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2015 (12) TMI 117 - DELHI HIGH COURT

2015 (12) TMI 117 - DELHI HIGH COURT - TMI - Undisclosed investment in Lamorghini Car - addition u/s 69 - ITAT deleted the addition - Held that:- Assessee had produced sufficient material to establish that the vehicle had been imported by the Sanjay Bhandari (in the name of VKTT) and evidence was also produced to show payment of the cost of the vehicle. The AO on the other hand, has discovered no evidence or material on the basis of which it could be concluded that the cost of the vehicle and th .....

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t the question whether an investment had been made or not is a matter of fact and the same cannot be presumed. In the present case, it is probable that either the Assessee or any other person related to the Assessee, would have paid for acquiring the vehicle in question. An investigation into the sources of the funds of Sanjay Bhandari/VKTT may perhaps have established a link between the funds used for the purchase of the vehicle and JCT/Sameer Thapar/the Assessee. However, no such link has been .....

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ounsel For the Respondent : Mr S. Krishnan JUDGMENT Vibhu Bakhru, J. 1. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) calling into question an order dated 13th July, 2012 passed by the Income Tax Appellate Tribunal (hereafter the Tribunal ) in ITA No. 2485/Del/2010. The said appeal was filed by the Assessee challenging an order dated 31st March, 2010 passed by the Commissioner Income Tax (Appeals) [hereafter CIT(A) )] in Appeal no. 1 .....

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(HUF). Whilst the Assessee Company has paid the import duty, penalty and fine for the aforesaid motor vehicle and has also capitalized the said asset in its books in a later year, the Assessee has claimed that it has not paid any consideration towards the cost of the car. Neither the AO nor the CIT(A) accepted the explanations offered by the Assessee for being in possession of the vehicle and, in effect, concluded that the Assessee was de facto owner of the vehicle in question. Accordingly, the .....

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had paid for the car or that the purchase transaction was a benami transaction. The Tribunal, thus, allowed the Assessee s appeal, which is impugned by the Revenue. 3. By an order dated 2nd July, 2013 this Court framed the following questions of law:- 1. Whether the Income Tax Appellate Tribunal has rightly interpreted Section 69 of the Income Tax Act, 1961 and was right in deleting the addition of ₹ 1,37,07,306/ made by the assessing officer on account of undisclosed investment in Lamorg .....

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own 99% of the shareholding of the Assessee. The Department of Revenue Intelligence (Customs Department) (hereafter referred as DRI) conducted search and seizure operations on the premises of one Mr Sanjay Bhandari in the month of September 2005, in connection with the import of motor vehicles under the EPCG Scheme at a concessional rate of duty. 4.2 Pursuant to the search, notices were issued by the DRI for production of the vehicle in question, which was in possession of Mr Sameer Thapar. The .....

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to another proprietorship concern of Mr Sanjay Bhandari - M/s V.K. Tours & Travels (hereafter VKTT ) through a High Sea Sale Agreement and Contract executed on 4th April 2005. Although the Revenue had also raised a question whether a sale between two proprietorship concerns could take place, however, the same is not material inasmuch as it is not disputed that the vehicle in question came to be registered in the name of VKTT, which at the material time was a sole proprietorship concern of Mr .....

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handed over the possession of the vehicle for trial. While the vehicle was still on trial, the same was seized by the DRI. Subsequently, the vehicle was released to the Assessee on the payment of differential duty, execution of bond and submission of bank guarantee for fine and penalty. Since no consideration was shown to have been paid for the original cost of the vehicle, the AO was not convinced of the explanation offered as to the rights being exercised by the Assessee in respect of the veh .....

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d by the Oriental Bank of Commerce; copy of the bank advice dated 15th April, 2005 for remittance of ₹ 70,89,972/-; marine insurance policies; invoice dated 31st March, 2005 for the sale of car by M/s History Logistics to VKTT; a copy of challans/invoice for payment of insurance premium of ₹ 2,96,793/, custom duty for ₹ 4,89,968/-, commission for ₹ 42,978/- and other charges for ₹ 88,945 paid by VKTT; and confirmation from Mr Sanjay Bhandari regarding the purchase o .....

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the CIT(A) enhanced the quantum of addition by ₹ 2,92,694/- from ₹ 1,37,07,306/- to ₹ 1,40,00,000/-, which was the value computed by the Directorate of Revenue Intelligence (hereafter DRI ). 5. In the aforesaid context, it would be expedient to examine the explanation provided by the Assessee before the CIT(A) as well as the explanation of Mr Sanjay Bhandari in his letter submitted by the Assessee before the CIT(A). 6. The relevant extracts of the letter dated 29th June, 2009 s .....

