AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 105
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.... order by the ld. Commissioner of Income Tax (Appeals)-51, Mumbai in appeal No. CIT(A)-51, Mumbai/10288/2019-20 dated 12/11/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2019 respectively by the ld. Dy. Commissioner of Income Tax, Central Circle - 3(3), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence, they are taken up together and disposed of by this common order. 2. The ground No.1 raised by the assessee in its appeal for A.Y.2013-14 is challenging the validity of search assessment framed u/s.153A of the Act. Since no argument was advanced by the ld. AR at the time of hearing with regard to this ground, the same is hereby treated as not pressed and hence, dismissed as not pressed. 3. The ground No.2 raised by the assessee and ground No.2 raised by the Revenue for A.Y.2013-14 is with regard to addition made on account of bogus purchases. 3.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of project development o....
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....sessee as to why the purchases made from the aforesaid parties should not be disallowed. The assessee gave a detailed reply to the ld. AO. In the said reply the assessee also furnished the details of corresponding sales made out of alleged disputed purchases in the following table:- Party Purchase Cost Sale Value Margin Yogita Industries 22,408,348 30,130,524 25.63 Universal Trading Company 19,705,754 26,420,573 25.42 Swastik Sales Associates 28,662,753 38,878,170 26.28 Yamini Sales Corporation 17,532,239 23,599,295 25.71 Rajasthan Steel Trading Co. 28,658,965 38,882,420 26.29 B B Enterprises 40,700,697 55,039,621 26.05 157,668,798 212,950,604 3.5. The assessee submitted that delivery of materials were directly done at the site of the respective parties and hence, there was no delivery challans found during the course of search. The assessee further submitted that payments were made by account payee cheques to the said suppliers / vendors. The assessee submitted that they are engaged in trading of structural steel. The complete quantitative details of the respective item....
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....credit, since no purchases were made by the assessee. Having accepted the receipt as sale proceeds of goods in the sum of Rs.21,29,50,604/- (being sales made out of disputed purchases of Rs.15,77,68,756), profit element embedded in the value of disputed purchases alone could be brought to tax. In fact we find that the ld. CIT(A) had given a categorical finding considering the normal business practice prevailing in the Iron and Steel market in India that assessee could have obtained accommodation entries in the form of purchases from certain parties by purchasing from un-registered suppliers in order to have some savings in the form of cash discounts and indirect taxes. This has been recorded by the ld. CIT(A) primarily on the ground that corresponding sales made of disputed purchases have not been disputed by the Revenue. These observations made by the ld. CIT(A) were not controverted by the Revenue before us. The ld. DR vehemently relied only on the incriminating materials found during the course of search and documents impounded during the course of search in the hands of suppliers. The ld. DR also argued that the details of vehicle numbers that were given by the assessee for tra....
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.... 99,99,99,999/- 4.3. The assessee submitted that the shareholders of BIEL were Smt. Santoshidevi Mittal, mother of Shri Vineet Mittal, Demand Trading India Ltd and Reliable Record Keepers Pvt. Ltd. The capital in the companies Demand Trading India Ltd and Reliable Record Keepers Pvt. Ltd were held by Shri Vineet Mittal. During the financial year relevant to A.Y.2016-17, BIEL and Demand Trading India Ltd have amalgamated in the company known as Reliable Record Keepers Pvt. Ltd. Thereafter, the company has undergone a name change and now known as Candor Renewable Energy Pvt. Ltd., Thus, the investment company BIEL, post amalgamation, remains in control of M/s. V.M. Group (i.e. Vineet Mittal Group). The assessee submitted that all the aforesaid facts could be verified from the Ministry of Corporate Affairs (MCA) portal. The ld. AO from the financials of the M/s. BIEL of various assessment years commencing from A.Y.2011-12 to 2015-16 observed that BIEL is not engaged in carrying out any real business activity and its sources of income are only by way of interest, dividend and other income. From the financials, he also observed that most of the funds have been invested either in equi....
