TaxTMI 
TaxTMI 
2021 (10) TMI 1002
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....42,80,19.650/- u/s. 68, made on substantive basis, as unexplained investment being made in the shares of M/s. Gulmohar Towers Pvt. Ltd solely on his own suspicion, surmises and conjectures devoid of any adverse material and without appreciating the explanations provided and the evidences placed on record. (b) The Ld. CIT(A) erred in facts and law in not appreciating that there is no possibility that the appellant company could have generated unaccounted income in the year under consideration as it was just incorporated on 13-04-2010 and had not even commenced its business operations. (c) The Ld. CIT(A) / Assessing Officer erred in facts and law in relying upon unconfronted statements of third parties and not even providing any opportunity of cross examination of such parties." 3. The first issue in the appeal of the assessee is that the validity of the assessment order passed u/s.143(3) r.w.s. 147 of the Act is challenged on the grounds of no jurisdiction, invalid, bad in law and against the principles of natural justice. 4. The brief facts of the case are that the assessee company was incorporated on 13.04.2010. A search and survey action was carried out on....
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.... para 3 that "the group has disclosed an amount of Rs..42,80,19,650/- for respective years starting from F.Y.2010-11 to FY 2013-14" and accordingly, the case of the assessee for the year under consideration could not be reopened. The reassessment proceedings initiated u/s.147 of the Act was merely on suspicion that certain income of the assessee has escaped assessment in absence of any independent inquiry or tangible material to establish the same. The contentions of the assessee were rejected by the Assessing Officer vide letter dated 25.10.2017. 5. On appeal, the Ld. CIT(A) upheld the validity of the reassessment proceedings and observed that section 147 of the Act merely states that the Assessing Officer has to have reason to believe that any income chargeable to tax has escaped assessment and that reason to believe can be on the basis of any information which comes to his knowledge or possession which is more than enough for any reasonable person to form a belief. She further observed that the information received by the Assessing Officer was not any anonymous but authenticated information received from the Investigation Wing of the same department. Coming to the satisfactio....
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....42,80,19,650/- can be acquired at Face Value. Please furnish the valuation report of the M/s Gulmohar Towers Private Limited, on the basis of which the above valuation of share at the Rs. 10/- has been arrived at. Ans. Sir, no valuation to arrive at the share price was carried out at the time of the acquisition of the company. As per the understanding with the promoter s of the company the value of the Company on paper was shown at Rs. 10/- per share and the security premium amount as above was paid in cash to the promoter of the company. This money amounting to Rs. 42,80,19,650/- was brought back to the group by way of loans from M/s Gulmohar Towers Private Limited to our different group concerns over a period of time in the following manner:- Sr. Amount 1 N.S Enterprises 60,00,000 25-02-11 2 Vilji Mala Patel 10,00,000 22-11-10 10,00,000 13-12-10 13,00,000 18-04-11 3 Lalji Mala Patel 10,00,000 28-04-11 4 Novelty Stationery 20,00,000 22-11-10 4,00,000 18-04-11 5 Trishul Realty Infra Infra P Ltd 11,85,00,000 27/0....
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.... has escaped assessment and this is a fit case for re-opening under section 147 of the Income Tax Act,1961." 6.1 The Ld. Counsel submits that based on the above statement, the Assessing Officer directly jumps to the conclusion that the group had disclosed an amount of Rs..42,80,19,650/- as undisclosed investment of the assessee company in M/s.Gulmohar Towers Pvt. Ltd. and accordingly he formed a reason to believe that the income of the assessee company has escaped assessment on account of the alleged undisclosed investment. It is submitted that Shri Khimji Karamshi Patel was neither a shareholder nor director of the assessee company during the year under reference and therefore did not have any locus standi to record any statement on behalf of the company. In this regard, attention was invited to Q.no. 6 and reply thereto in his statement wherein he had mentioned about his directorship/ partnership in various concerns and his proprietorship concern which did not include the assessee company. Accordingly, it is submitted that mere admission of a third party having no locus standi in the assessee company that certain income should be offered in the hands of the assessee cannot be ....
