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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 ..... Kalsi/Sh. Anil Aggarwal u/s 134(4) have admitted that the taxability of these companies lies in India and these companies are resident for the tax purposes u/s 6 of the IT Act. 2. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring that underlying assets and sources of revenue of all the overseas companies in which assessee is shareholder/ beneficial owner are the Indian Companies. 3. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the substantial evidence in form of seized material, E-mails, Share Holding pattern showing the ultimate control and management of Indian companies and overseas companies lies with Sh. Ajay Kalsi, Sh Anil Aggarwal and Smt. Mala Kalsi, who have created different verticals of corporate veil under them to avoid taxability in India. 4. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the provisions of section 9(1) of the I.T. Act as the revenue has been earned because of underlying assets of the assessee wholly and totally situated in India. 5. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted to be in the jurisdiction of the Indian tax laws and therefore, in order to protect the interest of revenue income of all those overseas companies for the assessment year 2006-07 was assessed in the hands of the appellant on "protective basis", and an addition of the same segregated amount was made in the hands of the respective overseas companies on "substantive basis" in their assessments for respective year. It is pertinent to mention here that once an addition on "substantive basis" was made in the hands of the overseas companies treating them as "residents" in India u/s 6(3) of the IT Act, there was no reason or occasion or an issue to assess the same in the hands of the appellant on "protective basis" which evidences lack of clarity and confusion in the mind of the Assessing Officer. On perusal of the assessment order of the appellant, I find that the contents of the assessment orders in case of the overseas companies were reproduced in entirety in complete form in toto, in the case of the appellant also. There is no issue relevant to the income of the appellant which was discussed by the Assessing Officer that resulted in addition in his individual case. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs of these overseas companies. From the details on record, which were provided by the respective Foreign Tax Authority, it was evident, that the overseas companies were incorporated according to the prevalent laws of the respective countries and complied all statutory provisions. I also perused the information provided by these Foreign Tax Authorities and none of them reported any doubtful or illegal existence of these companies. It is also relevant and pertinent to mention here, that while assessing the overseas companies, in the assessment orders of respective overseas companies, the Assessing Officer had himself admitted in para 5.9 as under: "5.9 The assessee's claim that it is registered outside India according to law of our own country i.e.........., is not challenged by the department and is accepted." 8.1.4 From the aforesaid admission by the Assessing Officer, it is evident that he accepted the status of the overseas companies as "not resident in India". In para 5.10 of the assessment order in respect of overseas companies, the Assessing Officer had admitted that the overseas companies are - "Independent and distinct corporate legal entity is accepted partially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs passed by him in pursuance of such reference clearly establishes the fact that:- i) The overseas companies are separate, independent and genuine entities ii) The transactions between the various companies are genuine transactions. iii) That the transactions between the various companies was carried out at an arms length price. iv) That not a single case of diversion of profit of the Indian entities to overseas entities was found neither by the TPO nor the Assessing Officer. 8.1.7 In view of the material on record and discussion thereto, there is no merit or basis for the Assessing Officer to lift the corporate veil on any ground or to make an allegation while assessing the appellant's case that profit of the Indian entities was transferred to the overseas companies and that such overseas companies were incorporated with a purpose to avoid transferring audit. The Assessing Officer did not allege that the appellant transferred undisclosed income or undisclosed profits of the Indian companies to the overseas companies. He focused mainly on the purpose of incorporating the overseas companies in tax havens which according to him was for avoiding transfer pricing audit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid discussion, facts on record, seized document's, statements recorded during search proceedings u/s 132, post search proceedings and assessment proceedings, correspondence reflected in e-mails and information gathered during assessment proceedings including is specific inputs received from Foreign Tax Authority in UK, BVI, Cyprus and Mauritius as discussed in detail in the above para's it is held that the income of overseas companies are liable to be tax in India under the provisions of section 6(3)(ii) of the I.T.Act, 1961 since overseas companies are treated as company resident in India for the reason that control and management of its affairs is wholly situated in India." 8.1.9 In view of the aforesaid position concluded by the Assessing Officer for making "substantive addition" in case of the overseas companies, I do not find any valid reason for the Assessing Officer to make a similar addition on "protective basis" in the hands of the appellant without any basis. 