of the important points to be kept in mind with regard to cash flow projections based on the projection of the profitability are stated below: 7 (a) Cash flow projections should reasonably capture the growth prospects and earnings capability of a company. The earning margins of a company should be determined based on its past performance, any envisaged savings, pressure on margins due to competition, etc. (b) Discontinuation of a part of the business, expansion programmes and any major change in the policies of the company may provide occasions for making a break with the past. (c) The discontinuation of a part of the business can be easily dealt with by a valuer. A part of the profits earned by such business in the past will have to be excluded from the projections. (d) The effect of expansion schemes can present more complex problems. For these, the valuer will have to use his judgment about their profitability. The state of execution at the time of valuation should be given due consideration. Mere paper plans for expansion should not be taken into account. If reasonable indications of expected future profit are available, then such profits taken on a reasonable basis - to take care of the risk and uncertainty involved - may be included in the projections of the company. If, however, the profits are expected to be realised after a lapse of some years or if material amounts have yet to be incurred before profits are realised, due consideration will have to be given to these circumstances. In such circumstances, separate value may be given to such new investments and the same is added to the value of the existing stream of business. (e) In turnaround cases, the uncertainty of higher profits is much greater. Careful evaluation of the steps actually taken to implement a turnaround strategy must be undertaken before a valuer accepts management's claims that in future the company will earn profits. If necessary, reports of technical or other consultants should be called for. (f) In case of companies witnessing cyclical fluctuations, care should be taken to select the forecast period, which should necessarily cover the entire business cycle of a company. (g) Effects of change in the policy of the company may be taken into account if such changes are known in advance and the effects are capable of being quantified. Changes in the utilisation of the productive capacity, changes in the organisational set-up, changes in 12 I.T.A. No.308/CHNY/2023 the product-mix, changes in the financing policy are some examples of the situation that may have to be faced by a valuer. Their treatment in the projection of future profits will depend entirely upon the effect which in the opinion of the valuer, such changes will have on such future profits. (h) An appropriate allowance must be made for capital expenditure in projections. They should not include capital expenditure only for capacity expansion or growth but also for maintenance of the existing capacity. (i) Working capital requirement forms another important component. Projections should appropriately account for working capital needs of the business in its different phases. 6) Income tax outflow also impacts the value of a business and should incorporate any tax benefits like tax holiday, accumulated losses, etc. In making projections, notional tax calculated at the rates expected to be applicable to the company in future should normally be deducted. For instance, the rate may change if the company is planning to undertake activities on which tax incidence is lower. Where such rates are not available, the current rates of taxes may be considered a good indicator. Tax benefits due to accumulated losses, accumulated development rebates or allowance, investment allowance, unabsorbed depreciation etc. should not generally be adjusted to the tax rate; instead, these should be considered separately. The past unabsorbed tax shelter is valued by using discounted cash flow method, for the actual years in which the tax shelter would be availed of a reduction in the effective tax rate due to exemptions for new industrial unit relief, export profits etc., should be very carefully considered, depending on the period for which they would be available. A cautious valuer would perhaps compute an effective tax rate each year for the forecast period, based on the current year's tax rate and statutory deductions available and a reasonable view of profits. 7.24 A company which is incorporated in 2014 and with not even having capital of its own of 4% of the value of land property on purchase is projecting profit of 45.31%. The valuer has not given any data for the projection and not even bothered to compare profit margin of any similar project for his projection. The valuer has failed to notice certain basic facts that the assessee is a new company and not even paid full money for purchase of the property, while projecting huge profit margin for the unapproved project. The valuer ought to have noticed that as per FDI policy, real estate projects on land and immovable property with profit 13 I.T.A. No.308/CHNY/2023 motive are not covered and only residential/ commercial projects are allowed under FDI. Having not substantiated any residential/ commercial project, and with only part acquired land, the valuation did not correspond to the FDI Policy of the Government. This aspect has not been considered by the valuer in respect of DCF method, especially guidelines of the ICAI on cash flow projections. 7.25 As per the valuation report, the investor agreement states that an amount of Rs.69.25 crores has been paid by AEPL to Chennai Properties and Investments P Ltd (CPIL) for the purchase of the impugned property for Rs.380 crores. It is stated that an amount of Rs. 15 crores had been transferred as advance for the property by AEPL to CPIL as part of the Agreement for Sale (AFS) in AY 2015-16. However, the source of balance of Rs.54.25 crores has not been explained. Both the assessment order and also the assessee is silent on this aspect. Provided that the amount has actually been paid on or before the valuation date, naturally it would be out of some borrowing only and hence, financial liability. This financial liability has not been considered by the valuer while valuing the property. This is a patent error in the valuation. 7.26 The valuer has not followed the principles laid down by the ICAI especially in respect of fair valuation of shares of a new company as provided in the "Technical Guide on Share Valuation" 2009 edition. 7.27 The investment by a non-resident in an Indian Company, in any form, is regulated by the Foreign Exchange Management Act, 1999 read with FEMA regulations. Regulation 2(xvii) defines Foreign Investment' to mean any investment made by a person resident outside India on a repatriable basis in ́capital instruments' of an Indian company or to the capital of an LLP. Capital instruments' have been defined under Regulation 2(v) to mean equity shares, debentures preference shares and share warrants issued by an Indian company. The Explanation further provides that the expression Debentures' means fully, compulsorily and mandatorily convertible debentures, Thus, the CCDs which are fully and mandatorily convertible into equity, are considered as 'capital instruments' being at par with equity shares. In respect of CCDs, mechanics of conversion is provided vide clause 4.3 of Schedule 9 of the Investor agreement. 14 I.T.A. No.308/CHNY/2023 7.28 Therefore, the investment by the Non-Resident in equity/CCD ought to have been considered as equity shares while arriving at the fair value of shares. 7.29 In this case, the valuer is quite aware that the assessee has claimed to have only paid Rs.69.25 crores (without prejudice the dispute regarding the actual amount paid). Thus, the balance payable for the purchase of the property itself on this account is Rs.344.95 crores. But the valuer has considered the entire amount of Rs.414.20 crores (including registration amount) as it is paid without bothering about the balance. He ought to have first ascertained how the balance amount is to be paid, the source, whether borrowing or equity, etc before taking the same as asset. If the proposed investment is in the category of equityy for the purpose of purchase of the property, then it ought to have bcen considered for valuation as the receipts by way of equity/ CCDs have been utilized directly towards the purchase amount paid to CPIL, Thus, it is clear that the valuer has not followed the cardinal principles of valuation in this case and it is just tailor-made for AEPL and PIL as per their demand. It is apparent from the report that all the parameters were given by AEPL and therefore, the onus is on the assessee to explain these large deviations in the valuation report, which did not do so. The assessee cannot claim immunity by placing the reliance on the valuer. It has also not produced any explanation from the valuer after putting before him the actual facts which are mentioned above. Thus, it is clear that the valuation in this case is grossly vitiated. 