ACIT, New Delhi V. M/s. Claridges Hotels Pvt. Ltd., New Delhi

ITA 2737/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81770 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-06-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHA RANI
• Keywords: Unexplained expenditure; Depreciation; Income from undisclosed sources; Earning of tax free income; Source of fund; Deemed to accrue or arise in india; Retrospective amendment; Question of law; Scheme of amalgamation; Capital receipt; Commercial expediency; Onus to prove; Revenue expenditure
• Section: 69C; 5(2); 153A; 14A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI B.C. MEENA ITA NO.2737/DEL/2012 ASSESSMENT YEAR: 2001 - 02 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) ITA NO. 46 07 /DEL/201 3 ASSESSMENT YEAR: 200 9 - 1 0 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B ) (APPLICANT) (RESPONDENT) CROSS OBJECTION NO. 1 0/DEL/2014 ( ITA NO.4707 /DEL/2013 ) ASSESSMENT YEAR: 200 9 - 1 0 M/S. CLARIDGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJEB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) 2 ITA NO.46 29 /DEL/2013 ASSESSMENT YEAR: 200 5 - 0 6 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) CROSS OBJECTION NO. 0 6 /DEL/2014 ( ITA NO.4629 /DEL/2013 ) ASSESSMENT YEAR: 200 5 - 0 6 M/S. CLARIDGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJEB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) ITA NO.46 30 /DEL/2013 ASSESSMENT YEAR: 200 6 - 0 7 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DE LHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) CROSS OBJECTION NO. 0 7 /DEL/2014 ( ITA NO.4630 /DEL/2013 ) ASSESSMENT YEAR: 200 6 - 0 7 M/S. CLARIDGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJEB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) 3 ITA NO.46 31 /DEL/2013 ASSESSMENT YEAR: 200 7 - 0 8 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) CROSS OBJECTION NO. 0 8 /DEL/2014 ( ITA NO.4630 /DEL/2013 ) ASSESSMENT YEAR: 200 7 - 0 8 M/S. CLARI DGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJEB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) ITA NO.4632/DEL/2013 ASSESSMENT YEAR: 2008 - 09 ASSISTANT COMMIS SIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) CROSS OBJECTION NO. 0 9 /DEL/2014 ( ITA N O.4632 /DEL/2013 ) ASSESSMENT YEAR: 200 8 - 0 9 M/S. CLARIDGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJEB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) 4 ITA NO.4633 /DEL/2013 ASSESSMENT YEAR: 2004 - 05 ASSISTANT COMMISSIONER OF INCOME - TAX VS. M/S. CLARIDGES HOTELS CENTRAL CIRCLE 13, PVT. LTD., NEW DELHI. 12 - AURANGJEB ROAD, NEW DELHI. (PIN: AAACC0022B) (APPLICANT) ( RESPONDENT) CROSS OBJECTION NO. 05/DEL/2014 ( ITA NO.4633/DEL/2013 ) ASSESSMENT YEAR: 200 4 - 0 5 M/S. CLARIDGES HOTELS VS. ASSISTANT CIT, PVT. LTD., CENTRAL CIRCLE - 13, 12 - AURANGJ EB ROAD, NEW DELHI. NEW DELHI. (PIN: AAACC0022B) (APPLICANT) (RESPONDENT) ASSESSEE BY: S H RI A JAY WADHWA , ADV. REVENUE BY: SMT. SUDHA RANI , CIT (DR) ORDER PER I.C. SUDHIR : JUDICIAL MEMBER IN THE APPEALS PREFERRED BY THE REVENUE, THE ONE OF THE COMMON ISSUES IN ALL THE ASSESSMENT YEARS IS REGARDING THE VALIDITY OF ADDIT I ONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SHARE APPLICAT I ON MONEY RECEIVED , BY THE ASSESSEE FROM PARADIGM HOTEL PVT. LTD. ( AN INDIAN COMPANY AND UNIVERSAL BUSINESS SOLUTIONS ( A COMPANY INCORPORATED IN MAURITIUS) . THE FACTS IN BRIEF AS NOTED BY THE AUTHORITIES BELOW ARE THAT UNIVERSAL BUSINESS SOLUTIONS 5 (UBSM), A COMPANY INCORPORATED IN MAURITIUS, INVESTED IN THE APPELLANT COMPANY - BOTH DIRECTLY AS SHARE CAPITAL THROUGH THE FDI ROUTE, AS WELL AS THROUGH THREE INDIAN COMPANIES, NAMELY, PARADIGM HOTELS PVT. LTD. (PHPL), SHANTIDEEP HOTELS PVT. LTD . (SHPL) AND SHANTIDEEP FOODS PVT. LTD (SFPL), AS SHARE CAPITAL/ FOREIGN CURRENCY (FC) LOANS. THE THREE INDIAN COMPANIES WERE LATER AMALGAMATED WITH THE APPELLANT COMPANY THROUGH A SCHEME DULY APPROVED BY THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 21 .6.2007 ( WITH EFFECT FROM 1.8.2006). IN LIEU OF THE FC LOANS, UBSM WAS ALLOTTED FURTHER EQUITY IN THE APPELLANT COMPANY. UBSM IS OWNED BY 3 COMPANIES NAMELY INFOTECH SERVICES LTD. BASED IN CHANNEL ISLANDS HAVING 20% STAKE IN THE APPELLANT COMPANY; AND P ARANAL FINANCE AND MID EAST CONSORTIUM BASED IN BRITISH VIRGIN ISLANDS HAVING 80% STAKE IN THE APPELLANT COMPANY. INFOTECH IS OWNED BY MR. SURESH NANDA WHEREAS PARANAL AND MID EAST ARE OWNED BY ONE MR. HAMILTON ANDREWS, A BRITISH NATIONAL. THE ADDITIONS MADE ON ACCOUNT OF SHARE APPLICATION/CAPITAL AND RELATED ISSUES FOR VARIOUS YEARS IN THE CASE OF THE APPELLANT ARE AS UNDER: A.Y. AMOUNT (RS.) INVESTING COMPANY MODE OF PAYMENT 2004 - 05 7,05,00,000 PHPL SHARE APPLICATION 6 2005 - 06 140,02,18,500 49,26 ,00,000 UBSM PHPL SHARE APPLICATION SHARE APPLICATION 2006 - 07 44,16,86,000 23,50,00,000 46,00,00,000 18,00,000 UBSM PHPL SHPL SFPL SHARE APPLICATION SHARE APPLICATION SHARE APPLICATION SHARE APPLICATION 2007 - 08 17,94,15,000 86,72,88,128 UBSM PHPL/SH PL/SFPL (UBSM) SHARE APPLICATION SHARE APPLICATION & LOAN THROUGH A SCHEME OF AMALGAMATION 2008 - 09 3,96,87,500 UBSM SHARE APPLICATION THE CLAIM OF THE REVENUE IS THAT THESE INVESTMENTS ARE NOTHING BUT INCOMES GENERATED IN DEFENCE CONTRACTS IN IND IA RECEIVED OUTSIDE AND BROUGHT INTO INDIA IN THE GARB OF INVESTMENTS, INCLUDING IN THE APPELLANT COMPANY. THE BACKGROUND OF THE MATTER AND THE FACTS RELIED UPON ARE MENTIONED IN PARAGRAPHS - 3 & 4 OF THE ASSESSMENT ORDER AND ARE NOT REPEATED HERE FOR THE SA KE OF BREVITY. THE APPELLANT COUNTERS THAT IT HAS DISCHARGED ITS ONUS BY SUBMITTING ALL REQUISITE EVIDENCE, AND FURTHER THAT THE REVENUE HAS NO EVIDENCE TO ESTABLISH ITS CLAIM. 2. THE FACTS AND THE ISSUES ARE SIMILAR IN ALL THE ASSESSMENT YEARS. FOR EXAM PLE, IF WE TAKE THE CASE OF ASSESSMENT YEAR 2005 - 06, THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD BEFORE THE AUTHORITY BELOW WERE AS UNDER: - 7 1. GROUND NO.1 SHARE APPLICATION MONEY PARADIGM HOTELS PVT. LTD. 1.1 THE ASSESSEE RECEIVED A SUM OF RS .49,26,00,000 FROM PARADIGM HOTELS PVT. LTD. AN INDIAN COMPANY WHICH WAS ASSESSED TO TAX UNDER PAN AACCP9159J. THE AMOUNTS WERE RECEIVED IN THE FOLLOWING MANNER: S.NO. DATE CH NO. NAME OF BANK AMT. (IN RS.) 1. 05.07.2004 697601 CITI BANK, NEW DELHI 26, 00,000 2. 05.07.2004 553063 CITI BANK, NEW DELHI 1,00,00,000 3. 11.08.2004 553065 CITI BANK, NEW DELHI 4,50,00,000 4. 29.03.2005 553074 CITI BANK, NEW DELHI 43,50,00,000 THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN ORDER TO ES TABLISH THE GENUINENESS OF THE CREDIT IN TERMS OF SECTION 68 OF THE INCOME - TAX ACT, 1961 FILED THE FOLLOWING DOCUMENTS/EVIDENCE. I) CONFIRMATION OF PARADIGM HOTELS PVT. LTD. II) COPY OF AUDITED BALANCE SHEET OF PARADIGM HOTELS PVT. LTD. AS AT 31.03.2005. III) COPY OF BANK STATEMENT REFLECTING THE SPECIFIC ENTRIES REGARDING THE SAID PAYMENTS. 8 1.2 THAT IN TERMS OF SCHEME ARRANGEMENT APPROVED BY THE HON'BLE DELHI HIGH COURT OF DELHI ON 25.04.2007 OPERATIVE FROM 01 ST AUGUST, 2006 THE SAID COMPANY WAS AMALGAMATED WITH CLARI DGES HOTEL PVT. LTD. HOWEVER, TILL THEN THE SAID PARADIGM HOTELS PVT. LTD. CONTINUED TO FILE ITS RETURN OF INCOME AND WAS SUBJECTED TO TAX IN INDIA. THE ABOVE MENTIONED DOCUMENTS IN FACT FULLY ESTABLISHED THE FACT THAT PARADIGM HOTEL HAD, WITHOUT ANY DOUBT , MADE THE SAID PAYMENTS, BUT HAD THE REQUISITE FINANCIAL RESOURCES TO ENABLE IT TO DO SO. 1.3 THAT IN COMPLETE DISREGARD OF ALL THE ABOVE MENTIONED EVIDENCE PLACED BEFORE THE A.O. BY WHICH THE APPELLANT FULLY DISCHARGED THE BURDEN CAST ON IT BY SECTION 68 OF THE INCOME - TAX ACT, 1961 THE A.O. MADE AN ADDITION OF THE SUM ON THE BASIS OF PATENTLY FALLACIOUS AND IRRELEVANT REASONING, AND NOTHING BUT MERE SURMISE AND CONJECTURE: - THE A.O. AT PARA 4.3, PAGE 9 OF HIS ORDER STATES IT IS EVIDENT THAT MR. SURESH NA NDA HAS USED THE MAURITIUS ROUTE TO BRING HIS UNACCOUNTED MONEY INTO THE INDIA COMPANIES TO AVOID DISCLOSURE. PARA 4.4 OF THE ORDER READS LOOKING TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF UNIVERSAL BUSINESS SOLUTION LTD. AND PARADIGM HOTELS PV T. LTD., IT IS CLEAR THAT THE COMPANIES DO NOT HAVE SIGNIFICANT INCOME. THEY HAVE BEEN USED AS MERE CONDUITS TO CHANNELIZE THE UNACCOUNTED MONEY OF SHRI SURESH NANDA. SINCE THE ASSESSEE COMPANY IS THE ULTIMATE BENEFICIARY OF THESE UNACCOUNTED FUNDS HENCE ; THESE RECEIPTS ARE TREATED AS UNEXPLAINED IN THE HANDS OF CLARIDGES HOTELS PVT. LTD. : 9 THE A.O. FAILED TO CONSIDER THAT IN THE PRESENT CASE THE ASSESSEE HAS RECEIVED THE SHARE APPLICATION FROM AN INDIAN COMPANY ASSESSED IN INDIA. THE APPELLANT HAS FULLY DISCHARGED THE BURDEN CAST ON IT BY SECTION 68 OF THE INCOME - TAX ACT, 1961 BY PROVIDING FULL DETAILS (INCLUDING PAN NO AND BANK STATEMENTS), THUS PROVIDING SUFFICIENT EVIDENCE OF THE RESOURCES AND CREDITWORTHINESS OF THE INVESTOR AND ALSO CONCLUSIVELY PROV IDING THE PAYMENTS MADE BY IT TO THE APPELLANT. THERE IS NO FINDING RECORDED THAT THE APPELLANT IS NOT A GENUINE COMPANY WHICH WAS ACTUALLY IN EXISTENCE. IN SUCH A CASE, THE SETTLED LEGAL POSITION IS THAT THE SHARE APPLICATION MONEY RECEIVED BY THE SHARE I SSUING COMPANY IS NOT INCOME BUT IS ONLY A CAPITAL RECEIPT IN ITS HANDS. 1.4 THE LD. A.O. BESIDES MAKING THE ADDITION OF THE SAID SUM IN THE HANDS OF THE APPELLANT, HAS ALSO MADE A SUBSTANTIVE ADDITION OF THE SAME AMOUNT IN THE HANDS OF MR. SURESH NAND A ON THE BASIS THAT THE SHARE CAPITAL RECEIVED BY PARADIGM HOTELS PVT. LTD. FROM UNIVERSAL BUSINESS SOLUTION LTD. MAURITIUS WAS IN FACT THE UNDISCLOSED INCOME OF MR. SURESH NANDA. THE SAID FUNDS RECEIVED FROM UNIVERSAL BUSINESS SOLUTION LTD. MAURITIUS BY P ARADIGM HOTEL PVT. LTD., NEW DELHI WERE IN TURN INVESTED IN CLARIDGES HOTEL PVT. LTD. DURING THE YEAR BY WAY OF SHARE APPLICATION MONEY AGGREGATING RS.49,26,00,000. THE INCOME - TAX ACT DOES NOT PERMIT THE INCLUSION OF THE SAME INCOME IN THE HANDS OF TWO DIF FERENT AND TAXING THE SAME ON A SUBSTANTIVE BASIS. THIS ACTION OF THE A.O. IS PATENTLY ILLEGAL AND THEREFORE, THIS ADDITION IS NOT 10 SUSTAINABLE, AND IS LIABLE TO BE SET ASIDE. DETAILED LIST OF CASE LAWS IN RESPECT OF SECTION 68 ARE ATTACHED. 2.1 THE AS SESSEE RECEIVED A SUM OF RS.140,02,18,500 FROM UNIVERSAL BUSINESS SOLUTIONS LTD., MAURITIUS A COMPANY REGISTERED IN MAURITIUS AND WHICH HAS BEEN GRANTED A TAX RESIDENCY CERTIFICATE IN MAURITIUS, AND WHICH IS ASSESSED TO TAX IN ACCORDANCE WITH THE LAWS OF M AURITIUS. THE REMITTANCES WERE RECEIVED BY THE APPELLANT IN THE FOLLOWING MANNER: S.NO. DATE FIRC NO. NAME OF BANK AMT. (IN RS.) 1. 03.11.2004 268709 CITI BANK, NEW DELHI. 6,10,87,500 2. 06.11.2004 269352 CITI BANK, NEW DELHI. 52,96,59,000 3. 15.03.20 05 003710 CITI BANK, NEW DELHI. 80,94,72,000 TOTAL: 140,02,18,500 THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN ORDER TO ESTABLISH THE GENUINENESS OF THE CREDIT AND TO DISCHARGE THE BURDEN CAST ON IT BY SECTION 68 OF THE INCOME - TAX ACT , 1961, FILED THE FOLLOWING: 1. CERTIFICATE OF INCORPORATION OF STAR HOSPITALITY CORPORATION DATED 26.11.2002. 11 2. AMENDED CERTIFICATE OF INCORPORATION ON CHANGE OF NAME FROM STAR HOSPITALITY CORPORATION TO UNIVERSAL BUSINESS SOLUTION LTD. DATED 14.01.2003. 3. MAURI TIUS TAX RESIDENCE CERTIFICATE ISSUED TO STAR HOSPITALITY CORPORATION DATED 24.01.2003. 4. MAURITIUS TAX RESIDENCE CERTIFICATE ISSUED TO UNIVERSAL BUSINESS SOLUTIONS LTD. DATED 27.1.2009 FOR THE ASSESSMENT YEARS FROM 05.11.2004 TO 04.11.2008. 5. LETTER DATED 15. 09.2009 FROM BARCLAY BANK, MAURITIUS SHOWING STATEMENT OF FUNDS REMITTED TO CLARIDGES HOTEL PVT. LTD. TOWARDS SHARE CAPITAL. 6. BANKER S REFERENCE LETTER DATED 24.06.2008 FROM BARCLAY BANK, MAURITIUS. 7. BALANCE SHEET AND INCOME STATEMENT FOR THE YEARS ENDED 31. 