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PER PAWAN SINGH, JUDICIAL MEMBER; 1. This group of seven appeals by revenue as well as assessee are directed against the separate orders of ld. Commissioner of Income Tax (Appeals)-55 [the ld. CIT(A)], Mumbai for assessment years 2007-08 to 2010-11. Out of seven appeals there are cross appeals for AY 2008-09 to 2010-11 and revenues appeal for AY 2007-08. In all appeals the parties have raised certain common grounds of appeal; facts in all the years are identical, therefore, with the consent of parties all appeals were clubbed together heard and are decided by common order for the sake of convenience and to avoid the conflicting decisions.
Since, on similar set of facts the certain common grounds of appeal are raised in all years, therefore, we have categorized the grounds in the following manner; (i) Additions under section 68 in respect of amount received from M/s Themis Investment Pte Ltd (TIPL) (Ground No.1 & additional Ground in appeal for AY 2007-08, Ground No.3 in AY 2008-09 & 2009-10.) (ii) Disallowance under section 14A r.w.r. 8D. (Ground No. 1&2 in appeal by assessee and Ground No. 2 by revenue for AY 2008-09, Ground No. 1&2 in appeal by assessee and ground No. 2 by revenue for AY 2009-10 & Ground No. 1 & 2 in appeal by assessee and ground No. 2 by revenue for 2010-11), (iii) Additions under section 69C with regard to transaction with Nand Lal Nagpal (Ground No. 1 in appeal by revenue for AY 2008-09 to 2010- 11) , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. (iv) Additions on account of Transfer Pricing (Ground No. 3 to 6 in AY 2008-09 and Ground No. 3 to 5 in AY 2009-10 to 2010-11, appeal in all assessment years by assessee), (v) Additions on account of interest received (earned) which reduced from work in progress (WIP), Ground No. 4 in appeal by revenue for AY 2008-09.
3. Now, we shall discuss the facts leading to various additions in the respective AY’s and the result by ld. first appellate authority.
(i) Additions under section 68
The facts leading to the additions under section 68 of the case are that the assessing officer while passing the assessment order under section 143(3) for assessment year (AY) 2008-09 noted that the assessee has received share capital of Rs. 10,01,50,000/- in AY 2008-09 and Rs. 9,98,50,000/- in AY 2009-10, The assessee received the amount and allotted shares in the following manner;
AY Amount received (Rs.) Number of share allotted Amount utilized Rs. 2007-08 2,00,11,967/- Nill Nill 2008-09 9,01,35,000/- 10,01,500 10,01,50,000/- 2009-10 8,98,65,000/- 9,98,500 9,98,50,000/-
The assessing officer while passing assessment order made additions 68 of Rs. 10,01,50,000/- in AY 2008-09 and Rs. 9,98,50,000/- in AY 2009-10.
Subsequently, the assessment for AY 2007-08 was also reopened under section 147 by issuing notice under section 148 dated 28.03.2013 on the basis 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. of the allegation that the assessee also received Rs. 2,00,00,000/- in this assessment year (AY 2007-08), which is over and above the amount received by the assessee in AY’s 2008-09 and 2009-10. The AO made addition of Rs.2.00 Crore in assessment order passed under section 143(3) rws 147 dated 31.01.2014.
On appeal before ld. CIT(A) the additions under section 68 in AY’s 2008-09 & 2009-10 were deleted. The ld CIT(A) while deleting the additions in AY’s 2008-09&2009-10 held that the AO made additions on the basis of enquiry report of Jt. Secretary (FT& T). The assessee has filed detailed report about identity, capacity and creditworthy of TIPL. The assessee got post facto approval from Foreign Investment Promotion Board (FIPB) vide its approval dated 22.01.2013. Therefore, the AO was not justified in making additions under section 68. The ld CIT(A) also quashed the re-assessment dated 31.01.2014 for AY 2007-08. While quashing the reassessment order the ld CIT(A) concluded that initial assessment was completed under section 143(3), case cannot be reopened without obtaining the prior approval of PCIT/ CIT, no such approval was obtained by the AO. The ld. CIT(A) relied on the decision of Bombay High Court in Ghanshyam K. Khabrani Vs ACIT (346 ITR 443) Even on merits additions of section 68 of Rs. 2.0 Crore was deleted holding that investment made by TIPL was examined by FTTR & FIPB. Thus, aggrieved by the order of the ld CIT(A) the revenue has challenged the correctness of his order in deleting the additions. 5 ITA No. 4764, 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. DR for the revenue supported the order of the AO. The ld. DR further submits that the assessee failed to prove the identity and creditworthy of the creditor and the genuineness of the transaction. The inquiry conducted by the Jt. Secretary (FT& T), of Indian High Commission, Singapore reveals that the TIPL is a paper company. The said TIPL was not functioning of the address provided by the assessee.
