AI Drafter 
TaxTMI 
TaxTMI 
2022 (6) TMI 446
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....pplication of mind besides non-understanding and appreciation of the principles of law. 4. The CIT(A)-3, Mumbai failed to understand the true meaning and purport of contracts of novation which can even be oral and need not be reduced into writing and what is required is the consent and concurrence of the parties by recording the transactions. 5. The CIT(A)-3, Mumbai failed to appreciate the substance and essence of the transactions and he was more concerned with the forms and frills. 6. The CIT(A)-3, Mumbai failed to appreciate when there is a perfect understanding between the contracting parties to the contract of novation, the external paraphernalia as adumbrated by him are totally immaterial. 7. The CIT(A)-3, Mumbai was more bothered about the stamping of the document instead of understanding and appreciating the consensus between the parties forgetting for a moment the collection of short fall in the stamp duty is the duty of the State Government. 8. The CIT(A)-3, Mumbai was more concerned about non-enforceability of contract between the parties instead of understanding and appreciating the true purport of the transactions and in the....
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.... Money Laundering Act and there was no show cause notice or proceeding or arrest or confiscation of any asset and the story spun by India Today has become sacrosanct for the CIT(A)-3, Mumbai. 18. The CIT(A)-3, Mumbai ought to have confronted the appellant with the true certified copy of the purported report of Enforcement Directorate instead of directing the appellant to refer to the newspaper story of India Today vide his letter at page 18 of 19 of the order and such newspaper reports cannot be the basis for assessment or appeal proceedings. 19. The CIT(A)-3, Mumbai failed to understand that undisclosed income introduced in the books either by way of cash or cheque is treated as income under section 68 and not journal, book, adjustment entries arising out of understanding and agreement between the parties. 20. The CIT(A)-3, Mumbai failed to appreciate the appellant took over the debts payable to Stephen Financial Services Pvt. Ltd, and Manali Properties & Finance Pvt. Ltd and in turn it was allotted equity shares of Dunlop India Ltd. and Falcon Tyres Ltd. which are listed and quoted in the Bombay Stock Exchange. 21. The case laws cited by CIT(A)....
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....otice was issued on 2/3/2015 in response to which the replies were received in tapal. Thereafter the learned assessing officer proceeded to assess both the above transactions as bogus, non genuine for following reasons . 03. in case of M/s Manali properties and finance private limited, Falcon tyres Ltd had assigned the loan to assessee which is interest free loan of Rs. 21 crores without any mortgage or security pledged by the assessee with Manali properties and finance private limited. Assessee is also not a related party. The return of Manali properties and finance private limited shows current loss of Rs. 81.95 lakhs and meager share capital of Rs. 4.13 crores. Manali properties and finance Ltd was found to be a Calcutta-based party and does not have any business but carrying on share financing activity and merely an entry provider for these kind of unsecured loans. Learned AO also found that assessee has signed a tripartite agreement on non Judicil stamp paper of Rs 100/- which does not have any registration mark or even not notarized before any competent authority. Therefore the AO held that the amount of above loan of Rs. 21 crores assigned by Falcon tyres Ltd is non-genui....
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....contract is substituted, the rights under the original contract are relinquished or replaced by the new contract. In every novation, there are four essential requisites: (1) A previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of old contract; and (4) the validity of the new one. Since the novation is a new contract, it must possess the essential elements of a contract. b) Whether the contract of novation is chargeable to Stamp Duty: Sub-section (14) of Section 2 of the Indian Stamp Act, 1899, defines the term "Instrument" as under: "Instrument" includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded." In Novation, since a new contract is substituted for an old one and the new agreement extinguishes the rights and obligations that were in effect under the old agreement, it falls under the definition of the term "instrument" as defined under the Indian Stamp Act, 1899. Hence, a novation agreement is an 'instrument' under the Indian Stamp Act, 1899. ....
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....one lacs fifty-seven thousand five hundred five only), ("Assigned Loan") out of the total outstanding loan amount of Rs. 1,44,04,50,000/-, to the Assignee. The Assignee, as a consideration for the Assigned Losses, has agreed to pay a sum of Rs. 50,41,57,505/- (Rupees Fifty crore forty-one laes fifty-seven thousand five hundred five Only) to the Assignor by 31" October, 2012 or earlier. 2. In consideration of a sum of Rs. 50,41,57,505/- ((Rupees Fifty crore forty-one lacs fifty-seven thousand five hundred five Only) to be paid by the Assignee to the Assignor (which the Assignor hereby agrees and acknowledges), the Assignor as beneficial owner of the Loan hereby assigns and transfers to the Assignee, the Assigned Loan due and owing to the Assignor along with the rights, interest and obligations therein." A plain reading of above clauses shows that the consideration payable by the appellant to Manali is Rs. 50,41,57,505/- which is agreed to be paid by 31st October, 2012 or earlier. The appellant in his books has credited the above amount to Manali debited to Falcon. This entry by itself cannot be called the consideration paid to Manali for taking over its loan to Fal....
