BHOGILAL ODHAVJI INDUSTRIAL ENTERPRISES PVT. LTD.,,AHMEDABAD vs. THE DCIT, CIRCLE-1(1),, AHMEDABAD

आदेश / O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–1, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-1/DCIT Circle- 1(1)/735/2014-15 dated 29.11.2017 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 27.03.2015 relevant to Assessment Year (AY) 2012-13.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 2 - 2. The grounds of appeal raised by the assessee are as under:- “The learned CIT(A)-1, Ahmedabad has erred in law and on facts in; 1. Confirming the addition of Rs.81,392/- made by the AO under section 35D of the Act; and 2. Confirming the addition of Rs 22,59,10, 459/- made by the AO by treating the entire accounted cost of an immovable property as having been met out of unexplained sources and thereby treating the same as unexplained investment. While adjudicating this ground he ought to have inter alia appreciated the undisputed and admitted fact that out of the total accounted cost of purchase of this immovable property, sums of Rs.1,05,00,000/- and Rs.20,01,50,000/- were paid and accounted for in F.Ys. 2009-10 and 2010-11 respectively, whereas only a sum of Rs.4,50,000/- (plus a sum of Rs. 1,48,10,459/- towards stamp duty, registration fee and other related expenses) was paid and accounted for as such in the year under consideration. The Appellant craves leave to add, amend, delete or alter one or more grounds' of appeal.”

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 3 - 5. Briefly stated facts are that the assessee in the present case is a private limited company and engaged in the business of trading and manufacturing of Iron items.

5.1 The assessee during the year has shown an addition of Rs. 22,59,10,459/- in the schedule of fixed assets. The addition was representing the land at Baroda. On question by the AO about the details of the purchase of land, the assessee vide letter dated 09.01.2014 submitted as under: "Q. 6 Please give detail note on land purchased at District Vadodara in village Jetalpur bearing Old Revenue Survey No. 86 paiki 3 / paiki 1 located near Raja Ram Mohan Roy (Bird circle). Old Padra Road, Vadodara in format given. A.6 S.No. Particulars

Name of the Moje Jetalpur, Survey No: 86 Paiki-i/Pniki-1 property Purchase Area/ date of 3000 Sa. Meters 13-05-2011 purchase Party from whom Mr. Chandrakant L. Patel and Purchased Confirmed by Mr. Mukesh Bhimrao Gupta

Consideration Rs.21,11,00,000+StampDuty Rs.1 ,24,54,900/- +Reg.Fees Rs.21,11,250/- + LegalExp. Rs.2,44,309/- = 22,59, 10,459/- Jantri Value- 2.00 Crore (approximate) Market Value Not Known Source of payment By Cheque /RTGS Present Status Held as stock in trade

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 4 - Please find the chronology of the event occurred for purchase of land of Vadodara.

1) M/S Bhogilal Odhavji Industrial Enterprise Pvt Limited (BOIEPI) is selling goods to M/S B M Engineers, M/S B M Engineering Industries and Mukesh Engineering Industries of Vadodara and there was outstanding balance of Rs. 28.00 Cr. from these three concerns in the year 2009-10. These, concerns were not able to pay out their outstanding so, they offered agriculture land situated at Vadodara known as Chakali Circle having area of 3000 sq mt.

2) This land was owned by Princess Ujwala Raje Gaekwad and she had made an agreement for safe with Shri Mukesh B Gupta and Shri Chandrakant L Patel at a consideration of Rs. 17.76 Cr.

3) The Agriculture Land Sale Deed was executed by Princess Ujwala Raje Gaekwad (through POA holder Shri B M Gupta of B M Engineers Group in favour of Chandrakant L Patel, Agriculturist on 18/03/2010.

4) This agriculture land transferred on the name of BOIEPI through POA holder - Bhupesh Amlani of Chandrakant L Patel on 13/05/2011 after N.A. at the agreed price of RS. 21.11 Cr. And final cost with documentation, stamping, registration fees and legal fees came to 22.59 Cr. as stock in trade.

The land has been purchased in the name of company on 12-05-2011 after NA at the agreed price of Rs. 21.11 crores and final cost made with documentation, stamping, registration fee and legal fees came at Rs. 22.59 crores in stock in trade. The copy of NA permission, Index -2, and sale agreement executed by Chandrakant L. Patel with confirming party Sh. Mukesh Bhimrao Gupta in favour of Bhogilal Odhavji Industrial Enterprise Private Limited (BOIEPL) are enclosed herewith. EXB-3 Page No: 18 to 25

The said detail is already submitted in last A.Y i.e. 2011-12 vide our letter dated 30th October 2013 Exhibit 2 page No. 10 to 44." **********

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

Ans.2. In this regards, it is submitted that vide our reply of question No. 2 of our submission dated 8th September, 2014, we have submitted following documents namely 1. Copy of sale deed by Shri Chandrakant L Patel in favour of M/s Bhogilai Odhavji Industrial Enterprise Pvt. Ltd (BOIEPL) of Rs. 21.11 corers. 2. Copy of Baroda land purchased detailed accounts from the books of BOIEPL. 3. Copy of Account of Shri Chandrakant L Patel regarding payment of Rs. 21.11 corers along with copy of bank statement wherein all entries are reflected. (Refer Page No. 21 to 54, submission dated 8/9/2014)."

