M/S ARK IMPORTS PVT. LTD.,LUDHIANA vs. ACIT, CC-1, LUDHIANA

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ITA 1159/CHANDI/2018Status: DisposedITAT Chandigarh24 February 2025AY 2012-1310 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the appeal filed by the assessee. The Tribunal noted that the Assessing Officer had passed a speaking order based on incriminating documents found during search operations. The CIT(A) had also passed a speaking order on merits, addressing each ground raised by the assessee. Despite numerous opportunities (fifty occasions) being granted for hearing, the assessee failed to appear, and all their counsels and CAs had withdrawn their powers of attorney due to lack of instructions. The Tribunal observed that the assessee's premises were found locked, and the AO reported that the assessee is absconding. Considering these circumstances, and that both the AO and CIT(A) had considered all necessary documents, statements, and submissions while adhering to principles of natural justice, the Tribunal found no reason to interfere with the findings of the CIT(A). The findings of the CIT(A) on different issues were sustained, and consequently, the appeal was dismissed.

What were the facts?

The assessee, M/s ARK Imports Pvt. Ltd., filed an appeal against the order dated 01.06.2018 passed by the CIT(A)-2, Jalandhar, for Assessment Year 2012-13. The appeal pertains to additions made by the Assessing Officer (AO) amounting to Rs. 92,78,43,735/-. The assessee's grounds of appeal challenge these additions, citing lack of verification, failure to issue show cause notices, non-confrontation with third-party statements, and disputes regarding the basis of additions related to NSEL recovery suits and transactions with 17 other concerns. The Tribunal noted that the assessee has not appeared despite numerous opportunities, and their counsels have withdrawn their powers of attorney. The AO reported that the assessee's premises were found locked, and the assessee is reportedly absconding.

What were the issues?

1. Whether the addition of Rs. 92,78,43,735/- made by the AO under Section 153A/143(3) to the returned income of Rs. 10,45,202/- is valid, considering the assessee's contention that facts were not verified from the books of accounts and that third-party statements were recorded ex-parte. 2. Whether the addition of Rs. 27,83,11,225/-, being the amount recoverable by NSEL from the assessee, constitutes income of the assessee under the Income Tax Act, 1961. 3. Whether the addition of Rs. 2,71,510/- and Rs. 64,93,61,000/- representing cash withdrawn by 17 concerns is valid without verifying transactions with the assessee's books. Assessee's Contentions: - Additions were made without proper verification of books of accounts and without issuing show cause notices. - Statements of third parties were recorded behind the assessee's back and not confronted. - The addition is based on a recovery suit where the assessee is a third party, not the defendant. - Amounts recoverable by NSEL do not constitute the assessee's income. - No business transactions were conducted with most of the 17 concerns, except for a purchase from M/s Mayfair Overseas. - The AO did not call owners of the 17 concerns for verification. - Bank accounts of some concerns were not opened with the introduction of the assessee's director. - Shortfall in quantity and poor quality of goods at NSEL warehouse, as reported by the AO, is disputed. - Reports relied upon by the AO, such as the Sharp and Tannon Report, pertain to a different period and have defects. - The assessee claims that NSEL owes them money, and the total claim against them will be reduced. Revenue's Contentions: - The revenue, through the CIT DR, relied on the order of the CIT(A) and prayed for dismissal of the appeal.

Which sections of the Income-tax Act were involved?

Section 153A,Section 143(3),Section 132

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH

Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY

Hearing: 06.02.2025Pronounced: 24.02.2025

�नधा�रती क� ओर से/Assessee by : None राज�व क� ओर से/ Revenue by : Shri Rohit Sharma, CIT DR (Virtual) सुनवाई क� तार�ख/Date of Hearing : 06.02.2025 उदघोषणा क� तार�ख/Date of Pronouncement : 24.02.2025 आदेश/Order Per Krinwant Sahay, AM : Appeal in this case has been filed by the assessee against the order dated 01.06.2018 of ld. Commissioner of Income Tax (Appeals)-2, Jalandhar [hereinafter referred to as ‘CIT(A)’], for the Assessment Year 2012-13.

