DEPUTY COMMISSIONER OF INCOME TAX, CENTRE-CIRCLE-3(3), MUMBAI vs. M/S WELSPUN STEEL LTD, (SUCCESSOR TO WELSPUN ENERGY P LTD.,, MUMBAI

ITA No.8/Mum/2022 & (AY 2013-14) These cross appeals in ITA No.1396/Mum/2022 for A.Y.2013-14 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-51, Mumbai in appeal Nos.CIT(A)- 51, Mumbai/10283/2019-20 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2019 by the ld. Dy. Commissioner of Income Tax, Central Circle – 3(3), Mumbai (hereinafter referred to as ld. AO).

ITA No.1395/Mum/2022 (A.Y.2014-15) This appeal in for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-51, Mumbai in appeal No. CIT(A)-51, Mumbai/10288/2019-20 dated 12/11/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/12/2019 respectively by the ld. Dy. Commissioner of Income Tax, Central Circle – 3(3), Mumbai (hereinafter referred to as ld. AO).

Identical issues are involved in all these appeals and hence, they are taken up together and disposed of by this common order.

3. The ground No.2 raised by the assessee and ground No.2 raised by the Revenue for A.Y.2013-14 is with regard to addition made on account of bogus purchases.

3.1. We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the business of project development of solar energy and trading of goods required for the purpose of development of solar power projects. The original return of income for the 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 4 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) 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 relation to total amount paid in cheque and the amount received back in cash from the vendors were also mentioned. During the course of search, statement of certain employees were recorded wherein it was admitted that assessee and group concern were indulged in accepting accommodation entries by way of ingenuine purchases from various parties to whom cheques were issued to the vendors and cash has been received back for which no materials had been supplied by the vendors. During the post search proceedings, survey action u/s.133A of the Act was carried out on non-genuine vendors wherein they had admitted that they had received the payments from the assessee without supply of goods.

3.3. The assessee had made purchases from the following parties: - Yogita Industries 22,408,348 Universal Trading Company 19,705,754 Swastik Sales Associates 28,662,753 Yamini Sales Corporation 17,532,239 Rajasthan Steel Trading Co. 28,658,965 B B Enterprises 40,700,697 15,76,68,798 3.4. The ld. AO show-caused the assessee as to why the purchases made from the aforesaid parties should not be disallowed. The assessee gave a detailed reply to the ld. AO. In the said reply the assessee also furnished the details of corresponding sales made out of alleged disputed purchases in the following table:-

Party Purchase Sale Value Margin Cost Yogita Industries 22,408,348 30,130,524 25.63 Universal Trading 19,705,754 26,420,573 25.42 Company Swastik Sales Associates 28,662,753 38,878,170 26.28 Yamini Sales Corporation 17,532,239 23,599,295 25.71 Rajasthan Steel Trading 28,658,965 38,882,420 26.29 Co. B B Enterprises 40,700,697 55,039,621 26.05 157,668,798 212,950,604 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 6 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) aforesaid six parties as ingenuine and made disallowance of Rs.15,76,68,756/- on account of ingenuine purchases in the assessment.

3.6. The assessee had claimed that complete quantitative details with respective items (steel items) along with supporting invoices were duly submitted before the ld. AO and no deficiencies have been noted in the same. The assessee has booked purchases of Rs.15,77,68,798/- and reflected corresponding sales of Rs.21,29,50,604/- resulting in gross profit of Rs.5,51,81,806/- which has been considered as income in the return of income. On without prejudice basis, the assessee also claimed that there would always be shortage of specific items of iron and steel in Indian Iron and Steel market and many items in the market would only be goods purchased or supplied from one source and bills are provided from other source and the person who has purchased the goods may not have knowledge of such facts and he is under a bonafide belief that he has received the goods ordered by him along with a genuine bill for the same. It was submitted that when sale of goods shall be with admissible materials, purchases from such suspected parties should also be accepted. The ld. CIT(A) accordingly, restricted the gross profit addition to 6% being the profit embedded in the value of such disputed purchases. Aggrieved, both the assessee as well as the Revenue are in appeal before us.

