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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D.AGRAWAL, D.AGRAWAL & BEFORE SHRI G. & SHRI BHAVNESH SAINI SHRI BHAVNESH SAINISHRI BHAVNESH SAINI SHRI BHAVNESH SAINI
PER BENCH PER BENCH : PER PER BENCH BENCH These appeals by Department against different assessees are directed against the order of learned CIT(A)-I, New Delhi dated 11th August, 2014.
2. Since common issues are involved in all these appeals, they were heard together and are being disposed of by a consolidated order.
ITA-5852/Del/2014 & 5 others 2
3. In the three appeals of the Department in the case of M/s C 1 India Private Limited, both the parties stated that the issues are common and mainly argued for assessment year 2001-02 and have stated that in case this appeal is decided, the order would be followed in the remaining appeals.
ITA No.5857/Del/2014 – A.Y. 2001 A.Y. 2001-02 : 02 :- ITA No.5857/Del/2014 ITA No.5857/Del/2014 A.Y. 2001 A.Y. 2001 02 : 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.”
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 `6.91 crores against returned loss of `3.31 crores. In appeal, learned CIT(A), vide order dated 8th February, 2012, upheld the additions. On further appeal, ITAT, vide order dated 24th July, 2012, set aside the issue of taxability of share capital of `9,34,15,000/- raised in assessee’s case as well as Shri Suresh Nanda
ITA-5852/Del/2014 & 5 others 3 to be decided afresh. Other issues were also set aside by the ITAT for fresh consideration. In the present assessment order passed to give effect to the directions of the Tribunal, the Assessing Officer has again made addition of `9,34,15,000/- representing share capital received in assessee company subscribed by its holding company M/s Y2K SIL, Mauritius. Other additions/disallowances have also been made which were challenged before the learned CIT(A).
Learned CIT(A), before deciding the issues, noted brief facts of the case as well. It was noted that on the basis of complaint by the Prime Minister’s Office, a search was conducted by the Delhi Police on 22nd February, 2007 at the residence of one Dr. M.V. Rao at F-58, First Floor, Green Park, New Delhi, wherein certain documents including cash amounting to `2 crores were found and seized. The Delhi Police informed the Income Tax Department, which also conducted a search under Section 132 of the Income-tax Act, 1961 on the same day and seized the said cash along with documents. Based on information contained in the seized documents and statements recorded, search and seizure under Section 132 was also carried out in the case of Shri Suresh Nanda and his associate concerns on 28th February, 2007. During search, several documents were seized which have been analyzed in the assessments framed. Based on seized documents, the Revenue reached the conclusion that Dr. Rao and his associates Shri Suresh Nanda and others had received commission on contracts for the sale of radio wireless sets to Indian defense establishment and assessed it as his income for different assessment years as is mentioned in paragraph 3.2 of the appellate order.
Same additions were also made in the case of Shri Suresh Nanda. Other additions were also made based on assets and documents holding the status of Shri Nanda to be ‘resident’. Assessments in the case of Shri Suresh Nanda for assessment years
ITA-5852/Del/2014 & 5 others 4 2001-02, 2002-03 and 2003-04 which have been confirmed by the learned CIT(A) were remanded to the Assessing Officer for fresh assessments 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 be ‘non-resident’. Learned CIT(A), therefore, noted that in the case of Shri Nanda, the additions were deleted. Learned CIT(A) in the background of these facts decided the appeal of the assessee and deleted certain additions, against which, the Revenue is in appeal.
9. Ground No.1 raised by the Revenue is general and needs no adjudication.
10. In ground No.2, the Revenue has challenged the deletion of addition of `9,34,15,000/- made by the Assessing Officer on account of unexplained share capital. The assessee challenged this addition
ITA-5852/Del/2014 & 5 others 5 being share capital received from Y2K Systems International Ltd. (Y2K SIL), holding company of the assessee company. Before the learned CIT(A), written submissions were filed by the assessee, which read as under :-
“1. Your goodself will appreciate that our matter has been set aside and all further action will have to be taken subject to the directions of the Hon'ble Tribunal which are reproduced here under:-
“Since we have set aside the main issues back to the file of AO, interest of justice will be served if the remaining issues in these appeals are set aside back to the file of AO to decide all these issues after considering the explanation given by the assessee and the ITAT order. In the result, all the appeals filed the assessee are allowed for statistical purposes”.
“In our considered view C1 India Pt. Ltd. has been held as a separate entity held by department by way of assessments. It has not been held to be a Benami concern of the assessee. The addition have been made on account of share application moneys and loan in both the cases i.e. assessee and C1 India without examining the relevant aspects like identity, creditworthiness, issues about genuineness of transaction and the issue of separate status of the entities in view of Hon'ble Supreme Court judgment in the case of Vodafone (supra). Lower authorities also seem to be ambivalent as to in which case the addition should be made.”
