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2019 (7) TMI 174

..... R did not dispute that the issues have already been considered in detail in the aforesaid decision considering the other related decisions in the case of Shri Suresh Nanda [2013 (3) TMI 77 - DELHI HIGH COURT] and Russian Technology Centre Pvt.Ltd [2017 (5) TMI 1107 - DELHI HIGH COURT] . It is also a fact that during the course of search, no material pertaining to the assessee was found and seized. It is a routine addition on which assessee has already declared share capital while filing the return of income. The assessee has produced sufficient documentary evidence as are referred to above which completely prove the case of the assessee that assessee proved the identity of the investors, their creditworthiness and genuineness of the transaction. During the course of hearing, learned DR was not able to point out any infirmity in the order of the learned CIT(A) in deleting the addition. Considering the issue in its entirety in the light of the order of the Tribunal in the case of River Valley Meadows & Township Pvt.Ltd. [2019 (4) TMI 198 - ITAT DELHI] we find that the issue is covered by the order of the Tribunal in this case. In the absence of any infirmity pointed out in the or .....

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..... rther, assessee is held to be non-resident, therefore, no income had accrued or received by the assessee in India and, as such, no addition can be made in hands of the assessee. The issue is covered by the aforesaid decision in the case of the assessee. We, therefore, do not find any merit in this ground of the Revenue’s appeal. Accrual of income outside India - non resident - Disallowance on account of commission earned on the defense deal related to documents found from M.V. Rao - HELD THAT:- In the case of the assessee for assessment year 2004-05 to 2006-07 [2014 (11) TMI 14 - ITAT DELHI] in which it was held that the addition of commission made on the basis of documents seized from the premises of Dr. M.V. Rao and Shri Mohan Jagthap is completely baseless. The order is reproduced in the impugned order. CIT(A) noted that since the assessee has been held to be non-resident, therefore, even if the same represents unaccounted income of the assessee from undisclosed sources, it cannot be brought to tax as income in his hands unless it is proved that the income accrued to him in India. - ITA Nos.5852/Del/2014, 5853/Del/2014 & 5854/Del/2014, ITA Nos.5857/Del/2014, 5858/Del/2014 .....

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..... assed to give effect to the directions of the Tribunal, the Assessing Officer has again made addition of ₹ 9,34,15,000/- representing share capital received in assessee company subscribed by its holding company M/s Y2K SIL, Mauritius. Other additions/disallowances have also been made which were challenged before the learned CIT(A). 6. Learned CIT(A), before deciding the issues, noted brief facts of the case as well. It was noted that on the basis of complaint by the Prime Minister s Office, a search was conducted by the Delhi Police on 22nd February, 2007 at the residence of one Dr. M.V. Rao at F-58, First Floor, Green Park, New Delhi, wherein certain documents including cash amounting to ₹ 2 crores were found and seized. The Delhi Police informed the Income Tax Department, which also conducted a search under Section 132 of the Income-tax Act, 1961 on the same day and seized the said cash along with documents. Based on information contained in the seized documents and statements recorded, search and seizure under Section 132 was also carried out in the case of Shri Suresh Nanda and his associate concerns on 28th February, 2007. During search, several documents were seiz .....

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..... made by the Assessing Officer on account of unexplained share capital. The assessee challenged this addition being share capital received from Y2K Systems International Ltd. (Y2K SIL), holding company of the assessee company. Before the learned CIT(A), written submissions were filed by the assessee, which read as under :- 1. Your goodself will appreciate that our matter has been set aside and all further action will have to be taken subject to the directions of the Hon'ble Tribunal which are reproduced here under:- Since we have set aside the main issues back to the file of AO, interest of justice will be served if the remaining issues in these appeals are set aside back to the file of AO to decide all these issues after considering the explanation given by the assessee and the ITAT order. In the result, all the appeals filed the assessee are allowed for statistical purposes . In our considered view C1 India Pt. Ltd. has been held as a separate entity held by department by way of assessments. It has not been held to be a Benami concern of the assessee. The addition have been made on account of share application moneys and loan in both the cases i.e. assessee and C1 India witho .....

