9911796707
TMI Blog2015 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... thiness of the shareholder, and genuineness of the transaction - the assessee had furnished proof of existence of the investor, proof that the money have come from the investor and has also provided financial statement of the investors, details of the investments by the investors - the statement given by the assessee to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten off in the accounts of the assessee, the CIT(A) has rightly allowed in claimed deduction – Decided against revenue. Disallowance of depreciation on health equipments – Equipments installed at the residence of MD of assessee hotel – Held that:- As decided in assessee’s own case for the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 Paragraphs-3 & 4 of the assessment order and are not repeated here for the sake of brevity. The appellant counters that it has discharged its onus by submitting all requisite evidence, and further that the Revenue has no evidence to establish its claim. 2. The facts and the issues are similar in all the assessment years. For example, if we take the case of assessment year 2005-06, the submissions of the appellant in this regard before the authority below were as under:- "1. Ground No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany 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 appellant has fully discharged the burden cast on it by Section 68 of the Income-tax Act, 1961 by providing full details (including PAN no and bank statements), thus providing sufficient evidence of the resources and creditworthiness of the investor and also conclusively providing the payments made by it to the Appellant. There is no finding recorded that the appellant is not a genuine company which was actually in existence. In such a case, the settled legal position is that the share application money received by the share issuing company is not income but is only a capital receipt in its hands. 1.4 The Ld. A.O. besides making the addition of the said sum in the hands of the appellant, has also made a substantive addition of the same amount in the hands of Mr. Suresh Nanda on the basis that the share capital received by Paradigm Hotels Pvt. Ltd. from Universal Business Solution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Business Solutions Ltd. 8. Certificate dated 12.10.2009 from the Chartered Accountant confirming the shareholding pattern of Universal Business Solutions Ltd. from 31.03.2004 to 31.03.2007. 9. Certificate dated 04.11.2009 from the Chartered Accountant confirming the investments and loan receivables reflected in the balance sheets of Universal Business Solutions Ltd. from 31.03.2004 to 31.03.2007. 10. Copies of Foreign Inward Remittance Certificates along with relevant documents filed with the RBI. 11. Copies of Return of Allotment in respect of shares allotted to Claridges Hotel Pvt. Ltd. 2.2 The appellant, therefore, has furnished proof of existence of the investor, and also proof that the moneys have come from the investors. The Appellant, has also provided financial statements of the investor, details of the investments made by the investor as well as the shareholder details of the investors. These are far beyond what is required by the Act. 2.3 That despite all the evidence placed before the A.O. and the assessee having more than fully discharged its burden in terms of Section 68 of the Income-tax Act, 1961 the A.O. made an addition of the said sum without giving any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the settled legal position is that the application money is not income but is only a capital receipt. 2.5 The Ld A.O. besides making the addition of the "impugned sum in the hands of the appellant, has also made a substantive addition of the same amount in the hands of Mr. Suresh Nanda on the basis that the share capital received by Claridges Hotels Pvt. Ltd. from Universal Business Solution Ltd. Mauritius was in fact the undisclosed income of Mr. Suresh Nanda. The Income-tax Act does not permit the inclusion of the very same income in the hands of the two assessees and taxing the same on substantive basis. This action of the A.O. is patently illegal and for this reason, alone and by itself the addition in the hands of the company is not sustainable". 3. Since the Learned CIT(Appeals) has deleted the additions in all the above assessment years being convinced with the submissions of the assessee, the Revenue is in appeal before the ITAT against the said action of the Learned CIT(Appeals). 4. In support of the grounds, the submissions of the Learned CIT(DR) remained that the above investments are nothing but income generated in defence contract in India received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Star Hospitality Corporation (dt. 26.11.2002) - page No. PB1/ ii. Notarized of certificate of Incorporation on change of name from Star Hospitality Corporation to Universal Business Solutions Ltd. (dt. 14.01.2003) - Pg No. 67-PB1) iii. Notarized copy of Tax Residency Certificate of Star Hospitality Corporation (dt. 24.01.2003 - Page No. 68 - PB1); iv. Notarized copy of Tax Residency Certificate in respect of Universal Business Solutions, Mauritius (dt. 27.01.2009) (Pg. No. 69-PB1); v. Notarized copy of Certificate issued by Barclays Bank, Mauritius confirming maintenance of satisfactory account (dt. 24.06.2008) (Pg. No 70-PB1); vi. Notarized Certificate by issued by Barclays Bank showing Statement of funds remitted to Claridges Hotel Pvt. Ltd. (dt. 15.09.2009 Pg. No. 71 