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TMI Blog2023 (5) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... led to prove the identity and creditworthiness of the investors - HELD THAT:- As in the hands of M/s. BIEL, the substantive addition made thereon, was not deleted on merits. It was deleted only on a technical ground of assessment being framed on a non-existent entity. We hold that since substantive addition has not been deleted by this Tribunal on merits, the addition made on protective basis in the hands of the assessee company had to be examined. But the excruciating fact that remains uncontroverted in the instant case is that both the ld. AO as well as the ld. CIT(A) agree that the transactions between BIEL and assessee company are genuine. Further all the documentary evidences submitted by the assessee vis-a-vis M/s. BIEL with regard to receipt of share capital and OCPS had not been rejected by the ld. AO and no deficiencies were found thereon. Hence, it could be safely concluded that assessee company had duly discharged its complete onus with regard to Section 68 of the Act. Hence, there could not be any addition u/s.68 of the Act even on merits on protective basis or on substantive basis. Hence, we hold that the ld. CIT(A) had rightly deleted the addition made u/s.68 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.Y.2013-14 was filed on 26/09/2013 declaring total income of Rs.61,38,97,920/- under normal provisions of the Act and book profit of Rs.61,24,91,309/- u/s.115JB of the Act. The assessment was completed u/s.143(3) of the Act on 30/03/2016 determining total income of Rs.62,97,13,376/- under normal provisions of the Act and book profit of Rs.61,24,91,309/- u/s.115JB of the Act. On first appeal to the ld. CIT(A), the ld. CIT(A) had granted partial relief to the assessee. 3.2. A search and seizure action u/s.132 of the Act was carried out in Welspun group of companies on 30/06/2017. Pursuant to the search, notice u/s.153A of the Act dated 01/08/2018 was issued and served on the assessee. In response to the same, the assessee filed its return of income for A.Y.2013-14 on 24/08/2018 declaring total income of Rs.61,38,97,920/- under normal provisions of the Act and book profit of Rs.61,24,91,309/- u/s.115JB of the Act. The ld. AO observed that during the course of search action, the incriminating materials found in the form of excel sheet wherein the entries related to receipt and payment of cash and the reconciliation of cash in possession, were identified. Further, the entries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 157,668,798 212,950,604 3.5. The assessee submitted that delivery of materials were directly done at the site of the respective parties and hence, there was no delivery challans found during the course of search. The assessee further submitted that payments were made by account payee cheques to the said suppliers / vendors. The assessee submitted that they are engaged in trading of structural steel. The complete quantitative details of the respective items along with supporting invoices were duly filed before the ld. AO. It was further submitted that there was no discrepancy in the quantitative details of purchases and corresponding sales made thereon. The ld. AO however, did not heed to the aforesaid contentions of the assessee and by placing reliance on the incriminating materials found during the course of search; statements recorded from various parties during the course of search; and survey conducted u/s.133A of the Act on the suppliers, proceeded to treat the entire purchases made from aforesaid six parties as ingenuine and made disallowance of Rs.15,76,68,756/- on account of ingenuine purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and indirect taxes. This has been recorded by the ld. CIT(A) primarily on the ground that corresponding sales made of disputed purchases have not been disputed by the Revenue. These observations made by the ld. CIT(A) were not controverted by the Revenue before us. The ld. DR vehemently relied only on the incriminating materials found during the course of search and documents impounded during the course of search in the hands of suppliers. The ld. DR also argued that the details of vehicle numbers that were given by the assessee for transportation of goods had been found to be non-existing. However, we find that since the sales made out of disputed purchases have been accepted as such by the ld. AO, it would be just and fair to bring to tax only the profit element embedded in the value of such disputed purchases in view of the fact that assessee could have made purchases from the grey market in order to have some savings in the form of cash discount and indirect taxes. We find that this Tribunal in the case of assessees engaged in the trading of iron and steel had been consistently estimating the profit element to be at 5%. Hence, we direct the ld. AO to estimate the profit elemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave amalgamated in the company known as Reliable Record Keepers Pvt. Ltd. Thereafter, the company has undergone a name change and now known as Candor Renewable Energy Pvt. Ltd., Thus, the investment company BIEL, post amalgamation, remains in control of M/s. V.M. Group (i.e. Vineet Mittal Group). The assessee submitted that all the aforesaid facts could be verified from the Ministry of Corporate Affairs (MCA) portal. The ld. AO from the financials of the M/s. BIEL of various assessment years commencing from A.Y.2011-12 to 2015-16 observed that BIEL is not engaged in carrying out any real business activity and its sources of income are only by way of interest, dividend and other income. From the financials, he also observed that most of the funds have been invested either in equity share capital or by way of advancing loans. The ld. AO also observed that reserves and surplus of BIEL is 9 times more than its share capital which goes to prove