03.2004 TO 31.03.2007 AND A CERTIFICATE DATED 28.10.2009 FROM CHARTERED ACCOUNTANT ON THE BORROWINGS REFLECTED IN THE RESPECTIVE BALANCE SHEETS OF UNIVERSAL BUSINESS SOLUTIONS LTD. 8. CERTIFICATE DATED 12.10.2009 FROM THE CHARTERED ACCOUNTANT CONFIRMING THE S HAREHOLDING PATTERN OF UNIVERSAL BUSINESS SOLUTIONS LTD. FROM 31.03.2004 TO 31.03.2007. 9. CERTIFICATE DATED 04.11.2009 FROM THE CHARTERED ACCOUNTANT CONFIRMING THE INVESTMENTS AND LOAN RECEIVABLES REFLECTED IN THE BALANCE SHEETS OF UNIVERSAL BUSINESS SOLUTI ONS LTD. FROM 31.03.2004 TO 31.03.2007. 12 10. COPIES OF FOREIGN INWARD REMITTANCE CERTIFICATES ALONG WITH RELEVANT DOCUMENTS FILED WITH THE RBI. 11. COPIES OF RETURN OF ALLOTMENT IN RESPECT OF SHARES ALLOTTED TO CLARIDGES HOTEL PVT. LTD. 2.2 THE APPELLANT, THEREFORE , HAS FURNISHED PROOF OF EXISTENCE OF THE INVESTOR, AND ALSO PROOF THAT THE MONEYS HAVE COME FROM THE INVESTORS. THE APPELLANT, HAS ALSO PROVIDED FINANCIAL STATEMENTS OF THE INVESTOR, DETAILS OF THE INVESTMENTS MADE BY THE INVESTOR AS WELL AS THE SHAREHOLD ER DETAILS OF THE INVESTORS. THESE ARE FAR BEYOND WHAT IS REQUIRED BY THE ACT. 2.3 THAT DESPITE ALL THE EVIDENCE PLACED BEFORE THE A.O. AND THE ASSESSEE HAVING MORE THAN FULLY DISCHARGED ITS BURDEN IN TERMS OF SECTION 68 OF THE INCOME - TAX ACT, 1961 THE A. O. MADE AN ADDITION OF THE SAID SUM WITHOUT GIVING ANY SUBSTANTIVE OR COGENT REASONS. IT IS RELEVANT TO STATE THAT THE A.O. AT PARA 4.3, PAGE 9 OF HIS ORDER STATES IT IS EVIDENT THAT MR. SURESH NANDA HAS USED THE MAURITIUS ROUTE TO BRING HIS UNACCOUNTED M ONEY INTO THE INDIAN COMPANIES TO AVOID DISCLOSURE. PARA 4.4. OF THE ORDER READS LOOKING TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF UNIVERSAL BUSINESS SOLUTION LTD. AND PARADIGM HOTELS PVT. LTD., IT IS CLEAR THAT THE COMPANIES DO NOT HAVE SIGNIF ICANT INCOME. THEY HAVE BEEN USED AS MERE CONDUITS TO CHANNELIZE THE UNACCOUNTED MON EY OF SHRI SURESH NANDA. SINCE THE ASSESSEE COMPANY IS THE ULTIMATE BENEFICIARY OF THESE UNACCOUNTED FUNDS HENCE; THESE RECEIPTS ARE TREATED AS UNEXPLAINED IN THE HANDS OF CLARIDGES HOTELS PVT. LTD. 13 2.4 THE ASSESSING AUTHORITY WAS FURNISHED DOCUMENTS TO SHOW THAT THE SHAREHOLDERS OF THE ASSESSEE COMPANY WERE UNIVERSAL BUSINESS SOLUTONS LTD., MAURITIUS, AND THREE INDIAN COMPANIES, PARADIGM HOTELS PVT. LTD., SHANTIDEEP FO ODS PVT. LTD. AND SHANTIDEEP HOTELS PVT. LTD. THE SHARES IN THE INDIAN COMPANIES IN TURN WERE HELD BY M/S. UNIVERSAL BUSINESS SOLUTIONS, A COMPANY INCORPORATED IN MAURITIUS. THE SHAREHOLDERS OF THIS COMPANY WERE INFOTECH SERVICES LTD., CHANNEL ISLANDS (MR. SURESH NANDA HOLDING A CONTROLLING STAKE IN THIS COMPANY), PARANAL FINANCE, BVT AND MID EAST CONSORTIUM, BVI. THE ASSESSING OFFICER WAS ALSO PROVIDED WITH THE DETAILS SHOWING THAT INFOTECH SERVICES LTD. HAD ONLY A 20% STAKE IN UBS, 80% BEING HELD BY PARAN AL FINANCE AND MIDEAST CONSORTIUM, AND THAT MR. S. NANDA HAD NO INTEREST OR SHARES IN THE OTHER TWO COMPANIES I.E. PARANAL FINANCE OR MID EAST CONSROTIUM. THE ASSESSING AUTHORITY WAS ALSO INFORMED BY MR. SURESH NANDA THAT ONE MR. HAMILTON ANDREWS, A BRITIS H NATIONAL HELD THE CONTROLLING STAKE IN THE OTHER TWO COMPANIES I.E. PARANAL AND MID EAST, AND THAT MR. NANDA DID NOT HOLD ANY STAKE IN THESE COMPANIES. A DULY NOTARIZED AFFIDAVIT OF MR. HAMILTON, GIVING THE DETAILS OF HIS RESIDENTIAL ADDRESS AND HIS AFFI RMATION ON OATH THAT HE CONTROLLED THE TWO COMPANIES I.E. PARANAL AND MID EASST WAS ALSO PLACED BEFORE THE TWO COMPANIES I.E. PARANAL AND MID EAST WAS ALSO PLACED BEFORE THE ASSESSING AUTHORITY BY 14 MR. SURESH NANDA IN HIS ASSESSMENT. THERE IS NO FINDING REC ORDED BY THE A.O. THAT THE APPELLANT IS NOT A GENUINE COMPANY OR THAT IT DID NOT ACTUALLY MAKE THE PAYMENTS. IN SUCH A CASE, THE SETTLED LEGAL POSITION IS THAT THE APPLICATION MONEY IS NOT INCOME BUT IS ONLY A CAPITAL RECEIPT. 2 .5 THE LD A.O. BESIDES MA KING THE ADDITION OF THE IMPUGNED SUM IN THE HANDS OF THE APPELLANT, HAS ALSO MADE A SUBSTANTIVE ADDITION OF THE SAME AMOUNT IN THE HANDS OF MR. SURESH NANDA ON THE BASIS THAT THE SHARE CAPITAL RECEIVED BY CLARIDGES HOTELS PVT. LTD. FROM UNIVERSAL BUSINES S SOLUTION LTD. MAURITIUS WAS IN FACT THE UNDISCLOSED INCOME OF MR. SURESH NANDA. THE INCOME - TAX ACT DOES NOT PERMIT THE INCLUSION OF THE VERY SAME INCOME IN THE HANDS OF THE TWO ASSESSEES AND TAXING THE SAME ON SUBSTANTIVE BASIS. THIS ACTION OF THE A.O. I S PATENTLY ILLEGAL AND FOR THIS REASON, ALONE AND BY ITSELF THE ADDITION IN THE HANDS OF THE COMPANY IS NOT SUSTAINABLE . 3 . SINCE THE LEARNED CIT(APPEALS) HAS DELETED THE ADDITIONS IN ALL THE ABOVE ASSESSMENT YEARS BEING CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE , THE REVENUE IS IN APPEAL BEFORE THE ITAT AGAINST THE SAID ACTION OF THE LEARNED CIT(APPEALS). 15 4 . IN SUPPORT OF THE GROUNDS, THE SUBMISSIONS OF THE LEARNED CIT( DR ) REMAINED THAT THE ABOVE INVESTMENTS ARE NOTHING BUT INCOME GENERATED IN DEFE NCE CONTRACT IN INDIA RECEIVED OUTSIDE AND BROUGHT INTO INDIA IN THE GARB OF INVESTMENT, INCLUDING THE ASSESSEE COMPANY. IN THIS REGARD, HE PLACED RELIANCE UPON THE ASSESSMENT ORDER. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) AIYUB UMAR JI PATEL VS. ITO (2014) 42 TAXMAN.COM 471(GUJ.); II) CIT VS. DIVINE LEASING & FINANCE LTD. (2008) 299 ITR 268 (DEL.); III) CIT VS. YOUTH CONSTRUCTION PVT. LTD. (2013) 357 ITR 197 (DEL.); IV) CIT VS. P. MOHANA KALA 291 ITR 278 (S.C); & V) DCIT VS. FINLAY CORPN. LTD. 86 ITD 626 (DEL.). 5 . THE LEARNED CIT(DR) ALSO REFERRED CBDT CIRCULAR NO. 5 DATED 20.02.1969. THIS CIRCULAR DEALS WITH CASH CREDITS UNDER SEC. 68 OF THE INCOME - TAX ACT, 1961 IN RELATION TO THE MONEY BROUGHT INTO INDIA BY NON - RESIDENT FOR INVESTMENT OR OTHER PUR POSES. SH E SUBMITTED THAT WHEN THERE IS NO EVIDENCE TO SHOW THAT THE AMOUNT WAS BROUGHT INTO INDIA BY NON - RESIDENT, THE QUESTION OF ASSESSMENT TO TAX ARISES. SHRI SUBMITTED THAT IN THE 16 ASSESSMENT YEAR 2004 - 05, THERE WAS NO AGREEMENT IN EXISTENCE WITH UBSM WHEN THE PAYMENT TO Y2 SPACE PTE. LTD. SINGAPORE WAS MADE. THE LEARNED CIT(DR) SUBMITTED FURTHER THAT UBSM WAS NOT HAVING SUFFICIENT FUNDS TO INVEST. THE CONTENTION OF THE LEARNED AR ON THE OTHER HAND REMAINED THAT THE DOCUMENTS FURNISHED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW ARE SUFFICIENT TO ESTABLISH THE IDENTITY, GENUINENESS AND CREDITWORTHINESS TO JUSTIFY THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITIONS. 6. REITERATING THE COMMON CONTENTIONS AS DISCUSSED HEREINABOVE, THE LEAR NED CIT( DR ) FOR THE APPEAL FOR ASSESSMENT YEAR 2007 - 08, SUBMITTED FURTHER THAT DURING THE YEAR AN AMOUNT OF RS.17,94,15,000 WAS RECEIVED BY THE ASSESSEE FROM UNIVERSAL BUSINESS SOLUTION LTD. MAURITIUS (UBS M ). THE ASSESSEE COMPANY HAS BEEN BRINGING UNACCOUN TED MONEY AFTER CREDITING TO INTER - MEDIATORY INCLUDING UBS M AND THE TRUE SOURCE OF FUNDS HAS NOT BEEN DISCLOSED TO THE INCOME - TAX AUTHORITIES. SINCE THE ASSESSEE COMPANY IS THE ULTIMATE BENEFICIARY OF UNACCOUNTED FUNDS, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITIONS IN QUESTION. 17 7. SINCE THE PARTIES CHOOSE TO ARGUE THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 AS A LEAD YEAR COVERING MORE ISSUES WE HEARD IT FIRST. LEARNED AR SUBMITTED THAT FOLLOWING DOCUMENTS WERE FILED BEFORE THE AUTHORITIES TO ESTABLISH THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE SHARE APPLICANT: - I. NOTARIZED COPY OF CERTIFICATE STAR HOSPITALITY CORPORATION (DT. 26.11.2002) PAGE NO. PB1/ II. NOTARIZED OF CERTIFICATE OF INCORPORATION ON CHANGE OF NAME FROM STAR HOSPITALIT Y CORPORATION TO UNIVERSAL BUSINESS SOLUTIONS LTD. (DT. 14.01.2003) PG NO. 67 - PB1) III. NOTARIZED COPY OF TAX RESIDENCY CERTIFICATE OF STAR HOSPITALITY CORPORATION (DT. 24.01.2003 PAGE NO. 68 PB1); IV. NOTARIZED COPY OF TAX RESIDENCY CERTIFICATE IN RESPECT OF UNIVERSAL BUSINESS SOLUTIONS, MAURITIUS (DT. 27.01.2009) (PG. NO. 69 - PB1); V. NOTARIZED COPY OF CERTIFICATE ISSUED BY BARCLAYS BANK, MAURITIUS CONFIRMING MAINTENANCE OF SATISFACTORY ACCOUNT (DT. 24.06.2008) (PG. NO 70 - PB1); VI. NOTARIZED CERTIFICATE BY ISSUED BY BARCLAYS BANK SHOWING STATEMENT OF FUNDS REMITTED TO CLARIDGES HOTEL PVT. LTD. (DT. 15.09.2009 PG. NO. 71 TO 72 PB1); 18 VII. CERTIFICATE FROM CHARTERED ACCOUNTANT CONFIRMING SHAREHOLDING PATTERN OF UNIVERSAL BUSINESS SOLUTIONS, MRURITIUS. (DT. 12.10.2009 PG NO. 73 TO 74 PB1); VIII. CERTIFICATE FROM CHARTERED ACCOUNTANT CONFIRMING INVESTMENT, LOAN RECEIVABLE IN THE BALANCE SHEET OF UBSL, MAURITIUS. (DT. 04.11.2009 PG NO. 75 TO 77 PB1); IX. AUDITED FINANCIAL STATEMENT FOR YEAR ENDED 31.03.2007 ALONG WITH CERTIFICATE FROM CA CONFIRMING BORROWING (DT.28.10.2009 PG NO. 78 & 79 PB1); X. CERTIFICATES OF FOREIGN INWARD REMITTANCE BY UBSL TO CHPL (PG NO. 80 & 81 PB1); XI. STATEMENT REFLECTING RECEIPT OF SHARE APPLICATION MONEY BY CHPL FROM UBSL (PG NO. 82 PB1); XII. STATEMENT REFLECTING ALLOTM ENT OF SHARE CAPITAL BY CHPL TO UBSL (PG. NO. 83 PB1); XIII. LETTER BY CHPL TO EXCHANGE CONTROL DEPARTMENT, RBI REGARDING RECEIPT OF FOREIGN EXCHANGE OF INR 9,00,55,000 (DT. 23.09.2006) PG. NO. 84 - 94 PB1); XIV. LETTER BY CHPL TO EXCHANGE CONTROL DEPARTMENT, RBI SUBM ITTING THEREWITH REPORT OF RECEIPT OF FOREIGN EXCHANGE OF INR 9,00,55,000 (DT. 10.06.2006) (PG. NO. 95 - 96 PB1); XV. LETTER BY CHPL TO EXCHANGE CONTROL DEPARTMENT, RBI SUBMITTING THEREWITH REPORT OF RECEIPT OF FOREIGN EXCHANGE OF INR 8,93,60,000 (DT. 06.02.2007 ) (PG NO. 97 OF PB1); & 19 XVI. COPY OF RETURN OF ALLOTMENT OF SHARES FILED BY CHPL WITH REGISTRAR (PG. NO. 98 - 101 PB1). 8. LEARNED AR SUBMITTED FURTHER THAT MONEY DOES NOT BELONG TO THE ASSESSEE COMPANY. THE ASSESSING OFFICER CONTEMPLATES THAT UNEXPLAINED INCOM E IS NOT OF THE ASSESSEE AND REFERRED CONTENTS OF PARA NO. 4.3 TO 4.5 AT PAGE NOS. 8 & 9 OF THE ASSESSMENT ORDER. HE POINTED OUT FURTHER THAT IN PARA NO. 4 TO 4. 6 AT PAGE NO. 10 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER CONTRADICTS HIMSELF THAT UNEXPL AINED INCOME IS OF THE ASSESSEE. LEARNED AR SUBMITTED THAT THE ISSUE RAISED IS ALSO COVERED BY THE ORDER DATED 12.4.2013 OF THE ITAT IN ITA NOS. 4932 & ORS./DEL/2011 IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. FOR THE ASSESSMENT YEAR 2007 - 08. IN TH AT CASE, FOLLOWING RATIO HAS BEEN ARRIVED AT: I) CBDT CIRCULAR NO. 5 (F.NO. 73A/2(69) - IT (A - II) DT. 20.2.1969 - MONEY BROUGHT BY NON RESIDENTS FOR INVESTMENTS FOR OTHER PURPOSES IS NOT LIABLE TO INDIAN INCOME - TAX. 20 IF MONEY HAS BEEN BROUGHT INTO I NDIA 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/PB1). II) MONEY RECEIVED THROUGH BANKING CHANNELS : (PARA 11 OF PG 114/PB1) THE MONEYS HAVE COME TO THE A SSESSEE 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 UP TO RS.600 CRORES AND ROC COMPLI ANCE ETC. CLEARLY INDICATES 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. III) CAPITAL RECEIPT : (PARA 11.6 OF PG 116 PB - 1) IT THEREFORE NATURALLY FOLLOWS THAT IF THE IDENTITY OF THE NON - RESIDENT REMITTER IS ESTABLISHED AND THE MONEY HAS COME IN THROUGH BANKING CHANNELS, IT WOULD CONSTITUTE A CAPITA L RECEIPT AND ORDINARILY CANNOT BE TREATED AS DEEMED INCOME UNDER SEC. 21 68 OR 69 OF THE ACT. THIS IS CLARIFIED BY THE CBDT CIRCULAR ITSELF. VI) SECTION 5(2) AND SECTION 68 OF THE ACT : (PARA 11.1 OF PG 114/PB1) AS HELD BY THE ITAT, DELHI IN THE CASE OF FINL AY 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 O F THE ASSESSEE; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE TO ARISE TO HIM INDIA DURING SUCH YEAR. THE DECISION IN THE CASE OF FINLAY CORPORATION LTD. (SUPRA) HAS BEEN FOLLOWED BY THE ITAT, CHENNAI BENCH IN CASE OF SMT. SUSHILA RAMASWAMY [2010] 37 SOT 146 (CHENNAI) PARA 11.2 AT PG NO. 11/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 UTILIZED IN INDIA IS DESCRIBED IN THE ANNEXURE. WE HAVE OBSERVED IN THE ABOVE PARAS THAT BECAUSE OF THE MODE OF BANKING CHANNEL IS 22 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 CIRC ULAR (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. 