On the contrary the ld AR for the assessee supported the order of the ld CIT(A). To support the order of ld CIT(A) in AY 2007-08 the ld AR for the assessee submits that assessment under section 143(3) rws 144C(13) was passed 19.01.2011. The assessment was reopened under section 147. The assessee was served with the notice under section 148 dated 28.03.2013, i.e. after four year from the end of relevant assessment year. No approval of CIT/ PCIT was obtained by the assessing officer as required under section 151 of the Act. The AO failed to specify that the income of the assessee escaped assessment due to the failure on the part of assessee in disclosing fully and truly all the particulars of Income. The assessee disclosed all the particulars of the income while filing the return of income of AY 2007-08 and or there was no failure on the part of assessee in disclosing all the facts fully and truly. It was further argued by the ld. AR for the assessee that even 6 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. on merit, no addition was attracted, as the AO has already made addition of the entire share application money of Rs. 20 Crore in AY 2008-09 & 2009-10 and further addition of Rs. 2.0 Crore was a double addition. The ld. CIT(A) after appreciations of the facts rightly deleted the additions on merit as well. 9. Against the additions under section 68 in AY 2008-09 & 2009-10, the ld. AR for the assessee submits that the assessee received capital money of R. 20 Crore from TIPL. The assessee company in its Board meeting dated 12th February 2007 approved the issue of equity share and warrant on a preferential basis. TIPL was issued 4 lakhs warrants convertible in to equity shares of face value of Rs.10/- at the premium of Rs.490/- . The valuation of share was made by M/s RSM & Co. in accordance with SEBI (discloser & Investor Protection) Guidelines 2000. All the payments were received through banking channels. The amount was received with the approval of Reserve Bank of India (RBI). RBI directed the assessee to get the post fact approval of FIPB for issuance of warrant to TIPL. The assessee filed proper application before FIPB on 03.02.2010. The assessee was granted approval by FIPB vide their order dated 22.01.2013. All the documentary evidences about the permissions of RBI and approval of FIPB were furnished to the ld CIT(A). The assessee has received the amount through banking channel from the authorized dealers Bank i.e HDFC Bank Limited, who has issued KYC documents showing the address of the creditors at “101 Cecil Street # 23-12 Tong Eng Building, Singapore 069533”. The copies of the Income Tax 7 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. Returns filed by the TIPL were also furnished from FY 2006-07 to FY 2009-
10. Therefore, the assessee proved the identity of the creditor, creditworthy and genuineness of the transaction. Regarding the enquiry conducted by the First Secretary (Economics) High Commission of India, about the TIPL the ld AR for the assessee submits that the no notice or summon or show cause notice or letter was issued from the officer/ First Secretary. The proper inquiry was conducted by the Singapore Income tax Authority, and they were fully satisfied with the credential of TIPL. The ld AR for the assessee submits that the ld. CIT(A) after considering the details regarding the identity, creditworthy and genuinity of the transaction, which was duly corroborated with the permissions of RBI and approval of FIPB, deleted the addition. The ld. AR for the assessee prayed for dismissal of the appeal of the revenue for all three AY’s. in support of his submissions the ld AR for the assessee relied on the decisions of Delhi High Court in CIT Vs Dwarkadhish Investment P Ltd (330 ITR 298 Delhi), Rajasthan High Court in Labh Chand Bhora Vs ITO (219 CTR 571), Bombay High Court in Veeddhata Tower Pvt Ltd (403 ITR 415 Bom), Gujarat High Court in Murlidhar Lahorimal Vs CIT (280 ITR 512) Devine, Bombay High Court in NuPower Renewables (P) Ltd Vs ACIT (104 taxmann.com 307), PCIT Vs Aditya Birla Telecom Ltd (105 taxmann.com 206), Mumbai Tribunal in ACIT Vs Vertas (India) Ltd (ITA No. 3276/Mum/2016) , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on the various case laws relied by ld. representatives of the parties as well as by the lower authorities. The assessment for AY 2007-08 was initially completed on 19.01.2011 under section 143(3) r.w.s. 144C(13). The assessment was reopened by assessing officer under section 147. Notice under section 148 dated 28.03.2014 was served on the assessee. Admittedly, the assessment was reopened after four year from the end of relevant assessment year. We have perused the reasons recorded by the assessing officer, which are duly extracted by the AO in para 2 of the assessment order passed under section 147/143(3) dated 31.012014. The AO nowhere has recorded that that the income escaped assessment on failure on the part of assessee in disclosing fully and truly the material facts by the assessee. Therefore, in our view the reasons of reopening were not valid. Moreover, no sanction of Commissioner of Income-tax was obtained by the AO before issuance of the notice under section 148.
The Hon’ble Bombay High Court in Hindustan Liver Ltd. Vs R.B. Vadekar (268 ITR 322 Bom) held that when in the reasons recorded the AO nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that assessment year and notice was clearly beyond the period of four years from the end of relevant Assessment Year. In such case, the jurisdictional condition precedent 9 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. stipulated by the proviso to section 147 is a failure on the part of assessee to fully and truly disclose all material facts necessary for assessment for that Assessment Year consequent upon which income chargeable to tax had escaped assessment. In absence of existence of jurisdictional condition precedent, the assessment could not be re-opened beyond the four years after the expiry of relevant Assessment Year. Further, the Jurisdictional High Court in Ghanshayam K Khabrani vs. ACIT (346 ITR 443 Bom) the Hon’ble Court held that when statute mandate satisfaction of a particular function for exercise of power, satisfaction of that authority is must. In the present case, the assessment was completed under section 143(3) and it was re-opened after expiry of four year from the relevant Assessment Year from the end of relevant Assessment Year without obtaining approval of competent person.
The ld. CIT(A) cancel the re-opening after examining the issue that no approval was obtained by Assessing Officer. Considering the above legal position, we affirm the action of the ld CIT(A). No contrary facts or law is brought to our notice to take other view.
So far as deletion of additions on merit is concerned, we have noted that the assessee has received only Rs. 20.00 Crore on account of the share application, which is the subject matter of appeal for subsequent years i.e. in AY 2008-09 &2009-10. Therefore, the same amount cannot be added twice, similar view was taken by ld CIT(A), hence, we do not find any merit in the 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. ground of appeal
by revenue in deleting the additions of Rs. 2.00 Crore on merit as well.
13. Now, coming to the additions under section 68 for AY 2008-09 & 2009-10.
The AO during the assessment of AY 2008-09 noted that general reserve of the assessee has increased from Rs.91,52,62,909/- to Rs.488,80,09,805/- thus increased by Rs. 397,27,46,986/-. On perusal of profit and loss account the AO found that the assessee has received share application money from TIPL, a Singapore based entity. The AO made enquiry regarding TIPL through Jt.