2. The Assessee has raised following grounds of appeal:

1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana 2 1. The Ld. AO & CIT (Appeals) erred in making an addition u/s 153A/ 143(3) of Rs. 92,78,43,735/- to the returned income of Rs. 10,45,202/- without verifying the facts from the books of accounts.

2.

Before making such a heavy addition, the Ld. AO has never given any Show Cause Notice to the assessee and has totally floated the CBDT Instructions.

3. The statements of third parties i.e. Sh. Gaurav Pathak, Sh. Pawan Kumar, Sh. Jugal Kishore, Sh. Babar Hussain and Sh. Gokul Kundu were recorded at the back of the assessee and were never confronted to the assessee during assessment.

4. The entire addition is based on the Recovery Suit No. 173 of 2014 filed by the NSEL before the Hon'ble Mumbai High Court. It is stated that in this case, the assessee is a third party not the defendant. Then, how the Ld. AO come to the conclusion without studying the NSEL Case and verifying the facts of the NSEL Recovery Suit that the amount recoverable from Assessee is true.

5. The Ld. AO has erred in making an addition of Rs. 27,83,11,225/- being amount recoverable by NSEL from M/s ARK Imports Private Limited. As per Income Tax Act, 1961, tax is to be paid on the income (i.e. Sales - Purchases), then how the amount recoverable i.e. Rs. 27,83,11,225/- becomes the income of the assessee.

6.

The Ld. AO has made an addition of Rs. 2,71,510/- being Income Declared by the 17 concerns and Rs. 64,93,61,000/- being cash withdrawn by these 17 concerns without verifying the facts from the books of the assessee that the assessee has not done any business transactions with any of these 17 concerns except purchases from M/s Mayfair Overseas that to the tune of Rs. 40,00,930/-.

7.

The Ld. AO has never called owners of all these 17 concerns for verification of Financial Transaction or issued any Show Cause notice to them.

8.

It is further stated that Ld. AO has made an addition on the ground that Bank Accounts of all these 17 concerns were 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

3 opened with the introduction of Sh. Kailash Aggarwal, Director of the assessee company whereas following Bank Accounts were not opened with the introduction of Sh. Kailash Aggarwal.: a) M/s Westend Yarns (P) Ltd { Introduction by Deepak Saggar} b) M/s Mayfair Overseas { Introduction by Sarup Sharma } c) M/s Yuvraj Enterprises {introduction by S K Nayyar } d) M/s Shakti Enterprises! introduction by Rajesh Dhawan }

9. The Ld. AO has mentioned in his assessment order under Para 9 (ii) that there was a shortfall in the quantity at the NSEL Warehouse controlled by NSEL Employees i.e. Sh. Babar Hussain & Sh. Jugal Kishore whereas MPID Court, Mumbai has auctioned the said stock in the year 2016 and there was no shortfall in the stock.

10.

The Ld. AO has mentioned in his assessment order under Para 9 (iii), that quality of the goods found at NSEL designated warehouse are of poor quality and bills are apparently fake on the basis of the Insurance Surveyors Report which itself has defects as under: a. As per Insurance Surveyor "The name of the insured i e. M/s ARK Imports Private Limited suggests that they are they are importers, hut all the bills provided are of local purchases, from within Ludhiana, on above grounds, the bills provided seem to be fake ". The Insurance Surveyor has not considered the fact that M/s ARK Imports Private Limited was involved in trading within India and has never imported/exported any goods outside India. b. The Insurance Surveyor has decided the quality of the Raw Wool on the basis of Wikipedia (i.e. www.wikipedia.org/wiki/Wool) which is totally wrong.

11.

