TaxTMI 
TaxTMI 
2019 (7) TMI 174
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....l by the Revenue, following grounds have been raised :- "1. The order of Ld.CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of Rs. 9,34,15,000/- made by AO on account of unexplained share capital. 3. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of Rs. 8,26,863/- made by AO on account of pre operative expenses. 4. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of Rs. 75,00,000/- made by AO on account of unaccounted credit u/s 68 of the Income Tax Act, 1961." 5. Briefly, the background of the departmental appeal is that the Assessing Officer passed the order under Section 254/153C/143(3) dated 26th March, 2014. Search and seizure under Section 132 of the Act was carried out in the case of Shri Suresh Nanda and his associates/concerns on 28th February, 2007. Documents indicating various transactions were seized during the search. The case was assessed at an income of Rs. 6.91 crores against returned loss of Rs. 3.31 crores. In appeal, learned CIT(A), vide order dated 8th February....
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....e status of Shri Suresh Nanda to be 'non-resident'. On further appeal by the Revenue, the status of Shri Nanda was confirmed by Hon'ble Delhi High Court vide order dated 25th February, 2013, dismissing the appeal filed by the Revenue. 8. Learned CIT(A) further noted that he has adjudicated the case of Shri Suresh Nanda for assessment year 2004-05 to 2006-07. In those appeals, following the order of the ITAT as confirmed by Hon'ble Delhi High Court, he has held the status of Shri Nanda to be 'non-resident'. All the additions on account of deposits in the bank account in the case of Shri Nanda, investments made by the holding company UBL Ltd., Mauritius, share capital invested by the holding company M/s Palm Technologies Ltd., Mauritius in M/s Claridges SEZ (P) Ltd. as unaccounted money of Shri Suresh Nanda and commission income on the basis of documents recovered by the Delhi Police on 22nd February, 2007 from the possession of Dr. M.V. Rao assesses as income of Dr. Rao and Shri Suresh Nanda were deleted. On further appeal in the case of Shri Suresh Nanda, his status was held to be 'non-resident'. Learned CIT(A), therefore, noted that in the case of Shri Nanda, the addit....
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.... Y2K Systems International Ltd. is a separate company, is registered in Mauritius and is a tax resident of the company and the money has been given from their own bank account:- (a) Investment confirmation duly certified by Chartered Certified Accountant. (Pg 75) (b) Balance sheet and income statement of Y2K Systems International Ltd. duly certified by Chartered Certified Accountant. . (Pg 76 - 77) (c) Certified true copy of Tax Residence Certificate. . (Pg 78- 79) (d) Shareholders confirmation of Y2K Systems International Ltd. duly certified by Chartered Certified Accountant. . (Pg 80- 81) (e) Confirmation for account opening by HSBC Bank of Y2K Systems International Ltd. (Pg 82 - 83) (f) Copy of register of shareholders. . (Pg 84) (g) Copy of register of directors with date of appointment and date of resignation. (Pg 85) i i ) Your goodself has stated that Y2K Systems International Ltd. has received a loan from another company namely M/s Palm Technology in the year 2007. We fail to understand the relevance of the loan taken in 2007 whereas we are dealing with AYs 2001-02 to AY 2003-04. i i i ) Reliance placed on decision given by Hon'ble ITAT in case of Russ....
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.... It therefore naturally follows that if the identity of the non-resident remitter is established and the money has come in through banking channels, it would constitute a capital receipt and ordinarily cannot be treated as deemed income under sections 68 or 69 of the Act. This is clarified by the CBDT Circular itself. (iv) Section 5(2) and section 68 of the Act: (para 11.1 of Pg 114/PB 1) * As held by the Hon'ble ITAT, Delhi in the case of Finlay Corpn Ltd[2003] 86 ITD 626 (Delhi), "the total income of the non-resident which is taxable under the Act is defined in s. 5(2) which includes income which: (a) Is received or due to be received in India in the previous year by the assessee or on behalf of the assessee; or (b) Accrues or arises or is deemed to accrue to arise to him in India during such year. * The decision in the case of Finlay Corporation Ltd. (supra) has been followed by the Hon'ble ITAT, Chennai in case of Smt. Susila Ramaswamy [2010] 37 SOT 146 (Chennai) (para 11.2 at Pg no. 115/PB 1) holding as under: "The assessee, who is a non-resident, brought money into India through banking channel and the manner in which this money was utilised in India is described....
