TMI Blog2013 (4) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the assessee. Merit in the contentions of assessee and reliance on the decisions of Finlay Corporation [2003 (1) TMI 266 - ITAT DELHI-D], Smt. Sushila Ramaswamy [2009 (4) TMI 554 - ITAT CHENNAI] and Saraswati Holding (2007 (7) TMI 345 - ITAT DELHI-F) and the import of CBDT Circular No. 5 in F. No. 73A/2(69)-IT (A-ll), dt. 20th Feb., 1969 that whenever remittances are made by the non- resident holding company for purchase of shares of its subsidiary in India, the money undoubtedly is capital in the nature and if documents like FIRC etc are produced, it can safely be stated that the said money came in through banking channels. In the absence of any evidence to show that the money remitted by the non-resident accrued in India, it cannot be held to be taxable in India. Hence, moneys remitted by non-residents whose identity is not 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 identity of the non-resident remitter is established and the money has come in through banking channels, it would constitute a capital receipt and ordinarily cannot be treated as deemed income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce necessary evidence & if the record is available with the department and assessee pointed out towards it, then as a principle of natural justice, lower authorities should verify that evidence and decide about the allowability. In favour of assessee for statistical purposes. - ITA Nos. 4932, 4933, 5390 & 5391/Del/2011 - - - Dated:- 12-4-2013 - Shri R. P. Tolani And Shri T. S. Kapoor,JJ. For the Appellant : Shri Ajay Wadhwa Adv. For the Respondent : Dr. Sudha Kumari CIT DR ORDER Per R. P. Tolani, JM :- This is a set of four appeals, filed by the assessee against separate orders of CIT(A) relating to A.Y. 2002-03, 2003-04, 2005-06 2007-08. Issues being common, same are disposed of by this common order for the sake of convenience. 2. Grounds of appeal no. 1 7 in A.Y. 2002-03; 1 6 in A.Y. 2003- 04; 1 9 in A.Y. 2005-06; and 1 9 in A.Y. 2007-08 are general in nature, requiring no adjudication. 2.1. Following two grounds on jurisdiction have been raised in all the appeals:- "2. That the search and seizure u/s 132 conducted on 28-02- 2007 in the office premises of the assessee at A-1/20, safdarjung Enclave, New Delhi is illegal as the requisite condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. 4.2. During the course of assessment for A.Y. 2005-06 the assessing officer asked the following requirements in respect of receipt of share capital from promoter company: "Produce the evidence to prove the identity, capacity and genuineness of the persons related with the increase in the share capital and increase in unsecured loans. Please furnish the details of the bank accounts of the depositor with Cheque No. and date, copy of the acknowledgment of return of income. Give the details of the Cheque numbers through which the repayment, if made along with the copy of your bank account showing the withdrawal such Cheque. (Details related to unsecured loans/Advances as well as share capital addition, if, any). Furnish the same details in respect of increase in unsecured loads including squared up loans also". 4.3. Assessee vide letter dated 23-12-2008 replied as under:- "The persons to whom shares have been allotted are foreign companies. The complete details showing addresses, shares allotted amount paid are given as per Annexure 1. Apart from the above the following details are also enclosed herewith for your ready reference in support of the genuineness and to-pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not have the photocopies of the documents seized and sought the said copies from the AO vide letter dated 26.09.2008. The photocopies were finally received on 03.12.2008 and the return in response to notice u/s 153A was filed thereafter on 08.12.2008. According to the assessee, part reply was filed on 19.12.208 and finally on 23.12.2008 and everything possible in respect of share capital received was filed within the short time available. Hence according to the assessee, very short time was given to it to furnish the details and no show cause of any kind was issued before huge additions u/s 68 were made. The assessee company, thus, was prevented by sufficient cause from furnishing the required evidence and also inadequate opportunity was not provided. Hence, the assessee's case fell under clauses (c) and (d) of Rule-46A of the Income-tax Rules, 1962, for which the assessee relied on various case laws. 5. Ld. Counsel for the assessee contends that the CIT(A) duly forwarded the copy of the application along with the additional evidence filed to assessing officer for furnishing his remand report vide his letter dated 18-7- 2011. Assessing officer submitted remand report to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the transactions. Thus, a finding of merit has been given, which impliedly leads to a conclusion that the additional evidence was admitted. On the other hand, CIT(A) by cryptic finding has summarily rejected the contentions raised by the assessee and held that additional evidence is not admitted, leading to contradictory findings. The ld. CIT(A) has failed to appreciate that a fair opportunity of hearing and representing its case was not provided to assessee. The CIT(A) has taken ambivalent stand on the merits as well as admission of additional evidence. According to assessee, there is a clear finding on merits of additional evidence, therefore, the additional evidence stands technically admitted. However, as a matter of abundant caution, a ground has been raised urging that the additional evidence may be admitted, more so, when the comments of assessing officer and CIT(A) both are on record. 