that BIEL had received substantial share premium in its books from various parties. There was a search and seizure action conducted u/s.132 of the Act in the premises of Shri Vineet Mittal. Pursuant to this search, various statements were recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. invested a total amount of Rs. 99,99,99,999/- the company named Welspun Energy Pot Ltd, as under Through OCPS Rs 60,84,99,210/- Through Equity Rs 39,15,00,789/ Rs. 99,99,99,999/- c. The shareholding of B.KG and V. M. Group as on 1-4-2016 thus stood as under:- B.K.G Group (52.767 %) No. of shares as on 1-4-2016 Rank Marketing 144,630,203 Welspun Entp Limited 60,493,342 B.K Goenka 604,933 205,728,478 V.M. Group (47-33%) No. of shares as on 1-4-2016 Vineet Mittal 12,993,491 Candor Power 108,214,880 Bhadrawatilspat Energy Ltd. 63,694,267 184,902,638 d. Thus, Welspun Energy Private Limited (WEPL) became a leading renewable energ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mention that the shareholding in the newly formed (Solarsys') continued to remain the same as that of Welspun Energy Private Limited. Thus, the following facts emerged from the above: ✔ That the 2 groups with their independent resources promoted the business activity in your assessee company. ✔ That from time to time after realising the business potential, the two groups decided to dilute their respective stake. ✔ That the respective promoters have demerged their business activity and the share of V.M group in your assessee company was finally acquired by BKG group for a sizeable consideration. 3. Your goodself in your showcause has pointed out several observations and thereby drawing an inference that the company Bhadrawatilspate Energy Ltd. (herein after referred to as BIEL) is a paper company. In the matter, your assessee company submits that the inference based alone on certain untenable observations will not only be unfair but also against the principles of natural justice: a. As regards your observation that till A.Yr. 2012-2013 the initial shareholders were located and registered in Kolkotta and thereafter two majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by BIEL. -In the same breath, your assessee company asserts that the change of business address cannot bring home the charge that the company BIEL was a paper company. -The company BIEL is regularly assessed to tax. The company has been making all statutory compliances as per law. The Company as per the laws is required to get its book audited. Perusal of the audit report issued by the Auditor specifically mentions that the audit has been carried out based on books of accounts maintained by the BIEL. Further the company has been regularly calling AGM, Board Meeting as per companies Act. We are given to understand that the BIEL post its merger and change of name is also assessed to tax under your charge. Your goodself can independently get this fact verified and call upon the book of accounts for examination. In view of the given facts on record one cannot bring home the charge that the company BIEL was a paper company. -In respect of your allegation that BIEL upto AYr. 2010-2011 are based at Kolkotta and revealed that they are paper entities. In the matter your assessee humbly submits that your allegation is prior to acquisition of BIEL by VM group. We are given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in respect of the source of the capital being introduced by VM group in the assessee company. VM group has explained the source of funds that have been received by erstwhile BIEL and the same is enclosed here for your perusal and records. A perusal of the said chart clearly shows that not all the funds worth Rs. 99.99 crs. are from the entities identified by you (a.) to (d.) to sub-para, vi. Further, in respect of your observation that various companies are controlled by entry providers, in the matter we humbly submit that your observation is a general observation and not specific to BIEL. It is an established law that statement on oath even where a general confession is made cannot be used generally. The Hon'ble Supreme Court in the case of Tro LakhmaniMewal Das 103 TTR 437 has held that a general confession by a person that all his transactions are bogus or that he has indulged only in bogus transactions cannot be basis for drawing an adverse inference in the case of your assessee. This is more particularly so when the assessee has not been specifically named in the confession. Similar views have been followed in the following judgments: Shaf Broadcast (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of March, 2018. ix. It is not the departments case that the transaction of the alleged parties are specifically and distinctively non genuine. The inference of the department is merely drawn from external material which is not connected with your assessee directly. An information can be a line for initiating an action for further enquiry but cannot be finding by itself. In your showcause there is mere reliance on the information for drawing an adverse inference in the case of your assessee company. One will have to travel beyond the line of guesswork and surmises to conclude that the BIEL is nothing but a paper company. x. Your conclusion, that the companies listed in your showcause identified at (a), (b) and (d) to sub-para. vi, are paper companies with no worthwhile business activity/income has been addressed hereunder:- -All the companies are active companies and regularly filing their financial with ROC. Your assessee to establish the genuine existence of the respective companies is enclosing the financial of the companies which are downloaded from the website of ROC Name of the company Status of the Company as per ROC re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies listed in your showcause identified at (a), (b) and (d) to sub-para, vi. have common Directors who are persons of dubious means and further deposition