M/S EVERFINE CONSTRUCTIONS PVT. LTD.,MUMBAI vs. DCIT CC-7(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “E” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., v. Dy. CIT – Central Circle -7(3) Shop No. 8, Botawala Building Aayakar Bhavan 82/86 Raghavji Road, Gowalia Tank Mumbai - 400020 Mumbai -400036 PAN: AACCE3674P (Appellant) (Respondent) Assessee by : Shri Rushabh Mehta Department by : Shri Sanjeev Kashyap

Date of Hearing : 18.06.2021 Date of Pronouncement : 16.09.2021

O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 16.03.2019 for the assessment year 2011-12.

2 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., “1. The order passed u/s. 143(3) r.w.s. 147 by the Ld. Dy.Commissioner of Income Tax, Central Circle -7(3), Mumbai ("the Ld. Assessing Officer") is without jurisdiction, invalid and bad in law and against the principles of natural justice. 2. (a) The Ld. Commissioner of Income Tax (Appeals)-49, Mumbai ("the Ld. CIT(A)") erred in facts and law in confirming the action of the Ld. Assessing Officer in sustaining an addition of Rs.42,80,19.650/- u/s. 68, made on substantive basis, as unexplained investment being made in the shares of M/s. Gulmohar Towers Pvt. Ltd solely on his own suspicion, surmises and conjectures devoid of any adverse material and without appreciating the explanations provided and the evidences placed on record. (b) The Ld. CIT(A) erred in facts and law in not appreciating that there is no possibility that the appellant company could have generated unaccounted income in the year under consideration as it was just incorporated on 13-04-2010 and had not even commenced its business operations. (c) The Ld. CIT(A) / Assessing Officer erred in facts and law in relying upon unconfronted statements of third parties and not even providing any opportunity of cross examination of such parties.”

3 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., their Directors. Even survey u/s. 133A was conducted at certain premises. The case of the assessee company was reopened u/s.147 of the Act vide notice u/s.148 of the Act dated 10.01.2017 for the year under consideration. The reasons for reopening were provided by the Assessing Officer wherein reference was made to statement of Shri Khimji Karamshi Patel which was recorded during the course of survey u/s.133A of the Act on 11.10.2014 conducted at 3rd Floor, Deval Chambers, Nanabhai Lane, Fort, Mumbai. It was stated by him that investment of ₹.42,80,19,650/- in M/s.Gulmohar Towers Pvt. Ltd. was not reflected in the regular books of account of the assessee company and had admitted disclosing the same as undisclosed investment of assessee company for the years starting from F.Y. 2010-11 to F.Y. 2013-14. In the assessment proceedings, the assessee objected to the reopening and submitted that during the year under consideration, it had purchased majority stake in M/s.Gulmohar Towers Pvt. Ltd. by purchasing 22,62,835 equity shares for a total consideration of ₹.2,26,28,350. Attention was also drawn to the fact that reliance was placed by the AO solely on the statement of Shri Khimji Karamshi Patel who was neither the director nor shareholder of assessee company or M/s.Gulmohar Towers Pvt. Ltd. and thus had no

4 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., locus standi to give any statement on behalf of the company. It was also pointed out that the statement was subsequently retracted wherein it was stated that Shri Khimji Karamshi Patel had given the statement under pressure and duress on the premise that the survey proceedings would continue unless he made such a declaration of income. In support of the investment transaction of ₹.2,26,28,350/-, the assessee had furnished a complete background of the investment proposal and other relevant documentary evidences viz. Due Diligence Report, Memorandum of Understanding (MOU) dated 14-05-2010, share certificates, etc. The assessee also asserted that the investment transaction was duly recorded in its books of account which was also audited with no adverse remarks and that no cash payment as alleged was made for investment in shares of M/s. Gulmohar Towers Pvt. Ltd. It was further pointed out that the reasons for reopening mentioned at para 3 that “the group has disclosed an amount of ₹.42,80,19,650/- for respective years starting from F.Y.2010-11 to FY 2013-14” and accordingly, the case of the assessee for the year under consideration could not be reopened. The reassessment proceedings initiated u/s.147 of the Act was merely on suspicion that certain income of the assessee has escaped assessment in absence of

5 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., any independent inquiry or tangible material to establish the same. The contentions of the assessee were rejected by the Assessing Officer vide letter dated 25.10.2017.

6 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., department with supporting statements and modus operandi and that there was no reason or occasion to disbelieve the information. Assessing Officer should only have a reason to believe to reopen a case wherein he need not establish beyond doubt that there is escapement before issuing the notice and the same can be done at the time of assessment but not at the time of issue of notice. Accordingly, the plea of the assessee challenging the validity of reassessment proceedings was dismissed.

7 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., undisclosed income. The relevant portion of the statement of Shri Khimji Karamshi Patel recorded u/s 131 on 11.10.2014 is reproduced hereunder:- “Q. 13 Please refer to the balance sheet of M/s Gulmohar Towers Private Limited, referred above. On perusal of Balance sheet of M/s Gulmohar Towers Private Limited, it is found that this company has share premium of Rs. 42,80,19,650/- apart from Share Capital of Rs. 2,26,30,000/- . It is impossible that a company having share premium of Rs. 42,80,19,650/- can be acquired at Face Value. Please furnish the valuation report of the M/s Gulmohar Towers Private Limited, on the basis of which the above valuation of share at the RS. 10/- has been arrived at. Ans. Sir, no valuation to arrive at the share price was carried out at the time of the acquisition of the company. As per the understanding with the promoter s of the company the value of the Company on paper was shown at Rs.10/- per share and the security premium amount as above was paid in cash to the promoter of the company. This money amounting to Rs. 42,80,19,650/- was brought back to the group by way of loans from M/s Gulmohar Towers Private Limited to our different group concerns over a period of time in the following manner:- Sr. Amount 1 N.S Enterprises 60,00,000 25-02-11 2 Vilji Mala Patel 10,00,000 22-11-10 10,00,000 13-12-10 13,00,000 18-04-11 3 Lalji Mala Patel 10,00,000 28-04-11 4 Novelty Stationery 20,00,000 22-11-10 4,00,000 18-04-11 27/05/2010 to 5 Trishul Realty Infra Infra P Ltd 11,85,00,000 27/07/2010 27/08/2010 to 18,64,00,000 31/03/2011 01/04/2011 to 1,83,00,000 08/07/2011 01/08/2013 to 1,80,00,000 05/02/2014 Total 35,39,00,000