6. Ld. DR on the other hand supported the order of CIT(A) and contends that the additional evidence has not been admitted and a mere reference of "without prejudice" based on the contents of the documents filed cannot be construed to be deemed admission of additional evidence. 7. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. This approval was granted by FIPB on 09.06.2004. 8.1. The FIPB further authorized the assessee company to raise capital upto Rs 600 crores without approaching it for further approvals. This approval was given vide letter dated 20.12.2005. The assessee also filed the Certificate of Incorporation of RTCHL and a detailed confirmation by RTCHL and M/s Protex Trading Company Ltd confirming the remittance of Rs. 54,44,000/- towards share capital of the assessee company. The assessee contended that the money came in through banking channels and a copy of the Foreign Inward Remittance Certificate was also filed wherein it was specifically stated that the money's have come in towards share capital in the assessee company and the same had been remitted by RTCHL. The name of the banks involved was also given in the Certificate. The assessee company filed documentary evidence to show that the increase in share capital was intimated to the Registrar of companies in the requisite form. 8.2. This was sought to be explained by the assessee by submitting following documents before the assessing officer:- (i) FIPB approval dt 16 September 1998 authorising the company to raise share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (Del.) that assessee had to produce the bank statements of the shareholders which only could establish their creditworthiness and as assessee did not produce the bank statements of shareholders, the additions were confirmed. 9. Ld. Counsel for the assessee contends that:- (i) assessing officer without any justification has leveled an allegation that assessee had taken a well known route of tax haven and has not proved the financial capacity of the shareholders. The observation is totally unjustified inasmuch as the assessing officer has not brought on record any material to substantiate his allegation that assessee had taken a route of tax haven to bring the share capital. (ii) The assessing officer has failed to consider the Hon'ble Supreme Court judgment in the case of Lovely Exports and various other judgments which describe the primary burden cast on the assessee while proving the share application money. Ignoring various documents procured from FIPB confirmations, ROC records, vehement insistence has been made only on the bank statements of the shareholders. According to ld. Counsel when the burden of the assessee can be amply proved from the documents filed by it, cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 465 (Del. Trib); - CIT Vs. Gangour Investments Ltd. (2009) 18 DTR 242 (Del); - Bhav Shakti Steels Mines Pvt. Ltd. Vs. CIT 320 ITR 619 (Del.); - CIT Vs. Samir Bio Tech. Pvt. Ltd. 325 ITR 294 (Del.). 9.1. Ld. Counsel relied on judgment of the Hon'ble Supreme Court in P. K.Noorjahan 237 ITR 570 (SC) to bring home the point that every case of cash credit does not have to be taxed u/s 68 of the Act. The word used in the section is 'may' and section 68 cannot be applied mechanically in the case of the every cash credit. The Assessing Officer must also consider the attending circumstances before pressing into service section 68. In the case of the assessee, there could possibility be no allegation that the assessee was earning money outside the books of account and bringing it as its share capital. The assessee company was subsidiary of RTCHL and it used up what ever share capital it had received over a period of 5 to 6 years. No revenue could be generated by the company and no material could be imported due to the paucity of funds and other circumstances. Hence, according to the assessee, in such a case, section 68 would not apply. 9.2. Ld. Counsel for the assessee Shri Ajay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax in India. The question of assessment to tax arises only when there is no evidence to show that the amount, in question, in fact represents such remittance, in other words, in the absence of proper supporting evidence, the taxpayers' story that the money has been brought into India from outside may be disbelieved by the ITO who may then proceed to hold that the money had in fact been earned in India. 