2. Ground 3 - Regarding Addition of Rs. 9,34,15,000 on account of share capital received from Y2K SIL:
i) Conclusive documents filed: The assessee company is 100% subsidiary of Y2K Systems International Ltd. and has received all the share capital and loans from it through banking channels. The necessary
ITA-5852/Del/2014 & 5 others 6 intimation and approvals have been received from the RBI regarding 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) Shareholders confirmation of Y2K Systems International (d) 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) ii) 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. iii) Reliance placed on decision given by Hon'ble ITAT in case of Russian Technology Centre Pvt. Ltd. for AY 2007-08 dt. 12.04.2013: a) We are also relying on the decision of the Hon'ble Tribunal in the case of Russian Technology Centre Pvt. Ltd. wherein the Hon’ble Tribunal has examined identical issue on similar facts and held that Sec. 68 will not apply where money has been ITA-5852/Del/2014 & 5 others 7 received from a non-resident who has remitted the said money from income earned and received outside India. They also held that the confirmation of remitter and remittance certificate is sufficient to establish the veracity of the share capital received. Copy of the judgment is enclosed herewith at Pg 6 - 38/PB.
Similar decision view following the case of RTC (supra) has b) been taken by the Id. CIT (A) in the case of Claridges Hotels Pvt. Ltd for AYs 2004-05 to 2009-10 wherein it was held “In the present case, addition has been made by the Id. AO alleging the appellant company to be a beneficiary of unaccounted funds despite the fact that genuineness, creditworthiness and identity of the source was established. The Id. CIT (A) deleted the said addition after considering the supporting documents and evidences and following the Hon’ble ITAT in the case of Russian Technology Centre Pvt. Ltd.” (Order of the CIT (A) for AY 2007-08 attached at Pg 39 - 70/PB).
The following is the ratio decidendi in case of RTC - CBDT Circular no 5 (F. no 73A/2(69)-IT (A-l 1)) dt (i) 20.02.1969- “money brought by Non residents for investments for other purposes is not liable to Indian Income tax.
If money has been brought into India through banking channels....no questions at all are asked by the ITOs as to the origin of the money or assets brought in” (Relevant para at Pg 112/PB 1)
Money received through banking channels:(para 11 of Pg (ii) 114/PB 1) The moneys have come to the assessee company through banking channels as is evident from FIRC. which also mentions the purpose of remittance and also the particulars of the remitting bank. FIPB approval that too with a liberty to collect share capital upto Rs. 600 crores and ROC compliance etc clearly indicate the stand of the assessee. The plethora of evidences 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.
ITA-5852/Del/2014 & 5 others 8
Capital receipt:(para 11.6 of Pg 116/PB 1) (iii) 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.
Section 5(2) and section 68 of the Act: (para 11.1 of Pg (iv) 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 in the Annexure. We have observed in the above paras that because of the mode of banking channel is admittedly used for the remittance in this case, the onus on the assessee under S. 69 stood discharged, and therefore, it was not taxable in India under s. 5(2)(b) of the Act. The CBDT circular (supra) squarely supports the case of the assessee. The fact that the transactions and events narrated in the Annexure look curious and suspicious makes no difference to the conclusions that we have drawn in this case, as per law, in the above paras.
• Apropos applicability of CBDT Circular No/5, dt. 20th Feb., 1969 the Hon'ble ITAT, Delhi in the case of Saraswati Holding Corpn. Inc. [2007] 16 SOT 535 (DELHI) (para 11.3 at Pg no. 116/PB 1), while examining issue in question in light of CBDT Circular No. 5, dt. 20th Feb., 1969 and the decision of Finlay Corporation Ltd.
ITA-5852/Del/2014 & 5 others 9 (supra) held as under: “In the light of the above decision of the Tribunal, and circular No. 5 of CBDT, we are of the view that the action of the Revenue authorities is bringing to tax the sum of Rs. 3, 83, 1 1,550 cannot be sustained. We have already held that the Assessee is a tax resident of Mauritius. There is no basis for coming to a conclusion that any income of the assessee accrued, arose or was received in India. In these circumstances, we direct that the addition made be deleted. Ground Nos. 2 to 2.3 raised by assessee are allowed”. iv) Facts about source of source of Share Application money in the case of assessee established in the case of Sh. Suresh Nanda by Hon’ble ITAT vide order No.2236/Del//2013, 2601 /Del/2013, 2605/Del/2013 and 2606/Del/2013: a. Sources of Income were elaborately explained in the case of Suresh Nanda by ITAT for AY. 2004-05, 2005-06 and 2006-07. ITAT in its order in case of Suresh Nanda held that UBS is b. not a benami Co. on the basis of documents submitted. c. Further, in the aforesaid order at the Hon'ble ITAT held that “we do not find any logic in the assessing officer making an addition of this amount 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
ITA-5852/Del/2014 & 5 others 10 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”
Proviso to section 68 has been inserted by Finance Act, vi) 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), 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:”
The section now provides that in case of a closely held company if the amount credited is by way of share application money, share capital, share premium or any such amount by whatever name called, the explanation offered for the credit will not be considered to be satisfactory unless the company which received the sum offers explanation about the source of money in the hands of such shareholder (being a resident) or persons making payment towards issue of shares.”