8 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., The balance of Rs.7,41,19,650/- has been given by way of loans from M/s Gulmohar Towers Private Limited to Shri Bhagwanji Manji Patel( approx. Rs.4 Cr.), Shri Valji Manji Patel( approx. Rs.50 Lac), M/s. Pitashree Enterprises Private Limited ( approx. Rs.50 Lac) .The details of the balance amount given is not readily available. I undertake to submit the details on Monday (13-10-2014). The above Cash payment of Rs.42,80,19,650/- is not reflected in regular books of account of M/s Everfine Construction Private Limited and in view of what is stated above I am willing to disclose the same as undisclosed investment of the company M/s. Everfine Construction Private Limited in M/s Gulmohar Towers Private Limited the respective years starting from F.Y. 2010-11 to F.Y. 2013-14. The same is routed through M/s Gulmohar Towers Private Limited as loan to the above mentioned concern.” 3. The group disclosed an amount of Rs.42,80,19,650/- as undisclosed investment of the company M/s.Everfine Constructions P Ltd in M/s Gulmohar Towers P ltd the respective years starting from FY 2010-11 to FY 2013-14 On consideration of the above facts, there is reason to believe that the income chargeable to tax as being the disclosed an amount of Rs.42,80,19,650/- as undisclosed investment of the company M/s. Everfine Constructions P ltd in M/s. Gulmohar Towers P ltd the respective, has escaped assessment for AY 2011-12 within the meaning of Sec.147 of the IT Act, 1961 and there is a failure on the part of the assessee to disclose true and full particulars of income for the AY 2011-12 in its return. It is also seen from that no scrutiny assessments u/s 143(3) has been done for the asst year 2011-12 earlier. Hence Income chargeable to tax has escaped assessment due to failure on the part of the assesses to disclose fully and truly all the material facts necessary for its assessment for A.Y 2011-12. Further the income chargeable to tax which has escaped assessment amounts to or likely to amount to Rs.1,00,000/- or more. 4. Thus, I have reason to believe that income to the tune of Rs.42,80,19,650/- has escaped assessment and this is a fit case for re-opening under section 147 of the Income Tax Act,1961.”

9 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 6.1 The Ld. Counsel submits that based on the above statement, the Assessing Officer directly jumps to the conclusion that the group had disclosed an amount of ₹.42,80,19,650/- as undisclosed investment of the assessee company in M/s.Gulmohar Towers Pvt. Ltd. and accordingly he formed a reason to believe that the income of the assessee company has escaped assessment on account of the alleged undisclosed investment. It is submitted that Shri Khimji Karamshi Patel was neither a shareholder nor director of the assessee company during the year under reference and therefore did not have any locus standi to record any statement on behalf of the company. In this regard, attention was invited to Q.no. 6 and reply thereto in his statement wherein he had mentioned about his directorship/ partnership in various concerns and his proprietorship concern which did not include the assessee company. Accordingly, it is submitted that mere admission of a third party having no locus standi in the assessee company that certain income should be offered in the hands of the assessee cannot be deemed to be a tangible material in order to form a reason to believe that certain income has escaped assessment.

10 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 6.2 The Ld. Counsel for the assessee argued that the Assessing Officer failed to apply his own mind in re-opening the case and bring on record even a prima facie evidence to establish that income of the assessee company has escaped assessment and that it is a clear case of borrowed satisfaction by simply relying upon a third party statement who itself is not conspicuous in facts. It is submitted that the Assessing Officer has proceeded on vague facts that the Group had disclosed around ₹.42 crores as their undisclosed income in the hands of the assessee company. The reason to believe formed by the Assessing Officer has not been corroborated with the independent findings of the Assessing Officer which would establish that the said undisclosed income represents the income of the ‘assessee company’ for the year under consideration.

6.3 The Ld. Counsel for the assessee pointed out that the AO has failed to bring on record/ refer any corroborative evidence to establish that the alleged cash payment of ₹.42,80,19,650/- has been done by the assessee company with any date of cash payment, name of promoters/ counter party belonging to M/s. Gulmohar Towers Pvt. Ltd., mode of cash payment, details of party responsible for making such payment for the

11 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., group or any incriminating material found in the course of search/ survey in support of statement relied upon. It is submitted that the statement relied upon by the Assessing Officer does not reveal as to who had paid the alleged cash to the promoter of M/s.Gulmohar Towers Pvt. Ltd. According to the Ld. Counsel for the assessee, the Assessing Officer ought to have enquired further on this aspect and accordingly should have established a live nexus with a reason to believe that the same would have been paid by the assessee company in the year under consideration. It is submitted that the statement is itself incomplete in facts regarding who has made the alleged cash payment to arrive at a correct conclusion. Therefore, as per the ld. Counsel for the assessee, such reopening is devoid of any tangible material to form a belief that income of the assessee has escaped assessment, and is based merely on the sole statement of a third party merely due to the fact that the name of the assessee company has been cropped up. Ld. Counsel relied upon the decision of the Hon’ble Delhi High Court in the case of Pr. CIT v. Meenakshi Overseas Pvt. Ltd. [2017] 82 taxmann.com 300 (Delhi) wherein it was held that there should be a live link between the

12 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., tangible material and the formation of the reason to believe that income has escaped assessment which is absent in the present case.

6.4 With respect to the year of reopening, it was pointed out that Shri Khimji Karamshi Patel had arbitrarily admitted disclosing the undisclosed investment from F.Y.2010-11 to F.Y.2013-14 whereas the Assessing Officer has reopened A.Y.2011-12 only as if it was the undisclosed investment for the year under consideration i.e. A.Y.2011-12. Therefore, Ld. Counsel submitted that the reopening of the case by the Assessing Officer is based on vague statements made by a third party and the ‘reasons to believe’ are formed without application of mind. It is submitted that the Assessing Officer has not gone beyond in determining the specific year and amount of alleged undisclosed investment admitted by the party and has merely relied upon the statement and the amount stated therein by a third party and taxing in any year whatsoever as per his whims and fancies. The Ld. Counsel for the assessee vehemently argued that the reopening done in the case of the assessee for the year under consideration is invalid and bad in law. It is submitted that in his statement, Shri Khimji Karamshi Patel had disclosed the amount of