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..... y from income earned and received outside India. They also held that the confirmation of remitter and remittance certificate is sufficient to establish the veracity of the share capital received. Copy of the judgment is enclosed herewith at Pg 6 - 38/PB. b) Similar decision view following the case of RTC (supra) has been taken by the Id. CIT (A) in the case of Claridges Hotels Pvt. Ltd for AYs 2004-05 to 2009-10 wherein it was held In the present case, addition has been made by the Id. AO alleging the appellant company to be a beneficiary of unaccounted funds despite the fact that genuineness, creditworthiness and identity of the source was established. The Id. CIT (A) deleted the said addition after considering the supporting documents and evidences and following the Hon ble ITAT in the case of Russian Technology Centre Pvt. Ltd. (Order of the CIT (A) for AY 2007-08 attached at Pg 39 - 70/PB). The following is the ratio decidendi in case of RTC - (i) CBDT Circular no 5 (F. no 73A/2(69)-IT (A-l 1)) dt 20.02.1969- 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 q .....

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..... ed 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. 20th Feb., 1969 the Hon'ble ITAT, Delhi in the case of Saraswati Holding Corpn. Inc. [2007] 16 SOT 535 (DELHI) (para 11.3 at Pg no. 116/PB 1), while examining issue in question in light 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 ₹ 3, 83, 1 1,550 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 assessee are allowed . i v) Facts about source of source of Share Application money in the case of assessee established in the case of Sh. Suresh Nanda by Hon ble ITAT vide order No.2236/ .....

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..... and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: The section now provides 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 payment towards issue of shares. 11. Learned CIT(A), after considering the evidences and material on record and following the order of the Tribunal in the case of Shri Suresh Nanda deleted the entire addition. His findings in paragraph 4.2 and 4.3 are reproduced as under :- 4.2 I have considered the directions of Hon ble ITAT in appellant s case and the consequential assessment orders passed by the revenue in the appellant s case as well as in the case of Sh. Suresh Nanda for AYs 2001-02 to 2003-04 and the submissions filed during appeal in these cases. The appellant has discharged its primary onus of establishing the source of capital brought i .....

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..... n.com 339 (Delhi). 13. On the other hand, learned counsel for the assessee reiterated the submissions made before the authorities below. He has submitted that the assessee submitted all the documents on record which prove that the ingredients of Section 68 of the Act which have not been doubted by the Revenue authorities. He has submitted that identical issues have been decided in the case of Russian Technology Centre Pvt.Ltd., Claridges Hotel Pvt.Ltd. and Shri Suresh Nanda. He has submitted that recently, the ITAT decided group cases of River Valley Meadows & Township Pvt.Ltd. for assessment year 2008-09 and 2009- 10, dated 27th March, 2019 and that the issue is covered by the aforesaid order, in which all the decisions of the Coordinate Benches and Hon'ble Delhi High Court related to this group have been referred to. He has relied upon several decisions in support of the order of the learned CIT(A) for deleting the addition in his written submission. He has submitted that the Revenue cannot ask for the source of the source which is also explained in the present case. The learned counsel for the assessee relied upon the following decisions :- (i) Judgement of Hon'ble D .....

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..... presentatives of both the parties mainly argued in assessment year 2008-2009 and have submitted that the issue is same in assessment year 2009-2010. Therefore, order in assessment year 2008-2009 may be followed in another appeal. For the sake of disposal of both the appeals, we proceed to decide ITA.No.5629/ Del./2013 for the assessment year 2008-2009 as under. ITA.No.5629/Del./2013 - A.Y. 2008-2009 : 4. The facts of the case are that the assessee is a Company filed return of income declaring loss of ₹ 13,72,942/-. The assessing officer on perusal of the return and details submitted found that during the year under consideration the assessee-company has received share application money of ₹ 7,92,19,406/- on 15th February 2008 from the Holding Company M/s. Palm Technologies (P) Ltd., Mauritius. Thus, assessee was asked to furnish complete details regarding share application money received and prove the creditworthiness of the Investor. In response thereto, the assessee submitted as under : Evidence of credit worthiness of Palm Technology Ltd., The said company was incorporated in Mauritius on 31.10.2000 under the name of Y2K Ltd. (a) Certified copy of Certificate of Inco .....