7.30 In respect of the experience of the assessee company in construction of residential complex, the assessee had stated that the Directors had been in the construction business for past many years and quoted M/s KLP Projects P Ltd as another company under them. However, on verification of the company data, it is found that KLP Projects was incorporated only in 2014, which shows that the company did not have any past experience. Further, it is seen from data that Shri Sunil Khetpalia has been a Director in various companies since 2014 only and Shri Maneesh Parnar has been a Director in various companies from 2013 only, which shows that these promoter directors also did not have any experience in this sector. 7.31 As mentioned earlier, the grounds preferred by the assessee are inter- connected to the core issue of addition u/s 68 and the same have been discussed elaborately in the preceding paragraphs. Still, certain grounds are discussed individually hereunder. The assessee has taken a ground that 15 I.T.A. No.308/CHNY/2023 the AO has traversed far beyond the scope of documents requested in the show cause notice. In the Show Cause Notice dated 23/03/2021, the AO has asked the assessee to prove the genuineness and creditworthiness of the loan/remittance creditors along with documentary evidences. The mere fact that the assessee has furnished a detailed reply to the show cause notice itself shows that the show cause notice addresses the core issue of Sec. 68 and the assessment order of the AO elaborated the vital aspects of the show cause notice. The issues of genuineness and creditworthiness have been dealt elaborately in this order. In view of the above, there is no merit in the ground that the AO has traversed beyond the show cause notice. 7.32 The assessee has taken a ground that the assessee has not been given opportunity to cross examine the parties from whom statements have been recorded. The issue is one of genuineness and creditworthiness of the creditors of the assessee for the purpose of complying with the provisions of Section 68 of the Act. When the AO has doubted these aspects and asked the assessee by producing relevant details, the onus falls on the assessee. The creditors are known to the assessee and it is the responsibility of the assessee to furnish necessary documentation to the satisfaction of the AO. The statements have been recorded by the AO from the Office bearers of the Management of the assessee company and its group company only. The assessee has been in the knowledge of the statements given by the office bearers and the relevant portion of the statement recorded, email communication, whatsapp communication etc., have been reproduced in the assessment order itself. The assessee had enough opportunities during the appeal proceedings also. It is an admitted fact that Pacatolus Investments Ltd did not have any source of its own and claimed source from Pacatolus Growth Fund. In the circumstances, the primary onus is on the assessee to prove its credits. Therefore, there is no cause for any cross examination in this case. Hence, there is no merit in the claim of the assessee on this ground. For the same reason, the decision of the Hon'ble Apex Court in the case of PCIT vs NRA Iron & Steel P Ltd 2019 4 scale 25, is distinguishable both on facts and circumstances of the present case. 7.33 The assessee claimed that the information obtained under Exchange of Information route from other countries have not been given to it. The information from the FTTR Division, CBDT under Exchange of Information is covered as Confidential". However, the assessee was made available the relevant data from them and the details have been furnished in the 16 I.T.A. No.308/CHNY/2023 assessment order also and the assessee had enough opportunity during the appeal proceedings to rebut them. Hence, there is no merit in the claim of the assessee. 7.34 The assessee has also raised a point w.r.to proviso to Section 68. The proviso operates in respect of resident assessees and has no application in respect of creditors who are non-residents. The main portion of the section 68 itself is applicable in their cases. 7.35 From the above discussion, the following facts emerge: i. The assessee AEPL was incorporated in 20 14 and the only project is the Firhaven project. This project is supported only by an Agreement of sale (AFS) and the extent of purchase had got reduced subsequently. ii. The assessee AEPL did not have any significant source of its own, not even 10% of the value of the property under AFS. iii. The claim of due-diligence by PGF for investment in AEPL has not been demonstrated with any iota of evidence. iv. The claim of huge profit in valuation report is not in consonance with the FDI policy and there is no evidence that the RBI has examined these aspects. v. The fact that non-resident investment fund did not do any independent verification of facts shows that it had acted only as a conduit for transfer of funds from others and did not intend to invest on its own. vi. The assessee AEPL has not repudiated the trail of transactions recorded by the AO. vii. The tailor-made valuation report shows that the investment is not done independently by PGF from its own source and it is dictated as per the terms of the assessee AEPL. viii. Therefore, the capacity and creditworthiness is not to be seen from the point of PGF but from the point of actual persons who had routed the money through it. 7.36 In view of the above, the assessee has tailed to discharge the onus on the capacity/creditworthiness of the actual creditor and also failed to prove the genuineness of the transaction by providing complete details. Hence, the second and third limb of Section 68 have not been satisfied in this case. For the said reasons, I also consider that the case-laws cited by the assessee is not applicable to the facts and circumstances of the case. 17 I.T.A. No.308/CHNY/2023 7.37 Considering the nature and peculiar circumstances concerning this case, the addition u/s 68 made by the AO is confirmed. Aggrieved, now assessee is in appeal before the Tribunal. 5. Before us Ld Counsel for the assessee reiterated facts that the assessee entered into an agreement with CPIL on 16.03.2015 for purchase of 'Firhaven' in MRC Nagar, Chennai ad-measuring 79 grounds and 2,222 sq. ft. for sale consideration of 380 crores. The assessee enclosed copy of the agreement in the Paperbook at pages 248 to 267. Based on the agreement, an amount of 15 Crores was obtained from Sanklacha Infra Projects Private Limited, which was transferred to CPIL as advance on the date of agreement. Consequently, General Power of Attorney was given to the promoters of the assessee company dated 01.04.2015 and 06.04.2015 for getting necessary approval and possession was also handed over to the assessee. The assessee, on the basis of agreement with CPIL dated 16.03.2015, had obtained funds through FDI from a Mauritius based investment company Pacatolus pursuant to an agreement entered into with them on 14.11.2015 and received ₹278,32,93,118/- i.e. ₹98,30,83,118/- as subscription for equity shares including Share premium and another amount of ₹180,02,06,000/- as subscription to Debentures. Copy of the 18 I.T.A. No.308/CHNY/2023 agreement is enclosed in the Paperbook at pages 281 to 375. It has filed complete chart of investment date wise. Pacatolus paid Rs.98,30,87,172/- (inadvertently stated as Rs.98,30,83,118/- in the Assessment Order) towards acquisition of 24% shares in the assessee company (31,61,052 shares @ Rs. 10 each and Rs. 95,14,76,652/- towards share premium at the rate of Rs.301 per share) and the remaining fund of ₹180,02,06,000/- was obtained as Long Term Borrowings. During FY 2017-18, the assessee issued Compulsorily Convertible Debentures (CCDs) of ₹180,02,06,000/- in favour of Pacatolus. After receiving the fund through FDI, the assessee had transferred a sum of Rs.15 crores during FY 2014-15 and a sum of Rs.282.50 crores during FY 2015-16 to CPIL. The assessee had recognised the transactions in the Balance Sheet for the year ended 31.3.2016. Copy of the Balance Sheet is enclosed in the Paperbook at pages 76 to 93. Issue of 31,60,052 equity shares of the face value of Rs.10 each with a premium of Rs.301 per share in favour of Pacatolous, who thus acquired 24% stake in the assessee company. Thus, credits are shown in favour of Pacatolous, amounting to ₹3,16,00,520/- as share capital and ₹95,14,76,652/- as share premium (inadvertently stated as ₹95,14,82,597/- in the Assessment Order). Besides, funds representing long term borrowing of ₹1,80,02,06,000/- was received from Pacatolous. This 19 I.T.A. No.308/CHNY/2023 entire fund flowed to the assessee through RBI's automatic approval route of FDI. During the financial ended 31.3.2017, the assessee acknowledged the long-term borrowing by issue of compulsorily convertible debentures of the equivalent amount. 