3.7. Admittedly, we find that the corresponding sales made out of disputed purchases are not doubted by the Revenue. In the instant case, the assessee had provided sufficient evidences with admissible materials to prove the genuineness of sales made by it. It is not the case of the Revenue that the corresponding sales out of disputed purchases shown by the assessee had to be treated as ‘income from other sources’ as 7 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) unexplained cash credit, since no purchases were made by the assessee. Having accepted the receipt as sale proceeds of goods in the sum of Rs.21,29,50,604/- (being sales made out of disputed purchases of Rs.15,77,68,756), profit element embedded in the value of disputed purchases alone could be brought to tax. In fact we find that the ld. CIT(A) had given a categorical finding considering the normal business practice prevailing in the Iron and Steel market in India that assessee could have obtained accommodation entries in the form of purchases from certain parties by purchasing from un-registered suppliers in order to have some savings in the form of cash discounts 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 element at 5% of disputed purchases, which in our considered opinion, would meet the ends of justice in the peculiar facts and circumstances of the instant case.

8 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) Accordingly, the ground No.2 raised by the assessee is partly allowed and ground No.2 raised by the Revenue is dismissed.

4.1. We have heard the rival submissions and perused the materials available on record. M/s. Welspun Energy Pvt. Ltd (WEPL) was a Private Limited Company incorporated under the Companies Act, 1956 and engaged in the business of generation, transmission and distribution of electricity, which was merged with M/s. Welspun Steel Ltd w.e.f. 01/04/2016 and therefore, WEPL is being represented by M/s. Welspun Steel Limited, being amalgamated company as the assessee / respondent in the present appeals. This scheme of amalgamation has been approved by the Hon’ble High Court and as such M/s. Welspun Energy Pvt. Ltd which was a non-existent entity on the date of issue of notice u/s.153A of the Act as well as on the date of passing the search assessment u/s.143(3) r.w.s. 153A of the Act.

4.2. M/s. Bhadrawati Ispat & Energy Ltd. (BIEL in short), an entity which pertain to Shri Vineet Mittal group, made investment in the assessee company in the form of equity / Optional Convertible Cumulative Preference Shares (OCPS). The year wise details of investment made by M/s. BIEL in the assessee company is as under:-

A.Y. Equity OCPS Total 2013-14 11,14,65,511 29,87,73,112 41,02,38,623/- 2014-15 28,00,35,278 30,97,26,098 58,97,61,379/- 39,15,00,789 60,84,99,210 99,99,99,999/- 4.3. The assessee submitted that the shareholders of BIEL were Smt. Santoshidevi Mittal, mother of Shri Vineet Mittal, Demand Trading India Ltd and Reliable Record Keepers Pvt. Ltd. The capital in the companies Demand Trading India Ltd and Reliable Record Keepers Pvt. Ltd were held by Shri Vineet Mittal. During the financial year relevant to A.Y.2016- 17, BIEL and Demand Trading India Ltd have 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 recorded from the Directors of V.M. Group of companies and also Directors of BIEL. The ld. AO observed that shareholders of BIEL does not exist at the address shown in the return of income. Further enquiries were sought to be made by deputing the Inspectors of Income Tax and the Inspectors submitted a report that local enquiries reveal that the address in which the premises 10 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) were situated were locked for so many years. The ld. AO reproduced the Inspector’s report in the assessment order. The ld. AO also observed that creditworthiness of shareholders of BIEL were not proved. The ld. AO also took on record the changed shareholding pattern during A.Y.2013-14. The share capital and share premium received by M/s. BIEL from various parties were treated to be bogus entities which are controlled and managed by various entry providers. Since the monies received by BIEL were treated as received from bogus entities, the ld. AO show-caused the assessee company herein as to why the monies ultimately invested by BIEL in the assessee company should not be treated as unexplained cash credit u/s.68 of the Act in the hands of the assessee company. In response to the same, the assessee submitted the following documents:-

