9911796707
TMI Blog2013 (4) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Ld. CIT(A) is justified in saying that in the proceedings initiated u/s 153A, the AO has all powers to go beyond the seized material during the search?" 2.2. Ld. Counsel for the assessee at the time of hearing, did not press these grounds. Therefore, they are dismissed accordingly. 3. The other common grounds are as under: (i) Addition in respect of share capital received by the assessee as under: A.Y. 2002-03 - Rs. 24,44,300/- received by the assessee from the promoter company based in Russia. A.Y. 2003-04 - Nil A.Y. 2005-06 - Rs. 55,44,000/- - received from promoter companies Russian Technology Centre Holdings Ltd. (RTCHL) & Protex Trading Co. Ltd. A.Y. 2007-08 - Rs. 1,17,72,500/- received from promoter companies Russian Technology Centre Holdings Ltd. (RTCHL) & Protex Trading Co. Ltd. (ii) disallowance of the expenditure debited to the P& L A/c (except audit fee), relating to A.Y. 2002-03, 2003-04 & 2005-06. (iii) Awarding of suitable cost u/s 254(2B) in all the appeals. (iv) CIT(A)'s rejection for admission of additional evidence u/s 46A of the Act for A.Y. 2005-06 and 2007-08. (v) A.Y. 2005-06 - Addition u/s 68 on account of unsecured l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l up to (USD 3 lakhs.) 2. Copy of certificates of incorporation of share holders 3. Copy of bank statement | 4. Copy of form 2 filed before ROC In respect of squared up loans , assessee has furnished that" during the year the assessee company has accepted loan of Rs. 5,00,000 from M/s Tsunami Technologies India P. Ltd by DD no. 080863 dtd 12-04-2004. The sum has been repaid vide cheque no. 211661 drawn on Union bank, of India, Vasant Vihar. Copy of confirmation is attached herewith." 4.4. Assessing officer, however, was not satisfied and was of the view that the share capital provided by the appellant company was not genuine and the amount was channelized by assessee through tax haven. Assessing officer held that assessee has not established the financial capacity and creditworthiness of the share holders by following observations:- "Therefore, in view of the partial details furnished by the assessee company, the unsecured loan taken by the assessee amounting to Rs. 5,00,000/- and share capital addition amounting to Rs. 55,44,000/- is treated as unexplained and added to the income of the assessee company. Further, I am also satisfied that the assessee company has concealed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the assessment. (b) On merits, the additional evidence proposed to be filed, did not prove the creditworthiness of the share holders. 5.1. The assessee was furnished with a copy of the remand report on which it filed a rejoinder dated 24-8-2011, reiterating the facts about the insufficiency of time and admissibility of additional evidence. CIT(A) however passed the following order on the admission of additional evidence as well as the merits of the evidence:- "5.2. At the appellate stage, the assessee has produced certain additional evidence under rule 46 A but has not given any satisfactory explanation as to why it could not produce these documents before the Assessing Officer. These documents are stated in page 5 and 6 of the paper book submitted on 02/09/2011. 5.3. I have gone through the contention of the appellant and it is observed that the fresh evidence furnished by the assessee cannot be admitted in the absence of a plausible explanation regarding the non production of these documents before the Assessing Officer. Reliance is placed on the decision of the Hon'ble Gujrat High in the case of N.B. Surti Family Trust Vs. CIT [2007] 288 ITR 523 wherein it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed various documents in respect of identity, genuineness and creditworthiness of the shareholders. In our considered view when the assessee is able to make out a case of insufficient time for complying with the requirement, the additional evidence is to be admitted as per the prescription of Rule 46A. Besides, the remand was called by CIT(A) from assessing officer and further assessee was asked to file the rejoinder thereon. After consideration of entire material in this behalf, the CIT(A) has given findings on the contents of the additional evidence. In our view, all these circumstances lead to a conclusion that CIT(A) considered the additional evidence and gave a finding on merits against assessee. Thus, the consideration of additional evidence by CIT(A) appears to be inbuilt in the order. In any case to avoid any controversy in facts and circumstances of this case, we are of the view that assessee was prevented by sufficient cause in filing the additional documents before assessing officer and they should have been admitted by CIT(A) as additional evidence under Rule 46A. In