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TMI Blog2021 (10) TMI 1002X X X X Extracts X X X X X X X X Extracts X X X X ..... ained investment being made in the shares of M/s. Gulmohar Towers Pvt. Ltd solely on his own suspicion, surmises and conjectures devoid of any adverse material and without appreciating the explanations provided and the evidences placed on record. (b) The Ld. CIT(A) erred in facts and law in not appreciating that there is no possibility that the appellant company could have generated unaccounted income in the year under consideration as it was just incorporated on 13-04-2010 and had not even commenced its business operations. (c) The Ld. CIT(A) / Assessing Officer erred in facts and law in relying upon unconfronted statements of third parties and not even providing any opportunity of cross examination of such parties." 3. The first issue in the appeal of the assessee is that the validity of the assessment order passed u/s.143(3) r.w.s. 147 of the Act is challenged on the grounds of no jurisdiction, invalid, bad in law and against the principles of natural justice. 4. The brief facts of the case are that the assessee company was incorporated on 13.04.2010. A search and survey action was carried out on 09.10.2014 at the offices of Lotus/Kamdhenu/Green Valley group/Patel-Patni Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective years starting from F.Y.2010-11 to FY 2013-14" and accordingly, the case of the assessee for the year under consideration could not be reopened. The reassessment proceedings initiated u/s.147 of the Act was merely on suspicion that certain income of the assessee has escaped assessment in absence of any independent inquiry or tangible material to establish the same. The contentions of the assessee were rejected by the Assessing Officer vide letter dated 25.10.2017. 5. On appeal, the Ld. CIT(A) upheld the validity of the reassessment proceedings and observed that section 147 of the Act merely states that the Assessing Officer has to have reason to believe that any income chargeable to tax has escaped assessment and that reason to believe can be on the basis of any information which comes to his knowledge or possession which is more than enough for any reasonable person to form a belief. She further observed that the information received by the Assessing Officer was not any anonymous but authenticated information received from the Investigation Wing of the same department. Coming to the satisfaction of the Assessing Officer, the Ld. CIT(A) observed that the very fact that reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate Limited, on the basis of which the above valuation of share at the Rs. 10/- has been arrived at. Ans. Sir, no valuation to arrive at the share price was carried out at the time of the acquisition of the company. As per the understanding with the promoter s of the company the value of the Company on paper was shown at Rs. 10/- per share and the security premium amount as above was paid in cash to the promoter of the company. This money amounting to Rs. 42,80,19,650/- was brought back to the group by way of loans from M/s Gulmohar Towers Private Limited to our different group concerns over a period of time in the following manner:- Sr. Amount 1 N.S Enterprises 60,00,000 25-02-11 2 Vilji Mala Patel 10,00,000 22-11-10 10,00,000 13-12-10 13,00,000 18-04-11 3 Lalji Mala Patel 10,00,000 28-04-11 4 Novelty Stationery 20,00,000 22-11-10 4,00,000 18-04-11 5 Trishul Realty Infra Infra P Ltd 11,85,00,000 27/05/2010 to 27/07/2010 18,64,00,000 27/08/2010 to 31/03/2011 1,83,00,000 01/04/2011 to 08/07/2011 1,80,00,000 01/08/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the group had disclosed an amount of Rs..42,80,19,650/- as undisclosed investment of the assessee company in M/s.Gulmohar Towers Pvt. Ltd. and accordingly he formed a reason to believe that the income of the assessee company has escaped assessment on account of the alleged undisclosed investment. It is submitted that Shri Khimji Karamshi Patel was neither a shareholder nor director of the assessee company during the year under reference and therefore did not have any locus standi to record any statement on behalf of the company. In this regard, attention was invited to Q.no. 6 and reply thereto in his statement wherein he had mentioned about his directorship/ partnership in various concerns and his proprietorship concern which did not include the assessee company. Accordingly, it is submitted that mere admission of a third party having no locus standi in the assessee company that certain income should be offered in the hands of the assessee cannot be deemed to be a tangible material in order to form a reason to believe that certain income has escaped assessment. 