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TMI Blog2019 (9) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... by the above addition. DR could not cotrovert the above fact that the issue is squarely covered by the decision of the coordinate bench in case of other share holders. In view of this fact respectfully following the decision of the coordinate bench where identical additions were deleted, we also direct the ld AO to delete the above protective additions in the hands of the assessee for Assessment Year 2006-07. Therefore, the appeal filed by the assessee for Assessment Year 2006-07 is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... come declaring income of ₹ 107339/-. The assessment u/s 153A read with section 143(3) of the Act was passed on 31.03.2014 wherein, the total income of the assessee was assessed at ₹ 227588662/-. The above addition consists of the income of two overseas companies amounting to ₹ 227481323/-. The substantive addition was made in the hands of the respective overseas companies; however, as the assessee along with three others is the shareholder of those companies, therefore held to be beneficial owner of the two companies, addition on the protective basis was made in the hands of the assessee. 4. The assessee aggrieved with the order of the ld AO preferred an appeal before the ld CIT(A) who deleted the addition as under:- "8. Ground nos. 2, 3, 5, 5.1 to 5.4, 8 and 9 relates to an addition of ₹ 22,74,81,323/- made by the Assessing Officer on protective basis. 8.1.0 I have carefully considered the observations made by the Assessing Officer and conclusions drawn in the assessment order. I have also considered the facts and circumstances of the case and the submissions and arguments of the appellant. On perusal of the details on record, it is seen that in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck ground of facts, the issue now for consideration in the present appeal before me is whether the Assessing Officer was justified and correct in making a "protective addition" amounting to ₹ 22,74,81,323/- in the hands of the appellant. 8.1.2 On perusal of the order of the appellant, I find that the Assessing Officer made the addition on "protective basis" by holding that the profits of the overseas companies were to be taxed in the hands of the appellant by applying the "concept of doctrine of lifting the corporate veil". The Assessing Officer also stated in para 21.2.8, that doctrine of lifting the corporate veil was readily applied in cases falling within the purview of company law, law of contract and law of taxation, when once the transaction was shown to be fraudulent, sham, circuitous or colourable device for the purpose of tax evasion. 8.1.3 On a careful consideration of the facts, I find that the observations or remarks made by the Assessing Officer are not only erroneous but also out of context and self-contradictory. The Assessing Officer himself while assessing the overseas companies had treated all the overseas companies to be separate legal entities. The of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of assessment proceedings of various Indian companies, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) International Taxation, New Delhi in respect of transactions of various overseas companies with that of the various Indian Companies. It is certainly an established fact, that such reference to the Transfer Pricing Officer could only be made if the various overseas companies were considered and treated to be separate and independent legal entities, as was rightly done by the Assessing Officer in this case. If the overseas companies were to be treated as "sham", then obviously, there would be no occasion or need for the Assessing Officer to refer such transactions to Transfer Pricing Officer for determining the "arms length price" of the transactions between the overseas companies and the Indian companies. By making a reference to the Transfer Pricing Officer, the Assessing Officer had himself admitted and recognized the various overseas companies as genuine, separate and independent legal entities. Therefore, in my considered view there was no justification for the Assessing Officer to state that these companies were "sham". It is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggesting some fraud or adoption of a colourable device or method by these companies to evade payment of taxes in India. Addition on "substantive basis" was made by the Assessing Officer in the case of these overseas companies treating them as "residents" under the provisions of section 6(3) of the IT Act, 1961 but not on the basis of any fraud or illegal transactions, which was investigated by the Assessing Officer. 8.1.8 It is also a matter of record which is evident from the assessment order that an amount of ₹ 22,74,81,323/- was added to the income of the appellant on "protective basis " did not belong to the appellant nor pertained to the appellant. The said amount belonged to those overseas companies where the Assessing Officer considered them to be taxable in India u/s 6(3) of the IT Act on "substantive basis" and brought them to tax net accordingly. Where the facts of the case of the appellant are concerned, it is irrelevant whether such amounts were found to be taxable or not in the case of those overseas companies as the facts are not identical or there were any related transactions between the appellant and those overseas companies which warranted addition in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is evident from the very fact that these transactions were referred to Transfer Pricing Officer, New Delhi. The income from various overseas companies was subjected to the provisions of Indian Income Tax Act, 1961, wherever it was applicable with regard to these transactions and taxes were also paid thereon. 8.1.11 The appellant Sh. Anil Aggarwal did not undertake any kind of transactions with any of these overseas companies except an amount of ₹ 48,23,000/- received during the assessment year 2009- 10 and an amount of ₹ 48,99,381/- received during the assessment year 2010-11 from SDP Services Ltd. was been duly declared by him in the return filed in India . 