TaxTMI 
TaxTMI 
2022 (4) TMI 1169
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....olidated order for all the years, therefore, same were heard together and are being disposed off by this consolidated order for the sake of convenience. 3. Before dealing with various additions made by the AO in different assessment years, the relevant facts for the purpose of adjudicating the issues as raised before and the background of the case as culled from the impugned order are narrated here under :- 4. Assessee is an individual who through his sole proprietary concern, Sterling Security System entered into a contract with Italy based non-resident entity called, Cartiere Milani Fabriano (hereinafter referred to as 'CMF') which is part of Fedrigoni SPA International Group (hereinafter referred to as 'Fedrigoni'). Fedrigoni, is an international group, specialized in production of bank note paper. The assessee had entered into an agreement with Fedrigoni on 25.09.2006 which was valid till 31.12.2007 for sharing of profits in lieu of services to CMF on supply of currency paper by CMF to Reserve Bank of India (RBI) including its subsidiaries. As per the agreement, the assessee was required to provide services for preparation and participation in the possible tenders and car....
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.... earned income outside India allegedly for assisting in supply of currency papers for other countries. It also a matter of record that no material either during the course of search or post search inquiry whatsoever was found indicating that any income had accrued or arisen in India with relation to any supply of bank note paper in India or any other Government agencies like RBI. Accordingly, assessee being a non-resident had no income in relation with any Indian operation which can be said to be liable to be taxed in India in the block of assessment covered u/s 153A in the present case. 7. Assessing Officer ha noted that, during the course of search proceedings, a copy of agreement between the assessee and CMF Dated 25.09.2006 was found which, in earlier assessment years was part of the assessment record also. AO had incorporated the entire agreement and also the modification agreement. He has deduced that as per the agreement which was valid uptill 31.12.2012, the assessee might have continued to earn net margin which has accrued to the assessee from supply of bank paper note through CMF. This he has taken from the sales made by CMF to RBI post 1.04.2011. Assessing Officer has....
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....-16 517.48 50.23 2016-17 231.18 22.47 2017-18 289.71 28.16 Total 157.65 8. The aforesaid amount was further proportioned by the AO in the ratio of actual credit amount (Rs. 141.82 crores) received in the foreign bank account of the associate companies and the assessee to arrive at actual addition in each of the year in the following manner :- Assessment Year Undisclosed income (C*141.62/157.65) 2012-13 19.79 Crs. 2013-14 4.65 Crs. 2014-15 26.57 Crs. 2015-16 45.12 Crs. 2016-17 20.19 Crs. 2017-18 25.30 Crs. Total 141.62 Crs. 9. From the perusal of the assessment order, it is seen that final conclusion in the assessment order has two limbs: (i) There was accrual /arising of receipts to the appellant from M/s CMF as per agreement dated 2006, in the period 1.4,2011 to 31.3.2017 in India. The main reason for this conclusion by the AO was that M/s CMF had supplied paper to RBI during this period did not have any other agent in India and the agreement with the appellant for sharing of profit on such activities of M/s CMF had not been closed. (ii) The appellant had acquired the st....
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....authorities, the details as mentioned in the assessment order are as under: * St. James Technologies Limited (SJTL) was Incorporated on 3rd May 2016 in Dubai * Mr. Tarun Maheshwari Is shown as the 100% owner of St. James Technologies Limited as per Its incorporation documents. * In the KYC form of the bank, both Sh. S.P. Gupta and Sh. Tarun Maheshwari are shown as partners. * In the bank account opening forms, Sh. S.P.Gupta is the sole authorised signatory of the account. * SJTL received in its foreign bank account between the period from September 2016 to March 2017, around 2,5 Million Euros from Wenrtgen General Trading LLC and around 4,8 Million Euros from Fedrigoni. 12.1.2 As per the assessment order, the facts mentioned are: 12.1.2.1 During the search (i) The appellant In his statement u/s 132(4) had stated that, as the CEO of St. James Technologies, the appellant had developed a colour shifting security thread for M/s Fedrigoni S.p.A. and the payments to St. James Technologies were in the nature of royalty on 20% sales price. However, when asked further about where the assessee had filed the patent, the a....
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..../s 132(4) of the IT Act, 1961, on 29.12.2016 during search, the assessee has admitted that there Is no agreement of him with SJTL for sharing of money of the patent, the relevant part of the statement is as under; Q.76 Kindly refer to your answers to Q.46 and Q.7l, where you have said that Shri Tarun Maheshwari is the owner of M/s St. James Technologies Limited and that you have not received any money from M/s St, James Technologies Limited. Please state whether you have any agreement with M/s St, James Technologies Limited to get money for the patent that you had developed and for which M/s St, James Technologies Limited is getting, the money from M/s Fedrigoni S.p.A. Ans. There is no agreement with M/S St James Technologies Limited. This will be mutually decided between me and Shri Tarun Maheshwari after the completion of year. 12.1.2.2 During the course of assessment proceedings,, the appellant had filed a letter of nomination dated 21.06.2019 addressed to St. James Technologies (SJTL), wherein it has been mentioned that under the license agreement dated 01,01.2016 with M/s Fedrigoni S.p.A and M/s St. James Technologies, M/s Nextgen Trading LLC (NGTL) ....
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.....203 6 between Satya Prakash Gupta, M/s Next Gen Trading LLC (NGTL) and M/s Fedrigoni for development of security thread (PE 613-615) filed. * Nomination letter dated 21,05.2016, signed by NextGen Trading LLC and Satya Prakash Gupta, by virtue of which NextGen Trading LLC nominated St James Technology Ltd to claim 50% of royalty due from Fedrigoni (PB 616) filed, * Letter dated 17.3 2.2018 from M/s Fedrigoni to St James Technologies Ltd, for payment of royalty after deduction of 10% of withholding tax. (PB 622¬625}. * Copy of Email from Fedrigoni dated 27.3 2.2019 (PB 627}. * Seized copy of letter dated G. 12.2016 by Fedrigoni confirming agreement between M/s Fadrigonl and M/s SJTL. * Seized copies of invoices dated 25/7/2016 raised by M/s SJTL for services rendered to M/s Fedrigoni. These. Invoices refer to the agreement dated 01.01.2016 12.1.6 It Is observed that (i) The agreement dated 17.5.2015 submitted by the appellant. is on a plain paper * Signed between appellant & Sh. Tarun Maheshwari as representative of M/s Next Gen Trading (NGT), as first party, and Mr EligioBalabio, Director M/s Fedrigoni S.P.....
