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2013 (4) TMI 659 - AT - Income TaxProceedings initiated u/s 153A - search and seizure u/s 132 - Whether AO has all powers to go beyond the seized material during the search? - Addition in respect of share capital received - admission of additional evidence - 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 - Accrual of income - Held that - 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 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 under sections 68 or 69 of the Act. Thus 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 - In favour of assessee. Disallowance of various expenses holding that no business activity was carried out - Held that - 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. Thus the expenditure has been rightly disallowed as business of the assessee was not set up. Apropos A.Y. 2005-06, the assessee had obtained the registration and participated in the tenders invited by the Ministry of Defence for which necessary evidence has been referred in the form of correspondence demonstrating the negotiations at various stages. Thus, in A.Y. 2005-06, the assessee was in a state of readiness to obtain the orders if found successful for tendering/ bidding and the expenditure incurred by it is to be allowed as revenue expenditure for the defined period. Addition on unsecured loans from M/s Claridges SEZ Pvt. Ltd. (CSEZ), as creditworthiness of M/s CSEZ was not established - Held that - Merit in the arguments of assessee 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 AO to verify from the seized record about the bank statement of CSEZ and decide the issue after giving the assessee fair and reasonable opportunity of being heard. In favour of assessee for statistical purposes. Disallowance of Interest - Held that - In the absence of the details about disallowance of interest, it will not be possible to adjudicate this ground. Therefore, set aside the issue of interest back to the file of AO to decide the same afresh, considering our conclusion on applicability of sec. 68, commencement of business in 2007- 08, after giving the assessee reasonable opportunity of being heard. Addition of US 3360 found at assessee's premises at the time of search - Held that - 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 & 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.
Issues Involved:
1. Jurisdiction of search and seizure under Section 132. 2. Powers of AO under Section 153A to go beyond seized material. 3. Addition in respect of share capital received. 4. Disallowance of expenditure debited to P&L account. 5. Awarding of suitable cost under Section 254(2B). 6. Rejection of additional evidence under Rule 46A. 7. Addition under Section 68 on account of unsecured loan. 8. Disallowance of interest paid on unsecured loans. 9. Addition of money handed over by a foreign guest. Issue-wise Detailed Analysis: 1. Jurisdiction of Search and Seizure under Section 132: The appellant raised the issue of the legality of the search and seizure conducted on 28-02-2007, claiming the requisite conditions under Section 132 were not satisfied. However, these grounds were not pressed during the hearing and were dismissed accordingly. 2. Powers of AO under Section 153A: The appellant questioned whether the AO has the authority to go beyond the seized material during the search under Section 153A. This ground was also not pressed and subsequently dismissed. 3. Addition in Respect of Share Capital Received: The appellant received share capital from promoter companies based in Russia. The AO added the amounts as unexplained income under Section 68, questioning the genuineness and creditworthiness of the shareholders. The appellant provided various documents, including FIPB approvals, certificates of incorporation, and bank statements. The CIT(A) rejected additional evidence under Rule 46A, but the Tribunal found that the CIT(A) had implicitly admitted the evidence by commenting on its merits. The Tribunal held that the primary burden of proof was discharged by the appellant, and the addition of share capital as unexplained income was deleted. 4. Disallowance of Expenditure Debited to P&L Account: For A.Y. 2002-03 and 2003-04, the Tribunal upheld the disallowance of expenses, concluding that the business was not set up. However, for A.Y. 2005-06, the Tribunal found that the business was set up, and the expenses incurred were allowable as revenue expenditure. 5. Awarding of Suitable Cost under Section 254(2B): The appellant sought costs under Section 254(2B) due to adversities faced, including the refusal of additional evidence and non-consideration of submissions. The Tribunal dismissed this ground, stating that the lower authorities were performing their statutory functions. 6. Rejection of Additional Evidence under Rule 46A: The Tribunal found that the CIT(A) had implicitly admitted the additional evidence by commenting on its merits. The additional evidence was admitted, and the primary burden of proof was considered discharged by the appellant. 7. Addition under Section 68 on Account of Unsecured Loan: The Tribunal remitted the issue of the addition of Rs. 5 lacs unsecured loan back to the AO for verification from the seized records of the lender, who was also searched on the same date. 8. Disallowance of Interest Paid on Unsecured Loans: The issue of disallowance of interest of Rs. 7,54,797/- was set aside and remitted back to the AO to decide afresh, considering the Tribunal's conclusions on the applicability of Section 68 and the commencement of business. 9. Addition of Money Handed Over by a Foreign Guest: The addition of Rs. 1,51,200/- was remitted back to the AO to verify the claim of the appellant, considering the statement and confirmation from the travel agent, which were on record. Conclusion: The appeals were partly allowed for statistical purposes, with several issues remitted back to the AO for further verification and consideration.
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