8.1.12 Further, in my considered opinion, by virtue of being a mere share holder and having a beneficial interest in a company, cannot be a good ground to fasten the shareholder with a non-existent and hypothetical income tax liability. The question of taxability in the hands of shareholder would arise only when some income is received or accrued to the shareholder from the company. In the appellant's case he had neither received any income from any overseas companies nor any income has accrued to him from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating various overseas companies as "resident in India" u/s. 6(3) of the Income Tax Act, 1961 and consequently "substantive additions" were made in the case of respective overseas companies. Subsequent, to search, the appellant had challenged the veracity of these statements on several occasions. In the course of the assessment proceedings, vide letter dated 25.03.2014, the appellant challenged the veracity of the contents of the said statements extracted as under: "Firstly the allegations made and conclusions drawn in the show cause notice are vague erroneous and self-contrary in as much as at certain places in the notice, the undersigned is being held to be beneficiary / ultimate beneficiary of certain companies and at certain other places in the notice, some other person is held to be the beneficiary / ultimate beneficiary of the same companies. Similarly at various places in the notices, the undersigned is alleged to be controlling or managing certain companies, whereas at certain other places some other person is alleged to be controlling or managing the same. The undersigned has not earned any such income as mentioned in paragraph 7.5 of your captioned letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed hereunder. The statement of the undersigned dated 23.03.2012 is stated to have started at 4:15 PM. In the statement there are 60 questions and 60 answers. After Q. No. 60 and answer thereto, it has been mentioned that the statement is temporarily concluded. It is not known when this statement was further resumed and when it was finally concluded. You are requested to inform whether the statement was ever finally concluded and if at all concluded, copy of same may be provided. The purported statements of the undersigned bears signature of two witnesses. The exercise undertaken is in gross violation of provisions of Rule 112(6) and 112(7) of Income Tax Rules. The nature and manner of obtaining witnesses, itself establish that the statements were taken written as per predetermined bias. You are requested to call upon the witnesses so that you can yourself be satisfied that the statements were indeed taken as per predetermined bias. As is evident from the statement dt. 23.03.2012, the statement of undersigned commenced with the threat of prosecution, on the allegation that the statement dated 22.03.2012 as recorded by some other authorized officer at the undersigned's re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Taxability of Income of EICR(Cyprus) Ltd.? Ans. Since I am an Indian citizen who ultimately own EICR through Wickwood Development and since all control and management ultimately lies with me, It is only natural that income of EICR is taxed in India. And fair that taxes to be paid in India. /Is income so far has been from the profit of the sale of share of iEnergizer Ltd on Sep 14, 2010, when EICR sold 31,930,706 shares of iEnergizer Ltd @ GBP 1.16 per share, resulting in approx. GBP 37 million from the sales proceeds. Any Capital Gain arising out of this transaction will be my income and I shall pay any capital gain tax on this income. Q5. Please state the modality through which you would bring the income of EICR (Cyprus) Ltd in Indian Tax net? Who will be the representative assessee of this company and how you proposed to secure the payment of tax arising out of the above income. Ans. I am not an expert on this however I fully agree that the above income should be taxed in India. Since I am the ultimate beneficial owner of EICR through Wickwood, any tax liability arising in any of my own company is my sole liability for the same. I may be treated as the representative ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BVI which in turn owns 100% share of SDP service Ltd. and EICR Cyprus Ltd. I will also be filing a return of this company in India as this company is resident under Sec. 6 of Indian Income tax Act 1961. And in corporation I will pay Tax on any income arising to this company. b.) Geophysical Substrata Ltd. BVI-This company was started in BVI with 100% shares being held by Wickwood Development Ltd since its incorporation. Beneficial ownership of all the shares is with me since the incorporation of the company . Control and management of this company is exercised by me wholly and exclusively for India since the since the incorporation of the company and till date. This company holds shares of SDP Services Ltd. and EICR(Cyprus) Ltd. I will be providing the books of accounts, bank accounts of this company since the incorporation of the company as the control and management over this company is exercised from India wholly and exclusively. I agree that this company becomes resident in India for tax purpose under section 6 of Indian Income tax Act 1961 since incorporation. c. ) SDP services Ltd. BVI- This company was incorporated in 1998 in BVU with 100% shares being held by Geophysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement is exercised by me wholly and exclusively from India. This company has no office and no employee and no infrastructure -Income by way of lease of Drilling Rigs, Seismic Equipments and other oil exploration equipment to Focus energy Ltd are the main source of income of this company. I will be filing the returns of this company in India as this company is resident under sec. 6 of Indian Income tax Act 1961 since incorporation. I will happily pay tax on any income arising to this company. f. ) Barker shoes Ltd, UK: the company shares were purchased by me sometime in 2010. The company is controlled and managed from UK and pay income tax under UK regulations. g. J I will submit details of any other company owned by me shortly as far as I remember, there are no activities or income in any of these companies . However the control and management of all these companies are wholly and exclusively exercised by me in India. I accordingly agree that these are resident for tax purpose under sec. 6 of Indian Income tax Act since