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....renewable and thermal businesses. The assessee decided by the promoters that the assessee company would be used as a vehicle to carryout the activity in the said sector. b. It was the responsibility of the respective promoter to source capital and invest their share in your assessee company (WEPL). During the financial year relevant to the assessment year 2013-2014 and 2014-2015, Mr. Vineet Mittal through his company Bhadrawati Ispat & Energy Ltd. invested a total amount of Rs. 99,99,99,999/- the company named Welspun Energy Pot Ltd, as under Through OCPS Rs 60,84,99,210/- Through Equity Rs 39,15,00,789/ Rs. 99,99,99,999/- c. The shareholding of B.KG and V. M. Group as on 1-4-2016 thus stood as under:- B.K.G Group (52.767 %) No. of shares as on 1-4-2016 Rank Marketing 144,630,203 Welspun Entp Limited 60,493,342 B.K Goenka 604,933 205,728,478 V.M. Group (47-33%) No. of shares as on 1-4-2016 Vineet Mittal 12,993,491 Candor Power 108,214,880 Bhadrawatilspat& Energy Ltd. 63,694,267 184,902,638 d. Thus, Welspun Energy Private Limited (WEPL) became a leading re....
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....rsys'). It will not be out of place here to mention that the shareholding in the newly formed (Solarsys') continued to remain the same as that of Welspun Energy Private Limited. Thus, the following facts emerged from the above: ✔That the 2 groups with their independent resources promoted the business activity in your assessee company. ✔That from time to time after realising the business potential, the two groups decided to dilute their respective stake. ✔That the respective promoters have demerged their business activity and the share of V.M group in your assessee company was finally acquired by BKG group for a sizeable consideration. 3. Your goodself in your showcause has pointed out several observations and thereby drawing an inference that the company Bhadrawatilspate Energy Ltd. (herein after referred to as BIEL) is a paper company. In the matter, your assessee company submits that the inference based alone on certain untenable observations will not only be unfair but also against the principles of natural justice: a. As regards your observation that till A.Yr. 2012-2013 the initial shareholders ....
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....y the sale of these investments realized have been reflected in the return of income by BIEL. -In the same breath, your assessee company asserts that the change of business address cannot bring home the charge that the company BIEL was a paper company. -The company BIEL is regularly assessed to tax. The company has been making all statutory compliances as per law. The Company as per the laws is required to get its book audited. Perusal of the audit report issued by the Auditor specifically mentions that the audit has been carried out based on books of accounts maintained by the BIEL. Further the company has been regularly calling AGM, Board Meeting as per companies Act. We are given to understand that the BIEL post its merger and change of name is also assessed to tax under your charge. Your goodself can independently get this fact verified and call upon the book of accounts for examination. In view of the given facts on record one cannot bring home the charge that the company BIEL was a paper company. -In respect of your allegation that BIEL upto AYr. 2010-2011 are based at Kolkotta and revealed that they are paper entities. In the matter your assessee h....
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....bstantiate its claim of the genuineness of the share capital had requested VM group to furnish an explanation in respect of the source of the capital being introduced by VM group in the assessee company. VM group has explained the source of funds that have been received by erstwhile BIEL and the same is enclosed here for your perusal and records. A perusal of the said chart clearly shows that not all the funds worth Rs. 99.99 crs. are from the entities identified by you (a.) to (d.) to sub-para, vi. Further, in respect of your observation that various companies are controlled by entry providers, in the matter we humbly submit that your observation is a general observation and not specific to BIEL. It is an established law that statement on oath even where a general confession is made cannot be used generally. The Hon'ble Supreme Court in the case of Tro LakhmaniMewal Das 103 TTR 437 has held that a general confession by a person that all his transactions are bogus or that he has indulged only in bogus transactions cannot be basis for drawing an adverse inference in the case of your assessee. This is more particularly so when the assessee has not been specifically named....
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....on date and doing the business of mfg. and trading of casting of metals. The last financials as seen from the website is in respect of March, 2018. ix. It is not the departments case that the transaction of the alleged parties are specifically and distinctively non genuine. The inference of the department is merely drawn from external material which is not connected with your assessee directly. An information can be a line for initiating an action for further enquiry but cannot be finding by itself. In your showcause there is mere reliance on the information for drawing an adverse inference in the case of your assessee company. One will have to travel beyond the line of guesswork and surmises to conclude that the BIEL is nothing but a paper company. x. Your conclusion, that the companies listed in your showcause identified at (a), (b) and (d) to sub-para. vi, are paper companies with no worthwhile business activity/income has been addressed hereunder:- -All the companies are active companies and regularly filing their financial with ROC. Your assessee to establish the genuine existence of the respective companies is enclosing the financial of the companie....
