TaxTMI 
TaxTMI 
2019 (7) TMI 174
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....5857/Del/2014 - A.Y. 2001-02 :- 4. 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 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 ....
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....sessments by the Coordinate Bench of the ITAT vide order dated 24th July, 2012 holding the 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....
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....ng share capital received. We enclose herewith the following documents relating to Y2K Systems International Ltd. which conclusively prove that 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 200....
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.... filed by the assessee amounts to discharge of primary burden cast on the assessee in terms of s. 68 of the Act for establishing identity and creditworthiness of creditors and genuineness of transaction. (iii) Capital receipt:(para 11.6 of Pg 116/PB 1) 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 fo....
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....ount in the name of the company (i.e Claridges Hotel Pvt Ltd.)". d. Also, it was held that "Shareholders of UBS, Mauritius have filed letters of confirmation as regards the ownership." v) The word "may' in Section 68 is explained & is squarely applicable to Assessee company: As per CIT v. Smt. P.K. Noorjahan [1999] 155 CTR 509 (SC), it was held 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 fo....
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....sclosed sources or out of commission income earned in defence contracts. Even if it is established that the amount was invested from commission out of defence contracts in India, and therefore income accruing or arising in India, the addition can only be sustained in the hands of the persons earning such commission income and to the extent of such income only, if established. The capital brought in can at best be treated 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 / suppl....
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....ber, 2014. (iv) Order of the ITAT in the case of River Valley Meadows & Township Pvt.Ltd. dated 27th March, 2019. (v) Order of the ITAT in the case of Shri Suresh Nanda dated 11th April, 2014. (vi) Judgment of Hon'ble Delhi High Court in the case of Shri Suresh Nanda dated 27th May, 2015. 14. Learned counsel for the assessee without prejudice to the above submissions also submitted that in this case, the Assessing Officer passed the assessment 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 ....
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.... (Attested copies of the certificate are enclosed). (c) The said company was issued a Tax Resident Certificate by the Income Tax Department Republic of Mauritius (Attested copies of the certificate are enclosed). (d) The company was maintaining a bank account with HSBC and certificate of HSBC dated 20th June. 2008 is enclosed. (e) Copy of the balance sheet of M/s Palm Technology Ltd. for the year ending 23rd March 2008 is enclosed. 2. Documents in support of remittances from Palm Technology Ltd. a. Detail of amount received any equity shares allotted 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 cert....
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....ccounts of M/s Palm Technologies Ltd. Mauritius. i) Any other query which the Mauritian Tax Authority may deem fit in this regard" 4.3. The Government of Mauritius vide its letter dated 4th April 2008 provided the income statement and balance sheet of M/s. Palm Technologies (P) Ltd., and clarified the following points : a) The equity structure is as per the balance sheets. b) As shown in the balance sheets, the sources of funds enabling investments made in the Indian companies are from loans/shareholders loans. c) Please note that there is no exchange control in Mauritius. There is no requirement to submit documentation for bringing funds in Mauritius. d) A Request has been made to the above companies to submit bank statements and other particulars requested 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 pr....
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....e residence of Mr. Suresh nanda-4, Prithvi Raj Road New Delhi. This is draft of a letter issued by Mr. Suresh Nanda from Dubai to M/s Infotech Services Ltd., Jersey, Channel Islands where it has been written that shareholders of UBS Trading FZC are 1% - M/s ISL and 99% - Suresh Nanda. In this letter it is written that M/s UBS FZC will declare an interim dividend of USD 4.5 millions which will go toward capital contribution in UBS Mauritius. This draft is indicative of ownership of Mr. Suresh Nanda of UBS Mauritius as well as UBS Trading FZC, UAE. * Page no. 36 Annexure No. A-8 seized from the residence of Mr. Suresh Nanda-4, Prithvi Raj Road New Delhi., This is again draft of letter prepared by Mr. Suresh Nanda from Dubai requesting UBS Trading FZC dated 31st May, 2004 requesting them to declare an interim dividend of USD 50 lacs and direct such payments to the account of Mideast Consortium, S.A. which is a co-investor in UBS, Mauritius. * Page no. 76 Annexure 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....