(a) Name, PAN, address and details of shares allotment (b) Forms filed with Registrar of Companies along with Board Resolution and list of shares allottees. (c) Income Tax return of share applicants. (d) Copy of bank statement of the subscribers of capital highlighting funds transferred for subscribing capital. (e) Financials of share subscribers. (f) Share purchase Agreement signed between VM group and Welspun Trading Pvt. Ltd and Welspun Energy Pvt Ltd. 4.4. The assessee also placed on record the complete historical background of the assessee company and its relationship with Welspun Group and Vineet Mittal group. The assessee submitted as under:-

Welspun Group and Vineet Mittal group entered into renewable and thermal businesses. The assessee decided by the promoters that the b. It was the responsibility of the respective promoter to source capital and invest their share in your assessee company (WEPL). During the financial year relevant to the assessment year 2013-2014 and 2014-2015, Mr. Vineet Mittal through his company Bhadrawati Ispat & Energy 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 energy projects company with strong engineering procurement and construction capabilities. e. No sooner, the macro fundamentals of the renewable business started deteriorating with new players entering the industry leading to bidding wars and lower tariffs. Coupled with the fact that any states started 12 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) renegotiations of PPAs for lower tariff, the future profitability prospects for the sector became bleak. Given the significant exposure to the business, the above shareholders took a strategic decision to exit the renewable energy business. f. Accordingly, Welspun Energy Private Limited agreed to sell its stake in the renewables energy business to Tata Power, pursuant to which your assessee company received a net amount of approximately Rs. 2,995 crores. g. Post-sale of stake in the renewables energy business, BKG Group decided to exit the EPC business as well. Accordingly, the EPC business was demerged into a subsidiary company of Vineet Mittal. h. After the said sale of equity stake in renewables energy business and the EPC business demerger, what remained in with your assessee company was the thermal energy business being carried out by the subsidiary company named Welspun Energy Chhattisgarh Limited (WECL) and the cash proceeds realized from the sale of renewables energy business i. Subsequent to the sale, the stakeholders were interested in continuing the thermal energy business but at the same time, the stakeholders wanted that the cash proceeds realized from the sale should be available to the shareholders for deployment as per their own requirements. Accordingly, it was commercially decided between the parties: -That the assessee company shall buyback its shares from the shareholders (and more specifically shares of VM group) as per the limits specified in Companies Act, 2013. -In addition to the buyback, Welspun group company (Welshop Trading Private Limited) shall buy-out VM Group from Welspun Energy Private Limited (WEPL) at the underlying fair market value of Welspun Energy Private Limited (WEPL') - As the stakeholders were to continue the thermal energy business, it was decided that the said business to be transferred to a new SPV created specifically for the said objective. The name of the newly set up SPV was named as Solarsys Infra Projects Private Limited (Solarsys'). It will not be out of place here 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:

13 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) ✔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.

18 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) Parvesh Construction Put. Ltd are mere name lenders. The observation of the agency is a general finding without specific reference and context to BIBI: The central agency initiated an action on the group promoters of MA-Parvest Construction Pot Lt. not on account of its share capital but was purely on account of other scheduled crime. The general inference drawn on M/s.Parvesh Construction Pvt Ltd. which remains to unsubstantiated by the department cannot bring home the charge that the genuine investment made by RIEL in your assessee company is nothing but undisclosed income of the assessee company. viii. Similarly, it is your observation that M/s. Bhadrawati Steel and Urja Ltd. was held to be a bogus entity which is providing accommodation entry on commission basis is immaterial to the case of your assessee. It is a known fact that any addition made by the assessing officer is open to relief at a higher forum provided the litigant is able to substantiate its claim. The order of the Assessing Officer is thus not a sacrosanct order or something that cannot be reversed by the appellate authorities, What might be a proposition drawn by you based on order of the A.O, can be reversed tomorrow by the order of the appellate authority. The true test of your proposition would lie on examination of the financial results in subsequent financial years. On examination of website Zaubacorp.com it is seen that the company is an active company as on date and doing the business of mfg. and trading of casting of metals. The last financials as seen from the website is in respect 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:-