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....attle, the Kolkata High Court had passed a winding up order for DIL in 2012 wherein the High Court had exposed the fraud committed by Pawan Kumar Ruia (PKR) group and ordered the properties to be transferred back to DIL. The PKR group feared that the high court order would make ICICI Bank insecure and force them to use the second collateral by invoking the shares of FTL and DIL. If invoked, ICICI Bank would have controlling stake and power to change the management in these companies. So to overcome this threat, PKR group had planned money laundering to the tune of Rs 200 crore. 7.8 Modus operandi was as usual. As per the investigation report, Manali Properties and Finance Pvt Ltd a PKR group company created a loan of Rs 165 crores in the book of accounts of FTL. Instead of asking the company to repay, PKR assigned this loan to three hawala companies i.e. Suncap Commodities Ltd, Regus Impex Private Ltd and Salputri Commerce Pvt Ltd. The deed of assignment had been induced with conversion clause wherein Falcon Tyres Ltd could issue new shares worth Rs 165 crores to these three companies instead of paying back the loan. As per the plan it reduced the collateral security pledg....
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....ary transaction or gain to the transferor company. 7.13 As per information on records, after making the said debit/credit entries in books, the appellant has got allotted the listed shares in Falcon/ Dunlop against their debits, however there is nothing to show how the credit entries in name of Manali/ Stephen are settled, or if at all settled in near future. In net, the assessee has got valuable shares worth Rs. 50.42 crores & Rs. 21.00 crores without having to make any actual payment in the year under consideration. The virtual financing for such shares is made by Manali/ Stephen, to whom the appellant do not have to pay any interest and also no security is given by appellant to said companies. By any stretch of imagination, such an arrangement cannot be construed to be on any commercial terms, especially when the appellant do not have any relationship with Manali/ Stephen. Therefore, the genuineness of transaction with said parties is not proved. 7.14 Now coming to credit worthiness of Manali/ Stephen, the AO has discussed their financials in assessment order. Manali had shown current year loss of Rs. 81.95 lakhs and having a meager share capital along with res....
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....hendra Kumar Agarwal 142 TTJ 35 (Jaipur). I have gone through these judgments and find the facts of appellant's case to be distinguishable, as discussed below: a) In the case of Jatia Investment Co. (supra), the cash book showed that there was merely a circulation of cash ending at the point it began, the cumulative effect being the assessee became a debtor to GB & Co. in place of three companies of the group. The fact that there was no passing of cash was also admitted by the Income-tax Officer himself. The adjustment entries were made by notional cash entries with a view to bringing down the debt-and capital ratio. The said three companies discharged their debt on liability side and jettisoned their assets i.e. share held by them of equivalent sum on asset side. In these circumstances, it was observed by hon'ble High Court of Calcutta that the effect and import of the transactions was that the assessee took over the liability of the aforesaid non-financial companies to GB & Co. in exchange for the shares as aforesaid. Therefore, it was held that the amount of loan in question could not be treated as assessee's income from undisclosed sources. b) In t....
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....nts of Deed of Assignment do not speak the whole truth, and there is something behind the scene which has prompted the parties to enter into such arrangement. 7.19 The appellant was given show cause vide this office letter dated 23.01.2017 which reproduced for ready reference: By Registered Post/Speed Post Office the Commissioner of Income Tax (Appeals)-3, Room No. 359, M.K. Road, Aaykar Bhavan, Mumbai- 400 020 No. CIT(A)-3/Show Cause /2016-17/ Date: 23.01.2017 The Principal Officer, M/s Suncap Commodities Ltd. 302, 3rd Floor, Kumar Plaza, Kalina Kurla Road, Near Kalina Market, Santa Cruz East, Mumbai-400 020. Subject:- Show Cause notice Under Section 250 of the I.T. Act, 1961 PAN:-AACCN2950K AY. 2012-2013 CIT(A)-3/DCIT-1(3)(1)/IT-62/2015- 16- regarding - 1. In your precise Grounds of Appeal, you have termed the two Deed of Assignment as "Contract of Novation", as recognized by the Indian Contract Act, 1872. The essential feature of Novation of contract is that when a contract is substituted, the rights under the original contract are relinquished or replaced by t....