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....th Y2KSIL which is evident from the document seized during the course of search operation under Income Tax Act conducted on the premises belonging to Mr. Suresh Nanda, details of the same are noted in the assessment order. Based on these facts, assessing officer held that assessee-company has been bringing unaccounted money after creating layers of intermediaries including M/s. Palm Technologies (P) Ltd., Mauritius due to less stringent exchange control norms there. The intermediaries have merely provided the names. The true source of funds has not been disclosed before the Income Tax Authorities. Since the assessee-company is an ultimate beneficiary of these unaccounted funds. Hence, the receipts were treated as unexplained in the hands of the assessee and addition of Rs. 7,92,19,406/- was made in assessment year under appeal. 5. The assessee challenged the addition before Ld. CIT(A) and it was submitted that similar addition has been deleted by the Ld. CIT(A) in assessment year 2004-2005 and also relied upon order of ITAT, Delhi Bench in the case of M/s. Russian Technologies Private Limited. Assessee, therefore, pleaded that the issue is identical and covered in favour o....
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....Department, no addition could be made in the hands of the assessee. Learned Counsel for the Assessee referred to Para 2.5 of the assessment order, in which, the Government has made a reference to Government of Mauritius through Director General of Income Tax (Inv.) making inquiries against the Investor Company, on which, several details were asked for and the Government of Mauritius has filed a reply to the Government confirming the source of the funds and also confirmed the investment made by the Investor Company. He has, therefore, submitted that assessee has explained the source of the investment from M/s. Palm Technologies (P) Ltd., Mauritius which in turn taken it from loans/ shareholders loans. Learned Counsel for the Assessee, therefore, referred to Page-5 of the assessment order, in which, it is highlighted by the assessing officer that the Investor Company has the source of money to make the investments from M/s. UBS Trading FZC and Y2KSIL. How they got source is also explained. He has submitted that assessee-company has filed the following documents to prove identity of the investor, it's creditworthiness and the genuineness of the transaction, which....
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.... given finding about addition on protective basis. Palm technologies Ltd. and assessee are held to be two different persons. The CIT(A) has held that ownership of Palm Technologies Ltd is known and appellant was not a shareholder in Palm Technologies which was owned by One Mrs. EA Half land. It is undisputed that both UBBS and PTL are duly incorporated companies under the laws of Sharjah and Mauritius respectively. The Ld CIT(A) has himself observed that this amount cannot be held as un-explained money/investment of appellant thereafter there is no justification in keeping a protective addition in this behalf. We also find that similar addition on substantive basis was made in assessment year 2004-05 and Tribunal on revenue appeal in I.T.A.No.2605/Del/2013 has dealt with this issue at page 60 onwards vide order dated 21.2.2014 and vide para 7.5. at page 68 has dismissed the appeal of revenue on this issue. During these years the Ld CIT(A) has however made the addition on protective basis without justification. In view of the above and following the IT AT order for 2004-05 in assesses own case we delete the alternate retention of addition on protective basis. Therefore, gro....
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....ance of share capital etc. This was all that the assessee could have furnished in the circumstances. It could not be expected to prove the negative that the monies received by it were suspicious or not genuine infusion of capital etc. The assessee had discharged its burden of proof in terms of the settled dicta in Divine Leasing (supra). It is only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the banks) to ascertain the truth of the assessee's claims. Having not done so. he was not justified in disregarding the assessee's contentions that the infusion of monies into its accounts was legitimate. Conseouentiv, the AO was not justified in making additions of the various sums under Section 68 of the Act. 13. In view of the above, this Court is of the view that the conclusion of the Tribunal in deleting the additions made cannot be faulted. Accordingly, the Questions of law are answered against the Revenue and in favour of the assessee. The order of the Tribunal is, therefore, affirmed. 14. Resultantly, the appeals are dismissed." 7.3. The Learned Counsel for....