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..... assessment proceedings, a Reference to Government of Mauritius through Director General of Income Tax (Inv.), Delhi was made through F.T.&T.R. Division of CBDT under DTAA. In this Reference, Government of Mauritius was requested to provide the following details : Enquiries to be conducted with regards to M/s Palm Technologies Ltd. Mauritius with following specific queries: - a) Source of funds in the remitter banks. b) Copy of account of M/s Palm Technologies Ltd. in the remitter banks from 1.4.2000 to 27.02.2007. c) Equity structure in M/s Palm Technologies Ltd. Mauritius. d) Beneficial owner of M/s Palm Technologies Ltd. Mauritius. e) Sources of funds in M/s Palm Technologies Ltd. Mauritius. f) Copy of all bank accounts of M/s Palm Technologies Ltd. Mauritius in for the period 1.4.2000 to 27.02.2007. g) Copy of Annual Accounts of M/s Palm Technologies Ltd. Mauritius filed before the Mauritian Tax Authorities, if any, starting from financial year 2000-01 till 2006-07. h) Photo copies of documentation filed before the Competent Authorities in Mauritius for bringing funds in Mauritius in the accounts of M/s Palm Technologies Ltd. Mauritius. i) Any other query which the Mauritian .....

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..... ,00,000/- 2007-08 ₹ 17,32,98,000/- ₹ 1,90,00,000/- 2008-09 ₹ 17,32,98,000/- ₹ 9,57,19,406/- 4.6. The assessing officer also noted that investment in the share capital of the assessee-company has been made through the borrowings from two entities controlled by Shri Suresh Nanda that are as under : UBS Trading FZC US $ 3,000,000 Y2K SIL US $ 431, 197 4.7. Thereafter, the assessing officer tried to make a point that as to how there was a close link of Shri Suresh Nanda with UBS Trading FZC and Y2KSIL which were noticed from the documents recovered during the course of search under section 132 of the Income Tax Act on 28th February 2007. The documents are described below : • Page no. 35 Annexure No. A-8 seized from the residence of Mr. Suresh nanda-4, Prithvi Raj Road New Delhi. This is draft of a letter issued by Mr. Suresh Nanda from Dubai to M/s Infotech Services Ltd., Jersey, Channel Islands where it has been written that shareholders of UBS Trading FZC are 1% - M/s ISL and 99% - Suresh Nanda. In this letter it is written that M/s UBS FZC will declare an interim dividend of USD 4.5 millions which will go toward capital contribution in UBS Mauritius. Thi .....

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..... entioned documents that it is evident that Mr.Suresh Nanda is the owner of M/s. UBS Trading FZC, Dubai. He has been making investments in Mauritius based company to hide the true source of money, till it is finally invested in India. The fact that investment in assessee-company is financed through the borrowings from M/s. UBS Trading FZC, Dubai and Mr.Suresh Nanda close association with the affairs of Claridges SEZ Pvt. Ltd., in India goes to show that it is Mr.Suresh Nanda s money that has been routed through M/s. Palm Technologies (P) Ltd., Mauritius into Indian Company. The assessing officer also noted that there is a close connection of Mr. Suresh Nanda with Y2KSIL which is evident from the document seized during the course of search operation under Income Tax Act conducted on the premises belonging to Mr. Suresh Nanda, details of the same are noted in the assessment order. Based on these facts, assessing officer held that assessee-company has been bringing unaccounted money after creating layers of intermediaries including M/s. Palm Technologies (P) Ltd., Mauritius due to less stringent exchange control norms there. The intermediaries have merely provided the names. The true s .....