3. If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the ITOs as to the origin of the money or assets brought in. It is only in cases where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of money that the Department has to make enquiries about the source thereof. Even in these cases, having regard to the difficulties experienced by persons migrating from Pakistan, Burma and East African countries, instructions have been issued to the ITOs that such claims should be freely admitted upto the limit of Rs. 50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, if he is a non-resident, does not have to be established by the assessee in respect of remittance received by him. 9.6. Reliance is placed upon the judgment of the Gauhati High Court in the case of Nemi Chand Kothari reported in 264 ITR 254 for the proposition that source of the source cannot be required into and once the creditor stated and confirmed that it had invested money with the assessee, the assessee cannot be foisted with the responsibility of establishing the source of the funds of the creditors. 9.7. The ld. counsel further submitted that the judgment of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd 216 CTR 195 also applies to the facts of the case in as much as, the identity of the share holders has been established and there is no reasons to even suspect that the funds brought in belong to the assessee. The assessee placed further reliance on the decision of Delhi High Court in CIT v. Tulip Finance Ltd (2008) 15 DTR (Del) 185 and CIT v. Pondy Metals - ITA No. 788/2006 wherein confirmation from the non-resident remitter and the fact that remittance came in through banking channels was found to be sufficient compliance. 10. Ld. CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to accrue to arise to him in India during such year. Explanation 1 provides that income accruing or arising outside India shall not be deemed to received in India within the meaning of this section by reason only of the fact that it is taken into account in the balance sheet prepared in India. It is pertinent to note that such provisions of s. 5 (2) are subject to the other provisions of the Act. That means in case of any conflict between the provisions of s. 5(2) and any other provision of the Act, then the other provision in the Act would have overriding effect. 12. So the question arises whether there is any conflict between the provisions of s. 5(2) and the provisions of s. 68 or 69. It is the settled legal position that burden is on the Revenue to prove that income of an assessee falls within the net of taxation. Once it is so proved then the burden is on the assessee to prove that such income is exempt from taxation. Reference can be made to the Supreme Court judgment in the case of Parimisetti Seetharamamma vs. CIT (1965) 57 ITR 532 (SC). Sec. 52 being charging section, the burden is on the Revenue to prove that the income of the non-resident falls within the ambit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 only with reference 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". 11.2. The decision in the case of Finlay Corporation (supra) has been followed in the case of Smt. Sushila Ramaswamy (supra), 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, admittedly, used for the remittance in this case, the onus on the assessee under s. 69 stood discharged, and therefore it was not taxable in India under s. 5(2)(b) of the Act. The CBDT circular (supra) squarely supports the case of the assessee. The fact that the transactions and events narrated in the Annexure look curious and suspicious makes no difference to the conclusions that we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that the primary burden cast on the assessee was duly discharged. The issue of primary onus is to be weighed on the scale of evidence available on the record and the discharge of burden by the assessee is also to be decided on the basis of documents filed by the assessee and facts and circumstances of each case and on that basis a reasonable view is to be taken as to whether the assessee ha discharged the primary onus of establishing the identity of share applicant, its creditworthiness and genuineness of the transaction. From the documents filed during the course of assessment and before CIT(A), the independent existence of the share applicants in Russia is clearly established. The assessee's application to FIPB for raising the capital contains all the relevant details which is favourably accepted by the Board, particularly by allowing the assessee to raise further the capital without approaching the FIPB. The transactions are through banking channels. Thus the gamut of evidence does not leave any doubt in the discharge of primary burden of the assessee. On the issue CBDT Circular and Finlay Corporation judgment (supra) also we are in agreement with the