ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam , , IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER . I.T.A.No.336 Vizag 2012 ( Assessment Year: 2006-07) DCIT, Circle-3(1), Godavari Toll Bridge Pvt. Ltd., Visakhapatnam Vs. Visakhapatnam [PAN: AACCG7208D] ( Appellant) ( ' Respondent) Appellant by : Shri T.S.N. Murthy, DR Respondent by : Shri V. Raghavendra Rao, AR Date of hearing : 22.06.2016 Date of Pronouncement : 16.09.2016 ORDERR PER G. MANJUNATHA, Accountant Member: This appeal filed by revenue is directed against order of CIT(A), Visakhapatnam dated 28.6.2012 and it pertains to assessment year 2006-07. 1 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam 2. brief facts of case are that assessee company, M s. Godavari Toll Bridge Pvt. Ltd. was incorporated on 23.3.2006 as wholly owned subsidiary of M s. Navayuga Engineering Company Limited (NECL) filed its return of income for assessment year 2006-07 on 30.3.2008 admitting total income of ` Nil. Subsequently, it has come to notice of assessing officer, that assessee company made huge investments for acquiring toll bridge at very highly appreciated premium cost of ` `125 crores without aid of any external funds, hence, assessing officer has reason to believe that income chargeable to tax escaped assessment in form of unexplained investments. Accordingly, assessing officer re-opened assessment by issuing notice u s 148 of Act. case has been selected for scrutiny and accordingly, notice u s 143(2) 142(1) of Act were issued from time to time. In response to notices, authorized representative of assessee appeared from time to time and furnished books of accounts and relevant information. 3. During course of assessment proceedings, A.O. noticed that assessee has acquired toll bridge from its holding company M s. NECL for consideration of ` 125 crores. A.O. further observed that M s. NECL has built toll bridge across Goutami 2 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam branch of Godavari river under BOT scheme, with assistance of A.P. State Government, with cost of ` 86 crores on which State Government has subsidized 80 of cost of bridge and remaining 20 of cost of bridge has been incurred by M s. NECL. During year under consideration, M s. NECL has transferred right over BOT asset to assessee company to operate, maintain and collect toll vide resolution passed in meeting of its Board of Directors held on 31.3.2006 which was accepted by assessee company by its Board of Director s resolution passed on same day. consideration for transfer of BOT asset is mutually agreed at ` 125 crores, which is payable by M s. Godavari Toll Bridge Pvt. Ltd. to M s. NECL. consideration for transfer of BOT asset has been paid by way of allotment of fully paid equity shares of face value of ` 10 - each with premium of ` 990 - per share. 4. To ascertain genuineness of transaction, A.O. issued show cause notice and asked to explain how value of bridge is fixed at ` 125 crores and also why amount of ` 125 crores should not be assessed as unexplained investment, as assessee company is incorporated just then and no source of income to invest such huge sum to acquire bridge. In response to show cause notice, 3 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam assessee company vide its submission dated 17.11.2011 furnished copy of PPP agreement, reasons for transfer of asset from M s. NECL, allotment of shares, details of taking over of loan and FBT reconciliation statement etc. In its submissions, it is stated by company that value of bridge has been fixed on basis of future earnings in form of toll collections for remaining lease period. assessee further submitted that it has paid said consideration in form of assumption of outstanding loan amount of ` 10.30 crores owned by M s. NECL and balance of ` 114.70 crores has been settled by way of allotment of fully paid up equity shares of ` 10 - each at premium of ` 990 - per share. assessee company further submitted that transaction has been duly recorded in books of accounts and consideration has been paid without any cash or kind by allotment of equity shares, therefore, by no stretch of imagination it can be treated as unexplained investment within meaning of provisions of section 69 of Act. 5. he A.O. after considering explanations of assessee, held that assessee has failed to convincingly exhibit its source for such huge investment of ` 125 crores into public asset at highly appreciated cost of which ownership of asset rested with 4 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam Government of Andhra Pradesh, by merely allotting shares of company which is few days old. A.O. further held that assessee has acquired toll bridge with highly appreciated cost of ` 125 crores, whereas WDV of asset as per IT Act in books of