view of these facts and circumstances, though in our view the additional evidence has been technically ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital upto Rs. 600 Crores (iv) Copy of certificates of incorporation of shareholders (v) Confirmation given by remitter towards remittance for share capital (vi) Copy of FIRC (vii) Copy of bank statements (viii) Copy of Form 2 filed with ROC 8.3. Thus the assessee before assessing officer provided all possible information which was humanly possible in the matter to discharge primary onus cast by Sec. 68. The moneys have undisputedly come through banking channels, approvals by the highest investment board i.e. FIPB has been sought before bringing capital in the country, all statutory compliances relating to share capital received from foreign company had been duly made and the source of the source had also been established in as much as the Balance Sheet of RTCHL clearly shows that the investment in the assessee company was funded out of loans from share holders. 8.4. According to the assessee, all the moneys received by way of share capital had been utilized for as establishment cost and towards selling and marketing expenses. Although the assessee had procured orders running into many crores of rupees, but the same could not fructify into to revenue because of various busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer has a quasi judicial duty to weigh the quality of evidence produced before it and if it is sufficient to discharge the burden of assessee, the same cannot be cryptically disregarded in the pretext of document which was not filed by the assessee. (iii) Coming to CIT(A)'s order, ld. Counsel contends that the Hon'ble Delhi High court in the case of Oasis Hospitalities Pvt Ltd. (supra) no where lays down that production of bank statement of a shareholder was a mandatory requirement for discharging the onus in respect of establishing the creditworthiness of the shareholders. Oasis Hospitalities Pvt Ltd. (supra) has been rendered on totally different facts and circumstances. The case law is decided on the facts of the case and this case has been applied to assessee's case without bringing even the factual parity. In the case of Oasis Hospitalities Pvt Ltd. (supra), there were peculiar facts in as much as there were serious allegations of accommodation entries and hawala transactions on the assessees leveled by the Investigation Wing of the Department. Therefore, the decision of the Delhi High Court was case specific, did not lay down any law on the subject. Besides, the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc. The assessee contended that section 68 or 69 would apply only when the income is otherwise wise taxable u/s 5(2) in the hands of non- resident who remits the money. According to the assessee, section 5(2) states that in the case of non-resident, income which accrues or arises in India or is received in India would be taxable in India. When the non- resident remits money from his bank account abroad then, the said remittance is treated as capital receipt and cannot be said to be income. This is because the money must have been first received by the non-resident outside India in his bank account and what is being remitted is only his capital. Hence, according to the assessee, the remittance made by RTCHL was out of the moneys in its bank account outside India and there was no evidence to show that the amount was even received in India or accrued in India. Hence, the remittance would be a capital receipt and if the same is not taxable u/s 5(2) of the Act, it cannot be taxed u/s 68 or 69 of the Act. For this proposition, the Ld. Counsel of the assessee relied upon the decision of Delhi Tribunal in the case of DCIT v. Finlay Corporation, 84 TTJ 788 (DEL); Smt Sushila Ramaswamy 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of income in India :- (i) 30th July, 1962 Mozambique (vide Ministry of Finance Press Note dt. 22nd May, 1967); (ii) 1st Nov., 1963 (Sic.) Zanzibar, Kenya, Tanzania and Uganda (vide Ministry of Finance Press Note dt. 22nd May, 1967); (iii) 1st Jan., 1964 East Pakistan and Burma (vide Ministry of Finance Press Note dt. 25th June, 1964/22nd May, 1965); (iv) 1st Oct., 1965 West Pakistan (vide Ministry of Finance Press Note dt. 3rd Feb., 1969). (b) He had sufficient resources in the foreign country. (c) He had no source of income either in India or in any foreign country, other than the country from which he migrated, prior to migration, and he was not assessed as 'resident' in India, either for the assessment year preceding the year in which he migrated or for earlier years: and (d) The amount brought in has been duly introduced in the books regularly maintained in India and an intimation of such introduction is given to the ITO within two months of the migrant' s