DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(3), MUMBAI, MUMBAI vs. AVAADA VENTURES PRIVATE LIMITED, MUMBAI

5. Accordingly, notice u/s.153A was issued on 01/08/2014 and in response to which assessee filed its return of income which was on the same income which was assessed u/s. 143(3).

5 & others M/s. Avaada Ventures Pvt. Ltd 2013-14 Sr. No. Name Nature Amount(in Rs.) 1 Marina Commercial Share Capital 37,55,00,000 Pvt. Ltd. 2 Rashidhan Share Capital 2,54,00,000 Infrastructure Pvt. Ltd. Total 39,79,50,000 2014-15 Sr. No. Name Nature Amount(in Rs.) 1 Marina Commercial Share Capital 5,83,00,000 Pvt. Ltd. Total 5,83,00,000

7.1 In response to the show-cause notice, the assessee submitted the entire details of the share applicant companies, their returns of income, bank statements, financial statements etc. and submitted that they were regularly assessed to tax even under scrutiny proceedings u/s 143(3). The assessee also gave details of nature of activities of these companies and the source of the funds. However, the ld. AO has discarded the assessee’s submissions and held that even though ITRs, financial 7 & others M/s. Avaada Ventures Pvt. Ltd statements, bank statements have been given, but such a meager profits and turnover of these entities does not instill confidence about their credentials. He also observed that the ultimate source of funds were again from share capital received from shell entities, which were dubious because during the enquiries they were found to be nonexistent on their given address and non compliance of notice u/s. 133(6) by these companies. Thereafter, he had discussed on how these hawala entities operate and referred to various decisions of the Hon’ble Supreme Court including CIT vs. Durga Prasad More reported in 82 ITR 540 and Sumati Dayal vs. CIT reported in 214 ITR 801.

7.2 After discussing various judgments, he held that these are all bogus transaction received from shell companies and accordingly, he has added the share application money received from these companies u/s.68 and accordingly, addition of Rs.39,79,50,000/- was made in A.Y.2013-14 and Rs.5,83,00,000/- for A.Y.2014-15. Apart from that he had also added commission for taking accommodation entry @1% and further added Rs.39,79,500/- in A.Y.2013-14 and Rs.5,83,000/- in A.Y.2014-15.

8 & others M/s. Avaada Ventures Pvt. Ltd 8. Before the ld. CIT (A), assessee raised legal issue that the ld. AO has passed assessment order u/s.153A and has made addition in absence of any incriminating material found in the course of search. Further during the course of search which continued for four days, no incriminating material whatsoever was found on the share application money or any documents that assessee has taken any accommodation entry. The entire assessment has been passed on the basis of pre-search information and post-search enquiry which was unconnected with the assessee company. Before the ld. CIT (A) assessee has also summarized various findings of the ld. AO wherein certain statements and field enquiries and inspector reports etc. have been referred which was conducted before the search and post search and nothing was connected with share application received by the assessee was found during the course of the search. The same has been tabulated in the following manner:-

Sr Nature of finding Remarks No.

11 & others M/s. Avaada Ventures Pvt. Ltd c. Reliance on the statement of third parties recorded at the DDIT office during and post the search action conducted at the premises of the assessee. d. Reliance on the report of the inspector conducted post search action on the assessee.

12 & others M/s. Avaada Ventures Pvt. Ltd Incriminating material can be in any form of evidence either document or the entry in the books of accounts, assets, statement given on oath etc., During the course of search on 30/06/2017, various incriminating documents / information was found which reveals that assessee has received accommodation entries. However, no such reference of incriminating documents have been given except for one copy of ledger account of M/s. Marina Commercial Pvt. Ltd about share application money of Rs.57,50,000/- alongwith share application form of Rs.5,30,00,000/-. Ld. AO has then referred to Inspector’s report and the finding carried out pre-search and how the business activity has been carried out by these companies. The ld. AO has also analysed the bank statement of shareholders and investors and their purported links to hawala entry operators. The entire content of the remand report has been incorporated in the appellate order from pages 78-85 alongwith remand report dated 26/07/2022 containing one seized material which was in the form of ledger account in the books of the assessee. Thereafter, assessee filed its rejoinder submissions which too have been incorporated and dealt with by the ld. CIT (A) from pages 86-107.