accounts of holding company was at ` 13.46 crores. consideration is discharged substantially by allotment of shares with premium and partly by taking over bank loan from M s. NECL. Though assessee company says that there is no cash involved, it did not convincingly explains its source of such huge investment when company is just in formation stage and without starting any business activity, how shares of ` 10 - is issued for premium of ` 990 - per share is not known. assessee s claim that it had securities premium reserves to match its investments on PPP Mode leased assets of Government of Andhra Pradesh in very formation year was unrealistic, therefore, held that entire cost of ` 125 crores has to be treated as unexplained source of investments, with these observations, made additions of ` 125 crores as unexplained investment under provisions of section 69 of Act and brought to tax. 6. Aggrieved by assessment order, assessee preferred appeal before CIT(A). Before CIT(A), assessee reiterated 5 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam submissions made before A.O. In addition to merits of issue, assessee challenged re-opening of assessment. As regards re- opening of assessment, assessee submitted that A.O. re-opened assessment based on audit objection without any fresh material in his possession to form opinion that income chargeable to tax escaped assessments. As regards additions towards unexplained investment of ` 125 crores, assessee submitted that it has acquired right over BOT asset for consideration of ` 125 crores from its holding company M s. NECL and consideration for transfer of asset has been paid partly by taking over loan outstanding of ` 10.30 crores and balance amount of ` 114.70 crores has been paid by way of allotment of fully paid up equity shares of ` 10 - each with premium of ` 990 - per share. It has not incurred any amount either in cash or kind to acquire asset. assessee further explained that there is nothing unexplained in this transaction and hence provisions of section 68 or 69 of Act would have no application. assessee further submitted that relying on provisions of section 69 of Act, additions can be made under this section, where assessee has made investments which are not reflected in books of accounts and assessee offers no explanations about nature and source of investments. assessee further submitted that to invoke 6 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam provisions of section 69 of Act, investment is either not recorded in books of accounts or sources of such investments are not explained to satisfaction of A.O. However, in present case on hand, investments are recorded in books of accounts and source for same has been explained by book entries. consideration for transfer of asset has been settled by way of allotment of equity shares of subsidiary company without any monetary consideration in form of cash or kind, therefore, A.O. was not correct in holding that investments made in acquiring toll bridge is unexplained. It was further submitted that BOT asset has been valued based on future earning capacity of asset for remaining lease period and valuation has been done for purpose of getting bank loan, therefore, there is no element of unexplained investment in this transaction and hence, A.O. was completely erred in invoking provisions of section 69 of Act. 7. CIT(A) after considering explanations of assessee, held that A.O. has recorded reasons for re-opening assessment and issued notice by following due procedure of law. assessment has been re-opened within 4 years from end of assessment year and case was not subject to earlier scrutiny 7 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam assessment. CIT(A) further held that it is also held by various judicial forums that audit objection can also be treated as information based on which A.O. can record his satisfaction for re-opening. With these observations, upheld re-opening of assessment and rejected ground raised by assessee. As regards additions towards unexplained investment, CIT(A) held that assessee company duly recorded investment in its books of accounts and also explained sources of making investments which is by allotment of equity shares. fact of share allotment is reflected in books of accounts and annual return filed with registrar of companies. entire transaction is completed by way of book adjustment between holding company and subsidiary company. question of valuation of bridge and valuation of shares do not seem to have any income tax angle attached to them. As far as question of investment is concerned, entire investment is reflected in books of accounts and is clearly explained through book entries and hence there is no element of either unexplained investment or unaccounted money transfer in transaction. As