6. It could be seen that the stated transaction between CPIL and assessee did not conclude due to a dispute between them and both the parties approached for arbitration. An arbitration award was delivered on 19.03.2018 based on which CPIL was obligated to sell a portion of the "Firhaven" i.e., 40 grounds & 1896 Sq. Feet for Rs.170 crores to the assessee and return excess advance of ₹84,83,00,000/-. A search u/s 132 of the Act was conducted on 9.11.2017 in the case of assessee as well as on the residential premises of the Directors Shri Sunil Khetpalia and Shri Manish Parmar. During the course of search assessment, the assessee made known to the AO that the investor Pacatolous was a Special Purpose Vehicle (SPV), which in turn, was funded by Pacatolous Growth Fund (PGF), Mauritius. Thus, the assessee established the source of source to the extent, as called for by Ld. AO, and was able to demonstrate that the funds of FDI investor had its immediate sources from the PGF. In our considered opinion, as required under the provisions of section 68 of the Act, the assessee 20 I.T.A. No.308/CHNY/2023 had established the source of source of funds so received by it. The department even gathered through discreet enquiry that the unaccounted fund was routed through Pacatolus through entities located in various countries and the same was transferred to assessee by Pacatolus. To verify the source of FDI, the department made a reference to FT&TR (Foreign Tax & Tax Research). Accordingly, references were sent to various countries and consequently the time limit for completing the assessment was extended by one year. However, the AO assessed the entire FDI (both by way of share capital and long-term borrowings) received from the said Mauritius investor treating the same as "unaccounted income of the assessee brought into the books as credits" and made the addition under section 68 of the Act of the entire share capital and share premium and the long-term borrowings aggregating to ₹278,32,93,118/-.The reason, for which the source of fund received by assessee in the form of FDI from Pacatolus was considered as not genuine, is allegedly based on the information received from Foreign Tax & Tax Research Division, a copy which was neither provided nor any explanation was sought from the assessee to provide an effective rebuttal. 21 I.T.A. No.308/CHNY/2023 7. The AO has contested the claim of assessee that it was a company incorporated in the year 2014 and without any experience in the real estate business having underlying asset to get the funding to the tune of ₹278.32 crores. The AO noted that the share premium was valued at 301 per share, which was very high for a company incorporated recently and without any underlying asset. The share premium was valued at 30 times or 300% of face value and the fund was obtained by assessee not for the purpose of construction or real estate development but for the purchase of land. He also highlighted that Pacatolus was a newly formed company in the year 2014 and had no business or investment or operations other than the sole investment in assessee company. Even though sale consideration was paid in the financial year 2015- 16, "Firhaven'" has not yet been registered in the name of assessee company till date. He also noted that the amounts transferred to CPIL were transferred out immediately to various entities by the persons related to assessee company. The transaction was found to be sham and the same was discussed in report of CPIL given by FT & TR. He also noted that though the FDI fund was obtained for the purpose of purchase of a land and the approval was obtained for the same purpose, ₹50,00,00,000/- received from Pacatolus was invested in Sanklacha Infra Projects Private Limited, which is a 22 I.T.A. No.308/CHNY/2023 related concern. Thus, the fund was not utilised towards the purpose for which it was obtained. 8. The AO noted that one Mr. Jamie Williams Tamuara Joseph is New Zealand national and presently he is staying and operates from Hong Kong. On further investigation, it was gathered that Mr. Jamie Williams Tamuara Joseph is treasurer of Portcullis Trust Net Limited (BVI) in which Siva's company is the shareholder of the Company. Further, it was gathered that as per Offshore Leaks Report originated from International Consortium of Investigative Journalists (ICIJ), the Mr. Jamie Williams Tamuara Joseph was involved in international tax frauds. 9. As regards to the application of funds, the AO noted that the amount transferred by CPIL to various entities were layered and ultimately reached either to the related entities or persons of assessee company or assessee company itself. The list of the entities is tabulated at pages 24 to 26 of the Assessment Order. It was also noticed that Shri. Neelakantan is the CA for assessee company and some of the agreement related to Mrs. Neha Nandlal Agarwal and Janpath Marketing Private Limited to whom the amount was transferred, were found in the mail of Shri Neelakantan. It was 23 I.T.A. No.308/CHNY/2023 discovered that the repayment of loans and advances from the persons and entities were coordinated by persons related to the assessee company and pre-dated letters were also created by persons related to CPIL as per the instructions of promoters of assessee company, for these entities in order to give the colour of originality for the transaction.These concerns are namely Gavendu Land Developers Private Limited, RS Properties, Ashwin Dulabhai Pate, Landmark Housing Projects Chennai Private Limited, Rainbow Foundations Limited etc. The agreement for sale and the cancellation deed with Janpath Marketing Private Limited were communicated on the same day by Shri Neelakantan CA, Ganesh Plantation Limited, Vinat Complex Private Limited and Mahavir Complex (Thalej) Limited were having the same address and the fund was directly transferred to these entities by CPIL. Thus, it was concluded that the CPIL had no business transaction with the other party and the company had no control over the bank operation since the signed blank cheques were given to the promoters of assessee company and they had transferred the amount to various persons and entities. 10. It was contended that the assessment framed in the present case is based upon the information obtained through the references 24 I.T.A. No.308/CHNY/2023 made to FT & TR Department. Despite repetitive requests made by the assessee, a copy of information obtained through FT & TR was never provided to make an effective rebuttal. In this regard, assessee relied upon the recent decision of Hon'ble Delhi High Court in the case of Mr. Deepak Talwar v. DCIT [2023] 149 taxmann.com 97 (Delhi) wherein the court had directed as follows- Where pursuant to a search conducted at premises of assessee department proceeded to pass assessment orders under section 143(3), read with section 153A of the Act by making multiple references to different authorities located abroad, department was directed to provide and supply to assessee complete details, documents, annexures / information etc. of all those foreign references sent to foreign countries/foreign tax authorities so that assessee would have an opportunity to make a submission, as to relevance of those documents for purposes of appeal. 11. Ld. Counsel for the assessee also relied on the provisions of section 68 as amended by Finance Act, 2022, which is reproduced hereunder: Cash credits. 68. Where 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 of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: 25 I.T.A. No.308/CHNY/2023 Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless, (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. 12. Ld Counsel argued that 2nd proviso to amended section 68 of the Act (1st proviso to pre-amended section 68, which was inserted by the Finance Act, 2012) is noted to be applicable to persons who are residents, who are further required to substantiate the 'source of source' of funds. This additional burden cast upon by the proviso is noted to be not applicable to non-resident investors. Thus, primarily, the law does not require the non-residents investors to substantiate the 'source of source' of funds. In the present case, the assessee had proved the source of funds being received 26 I.T.A. No.308/CHNY/2023 through Pacatolus as FDI. Further, the assessee, though not covered by the additional burden casted upon by the proviso, had also proved the source of source being the PGF. The assessee travelled a step further and also proved the source of source, in a case, where the funds were received from non-resident investor. Thus, it had discharged its initial burden to substantiate the source of funds in as much as the identity and creditworthiness of the investors along with the genuineness of the transaction. Further, as per the memorandum explaining the provisions in Finance Bill, 2022, it was noticed that in case of loan or borrowing, the judicial decisions have held that only identity and creditworthiness of creditor and genuineness of transactions for explaining the credit in the books of account is sufficient, and the onus does not extend to explaining the source of funds in the hands of the creditor. Thus, it was proposed to amend the provisions of section 68 of the Act so as to provide that the nature and source of any sum, whether in form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. Further, it was also stated that the said amendment will take effect from 01.04.2023 and will for and from AY 2023-24. 