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....,12,2018 exchanged between EligioBallabio and the appellant that mentions all the sequence of events leading to development of patent, rights of each party etc. and had been sent from the email containing domain name @fabriano.com, which belongs to M/s Fedrigoni. (vi) Sh. Tarun Maheshwari in his affidavit, duly notarised in Dubai, had stated that he is 100% shareholder in M/s SJTL (vii) The appellant had submitted part of the statement of the appellant u/s 132(4), apart from the part reproduced In the assessment order, which is reproduced as under: "Q.49 Please state how much remuneration is received by you from M/s NextGen General Trading ILC. Ans. I receive AED 20,000 per month from M/s NextGen General Trading LLC. I receive business incentive from M/s NextGen General Trading LLC, M/s Si, James Technologies Limited and M/s Green Peas Business Solutions Limited, My trave1 expenses are also reimbursed by M/s Next Gen General Trading LLC. Q.50 Please state where you receive this remuneration. Ans. I receive my remuneration in my bank account in NBD Emirates Bank. Q.51 Please state whether you have any other contracts, or....
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....ni SpA supplied this security thread Developed by you to any party till date? Ans. M/s Fedrigoni S,p,A has supplied this thread to M/s Landquart, paper manufacturing company in March, 2006 M/s Arfo Wiggins, France in August 2016. Q.71 How much money has M/s Fedrigoni S. p. A given to you or to entities related to you? Ans. I have not received any money directly from M/s Fedrigoni S.p.A. However, M/s Fedrigoni S.p.A gives the money directly to St. Jamti Technologies, I have stiff not got any money from St. James. St. James has got 2.8 million Euros from M/S Fedrigoni S.p.A in October November, 2016 in their bank account in FGB. I will provide the bank account details and the bank statement in a week. Q.72 Has M/s Fedrigoni S.p.A supplied the security thread to any party before May 2015? Ans. As per my knowledge, M/s Fedrigoni S.p.A has not supplied the security thread to any party before May 2015. Q.73 What is the nature of payments received by M/s St. James Technologies from M/a Fedrigoni S.p.A.? Ans. It is received as Royalty. Q.74 Do they deduct any TDS on this payment? Ans. Yes, they deduct 10% TDS.....
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....,1.2016 and claim of Royalty on quarterly basis by M/s SJRL from M/s Fedrigoni as per the terms of the agreement. (b) As per these documents, all these activities had been taken up by the appellant abroad after becoming NRI w.e.f. 1.4.2015. The patent had been developed abroad and as reflected on these, documents, the use of patent by M/s Fedrigoni had not been for supplies to India, the payments had been received by M/s SJPL abroad in its bank accounts. Although the appellant is entitled for his share of Royalty from these receipts of M/s SJTL, but no payments had been received by him as per the statement recorded u/s 132(4). (c) Further the AO had contended that M/s SJTL is a front company of the appellant as there were certain documents filed later by the appellant, which were not stated in the statement u/s 132(4). The appellant had submitted that there is difference in agreement S. nomination letter and in this context the appellant had denied any agreement. It is clarified that the royalty agreement is in between M/s Fedrigoni as first party and the appellant & M/s Nexgen, as second party. M/s SJTL has no agreement with M/s Fedrigoni, but had got assignment ....
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....enTading LLC (NGTL) available in the assessment order, thus the facts stated by Sh. Tarun Maheshwari in his affidavit that he is a minority shareholder cannot be ascertained. But It appears from the totality of facts above that Mr Tarun Maheshwari has full control on financial decisions of M/s NGTL, as it had unilaterally signed the tri-party agreement for providing financial support in lieu of 10% share In Royalty and later assigned it to its 100% ownership entity M/s SJTL, without receiving any amount of royalty In M/s NextGen. In normal circumstances, real majority shareholder will not allow the money receivable in lieu for providing financial assistance to be assigned to another entity without any consideration. There is nothing on record, what was the proposed financial support and actually given support by M/s NGTL. The reasons for such assignment are not emerging from the available data. M/s SJTL's financials are controlled by the appellant as he is the only authorised signatory of bank accounts of M/s SJTL, however the ownership structure of It shows Sh. Tarun Maheshwari as 100% shareholder. M/s SJTL is invoicing & receiving the whole royalty including that of the appel....
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.... Ans. I am the Director of M/s Green Peas Business Solutions Limited and Shri Tarun Maheshwari is the owner. It provides advisory services to M/s. Fedrigoni S.p.A. and has received around 2 million Euros from M/s. Fedrigoni S.p.A. till date. 12.2.2 The AO concluded that from the above facts, that it is clear that the appellant was owner of above company and was not merely a Partner. 12.2.3 During the course of appellate proceedings, the appellant had submitted that this company was not part of the SCN issued by the AO. The statement of the appellant u/s 132(4) on related seized documents Is reproduced under: "Q.124I am showing few Pages 2 to 3 and 50 -54 and of Annexure A6. Kindly comment on the contents of these pages. Ans. These pages are the invoices raised by M/s Green Peas Business Solutions Limited (Pages 2 -3) and M/s St. James Technologies Limited (Pages 50-54) against M/s Fedrigoni S.P.A. Part payment against these invoices has been received." Thus, there were invoices raised by this company to M/s Fedrigoni for its services, seized during the search, which prima facie indicate that this company had done work for M/s Fedrigon....
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.... Is only the appellant. The client is again M/s Fedrigoni, who Is making the payment to the M/s GBPL for certain services rendered by the appellant. Sh. Tarun Maheshwari had mentioned in his notarised affidavit that this company was closed on 30.12.2018. There is nothing on record about it and regarding the money lying in its accounts. There is no statement or evince that shows that the appellant is employed with M/s GBPL & is drawing any remuneration from it. The business interest of the appellant & its relation with M/s GBPL does not have any clarity, except the fact the appellant has all financial control, being the only bank account signatory. As per the available records, Mr Tarun Maheshwari did not had any business connection with M/s Fedrigoni, prior to the appellant being employed by him in M/s NextGen. There Is no other data submitted to prove the credentials of these transactions. Why appellant will use his personal skills for an entity which is not giving anything in return to him, unless he is controlling that entity. Further there is no enforceable agreement of services provided by the appellant and remuneration of the appellant decided in the agreement. There is nothi....