of the Directors that they are merely lending their names are irrelevant to the case of your assessee company as your assessee company has demonstrated that Directors have acted on behest of its major shareholder and taking concurrence of a major shareholder in arriving at major financial decisions is a mandatory norm and at par with corporate world. The Directors cannot act independently without knowledge and consent from their shareholders. The shareholders are the true owners of the company and the Director is always a person appointed to meet statutory compliances. xii. Equally, your conclusion that the companies listed in your showcase identified at (a), (b), and (d) to sub-para vi. have common auditors are irrelevant to the cast of your assessee company as your assessee company as the appointment of an Auditor in an independent exercise carried out at AGM of a company The appointment of common Directors cannot drive home the charge that the companies are paper companies, Kindly appreciate that the Auditor is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was drawn up between VM Group and B.K.G Group wherein it was agreed by VM. Group would exit from the company WEPL As a part of the agreement it was decided that V.M. group would sell their entire stake made by him through his Investment companies, by way of buy back of shares by your assessee company and further sale of remaining stakes to Welshop Trading Pot Ltd (ABKG Group investment co.). A copy of the said agreement has been furnished in the last submission. While defining the share of V.M. Group, a specific schedule (more specifically referred to as Schedule 1 2) was drawn which forms part of the sale/purchase agreement and identifies companies of Mr. Vineet Mittal. It is this very share that were acquired by your assessee company and BKG group for a sizeable consideration. ✔ Even in the board meetings held from time to time, the investment companies of VM. Group have been identified. A copy of the same is enclosed here for your perusal and records. ✔ The V.M. Group has sold its investments in WEPL made through its company BhadrawatiIspat Energy Ltd. to B.KG Group for a consideration detailed hereunder- Date of Payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment was a genuine investment by BIEL which was incorporated with MCA, carrying a PANO and filing returns with the department. iv. It will not be out of place here to bring on record that VM group has sold their entire stake in your assessee company for 753.70 crores. Besides BIEL, the other investors of VM group have shown the sale consideration and gains arising from the said transactions in their respective return of income. We are given-to-understand from VM-group that the respective income arising on account of BUY BACK by the assessee company and further acquisition of the stake of VM Group which was bought over by BKG group have been accepted by the department without a blemish. When all the transactions of VM group have been accepted, casting a spell of doubt on transactions pertaining to BIEL is nothing but being biased to your assessee company. v. Out of the above sum of Rs 753.70, BIEL has received a sizeable consideration of about Rs. 258.89 crs. It will be of significant importance here to highlight the fact that out of this amount an amount of Rs. 131.90 crs was received by BIEL by way of buy back of shares by your assessee company as against investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment company, the assessee company rests its case. ix. The additional onus, placed on the assessee company to examine the source of money in the hands of such shareholder or persons, making payment towards issue of shares before such sum is accepted as genuine credit stands duly discharged when the investor furnishes his bank statement to show sufficient bank balance from time to time, copy of financial statements to show that the transactions are recorded in its books and return of income showing that the transactions are reported to the statutory authority The said supporting documents have been furnished in our earlier submissions: Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the your goodself to scrutinize the same and in case any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials and one cannot go into the realm of suspicion. x. It will be of paramount importance here to highlight the fact that never ever the operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the onus to establish the creditworthiness of share subscriber lies on the assessee. (d) The assessee submitted that investment transaction was genuine. The transaction may be genuine, but the unaccounted income of Vineet Mittal group has been routed into the assessee company through a maze of shell companies. (Underlining provided by us) (e) Section 68 casts onus on the assessee to establish the creditworthiness of the investors from whom it receives share capital. It is surprising that without any genuine business activity how BIEL invested nearly 100 Crores. (f) Enough direct and circumstantial evidence has been brought to establish that BIEL was paper / shell company. 4.6. By way of aforesaid observations, the ld. AO concluded that assessee company had failed to prove the identity and creditworthiness of the investors. Accordingly, the amount received from BIEL during the year under consideration in the sum of Rs.41,02,38,623/- becomes unexplained cash credit u/s.68 of the Act in the hands of the assessee company. The ld. AO while making this addition observed in para 6.11 that in respect of unexplained cash credit received by BIEL, an addition is being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the creditworthiness of the investor from whom it receives share capital. It is surprising that without any genuine business activity and place of operation, how Ms. BIEL invested nearly Rs.100 crores. 