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2021 (10) TMI 1002 - AT - Income TaxUnexplained investments - unexplained investment being made in the shares of M/s. Gulmohar Towers Pvt. Ltd - incriminating material in the course of search or not? - cash payment over and above the investment recorded in the books - Whether 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 - HELD THAT - We find that there is neither any incriminating material of any cash payment unearthed by the department during the course of survey/search conducted on the Patni group nor in this regard, any evidence has been brought on record even in the course of assessment proceedings. Even the reliance placed on statement of Shri Khimji Karamshi Patel recorded u/s. 131 during the course of survey u/s. 133A in the case of M/s. Trishul Developers, M/s.N.S. Enterprises, M/s. Novelty Stationery, M/s. Trishul Infra Pvt. Ltd., M/s. Patel Associates, M/s. Real Trade Corporation and M/s. Om Trilok Realty Infrastructures on 11.10.2014 cannot have any evidentiary value in eyes of law as well settled by the Hon ble Apex Court in the case of CIT v. S. Khader Khan Son 2013 (6) TMI 305 - SC ORDER The CBDT has time and again vide its Instruction F. no. 286/2/2003-IT (Inv. II) dated 10.03.2003, F. No. 286/98/2013- IT (Inv. II) dated 09.01.2014 and F. No. dated 286/98/2013- IT (Inv. II) dated 18.12.2014 has directed the field officers on search to gather evidences and incriminating material in the course of search rather than merely recording statements and obtaining confessions The retraction of Shri Khimji Karamshi Patel and Shri Gaurav Patel is immediate and backed with corroborative evidences, the same cannot be rejected. Further, it is also noted that Shri Khimji Karamshi Patel had no locus standi in the assessee company at all to disclose any undisclosed income in the hands of the assessee company. He is neither a director nor a shareholder of the assessee company There is no positive and credible evidence brought on record by the revenue to establish the allegation of cash payment over and above the investment recorded in the books. Neither the search party has found any incriminating material in the course of search on Patel/Patni group nor the Assessing Officer has brought any material/evidence on record in the course of assessment proceedings. Even no adversities or defects 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 suspicion in absence of any credible and corroborative evidence brought on record. Assessing Officer has alleged the group as a whole but has not carried his investigation further to identify which of the entities/concerns were indulged either in on money sales or routing of investments in shell companies and brought into the regular books by way of unsecured loan or advance against booking. If the version of the Assessing Officer is also taken to be correct, then the allegation which is drawn on the assessee company is that it is a mere conduit to the rotation of funds which were ultimately passed on to the group. Thus, it is clear that the assessee company is not the beneficiary of the alleged unexplained investments. Assessee argued that the assessee company was incorporated on 13.04.2010 i.e. the year under consideration was the 1st year of the company and its business operations had not yet commenced. This is also an important facet to this case as being the 1st year of incorporation and that business has not been commenced by the assessee, there does not arise any generation of cash sales through on money from any of the real estate projects. In fact, the Ld. Counsel has argued that none of the real estate projects had commenced in the group at the time when the company was acquired. Therefore, applying the ratioM CIT v. Bharat Engineering Construction Co. 1971 (9) TMI 14 - SUPREME COURT assessee cannot be taxed as there is no possibility of generating undisclosed cash by the assessee in the year under consideration. It is a trite law that only the right person can be taxed under the law and the Assessing Officer cannot pick one person merely because some third party has made disclosure in the hands of the appellant company. Thus the addition of unexplained investment cannot be made in the hands of the Assessee company. This is not the case of invoking provisions of section 68 of the Act as there is no cash credit involved nor it is a case of applying section 69 as investments are already recorded in books which is an undisputed fact - We have to accept this proposition as the relevant section under the factual matrix ought to have been invoked is section 69B of the Act which refers to Investment not fully disclosed in books of account - However, no such section 69B has either been invoked by the Assessing Officer or Ld.CIT(A) in confirming the alleged addition. Hence, even on this count, the addition made u/s. 68 is not tenable as per law. Assessee appeal allowed.
Issues Involved:
1. Validity of the assessment order passed under section 143(3) read with section 147 of the Income Tax Act, 1961. 2. Sustaining the addition of ?42,80,19,650 under section 68 as unexplained investment. Issue-Wise Detailed Analysis: 1. Validity of the Assessment Order: The assessee challenged the validity of the assessment order on the grounds of lack of jurisdiction, invalidity, and violation of natural justice principles. The case was reopened under section 147 based on a statement from a third party, Shri Khimji Karamshi Patel, during a survey under section 133A. The assessee argued that the statement was retracted and that Patel had no locus standi in the assessee company. The Assessing Officer (AO) rejected these objections, and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reassessment proceedings, stating that the AO had sufficient reason to believe that income had escaped assessment based on information from the Investigation Wing. 2. Sustaining the Addition of ?42,80,19,650 under Section 68: The AO made an addition of ?42,80,19,650 as unexplained investment under section 68, based on the statement of Shri Khimji Karamshi Patel, who claimed that this amount was paid in cash for acquiring shares of M/s. Gulmohar Towers Pvt. Ltd. The CIT(A) upheld this addition, relying on the statement and the modus operandi described by Patel. Arguments by the Assessee: - The assessee argued that Patel's statement was given under duress and was retracted. Patel was neither a director nor a shareholder of the assessee company. - The assessee provided documentary evidence, including a Due Diligence Report, Memorandum of Understanding (MOU), and share certificates, to substantiate the investment transaction. - The AO failed to bring any corroborative evidence or conduct independent inquiries to establish that the alleged cash payment was made by the assessee company. - The assessee contended that the reopening of the case was based on vague statements and borrowed satisfaction without any tangible material. - The assessee also argued that the provisions of section 68 were incorrectly invoked, as the correct provision should have been section 69B. Arguments by the Department: - The Department argued that Patel's statement was sufficient to form a reason to believe that income had escaped assessment. - The AO relied on statements from other parties and the modus operandi described by Patel to substantiate the addition. - The Department maintained that the information received was authenticated and not anonymous. Tribunal's Findings: - The Tribunal found that there was no incriminating material or evidence of cash payment of ?42,80,19,650 unearthed during the survey/search. - The Tribunal noted that Patel's statement was retracted immediately and was given under duress. - The Tribunal observed that Patel had no locus standi in the assessee company and his statement could not be used against the assessee. - The Tribunal found that the AO failed to bring any material evidence to support the addition and relied solely on the retracted statement. - The Tribunal held that the correct provision to be invoked should have been section 69B, not section 68, as the investment was recorded in the books. - The Tribunal concluded that the addition was based on suspicion and conjectures without any credible evidence. Conclusion: - The addition of ?42,80,19,650 under section 68 was deleted. - The ground challenging the validity of the assessment order was left open as the issue was decided on merits in favor of the assessee. Order: The appeal of the assessee was allowed, and the addition made by the AO was deleted. The Tribunal pronounced the order on 16.09.2021.
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