arrival" 9.4. According to assessee's ld. counsel, the CBDT Circular itself directs that money brought into India by non-resident for investment or other purpose is not liable to Indian income tax if the same is br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the share capital route has been misused by the assessee in laundering dubious money. The assessee failed to discharge its burden as cast by sec. 68 in terms of identity, creditworthiness and genuineness of transaction. In view thereof, additions have been made. 11. We have heard rival contentions and perused the material available on record. The first and foremost question to be decided is whether on the basis of material furnished by the assessee and available on the record, the assessee has discharged its onus as cast by sec. 68 in terms of identity and creditworthiness of the shareholders and genuineness of the transaction. The availability of balance-sheet, certificate of incorporation, confirmations and certificates of good standing etc. filed by the assessee in respect of shareholders establish that they are non-resident entities, having independent and legal existence. The moneys have come to assessee 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 600 crores and ROC compliance etc. clearly indicate the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not make any distinction between a resident or non-resident. Therefore, there is conflict between the provisions of s. 5(2) on one hand and the provisions of s. 68 or 69 on the other hand with reference to the burden of proof. Hence, in our opinion, if there is any cash credit in the books of account of the non-resident then the source and genuineness of the same will have to be proved by him. For the similar reasons, the non-resident would be required to prove the source of investment made by him in India. To that extent, we are in agreement with the contention of the learned Departmental Representative. 13. But that is not the end of the matter. In 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 s. 5(2). Therefore, the issue whether the income of non-resident is taxable or not is still to be decided with reference to the provisions of s. 5(2) and, the provisions of s. 68 or 69 cannot enlarge the scope of s. 5(2). What is not taxable under s. 5(2) cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of CBDT Circular no. 5 dated 20-2-1969 and the decision of Finlay Corporation (supra) held as under:- "10. In the light of the above decision of the Tribunal, and Circular No. 5 of CBDT, we are of the view that the action of the Revenue authorities in bringing to tax the sum of Rs. 3,83,11,550 cannot be sustained. We have already held that the assessee is a tax resident of Mauritius. There is no basis for coming to the conclusion that any income of the assessee accrued, arose or was received in India. In these circumstances, we direct that the addition made be deleted. Ground Nos. 2 to 2.3 raised by the assessee, are allowed" 11.4. The provisions of section 68 though inserted w.e.f. 01.04.2013 also reveals the legislative intent that if the share holder is a non-resident and the money is by way of remittance from his account, the rigor 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 Saraswati Holding (supra) and the import of CBDT Circular referred to above. Whenever remittances are made by the non- resident holding c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fictions created by sections 68 and 69 of the Act. In consideration of all these observations, we are inclined to hold that the share application money as raised in the grounds of appeal cannot be held as non-genuine and added as income of the assessee u/s 68 of the Act. Consequently, additions made on this count, as raised in grounds of appeal, are deleted. Assessee's grounds of appeal on this issue are allowed. 12. The next ground pertains to disallowance of various expenses claimed to be incurred by the assessee for A.Y. 2002-03, 2003-04 and 2005-06 holding that no business activity was carried out by the assessee in these assessment years. 12.1. Ld. Counsel for the assessee contends that lower authorities have failed to appreciate the difference between setting up of business and commencement of business. The business expenditure incurred by the assessee is allowable if the business of the assessee is set up, though it may not actually commenced. 