Learned CIT(A), after considering the evidences and material on record and following the order of the Tribunal in the case of Shri Suresh Nanda deleted the entire addition. His findings in paragraph 4.2 and 4.3 are reproduced as under :-
“4.2 I have considered the directions of Hon’ble ITAT in appellant’s case and the consequential assessment orders passed by the revenue in the appellant’s case as well as in the case of Sh. Suresh Nanda for AYs 2001-02 to 2003-04 and the submissions filed during appeal in these cases. The ITA-5852/Del/2014 & 5 others 11 appellant has discharged its primary onus of establishing the source of capital brought in through overwhelming evidence brought on record. Undisputedly, the capital has been infused by the holding company of the appellant. Thus, it cannot be concluded that the source is unexplained or that the transaction is not genuine. No new facts or evidence has been brought on record by the Revenue to establish that the share capital is from undisclosed 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 / 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 submitted that paper work is perfect in this case but no genuine transaction was carried out by the assessee. He relied upon the decision of Hon'ble Delhi High Court in the case of PCIT Vs. NDR Promoters Pvt.Ltd. – [2019] 410 ITR 379 (Delhi), CIT Vs. Nova Promoters and Finlease (P) Ltd. – [2012] 342 ITR 169 (Delhi), CIT Vs.
ITA-5852/Del/2014 & 5 others 12 MAF Academy P.Ltd. – [2014] 361 ITR 258 (Delhi) and CIT Vs. N.R. Portfolio (P) Ltd. – [2014] 42 taxmann.com 339 (Delhi).
13. On the other hand, learned counsel for the assessee reiterated the submissions made before the authorities below. He has submitted that the assessee submitted all the documents on record which prove that the ingredients of Section 68 of the Act which have not been doubted by the Revenue authorities. He has submitted that identical issues have been decided in the case of Russian Technology Centre Pvt.Ltd., Claridges Hotel Pvt.Ltd. and Shri Suresh Nanda. He has submitted that recently, the ITAT decided group cases of River Valley Meadows & Township Pvt.Ltd. for assessment year 2008-09 and 2009- 10, dated 27th March, 2019 and that the issue is covered by the aforesaid order, in which all the decisions of the Coordinate Benches and Hon'ble Delhi High Court related to this group have been referred to. He has relied upon several decisions in support of the order of the learned CIT(A) for deleting the addition in his written submission. He has submitted that the Revenue cannot ask for the source of the source which is also explained in the present case. The learned counsel for the assessee relied upon the following decisions :-
Judgement of Hon'ble Delhi High Court dated 15th December, (i) 2016 in the case of CIT-I Vs. M/s Russian technology Centre (P) Ltd. and Claridges Hotels (P) Ltd.
(ii) Order of the ITAT in the case of Russian Technology Centre (P) Ltd. dated 12th April, 2013.
(iii) Order of the ITAT in the case of Claridges Hotels (P) Ltd. dated 30th September, 2014.
ITA-5852/Del/2014 & 5 others 13 (iv) Order of the ITAT in the case of River Valley Meadows & Township Pvt.Ltd. dated 27th March, 2019.
Order of the ITAT in the case of Shri Suresh Nanda dated 11th (v) April, 2014.
(vi) Judgment of Hon'ble Delhi High Court in the case of Shri Suresh Nanda dated 27th May, 2015.
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.
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 & 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 assessment years 2008-2009 and 2009-2010, challenging the deletion
ITA-5852/Del/2014 & 5 others 14 of addition of Rs.7,92,19,406/- and Rs.2,34,96,795/- respectively, made by the assessing officer on account of unexplained share application money received from the Holding Company M/s. Palm Technologies (P) Ltd., Mauritius.
We have heard the Learned Representatives of both the parties and perused the material available on record.
3. Learned Representatives of both the parties mainly argued in assessment year 2008-2009 and have submitted that the issue is same in assessment year 2009-2010. Therefore, order in assessment year 2008-2009 may be followed in another appeal. For the sake of disposal of both the appeals, we proceed to decide ITA.No.5629/ Del./2013 for the assessment year 2008-2009 as under.