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....that "Assessee's explanation that investment made in purchase of land came from her step-father was not found satisfactory by Assessing Officer who made addition as income from other sources - Whether, if considered in true perspective word 'may' used in section 69 cannot be read as 'shall' -Held, yes - Whether section 69 confers a discretion on Assessing Officer in matter of treating sources of investment which has not been satisfactorily explained by assessee as income of assessee and he is not obliged to treat such source of investment as assessee's income in each and every such case - Held, yes - Whether Tribunal having held that discretion had not been properly exercised by Assessing Officer in taking into account circumstances in which assessee, a young girl of 20 years, was placed, and having found that sources of investment could not be treated as her income, and High Court having agreed, there could be no error in the above findings - Held, yes" vi ) Proviso to section 68 has been inserted by Finance Act, 2012, w.e.f 01.04.2013. As per the proviso, "Provided that where the assessee is a company (not being a company in which the public are substantially interested),....
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....as application of income and cannot be taxed again. In the absence of any evidence to establish the link, and in any case, the addition in the hands of the appellant company cannot be sustained and is liable to be deleted. 4.3 In the above matrix of facts and circumstances of the case, the addition of Rs. 9.34,15,000/- brought in as share capital of the appellant company from Y2K Systems International Ltd. (Y2K SIL), holding company of the appellant, cannot be treated as unexplained credit in the books / accounts of the appellant company and must be deleted. I hold accordingly. This ground of appeal is allowed. In reaching this conclusion I am relying on Revenue's own basic position in the matter that income has been earned in defence contracts / supplies in India, and I have followed rulings of Hon'ble ITAT. Delhi and Hon'ble Delhi High Court in the various decisions in Suresh Nanda group of cases holding that share-capital brought in through the FDI route cannot be taxed and that there is no evidence to establish that these amounts were invested out of income accruing or arising in India." 12. Learned DR relied upon the order of the Assessing Officer and he submitt....
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....t order under Section 153C/143(3) but additions are not based on any seized material found or recovered during the course of search. The Assessing Officer failed to point out as to how the documents relate to the assessee. He has relied upon the judgment of Hon'ble Supreme Court in the case of Sinhgad Technical Education Society - [2017] 397 ITR 344 (SC) and the judgment of Hon'ble Gujarat High Court in the case of Kamleshbhai Dharamshibhai Patel Vs. CIT - [2013] 263 CTR (Guj) 362, in which it was held that documents must be shown to be belonging to a person and not pertaining to. He further submitted that the issue is covered by the aforesaid decisions in the case of group companies and persons. 15. We have heard the arguments of both the sides and perused the material placed before us. In the group cases of River Valley Meadows & Township Pvt.Ltd. in ITA No.5629 & 5630/Del/2013 for assessment year 2008-09 and 2009-10 vide order dated 27th March, 2019, the Tribunal had dismissed the departmental appeals. The entire order is reproduced below :- "Both the appeals by Revenue are directed against the different orders of the Ld. CIT(A)-1, New Delhi dated 5th August 2013, for the....
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....llotted to Palm Technology Ltd. during the year ended 31.03.2008. b. Letter dated 26.08.2008 addressed to the Manager IDBI Bank regarding submission of Form FCGBR - Foreign Direct Investment along with the following Annexure:- i. Two letters dt. 26.08.2008 addressed to Reserve Bank of India. ii. Form FC-GPR iii. Certificate of Compliance dated 26.08.2008 issued by the Company Secretary. iv F1RC No. 098902 dated 15.02.2008 issued by IDBI Bank. v. Certificate of compliance dated 25.08.2008 issued by Chartered Accountant. vi. Valuation certificated dated 05.08.2008 issued by the Chartered Accountant along with Annexure-A. vii. Copies of the Annexure-II Ill forming part of Form No. FCGPR." 4.1. The assessing officer on perusal of the balance sheet of M/s. Palm Technologies (P) Ltd., Mauritius noted that it had reflected investments of US $ 5745000 in subsidiary companies as on 31st March 2008. He has further noted that the said company has shown profit of US $ 7833 during the period. Assessing officer after analysing the balance sheet as on 31st March 2008 further noted as under : a. Non Current Assets Year ending on 31.03.2008 Year ending on 31.03.2007 Invest....
