TMI Blog2020 (3) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... had powers to investigate and find out the truth which could have come to light whether the Stamp Paper was purchased on 31.7.2013 or was procured later and JV agreement was executed ante-dated by summoning the stamp vendor itself. AO could have summoned the Notary Public and got the statutory books maintained by him and inspected/verified to see whether the date on which the JV agreement executed was on 31.07.2012 is correct or not, which exercise the AO has not carried out and he based his adverse finding on the basis of conjectures surmises. And it is a matter of fact, that the assessee company was declared as a sick industry by BIFR. Assessee had furnished the copy of the JV, copy of the cancellation of JV, and in addition the assessee produced documents to prove the identity, creditworthiness and genuineness of the transaction with M/s. NCPL, M/s. NCPL s PAN is AACCN5258J and that M/s. NCPL is a regular income tax assessee the ITR intimation is of AYs 2015-16, 2016-17, 2017-18 and 2018-19 - the director of M/s. NCPL has filed an affidavit sworn before the Judicial 1st class Magistrate wherein he has admitted that M/s. NCPL provided ₹ 17.46 cr. to set up manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as the Act ) was conducted at the business/residential premises of one Shri Anand Sharma and Shri Janardan Chokhani at Kolkata on 02.07.2013 in which the said Shri Anand Sharma and Shri Janardan Chokhani confessed that they were entry operators and that they have registered a large number of paper companies with bogus share capital/premium which have subsequently been sold for a commission or used for giving one time entry of bogus share capital or expenses or unsecured loans/advances. According to Investigation Wing, Shri Anand Sharma and Shri Janardan Chokhani were found to be operating and controlling large number of bank accounts in the names of proprietorship concerns where cash received from the beneficiaries were deposited and from these bank accounts cheques/RTGS were issued to transfer funds into the several middle layered paper companies controlled by the said Shri Anand Sharma and Shri Janardan Chokhani before finally advancing it to the beneficiaries. The AO notes that as per the statement of Shri Anand Sharma recorded by Search Wing of Kolkata, it revealed that the assessee has received an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a perusal of the ledger of M/s. NCPL that assessee received total amount of ₹ 17.46 cr. through a number of cheques of different amounts from 27.08.2012 to 20.03.2013 as receipt of advance and also noted that ₹ 17.46 cr. has been refunded to M/s. NCPL on 31.03.2013 by five cheques all dated 31.03.2013. The AO also observed that the five cheques dated 31.03.2013 by the assessee to M/s. NCPL were not encashed up to 31.07.2013 and for which a reverse entries have been passed in the ledger of M/s. NCPL on 31.07.2013. Thereafter, from 26.08.2013 the said amount of ₹ 17.46 cr. have been finally refunded back to M/s. NCPL through a number of transactions on various dates upto29.01.2014 to M/s. NCPL. The AO also observed on a perusal of the ledgers of M/s. NCPL that no interest has been provided for such huge sum of ₹ 17.46 cr. Thereafter, the AO observed that in view of summons u/s. 131(1) of the Act one director of M/s. NCPL Mr. Sushil Kumar Bhatter appeared before him on 16.03.2016 and a statement of Mr. Sushil Kumar Bhatter was recorded on the same date. According to AO, Shri Bhatter admitted that he did not know the directors or key managerial persons of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of income. The AO disbelieved the assessee s explanation that it being a sick industrial undertaking in order to revive its financial position had entered into a joint venture agreement with M/s. NCPL and ₹ 17.46 cr. was advanced to it for a project to implement at Silvasa . According to AO, M/s. NCPL is a shell company and have no business at all and the JV agreement etc. is a designed story of assessee. So, according to AO, the joint venture agreement and its cancellation are falsely fabricated by assessee. Thus, according to AO, assessee had taken accommodation entries amounting to ₹ 17.46 cr. through M/s. NCPL in lieu of cash during the FY 2012-13; and later on 02.07.2013, when the search operation was conducted at the business premises of Mr. Anand Sharma and receipt of accommodation entries by assessee though M/s. NCPL has been exposed, the assessee in order to wriggle out of the problems had tried to prove the genuineness of the accommodation transaction of ₹ 17.46 cr. has shown to have made book entries and repayment of advance as on 31.03.2013 through five cheques (though encashment was not made). Thereafter, the AO issued notice as to why the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and M/s. NCPL regarding JV project and before the agreement was signed and drew our attention to the sample copy of communication placed at page 187-190 of the P/B. It was also brought to our notice that technical know-how agreement had been entered into between