5.2 The AO further sought some more clarification from the assessee and accordingly issued a notice u/s 142(1) dated 13.03.2015 to furnish the details as mentioned below: i. Copies of the ledgers of the following parties: Sr. Party Name Previous Details of the No. years requirements i. 1. M/s. B. M. 2007-08 to Copies of the Engineering 2012-13 ledgers. ii. Copies of invoices, Challans along with other supporting details. 2. B.M. ,, ,, Engineering Industries 3. Impex ,, ,,

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 6 - Engineerig Industries

ii. Explain the manner in which the amount shown as recoverable of Rs. 28,00,86,452/- has been adjusted in the books of accounts. iii. Explain the source of money paid to Shri C. L. Patel in the F.Y. 2010-11 and 2011-12 amounting to Rs. 2106.50 lacs and Rs. 4.50 lacs respectively for the investment in the land. iv. Explained the treatment of difference between the amount of debtors amounting to Rs. 28,00,86,452/- vis-à-vis the amount of purchase of the land amounting to Rs. 22,59,10,459/- only leading difference of Rs.5,41,75,993/- only.

5.3 The assessee in compliance to it filed its reply dated 18.03.2015 as detailed under: “Q.6 In respect of land at Baroda purchased for Rs.22,59,10,459/-, kindly furnish following clarifications: a) Ledger account of B.M. Engineers, B.M. Engineering Industries, Mukesh Engineering Industries for F.Y.s 2007-08, 2008-09, 2009-10, 2010- 11, 2011-12 and 2012-13 with copies of invoices and related delivery challans and all other supporting for transactions done with these parties. A.6a: In this regard, it is submitted that there was a survey proceedings in the premises of assessee on 4th March 2010. During the course of survey, certain books of accounts and other records were ceased pertaining to F. Y. 2007-08, 2008-09;2009-10-and these documents are still lying with department so, we are unable to produce invoices and delivery challans of these years.. The copy of inventory of 'books in

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 7 - Annexure B-l dated 04/03/02010 is enclosed herewith. EXB:-8 page no; 56 to 58.

The copy of ledger account of B.M. Engineers, B.M. Engineering Industries and Mukesh Engineering Industries for accounting year 2009-10,2010-11 and 2011-12 is submitted on 18/02/2015 vide reply of Q1 Exb:-1 Pg No.3 to 33.

For your convenience, we enclose herewith ledger account of above three parties for F.Y. 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 with necessary supporting documents for transactions done with these parties . There are no transactions with these parties during the Financial Year 2007-08 and 2012-13. EXB:-9. Pg No. 59 to 111.

b) Kindly explain how irrecoverable amount of Rs.28, 00,86, 452/- from the above parties, as per your submission dated 18/02/2015 has been written-off in your books of account.

A6b: In this regard, it is submitted that we have received entire amount of Rs.28,00,86,452/- from the above referred parties through banking channel and nothing has been written off in our books of account. It has been explained in our above referred submission vide answer of question No. 1 (Exb 1:-page No. 3 to 33). The outstanding as on 31/01/2010 of Rs.28,00,86,452/- as mentioned is reconciled as on 31/03/2010 in tabular chart. The ledger accounts of all three parties namely B. M. Engineers, B. M. Engineering Industries and Mukesh Engineering Industries with copies of bank statement where such entries are reflected and duly marked with short name like Mukesh Engineering lndustries=MEI, B.M. Engineering lndustries=BME, B. M. Engineers=BME are enclosed in our above referred submission. If your honor wants anything specific in this regard than please revert to us.

c) Kindly explain the source of investment of Rs.21.11 crores paid to SHRI C. L Patel, in F.Y.2010-11 and 2011-12 along with cash flow statement in absence of which, Rs.2106.50 lakhs paid in F.Y.2010-11 and Rs.4.50, lakhs paid in F. Y.2011-12 shall be treated as unexplained investment.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 8 - A6c: It is submitted that there was a scrutiny u/s 143(3) in last year and source of investment of Rs. 2106.50 lakhs paid in F.Y. 2010-11 is explained. Please find enclosed cash flow statement about payment made to Mr. SHRI C. L Patel of Rs. 2106.50 lakhs for F.Y. 2010-11 and Rs. 4.5 lakhs paid in F.Y. 2011-12 in tabular chart with detailed note on source of fund and application of fund EXB:-10 Page No.115 to 126

Please also find enclosed cash flow statement of BOIEPL for the F.Y. 2010- 11 and 2011-12 which is self explanatory and substantiate our tabular chart for payment! made to Mr. C. L Patel. EXB:-11.

d) As per your submissions, you have purchased land worth Rs.22,59,10,459/-against debtors of Rs.28,00,86,452/-, kindly explain how you have accounted for the difference amount of Rs,5,41,75,993/- in your books of account, in absence of which, the difference amount shall be treated as undisclosed income. Also, explain why the above payment ofRs.22.59 crores was required to be made, when the land was received against debtors of Rs.28 crores.