2 Reliance on statement of third parties recorded at the DDIT office prior to the search action on the appellant.

4. Reliance on the report of the inspector conducted post search action on the appellant

9.8.1 In this regard, reliance is placed on Delhi High Court in the case of PCIT vs. Anand Jain in dated 12.02.2021 wherein the court rejected to consider the statement recorded u/s 132(4) as incriminating material since it was not supported by any corroborative evidence. The relevant portion is reproduced hereunder- 16 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd "The preliminary question under consideration before us is whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act. A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the ITAT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A of the Act."

9.8.4 This is supported by the decision of decision of Delhi High Court in the case of CIT Vs Harjeev Agarwal reported in 241 Taxman 199 has held that statement under section 132(4) in the itself does not constitute incriminating material The relevant finding of the Hon'ble High Court is reproduced as under 23 It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or maternal found during the search. However, in the context of Section 15888(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such 17 & others M/s. Avaada Ventures Pvt. Ltd statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.

9.9 The appellant has on the other hand vigorously argued that since no corroborative material was found in its case during the course of the search, the statements relied upon by the AO could not be considered as incriminating material.

9.10 As already stated above the assessment order and remand report, AO has referred to the statements of the promoter and various employees of group companies recorded during the search 9.11 AO has contended that Mr. Mridul Gehlot who was director in certain companies before its amalgamation with the assessee, has accepted that no actual work was done by him. I find that in the statement of Shri Mridul Gehlot recorded u/s 131 during the course of search ho has explained that he was working with the group from 2010 and was entrusted with the administrative work in the capacity of Dy. GM (Admin). Further, he also explained that he was appointed director by the promoter considering his managerial potential However, he had never stated that the said 9.12 I also find that statement of another employee Mr. Satish Sharma was recorded u/s 131 during the course of search. He has clearly stated that he was in- charge of keeping the books of the group companies and no doubt on the genuineness of the transaction has been raised by him 9.13 The AO has also submitted the statement of one Mr Amad Despande recorded u/s 131. On perusal of the said statement, I find that no question has been asked regarding the share capital received. Further, he has confirmed regarding his directorship and cross question has been asked by the officer Accordingly, no negative inference can be drawn from the impugned statement 9.14 Also, the assessee has explained that that Mr. Mittal, being the key managerial person of the group companies, is undoubtedly expected to be actively involved in the management of the companies. However, it is obvious that due to wide spread business lines and human limitations, he himself cannot look after the affair of all his group companies on his own and thus deputing certain trustworthy and eligible employees as the director of some of his group companies doesn't seem dubious Such set up is widely prevalent in the large scale corporate group wherein the employees in addition to their regular work, are also made director in group companies for administrative and compliance purpose However, such an arrangement cannot be taken as an adverse arrangement.

9.15 Further, I also find that the statement of Mr. Vineet Mittal, promoter of the assessee company, was also recorded u/s 132(4) of the Act wherein there is no acceptance regarding the non- genuineness of the transaction In fact, on being specifically asked regarding the share application money in Q No. 8 on 03. 07.2017, he stated that he shall submit his response in the due course of 20 19 & others M/s. Avaada Ventures Pvt. Ltd days. Accordingly the assessee has duly filed its reply in response to summon dated 27.07.2017 wherein all the documents/evidences related to share application money have been submitted The copy of the said reply has been submitted by the assessee. Further Mr. Mittal in his statement has categorically stated that the employees were appointed as directors based on the Merits. No doubt whatsoever has been raised by the AO on the documents submitted by the assessee.