M/s. Nouva Electromeccanicia Sud ( NES Italy ) and assessee, which is placed at page 191-196 of the PB, which was entered into by the assessee for obtaining technical know-how for the project proposed by the JV. According to JV agreement, the assessee was supposed to provide technical know-how, technical back up for the project and also had agreed to give equitable mortgage of land measuring about 72,500 sq. mtrs, as collateral security to M/s. NCPL. The ld. AR submitted that as per J.V agreement between the assessee and M/s. NCPL, M/s. NCPL provided ₹ 17.46 cr. to the assessee to set up the JV project at Silvasa. However, since the project could not materialize JV had to be cancelled and the amount of ₹ 17.46 cr. was duly returned back to M/s. NCPL. This according to ld. AR, actually happened in respect of ₹ 17.46 cr. which has been disbelieved by the AO because of a report from Investigation W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t so recorded by the AO. 8. And the ld. AR drew our attention to the fact that Shri Sushil Kumar Bhatter has retracted the statement given before the AO and then he has also filed a complaint before the Officer-in-charge, Kasba Police Station and has also retracted his statement before the First Class Magistrate. Therefore, according to Ld. AR, Shri Sushil Kumar Bhatter s statement could not have been the basis for making the addition. When he specifically has denied knowing any Shri Anand Sharma or Shri Janardhan Chokhani and in the affidavit he has admitted of having entered into JV agreement and also about the fact of M/s. NCPL providing ₹ 17.46 cr. to assessee and the money being repaid to it. 9. Coming to the statement of Shri Anand Sharma is concerned the ld. AR pointed out that the AO had simply relied upon the statement recorded by the Investigation Wing, when the search was conducted on 12-07-2013 on him (a third party) and the AO did not bother to summon him during assessee s assessment proceedings and recorded the statement. According to the ld. AR the AO did not even give a copy of the statement supposed to have been made against the assessee regarding M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his conclusions on surmises. 12. The ld. AR, thereafter, relied on the case of CIT vs. Fair Finvest Ltd (2013) 357 ITR 146 (Del) wherein the Hon ble Delhi High Court deleted the addition u/s. 68 of the Act and noted that no independent enquiry was made by the AO and that he simply choose to base himself merely on the general inference drawn from the reading of the investigation report and the statement of some third party. 13. The ld. AR, thereafter, relied on the case of CIT vs. Vignesh Kumar Jewellers reported in (2011) 330 ITR 209 (Mad.), wherein the Hon ble Madras High Court held that additions cannot be sustained by relying on the findings of the custom authorities without making any independent enquiries and without corroborating evidence. 14. The ld. AR of the assessee also drew our attention to the case laws which lays down the principle that if there is violation of natural justice while framing the assessment (order) i.e. non allowing the cross examination of the third party or supplying any third party s documents on which the AO relies vitiate the addition/disallowances. a)Andaman Timber Industries vs. CIT (2015) 62 taxmann.com 3(SC), wherein it was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n could be made where the amount received has been ultimately repaid. a) ACIT -vs.-Rakesh Bhartia (ITA No. 428/Kol/2012 dated 29-02-2016) - it was held as under10 We also find that the entire loan of ₹ 2.5 crores have been paid by the loan creditor by 3 account payee repaid cheques drawn on Syndicate Bank, Esplanade Branch, Kolkata. These facts have been cleared through banking channels. We also find that the entire loan has been repaid by the assessee in May- June 2009 by account payee cheques, which was also confirmed by the loan creditor. We find that the assessment has been completed in this case on 27-12-2010, which is after 18 months from the date of repayment of the loon by the assessee. All these facts prove the genuineness of the transaction beyond doubt. We further find that the assessee has duly filed confirmation letters from the loan creditor by duly disclosing its income tax particulars. We find that the loan transaction of ₹ 2.5 crores hove been duly reflected in the balance sheet of the loan creditor, which were also placed before the Id.AO. However, the ld.AO based on certain factual errors committed by him with regard to the status and cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he copy of the sale agreement, copy of the cancellation of the agreement, copy of PAN number of the intending purchaser and copy of acknowledgement of return of income of the proposed purchaser. In case of such deposits the assessee had produced a copy of confirmation from the party, copy of the acknowledgement of the return of income and also PAN number of said entity. Such facts were not controverted by the revenue nor contended that the documents produced by the assessee were not genuine. Addition under section 68 was deleted following the decision in case of CIT v. RanchhodJivabhaiNakhava [2012] 208 Taxman 35/21 taxmann.com 159. 