TMI Blog2015 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... DIT Investigation, New Delhi on 8.3.2007 does not better the case of the Revenue, as the 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 as the investment in the hotel is made by M/s. UBS Ltd., Mauritius in while the company which the assessee controls it is a minority shareholder - assessee has demonstrated that he controls only 20% stake holder in M/s. UBS LTd., Mauritius – similar issue has been decided in M/s Russian Technology Centre (P) Ltd. Versus Dy. CIT, New Delhi [2013 (4) TMI 659 - ITAT DELHI] - moneys were received through regular banking channels, from UBSM, who was the holding company of the assessee - being the holding company, the inclusion of the shares in earlier years was proved, established 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier assessment year, it has been held that when the holding company was paying for renovation made in the assessee company, there was no commercial expediency or reason for the assessee to enter into an agreement with its holding company 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 - the agreement between the assessee and UBSM, vide which the impugned payments were made was providing understanding between two closely linked entities and was also abruptly terminated - as the expenditure was not based on commercial expediency, it was rightly disallowed – Decided against assessee. Disallowance of repair and maintenance expenses – Held that:- The claimed expenses are on repairing of Chiller Colling Tower Platform already in existence, time 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 assessee - keeping in view the nature of the expenditure in mind on the above items, details of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 2004-05 7,05,00,000 PHPL Share application 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/SHPL/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 India 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 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable 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 Nanda 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 Pvt. 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. : 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 appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 2. Amended Certificate of incorporation on change of name from Star Hospitality Corporation to Universal Business Solution Ltd. dated 14.01.2003. 3. Mauritius 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 cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 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 Paranal 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 British 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 affirmation 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 Mr. Suresh Nanda in his assessment. There is no finding recorded by the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Learned CIT(DR) for the appeal for assessment year 2007-08, submitted further that during the year an amount of ₹ 17,94,15,000 was received by the assessee from Universal Business Solution Ltd. Mauritius (UBSM). The assessee company has been bringing unaccounted money after crediting to inter-mediatory including UBSM 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. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained income 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 unexplained 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 that 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. if money has been brought into India through banking channels .no questions at all are asked by the ITOs as to the origin of the money or assets brought in (Relevant para at Pg 112/PB1). ii) Money received through banking channels: (para 11 of Pg 114/PB1) The moneys have come to the assessee company through banking channels as is evident from FIRC, which also mentions the purpose of remittance and also the particulars of the remitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of CBDT Circular No.5 dt. 20th Feb. 1969 and the decision of Finlay Corporation Ltd. (supra) held as under: In the light of the above decision of the Tribunal, and circular No.5 of CBDT, we are of the view that the action of the Revenue authorities is bringing to tax the sum of ₹ 2,83,111,550 cannot be sustained. We have already held that the assessee is a tax resident of Mauritius. There is no basis for coming to a conclusion that any income of the assessee accrued, arose or was received in India. In these circumstances, we direct that the addition made be deleted. Ground Nos. 2 to 2.3 raised by 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. Suresh Nanda (supra) decided by the ITAT. In that case, sources of income have been elaborately explained. The ITAT in its order in that case has held that UBSM is not a benami company. On the basis of documents submitted, the 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 shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 case of a closely held company if the amount credited is by way of share application money, share capital, share premium or any such amount by whatever name called, the explanation offered for the credit will not be considered to be satisfactory unless the company which received the sum offers explanation about the source of money in the hands of such shareholder (being a resident) or persons making 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 case of Omar Sallay Mohd Sait vs. CIT (1959) 37 ITR 151 (S.C) holding that on no account whatever should the ITAT base its findings on suspicion, conjecture or surmises nor should it act on no evidence at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide 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). 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 proof of existence of the investors, their creditworthiness and genuineness of the transaction, which an assessee is required to establish to get rid of the application of the provisions under section 68 of the Incometax Act, 1961. We have discussed the relevant facts on the issue hereinabove. In nutshell, the Assessing Officer made addition of ₹ 17,94,15,000 being share application money received from Universal Business Solution (A Company Incorporated in M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount in which certain amount was deposited. Before 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 pleased to hold that the assessee must 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 Delhi High Court has been pleased to express the 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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation dated 26.11.2002 (Name prior to change). 2. Certificate of Incorporation on change of name from Star Hospitality Corporation to Unviersal 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 Claridges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount 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 income of Mr. Suresh Nanda. The 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 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 remained 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 source 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 belong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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 the 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 of 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 demonstrates 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 holding of UBS Ltd. is hold by the parties who are not related, much less controlled by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion, as admittedly the investment in the hotel is made by M/s. UBS Ltd., Mauritius in while the company which the assessee controls it is a minority shareholder. 