TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 1169
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....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 carrying out supplies in favour of the concerned buy....
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....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 made very important observation that during the course of search, it was found that Fedrigoni does not have any ag....
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....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 status of NRI w.e.f. 1,4.2015 and the accrued amounts of its share of profit wit M/s CMF for all these years have been received by the appellant in FY 2015-16 & 2016-17 in various dubious foreign entities controll....
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....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 assessee stated that the application for patent had actually been filed by M/s Fedrigoni and that there was agreement to pay him a percentage of royalty on the invoice value of the product produced and sold all over the world. (ii) Further evidence related to St. James Technologies Limited wa....
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....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) have 50% shares of royalty and the rest 50% of royalty is invested in assessee. 12.1.2.3The appellant had filed affidavit dated 4,9.2019 of Sh Tarun Maheshwari duly notarised by Consulate General of Dubai, regarding his NRI status, his minority shareholding in M/s Next Gen Trading LLC (NGTL) since 2012, his 100% ownership of M/s SJTL and M....
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....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.A, Italy, as second party, for development of Colour Shifting Security Thread for the second party. The rear e signatures of even one witness on this agreement without specifying his name on the agreement. * As per clause 9, the agreement is on ad-hoc basis for 1 year and will be modified as per mutual terms 6. conditions. * The M/s NGT will provide capital andM/s Fedrigoni will provide its manufacturing facilities free of cost for developm....
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....ed 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 agreements with M/s NextGen General Trading LLC. If so, please provide details of the same. Ans. No Q.52 Please elaborate the features of the security thread developed by you alongwith M/S St, James Technologies, for M/s Fedrigoni S.p. A. Ans. I have developed d colour shifting security thread with very unique features containing specific colour shifting,, magnetic signals, fluorescent material, demetalization, and impossible to counterfeit. I am working for Nextgen and representing on behalf of Nextgen/their subsidiaries/owned by Nextgen (subsidiaries are Green Peas business solut....
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.... 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. Q.75 Please state, whether you file your return in Italy. Ans. No. I will file the return in Italy if applicable in future. Q.76 Kindly refer to your answers to Q.46 and Q71 where you have said that Shri Tarun Maheshwori 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 got 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 Shift Tarun Maheshwari after the completion of 1 ....
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..... 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 rights from M/s Next Gen. Although M/s SJTL had got assignment rights from M/s NEXT Gen only, it is raising the invoices and receiving the amounts from M/s Fedrigoni for the amounts pertaining to appellant also. As per the account opening form, various agreements submitted and notorised affidavit of Mr Maheshwari, the appellant does not have any ownership in M/s SJTL. (d) The appellant had stated in the statement recorded u/s 132(4) and reproduced above that M/s STTL & M/s Green peas are subsidiaries of M/s NextGen Trading. The Sh. Traun Maheshwari in his notarised affidavit had stated that he had minority Interest and some Emarati family had majority interest in M/s Next Gen, however ownership structure of M/s Next Gen was never provided by the appellant and is even not available in the assessment order. 12.1.7.2 Comments on these....
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.... 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 appellant M/s Fedrigoni, even without any assignment by the appellant. The appellant had not received any amount from M/s SJTL till the data of search as per his statement, It is pertinent to note that M/s SJTL had not received any payments of Royalty from M/s Fedrigoni after FY 2016-17 as per available records, whereas the agreement of receipt of Royalty was up to the year 2020. As per affidavit of 5h. Tarun Maheshwari, he had left M/s SJTL on 31.12.2017, so what Is the fate of money pertaining to M/s SJTL received/receivable till that date/after that. 12.1,6 In view of the above discussion, the suspicion of the AO that the structures of these companies have been created along with the paperwork to justify the transactions of receipt of money from M/s Fedrigoni in the entity M/s SJTL controlled by the appellant, does have some prima facie substance. It is observed that th....
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....as 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 Fedrigoni. The appellant had explained the nature of services rendered and amounts received in the statement of the appellant u/s 132(4). Further the appellant had fled copy of letter dated 6.12.2016 issued on the letterhead of M/s Fabriano and signed by Mr EligioBalablo, Director Commercial, Fedrigoni, which is claimed to have been seized. The contents of this letter are reproduced as under: "Sub: 1 Confirmation of execution of advisory agreement between Fedrigont Spa- Italy and Green Peas Business Solutions Ltd. UAE. 2. Confirmation of execution of license agreement between Fedrigoni Spa - Italy and St. James Technologies Ltd - UAE. Sir, This is to confirm that we are a multinational company having offices in different part of the world and am in manufacturing of different products for different customers all over the world. The above M/s. Green Peas Business Solution Ltd. and St. James Technologies LTD have executed the advisory and license agreement with us and the same a....