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.... of Client Information profile of the account opening form, it is observed that the business relationship between the assesses and Fedrigoni S.p.A. was still intact and ongoing and the same is evident from the relevant portion of this account opening form received from foreign country which is shown below: ........... 12.3.1.4 The observation of the AO on the basis of these documents is reproduced as under: "It is dear that although the assessee's commission income came as business receipts from a foreign Client, it is to be noted that this commission was derived from the profit earned by the foreign client by safe of currency paper to an Indian entity, i.e. BRBNMPL (a subsidiary of Reserve Bank of India) therefore making in an income accruing or arising indirectly through or from a business connection in Indio. Therefore, although the assessee Sh. Satya Prakash Gupta is a non-resident as on date, the source of his undisclosed income is his business curried out in India on the behalf of M/s Fedrigoni with a business connection in India and therefore this income is taxable in India. In view of the above discussions vide notice u/s 142(1) of th....
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..... document for M/s Sterling Global Partners Limited from the RAK authorities so that I could submit the same to the Department. " 12.3.5 The appellant had explained that the amounts of Rs. 30,95,651/- received in bank account no 0315067643902 are the reimbursements of travelling expenses claimed & received from M/s Fedrigoni. Certain such claim invoices had been seized also. 12.3.6 The observations in this regard are as under: (a) The seized incumbency certificate had been issued by Govt of Ras AI Khalmah. As per the contents of this paper, Mrs. Lisa Thompson is 100% shareholder, director & secretary of this company. However as per the part 3 of Barclay account application form received from foreign authorities, the appellant had been shown as 100% beneficial owner. The facts stated by the AO are correct as far as information of dubious kind of promoter Ms Lisa, 100% beneficial ownership of the appellant, the payments received from M/s Fedrigoni and even some gaps in the statement of the appellant u/s 132(4) on it are concerned. (b) This company had been set up abroad on 3.9.2015, after the appellant acquired the NRI status w.e.f. 1.4.2015. ....
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....with M/s Fedrigoni in all these years. 12.4 Anglo Manx Trust and Ballenta Inc. 12.4.1 As per the assessment order, there are facts & observations made by the AD which are as under: 12.4.1.1 During the course of search, it has been found that during the FY 2015-16, the appellant had received 7 million Euros (Rs. 50.49 crores) from M/s Ballenta Incorporated, Samoa and 4 million Euros (Rs. 28.85 crores) from M/s Anglo Manx Trust Company Limited, Isle of Man, in his personal accounts in Dubai (Euro 9Mn) and Singapore (Euro 2Mn). Both Anglo Manx and Ballenta are mentioned in the Panama Papers as dubious entities of Mossack Fonseca. 12.4.1.2 The appellant previously in his submission dated 18.04.2016 stated that he had no connection with Anglo Manx. During the search on 26.12.2016, he was again asked about his association with Anglo Manx to which he replied, "Q.57Please state whether you have any association with M/s Anglo Manx Trust? Ans. M/s Next Gen General Trading LLC has organized a temporary funding around Eleven million Euros from M/s Anglo Manx Trust to me to setup a project for petroleum products in India. Q.58 Pleas....
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....er a shareholder of the company nor have created any nominal shareholder and nor have ever executed any understanding or agreement with any person at any time in this connection." The copies of the loan agreements were submitted during post-search inquiries on 17th January 2017. 12.4.1.3 Through the bank statements received from UAE Tax Authorities, it was verified that during the period January to March 2016, the appellant had received an amount of 9 million Euros from Anglo Manx Trust Company Limited and Ballenta Incorporated in his bank account in Bank of Baroda, Dubai and the same was transferred to his accounts in India. Further 2 million Euros were transferred from his Citibank account in Singapore. A further amount of 0.4 million Euros was received from Nextgen General Trading LLC in the same period. 12.4.1.4 The Panama Papers Leak announcement was made on 3rd April 2016. * At this point of time, the funds of around 11 million Euros were in his bank accounts in India. * A fresh bank account was opened in the appellant's name in First Global Bank, Abu Dhabi. * On 26th April 2016, a survey action was carried out at the ....
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....x Trust Company Limited in July 2016. Her email dated 12th July 2016 is reproduced as under: "Dear Ms Claire, I am sorry to bother you for a favor as the matter is urgent. This payment is stopped by the Bank may be because Ballenta is appearing in list leaked by Panama. Therefore the Bank urgently needs signed and stamped copies of the agreement as well as the Invoice. I am attaching herewith a copy of Invoice modified by and Invoice No: NXT/BAL/CI/BD/0516-480A. Kindly discuss with Mr. Chris and if convenient he should organize to sign and stamp the agreement as well as the attached Invoice and mail the scanned Copy of the same at the earliest convenient to him. Your kind support in this matter shall be highly appreciated." Further correspondence between Sruthi Anvas of Nextgen General Trading LLC and Claire Cain and Ewan Heap of Anglo Manx (Isle of Man) indicated that they were attempting to redraft the agreement between Ballenta Incorporated and Nextgen wherein Ballenta was paying Nextgen an amount of 1 million Euros for certain services in the period 1st April 2015 to 30th March 2016. It showed that not only were Anglo Manx and Ballenta relate....