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he Company, DRI seized the vehicle. It was subsequently informed to the Appellant Company that Vehicle No. PB09G0052 was imported by M/s VK Tour and Transport New Delhi against EPCG Licence No. 13000858 dated 25.01.2005 vide Bill of Entry 0985 dated 08-04-2005. (iii) The vehicle was released by DRI provisionally on its own volition on the condition of payment of differential duty and execution of bond and bank guarantee for fine and penalty to be made by the persons from whom the same was seized .....

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f ₹ 41,13,971/- was paid on 25.04.2007 vide bankers cheque No. 428331 dated 25.04.2007 as demanded by DRI. (v) A show cause notice was Issued by DRI to M/s VK Tour & Transport and to the Appellant Company. The Appellant Company was advised to approach the Settlement Commission primarily due to the fact that in case its petition is accepted, it will get immunity from prosecution. (vi) DRI after passing the final order on 20.12.2007, released the vehicle to the Appellant Company and enca .....

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When the final duty amounting to ₹ 1,09,72,215/- (inclusive of ₹ 68,58,244/- which had already been paid during the year ended 31.03.2006) was subsequently paid, the entire amount comprising the duty, was paid by the Appellant Company during the year ended 31.03.2008 and capitalized under the head vehicle in the books of accounts. The balance comprising of penalty, redemption fine and interest on the differential duty amount was charged to the respective heads during the year ended .....

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s. The total amount paid by the Assessee Company in respect of the said vehicle amount toRs.1,39,01,449/- and not ₹ 1,37,07,306/-." 7. Before the Assessing Officer, the Assessee contended that the vehicle was imported by VKTT against EPCG Licence No. 13000858 dated 25th January, 2005 vide Bill of Entry 0985 dated 8th April, 2005. It was stated that VKTT had approached the Assessee company for trial of the vehicle and if found suitable, to enter into a lease agreement for the vehicle. .....

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ever, the Assessee produced several documents to indicate that the vehicle had been purchased by M/s History Logistics and was, thereafter, transferred to VKTT (both proprietary concerns of Sanjay Bhandari). The Assessee also produced a letter from Sanjay Bhandari which indicated that Sanjay Bhandari had agreed to transfer the vehicle to the Assessee or its nominee in consideration of the amounts paid by the Assessee to the Authorities for release of the vehicle and without any further considera .....

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er Thapar has been in physical possession of the vehicle from May 2005 (except for the few days that the vehicle was in possession of the DRI). Although the Assessee claims that the vehicle was to be leased to the Assessee, its actions are clearly not consistent with this position. If the vehicle was provided to the Assessee only for a trial purpose, there was no occasion for the Assessee to file an application or move the Settlement Commission for settlement of the duties with respect to the sa .....

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e capitalized the payments of duty under the head of vehicle in its books of accounts and the penalty, redemption fine and interest were debited by the Assessee under the respective heads. Thus, the Assessee indicated the payment of penalty, redemption fine and interest as its liability in its books during the year ended 31st March, 2008 and not as amounts paid on behalf of VKTT. At this stage, (i.e. during the year 31st March, 2008) the Assessee s books reflected the Assessee to be the owner of .....

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nding 2008 as the Assessee had paid the duty for the said vehicle. It is clear from the above that the payment of duties as well as the treatment accorded by the Assessee to such payments in its books militates against the Assessee s explanation that it was only a hirer of the car in question and was not the owner. There is also no explanation as to why the Assessee had to make the payments of duty, if the Assessee did not own the asset seized. 10. At this stage, it would also be relevant to ref .....

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Hire Agreement dated 03.09.2002 from Shri Sanjay Bhandari for 3 years. DRI seized the vehicle vide Panchnama dated 10.09.2005. It was prayed that the co-applicant be granted waiver from penalty, redemption fine, interest and prosecution. He also prayed that the Bank guarantee and Provisional Duty Bond furnished by him the DRI be also released. 22. ...Bench notes that it is not a solitary case of import of a single vehicle by a person or a firm. A large number of vehicles have been imported over .....

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ective EPCG Licenses. It is immaterial whether the ownership of the vehicles was transferred or not in a legal manner. Perhaps legal transfer of the vehicles was not possible as it could have resulted in creation of evidence that the vehicles were not used for the purpose for which they were imported. Different kinds of deceptions were adopted by the firms and the company operating through Shri Sanjay Bhandari who was their Proprietor/Director to part with the vehicles and yet take advantage of .....

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y evading payment of appropriate Custom Duty. Even the so called fulfillment of the export obligation was not achieved from the foreign exchange generated from or through the use of these vehicles. Evidence shows that remittances were made from some other source. In view of this position, Bench is of the view that the arguments of the ld. advocate in favour of grant of immunity have no substance and the main applicants can not be granted full immunity from penalty and redemption fine. 23. ...In .....