20 TH FEB. 1969 THE ITAT, DELHI IN THE CASE OF SARASWATI HOLDING CORPN. INC. [2007] 16 SOT 535 (DELHI) (PARA 11.3 AT PG NO. 116/PB1), WHILE EXAMINING ISSUE IN QUESTION IN LIGHT OF CBDT CIRCULAR NO. 5 DT. 2 0 TH FEB. 1969 AND THE DECISION OF FINLAY CORPORATION LTD. (SUPRA) HELD AS UNDER: N 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 .2,83,111,550 CANNOT BE SUSTAINED. WE HAVE ALREADY HELD THAT THE ASSESSEE IS A TAX RESIDENT 23 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 DIRE CT THAT THE ADDITION MADE BE DELETED. GROUND NOS. 2 TO 2.3 RAISED BY THE ASSESSEE ARE ALLOWED . 9. LEARNED AR SUBMITTED THAT FACTS ABOUT THE SOURCE OF SOURCE OF SHARE APPLICATION MONEY IN THE CASE OF ASSESSEE HAS BEEN ESTABLISHED IN THE CASE OF SH. SUR ESH NANDA (SUPRA) DECIDED BY THE ITAT . I N THAT CASE, SOURCES OF INCOME HAVE BEEN ELABORATELY EXPLAINED. THE ITAT IN ITS ORDER IN THAT CASE HAS HELD THAT UBS M IS NOT A BENAMI COMPANY . O N THE BASIS OF DOCUMENTS SUBMITTED , T HE ITAT HELD AS WE DO NOT FIND ANY LOGIC IN THE ASSESSING OFFICER MAKING AN ADDITION OF THIS AMOUNT IN THE NAME OF THE COMPANY I.E. ASSESSEE. THE ITAT HELD FURTHER THAT SHAREHOLDER OF UBS MAURITIUS HAVE FILED LETTERS OF CONFIRMATION AS REGARDS THE OWNERSHIP. 10. LEARNED AR SUBMITTED FU RTHER THAT THE ASSESSING OFFICER HAS DOUBLY TAXED THE SHARE APPLICATION MONEY IN THE HANDS OF SHRI SURESH NANDA AND THE 24 ASSESSEE. H E DREW OUR ATTENTION TOWARDS THE IDENTICAL WORDING IN THE ASSESSMENT ORDER SUMMARIZED IN THE TABLE BELOW: ASSESSMENT ORDER (C LARIDGES HOTEL PVT LTD.) ASSESSMENT ORDER (SURESH NANDA) - PARA 3.1, 3.2, 3.3 (PG 2) PARA 3.2, 3.3 (PG. 208) PARA 3.5 (PG3) PARA 3.4 (PG. 209) PARA 4.1 (PG.4) PARA 8.2 (PG. 222) PARA 4.2 (PG.5) PARA 8.3 (PG.223) PARA 4.3 (PG 8) PARA 8.4 (PG. 226) 11. IN PARA NO. 7.4.5 OF THE ORDER IN THE CASE OF SHRI SURESH NANDA (SUPRA), THE ITAT HAS HELD THAT SHRI SURESH NANDA IS A MAJOR SHAREHOLDER OF INFOTECH SERVICES WHICH IN TURN HOLDS ONLY 20% OF THE SHAREHOLDING OF UBSL, MAURITIUS. THE BALANCE 80% OF THE SH AREHOLDING OF UBS M IS HELD BY THE PARTY WHO ARE NOT RELATED MUCH LESS CONTROLLED BY SHRI SURESH NANDA. HE SUBMITTED THAT THE FOLLOWING CHART OF INVESTMENT HAS BEEN HELD TO BE FACTUALLY CORRECT BY THE ITAT: 25 CLARIDGES HOTELS (P) LTD. A Y: 2007 - 08 CHA RT SHOWING FLAW & SOURCE OF APPLICATION MONEY MR. HUGH HAMILTON (80% SHARE) ORDER OF ITAT FOR SURESH NANDA FOR A/Y 2004 - 05, 2005 - 06 AND 2006 - 07 DT. 21.02.14 (PG. 45 & 46 & PG. 63 TO 68 MR. SURESH NANDA (20% SHARE) ORDER OF ITAT FOR SURESH NANDA A/Y 2004 - 05, 2005 06 AND 2006 - 07 DT. 21.02.14 (PG. 45 & 46 & PG. 63 TO 68) PARANEL FINANCE LTD. (60% SHARE) INFOTECH SERVICES LTD., JERSEY (20% SHARE) MIDEAST CONSORTIUM SA (20% SHARE) UNIVERSAL BUSINESS SOLUTIONS, MAURITIUS (UBS) UBS INVESTED INDIRECTLY INTO CLARID GES THROUGH: UBS INVESTED DIRECTLY IN CLARIDGES HOTELS (P) LTD. PARADIGM HOTELS (P) LTD. SHANTIDEEP HOTELS (P) LTD. SHANTIDEEP FOODS (P) LTD. 26 11. LEARNED AR SUBMITTED THAT THE ASSESSEE CANNOT BE TAXED AS EVEN THE SOURCE OF SOURCE IS EXPLAINED AND ADJUDICATED UPON. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P) LTD. [2008] 216 CTR 195 (S.C) HOLDING THAT IF SHARE APPLICATION MONEY IS RECEIVED BY ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICE R, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW BUT THIS AMOUNT OF SHARE MONEY CANNOT BE REGARDED AS UNDISCLOSED INCOME UNDER SEC. 68 OF THE ACT OF THE ASSESSEE COMPANY. 12. LEARNED AR SUBMITTED FUR THER THAT THE WORD MAY IN SECTION 68 IS EXPLAINED AND IS SQUARELY APPLICABLE TO THE ASSESSEE COMPANY. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SMT. P.K. NOORJAHAN [1999] 155 CTR 509 (S.C) HOLDING THAT IN TRUE PROSPECTIVE WORD MAY USED IN SECTION 69 OF THE ACT CANNOT BE READ AS SHALL . HE SUBMITTED FURTHER THAT PROVISO TO SECTION 68 HAS BEEN INSERTED BY FINANCE ACT, 2012 W.E.F. 01.04.2013. AS PER THIS PROVISO, THE SECTION NOW PROVIDE THAT IN CA SE OF A CLOSELY HELD COMPANY IF THE AMOUNT CREDITED IS BY 27 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 C OMPANY WHICH RECEIVED THE SUM OFFERS EXPLANATION ABOUT THE SOURCE OF MONEY IN THE HANDS OF SUCH SHAREHOLDER (BEING A RESIDENT) OR PERSONS MAKING PAYMENTS TOWARDS ISSUE OF SHARES. 13. LEARNED AR SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER IS PASSED ON CONJECTURES OR SURMISES AND PRESUMPTION THAT THE MONEY IS THE UNDISCLOSED INCOME OF THE ASSESSEE COMPANY. NO EVIDENCE IS AVAILABLE IN THIS REGARD WITH THE DEPARTMENT. IN SUPPORT, HE PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CAS E OF OMAR SALLAY MOHD SAIT VS. CIT (1959) 37 ITR 151 (S.C) HOLDING THAT ON NO ACCOUNT WH ATEVER SHOULD THE ITAT BASE ITS FINDINGS ON SUSPICION, CONJECTURE OR SURMISES NOR SHOULD IT ACT ON NO EVIDENCE AT ALL OR ON IMPROPER REJECTION OF MATERIAL AND RELEVANT EVIDENCE OR P ART LY ON EVIDENCE AND P A R T LY ON SUSPICION , CONJECTURE OR SURMISES OR IF IT DOES ANYTHING OF THIS SORT, ITS FINDINGS EVEN THOUGH ON QUESTION OF FACT WILL BE LIABLE TO BE SET ASIDE. 28 14. REGARDING ADDITION OF RS.86,72,88,128 IN RESPECT OF SHARE APPLICATION PURSUANT TO AMALGAMATION OF P ARADIGM HOTELS PVT. LTD., SHANTIDEEP FUNDS (P) LTD. A ND SHANTIDEEP HOTELS (P) LTD., THE LEARNED AR SUBMITTED THAT IN PURSUANCE OF SCHEME OF AMALGAMATION, THE ASSESSEE COMPANY HAD RECEIVED A TOTAL OF RS.1,67,17,88,12 8 BELONGING TO UNIVERSAL BUSINESS SOLUTION LTD. T HROUGH SHANTI DEEP FUNDS PVT. LTD., SHANTI DEEP HOTELS PVT. LTD. AND PARADIGM HOTELS PVT. LTD., RS.80,45,00,000 OUT OF THIS TOTAL MONEY RECEIVED HAS ALREADY BEEN TAXED IN EARLIER ASSESSMENT YEAR RS.86,72,88 ,128 RECEIVED BY THE ASSESSEE COMPANY IS THE ADDITION MADE IN ASSESSMENT YEAR 2007 - 08. IN RESPECT OF THIS ADDITION, THE ASSESSING OFFICER ALLEGED THAT UNIVERSAL BUSINESS SOLUTION IS A MERE FRONT COMPANY TO CHANNELIZE THE UNACCOUNTED MONEY OF SHRI SURESH NA NDA INTO ASSESSEE COMPANY. IT HAS ALSO BEEN ALLEGED THAT SINCE UNIVERSAL BUSINESS SOLUTION IS THE SOURCE OF THE MONEY THAT HAS COME INTO THE HANDS OF THE ASSESSEE AFTER AMALGAMATION AND, THEREFORE, THE SAME HAS BEEN TREATED AS UNEXPLAINED BY THE ASSESSING OFFICER. HE SUBMITTED THAT FOLLOWING FACTS AND SUBMISSIONS HAVE NOT BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE DEALING WITH THE ADDITION IN QUESTION: (I) INCREASE IN SHARE CAPITAL WAS PURSUANT TO AMALGAMATION ORDER OF HON'BLE DELHI HIGH COURT (PG. 123 TO 157 OF THE P.B) - 29 A) UNIVERSAL BUSINESS SOLUTIONS, MAURITIUS INVESTED IN THE APPELLANT COMPANY BOTH DIRECTLY THROUGH THE FDI ROUTE AS WELL AS THROUGH THREE INDIAN COMPANIES, NAMELY PARADIGM HOTELS PVT. LTD. (PHPL), SHANTIDEEP HOTELS PVT. LTD. (SHPL) AND S HANTIDEEP FOODS PVT. LTD. (SFPL) AS (SFPL) AS SHARE CAPITAL/FOREIGN CURRENCY (FC) LOANS. THE THREE INDIAN COMPANIES WERE LATER AMALGAMATED WITH THE APPELLANT COMPANY THROUGH THE SCHEME DULY APPROVED BY HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 21.6.200 7 (WITH EFFECT FROM 1.8.2006). B) THE LEARNED CIT(APPEALS) DELETED THE ADDITION IN HANDS OF APPELLANT COMPANY CONSIDERING THE FACT THAT ALL SHARE APPLICATION/SUBSCRIPTION ROUTED THROUGH INDIAN COMPANIES WERE VESTED AS EQUITY IN HANDS OF HOLDING COMPANY UBSM V IDE SCHEME OF AMALGAMATION DULY APPROVED BY HON'BLE DELHI HIGH COURT AND ALL SHARE APPLICATIONS AND FC LOANS WERE CONVERTED TO SHARE CAPITAL AND CREDITED TO SHARE CAPITAL ACCOUNT OR SHARE PREMIUM ACCOUNT OF THE APPELLANT. (II) ISSUE IDENTICAL AS THAT OF RUSSIAN TECHNOLOGY CENTRE (P) LTD . THE LEARNED CIT(APPEALS) DELETED THE SAID ADDITION FOLLOWING THE HON BLE ITAT IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (ORDER OF THE HON BLE ITAT AT PG. 102 TO 122/P.B). 30 14.1 THE LEARNED CIT(DR) SUBMITTED IN REJOINDER THAT THE DECISION RELIED UPON BY THE LEARNED AR HAVING DISTINGUISHABLE FACTS ARE NOT HELPFUL TO THE ASSESSEE. 15. NOW, WE HAVE TO EXAMINE AS TO WHETHER THE ASSESSEE HAD BEEN ABLE TO FURNISH P ROOF OF EXISTENCE OF THE INVESTORS, THEIR CREDITWORT HINESS AND GENUINENESS OF THE TRANSACTION, WHICH AN ASSESSEE IS REQUIRED TO ESTABLISH T O GET RID OF THE APPLICATION OF THE PROVISIONS UNDER SECTION 68 OF THE INCOME - TAX ACT, 1961. WE HAVE DISCUSSED THE RELEVANT FACTS ON THE ISSUE HEREINABOVE. IN N U TSHELL, THE ASSESSING OFFICER MADE ADDITION OF RS.17,94,15,000 BEING SHARE APPLICATION MONEY RECEIVED FROM UNIVERSAL BUSINESS SOLUTION ( A COMPANY INCORPORATED IN MAURITIUS IN SHORT UBSM ) AND RS.86,72,88,128 THROUGH THREE INDIAN COMPANIES, NAMELY, PARADIGM HO TELS PVT. LTD. (PHPL), SHANTI DEEP HOTELS PVT. LTD. (SHPL) AND SHANTI DEEP FUNDS PVT. LTD. (SFPL), AS INCOME FROM UNDISCLOSED SOURCES. UBSM HAD INVESTED IN THE ASSESSEE S COMPANY BOTH DIRECTLY AS SHARE CAPITAL THROUGH THE FDI ROUTE, THROUGH THREE INDIAN CO MPANIES, NAMELY, PARADIGM HOTELS PVT. LTD., SHANTI DEEP HOTELS PVT. LTD. AND SHANTI DEEP FUNDS PVT. LTD. AS SHARE CAPITAL/FOREIGN CURRENCY LOANS. THESE THREE INDIAN COMPANIES WERE LATER ON AMALGAMATED WITH THE ASSESSEE COMPANY THROUGH A SCHEME 31 DULY APPROVE D BY THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 21.6.2007 (W.E.F. 01.08.2006). IN LIEU OF THE FOREIGN CURRENCY LOAN, UBSM WAS ALLOTTED FURTHER EQUITY IN THE ASSESSEE S COMPANY. UBSM IS OWNED BY THREE COMPANIES NAMELY, INFOTECH SERVICES LTD. BASED IN C HANNEL 1 LAND HAVING 20% S TA K ES IN THE ASSESSEE S COMPANY AND PARANAL FINANCE & MID EAST CONSORTIUM BASED IN BR ITISH VIRGIN I LAND HAVING 80% STA K ES IN THE ASSESSEE S COMPANY . INFOTECH IS OWNED BY MR. SURESH NANDA WHEREAS PARANAL & MID EAST ARE OWNED BY ONE MR. HAMILTON ANDREWS, A BRITISH NATIONAL. 16. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ABOVE STATED INVESTMENTS ARE NOTHING BUT INCOME GENERATED IN DEFENCE CONTRACTS IN INDIA RECEIVED FROM OUTSIDE AND BROUGHT INTO INDIA IN THE GARB O F INVEST MENT, INCLUDING IN THE ASSESSEE S COMPANY. THE CLAIM OF THE ASSESSEE REMAINED THAT IT HAS DISCHARGED ITS ONUS BY SUBMITTING ALL REQUISITE EVIDENCE AND FURTHER THAT THE REVENUE HAS NO EVIDENCE TO ESTABLISH ITS CLAIM. IN SUPPORT OF THEIR RESPECTIVE CASES , PARTIES HAVE PLACED RELIANCE ON DIFFERENT DECISIONS. ONE OF THE CONTENTIONS OF THE LEARNED CIT(DR) REMAINED THAT UBSM WAS NOT HAVING SUFFICIENT FUNDS TO INVEST AND THE LEARNED CIT(APPEALS) HAS 32 DELETED THE ADDITION WITHOUT EXAMINING THE CREDITWORTHINESS OF UBSM. IN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. P. MOHANA KALA (2007) 291 ITR 278 (S.C) RELIED UPON BY THE LEARNED CIT(DR), IT HAS BEEN HELD THAT THE MONEY CAME BY WAY OF BANK S CHEQUES AND WAS PAID THROUGH THE PROCESS OF BANKING TRAN SACTION WAS NOT BY ITSELF OF ANY CONSEQUENCE. SHE HAS FURTHER PLACED RELIANCE ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF AIYUB UMARJI PATEL VS. ITO (SUPRA) WHEREIN THE ASSESSEE HAD NRE A CC OUNT IN WHICH CERTAIN AMOUNT WAS DEPOSITED. BEFOR E THE ASSESSING OFFICER, THE ASSESSEE STATED THAT THE SAID SUM RECEIVED FROM NRE ACCOUNT OF HIS BROTHER WITHOUT GIVING ANY FURTHER DETAILS OF EITHER SOURCE OR CREDITWORTHINESS THEREOF. HON BLE HIGH COURT UPHELD THE ADDITION MADE BY THE AUTHORITIES BELOW ON THE BASIS THAT EXPLANATION OFFERED BY THE ASSESSEE ABOUT NATURE AND SOURCE OF AMOUNT DEPOSITED IN BANK WAS NOT SATISFACTORY. HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIVINE LEASING & FINANCE LTD. (SUPRA) RELIED UPON BY THE LEARNED CIT(DR) HAS BEEN PL E A S ED TO HOLD THAT THE ASSESSEE MUS T PROVE IDENTITY OF SHAREHOLDER AND CREDITWORTHINESS OF SHAREHOLDER AND GENUINENESS OF THE TRANSACTION . AGAIN IN THE CASE OF CIT VS. YOUTH CONSTRUCTION PVT. LTD. (SUPRA), RELIED UPON BY THE LEARNED CIT(DR), HON'BLE DELH I HIGH COURT HAS BEEN PLEASED TO EXPRESS THE 33 SIMILAR VIEW WITH OBSERVATION THAT FACTUAL ASPECTS, SURROUNDING CIRCUMSTANCES OF THE CASE HAVE TO BE TAKEN INTO CONSIDERATION WHILE DEALING WITH CASE IN A HOLISTIC MANNER DEALING WITH THE ENTIRE EVIDENCE RELIED UPON AND HAVING REGARD TO THE REPORT OF INVESTIGATION WING, THE MANNER IN WHICH ENTRIES WERE MADE IN THE BANK ACCOUNT, THE STATEMENT. THE HON BLE HIGH COURT HAS ALSO DISCUSSED SEVERAL LEADING DECISIONS IN THIS REGARD INCLUDING THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD. (2009) 319 ITR 5 (ST.) (S.C) AND ITS OWN DECISION IN THE CASE OF CIT VS. NOVA PROMOTERS & FINLEASE PVT. LTD. (2012) 342 ITR 169 (DEL.) ETC. LEARNED AR HAS ALSO PLACED RELIANCE ON SEVERAL DECISIONS IN CLUDING THE DECISION OF LOVELY EXPORTS PVT. LTD. (SUPRA), SHRI BARKHA SYNTHETICS LTD. VS. ACIT 283 ITR 377 (RAJ.), CIT VS. DOLPHIN CANPACK LTD. (2006) 283 ITR 190 (DEL.), CIT VS. OASIS HOSPITALITY PVT. LTD. ITA NO. 2093 OF 2010 AND ORS. DATED 31.1.2011 (HO N'BLE DELHI HIGH COURT) ETC. 17. HAVING GONE THROUGH THE ABOVE CI TED DECISIONS BY THE PARTIES, WE COME TO THE CONCLUSION THAT THE RATIO LAID DOWN THEREIN IS THAT IN ORDER TO PROVIDE SATISFACTORY EXPLANATION AS TO THE NATURE AND SOURCE OF A SUM FOUND CR EDITED IN HIS BOOKS, THE INITIAL BURDEN IS ON THE ASSESSEE AND THE ASSESSEE IS 34 REQUIRED TO PROVE (A) IDENTITY OF THE SHAREHOLDER, ( B ) CREDITWORTHINESS OF THE SHAREHOLDER , AND (C) GENUINENESS OF THE TRANSACTION . 