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.... and at par with corporate world. The Directors cannot act independently without knowledge and consent from their shareholders. The shareholders are the true owners of the company and the Director is always a person appointed to meet statutory compliances. xii. Equally, your conclusion that the companies listed in your showcase identified at (a), (b), and (d) to sub-para vi. have common auditors are irrelevant to the cast of your assessee company as your assessee company as the appointment of an Auditor in an independent exercise carried out at AGM of a company The appointment of common Directors cannot drive home the charge that the companies are paper companies, Kindly appreciate that the Auditor is a responsible person who is covered by the statute of ICAI and any wrong doing results in strigent action against its member. xiii. Thus your company has well addressed each and every observation in your showcause it further established the genuineness of the parties whose funds were received Immediately prior to the funds invested by the company BIEL in your assessee company. d. This brings us back to the core question in respect of initial capital investme....
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....hed in the last submission. While defining the share of V.M. Group, a specific schedule (more specifically referred to as Schedule 1&2) was drawn which forms part of the sale/purchase agreement and identifies companies of Mr. Vineet Mittal. It is this very share that were acquired by your assessee company and BKG group for a sizeable consideration. ✔ Even in the board meetings held from time to time, the investment companies of VM. Group have been identified. A copy of the same is enclosed here for your perusal and records. ✔ The V.M. Group has sold its investments in WEPL made through its company BhadrawatiIspat& Energy Ltd. to B.KG Group for a consideration detailed hereunder- Date of Payment Amount (Rs.) Beneficiary of consideration Remarks 7.3.2017 13-1.90.cr Reliable Record. Keepers Pvt. Ltd. (Previously known as BhadrawatiIspat& Energy Ltd.) Buy Back of Shares by your assessee company, 8.3.2017 126.99 cr Reliable Record Keepers Pvt. Ltd. (Previously known as Bhadrawa tiIspat& Energy Ltd.) Purchase by Welshop Trading Pvt. Ltd. (B.K.G Group Invst. co.) ✔ I....
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.... accepted by the department without a blemish. When all the transactions of VM group have been accepted, casting a spell of doubt on transactions pertaining to BIEL is nothing but being biased to your assessee company. v. Out of the above sum of Rs 753.70, BIEL has received a sizeable consideration of about Rs. 258.89 crs. It will be of significant importance here to highlight the fact that out of this amount an amount of Rs. 131.90 crs was received by BIEL by way of buy back of shares by your assessee company as against investment amount of Rs. 53.05 crs. It is a known fact that on buy back of shares by an unlisted company, section 115QA of the Act gets attracted and by virtue of which your assessee company has paid Buyback tax of an amount of Rs. 18.19 crs. on 7.3.2017 to the Department. If the transaction was bogus and the BIEL was a mere paper company why will your assessee company pay a sizeable consideration for buy back and further pay a sizeable amount as buyback tax. To put it more precisely that there are two legs to a transaction, one thing purchase and the other involving sale. The leg involving sale where the Dept. gets revenue (Buyback Tax) is treate....
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....earlier submissions: Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the your goodself to scrutinize the same and in case any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials and one cannot go into the realm of suspicion. x. It will be of paramount importance here to highlight the fact that never ever the operation of BIEL was ever suspended by any authority. There was never an event to treat BIEL as a shell company. There was never an event where the department has taken any adverse view on the return filed by BIEL When there is nothing adverse on record by any of the statutory authorities the question of your assessee company doubting the genuineness of the transaction shown to your assessee doesn't arise. To finally sum up, invoking of section 68 in the case of the assessee company would be too harsh It is beyond doubt the law of land and an established principle that only the guilty to be punished. The assessee comp....
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....Enough direct and circumstantial evidence has been brought to establish that BIEL was paper / shell company. 4.6. By way of aforesaid observations, the ld. AO concluded that assessee company had failed to prove the identity and creditworthiness of the investors. Accordingly, the amount received from BIEL during the year under consideration in the sum of Rs.41,02,38,623/- becomes unexplained cash credit u/s.68 of the Act in the hands of the assessee company. The ld. AO while making this addition observed in para 6.11 that in respect of unexplained cash credit received by BIEL, an addition is being made in the hands of M/s. BIEL and other entities on substantive basis. Hence, the addition of Rs.41,02,38,623/- has been made u/s.68 of the Act in A.Y. 2013-14 on protective basis. 4.7. The ld. CIT(A) observed that the ld. AO had given a categorical finding that it is an unaccounted fund of Shri Vineet Mittal which has been introduced in the assessee company. The relevant observations of the ld. CIT(A) on the main issue are reproduced hereunder:- 8.11 The moot question arising in the present case is whether (1) the appellant was unable to discharge the onus cast on it under....