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....sted in your aforesaid letter. The information will be forwarded to von as soon as they are received. " 4.4. The assessing officer, thereafter, noted the table in para 2.7 of the assessment order, which gives snapshot of the financial position of the Investor, which shows its current liabilities from UBS Trading FZC and Y2KSIL. During the course of assessment proceedings, the balance sheet of M/s. Palm Technologies (P) Ltd., Mauritius for the year ending 31st March 2008 was submitted. The following tables depicts the balance sheet as under : Assets USD Non current assets Investment in subsidiaries 57,45,000/- Current assets Trade and other receivables 4,13,294/- Cash and Bank balance 8,657/- 4,21,951/- Total assets 61,66,951/- Equity and Liabilities Capital and Reserves Share Capital 1,001/- Revenue reserves (22,891/-) Shareholders interests 21,890/- Non current Liabilities Shareholder's loan 4,56,197/- Other Loans 50,00,000/- Current Liabilities Trade & Other payables 62,644/- Other Loans 6,70,000/- 62,644/- 7,32,644/- TOTAL EQUITY AND LI....
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....ure No. A-8, seized from the residence of Mr. Suresh Nanda-4, Prithvi Raj Road New Delhi. This is a draft letter written to M/s UBS Trading FZC for declaring further interim dividend of USD 45 lacs to Mr. Suresh Nanda and transfer the sum to M/s UBS Mauritius' Bank - Barclays Bank, Port Louis, Mauritius. * Page 77-79 Annexure No. A-8, seized from the residence of Mr. Suresh Nanda-4, Prithvi Raj Road New Delhi. These are covering letters and E-mail of all the drafts seized and discussed above and these were forwarded by the consultancy firm to M/s Mauritius Consulting and Management Limited for signature of one Mr. Endreen Venchard. * Page 8-49 Annexure No. A-15, seized from the residence of Mr. Suresh Nanda-4, Prithvi Raj Road New Delhi. This is the audited Financial Statements of Mr. Nanda's company M/s UBS Trading FZC for the year ended 31st December, 2005. It is seen that Mr. Suresh Nanda is chairman of the company and is holding 99 shares out of total 100 and the remaining 1 share is held by Infotech Services Limited, Jersey which is also held on his behalf. The profit for 2004 is shown as AED 34,115,538 and profit for 2005 has been declared as AED 24,924,085. The company....
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....he case of M/s. Russian Technologies Private Limited. Assessee, therefore, pleaded that the issue is identical and covered in favour of the assessee. The Ld. CIT(A) found the contention of assessee to be correct because for assessment year 2004-2005, in assessee's own case, similar addition have been deleted. The Ld. CIT(A) noted that the arguments, facts and submissions of the Revenue are same. Therefore, following the reasons for decision for the assessment year 2004-2005, the Ld. CIT(A), deleted the addition. 6. The Ld. D.R. relied upon the order of the assessing officer and referred to para-2.7 of the assessment order and submitted that resources of the Investor was very small. The Ld. CIT(A) followed his order for assessment year 2004-2005 in the case of the assessee, which is confirmed by ITAT, by dismissing the appeal of the department, holding the assessment to be time barred. The Ld. D.R. submitted that seized documents found from the premises of Mr.Suresh Nanda may be considered. It was money of Mr Suresh Nanda who is controller of the Companies of the Group. The Ld. D.R. in support of her contention has relied upon the following decisions : 1. Pr. CIT, New Delhi vs.....
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....of the investor, it's creditworthiness and the genuineness of the transaction, which have not been doubted or disputed by the authorities below : i) Certified copy of certificate of incorporation of the company dt. 16th November, 2000 under the name Y2K Ltd., by the Registrar of Company, Mauritius. ii) Certified issued by Registrar of Companies effective 15th March, 2002 with respect to change of name of Palm Technologies Ltd., iii) Tax Residency Certificate issued by Income Tax Department Republic of Mauritius. iv) The company was maintaining a bank account with Barclays Bank Certificate dated 24th June 2008. v) Certified true copy of Balance Sheet of M/s. Palm Technologies Ltd., for the year ending 31st March, 2008. 3. Documents filed evidencing receipt of Rs. 7,92,19,406/- in due compliance with the rules and regulation laid down by the Reserve Bank of India. i) Details of amount received and equity shares allotted to Palm Technologies Ltd., during the year ended 31.03.2008. ii) Letter dated 26.08.2008 addressed to the Manager, IDBI Bank regarding submission from FCGBR-Foreign Direct Investment along with the following annexure. (a) Two letters dt.....