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....Shipping (P.) Ltd. [2017] 84 taxmann.com 58 (Bom). 6. CIT vs. Lalit Kumar Poddar (2015) 231 taxman 819 (Delhi). 7. CIT Vs. Gangeshwari Metal (P.) Ltd., reported in 361 ITR 10 (2014). 8. Dolphin Canpack Ltd., reported in 2004 CTR 50. 9. CIT vs. Samir BioTech P. Ltd., [2010] 325 ITR 294 (Delhi), ITA No. 415/2008 (Delhi). 7.5. Learned Counsel for the Assessee also contended that since addition has been deleted in the hands of Mr. Suresh Nanda on substantive basis, which is confirmed by the Hon'ble Delhi High Court, then the findings of the assessing officer which are solely based on the presumption that it was the unaccounted money of Mr. Suresh Nanda routed through the intermediary companies to the assessee company, has no basis to justify the addition. He has further pointed-out that similar addition was made in earlier years, which have been deleted and the assessing officer has admitted that even in earlier years similar investments have been made in assessee-company, which have already been deleted. Therefore, Ld. CIT(A), on proper appreciation of facts and material on record, correctly deleted the addition. 8. We have conside....
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....any has made investment in assessee-company through its own sources. The assessee-company filed Tax Residence Certificate issued by the Tax Department of Government of Mauritius, Certificate issued by Registrar of Companies, Letter addressed to Reserve Bank of India and Form FC-GPR, Compliance Certificate issued by the Company Secretary and details issued by IDBI Bank. These documents supports the explanation of assessee-company that assessee-company received genuine share application money. The assessing officer instead of examining the documentary evidences and record in depth, has made an attempt to link Mr. Suresh Nanda, who was having interest in the Companies namely M/s. UBS Trading FCZ and Y2KSIL, who were the different entities, who have provided loans and funds to Investor Companies. Even if certain documents were found during the course of search in the case of Mr. Suresh Nanda, but, nothing has been brought on record, if any, material was found that he has received any unaccounted money. No material was found during the course of search to prove Mr. Suresh Nanda was dealing with unaccounted money rather the Department had made similar addition in the hands of Mr....
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.... Hon'ble Madhya Pradesh High Court in the case of CIT vs. Peoples General Hospital Ltd., [2013] 356 ITR 65 (MP) has admitted the following substantial question of Law in one of the appeal : "(i) Whether the Income-tax Appellate Tribunal was correct in law in deleting the addition made by the Assessing Officer in respect of the non-resident Indian company, which admittedly has contributed share capital, even on the assumption that the assessee has failed to discharge the financial capacity of the non-resident Indian company ?" 8.2. The Hon'ble Madhya Pradesh High Court held as under : "Held dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody's case that the nonresident Indian company was a bogus or non-existent company....
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....'s appeal on this ground. Accordingly, ground No.2 of the appeal is dismissed. 17. In ground No.3, the Revenue has challenged the addition of Rs. 8,26,863/- on account of pre-operative expenses. The assessee has challenged the disallowance of certain expenses claimed as deduction under Section 35D as pre-operative expenses amortized. The assessee explained before the learned CIT(A) that it was explained before the Assessing Officer that pre-operative expenses were incurred by the assessee before commencement of the business. These expenses were in the nature of feasibility reports, project reports, travelling transportation, legal charges, printing of memorandum and articles of association and such other expenses relating to the issue of share capital as well. Hence, these expenses have been incurred prior to the commencement of business fall under Section 35D of the Act which permits amortization of such preliminary expenses for a period of five years. Hence, the claim of 20% in the assessment year in question is allowable under Section 35D of the Act. It was submitted that in the assessment order under Section 143(3) dated 28th June, 2006, similar additions have been made. ....