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....genuineness of the transaction by observing that subsequent transactions are of no relevance in deciding the character of current transactions. The contention made by the assessee that if the sale of shares (buyback from Vineet Mittal) group is treated as a genuine transaction, the purchases will have to be treated as genuine is found to be a valid argument. The VM group had invested around Rs 275 crore through various group entities in the equity/OCPS of the appellant company and the sale of their stake in WEPL subsequently resulted in a total consideration of Rs 753.70 crore. On the investment of Rs 100 crore by BIEL, it received back Rs 258.89 crore and a buyback tax of Rs 18.19 crore u/s 115QA was paid on this gain. The sale transaction would be void if the purchases are treated as non-genuine and merely an accommodation entry. There is no evidence that these credits in the books of these parties have been treated as bogus in FY 2016-17 8.14 The AO has not questioned the worth of WEPL and hence, has not the rate at which shares/OCPS have been issued to VM Group. The worth of the appellant company is significant in light of its turnover and profitability. As such, it is....
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....ed by the owners of BIEL and the genuineness of the transaction is accepted by the AO, an addition in the hands of WEPL is not warranted on a protective basis. As such, Invocation of section 68 in the case of the assessee does not appear warranted. 8.18. Keeping in view the genuineness of the business operations of WEPL as demonstrated from the various documents filed before the AO including the financial statements of the appellant. find it tenable to accept the following investment rationale provided by the assessee with reference to the investments made by the promoters. * That the 2 groups with their independent resources promoted the business activity in the assessee company. * That from time to time after realising the business potential, the two groups decided to dilute their respective stake. 8.19 While the issue of onus of VM group to demonstrate the source of funds may have arisen in the case of BIEL, such onus cannot be shifted to the appellant company as a protective measure as it was a company having sufficient net worth and not in complete control of the promoters of BIEL, as the majority stake rested with BKG Group. Further the tra....
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.......................................................... 8.24 It is noted that the present case no such claim has been made by the AO that the funds belong to the assessee or that the assessee has failed to discharge its burden under section 68 of the Act. The protective addition has been made merely because BIEL has been found to be a shell company owned by Vineet Mittal and he appears to have routed unaccounted funds through BIEL Into the appellant company. The AO has given a conclusive finding that the majority share holder of BIEL has routed his own funds Into the appellant company through BIEL As such, there is no allegation that there is possible scenario wherein the assessee will be deemed to be the owner of the income If substantive additions are deleted in the case of BIEL Once such a scenario does not exist, no protective addition can be made in the hands of the assessee company. On such findings by the AO, there was no case for making a protective addition in the hands of the assessee company. (underlining provided by us) 4.8. The ld. CIT(A) on merits of the addition observed as under:- 8.25 The submission made by the assessee on merits is als....
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....nds coming into the company as share application are, bogus. Once the AO is convinced that the funds belong to Vineet Mittal and his group, addition cannot be made in the hands of the assessee on a protective basis as there is no dispute, with respect to ownership of the funds as far as the appellant is concerned. 8.28 In the entire assessment order, the AO has not discussed the case of the assessee vis-à-vis the onus on the assessee under section 68 of the Act. There is no discussion with respect to the documents filed by the assessee and their credibility. The AO has not elaborated on the transaction between the assessee and BIEL and has Infact, admitted that they are genuine transactions. As such, the income could not have been deemed to be the appellant's income under section 68 of the Act once the assessee had discharged all the onus cast under the provision. 8.29 The reliance placed by the AO on the decisions in the case of Sumati Dayal (supra) and Durga Prasad More (supra) are not found applicable to the facts of this case. The investment in the appellant company is not a fortuitous receipt or a windfall gain or a transaction unlikely to happen i....
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.... ld. CIT(A). On further appeal by M/s. BIEL before this Tribunal, both the parties fairly agreed that the said addition was deleted by the Tribunal on a technical ground of assessment framed on a non-existent entity. In other words, in the hands of M/s. BIEL, the substantive addition made thereon, was not deleted on merits. It was deleted only on a technical ground of assessment being framed on a non-existent entity. We hold that since substantive addition has not been deleted by this Tribunal on merits, the addition made on protective basis in the hands of the assessee company had to be examined. But the excruciating fact that remains uncontroverted in the instant case is that both the ld. AO as well as the ld. CIT(A) agree that the transactions between BIEL and assessee company are genuine. Further all the documentary evidences submitted by the assessee vis-a-vis M/s. BIEL with regard to receipt of share capital and OCPS had not been rejected by the ld. AO and no deficiencies were found thereon. Hence, it could be safely concluded that assessee company had duly discharged its complete onus with regard to Section 68 of the Act. Hence, there could not be any addition u/s.68 of the ....