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....agreement of services provided by the appellant and remuneration of the appellant decided in the agreement. There is nothing on record to prove that actually the services have been provided and the remuneration received in M/s GBPL is consummate with such services on predefined principles as per any agreement. In the absence of which all this appears to be done on ad-hoc basis as per the mutual convenience of M/s Fedrigoni and the appellant. The exact facts cannot be ascertained as appellant is NRT & the entities Involved are in jurisdiction outside India. In view of these facts & circumstances, the observation of the AO that M/s GPBS is front company of the appellant has some substance in it and the transactions reflected in these documents & statements remain unverifiable from many aspects and the version of transactions reflected in these documents casts many doubts. 12.3 Sterling Global Partners Limited (SGPLJ 12.3.1 The information is collated as under 12.3.1.1 As per the assessment order: * According to the ICIJ database, the appellant was the beneficial owner of M/s Sterling Global Partners Limited. * This company had been set up using the services of a financial i....
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.... u/s 142(1) of the IT Act, 1961 along with questionnaire dated 27.12.2019, the assessee was show-caused as to why the total amount received from Fedrigoni S.p. A should not ha treated as income of the assesses for the year under consideration as undisclosed income." 12.3.2 The assessee submitted his reply on 27.12.2019 at 09:45 PM, submitted as under: "...as regards your query with respect to the amount of 1. 05 million euro received by M/s Sterling Global Partner Ltd. (SGPL, in short) from M/s Fedrigoni SpA it is submitted that the said payment has no relation of any nature or kind whatsoever with the assessee. Pursuant to your query, the assessee requested Fedrigoni SpA to clarify their stand. Through e-mail dated 26/12/2019, Fedrigoni SpA has categorically confirmed that based on its company records, SGPL was directly dealing with its managing director, in the fields of restructuring the group activities and acquisition of a new unit in South America, where the assessee was never involved whatsoever. Copy of e-mail dated 25/12/2019 sent by assessee to Fedrigoni SpA and email dated 26/12/2019 of reply sent by Fedrigoni SpA to assessee is enclosed herewith .... In this regar....
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.... travel of the appellant even from Delhi to Delhi or Delhi as part of his Itinerary from the months of May 2015 onwards, just within 2 months of his becoming NRI on 1.4.2015. Some of the invoices mentioned the tender fees for security thread BRBNMPL. Thus, it is evident that the appellant was involved in the Indian business affairs of M/s Fedrigoni even after becoming NRI, otherwise why M/s Fedrigoni will reimburse his travelling expenses from Delhi to Delhi without any contract with him. Why the appellant will collect the tender document for M/s Fedrigoni and claim reimbursement of amount paid by him for this tender document from M/s Fedrigoni. 12.3.7 On the basis of the above observations, it can be concluded as under: 12.3.7.1 It is clear from the available records that this company had dubious credentials and the appellant is beneficial owner of this entity. The appellant had tried to hide his beneficial status of this entity in the statement recorded u/s 132(4). Again the payment had been made by M/s Fedrigoni for some services provided by this entity. M/s Fedrigoni had issued clarification to the appellant even w.r.t transactions in an entity claimed to belonging to someo....
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....ns. The copy of the same shall be provided as soon as possible. Q.59 Please state when the loan was received and how the loan has been used? Ans. The loan was received around January, 2016 and could not be used and therefore, it was returned around three month back in account of M/s Next Gen General Trading LLC" On being asked about the contradiction with his earlier submission wherein he had said that he had no connection with Anglo Manx, the assessee said, "I had no association with t-t/s Anglo Manx Trust at my personal level. However, I got this loan through the recommendation of M/s Next Gen General Trading LLC " [ ... ] "Q.117 In reference to you answer to Q.57, kindly tell us in detail about the money that has been received in association with M/s Anglo Manx Trust. Ans. On the recommendation of M/s NextGen General Trading LLC, M/s Anglo Manx Trust arranged for a loan for me of 11 million Euros from M/s Ballenta. Q.118 I am showing you a. copy of your emails dated 11th to 20th July 2016 annexed as Annexure D (Pages 1 to 13), between representatives of M/s Anglo Manx Trust and M/s NextGen General Trading LLC Please comment on the same. Ans. This is the corresp....