to 72 PB1); vii. Certificate from Chartered Accountant confirming shareholding pattern of Universal Business Solutions, Mruritius. (dt. 12.10.2009 Pg No. 73 to 74 PB1); viii. Certificate from Chartered Accountant confirming investment, loan receivable in the balance sheet of UBSL, Mauritius. (dt. 04.11.2009 Pg No. 75 to 77 PB1); ix. Audited Financial Statement for year ended 31.03.2007 along with Certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly indicates the stand of the assessee. The plethora of evidences filed by the assessee amounts to discharge of primary burden cast on the assessee in terms of s. 68 of the Act for establishing identity and creditworthiness of creditors and genuineness of transaction. iii) Capital receipt: (para 11.6 of Pg 116 PB-1) It therefore naturally follows that if the identity of the nonresident 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 sec. 68 or 69 of the Act. This is clarified by the CBDT Circular itself. vi) Section 5(2) and section 68 of the Act: (para 11.1 of Pg 114/PB1) As held by the ITAT, Delhi in the case of Finlay Corpn. Ltd. [2003] 86 ITD 626 (Delhi), "the total income of the nonresident which is taxable under the Act is defined in s. 5(2) which includes income which: (a) Is received or due to be received in India in the previous year by the assessee or on behalf of the assessee; or (b)Accrues or arises or is deemed to accrue to arise to him India during such year. - The decision in the case of Finlay Corporation Ltd. (supra) has been follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer has doubly taxed the share application money in the hands of Shri Suresh Nanda and the assessee. He drew our attention towards the identical wording in the assessment order summarized in the table below: Assessment order (Claridges Hotel Pvt Ltd.) Assessment order (suresh Nanda)- Para 3.1, 3.2, 3.3 (Pg 2) Para 3.2, 3.3 (Pg. 208) Para 3.5 (Pg3) Para 3.4 (Pg. 209) Para 4.1 (Pg.4) Para 8.2 (Pg. 222) Para 4.2 (pg.5) Para 8.3 (Pg.223) Para 4.3 (Pg 8) Para 8.4 (Pg. 226) 11. In para No. 7.4.5 of the order in the case of Shri Suresh Nanda (supra), the ITAT has held that Shri Suresh Nanda is a major shareholder of Infotech Services which in turn holds only 20% of the shareholding of UBSL, Mauritius. The balance 80% of the shareholding of UBSM is held by the party who are not related much less controlled by Shri Suresh Nanda. He submitted that the following chart of investment has been held to be factually correct by the ITAT: "Claridges Hotels (P) Ltd. A Y: 2007-08 Chart Showing Flaw & Source of Application Money 11. Learned AR submitted that the assessee cannot be taxed as even the source of source is explained and adjudicated upon. In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to amalgamation of Paradigm Hotels Pvt. Ltd., Shantideep Funds (P) Ltd. and Shantideep Hotels (P) Ltd., the Learned AR submitted that in pursuance of Scheme of Amalgamation, the assessee company had received a total of ₹ 1,67,17,88,128 belonging to Universal Business Solution Ltd. through Shanti Deep Funds Pvt. Ltd., Shanti Deep Hotels Pvt. Ltd. and Paradigm Hotels Pvt. Ltd., ₹ 80,45,00,000 out of this total money received has already been taxed in earlier assessment year ₹ 86,72,88,128 received by the assessee company is the addition made in assessment year 2007-08. In respect of this addition, the Assessing Officer alleged that universal business solution is a mere front company to channelize the unaccounted money of Shri Suresh Nanda into assessee company. It has also been alleged that since Universal Business Solution is the source of the money that has come into the hands of the assessee after amalgamation and, therefore, the same has been treated as unexplained by the Assessing Officer. He submitted that following facts and submissions have not been considered by the Assessing Officer while dealing with the addition in question: (i) Increase in share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough three Indian companies, namely, Paradigm Hotels Pvt. Ltd., Shanti Deep Hotels Pvt. Ltd. and Shanti Deep Funds Pvt. Ltd. as share capital/foreign currency loans. These three Indian companies were later on amalgamated with the assessee company through a scheme duly approved by the Hon'ble Delhi High Court vide its order dated 21.6.2007 (w.e.f. 01.08.2006). In lieu of the foreign currency loan, UBSM was allotted further equity in the assessee's company. UBSM is owned by three companies - namely, Infotech Services Ltd. based in Channel 1 Land having 20% Stakes in the assessee's company and Paranal Finance & Mid East Consortium based in British Virgin I land having 80% stakes in the assessee's company. Infotech is owned by Mr. Suresh Nanda whereas Paranal & Mid East are owned by one Mr. Hamilton Andrews, a British National. 16. The Assessing Officer was of the view that the above stated investments are nothing but income generated in defence contracts in India received from outside and brought into India in the garb of investment, including in the assessee's company. The claim of the assessee remained that it has discharged its onus by submitting all requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR has also placed reliance on several decisions including the decision of Lovely Exports Pvt. Ltd. (supra), Shri Barkha Synthetics Ltd. vs. ACIT 283 ITR 377 (Raj.), CIT vs. Dolphin Canpack Ltd. (2006) 283 ITR 190 (Del.), CIT vs. Oasis Hospitality Pvt. Ltd. ITA No. 2093 of 2010 and Ors. dated 31.1.2011 (Hon'ble Delhi High Court) etc. 17. Having gone through the above cited decisions by the parties, we come to the conclusion that the ratio laid down therein is that in order to provide satisfactory explanation as to the "nature and source" of a sum found credited in his books, the initial burden is on the assessee and the assessee is required to prove (a) identity of the shareholder, (b) creditworthiness of the shareholder, and (c) genuineness of the transaction. 