18. After referring to the aforesaid case laws the ld.AR submitted that since the assessee company was a sick company and it had obtained money pursuant to JV agreement, which action/proposal was approved by the board meeting, wherein special director (Shri Abhijit Biswas) appointed by BIFR was present and the JV project was proposed/planned to be implemented at the Industrial plot of the assessee in Silvasa ( part of Union Territory-Dadra, Nagar Haveli). And it was submitted by the ld. AR that technical know- how agreement was entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR in the aforesaid facts and circumstances the AO ld. CIT(A) both did not believe the genuineness of money (transaction) being returned back and made the impugned addition u/s. 68 of the Act which action of AO has been rightly confirmed by the Ld. CIT(A). Therefore, he does not want us to interfere with the impugned order of the ld. CIT(A). 20. Having heard the rival submissions and after carefully going through the records and the case laws brought to our notice, we note that the assessee company is in existence for the last four decades and is a Public Listed Company since the year 1956. And it was/ is engaged in manufacturing and selling of overhead transmission and distribution of line equipment, conductors and hardware accessories etc. It has two factories both are in Liluah, Howrah near Kolkata. It is noted that the assessee company had made reference to BIFR u/s. 15(1) of the Sick Industrial Companies Act (Special Company Act, 1985) ( hereinafter referred to SICA Act in short). Based on its audited financial accounts as on 31-3-1999, the BIFR declared the assessee company as a sick industrial company within the meaning of section 3(1) (o) of the SICA Act vide its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors for the JV project at Silvasa. So to put up a production plant and Silvasa was planned and project report was made accordingly. By this way, according to Shri Biswas (Special Director) was of the opinion that the assessee company would be able to produce new technically advance products and sell/export to different States Electricity boards and thus, the assessee company would be able to achieve the target set by Rehabilitation Scheme SS-09 of having positive net worth by 31-03-2014. Keeping the aforesaid advice of Mr. Biswas (special director of BIFR)the assessee/ its directors started looking for potential investors for J.V to set up factory at the vacant industrial Survey No. 16/2 in Silvasa (U.T) and simultaneously started taking steps to convert the vacant land/agricultural land at Silvasa for industrial purpose, which fact is evident from a perusal of pages 197-211 of P/B which are the copies of letters of the revenue department, Dadra Nagar Haveli, Silvasa granting permission to assessee for use of agricultural land for industrial purpose vide letter dt. 25-04-2012 and page 202 of P/B is the cheque/receipt of ₹ 18,00,500/- dt. 24-4-2012 of Dadra Nagar Have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the JV agreement carefully and we note that the JV agreement between the assessee company and M/s. NCPL (M/s. Navratra Commercial Pvt. Ltd) was finalized and signed on 31-07-2012 before Sri B.K. Banerjee, NOTARY PUBLIC, CALCUTTA 24 PARGANAS, C.M.M s Court, Compound, 2 , Bankshall Street, Calcutta-700 001 and copy of the same is found placed at page-12 to 21 of the P/B. On a perusal of the same, we note that it was signed/executed on 31-07-2012. This JV agreement has been executed between the assessee and M/s. NCPL on a Non Judicial Stamp Paper of ₹ 50/- (Fifty Rupees) with the Seal affixed of Shri B.K. Banerjee, Notary Public, whose Regn No. 145/80 is found placed at page-12 of the P/B and a Notarial Certificate has been issued by Shri B.K. Banerjee, Notary, Regd. No. 145/80. This document (JV agreement) has been disbelieved by the AO/ld. CIT(A). They have alleged the same to be an afterthought to cover the admission made by Shri Anand Sharma during search that M/s. NCPL was a Shell company and it provided accommodation entry to the assessee company to the tune of ₹ 17.41 cr. However, we note that the aforesaid document (JV agreement dt. 31.7.2012) was produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Giovani Ferrero. From a perusal of page-192 of P.B it is noted that NES Italy is a pioneer in designing and supplying significant quantity of spacers dampers system to many important utilities in Italy and abroad. By this agreement, M/s. NES Italy would provide the assessee with the technical know to design spacers dampers including development up gradation of the unit and production of advanced products. We note that this agreement aided the assessee to manufacture spacers dampers in India and for the services rendered by M/s. NES Italy, the assessee had to make payments in Euro as NES license fees and cater for the cost of visit of their engineers to assessee s plant etc. is spelled out in the said agreement, which is valid for 10 years, which tie up the assessee intended to use in the JV project at Silvasa. The said agreement was signed on 3-3-2009 by assessee s Chairman Shri Biswanath Jhunjhunwala Chairman of M/s. NES Giovani Ferrero which is valid for ten years. We also note from the P/B that there were several correspondences between the assessee and M/s. NCPL, some copies are found placed at pages 114-116 of the P/B. A perusal of Pages 117-121 of P/B shows cheques r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 18,00,500/- dt. 24-4-2012 from Dadra Nagar Haveli, Planning Development Authority to the assessee on account of land conversion charges for conversion to industrial purpose. 