13 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., ₹.42,80,19,650/- as undisclosed investment of the assessee company in M/s. Gulmohar Towers Pvt. Ltd. for the years starting from F.Y. 2010-11 to F.Y. 2013-14. In this regard, the Ld. Counsel for the assessee argued that firstly, Shri Khimji Karamshi Patel has no locus standi in the assessee company as he holds no position as a director or as a shareholder in the company. Further, his statement is recorded on 11.10.2014 during survey which does not have any evidentiary value. Also, the said statement has been retracted later vide Affidavit dated 18.10.2014 on the reasons of pressure and undue influence. It has also been emphasized before us that the said statement of Shri Khimji Karamshi Patel was given by him in the capacity of proprietor/partner/director of his relevant concerns which does not find place of the assessee company anywhere. Accordingly, the Ld. Counsel for the assessee strongly submitted that the statement of Shri Khimji Karamshi Patel is not in the capacity of a chairman of the group but in fact, he has nothing to interfere and comment on the affairs of the assessee company. The Ld. Counsel for the assessee submits that the Assessing Officer has failed to corroborate his reasons with any sort of material/evidence at all apart from his sole reliance on the statement. The ld. Counsel further relied upon the decision of Hon’ble Madras High

14 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Court in the case of M/s. A. Thangavel Nadar Stores v. ITO (W.P. No. 21919 to 21921 of 2018) wherein the Hon’ble High Court quashed the reassessment proceedings being solely based on a statement recorded in the course of survey u/s. 133A of the Act without any shred of material that formed the basis for reopening the reassessment.

6.5. The Ld. Counsel further argued that the statement of Shri Khimji Karamshi Patel was retracted on 18.10.2014 and the AO was already made aware about such retraction during the assessment proceedings in the case of other group entity namely M/s. Trishul Realty Infra Pvt. Ltd. which was completed in December 2016 with a protective addition made on this issue in that concern, which is before recording the reasons for reopening this case. Therefore, it is the contention of the Ld. Counsel that the Assessing Officer knew about the retraction of statement of Shri Khimji Karamshi Patel much prior to the issue of the impugned notice u/s. 148 on 10.01.2017. In this regard, Ld. Counsel sought to rely on the decision of Hon’ble Karnataka High Court in the case of CIT v. Dr. N. ThippaSetty (2010) 230 CTR 265 wherein it was held that, where statements made by the assessee were retracted not once but twice,

15 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., reassessment notice issued solely on basis of statement is without jurisdiction.

6.6. Finally, the Ld. Counsel for the assessee also argued that it is a clear case of borrowed satisfaction without any conduct of enquiry prior to reopening but being made simply by relying upon a statement of third party during survey, which in any case is vague and that too for various years from F.Y.2010-2011 to F.Y. 2013-14 whereas the Assessing Officer sought to reopen only A.Y. 2011-12 for the whole of the amount without any tangible material.

16 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., income has escaped assessment. Ld.DR further submitted that the information is not anonymous but it is an authenticated information received from the investigation wing of the same department. The ld. DR strongly relied on the order of the Ld. CIT(A).

17 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., generated through On money and Out of Book Sales have been routed through these shell company based in Kolkata and brought into regular books by way of unsecured loan or advance against booking. It was observed that the total networth of M/s. Gulmohar Towers Pvt. Ltd. was ₹.45,06,49,650/- (including share premium of ₹.42,80,19,650/-) which was raised in F.Y.2007-08 which was later on purchased by Patni group at ₹.2,26,30,000/-. In order to verify the genuineness of the transactions entered by the group with M/s.Gulmohar Towers Pvt. Ltd., statement of Shri Khimji Karamshi Patel (chairman of group) was recorded during the course of survey proceedings u/s. 133A on 11.10.2014 wherein he was asked to furnish the valuation report of M/s. Gulmohar Towers Pvt. Ltd., on the basis of which the valuation of share at Rs.10/- had been arrived at, as it was impossible that a company having share premium of ₹.42,80,19,650/- could be acquired at face value. In his reply, he had stated that no valuation of shares was done at the time of acquisition of shares and had accepted that ₹.42.80 crores was paid in cash to the promoters of the company which was brought back to the group by way of loans over a period of time. In view of the said facts, Shri Khimji Karamshi Patel had disclosed the same as undisclosed investment of the

18 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., assessee company in M/s.Gulmohar Towers Pvt. Ltd. for the period starting from F.Y.2010-11 to F.Y.2013-14. The Assessing Officer also placed reliance on statements of Shri Anand Sharma recorded u/s.133A dated 02.07.2013 who is an alleged entry operator wherein he had explained the complete modus operandi of creating shell companies. Considering the statement of Shri Anand Sharma, the Assessing Officer in the impugned assessment order has stated that the same modus operandi had been exactly followed by the Patni group to introduce unaccounted funds in the form of accommodation entries. The Assessing Officer also made reference to statement of Shri Vivek Agarwal recorded u/s.131 dated 10.10.2014 wherein he had accepted that the loans received from M/s.Gulmohar Towers Pvt. Ltd. by his wife were mere accommodation entry received in lieu of cash. Assessing Officer took the view that the company was acquired only as a device to take accommodation entry and that the said company was only a shell/ paper company which had been created to route unaccounted funds. He also stated that M/s.Gulmohar Towers Pvt. Ltd. got incorporated for the purposes of business which it never carried and that if there was no business in the company, then why any prudent businessman made

19 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., investment in the company, or could it be concluded that the company had been formed with the real intention of infusing unaccounted money by creating various layers. Accordingly, on facts and in the light of circumstantial evidence, the Assessing Officer alleged that the assessee has introduced its own unaccounted money under the garb of investment and based on the declaration of undisclosed income by Shri Khimji Karamshi Patel, the investment made in M/s. Gulmohar Towers Pvt. Ltd. of ₹.42,80,19,650/- was assessed in the hands of the assessee company on substantive basis as unexplained investment and invoked section 68 of the Act.

20 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., show that it is incorrect. The Ld. CIT(A) observed that in the present case, Shri Khimji Karamshi Patel had stated that cash was paid to M/s.Gulmohar Towers Pvt. Ltd. on account of the value of share premium. If he has retracted subsequently, the onus is on him to show that the share premium amount has not been paid in cash. No such evidence has been produced by him. Ld.CIT(A) is of the view that it is very hard to believe and accept that a company having a share premium worth of ₹.42,80,19,650/- is sold only at face value. Therefore, the assessee's subsequent change in stand that no cash is paid is not acceptable. To fortify her decision, the ld. CIT(A) relied upon the decision of the Hon’ble Delhi High Court in the case of Nova Promoters & Finlease Pvt. Ltd. 2012 [342 ITR 169]. Accordingly, the addition of ₹.42,80,19,650/- u/s.68 of the Act was sustained by observing that assessee has introduced its own unaccounted money under the garb of unsecured loan and advance against land.