18. NOW, WE HAVE TO EXAMINE T HE FACTS OF THE PRESENT CASE AS TO WHETHER IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAD PROVIDED SUCH SATISFACTORY EXPLANATION AS TO THE NATURE AND SOURCE OF THE SUM FOUND CREDITED IN ITS BOOKS TO DISCHARGE ITS INITIAL BURDEN TO ESTABLISH IDENTITY AND C REDITWORTHINESS OF THE SHARE - APPLICANT AND GENUINENESS OF THE TRANSACTION. 19. DURING THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE RECEIVED A SUM OF RS.17,94,15,000 FROM UBSM, A COMPANY REGISTERED IN MAURITIUS. THE REMITTANCES WERE RECEIVED IN THE FOLLOWIN G MANNER: S.NO. DATE FIRC NO. NAME OF BANK AMT. (IN RS.) 1. 12.05.2006 003872 CITI BANK, NEW DELHI. 90,055,000 2. 6.02.2007 179535 CITI BANK, NEW DELHI 89,360,000 3. TOTAL 17,94,15,000 20. TO DISCHARGE ITS INITIAL BURDEN UNDER SEC. 68 OF THE INC OME - TAX ACT, 1961, THE ASSESSEE HAD FILED FOLLOWING DOCUMENTS: 35 1. CERTIFICATE OF INCORPORATION OF STAR HOSPITALITY CORPORATION DATED 26.11.2002 (NAME PRIOR TO CHANGE). 2. CERTIFICATE OF INCORPORATION ON CHANGE OF NAME FROM STAR HOSPITALITY CORPORATION TO UNVIERS AL BUSINESS SOLUTIONS LTD. DATED 14.01.2003. 3. TAX RESIDENCE CERTIFICATE ISSUED TO STAR HOSPITALITY CORPORATION DATED 24.01.2003. 4. TAX RESIDENCE CERTIFICATE ISSUED TO UNIVERSAL BUSINESS SOLUTIONS LTD. DATED 27.01.2009 FOR THE ASSESSMENT YEARS FROM 05.11.2004 TO 04.11.2008. 5. LETTER DATED 24.06.2008 FROM BARCLAY BANK, MAURITIUS CONFIRMING THAT THE UBSL IS MAINTAINIGN SATISFACTORY ACCOUNT. 6. LETTER DATED 15.09.2009 FROM BARCLAY BANK, MAURITIUS SHWOING STATEMENT OF FUNDS AGGREGATING US $ 4,74,50,000 REMITTED TO CLARI DGES HOTEL PVT. LTD. W.E.F. 29.10.2004 TO 09.10.2007 TOWARDS SHARE CAPITAL. 7. CERTIFICATE DATED 12.10.2009 FROM CHARTERED ACCOUNTANTS CONFIRMING THE SHAREHOLIDNG PATTERN OF UNIVERSAL BUSINESS SOLUTIONS LTD. FROM 31.03.2004 TO 31.03.2007. 8. CERTIFICATE DATED 04 .11.2009 FROM CHARTERED ACCOUNTANT CONFIRMING THE INVESTMENTS AND LOAN RECEIVABLES REFLECTED IN THE BALANCE SHEETS OF UNIVERSAL BUSINESS SOLUTIONS LTD. FROM 31.03.2004 TO 31.3.2007. 9. AUDITED BALANCE SHEET AND INCOME STATEMENT AS ON 31.3.2004 TO 31.03.2007 A ND A CERTIFICATE DATED 28.10.2009 FROM CHARTERED ACCOUNTANT ON BORROWINGS REFLECTED IN THE RESPECTIVE BALANCE SHEETS OF UNIVERSAL BUSINESS SOLUTIONS LTD. 36 21. WE FIND FROM THE ABOVE DOCUMENTS THAT THE ASSESSEE HAD FURNISHED PROOF OF EXISTENCE OF THE INVESTO R, PROOF THAT THE MONEY HAVE COME FROM THE INVESTOR AND HAS ALSO PROVIDED FINANCIAL STATEMENT OF THE INVESTORS, DETAILS OF THE INVEST MENTS BY THE INVESTORS. IGNORING THESE EVIDENCES, THE ASSESSING OFFICER ON THE BASIS OF BALANCE SHEET AND PROFIT AND LOSS A CCOUNT OF UBSM HAS FORMED HIS OPINION THAT THE SAID COMPANY DOES NOT HAVE ANY SIGNIFICANT INCOME. HE HELD THAT THE SAID COMPANY HAS BEEN USED AS MERE CONDUIT TO CHANNELIZE THE UNACCOUNTED MONEY OF SHRI SURESH NANDA. HE HELD THAT SINCE THE ASSESSEE COMPANY IS THE ULTIMATE BENEFICIARY OF THESE UNACCOUNTED FUNDS, THESE ARE TREATED AS UNEXPLAINED FUNDS OF THE ASSESSEE. THE ASSESSEE ON THE OTHER HAND HAD FURNISHED DOCUMENTS TO SHOW THAT THE SHAREHOLDERS OF THE ASSESSEE COMPANY WERE UBSM AND THREE INDIAN COMPANIE S, PHPL, HFPL & SHPL. THE SHARES IN THE INDIAN COMPANIES IN TURN WERE HELD BY UBSM. SHAREHOLDERS OF THIS COMPANY WERE INFOTTED SERVICES LTD. CHANNEL I LANDS, MR. SURESH NANDA HOLDING A CONTROLLING STAKE IN THIS COMPANY (PARANAL FINANCE, BVI & MID EAST CONS ORTIUM, BVI ) . THE ASSESSING OFFICER WAS ALSO PROVIDED WITH THE DETAILS SHOWING THAT INFOTECH SERVICES LTD. HAD ONLY A 20% STAKE IN UBS M , 80% BEING HELD BY PARANAL FINANCE & MID EAST CONSORTIUM AND THAT MR. SURESH NANDA HAD NO INTEREST OR SHARES IN THE OTHE R 37 TWO COMPANIES I.E. PARANAL FINANCE AND MID EAST CONSORTIUM. THE ASSESSING OFFICER WAS ALSO INFORMED BY MR. SURESH NANDA THAT MR. HAMILTON ANDREWS, A BRITISH NATIONAL HOLD THE CONTROLLING STAKE IN THE OTHER TWO COMPANIES I.E. PARANAL & MID EAST AND THAT M R. SURESH NANDA DID NOT HOLD ANY STAKE IN THESE COMPANIES. IN SUPPORT, A DULY NOTARIZED AFFIDAVIT OF MR. HAMILTON ANDREWS, GIVING THE DETAILS OF HIS RESIDENTIAL ADDRESS HAS AFFIRMED ON OATH THAT HE CONTROLLED THE TWO COMPANIES I.E. PARANAL & MID EAST AND A LSO PLACED THE SAME BEFORE THE ASSESSING AUTHORITY BY MR. SURESH NANDA IN HIS ASSESSMENT. THE ASSESSING OFFICER HAS NOT COME WITH THIS FINDING THAT ASSESSEE IS NOT A GENUINE COMPANY OR THAT HE DID NOT ACTUALLY MAKE THE PAYMENTS. THERE IS NO DISPUTE THAT TH E APPLICATION MONEY IS NOT INCOME BUT ONLY A CAPITAL RECEIPT. IT IS ALSO NOT E WORTHY TO RECORD HERE THAT THE ASSESSING OFFICER BESIDES MAKING THE ADDITION OF THE IMPUGNED SUM IN THE HANDS OF THE ASSESSEE HAS ALSO MADE A SUBSTANTIAL ADDITION OF THE SAME AMO UNT IN THE HANDS OF MR. SURESH NANDA ON THE BASIS THAT THE SHARE CAPITAL RECEIVED BY THE ASSESSEE FROM UBSM WAS, IN FACT, THE UNDISCLOSED INCO ME OF MR. SURESH NANDA. T HE CONTENTIONS OF THE LEARNED AR IN THIS REGARD REMAINED THAT THE PROVISIONS LAID DOWN IN THE INCOME - TAX ACT, 1961 DOES NOT PERMIT THE INCLUSION OF THE VERY SAME INCOME IN THE HANDS OF THE PRESENT 38 ASSESSEE AND TAXING THE SAME ON AN SUBSTANTIVE BASIS. WE CONCUR WITH THIS CONTENTION OF THE LEARNED AR. THE CONTENTIONS OF THE LEARNED AR ALSO REMAI NED THAT THE FACTS ABOUT THE SOURCE OF SOURCE OF SHARE APPLICATION MONEY IN THE CASE OF ASSESSEE HAS BEEN ESTABLISHED IN THE CASE OF SHRI SURESH NANDA DECIDED BY THE ITAT IN ITA NO. 2236/DEL/2013 & ORS. HAVING GONE THROUGH THIS DECISION, WE FIND THAT THE S OURCE OF INCOME HAVE BEEN ELABORATELY EXPLAINED IN THE CASE OF SHRI SURESH NANDA BEFORE THE ITAT IN THE APPEAL FOR THE ASSESSMENT YEAR 2004 - 05, 2005 - 06 AND 2008 - 09. IN THAT CASE, THE DOCUMENTS FURNISHED ARE RELATING TO EVIDENCE SHOWING THAT MONEY BELONGS T O UBSM AND NOT TO SHRI SURESH NANDA. THE UBSM IS AN INDEPENDENT ENTITY AND IS NOT A COMPANY OF SHRI SURESH NANDA. INCORPORATION CERTIFICATE, MEMORANDUM AND ARTICLES OF UBSM WERE FILED WITH TAX RESIDENCY CERTIFICATE THAT THE UBSM IS A TAX RESIDENT OF MAURIT IUS, SHAREHOLDING OF UBSM, CONFIRMATION BY SHAREHOLDER S OF UBSM. THE ITAT IN THAT CASE VIDE PARA NO. 7.4.4 HA S HELD THAT UBSM IS NOT A BENAMI COMPANY AND IN THE SAME PARAGRAPH IT HAS BEEN HELD THAT THERE IS NO ANY LOGIC IN THE ASSESSING OFFICER MAKING AN A DDITION OF THE AMOUNT IN THE NAME OF CLARIDGES HOTELS PVT. LTD. I.E. THE ASSESSEE. THE ITAT ALSO HOLD THAT SHAREHOLDERS OF UBSM HAVE FILED LETTERS OF CONFIRMATION AS REGARDS THE 39 OWNERSHIP. THE RELEVANT PARA NOS. 7.4.2 TO 7.4.5 OF THE SAID ORDER ARE BEING R EPRODUCED HEREUNDER FOR READY REFERENCE: 7.4.2 APPLYING THE PROPOSITIONS LAID DOWN BY THE HON'BLE HIGH COURT WE UPHOLD THE ORDER OF THE LEARNED CIT(APPEALS) WE HOLD THAT THE ADDITION IN QUESTION IS BAD IN LAW, THE ORDER OF THE TRIBUNAL IS ALSO IN FAVO UR OF THE ASSESSEE. AS IN THE EARLIER ISSUE OF ADDITIONS MADE ON ALLEGED COMMISSION INCOME, HERE ALSO, THE ASSESSING OFFICER MADE ADDITIONS BASED ON CERTAIN DOCUMENTS. THE ASSESSEE HAS MADE DETAILED CONTENTIONS ON THESE DOCUMENTS. WE EXAMINE THESE DOCUMENT S AND THE CONTENTIONS OF BOTH THE PARTIES. 7.4.3 AS IT IS HELD THAT THE ASSESSEE IS A NON - RESIDENT INDIAN, THE BURDEN TO PROVE THAT A PARTICULAR INCOME HAS EITHER ACCRUED OR RECEIVED IN INDIA IS ON THE REVENUE, IF IT CHOOSES TO BRING TO TAX A PARTICULA R RECEIPT AS INCOME. IN CASES WHERE EXEMPTIONS OR DEDUCTIONS ARE CLAIMED FROM TAXABLE INCOME, THEN THE BURDEN OF PROOF IS ON THE ASSESSEE. 7.4.4 IN THIS CASE M/S. CLARIDGES HOTELS PVT. LTD. RECEIVED MONEY FROM ITS HOLDING CO. M/S. UBS OF MAURITIUS. THIS IS NOT A CASE WHERE THE ASSESSEE RECEIVED ANY MONEY. M/S. UBS, MAURITIUS IS NOT A COMPANY CONTROLLED BY THE ASSESSEE AND THERE IS NO MATERIAL WITH THE REVENUE TO PROVE THAT M/S. UBS, MAURITIUS IS A BENAMI COMPANY OF THE ASSESSEE. TAX RECEIPT CERTIFICATE A ND SHARE HOLDING PATTERN OF UBS, MAURITIUS LTD. WERE FILED BY THE ASSESSEE. THE SHAREHOLDERS OF 40 UBS, MAURITIUS HAVE FILED LETTERS OF CONFIRMATION AS REGARDS THE OWNERSHIP. THERE IS NO DOCUMENT OR EVIDENCE WHATSOEVER WITH THE ASSESSING OFFICER, WHICH WOULD CONTRADICT THE EVIDENCE FURNISHED BY THE ASSESSEE. THE CORRESPONDENCE RECEIVED BY THE ASSESSING OFFICER DIRECTLY CONSEQUENT TO EQUITIES, ARE SUPPORTING THE TAX OF THE ANY. UNDER THE CIRCUMSTANCES IT IS WRONG ON THE PART OF THE ASSESSING OFFICER TO IGNORE T HE EVIDENCES AND MAKE A HUGE ADDITION BASED ON SURMISES AND CONJECTURES. WE ARE ALSO INFORMED THAT THE SAME AMOUNT WAS ADDED U/S. 68 IN THE HANDS OF CLARIDGES HOTEL PVT. LTD. AND THE SAME WAS DELETED IN APPEAL. BE IT AS IT MAY WE DO NOT FIND ANY LOGIC IN THE ASSESSING OFFICER MAKING AN ADDITION OF THIS AMOUNT IN THE NAME OF THE COMPANY. 7.4.5 COMING TO DOCUMENTS FOUND DURING THE COURSE OF SEARCH WE EXAMINE THE SAME AND HOLD AS FOLLOWS: - (I) ANNEXURE A 26 SUPPORTS THE CLAIM OF THE ASSESSEE ON THE ISSUE O F SHARE HOLDING AND FURTHER THAT THE ASSESSEE DOES NOT CONTROL UBS LTD. MAURITIUS. (II) ANNEXURE A - 8 AT PAGES 17 TO 34 DOES NOT SUPPORT THE CONCLUSION OF THE ASSESSING OFFICER THAT UBS LTD. MAURITIUS IS CONTROLLED BY THE ASSESSEE. ON THE OTHER HAND IT DE MONSTRATES THAT THE ASSESSEE IS A MAJOR SHAREHOLDER OF INFOTECH SERVICES, WHICH IS TURN HOLDS ONLY 20% OF SHAREHOLDING OF UBS LTD., MAURITIUS. THE BALANCE 80% OF THE SHARE 41 HOLDING OF UBS LTD. IS HOLD BY THE PARTIES WHO ARE NOT RELATED, MUCH LESS CONTROLLED BY THE ASSESSEE. (III) ANNEXURE A 8 ALSO SUPPORTS THE CLAIM OF THE ASSESSEE THAT INFOTECH SERVICES LTD. HOLDS 20% OF UBS LTD. MAURITIUS. THE CLAIM OF THE ASSESSEE THAT THE LETTER IN QUESTION REFERS TO SECOND ROUND OF FINANCIAL REQUIREMENTS OF UBS LTD., MAURITIUS AND THAT INFO SERVICES LTD. WAS REQUIRED TO CONTRIBUTE 20% OF SHARE OF FINANCE OF UBS LTD. MAURITIUS AND THAT THIS WAS MET THROUGH INTERIM DIVIDEND DECLARED BY M/S. UBS TRADING FZC, WHERE THE ASSESSEE IS A MAJORITY SHAREHOLDER IS PROVED BY THIS D OCUMENT. (IV) ANNEXURE A 8 AT PAGE 36 IS A LETTER WRITTEN BY M/S. UBS TRADING FZC DECLARE INTERIM DIVIDEND REFERRED TO ABOVE. THIS LETTER DOES NOT DEMONSTRATE THAT THE ASSESSEE HAS ANY RELATIONSHIP WITH M/S. MID EAST, S.A. ( V) ANNEXURE A 8 PAGE 38, 3 8 TO 71 SUPPORT THE CONTENTIONS OF THE ASSESSEE THAT INFO SERVICES LTD. PROVIDE FUNDS TO UBS LTD., MAURITIUS. (VI) ANNEXURE A 8 PAGE 13 ALSO CORROBORATES THE CLAIM OF THE ASSESSEE REGARDING FUNDING OF M/S. UBS MAURITIUS. THERE IS NO CONTROVERSY ON THE IN TERPRETATION OF THIS; DOCUMENT BETWEEN THE 42 ASSESSING OFFICER AND THE ASSESSEE. SIMILAR IS THE INTERPRETATION OF ANNEXURE A 8 PAGES 70 TO 75. (VII) ANNEXURE A 22 PAGES 67 TO 70 DOES NOT DEMONSTRATE THAT THE ASSESSEE HAS