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....accounts to the new account in First Global Bank, Abu Dhabi. * The same amount of 11 million Euros was then transferred to the accounts of Nextgen General Trading LLC, Dubai in August 2016. 12.4.1.5 During the search proceedings, the appellant had stated that Nextgen General Trading LLC had organized a temporary funding around 11 million Euros from M/s Anglo Manx Trust Limited to the appellant to setup a project for petroleum products in India. He further explained these transactions amounting to 11 million Euros in a later statement: "Nextgen General Trading LLC, where I am the Global Business Development Manager, had come up with a business development plan for setting up a project for storage and distribution of petroleum products in India around October-November 2015. This project was planned to be a joint collaboration between me and Nextgen General Trading LLC. The owner Mr. Tarun Maheshwari together with some Arab co-owners of the firm organized at his exclusive responsibility a loan of 11 Million Euros from Anglo Manx Trust (4 Million Euros) and Ballenta Incorporated (7 Million Euros) around the same time i.e. October-November 2015. The funds of 11 Million Euros were ....
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....ackdated agreement between Ballenta & Nextgen though there was no such agreement before and the arrangement of loan funds from Ballenta to his account was a sham. On being confronted with the copy of email correspondence, the assessee claimed no knowledge stating that they took place under the directions of Tarun Maheshwari. 12.4.1.7 Further evidences related to Ballenta and Anglo Manx were found in email correspondences between the assessee's associates Kunal Bhide (based in London), Vineet Garg (his chartered accountant based in Delhi) and Vinay Mangla (a chartered accountant who heads the tax department of Google India) in September 2016. * First, on 6th September, a mail was sent from the account of Kunal Bhide to Vinay Mangla and Vineet Garg with a copy of a loan agreement between Anglo Manx Trust Company Limited (Assignor), Ballenta Incorporated (Assignee) and Satya Prakash Gupta (Borrower) dated 9th February 2016, supplemental to existing loan agreements amounting to 4 million Euros between Anglo Manx and the assessee. As per this agreement Anglo Manx was to transfer its rights and obligations to Ballenta. This was the original purported arrangement where there was n....
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....P Gupta had NRE account in India in which funds were invested from outside India. On being asked by us about source of funds into this NRE account for the purpose of submission to the income tax department, he informed to us (me and Sh Vineet Garg, his Authorised Representative in the matter) that he took loan from M/s Anglo Manx Trust Company Ltd and Ballenta Incorporated which he had put into NRE account for the purpose of exploring investment opportunity in India. Since the investment did not materialize, the funds from NRE account was sent back. Subsequently, loan funds were returned to M/s NextGen. On being asked by us from Sh SP Gupta as to why loan funds was returned to M/s NextGen when loan was taken from Anglo Manx Trust Company Ltd and Bellenta Incorporated, Sh SP Gupta informed that loan was assigned by Anglo Manx Trust Company Ltd and Bellanta Incorporated to Mis NextGen. "Loan agreements were provided by Sh SP Gupta to establish his claim that he took from these parties. No agreement was provided by Sh. S.P. Gupta with respect to assignment of loan from Anglo Manx Trust Company Ltd and Bellanta Incorporated to Mis NextGen. I cannot vouch for authenticity of these doc....
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....al bank accounts in India, and when this information about the offshore entities came to the knowledge of the Income Tax Department, he transferred the amount back to his personal bank account in Abu Dhabi and finally it was transferred to Nextgen General Trading LLC, a firm controlled by him. Yet the explanation provided by the assessee is that these funds were loans arranged by his employer Nextgen General Trading LLC which he repaid back. it is seen that loan agreements and loan assignment agreements were back-dated by the assessee and his associates in order to legitimize the transfer of 11 million Euros from off-shore entities to his personal accounts in Dubai, Singapore and Delhi. * In view of the above, vide note sheet entry dated 25.12.2019, the assessee was show caused as to why not an amount of Rs. 83.01 Crores (11 million Euros) received from Mis Ballenta Incorporated, Samoa and from M/s Anglo Manx Trust Company Limited, Isle of Man (during the financial year 2015-16 should not be added back to your total income for A.Y.2016-17 by treating it as unexplained money u/s 68 of the IT Act, 1961. In response to this the assessee reply as under: " the email dated 05.01.20....