ITA.No.5629/Del./2013 – A.Y. 2008-2009 :
The facts of the case are that the assessee is a Company filed return of income declaring loss of Rs.13,72,942/-. The assessing officer on perusal of the return and details submitted found that during the year under consideration the assessee-company has received share application money of Rs.7,92,19,406/- on 15th February 2008 from the Holding Company M/s. Palm Technologies (P) Ltd., Mauritius. Thus, assessee was asked to furnish complete details regarding share application money received and prove the creditworthiness of the Investor. In response thereto, the assessee submitted as under : “Evidence of credit worthiness of Palm Technology Ltd., “Evidence of credit worthiness of Palm Technology Ltd., “Evidence of credit worthiness of Palm Technology Ltd., “Evidence of credit worthiness of Palm Technology Ltd., The said company was incorporated in Mauritius on 31.10.2000 under the name of Y2K Ltd. (a) Certified copy of Certificate of Incorporation dated 16.11.2010 is enclosed. (b) Thereafter, the name of the company was changed into Palm Technologies Ltd., in terms of certificate issued by the Registrar of Companies effective 15th March. 2002. (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 2. Documents in support of remittances from Palm Technology 2. 2. Documents in support of remittances from Palm Technology Documents in support of remittances from Palm Technology Ltd. Ltd. Ltd. Ltd.
ITA-5852/Del/2014 & 5 others 15 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 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. FC- GPR.” 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 Investment in subsidiary US $ 5,745,000 US $ companies 4,083,929/- b.
Non Current Liabilities Year ending on Year ending on 31.03.2008 31.03.2007 Borrowings US $ 54,56,197 USD 4,110,922 c. The share capital of the company has remained unchanged at US $ 1001.”
4.2. The assessing officer in view of the above also noted that the meager profit earned by the said company shows that investment in the subsidiary company has been financed through borrowings. During the course of assessment proceedings, a Reference to Government of Mauritius through Director General of Income Tax (Inv.), Delhi was made through F.T.&T.R. Division of CBDT under DTAA.
ITA-5852/Del/2014 & 5 others 16 In this Reference, Government of Mauritius was requested to provide the following details :
‘Enquiries to be conducted with regards to M/s Palm Technologies Ltd. Mauritius with following specific queries: - Source of funds in the remitter banks. a) Copy of account of M/s Palm Technologies Ltd. in the b) remitter banks from 1.4.2000 to 27.02.2007. Equity structure in M/s Palm Technologies Ltd. Mauritius. c) Beneficial owner of M/s Palm Technologies Ltd. Mauritius. d) Sources of funds in M/s Palm Technologies Ltd. Mauritius. e) f) Copy of all bank accounts of M/s Palm Technologies Ltd. Mauritius in for the period 1.4.2000 to 27.02.2007. g) Copy of Annual Accounts of M/s Palm Technologies Ltd. Mauritius filed before the Mauritian Tax Authorities, if any, starting from financial year 2000-01 till 2006-07. h) Photo copies of documentation filed before the Competent Authorities in Mauritius for bringing funds in Mauritius in the accounts 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 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 Assets Assets Assets USD Non current assets Non current assets Non current assets Non current assets Investment in subsidiaries
ITA-5852/Del/2014 & 5 others 17
57,45,000/- Current assets Current assets Current assets 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 Equity and Liabilities Equity and Liabilities Equity and Liabilities Capital and Reserves Capital and Reserves Capital and Reserves Capital and Reserves Share Capital 1,001/- Revenue reserves (22,891/-) Shareholders interests 21,890/- Non current Liabilities Non current Liabilities Non current Liabilities Non current Liabilities Shareholder's loan 4,56,197/- Other Loans 50,00,000/- Current Liabilities Current Liabilities Current Liabilities Current Liabilities Trade & Other payables 62,644/- Other Loans 6,70,000/-
62,644/- 7,32,644/- TOTAL EQUITY AND LI ABILITY TOTAL EQUITY AND LI ABILITY TOTAL EQUITY AND LI ABILITY TOTAL EQUITY AND LI ABILITY 61,66,951/- 4.5. The assessing officer on the basis of the details and accounts and balance sheet, noted the financial position of the said company with respect to its Investments and its liability in assessment year under appeal and the preceding assessment years. The details of investment made by M/s. Palm Technologies (P) Ltd., in Claridges SEZ Private Limited [Now M/s. River Valley Meadows & Township Pvt., Ltd.,]. The table below gives the details of share capital in assessee company as under :