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..... . Palm Technologies (P) Ltd., Mauritius and Ld. CIT(A) deleted the addition following the decision in the case of M/s. Russian Technology Centre Pvt. Ltd., The Learned Counsel for the Assessee further submitted that the Department has filed appeal before ITAT, Delhi Bench against the order of Ld. CIT(A) for the assessment year 2004-2005 and assessee also filed cross-objection. The Tribunal has quashed the assessment order being barred by limitation vide order dated 28th September 2017. Learned Counsel for the Assessee submitted that if Mr. Suresh Nanda made the money available as per the contention of the Department, no addition could be made in the hands of the assessee. Learned Counsel for the Assessee referred to Para 2.5 of the assessment order, in which, the Government has made a reference to Government of Mauritius through Director General of Income Tax (Inv.) making inquiries against the Investor Company, on which, several details were asked for and the Government of Mauritius has filed a reply to the Government confirming the source of the funds and also confirmed the investment made by the Investor Company. He has, therefore, submitted that assessee has explained the sourc .....

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..... n which, similar addition has been deleted in the hands of Shri Suresh Nanda. Para-70 of the order is reproduced as under : 70. Ground No. 4 relates to addition made on protective basis. We find that Ld CIT(A) has clearly held that share capital was subscribed Palm Technologies Ltd. which is a separate entity. Ld. CIT(A) held by a clear finding that the capital did not belong to assessee but to a distinct entity whose existence is not denied. After giving such dear finding, he should not have given finding about addition on protective basis. Palm technologies Ltd. and assessee are held to be two different persons. The CIT(A) has held that ownership of Palm Technologies Ltd is known and appellant was not a shareholder in Palm Technologies which was owned by One Mrs. EA Half land. It is undisputed that both UBBS and PTL are duly incorporated companies under the laws of Sharjah and Mauritius respectively. The Ld CIT(A) has himself observed that this amount cannot be held as un-explained money/investment of appellant thereafter there is no justification in keeping a protective addition in this behalf. We also find that similar addition on substantive basis was made in assessment year 2 .....

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..... roval dated 10.12.2005 authorizing the assessee company to raise capital unto '600crores. copy of certificates of incorporation of share holders, copy of bank statement copy of Form 2 filed before ROC, copies of Certificates of (i) Incorporation of RTCHL, (ii) Incumbency of RTCHL, (iii) Good Standing of RTCHL. (iv) Director Certificate of RTCHL as well as the Balance Sheet of RTCHL for the years 2004-05 and the confirmation given by the remitters towards remittance of share capital etc. This was all that the assessee could have furnished in the circumstances. It could not be expected to prove the negative that the monies received by it were suspicious or not genuine infusion of capital etc. The assessee had discharged its burden of proof in terms of the settled dicta in Divine Leasing (supra). It is only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the banks) to ascertain the truth of the assessee's claims. Having not done so. he was not justified in disregarding the assessee s contentions that the infusion of monies into its accounts was legitimate. Conseouentiv, the AO was n .....