8.13 The above observations of the AO demonstrate that the AO does not doubt the genuineness of the transaction between the appellant and BIEL He has also given a finding that it is the unaccounted funds of Vineet Mittal which have been introduced in the appellant company. The AO has not accepted certain valid submissions by the assessee evidencing genuineness of the transaction by observing that subsequent transactions are of no relevance in deciding the character of current transactions. The contention made by the assessee that if the sale of shares (buyback from Vineet Mittal) group is treated as a genuine transaction, the purchases will have to be treated as genuine is found to be a valid argument. The VM group had invested around Rs 275 crore through various group entities in the equity/OCPS of the appellant company and the sale of their stake in WEPL subsequently resulted in a total consideration of Rs 753.70 crore. On the investment of Rs 100 crore by BIEL, it r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake or the ownership of the funds which have been introduced. The promoter of the investor company owned by the promoter and all its directors are traceable, have responded to the notices issued and have been examined by the AO. There is no dispute that the funds have genuinely emanated from BIEL. There is no allegation that the transactions were contrived by WEPL along with BIEL or the other companies who have financed. BIEL: As such as far as WEPL is concerned, the source of credit is clear and established. Since WEPL is not entirely controlled by the owners of BIEL and the genuineness of the transaction is accepted by the AO, an addition in the hands of WEPL is not warranted on a protective basis. As such, Invocation of section 68 in the case of the assessee does not appear warranted. 8.18. Keeping in view the genuineness of the business operations of WEPL as demonstrated from the various documents filed before the AO including the financial statements of the appellant. find it tenable to accept the following investment rationale provided by the assessee with reference to the investments made by the promoters. That the 2 groups with their independent resources prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence whatsoever to treat the amount as an unexplained accommodation entry in the hands of the appellant. 8.22. .............................................................................................................. .................................................................................................... 8.23. ....................................................................................................................... ............................................................................................ 8.24 It is noted that the present case no such claim has been made by the AO that the funds belong to the assessee or that the assessee has failed to discharge its burden under section 68 of the Act. The protective addition has been made merely because BIEL has been found to be a shell company owned by Vineet Mittal and he appears to have routed unaccounted funds through BIEL Into the appellant company. The AO has given a conclusive finding that the majority share holder of BIEL has routed his own funds Into the appellant company through BIEL As such, there is no allegation that there is possible scenario wherein the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of evidence that funds. could also belong to the assessee which have been routed by it through the above structure, In fact, it is VM Group and not the appellant who has gained from the investment in subsequent years. 8.27 In his order, the AO has noted that Vineet Mittal has routed his own unaccounted funds through BIEL into the appellant company. There is no finding by the AO that the appellant has been a party to such structuring or that the funds coming into the company as share application are, bogus. Once the AO is convinced that the funds belong to Vineet Mittal and his group, addition cannot be made in the hands of the assessee on a protective basis as there is no dispute, with respect to ownership of the funds as far as the appellant is concerned. 8.28 In the entire assessment order, the AO has not discussed the case of the assessee vis- -vis the onus on the assessee under section 68 of the Act. There is no discussion with respect to the documents filed by the assessee and their credibility. The AO has not elaborated on the transaction between the assessee and BIEL and has Infact, admitted that they are genuine transactions. As such, the income could not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action between BIEL and assessee company had been accepted as genuine by ld. AO, there is no case for making any addition u/s.68 of the Act as the assessee company had duly proved all the three necessary ingredients of Section 68 of the Act. In any case, the ld. AO had made an addition in the hands of the assessee company only on protective basis. Substantive addition has been made in the hands of BIEL which stood confirmed by the ld. CIT(A). On further appeal by M/s. BIEL before this Tribunal, both the parties fairly agreed that the said addition was deleted by the Tribunal on a technical ground of assessment framed on a non-existent entity. In other words, in the hands of M/s. BIEL, the substantive addition made thereon, was not deleted on merits. It was deleted only on a technical ground of assessment being framed on a non-existent entity. We hold that since substantive addition has not been deleted by this Tribunal on merits, the addition made on protective basis in the hands of the assessee company had to be examined. But the excruciating fact that remains uncontroverted in the instant case is that both the ld. AO as well as the ld. CIT(A) agree that the transactions between B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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