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....cropped up. Ld. Counsel relied upon the decision of the Hon'ble Delhi High Court in the case of Pr. CIT v. Meenakshi Overseas Pvt. Ltd. [2017] 82 taxmann.com 300 (Delhi) wherein it was held that there should be a live link between the tangible material and the formation of the reason to believe that income has escaped assessment which is absent in the present case. 6.4 With respect to the year of reopening, it was pointed out that Shri Khimji Karamshi Patel had arbitrarily admitted disclosing the undisclosed investment from F.Y.2010-11 to F.Y.2013-14 whereas the Assessing Officer has reopened A.Y.2011-12 only as if it was the undisclosed investment for the year under consideration i.e. A.Y.2011-12. Therefore, Ld. Counsel submitted that the reopening of the case by the Assessing Officer is based on vague statements made by a third party and the 'reasons to believe' are formed without application of mind. It is submitted that the Assessing Officer has not gone beyond in determining the specific year and amount of alleged undisclosed investment admitted by the party and has merely relied upon the statement and the amount stated therein by a third party and taxing in any year whatso....
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.... recording the reasons for reopening this case. Therefore, it is the contention of the Ld. Counsel that the Assessing Officer knew about the retraction of statement of Shri Khimji Karamshi Patel much prior to the issue of the impugned notice u/s. 148 on 10.01.2017. In this regard, Ld. Counsel sought to rely on the decision of Hon'ble Karnataka High Court in the case of CIT v. Dr. N. ThippaSetty (2010) 230 CTR 265 wherein it was held that, where statements made by the assessee were retracted not once but twice, reassessment notice issued solely on basis of statement is without jurisdiction. 6.6. Finally, the Ld. Counsel for the assessee also argued that it is a clear case of borrowed satisfaction without any conduct of enquiry prior to reopening but being made simply by relying upon a statement of third party during survey, which in any case is vague and that too for various years from F.Y.2010-2011 to F.Y. 2013-14 whereas the Assessing Officer sought to reopen only A.Y. 2011-12 for the whole of the amount without any tangible material. 7. On contrary, the Ld. DR submitted that Shri Khimji Karamshi Patel has given his statement in the capacity of chairman of the group, and he ....
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....11.10.2014 wherein he was asked to furnish the valuation report of M/s. Gulmohar Towers Pvt. Ltd., on the basis of which the valuation of share at Rs. 10/- had been arrived at, as it was impossible that a company having share premium of Rs..42,80,19,650/- could be acquired at face value. In his reply, he had stated that no valuation of shares was done at the time of acquisition of shares and had accepted that Rs..42.80 crores was paid in cash to the promoters of the company which was brought back to the group by way of loans over a period of time. In view of the said facts, Shri Khimji Karamshi Patel had disclosed the same as undisclosed investment of the assessee company in M/s.Gulmohar Towers Pvt. Ltd. for the period starting from F.Y.2010-11 to F.Y.2013-14. The Assessing Officer also placed reliance on statements of Shri Anand Sharma recorded u/s.133A dated 02.07.2013 who is an alleged entry operator wherein he had explained the complete modus operandi of creating shell companies. Considering the statement of Shri Anand Sharma, the Assessing Officer in the impugned assessment order has stated that the same modus operandi had been exactly followed by the Patni group to introduce ....