18. Now, we have to examine the facts of the present case as to whether in the present case before us, the assessee had provided such satisfactory explanation as to the nature and source of the sum found credited in its books to discharge its initial burden to establish identity and creditworthiness of the share-applicant and genuineness of the transaction. 19. During the assessment year 2007-08, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted money of Shri Suresh Nanda. He held that since the assessee company is the ultimate beneficiary of these unaccounted funds, these are treated as unexplained funds of the assessee. The assessee on the other hand had furnished documents to show that the shareholders of the assessee company were UBSM and three Indian companies, PHPL, HFPL & SHPL. The shares in the Indian companies in turn were held by UBSM. Shareholders of this company were Infotted Services Ltd. Channel I Lands, Mr. Suresh Nanda holding a controlling stake in this company (Paranal Finance, BVI & Mid East Consortium, BVI). The Assessing Officer was also provided with the details showing that Infotech Services Ltd. had only a 20% stake in UBSM, 80% being held by Paranal Finance & Mid East Consortium and that Mr. Suresh Nanda had no interest or shares in the other two companies i.e. Paranal Finance and Mid East Consortium. The Assessing Officer was also informed by Mr. Suresh Nanda that Mr. Hamilton Andrews, a British National hold the controlling stake in the other two companies i.e. Paranal & Mid East and that Mr. Suresh Nanda did not hold any stake in these companies. In support, a duly notarized affidav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant para Nos. 7.4.2 to 7.4.5 of the said order are being reproduced hereunder for ready reference: "7.4.2 Applying the propositions laid down by the Hon'ble High Court we uphold the order of the Learned CIT(Appeals) we hold that the addition in question is bad in law, the order of the Tribunal is also in favour of the assessee. As in the earlier issue of additions made on alleged commission income, here also, the Assessing Officer made additions based on certain documents. The assessee has made detailed contentions on these documents. We examine these documents and the contentions of both the parties. 7.4.3 As it is held that the assessee is a Non-resident Indian, the burden to prove that a particular income has either accrued or received in India is on the Revenue, if it chooses to bring to tax a particular receipt as income. In cases where exemptions or deductions are claimed from taxable income, then the burden of proof is on the assessee. 7.4.4 In this case M/s. Claridges Hotels Pvt. Ltd. received money from its Holding Co. M/s. UBS of Mauritius. This is not a case where the assessee received any money. M/s. UBS, Mauritius is not a company controlled by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mid East, S.A. (v) Annexure A 8 page 38, 38 to 71 support the contentions of the assessee that Info Services Ltd. provide funds to UBS Ltd., Mauritius. (vi) Annexure A 8 page 13 also corroborates the claim of the assessee regarding funding of M/s. UBS Mauritius. There is no controversy on the interpretation of this; document between the Assessing Officer and the assessee. Similar is the interpretation of annexure A 8 pages 70 to 75. (vii) Annexure A 22 pages 67 to 70 does not demonstrate that the assessee has acquired or that the assessee had invested further in M/s. Paramel Finance. Merely because the financial statements including balance sheet of Paramel Finance is sent to the assessee, it does not follow that the assessee had purchased those company that too without any further evidence. (viii) Similarly Annexure A 26 pages 11 to 13 only corroborate the version of the assessee that he invested in UBS, Mauritius through Infotech Services Ltd. and that the stale is ony 20% and that 80% shares of UBS, Mauritius is owned by Mr. Hamitton and Ruse through M/s. Paramal Finance and Mites Company. In our view the statement given by the assessee to the DIT Investigation, New Delhi o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received by the Indian company from its holding company and PTCL towards share capital. The Assessing Officer was not satisfied with the explanation and was of the view that the share capital provided by the assessee company was not genuine and the amount was channelized by Indian company i.e. Russian Technology Centre Pvt. Ltd. (RTCHL) through tax heaven. The Assessing Officer held that the assessee has not established the financial capacity and creditworthiness of the shareholders. Learned CIT(Appeals) upheld the addition made by the Assessing Officer concluding that creditworthiness or the financial strength of the creditor/subscriber and the bank services are not sufficient to establish source. The Tribunal deleted the addition. 