6.2 The Ld. Counsel for the assessee argued that the Assessing Officer failed to apply his own mind in re-opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tangible material and the formation of the reason to believe that income has escaped assessment which is absent in the present case. 6.4 With respect to the year of reopening, it was pointed out that Shri Khimji Karamshi Patel had arbitrarily admitted disclosing the undisclosed investment from F.Y.2010-11 to F.Y.2013-14 whereas the Assessing Officer has reopened A.Y.2011-12 only as if it was the undisclosed investment for the year under consideration i.e. A.Y.2011-12. Therefore, Ld. Counsel submitted that the reopening of the case by the Assessing Officer is based on vague statements made by a third party and the 'reasons to believe' are formed without application of mind. It is submitted that the Assessing Officer has not gone beyond in determining the specific year and amount of alleged undisclosed investment admitted by the party and has merely relied upon the statement and the amount stated therein by a third party and taxing in any year whatsoever as per his whims and fancies. The Ld. Counsel for the assessee vehemently argued that the reopening done in the case of the assessee for the year under consideration is invalid and bad in law. It is submitted that in his statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice u/s. 148 on 10.01.2017. In this regard, Ld. Counsel sought to rely on the decision of Hon'ble Karnataka High Court in the case of CIT v. Dr. N. ThippaSetty (2010) 230 CTR 265 wherein it was held that, where statements made by the assessee were retracted not once but twice, reassessment notice issued solely on basis of statement is without jurisdiction. 6.6. Finally, the Ld. Counsel for the assessee also argued that it is a clear case of borrowed satisfaction without any conduct of enquiry prior to reopening but being made simply by relying upon a statement of third party during survey, which in any case is vague and that too for various years from F.Y.2010-2011 to F.Y. 2013-14 whereas the Assessing Officer sought to reopen only A.Y. 2011-12 for the whole of the amount without any tangible material. 7. On contrary, the Ld. DR submitted that Shri Khimji Karamshi Patel has given his statement in the capacity of chairman of the group, and he is aware of the whole modus operandi of the transactions undertaken by each of the entities in the group including the assessee company. Ld. DR argued that the Assessing Officer has to have reasons to believe that income had escaped assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,80,19,650/- could be acquired at face value. In his reply, he had stated that no valuation of shares was done at the time of acquisition of shares and had accepted that Rs..42.80 crores was paid in cash to the promoters of the company which was brought back to the group by way of loans over a period of time. In view of the said facts, Shri Khimji Karamshi Patel had disclosed the same as undisclosed investment of the assessee company in M/s.Gulmohar Towers Pvt. Ltd. for the period starting from F.Y.2010-11 to F.Y.2013-14. The Assessing Officer also placed reliance on statements of Shri Anand Sharma recorded u/s.133A dated 02.07.2013 who is an alleged entry operator wherein he had explained the complete modus operandi of creating shell companies. Considering the statement of Shri Anand Sharma, the Assessing Officer in the impugned assessment order has stated that the same modus operandi had been exactly followed by the Patni group to introduce unaccounted funds in the form of accommodation entries. The Assessing Officer also made reference to statement of Shri Vivek Agarwal recorded u/s.131 dated 10.10.2014 wherein he had accepted that the loans received from M/s.Gulmohar Towers Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Delhi High Court in the case of Nova Promoters & Finlease Pvt. Ltd. 2012 [342 ITR 169]. Accordingly, the addition of Rs..42,80,19,650/- u/s.68 of the Act was sustained by observing that assessee has introduced its own unaccounted money under the garb of unsecured loan and advance against land. 10. The Ld. Counsel for the assessee addressed us with a brief background of facts of the case and the chronology of events that took place as enumerated herein under: - (i). Assessee company got incorporated on 13.04.2010 (ii). Due Diligence Report for acquisition of M/s. Gulmohar Towers Pvt. Ltd. was obtained on 28.04.2010 (iii). MOU was entered with M/s. Gulmohar Towers Pvt. Ltd. on 14.05.2010 (iv). Shares were transferred to the assessee company on 22.05.2010 (v). Search / Survey conducted in case of Patel/Patni group on 09.10.2014 (vi). Statement of Shri Khimji Karamshi Patel was recorded during survey u/s.133A on 11.10.2014 (vii). Affidavit retracting the aforesaid statement is dated 18.10.2014 10.1 The Ld. Counsel for the assessee submits that the assessee company is engaged in the business of Builders & Developers and had incorporated on 13.04.2010. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to even rest in the 3rd night. There were 3 statements recorded at different business premises with the survey party consisting of 5 members when even no undisclosed assets or cash was found. Before recording the 3rd statement on 11.10.2014, he was told that survey action will not conclude till the time he makes a declaration of income in relation to the transactions of Gulmohar Towers Pvt. Ltd. Accordingly, he stated under duress and pressure that the cash component of share premium was paid by the assessee company and that the same were brought back to the group by way of loans from M/s.Gulmohar Towers Pvt. Ltd and thereby made a disclosure of undisclosed investment of Rs..42 crores. Shri Khimji Karamshi Patel also affirmed that he was neither a director nor a shareholder in either the assessee company or M/s.Gulmohar Towers Pvt. Ltd. It was submitted specifically that the said disclosure was not a correct statement and the same was made under pressure and undue influence which was clearly evident from the behavior of survey party when 3 statements were recorded unnecessarily when nothing incriminating was found at all. He was also made to understand that the survey act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2014 and F.No. 286/98/2013-IT (Inv.II) dated 18th December, 2014. As regards statement recorded of Shri Anand Sharma u/s. 133A, the Ld. Counsel submits that the same is taken during the course of survey and has no evidentiary value at all in light of the decision of Hon'ble Apex Court in the case of CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC). Even no copy of the said statement was either provided despite specific request made to the Assessing Officer. Also, no cross examination of said party was granted. As regards the statement of Shri Vivek Agarwal, Ld. Counsel submits that the same in relation to Ms.Ekta Agarwal and M/s. Gulmohar Towers Pvt. Ltd., Ld. Counsel for the assessee submits that these statements have no relevance in so far as the transaction of assessee company is concerned. Also, Shri Anand Sharma and Shri Vivek Agarwal are neither shareholders nor directors of the assessee company or M/s.Gulmohar Towers Pvt. Ltd. thereby having no locus standi to comment on the transaction with M/s.Gulmohar Towers Pvt. Ltd. and relied upon the judgement of the Hon'ble Bombay High Court in the case of CIT v. Paradise Inland Shipping Pvt Ltd (TA No. 66 of 2016) (Bom HC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group concerns. The Ld. Counsel in this regard submits that the Assessing Officer himself is clear that the alleged investment has been done by the group and there is no specific mention of the assessee company. There is even nothing conspicuous brought on record regarding which concern of the group had actually been engaged in the alleged scheme of things. Thus, without prejudice, the Ld. Counsel submits that the assessee company has been blindly made the scapegoat since its name had cropped up in a statement of Shri Khimji Karamshi Patel who is also neither a director nor a shareholder in the assessee company. 10.4 The ld. Counsel further submits that no enquiry was conducted by the AO on the promoters/shareholders /directors of M/s.Gulmohar Towers Pvt. Ltd. to corroborate the statements/information received in relation to the alleged undisclosed investment. No specific evidence in the form of date of cash payment, its mode, any other incriminating material/ information had been found from M/s. Gulmohar Towers Pvt. Ltd. in order to establish that the said company is bogus or a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned unaccounted cash which has been paid for the acquisition of shares of M/s. Gulmohar Towers Pvt. Ltd. and the assessee company is a conduit in the transaction. Accordingly, the assessee company cannot be held as a beneficiary to the alleged scheme and that the existence of any undisclosed income of the assessee company itself rules out. 11.2 Secondly, the ld. Counsel submitted that it is a trite law that only the right person