25. And we note the JV agreement was finally signed on 31.7.2012 and the fund was infused by the M/s. NCPL for the proposed JV project at Silvasa after preparation of the project report etc. as discussed (supra) and assessee took steps to operationalize the unit by 1st July, 2013. So that they could achieve the target of attaining the positive net worth by 31-3-2014 as set by Rehabilitation Scheme SS-09. So from all the facts discussed on the basis of documents, we have referred to, we cannot hold or accept the view of AO or ld. CIT(A) that to cover the incriminating statement of Shri Anand Sharma (3rd party), which was revealed during the search conducted on 2-7-2013 ( at Shri Anand Sharma s place), that this amount of ₹ 17.46 crs was nothing but assessee s own money given as cheque through his shell company, M/s. NCPL in lieu of commission. In the light of the evidences adduced before us which were placed before the AO/ ld. CIT(A), we note that the authorities below could not controvert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO i.e statement of Shri Anand Sharma which was recorded by the Investigation Wing when they searched his premises on 02.07.2013. This means that the Shri Anand Sharma s statement was recorded in a third party premises wherein he has admitted to be running a racket with the aid of several shell companies wherein he has appointed several dummy directors and M/s. NCPL is one among it and has given loan/advance/share application money to the tune of ₹ 16.18 cr. as accommodation entry in the form of cheque for a commission. This information prompted the AO to scrutinize the assessment of the assessee company. When the AO asked for explanation in respect of the money received from M/s. NCPL the assessee brought to the notice of the AO about the JV agreement to start a manufacturing facility at Silvasa and since it could not materialize the money was returned back to M/s. NCPL and filed all the documents before him. However, the AO brushed aside the documents as an afterthought on the part of the assessee to cover the incriminating statement recorded by the Investigation Wing against the assessee on 02.07.2013. So, we have to examine whether Mr. Anand Sharma s statement can be reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quested the AO to ask question in Hindi or Bengali. But the AO asked and recorded answers in English so, Shri Bhatter never understood what was recorded by Ao and resultantly was not aware of the contents of the recorded statement. In short, Shri Bhatter retracts the adverse statements recorded by the AO on 16.03.2016 on 31.03.2016 by way of an affidavit sworn before Judicial fist Class Alipur. And also Shri Sushil Kumar Bhatter had lodged a complaint with the Kasba Police Station on 31-03-2016 against wrong recording and use of coercive action against him. 30. We find that Shri Sushil Kumar Bhatter director of M/s. NCPL had preferred a complaint to the Officer in Charge, Kasba Police Station which has been received by the Police vide G. Diary No. 2141 dt. 31-03-2016, found placed at pages-214-215 of the P/B. Moreover, we note from a perusal of Pages 216-217 of the P/B that an affidavit has been solemnly sworn/affirmed by Sri Sushil Kumar Bhatter which has been executed before the Judicial Magistrate, 1st Class Alipur, wherein he has stated that he is the director of M/s. NCPL and that a Joint Venture Agreement dt. 31-07-2012 was made between the assessee and M/s. NCPL. And t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as ignored by AO and was recorded in English and it was not read over to him or translated to him, which implies that AO recorded whatever he wanted to record without the knowledge of Shri Bhatter. So this statement in the back drop of all developments and allegation and which has been retracted cannot be a reliable piece of material and at any rate cannot be the basis for drawing adverse inference against the explanation given by the assessee in respect of infusement of ₹ 17.46cr . 