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....ing a share premium worth of Rs..42,80,19,650/- is sold only at face value. Therefore, the assessee's subsequent change in stand that no cash is paid is not acceptable. To fortify her decision, the ld. CIT(A) relied upon the decision of the Hon'ble Delhi High Court in the case of Nova Promoters & Finlease Pvt. Ltd. 2012 [342 ITR 169]. Accordingly, the addition of Rs..42,80,19,650/- u/s.68 of the Act was sustained by observing that assessee has introduced its own unaccounted money under the garb of unsecured loan and advance against land. 10. The Ld. Counsel for the assessee addressed us with a brief background of facts of the case and the chronology of events that took place as enumerated herein under: - (i). Assessee company got incorporated on 13.04.2010 (ii). Due Diligence Report for acquisition of M/s. Gulmohar Towers Pvt. Ltd. was obtained on 28.04.2010 (iii). MOU was entered with M/s. Gulmohar Towers Pvt. Ltd. on 14.05.2010 (iv). Shares were transferred to the assessee company on 22.05.2010 (v). Search / Survey conducted in case of Patel/Patni group on 09.10.2014 (vi). Statement of Shri Khimji Karamshi Patel was rec....
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....f Shri Khimji Karamshi Patel in his affidavit dated 18.10.2014 that the survey proceedings had commenced on 09.10.2014 and concluded on 12.10.2014 (early morning) without any break which seriously affected the business and impacted him mentally as if he was under arrest. Out of the 3 nights, he was allowed to go home for 2 nights and was not permitted to even rest in the 3rd night. There were 3 statements recorded at different business premises with the survey party consisting of 5 members when even no undisclosed assets or cash was found. Before recording the 3rd statement on 11.10.2014, he was told that survey action will not conclude till the time he makes a declaration of income in relation to the transactions of Gulmohar Towers Pvt. Ltd. Accordingly, he stated under duress and pressure that the cash component of share premium was paid by the assessee company and that the same were brought back to the group by way of loans from M/s.Gulmohar Towers Pvt. Ltd and thereby made a disclosure of undisclosed investment of Rs..42 crores. Shri Khimji Karamshi Patel also affirmed that he was neither a director nor a shareholder in either the assessee company or M/s.Gulmohar Towers Pvt. Lt....
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....ce of any incriminating material found in the course of survey do not carry any legal sanctity and cannot have any evidentiary value in the eyes of law. In this regard, attention was invited to the CBDT Instruction F.No. 286/2/2003-IT (Inv. II) dated 10th March, 2003 and its further Instructions F.No. 286/98/2013-IT(Inv.II) dated 09th January, 2014 and F.No. 286/98/2013-IT (Inv.II) dated 18th December, 2014. As regards statement recorded of Shri Anand Sharma u/s. 133A, the Ld. Counsel submits that the same is taken during the course of survey and has no evidentiary value at all in light of the decision of Hon'ble Apex Court in the case of CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC). Even no copy of the said statement was either provided despite specific request made to the Assessing Officer. Also, no cross examination of said party was granted. As regards the statement of Shri Vivek Agarwal, Ld. Counsel submits that the same in relation to Ms.Ekta Agarwal and M/s. Gulmohar Towers Pvt. Ltd., Ld. Counsel for the assessee submits that these statements have no relevance in so far as the transaction of assessee company is concerned. Also, Shri Anand Sharma and Shri Vivek Ag....
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....t shown in books of account. Ld. Counsel referred to para 7.2 of the assessment order wherein it has been stated that M/s Gulmohar Towers Pvt. Ltd. was purchased by the Patni group at a price of Rs. 2,26,30,000/-. It is submitted that even at para 7.3, the AO has concluded that it is evident that M/s. Gulmohar Towers Pvt. Ltd. is merely a shell/paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group concerns. The Ld. Counsel in this regard submits that the Assessing Officer himself is clear that the alleged investment has been done by the group and there is no specific mention of the assessee company. There is even nothing conspicuous brought on record regarding which concern of the group had actually been engaged in the alleged scheme of things. Thus, without prejudice, the Ld. Counsel submits that the assessee company has been blindly made the scapegoat since its name had cropped up in a statement of Shri Khimji Karamshi Patel who is also neither a director nor a shareholder in the assessee company. 10.4 The ld. Counsel further submits that no enquiry was conducted by the AO on the promoters/shareholders /directors of M/s.Gulm....