The Ld. AO has mentioned in his assessment order under Para 12 that on the basis of Recovery Suit No. 173 of 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana 4 2014, Rs. 719.37 Crores is recoverable from M/s ARK Imports Private Limited without considering the fact that: a. As per Obligation Summary issued by NSEL on 31.07.2013 (i.e. Date of Shutdown of NSEL Exchange) Rs. 28.12,54,251/- is recoverable by ARK Imports Private Limited from NSEL. b. Whole addition has been made on the basis of Report of Sharp and Tannon Associates which itself has some defects as mentioned below: (i) This report pertains to period 01.08.2013 to 31.08.2013 which does not relate to A.Y. 2012-13. (ii) As per Para 2.1 of Sharp and Tannon Report, it is mentioned "S&TA has not independently ascertained the authenticity and accuracy of the transactions reflected in the aforesaid data made available from CNS application ". (iii) As per Exhibit - "A-2" (i.e. Computation of Members Outstanding as on 31.08.2013) of Sharp and Tannon Report, they have considered Unsettled Buy Position of Rs. 720.17 Crores (which was added back) but have omitted Unsettled Sell Position of Rs. 709.40 Crores (which should be subtracted). After making this adjustment the Net Outstanding Liability should be computed.

12.

As per Para 15 of Assessment Order, The Ld. AO has mentioned that “M/s ARK Imports Private Limited has siphoned off the investors’ money by painting/camouflaging fictitious /bogus /sham purchases from the aforesaid 17 concerns" but in reality M/s ARK Imports Private Limited has never entered into any business transactions with any of these 17 concerns except purchases from M/s Mayfair Overseas that to the tune of Rs. 40,00,930/-.

13.

As per Para 16 of Assessment Order, the Ld. AO has made an addition Rs. 2,71,510/- being cash withdrawn by these 17 concerns and Rs. 64,92,61,000/- being 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana 5 cash withdrawn by these 17 concerns to the income of the assessee without verifying the books of accounts of the assessee. 14 The Ld. AO has made an addition on the basis of amount recoverable by NSEL i.e. Rs. 719.37 Crores which is bifurcated as 268.87 Crores cash withdrawn by 17 concerns with whom the assessee has never done any business activity and the balance amount i.e. 450.50 Crores added to the income of the assessee year wise in proportion to Turnover of the assessee. It is stated that how the amount recoverable by NSEL from M/s ARK Imports Private Limited becomes the income of the assessee.

15.

Here it is pertinent to mention that as per an article dated 22.08.2018, in The Hindu Business Line newspaper, The Bombay High Court appointed committee headed by Justice V C Dada to look into Scam of NSEL has confirmed claims of only Rs.650 Crores from 4697 entities which was initially Rs. 5600 Crores. It is hereby stated that total claim against M/S ARK Imports (P) Ltd which was earlier Rs.719 Crores now definitely be reduced by 80-90 %.

Hence it is prayed that the additions made by Ld. AO and CIT (Appeals) are totally wrong and imaginative without verifying it from the books of accounts of the assessee.

3.

It emerges out from the record that and other cases of this group are on Board since 29th March 2017. From the Note Sheet entry, it is seen that Shri Tej Mohan Singh, Shri Jasleen Khera and others have appeared from time to time and thereafter all the Counsels have withdrawn their power of attorney and pleaded no instructions. On 26.9.2024, Shri Tej Mohan Singh, Advocate and Shri Sanjay Sood, CA also withdrew their power of attorney. It is pertinent to note that as and when a counsel 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

6 withdrew his power of attorney, it is a duty cast upon him to serve a notice through registered post upon the Assessee informing that he is withdrawing his power of attorney so that Assessee can make alternative arrangement thereafter. The Tribunal is not required to serve a fresh notice. But in the interest of justice and for abundant caution, Tribunal issued fresh notice for hearing to the Assessee for 20.11.2024. But none appeared on behalf of the Assessee. It is 50th occasion that this group has been listed for hearing. The notice was issued through the A.O. and the A.O. has informed that notice has been sent on the last e.mail available with the Department. It is further observed that DCIT, Central Circle, Ludhiana vide his letter dated 7.1.2025 informed the Tribunal that officials from the Range visited the premises of the Assessee which was found locked.

4.