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, has 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 factual 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 that Shri Suresh Nanda i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 2004-05, 2005-06 and 2008-09. The ITAT also held therein that UBSM is not a benami company 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 shareholders 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 availability 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 have come to assessee through bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: 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 sec. 5(2). Therefore, the issue whether the income of non-resident is taxable or notice 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 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 received outside India, the same 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 cheque and deposited in the bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equity Shares at a premium to UBSL as the Shareholder or PHPL, SHPL SFPL in respect of Foreign Currency Loans from UBSL to PHPL, SHPL SFPL aggregating ₹ 165,94,07,353/- received by them in various years. Sl. No. Particulars No of Shares Face Value Premium Share Capital 1. Loan given by to Paradigm Hotel Pvt Ltd. 12,34. 123,46,070 95,52,77,1 96,76,23.23 2. Loan given by to Shantideep Pvt Ltd. 6,65,018 6,65,0180 51,45,57,6 52,12,07.86 3. Loan given by to Shantideep Foods Pvt. Ltd. 2.17.,642 21,76.420 16,34,00.4 17.05.76.91 Total 165,94,07.35 (b) Allotment of Equity Shares at a premium to UBSL as the Shareholder of PHPL, SHPL SFPL, in respect of Share Application Mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from PHPL, SFPL SHPL out of the funds received by them from UBSL and taxed in various Assessment Years has now sought to tax the balance in this year. It i :; relevant to state that, 111 fact an aggregate. sum or ₹ 177,09,50,757/- was received from UBSL by PHPL, SFPL SHPL during the A. Y.'s 2004-05 to 2006-07 which have been taxed on substantive basis in the hands of Mr. Suresh Nanda, which inter-alia include the aforesaid sum of ₹ 80,45,00,0001- as well as the sum of ₹ 86,72,88,128/-. sought to be taxed in this year. The Income Tax Act does not permit including the same income in the hands of two assessee's and taxing the same on substantive basis. This action of the A. O. is wholly illegal, malafide and for this reason alone the addition in the 1ands of the Company is not sustainable. 29. Discussing all the relevant facts and submissions of the parties in detail, Learned CIT(Appeals) has deleted the addition of ₹ 1,04,67,03,128 (Rs.17,94,15,000 ++ ₹ 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 recapitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or accrues. Therefore, and also following the decisions of Hon'ble ITAT in the case of Russian Technology Centre Pvt. Ltd. (supra), the additions cannot be sustained and are deleted. Appellant gets relief of ₹ 104,67,03,128. 30. We thus find that the assessee has been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction by furnishing several documents in evidence in support on the basis of which the Learned CIT(Appeals), in our view, has righty deleted the addition in question made under sec,. 68 of the Income-tax Act, 1961 by the Assessing Officer as the facts noted by the Learned CIT(Appeals) in the above concluding para No. 4.5 of the First Appellate Order have also not been rebutted by the revenue with satisfactory explanation to that. The First Appellate Order on the issue is comprehensive and reasoned one to which we do not find reasons to interfere with. The same is upheld. The ground No. 2 is accordingly rejected. 30.1 Likewise in the assessment year 2004-05 besides the addition of ₹ 7,05,00,000 made under sec. 68 on account of unexplained share application money, the Assessing Officer also ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither 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-sections (2) (3) were inserted in the said section by Finance Act 2006 w.e.f. 01.04.2007. Subsection (2) empowers the Assessing Officer to determine the amount 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). Subsection (3) provides that provisions 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 income not forming part of total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the assessee in respect of such expenditure. The Learned AR also referred CircularNo.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 the 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 Ropes 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 income Received 602,958 130,567 Disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 34. Considering the above submissions, we find that the Assessing Officer had made following disallowances 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 the 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 affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of ₹ 2,03,752 made by the Assessing Officer was in order. 36 In the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount of expenditure disallowed would have to be restricted to the exempt income has deleted the disallowance of ₹ 9,26,97,023 made under sec. 14A of the Income-tax Act, 1961, with this finding that there is no dividend 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, Learned CIT(Appeals) has restricted the disallowance of expenditure to the exempt income. In the result, he has given relief of ₹ 35,17,809 out of the disallowance of ₹ 41,20,767 made by the Assessing Officer. In that year, the Assessing Officer had disallowed ₹ 35,17,809 as net of dividend of ₹ 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 ₹ 6,02,958, hence we do not find reason to interfere with the first app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business 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 whether the provided facility was part of the perquisite and decide the issue afresh after affording opportunity of being heard to the assessee. Objection is allowed for statistical purposes. 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 ₹ 11,81,997, in assessment year 2006-07 for ₹ 47,58,902 and in assessment year 2007-08 for ₹ 9,11,582 sustained by the Learned CIT(Appeals). The relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of which the agreed 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 was 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, with this noting that in the assessment year 2004-05, the Revenue had added expenditure of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the exceeding fixed assets 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 evidence 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 assessee had incurred ₹ 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 ₹ 16,62,300 representing amounts paid to SK Engineering. Out of the said expenditure, the Assessing Officer made an addition of ₹ 12,97,394 by treating the said expenditure as capital in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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