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....sis. Therefore, ground No. 4 in both the years is allowed." 7.2. He has referred to PB-2, pages-56-67 which is Judgment of the Hon'ble Delhi High Court in the case of CIT vs., Mr.Suresh Nanda dated 27th May, 2015, in which the above Judgment of the Tribunal have been confirmed, by dismissing the departmental appeals. Learned Counsel for the Assessee submitted that the Hon'ble Delhi High Court considered the investment made by M/s. Palm Technologies Limited, Mauritius in several years and it was noted that involuntary stay of Mr.Suresh Nanda during the period should be excluded for calculating the period under section 6(1)(a) of the Income Tax Act, 1961 and Departmental Appeal has been dismissed. He has submitted that Mr.Suresh Nanda is NRI and similar money have been explained in his case as well. Thus, the assessee is able to prove source of the source as well. The addition is made in the hands of the assesseecompany merely because assessee-company is beneficiary of the money. He has referred to PB-2, Page-35-47, which is Judgment of the Delhi High Court in the case of CIT, Central-1 vs., M/s. Russian Technology Centre (P) Ltd., in ITA.Nos.547, 549 & 555 of 2013, Dated 15th ....
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....ferred to PB- 2, Page-71 which is order of ITAT, Delhi B-Bench in the case of ACIT, Central Circle-13, New Delhi vs. Claridges Hotels Pvt., Ltd., New Delhi in ITA.No.2737/ Del./2012, ITA.No.4607/Del./2013 and C.O.No.10/Del./ 2014 in ITA.No.4707/Del./2013 dated 30.09.2014, in which on identical facts, the Departmental Appeal has been dismissed. Para-30 of the order is reproduced as under : "30. We thus find that the assessee has been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction by furnishing several documents in evidence in support on the basis of which the Learned CIT(Appeals), in our view, has righty deleted the addition in question made under sec,. 68 of the Income-tax Act, 1961 by the Assessing Officer as the facts noted by the Learned CIT(Appeals) in the above concluding para No. 4.5 of the First Appellate Order have also not been rebutted by the revenue with satisfactory explanation to that. The First Appellate Order on the issue is comprehensive and reasoned one to which we do not find reasons to interfere with. The same is upheld. The ground No. 2 is accordingly rejected." 7.4. Learned Counsel for the Ass....
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....lained share application money received by assessee-company from the Investor M/s. Palm Technologies (P) Ltd., Mauritius in assessment year under appeal as well as in earlier years. The assessing officer had made out a case that the impugned money belongs to Mr. Suresh Nanda, who has routed the amount to the assessee-company through M/s. Palm Technologies (P) Ltd., Mauritius and that the source of loan to M/s. Palm Technologies (P) Ltd., Mauritius is from M/s. UBS Trading FZC and Y2KSIL. The assessing officer held that the investor company is merely a conduit of Mr. Suresh Nanda to bring his unaccounted money and assessee is the ultimate beneficiary of the unaccounted funds. The assessee-company, on the other hand, has produced the documentary evidences above, which clearly proves that assessee received the genuine money from identified and existing Investor which was accepted in earlier year as well. The documentary evidences filed by the assessee-company have not been disputed and doubted by the Revenue Authorities. Thus, the assessee has been able to prove the Identity of the Investor, its creditworthiness and genuineness of the transaction in the matter. The assessing officer a....
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....High Court. The issue is also covered by Judgment of the Delhi High Court in the case of M/s. Russian Technology Centre (P) Ltd., (supra), in which, similar addition have been deleted on the same set of facts, in which the subsidiary of M/s. Russian Technology Centre (P) Ltd., which had received various amounts towards share capital from its related Companies and Promoters. The assessee filed all the documents as are filed in the present case and on that basis, the Tribunal deleted the addition and Judgment is confirmed by the Hon'ble Delhi High Court. In the present case assessee has received share application money from its holding Company. 8.1. The above facts and circumstances, would clearly reveal that burden upon assessee-company under section 68 of the Income Tax Act, 1961, to prove the identity of the Investor, its creditworthiness and the genuineness of the transaction, have been proved by the assessee-company, which have been correctly appreciated and accepted by the Ld. CIT(A) for the purpose of deleting the addition. No addition could be made merely on presumption as has been done in the present case. Since the similar addition have been deleted by the Ld. CIT(A) in a....