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....iscussion made above, same is also considered as unexplained credit u/s 68 of I.T Act in the hand of the assessee company." No details were asked to be filed in respect of the loan received and the addition u/s 68 has been made without any opportunity being afforded to the assessee company. b) However, the assessee has placed the following documents and evidences on record in respect of the said loan: * Confirmation of account from 01.04.2000 to 31.03.2012 * Form 16A for TDS of Rs. 46,972/- deducted from interest of Rs. 1,42,338/- * Form 16A for TDS of Rs. 229,907/- deducted from interest of Rs. 684,247/- * Bank statement of the assessee company showing repayment of Rs. 75,00,000/- to Sh. Suresh Nanda. The assessee has discharged its onus of proving the genuineness of the transaction by submitting the following documents. c) It is also submitted that Sh. Suresh Nanda was a non-resident for the AY 2001-02 as held by the Hon'ble High Court vide order dated 25.02.2013 (Pg 86 - 94) and the amount of loan received cannot be added in his hands by virtue of him being a non resident." 23. Learned CIT(A), considering the ....
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....der Section 143(3) and no seized material has been referred to so as to make this addition against the assessee. In this case, protective addition was made in the hands of Shri Suresh Nanda of the same amount. Since in the case of Shri Suresh Nanda, he was held to be 'non-resident', therefore, no addition can be made in his hands. On the basis of documentary evidences on record and considering various litigation in the case of group in which similar additions have been deleted, therefore, learned CIT(A), on proper appreciating of facts and material on record, correctly deleted the addition. This ground is accordingly dismissed. 26. No other point is argued. 27. In the result, the appeal of the Revenue is dismissed. ITA No.5858/Del/2014 - A.Y. 2002-03 :- 28. In this appeal by the Revenue, following effective grounds have been raised :- "2. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of Rs. 65,85,000/- 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. 8,39,383/- made by AO on account of pre operative ex....
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....rd that share capital brought into C-1 India Pvt.Ltd. belongs to the assessee. The share capital has been invested by three companies namely, Infotech Services Ltd., Y2K Ltd. (Palm Technologies) and Mideast Consortium SA. The assessee is merely a shareholder in Infotech Services Ltd. which would not establish the fact that investment in C-1 India was made by the assessee. Bank statement of Y2K SIL received by the Department directly from the Government of Mauritius also supports the explanation of the assessee. The confirmation from the creditor, tax residence certificate of the creditor issued by the Mauritius Revenue Authority, copy of balance sheet and copy of bank statements were filed to establish that assessee has no connection with the aforesaid addition. There is no requirement in law to go into the beneficial ownership. Assessee relied upon several decisions in support of the contention that addition is unjustified. 33. Learned CIT(A) accepted the explanation of the assessee and found that in the case of C 1 India Pvt.Ltd. for assessment year 2001- 02 to 2003-04, similar submissions have been made in which additions have been deleted. Learned CIT(A) found that undispute....
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....parties stated that this issue is similar as has been considered in the Revenue's appeal in assessment year 2001-02 (supra). Following our decision in assessment year 2001-02, this ground is dismissed. 39. In ground No.3, Revenue has challenged the order of learned CIT(A) in deleting the disallowance of Rs. 2,17,57,724/- made by the Assessing Officer on account of commission earned on the defense deal related to documents found from M.V. Rao. 40. The assessee submitted before the learned CIT(A) that this issue is covered by the order of the ITAT in the case of the assessee for assessment year 2004-05 to 2006-07 vide order dated 21st February, 2014 in which it was held that the addition of commission made on the basis of documents seized from the premises of Dr. M.V. Rao and Shri Mohan Jagthap is completely baseless. The order is reproduced in the impugned order. Learned CIT(A) noted that since the assessee has been held to be non-resident, therefore, even if the same represents unaccounted income of the assessee from undisclosed sources, it cannot be brought to tax as income in his hands unless it is proved that the income accrued to him in India. The order of the Tribunal ha....