19 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) -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 Financial Company Statements Enclosed as per ROC records Everlike Projects Pvt. Active Yes Ltd Highrank Active Yes Infrastructure, Pvt. Ltd Limestone Properties Active Yes Pvt. Ltd. Shivkori Construction Active Yes Pvt, Ltd, Top Link Projects Pvt, Active Yes Ltd Trustworthy Active Yes ViniyogPvt.. Ltd. Topwell Properties Pvt. Active Yes Ltd Albino Investment' Active Yes Consultants Welkin Investment Active Yes Consultants Pvt. Ltd. Novelty Traders Ltd. Active Yes Bhadrawati Steel & Active Yes Urja Ltd. -If the entities identified by you were mere paper companies, the company would have been barred from carrying out any activity, leave alone filing financials before Regulatory Authorities. Several agencies have come to a strict vigil on paper companies, not only SEBI is known to have taken stringent action but simultaneously even the MCA is making compliances so stringent that even technical non-compliances leads to heavy penalty and even strike off of the company. The other central government agencies like income tax have also come heavily on these paper companies 20 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) -At the cost of repetition, there is nothing that the department has on record except borrowed information in bits and pieces to suggest that the companies under discussion or BIEL is a paper company. It is a matter of record, that the search action carried out at the Promoters, Directors of the company did not reveal in any manner that the source of funds in BIEL is non genuine. Suspicion no matter how ever strong cannot take the place of evidence. In any case it is an established law that statement on oath even where a general confession is made cannot be used generally. xi. Likewise, your conclusion that the 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 responsible person who is covered by the statute of ICAI and any wrong doing results in strigent action against its member. xiii. Thus your company has well addressed each and every observation in your showcause it further established the genuineness of the parties whose funds were received Immediately prior to the funds invested by the company BIEL in your assessee company. d. This brings us back to the core question in respect of initial capital investment made by the VM Group through his group companies and more specifically his company named BhadrawatiIspate & Energy Ltd. In your assessee company. i. The shareholder of the company Bhadrawatilspat& Energy Ltd. were Smt. Santosh Devi Mittal mother of Shri Vineet Mittal, Demand Trading India Ltd. and Reliable Record Keepers Pvt. Ltd. ii. The capital in the companies Demand Trading India Ltd. and Reliable Record Keepers Pot. Ltd were held by Vineet Mittal. The said facts can independently be verified from MCA portal. iii. During the financial year relevant to the assessment year 2016- 2017, the Company BhadrawatiIspat& Energy Ltd. and Demand Trading India Ltd. have amalgamated in the company known as Reliable Record Keepers Pvt.Ltd iv. Thereafter, the company has undergone a name change and now known as Candor Renewable Energy Pvt. Ltd. It will be interesting here to bring on record that Shri Vineet Mittal is holding 99.99% of shareholding in Candor Renewable Energy Pot Ltd v. Thus the investment company BhadrawatiIspat& Energy Ltd. post amalgamation remains in control of VM group alone. The said facts can be verified from MCA portal. vi. Even during the course of the search action u/s 132 carried out by the department, statements of Directors of the investment company (BIEL) would have been recorded. These are very vital evidences to which your assessee company does not have access too But it is imminent that during the course of their deposition they would have bought the fact on record that the investment company (BIEL) rest in the hands of VM group alone vii. Your assessee company unshes to bring on record a very vital fact that establishes the genuineness of the claim of capital investment by V M group of companies in WEPL ✔During the financial year 2016-2017 WEPL sold its shareholding in Solar Assets to Tata Group Thereafter a sale/purchase agreement 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.