27 I.T.A. No.308/CHNY/2023 13. From the above amendment to section 68 of the Act, it is abundantly clear that the said amendment is not a retrospective amendment and thus, the source of source in relation to credit by way of loans or borrowing or any such amount can be insisted by the AO only from Assessment Year 2023-2024 onwards. Therefore, the said proviso is not applicable to the present facts of the case. 14. The AO having brought on record the above isolated observations failed to connect the above persons with the assessee who has received the funds from a Non resident investor under automatic route of the FDl approved by RBI. The subsequent alleged application of funds by the assessee cannot discredit the source of funds so as to fall within the mischief of section 68 of the Act.Certain isolated, unsubstantiated observations about Mr.Jamie Williams Tamuara Joseph, being the treasurer of an entity in which Siva's company is a shareholder and the said person's name was found mentioned in a report cannot give any conclusive proof that the transactions recorded in the books of the assessee, of receipt of FDI under automatic route, would be the unaccounted income of the assessee.The assessee before receipt of funds under FDI had made advance towards the land and the source for funding is from Sanklacha Infra Projects Private Limited, and therefore the said 28 I.T.A. No.308/CHNY/2023 money having been returned is a routine business transaction. If it is the case of the AO that the application of funds borrowed is for non-business purposes, the AO's recourse should be to section 36 of the Act for disallowance of interest and not section 68 of the Act.The other observations of the AO as mentioned above do not have any relevance to the fact in issue and the finding recorded. 15. The facts stated by the AO are facts admitted by the assessee and the Pacatolus is a Special Purpose Vehicle funded by PGF and therefore, no adverse findings could be recorded by the AO on the source or source of source in relation to FDI under automatic route cleared by RBI, the regulator. There is no condition precedent that the investor and the source for investment for the investor should not be the only investment/business of the non-resident investor. The capital of the Non-Resident investor had to be applied for investment and this could happen only through fund transfer through bank account. Therefore, the above observations of the AO about the investor do not in any way discredit the investment. The AO's observation regarding the receipt of funds by the PGF through M/s. Shs Opes Investment Ltd. Red Ptg which in turn was from M/s. Rosalie Holdings Limited is of no concern for the assessee as the investor and to establish its source was the only burden casted on 29 I.T.A. No.308/CHNY/2023 the assessee which has been proved beyond doubt as observed by CIT(A) in para 7.15 at page 92 of his order. 16. He argued that the CIT(A) failed to appreciate that the assessee had discharged its onus by proving the source of source of the funds received. Sources for PGF may be through multiple entities and the same cannot discredit the source of funds in the hands of the assessee. The CIT(A) failed to appreciate that the AO having spent so much of efforts in making out a case against the assessee failed to hold out as to whether the impugned individual Mr James the treasurer in a company in which Sri Sivasankaran's company is a shareholder. Even if it were so, how it would discredit the funds sourced through FDI is not borne out by the decision of the CIT(A). The AO had failed to consider the contention that once the assessee discharges his onus of proving the identity of the Creditor/lnvestor including those from a foreign jurisdiction, genuineness of the transaction and creditworthiness of the creditor, the burden shifts to the revenue to show that the amount belongs to the assessee, including the decision of the Hon'ble Apex Court in Principal CIT v. NRA Iron & Steel (P.) Ltd [2019] 4 SCC 25, which is binding in nature. 30 I.T.A. No.308/CHNY/2023 17. He further placed reliance on latest case-laws upholding the same view. The Decision of ITAT Mumbai Bench 'H in the case of M/s. Hinduja Realty Ventures Ltd. [TS-565-ITAT-2019(Mum)] which is squarely applicable to the assessee's case in hand where the set of facts involved are identical. It was observed as under: The share capital monies were received through normal banking channel under FDI route and was confirmed by CBDT's FT & TR division and also by Mauritius tax authorities; Further observes that the assessee had proved the source of the source i.e. the Mauritian co. had received loan from another Hinduja Group Company incorporated in Bahamas which was invested in assessee co. notes that all these documents were collected by FT & TR division of CBDT from Mauritius tax authorities under exchange of information in terms of Section 90 of the Act and relevant DTAA provisions."; Concludes that assessee had satisfied all the ingredients of Sec. 68, remarks that merely because the investor had not filed its income tax returns, it does not make the entire transactions bogus or the said investor non-existent. "; Rejects CIT(A)'s action in upholding addition for assessee's failure to prove the source for the Bahamas based entity, clarifies that assessee is not required to prove the source of source of source as per law, also rejects CIT(A)'s finding that the Mauritian entity was a mere pass through entity without any basis. Further, decision of the ITAT Mumbai Bench D' in the case of Raw Pressery (P) Ltd. Vs ACIT [2022] 143 taxmann.com 158 (Mumbai - Trib.) which is squarely applicable to the assessee's case in hand where the set of facts involved is identical as underlined below. Vide Para 21 of the said order, it was observed as follows: "21. Coming to the share premium of Rs. 52, 24, 66, 398/- received during the year it is noted that sum to the extent of Rs. 48.21.36. 180/-was received from existing foreign shareholders, M/s Sequoia, M/s Saama & M/s. DGSP whose identity and creditworthiness and genuineness of the transactions, is noted to have been accepted by the Revenue in earlier AYs 2016-17 & 2017-18. The assessee is a start-up company promoted by Mr Anuj Raykan, with the intent to Make-in-India fresh health beverages/juices using cold-pressed technology 31 I.T.A. No.308/CHNY/2023 under the brand name 'Raw Pressery' The idea found support from foreign PE investors who infused capital into the entity through successive rounds of funding in relation to the share premium received during the relevant year, it is noted that the assessee had furnished the relevant foreign inward remittance certificates, FC-GPRs etc. in support of the foreign investment received in accordance with the regulations of Reserve Bank of India. These investors are noted to be of repute holding Category-l Global License issued under the laws of Mauritius. Their financial statements also show that they had sufficient funds to make investment in the capital of the assessee. The assessee had also provided the PAN details of these foreign investors. It is noted that although the AO had also called for the income-tax returns and bank statements of these investors but the assessee expressed its inability to furnish the same. It was pointed out to AO/NFAC that the assessee was a start-up company which had raised funds from these global PE investors and therefore it did not exercise such influence over them to insist them to furnish their internal confidential documents such as income-tax returns, bank statements etc. Having provided their PAN details, addresses, tax residence status, the assessee had requested both before the AO/NFAC and the Ld. CIT(A) to make direct enquiries from these investors. We thus note that, although the assessee had furnished the primary evidences in support of the share premium received from these foreign investors, the lower authorities chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. Such in-action/omission on the part of lower authorities cannot be accepted." (emphasis supplied). 17.1 Similar is stated to be the decision of High Court of Calcutta in the case of PCIT Vs R.M.Commercial P Ltd. [2022]138 taxmann.com 21(Calcutta); decision of the High Court of Bombay in the case of PCIT-1 vs Ami Industries (India) P Ltd. [2020] 116 taxmann.com 34 (Bombay); decision of the Mumbai Tribunal C Bench in the case of Chemicon Engineering Consultant (P) Ltd. vs ACIT (2022] 142 taxmann.com 297 (Mumbai - Trib.). 