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..... he Learned Counsel for the Assessee also relied upon the following decisions : 1. Commissioner vs. Orissa Corporation Ltd. reported in (1986) 159 ITR 78 (SC) 2. CIT vs. M/s Pondy Metal and Rolling Mill in ITA No. 788/2006 3. CIT vs. Diamond Products Ltd. [2009] 177 Taxman 331 (Delhi) 4. CIT vs. Flex Plastic & Packaging (P.) Ltd. [2007] 211 CTR 607 (Delhi) 5. PCIT vs. Paradise Inland Shipping (P.) Ltd. [2017] 84 taxmann.com 58 (Bom). 6. CIT vs. Lalit Kumar Poddar (2015) 231 taxman 819 (Delhi). 7. CIT Vs. Gangeshwari Metal (P.) Ltd., reported in 361 ITR 10 (2014). 8. Dolphin Canpack Ltd., reported in 2004 CTR 50. 9. CIT vs. Samir BioTech P. Ltd., [2010] 325 ITR 294 (Delhi), ITA No. 415/2008 (Delhi). 7.5. Learned Counsel for the Assessee also contended that since addition has been deleted in the hands of Mr. Suresh Nanda on substantive basis, which is confirmed by the Hon ble Delhi High Court, then the findings of the assessing officer which are solely based on the presumption that it was the unaccounted money of Mr. Suresh Nanda routed through the intermediary companies to the assessee company, has no basis to justify the addition. He has further pointed-out that similar addition .....

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..... ame facts, the assessing officer made certain inquiries with regard to source of the money and sought information from the Government of Mauritius, who have supplied certified copies of the balance sheet and income statement for earlier years as well as for assessment year under appeal, in which, it is clarified that the Investor Company has made investment in assessee-company through its own sources. The assessee-company filed Tax Residence Certificate issued by the Tax Department of Government of Mauritius, Certificate issued by Registrar of Companies, Letter addressed to Reserve Bank of India and Form FC-GPR, Compliance Certificate issued by the Company Secretary and details issued by IDBI Bank. These documents supports the explanation of assessee-company that assessee-company received genuine share application money. The assessing officer instead of examining the documentary evidences and record in depth, has made an attempt to link Mr. Suresh Nanda, who was having interest in the Companies namely M/s. UBS Trading FCZ and Y2KSIL, who were the different entities, who have provided loans and funds to Investor Companies. Even if certain documents were found during the course of se .....

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..... and Judgment of Hon ble Delhi High Court in the case of Dwarakadheesh Investment Pvt. Ltd., 330 ITR 298 (Del.) and Judgment of Hon ble Allahabad High Court in the case of Zafar Ahmed & Co., 30 taxmann.com 269 (Alld.). However, in the present case, the assessee-company has even explained the source of the source. The Hon ble Madhya Pradesh High Court in the case of CIT vs. Peoples General Hospital Ltd., [2013] 356 ITR 65 (MP) has admitted the following substantial question of Law in one of the appeal : (i) Whether the Income-tax Appellate Tribunal was correct in law in deleting the addition made by the Assessing Officer in respect of the non-resident Indian company, which admittedly has contributed share capital, even on the assumption that the assessee has failed to discharge the financial capacity of the non-resident Indian company ? 8.2. The Hon ble Madhya Pradesh High Court held as under : Held dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence of any positive ma .....

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..... ase of River Valley Meadows & Township Pvt.Ltd. (supra), we find that the issue is covered by the order of the Tribunal in this case. In the absence of any infirmity pointed out in the order of the learned CIT(A), we dismiss the department s appeal on this ground. Accordingly, ground No.2 of the appeal is dismissed. 17. In ground No.3, the Revenue has challenged the addition of ₹ 8,26,863/- on account of pre-operative expenses. The assessee has challenged the disallowance of certain expenses claimed as deduction under Section 35D as pre-operative expenses amortized. The assessee explained before the learned CIT(A) that it was explained before the Assessing Officer that pre-operative expenses were incurred by the assessee before commencement of the business. These expenses were in the nature of feasibility reports, project reports, travelling transportation, legal charges, printing of memorandum and articles of association and such other expenses relating to the issue of share capital as well. Hence, these expenses have been incurred prior to the commencement of business fall under Section 35D of the Act which permits amortization of such preliminary expenses for a period .....