21 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., (i). Assessee company got incorporated on 13.04.2010 (ii). Due Diligence Report for acquisition of M/s. Gulmohar Towers Pvt. Ltd. was obtained on 28.04.2010 (iii). MOU was entered with M/s. Gulmohar Towers Pvt. Ltd. on 14.05.2010 (iv). Shares were transferred to the assessee company on 22.05.2010 (v). Search / Survey conducted in case of Patel/Patni group on 09.10.2014 (vi). Statement of Shri Khimji Karamshi Patel was recorded during survey u/s.133A on 11.10.2014 (vii). Affidavit retracting the aforesaid statement is dated 18.10.2014

10.1 The Ld. Counsel for the assessee submits that the assessee company is engaged in the business of Builders & Developers and had incorporated on 13.04.2010. During the year, after carrying out due diligence and obtaining such report dated 28.04.2010 from the chartered accountant, the assessee company decided to acquire the shares of the company at ₹.2,26,30,000/- considering the various adverse findings against M/s. Gulmohar Towers Pvt. Ltd. based on which the shareholders of their company had also decided to liquidate their stake in the company. Accordingly, to buy the entire stake in M/s. Gulmohar Towers Pvt. Ltd., the assessee company entered into a Memorandum of Understanding (MOU) dated 14.05.2010 with their directors in order to set out the terms & conditions, rights and obligations of the parties. As

22 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., the financial position of M/s. Gulmohar Towers Pvt. Ltd. was not strong, the appellant company acquired the shares of the company at Rs. 10 per share and accordingly, the investment in shares of M/s. Gulmohar Towers Pvt. Ltd. were duly recorded in books of the appellant company. Further, it is submitted that in support of the substantiation of the said transaction, the assessee had furnished the following documents before the lower authorities: - (i). Copy of PAN of M/s. Gulmohar Towers Pvt. Ltd. (ii). Memorandum and Article of association of M/s. Gulmohar Towers Pvt. Ltd. (iii). Share certificates of the original shareholders reflecting the transfer details and duly executed share transfer forms (iv). Due Diligence Report dated 28.04.2010 of M/s. Gulmohar Towers Pvt. Ltd. (v). Copy of MOU between assessee company and M/s. Gulmohar Towers Pvt. Ltd. dated 14.05.2010 (vi). ITR Acknowledgement and financials of M/s. Gulmohar Towers Pvt. Ltd.

The Ld. Counsel for the assessee submits that nothing adverse has been found in any of the above documentary evidences/explanation furnished by the Assessing Officer/Ld.CIT(A) and that the assessee company has duly discharged its onus of substantiating the investment transaction of Rs. 2,26,30,000 recorded in their books.

23 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 10.2 The Ld. Counsel for the assessee further pointed out certain facts arising out of the retracted statement of Shri Khimji Karamshi Patel in his affidavit dated 18.10.2014 that the survey proceedings had commenced on 09.10.2014 and concluded on 12.10.2014 (early morning) without any break which seriously affected the business and impacted him mentally as if he was under arrest. Out of the 3 nights, he was allowed to go home for 2 nights and was not permitted to even rest in the 3rd night. There were 3 statements recorded at different business premises with the survey party consisting of 5 members when even no undisclosed assets or cash was found. Before recording the 3rd statement on 11.10.2014, he was told that survey action will not conclude till the time he makes a declaration of income in relation to the transactions of Gulmohar Towers Pvt. Ltd. Accordingly, he stated under duress and pressure that the cash component of share premium was paid by the assessee company and that the same were brought back to the group by way of loans from M/s.Gulmohar Towers Pvt. Ltd and thereby made a disclosure of undisclosed investment of ₹.42 crores. Shri Khimji Karamshi Patel also affirmed that he was neither a director nor a shareholder in either the assessee company or M/s.Gulmohar Towers Pvt. Ltd. It was

24 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., submitted specifically that the said disclosure was not a correct statement and the same was made under pressure and undue influence which was clearly evident from the behavior of survey party when 3 statements were recorded unnecessarily when nothing incriminating was found at all. He was also made to understand that the survey action would not be concluded till the time such a disclosure statement was given. The Ld.Counsel also referred to the affidavit of Shri Gaurav Patel dated 18.10.2014 wherein he had stated that he was called upon by the survey party around 10.30 p.m. to sign the statement given by him without confronting him the contents of the statement and that he had blindly affirmed to the statement of his father under pressure and undue influence of the survey party. It was also stated by him that the alleged transaction took place on 22nd May, 2010 and he was appointed as a director on 01.04.2013 and was not a party to the alleged transaction of takeover of M/s.Gulmohar Towers Pvt. Ltd. The Ld. Counsel for the assessee once again highlighted that Shri Khimji Karamshi Patel was neither a shareholder nor director of the assessee company during the year under reference and therefore, did not have any locus standi to record any statement on behalf of the company. Ld. Counsel for the

25 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., assessee also once again drew our attention to Q.no. 6 and its reply to argue that Shri Khimji Karamshi Patel had just made his statement in the capacity of proprietor/ partner of concerns and not in the capacity of Chairman of the group and it was also affirmed by him in his retraction affidavit that he was not in any way associated to the assessee company. The Ld. Counsel also pointed out that it was evident that it was out of mental duress and pressure from the survey party that Shri Khimji Karamshi Patel was compelled to make such disclosures to conclude the proceedings. Moreover, nothing in the form of any undisclosed income, assets or cash was found during the course of the survey. Also, Shri Gaurav Patel who was neither a director nor shareholder in the year under consideration and was not even present during the statement being recorded and was in the bare age of 20 years who had just entered in the business of the company. The Ld. Counsel therefore submits that such statements made to be recorded to obtain confession of any undisclosed income in absence of any incriminating material found in the course of survey do not carry any legal sanctity and cannot have any evidentiary value in the eyes of law. In this regard, attention was invited to the CBDT Instruction F.No. 286/2/2003-IT (Inv. II) dated 10th March,