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.... regular books where no positive evidence was brought on record by the revenue. 11. The Ld. Counsel for the assessee also made certain arguments without prejudice and without accepting any allegations raised by the Assessing Officer. 11.1 Firstly, he submitted that the version of the Assessing Officer from the assessment order is that the group had earned unaccounted cash which has been paid for the acquisition of shares of M/s. Gulmohar Towers Pvt. Ltd. and the assessee company is a conduit in the transaction. Accordingly, the assessee company cannot be held as a beneficiary to the alleged scheme and that the existence of any undisclosed income of the assessee company itself rules out. 11.2 Secondly, the ld. Counsel submitted that it is a trite law that only the right person should be taxed. He submits that it is the duty of the Assessing Officer to tax the right person who was liable to pay tax on a particular income and merely since the name of the assessee company had cropped up in a statement of a person not connected to the assessee, Assessing Officer could not have proceeded to make the additions in the hands of the assessee in absence of any corroborative evidence.....
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....ked by Assessing Officer or CIT(A) either and hence, whole addition is invalid on this count too. 12. On contrary, the Ld. DR for the revenue sought to rely on the order of the lower authorities. He strongly argued that the findings in the Due Diligence report of M/s. Gulmohar Towers Pvt. Ltd. itself shows that the company is a Kolkata based company and has all the ingredients of a bogus/shell company. Further, the statement recorded of Shri Khimji Karamshi Patel who is the chairman of the Patni group has clearly admitted about the cash payment of Rs..42,80,19,650/-. Also, since the investments are recorded in the books of the assessee company, the assessee is required to substantiate the correctness of the investments being recorded in the books and that nothing has been paid over and above in cash beyond the amount recorded in the books of account more so when overwhelming evidences have already been gathered by the department based on the analysis of the financials of M/s. Gulmohar Towers Pvt. Ltd. who have actual networth of Rs..45,06,67,467/-as on 31.03.2011, statement of Shri Anand Sharma and Shri Vivek Agarwal apart from the admission of Shri Khimji Karmashi Patel. Furthe....
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.... paid. (iv). The only source of investment was reserves and surplus (securities premium) which had been created from past profits nor money had been borrowed and it was practically not possible to acquire a company with huge reserves and surplus at substantially lower price with such huge difference between the price paid and actual price of the company. The Ld. DR for the revenue submitted that all these facts itself clearly indicates that the company - M/s. Gulmohar Towers Pvt. Ltd. is a shell company used for accommodation entries by the assessee and therefore the addition made by the Assessing Officer and confirmed by the Ld.CIT(A) is justified and upheld. In rebuttal to this, the Ld. Counsel for the assessee submitted that it is for the reasons laid down in the Key Findings of the Due Diligence Report that said company was not paid the whole of the networth as appearing in its books due to lack of expertise of management and material mismanagement of funds. The Ld. Counsel drew our attention to the Memorandum of Understanding (MOU) dated 10.05.2010 between the directors of the company and the assessee company to state that on going through the findings of the Due D....
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....avit dated 18.10.2014 have stated that under the pressure of survey party, he was made to blindly sign and affirm the statement given by his father on 11.10.2014 in the night at about 10 pm and affirmed that there is no element of cash involved in the said takeover and also submitted the copies of the Due Diligence Report dated 28.04.2010 and the MOU dated 14.05.2010 with regard to the acquisition of the company. In his Affidavit of retraction dated 18.10.2014, Shri Khimji Karamshi Patel has also explained the pressure and duress faced by him, relevant extract of which is reproduced herein below: - "3. That survey proceedings commenced on 09.10.2014 and was concluded on 12.10.2014 (early morning) without any break 4. That I reside at 602, Petit Towers CHS Ltd. August Kranti Marg, Kemps Corner, Mumbai 400036 and was called at Belapur office at serial no.2 above on 09.10.2014 and my statement was recorded at the said location 5. That from Belapur, on 09.10.2014, I travelled to office at Chira Bazaar office at serial no. 3 above alongwith the officers of income tax department and my statement was recorded even at Chira Bazaar office 6. That I was pe....