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....interest is paid to the creditors i.e. M/s Manali Properteis and Finance Private Limited and M/s. Stephens Financial Services Private Limited and these are not your related parties. Such an arrangement does not seem to be on commercial terms. Hence, please prove the genuineness of transaction with said parties. 5 As discussed in Assessment Order, M/s Manali Properteis and Finance Private Limited had shown current year loss of Rs. 81.95 lakhs and having a meager share capital along with reserves & surplus for year ended 31.03.2012 at Rs. 4.13 crores. It was a Kolkata based party and had shown trade payables of Rs. 155.96 crores which proved that the said party had no business but only a sham financial entity and appeared to be merely an entry provider for these kind of Unsecured Loans & Advances Transactions. Similarly, M/S Stephens Financial Services Private Limited had shown current year loss of Rs. 777/- crores and had share capital along with reserves and surplus for year ended 31.03.2012 at Rs. 190 crores, and in this case the reserves and suplus was made up of Share Premium Account worth Rs. 188.10 crores. It meant that said company had no means and no profit....
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....e three companies instead of paying back the loan. As per the plan it reduced the collateral security - pledged with ICICI bank to minority and simultaneously managed Rs 165 crores hawala and money laundering between Manali Properties and the three companies. Later on, FTL made a preferential allotment of shares to these three companies upon an alleged conversion of outstanding loans. On Feb 9, 2012-Manali Properties had assigned portions of the debt of Rs 144 crores as under i.e. Suncap Commodities Limited (Rs 50, 41, 57,505), Regus Impex Private Limited (Rs 50, 41, 57.506) and Salputri Commerce Private Limited (Rs 43, 21, 34,985). In addition, an idential model was executed with Dunlop India Ltd, wherein Dunlop shares of Rs 60 crores (appox) were alloted to these three companies. Thus, the total transactions under ED investigation with the three companies amounted to Rs 204 crores. ED in its report said, "It needs to be enquired as to how the company with the paid up capital of Rs 1.11 crore could afford to give a loan to the tune of Rs 144 crores on interest free basis. Surprisingly, the loan is given to a group company. If the sources of funds at Manali Proper....
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....n considered while passing this order. Appellant has reiterated its earlier version and did not produce any supporting evidence in support of the grounds of appeal. In view of above discussion, it is crystal clear that appellant has not proved the nature and the source of Rs. 50,41,57,505/- & Rs. 21,00,00,000/- by any means and hence the said amounts were correctly added back to the total income of the assessee as unexplained cash credit u/s 68 of the I.T. Act. Therefore addition of Rs.50,41,57,505/- & Rs. 21,00,00,000/- are confirmed as I did not find any reason to interfere in the finding of the AO. Hence, Grounds No. 2 to 5 are dismissed. 8. In the result, the appeal for A.Y. 2012-13 is dismissed." 07. Assessee being aggrieved with the order of the learned CIT - A preferred in appeal before us raising 25 grounds. Many times appeal has been called for hearing however none appeared before us on several of the occasions. Subsequently the revenue was asked to serve notice to the assessee. On 7 March 2022, the ld AO placed before the bench report stating that notice has been afixed on the last known address of the assessee. The report of the notice was also placed on reco....
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....td. The Dunlop India Ltd did not repay the same but assigned to the assessee. Thus the amount was credited in the books of the assessee by the assignment deed and Account of stephens Pvt Ltd credited in the books of assessee and resultant debit of Dunlop India Limited. Instead of debiting the account of Dunlop Limited, assessee debited it as advance against allotment of shares. Assessee executed a tripartite agreement and took the responsibility of the above loan of stephens financial services private limited from Dunlop India Ltd without any consideration or placing any security with Stephen financial services private limited. There was no interest contemplated to be paid by the assessee on such loans. The loan advanced by Stephen financial services private limited, assigned to the assessee by Dunlop India Ltd, original borrower, was to the tune of Rs. 504,157,505/-. The fact shows that Dunlop India Ltd obtained loan of Rs. 623,946,000/- from Stephen financials Ltd which was also partly assigned to other companies other than the assessee. 010. Similarly Manali properties and finance private limited advanced loan to falcon tyres Ltd. Falcon tyres Ltd assigned the loan outstandin....