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....a Incorporated (Lender), Anglo Manx Trust Company Limited, Satya Prakash Gupta (Borrower) and Nextgen General Trading LLC (Assignee) as per which assessee assigned the rights and obligations under the loan agreements to Nextgen and was to transfer the loan amount within 15 days of the agreement. This clearly indicated the loan assignment agreements were backdated. On being confronted, the assessee replied: "This is an unsigned never used format which may be prepared by my social contacts Vinay Mangla and Vineet Garg and is just an internal discussion which is totally without my knowledge." * The next day, on 8th September, an email was sent by Vi nay Mangla to Vineet Garg with draft letters from Nextgen to Anglo Manx (dated 20th December 2015) and Ballenta (dated 1st February 2016) confirming that Sh. S.P. Gupta is its full time employee and loan may be granted to him on the basis of security from Nextgen. On being confronted, the assessee replied: "These attachments are internal communication between Mr. Vineet Garg and Mr. Vinay Mangla. These are unsigned and have never been used and have never been exposed either to me or to Nextgen General Trading LLC....
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....epayment to Mis NextGen instead of Anglo Manx Trust Company Ltd and Ballenta Incorporated, the assignment needs to be confirmed by all parties concerned at the effective date when the verbal agreement was made which was prior to the date of actual repayment to M/s NextGen in August 2016. Sh. S.P Gupta asked for draft copy of confirmation letter/ agreement to be confirmed by all parties which was provided to him as per his instructions. For the said draft Sh S.P Gupta provided to us signed copy of assignment agreement dated 9th Feb 2016 between Anglo Manx, Ballenta and Sh S.P. Gupta. The said assignment agreement dated 9th Feb 2016 is signed by all parties concerned i.e. Anglo Max, Bellanta and Sh S.P. Gupta. On the same basis and format, Sh S.P Gupta asked to create assignment agreement with M/s NextGen. I cannot vouch for authenticity of information/ documents or parties involved. We relied on the information provided by Sh. S.P. Gupta." It is clear from the above that the communication between Vinay Mangla and Vineet Garg was at the behest of the assessee and not any internal discussion without knowledge of the assessee as claimed by him. It is also clear from the above ....
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..... The statement gets substantiated from email of 06.01.2016, wherein assessee informed AngloManx that it received the amount for setting up of storage facilities for LPG as well as retail outlets for distribution ... ... It is thus apparent that there is never any change in the statement of assessee and the stand of the assessee gets substantiated from various above said emails exchanged between assessee and AngloManx. ... The above referred emails of January & February, 2016 and BRC make it evident that the nature of receipt of loan by assessee from AngloManx and Ballenta was disclosed much before Panama Leak and survey and search & seizure ... " The above contention of the assessee is not acceptable. From the above discussion, it is clear that the assessee's own unaccounted money was routed back to his personal account in the form of loans. It is clear from the mail communication between Vinay Mangla and Vineet Garg that the communication between them was for the drafting and back-dating of loan assignment agreements to provide legitimacy after exposure of assessee's name in panama papers. Further, the assessee has failed to prove that the amount receive....
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....ntries from where the loans had been given to appellant by these entities is not available on records. Further the loan agreements filed by the appellant are on plain paper, which can be created anytime for any date. There is no assignment document filed by the appellant for assigning the loan by these entities to M/s NGTL. There are no circumstances brought on record by the appellant, like earlier debt/transactions of these tax heaven entities with M/s NGTL, which had led to assignment of this amount by these dubious entities to M/s NGTL. It is observed from the documents & activities undertaken by Mr.Tarun Maheshwari that M/s NGTL is controlled by him, who is allegedly front person of the appellant. Due to the name of these tax heaven entities figuring in panama leaks, the appellant had routed this amount back to his account in Dubai and later allegedly to its front entity M/s NGTL. Thus, the appellant had control of this money, which had been routed his account from these dubious entities. 12.5 As per the assessment order, in the light of the discussion made in the assessment order on the above issues, the following points were collated by the AD before concluding the a....
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.... SPMCIL irrespective of any financial condition of Fedrigoni and in turn would have to pay taxes on his commission from Fedrigoni from A.Y. 2012-13 onwards. 12.5.4 Further, as discussed above, while on one hand assessee showed no income from Fedriqoru in India whereas on the other hand he has received payments in FY 2015-16 and 2016-17 in his account or in the accounts of some foreign entities in which he was associated as authorized signatory or Partner or Director. It is very important to underscore here that whatever business entity assessee is associated with, Fedrigoni is also engaged. The same is evident from the fact that Fedrigoni is associated with NextGen, SJTL, Green Peas Business solutions and Sterling Global Partners Ltd. 12.5.5 It is also seen from the Memorandum of Association of St. James Technologies Ltd. and Green Peas Business Solution that though the activities of the companies as mentioned as General Trading, Investments etc, however these entities are associated with Fedrigoni in a highly specialized field of Security thread, Currency papers etc. "Has M/s NextGen General Trading LLC ever received any money from M/s Fedrigoni S.p.A? ....
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....ge of Fedrigoni receipts accrued to Sh. S.P. Gupta (C*100/B) 2008-09 197.93 18.14 9.16 2009-10 109.59 13.21 12.05 2010-11 98.82 7.85 7.94 Average percentage of Fedrigoni receipts accrued to Sh. S.P. Gupta 9.72 12.5.10 Estimating an average of 9.72% of the revenue for the supply of currency paper, the revenue accrued to Sh. S.P.Gupta from A.Y. 2011-12 to 2017-18 is estimated as under: (A) AY (B) Amount paid by RBI to Fedrigoni (Rs. in crores) (C) Estimated revenue of Sh. S.P. Gupta - 9.72% of (B) (Rs. in crores) 2012-13 226.68 22.03 2013-14 53.33 5.18 2014-15 304.32 29.58 2015-16 517.48 50.23 2016-17 231.18 22.47 2017-18 289.71 28.16 Total 157.65 12.5.11 On the basis of amount received by Fedrigoni S.p.A from BRBNMPL, the total undisclosed income of the assessee has been estimated to be Rs. 1S7.65 Crores as mentioned in above table. However, on the examination of various issues, it has been found that the total undisclosed receipts of the assessee, which accrued to assessee between AY 2012-13 to AY 2017-18 but was received in foreign bank account....