ACQUIRED OR THAT THE ASSESSEE HAD IN VESTED FURTHER IN M/S. PARAMEL FINANCE . MERELY BECAUSE THE FINANCIAL STATEMENTS INCLUDING BALANCE SHEET OF PARAMEL FINANCE IS SENT TO THE ASSESSEE, IT DOES NOT FOLLOW THAT THE ASSESSEE HAD PURCHASED THOSE COMPANY THAT TOO WITHOUT ANY FURTHER EVIDENCE. (V III) SIMILARLY ANNEXURE A 26 PAGES 11 TO 13 ONLY CORROBORATE THE VERSION OF THE ASSESSEE THAT HE INVESTED IN UBS, MAURITIUS THROUGH INFOTECH SERVICES LTD. AND THAT THE STALE IS ONY 20% AND THAT 80% SHARES OF UBS, MAURITIUS IS OWNED BY MR. HAMITTON AND RUS E THROUGH M/S. PARAMAL FINANCE AND MITES COMPANY. IN OUR VIEW THE STATEMENT GIVEN BY THE ASSESSEE TO THE DIT INVESTIGATION, NEW DELHI ON 8.3.2007 ( A COPY OF WHICH HAS LETTER BEEN FURNISHED TO THE ASSESSEE), DOES NOT BETTER THE CASE OF THE REVENUE, AS TH E ASSESSEE HAS CLAIMED THAT HIS INTEREST IN M/S. CLARIDGES HOTELS P. LTD. IS ONLY BY WAY OF INVESTMENTS MADE THROUGH M/S. UBS, MAURITIUS, IN WHICH COMPANY HE HAS ONLY 20% STAKE. SIMPLY BECAUSE THE ASSESSEE IS THE CHAIRMAN OF M/S. CLARIDGES HOTELS PVT. LTD. AND BECAUSE HIS SON WAS MANAGING DIRECTOR OF THE COMPANY, IT DOES NOT SUPPORT THE ADDITION IN QUESTION, AS ADMITTEDLY THE INVESTMENT IN THE HOTEL IS MADE 43 BY M/S. UBS LTD., MAURITIUS IN WHILE THE COMPANY WHICH THE ASSESSEE CONTROLS IT IS A MINORITY SHAREHO LDER. THE ASSESSEE HAS DEMONSTRATED THAT HE CONTROLS ONLY 20% STAKE HOLDER IN M/S. UBS LTD., MAURITIUS. THE A.O. HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO DEMONSTRATE THAT THE FUNDS INVESTED IN M/S. CLARIDGES HOTELS PVT. LTD. BY M/S. UBS LTD., MAURITIUS, H AS ACTUALLY BEEN INVESTED FROM UNACCOUNTED INCOME OF THE ASSESSEE. THE DIVIDEND EARNED BY THE ASSESSEE FROM THE COMPANY CONTROLLED BY HIM I.E. M/S. UBS TRADING FZC WAS INVESTED IN M/S. UBS LTD. MAURITIUS, THROUGH INFOTECH SERVICES LTD. IN VIEW OF THIS FAC TUAL MATRIX, WE UPHOLD THE ORDER OF THE LEARNED CIT(APPEALS). HENCE WE DO NOT GO INTO THE LEGAL SUBMISSIONS MADE BY THE ASSESSEE THAT WHOEVER ALLEGES FRAUD, HAS TO PROVE IT; (B) THE BURDEN OF PROOF LIES ON THE PERSON ALLEGING BENAMI TRANSACTIONS; (C) THAT THE ASSESSEE HAS DISCHARGED THE BURDEN OF PROOF THAT LIE ON IT; (D) THAT SOURCES OF SOURCE NEED NOT BE ESTABLISHED . 22. WE NOTE FROM THE ABOVE REPRODUCED PARAGRAPH NO. 7.4.5 OF THE DECISION IN THE CASE OF SHRI SURESH NANDA THAT THE ITAT HAS HELD THA T SHRI SURESH NANDA IS THE MAJOR SHAREHOLDER OF INFOTECH SERVICES, WHICH, IN TURN, HOLDS ONLY 20% OF THE SHAREHOLDING OF UBS M. THE BALANCE 8 0 % OF THE 44 SHAREHOLDING OF UBSM IS HELD BY THE PARTIES WHO ARE NOT RELATED, MUCH LESS, CONTROLLED BY SHRI SURESH NAND A. 23. WE ALSO FIND THAT AN IDENTICAL ISSUE UNDER ALMOST SIMILAR HEADS HAS BEEN DECIDED BY THE ITAT IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (SUPRA). IN THAT CASE, RUSSIAN TECHNOLOGY CENTRE PVT. LTD. WAS SUBSIDIARY OF RUSSIAN TECHNOLOGY CENTRE H OLDING LTD. (RTCHL) IN TORTOLA BVI. THE SHARES OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (INDIAN COMPANY) WERE BEING HELD BY THE HOLDING COMPANY RTCHL AND PROTEX TRADING CO. LTD., SEYCHELLES. DURING THE YEAR UNDER APPEAL, VARIOUS AMOUNTS WERE RECEIVED BY THE INDIAN COMPANY FROM ITS HOLDING COMPANY AND PTCL TOWARDS SHARE CAPITAL. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION AND WAS OF THE VIEW THAT THE SHARE CAPITAL PROVIDED BY THE ASSESSEE COMPANY WAS NOT GENUINE AND THE AMOUNT WAS CHANNELIZE D BY INDIAN COMPANY I.E. RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (RTCHL) THROUGH TAX HEAVEN. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS NOT ESTABLISHED THE FINANCIAL CAPACITY AND CREDITWORTHINESS OF THE SHAREHOLDERS. LEARNED CIT(APPEALS) UPHELD THE ADDITIO N MADE BY THE ASSESSING OFFICER CONCLUDING THAT CREDITWORTHINESS OR THE FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER AND 45 THE BANK SERVICES ARE NOT SUFFICIENT TO ESTABLISH SOURCE. THE TRIBUNAL DELETED THE ADDITION. 24. ALMOST SIMILAR ARE THE FACTS OF THE CASE OF PRESENT ASSESSEE BEFORE US. IN THE PRESENT CASE, MONEYS WERE RECEIVED THROUGH REGULAR BANKING CHANNELS , F ROM UBSM, WHO WAS THE HOLDING COMPANY OF THE ASSESSEE. BEING THE HOLDING COMPANY, THE INCLUSION OF THE SHARES IN EARLIER YEARS WAS PROVED, ESTA BLISHED AND ACCEPTED BY THE REVENUE AUTHORITIES. DURING THE YEAR, THE ASSESSEE RECEIVED FURTHER SUMS TOWARDS ALLOTMENT OF SHARES AND THE ASSESSEE HAS FILED VARIOUS DOCUMENTS IN EVIDENCE TO ESTABLISH THE IDENTITY (ALREADY ACCEPTED ), CREDITWORTHINESS AND GE NUINENESS OF THE TRANSACTION. THE ASSESSING OFFICER MADE THE ADDITION UNDER SEC. 68 OF THE INCOME - TAX ACT, 1961 , W ITH THIS FURTHER OBSERVATION THAT MR. SURESH NANDA HAS USED THE MAURITIUS ROUTE TO BRING HIS UNACCOUNTED MONEY INTO THE INDIAN COMPANIES TO A VOID DISCLOSURE. THE ADDITIONS MADE IN THE HANDS OF THE ASSESSEE COMPANY UNDER SEC. 68 OF THE ACT WERE ALSO INCLUDED AS THE INCOME OF SHRI SURESH NANDA. CONSEQUENTLY, THE SAME AMOUNT WAS TREATED AS SUBSTANTIVE INCOME OF TWO ASSESSEES. THE ITAT IN THE CASE OF SHRI SURESH NANDA (SUPRA) HAS HELD THAT SOURCES OF INCOME WERE ELABORATELY EXPLAINED IN THE CASE OF SHRI SURESH NANDA. THE APPEALS WERE RELATED TO THE ASSESSMENT YEARS 2004 - 46 05, 2005 - 06 AND 2008 - 09. THE ITAT ALSO HELD THEREIN THAT UBSM IS NOT A BENAMI CO MPANY ON THE BASIS OF DOCUMENTS SUBMITTED. IT FURTHER HELD THAT THERE IS NO LOGIC IN THE ASSESSING OFFICER S MAKING AN ADDITION OF THE AMOUNT IN THE BALANCE SHEET OF CLARIDGES HOTELS PVT. LTD. I.E. THE PRESENT ASSESSEE. THE ITAT ALSO HELD THAT THE SHAREHOL DERS OF UBSM HAVE FILED LETTERS OF CONFIRMATION AS REGARDS THE OWNERSHIP. WE HAVE REPRODUCED RELEVANT EXTRACTS OF THIS ORDER OF THE ITAT IN PREVIOUS PARAGRAPHS. 25. THE ITAT IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (SUPRA) HAS HELD THAT THE A VAILABILITY OF BALANCE SHEET, CERTIFICATE OF INCORPORATION, CONFIRMATIONS AND CERTIFICATE OF GOOD STANDING ETC. FILED BY THE ASSESSEE IN RESPECT OF SHAREHOLDER ESTABLISH THAT THEY ARE NON - RESIDENT ENTITY HAVING INDEPENDENT AND LEGAL EXISTENCE. THE MONEY HA VE COME TO ASSESSEE THROUGH BANKING CHANNEL AS IS EVIDENT FROM FIRC, WHICH ALSO MENTIONS THE PURPOSE OF REMITTANCE AND ALSO THE PARTICULARS OF REMITTING BANK. FIPB APPROVAL THAT TOO WITH A LIBERTY TO COLLECT SHARE CAPITAL UP TO RS. 600 CRORES AND ROC COMPL IANCE, ETC., CLEARLY INDICATES THE STAND OF THE ASSESSEE. THE ITAT THUS CAME TO THE CONCLUSION THAT THE PLETHORA OF THE EVIDENCE FILED BY THE ASSESSEE AMOUNTS TO DISCHARGE OF PRIMARY BURDEN CASTS ON THE ASSESSEE IN TERMS OF 47 SECTION 68 OF THE ACT FOR IDENTI TY AND CREDITWORTHINESS OF THE CREDITORS AND GENUINENESS OF TRANSACTION. 26. ON THE SECOND ISSUE REGARDING APPLICABILITY OF SECTION 68 OF THE ACT, THE RECEIPT OF MONEY TOWARDS SHARE CAPITAL FROM NON - RESIDENT WAS DISCUSSED BY THE ITAT IN PARAGRAPH NO. 11. 4, 11.5 AND 11.6 OF THE ORDER IN THE CASE OF RUSSIAN TECHNOLOGY PVT. LTD. REPRODUCED HEREUNDER: 11.4 THE PROVISO OF SECTION 68 THOUGH INSERTED W.E.F. 1.4.2013 ALSO REVEALS LEGISLATIVE INTENT THAT IF THE SHARE HOLDER IS A NON - RESIDENT AND THE MONEY IS BY WAY OF REMITTANCE FROM HIS ACCOUNT, THE RIGOUR OF SECTION 68 WOULD NOT BE APPLICABLE. 11.5 WE FIND MERIT IN THE CONTENTIONS OF LD. COUNSEL AND RELIANCE ON THE DECISIONS OF THE ITAT IN THE CASES OF FINLAY CORPORATION, SMT. SUSHILA RAMASWAMY AND SARASWAT I HOLDING (SUPRA) AND THE IMPORT OF CBDT CIRCULAR REFERRED TO ABOVE. WHENEVER REMITTANCES ARE MADE BY THE NON - RES I D ENT HOLDING COMPANY FOR PURCHASE OF SHARES OF ITS SUBSIDIARY IN INDIA, THE MONEY UNDOUBTEDLY IS CAPITAL IN THE NATURE AND IF DOCUMENTS LIKE F IRC ETC. ARE PRODUCED, IT CAN SAFELY BE STATED THAT THE SAID MONEY CAME IN THROUGH BANKING CHANNELS. 11.6 IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT THE MONEY REMITTED BY THE NON - RESID E N T ACCRUED IN INDIA, IT CANNOT BE HELD TO BE TAXABLE IN INDIA. HENCE , MONEYS REMITTED BY NON - RESIDENTS WHOSE IDENTIFY IS NOT 48 IN QUESTION THROUGH THEIR BANK ACCOUNTS OUTSIDE INDIA HAVE TO BE HELD AS CAPITAL RECEIPTS NOT EXIGIBLE TO TAX. IT THEREFORE NATURALLY FOLLOWS THAT IF THE IDENTIFY OF THE NON - RESIDENT REMITTER IS ESTA B L ISHED AND THE MONEY HAS COME IN THROUGH BANKING CHANNE L, IT WOULD CONSTITUTE A CAPITAL RECEIPT AND ORDINARILY CANNOT BE TREATED AS DEEMED INCOME UNDER SEC. 68 OR 69 OF THE ACT. THIS IS CLARIFIED BY THE CBDT CIRCULAR ITSELF. 27. IN THE SAID DECISION OF THE ITAT IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD., THE THIRD ISSUE WAS REGARDING APPLICABILITY OF SECTION 68 TO RECEIPT OF MONEY TOWARDS SHARE CAPITAL FROM NON - RESIDENT. THE ITAT HAS DISCUSSED THIS ISSUE IN PARAGRAPH NO. 13 OF THE ORDER WHICH IS BEING REPRODUCED HEREUNDER: N OUR CONSIDERED OPINION, THE CONFLICT BETWEEN THE PROVISIONS IS ONLY WITH REFERENCE TO THE ONUS AND NOT TO THE ISSUE OF TAXABILITY OF INCOME. THE ONUS IS SHIFTED UNDER SS.68 OR 69 ONLY WITH REFERENCE TO THE INCOME WHICH IS OTHERWISE TAXABLE IN THE HANDS OF NON - RESIDENT UNDER SEC. 5(2). THEREFORE, THE ISSUE WHETHER THE INCOME OF NON - RESIDENT IS TAX A BLE OR NOTI CE STILL TO BE DECIDED WITH REFERENCE TO THE PROVISIONS OF S. 5(2) AND, THE PROVISIONS OF S.68 OR 69 CANNOT ENLARGE TH E SCOPE OF S. 5(2). WHAT IS NOT TAXABLE UNDER S. 5(2) CANNOT BE TAXED UNDER THE PROVISIONS OF S. 68 OR S. 69. UNDER S. 5(2), THE INCOME ACCRUING OR ARISING OUTSIDE INDIA IS NOT TAXABLE UNLESS IT IS RECEIVED IN INDIA. SIMILARLY, IF ANY INCOME IS ALREADY REC EIVED OUTSIDE INDIA, THE SAME 49 CANNOT BE TAXED IN INDIA MERELY ON THE GROUND THAT IT IS BROUGHT IN INDIA BY WAY OF REMITTANCES. FOR EXAMPLE, THERE MAY BE APPEARING AN ENTRY OF CASH CREDIT IN THE NAME OF A PERSON OF USA BY WAY OF LOAN RECEIVED THROUGH CHE QUE AND DEPOSITED IN THE BAN K ACCOUNT MAINTAINED AT ANY CIT Y N USA. SUCH MONEY, BEING RECEIVED OUTSIDE INDIA, CANN O T BE TAXED UNDER S. 5(2) UNLESS IT IS PROVED THAT SUCH MONEY IS RELATABLE TO THE INCOME ACCRUED OR ARISING IN INDIA. THEREFORE, THE SAME CANNOT BE TAXED UNDER S. 68 MERELY ON THE GROUND THAT ASSESSEE FAILS TO PROVE THE GENUINENESS AND SOURCE OF SUCH CASH CREDIT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT PROVISIONS OF S. 68 OR 69 WOULD BE APPLICABLE IN THE CASE OF NON - RESIDENT ONY WITH REFERENC E TO THOSE AMOUNTS WHOSE ORIGIN OF SOURCE CAN BE LOCATED IN INDIA. THEREFORE, THE PROVISIONS OF S. 68 OR 69, IN OUR OPINION, HAVE LIMITED APPLICATION IN THE CASE OF NON - RESIDENT. 28. IN THE PRESENT CASE, AN ADDITION OF RS.86,72,88,128 HAS ALSO BEEN MADE U NDER SEC. 68 OF THE ACT BY THE ASSESSING OFFICER. THE RELEVANT FACTS RELATING TO THIS ADDITION ARE THAT DURING THE YEAR SHANTI DEEP FUNDS PVT. LTD., SHANTI DEEP HOTELS PVT. LTD. AND PARADIGM HOTELS PVT. LTD. (TRAVELLOR S CO.) HAVE AMALGAMATED INTO THE ASSE SSEE PURSUANT TO THE APPROVAL OF THE SCHEME OF AMALGAMATION BY THE HON'BLE DELHI HIGH COURT EFFECTIVE FROM 01.08.2006 IN TERMS OF THEIR ORDER DATED 21.06.2007 (EFFECTIVE FROM 01.08.2006) . AS PER THE FOLLOWING TERMS AND CONDITIONS OF THE SCHEME APPROVED BY THE HON BLE 50 HIGH COURT, SHARES OF THE ASSESSEE COMPANY WERE TO BE ALLOTTED TO THE MEMBERS OF THE TRANSFEROR COMPANY: A) ONE FUL L Y PA I D U P EQ UI TY S H A R E OF R S 1 0 / - EAC H OF T H E ASSESSEE FOR EVER Y 1 85 E QUI TY S H A R ES OF R S 1 0 / - EAC H H E L D I N PARAD I G M HOTE L S PVT . LT D. B) O N E F ULL Y P A ID UP E QUIT Y S H A R E OF R S 1 0 / - EAC H OF TH E ASSESSEE FO R EVERY 1 84 E QUIT Y S H ARES OF R S 1 0 / - E ACH H E LD IN S H A NTI DEE P H OTE L S PVT . L TD. C) O N E F ULL Y P A ID UP E QUIT Y S H A R E OF R S 1 0 / - EACH OF TH E ' ASSESSEE FOR EVER Y 1 8 5 E QUIT Y S H A R ES OF R S 1 0 / - EAC H H E L D IN SHA N TIDEEP FOO D S PVT . L T D . IN P U R S U A N CE OF TH E S~ I D SC H E M E , TH E TRANSFE R E R COMPANIES TRANSFERR E D FO R E I G N C URR E N CY L OA N S AGG R EGAT IN G T O R S 1 65,94 , 0 7 , 353 A N D S H ARE A PPLICATI O N M O N EY AGG R EGA TIN G T O R S 1 , 1 8 , 38 , 405 TO T H E ASSESSEE AN . . . 