31. We also note that a Remand report was called for from the AO by the ld. CIT-A, which is found placed at pages 224-225 of the P/B wherein the AO gives his report as under:- 1. On perusal of the pages 09 to 19 of the paper books, it appears that page 09 to 11 relates to BIFR proceedings 'whereas pages bearing No. 12 to 19 relates to Joint Venture Agreement duly singed by the assessee and M/s.Navratra Commercial Pvt. Ltd. It is factually correct that sum of ₹ 17.46 Crores was given to the assessee company by M/s Navratra Commercial Pvt. Ltd. during the F. Yr. 2012-13 and the assessee company kept it up to 26.08.2013 although no business activities in the said Joint Venture had ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cr back to M/s. NCPL from 26-02-2013 to 21-04-2014. We also note from perusal of the said remand report that AO has made certain adverse observation about the assessee making a payment of ₹ 27,70,000/- to Planning Development Authority, Dadara Nagar Haveli, Silvasa for conversion of agricultural land at Silvasa for industrial purpose. We note that the only aspect highlighted by the AO in respect to the payment of ₹ 27,70,000/- i.e fee for conversion of land on 24-04-2012, is that it was made before conceptualization of the JV (joint venture). We note that the payment was made for conversion of land on 24-4-2012 and the permission was sought for conversion of the use of land as industrial land by the assessee itself does not in any manner affects the JV project in the light of the explanation given by assessee. It has to be kept in mind that the assessee at that point of time was continuing as a SICK Unit and was looking out for potential investor, who was willing to fund for setting up the JV Project/factory/unit in Silvassa and this land was an unencumbered immovable property of assessee which was undisputedly an agricultural land. So when assessee s director need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fragile and cannot be used against the assessee and for the various reasons discussed it has to be discarded. For this proposition, we rely on the Hon ble Supreme Court s decision in Andaman Timbers (supra) and Odeon Builders (supra). 34. Other adverse aspect as noted by the AO in the remand report is that ₹ 17.46 crs was not transferred to the J.V account instead, it was transferred to the assessee company s account and the amount was credited in the books of account of the assessee company. Therefore, according to the AO section 68 of the Act is attracted. We note that JV Agreement is between M/s. NCPL and assessee and the terms and conditions of the JV has been stated in the JV agreement found placed at page 1 to 21 of the paper book. From a perusal of the said agreement there is no clause which stipulated that the amount of ₹ 17.46 cr. provided by M/s. NCPL should be deposited in the Joint account opened together. So the AO s observation is nothing but suspicion based on conjecture and surmises. From the facts discussed (supra), we cannot subscribe to the AO s view that JV agreement of the assessee with M/s. NCPL was an afterthought to cover the statement of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. From a perusal of the balance sheet of M/s. NCPL, we note that as on 31-3-2013 M/s. NCPL had share capital of ₹ 19,27,000/- and Reserve Surplus of ₹ 18,07,40,956, thus total of ₹ 18.26 crs. We also take note of the copy of the accounts of the assessee for the year ending on 31-03-2013, placed at pages 226-262 of the P/B. From the aforesaid documents, we cannot subscribe to the allegation of the AO that assessee in order to wriggle out of the search conducted on 2.7. 2013 at the premises of Mr. Anand Sharma and Mr. Janardhan Chokhani and their statements before the Investigation Wing that M/s. NCPL is a bogus company is engaged in giving/providing accommodation entry, the assessee had come out with a story of JV and is an afterthought. 38. Moreover, we also note from a perusal of the JV agreement dt. 31-7-2012, that it was executed on Non Judicial Stamp Paper of ₹ 50/- and in case if the AO had any doubts about the veracity of the JV agreement, then the AO had powers to investigate and find out the truth which could have come to light whether the Stamp Paper was purchased on 31.7.2013 or was procured later and JV agreement was executed ante-dated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (Guj HC)has held as under:. 3. From the above, it can be seen that assessee's case was that, it had received certain advances from one MadhavVidharbh Estate Pvt. Ltd. for sale of its property. The sale, however, did not materialize since the assessee did not give NOC for transfer of property. The same was later on cancelled and money was returned. Additionally, the assessee had furnished the copy of the sale agreement, copy of the cancellation of the agreement, copy of PAN number of the intending purchaser and copy of acknowledgement of return of income of the proposed purchaser. In case of such deposits the assessee had produced a copy of confirmation from the party, copy of the acknowledgement of the return of income and also PAN number of said entity. Such facts were not controverted by the revenue nor contended that the documents produced by the assessee were not genuine. In that view of the matter, in our opinion, the Tribunal correctly followed the decision of this Court in case of CIT v. Ranchhod Jivabhai Nakhava[2012J 208 Taxman 35121 taxmann.com 159. No question of law arises. Tax appeal is dismissed. 39. The other deficiency pointed out by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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