Secretary (FT &TR) Indian High Commission Singapore. In the inquiry it was revealed that the said TIPL is a “brief case” entity, the given phone number goes to other entity namely Aurion Pro Solution Pte Ltd. Aurion Pro Solution Pte Ltd is located at other address. During the inquiry it was further found that another entity Arshiya International Singapore Pte Ltd located at 39 Robinson Road # 09-01, Robinson Point Singapore. The business profile of Arshiya International Singapore Pte. Ltd shows Mr. Paresh Chandulal Zaveri is Director. Further verification shows that Arshiya International Singapore Pte Ltd is wholly owned subsidiary of Indian company Arshiya International Limited located at the same address. The AO has extracted the entire report in para7.3 of his order. On the basis of the report of First Secretary (Economic High Commissions) Singapore, the AO issued show cause notice dated 16.07.2012 and again on 10.08.2012 to the assessee as to why the entire amount should not be added as income of assessee under 11 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. section 68 of the Act. The assessee filed its detailed reply, vide reply dated 17.08.2012. The reply the assessee as recorded by the AO in para 7.5 of his order is extracted below:
“With reference to captioned letter and in continuation to our earlier submissions, we would like to state and submit as under: 1. Investments made by Themis Investment Pte Limited (Themis) in assessee company With regard to the inferences drawn by your goodself on the aforesaid investments, we would like to state and submit as under; (a) Identity of the investor of Themis (i) The company has received ale funds from Themis through normal banking channels from the Authorised Dealer Bank. Further, it may be pertinent to note that the Authorised Dealer Bank i.e. M/s HDFC Bank Limited has issued tile KYC documents wherein the registered address of "101 Cecil Street, # 23-12 Tong Eng Building, Singapore 069533" (which is disputed by your goodself) has been confirmed by them. The copy of KYC is enclosed herewith vide Aunexure B for your ready reference. (ii) We wish to draw your kind attention towards your Notice dated 23rd December, 2011 attached as Annexure C and our letter dated 28th December, 2011 written to FT&TR with a copy to your good Office attached as Annexure D. We refer to 4"1 paragraph of the said Letter and hope You would appreciate that the enquiry by the First Secretary, Singapore (Economics), High Commission of India was done at wrong address and accordingly a wrong inference was drawn. Incidentally this very important fact finds no place in your current Show Cause Notice dated 10th August, 2012. (iii) The beneficial owner of Themis is Mr. Paresh Chandulal Zhaveri and Ms. V Vasanthi is holding the shares in trust for Mr. Paresh Chandulal Zaveri. The copy of trust deed is enclosed herewith vide Annexure E for your ready reference. (iv) Themis is a passive investment holding company.
, 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
(v) Further, we wish to also place on record that Arshiya International Singapore Pte Limited a wholly owned subsidiary of the Assessee, is situated in Singapore. The financials of the said company are reflected in consolidated accounts of Assessee. The printed Accounts of Assessee which is in public domain has been submitted with your good Office. (vi) Themis is also holding Indian Permanent Account Number. A Copy of its Pan Card is attached as Annexure F. (vii) The directors of Arshiya International Singapore Pie Limited are as under: As on Name of Directors March, 2009 Mr. Paresh Chandulal Zaveri Mr. Jashay Mehta March, 2010 Mr. Paresh Chandulal Zaveri Mr. Shivkumar Venkateshwaram March, 2011 Mr. Paresh Chandulal Zaveri Mr. Shivkumar Venkateshwaram (b) Genuineness of tile transactions (i) As mentioned hereinabove, Ms. V. Vasanthi is holding the shares of Themis in the trust of Mr. Paresli Chandulal Zaveri and hence she would not be the correct person to ask for tile business affairs and sources of the investment made in Assessee Company. (ii) The basic enquiry was suppose to be done with Mr. Paresh Chandulal Zaveri which has riot been grossly ignored. (iii) The aforesaid enquiry sources of investment made in Assessee Company was made by the Singapore Comptroller of Income Tax. In this regard, Themis has submitted details and documents vide their letter dated 19th March, 2012 (through their CPA – M/s. Shanker Iyer & Co., Singapore), A copy of the said letter along with enclosures is enclosed vide Annexure C. (iv) On perusal of letter dated 19th, March, 2012 filed by Themis through their CPA – M/s. Shanker Iyer & Co., Singapore with Singapore Comptroller of Income Tax, you would appreciate that: a. Investment by Themis in Assessee Company is done through accumulated Shareholders Advances.
, 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. b. Investment by Themis in Assessee Company is done through United Overseas Bank, Shenton Way Branch, Singapore. c. The beneficial owner of Themis is Mr. Paresh Chandulal Zaveri and Themis is a passive investment holding company. d. Ms. V Vasanthi is holding the shares in trust for Mr. Paresh Chandulal Zaveri. (v) During the year under consideration, Assessee Company has paid the dividend amounting to Rs. 9,68,000/- to Themis. (vi) The aforesaid dividend has been remitted through normal banking channels. The copies of returns filed with Reserve Bank of India under Form RCD1 and RCD2 are enclosed herewith marked as Annexure H. (vii) Kindly find attached herewith a copy of letter dated 31th July, 2012 received from Mr. Paresh Zaveri along with enclosures thereof marked as Annexure I. (viii) On perusal of the above said letter, the relevant extract of Bank Statement of Themis Investment Pie. Limited evidencing the credit of aforesaid dividend is enclosed herewith marked as Annexure J. (c) Capacity of the Themis, to invest the amount (i) As mentioned hereinabove, investment by Themis in Assessee Company is done through accumulated Shareholders Advances. (ii) Your good self would appreciate that the books of accounts of Themis are maintained on a regular basis. The copies of financial statements from F. Y. 2006-07 to F. Y. 2009-10 are enclosed herewith marked as Annexure K. (iii) Further, the directors in Themis from F. Y. 2006-07 to F. Y. 2009-10 are as under. Period Name of Directors From 2007 to Mr. Jashay Mehta October, 2008 Ms. V. Vasanthi From October, Mr. Paresh Chandulal Zaveri 2008 to March Ms. V. Vasanthi 2009 From March 2009 Ms. V. Vasanthi till date 14 , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