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....ome received by the assessee from Fedrigoni which he did not declare to tax authorities and instead tried to route through off-shore entities in tax havens. 12.4.2 Following observations are made from the assessment order & the submissions of the appellant: - (i) There is no doubt that these transactions of the appellant are from dubious entities created in Isle of Man (tax heaven) and even there are gaps in the statement of the appellant recorded on these transactions. (ii) These transactions relate to the F.Y. 2015-16, when the appellant was NRI w.e.f. 1.4.2015. (iii) The appellant had no prior experience in the purported sector of petro-chemicals, for which the loan had been claimed by the appellant. (iv) The amounts have been received in the form of loans from these dubious entities. After the Panama leaks became public, a survey was conducted on the appellant and later in 2016, the appellant had immediately taken back the amount to his account in Dubai and returned it to M/s Nextgen Trading LLC, which had been claimed to be the employer of the appellant, without any document for assignment of this loan to it. (iv) There is no evidence on record about the source of ....
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....e assessee was to receive a percentage of the net margin paid to CMF by the concerned buyer. Such percentage of the net margin would be equivalent to 41% or a guaranteed 14% of the payment received. The very next year the assessee on 20.12.2007 changed his contract with Fedrigoni and the share of the profit to the assessee was restricted to 41 % of the net margin. 12.5.2 It is important to note here that as per the terms of the new agreement between the assessee and Fedrigoni, the association of the assessee with Fedrigoni S.p.A. was valid till 31.12.2012. It is also pertinent to mention that in the very year in which the said agreement was to expire i.e. in F.Y. 2011-12, the assessee started showing losses or Nil income despite the fact that the contract of Fedrigoni with BRBNMPL (a subsidiary of Reserve Bank of India) and Security Printing and Minting Corporation of India Limited (SPMCIL) was intact and Fedrigoni was getting payments for its supplies to BRBNMPL and SPMCIL till F.Y. 2016-17, which is evident from the information received from BRBNMPL. The assessee claimed that Fedrigoni was making losses for its operation in India with the above two entities of Govt. of India. L....
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.... General Trading LLC, Mis Green Peas Business Solutions Ltd., M/s St. James Technologies Ltd., M/s Sterling Global Partners Ltd are fronts only to disguise the receipt of payment to the assessee from Fedrogoni S.p.A 12.5.7 In view of the above discussion it is clear that the change in residency status of the assessee coupled with his receipts of payments from Fedrigoni through his foreign entities outside India and showing losses or Nil income in India on the pretext that Fedrigoni is booking losses for its Indian operation is a colorable device to avoid payment of taxes in India. The receipt of the assessee from Fedrigoni S.p.A directly through him or through his front entities in territory outside India is actually the amount which was accrued in India with respect to his commission income for the operations of Fedrigoni S.p.A in India and therefore, needs to be taxed u/s 9 of the IT Act, 1961 in the hands of the assessee irrespective of his residency status. 12.5.8 Fedrigoni does not have any other agent, representative or associate providing them with the services like Sterling Security System. The contract between you and Fedrigoni had not been closed, so there was certain....
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.... Actual undisclosed income for concerned year. Similar submissions have been reiterated in the report dated 4.2.2021 submitted by the AO. Thus, the additions were made to total income of the appellant in respective years as per the above table. On the basis 0f aforesaid information received, Assessing Officer has drawn his presumptions to hold that assessee might have earned money. 13. Ld. CIT (A) in his order has analyzed the entire material and observations of the AO as well as the submissions made by the assessee threadbare and held that firstly, Fedrigoni has not made any payment to the assessee after 01.04.2011, in view of the letter filed by the assessee from CMF confirming that no such payment was made; secondly, there is no evidence after 31stDecember 2012 that the assessee had carried out any activity as a commission agent or any was any way associated with the supply of currency note by CMF to RBI; thirdly, there is no evidence on record that any amount has been received by the assessee in India or abroad during the AYs 2012-13 to 2015-16 from CMF on any account including the share of profit as per the agreement of year 2006; and fourthly, the AO has completely erred ....