A6d: In this regard, it is submitted that we have received entire amount of Rs. 28,00,86,452/- from the debtors during the F.Y. 2009-10, 2010-11, and 2011-12 and same has been paid to Mr. SHRI C.L. Patel during the F.Y. 2009-10 ,2010-11 and 2011-12. And nothing has been receivable from this group as mentioned by your honor of Rs. 5,41,75,993/-.

In reply of clause No. a, b and c of answer of Q 6 everything has been mentioned along with documentary evidences like ledger accounts of these three concerns, bank statement where such entries are reflected and cash, flow statement of BOIEPL wherein all such transactions are reflected. Further all the debtors of Rs. 28 Cr. are arisen due to sales and income from the same has already been offered for tax in relevant year so there cannot be any undisclosed income. Also, explain why the above payment of Rs.22.59 crores was required to be made, when the land was received against debtors, of Rs.28 crores.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 9 - In this regard it is submitted that there are two persons namely Mr. SHRI C.L. Patel and Mr. Mukesh Gupta with whom agreement to sale was executed by Princess Ujjawala Raje Gaekwad (owner of land) whereas the debtors are receivable from M/s. B. M. Engineers, M/s. Mukesh Engineering Industries and M/s. B. M. Engineering Industries (B. M. Group wherein Mr. Mukesh Gupta is proprietor of one firm and other firms were belongs to other partners). Due to above, it was not possible to adjust debtors against land purchase. Further, we have received entire amount of Rs. 28 crores from debtors gradually through banking channel and on our counterpart we have made payment gradually for purchase of land of Rs. 22.59 cr. The relevant documentary evidences are submitted while replying clause No. a, b and c of Q 6."

However, the AO was not satisfied with the reply of the assessee and issued further notice to furnish more details/clarifications vide letter dated 20.03.2015. As such, the assessee was required to furnish the following details: i. Copy of agreement to sale entered between C. L. Patel and Prince Gaekwad dated 20.10.2007. ii. Copy of partnership deed/ dissolution deed of M/s Vallabh Developers along with books of accounts, Balance Sheet, Fixed Assets schedules etc. iii. Copy of agreement to sale made with Shri C. L. Patel. iv. Explain the reason for making the payment of Rs.21.11 crores to Shri C. L. Patel during the period between from 18.03.2010 to 13.05.2011 in the absence of any intention to purchase the land. v. The source of money in the hands of M/s B. M. Engineers, B. M. Engineering Industries and Mukesh Industries which was paid to the assessee.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 10 - vi. The details of the sales made to the aforesaid parties namely B. M. Engineering, B. M. Engineering Industries and Mukesh Industries. 5.4 The assessee in compliance to it filed its reply dated 25.03.2015 as detailed under: “with reference to the above captioned matter, we hereby furnish information/details called for as per your notice. Q.1 Copy of agreement to sale entered between SHRI C.L Pate/ and Princess Gaekwad dated 20/10/2007. A.1 Please find the copy of agreement to sale entered between SHRI C. L. Patel, Mukeshbhai Gupta and Princess Ujjwala Raje Gaekwad dated 20/10/2007. : EXB: -1 Page No: 6 to 15

Q.2 Copy of Partnership Deed of registered firm M/s. Vallabh Developers dated 18/03/2010 and books of accounts including Balance sheet, P&L account, Capital account and Fixed assets account of Vallabh Developers, in which you are partner for F.Y.2009-10,2010-11 and 2011-12. Also submit copy of Dissolution deed, if any, of Vallabh Developers. A.2 Please find copy of partnership deed of firm M/s. Vallabh Developers dated 18/03/2010. This partnership never came into existence and it is dissolved on 13/05/2011. Copy of dissolution deed is enclosed herewith. There are no transactions in the said partnership firm since inception to dissolution and even bank account is not opened on the name of this firm. The books of accounts including balance sheet, P&L account and Fixed Assets accounts of Vallabh Developers does not arise for the F.Y. 2009-10, 2010-11 and 2011-12. EXB: - 2 Page No: 16 to 30 If your honor wants any further details/explanation in the above matter than please revert to us.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 11 - Q.3 Copy of agreement to sale done with SHRI C.L. Patel, if any. A.3 No agreement to sale is executed with SHRI C.L. Patel. Q.4 Reasons for transferring Rs. 21.11 crores to SHRI C.L. Patel, for the period 18/03/2010 to 13/05/2011 in absence of any intention to purchase the land.

A.4 . In this regard, it is submitted that sale agreement is executed with SHRI C.L, Patel on 13/05/2011 and this itself proves the intention to purchase the land. It does not make any difference once the sale agreement is executed with the buyer to prove the intention. The terms of payment has been executed as mutually decided between the buyer and seller. The corroborative evidences regarding the same have already been submitted during the course of assessment proceedings vide our submission dated 09/01/2015 Answer to Q6.

Q.5 Source of funds of Rs. 28 crores received from B.M.Engineers, B.M. Engineering and Mukesh Industries, from which, they have cleared their dues to you as you have claimed in your earlier submissions dated 09/01/2015 and 18/02/2015 that, since the debtors were not having money to pay the outstanding dues, the land was purchased. You are also requested to furnish the complete details and evidences to establish that, the amount paid by you to SHRI C.L. Patel routed through your debtors and finally received by you, as per your claim.