32 I.T.A. No.308/CHNY/2023 17.2 Reliance is placed on the case-laws in respect of the charging of share premium i.e., decision of the High Court of Bombay in the case of CIT-1 vs Green Infra Ltd. 2017] 78 taxmann.com 340 (Bombay) where despite the specific argument of the CIT-DR that the share premium defies commercial prudence, Hon'ble High Court has held that genuineness of the transaction is proved since the entire transaction is recorded in the books of the assessee and the transaction has taken place through banking channels. The decision of the Hon'ble High Court has specifically held that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. The Tribunal after examining the ingredients of section 68 of the Act held that the addition of share premium under section 68 of the Act cannot be sustained. Similarly in the decision of ITAT Mumbai Bench C in the case of DCIT, Circle 7(3)2), Mumbai vs Piramal Realty P Ltd. (2018] 100 taxmann.com 294 (Mumbai-Trib.), it was held that since assessee had fled sufficient evidences viz. return of income, share allotment, annual return and details of shareholder and same was not negated by AO, merely because AO felt that share premium received by 33 I.T.A. No.308/CHNY/2023 assessee was high, genuineness of transaction could not be doubted for purpose of section 68 of the Act. 18. Ld Counsel stated that the AO failed to bring the 'connect’ between the movement of funds from Rosalie Holding Ltd through Shs Opes investment Ltd Red Ptg with his observation that ‘the assessee has routed its unaccounted income of ₹278,32,93,118/- through various foreign companies and brought back the same as FDI. Therefore, the CIT(A) had erred by not appreciating that there was no connect between the so called movement of funds through layered entities and the assessee and how it would enable the AO to arrive at the conclusion that the assessee had routed its own unaccounted income through foreign companies and brought the same as FDI. The CIT(A) and AO, both were carried away with the alleged application and flow of funds after it was paid by the assessee to the seller of the property being CPIL. However, the dispute in the present case is to prove the genuineness and creditworthiness of creditor under section 68 of the Act i.e., the source of funds. The observation of the AO on the alleged application of funds by the seller has no connection with the assessment in the case of assessee. The AO has failed miserably in connecting the source of funds in the hands of assessee with the 34 I.T.A. No.308/CHNY/2023 alleged application of funds after the amounts were received by the seller pursuant to the agreement which were purportedly through FDI – mechanism controlled by RBI. 19. The CIT(A) also failed to appreciate that on the one hand the AO having taken note of the fact that the assessee is newly incorporated entity having no other project other than ‘Firhaven’ and at the same time holding out the theory of assessee having brought back its own unaccounted money through FDI. The AO had failed to bring on record the material evidences based on which he had concluded that the sum of ₹278.32 crores had been layered through multiple entities and had alleged that the assessee had routed its unaccounted income through various entities and had brought back the same as FDI. The AO has been unable to furnish a single source that details or supports his contention that these were the funds of the directors and has been passed off as the funds of the investor. Ld Counsel stated that it is a settled law that assessment cannot be made on the basis of suspicion or surmise without any corroborative evidences. The Hon'ble Apex Court has held time and again that 'suspicion however strong, cannot take the place of proof" in a plethora of cases as in the case of Omar 35 I.T.A. No.308/CHNY/2023 Salay Mohamed Sait vs CIT [1959] 37 ITR 151 (SC) wherein it was held as under: "on no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises: nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicion, conjectures or surmises and if it does anything of the sort, its findings even though on questions of fact will be liable to be set aside by the court.". 20. On the other hand Ld CIT-DR, Shri Senthil Kumar controverted the submission made by Ld, Counsel before the ITAT on 16.05.2023 and he has submitted that the addition made by the AO u/s.68 of the Act on the receipt of share capital, share premium, and the long-term borrowing from foreign investor aggregating to Rs.278.32 crore is sustainabled. He argued that the above submission and grounds of appeal of the assessee may not be accepted on the facts as well as in the light of settled legal positions. He narrated that the assessee company was incorporated in FY 2014-15 and on 16.03.2015 assessee entered into an agreement with CPIL for the purchase of property worth Rs.380 crore. It is interesting to note that Pacatolus was also incorporated on 03.04.2014 solely for the purpose of making investments in the assessee company. Accordingly, Pacatolus has invested its entire capital received from PGF immediately in the assessee company. As it was observed by the CIT(A) in his order, the claim of due-diligence by PGF for 36 I.T.A. No.308/CHNY/2023 investment in assessee company has not been demonstrated with any evidence. It is interesting to note that the assessee company has entered into a General Power of Attorney with the CPIL. Accordingly, CPIL has given GPA to the assessee on 01.04.2015 and in consequence of the same, the possession of the property was given to assessee company on 06.04.20l5 against the mere receipt of Rs. 15 crore as an advance. Hence it is unbelievable that property worth Rs.380 crore was given into possession to a person who paid an advance of just Rs.15 crore only. It clearly shows that there was a prior meeting of minds against the proposed transaction with ulterior motives. 21. Ld CIT-DR argued that it is also notable that initially, there was an agreement for the purchase of property ad-measuring 79 grounds and 2,222 sq. ft. for a sale consideration of Rs.380 crore vide Agreement dated 16.03.2015. Whereas, vide arbitration award dated 19.03.2018, the same was reduced to 40 grounds and 1896 sq. ft. for a sale consideration of Rs. 170 crore. But, it is notable that the original investment as stated by the assessee was received from Pacatolus for the purchase of property ad-measuring 79 grounds, whereas, the same was reduced to 40 grounds and the advance received by CPIL from the assessee was returned back (to 37 I.T.A. No.308/CHNY/2023 the tune of Rs.84.83 crore) to the assessee in FY 2017-18 itself. But it is interesting to note that the assessee company neither repaid its long-term borrowing to Pacatolus on the advance received back to the tune of Rs.84.83 Crores nor the Pacatolus was interested to collect the same from the assessee. It is also notable that the assessee company could not produce any evidence that the investor has taken legal recourse for the recovery of its money invested in the assessee company due to an inordinate delay in the execution of the project. It clearly proves that the investment received by assessee through the Pacatolus is the money that was layered by assessee as detailed by the AO in the assessment order, which was subsequently, upheld by the CIT(A) vide para 7.8 to 7.18 of the appeal order. 22. Further, he argued that the CIT(A) has held that the valuation of shares has not been made as per the guidelines of ICAI [(para 7.24 of the order of CIT(A)] and has clearly concluded that there is a patent error in the valuation of shares (para 7.25 to para 7.29 of the CIT(A) order). The said fact conclusively proves that there was no due-diligence in the investment made by Pacatolus in assessee company, which an ordinary prudent businessman will do. Further, during the course of assessment proceedings, the AO could 38 I.T.A. No.308/CHNY/2023 establish that the fund, which was invested by the assessee in CPIL against the alleged purpose of said property was received back by assessee or by its associate companies by way of loans. The AO established that the Pacatolus has given the fund received from assessee to various shell companies on the instruction of its directors, which was ultimately received by the assessee company or its Associate companies. This conclusively proves that the money which was layered by the assessee through various foreign intermediaries ultimately reaches back to it in a circular faction. It is also notable as per the assessment order (page No.9.3, page 29 of the order) that the said circular movement of the fund might have been done against the cash loan received by Mr. Sivasankaran / Siva group of companies to the tune of Rs.470 crore. It is worth mentioning that the loan received by assessee from the said shell companies has not yet repaid/interest also not paid against such loan. This itself proves that the said loan is not going to be repaid by assessee, which otherwise means that the said fund belongs to assessee only. It is also notable that the amount originally paid by CPIL to these shell companies has not yet been received back by CPIL. 39 I.T.A. No.308/CHNY/2023 23. In view of the above facts, funds brought back in the form of FDI were the unaccounted income of the assessee only. Hence, the assessee's contention that section 68 of the Act is not attracted to foreign share capital investments is not tenable, due to the fact that in the instant case, the AO has held that it is a circular movement of the assessee's own fund. It is also notable that out of Rs.278.32 crore investments, the share capital was Rs.98.30 crore only and the remaining amount of Rs,180.02 crore was on account of long- term borrowings. It is notable that, the AO has arrived at his conclusion of the circular movement of funds on page 15 of the assessment order by pictogram. It establishes that in collision with Mr. Jamie Williams Tamuara Joseph, who was the treasurer of Portcullis Investments Ltd (PVL), in which Siva group of companies is the shareholder. As per the offshore leaks report originated from the International Consortium of investigative journalists (ICJ), Mr Jamie Williams was involved in international Tax frauds. 