ld. Counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better ambience to its prospective customers and suppliers. The assessee carries sufficient records in support of all expenditures incurred by them. In view of the above it is humbly requested that the entire expenditure may be allowed." A.Y. 2003-04 - "Among the notable business activities, on 18 November 2002 assessee was able to obtain a certificate recognizing Russian Technology Center P Ltd as Established Source from CMTC, Russia. A copy of the same is enclosed herewith for your easy reference. There are a host of other correspondences to show various business activities and the same are produced herewith Apart from this the assessee has carried out various business activities during the year by conducting meetings with prospective customers and suppliers. The assessee carries sufficient records in support of all expenditures incurred by them. In view of the above it is humbly requested that the entire expenditure may be allowed" A.Y. 2005-06- The assessee had participated in the tenders in bigger volume and had become L1 in few cases. As the volume of business activity increased the assessee had inducted necessary man power to carry out the work. We would like to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business was already set up and activities had started and in tactical terms only the supplies had not started due to the lengthy procedure of the Ministry of Defence. 12.5. Assessing officer summarily held that expenses of the assessee cannot be allowed as no business activity was carried out in these years and nil receipt was shown in the P L A/c. In A.Y. 2005-06 assessee booked a sale of Rs. 2,03,010/- which was not believed by the assessing officer. 12.6. Aggrieved, assessee preferred first appeal before CIT(A) where assessee reiterated its stand and filed detailed written submissions dated 2-9- 2011 for the activities undertaken and for allowability of expenses. 12.7. Before CIT(A), reliance was placed on following judgments:- - CIT v. Saurashtra Cement Chemical Industries Ltd. (1973) 91 ITR 170 (Guj.); - CIT v. Electron India (2003) 241 ITR 166 (Mad); - CIT Vs. ESPN Software India P. Ltd. (2008) 301 ITR 368 (Del.); - CIT Vs. Hughes Escorts Communications Ltd. (2009) 311 ITR 253 (Del.); - CIT Vs. Whirlpool of India Ltd. (2009) 318 ITR 347 (Del.). - CIT v. Aspentech India (P) Ltd. (2010) 229 CTR (Del) 172. - Dy. CITVs. Hazira Gas (P) Ltd. (2011) 8 ITR (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. Next ground for A.Y. 2005-06 pertains to addition of Rs. 5 lacs being unsecured loans received by the assessee from M/s Claridges SEZ Pvt. Ltd. (CSEZ), as assessing officer held that creditworthiness of M/s CSEZ was not established as the assessee had not produced the bank statements. 15.1. Ld. Counsel for the assessee contends that CSEZ also was searched by the department on the same date i.e. 28-2-2007 and assessment u/s 153A was also framed in that case. All the records including the bank statements of CSEZ were seized by the department and the assessing officer instead of verifying its own record, has erroneously held that the assessee did not produce the bank statement. 16. Ld. DR relied on the order of lower authorities. 17. We have heard rival contentions and perused the relevant material on record. We find merit in the arguments of ld. Counsel that CSEZ also being searched on the same date and the seized record being with the department, department could have verified the same from its record. The interest of justice will be served if the issue is remitted back to the file of assessing officer to verify from the seized record about the bank statement of CSEZ a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's premises at the time of search, it was claimed that this the amount was left by a foreign guest with assessee's employee to be handed over to his travel agent M/s Alpcord Network. According to assessee, its explanation was further verified by the Investigation Wing by recording the statement of one Shri Govind Singh, director of M/s Alpcord Network, which is available on record. Besides, the said M/s Alpcord Network also filed confirmation with the department. 24. Ld. Counsel for the assessee claims that the addition has been confirmed without referring to the statement of the director and confirmation filed by M/s Alpcord Network. Any addition made without referring to the record available with the department cannot be sustained. 25. Ld. DR supported the order of lower authorities. 26. We have heard rival contentions and perused the relevant material on record. The contention of the assessee that the confirmation and statement of Sri Govind Singh director of M/s Alpcord Network being on record, has not been denied by the department. The addition has been made on the basis that assessee could not produce necessary evidence. In our view, if the record is available with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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