26 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 2003 and its further Instructions F.No. 286/98/2013-IT(Inv.II) dated 09th January, 2014 and F.No. 286/98/2013-IT (Inv.II) dated 18th December, 2014. As regards statement recorded of Shri Anand Sharma u/s. 133A, the Ld. Counsel submits that the same is taken during the course of survey and has no evidentiary value at all in light of the decision of Hon’ble Apex Court in the case of CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC). Even no copy of the said statement was either provided despite specific request made to the Assessing Officer. Also, no cross examination of said party was granted. As regards the statement of Shri Vivek Agarwal, Ld. Counsel submits that the same in relation to Ms.Ekta Agarwal and M/s. Gulmohar Towers Pvt. Ltd., Ld. Counsel for the assessee submits that these statements have no relevance in so far as the transaction of assessee company is concerned. Also, Shri Anand Sharma and Shri Vivek Agarwal are neither shareholders nor directors of the assessee company or M/s.Gulmohar Towers Pvt. Ltd. thereby having no locus standi to comment on the transaction with M/s.Gulmohar Towers Pvt. Ltd. and relied upon the judgement of the Hon’ble Bombay High Court in the case of CIT v. Paradise Inland Shipping Pvt Ltd (TA No. 66 of 2016) (Bom HC); the SLP filed against the said order of the High Court

27 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., which is also dismissed by the Hon’ble Apex Court in [2018] 93 taxmann.com 84 (SC).

10.3 Further, ld. Counsel for the assessee argued that at para 7.2 of the assessment order, Assessing Officer has stated that during the search action, it was unearthed that these groups are selling flats/units from their real estate projects and out of which full consideration is not recorded in the books and that such unaccounted income generated through out of books sales were routed through shell companies and brought into regular books through loans. Rebutting to said allegation, the Ld. Counsel argued that Assessing Officer has merely recited the alleged modus operandi and not brought on record even an iota of evidence out of the search to establish whether the group or any particular concern of the group in reality has actually ever generated any unaccounted income out of on money or out of books sales. He submitted that in fact, none of the real estate projects of group had yet commenced in A.Y. 2011-12. Moreover, the loans have been advanced to not only to concerns of the Patni group but also to unrelated parties and therefore, vague assertions have been made by the Assessing Officer. It is

28 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., submitted that at para 7.3 of the assessment order, the Assessing Officer has mentioned about findings/evidences collected during the course of search in Patni group but nothing incriminating in the form of material, loose papers, undisclosed assets or cash or investment has been discovered regarding the alleged transaction of investment made by the assessee company in M/s. Gulmohar Towers Pvt. Ltd. Ld. Counsel strongly argued that no evidence at all was brought on record even though it had entered the premises of the group by way of search/survey action. It is submitted that at various parts of the assessment order, the AO has referred to the “Patni Group” as an entirety in relation to the allegation of acquiring company at a nominal price and paying cash over and above the investment shown in books of account. Ld. Counsel referred to para 7.2 of the assessment order wherein it has been stated that M/s Gulmohar Towers Pvt. Ltd. was purchased by the Patni group at a price of Rs. 2,26,30,000/-. It is submitted that even at para 7.3, the AO has concluded that it is evident that M/s. Gulmohar Towers Pvt. Ltd. is merely a shell/paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group concerns. The Ld. Counsel in this regard submits that the Assessing Officer himself is

29 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., clear that the alleged investment has been done by the group and there is no specific mention of the assessee company. There is even nothing conspicuous brought on record regarding which concern of the group had actually been engaged in the alleged scheme of things. Thus, without prejudice, the Ld. Counsel submits that the assessee company has been blindly made the scapegoat since its name had cropped up in a statement of Shri Khimji Karamshi Patel who is also neither a director nor a shareholder in the assessee company.

10.4 The ld. Counsel further submits that no enquiry was conducted by the AO on the promoters/shareholders /directors of M/s.Gulmohar Towers Pvt. Ltd. to corroborate the statements/information received in relation to the alleged undisclosed investment. No specific evidence in the form of date of cash payment, its mode, any other incriminating material/ information had been found from M/s. Gulmohar Towers Pvt. Ltd. in order to establish that the said company is bogus or a shell company. During the course of hearing, the Ld. Counsel also submitted the copy of the assessment order u/s. 143(3) r.w.s. 147 of

30 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., M/s. Gulmohar Towers Pvt. Ltd. for A.Y. 2008-09 dated 22.04.2010 to prove that the said party is not a shell or bogus company.

10.5 The Ld. Counsel also emphasized on the fact that the assessee company was incorporated on 13.04.2010 and that the year under consideration was its first year and business operations were also not commenced and hence, by any stretch of imagination, there is no possibility for the assessee to generate unaccounted income. In support of this proposition, he relied on the decision of Hon’ble Apex Court in the case of CIT v. Bharat Engineering & Construction Co. [1972] 83 ITR 187 (SC) and that followed in the case of Surendra Prasad Misra v. ITO [2006] 7 SOT 457 by the Hon’ble Lucknow ITAT.

10.6 The ld. Counsel further submits that the whole addition has been made on surmises and conjectures in absence of any adverse material found during the course of search / survey to establish that the alleged investment has been done in cash. Further, no related details in the form of date of cash payment, name of recipient of the cash payment, mode/purpose etc. has been unearthed by the Assessing Officer. He emphasised that the contentions of the Assessing Officer are

31 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., themselves contradictory as it has been reiterated at various parts of the assessment order that it is the “Group” which has made the investment without referring to the actual entity involved. Therefore, conclusions drawn against the assessee company merely on surmises and suspicion cannot take place of proof in such matters. In this regard, he relied on the case of Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC). Reliance is also placed on the decision of the Hon’ble jurisdictional High Court in the case of CIT v. Devesh Agarwal [2017] 81 taxmann.com 257 (Bom.) who held in favour of the assessee in similar context of allegation of unexplained investment in shares in excess of what is shown in the regular books where no positive evidence was brought on record by the revenue.

11.1 Firstly, he submitted that the version of the Assessing Officer from the assessment order is that the group had earned unaccounted cash which has been paid for the acquisition of shares of M/s. Gulmohar

32 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Towers Pvt. Ltd. and the assessee company is a conduit in the transaction. Accordingly, the assessee company cannot be held as a beneficiary to the alleged scheme and that the existence of any undisclosed income of the assessee company itself rules out.