24 Ld CIT-DR relied on the decision of Hon'ble Supreme Court in the case of PCIT Vs NRA Iron and Steel Pvt. Ltd ( 412 ITR 161(SC), which has clearly held that practice of conversion of unaccounted money through cloak of share capital must be subjected to careful Scrutiny. Even though, the decision of the Hon’ble Supreme court is 40 I.T.A. No.308/CHNY/2023 related to the domestic share capital investments, the ratio laid done by the Hon’ble Supreme court is squarely applicable based on the facts and circumstances of this case. He also cited recent decision of the Hon'ble Calcutta High Court in the case of PCIT Vs Swathi Bajaj vide IA No.GA/2/2022 dt. 14.06.2022 wherein it is clearly held that the direct and circumstantial evidences brought on the record by the AO by way of detailed investigation carried out by the Investigation Directorate, Kolkatta will be a relevant factor to decide the genuineness, creditworthiness of the share transactions. The ratio laid done by the Hon’ble Calcutta High court is squarely applicable based on the facts and circumstances of this case. The Hon'ble Supreme Court in the case of CIT Vs. P Mohanakala (291 ITR 278) (SC) held that, "if no explanation offered" means, no proper, unreasonable or unacceptable explanation given as regards the sum found credited in the books maintained by the assessee. Similally, Hon'ble Guwahati High Court in the case of Mr Nemi Chand Kothari Vs. CIT 264 ITR 254 held that transactions made by cheque is not sufficient to discharge burden. Further, the assessee though, they had filed confirmations, are sham transactions and make-believe with excellent paper work to camouflage their bogus nature as held by Hon’ble Delhi High Court in the case of PCIT Vs. NDR Promoters P Ltd - ITA No.49/2018 dated 17.01.2019. 41 I.T.A. No.308/CHNY/2023 25. Alternatively, Ld CIT Dr argued that one of the grounds taken by the assessee before the ITAT that, the information received from the FT&TR was neither provided nor any explanation sought from the assessee. He also stated that allegation of the assessee that the AO has failed to bring the connection between the movement of funds from Rosalie Holdings Ltd. through various foreign companies and brought back the same as FDI. This allegation of the assessee is purely factual in nature. Hence, on the pretext of the above plea of the assessee, for the purpose of affording further opportunity of being heard, the issue may be remitted back to the file of the AO as per the ratio laid down by the Hon'ble Delhi High Court in the case of CIT VS Jansampark Advertising &s Marketing P Ltd. (ITA No. 525/2014 dated 11.03.2015, wherein it is held as under;- "42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a further inquiry" in exercise of the power under Section 25014). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld.” 42 I.T.A. No.308/CHNY/2023 26. The Ld. CIT-DR also referred to the decision of Hon’ble Supreme Court in the case of Kapurchand Shrimal vs CIT (131 ITR 451) wherein it has been held as under: - "It is, however, difficult to agree with the submission made on behalf of the assessee that the duty of the Tribunal ends with making a declaration that the assessments are illegal and it has no duty to issue any further direction. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. The statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature." 27. Reliance is also placed on the decision of ITAT Chennai Bench ‘A' Third Member in the case of ACIT Vs Amarnath Reddy (126 ITD 113), where in the Third Member has held that Tribunal had jurisdiction to accept fresh plea of the revenue that the AO should have invoked the section 37(1) of the Act and requested the Bench to remit back the matter to the file of the AO to consider allowability or otherwise of expenditure incurred 37(1) of the Act. Ld CIT DR argued that Tribunal can set aside a matter to the file of AO for further enquiry so as to make proper assessment. It is also submitted that, in the instant case, the AO has not invoked other provisions of the Act, viz section 37 of the Act on the issue of utilisation of funds received for non-business purpose, section 56(2) of the Act on the excess consideration received over the 43 I.T.A. No.308/CHNY/2023 actual value of shares due to the fact that the entire investment received from the foreign investors was added by the AO u/s. 68 of the Act. 28. Ld CIT-DR finally filed AO’s report which is being reproduced as it is as under:- ‘The comments on the assessee's written submissions dated 19.06.2023 are submitted as under:- 3. The assessee's contention that it is not required to substantiate the source of source for non-resident investors is contrary to the provisions of Section 68 of the Income Tax Act. 3.1 The 2 nd proviso to Section 68 specifically deals only with the case where credit is recorded in the books of the assessee company in the name of a resident, and where the assessee could not provide satisfactory explanation for the source of the sum credited. However, the Act does not provide any exclusion for the non-resident investors and does not place any restriction on the assessing officer to require the assessee to provide explanation if such person in whose name the credit is recorded is a non-resident. Section 68 of the Income-tax Act states that "Where any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may he charged to income-tax as the income of the assessee of that previous year". It is clearly evident that the onus is on the assessee to prove the source of the credits satisfactorily. 3.2 In the instant case, it has been clearly demonstrated in the assessment order, more particularly in Para 8.20 of the assessment order, that the assessee has not substantiated the creditworthiness or genuineness of transaction, which are required to prove that the credits in the books of the assessee are genuine. It has been clearly proved that the investor M/s PIL has no creditworthiness, underlying assets or any other business apart from the investment in the assessee company and both were incorporated in the 44 I.T.A. No.308/CHNY/2023 year 2014. The data received from foreign countries via FT&TR request also show that M/s PIL or M/s Pacatolus Growth Fund were not the ultimate source of the money received by the assessee. Further, as discussed in Para 14 to Para 18 of the assessment order, the money received by M/s CPIL from the assessee company was layered through shell and conduit companies to finally reach the assessee company or its related concerns. This lends weight to the fact that it was the assessee's funds that were involved in round tripping. Further, Shri Sunil Khetpalia, in his Sworn Statement u/s 132(4) of the Income Tax Act, 1961 on 13.11.2017 has stated that Shri Sivasankaran was having creditors worth Rs. 470 crore. Since, he was unable to repay the loan he chose to sell his Santhome, MRC Road property. After taking consensus with Creditors of Mr.Sivashankarann of CPIL, the property was agreed to he registered at Rs. 380 crores and the entire proceeds was to be paid by cheque. In turn, Shri Sivashankaran was asked to pay Rs. 380 crores in cash to creditors of Mr. Sivashankaran of CPIL. He has also stated that they have availed FDI funding of Rs. 250 crores which was transferred to CPIL and subsequently, converted into cash via entities which have been introduced by him (sworn statement enclosed). Hence, the Director of the assessee company himself has admitted that the entire transaction is a sham. 3.3 The assessment has not been made on the basis of suspicion or surmise, but based on clear evidence of non-genuineness of source of FDl corroborated with other evidences and sworn statements of stakeholders as discussed above. 