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....d. CIT (A) has concluded as under:- "11.2.4 In view these facts & circumstances of the case, it is held that (i) There is nothing on record to prove o r even indicate that agreement of the appellant with M/s CMF signed in 2006 (modified in 2007 for only sharing of profits) was extended or renewed after 31.12,2012. There is neither any statement of any person u/s 132 (4) /133A/131 of the I T Act 1961 nor any material seized during the search indicating anything more than what this agreement has, in term s of change of any clause or extension of dates etc., to support the contention of the AO that the appellant continued to be the partner in profits with M/s CMF even beyond 31.12.2012. Further, the appellant had not fifed any document to claim that the agreement was cancelled/terminated prior to 31.12.2012. The only argument of the appellant is that there were no sharable profits after 1.4.2011. In these facts & circumstances of the case, there is no dispute that the original agreement signed in the year 2006, between the appellant with M/s CMF was valid till 31.12.2012 only. Further there is no evidence on record or denial, either by M /s CMF or the appellant, that....
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.... There appear to be no extraordinary reasons to incur losses by M/s CMF after 31.3.2011. M/s CMF had stated certain reasons in its letter dated 4.1,2018, which are not backed by any credible documentary evidence. As discussed in above para, the documentary evidences submitted by the appellant prima facie do not have any impact on profits of M/s CMF at least for AYs 2011-12 to 2014-15. Without analysis of complete comparative financials of Indian operations for the years under consideration vis-à-vis earlier years, in the light of above analysis on claim of M/s CMF, the proposition of M/s CMF about Its losses from Indian operations cannot be accepted." 14. Finally, the observation and the conclusion of the ld. CIT (A) from paras 15.1 to 15.5 are as under :- "15.1 There is no evidence on record either in the form of seized material or statement to prove that the agreement of 2006 signed between M/s CMF & the appellant had been extended beyond 31.12.2012. Thus the appellant was entitled for his share of profit from M/s CMF for its Indian operations for the period 1.4.2011 to 31.3.2012. Beyond this period, M/s CMF is not under any obligation to share the profits with....
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....ara above (12.1. 7.1, 12.17.1, 12.1.6, 12.2.5.1, 12.3.6, 12.3.7.1, 12.4.2 & 12.4.2.1) while analysing the transactions in these entities, which raises doubts on veracity of such transactions. It is observed that the appellant had no substantial business receipts in India from 1.4.2011 to 31.3.2015 and suddenly within 2 years of acquiring the NRI status, was flushed with work of developing patent for M/s Fedrigoni, became beneficial owner of the company involved in restructuring the business of giant company like M/s Fedrigoni in South America, got the special paper made for central bank of Indonesia for M/s Fedrigoni, was entrusted with Rs. 80er by dubious entities, without any legal guarantee, to develop LPG distribution network in India, without any prior experience in this line of business. Even this amount of Rs. 80 crores was dubiously transferred to M/s Nexgan without any documents in support of such assignment. In such a short span of less than 2 years of becoming NRI, the amounts of Rs. 141.5cr had come in the control of the appellant. Suddenly the flows of money, including the regular flows supposed to flow on account of patent in future years also, stopped after the name ....
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....nnot be taxed in India without establishing that these receipts have accrual/arisen from any activities /connection in India. 15.3 The appellant had filed certain documents from M/s CMF, wherein the claim, that there were no sharable profits after 1.4.2011, had been made. The claim had been analysed above and lacks credibility as per the discussion in para 11.2.3, 11.2.4 & para 14.3 above. In the absence of any financials of M/s CMF for Indian operations, the claims made in the latter dated 4.1.2018 by MIs CMF are rejected. The only alternative left in such circumstances, is to accept the estimation made by the AO on the basis of receipts of M/s CMF. As discussed in para 14 above, the income is being assessed on the accrual basis as per this estimation only and not on receipt basis of money received abroad in dubious entities, as finally adopted by the AD. Thus, the all the pre-conditions of accrual of share of profit receivable to the appellant for the period 1.4.2011 to 21.12.2012 i.e. valid agreement, evidence of supply of material by M/s CMF in India and no evidences of losses to M/s CMF during this period, are fulfilled. Further, there are possibilities, as discussed ....
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....ppeal before us challenging the various additions confirmed and disallowances/enhancement by the ld. CIT (A). 16. Before us, ld. counsel for the assessee, Shri Gaurav Jain reiterating the entire facts and background of the case (as discussed herein above) submitted that all the additions in the present assessments have been made in pursuance of search & seizure action u/s 153A. On the date of search, the assessments for AYs 2012-13 to 2015-16 had already attained finality and stood concluded and therefore, same cannot be reckoned as abated assessments in view of second proviso to section 153A. For all these years, admittedly no incriminating document or any adverse information or material was found so as to indicate that assessee has earned any undisclosed income nor there is any reference to any seized material, albeit there was information post search which again has no relevance on the computation of income made by the AO which was purely based on presumptions and estimate basis. In all the assessment years, AO has merely made additions on estimate of net profit of presumed accrued income and that to be without any material information that any such income had accrued or aris....
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....mail dated 14.02.2013 from Bhartiya Reserve Bank Note Mudran (P) Limited (BRBNML) confirming that Sh. S.P. Gupta, Sterling Security System, was authorised to present M/s. Fedrigoni SPA Italy. (hereinafter referred to as ('Overseas Enterprises') in tendering process. 4. Copy of Email dated 04.02.2013 from the overseas enterprise confirming that they have issued dated 04.01.2012 to the assessee in which services rendered by the assessee have been elaborated." 17.5 The aforesaid order clearly establishes that, the aforesaid agreement(s) were not undisclosed to Revenue or were any new document found in the course of search, but were already on record of the Revenue. Further, the aforesaid agreements contained the terms and conditions relating to scope of services agreed between the assessee and Fedrigoni, including consideration therefor (detailed supra) and did not throw any light on actual income earned by the assessee on the basis of said agreement subsequently. Thus, the aforesaid agreement was not incriminating evidence in any manner, which was either undisclosed or resulted in detection of any undisclosed income earned by the assessee. Furthermore, it is submitt....