11.2 Secondly, the ld. Counsel submitted that it is a trite law that only the right person should be taxed. He submits that it is the duty of the Assessing Officer to tax the right person who was liable to pay tax on a particular income and merely since the name of the assessee company had cropped up in a statement of a person not connected to the assessee, Assessing Officer could not have proceeded to make the additions in the hands of the assessee in absence of any corroborative evidence. The Assessing Officer mentions in the order that the on-money sales have been used for payment in cash whereas the assessee is incorporated in this year itself and has not even commenced any real estate activities. This clearly proves that the assessee company is not the right person to be taxed in any circumstance either. In this regard, reliance is placed on the decision of Hon’ble Apex Court in the case of ITO v. Atchaiah [1996] 84 Taxman 630 (SC).

33 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 11.3 Thirdly, he submits that the provisions of section 68 invoked itself are not applicable in any case. He submitted that although in the impugned order, the Assessing Officer has made the addition as unexplained investment as can be seen in para 8 of the impugned assessment order, the Ld. Counsel drew our attention to para 7.4 relating to the show cause raised as to why the funds originated from M/s.Gulmohar Towers Pvt. Ltd. should not be treated as income u/s. 68 of the Act. Even the table of determination of Total income on the last page of the assessment order refers to section 68 being applied for the addition made of ₹.42,80,19,650/-. Further, the CIT(A) has also sustained the addition u/s.68 itself. In this circumstance, the Ld. Counsel argued that once the Ld.CIT(A) has passed the order, as per the doctrine of merger, the assessment order merges with Ld.CIT(A)’s order and since no appeal has been preferred by the revenue against the Ld.CIT(A)’s order, the same stands final. Accordingly, the ld. Counsel submits that the provisions of section 68 is not at all applicable as the actual allegation here is that of investment in cash over and above that recorded in books. He further also submits that even the addition as unexplained investment although referred in para 8 of the assessment order cannot be sustained

34 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., as section 69 applies where investments are undisclosed and not recorded in the books of account. Hence, the Ld. Counsel submits that in any case, in the present facts of the case, since the investments in shares of M/s.Gulmohar Towers Pvt. Ltd. were duly recorded to the extent of ₹.2,26,30,000/- and the allegation was only regarding the amount of cash paid over and above said amount, the relevant section which ought to have been applied was section 69B of the Act which relates to amount of investments, etc. not fully disclosed in books of account. However, no such section 69B has been invoked by Assessing Officer or CIT(A) either and hence, whole addition is invalid on this count too.

35 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., assessee is required to substantiate the correctness of the investments being recorded in the books and that nothing has been paid over and above in cash beyond the amount recorded in the books of account more so when overwhelming evidences have already been gathered by the department based on the analysis of the financials of M/s. Gulmohar Towers Pvt. Ltd. who have actual networth of ₹.45,06,67,467/-as on 31.03.2011, statement of Shri Anand Sharma and Shri Vivek Agarwal apart from the admission of Shri Khimji Karmashi Patel. Further, there is no proof of coercion or pressure or duress on part of Shri Khimji Karamshi Patel on making the disclosure of unexplained investment of ₹.42,80,19,650/- in the hands of the assessee company. Hence, the ld. DR of the revenue relied on the orders of the authorities below and submitted that there are enough circumstantial evidences to uphold the addition of unexplained investment made by the AO and confirmed by the Ld.CIT(A).

36 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., assessee in the course of hearing to decide the case on merits as the quantum of addition involved in the matter is substantial, we are now dealing firstly with Ground no. 2. The case of the revenue is that the assessee has acquired a Kolkata based company named M/s. Gulmohar Towers Pvt. Ltd. for a total consideration of ₹.2,26,30,000/- whereas the networth of the company was Rs. 45,06,49,650/- and that Shri Khimji Karamshi Patel, chairman of the group of assessee (Patel / Patni Group) had even admitted to have paid differential amount of cash of ₹.42,80,19,650/- as undisclosed investment of the assessee company and that no valuation was done prior to the acquisition. The Ld. DR also drew our attention to the Key Findings in the Due Diligence Report placed on record by the appellant prior to the acquisition. The observations therein the company – M/s.Gulmohar Towers Pvt. Ltd. are such that the company – M/s.Gulmohar Towers Pvt. Ltd. do not have internal controls and no standard operating procedures are followed for investment in private limited companies, there is no security for advances given, there is no earning capacity despite huge capital reserves, etc. and that the main object of the business of real estate is not met due to poor management and lack of experience of the management/directors. The fundamentals

37 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., of M/s.Gulmohar Towers Pvt. Ltd. were also referred and he made his various observations to the effect that - (i). The company is not doing any business activity other than rotation of funds. (ii). It only provides financial assistance to Patni group either through unsecured loans or advances against property. (iii). The staff strength of the company was unknown & no salary had been paid. (iv). The only source of investment was reserves and surplus (securities premium) which had been created from past profits nor money had been borrowed and it was practically not possible to acquire a company with huge reserves and surplus at substantially lower price with such huge difference between the price paid and actual price of the company. The Ld. DR for the revenue submitted that all these facts itself clearly indicates that the company – M/s. Gulmohar Towers Pvt. Ltd. is a shell company used for accommodation entries by the assessee and therefore the addition made by the Assessing Officer and confirmed by the Ld.CIT(A) is justified and upheld. In rebuttal to this, the Ld. Counsel for the assessee submitted that it is for the reasons laid down in the Key Findings of the Due Diligence Report that said company was not paid the whole of the networth as appearing in its books due to lack of expertise of management and material mismanagement of funds. The Ld. Counsel

38 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., drew our attention to the Memorandum of Understanding (MOU) dated 10.05.2010 between the directors of the company and the assessee company to state that on going through the findings of the Due Diligence Report, shareholders of the company had shown their willingness to liquidate their stake in the company and had authorized directors to sell their shares and look for prospective buyers and accordingly, the consideration along with the terms and conditions for acquisition were reached and set out in the MOU. Further, the Ld. Counsel also relied upon the assessment order u/s. 143 r.w.s. 147 of the said company for A.Y.2008-09 wherein the share capital (including premium) of ₹.43,05,47,000/- was thoroughly examined and that no adversities had been found by the then Assessing Officer who assessed its case and hence he strongly argued that such a company cannot be held as a shell company and that the assessment order in its case cannot be ignored altogether.