A.5 The source of fund of Rs. 28 Cr. from M/s. B.M. Engineers, B.M. Engineering Industries and M/s. Mukesh Engineering Industries, from which, they have cleared their dues to us should be asked to the respective parties as they are our debtors and we have no right to ask their source of fund.

We have received entire amount of Rs. 28 Cr. from the above referred parties through banking channel and ledger account of all three parties namely M/s. B. M. Engineers, M/S. B.M. Engineering Industries and M/s. Mukesh Engineering Industries with copies of bank accounts where such entries are reflected and duly marked with short name like

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 12 - Mukesh Engineering Industries=MEI, B.M. Engineering industries=BMEI, B. M. Engineers=BME are enclosed in our submission dated 18/02/2015 reply of Q1 EXB:~1 Pg No.3 to 33 .

In our submissions dated 09/01/2015 and 18/02/2015, it has been stated vide reply of Q6-1. that above

Your honor has asked to provide details and evidences to establish that amount paid by us to Shri SHRI C.L Patel routed through our debtors and finally received by us as per our claim.

It is submitted that it has not been claimed in our submission that amount paid by us to Shri SHRI C.L Patel routed through our debtors and finally received by us. It would not be possible for us to give any confirmation/vetting about third party transactions (transactions made between Mr. C. L. Patel and these three debtors) by us as we do not have any excess of third party data. The fact is narrated as under that there are two persons namely Mr. C. L. Patel and Mr. Mukesh Gupta with whom agreement to sale was executed by Princess Ujjawala Raje Gaekwad (owner of land) whereas the debtors are receivable from M/s. B.M. Engineers, M/s. Mukesh Engineering Industries and M/s. B.M. Engineering Industries (B.M. Group wherein Mr. Mukesh Gupta is

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 13 - proprietor of one firm and other firms belongs to other partner/proprietor).

From accounting point of view, adjusting entries cannot be passed to adjust debtors against land purchase directly because payment has to be made to Mr. C. L Patel whereas debtors are from different entity having different status but connected to each other. Even in our Balance Sheet/Cash Flow Statement debtor has been reduced and an asset has been created by comparing two years cash flow statement which were submitted vide our submission dated 18/03/2015. The entire amount of Rs. 28 crores received from above referred debtors' gradually through banking channel and on our counterpart we have made payment gradually for purchase of land to Mr. SHRf C.L Patel of Rs. 21.11 crores. The relevant documentary evidences of receipts and payments are already submitted in our submission dated 18/02/2015 and IB/03/2015.

If your honor wants anything specific in this regard than please revert to us.

Q. 6 Further, you are requested to submit the documentary evidences in respect of your sale to B.M. Engineers, B.M. Engineering and Mukesh Industries, which have not been furnished, vide your submission dated 20/03/2015.

A.6 In this regard, it is submitted that while replying answer of question of 6A of our submission dated 18/03/2015, it has been specifically mentioned that 1. There are no transaction with these parties during the financial year 2007-08 and 2012-13. 2. For the financial year 2010-11 and 2011-12, all bills are submitted and duly tallied with the ledger account.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 14 - 2007-08, 2008-09 and 2009-10. These documents are still lying with department and we are not having any access at present. We request your honor to get it' verify at your end as the said documents are in possession of your department. The copy of inventory of books in Annexure BI dated 04/03/2010 is already submitted."

5.5 From the above details, the AO observed certain facts as mentioned under: i. There was no correspondence furnished by the assessee showing the outstanding debtors for the last several years. What major action has been taken to recover the outstanding amount from such sundry debtors. ii. There was no need to make the sale of the land to the assessee and adjusting the outstanding debtors. As such, the owner could have sold the land to the outside parties and subsequently the debtors could have made the payment to the assessee for their outstanding balances. iii. There was no necessity for creating partnership deed on the date when the land was purchased by Shri C.L. Patel from Princes Guekwad on 18.03.2010 which was subsequently sold to the assessee. Further, the partnership was dissolved after transferring the land to the assessee. As per the partnership deed the land acquired by Shri C. L. Patel was to be contributed in the form of capital contribution to the firm but the assessee has not filed any documentary evidence showing the capital contribution in the name of the firm in its balance sheet. iv. It is the fact on record that the sundry debtors as discussed above were not able to make the payment of their outstanding dues to the assessee. But subsequently they started making the payment to the assessee and cleared the entire dues. However,

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 15 - the source of money in the hands of the debtors was not explained. v. The transaction between the assessee, C. L. Patel and debtors appears to be a circular transaction just to transfer the piece of land in the name of the assessee. In view of above, the entire transaction for the purchase of land was a colorable device which was done by the assessee to bring his unaccounted sources of income in the accounting form. Accordingly, the AO made the addition of Rs. 22,59,10,459/- as an unexplained investment in the land,

6.1 The assessee further submitted that the major payment was paid to C. L. Patel in the earlier years. Therefore, there is no question of making any addition in respect of such payment in the year under consideration. The necessary details of the payment made by the assessee in its financial year stands as under:

(iii) Summarized Chart of what has been mentioned above is as given hereunder: Total cost of land, including stamp duty, registration Fees etc. (which is subject matter of addition) Rs.22,59,10,459/-

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 16 - Less: Amount paid in financial year 2009-10 (-)Rs. 1,05,00,000/- Less: Amount paid in financial year 2010-11 (-) Rs.20,01,50,000/- Balance Rs.1,52,60,459/- *Less: Paid to the seller in financial year 2011-12 (-) Rs.4,50,000/- **Balance, being the Registration fee, stamp duty And other transfer related expenses, paid in financial Year 2011-12 Rs.1,48,10,459/-

6.2 The assessee further submitted that the balance payment of Rs. 1,48,10,459/- was paid through banking channel which was duly disclosed in the books of accounts. The necessary details of the payment of Rs. 1,48,10,459/- is extracted below. ** This amount could not have been subjected to addition either, as the same has been sourced out of explained and accounted fund, as described herein below: Legal fees paid through HDFC Bank Account, sourced Our of fund very much available in the account Rs. 2,41,000/- Stamp Paper, franking expenses paid through HDFC Bank Account, sourced out of fund very much available In the account Rs.1,03,43,900/- Cash withdrawn from HDFC Bank Account, out of fund available (two cash withdrawals of Rs.21,11,250/- each) and utilized for payment of Document Registration charges, franking etc., to Government Rs.42,22,250/- Misc. Payment from HDFC Bank Rs. 3,309/- Total Rs.1,48,10,459/-

6.2 There was scrutiny assessment u/s 143(3) of the Act pertaining to the A.Y. 2011-12 in which the major payment was made by the assessee for the purchase of the land which was duly disclosed in the income tax

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 17 - return but no adverse inference was drawn by the AO in the assessment proceedings.

6.3 The assessee further submitted that the debtors namely B. M. Engineers, B. M. Engineering Industries and Mukesh Engineering Industries were unable to make the payment to the assessee. As such, the debtor had invested money in the piece of land owned by Prince Gowekwad. As such, the piece of land was agricultural in nature and therefore it can be acquired by the agriculturist only. Thus, the debtors as discussed above with the help of C. L. Patel being agriculturist purchased the land from the princes Gowekwad. As such, the assessee money was diverted by the debtors in the purchase of land. Accordingly, these debtors were unable to make the payment.

However, it was decided among all the parties that the assessee will acquire such piece of land. Thereafter, the assessee made the payment to C. L. Patel which was transferred to the debtors who in turn made the payment to the assessee. Thus, the assessee by way of this circular transaction purchased the land which was duly disclosed in the balance sheet.

6.4 The assessee before the Ld. CIT(A) filed the copies of the confirmation from the debtors to justify the purchase of land.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 18 - 6.5 The assessee also submitted that the provisions of Section 69 & 68 cannot be applied to the impugned transaction shown for the purchase of land. The assessee further submitted that the payment to Shri C. L. Patel amounting to Rs. 14,41,53,958/- can be established with the corresponding payment received by the assessee from the debtors. The assessee for the remaining amount of Rs. 8,17,56,501/- explained that it was paid through the banking channel which was disclosed in the income tax return and books of accounts.

However, the Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under: “4.7 I have carefully considered the Assessment Order, submissions filed by the Appellant, Remand Report and the Rejoinder to the Remand Report. The Assessing Officer in assessment order in length elaborately and precisely pointed out each and every facts and circumstances that appellant was not able to furnish any cogent evidence / material and explanation for the source of purchase of land at Baroda and concluded that:- (i) In spite of allowing adequate time and opportunity could not submit the complete supporting and corroborative evidences to establish the genuineness of transactions with B.M. Engineering group, which according to assessee turned to be bad and could not be recovered. Since, Assessee Company failed to establish the genuineness of transactions itself the claim of debtors amounting to Rs.28 crores is not substantiated. (ii) The submission of the assesses company in respect of debtors was found to be contradictory, first it, claimed that since the debtors were not having paying capacity, they offered land and subsequently, the assessee company stated that, it received whole amount of Rs.28 crores without explaining and establishing the source of Rs.28 crores, in the circumstances, when debtors were

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 19 - not having money to pay. The assessee company even denied discharging the burden of proof, in a circumstance, when one Shri Mukesh 3. Gupta was through-out linked with the entire transaction relating to the land in question, as stated above. (iii) There is nothing on record, which shows that, the assessee company knew Shri C.L. Patel, in spite of this fact, the assessee company advanced Rs.21.11 crores, without signing any agreement to sale, which no prudent business would do. This has not been explained by the assessee company in spite of adequate time and opportunity of being heard. The assessee company contended in its earlier submissions that, a Partnership firm was formed, money was also transferred to it, land in question was also put in stock, but on asking the assessee company to submit the copy of audited accounts, it blatantly denied to have any such books of account of the said Partnership firm. Interestingly, the said partnership firm was dissolved on 12/05/2011, just after execution of the sale deed. These events have not been explained by the assessee company. (iv) On examination of the Bank statement and Cash flow statement of the assessee company, it revealed that certain 'circular transactions' took place in the books of the assessee company, Shri C.L. Patel and B.M. Engineers group and the liabilities to each other wiped-off, without even having adequate funds to purchase the land in question. The assessee company realized both - its debtors and land at Baroda, The sequence of the RTGS done shows that, entire transactions were artificially created to give the colour of genuine transactions between the three entities or parties. On being confronted, the assessee company could not explain any of these transactions satisfactorily. The land being at prime location, there may be multiple buyers and in such circumstances, the B. M. Engineers group, who according to the assessee company offered the land to the assessee, could have sold to any body and paid the creditors (assessee company). The assessee company has not answered these queries.