During proceedings before us, the ld. DR informed the Bench that he has been intimated by the Assessing Officer that the Assessee is absconding. We have been apprised that there are large number of cases pending against the head of the group with different investigating agencies. Looking to all these cumulative setting of circumstances would suggest that the Assessee is not very much interested in persecuting this 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

7 appeal. Even otherwise, it is trite (‘S. Velu Palandar Vs. DCIT’, 83 ITR 686 (Mad.)] and incumbent on the authority to decide an appeal on merit in accordance with the principles of natural justice.

5.

Now coming on merits of the case, the brief facts are that the Assessee belongs to Genex Group of cases, Ludhiana where search and seizure operation u/s 132 of the Income Tax Act, 1961 (in short 'the Act') was conducted on 23.05.2013. Further, the facts, as enumerated in the assessment order are as under: a) The assessee is a company and is the licenced member to deal in raw wool. It is reportedly maintaining books of account. b). NSEL was a platform provided to enable the buyers and Sellers to transact on spot against the actual delivery of the goods through the licensed members appointed by the NSEL. In this case, M/s ARK was appointed as Licensed member to deal in raw wool. For this purpose, a settlement account of the Licenced member is maintained by NSEL with a designated Bank in which the amount of net proceeds (net of purchases/sales through the Licensed member) are credited to the settlement account.

1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

8 c). In the case of Assessee M/s ARK Imports Pvt. Ltd, the Settlement account no. 00990680013160 was opened with HDFC Bank, Feroze Gandhi larket, Ludhiana. d) As per the aforesaid settlement account, the amount of Rs.32,05,19,069/- is due to the assessee i.e. M/s ARK Imports (P) Ltd. f). As per NSEL, amount of Rs. 719.37/- cr. (Rs. Seven hundred nineteen crores and thirty seven lacs only) is shown as recoverable from M/s ARK Imports (P) Ltd as per recovery suit filed in suit No. 173 of 2014 before the Hon'ble Mumbai High Court. g). The settlement Account would have been a representative figure of the actual amount due from/to the NSEL member License holder(i.e. in this case M/s ARK Imports (P) LTD) only if real/actual purchases/sales had taken place at the NSEL platform. However the facts of the case would bear out that sham transactions of purchases/sales were also taking place on the NSEL platform without actual delivery of the goods. i. In quantity otherwise reported. ii. In quality otherwise reported iii. These observation are supported from the facts outlined in the body of the Assessment Order.

1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

9 6. We have gone through the assessment order passed by the Assessing Officer and the appellate order passed by the ld. CIT(A). We find that the Assessing Officer has passed a speaking order based on various incriminating documents found and seized from various business and residential premise of the group. Against the order of the Assessing Officer, the Assessee filed an appeal before the ld. CIT(A) on different grounds. The ld. CIT(A), in our view, has passed a speaking order on merit on each and every issue / ground raised by the Assessee in the appeal. The Assessee dissatisfied with the order of the ld. CIT(A) has filed this appeal before the Tribunal but despite giving fifty opportunities to the Assessee, the Assessee has not complied with and further that all the Counsels and C.A. who had filed their Power of Attorney have also withdrawn in the absence of any instruction from the Assessee.

7. The ld. DR relied on the order of the CIT(A) and prayed that the appeal of the Assessee deserves to be dismissed.

8. In our view, both the Assessing Officer and the ld. CIT(A) have passed the assessment order and the appellate order keeping in view the aspect of natural justice. They have 1159-Chd-2018 ARK Imports Pvt Ltd, Ludhiana

10 considered all the necessary documents, statements and submissions filed by the Assessee. Since the order passed by the ld. CIT(A) is a speaking order on each issue, therefore, in our considered opinion, there is no need to interfere in the findings given by the ld. CIT(A). Thus, findings given by the ld. CIT(A) on different issues in his Appeal Order are hereby sustained. Accordingly, appeal filed by the Assessee on different grounds are hereby dismissed

9.

In the result, appeal of the assessee is dismissed.

Order pronounced on 24.02.2025.

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