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...., product mix of paper, turnover of business etc. The share receipts of the appellant, as per working in the assessment order, were quite high till 31.3.2011 (Rs. 18.14 cr. in AY 2009-10, Rs. 13.21 in AY 2010- 11 & Rs. 7.85 Cr in AY 2011-12 ), but Suddenly went to zero after 1.4.2011. The claim that, as M/s CMF did not have profits after 31.3.2011 , is not a supported argument in view of following facts : (a) As per the table reproduced in assessment order, there was consistent increase in turnover of M/s CMF with M/s BRBNMPL from Rs. 65.50 Cr in AY 2006-07 to Rs. 289-71 Cr in AY 2016-17, with a peak of Rs. 517.48 Cr in AY 2014-15 and a dip to Rs. 53.3 Cr in AY 2012-13. A loss making proposition would not have encouraged M/s CMF to increase the turnover in India for so many years after 31.3.2011. (b) The claim of loss after 31.3.2011 on Indian operations, by M/s CMF as well appellant is not backed by any financial statements or working papers. There is no financial working given by M/s CMF or the appellant, considering the Indian operations of M/s CMF as standalone profit centre. Without any such comparative financials, of profit making in the earlier years before 31.3.2011 and....
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....egal entitlement to claim share of any profit from M/s CMF beyond 31.12.2012. Further there is nothing brought on records by the AO to show that the appellant had given any services to M/s CMF, for its operations in India after 31.12.2012.Therefore, the estimation of income made by the AO, considering that income had accrued/arisen to the appellant after the period 1.1.2013, presuming the continuation of terms & conditions of this agreement is not based on any facts or evidences, but only on conjecture & surmises. 15.2 The AO had alleged that the money received by the appellant in various dubious foreign entities during FYs 2015-16 & 2016-17 is not on account of the activities shown in these entities, but is on account of the share of its profit from M/s CMF, on account of its Indian activities as per the agreement of 2006. It is observed that amounts received in the foreign entities controlled by the appellant are from M/s Fedrigoni and other dubious entities (Rs. 43.64 Cr from M/s Fedrigoni, Rs. 14.97 Cr from M/s Next Gen and Rs. 83.01 Cr from M/s Ballenta & M/s Anglo Maxn Trust). The source & year of amounts in these dubious foreign entities, other than M/s Fedrigoni in, is no....
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.... presumed that the whole amount of Rs. 141.62 Cr in the foreign bank accounts of these entities had been received from M/s Fedrigoni, whereas the evidences on record show only the amount of Rs. 43.64 Cr had been received from M/s Fedrigoni in FY 2015-16 & 2016-17. There is no evidence on record that the remaining amounts routed through other dubious entities have also been sourced from M/s Fedrigoni. The AO had not been able to establish that the money received in these dubious foreign entities controlled by the appellant is on account of services rendered by the appellant as per terms of agreement of 2006 with M/s CMF or any of these receipts have any connection of income being accrued/arisen in India. There are definitely doubts about the money brought in control of the appellant in these foreign entities, just within 2 years of acquiring the NRI status, but the doubt had not been replaced by the evidence on the basis of information collected so far. Thus, the amounts received by the appellant in various dubious foreign entities controlled by it, as NRI cannot be taxed in India unless it is established that the these represent the income corresponding to these amounts had accrued....
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....se, it is held that (a) There is accrual of income to the appellant as per the terms of the agreement of year 2006 with M/s CMF even after 1.4.2011. (b) The income of the appellant, as per the agreement of 2006 with M/s CMF, cannot be estimated beyond 31.12.2012. Thus, the income is estimated for the period 1.4.2011 to 31.12.2012 only. (c) In the absence of any data provided by the appellant, this income is estimated on accrual basis by applying the average ratio, of past years receipts of appellant to the total Indian receipts of M/s CMF, to the receipts of M/s CMF from 1.4.2011 to 31.12.2012, as per the col.3 of the table in SCN of enhancement reproduced in para 14 above. 15.5 Accordingly, the addition made by the AO: (a) For AY 2012-13 is enhanced from Rs. 19.79 Cr to Rs. 22.03 Cr (b) For AY 2013-14, it is enhanced from Rs. 4.65 Cr to Rs. 5.18 Cr. However, in the absence of complete data, the income up to 31.12.2012 is estimated on pro-rata basis at Rs. 3.885Cr. (5.18*3/4). Thus, in totality, the addition for this assessment year is restricted to Rs. 3.885 Cr. (c) For the AYs 2014-15 to 2017-18 is hereby deleted. I am satisfied that the appellant had concealed th....