should be taxed. He submits that it is the duty of the Assessing Officer to tax the right person who was liable to pay tax on a particular income and merely since the name of the assessee company had cropped up in a statement of a person not connected to the assessee, Assessing Officer could not have proceeded to make the additions in the hands of the assessee in absence of any corroborative evidence. The Assessing Officer mentions in the order that the on-money sales have been used for payment in cash whereas the assessee is incorporated in this year itself and has not even commenced any real estate activities. This clearly proves that the assessee company is not the right person to be taxed in any circumstance either. In this regard, reliance is plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the ingredients of a bogus/shell company. Further, the statement recorded of Shri Khimji Karamshi Patel who is the chairman of the Patni group has clearly admitted about the cash payment of Rs..42,80,19,650/-. Also, since the investments are recorded in the books of the assessee company, the assessee is required to substantiate the correctness of the investments being recorded in the books and that nothing has been paid over and above in cash beyond the amount recorded in the books of account more so when overwhelming evidences have already been gathered by the department based on the analysis of the financials of M/s. Gulmohar Towers Pvt. Ltd. who have actual networth of Rs..45,06,67,467/-as on 31.03.2011, statement of Shri Anand Sharma and Shri Vivek Agarwal apart from the admission of Shri Khimji Karmashi Patel. Further, there is no proof of coercion or pressure or duress on part of Shri Khimji Karamshi Patel on making the disclosure of unexplained investment of Rs..42,80,19,650/- in the hands of the assessee company. Hence, the ld. DR of the revenue relied on the orders of the authorities below and submitted that there are enough circumstantial evidences to uphold the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that all these facts itself clearly indicates that the company - M/s. Gulmohar Towers Pvt. Ltd. is a shell company used for accommodation entries by the assessee and therefore the addition made by the Assessing Officer and confirmed by the Ld.CIT(A) is justified and upheld. In rebuttal to this, the Ld. Counsel for the assessee submitted that it is for the reasons laid down in the Key Findings of the Due Diligence Report that said company was not paid the whole of the networth as appearing in its books due to lack of expertise of management and material mismanagement of funds. The Ld. Counsel drew our attention to the Memorandum of Understanding (MOU) dated 10.05.2010 between the directors of the company and the assessee company to state that on going through the findings of the Due Diligence Report, shareholders of the company had shown their willingness to liquidate their stake in the company and had authorized directors to sell their shares and look for prospective buyers and accordingly, the consideration along with the terms and conditions for acquisition were reached and set out in the MOU. Further, the Ld. Counsel also relied upon the assessment order u/s. 143 r.w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the company. In his Affidavit of retraction dated 18.10.2014, Shri Khimji Karamshi Patel has also explained the pressure and duress faced by him, relevant extract of which is reproduced herein below: - "3. That survey proceedings commenced on 09.10.2014 and was concluded on 12.10.2014 (early morning) without any break 4. That I reside at 602, Petit Towers CHS Ltd. August Kranti Marg, Kemps Corner, Mumbai 400036 and was called at Belapur office at serial no.2 above on 09.10.2014 and my statement was recorded at the said location 5. That from Belapur, on 09.10.2014, I travelled to office at Chira Bazaar office at serial no. 3 above alongwith the officers of income tax department and my statement was recorded even at Chira Bazaar office 6. That I was permitted to go to my residence at night for rest on 09.10.2014 7. That my statement continued at Chira Bazaar on 10.10.2014 and was concluded on 11.10.2014. That I am not aware as to why the survey party consisting of 5 members spent 3 days where, even no undisclosed assets or cash was found in the said premise. 