A.Y. Share Capital Share Application Money 2004-05 Rs. 34,60,000/- 2005-06 Rs. 34,60,000/- 2006-07 Rs. 34,60,000/- Rs. 3,25,00,000/- 2007-08 Rs. 17,32,98,000/- Rs. 1,90,00,000/- 2008-09 Rs. 17,32,98,000/- Rs. 9,57,19,406/- 4.6. The assessing officer also noted that investment in the share capital of the assessee-company has been made through the borrowings from two entities controlled by Shri Suresh Nanda that are as under :
ITA-5852/Del/2014 & 5 others 18
UBS Trading FZC US $ 3,000,000 Y2K SIL US $ 431, 197 4.7. Thereafter, the assessing officer tried to make a point that as to how there was a close link of Shri Suresh Nanda with UBS Trading FZC and Y2KSIL which were noticed from the documents recovered during the course of search under section 132 of the Income Tax Act on 28th February 2007. The documents are described below : • Page no. 35 Annexure No. A-8 seized from the 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 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 ITA-5852/Del/2014 & 5 others 19
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 has also paid a dividend of AED 15,000,000 calendar year, 2005 and AED 19,000,000 in the year ending December, 2004. • Page 55-69 Annexure No. A-15, seized from the residence of Mr. Suresh Nanda-4, Prithvi Raj Road New Delhi. These contain major operational highlights of UBS Trading FZC since its inception and it has been shown to have earned a profit of USD 1.411 Million - March 2002-30th June, 2003 USD 8.311 Million -1 July 2003-31st December, 2004 USD 4.4311 Million - 1.1.2005 -31.12.2005 USD. 2.884 Million - 1.1.2006 – Nov 2006 These pages also include personal profile of Mr. Suresh Nanda. 4.8. The assessing officer further noted from the above mentioned documents that it is evident that Mr.Suresh Nanda is the owner of M/s. UBS Trading FZC, Dubai. He has been making investments in Mauritius based company to hide the true source of money, till it is finally invested in India. The fact that investment in assessee-company is financed through the borrowings from M/s. UBS Trading FZC, Dubai and Mr.Suresh Nanda close association with the affairs of Claridges SEZ Pvt. Ltd., in India goes to show that it is Mr.Suresh Nanda’s money that has been routed through M/s. Palm Technologies (P) Ltd., Mauritius into Indian Company. The assessing officer also noted that there is a close connection of Mr. Suresh Nanda with 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.
ITA-5852/Del/2014 & 5 others 20 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 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 :
Pr. CIT, New Delhi vs. NDR Promoters (P.) Ltd., [2019] 410 ITR 379 (Del.) 2. CIT vs. Nova Promoters & Finlease (P) Ltd., [2012] 342 ITR 169 (Del.) 3. CIT-II vs. MAF Academy (P.) Ltd., [2014] 361 ITR 258 (Del.) 4. CIT vs. N.R. Portfolio (P.) Ltd., [2014] 42 taxmann.com 339 (Del.) 5. CIT, West vs. Durga Prasad More [1971] 82 ITR 540 (SC) 6. Sumati Dayal vs. CIT 1995 AIR (SC) 2109
7. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has referred to PB-2, Page-17 which is order of Ld. CIT(A) for the assessment year 2004-2005 in the case of the same assessee, in which, similarly, share application money was received from M/s. Palm Technologies (P) Ltd., Mauritius and Ld. CIT(A) deleted the addition following the decision in the case of M/s. Russian Technology Centre Pvt. Ltd., The Learned Counsel for the Assessee further submitted that the Department has filed appeal before ITAT, Delhi Bench against the order of Ld. CIT(A) for the assessment year 2004-2005 and assessee also filed cross-objection. The Tribunal has quashed the assessment order being barred by limitation vide order dated 28th September 2017. Learned Counsel for the Assessee submitted that if Mr. Suresh Nanda made the money available as per the contention of the 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 ITA-5852/Del/2014 & 5 others 21 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 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. Certified issued by Registrar of Companies effective 15th ii) 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. 26.08.2008 addressed to RBI (b) Form No. FC-GPR (c) Compliance certificate dated 26.08.2008 issued by the Company Secretary. (d) FIRC No.098902 dt. 26.02.2008 issued by the IDBI Bank. (e) Compliance certificate dated 25.08.2008 issued by Chartered Accountant. (f) Valuation certificate dt. 05.08.2008 issued by the Chartered Accountant along with Annexure-A (g) Copy of Annexure-II, III forming part of Form No.FC-GPR.