1 PUR S U A NT T O TH E SC H E M E IT WAS AG R EE D TO CONVERT TH E SA I D FOREIG N C U RRE N CY L OA N S A ND S H A R E APPL ICA TI O N M O N EY INT O THE EQU I TY S H ARES OF RS 1 0 / - EACH AT A PR E MIUM OF R S. 77 3. 7 5 / - P E R S H A R E T H E DETA IL S OF T H E EQUIT Y SHA R ES TO B E A LL O T TE D PUR S U A NT T O TH E O RD ER OF TH E HO N ' B L E H I GH CO U RT ARE AS FOL L OWS: (A) ALL O TM E NT OF E QUI TY S H A R ES A T A PR E MIU M TO UBSL AS THE SHAREHO L DER OR PHP L, SHP L & SF P L IN R ES P EC T OF FO R E I GN C U RRE N CY LOANS FROM UBSL TO PHPL , SH P L & S F P L AGG R EG ATIN G R S . 1 65 , 94 , 0 7 , 3 5 3 / - R ECE I VE D BY TH EM I N VA RI O US Y E A R S. - I S . PA R TIC U LARS NO. OF FACE VA L UE P R EMIUM SH A R E CAPIT A L S H ARES - - I . LOAN G IVEN B Y 12 , 34, 123 , 4 6 ,070 95,52 , 77 , 1 9 6 , 76.2 3 .23 TO PAR A DI G M HOTEL P VT LTD. . - .. 2. LOA N G I VEN BY 6,65,018 6,65,0180 5 1 , 45,57,6 52,1 2,07.86 T O S H A N TIDEE P P V T LTD. - , LOAN G I VEN BY 2 .1 7,642 2 1 ,76 . 4 20 16,34 , 00 . 4 1 7 .0 5 . 76 . 9 1 '. TO SHANTIDEEP F O OD S PVT LTD. TOT A L 1 65 , 94 , 07 . 35 51 ( B ) A LL O TM E NT OF E QUIT Y S H A R ES AT A PR E MIUM TO UBSL AS T H E S H A R E H OLDE R OF PHP L, SHPL & S F P L , IN R ES P E CT OF S H A R E APP LI CA T IO N MO N E Y: R S. 1,18,38,405/ - F R O M U B SL T O PHPL , S HPL A ND SF P L IN VARIOUS YEARS. S . N O . PARTICUL A R S NO . OF FACE PREMIUM SHARE SHA R E S VALUE I . UBSL G IVEN AMOUNT TO 5,866 58 ,6 6 0 1 - 45 , 38 , 8 2 1 1 - 45 . 97 , 481 / - FO R SHA R E APP LI CAT I O N 2. UBSL G I VEN A M O U N T T O 3,375 33,750 1 - 26, 1 1 , 409 26,45.15 9 / - FO R S H A R E APP LI CAT I O N 3. UBSL G I VEN AMOU N T TO 5,866 58, 6 60 1 - 45 , 38,821 45.97 , 48 FO R SHA R E APPLICATION - - TOTAL : 1 , 51 .07 0 1 - 1.16 , 89. 0 51 / - 1 . 18 . 40. 1 2 1 1 - - -- ( C ) ISS U E OF S H A R ES TO U B SL IN LI E U OF T H E IR S H ARE H O LDIN G OF PHPL , SHPL & SF P L IN TH E EXC H A N GE R A TI O A PPRO VE D B Y TH E H ON'BLE HI GH CO UR T I .E. 4 , 237 S H A R ES OF TH E F A C E V ALU E O F R S. 10 / - E ACH OF C L A RID GES HOTEL P V T . L T D. WERE I SS U E D. T H AT TH E A D DIT I O N O F T H E IMPU G N E D A M O UN T , MADE B Y IN VOKING THE REASONS OR SE C T I O N 68 OF TH E IN CO M E T A X AC T , EVEN T H OUGH NO AMOUNTS HAVE BEEN RECE I VE D DURIN G T H E YEA R B Y TH E ASSESSEE. T H E S H ARE CAP I TA L HAS BEEN EX P A ND E D B Y V IRTU E OF TH E O RD E R OF TH E H O N 'BLE H I G H CO UR T OF DE L H I A N D I N S UCH CIRCUMST A NC E S TH E R E W AS NO CAU SE OR RE A SO N TO IN VO K E PR OV I S I O N S OF S ECTION 68 AND HA VE MADE TH E IMPU G N E D A DDITI O N. T H E LD. AO A T P A R A 7.5 , PA G E 16 OF HI S ORD E R S TAT ES ' M / S U B S L I S A M E R E FRONT COMPAN Y T O CHANN E LI ZE THE UN A CC O UN TE D M O N EY O F SH . S UR ES H N A ND A IN TO TH E ASSESSEE C O MPAN Y. SINC E M / S U NI VERSAL BU S IN ESS S O LUTI O N I S T H E S OURC E OF TH E M O N EY TH A T HA S C O M E INT O T H E H A ND S OF TH E ASSESSEE AFTE R A MAL G AM A TI O N IT I S AL SO TR E AT E D AS UN EX PL A IN ED. T H E F L OAT IN G OF VA RI O U S 52 E NTITI ES A ND F IN A LL Y A M A L GA MATIN G THEM I S A M E R E FACA D E T O HID E T H E ID E N T IT Y OF TH E TRU E IN VES T O R . A P A RT OF THI S MONE Y H AS A LR EA D Y B EEN T AXED I N EA RLI ER YEA R S A ND TH E R E M A INING A MOUNT OF RS.86,72,88,128/ - IS T R EATED A S UN EX PLAIN E D IN C URR E NT F IN A NCI A L Y E AR . ' T H E LEA RN E D A. O. A T P A RA 7. 2 H AS CO M PUT E D A TO T A L A M O U NT O F R S .167 , 17 , 88 , 1 2 8 / - AND A F T E R R E DUCIN G TH E R E F R O M TH E S UM OF R S. 80 , 45 , 00 , 000 1 - ACTUALL Y RECEIV E D B Y C L A RID GES F ROM P H P L, SFPL & SHPL O UT O F TH E FUND S R E C E IV E D B Y TH E M FR O M UBSL A ND T AXE D IN VA RI OU S ASSESS M E NT Y EA R S H AS N OW SO U G HT T O T AX TH E B A L A NC E IN THI S YEA R . I T I< : ; R E L EVA NT T O S T A T E TH A T , 111 FAC T A N AGGREGATE . S UM O R R S .177 , 0 9, 5 0 , 757 / - WAS R E C E I VE D F R O M UBSL B Y P H P L , SFPL & SHPL DURING THE A . Y . ' S 2 004 - 0 5 TO 2006 - 07 WHI C H H AVE B EE N T AXE D O N S UB S T A N TIVE B AS I S IN THE H A ND S O F MR . SUR ES H NAND A, W HICH INT E R - A LI A I N C LUD E THE A F O R ES AID S UM OF R S. 8 0 , 45 , 00 , 000 1 - A S WE LL AS TH E S UM O F R S . 86 , 7 2 , 8 8 , 128 / - . SO U G HT T O B E T AXE D IN THI S YEA R . T H E INC O M E TAX AC T DO ES NOT P E RMIT IN C LUDI NG T H E SA M E IN CO M E I N T H E H A N D S O F T WO ASSESSEE'S A ND T AX IN G TH E SA M E O N S U B S TAN TI VE BAS I S . T HI S AC TI O N OF T H E A . O. I S W H O LL Y ILL EGA L , M A L AF ID E A ND F O R TH IS REASO N A L O N E T H E A DDIT ION IN T HE 1AND S OF TH E CO MP A N Y I S N O T S U S T A IN A BL E. ' 29. DISCUSSING ALL THE RELEVANT FACTS AND SUBMISSIONS OF THE PARTIES IN DETAIL, LEARNED CIT(APPEALS) HAS DELETED THE ADDITION OF RS.1,04,67,03,128 (RS.17,94,15,000 + RS.86,72,88,128 ) MADE BY THE ASSESSING OFFICER UNDER SEC. 68 OF THE INCOME - TAX ACT, 1961 VIDE PARA NO. 4.5 OF THE FIRST APPELLATE ORDER REPRODUCED HEREUNDER: 4.5 TO BRIEFLY RECAPITULATE, THE FACTS ARE THAT ON THE ONE HAND WE HAVE INVESTMENTS BY VARIOUS ENTITIES BASED IN MAURITIUS, CHANNEL 53 ISLAND, BRITISH VIRGIN ISLANDS, ETC., INTO PROPERTIES AND BUSINESSES IN INDIA. ON THE OTHER HAND, WE HAVE THE REVENUE AND OTHER AUTHORITIES INVESTIGATING SUSPECTED ROLE OF SH. SURESH NANDA AND HIS ASSOCIATES/CONCERNS IN DEFENCE DEALS IN INDIA. THERE IS EVIDENCE OF LINK BETWEEN SH. SURESH NANDA AND HIS ASSOCIATES TO THE INVESTMENTS MADE IN INDIA AND INDIAN COMPANIES. THAT IS N EITHER DENIED NOR DISPUTED HOWEVER, IN MY CONSIDERED OPINION THERE IS NO EVIDENCE YET TO LINK THE INVESTMENTS AND THE ALLEGED KICK - BACKS IN THE DEFENCE DEALS IN INDIA. I HAVE ALREADY HELD, IN SEVERAL GROUP/CONNECTED CASES (SH. SURESH NANDA, DR. MV RAO ETC. ) THAT THE ENQUIRIES WITH MAURITIUS AND OTHER FOREIGN JURISDICTIONS NEED TO BE PURSUED. FRESH ENQUIRIES ALSO NEED TO BE MADE WITH SINGAPORE, CHANNEL ISLANDS, BVI, ETC., WHEREVER NECESSARY, TO ESTABLISH THE LINK, IF ANY. AS AND WHEN SUCH LINK IS ESTABLISHE D, THE INCOME CAN BE TAXED AS INCOME ACCRUING/ARISING IN INDIA. ELSE, IT CANNOT BE TAXED. HON'BLE SUPREME COURT OF INDIA, IN UNION OF INDIA VS. KAMLAKSHI FINANCE CORPORATION LTD. AIR 1992 S.C 711 AND KHALID AUTOMOBILES VS. UNION OF INDIA [4 SCC (SUPPL.) 65 3] HAS LAID DOWN THAT THE DOCTRINE OF BINDING PRECEDENTS IS EQUALLY APPLICABLE TO TRIBUNAL ORDERS AS TRIBUNAL IS A HIGHER AUTHORITY IN SO FAR AS ASSESSING OFFICER AND LEARNED CIT(APPEALS) ARE CONCERNED IN THE JUDICIAL HIERARCHY. IN THE AFORESAID JUDGMENT T HEIR LORDSHIPS HAVE OBSERVED THAT THE ORDER OF APPELLATE COLLECTOR IS BINDING ON ASSISTANT COLLECTORS WORKING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDING UPON ASSISTANT COLLECTOR/APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTIO N OF THE TRIBUNAL. THE PRINCIPLES OF 54 JUDICIAL DISCIPLINE REQUIRE THAT THE ORDER OF THE HIGHER APPELLATE AUTHORITIES BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE SUBORDINATE AUTHORITI ES. IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEES AND CHAOS IN ADMINISTRATION OF TAX LAWS. UNDISPUTEDLY, IN THE CASE OF THE APPELLANT COMPANY, THE INVESTMENT IN ITS SHARE CAPITAL IS THE DESTINATION OF THE FUND S AND NOT ITS SOURCE AND CANNOT BE TAXED AS SUCH. THE INCOME IS TO BE TAXED AT SOURCE AND IN THE HANDS WHERE IT ARISES OR ACCRUES. THEREFORE, AND ALSO FOLLOWING THE DECISIONS OF HON BLE ITAT IN THE CASE OF RUSSIAN TECHNOLOGY CENTRE PVT. LTD. (SUPRA), THE A DDITIONS CANNOT BE SUSTAINED AND ARE DELETED. APPELLANT GETS RELIEF OF RS.104,67,03,128. 30. WE THUS FIND THAT THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THE IDENTITY, CREDITWORTHINESS OF THE SHARE APPLICANTS AN D THE GENUINENESS OF THE TRANSACTION BY FURNI SHING 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 LEARN ED CIT(APPEALS) IN THE ABOVE CONCLUDING PARA NO. 4.5 OF THE FIRST APPELLATE ORDER HAVE ALSO NOT BEEN RE BUT TED BY THE REVENUE WITH SATISFACTORY EXPLANATION TO THAT. THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPREHENSIVE AND REASONED ONE TO WHICH 55 WE DO NOT FIND REASONS TO INTERFERE WITH. THE SAME IS UPHELD. THE GROUND NO. 2 IS ACCORDINGLY REJECTED. 30.1 LIKEWISE IN THE ASSESSMENT YEAR 2004 - 05 BESIDES THE ADDITION OF RS.7,05,00,000 MADE UNDER SEC. 68 ON ACCOUNT OF UNEXPLAINED SHARE APPLICATION MONEY, THE A SSESSING OFFICER ALSO MADE ADDITION OF RS.69,26,313 BEING PAYMENT MADE BY UBSM HOLDING COMPANY OF THE ASSESSEE AS INCOME FROM UNDISCLOSED SOURCES. THE LEARNED CIT(APPEALS) DISCUSSING THE EVIDENCE FILED BY THE ASSESSEE EXPLAINING THE SOURCE HAS HELD VIDE PA RA NO. 6.2 OF THE ORDER THAT THE EXPENDITURE MADE BY UBSM ON BEHALF OF THE ASSESSEE COMPANY, CANNOT BE TREATED AS UNEXPLAINED EXPENDITURE OF THE ASSESSEE UNDER SEC. 69C OF THE ACT. THE EXPLANATION OF THE ASSESSEE ABOUT THE SOURCE HAS BEEN DISCUSSED IN PARA NO. 6.1 OF THE FIRST APPELLATE ORDER, WHICH HAS NOT BEEN SUCCESSFULLY REBUTTED BY THE REVENUE, WE THUS DO NOT FIND REASON TO INTERFERE THEREWITH. THE SAME IS UPHELD. 30. 2 SINCE FACTS ON THE ISSUE ARE SIMILAR (EXCEPT THE QUANTUM OF THE AMOUNT INVOLVED ) IN THE REMAINING ASSESSMENT YEARS, WE FOLLOWING THE ABOVE FINDINGS UPHOLD THE ACTION OF THE LEARNED CIT(APPEALS) ON THIS ISSUE, BY 56 WHICH HE HAS DELETED THE ADDITION MADE UNDER SEC. 68 OF THE INCOME - TAX ACT, 1961 ON ACCOUNT OF UNDISCLOSED CASH CREDIT . THE RELATED GROUND NOS. 2 & 3 FOR ASSESSMENT YEAR 2004 - 05, GROUND NO.2 FOR ASSESSMENT YEAR 2005 - 06, 2006 - 07, 2007 - 08 AND 2009 - 10 OF THE APPEAL PREFERRED BY THE REVENUE ARE THUS REJECTED. 31. GROUND AND OBJECTION RELATING TO DISALLOWANCE MADE UNDER SEC.14A : THE ASSESSING OFFICER MADE DISALLOWANCE S UNDER SEC. 14A OF THE INCOME - TAX ACT, 1961 READ WITH RULE 8D AS EXPENDITURE RELATING TO EXEMPT DIVIDEND INCOME IN THE ASSESSMENT YEAR S 2005 - 06 TO 2007 - 08 , 2008 - 09 AND 2009 - 10. THE SAME WAS QUESTIONED BEFORE THE LEA RNED CIT(APPEALS). THE CONTE N TIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER REMAINED THAT THE DISALLOWANCE UNDER SEC. 14A HAS BEEN COMPUTED ON THE BASIS OF RULE 8D OF INCOME - TAX RULES, 1962 IGNORING THIS FACT THAT THERE WAS NO EXPENDITURE INCURRED NOR WAS THERE ANY NEXUS BE T WEEN ANY ITEM OF EXPENDITURE INCURRED BY THE ASSESSEE AND THE DIVIDEND EARNED BY IT. AS PER THE PROVISIONS UNDER SEC. 14A OF THE ACT AS IT IS ORIGINALLY STOOD BY FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 01.04.1962, IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. 57 SUBSEQUENTLY, THE PROVISO WAS ADDED BY THE FINANCE ACT, 200 2 WITH RETROSPECTIVE EFFECT FROM 11.5.2001. IT PROVIDES THAT THIS SECTION SHALL NOT EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REEDUCTION OF THE REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE 01.04.2001. IT WAS SUBMITTED THAT SUB - SECTION S (2) & (3) WERE INSERTED IN THE SAID SECTION BY FINANCE ACT 2006 W.E.F. 01.04.2007. SUB - SECTION (2) EMPOWERS THE ASSESSING OFFICER TO DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED. SUCH POWER IS TO BE EXERCISED IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE MENTIONED IN SUB - SECTION (1). SUB - SECTION (3) PROVIDES THAT PROVIS I ONS OF SUB - SECTION (2) SHALL ALSO APPLY WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO INCOME NOT FORMING PART OF TOTAL INCOME. BY VIRTUE OF THE POWERS CONFERRED UNDER SUB - SECTION (2), RULE 8D WAS INSERTED BY GAZETTEE NOTIFICATION DATED 24.03.2008 WHICH PRESCRIBES THE METHOD FOR COMPUTING THE EXPENDITURE IN RELATION TO THE IN COME NOT FORMING PART OF TOTAL INCOME. SEVERAL DECISIONS 58 WERE CITED IN SUPPORT. BEING CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE, LEARNED CIT(APPEALS) HAS ALLOWED THE RELIEF. 