(iv) The copies of Income Tax Returns filed by Themis with Statutory Authorities of Singapore from F. Y. 2006-2007 to F. Y. 2009-2010 are enclosed herewith marked as Annexure L. (v) Arshiya International Limited being a listed company - all compliances in terms of SEBI, Stock Exchanges, Companies Act, etc. has been done with respect to all its shareholders including Themis. (vi) We refer to 2nd paragraph of point c of page 3 of the Current Notice dated 10th July, 2012, which is reproduced as under: "Therefore in order to establish tile identity, genuineness of transaction and the credit worthiness of TIPL, certain details were called vide letter dated 16.07.2012. However till date, a full and final compliance has riot been made." We disagree to above as all details and documents have been submitted vide our letter dated 03.08.2012, a copy of which is hereby attached as Annexure M. Based on the above submissions, your good self would appreciate that Themis has invested the amount ill the assessee company through its own fund which is genuine. The question of Themis not having nominal income and further having a two dollar capital only is now addressed, as the investments are done from accumulated shareholders advances. We trust your goodself will find the above in order and hope all details, documents, clarifications, confirmation related to Themis are in place. Further, the Assessee may be advised immediately for any further detail, document, clarification or confirmation. With respect to tile enquiries done by the First Secretary (Economics), High Commission of India, Singapore, kindly note that: a. We have been given to understand from our Associates in Singapore towards above said details and / or documents. b. According to Themis, Mr. Paresh Cnanduial Zaveri and Ms. V. Vasanthi: i. Neither Themis nor Ms. V. Vasanthi or Mr. Paresh Chanduial Zaveri has received any Notice / Summons / Show Cause Notice / letter from First Secretary (Economics), High Commission of India, Singapore. 15 , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. ii. How can an enquiry be done without (a) above? iii. The enquiry done by Singapore Income Tax Authorities has been promptly responded by Themis. A copy of the said reply done by Themis has been submitted with your good Office. After this reply, there is no communication by Singapore Tax Authorities to Themis. We believe they are satisfied with the reply. iv. The visit of Ms. V Vasanthi to First Secretary (Economics), High Commission of India, Singapore was done by her suo-moto to clarify them about the correct address of Themis, as enquiry was done at a wrong address. No statement was taken from Ms. V. Vasanthi. c. The copy of till' enquiry report and the material collected at Singapore may kindly be provided We have submitted each and every detail / document related to Themis. We once again reiterate as to what more detail or document is required by your good self to justify identity of Themis, Genuineness of transaction and capacity of Themis to invest? 14. The reply of the assessee was not accepted by the AO. The AO concluded that the assessee failed to prove the identity, creditworthy and genuineness of the transaction within the meaning of section 68 and the amount of Rs. 10,01,50,000/- for AY 2008-09 and Rs. 9,98,50,000/- for AY 2019-10 was treated as unexplained investment. On appeal before ld CIT(A) the assessee filed detailed written submissions explaining the facts that TIPL was issued 4,00,000 warrants convertible in to equity shares, the copy of notice and the resolution passed by the general Body meeting held on 12th February 2007 was filed. It was submitted that besides TIPL, the assessee also issued shares to the other parties, whose details were provided. As TIPL was Non Resident applicant in the issues of warrant the said issues were governed by RBI route.
The assessee in compliance of FEMA guidelines reported the issue to RBI. 16 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. During the assessment the AO conducted enquiry through First Secretary, Singapore at wrong address and accordingly a wrong inference was drawn.
The assessee vide its letter dated 12.01.2012, requested to First Secretary (economic) and Jt. Secretary FT & TR at Singapore to re-enquire at registered office address of TIPL. The assessee explained the identity, creditworthy and genuineness of the transaction. It was explained that the TIPL made the investment in Assessee Company through accumulated Shareholder advances; investment was done through United Overseas Bank, Shenton, Way Branch, Singapore. The beneficial owner is Mr. Paresh Chandulal Zaveri. Ms Vasanthi is holding share in trust for Mr. Paresh Chandulal Zaveri. The assessee has paid dividend to TIPL of Rs. 8,01,200/- in AY 2008-09 and Rs. 9,68,000/- in AY 2009-10. The assessee has further explained the facts as ld. AR for the assessee made submissions before us.
The ld. CIT (A) after considering the submissions and the documentary evidences concluded that the AO made additions on the basis of the report of Jt. secretary (FT &TR), however, the assessee has filed detail report and evidence about the identity, creditworthy of TIPL and genuineness of the transaction. It was also concluded that the assessee got ex-post facto approval from FIPB vide approval dated 22.01.2013; therefore, the AO was not justified to make the additions under section 68.
The ld. CIT(A) while deleting the addition passed the following order: , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
3.3 I have considered the AO's order as well as the appellant AR's submissions. Having taken note to the same, I find that the AO has made the aforesaid addition u/ s.68 of the I.T. Act based on the enquiry report of Jt. Secretary (FT & TR) but the fact remained that the appellant's AR has filed detailed report i1n respect of identity, capacity and credit worthiness of the Themis Investment Pte. Ltd., Singapore as detailed in appellant's submission in Para 3.8.12 which has been enumerated by the appellant in his submission. Besides this, I also find that subsequently, the investment so made in the appellant’s company has got post facto approval from various Foreign Investment Promotion Board (FIPB) vide its approval letter No. 127(2012)/245(2010) dated 22.01.2013. 3.4 In these given facts of the appellant's case and also after taking note of decision of Supreme Court in the case of CIT Vs. Lovely Exports P. Ltd. and Hon'ble Delhi HC in the case of CIT Vs. Divine Leasing & Finance Ltd. 299 ITR 268 and CIT Vs. Dwarkadish Investment P. Ltd. 330 ITR 298, I consider it proper and appropriate to hold that the AO was not justified in his action while making the aforesaid addition u/ s.68 of the Act. Accordingly, the addition so made by the AO stands deleted. Thus, the appellant's this ground of appeal is allowed.