12.2. Ld. Counsel further submitted that assessee company was incorporated on 01.06.2000 under the Companies Act, with the following main objects:- (a) To buy, sell, manufacture, export, import and to undertake development and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. So it is not necessary that just by started receiving tender enquiries or by becoming l_1 the company can show income in the books of accounts. Your good self can see that the sale booked by the company in the FY 2005-06 is pertaining to the tender enquiry floated on Feb 2005 and the same was executed towards the end of FY 2005-06. In the light of the above it is humbly requested that the entire expenditure claimed by the assessee may be allowed as they are genuine and had been incurred in the normal course of its business activity. The assessee carries sufficient records in support of all the expenditures. The efforts of the assessee are self evident in as much as it became L1 in respect of huge volume of business which would not have been possible but for its efforts. Further the assessee has continued its business activities during the year by conducting meetings with prospective customers and suppliers. Apart from this the assessee had started planning for the construction of a world class service center in Goa. TDS compliance in case of expenditures incurred by the company had been duly complied with. The TDS returns are filed with the goodself on 19-12-2008. Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and relied on Hon'ble Bombay High Court judgment in the case of Western India Vegetable Products Ltd. V. CIT 26 ITR 151. CIT(A) failed to consider plethora of evidence and case laws filed by the assessee. Further it was lost sight of that assessee had already set up its business. This being so, the expenditure was allowable. 13. Ld. DR supported the orders of lower authorities and contends that the alleged sale of Rs. 2,03,010/- shown in A.Y. 2005-06 was a make belief transaction as no sales-tax registration certificate was produced by the assessee. No purchases have been made and therefore the business cannot be said to have set up and commenced. 14. We have heard rival contentions and perused the relevant material available on record. For A.Y. 2002-03 & 2003-04 the assessee was not granted registration as vendor by the Ministry of Defence as suppliers. Besides, no supply had taken place. It appears that assessee was making efforts to establish its business for which prior registration from Ministry of Defence was necessary. Sine assessee could not get registration, it cannot be held that till 31-3-2003 the assessee had set up its business also. In view thereof, we hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues for A.Y. 2007-08 i.e. disallowance of interest of Rs. 7,54,797/- paid on unsecured loans added u/s 68. 19. Ld. Counsel for the assessee contends that the assessing officer has not adverted to any details of the interest while disallowing the amount of Rs. 8,92,748/-. His observations are as under:- "In addition, the interest payment amounting to Rs. 8,92,748/- by the assessee company, is also disallowed to the persons who have already been considered, being not having the financial capacity/ creditworthiness in the year under consideration and also in earlier years." 19.1. Similarly, the CIT(A) also has not given any details and upheld the order of assessing officer by following observations:- "I have gone through the submissions filed by the appellant and as far as payment of interest on unsecured loan is concerned, the disallowance of Rs. 7,54,707/- has been correctly made by the assessing officer since the unsecured loans have been held to be taxable in the hands of the appellant u/s 68. 20. Ld. Counsel pleaded that the matter may be set aside, restored back to the file of assessing officer to decide the allowability of interest considering the ITAT judgments on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify the claim of the assessee after proper opportunity of being heard. This ground is allowed for statistical purposes. 27. Adverting now to the last ground of assessee i.e. awarding of cost on the department u/s 254(2B) due to various adversities caused by the department without proper justification to the assessee, like - (i) refusal of admission of additional evidence under Rule 46A though the remand report was called from the assessing officer. (ii) Non-consideration of detailed submissions filed by the assessee and number of documents filed in the paper book. (iii) Ignoring the non-advertence to the assessee's explanations and submissions and passing a summary order rejecting the assessee's claims. 28. It is pleaded by the ld. Counsel for the assessee that due to various difficulties faced by the assessee ultimately it had to wind up its business in India. It is pleaded that cost should be imposed on the department to set an example. 29. Ld. DR is heard who opposed the ground on the reason that lower authorities were performing their statutory functions and in doing so there is no question of imposition of any cost. 30. We have heard rival contentions and perused the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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