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.... II. St. James Technologies Limited ("SJTL") [Refer Pages 16-20 of the assessment order] 17.8 During the course of search, the Revenue found that the assessee was an employee / associate in a foreign company, viz., St. James Technologies Limited (SJTL) incorporated in UAE, which had received some income in its bank account outside India, including from Fedrigoni. No evidence/document suggesting nexus of said receipt with alleged commission income was found, nor has even been referred to in the assessment order. On the basis of some preliminary documents, the assessing officer conducted enquiry from the assessee as also made foreign reference through FTTR Division of CBDT. 17.9 The receipt by SJTL were found for the period from September 2016 to March 2017 (relevant to assessment year 2017-18) i.e. when the assessee had become non-resident in India, w.e.f. 01.04.2015, which comprised of 3.5 million Euro from Nextgen General Trading LLC and 4.8 million Euro from Fedrigoni. On reference to FTTR, the Revenue collected the following information: - SJTL was incorporated on 03.05.2016 (i.e. when the assessee had become non-resident in India); -....
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.... the course of search, suggesting/proving the same. Thus, the CIT(A) has rightly deleted additions made on the basis of allegations made in the assessment order qua the transactions of said foreign company, outside India. III. Green Peas Business Solution Limited ["Green Peas"] [@ Pg 20-23 of AO] 17.15 Similarly during the course of search, the Revenue found certain documents relating to foreign company, viz., Green Peas Business Solution Limited, incorporated in Dubai in 2016 (i.e. when the assessee was non-resident in India) and that said company had received 2 million Euros in June 2016 (i.e. after incorporation of company and in the period when assessee was non-resident, relevant to assessment year 2017-18.) 17.16 No incriminating material or document was found suggesting that the aforesaid amount was paid by Fedrigoni in relation to alleged commission income earned by the assessee in India in relation to supply of currency paper to RBI. 17.17 During the course of search/investigation and assessment proceedings, the assessee submitted that the aforesaid income was in relation to independent advisory services rendered by Green Peas Business So....
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....esaid receipt with alleged commission income earned by the assessee in India. 17.23 The assessee had, in fact, requested Fedrigoni to clarify the reason for payment to Sterling Global, whereby Fedrigoni vide email dated 26.12.2019 attached at Page No.1032 of Volume-III of Paper Book confirmed that the assessee was never involved with respect to independent transaction between Fedrigoni and Sterling Global. 17.24 In the aforesaid facts, it is submitted that no incriminating material/evidence relating to nexus of receipts by Sterling Global with alleged commission income was found in the course of search or, otherwise. The only material with the department was uncorroborated and unauthenticated information by way of the name of Sterling Global in ICIJ Database along with the information received from FTTR Division whereby, the assessee was named as beneficial owner which remains uncorroborated to prove that the assessee was the real beneficiary of the aforesaid income. 17.25 Reference in this regard can be made to the recent decision of Bangalore bench of Tribunal in the case of ACIT v. Reindeer Software Solutions Pvt. Ltd.: ITA No. 1354/Bang/2017 wherein t....
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....ncome to be brought to tax. [Refer: CIT v. Tejaji Farasram Kharawalla Ltd.: 67 ITR 95 (SC); DIT v. A.P. Moller Maersk A S: 392 ITR 186 (SC); CIT vs. Fortis Healthcare Ltd: 181 Taxman 257 (Del)] 17.30 On perusal of the above, it would be appreciated that the Revenue did not find any material, leave alone incriminating material suggesting accrual of alleged commission income and nexus of aforesaid receipt with that income. The allegation of the aforesaid receipt to be in lieu of alleged undisclosed commission income was purely based on assumption, surmises and conjectures, de hors any material suggesting the same. 17.31 Considering that the aforesaid receipts related to the period when the assessee was non-resident in India, the onus was on the Revenue to prove with positive evidence on record that such receipts had nexus with India. Furthermore, the scope of section 153A is restricted to incriminating material found in the course of search. 17.32 In view of the above, even with respect to the captioned issue, no incriminating material was found in the course of search. Thus, the CIT(A) has rightly deleted additions made on the basis of allegations made in ....
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....rising from India, de hors any incriminating material found in the course of search suggesting accrual of income in India or income having any link with alleged undisclosed commission income. Thus, the CIT(A) has rightly deleted additions made on the basis of allegations made in the assessment order qua the aforesaid receipts out of India, between the foreign entities. Conclusion 17.37 In view of the above, it is submitted that the entire impugned additions made by drawing nexus of receipts in the bank account of assessee or associated entities outside India with accrual of income in India/undisclosed commission income in relation to supply of currency paper to RBI was purely based on assumption, surmises and conjectures, de hors any incriminating material/evidence found in the course of search, drawing the aforesaid nexus. 17.38 Accordingly, the aforesaid additions were beyond the scope of assessment under section 153A as also 143(3) of the Act. 17.39 It is the respectful submission of the assessee, that the aforementioned receipts in foreign bank account of the assessee or in the bank account of associated companies were in the period relevant ....
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....income, had nexus with India or had accrued or arisen in India, which has remain undischarged in the present case. As pointed supra, the entire allegation of linking foreign receipts with alleged undisclosed income for supply of currency paper to RBI were purely based on assumption, surmises and conjectures, disregarding the explanation of the assessee and evidences brought by the assessee on record, de hors any evidence/incriminating material found in the course of search." 17. He further submitted that the ld. CIT (A) has admitted that there is no evidence found during the course of search or otherwise relating to earning of income from supply of currency paper to RBI was found and thereafter in the cases where assessments had attained finality and are unabated assessments, no addition can be made de hors any incriminating material found during the course search. In support, he strongly relied upon the judgments of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla [2015] 380 ITR 573 and following decisions :- (i) Pr. CIT, Central 2, New Delhi vs. Meeta Gutgutia Prop. M/s. Ferns 'N' Petals 395 ITR 526 (Del.); (ii) CIT vs. Continental Warehousing Cor....
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....o RBI nor he was found to be active in any manner as agent or as an mediator. In support of his contention, he strongly relied upon the decision of Hon'ble Delhi High Court in case of Suresh Nanda in ITA No.83, 100, 87/2013 judgment and order dated 25.02.2013 wherein the order of the Tribunal was confirmed. In that case, the assessee was an non-resident Indian in the year under question. When the assessee had earned commission income for supply of defence equipment to various foreign entities, addition of Rs. 10.51 crores was made u/s 68 despite he was held as non-resident. The Tribunal as well as Hon'ble High Court has held that onus was on the Revenue to prove that credit in the bank account was as a result of income accrued in India and being an NRI carrying out activities outside pertains to any activity carried out in India and, therefore, no addition could have been made. In this case, in fact, no such amount has been credited in any of Indian account or the account of the assessee even after 01.04.2015 for any operations relating to India. Thus, no addition could have been made simply on hypothetical surmises that assessee might have got certain revenue as a commission agent....