39 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Patni group nor in this regard, any evidence has been brought on record even in the course of assessment proceedings. Even the reliance placed on statement of Shri Khimji Karamshi Patel recorded u/s. 131 during the course of survey u/s. 133A in the case of M/s. Trishul Developers, M/s.N.S. Enterprises, M/s. Novelty Stationery, M/s. Trishul Infra Pvt. Ltd., M/s. Patel & Associates, M/s. Real Trade Corporation and M/s. Om Trilok Realty & Infrastructures on 11.10.2014 cannot have any evidentiary value in eyes of law as well settled by the Hon’ble Apex Court in the case of CIT v. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC). The CBDT has time and again vide its Instruction F. no. 286/2/2003-IT (Inv. II) dated 10.03.2003, F. No. 286/98/2013- IT (Inv. II) dated 09.01.2014 and F. No. dated 286/98/2013- IT (Inv. II) dated 18.12.2014 has directed the field officers on search to gather evidences and incriminating material in the course of search rather than merely recording statements and obtaining confessions. The said instructions of CBDT reveal that even Board is aware of laconic disclosures and expects its officers to rely on incriminating evidence. Further, Shri Khimji Karamshi Patel also immediately retracted his statement on 18.10.2014 i.e. within a span of 7 days, earlier being given under pressure and undue influence. Even

40 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Shri Gaurav Patel, director of the assessee company in his affidavit dated 18.10.2014 have stated that under the pressure of survey party, he was made to blindly sign and affirm the statement given by his father on 11.10.2014 in the night at about 10 pm and affirmed that there is no element of cash involved in the said takeover and also submitted the copies of the Due Diligence Report dated 28.04.2010 and the MOU dated 14.05.2010 with regard to the acquisition of the company. In his Affidavit of retraction dated 18.10.2014, Shri Khimji Karamshi Patel has also explained the pressure and duress faced by him, relevant extract of which is reproduced herein below: - “3. That survey proceedings commenced on 09.10.2014 and was concluded on 12.10.2014 (early morning) without any break 4. That I reside at 602, Petit Towers CHS Ltd. August Kranti Marg, Kemps Corner, Mumbai 400036 and was called at Belapur office at serial no.2 above on 09.10.2014 and my statement was recorded at the said location 5. That from Belapur, on 09.10.2014, I travelled to office at Chira Bazaar office at serial no. 3 above alongwith the officers of income tax department and my statement was recorded even at Chira Bazaar office 6. That I was permitted to go to my residence at night for rest on 09.10.2014 7. That my statement continued at Chira Bazaar on 10.10.2014 and was concluded on 11.10.2014. That I am not aware as to why the survey party consisting of 5 members spent 3 days where, even no undisclosed assets or cash was found in the said premise.

41 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 8. That in the night on 10.10.2014, I was permitted to go home for rest 9. That on 11.10.2014, after conclusion of my statement at Chira Bazaar office, I travelled to office at Fort at serial no. 4 above and my third statement was recorded which concluded on early morning of 12.10.2014 despite the fact that no undisclosed assets or cash was found in the said premise. 10. It will be appreciated that for 3 continuous days, the survey party continued their actions seriously affecting my business and also impacted me mentally as if I was under arrest 11. Though on 2 nights, I was allowed to go home in night for rest, the pressure of presence of income tax officers at office was continuously on mind and on 3rd night, I was even not allowed any rest in the night. 12. That before recording my statement at Fort office at serial no. 4 above on 11.10.2014, I was told that survey action will not conclude till the time I made a declaration of income in relation to the transactions of Gulmohar Towers Pvt. Ltd…….”

42 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Corporation and M/s. Om Trilok Realty & Infrastructures and relied upon by the revenue as Chairman of the Patel/Patni group is not correct as his reply to Q. no. 2 and Q. no. 6 clearly shows that he has given his statement in the capacity of proprietor/director/ partner for the relevant entities wherein there is no reference to the appellant company at all. Replies to Q. no.2 and Q. no. 6 are reproduced herein below:-

“Q.2 Please state your educational qualification and explain as to in which capacity you are giving the statement. Ans. I have completed my education till 9th standard. I am giving the statement in the capacity of proprietor/partner/director in various entities/firms/companies as above Q.6 Please mention the concern in which you are either director or partner (% of partnership) and what are the names of your proprietary concerns? Ans. I am proprietor of 1) M/s. Trishul Developers I am partner of 1) M/s. Patel & Associates (60%) 2) M/s. N. S. Enterprises (20%) 3) M/s. Real Trade Corporation (25%) I am Director in M/s. Trishul Realty Infra Private Limited & Nishrin Trading & Investment Private Limited.” The Ld. DR for the revenue has also not been able to show us as to how Shri Khimji Patel is considered as a chairman of the group and how his statement of disclosure of income in hands of the appellant

43 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., company can be applied against the appellant company if he has no capacity or role in the assessee company.

44 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Hon’ble jurisdictional High Court in the case of CIT v. Paradise Inland Shipping Pvt. Ltd. [ITA NO. 66 of 2016 (Bom. HC)] which is further affirmed by the Hon’ble Apex Court in [2018] 93 taxmann.com 84 (SC). Another statement of Shri Vivek Agarwal referred by the Assessing Officer in his order is in context of transaction done by Smt. Ekta Agarwal with M/s. Gulmohar Towers Pvt. Ltd. and has no relevance in the present facts of the case.

45 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., of Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC), wherein it is clearly held that suspicion how so far may be strong cannot take the place of evidence squarely applies. There is no positive and credible evidence brought on record by the revenue to establish the allegation of cash payment over and above the investment recorded in the books. Neither the search party has found any incriminating material in the course of search on Patel/Patni group nor the Assessing Officer has brought any material/evidence on record in the course of assessment proceedings. Even no adversities or defects have been found in the evidences in the form of Due Dilignence Report, MOU, share transfer forms, share certificates, etc. furnished by the appellant has been pointed out. There is no finding as to who paid the alleged cash to whom either promoter/director/shareholders of M/s. Gulmohar Towers Pvt. Ltd. The AO has not even examined the promoters/directors of M/s. Gulmohar Towers Pvt. Ltd. None of the shareholders of M/s. Gulmohar Towers Pvt. Ltd. have been examined. Nowhere the name of the appellant company has been found to be purported in any of the statements of Shri Anand Sharma and Shri Vivek Agarwal to say that the appellant company had paid cash to M/s. Gulmohar Towers Pvt. Ltd. over and above the