22 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) ✔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- Remarks Date of Amount Beneficiary of Payment consideration (Rs.) 7.3.2017 13-l.90.cr Reliable Record Buy Back of Shares by . Keepers Pvt. Ltd. your assessee company, (Previously known as BhadrawatiIspat& Energy Ltd.)

8.3.2017 126.99 cr Reliable Record Purchase by Welshop Keepers Pvt. Ltd. Trading Pvt. Ltd. (B.K.G Group Invst. co.) (Previously known as Bhadrawa tiIspat& Energy Ltd.)

✔It will be of utmost importance place here to bring on record the shareholding pattern of Reliable Record Keepers Pvt. Ltd. as on 31.3.2017. This perhaps puts to rest as to who is the final beneficiary of consideration received for sale of shares in your assessee company by BhadrawatiIspat& Energy Ltd. (now known as Candor Renewable Energy Pvt. Ltd. Earlier known as Reliable Record Keepers Pvt. Ltd.) e. From the above discussions and material placed on record it has been well established fact that the control and ownership of the investment company BhadrawatiIspat& Energy Ltd. rest alone with VM group It will be important here to expressly bring on record that your assessee company nor B.KG group had any control of any manner over the investment Company Bhadrawatilspat& Energy Ltd. at any even given point of time. f. After having established the ownership of BhadrabatiIspat & Energy Ltd, your assessee company wishes to establish that why section 68 cannot be invoked in the cases of the assessee company. i. Your assessor company has established the source of credits appearing in the bank account of the investor company as provided by VM group. It will not be out of place here to highlight that not only the Auditor but also the Director of BIEL here in the Audited Financial Statements affirmed the fact that it the transactions are genuine and entered in the normal course of its business activities. ii. With the discussion here in above, it has been conclusively established the fact that VM group, who through his investment company (BIEL) has bought in his capital for subscribing to the shares of the assessee company. iii. There is also no denying on the fact that 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 ers was received by BIEL by way of buy back of shares by your assessee company as against investment amount of Rs. 53.05 crs. It is a known fact that on buy back of shares by an unlisted company, section 115QA of the Act gets attracted and by virtue of which your assessee company has paid Buyback tax of an amount of Rs. 18.19 crs. on 7.3.2017 to the Department. If the transaction was bogus and the BIEL was a mere paper company why will your assessee company pay a sizeable consideration for buy back and further pay a sizeable amount as buyback tax. To put it more precisely that there are two legs to a transaction, one thing purchase and the other involving sale. The leg involving sale where the Dept. gets revenue (Buyback Tax) is treated as genuine by the department but the initial leg of the same transaction the department alleges is not genuine. Sir, it is a known fact and an accepted proposition in law that without purchase there cannot be sale. If the sale transaction is treated as 24 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) genuine, the purchase automatically gets substantiated. It is not open to the department to blow hot and cold on the same set of facts . vi. Further, the sale consideration of Rs 126.99 crs paid by group company for acquisition of shares of the assessee company establishes the genuineness of the investment in your assessee company by BIEL. The sale of shares remains undisputed by the department. Yet again the principles apply that without purchase there cannot be sale. If the sale transaction is treated as genuine, the purchase automatically gets substantiated. vii. The claim of your assessee company is thus fortified with the fact that VM group has sold his stake made by the investment company in your assesser company for a substantial consideration. If the transaction of investment by the investment company was any accommodation at was the need by your assessee company or BKG group to acquire the same by paying a substantial consideration to VM Group. The flow of consideration to VM. Group clearly establishes the genuineness of the investment by BIEL in your assessee company. viii. Your goodself will have to appreciate that it is beyond the assessee company to go beyond the promoters of the investment company to carry out forensic of source of source of capital by the promoter investor in the assessee company. The credentials of the promoter play a very vital role. When the investment is made by the promoters mother and promoters own sub- companies in the 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 operation of BIEL was ever suspended by any authority. There was never an event to treat BIEL as a shell company. There was never an event 25 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) where the department has taken any adverse view on the return filed by BIEL When there is nothing adverse on record by any of the statutory authorities the question of your assessee company doubting the genuineness of the transaction shown to your assessee doesn't arise. To finally sum up, invoking of section 68 in the case of the assessee company would be too harsh It is beyond doubt the law of land and an established principle that only the guilty to be punished. The assessee company cannot suffer for the actions of the promoter merely because funds were invested by the promoter of the investment company towards subscribing of shares in the assessee company. Under the given facts and circumstances of the case, we pray that no adverse inference be drawn in the case of your assessee company We hope you will find the above said information and enclosure in order. We shall furnish any further information as may be desired by your goodself in this regard." 4.5. The ld. AO however, disregarded the aforesaid elaborate submissions and held as under:-

(a) Enough evidence has been collected to show that Directors of BIEL were dummy Directors, and these shareholders were non- existent.

(b) Merely because the parties from whom BIEL had received funds that would not make those parties active companies and merely because those companies are actively and regularly filing their financial statements with Registrar of Companies, that would not make the transactions carried out by those parties with BIEL as genuine. They are merely shell / paper companies used to route unaccounted income.

(c) Control and ownership of BIEL lies with Vineet Mittal group. Vineet Mittal group sold its investments in BIEPL made through its company BIEL in F.Y.2016-17 for a substantial amount. The capital gains have been offered to tax in the respective hands.

26 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) There is no denying the fact that Vineet Mittal group has routed this unaccounted income into WEPL in A.Y.2013-14 and A.Y.2014-15. Vineet Mittal was the Managing Director of WEPL in this period and was a beneficial shareholder. The events after the infusion of the capital are not relevant. During the year the assessee received credits for share capital from BIEL which are unexplained. Thus, 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 27 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) being made in the hands of M/s. BIEL and other entities on substantive basis. Hence, the addition of Rs.41,02,38,623/- has been made u/s.68 of the Act in A.Y. 2013-14 on protective basis.

4.7. The ld. CIT(A) observed that the ld. AO had given a categorical finding that it is an unaccounted fund of Shri Vineet Mittal which has been introduced in the assessee company. The relevant observations of the ld. CIT(A) on the main issue are reproduced hereunder:-

8.11 The moot question arising in the present case is whether (1) the appellant was unable to discharge the onus cast on it under section 68 of the Act with respect to the credits appearing in the name of M/s BIEL and (ii) there was a doubt or lack of clarity with reference to the actual ownership of the amount received from BIEL. It is noted that with effect from AY 2013-14, a proviso has been introduced in section 68 which puts an onus on the contributor of the funds to the assessee to provide an explanation about the nature and source of the sum credited in the assessee's books in form of share capital/reserve 8 12. For arriving at a proper finding in this regard, the observations made by the AO which have led him to proceed to a protective addition in the present case need to be examined. The critical observation of the AO on this issue are:  Further it has been stated that the control and ownership of M/s. BIEL lies with Vineet Mittal group. Vineet Mittal Group has sold its investments in M/s WEPL made through its company Ms. BIEL in FY 2016-17 for a substantial amount. The capital gains have been offered to tax in the respective returns. There is no denying the fact the Vineet Mittal group has routed its unaccounted income into Ms. MEPL in A.Y 2013-14 and AY 2014-15. Vineet Mittal was the Managing Directors of M/s. WEPL in this period and was a beneficial shareholder. The events after the infusion of the capital are not relevant. During the year, the assessee received credits for share capital from M/s. BIEL which are unexplained. Thus, the onus to establish the creditworthiness of share subscriber lies on the assessee. The assessee has submitted that the investment transaction was genuine. The transaction may be genuine but the unaccounted Income of Vineet Mittal group has been routed into the assessee 28 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) company through a maze of shell companies. Section 68 casts onus on the assessee to 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 received back Rs 258.89 crore and a buyback tax of Rs 18.19 crore u/s 115QA was paid on this gain. The sale transaction would be void if the purchases are treated as non- genuine and merely an accommodation entry. There is no evidence that these credits in the books of these parties have been treated as bogus in FY 2016-17 8.14 The AO has not questioned the worth of WEPL and hence, has not the rate at which shares/OCPS have been issued to VM Group. The worth of the appellant company is significant in light of its turnover and profitability. As such, it is not the case of the AO that the fund introduction in WEPL is a part of money routing into a company which does not have any worth. It is noted that WEPL has significant assets as well as business operations, as the subsequent sale of its solar operations (being part of its business activity) to Tata Power, a third party, at over Rs 2995 crore reveals. 8.15. Although Vineet Mittal was the managing director of WEPL during the period, WEPL was not in control of VM Group as BKG Group held the majority stake in the company. WEPL was originally floated by the BKG Group and even after the promoters introduced their capital, the majority stake in WEPL was still held by B Group. As the Board was being controlled by BKG Group, in absence of a clear evidence, it cannot be inferred that the funds flowing in from BIEL, a company controlled by VM Group, 29 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) represented an accommodation entry in the hands of the appellant and hence, a protective addition could not have been made in the case of WEPL unless could be demonstrated that both the groups had conspired to introduce their unaccounted income into the company. No such evidence is available. 8.16. There is sufficient logic in the claim made by the assessee that if the transaction of investment by the investment company (BIEL) was merely an accommodation entry. what was the need by WEPL or BKG group to acquire/buy back these shares by paying a substantially higher consideration to V.M. Group. Generally, in such fake transactions, the shares are bought back at negligible prices. It is also not the case of the AO that the subsequent share sale transactions are over-valued 8.17 The impugned investment in WEPL has been made by one of the two promoters of the company having 47.33% stake in the company. The promoter VM Group does not deny the ownership of the 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 promoted the business activity in the assessee company.  That from time to time after realising the business potential, the two groups decided to dilute their respective stake. 8.19 While the issue of onus of VM group to demonstrate the source of funds may have arisen in the case of BIEL, such onus cannot be shifted to the appellant company as a protective measure as it was 30 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) a company having sufficient net worth and not in complete control of the promoters of BIEL, as the majority stake rested with BKG Group. Further the transaction between itself and BIEL has not been doubled by the AO anywhere in the assessment order, who has, in fact admitted to the genuineness of the transaction 8.20 It has been held earlier that a protective addition can be made only if there is a dispute or doubt as to the hands in which the income accrues (identification of the beneficial owner of the funds). In the present case, there is no dispute whatsoever about the ownership of funds flowing into the company from BIEL. This has been expressly admitted by the directors of BIEL as well as Vineet Mittal, the main promoter of BIEL. The only dispute arising in that case is with respect to the genuineness of the transaction/ creditworthiness of the entities who have contributed funds to BIEL But there is no doubt about the genuineness of the subsequent transaction of purchase of shares of the appellant company. There is no evidence whatsoever that this subsequent transaction is non- genuine There is also never an allegation that the funds could belong to the. appellant company and have been routed through the other entities. The AO has never expressed any doubt that there was a possibility that the funds were owned by the appellant and represented its unaccounted-income . In fact in the assessment order also no such allegation has been made by the AO. Had BIEL preferred to buy SBI Bonds instead of purchasing WEPL shares using these impugned funds, it could not be held that a protective addition was due in the hands of SBI 8.21 Generally an addition in respect of section 68 of the Act is required to be made in the hands of the beneficiary of the transaction, being the unexplained credit which in the present case is BIEL and not WEPL The investment made by BIEL in WEPL has subsequently resulted in a handsome gain for BIEL and hence, as it has been held earlier there was no evidence whatsoever to treat the amount as an unexplained accommodation entry in the hands of the appellant. 8.22. ............................................................................................................. ..................................................................................................... 8.23. ............................................................................................................. ......................................................................................................

31 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) 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 assessee will be deemed to be the owner of the income If substantive additions are deleted in the case of BIEL Once such a scenario does not exist, no protective addition can be made in the hands of the assessee company. On such findings by the AO, there was no case for making a protective addition in the hands of the assessee company. (underlining provided by us)

4.8. The ld. CIT(A) on merits of the addition observed as under:-

8.25 The submission made by the assessee on merits is also examined. In order to discharge the onus cast on the appellant to establish i.e. (1) identity of the creditor, (ii) credit worthiness of the creditors and () genuineness of the transactions, the assessee has provided following documents before the AO 1. Name, PAN, Address and dates of share allotment. 2 Forms filed with ROC along with Board resolution and list of allottees.

2. Income Tax return of share applicant 4. Copy of bank statement of the subscribers of capital highlighting funds transferred for subscribing capital.

5. Financials of the subscribers of capital 6. Share purchase agreement signed between VM group, Welshop Trading Private Limited and Welspun Energy Pvt Ltd.

32 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) 8.26 It is noted that there is no finding by the AO that any of the above documents filed by the appellant is false, fictitious or doubtful. Further, there is no finding that the company cannot be located or that there is no substance in the company. There is no non-compliance by the assessee or BIEL to respond to notices issued by the AO and all the directors of the investor company have been examined. According to the assessee. the primary and sole reason for making addition on account of cash credit u/s.68 in respect of money received during the previous year from "BEIL" on issue of equity/OCPS shares is that in the opinion of the Id. AO company "BEIL" is a paper or a shell company belonging to Vineet Mittal group. In such a scenario, the submission of the appellant that such protective addition, if any ought to be made in the hands of Shri Vineet Mittal and not in the hands of the Appellant appears tenable in absence of any such finding of existence 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-à-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 been deemed to be the appellant's income under section 68 of the Act once the assessee had discharged all the onus cast under the provision. 8.29 The reliance placed by the AO on the decisions in the case of Sumati Dayal (supra) and Durga Prasad More (supra) are not found applicable to the facts of this case. The investment in the appellant company is not a fortuitous receipt or a windfall gain or a transaction unlikely to happen in normal course of business. There is no doubt that the appellant company has significant commercial operations and is a valuable asset. As such, the price at which the shares and OCPSS have been acquired has not been doubted by the AO. The investment in the company could not be termed as one which would not have been made by a prudent business man in fact, 33 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) the investment has resulted in a considerable gain to the investor which has not been found to be bogus or contrived 8.30. In light of the finding of the AO that the transactions are genuine in the hands of the assessee, the AO could not have invoked the provisions of section 68 in the hands of the assessee, whether on protective or substantive basis. The addition is able to be deleted on merits as well. 8.31 In light of the above discussion, the grounds 3(a), 3(b) and 3(c) raised by the assessee are allowed. The protective addition made by the AO is directed to be deleted. (underline supplied by us)

4.9. From the aforesaid elaborate factual findings of the ld. CIT(A), it emerges that the ld. AO had accepted that it is an unaccounted money of Shri Vineet Mittal which has flown into the books of BIEL and consequently, to assessee company. Once it is accepted that it is an unaccounted income of Shri Vineet Mittal then how the addition per se could be made in the hands of the assessee company herein. As stated by the ld. CIT(A), all the documents pertaining to the assessee company vis-a-vis M/s. BIEL had been duly furnished by the assessee and no deficiency had been noted thereon by the ld. AO. Hence, it could be safely construed that all those documents were accepted as genuine by the ld. AO. In fact, the ld. AO also admits that the transactions between BIEL and assessee company are genuine. This fact is also noted by the ld. CIT(A) in para 8.28 of its order. As far as assessee company is concerned, it had received monies from M/s. BIEL. When the transaction 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 34 and other appeals M/s. Welspun Energy Pvt. Ltd. (Now merged with M/s. Welspun Steel Ltd.) 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 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 the Act in the hands of the assessee company on merits also. Accordingly, the ground No.1 raised by the Revenue is dismissed.