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....leading to discovery of any undisclosed income therefrom by the assessee. 17.3 The aforesaid agreement(s) were always on record of the Revenue, basis which export income was disclosed and offered to tax in the preceding year(s), which were even selected for scrutiny and assessment was completed under section 143(3) of the Act. 17.4 Reference, in this regard, can even be made to assessment order dated 31.03.2013 (passed much prior to date of search) passed under section 143(3) for assessment year 2010-11 wherein assessment was completed after examining the aforesaid agreement(s) dated 25.09.2006 read with modification agreement dated 20.12.2007. The aforesaid assessment order for AY 2010-11 is attached at Page 1175 to 1182 of Paper Book in Volume IV; the relevant extract thereof is reproduced herein for ready reference: "As regards, the claim for deductions u/s 10AA of I.T. Act, the assessee filed information from time to time. The assessee is claiming that services being provided by him come under the category "Other business services" of Rule 76 of SEZ. The assessee has filed following documents and clarifications to prove that services under the agreement were rendered to M....
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....fficer [Refer: Confirmations at Pages 928-934 of Paper Book - Vol-III] and no evidence of any service by assessee from RBI. [Refer: Reply from RBI at Page 605-607 of Paper Book- Vol-I], which in our respectful submission is outside the scope of assessment under section 153A of the Act. 17.7 The CIT(A), therefore, in our respectful submission, erred in relying upon the aforesaid agreement and make the addition of income for the period 1-4-2011 to 31-3-2012 and 1-4-2012 to 31.1.2012 on the basis of accrual, which was purely based on assumption, dehors any incriminating material/evidence found in the course of search suggesting rendering of any service by the assessee and/or right to receive any income from Fedrigoni. The amount of accrued income was determined only on the basis of assumption of (i) service being rendered by the assessee to Fedrigoni in relation to supply of currency paper to RBI for the relevant period; (ii) percentage of commission income of alleged profits accruing to Fedrigoni; (iii) claim of recovery for that income by the assessee upon Fedrigoni, inspite of clear admission of no such claim on the part of the assessee as well as Fedrigoni. Thus, CIT(A) erred in....
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.... assessee, during the course of search/investigation proceedings as also assessment proceedings, with respect to income earned by SJTL was in relation to royalty income earned from invention of colour shifting thread, which had no nexus with supplies of currency paper by Fedrigoni to RBI. The documents in relation to the same are attached at Pgs 949 to 965 of PB- Vol-III. It was clear in the aforesaid background, that the royalty income was earned by SJTL, a foreign company from Fedrigoni outside India, in lieu of royalty paid for use of patent in security thread supplied in Europeon Countries, which was even confirmed by Fedrigoni vide confirmation dated 17.12.2018, attached at Page no. 962 to 965 of Volume III of Paper Book;. 17.13 Considering that the aforesaid royalty was in relation to royalty accrued outside India, the same was not taxable in India, leave alone in the hands of assessee, who was non-resident in that period, and nonetheless no incriminating material/document was found that the aforesaid receipts by SJTL were in relation to alleged commission income relating to India. 17.14 The allegation of linking receipts by SJTL with commission income in India was pure....
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....aid foreign company, outside India. IV. Sterling Global Partners [@Pg 23-27 of AO] 17.20 As regards the aforesaid company, no incriminating material/documents/evidence was found from the premises of the assessee in the course of search. The sole basis for drawing adverse inference, discussed infra, with respect to the aforesaid company was uncorroborated information received on the basis of ICIJ database that the assessee was the beneficial owner of the aforesaid company, which was set up using the services of inter alia M/s. Mossack Fonseca. 17.21 On the basis of aforesaid information, a survey was conducted, pursuant to which the assessee solicited incorporation document of Sterling Global Partners from UAE authorities, confirming no nexus with the assessee. [Refer Pages 1026-1030 of PB - Vol III] 17.22 The Revenue Authorities made foreign reference through FTTR Division, as per which the assessee was named beneficial owner in the bank account opening form. Further in the bank account of Sterling Global, an amount of 1 million Euros was found credited from Fedrigoni in financial year 2015-16 i.e. when the assessee had become non-resident, on the basis of which adverse inf....