rightly pointed out by assessee, pre-requisites for invoking section 69 of Act are not fulfilled as there is no unaccounted or unexplained investment in transactions. With these observations, deleted additions made by 8 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam A.O. towards unexplained investment. Aggrieved by CIT(A) order, revenue is in appeal before us. 8. Ld. D.R. submitted that CIT(A) ought to have appreciated fact regarding treatment of unexplained investment. D.R. further submitted that CIT(A) ought to have appreciated findings of A.O. i.e. though there is no cash involvement, assessee company did not convincingly exhibit its source of such huge investment of ` 125 crores into public asset at highly appreciated cost of which ownership rested with Government of Andhra Pradesh by merely allotting shares of company which is few days old. D.R. further submitted that assessee has failed to explain how company, which is few days old without any business can value its shares of ` 10 - each with premium of ` 990 - per share. assessee has failed to explain valuation of asset as well as valuation of shares, therefore, A.O. is right in invoking provisions of section 69 of Act and his order should be upheld. On other hand, Ld. A.R. for assessee strongly supported order of CIT(A). 9 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam 9. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. made additions of ` 125 crores under provisions of section 69 of Act, as unexplained investment towards investment in acquisition of toll bridge. A.O. was of opinion that assessee has failed to convincingly exhibit its source of income of such huge investment of ` 125 crores in BOT asset, ownership of which is rested with Government of Andhra Pradesh. A.O. further was of opinion that though there is no element of cash involvement, acquisition of BOT asset at highly appreciated cost of ` 125 crores and substitution of consideration in form of allotment of equity shares with premium of ` 990 - per share has not been explained. It is contention of assessee that it has acquired right over BOT assets from its holding company and consideration for transfer of asset has been paid by way of allotment of equity shares without any monetary consideration in form of cash. assessee further contended it has explained purpose of valuation of BOT asset and also method of valuation of asset. According to assessee, it has valued asset on basis of future earning capacity of asset and purpose of valuation of asset is to get bank finance for its business. 10 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam 10. We find force in arguments of assessee for reason that entire transaction has been completed by way of transfer of asset from holding company M s. NECL, to 100 subsidiary company M s. Godavari Toll Bridge Pvt. Ltd. transfer of BOT asset has been affected by way of book adjustment by allotment of fully paid up equity shares. assessee has explained reasons for transfer of asset to its subsidiary company. assessee also explained how value of asset has been fixed at highly appreciated cost of ` 125 crores. assessee also explained source of investment by way of allotment of equity shares and partly by taking over loan outstanding in name of holding company. Therefore, we are of view that A.O. was not correct in making additions u s 69 of Act, when entire transaction has been duly recorded in books of accounts of holding company and subsidiary company and consideration for transfer of asset has been explained. To invoke provisions of section 69 of Act either investment is not recorded in books of accounts or sources for investment has not been explained to satisfaction of A.O. In present case on hand, on perusal of facts available on record, we find that investment in BOT asset has been duly recorded in books of accounts and sources for investment has been explained. CIT(A) after considering relevant details 11 ITA No.336 Vizag 2012 Godavari Toll Bridge Pvt. Ltd., Visakhapatnam rightly deleted additions made by A.O. We do not see any reasons to interfere with order passed by CIT(A). Hence, we inclined to uphold CIT(A) s order and reject appeal filed by revenue. 11. In result, appeal filed by revenue is dismissed. above order was pronounced in open court on 16th Sept 16. Sd - Sd - (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: ' Dated : 16.09.2016 VG SPS ) Copy of order forwarded to:- 1. Appellant ACIT, Circle-3(1), Visakhapatnam 2. Respondent Godavari Toll Bridge Pvt. Ltd., 48-9-17, Dwaraka Nagar, Visakhapatnam 3. CIT, Visakhapatnam 4. CIT (A), Visakhapatnam 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER True Copy 1 2 . (Sr.Private Secretary) . , ITAT, VISAKHAPATNAM 12 DCIT, Circle-3(1), Visakhapatnam v. Godavari Toll Bridge Pvt. Ltd