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..... a single whisper of the loan received from Sh. Suresh Nanda and has suo moto proceeded to hold that Mr. Suresh Nanda has also given 75Lacs as loan to the assessee company in AY 2001 - 02. In view of the discussion made above, same is also considered as unexplained credit u/s 68 of I.T Act in the hand of the assessee company. No details were asked to be filed in respect of the loan received and the addition u/s 68 has been made without any opportunity being afforded to the assessee company. b) However, the assessee has placed the following documents and evidences on record in respect of the said loan: • Confirmation of account from 01.04.2000 to 31.03.2012 • Form 16A for TDS of ₹ 46,972/- deducted from interest of ₹ 1,42,338/- • Form 16A for TDS of ₹ 229,907/- deducted from interest of ₹ 684,247/- • Bank statement of the assessee company showing repayment of ₹ 75,00,000/- to Sh. Suresh Nanda. The assessee has discharged its onus of proving the genuineness of the transaction by submitting the following documents. c) It is also submitted that Sh. Suresh Nanda was a non-resident for the AY 2001-02 as held by the Hon'ble High Court .....

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..... ng the course of search, no incriminating material was found so as to make this addition. In this case, originally, assessment was completed under Section 143(3) and no seized material has been referred to so as to make this addition against the assessee. In this case, protective addition was made in the hands of Shri Suresh Nanda of the same amount. Since in the case of Shri Suresh Nanda, he was held to be non-resident , therefore, no addition can be made in his hands. On the basis of documentary evidences on record and considering various litigation in the case of group in which similar additions have been deleted, therefore, learned CIT(A), on proper appreciating of facts and material on record, correctly deleted the addition. This ground is accordingly dismissed. 26. No other point is argued. 27. In the result, the appeal of the Revenue is dismissed. ITA No.5858/Del/2014 - A.Y. 2002-03 :- 28. In this appeal by the Revenue, following effective grounds have been raised :- 2. On the facts and circumstances of the case the Ld.CIT(A) has erred in law in deleting the addition of ₹ 65,85,000/- made by AO on account of unexplained share capital. 3. On the facts and circumstances .....

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..... essment year 2005-06 and 2006-07. No evidence has been brought on record that share capital brought into C-1 India Pvt.Ltd. belongs to the assessee. The share capital has been invested by three companies namely, Infotech Services Ltd., Y2K Ltd. (Palm Technologies) and Mideast Consortium SA. The assessee is merely a shareholder in Infotech Services Ltd. which would not establish the fact that investment in C-1 India was made by the assessee. Bank statement of Y2K SIL received by the Department directly from the Government of Mauritius also supports the explanation of the assessee. The confirmation from the creditor, tax residence certificate of the creditor issued by the Mauritius Revenue Authority, copy of balance sheet and copy of bank statements were filed to establish that assessee has no connection with the aforesaid addition. There is no requirement in law to go into the beneficial ownership. Assessee relied upon several decisions in support of the contention that addition is unjustified. 33. Learned CIT(A) accepted the explanation of the assessee and found that in the case of C 1 India Pvt.Ltd. for assessment year 2001- 02 to 2003-04, similar submissions have been made in whi .....

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..... ined investment in C 1 India Pvt.Ltd. 38. Both the parties stated that this issue is similar as has been considered in the Revenue s appeal in assessment year 2001-02 (supra). Following our decision in assessment year 2001-02, this ground is dismissed. 39. In ground No.3, Revenue has challenged the order of learned CIT(A) in deleting the disallowance of ₹ 2,17,57,724/- made by the Assessing Officer on account of commission earned on the defense deal related to documents found from M.V. Rao. 40. The assessee submitted before the learned CIT(A) that this issue is covered by the order of the ITAT in the case of the assessee for assessment year 2004-05 to 2006-07 vide order dated 21st February, 2014 in which it was held that the addition of commission made on the basis of documents seized from the premises of Dr. M.V. Rao and Shri Mohan Jagthap is completely baseless. The order is reproduced in the impugned order. Learned CIT(A) noted that since the assessee has been held to be non-resident, therefore, even if the same represents unaccounted income of the assessee from undisclosed sources, it cannot be brought to tax as income in his hands unless it is proved that the income accr .....

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