incorporation. I will be filing the returns of these companies for all the A.Ys. in the status of resident and pay tax due on any income of these companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement are at best, void ab initio. Your hour will appreciate that incidence of tax does not arise on an amount, solely all by itself or on the basis of some statements. The taxability of items of income and assessments have to be made strictly in accordance with the provisions of law. The fact of the matter that each <5 every foreign company where I am a Director or shareholder is being controlled and managed from outside India. They have been incorporated according to the laws of the respective country. The head and brain i.e. the Board of Directors are situated outside India. The Board meetings are held outside India. The books of accounts are maintained outside India. The bank accounts are maintained and operated outside India. In this regard your honour can verify these facts from the respective companies also. It is settled cannon of law that a public officer is required to exercise his powers and authority which have been bestowed upon him, in a most fair and appropriate manner. Rules of fair hearing and reasonableness would only suggest that the factual position regarding the control and management of foreign companies should be verified and corroborated with the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of statements recorded in the course of search pertaining to various other persons. But he reproduced the excerpts of such statements in the orders passed in case of the overseas companies to determine the "residential status" of these overseas companies by invoking the provisions of section 6(3) of the IT Act, 1961. Therefore, referring to such statements in the case of the appellant seems out of context and irrelevant. 9. In para 21.2.1, the Assessing Officer concluded that the appellant's case is peculiar, where an elaborate scheme was planned and executed meticulously to shift the huge profits and capital gains earned from India companies and their share holders to the overseas companies. While doing so, the Assessing Officer relied on the ratio of the various judicial pronouncements, predominantly, like MC Dowell & Co. Ltd. [154 ITR 148 SC (1985)]. I have gone through the citations of case laws relied upon by the Assessing Officer and find that the facts of those cases are distinguishable to that of the appellant. On perusal, I find that the Assessing Officer misapplied the ratio of the judgement of MC Dowell & Co. Ltd. to the appellant's case, as the Assessing Officer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t v. CIT [AIR SC 932] was a hoax transaction that was undertaken between a firm and the company; wherein partners of the firm were also the majority shareholders of the company.The Hon'ble Supreme Court held the transaction to be a hoax transaction by applying the doctrine of lifting the corporate veil. However, in the case of the appellant no such transaction was undertaken to allege that the income of overseas companies is taxable in the hands of the appellant firstly by lifting of the corporate veil and secondly by way of a protective assessment. In fact, it is pertinent to mention here that there are no transactions between the appellant and the overseas companies for which additions have been made by Assessing Officer. 9.1.5 In view of the aforesaid detailed discussion, the various case laws relied upon by the Assessing Officer are not applicable to the facts of the appellant's case. The Assessing Officer made vague references to these case laws without pointing out and establishing as to how the same were applicable to the facts of the appellant's case. Hence the facts of the case laws referred by the Assessing Officer are entirely different from that of the appellant's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has already been deleted by the coordinate bench and therefore, in the case of the assessee the above addition cannot be sustained. 8. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The brief facts of the case shows that in the hands of the assessee the addition is made on the protective basis of ₹ 227481323/- with respect to the income of the two overseas companies namely Wickwood Development Ltd and Rolland Enterprises Ltd. Both the companies have alleged to have earned the lease rental income for Assessment Year 2006-07 . In one of the other share holders Mr. Ajay Kalsi in whose case in earlier year identical additions were made on protective basis. Furthermore, another beneficiary Smt Mala Kalsi, Such additions were also made being the share holder of those companies. All these additions were made on protective basis in their hands. In case of Smt Mala Kalshi the coordinate bench has already decided the issue deleting the above addition on protective basis as per order dated 1st December 2017 reported in 90 Taxmann.com 175 (Delhi). Further, in case of Shri Ajay Kalsi the coordinate bench has deleted the above ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and the cross objections of the assessee. 12. Now we come to the appeal of the revenue for Assessment Year 2012-13 and the cross objection of the assessee supporting the order of the ld CIT(A). As Ground Nos. 1 to 6 of the appeal the ld AO challenged the deletion of the addition of ₹ 2273802044/- in the hands of the assessee on protective basis. Both the parties have confirmed that this ground of appeal is squarely covered by the issues in the appeal of the revenue for Assessment Year 2006-07 to 2011-12. 13. As we have already deleted the above addition respectfully following the decision of the order of the coordinate benches in case of Ms Mala Kalsi and Mr. Ajay Kalsi (supra), we do not find any merit in the appeal of the revenue for the reasons given by us while deleting the addition for Assessment Year 2006-07. Accordingly, ground Nos 1 to 6 of the appeal of the ld AO are dismissed. 14. Ground No. 7 of the appeal is with respect to the deletion of the addition of ₹ 6950000/- on account of unexplained cash. The ld AO has made the above addition as during the course of search u/s 132 at the premises of Shri Anil Agarwal, cash of ₹ 69.50 lakhs and jewellery ..... X X X X Extracts X X X X X X X X Extracts X X X X
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