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....n information received through FTTR which was not even before the Assessing Officer, which is reproduced here under :- " The assessee has established a concern namely 'Sterling Security System' in Special Economic Zone and entered into a contract with Cartiere Milani Fabrics (CMF) a part of Fedrigoni Group, Italy. CMF has entered with agreement with Reserve Bank of India to supply currency paper. The assessee was entitled to percentage of net margin equivalent to 41 % or a guaranteed 14% of payment received. The service agreement dated 25.03.2006 was seized during the search and seizure operation against the assessee on 26.12.2016. The assessee has shown positive income till A.Y. 2011.- 12 from Fedrigoni and claimed exemption u/ s 10AA of the I.T. Act. Subsequently, the assessee claimed that no service was rendered to Fedrigoni Group while supplying security paper to RBI with subsidiaries. However, Fedrigoni continued to supply currency paper to RBI through its subsidiaries (BRBNMPL). Fedrigoni does not have any other agent for supply of currency paper. However, the assessee has received money from Fedirgoni, Italy in various foreign entities and assessee&....
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....ee's bank account in Emirates NBD, Bank street Branch account #0315067643902 where there is a credit from Fedrigoni (page 27 of AO). During the search these amount was found credited in the bank account. d. Anglo Manx Trust During the search, it has been found that during F.Y. 2015-16, the assessee has received 7 Million Euros from M/ s Bellenta Incorporated Samoa and 4 Million Euros from Anglo Max Trust. Initially the assessee denied to have any connection, later on during the search statement u/ s 132(4), he accepted that Next Gen General Trading LLC has organized temporary funding of 11 Million Euros from Anglo Manx Trust Company. The assessee shifted this fund to various bank accounts after Panama Papers Leak (page 31 and 32 of AO). The emails were found during search for redrafting of loan agreement after Panama Paper Leak (Page 37 of AO). The Assessing Officer has held this loan transaction as share transaction held to commission income from Fedrigoni (page 43 of AO). The Assessing Officer has estimated income on the basis of three years average of F.Y. 2008-09,2009-10 and 2010-11 of commission percentage on Fedrigoni Receipt at 9.7% for various....
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.....2012, 09.12.2012, 20.05.2013, 15.05.2013 issued by Sterling Security paper for reimbursement of expenses by Sh. S.P. Gupta, which proved the continuance of service by Sh. S.P. Gupta to Fedrigoni from 2012 to 2015. Final Findings of Italian Tax Authority on the Nature of Service Provided by the Assessee to Fedrigoni SPA Investigations were carried out through FT&TR division of CBDT with Foreign Tax Authority which are contained in the paper book. Most important and revealing report is Italian Authority which gave its final report contained in volume 6 of paper book. Page 534 of the paper book contains conclusion of role of assessee summarized by Italian Authority as under:- a. Satya Parkash Gupta, in the year 2012, through the Indian company Sterling Security System, (with office in Delhi-India- 110033, A-6, G.T. Karnal Road, Industrial Area), has supplied services to the benefit of FED RIGONI SPA. b. the services provided by STERLING SECURITY SYSTEM, are confirmed by the information found in the databases employed by the Guardia di Fin nza, totaling 1,057,922.00. No other relations are recorded in the subsequent tax years. c. A....
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.... company itself was obliged to keep. From information acquired during the control activities, it arose that Mr. Gupta acted through companies directly related to him or through companies with which he operated as consultant! contact person without having taken any formal role. The above said companies are: Sterling Export and Sterling Security Systems (with registered office in India), London Security Solutions Ltd. (with registered office in UK), Sterling Global Partners Ltd. (with registered office in United Arab Emirates), Green Peas Business Solutions Ltd. (with registered office in United Arab Emirates), ST. James Technologies Ltd. (with registered office in United Arab Emirates), and Khidmaty Technologies FZE (with registered office in United Arab Emirates). On 07.07.2020, Fedrigoni SPA provided the following answers to questions asked by above auditors to clarify by some aspects: Question 1: Among documentation acquired, some contacts emerged with a company called Sterling Exports. In other words, what is the role played by the latter, and what is the difference from the role carried by the SSS? Answer: To the best knowledge of th....
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.... Stephen Smith, relating to the agreed Remuneration percentage. 8. Reply dated 05.02.2012 of Fedrigoni SPA to the proceeding letter, undersigned by Claudio Alfonsi. 9. Letter dated 15.01.2010 sent by Cartiere Milliani Fabriano SPA towards Sterling Export relating to the commission percentage. 10. Letter dated 21.12.2011 sent by Fedrigoni SPA towards London Security Solutions Ltd. (to the attention of Mr. Cristopher Smith), undersigned by Claudio Alfonsi, concerning the Remuneration. 11. Reply dated 13.12.2011 of London Security Solutions with reference to receding exchange of letters, towards Fedrogoni SPA, undersigned by MR. Cristopher Smith. 12. Letter dated 15.04.2015 concerning the closing of the agency agreement between Fedrigoni SPA and London Security Solutions Ltd. 13. Advisory agreement between Fedrigoni SPA and Sterling Global Partners Ltd. entered into force (Execution Date) on 01.04.2015. 14. Advisory agreement between Fedrigoni SPA and Green Peas Business Solutions Ltd, without date, entered into force (Execution Date) on 01.07.2015. 15. License agreement between Fedrigoni SPA and St. James Technol....