4. With regard to the assessee's contention that all compliances and due diligence were followed and valuation of shares was done, it is submitted that in the assessment order, it has been stated that the valuation of share was not commensurate with the underlying asset or volume of business. Further, the Ld. CIT(A) had made a categorical finding in Para 7.35 of the appeal order that the valuation report filed by the assessee is not in consonance with FDI policy and that there is no evidence that RBI had examined these aspects. The CIT(A) has also observed that the non-resident investment fund did not do any independent verification of facts and it acted only as a conduit of transfer of funds. The CIT(A) further discussed in detail from Para 7.19 to 7.34 that the valuation report submitted by the assessee is in violation of ICAI guidelines. Hence, the assessee has failed to substantiate its claim in this regard. Further, the original investment was received from PIL for the purchase of the property measuring 79 grounds, 45 I.T.A. No.308/CHNY/2023 whereas the same was reduced to 40 grounds and the advance received by CPIL from the assessee was returned back (to the tune of Rs. 84.83 crore) to tie assessee in FY 2017-18 itself. However, the assessee company has not repaid any amount to the investor from the advance received back and no new terms have been agreed to between the parties despite the erosion in investment, which defies prudent business logic. No due diligence has been exercised by the assessee in this regard and stating threat of legal action from the investor is only self serving to the assessee. Further, as per Schedule 8 of the Investment Agreement dated 14.11.2015 between PIL and the assessee, compound interest is payable e 6% per annum to the Investor after deducting withholding tax. However, the assessee has not paid the requisite amount as per the said clause nor has deducted TDS on the same. 5. Further, the contention of the assessee that the attachment of its bank account and adjustment of Rs.48.64 crores was not in line with CBDT instruction no. 1914 dated 19.02.2016 and modified on 31.07.2017, is factually incorrect. The said guidelines were adhered to while making the bank attachment. The assessee had filed a Writ Petition in this regard and Hon.Madras High Court held that the said attachment is valid. Stating otherwise at this juncture is only an attempt to mislead the Hon. ITAT. All the recovery measures initiated against the assessee were made after following due procedure as per the provisions of the Income-tax Act.’ 29. In reply Ld Counsel stated that the assessee company had entered into a registered sale agreement on 16.03.2015 with CPIL. The fact that the said sale agreement was a registered document was sufficient to give confidence to the parties for execution of same based upon the terms agreed thereupon. In case of any defaults by either of the parties, the recourse available was spelled out in the agreement. The registered sale agreement created a vested right in the immovable property and consequently, the valuation of project increased due the development value being far superior to the land value. Copy of the registered sale agreement is 46 I.T.A. No.308/CHNY/2023 placed in Paper Book Volume–1 at pages 252 to 267.Further, it is submitted that the assessee company had obtained funds through FDI from a Mauritius based investment company namely Pacatolus. The chart containing the break-up of the FDI received by the assessee company is at page 542 of Paper Book Volume-2. The evidences regarding the issue of shares and debenture certificates along with the reporting compliances to RBl are placed on record at pages 558 to 567 & at pages 583 to 586 of Paper Book Volume-2.It is further submitted that the investor Pacatolus had obtained a valuation report from Mr. K. Parthasarathy FCA on 12.11.2015. The fair value of each equity share of the company was at Rs.311/-. The copy of the valuation report is placed on record at pages 208 to 214 of Paper Book Volume-1. Further, the investor had obtained the due diligence report on the assessee company from M/s. CNGSN & Associates LLP and M/s. Cyril Amarchand Mangaldas. The copies of the same are placed in pages 431 to 449 of Paper Book Volume-1. 30. It was countered that the Ld. ClT-DR had raised an allegation of round tripping which was not supported by documentary evidences. The allegations were merely based upon the unsubstantiated statements. There is no evidence that Mr. 47 I.T.A. No.308/CHNY/2023 Sivasankaran owed 470 crores in cash loans. No such party was identified by the Department to whom such alleged cash loans were outstanding. Further, the department has not furnished any evidence to support its theory of round tripping viz. the assessee company sent its undisclosed income out of India. On the other hand, the assessee company had discharged the onus by the source of the FD and furnishing source of source. Further, the AO had also gone to 3 levels up on the money trail up-to the ultimate beneficiary and it proves that the assessee company is no way connected as beneficial owner of the funds. 31. It is submitted that the modus operandi described by the Ld. CIT-DR is absurd and the AO has failed to bring on record any shred of evidence that the funds belonged to/pertained to the assessee company. Nor is there any evidence to show that any income of the assessee was taken abroad and was omitted to be taxed in India. As per offshore database on the Official website of ICIJ -https://offshoreleaks.icij.org/nodes/71281 (Print copy is enclosed as Annexure-1) relating to Mr. Jamie Williams Tamuara Joseph, ICIJ only states that Mr. Tamuara had connections with a list of entities. However, none of the companies identified in the Assessment Order are stated therein. It is submitted that it is a 48 I.T.A. No.308/CHNY/2023 settled law that assessment cannot be made on the basis of suspicion or surmise without any corroborative evidences. He relied on in the case of Omar Salay Mohamed Sait vs CIT [1959] 37 ITR 151 (SC). Further, it is submitted that the isolated and unsubstantiated observations about Mr. Jamie Williams Tamuara Joseph, being the treasurer of an entity in which Sivasankaran's company is a shareholder and the said person's name was found to be mentioned in a report cannot become a proof against the genuineness of the FDI. It is further submitted that Mr. Sivasankaran is neither a shareholder nor a director at CPIL. Therefore, the contention of the Ld. CIT-DR is grossly incorrect in stating CPIL is Mr. Sivasankaran's company. Further, various income tax assessments were completed in the hands of Mr. Sivasankaran and other family members assessing the receipt of sale consideration as deemed dividend in their individual hands. Copies of said assessment orders are placed in Paper Book Volume- 4. Therefore, the statement of Ld. CIT-DR run contrary to the stand of the AO that the funds paid to CPIL ultimately was received back by the assessee. 32. Further, with respect to search action, it is submitted that ever since the date of search operation, the immovable property and 49 I.T.A. No.308/CHNY/2023 Bank Accounts of the assessee were provisionally attached u/s 132(9B) of the Act and after the expiry of the period of attachment as per 132(9C) of the Act, the AO had proceeded to issue a warrant for provisional attachment of immovable property u/s 281B of the Act. (Copies of the warrant for attachment u/s 132(9B) and 281B of the Act are forming part of the Paper Book Volume-2 at pages 507 to 510. Subsequently, the AO had issued notice u/s 226(3) of the Act to Kotak Mahindra Bank, which was later amended, directing them to release 20% of the demand raised against the assessee company amounting to Rs.32,71,18,862/-. However, to the surprise of the assessee company, it came to the knowledge of the assessee that the entire amount of Rs.48.64 crores was adjusted against the disputed demand without affording an opportunity. The said action of adjusting the entire sum of Rs.48.64 crores (which works out to about 30% of the disputed demand) by the AO is not in line with the binding directions of the CBDT in F No.404/72/93-|TCC dated 19.02.2016, which was later modified on 31.07.2017. 33. It is further submitted that the assessee company is under constant threat of legal notices issued by Pacatolus which states that in case if the assessee company fails to pay the outstanding 50 I.T.A. No.308/CHNY/2023 liability, legal proceedings including necessary proceedings for insolvency of the company will be initiated against the company under the provisions of the Insolvency and Bankruptcy Code. The assessee company is willing to furnish the copies of the legal notices issued on behalf of Pacatolus based on the directions of the Tribunal. Without prejudice, it is submitted that the reference to Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 can be made and proceedings can be initiated as and when any adverse information is received by the department, which has no time for reopening or assessment. 