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uties were paid belatedly and to that extent the main applicants have enjoyed financial accommodation at the cost of Government Exchequer….. 25 ..... Bench finds that it is quite obvious that they were complicit in improper transfer of the vehicles in question the imports of which are tainted by evasion of customs duty. All the, vehicles were of foreign origin and were, relatively speaking, of high value. There is evidence in case of a number of vehicles that prior arrangements were made .....

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o circumvent the provisions of the EPCG Scheme with regard to two vehicles. 11. The vehicle was registered on 23rd May, 2005 and it is apparent that even at the time of registration, it was known that the vehicle would be used by JCT, Sameer Thapar or any of the Thapar Group entities. The only explanation offered before the DRI for registering the car at the address of JCT is that this had been done to inspire confidence and secure the concerns of JCT. However, as per the version of the Assessee .....

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for lease or hire of the vehicle had been executed. Although, it is stated that in addition to lease rentals the Assessee/JCT Ltd. was also to place a security deposit with Mr Sanjay Bhandari/VKTT, concededly, no such deposit had been placed. It was also material to note that there is also a variance in the amount of the security deposit payable to VKTT; whilst Mr Sameer Thapar, in his statement recorded u/s 108 of the Customs Act, 1962, claims that ₹ 48 lacs was payable as security depos .....

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uge. However, the question to be addressed is whether, in the facts and circumstances of the case, the value of the vehicle could be added to the income of the Assessee under Section 69 of the Act. 14. At this stage it is necessary to refer to Section 69 of the Act, which reads as under:- 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, an .....

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ssessee has made an investment; (b) that the investment made is not recorded in the books of the Accounts, if so maintained; and (c) the Assessee offers no explanation as to the nature and source of investment made or the explanation offered by the Assessee is, in the opinion of the AO, not satisfactory. 16. Thus, first and foremost, AO must come to a conclusion that an Assessee had, in fact, made an investment. Once an AO finds that an investment has been made, he has to examine the Assessee s .....

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ntry Club Ltd. in favour of M/s History Logistics (Prop. Sh. Sanjay Bhandari) for purchase of car; (ii) copy of Letter of Credit No.01790002340204 issued by Oriental Bank of Commerce, New Delhi for GBP 85395; (iii) copy of Bank Advice dated 15th April, 2005 for ₹ 17,89,972/- (enclosure of Bank Charges) towards payment of the purchase of car; (iv) copy of Marine Insurance Policy No. 1000025538 dated 24th November, 2004 for ₹ 23,419/-; (v) Copy of Invoice No. HL002/04-05 dated 31st Mar .....

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land Garden, Knights bridge London vide their Invoice No 73015 dated 06/04/2005 for GBP85395.00 (Invoice copy enclosed). 3. That the payment of the said invoice was made by my bankers, Oriental Bank of Commerce, Connaught Place, New Delhi vide, their Letter of Credit No: 0179000230204dated 21/12/2004 and on 15/04/2005 and the account of History Logistics was debited for ₹ 70,77,773/-. Apart from above bank charges of ₹ 12,199/- were also paid by History Logistics, New Delhi. (Copy of .....

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sport is also a proprietary concern and proprietor being the undersigned.(Copy of Invoice enclosed). The High Sea Sales Agreement was executed as the EPCG license for the B5/ 110, 2nd floor, Safdarjung Enclave, New Delhi- 110029 import of the said car could not granted to History Logistics, but was granted to V.K. Tour and Transport instead. 6. All custom formalities were then completed by V.K. Tours and Transport and amount of ₹ 4,89,968/- was paid to Custom authority towards Import duty. .....

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stration No: PB 09 G0052 on 23/05/2005 (Copy enclosed). 9. Undersigned approached you to take the car on lease and it was agreed that you shall pay ₹ 2lacs every month as lease rental for three years and also make a security deposit of ₹ 48lacs. Further it was also agreed that in case you decide to purchase the vehicle in the future, the security deposit of ₹ 48 lacs shall be appropriated and be treated as the payment of the vehicle otherwise the security deposit shall be relea .....

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377; 35 lacs favoring the Authorities. 11. Vide their Show Cause Notice, the DRI on 23/08/2006further additional payment of ₹ 41,13,971/- toward Custom Duty and the same was also paid on 26/04/2007 by you on our behalf after admission of my application with the Hon'ble Settlement Commission vide their order dated 28/12/2006. 12. The above payments were made by you with an understanding that as and when the Settlement Commission would pass a final order, V.K. Tour and Transport, after f .....

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id by you on our behalf. 14. Although the Settlement Commissioner has passed the order on 20/12/2007, still the vehicle could not be transferred to you due to differences between me and DRI on calculation of interest for the waiver period provide, along with non-consideration of some valid notifications in the final order, I have challenged the Final Order after depositing over ₹ 5.24Crores before the Bombay High Court, the case is awaiting final disposal. The DRI has also challenged the i .....

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