8. That in the night on 10.10.2014, I was permitted to go home for rest 9. That on 11.10.2014, after conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r proprietary concerns? Ans. I am proprietor of 1) M/s. Trishul Developers I am partner of 1) M/s. Patel & Associates (60%) 2) M/s. N. S. Enterprises (20%) 3) M/s. Real Trade Corporation (25%) I am Director in M/s. Trishul Realty Infra Private Limited & Nishrin Trading & Investment Private Limited." The Ld. DR for the revenue has also not been able to show us as to how Shri Khimji Patel is considered as a chairman of the group and how his statement of disclosure of income in hands of the appellant company can be applied against the appellant company if he has no capacity or role in the assessee company. 16. Further, the Assessing Officer has referred to the statement of Shri Anand Sharma recorded u/s. 133A dated 02.07.2013 wherein he has accepted that he has created 500 companies which includes M/s.Gulmohar Towers Pvt. Ltd. to provide accommodation entries and have extracted in the impugned assessment order the relevant modus operandi adopted by him. Further, another statement recorded u/s. 131 on 08.02.2014 is also referred wherein Shri Anand Sharma have stated that bogus loans were given to Bhagwanji M. Patel, Ekta Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efects have been found in the evidences in the form of Due Dilignence Report, MOU, share transfer forms, share certificates, etc. furnished by the appellant has been pointed out. There is no finding as to who paid the alleged cash to whom either promoter/director/shareholders of M/s. Gulmohar Towers Pvt. Ltd. The AO has not even examined the promoters/directors of M/s. Gulmohar Towers Pvt. Ltd. None of the shareholders of M/s. Gulmohar Towers Pvt. Ltd. have been examined. Nowhere the name of the appellant company has been found to be purported in any of the statements of Shri Anand Sharma and Shri Vivek Agarwal to say that the appellant company had paid cash to M/s. Gulmohar Towers Pvt. Ltd. over and above the investment recorded in its books. On the contrary, the assessment made by the department on 22.04.2010 in the case of M/s.Gulmohar Towers Pvt. Ltd. does not refer to any adversities but in fact goes to suggest that the said company is not a shell or bogus company. The revenue has failed to discharge its burden to prove and conclusively establish by material the allegation made on the assessee. In the light of the above, we cannot uphold the addition merely on surmises and sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es collected during the course of search, however, there is no incriminating material found in the search at all and that in the conclusion of said para 7.3, the Assessing Officer has concluded that from the statements of Shri Khimji Patel, Shri Vivek Agarwal and Shri Anand Sharma, it is evident that M/s. Gulmohar Towers Pvt. Ltd. is merely a shell/paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group concerns. The ld. Counsel also referred to para 7.2 of the assessment order wherein it has been stated that M/s. Gulmohar Towers Pvt. Ltd. was purchased by Patni group at a price of Rs..2,26,30,000/-. Accordingly, he argued that at various parts of the assessment order, the Assessing Officer has referred to the "Patni group" as an entirety in relation to the alleged modus operandi of acquiring companies at a very nominal price. In this regard, the Ld. Counsel argues that if such a version of the Assessing Officer is considered then without prejudice to the allegation on the assessee company, it is the group which have paid cash over and above the investment recorded in books and the Assessing Officer has failed to bring on record as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant company. As regards taxing the right person, the Hon'ble Apex Court in the case of ITO v. Ch. Atchaiah [1996] 84 Taxman 630 (SC) have observed the following principle: "7..... We are of the opinion that under the present Act, the ITO has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person', we mean the person who is liable to be taxed, according to law, with respect to a particular income. The said principle is also followed in the case of ACIT v. M/s.Kartikya Construction (ITA no. 51/Mum/2006) and Bhushan Steel Ltd. v. ACIT (ITA no. 1646/Del/2014). Even the Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law. 19. Hence, even on these premises too, the addition of unexplained investment cannot be made in the hands of the Assessee company. 20. Interestingly, we also find that the addition of unexplained investment of cash payment over and above that recorded in books of the assessee company is made u/s. 68 of the Act which is also confirmed by the Ld. CIT(A) under the same section 68. Now, the issue here is that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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