34. We have heard rival submissions and gone through facts and circumstances of the case. We also gone through case records, written submissions filed by both sides, case laws relied on by both sides and arguments. For the sake of brevity, we are narrating the brief facts that the assessee entered into agreement with CPIL on 16.03.2015 for purchase of property at Chennai i.e., ad-measuring 79 grounds and 2,222 sq.ft., for a total consideration of Rs.380 crores. Based on this agreement, an amount of Rs.15 crores was obtained by the assessee from Sanklacha Infra Projects Pvt. Ltd., which was transferred to CPIL as advance on the date of agreement. Consequent to the above agreement entered for 51 I.T.A. No.308/CHNY/2023 purchase of MRC Nagar, Chennai property, the assessee obtained funds through FDI from Mauritius based investment company namely Pacatolous pursuant to an agreement entered into with them on 14.11.2015 and received FDI of ₹278,32,93,118/- and the bifurcation of the same is ₹98,30,83,118/- as subscription of equity shares including share premium plus investment as debentures amounting to Rs.180,02,06,000/-. The Mauritius based company Pacatolous paid a sum of ₹98,30,87,172/- towards acquisition of 24% of shares in the assessee company and the bifurcation of the same is shares of 31,61,052 at the rate of ₹10 each and towards share premium at the rate of ₹301 per share amounting to ₹95,14,76,652/-. The remaining fund of ₹180,02,06,000/- invested in debentures was shown as long term borrowings. Consequently, during financial year 2017-18, the assessee issued CCDs in favour of Pacatolous for an amount of ₹180,02,06,000/. This amount of ₹278,32,93,118/- received by assessee as FDI from Mauritius based investment company Pacatolous is the subject matter of dispute or addition u/s.68 of the Act by the AO. We noted that uncontroverted fact is the entire fund flow was through the FDI and RBI has approved this FDI. The assessee also explained before AO, before CIT(A) and even now before us that the investor Pacatolous, a Mauritius based investment company 52 I.T.A. No.308/CHNY/2023 invested FDI in the assessee as a special purpose vehicle, which is in turn was funded by PGF, Mauritius. Admittedly from the accounts, it is established that PGF has invested the funds in the Pacatolous for making investment, as FDI, in the assessee company. Thus according to us, the assessee is able to prove the source of sources to the extent, it is called for, because the investor has established its immediate source in its books in the form of share capital and share premium and debentures in the light of the provisions of section 68 of the Act. The nature of credit is in the form of share capital, share premium and debentures. The source of credit is money received by assessee from a Mauritius based investment company Pacatolous pursuant to an agreement entered with them on 14.11.2015 as FDI and the same is routed through RBI. Admittedly, Mauritius based investment company Pacatolous has received this fund from PGF, an another Mauritius company. It is very pertinent to note that all these documents of FDI received through RBI from Mauritius based company Pacatolous i.e., investment fund and further Pacatolous received this fund from PGF is matter of investigation by FT & TR references sent by the Income-tax Department to Mauritius under exchange of information in term of Section 68 of the Act. It is to be noted that the FT &TR reference was produced by Ld. CIT-DR before the 53 I.T.A. No.308/CHNY/2023 Bench and from that we inferred that there is no evidence that the assessee has taken his undisclosed income to foreign destination and the same has come back to the assessee in the shape of FDI. Hence, the FT & TR reference has not improved the case of Revenue rather it has established that the FDI investment has come from Pacatolus and in turn PGF has invested in Pacatolus. The first charge of the AO, CIT(A) or even now by Ld. CIT-DR is that the share premium value at Rs.301/- per share is very high as the company is an entity without having any underlying asset. It was highlighted that the Pacatolous had no business or investment or operation other than the investments made in the assessee company. The Revenue’s allegation is that even the Chennai property has not been registered in the name of assessee company till date. We noted the facts and noted that the transaction between CPIL and the assessee company did not conclude due to dispute between both of them and both parties approached for arbitration and arbitration award was settled on 19.03.2018, based on which CPIL will sell a portion of the property i.e., MCR Nagar, Chennai property i.e., 40 grounds and 1896 sq.ft., for an amount of Rs.170 crores to the assessee company and return excess advance of Rs.84,83,00,000/- but all these agreements, documents were found during a search on the residential / business premises of the 54 I.T.A. No.308/CHNY/2023 assessee company and its directors on 09.11.2017 conducted by Income-tax Department u/s.132 of the Act. 35. Further, we find that revenue having brought on record the above isolated observations failed to connect the above persons with the assessee who has received the funds from a Non resident investor under automatic route of the FDl approved by RBI. The subsequent alleged application of funds by the assessee cannot discredit the source of funds so as to fall within the mischief of section 68 of the Act.Certain isolated, unsubstantiated observations about Mr.Jamie Williams Tamuara Joseph, being the treasurer of an entity in which Siva's company is a shareholder and the said person's name was found mentioned in a report cannot give any conclusive proof that the transactions recorded in the books of the assessee, of receipt of FDI under automatic route, would be the unaccounted income of the assessee.The assessee before receipt of funds under FDI had made advance towards the land and the source for funding is from Sanklacha Infra Projects Private Limited, and therefore the said money having been returned is a routine business transaction. We agree with the argument of Ld Counsel for assessee that if it is the case of the revenue that the application of funds borrowed is for non-business purposes, the AO's recourse 55 I.T.A. No.308/CHNY/2023 should be to section 36 of the Act for disallowance of interest and not section 68 of the Act.The other observations of the AO as mentioned above do not have any relevance to the fact in issue and the finding recorded. The facts stated by the AO are facts admitted by the assessee and the Pacatolus a Special Purpose Vehicle funded by PGF and therefore no adverse findings could be recorded by the AO on the source or source of source in relation to FDI under automatic route cleared by RBI, the regulator. There is no condition precedent that the investor and the source for investment for the investor should not be the only investment/business of the non- resident investor. The capital of the Non-Resident investor had to be applied for investment and this could happen only through fund transfer through bank account. Therefore, the above observations of the revenue about the investor do not in any way discredit the investment. The AO's observation regarding the receipt of funds by the PGF through Shs Opes Investment Ltd Red Ptg which in turn was from Rosalie Holdings Limited is of no concern for the assessee as the investor and its source was the only burden casted on the assessee which has been proved beyond doubt. We are of the view that the assessee had discharged its onus by proving the source of source of the funds received. Sources for PGF may be through multiple entities and the same cannot discredit the source of funds 56 I.T.A. No.308/CHNY/2023 in the hands of the assessee. The CIT(A) failed to appreciate that the AO having spent so much of efforts in making out a case against the assessee failed to hold out as to whether the impugned individual Mr James the treasurer in a company in which Sri Sivasankaran's company is a shareholder. Even if it were so, how it would discredit the funds sourced through FDI is not borne out by the decision of the CIT(A). Hence, we are of the view that once the assessee discharges his onus of proving the identity of the Creditor/ lnvestor, including those from a foreign jurisdiction, genuineness of the transaction and creditworthiness of the creditor, the burden shifts to the revenue to show that the amount belongs to the assessee. 36. In view of the above, we also note that both sides placed reliance on various case laws but this appeal is purely on facts and there is no dispute about the ratio laid down by these decisions. Hence, we are of the view that in the present case, the assessee has duly established three necessary ingredients of Section 68 of the Act on merits and the same are duly supported by documentary evidences. Hence, the impugned addition as confirmed in the impugned order is not sustainable in law. Therefore, we reverse the adjudication in the impugned order and delete the impugned 57 I.T.A. No.308/CHNY/2023 addition as made by A.O. This issue of the assessee’s appeal is allowed. 37. In regard to the alternative plea of Ld. CIT-DR for setting aside of the matter to the file of the A.O for any information received by the Department through FT & TR division, we are not inclined to accept the same. However, we want to make it clear that the Revenue is free to initiate any action as per law in case any adverse tangible material comes to the possession of the Department, in this regard. 38. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 23 rd August, 2023 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य/ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 23 rd August, 2023 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ /CIT 4. िवभागीय ᮧितिनिध/DR 5. गाडᭅ फाईल/GF.