ITA-5852/Del/2014 & 5 others 22 7.1. The assessee, therefore, proved source of the source as well which is not required by Law. Learned Counsel for the Assessee referred to PB-2-52 which is order of ITAT, Delhi G-Bench in the case of Mr Suresh Nanda in ITA.Nos.2237 & 3718, 3431 & 4641/Del./2013 dated 11th April 2014, in which, similar addition has been deleted in the hands of Shri Suresh Nanda. Para-70 of the order is reproduced as under : “70. Ground No. 4 relates to addition made on protective basis. We find that Ld CIT(A) has clearly held that share capital was subscribed Palm Technologies Ltd. which is a separate entity. Ld. CIT(A) held by a clear finding that the capital did not belong to assessee but to a distinct entity whose existence is not denied. After giving such dear finding, he should not have 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, 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 assessee- company merely because assessee-company is beneficiary of the ITA-5852/Del/2014 & 5 others 23 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 December 2016, in which, similar documents have been considered and Departmental Appeal has been dismissed. The findings of the Hon’ble Delhi High Court in Paras 12 to 14 are reproduced as under :
“12. The preceding enumeration of the circumstances of the case show that the assessee had furnished all relevant data before the AO and the CIT(A), which, however, were not inquired into by the AO. Instead he obdurately adhered to his first impression and/or initial understanding that the entire transaction was neither creditworthy nor genuine. The assessee relied upon the documents to prove that the monies had been received through banking channels from its principal and other related companies: it had submitted the FIPB Approval dated 10.12.2005 authorizing the assessee company to raise capital unto '600crores. copy of certificates of incorporation of share holders, copy of bank statement copy of Form 2 filed before ROC, copies of Certificates of (i) Incorporation of RTCHL, (ii) Incumbency of RTCHL, (iii) Good Standing of RTCHL. (iv) Director Certificate of RTCHL as well as the Balance Sheet of RTCHL for the years 2004-05 and the confirmation given by the remitters towards remittance 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.
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 the Assessee also referred to PB- 2, Page-71 which is order of ITAT, Delhi B-Bench in the case of ACIT,
ITA-5852/Del/2014 & 5 others 24 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 Assessee further submitted that the CBDT Circular says “when the money come from foreign country through banking channel, it should be considered.” He has submitted that Amendment under section 68 is applicable from the year 2013 and source of the source is to be proved in the case of resident company only. However, the Investor M/s. Palm Technologies Pvt. Ltd., Mauritius is NRI, therefore, the amended provision would not apply to the case of assessee. Learned Counsel for the Assessee, therefore, submitted that the issue is covered in favour of the assessee by the order of ITAT, Delhi Bench in the case of assessee as well as in the case of Mr Suresh Nanda and M/s. Russian Technologies Pvt. Ltd., (supra). Apart from the above, the Learned Counsel for the Assessee also relied upon the following decisions :
1. Commissioner vs. Orissa Corporation Ltd. reported in (1986) 159 ITR 78 (SC) 2. CIT vs. M/s Pondy Metal and Rolling Mill in
CIT vs. Diamond Products Ltd. [2009] 177 Taxman 331 (Delhi) 4. CIT vs. Flex Plastic & Packaging (P.) Ltd. [2007] 211 CTR 607 (Delhi) 5. PCIT vs. Paradise Inland 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).
ITA-5852/Del/2014 & 5 others 25 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.
We have considered the rival submission and perused the material on record. The assessing officer considered the issue of unexplained 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 also noted in the assessment order that even in earlier years the assessee-company has received the share application money from the same Investor. The assessing officer made similar addition against the assessee-company in assessment year 2004 2005 and the Ld. CIT(A) deleted the addition. The order of the Ld. CIT(A) have been confirmed by the ITAT, by dismissing the Departmental Appeal, though, on the ground that the assessment order is time barred. The finding of fact recorded by the Ld. CIT(A), have been confirmed by the Tribunal by dismissing the Departmental Appeal. No distinguishing fact or evidence have been pointed-out by Ld. D.R. as to how case of Revenue is different from earlier years. In assessment year under appeal, based on the same facts, the assessing officer made certain inquiries with regard to source of the money and sought information from the Government of Mauritius, who have supplied
ITA-5852/Del/2014 & 5 others 26 certified copies of the balance sheet and income statement for earlier years as well as for assessment year under appeal, in which, it is clarified that the Investor Company 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. Suresh Nanda, which have been deleted by the ITAT and the Order of the ITAT have been confirmed by the Hon’ble Delhi 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 assessment year 2004-2005 and the Departmental Appeal have been dismissed by the Tribunal and similar addition have been deleted in the case of Mr. Suresh Nanda by ITAT on substantive basis and the Order is confirmed by the Hon’ble Delhi High Court, therefore, the issue is covered in favour of the assessee by the Order of the Tribunal in its own case as well as in the case of Mr. Suresh Nanda (supra). Therefore, there is no justification to make the addition against
ITA-5852/Del/2014 & 5 others 27 the assessee-company. No cash was found routed by any person related to this transaction. The assessing officer cannot ask the assessee-company to prove source of the source. We, rely upon the Judgment of the Hon’ble Gujarat High Court in the case of Rohini Builders 256 ITR 360 (Guj.), and Judgment of Hon’ble Delhi High Court in the case of Dwarakadheesh Investment Pvt. Ltd., 330 ITR 298 (Del.) and Judgment of Hon’ble Allahabad High Court in the case of Zafar Ahmed & Co., 30 taxmann.com 269 (Alld.). However, in the present case, the assessee-company has even explained the source of the source. The 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 non- resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the 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 :
ITA-5852/Del/2014 & 5 others 28
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.
In the result, ITA.No.5630/Del./2013 of the Department is dismissed.
To sum-up, both the appeals of the Department are dismissed.”
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 decisions in the case of Shri Suresh Nanda and Russian Technology Centre Pvt.Ltd. It is also a fact that during the course of search, no material pertaining to the assessee was found and seized. It is a routine addition on which assessee has already declared share capital while filing the return of income. The assessee has produced sufficient documentary evidence as are referred to above which completely prove the case of the assessee that assessee proved the identity of the investors, their creditworthiness and genuineness of the transaction. During the course of hearing, learned DR was not able to point out any infirmity in the order of the learned CIT(A) in deleting the addition. Considering the issue in its entirety in the light of the order of the Tribunal in the case of River Valley Meadows & Township Pvt.Ltd. (supra), we find that the issue is covered by the order of the Tribunal in this case. In the absence of any infirmity pointed out in the order of the learned CIT(A), we dismiss the department’s appeal on this ground. Accordingly, ground No.2 of the appeal is dismissed.
In ground No.3, the Revenue has challenged the addition of `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
ITA-5852/Del/2014 & 5 others 29 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. Therefore, doubt addition cannot be made.
Learned CIT(A) found that the amount of `4,26,863/- representing 20% of various expenses such as travelling, telephone, printing etc. and `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.
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).
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 ITA-5852/Del/2014 & 5 others 30 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 year was originally completed under Section 143(3), therefore, no addition can be made as per law laid down by Hon'ble Delhi High Court in the case of Kabul Chawla (supra). This ground is accordingly dismissed.
21. In ground No.4, the Revenue has challenged the addition of `75 lakhs on account of unaccounted credit under Section 68 of the Act.
22. The assessee made the following submissions before the learned CIT(A):-
“3. Ground 4 - Regarding Addition of Rs.75,00,000/- received from Sh. Suresh Nanda treating the same as unsecured loan:
The Id. AO has made an addition of Rs.75,00,000/- on account of loan received from Sh. Suresh Nanda, treating the same as unexplained. In this respect it is submitted as follows: a) The Id. AO has not made a single whisper of the loan received from Sh. Suresh Nanda and has suo moto proceeded to hold that “Mr. Suresh Nanda has also given 75Lacs as loan to the assessee company in AY 2001 - 02. In view of the discussion 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.
However, the assessee has placed the following b) 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 •
ITA-5852/Del/2014 & 5 others 31 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.
It is also submitted that Sh. Suresh Nanda was a c) 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.”
Learned CIT(A), considering the explanation of the assessee in the light of the decision in the case of Shri Suresh Nanda, deleted the entire addition. His findings in paragraph 5.2 are reproduced below :-
“I have considered the orders of Hon’ble ITAT, the consequential order passed by the revenue and the submissions 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,
ITA-5852/Del/2014 & 5 others 32 the issue is also covered by the decision of Hon'ble Delhi High Court in the case of Kabul Chawla (supra).
On consideration of rival submissions, we are of the view that no interference is called for in the order of the learned CIT(A). The assessee placed several documents before the authorities below to prove that genuine transaction was conducted in the case of the assessee. The ITAT in the case of Shri Suresh Nanda also held that Shri Suresh Nanda is ‘non-resident’ and is not taxable in India. The order of the ITAT has been confirmed by Hon'ble Delhi High Court. Learned CIT(A) rightly held that the amount can only be taxed in the hands of Shri Suresh Nanda if it is established to have been out of his income accrued, arisen or received in India. The source of credit has been explained by the assessee through evidence on record. Therefore, same addition could not be made in the hands of the assessee. It is also clear that during the course of search, no incriminating material was found so as to make this addition. In this case, originally, assessment was completed under 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.
No other point is argued.
In the result, the appeal of the Revenue is dismissed.
ITA-5852/Del/2014 & 5 others 33 ITA No.585 ITA No.585 ITA No.585 /Del/2014 /Del/2014 – A.Y. 200 /Del/2014 A.Y. 200 A.Y. 2002-03 :- A.Y. 200 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 expenses.”
ITA No.585 ITA No.585 ITA No.585 /Del/2014 /Del/2014 – A.Y. 200 /Del/2014 A.Y. 200 A.Y. 2003-04 :- A.Y. 200 29. 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.9,53,00,000/- 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 expenses.”