24. Almost similar are the facts of the case of present assessee before us. In the present case, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 11.4, 11.5 and 11.6 of the order in the case of Russian Technology Pvt. Ltd. reproduced hereunder: "11.4 The proviso of section 68 though inserted w.e.f. 1.4.2013 also reveals legislative intent that if the share holder is a non-resident and the money is by way of remittance from his account, the rigour 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 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. 11.6 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 identify is not in question through their bank accounts outside India have to be held as capital receipts not exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,128 has also been made under sec. 68 of the Act by the Assessing Officer. The relevant facts relating to this addition are that during the year Shanti Deep Funds Pvt. Ltd., Shanti Deep Hotels Pvt. Ltd. and Paradigm Hotels Pvt. Ltd. (Travellor's Co.) have amalgamated into the assessee pursuant to the approval of the scheme of amalgamation by the Hon'ble Delhi High Court effective from 01.08.2006 in terms of their order dated 21.06.2007 (effective from 01.08.2006). As per the following terms and conditions of the scheme approved by the Hon'ble High Court, shares of the assessee company were to be allotted to the members of the transferor company: a) One fully paid up equity share of ₹ 10/- each of the Assessee for every 185 equity shares of ₹ 10/- each held in Paradigm Hotels Pvt. Ltd. b) One fully paid up equity share of ₹ 10/- each of the Assessee for every 184 equity shares ofRs 10/- each held in Shantideep Hotels Pvt. Ltd. c) One fully paid up equity share of ₹ 10/- each of the' Assessee for every 185 equity shares ofRs 10/- each held in Shantideep Foods Pvt. Ltd. In pursuance of the said scheme, the transferer companies transferred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the unaccounted money of Sh. Suresh Nanda into the assessee company. Since M/s Universal Business Solution is the source of the money that has come into the hands of the assessee after amalgamation it is also treated as unexplained. The floating of various entities and finally amalgamating them is a mere facade to hide the identity of the true investor. A part of this money has already been taxed in earlier years and the remaining amount of ₹ 86,72,88,128/- is treated as unexplained in current Financial Year." The Learned A. O. at Para 7.2 has computed a total amount of ₹ 167,17,88,128/- and after reducing there from the sum of ₹ 80,45,00,0001- actually received by Claridges 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding upon Assistant Collector/Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the order of the higher appellate authorities be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws." Undisputedly, in the case of the appellant company, the investment in its share capital is the destination of the funds and not its source and cannot be taxed as such. The income is to be taxed at source and in the hands where it arises 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 Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Rules, 1962 ignoring this fact that there was no expenditure incurred nor was there any nexus between any item of expenditure incurred by the assessee and the dividend earned by it. As per the provisions under sec. 14A of the Act as it is originally stood by Finance Act, 2001 with retrospective effect from 01.04.1962, in computing the total income of the assessee, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income under the Act. Subsequently, the proviso was added by the Finance Act, 2002 with retrospective effect from 11.5.2001. It provides that this section shall not empower the Assessing Officer either 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Claridges Hotels Pvt. Ltd. had not made any investment out of the borrowed funds but out of the reserve and surplus i.e. own fund. Learned AR submitted that the disallowance cannot exceed exempt income and in support placed reliance on the decision of Tribunal, Delhi Bench in the case of Sahara India Financial Corporation Ltd. vs. DCIT 41 Taxman.com 251 (Del.) . He submitted that if mechanical application of Rule 8D leads to unanticipated absurd receipts, this cannot be regarded as intention of legislature and thus disallowances is to be restricted to the amount of exempt income. He submitted further that condition precedent for the Assessing Officer entering upon a determination of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Maxopp Investment Ltd. vs. CIT (supra). The submissions of the Learned AR on the issue regarding the assessment years 2008-09 and 2009-10, remained that in these years, 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 Hon'ble Allahabad High Court in the case of CIT vs. Shivam Motors Pvt. Ltd. (supra) relied upon by the learned AR has held that in absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. Similar view has been expressed by the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy Pvt. Ltd. (supra) and CIT vs. M/s. Lakhani Marketing (supra). Recently, we have occasion to go through the decision dated 05.09.2014 of the jurisdictional Hon'ble Delhi High Court in the case of CIT vs. Holcim India P. Ltd. ITA No. 486/2014 & 299/2014 wherein similar view has been expressed. The relevant para No. 14 thereof is being reproduced: "On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet section 14A can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to consider whether the amount of ₹ 9 crores share application money should be excluded from investment and if so recompute the disallowance under Rule 8D. We find that both the authorities below have ignored this undisputed material fact that during the assessment year there was no exempt income, thus as per the above cited decisions, there was no question of making any disallowance of expenditure under sec. 14A read with Rule 8D. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to delete the disallowance in question. In the result, objection Nos. 2 & 3 of the crossobjection of the assessee for the year are allowed. Similar are the facts on the issue in the assessment year 2009-10 and the Assessing Officer made disallowance of ₹ 9,74,27,932 under sec. 14A read with Rule 8D. The Learned CIT(Appeals) has noted as "No doubt he has no exempt income that forms part of total income during the previous year. However, it is also undisputed that the appellant has invested ₹ 829,38 crores in the shares of group companies, which have the potential to generate exempt income in future on the investment made.&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 32,35,315 made by the Assessing Officer on account of bad debt written off in the books of account claimed as deduction under sec. 36(1)(vi) of the Act. 38. The Learned DR has placed reliance on the assessment order in this regard with this contention that the Learned CIT(Appeals) has failed to appreciate that none of the account of debtor produced by the assessee had entry showing that the debt has been written off. 39. The Learned AR on the contrary tried to justify the first appellate order while reiterating submissions made before him and the Assessing Officer as well as placing reliance on the decisions cited before him. 40. Having gone through the orders of the authorities below and the decisions cited, we find that now it is a settled position of the law that after amendment in section 36(1)(vii) of the Act w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debt, it is not necessary for the assessee to establish that the debt in fact, has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Since the Assessing Officer has not denied this material fact that the bad debt in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee company cannot take plea that the above design cost pertained to consultancy agreement carried out by UBSL. The Assessing Officer observed that UBSM is a mere investment company and it does not have the wherewithal to provide technical consultancy of any form to the assessee company. He noted further that no details of the services provided or the material purchased on behalf of the assessee were made available, hence, the true nature of these consultancy services has been Revenue in nature cannot be determined. Learned CIT(Appeals) has upheld this action of the Assessing Officer, which has been questioned by the assessee before us. Similarly, in the assessment year 2006-07 ₹ 47,58,902 and in assessment year 2007-08 ₹ 9,11,582 has been sustained on this account. 45. In support of the above ground, learned AR submitted that the amount in question was being paid as consultancy fee to UBSM by the assessee as per the agreement details for assessment year 2003-04 effective from January 2005 entered into between the assessee and UBSM. Pursuant to this agreement, UBSM was to render designing services to the assessee in consideration of which the assessee was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely linked entities and was also abruptly terminated. The Learned CIT(Appeals) held further that as the expenditure was not based on commercial expediency, it was rightly disallowed. While sustaining the disallowance, the Learned CIT(Appeals) has noted that in the assessment year 2004-05, an addition of ₹ 69,26,313 made on account of unexplained expenditure has already been deleted. The Revenue has questioned the deletion of disallowance of ₹ 69,26,313 by the Learned CIT(Appeals) in its appeal for assessment year 2004-05 but after discussing the facts of the case, the ITAT in the preceding paragraphs has upheld the action of the Learned CIT(Appeals). Under the above background, we fully concur with the action of the Learned CIT(Appeals) in sustaining the disallowance made by the Assessing Officer in the assessment year 2005-06. In the assessment years 2006-07 and 2007-08, the Learned CIT(Appeals) has noted further that the agreement between the assessee vide which these payments were made to UBSM was terminated in June 2006. Thus, after termination of the agreement, the payment cannot be held to be for the stated purpose. We, thus do not find any reason to interfere wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AR submitted further that from the details of ₹ 12,97,394 it will be observed that no new assets has come into existence of enduring in nature, being of capital in nature. 51. Learned DR on the other hand tried to justify the orders of the authorities below. 52. Considering the above submissions, we find 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. The expenditure incurred, claimed on Revenue account, is mainly on items, like providing tiles on the roll for water proofing, doors, hinges, replacement of floor tiles, replacement of sanitary appliances, replacing fall ceiling providing new paint in the rooms, refixing the doors after polishing, providing wooden shirting, replacement of wall paneling etc. which, in our view, is the expenditure incurred by the assessee in respect of replacement of old items by new items and no new assets were brought into existence. For example, the water proof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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