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....identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." 8.3. In view of the above discussion, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. The decisions relied upon by the Ld. D.R. would not support the case of the Revenue. Accordingly, the Departmental Appeal is dismissed. ITA.No.5630/Del./2013 - A.Y. 2009-2010 : 9. The issue is same as have been considered in A.Y. 2008- 2009. Following the reasons for decision, we dismiss this appeal of the Department. 10. In the result, ITA.No.5630/Del./2013 of the Department is dismissed. 12. To sum-up, both the appeals of the Department are dismissed." 16. In the aforesaid cases, all the identical facts have been considered by the Tribunal. Even during the course of arguments, learned DR did not dispute that the issues have already been considered in detail in the aforesaid decision considering the other related decisi....
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..... 4,00,000/- representing legal and professional charges were incurred before commencement of business. These were in the nature of revenue expenses and were amortized under Section 35D of the Act. Both these additions were accordingly deleted. 19. Learned DR relied upon the order of the Assessing Officer. On the other hand, learned counsel reiterated the submissions made before the authorities below and submitted that assessment in this case was already completed and that no document was seized during the course of search so as to make this addition. This issue is, therefore, covered by the judgment of Hon'ble Delhi High Court in the case of Kabul Chawla - [2016] 380 ITR 573 (Delhi). 20. On consideration of rival submissions, we do not find any merit in this ground of appeal of the Revenue. The assessee has incurred this expenditure before commencement of business which was in the nature of travelling, telephone and printing expenses etc. These were revenue in nature. Therefore, learned CIT(A) rightly amortized these expenses under Section 35D of the Act. Further, no document was seized during the course of search with reference to this addition. Since assessment in this ye....
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....issions of the appellant. It is undisputed that the amount was received by the appellant from Sh. Suresh Nanda. Sh. Nanda has been held by Hon'ble ITAT to be a non-resident during the previous year and this status has been confirmed by Hon'ble Delhi High Court vide its order dated 25.02.2013. The amount can only be taxed in the hands of Sh. Nanda if it can be established to have been out of his income accrued arisen or received in India. Therefore, the source of the credit stands explained in the hands of the appellant. There is no case for taxation of this amount in the hands of the appellant. The addition is deleted and this ground of appeal is allowed." 24. Learned DR merely relied upon the order of the Assessing Officer. On the other hand, learned counsel reiterated the same submissions as were made before the learned CIT(A) and also submitted that assessment in this year was originally completed under Section 143(3) and no incriminating document was found. Therefore, the issue is also covered by the decision of Hon'ble Delhi High Court in the case of Kabul Chawla (supra). 25. On consideration of rival submissions, we are of the view that no interference is call....
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.... On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of Rs. 8,39,383/- made by AO on account of pre operative expenses." 30. Both parties have submitted that the issues involved in the above appeals are same as have been considered in assessment year 2001-02. Following the order for assessment year 2001-02 above, we dismiss both the appeals of the Revenue. ITA No.5852/Del/2014 - A.Y. 2001-02 :- 31. In this appeal by the Revenue, following grounds have been raised :- "1. The order of Ld.CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the disallowance of Rs. 9,34,15,000/- made by AO on account of unexplained investment in C-1 India Pvt.Ltd. 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal." Ground No.1 is general and needs no adjudication. 32. In ground No.2, Revenue has challenged the order of learned CIT(A) in deleting the disallowance of Rs. 9,34,15,000/- made by the Assessing Officer on account of unexplained investment in C-1 India Pvt.Ltd. The assessee challenged ....
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.... of Israel is still awaited. Accordingly, even if any amount invested in India is found to be belonging to the assessee, it cannot be brought to tax as income in his hands unless it is proved that the income accrued to him in India, as is held by the Tribunal in the order dated 24th July, 2012 and confirmed by Hon'ble Delhi High Court in the order dated 25th February, 2013. Learned CIT(A), therefore, held that no addition can be made in the hands of the assessee. The addition was accordingly deleted. 34. After considering rival submissions, we are of the view that no interference is called for in the matter. Learned counsel submitted that the issue is covered by the judgment of Hon'ble Delhi High Court in the case of the assessee dated 25th February, 2013 (supra) in which it was held that the assessee is a 'non-resident'. The order of the Tribunal is thus affirmed and hence, no addition can be made. Learned DR also did not dispute the above fact. In this view of the matter, it is clear that since similar additions have been deleted in the case of M/s C 1 India Pvt.Ltd. in assessment year 2001-02 to 2003-04 (supra), in which substantive addition is made, therefore, no prote....