46 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., investment recorded in its books. On the contrary, the assessment made by the department on 22.04.2010 in the case of M/s.Gulmohar Towers Pvt. Ltd. does not refer to any adversities but in fact goes to suggest that the said company is not a shell or bogus company. The revenue has failed to discharge its burden to prove and conclusively establish by material the allegation made on the assessee. In the light of the above, we cannot uphold the addition merely on surmises and suspicion in absence of any credible and corroborative evidence brought on record. Reference in this regard is also made to the decision of Hon’ble jurisdictional High Court in the case of CIT v. Devesh Agarwal [2017] 81 taxmann.com 257 (Bom) in similar facts, where it was held as under:- “...We note that the CIT (A) had, while reversing the view of the Assessing Officer had inter alia, placed reliance upon the decision of the Tribunal in Rupee Finance & Management (P.) Ltd. v. Asstt. CIT [2008] 120 ITD 539 (Mum.). Mr. Mohanty the learned counsel for Revenue very fairly points out that the Revenue had filed an appeal against the order of the Tribunal in Rupee Finance and Management (P.) Ltd. (supra) to this Court being Income Tax Appeal No. 1208 of 2008. (CIT v. Rupee Finance & Management (P.) Ltd.). This Court by an order dated 20th October, 2008 had dismissed the Revenue's above appeal, inter alia, on the issue of addition on account of undisclosed investments under Section 69 of the Act for purchase of shares at a price lesser than its market value. No distinguishing features in the present case has been shown to us which would warrant taking a different view. Moreover, in the absence of any corroborative evidence establishing receipts and payments outside the

47 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., regular books of Account, it cannot be alleged that investments have been made which are not recorded. Further the Revenue has in this case proceeded to hold that there is investment in shares in excess of what is shown on the basis of pure suspicion i.e. the shares purchased at a price less than its actual valuation. Therefore unless it is first established beyond doubt that there is an investment which is not recorded by the Assessee in its books, no occasion to explain about the nature and source of the investment can arise. The invocation of Section 69 of the Act before establishing investment not recorded in its books of Account, is not justified.” 18. There is also one more aspect in this case which has been argued by the Ld. Counsel for the assessee which is without prejudice to the main submission that the appellant company has not paid any cash over and above the investment recorded in books and hence, no addition is warranted on such guess work and assumptions. The Ld. Counsel submitted that at para 7.3 of the assessment order, the Assessing Officer has mentioned about findings/evidences collected during the course of search, however, there is no incriminating material found in the search at all and that in the conclusion of said para 7.3, the Assessing Officer has concluded that from the statements of Shri Khimji Patel, Shri Vivek Agarwal and Shri Anand Sharma, it is evident that M/s. Gulmohar Towers Pvt. Ltd. is merely a shell/paper company which was subsequently purchased by Patni group to infuse unaccounted money into Patni group

48 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., concerns. The ld. Counsel also referred to para 7.2 of the assessment order wherein it has been stated that M/s. Gulmohar Towers Pvt. Ltd. was purchased by Patni group at a price of ₹.2,26,30,000/-. Accordingly, he argued that at various parts of the assessment order, the Assessing Officer has referred to the “Patni group” as an entirety in relation to the alleged modus operandi of acquiring companies at a very nominal price. In this regard, the Ld. Counsel argues that if such a version of the Assessing Officer is considered then without prejudice to the allegation on the assessee company, it is the group which have paid cash over and above the investment recorded in books and the Assessing Officer has failed to bring on record as to which concern of the group had actually been engaged in the alleged scheme of things. We find force in this argument as the Assessing Officer himself has stated that during the course of search action, it was unearthed that the said group are selling flats/ units from their real estate projects and out of which full consideration is not recorded in books and such cash generated out of on money sales are then routed through the shell companies. However, it is an undisputed fact that no such evidence/finding of on money sales generated in cash has been found in the course of search and also that

49 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., no such addition has been made in any of the group concerns. Also, the Assessing Officer has alleged the group as a whole but has not carried his investigation further to identify which of the entities/concerns were indulged either in on money sales or routing of investments in shell companies and brought into the regular books by way of unsecured loan or advance against booking. If the version of the Assessing Officer is also taken to be correct, then the allegation which is drawn on the assessee company is that it is a mere conduit to the rotation of funds which were ultimately passed on to the group. Thus, it is clear that the assessee company is not the beneficiary of the alleged unexplained investments. Further, the Ld. Counsel for the assessee argued that the assessee company was incorporated on 13.04.2010 i.e. the year under consideration was the 1st year of the company and its business operations had not yet commenced. This is also an important facet to this case as being the 1st year of incorporation and that business has not been commenced by the assessee, there does not arise any generation of cash sales through on money from any of the real estate projects. In fact, the Ld. Counsel has argued that none of the real estate projects had commenced in the group at the time when the company was acquired.

50 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., Therefore, applying the ratio of Hon’ble Apex Court in the case of CIT v. Bharat Engineering & Construction Co. [1972] 83 ITR 187 (SC); assessee cannot be taxed as there is no possibility of generating undisclosed cash by the assessee in the year under consideration. It is a trite law that only the right person can be taxed under the law and the Assessing Officer cannot pick one person merely because some third party has made disclosure in the hands of the appellant company. As regards taxing the right person, the Hon’ble Apex Court in the case of ITO v. Ch. Atchaiah [1996] 84 Taxman 630 (SC) have observed the following principle: “7….. We are of the opinion that under the present Act, the ITO has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By ‘right person’, we mean the person who is liable to be taxed, according to law, with respect to a particular income.

The said principle is also followed in the case of ACIT v. M/s.Kartikya Construction (ITA no. 51/Mum/2006) and Bhushan Steel Ltd. v. ACIT (ITA no. 1646/Del/2014). Even the Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law.

51 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., 19. Hence, even on these premises too, the addition of unexplained investment cannot be made in the hands of the Assessee company.

52 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., refers to “Investment not fully disclosed in books of account” and reads as under: “Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”

However, no such section 69B has either been invoked by the Assessing Officer or Ld.CIT(A) in confirming the alleged addition. Hence, even on this count, the addition made u/s. 68 is not tenable as per law.

53 ITA.NO. 3129/MUM/2019 (A.Y: 2011-12) M/s. Everfine Constructions Pvt. Ltd., of the Act as it would only be an academic exercise. Hence this ground is left open.

Order pronounced on 16 .09.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board

Sd/- Sd/- (S. RIFAUR RAHMAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 16/09/2021 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum