Even while dismissing the 2012 application by a Mauritius entity as nonmaintainable the Authority for Advance Ruling in[2021] 435 ITR 456 (AAR) left a pointer for the authorities to consider the aspect of tax avoidance in detail at the time of merit proceedings as in their prima facie opinion certain events inter alia do serve as a pointer towards prima facie tax avoidance which is briefed in the following words :
– Investment for the acquisition of VCL shares not made by applicants but funds were routed through them and on top of that they bound themselves in restrictive covenants of loan agreements ;
– Further loans were raised by pledging these shares for the benefit of Capex group ;
– When shares were sold, consideration immediately moved out from accounts of applicants to lenders on the directions of executives of Capex group ;
– Shares were bought, pledged, sold by multinational Capex group and the entities merely lent their name to seek treaty benefits ;
– The shares in MCL/VCL have been acquired by CCLM by voluntary liquidation of CTIL. The sole purpose, it seems is to transfer the situs of ownership of 15.85 percent. of MCL/VCL shares owned by Capex group, to Mauritius to avoid capital gains tax in India.
In this case, the application is held to be nonmaintainable because it suppressed material facts of previous rejection in 2011 upon withdrawal carrying the same subject.
On the subject of non-disclosure of material fact such as this, the AAR held that the argument of learned senior advocate that it is an inadvertent error and does not cause any prejudice to the Revenue is not acceptable. The applicants were party to the transaction, pleaded earnestly to be included as intervenors in earlier proceedings, were vitally concerned with questions raised by AASL, participated in earlier proceedings, filed documents called for by the Revenue, collaborated, discussed, deliberated with Vortex group on sharing the tax deducted at source amount and very conveniently omitted these facts in form 34C. They falsely mentioned in the verification segment that all relevant, correct, and complete facts were stated to the best of their belief. This is not credible more so when the applicants are part of big business group of India and enjoy the services of the best legal and financial brains. It is not relevant whether the Revenue is affected or not, what is pertinent is the conduct of applicants. If this contention is accepted then an applicant can state and disclose whatever it deems fit and take a chance to secure ruling before any authority and if and when discovered could proffer a plea of inadvertent error. This would create chaos and lead to the mockery of the judicial process. In the case of Pushpam Pharmaceuticals Company v. CCE [1995] 78 ELT 401, 403 (SC), the hon’ble Supreme Court had held that suppression does not mean any omission but a deliberate act. In the present case, as outlined above, we are of the view that material facts were omitted due to the fear that if all facts are brought on record, the applications may be rejected at the initial stage itself.