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.... Q. no.2 and Q. no. 6 are reproduced herein below:- "Q.2 Please state your educational qualification and explain as to in which capacity you are giving the statement. Ans. I have completed my education till 9th standard. I am giving the statement in the capacity of proprietor/partner/director in various entities/firms/companies as above Q.6 Please mention the concern in which you are either director or partner (% of partnership) and what are the names of your proprietary concerns? Ans. I am proprietor of 1) M/s. Trishul Developers I am partner of 1) M/s. Patel & Associates (60%) 2) M/s. N. S. Enterprises (20%) 3) M/s. Real Trade Corporation (25%) I am Director in M/s. Trishul Realty Infra Private Limited & Nishrin Trading & Investment Private Limited." The Ld. DR for the revenue has also not been able to show us as to how Shri Khimji Patel is considered as a chairman of the group and how his statement of disclosure of income in hands of the appellant company can be applied against the appellant company if he has no capacity or role in the assessee company. 16. Furt....
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.... is clearly held that suspicion how so far may be strong cannot take the place of evidence squarely applies. There is no positive and credible evidence brought on record by the revenue to establish the allegation of cash payment over and above the investment recorded in the books. Neither the search party has found any incriminating material in the course of search on Patel/Patni group nor the Assessing Officer has brought any material/evidence on record in the course of assessment proceedings. Even no adversities or defects have been found in the evidences in the form of Due Dilignence Report, MOU, share transfer forms, share certificates, etc. furnished by the appellant has been pointed out. There is no finding as to who paid the alleged cash to whom either promoter/director/shareholders of M/s. Gulmohar Towers Pvt. Ltd. The AO has not even examined the promoters/directors of M/s. Gulmohar Towers Pvt. Ltd. None of the shareholders of M/s. Gulmohar Towers Pvt. Ltd. have been examined. Nowhere the name of the appellant company has been found to be purported in any of the statements of Shri Anand Sharma and Shri Vivek Agarwal to say that the appellant company had paid cash to M/s. G....
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....stablishing investment not recorded in its books of Account, is not justified." 18. There is also one more aspect in this case which has been argued by the Ld. Counsel for the assessee which is without prejudice to the main submission that the appellant company has not paid any cash over and above the investment recorded in books and hence, no addition is warranted on such guess work and assumptions. The Ld. Counsel submitted that at para 7.3 of the assessment order, the Assessing Officer has mentioned about findings/evidences collected during the course of search, however, there is no incriminating material found in the search at all and that in the conclusion of said para 7.3, the Assessing Officer has concluded that from the statements of Shri Khimji Patel, Shri Vivek Agarwal and Shri Anand Sharma, it is evident that M/s. Gulmohar Towers Pvt. Ltd. is merely a shell/paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group concerns. The ld. Counsel also referred to para 7.2 of the assessment order wherein it has been stated that M/s. Gulmohar Towers Pvt. Ltd. was purchased by Patni group at a price of Rs..2,26,30,000/-. Accordin....
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....had commenced in the group at the time when the company was acquired. Therefore, applying the ratio of Hon'ble Apex Court in the case of CIT v. Bharat Engineering & Construction Co. [1972] 83 ITR 187 (SC); assessee cannot be taxed as there is no possibility of generating undisclosed cash by the assessee in the year under consideration. It is a trite law that only the right person can be taxed under the law and the Assessing Officer cannot pick one person merely because some third party has made disclosure in the hands of the appellant company. As regards taxing the right person, the Hon'ble Apex Court in the case of ITO v. Ch. Atchaiah [1996] 84 Taxman 630 (SC) have observed the following principle: "7..... We are of the opinion that under the present Act, the ITO has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person', we mean the person who is liable to be taxed, according to law, with respect to a particular income. The said principle is also followed in the case of ACIT v. M/s.Kartikya Construction (ITA no. 51/Mum/2006) and Bhushan Steel Ltd. v. ACIT (ITA no. 1646/Del/2014). Even t....