17. Similarly ,while deleting the additions in appeal for AY 209-10 the ld CIT(A) passed the following order:
“3.3. I have considered the AO’s order as well as the appellants AR’s submission. Having taken note of the same, I find that the AO has made the aforesaid addition under section 68 of the IT Act based on the enquiry report of Joint Secretary (FT& TR) but the fact remained that appellant’s AR has filed detailed report in respect of identity, capacity and creditworthiness of Themis Investment Pte Limited, Singapore as detailed in the appellant’s submissions in para 3.8.12 which has been enumerated by the appellant in his submission. Besides this, I also find that subsequently, the investment so made by appellant’s company has got post facto approval from Foreign Investment Promotion Board (FIPB) vide its approval letter No. 127(2012)/245(2010) dated 22.01.2013. 3.4 In these given facts of the appellant’s case and also after taking note of the decision of Supreme Court in case of CIT vs Lovely Exports P. Ltd. and Hon’ble Delhi High Court in case of CIT vs Divine Leasing And Finance Ltd. 299 ITR 268 and CIT vs CIT Vs. Dwarkadish Investment P. Ltd. 330 ITR 298, I consider it proper and appropriate to hold that AO was not justified in his action while making the aforesaid addition u/s 68 of the Act. Accordingly, the addition so , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. made by AO stands deleted. Thus, the appellant’s this ground of appeal is allowed. 18. We have noted that the during the assessment the assessee has proved the identity of the creditor by filing completed details, PAN, address and KYC furnished by the banker of the creditor, creditworthy by filing the income tax return as per the statutory provision of Singapore, and the genuineness of the transaction as all the money was received through banking channel, with the permission of RBI and approval of FIPB.
The Hon’ble Jurisdictional High Court in PCIT Vs Aditya Birla Telecom Ltd (supra) on similar question of law held that where investment in assessee- company was made by US based Global Private investment group with permission of Government authorities, same could not be branded as sham transaction merely because it involved huge investment and investor would not earn any dividend income immediately and investment was divested to group companies by assessee-company.
The Hon’ble Bombay High Court in NuPower Renwables (P) ltd Vs ACIT (supra) held that where assessment in case of assessee was reopened on ground that it had received huge amount from a Mauritius based company 'F' towards share allotment, however, genuineness and creditworthiness of said company was in doubt, in view of fact that assessee had duly supplied certificate of foreign inward remittance of funds, tax residence certificate of foreign company, copy of ledger 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. account showing share application money being credited in bank account and source thereof, impugned reassessment proceedings deserved to be set aside.
Considering the above factual and legal discussion, we affirm the order of the ld CIT(A) in deletion the addition under section 68 for AY 2008- 09 and in AY 2009-10. In the result the corresponding grounds of appeal raised by the revenue are dismissed.
(ii) Disallowances under section 14A read with Rule 8D.
(AY 2008-09) 22. In the return of income, the assessee claimed dividend income of Rs. 3,49,85,521/- exempt under section 10(34). The Assessing Officer asked the assessee to provide the details of expenses incurred for earning exempt income and as to why the disallowance be not made in accordance with Rule 8D. The assessee filed its reply dated 26.09.2011, which was not accepted by Assessing Officer. The Assessing Officer invoked the provisions of Rule 8D and made a disallowance of Rs. 36,24,147/- under section 14A r.w. Rule 8D, which consist of proportionate interest expenditure disallowance under clause (ii) of Rule 8D(2) of Rs. 281730/- and disallowance under clause (iii) of Rule 8D(2) of Rs. 33,42,417/-. On appeal before the ld. CIT(A), the disallowance under clause (ii) of Rule 8D(2) was deleted by holding that investment made by assessee is out of own funds as the assessee has reserve and surplus and 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. share capital of Rs. 458.35 crore against the investment in share of Rs. 145.89 crore. The ld. CIT(A) deleted the disallowance by following the decision of Hon’ble Bombay High Court in Reliance Utility and Power Ltd. (313 ITR 340) and CIT vs. HDFC Bank Ltd. (366 ITR 505). However, addition/disallowances under clause (iii) of Rule 8D(2) of Rs. 33,42,417/- was confirmed by ld. CIT(A). Aggrieved by the order of ld. CIT(A) in deleting the addition of Rs. 281370/- under Rule 8D(2)(ii), the revenue has filed appeal before the Tribunal. The assessee has challenged the disallowance under Rule 8D(2)(iii) confirmed by ld. CIT(A) of Rs. 33,42,417/-.
The ld. AR of the assessee submits that the assessee earned exempt income of Rs. 3.49 crore being dividend income from mutual funds and for earning such income no expenses were incurred. The ld. AR submits that the assessee has sufficient own fund out of which investment have been made, hence no disallowance under section 14A r.w. Rule 8D should be made. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in PCIT vs. Reliance Capital Asset Management Ltd. (400 ITR 217), CIT vs. Reliance Utility (313 ITR 340), Hon’ble Supreme Court in PCIT vs. Sintex Industrial Ltd. (255 Taxman 171) and decision of Tribunal in Macrotech Construction (P.) Ltd. vs. ACIT (176 ITD 530). , 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
On the other hand, the ld. DR for the revenue supported the order of Assessing Officer on disallowance under Rule 8D(2)(ii) and order of ld. CIT(A) on disallowance of Rule 8D(2)(iii).
We have considered the submission of both the ld. representatives and perused the material available on record. So far as disallowance under section 14A r.w. Rule 8D(2)(ii) are concerned, we have noted that the ld. CIT(A) deleted the disallowances by following the decision of Hon’ble jurisdictional High Court in Reliance Utility and Power Ltd. (supra) and in CIT vs. HDFC Ltd.(supra). The ld. CIT(A) also examined the reserve and surplus fund available with the assessee company, which is more than the investment made by assessee for earning exempt income. No contrary fact or law is brought to our notice to take the other view. Therefore, the ground of appeal
raised by revenue in its appeal for A.Y. 2008-09 is dismissed.