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....aid. Furthermore, fro he charts gathered (please, see subsequent point request number 7). It arose that royalties have been calculated also for the years 2018 and 2019, and duly recorded by Fedrigoni SPA. Moreover, for the tax year 2018 the royalties are to be attributed to St. James Technologies Ltd. whereas for 2019 are to be attributed to Khidmaty Technologies FZE pursuant to the license agreement stipulated on 11.12.2018. The Italian company has also specified that in relation to the royalties recorded in 2018 and 2019, it has not received any invoices and has not paid any amount (for down to final payments) to the above said companies. As regards the type of services rendered, please refer to what Mr. Vittorio SFLIGIOTI point out in the previous point 1. Furthermore, the relationships between FEDRIGONI SPA and LONDON SECURITY SOLUTIONS LTD relating to the tax year 2014 were already subject to objection, in the framework on an audit carried out by Guardia di Finanza against the Italian company. In summary, the objection is based, interalia: - On the documentation certifying the services received(a series of e-mail communications between Satya Parkash ....
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....it notes, also the payment of the commissions accrued with the agreement of association in joint account, as shown in the attached accounting sheet. The company did not provided documentation in order to attest the indicated travels (airline tickets, food and accommodation expenses, etc) Furthermore, Fedrigoni SPA exhibited several invoices (debit notes) issued from 2015 to 2018 by Satya Parkash Gupta relating to reimbursement of expenses, along with the relevant banking documentation and charts of connection with the payments. Also in this case, the company did not provided documentation in order to attest the indicated travels (airline tickets, food and accommodation expenses etc.) Request Number 6 Please, see under the proceeding points 2, 3, 4 and 5. Request Number 7 As regards the calculation of the payments towards Sterling Security System, please refer to the agreements of association in joint account stipulated between Cartiere Miliani Fabriano/Fedrigoni SPA and Sterling Security Systems and to the preceding point, Request Number 4 ("Statements of account" for the period 2010/2012) As far as London Security Solutions Ltd....
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....) for the year 2019 to Khidmaty Technologies FZE on the basis of the license agreement stipulated on 11.12.2018. The Italian company has also specified that in relation to the royalties recorded in 2018 and 2019, it has been received any invoices and has not paid any amount (for down or final payments) to the above said companies. Request umber 8 The Italian company applied the 10% withholding tax-provided for by the Italy / United Arab Emirates convention for the avoidance of double taxation to the payment made in favor of St. James Technologies Ltd. (please, see under point 3 (5). Request Number 9 Please, see the relevant banking documentation attached. From the above final report, it is clear that the assessee has setup new concern but he continued to provide service to Fedrogini SPA from the period during 2010-2020 in connection with supply of currency paper to central Bank of India through various concerns without formal role in each concerns. Therefore, after the report from Italian Authority, it is established that the assessee is providing services in India in connection with supply of currency paper to RBI, and its subs....
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....tions. 5. Consequently, the foreign references made to verify the same was also in furtherance of such assumptions and presumptions, dehors any incriminating material found in the course of search supporting the aforesaid assumptions. 6. In the present report, the Ld. DR at Page 3, Paras 1 to 4 have reiterated the presumptions drawn in the assessment order to submit that incriminating material was found in the course of search, which in the submission of assessee is not correct and has been dealt point-wise at paras 16 to 17.38 at Pages 5 to 14 of Synopsis-II, which is not repeated for the sake of brevity and be read as integral part of this reply as a Rejoinder to the aforesaid allegation of Ld. DR. 7. It is the submission of the assessee that, when no incriminating material relating to allegation made by the AO were found in the course of search, the foreign references made were also outside the scope of investigation under section 153A of the Act, where the assessment has to be restricted to incriminating material found in the course of search; accordingly such foreign references were beyond jurisdiction and therefore the result thereof needs to be ign....
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.... when assessee was non-resident, the same was not taxable in India since it did not had any connection with India. Further, same being pure reimbursement, was not in the nature of income to be exigible to tax. Reference in this regard, can be made to submissions at Para 17.28 and 17.29 of Synopsis-II, which is not repeated for the sake of brevity. 11. Thus, the result of foreign references referred by Ld. DR also did not lead to any conclusion that receipts by foreign companies were in relation to any service rendered by assessee to Fedrigoni in India. Thus, even the foreign references did not bring any material on record to support the original case made out by the AO on the basis of assumptions and presumptions. 12. Having failed in the aforesaid attempt, the Ld. DR has sought to set out a new case for the first time before the Tribunal, on the basis of the aforesaid references and certain ex-parte material (not made available to the assessee), alleging that services were rendered by assessee through a newly named company, i.e. London Security Solutions Limited ("LSS") based out of U.K., [Refer Paras 5, 6, 7 at Pages 3 to 4 and Paras c,d,e at Pages 4 to 5 on wri....
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....en shown by the assessee for such activities. Admittedly, there was no agreement post 31.12.2012 and secondly, even after 01.04.2011 as discussed herein fore that there was no iota of evidence or any material information which could remotely prove that assessee received any money from CMF for any India operation. The entire premise of the AO is based on certain hypothetical presumption that even after the termination of the agreement or end of the agreement on 31.12.2012, assessee might have continued to render services for supply of currency notes which has not been shown in the return of income in India, albeit has diverted his income through certain alleged foreign entities abroad and now the income has been shown outside India. Even if such allegations are correct that assessee was having some kind of interest in these entities as discussed in the assessment order and appellate order, but there is not an iota of any evidence that these entities or the assessee had carried out any operation in India either for supply of currency notes or otherwise on or behalf of CMF or Fedrigoni. The Revenue has not brought anything on record that there was any business connection with assessee....
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.... admitted that there is no incriminating material or document or any evidence either found during the course of search or even after the post search in the year that post 2012, any payment received by the assessee from CMF or any of its entities. Once it is an admitted fact then in the case of unabated assessment where the assessment has attained finality at the time of search, no addition can be made on presumption or estimate basis without any reference to any seized material. Therefore, entire addition/ enhancement made by the ld. CIT (A) has no legs to stand and the same is directed to be deleted in view of the judgment of Hon'ble jurisdictional High Court in the cases of Kabul Chawla and Meeta Gutgutia (supra). 28. In fact, this proposition that no addition can be made without any incriminating material would be applicable for AYs 2013-14, 2014- 15 & 2015-16 also, therefore, on legal ground also, no addition can be made for these years. 28. Insofar as additions made in AYs 2016-17 and 2017-18 are concerned which are abated assessment and assessment of year of search, there is no evidence indicating that assessee had carried out any operation in India or has received any ....