In view of above, since the assessee company has failed to establish the genuineness of the debts and the source of funds of Rs.22,59,10,459/-, the whole amount of investment in the land is liable

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 20 - to be treated as made out of unexplained sources. Accordingly, the sum of Rs.22,59,10,459/- is added to the total income of the assessee company by the A.O. 4.8. The appellant has submitted that it was having huge amount of dues from three of its customers viz. Mukesh Engineering Industries, B. M. Engineers and B. M. Engineering Industries, who were associated with Shri Chandralkant M. Patel. In order to ensure speedy and timely recovery of sales debtors and after negotiations with these parties, it was agreed that if the Appellant purchases a huge piece of land in Baroda from Shri Chandrakant M. Patel, which was substantially financed by Shri Mukesh Gupta, the entire transaction can conveniently be sorted out. This arrangement was carried out by the Appellant and the other parties by ensuring that every rupee is routed through proper banking channel so that full and complete trail is maintained and everything remains completely transparent and cross verifiable from external records. The appellant has further submitted that it was accordingly decided and agreed by the parties concerned that the amounts in trenches being paid by the Appellant to Shri Chandrakant L Patel through RTGS mode will be diverted in favour of the respective debtors who in turn will divert the same amount back to the Appellant and this rotation will be repeated over and over again. This also ensured recovery of the dues by Shri Mukesh Gupta from Shri C. L. Patel. The entire movement of fund was carried out through proper banking channel and every transaction was carried out by RTGS mode. The Appellant thus submits that by carrying out these transactions, it could change the form of its Asset from 'Sundry Debtors' to 'Land, being stock in trade.

4.9. The Appellant further submits that it was not having access to the confirmation of the above referred three debtors when the assessment proceedings were going on and the same were accordingly not filed with the AO. In fact, even the AO never called for these details at the relevant point of time. The Appellant was thus clearly prevented from filing these documents before the AO. The Appellant has however received the same now, along with the other supporting documents of these parties, including their Income tax return acknowledgment. These are being filed now as part of this paper book. The Appellant at the same time prays that these additional evidences being filed now may

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 21 - please be admitted, considering the same as falling under the exceptions as carved out under Rule 46A of the Income tax Rules 1962. The same were sent to the A.O. for verification in view of the natural justice. 4.10. The A.O. in the Remand Report (supra) has submitted that No explanation is furnished regarding source of funds of Rs.28 crores received from B.M. Engineers, B.M. Egg, Industries, from which, they have cleared their dues to them, as they have claimed in assessee earlier submissions dated 09/01/2015 and 18/02/2015 that, since the debtors were not having money to pay the outstanding dues, the land was purchased. The assesses was also requested to furnish the complete details and evidences to establish that, the amount paid by it to Shri C.L. Patel routed through its debtors and finally received by it, as per its claim. The AO has rightly made the addition in original assessment on respect of unexplained investment in "Baroda land" of Rs.22,59,10,459/- to the total income of the assessee for the year under appeal. The Appellant at the stage of appeal has also not furnished any new additional evidences, he simply made copies of submission made at the time of assessment proceedings and furnished as paper book with additional evidences before the CIT(A)-1, Ahmedabad. 4.11. In Appeal proceedings and rejoinder to Remand Report, the appellant reiterated facts as submitted before Assessing Officer. The appellant instead of opportunity to produce the evidences related to recovery or collection from debtors, merely stick to the theory that the debtors are third parties and it has no access on it, whereas, the group persons are power of attorney holder in land matter; hence no new facts and evidences were produced in appeal proceedings. Instead of providing any concrete evidence with regard to recovery from debtors, which proves that the funds are from explained sources, the appellant vide letter dated 15/11/2017 raised questions in appeal proceedings (i) whether the AO could have made an addition of Rs.22,59,10,459/- under section 69 of the Act, major portion of which amount was admittedly and undisputedly paid and accounted for as such in the preceding financial years and not in the financial year relevant to the assessment year for which the order is passed? (ii) when the entire underlying payment to the transferor in this regard was admittedly and undisputedly made through the regular banking account and reflected as such both in the books of account regularly maintained and in the

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 22 - Audited Annual Accounts drawn there from; or is the scope and ambit of this section restricted only to those investments which have remained outside the books of account with a further condition of the source thereof not being explained to the satisfaction of the AO? and (iii) whether the AO was justified in making an addition of the entire payment of Rs.22,59,10,459/- made by the Appellant for purchase of the underlying land, especially when he has made a categorical observation, based on external and conclusive evidences available on record, as to this aggregate payment having been made by rotating smaller amounts again and again through banking channel predominantly by RTGS route, which are very much recorded as such in the regular books of account maintained; or as to whether he was required to grant benefit of telescoping by resorting to the calculation of peak?