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 /Del/2014 – A.Y. 200 A.Y. 2001-02 :- ITA No.585 ITA No.585 /Del/2014 /Del/2014 A.Y. 200 A.Y. 200 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.
ITA-5852/Del/2014 & 5 others 34
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.
In ground No.2, Revenue has challenged the order of learned CIT(A) in deleting the disallowance of `9,34,15,000/- made by the Assessing Officer on account of unexplained investment in C-1 India Pvt.Ltd. The assessee challenged the aforesaid addition before the learned CIT(A) being share capital received from Y2K Systems International Ltd. (Y2K SIL), holding company of the assessee company. The Assessing Officer made substantive addition in the case of M/s C-1 India Pvt.Ltd. and made protective addition in the hands of the present assessee. The assessee explained before the learned CIT(A) that protective addition is made in the hands of the assessee without any reasons. The issue is covered by the order of the ITAT in assessee’s own case for assessment year 2004-05 to 2006-07 dated 21st February, 2014. Similar addition has been made by the Assessing Officer in other holding company in which also additions have been deleted. Learned CIT(A) also deleted similar addition in assessment year 2005-06 and 2006-07. No evidence has been brought on record 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 ITA-5852/Del/2014 & 5 others 35 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.
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 undisputedly, the amount has been infused as capital by the holding company of M/s C 1 India Pvt.Ltd. The assessee is undisputedly a ‘non-resident’. No new facts or evidence has been brought on record by the Revenue that share capital is from undisclosed source or out of commission income earned in defense contracts by the assessee. Reply to the reference made to the Government 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.
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 ITA-5852/Del/2014 & 5 others 36 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 protective addition can be made in the hands of the assessee. Further, assessee is held to be non-resident, therefore, no income had accrued or received by the assessee in India and, as such, no addition can be made in hands of the assessee. The issue is covered by the aforesaid decision in the case of the assessee. We, therefore, do not find any merit in this ground of the Revenue’s appeal. The same is dismissed.
In the result, the appeal of the Revenue is dismissed.
ITA No. ITA No.585 /Del/2014 /Del/2014 – A.Y. 200 /Del/2014 A.Y. 200 A.Y. 2002-03 :- A.Y. 200 36. Ground No.1 in this appeal by the Revenue is general and needs no adjudication.
In ground No.2, Revenue has challenged the order of learned CIT(A) in deleting the addition of `65,85,000/- made by the Assessing Officer on account of unexplained investment in C 1 India Pvt.Ltd.
Both the 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.
In ground No.3, Revenue has challenged the order of learned CIT(A) in deleting the disallowance of `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.
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 ITA-5852/Del/2014 & 5 others 37 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 has been confirmed by Hon'ble Delhi High Court. Learned CIT(A) accordingly deleted the addition.
Learned DR stated 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 dated 21st February, 2014.
In view of the above, there is no merit in the Revenue’s appeal. The same is accordingly dismissed because once the assessee is a non-resident, no addition can be made in the hands of the assessee. Further, the ITAT has decided this issue in favour of the assessee holding that no addition on account of commission can be made in the hands of the assessee on the basis of documents seized from the premises of Dr. M.V. Rao. This ground of Revenue’s appeal is accordingly dismissed.
In ground No.4, the Revenue has challenged the order of learned CIT(A) in deleting the addition of `18,76,165/- made by the Assessing Officer on account of commission earned related to Globtech International Corporation documents found from Mohan S. Jagthap.
Learned CIT(A) decided this ground along with ground No.3 above. This issue is, therefore, covered by the reasoning given in ITA-5852/Del/2014 & 5 others 38 ground No.3. Following the same, this ground of Revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed.
ITA No.5854/Del/2 /Del/2014 014 – A.Y. 200 A.Y. 2003-04 04 :- ITA No.585 ITA No.585 /Del/2 /Del/2 014 014 A.Y. 200 A.Y. 200 04 04 46. Ground No.1 of the Revenue’s appeal is general in nature and needs no adjudication.
In ground No.2, the Revenue has challenged the order of learned CIT(A) in deleting the disallowance of `9,53,00,000/- made by the Assessing Officer on account of unexplained investment in C 1 India Pvt.Ltd. In ground No.3, the Revenue has challenged the order of learned CIT(A) in deleting the disallowance of `27,94,40,988/- made by the Assessing Officer on account of commission earned on defense deal related to documents found from M.V. Rao.
Learned representatives of both the sides stated that both the above grounds are similar as have been considered in assessment year 2002-03. Following our order in assessment year 2002-03 above, we dismiss both these grounds of the Revenue’s appeal.
In the result, the appeal of the Revenue is dismissed.
In the result, all the six appeals of the Revenue are dismissed. Decision pronounced in the open Court on 1st July, 2019.