32. IN SUPPORT OF THE GROUNDS, LEARNED DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. 33. LEARNED AR O N THE OTHER HAND SUPPORTED THE FIRST APPELLATE ORDER ON THE ISSUE AND REJOINED WITH THE SUBMISSIONS THAT RULE 8D HAS NO APPLICATION IN THE OTHER ASSESSMENT YEARS EXCEPT ASSESSMENT YEAR 2008 - 09 AND 2009 - 10, WHEN THE O PERATION OF THE SAID RULE CAME IN EFFECT. LEARNED AR PLACED RELIANCE ON THE FOLLOWING DECISIONS: A) CIT VS. SHIVAM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 (HON BLE ALLAHABAD HIGH COURT) DATED 22.11.2013. B) CIT VS. CORRTECH ENGERGY PVT. LTD. (2014) 223 TAXMANN 13 0 (GUJ.); C) CIT VS. M/S. LAKHANI MARKETING IN ITA NO. 970 OF 2008 (HON BLE PUNJAB & HARYANA HIGH COURT); D) MAXOPP INVESTMENT LTD. VS. CIT 247 CTR 162 (DEL.); E) IACT VS. BAREILLY CORPORATION BANK 27 ITD 1 (DEL.); & F) CIT VS. SMT. GODAWARI SARRAF 113 ITR 589 (BOM.). 33.1 LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAS MISPLACED RELIANCE ON THE DECISION OF ACIT VS. CHEN INVEST LTD. REPORTED IN 317 ITR 8. IN THE SAID CASE, THE ITAT HAS OBSERVED THAT THE DISALLOWANCE UNDER SEC. 59 14A CAN BE MADE EVEN IF THERE IS N O EXEMPT INCOME GENERATED FROM THAT INVESTMENT. THE FACTS OF THE CASE OF THE ASSESSEE ARE NOT IDENTICAL TO THE FACTS IN THE CASE OF CIT VS. CENT INVEST (SUPRA). IN THAT CASE, THE ASSESSEE HAD ADMITTEDLY INVESTED BORROWED FUNDS FOR THE PURCHASE OF SHARES H ELD AS INVESTMENT. IN SUCH A CASE, EXPENSES INCURRED ON BORROWINGS THE SAID FUNDS WERE HELD TO BE DISALLOWED UNDER SEC. 14A. IN THE PRESENT CASE, THE ASSESSEE I.E. CLARIDGES HOTELS PVT. LTD. HAD NOT MADE ANY INVESTMENT OUT OF THE BORROWED FUNDS BUT OUT OF THE RESERVE AND SURPLUS I.E. OWN FUND. LEARNED AR SUBMITTED TH AT THE DISALLOWANCE CANNOT EXCEED EXEMPT INCOME AND IN SUPPORT PLACED RELIANCE ON THE DECISION OF TRIBUNAL, DELHI BENCH IN THE CASE OF SAHARA INDIA FINANCIAL CORPORATION LTD. VS. DCIT 41 TAXMAN. COM 251 (DEL.). HE SUBMITTED THAT IF MECHANICAL AP PLICATION OF RULE 8D L EADS TO UNANTICIPATED ABSURD RECEIPTS, THIS CANNOT BE REGARDED AS INTENTION OF LEGISLATURE AND THUS DISALLOWANCES IS TO BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME. HE SUBMITTED FURTH ER THAT CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING U P ON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTION OF THE CLAIM O F THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE LEARNED AR ALSO REFERRED CIRCULAR NO. 60 14/2006 OF CBDT DATED 28.12.2006. HE SUBMITTED FURTHER THAT THE INVESTMENT BY THE ASSESSEE COMPANY WERE MADE WITH THE INTENTION OF ACQUIRING CONTROLLING INTEREST IN TH E ENTITIES NAMELY, GODAVARI SHILPEDA LTD. AND GODAVARI CORPORATION SERVICES LTD. BY ASSESSEE COMPANY. THE LEARNED AR REFERRED PAGE NO. 26, P.B.I IN SUPPORT. HE ALSO PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE ITAT IN THE CASE OF GASWARE WALL RO PES LTD. (2014) 46 TAXMAN.COM 18. HE SUBMITTED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS IN SHARES FROM ITS OWN FUNDS AND REFERRED FOLLOWING CHART IN SUPPORT: PARTICULARS A.Y. 2005 - 06 A.Y. 2006 - 07 A.Y. 2007 - 08 A.Y. 2008 - 09 A.Y. 2009 - 10 EXEMPT INC OME RECEIVED 602,958 130,567 DISALLOWANCE MADE BY APPLYING RULE 8D 3,517,809 50,672,028 92,697,023 43,736,365 97,427,932 NATURE OF INVESTMENTS *WITH SCHEDULED BANKS RS.2,55,98,659 *CONTROLLING INTEREST RS.135,06,29,310 CONTROLLING INTEREST CONTROL LING INTEREST CONTROLLING INTEREST CONTROLLING INTEREST 61 DETAILS OF INTEREST BEARING AND NON INTEREST BEARING FUNDS (AMOUNT IN) : PARTICULARS A.Y. 2005 - 06 A.Y. 2006 - 07 A.Y. 2007 - 08 A.Y. 2008 - 09 A.Y. 2009 - 10 NON INTEREST BEARING FUNDS SHARE CAPITAL - - 8,049,810 30,430,000 30,547,000 SHARE CAPITAL PENDING ALLOTMENT - - 1,671,788,128 - - SHARE APPLICATION MONEY - - 89,365,100 - - RESERVE & SURPLUS - - 11,837,701,367 13,493,313,000 13,531,970,000 TOTAL - - 13,606,904,405 13,523,743,000 1 3,562,517,000 1360.69 CR. 1352.37 CR 1356.25 CR. INTEREST BEARING FUNDS LOAN FUNDS - - 965,291,350 913,666,000 511,699,000 TOTAL 965,291,350 913,666,000 511,699,000 96.53 CR. 91.37 CR. 51.17 CR. REMARKS P G 20 OF P.B. PG 9 OF P.B. PG 73 OF P.B. INVESTMENT MADE 1,376,227,969 2,822,992,989 8,404,099,020 8,279,984,000 8,293,983,000 137.62 CR 282.30 CR 840.41 CR. 827.99 CR. 829.39 CR. REMARKS PG. 23 OF P.B. PG. 18 OF P.B. PG. 26 OF P.B. PG. 15 OF P.B. PG. 79 OF P.B. 62 34. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAD MADE FOLLOWING DISALLOWANCE S ON ACCOUNT OF EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME INVOKING THE PROVISIONS OF SEC. 14A OF THE ACT. A/Y APPLICABILITY OF RULE 8D AMOUNT (RS.) 2005 - 06 NA 35,17,809 2006 - 07 NA 5,08,02,595 2007 - 08 NA 9,26,97,023 2008 - 09 YES 4,37,36,365 2009 - 10 YES 9,74,27,932 35. THERE IS NO DISPUTE AS IT IS NOW A SETTLED POSITION OF LAW THAT THE PROVIS IONS LAID DOWN UNDER RULE 8D OF THE INCOME - TAX RULES, 1962 ARE APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09, WHICH HAS NOW BEEN UPHELD BY THE JURISDICTIONAL HON BLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA). THE SUBMISSIONS OF THE LEARNED AR ON THE ISSUE REGARDING THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 , REMAINED THAT IN THESE YEARS, THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME HENCE IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE . THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SHIVAM MOTORS PVT. LTD. (SUPRA) RELIED UPON BY THE LEARNED AR 63 HAS HELD THAT IN ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOW ANCE. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY PVT. LTD. (SUPRA) AND CIT VS. M/S. LAKHANI MARKETING (SUPRA). RECENTLY, WE HAVE OCCASION TO GO THROUGH THE DECISION DATED 05.09.2014 OF THE JUR ISDICTIONAL HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA P. LTD. ITA NO. 486/2014 & 299/2014 WHEREIN SIMILAR VIEW HAS BEEN EXPRESSED. THE RELEVANT PARA NO. 14 THEREOF IS BEING REPRODUCED: ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COU LD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HON'BLE HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPEL LANT - REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT, FARIDABAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SA ME COURT IN CIT VS. HERO CYCLES LTD., [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LTD., [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION 64 IS OF THE GUJARAT HIGH COURT IN CIT - I VS. CORRTECH ENERGY (P) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, CIT (II) KANPUR VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR T HE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN A FFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752 MADE BY THE ASSESSING OFFICER WAS IN ORDER. 3 6 IN THE ASSESSMENT YEAR 2008 - 09, THE ASSESSING OFFICER NOTED THAT T HE ASSESSEE HAD INVESTMENT IN SUBSIDIARY COMPANIES AND HOLDING THAT SECTION 65 14A CAN BE APPLIED FOR DISALLOWANCE, EVEN IF THERE IS NO EXEMPT INCOME , H E MADE DISALLOWANCE OF RS.4,37,36,365. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE ALSO RAISED AN ALTERNA TIVE PLEA THAT SHARE APPLICATION MONEY CANNOT CONSTITUTE INVESTMENT TILL SHARES ARE ALLOTTED. THE LEARNED CIT(APPEALS) SET ASIDE THE MATTER TO THE ASSESSING OFFICER TO CONSIDER WHETHER THE AMOUNT OF RS. 9 CRORES SHARE APPLICATION MONEY SHOULD BE EXCLUDED FROM INVESTMENT AND IF SO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D. WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE IGNORED THIS UNDISPUTED MATERIAL FACT THAT DUR I NG THE ASSESSMENT YEAR THERE WAS NO EXEMPT INCOME, THUS AS PER THE ABOVE CITED DECISIONS, THERE WAS NO QUEST I ON OF M A K ING ANY DISALLOWANCE OF EXPENDITURE UNDER SEC. 14A READ WITH RULE 8D. WE THUS WHILE SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE IN QUESTION. IN THE RESULT , O BJECTION NOS. 2 & 3 OF THE CROSS - OBJECTION OF THE ASSESSEE FOR THE YEAR ARE ALLOWED. SIMILAR ARE THE FACTS ON THE ISSUE IN THE ASSESSMENT YEAR 2009 - 10 AND THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.9,74,27,932 UNDER SEC. 14A READ WITH RULE 8D. THE LEARN ED CIT(APPEALS) HAS NOTED AS NO DOUBT HE HAS NO EXEMPT INCOME THAT FORMS PART OF TOTAL INCOME DURING THE PREVIOUS YEAR. HOWEVER, IT IS ALSO UNDISPUTED THAT THE APPELLANT HAS INVESTED RS.829,38 CRORES IN THE SHARES OF 66 GROUP COMPANIES, WHICH HAVE THE POTENT IAL TO GENERATE EXEMPT INCOME IN FUTURE ON THE INVESTMENT MADE. THE LEARNED CIT(APPEALS) , THERE A F TER , JUSTIFIED THE ACTION OF THE ASSESSING OFFICER IN APPLYING THE DECISION IN THE CASE OF ACIT VS. CHEMINVEST LTD. (SUPRA). THE LEARNED CIT(APPEALS) HAS, H OWEVER, RESTRICTED THE DISALLOWANCE TO RS.4,28,70,537 TAKING INTO ACCOUNT THE PROPOSITION OF INDIRECT EXPENDITURE AT RS.16,60,619. SINCE IN THIS YEAR ALSO, THERE IS NO EXEMPT INCOME, WE FOLLOWING THE ABOVE DECISION HOLD THAT NO DISALLOWANCE IN QUESTION WAS JUSTIFIED. THE GROUND NO.2 OF THE APPEAL OF THE DEPARTMENT IS THUS REJECTED AND OBJECTION NOS. 2 TO 2.2 OF CROSS OBJECTION ARE ALLOWED. IN THE ASSESSMENT YEAR 2007 - 08, LEARNED CIT(APPEALS) FOLLOWING ITS DECISION IN EARLIER YEAR I.E. OTHER THAN ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 THAT THE AMOUNT OF EXPENDITURE DISALLOWED WOULD HAVE TO BE RESTRICTED TO THE EXEMPT INCOME HAS DELETED THE DISALLOWANCE OF RS.9,26,97,023 MADE UNDER SEC. 14A OF THE INCOME - TAX ACT, 1961 , W ITH THIS FINDING THAT THERE IS NO DIVIDE ND INCOME IN THE ASSESSMENT YEAR 2007 - 08. IN ABSENCE OF REBUTTAL OF THIS FACT, WE ARE NOT INCLINED TO INTERFERE WITH THE ACTION OF LEARNED CIT(APPEALS). THE SAME IS UPHELD. GROUND NO. 3 (REVENUE) IS ACCORDINGLY REJECTED. IN THE ASSESSMENT YEAR 2004 - 05, LE ARNED CIT(APPEALS) HAS RESTRICTED THE DISALLOWANCE OF EXPENDITURE TO THE EXEMPT 67 INCOME. IN THE RESULT, HE HAS GIVEN RELIEF OF RS.35,17,809 OUT OF THE DISALLOWANCE OF RS.41,20,767 MADE BY THE ASSESSING OFFICER. IN THAT YEAR, THE ASSESSING OFFICER HAD DISA LLOWED RS.35,17,809 AS NET OF DIVIDEND OF RS.6,02,958 ALREADY DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME AND THE REMAINING DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF CHEMINEEST & ORS. AND HOLDING THAT RULE 8D WAS APPLICABLE. IT IS NOT REBUTTED THAT THE DIVIDEND INCOME DURING THE YEAR WAS ONLY RS.6,02,958, HENCE WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. GROUND NO. 3 (REVENUE) IS THUS REJECTED. LIKEWISE IN THE ASSESSMENT YEAR 2005 - 06, THE LEARNED CIT(APPEALS) HAS RESTRICTED THE DISALLOWANCE UPTO THE EXEMPT INCOME I.E. RS.1,30,567 ONLY. THE GROUND NO.3 (REVENUE) IN THIS REGARD IS ACCORDINGLY REJECTED. 3 7. BESIDES, THE REVENUE IN ITS APPEAL FOR THE ASSES SMENT YEAR 2001 - 02 HAS QUESTIONED THE FIRST APPELLATE ORDER, WHEREBY THE LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE OF RS.32,35,315 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBT WRITTEN OFF IN THE BOOKS OF ACCOUNT CLAIMED AS DEDUCTION UNDER S EC. 36(1)(VI) OF THE ACT. 68 38. THE LEARNED DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER IN THIS REGARD WITH THIS CONTENTION THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT NONE OF THE ACCOUNT OF DEBTOR PRODUCED BY THE ASSESSEE HAD ENTRY SHOW ING THAT THE DEBT HAS BEEN WRITTEN OFF. 39. THE LEARNED AR ON THE CONTRARY TRIED TO JUSTIFY THE FIRST APPELLATE ORDER WHILE REITERATING SUBMISSIONS MADE BEFORE HIM AND THE ASSESSING OFFICER AS WELL AS PLACING RELIANCE ON THE DECISIONS CITED BEFORE HIM. 40. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS CITED, WE FIND THAT NOW IT IS A SETTLED POSITION OF THE LAW THAT AFTER AMENDMENT IN SECTION 36(1)(VII) OF THE ACT W.E.F. 01.04.1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBT, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT, HAS BECOME IRRECOVERABLE, IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. SINCE THE ASSESSING OFFICER HAS NOT DENIED THIS MATE RIAL FACT THAT THE BAD DEBT IN QUESTION HAS BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY ALLOWED IN CLAIM ED DEDUCTION. THE SAME IS UPHELD AND THE GROUND IS ACCORDINGLY REJECTED. 