2019 (7) TMI 174 - AT - Income Tax

Unexplained share capital - assessment u/s 153C - share capital received from Y2K Systems International Ltd. (Y2K SIL), holding company - HELD THAT - As during the course of arguments, learned DR 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 order of the learned CIT(A), we dismiss the department s appeal on this ground. Addition on account of pre-operative expenses - expenses claimed as deduction u/s 35D - HELD THAT - Assessee has incurred this expenditure before commencement of business which was in the nature of travelling, telephone and printing expenses etc. These were revenue in nature. Therefore, learned CIT(A) rightly amortized these expenses under Section 35D. Further, no document was seized during the course of search with reference to this addition. Since assessment in this year was originally completed u/s 143(3), therefore, no addition can be made as per law laid down by Hon'ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . This ground is accordingly dismissed. Addition on account of unaccounted credit u/s 68 - HELD THAT - Addition could not be made in the hands of the assessee. It is also clear that during the course of search, no incriminating material was found so as to make this addition. In this case, originally, assessment was completed u/s 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. Unexplained investment - HELD THAT - Issue is covered by the judgment of Hon'ble Delhi High Court in the case of the assessee dated 25th February, 2013 2013 (3) TMI 77 - DELHI HIGH COURT in which it was held that the assessee is a non-resident . The order of the Tribunal is thus affirmed and hence, no addition can be made. Learned DR also did not dispute the above fact. In this view of the matter, it is clear that since similar additions have been deleted in the case of M/s C 1 India Pvt.Ltd. in assessment year 2001-02 to 2003-04 (supra), in which substantive addition is made, therefore, no protective addition can be made in the hands of the assessee. Further, 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.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained share capital.
2. Deletion of addition on account of pre-operative expenses.
3. Deletion of addition on account of unaccounted credit under Section 68 of the Income Tax Act, 1961.
4. Deletion of addition on account of commission earned on defense deals.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Share Capital:
The Revenue challenged the deletion of an addition of ?9,34,15,000/- made by the Assessing Officer (AO) on account of unexplained share capital. The assessee received share capital from Y2K Systems International Ltd. (Y2K SIL), its holding company. The AO made the addition under Section 68 of the Income Tax Act, 1961, suspecting the genuineness of the transaction. The assessee provided extensive documentation, including investment confirmations, balance sheets, tax residence certificates, and bank statements, proving the identity, creditworthiness, and genuineness of the transaction. The CIT(A) found that the primary onus of establishing the source of capital was discharged by the assessee and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that similar issues had been decided in favor of the assessee in related cases, such as Russian Technology Centre Pvt. Ltd. and Claridges Hotels Pvt. Ltd., and that the Revenue had not brought any new evidence to counter the assessee's claims.

2. Deletion of Addition on Account of Pre-operative Expenses:
The Revenue contested the deletion of an addition of ?8,26,863/- made by the AO on account of pre-operative expenses. The assessee claimed these expenses as deductions under Section 35D of the Income Tax Act, 1961, which allows amortization of preliminary expenses over five years. The CIT(A) found that the expenses were in the nature of feasibility reports, project reports, and other preliminary expenses incurred before the commencement of business and were rightly amortized. The Tribunal upheld the CIT(A)'s decision, noting that the assessment was originally completed under Section 143(3) and no incriminating document was found during the search to justify the addition.

3. Deletion of Addition on Account of Unaccounted Credit under Section 68:
The Revenue challenged the deletion of an addition of ?75,00,000/- made by the AO on account of unaccounted credit. The AO treated a loan received from Shri Suresh Nanda as unexplained. The assessee provided confirmations, TDS certificates, and bank statements showing the repayment of the loan. The CIT(A) noted that Shri Suresh Nanda was held to be a non-resident, and the amount could only be taxed in his hands if it was established to have been out of his income accrued or received in India. The Tribunal upheld the CIT(A)'s decision, noting that the source of the credit was explained and no incriminating material was found during the search to justify the addition.

4. Deletion of Addition on Account of Commission Earned on Defense Deals:
The Revenue contested the deletion of additions made on account of commission earned on defense deals based on documents found from Dr. M.V. Rao and Mohan S. Jagthap. The CIT(A) and the Tribunal noted that the assessee was held to be a non-resident and that no income could be taxed in his hands unless it was proved to have accrued or arisen in India. The Tribunal upheld the CIT(A)'s decision, noting that similar additions had been deleted in related cases and that no new evidence was brought by the Revenue to justify the additions.

Conclusion:
The Tribunal dismissed all six appeals of the Revenue, upholding the CIT(A)'s decisions to delete the additions on account of unexplained share capital, pre-operative expenses, unaccounted credit, and commission earned on defense deals. The Tribunal found that the assessee had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions and that no new evidence was brought by the Revenue to counter the assessee's claims.