8.1.10 The protective addition made in the case of the appellant comprised of the amounts which were transacted between the companies and which were treated by the Assessing Officer as a part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main companies of the group, namely M/s Focus Energy Ltd. and M/s Granada Services Pvt Ltd. Although, this conclusion of the Assessing Officer is totally out of context, so far as the case of appellant is concerned, yet It is not understood as to how, and on what basis the addition can be made in the case of appellant without bringing any evidence to support it. It is pertinent to mention here that the Assessing Officer also was the Assessing Officer of the Indian entities namely Granada Services Pvt. Ltd. and Focus Energy Ltd. and without bringing an adverse material on record in case of the appellant, the Assessing Officer was not justified in making such self contradictory and baseless allegations. Further, the income from the oil and natural gas blocks and BPO business was offered to tax by the respective companies in their income tax returns and therefore, the allegation of the Assessing Officer that profit from Indian companies was transferred to overseas companies appears to be misconceived and baseless. 8.1.14 In the assessment order, the Assessing Officer referred to various e-mails and correspondence to allege that the control and management of the affairs of various o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even to suggest that undersigned has received any benefit or earned income which is not disclosed. At the cost of reiteration, it is stated that the conclusion drawn is factually wrong and legally unsustainable. Further, I would like to bring on record the surrounding circumstances and the manner in which the statements were recorded. It would be imperative to highlight that the search operations which started on 22.03.2012 and continued for consecutive period for 3 days & nights (wherein, it was evident that entire search operation was carried out with pre¬determined bias that the various non-resident foreign Companies ought to have paid taxes in India. It is a matter of record that I was kept awaked whole night and day, which itself suggests the constrictive environment in which the statements were recorded). In this back drop the search team took written from me what they wanted. However, I am still sanguine that justice shall prevail. It may be relevant to mention that during the course of assessment proceedings, you had recorded my statement. In the said statement, your good office was appraised that the undersigned was not aware about the contents of the statements re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to get written what they wanted. Tls can be seen that the search started on 22.03.2012. The statements were recorded on 22.03.2012 and also on 23.03.2012 and further on 24.03.2012. The search party left the premise only on 24.03.2012 after taking written such contents as they wanted. The answers taken written to questions allegedly containing the so called confession /admission of taxability of income is almost identical to the statement recorded of the undersigned and Mr. Ajay Kalsi. You will appreciate that it is not even remotely probable that two persons will give similar answers in similar language. This clearly establishes that the search party was predetermined to get the answers what they wanted. In your captioned notice you have reproduced the following statement of the undersigned STATEMENT DATED 24.03.2012 AT 9. SHIVAll MARG Q2.) Please tell the ownership, shares holding pattern and controlling patterns of EICR(Cyprus) Ltd. please also finish the holding structure of iEnergizer Ltd., Guernsey from ultimate share holder to the bottom-line entity? Ans. I own 100% shares of Wickwood development ltd. which has 100% owned subsidiaries geophysical substrata Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lland directly and SDP through Wickwood. I along with Sandeep Rastogi and Rajiv Gujral are Director for these 3 companies. However, all the decisions and activities are controlled and take exclusively by me in India. Therefore, I confirm that any resulting tax liability on the income of these 3 companies and should be taxed in India. I may be treated as representative assessee of these 3 companies and I stand surety for the payment of taxes for the same. Regards of 3 Phase Engineering I have to verify the facts regarding ownership and I will revert back on the same. Q7.) Please furnish the list of all other overseas entities along with their nature of activities, managed and controlled wholly by you? Ans. In addition to M/s Wickwood Development Ltd, Rolland Enterprises and SDP services Ltd. and other step down subsidiaries belonging to Wickwood Development Ltd and since I have accepted ownership of Wickwood Development Ltd, I have also accepted wholly and exclusively control and management of these companies and therefore of all its subsidiaries. Entire list of the holding pattern to be provided very shortly. I do not have my ownership of the companies outside the structure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts, bank accounts of this company since the company incorporation as the control and management over this company is exercised in India wholly and exclusively from India. I agree that this company becomes resident in India for tax purpose under section 6 of Indian Income tax Act 1961 since incorporation. The company will be liable to tax on its income and I am liable to pay tax in India, I will be filing the return of this company for all the A.Y. in the status of resident and pay tax. I will be paying tax as soon as possible and definitely within the period of 12 months. I will be submitting the plans of installments. d. ) EICR(Cyprus) Ltd.,BVI : The company was incorporated in BVI, 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 share of iEnergizer Ltd. a company registered in Guernsey and quoted in London Stock Exchange, I will be providing the books of accounts, bank accounts 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3, certain amount will be my income. As is evident from the Q.2 & Q.3, there is no basis to allege or infer that there is some taxable income. The subsequent questions and answers No.4 to 8 are all stated to be based on the contents of Q.2 & Q.3. There is nothing in answers to Q.2 & Q.3 which can be made basis of drawing adverse inference. Further as per answers to Q.2 & Q.3 (which is made the basis of subsequent questions and answers) it is established that none of the foreign companies mentioned in those questions can be held to be controlled or managed from India. In Q.4 and answer thereto, 1 have been depicted as if I am a tax expert and under the guise, some factually and legally erroneous contents have been taken written. It is not understandable as to how the answer to Q.4, as taken written, can be the basis for drawing adverse inference as is sought to be drawn. Further from Q.5 and answer thereto, as is self evident, there being no factual or legal basis for taxability under the Indian Income Tax Act (in fact the search party itself realized/thought that amount cannot be brought to tax in India unless brought in India), something with regard to liability and surety etc. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalsi. At this juncture, it is important to mention that the connotations used by your good office in the subject notice, such as "Control and Management", "Beneficial Ownership", "Representative Assessee" and other legal provisions of the Act such as Section 277 and 278, can best understood by legal experts having extensive and vast knowledge. Needless to mention, the statements recorded during the course of search proceedings do require careful consideration before reliance placed thereupon. Any such reliance upon statements itself shall acts as prejudice if the same is not appropriately corroborated and no credence or cognizance to the other evidence/submissions being made from time to time during the course of search proceedings and in the post investigation proceedings is given. Such bald reliance would result in miscarriage of justice and the resultant proceedings are liable to be quashed. " 8.1.16 In case of the appellant, in the course of the assessment proceedings, the Assessing Officer did not contradict the contents of the letter dated 25.03.2014 nor he had re-recorded the statement of the appellant on oath again. Therefore there is no corroboration nor confirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In aforesaid case which was relied by the Assessing Officer upon by Assessing Officer , the company borrowed an exorbitant amount of money from the Indian branches of Bank A based on the fixed security deposits made in other branches of Bank A in a non-taxable territory. Further the director of the assessee-company was also the main share holder of the Bank A. During the assessment proceedings, the Assessing Officer treated the entire profits of the assessee company, including interest from the non-taxable territory in the hands of the assessee company. 9.1.1 The facts of the appellant's case are different from the facts of the aforesaid case and such facts cannot be parallel and similar. 9.1.2 Therefore in my considered opinion, the Assessing Officer failed to appreciate as well as distinguish the facts mentioned in the aforesaid paras with that of the appellant. In this case relied upon by the Assessing Officer, the assessment was completed in the hands of the assessee company, but not in the hands of the director-founder, even after holding him to be share holder of the assessee company as well as Bank A. 9.1.3 The Assessing Officer further placed reliance in the ratio of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer did not bring on record such adverse facts that established fraud, circuitous or sham transactions as in the cases mentioned by Assessing Officer in the order. The only allegation of the Assessing Officer for drawing an adverse inference in case of the appellant is that the purpose for which the companies were incorporated overseas in tax havens was to avoid transfer pricing audit and consequent avoidance of tax. However, this was merely a doubt and allegation of Assessing Officer. To ascertain the factual position, the Assessing Officer himself referred the matter to Transfer Pricing Officer and as discussed earlier, no case of any taxevasion was detected. Contrary to the allegation and doubt of the assessing officer, all the transactions with the overseas companies which were doubted by the Assessing Officer was found to be genuine and carried out at an arm's length price. Moreover, in one of the overseas companies while referring to the emails the Assessing Officer himself accepted that it was a part of the tax-planning. Therefore, the facts of the various case laws referred by the assessing officer are distinguishable and are not applicable to the facts of the appellant's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bench where identical additions were deleted, we also direct the ld AO to delete the above protective additions of Rs. 227481323/- 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. 9. The assessee is also raised cross objection in the above appeal. In the cross objection the assessee has challenged certain jurisdictional issues and further additions made u/s 153A of the Act by the ld AO are beyond the scope of the law. As we have already deleted the appeals of the revenue the cross objection supporting the impugned order passed by the ld CIT(A) becomes infractuous and hence cross objections is also dismissed. 10. The appeal for Assessment Year 2007-08 filed by the revenue also involves the identical additions of Rs. 495316627/- and the assessee has filed the cross objections supporting the order of the ld CIT(A). The appeal for Assessment Year 2008-09 filed by the revenue also involves the identical additions of Rs. 529475798/- the assessee has filed the cross objections supporting the order of the ld CIT(A). The appeal for Assessment Year 2009- 10 filed by the revenue also involves the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the ld CIT(A). The ld CIT(A) deleted the addition on account of cash found of Rs. 6950000/- as Shri Atul Aggarwal brother of the appellant surrendered the above cash in his hands and declared the same in the return of income filed by him for Assessment Year 2012-13 which was assessed u/s 143(3) dated 18.04.2014. As the above amount was already taxed, it amounted to double addition in the hands of the assessee as well as Mr. Atul Aggarwal. Further, addition on account of jewellery also, Mr. Atul Aggarwal explained the source in his own case and no addition was made by the ld AO in the hands of Shri Atul Aggarwal as the jewellery worth the of Rs. 1682400/- was within the limited as prescribed by CBDT in Instruction dated 11.05.1994 and the balance jewellery of Rs. 1088351/- was already offered by him in his hands as other income. The ld CIT(A) also noted that the above addition has already been taken care of in assessment of Shri Atul Aggarwal. Therefore, the addition of same sum cannot be made in the hands of the assessee. 15. The ld AO aggrieved by the order of the ld CIT(A) has preferred this appeal on ground No. 7 and 8. 16. The ld DR relied upon the order of the ld AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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