69 41. IN OBJ ECTION NO.6 OF THE CROSS - OBJECTION FOR THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HAS QUESTIONED DISALLOWANCE OF DEPRECIATION OF RS.1,30,963 CLAIMED ON HEALTH EQUIPMENT INSTALLED AT THE RESIDENCE OF THE MANAGING DIRECTOR OF THE ASSESSEE HOTEL. 42. HEARD A ND CONSIDERED THE A RGUMENTS ADVANCED BY THE PARTIES. 43. THE AUTHORITIES BELOW HAVE DISALLOWED AND SUSTAINED THE DISALLOWANCE ON THE BASIS THAT THE EQUIPMENTS FOR PHYSICAL FITNESS FITTED AT THE RESIDENCE OF THE MD WAS FOR PERSONAL USE AND NOT FOR THE BUSI NESS PURPOSES OF THE ASSESSEE. CONTENTION OF THE LEARNED AR REMAINED THAT IT WAS PURCHASED TO KEEP AT MD S RESIDENCE AS PER THE CORPORATE POLICY THAT ALL ITS EXECUTIVES SHOULD UNDERGO PHYSICAL REGIMEN TO ENABLE THEM TO PERFORM MORE EFFICIENTLY IN THE HOTEL INDUSTRY. UNDER THESE FACTS, WE FIND IT FIT TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE FACT AS TO WHE THER THE PROVIDED FACILITY WAS PART OF THE PERQUISITE AND DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES. 70 44. THE ASSESSEE HAS ALSO QUESTIONED FIRST APPELLATE ORDER ON THE ISSUE OF VALIDITY OF PROCEEDINGS UNDER SEC. 153A AND/OR 143(2) BUT THE SAME HAS NOT BEEN PRESSED , THE RELATED GROUND OF THE APPEALS PREFERRED BY THE ASSESSEE ON THE ISSUE IS THUS REJECTED AS WITHDRAWN. THE ONLY GROUND PRESSED BY THE ASSESSEE IN THEIR CROSS - OBJECTIONS ARE RELATING TO THE DISALLOWANCE OF CONSULTANCY FEE PAID TO UBSM IN THE ASSESSMENT YEAR 2005 - 06 FOR RS.11,8 1,997, IN ASSESSMENT YEAR 2006 - 07 FOR RS.47,58,902 AND IN ASSESSMENT YEAR 2007 - 08 FOR RS.9,11,582 SUSTAINED BY THE LEARNED CIT(APPEALS). THE RELEVANT FACTS ARE THAT IN THE ASSESSMENT YEAR 2005 - 06, THE ASSESSING OFFICER MADE ADDITION OF RS.11,85,997 BY DISA LLOWING THE SAID AMOUNT CLAIMED BY THE ASSESSEE AS PAYMENT OF RETAINERSHIP FOR BUSINESS DEVELOPMENT AND MARKETING SERVICES TO UBSM. THE ASSESSING OFFICER NOTED FROM THE PROFIT AND LOSS ACCOUNT OF UBSM THAT THEY HAD INCURRED DESIGN COST OF US $71,747. THE A SSESSING OFFICER HELD THAT THIS AMOUNT IS MUCH MORE THAN THE AMOUNT REIMBURSED BY THE ASSESSEE COMPANY, HENCE, THE ASSESSEE COMPANY CANNOT TAKE PLEA THAT THE ABOVE DESIGN COST PERTAINED TO CONSULTANCY AGREEMENT CARRIED OUT BY UBSL. THE ASSESSING OFFICER OB SERVED THAT UBSM IS A MERE INVESTMENT COMPANY AND IT DOES NOT HAVE THE 71 WHEREWITHAL TO PROVIDE TECHNICAL CONSULTANCY OF ANY FORM TO THE ASSESSEE COMPANY. HE NOTED FURTHER THAT NO DETAILS OF THE SERVICES PROVIDED OR THE MATERIAL PURCHASED ON BEHALF OF THE AS SESSEE WERE MADE AVAILABLE, HENCE, THE TRUE NATURE OF THESE CONSULTANCY SERVICES HAS BEEN REVENUE IN NATURE CANNOT BE DETERMINED. LEARNED CIT(APPEALS) HAS UPHELD THIS ACTION OF THE ASSESSING OFFICER, WHICH HAS BEEN QUESTIONED BY THE ASSESSEE BEFORE US. SIM ILARLY, IN THE ASSESSMENT YEAR 2006 - 07 RS.47,58,902 AND IN ASSESSMENT YEAR 2007 - 08 RS.9,11,582 HAS BEEN SUSTAINED ON THIS ACCOUNT. 45. IN SUPPORT OF THE ABOVE GROUND, LEARNED AR SUBMITTED THAT THE AMOUNT IN QUESTION WAS BEING PAID AS CONSULTANCY FEE TO UBSM BY THE ASSESSEE AS PER THE AGREEMENT DETAILS FOR ASSESSMENT YEAR 2003 - 04 EFFECTIVE FROM JANUARY 2005 ENTERED INTO BETWEEN THE ASSESSEE AND UBSM. PURSUANT TO THIS AGREEMENT, UBSM WAS TO RENDER DESIGNING SERVICES TO THE ASSESSEE IN CONSIDERATION OF WHIC H THE ASSESSEE WAS TO PAY THE AGREED FEE. UBSM IN ORDER TO EFFECTIVELY RENDERED CONSULTANCY SERVICES HAS ENGAGED FOR CONSULTANCY FOR WHICH PAYMENT WAS MADE BY THEM. IN SUPPORT, THE ASSESSEE HAD FILED PROFIT AND LOSS ACCOUNT OF THE SAID UBSM, WHICH INTER AL IA, REFLECTED THE AFORESAID INCOME. IT WAS POINTED OUT THAT THE SAID UBSM HAD IN 72 FACT SUFFERED A LOSS AS THE EXPENDITURE INCURRED IN THE RELEVANT YEAR WAS THE MORE THAN INCOME, THUS, EVEN IN TERMS OF SEC. 40A(2B), THE SAID PAYMENT BEING BONA FIDE, THE GENU INE AND FOR THE SERVICES RENDERED SHOULD HAVE NOT BEEN DISALLOWED. THE LEARNED AR SUBMITTED T HAT THE PARENTS COMPANY HAD PAID FEE ON BEHALF OF THE ASSESSEE. THE AUTHORITIES BELOW HAVE NOT DENIED THE EXISTENCE OF THE AGREEMENT ON THE BASIS OF WHICH THE AGR EED AMOUNT WAS PAID AS FEE. UBSM HAD ALSO INCURRED EXPENSES AND TDS WING OF THE DEPARTMENT HAD GIVEN CERTIFICATE VIDE WHICH TDS WAS TO BE DEDUCTED. THERE IS NO DIVERSION OF FUNDS. THE LEARNED AR POINTED OUT FURTHER THAT IN THE ASSESSMENT YEAR 2004 - 05, IT W AS ALLOWED BY THE LEARNED CIT(APPEALS). 46. LEARNED CIT( DR ) ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. FOR THE ASSESSMENT YEAR 2004 - 05, THE LEARNED CIT( DR ) SUBMITTED THAT IN THE ASSESSMENT YEAR 2004 - 05, THE DISALLOWANCE HAS BEEN DELETED BY THE LEARNED CIT(APPEALS) IGNORING THIS FACT THAT NO GRIEVANCE WAS THERE. 47. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE LEARNED CIT(APPEALS) IN THE ASSESSMENT YEAR 2005 - 06 HAS SUSTAINED THE ADDITION , 73 W ITH THIS NOTING THAT IN THE ASSESSMENT YEAR 2004 - 05, THE REVENUE HAD ADDED EXPENDITURE OF RS.69,26,313 BEING PAYMENT MADE VIDE AN AGREEMENT BETWEEN UBSM AND Y2 SPACE PTE. LTD., SINGAPORE FOR PASSING FEE ETC. RELATING TO RENOVATION OF THE ASSESSEE HOTEL. THE ASSESSEE IS GROSS IMPORTER OF INDIA AND SERVICES OF UBSM, ITS HOLDING COMPANY. LEARNED CIT(APPEALS) OBSERVED THAT WHEN THE HOLDING COMPANY WAS PAYING FOR RENOVATION MADE IN THE ASSESSEE COMPANY, THE RE WAS NO COMMERCIAL EXPEDIENCY OR REASON FOR THE ASSESSEE TO ENTER INTO AN AGREEMEN T WITH ITS HOLDING COMPA NY TO PAY FOR CERTAIN SERVICES AS IT WAS SIMULTANEOUSLY RECEIVING SUBSTANTIAL MORE CAPITAL/SERVICES BY WAY OF RENOVATION/CONSULTANCY FREE OF ANY COST FROM THE SAME HOLDING COMPANY. LEARNED CIT(APPEALS) OBSERVED THAT THE AGREEMENT BE TWEEN THE ASSESSEE AND UBSM, VIDE WHICH THE IMPUGNED PAYMENTS WERE MADE WAS PROVIDING UNDERSTANDING BETWEEN TWO CLOSELY LINKED ENTITIES AND WAS ALSO ABRUPTLY TERMINATED. THE LEARNED CIT(APPEALS) HELD FURTHER THAT AS THE EXPENDITURE WAS NOT BASED ON COMMERC IAL EXPEDIENCY, IT WAS RIGHTLY DISALLOWED. WHILE SUSTAINING THE DISALLOWANCE, THE LEARNED CIT(APPEALS) HAS NOTED THAT IN THE ASSESSMENT YEAR 2004 - 05, AN ADDITION OF RS.69,26,313 MADE ON ACCOUNT OF UNEXPLAINED EXPENDITURE HAS ALREADY BEEN DELETED. THE REVEN UE HAS QUESTIONED THE DELETION OF DISALLOWANCE OF RS.69,26,313 BY THE 74 LEARNED CIT(APPEALS) IN ITS APPEAL FOR ASSESSMENT YEAR 2004 - 05 BUT AFTER DISCUSSING THE FACTS OF THE CASE, THE ITAT IN THE PRECEDING PARAGRAPHS HAS UPHELD THE ACTION OF THE LEARNED CIT(A PPEALS). UNDER THE ABOVE BACKGROUND, WE FULLY CONCUR WITH THE ACTION OF THE LEARNED CIT(APPEALS) IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 200 5 - 0 6 . IN THE ASSESSMENT YEARS 200 6 - 0 7 AND 200 7 - 0 8 , THE LEARNED CIT(APPEA LS) HAS NOTED FURTHER THAT THE AGREEMENT BETWEEN THE ASSESSEE VIDE WHICH THESE PAYMENTS WERE MADE TO UBSM WAS TERMINATED IN JUNE 2006. THUS, AFTER TERMINATION OF THE AGREEMENT, THE PAYMENT CANNOT BE HELD TO BE FOR THE STATED PURPOSE. WE, THUS DO NOT FIND A NY REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE RELATED OBJECTION NO.5 OF THE CROSS - OBJECTION FOR THESE YEARS IS REJECTED. 48. IN THE ASSESSMENT YEAR 2006 - 07, THE DISALLOWANCE OF RS.12,97,394 ON ACCOUNT OF RE PAIR AND MAINTENANCE EXPENSES MADE AND SUSTAINED BY THE AUTHORITIES BELOW HAS BEEN QUESTIONED BY THE ASSESSEE VIDE OBJECTION NO. 4 OF THE CROSS - OBJECTION . 49. THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE IN PARA NOS. 9 TO 9.2 AT PAGE NOS. 13 & 14 OF T HE ASSESSMENT ORDER, AS PER WHICH THE BILL OF EXPENSES 75 INDICATES THAT THE CLAIMED EXPENSES WERE NOT I N THE FORM OF REPAIR AND MAINTENANCE . THE ASSESSING OFFICER OBSERVED THAT THESE EXPENSES WERE IN THE FORM OF SUBSTANTIAL ADDITION TO THE EXCEEDING FIXED AS SETS OF THE COMPANY. IN OTHER WORDS, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENSES CLAIMED WERE CAPITAL IN NATURE AND CANNOT BE ALLOWED AS AN EXPENDITURE TO THE PROFITS AND LOSS ACCOUNT. LEARNED CIT(APPEALS) HAS DEALT WITH THE ISSUE IN PARA NOS. 7.2 AT PAGE NO. 37 OF THE FIRST APPELLATE ORDER. HE HAS APPROVED THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD. THE CONTENTIONS OF THE LEARNED AR REMAINED THAT WHILE MAKING THE DISALLOWANCE THE AUTHORITIES BELOW HAVE DISREGARD THE DETAILS AND OTHER EV IDENCE PRODUCED. HE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING A HOTEL AND THUS INCURS EXPENSES TOWARDS THE REPAIRS AND MAINTENANCE OF THE VARIOUS ASSETS AND EQUIPMENTS LOCATED IN THE SAID PREMISES. DURING THE ASSESSMENT YEAR, THE AS SESSEE HAD INCURRED RS.69,45,108 AS REPAIR AND MAINTENANCE EXPENSES FOR THE BUILDING. IN SUPPORT THE ASSESSEE HAD PRODUCED THE NECESSARY DETAILS INCLUDING THE PURCHASE ORDER AND INVOICES FOR RS.16,62,300 REPRESENTING AMOUNTS PAID TO SK ENGINEERING. OUT OF THE SAID EXPENDITURE, THE ASSESSING OFFICER MADE AN ADDITION OF RS.12,97,394 BY TREATING THE SAID EXPENDITURE AS CAPITAL IN NATURE. DETAILS OF RS.16,62,300 HAVE BEEN PLACED AT 76 PAGE NOS. 123 AND 124 OF THE PAPER BOOK WHICH, INTER ALIA, INCLUDES THE DETAILS OF RS.12,97,394. IT WAS ALSO MADE AVAILABLE BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAS REPRODUCED THESE DETAILS AT PAGE NOS. 13 & 14 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS , HOWEVER, NOT TAKEN COGNIZANCE OF THE DETAILS PRODUCED BY THE ASSESSEE IN SUPPORT OF THE FACT THAT THE SAID EXPENSES ARE REVENUE IN NATURE. 50. LEARNED AR SUBMITTED FURTHER THAT FROM THE DETAILS OF RS.12,97,394 IT WILL BE OBSERVED THAT NO NEW ASSETS HAS COME INTO EXISTENCE OF ENDURING IN NATURE, BEING OF CA PITAL IN NATURE. 51. LEARNED DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 52. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE CLAIMED EXPENSES ARE ON REPAIRING OF CHILLER COLLING TOWER PLATFORM ALREADY IN EXISTENCE, TI ME OFFICE RUFFIN, BOILER PUMP, FABRICATION, FIXING OF ANGLES, GRATING AND MISCELLANEOUS REPAIR ON THE ALREADY EXISTING STRUCTURE/BUILDING WHICH REQUIRES FREQUENT UPGRADATION, CONSIDERING THE NATURE OF THE BUSINESS OF THE 77 ASSESSEE. THE EXPENDITURE INCURRED, CLAIMED ON REVENUE ACCOUNT, IS MAINLY ON ITEMS, LIKE PROVIDING TILES ON THE ROLL FOR WATER PROOFING, DOOR S , HINGES, REPLACEMENT OF FLOOR TILES, REPLACEMENT OF SANITARY APPLIANCES, REPLACING FALL CEILING PROVIDING NEW PAINT IN THE ROOMS, REFIXING THE DOORS AFTER POLISHING, PROVIDING WOODEN SHIRTING, REPLACEMENT OF WALL PANELING E T C. W HICH, IN OUR VIEW, IS THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF REPLACEMENT OF OLD ITEMS BY NEW ITEMS AND NO NEW ASSETS WERE BROUGHT INTO EXISTENCE. FOR EXAMPLE, T HE WATER PROOFING ON THE ROOF PREVIOUSLY DONE WAS NOT FOUND TO BE EFFECTIVE AND AS SUCH NEW TILES WERE PROVIDED. KEEPING IN VIEW THE NATURE OF THE EXPENDITURE IN MIND ON THE ABOVE ITEMS, DETAILS OF WHICH HAVE BEEN REPRODUCED BY THE ASSESSING OFFICER AT PAG E NOS. 13 & 14 OF THE ASSESSMENT ORDER, WE HOLD THESE AS REVENUE IN NATURE AND THUS DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.12,97,394 MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE OBJEC TION NO.4 OF THE CROSS - OBJECTION FOR THE ASSESSMENT YEAR 2006 - 07 IS THUS ALLOWED. BESIDES, THE ASSESSEE IN ITS CROSS OBJECTION HAS ALSO QUESTIONED THE VALIDITY OF PROCEEDINGS INITIATED UNDER SEC. 153A BUT THE SAME HAS NOT BEEN PRESSED, HENCE, THIS OBJECTI ON IS REJECTED AS WITHDRAWN. 78 53. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED AND CROSS - OBJECTIONS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 . 0 9 .2014 SD/ - SD/ - ( B.C. MEENA ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 /0 9 /201 4 MOHAN LAL COPY FORWARDED TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR:ITAT ASSISTANT REGISTRAR