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.... Sterling Global with commission income in India was purely based on assumption, surmises and conjectures, de hors incriminating material found in the course of search or even post search enquiries. 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. V. Amounts credited in personal account of assessee (@Page 27 & 29 of AO) 17.28 During the course of investigation proceedings, on the basis of information received from FTTR Division, the assessing officer found that the assessee had received an amount of Rs. 11,97,909/- and Rs. 18,97,742/- in assessment years 2016-17 and 2017-18 from Fedrigoni in Emirates NBD bank account held by the assessee in UAE. 17.29 It was submitted by the assessee that the aforesaid receipt represented reimbursement of travelling expenses for various travel undertaken by the assessee in relation to aforementioned various business activities carried outside India, which had no nexus with tax liability in India. Even otherwise, since the aforesaid receipt were pure reimbursement, the same was not income to be brought to tax. [Refer: CIT v.....
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....he nature of income, leave alone income accruing or arising in India including alleged undisclosed commission income for supply of currency paper to RBI. 17.35 During the course of search/investigation and assessment proceedings, the assessee substantiated with documents that the aforesaid was loan received which refunded back. In the assessment order, the assessing officer has referred to certain emails at Pages 36 to 39 of the assessment order. It is submitted that the aforesaid emails do not prove accrual/earning of any income by the assessee in India or nexus of any amount with such income or alleged undisclosed commission income for supply of currency paper to RBI. The aforesaid emails only corroborate the stand of the assessee that the amount of 11 million Euros was in lieu of loan granted by Anglo Manx or Ballenta. 17.36 The assessing officer in the assessment order has only drawn adverse inferences on the basis of assumption and presumption, on partial reading of said emails/documents doubting veracity of the loan and alleged the same to have nexus with income accruing or arising from India, de hors any incriminating material found in the course of search suggesting acc....
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....d 2017-18, after a long gap of 4 years. It was only when the assessee started exploring new business opportunities outside India and became non-resident, that income accrued and arose outside India and that, too, in foreign companies in the manner explained above. Thus, the overseas receipts had no nexus with India nor could be considered as accruing or arising in India to be brought to tax in India, more so when the assessee was nonresident in that period. Furthermore, out of total receipts of 22.3 million Euros by foreign entities (Rs. 3.5 + 4.8 {SJTL}, 2 {Green Peas}, 1 {Sterling Global} and 11 {Loan from Anglo Manx}), 14.5 million Euros (3.5 million in SJTL from Nextgen and 11 million loan from Anglo Manx), i.e. more than 50% were not receipts from Fedrigoni, to be related with commission income in relation to supplies by Fedrigoni to RBI. 17.41 The onus, it is submitted, was on the Revenue to bring evidence on record, both in case of assessment under section 153A as also 143(3), suggesting that foreign sourced 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 f....
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....formation found during the course of search that the assessee had received any income from CUF; and secondly, no incriminating material or document has been found to estimate such accrual of income for the AYs 2012-13 as done by the ld. CIT (A) and, therefore, on this ground, the entire addition/enhancement made by the ld. CIT (A) in AYs 2012-13 and 2013-14 is liable to be deleted. 21. Insofar as the assessments which had abated i.e. AY 2016-17 and in the year of search i.e. AY 2017-18, Mr. Jain submitted that it is an undisputed fact that assessee had become NRI w.e.f. 01.04.2015 and nowhere it is found that assessee carried out any business operation or had any business connection in India once he became NRI. In fact, all the documentary evidence and the information which have been received through FTTR, nowhere there is any information or material to allege that assessee had received any income from India operation for supply of currency paper by the CMF to 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 ju....
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....ee was not involved and now, the entire payment has been routed through different foreign entities abroad. All these facts show that there is strong indication that certain income of assessee is taxable in India which has not been disclosed. He has referred to certain statements recorded in page 18 of the AO which are duly incorporated herein above while reproducing the findings of the AO and ld. CIT (A). 23. As regards the contention of the ld. counsel for the assessee that no incriminating document was found during the course of search, ld. CIT DR submitted that agreement of dated 20.12.2007 which was found during the course of search is the supporting document and coupled with other certain emails which have been referred to by the AO, can be treated as incriminating material found during the course of search. He thereafter referred to material referred to by FTTR and submitted his detailed report and submissions. In his written submissions he has given 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 a....