26. So far as disallowance under Rule 8D(2)(iii) of Rs. 33,42,417/-, which is the subject matter of grounds of appeal of assessee, is concerned, we have noted that the assessee has earned exempt income of Rs. 3.49 crore. The Assessing Officer worked out the disallowance as per Rule 8D(2)(iii) and accordingly worked out addition/disallowance of Rs. 33,42,417/-. We have noted that neither the assessee has provided the working of suo-moto disallowance under section 14A r.w. Rule 8D. However, in the report under Form No. 3CD (Audit Report), the assessee stated that no expenditure incurred by the assessee for earning dividend income and accordingly no amount is 22 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. inadmissible in term of section 14A. The Assessing Officer after considering the reply of assessee concluded that assessee failed to bring adequate evidence on record to substantiate its claim for not incurring expenditure in earning exempt income and accordingly invoked the formula prescribed under Rule 8D. The ld. CIT(A) confirmed the action of Assessing Officer by following the decision of Hon’ble Bombay High Court in Godrej Boyce Ltd. (supra). Before us, the ld. AR of the assessee strongly relied upon the decision of Hon’ble Bombay High Court in PCIT vs. Reliance Capital Asset Management Ltd. (supra), wherein the assessee company earned dividend income of Rs. 8.33 crore and LTCG of Rs. 68.88 lakhs, which were claimed as exempt. In the return of income, the suo-moto disallowance was worked out of Rs. 125605/- . The Assessing Officer disallowed indirect expenses by calculating at .5% of average value of investment and worked out the disallowance of Rs. 14678090/- in term of Rule 8D. On appeal before the ld. CIT(A), the disallowance was restricted to Rs. 12566793/- against the amount disallowed by Assessing Officer. On further appeal by both the parties before the Tribunal, the disallowance was restricted to Rs. 3.50 lakhs.
On further appeal by revenue before Hon’ble High Court, the appeal of revenue was dismissed. Considering the peculiarity of facts of the present case and by applying the decision of jurisdictional High Court in PCIT vs. Reliance Capital Asset Management Ltd., we are of the view that a reasonable disallowance of 5% of exempt income earned by assessee would 23 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. meet the end of justice. Therefore, we direct the Assessing Officer to restrict the disallowance under Rule 8D(2)(iii) at Rs. 5% of the exempt income. In the result, the ground of appeal raised by assessee is partly allowed.
A.Y. 2009-10 27. In the return of income, the assessee has shown exempt income of Rs. 304,54,208/- being dividend income from mutual funds. The assessee claimed that no expenses were incurred for earning such exempt income as the assessee has sufficient fund out of which investment were made for earning exempt income. The Assessing Officer invoked the provision of Rule 8D and made a disallowance of Rs. 80,49,606/- under section 14A r.w. Rule 8D, which consist of proportionate interest expenditure disallowance under Rule 8D(2)(ii) of Rs. 47,07,172/- and disallowance under Rule 8D(2)(iii) of Rs. 33,42,434/-. On appeal before the ld. CIT(A), the disallowance under Rule 8D(2)(ii) was deleted, however, the disallowance under Rule 8D(2)(iii) was confirmed. Being aggrieved, both the parties are in appeal before the Tribunal. The revenue has challenged the deletion of disallowance under Rule 8D(2)(ii) of Rs. 4707172/-, similarly the assessee has challenged the confirmation of disallowance of Rule 8D(2)(iii) of Rs. 33,42,417/-.
The ld. representatives of both the parties argued on the similar line as per their submission on identical ground for A.Y. 2008-09.
We have noted that the grounds of appeal
raised by revenue in challenging the deletion of the disallowance under Rule 8D(2)(ii) is identical to the 24 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. grounds of appeal raised in appeal for A.Y. 2008-09. The ld. CIT(A) deleted the disallowances by following the decision of Hon’ble Bombay High Court in Reliance Utility and Power Ltd. (supra) and in HDFC Bank Ltd. (supra), which we have confirmed. We have further noted that the fact for the year under consideration is not at variance. The assessee has sufficient interest free funds available with them for making investment for earning exempt income. No contrary fact is brought to our notice by revenue. Therefore, following the principle of consistency, the ground of appeal raised by revenue is dismissed.
30. So far as ground of appeal in confirming the disallowance Rule 8D(2)(iii) is concerned, we have noted that this ground of appeal is identical to the ground of appeal raised by assessee in appeal for A.Y. 2008-09, wherein we have restricted the disallowance at 5% of the exempt income. Therefore, following the principle of consistency, this ground of appeal is also allowed with similar direction. In the result, this ground of appeal is partly allowed.
A.Y. 2010-11 31. In the return of income, the assessee claimed exempt income of Rs. 2,23,323/-. The Assessing Officer invoked the provisions of Rule 8D and made a disallowance of Rs. 98,82,038/-, which consist of proportionate interest expenses under Rule 8D(2)(ii) of Rs. 48,07,921/- and under Rule 8D(2)(iii) of Rs. 50,74,126/-. On appeal before the ld. CIT(A), disallowance under Rule 8D(2)(ii) was deleted, however, the disallowance under Rule 25 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. 8D(2)(iii) was confirmed. Aggrieved by the order of ld. CIT(A), both the parties have filed the present appeal before us. The revenue has challenged the deletion of disallowance of Rule 8D(2)(ii), similarly, the assessee has challenged the confirmation of disallowance of Rule 8D(2)(iii).
The ld. AR of the assessee submits that during the year, the assessee earned exempt income of Rs. 2,23,323/-. The assessee company has sufficient fund, therefore, no disallowance was warranted against the assessee. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer.
We have considered the submission of both the parties and find that the ground of appeal
raised by revenue is identical as raised in appeal for A.Y. 2008-09 & 2009-10, which we have dismissed. Considering the principle of consistency as there is no variance in fact, therefore, the ground of appeal raised by revenue is dismissed.
34. So far as ground of appeal raised by assessee is concerned, we have noted that the assessee has earned exempt income of Rs. 2,23,323/- and it is settled law that disallowance under section 14A r.w. Rule 8D cannot exceed the exempt income. However, considering our decision for A.Y. 2008-09 & 2009-10, on identical ground of appeal the disallowance under Rule 8D(2)(iii) is restricted to 5% of the exempt income earned during the year.
The Assessing Officer is directed accordingly. In the result, appeal of the assessee is partly allowed.
(iii) Addition under section 69C 26 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. A.Y. 2008-09 by revenue
The revenue has raised ground of appeal for restricting the addition to Rs. 2,47,201/- against the addition of Rs. 4,40,351/- paid to Shri Nand Lal Nagpal.
The Assessing Officer on the basis of information received from DDIT (Inv.), Unit 1(4), Mumbai that transaction of assessee with Nand Lal Nagpal was bogus as Nand Lal Nagpal allegedly admitted that no business activity was carried out by him with the assessee. The Assessing Officer also concluded that the assessee merely debited and credited the entries in its books of account and loss was claimed on such transaction. The DDIT (Inv.) further informed that the difference of the debits and credit entries of the transaction carried out by Nand Lal Nagpal from F.Y. 2007-08 to 2010-11 in the following manner:
Financial Year Credit Amount Debit Amount Amount (Loss) (Difference in debit and credit. 2007-08 9,84,40,328 9,88,80,589 -4,40,351 2008-09 38,03,77,049 38,33,94,464 -30,51,415 2009-10 72,59,81,702 73,10,55,828 -50,74,126 2010-11 13,30,27,996 13,40,77,130 -1049,134 Total -96,15,026
The Assessing Officer added Rs. 4,40,350/- to the income of assessee. The ld. CIT(A) restricted the addition to Rs. 2,47,201/-. The ld. CIT(A) restricted the addition to .25% of credit of the amounts on the basis of statement of 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. Nand Lal Nagpal and directed the Assessing Officer to restrict the addition to Rs. 2,47,201/- being .25% of credit of amount of Rs. 9,88,80,589/-.
The ld. DR for the revenue supported the order of Assessing Officer and prayed to restore the order of Assessing Officer by reversing the order of ld. CIT(A). Ld. DR further submits that the assessee has availed the accommodation entries by rotating the funds through various entities operated by Nand Lal Nagpal and the entire loss claimed by assessee should be sustained. 39. On the other hand, the ld. AR of the assessee submits that as per the statement of Nand Lal Nagpal, the commission paid on these transactions was 0.20% of the said transactions. The ld. CIT(A) has restricted/added .25% of the said transaction. The ld. AR prayed for dismissal of grounds of appeal
40. We have considered the submission of both the representatives and perused the record. We have noted that the Assessing Officer in para-4.5 of the assessment order has recorded that Nand Lal Nagpal had admitted that he was paid commission @ 0.1% to 0.2% in cash for the alleged transactions.
The Assessing Officer while passing the assessment order added the difference of credit and debit of the transacted amount. The ld. CIT(A) restricted the addition to 0.25% of the alleged transactions. We have noted that ld. CIT(A) after appreciating the report of DDIT (Inv.), Unit-4, Mumbai and considering the alleged transaction restricted the addition by holding that the difference on account of credit and debit has already been disallowed 28 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. under section 28 and accordingly restricted the disallowance to 0.25% of credit amount. No contrary fact or law is brought to our notice to take any other view. Therefore, we do not find any justification for interfering with the finding of ld. CIT(A). In the result, the ground of appeal raised by revenue is dismissed.
A.Y. 2009-10 by revenue 41. The Assessing Officer made addition under section 69C of Rs. 30,51,415/-, the ld. CIT(A) restricted/confirmed to the extent of Rs. 9,58,486/- (revenue has wrongly mentioned the figure of Rs. 2,47,201/- in its ground of appeal.
We have noted that this ground of appeal is identical to the ground of appeal raised by revenue in appeal for A.Y. 2008-09 except variation of disallowance of figure. Considering the fact that we have upheld the addition restricted by ld. CIT(A) in appeal for A.Y. 2008-09, therefore, following the principle of consistency, the ground of appeal raised by revenue is dismissed with similar observation.
A.Y. 2010-11 by revenue 42. The Assessing Officer made addition under section 69C of Rs. 50,74,126/-, the ld. CIT(A) restricted/confirmed to the extent of Rs. 18,27,640/- (revenue has wrongly mentioned the figure of Rs. 2,47,201/- in its ground of appeal.
We have noted that this ground of appeal is identical to the ground of appeal raised by revenue in appeal for A.Y. 2008-09 and 2009-10 except variation of disallowance of figure. Considering the fact that we have upheld the addition 29 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. restricted by ld. CIT(A) in appeal for A.Y. 2008-09 & 2009-10, therefore, following the principle of consistency, the ground of appeal raised by revenue is also dismissed with similar observation.
(iv) Addition on account of Transfer Pricing A.Y. 2008-09 by assessee 43. Brief facts that the assessee is company incorporated in India and tax resident of India. The assessee is engaged in the business of providing air and ocean freight forwarding integrated supply chain management and value added services to offer end to end logistic solutions across the world. During the assessment, the Assessing Officer noted that the assessee entered into international transaction with the Associated Enterprises (AE). The assessee in its audit report furnished in Form No. 3CEB, besides other transaction with its AE reported business advances of Rs. 8.34 crore. The Assessing Officer made a reference to Transfer Pricing Officer (TPO) under section 92CA. The TPO vide its order dated 31.03.2008 suggested adjustment @ USD LIBOR + 3%. The ld. CIT(A) confirmed the adjustment proposed by Assessing Officer/TPO. The ld. CIT(A) while confirming the addition/adjustment relied upon the order of his predecessor for A.Y. 2007- 08 dated 20.12.2012.
The ld. AR of the assessee submits that the ld. CIT(A) relied upon the order of his predecessor in assessee’s own case for A.Y. 2007-08. The ld. AR for assessee submits that against the addition/adjustment suggested by TPO and 30 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. confirmed by ld. CIT(A), the assessee filed appeal before the Tribunal vide be calculated on the basis of LIBOR of Hong Kong and Singapore as the case may be + 2%. The ld. AR of the assessee submits that this ground of appeal is infact covered by the decision of Tribunal dated 30.10.2015 in ITA No. 659/Mum/2013.
On the other hand, the ld. DR for the revenue relied upon the order of lower authorities.
We have considered the submission of both the parties and perused the record. We have noted that on identical grounds of appeal, the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2007-08 in passed the following order:
“6. We have heard both the parties on this issue and perused the papers placed before us. Considering the above and after hering both the parties, we find that there is no dispute on the nature of loans as ‘international transaction’ in view of retrospective amendment cited above. Regarding the charging of interest on such interest free loans given to the subsidiaries, it is now decided issue, by virtue of the above cited judgment of the jurisdictional High Court, that the said loan amounts are required to be benchmarked considering the LIBOR of the Singapore and Hong Kong, as the case may be. Now the question is what is the rate of interest which constitutes ALP in this case. It is the decision of the coordinate Bench in the case of Melstar Information Technologies Ltd. (supra) that LIBOR + 2% is followed by the Tribunal of Bombay Benches, No contrary decision of Bombay Benches of the Tribunal is brought to our notice by the Ld AR. Therefore, we are of the opinion that AO /TPO is directed to benchmark the impugned transaction by applying the arm’s length rate of interest at LIBOR of the respective countries should be considered. Accordingly, this part of the ground is partly allowed.”
, 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
Considering the decision of Tribunal in assessee’s own case on identical grounds of appeal and respectfully following the same, we direct the Assessing Officer to work out the notional interest accordingly. In the result, this ground of appeal is partly allowed.
A.Y. 2009-10 & 2020-11 by assessee 48. The assessee has raised the identical grounds of appeal for both the A.Y. as raised in appeal for A.Y. 2008-09, which we have partly allowed by following the order of Tribunal in assessee’s own case for A.Y. 2007-08.
Therefore, respectfully following the principle of consistency, the grounds of appeal raised by assessee in appeal for A.Y. 2009-10 and 2020-11 are allowed with similar direction. In the result, grounds of appeal raised by assessee are partly allowed.
(v) Deleting the Addition in respect of interest income received, which is reduced from work-in-progress (WIP).
A.Y. 2008-09 by revenue (Ground No.4) 49. The During the assessment, the Assessing Officer has noted that assessee has earned interest income of Rs. 13,40,444/- on capital advances made and the said interest income is reduced from WIP of Rs. 194,01,71,203/- instead of showing the interest income under the head ‘Income from Other Sources’.
The Assessing Officer issued a show-cause notice to the assessee as to why such interest income should not be treated as income from “other sources”.
The assessee explained that they are setting free Trade Warehousing Zone in 32 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. Panvel and the assessee earned interest on the capital advances which is reduced from capital work in progress as business of Free Trade Warehousing Zone is not commenced. The explanation of assessee was not accepted by Assessing Officer. The Assessing Officer treated the interest earned by assessee as ‘income from other sources’. On appeal before the ld. CIT(A), the assessee was granted relief directing the Assessing Officer to reduce the interest income from work-in-progress. Aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us.
The ld. DR for the revenue supported the order of Assessing Officer and prayed that order of ld CIT(A) be reverse and assessing officer be restored.
On the other hand, the ld. AR of the assessee supported the order of Assessing Officer. The ld. AR submits that the grounds of appeal
raised by revenue is covered by the decision of Hon’ble Supreme Court in CIT vs. Bokaro Steel (236 ITR 315) wherein it was held that the amounts directly connected to an incidental to construction of plant by assessee and interest earned on advances to contractor is a capital receipt and not the income from independent sources. In support the submission, the ld. AR relied upon the decisions of CIT vs. Bokaro Steel Ltd. 236 ITR 315 (SC), Indian Panipat Power Consortium vs. ITO (315 ITR 255, CIT vs. Karnal Co-op Sugar Mills Ltd. (243 ITR 2) and PCIT vs. Facor Power Ltd. (380 ITR 474).
52. We have considered the rival submission of both the parties and perused the record. During the assessment Assessing Officer has noted that assessee has 33 ITA No. 4764, 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. earned interest income of Rs. 13,40,444/- on capital advances made and the said interest income was reduced from WIP of Rs. 194,01,71,203/- instead of showing the interest income under the head ‘Income from Other Sources’.
The Assessing Officer issued a show-cause notice to the assessee as to why such interest income should not be treated as income from “other sources”.
The assessee explained that they are setting free Trade Warehousing Zone in Panvel and the assessee earned interest on the capital advances which is reduced from capital work in progress as business of Free Trade Warehousing Zone is not commenced. The explanation furnished by the assessee was not accepted by the assessing officer. The assessing officer concluded that this income is accrued to the assessee. The cost of the capital work in progress or any other capital asset can only be reduced by the portion of the cost thereof, I’ve any as has been made directly or indirectly by any other person or authority list of the assessee has received the income in the form of interest, such interest income is nothing but income from other sources. The learned CIT(A) directed the assessing officer to reduce the said interest income from work in progress by following the decision of Hon’ble Supreme Court in CIT vs. Bokaro Steel (supra), wherein it was held that the amounts directly connected to an incidental to construction of plant by assessee and hence interest on advances to contractor says capital receipt and not income from any independent sources. The learned Commissioner (Appeals) passed the following order: 34 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd.
“6.3 I have considered the assessing officer’s order as well as appellants submissions. Having considered both, I find that claim of the appellant is justified and correct in view of the decision of Supreme Court in case of CIT versus Bokaro Steel Limited (1999) 236 ITR 315 wherein Hon’ble Apex Court have categorically held that the amounts directly connected to and incidental to construction of plant by assessee and hence interest on advances to contractors is capital receipt and not income of the assessee from any independent source. In view of the same, I consider it proper and appropriate to hold that the addition made by the AO is not justified and accordingly, the same stand deleted. Thus, the appellants this ground of appeal is allowed.”
The Hon’ble Delhi High Court in Indian Oil Panipat Power Consortium Vs ITO (supra) held that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. It was held that the test is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant, the clue is available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is chargeable to tax depending on whether it is of a revenue nature or capital receipt. In view of the above discussion, we do not find any infirmity in the order passed by ld 4765, 4299, 3951, 4763, 4297 & 4298 Mum 2015 M/s Arshiya International Ltd. CIT(A), which we affirm. In the result the ground of appeal raised by the revenue is dismissed.
In the result following result is emerges; Assessment years Assessee’s appeal Revenue’s appeal 2007-08 ---------- Dismissed 2008-08 Partly allowed dismissed 2009-10 Partly allowed dismissed 2010-11 Partly allowed dismissed Order pronounced in the open court on 27/08/2019.