4.12 From assessment order, it is pertinent that addition by Assessing Officer is on account of unexplained source of funds invested in land at Baroda and not on account of unexplained investment. In assessment proceedings and before me, the appellant argued that the funds are received from debtors but nowhere else it is proved that the sources of funds brought in the books in the guise of recovery from debtors, whose financial position was not good are explained and tried to emphasis that the funds are explained as introduced in the books in the name of debtors and utilized such funds for Baroda land payments.

On examination of the Bank statement and Cash flow statement of the assessee company, it is seen by the A.O. as well as at the time of appeal proceedings that certain 'circular transactions' took place in the books of the assessee company, Shri C.L Patel and B.M. Engineers group and the liabilities to each other wiped-off, without even having adequate funds to purchase the land in question. The assessee company realized both -its debtors and land at Baroda, The sequence of the RTGS done shows (supra) that entire transactions were artificially created to give the colour of genuine transactions between the three entities or parties. Entire transaction was a colorable device fabricated by the appellant for giving the color of genuineness of the source of funds for the purchase of land as the same ratio of colorable device is held by the Supreme Court in the case of Mac Dowell & Company v/s

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 23 - Commercial Tax Officer [1985] 154 ITR 148 (SC), On being confronted, the assessee company could not explain any of these transactions satisfactorily before the A.O, as well at the appellate proceedings. The appellant recorded such payments received in books as realization of debtor, the appellant nowhere else proved that why the land owner Shri C.L. Patel would give such huge land amount to a group, who is not financially viable, this is just a story to color the transaction related to introduction of funds. 4.13. The appellant in Appellate Proceedings tried to bring new turn to the funds recovered from debtors and utilized for land payments being recorded in books and circular payments, by claiming telescoping/peak theory. In this case, the appellant brought unexplained funds in the guise of recovery from bad debtors and utilized for land payments, which is an asset to the appellant of Rs.22.59 crores, therefore, no telescoping /peak theory applies to replace the addition, being whole of the asset i.e. land is recorded in books. In my considered view, in absence of any concrete material, evidences and confirmations from the appellant, the funds utilized for land payments, brought in books in the guise of recovery from bad debtors is from unexplained sources. Therefore, in view of the above discussion and based of the sequence of facts of the case, the decision of A.O. is confirmed. This ground of appellant is dismissed.”

Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us.

7.1 The Ld. AR further drew our attention on the bank statements reflecting the payment to C. L. Patel vis-à-vis payment received from the debtors which are placed on pages 23-31 of the Paper Book.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

7.2 The Ld. AR also drew our attention on page 22 of the paper book where the statement of application and source of payment made to Shri C. L. Patel was placed.

7.3 The Ld. AR also drew our attention on the confirmation filed by the debtors along with their income tax return which are placed on pages 96-117 of the Paper Book.

7.4 The Ld. AR also filed the copies of the assessment order and CIT appeal order pertaining to the A.Y. 2011-12 in which the assessee has made the major payment to Shri C. L. Patel and no adverse inference was drawn by the authorities below on such payments.

8.1 The Ld. DR vehemently supported the orders of authorities below.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 25 - 9.1 There is no doubt that the assessee has shown investment in the land amounting to Rs. 22,59,10,459/- in the balance sheet as on 31.03.2012. The payment for such investment was made in earlier year which has been discussed in the preceding paragraph. On perusal of the payment, we note that the assessee has made major payment in the earlier years but a payment of Rs.4.50 lacs which was made in the year under consideration for the purchase of land. There is also no doubt that the payment during the year has been duly accepted by the AO in the assessment framed u/s 143(3) of the Act. Therefore, in our considered view, the investment made by the assessee cannot be treated as unexplained investment in the year under consideration.

9.2 Without prejudice to the above, if at all any addition needs to be made on account of unexplained investment then it should have been made in the respective years in which the payment was made by the assessee. As no major payment was made by the assessee in the year under consideration except a sum of Rs.4.50 lacs, we are of the view no addition can be made in the year under consideration.

9.3 We also find that the AO himself in the assessment order has admitted as under: “c) Kindly explain the source of investment of Rs.21.11 crores paid to Shri C.L. Patel in F.Y. 2010-11 and 2011-12 along with cash flow statement in absence of which, Rs.2106.50 lakhs paid in F.Y. 2010-11 and Rs.4.50 lakhs paid in F.Y. 2011-12 shall be treated as unexplained investment.”

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 26 - From the above finding of the AO, we note that the AO has made contradictory statement. The AO himself has proposed to make the addition in the respective years in which the payment was made by the assessee. However, the AO inadvertently has made the entire addition in the year under consideration. The assessee has claimed to have made the sales to the parties namely B. M. Engineers, B. M. Engineering Industries and Mukesh Engineering Industries which were duly offered in the income tax return and the due taxes were paid thereon.

However, the assessee during assessment proceedings failed to furnish the details of the sales made to these parties. However, we note that as a result of survey the necessary documents were seized by the Revenue. This fact was brought to the notice of the AO but the AO has not verified the details of the sale made by the assessee to the aforesaid parties though all the necessary information was in the possession of the Revenue. But the same could not have been verified by the AO. We also note that the AO without pointing out any defect in the submission of the assessee has made the addition of investment in its hands. We also note that the impugned addition will lead to double taxation in the hands of the assessee as the assessee once offered the sales as income and similarly the same has also been treated as unexplained investment in the hands of the assessee.

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 27 - 9.4 We also note that the amount of sundry debtors cannot be added u/s 68 of the Act as unexplained cash credit. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Vishal Exports Overseas Ltd. Tax Appeal No.2471, 2473, 2475 & 2476 of 2009 wherein it was held as under: “The Tribunal however, upheld the deletion of Rs.70 lakhs under section 68 of the Act observing that when the assessee had already offered sales realisation and such income is accepted by the Assessing Officer to be the income of the assessee, addition of the same amount once again under section 68 of the Act would tantamount to double taxation of the same income. 6. Having heard learned counsel for the parties and having perused the documents on record, we are in agreement with the above view of the Tribunal. According to the Assessing Officer, Rs.70 lakhs represented bogus sales and therefore the eligibility of the assessee's deduction under section 80HHC of the Act came to be reduced by such amount. Having done so, the Assessing Officer further proceeded to add the same amount under section 68 of the Act. 7. In view of the above situation, we do not find any reason to interfere with the Tribunal's order.”

9.5 We also note that the partnership i.e. Vallabh Properties has not been operated at all. Even its PAN number was not obtained. The bank account of the same was also not opened by the assessee. Moreover, if we agree with the contention of the AO that the land was contributed by the Shri C. L. Patel as capital contribution with the firm, it will not have any bearing in the income tax liability. It is because once the firm is dissolved then the assets shown in its balance sheet will go to the

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 28 - respective parties in the same proportionate as mentioned in the deed of partnership. Once the firm dissolves then we can safely presume that the land must have gone back to Shri C. L. Patel which was purchased by the assessee. Therefore, we are not impressed with the finding of lower authorities for treating the impugned transaction as sham on this ground i.e. the partnership firm was opened and dissolved after the purchase and sale of land.

9.6 From the order of the lower authorities, we note that the assessee itself has admitted that it has acquired the piece of land through circular transaction but none of the authority has brought on record any defect in such transaction. Thus, we are of the view that in the absence of any defect pointed out by the lower authorities in the impugned circular transactions we are reluctant to draw any adverse inference from such transactions.

9.7 The notice issued to C. L. Patel u/s 133(6) cannot be conclusive evidence to hold the transactions for the purchase of land as sham transaction. In fact, there are many evidences which have been filed by the assessee in support of its claim and there was not infirmity pointed out by the lower authorities.

9.8 The provision of Section 69 of the Act can be attracted where the investments are not recorded in the books of accounts. In the instant case,

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 29 - the investment was duly recorded in the books of accounts of the assessee. Therefore, we are reluctant to make any reference to the provision of Section 69 of the Act in relation to such investment.

9.9 Similarly, we also find that the provision of Section 68 of the Act cannot be invoked as the assessee has duly explained the source of money used in the investment of such land.

9.10 The principles laid down by the Hon’ble Supreme Court in the case of Mac Dowell and Company are not applicable to the facts of the case on hand as the facts of the present case are different. In the case on hand, the payment was made through banking channel for the purchase of the property which is supported from the registered Sale Deed placed on pages 50 to 80 of the Paper Book. The parties involved in the transaction i.e. the assessee, the seller namely Price Gaekward, the buyer C. L. Patel and the debtors were identifiable. There were also confirmations filed by the debtors which are placed on pages 96 to 117 of the PB.

9.11 After considering the facts in totality, we are of the view that there was no undisclosed investment made by the assessee in the land as discussed above. Therefore in our considered view, no addition on account of unexplained investment is warranted in the given facts and circumstances. Accordingly, we set aside the order of the Ld. CIT(A) and

ITA No.2889/Ahd/2017 Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. vs. The DCIT A.Y. 2012-13

- 30 - direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

sd/- Sd/- ¼e/kqferk jkW; e/kqferk jkW; e/kqferk jkW;½ e/kqferk jkW; ¼olhe vgen olhe vgen½ olhe vgen olhe vgen U;kf;d lnL; U;kf;d lnL; Yks[kk ln Yks[kk lnL; L; U;kf;d lnL; U;kf;d lnL; Yks[kk ln Yks[kk ln L; L; (WASEEM AHMED) (MADHUMITA ROY) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 07/12/2018 Priti Yadav, Sr.PS

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad. 5. 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation …30/10/2018 (Dictation Page-12) 2. Date on which the typed draft is placed before the Dictating Member : 04/12/2018 3. Other Member……….. 4. Date on which the approved draft comes to the Sr.P.S./P.S 06/12/2018 5. Date on which the fair order is placed before the Dictating Member for pronouncement………….. 6. Date on which the fair order comes back to the Sr.P.S./P.S……….. 7. Date on which the file goes to the Bench Clerk……… 8. Date on which the file goes to the Head Clerk… 9. The date on which the file goes to the Assistant Registrar for signature on the order………… 10. Date of Despatch of the Order………………