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....im and Nextagen General Trading LLC and Fedrigoni (Pages 18&19 of the AO). During statement u/s 132(4) , the assessee has accepted that 50% shares of royalty will be given to assessee. b. Green Peas Business Solutions Ltd. This company is incorporated in 2016 in Dubai. Fedrigoni SPA has paid around 2 Million Euro for advisory services given to Fedrigoni (Statement u/s 132(4) page 20 of A.O.) assessee is shown partner in bank record. c. Sterling Global Partners Ltd. This is the company incorporated in DAB. The assessee has denied any ownership in this company. From the information received from Foreign Tax Authority, it revealed that the assessee is the beneficial owner (Page 23 & 24 of A.O.). Further, there is a credit of 1,05,0000 Euro from Fedrigoni SPA on 08.03.2016 in A/ c # 78187588. Further, Foreign Tax Authority has confirmed assessee'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 Euro....
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....tion Ltd. iii. Green Peas Business Solution Ltd. iv. St. James Technology Ltd. v. Khidmaty Technolgoes FZE 6. Fedrigoni has supplied copy of agreement dated 01.01.2012 related to the possible supply of papers in respect in favour of Bank of India, stipulated between Fedrigoni SPA & London Security Solutions Ltd. which show that Sh. S.P. Gupta was involved in providing services to Fedrigoni SPA for supply of currency papers. 7. Letter dated 01.02.2012 of London Security Solution Ltd. relating to determination of percentage of commission with Fedrigoni shows continuance of Sh. S.P. Gupta's service to Fedrigoni. 8. The Italian company provided various debt vide dated 12.09.2012, 16.10.2012, 26.11.2012, 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 reveal....
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....4.8 million euros from the Italian Company Fedrigoni SPA. Italian Authority has given point wise reply in page 538A to 543A of Paper Book which is reproduced as under.- Request Number-1 Fedrigoni SPA exhibited a letter made up of 6 pages undersigned by Mr. Vittorio SFLIGIOTTI in his capacity of Fedrigoni SPA proxy, with which it has described the relationships and the contractual dynamics occurred with GUPTA and his related companies. The company also specified that- pursuant to the Italian Legislation-documentation it gathered was principally related to the years from 2010 to 2020, that is the documentation the 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.....
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....process of changing its name to London Security Solutions Ltd, dated 06.06.200S and undersigned by Cristopher Stephen Smith and Claudio Alfonsi, plus one page attached. 6. Agreement related to the possible supplies of papers in favour of the Bank of India, stipulated between Fedrigoni SPA and London Security Solutions Ltd, dated 01.01.2012 and undersigned by Cristopher Stephen Smith and Claudio Alfonsi. 7. Letter dated 01.02.2012 of London Security Solutions Ltd. towards Cartiere Miliani Fabriano SPA, undersigned by Cristopher 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....
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....x Residence Certificate issued by the United Arab Emirates tax administration. The gathered invoices refer to costs pertaining to the years 2016 and 2017; in connection to the payment of the invoice SJ/2019/102 dated 25th July 2019 for an amount of 2,000,000,00 Euros . The company Fedrigoni SPA exhibited only a bank transfer for a down payment of 900,000,00 Euros Fedrigoni SPA stated that the said invoice still remains to be paid. 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 ....
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....nses for travels - according to the Italian company carried out Satya Parkash Gupta, furnished with the relevant banking documentation and charts of connection with the payments. The payments of 350,000,00 Euros (currency date: 17.01.2013), 356,000,00 Euros (currency date: 12.04.2013) and 351,676,14 (execution date: 23.05.2013) include, in addition to the payment of the debit 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 ....
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....culation of royalties accrued from 2016 to 2019. As already mentioned in the previous point 3, Request Number 3, also in the years 2018 and 2019 the royalties were duly accounted for by Fedrigoni SPA and were attributed: (i) for the tax year 2018 to St. James Technologies Ltd. , (ii) 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....
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....foreign companies were in lieu of alleged services that may have been rendered by assessee to Fedrigoni in relation to supply of bank note paper to RBI was purely based on assumptions and presumptions. 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 ....
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.... assessee was resident was duly accounted and disclosed in the return of Income filed for those years. As regards, the reimbursement of expenses for the period 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 com....
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....2011-12 has already been incorporated above. From AY 2012-13, no income has been 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 b....
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....d by the ld.CIT (A) in AY 2012-13, first of all, even though ld. CIT (A) had 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....