9.16 Accordingly. I find that no incriminating fact has been brought out from the statements recorded by the promoter and employees of the assessee group during the course of search which is corroborated by other incriminating material/evidence gathered during the course of the search Moreover, it is also seen that only the statement of the promoter has been recorded u/s 132(4), while the statement of the employees have been recorded u/s 131 of the Act.

9.17 Secondly, the AO has relied upon certain statements recorded of entry providers who were engaged in the business of providing accommodation entries before the Investigation wing in the year 2014 As per AO, funds were routed through the companies operated by such persons into the companies from whom funds were received to the assessee company. I find that legal position is clear that the incriminating material should be unearthed from the search on the assessee company As apparent from the statements, the same were recorded much earlier to the date of search by the investigation wing independently and had no relation with the assessee I also find that there is no mention of the assessee company or its group by such person in their statements recorded.

9.18 Further, AO has relied upon the statement of third party persons which were recorded consequent to the search action at the assessee company 20 & others M/s. Avaada Ventures Pvt. Ltd 9.18.1 In this regard, AO has relied upon the statement of one Mr. Saroj Swaika and Mrs Renu Swaika recorded u/s 131 who were ex-directors in some of the companies from which the share capital was received to the assessee group in the assessment order, the AO has produced a table at para no 6.4.2 giving details of directorship of the companies from the share capital has been received On perusal of the said details, it is noted that the said persons were directors as early as AY 2011-12 which was much earlier to which the share capital were received by the assessee group Therefore, it is inferred that any comments made by the said persons can be only made applicable to the transaction pertaining to period prior to AY 2011-12 and not after. Further it is also important to note that Mr Swaika in his statement clearly denied of having known to the assessee company (merged companies 16 M/s Juicy International Private Limited & M/s Candor Power private Limited) Further, there is no mention of the assessee group in their statement and therefore, such statement cannot be termed as incriminating material in any case, it is important to note that the above persons were directors in M/s. Nimbus Dealers Pvt Ltd. and M/s Luxury Agencies Pvt. Ltd. However, assessee company has not received any funds from M/s. Nimbus Dealers Pvt. Ltd. and M/s Luxury Agencies Pvt Ltd. Therefore, the question of relevance of such statement in the assessee case doesn't arise 9.19 Further AO has relied upon the statement recorded u/s 132(4) of the Act of Mr. SG Mehta, CA who was earlier a lax consultant in one of the companies namely M/s Luxury Vinimay Pvt Ltd. In the said statement, when Mr. Mehta was asked about share premium received from Mis Luxury Vinimay Pvt. Ltd, he said that there is no rational behind charging premium and that he had been informed by Mr. Satish Sharma that it was an accommodation entry 9.19.1 In this regard, I find that Mr. Mehta has expressed his opinion that premium charged by the said company was on the 21 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd higher side and he had been informed by Mr. Satish Sharma that it was an accommodation entry Here it is important to note that on being enquired with respect to the persons/ operators who would have arranged such transaction, he responded that he was not aware of the same and simply claimed that Mr. Satish Sharma and Amod Despandhe knew the facts. On perusal of such statement, it is inferred that Mr. Mehta had no concrete knowledge as to whether the company had received any accommodation entry his statement was merely on basis of word of mouth with no factual information 919.2 The assessee has further pointed out that though the statement of Mr Mehta was recorded 30.06.2017, statement of Shri Satish Sharma was also recorded on 02.07 2017 However, no such cross verification or admission has been made by Shri Satish Sharma in his impugned statement which, according to the assessee, showed that the search officials were also not satisfied with the statement given by Mr. Mehta which was based on hearsay.

9.19.3 I further find that the entire allegation in the statement of Mr Menta is related to share capital received from M/s Luxury Vinimay Pvt. Ltd. However, no such share capital has been received from the said company in the assesses company. Therefore, the question of relevance of such statement in the assessee's case is not established and accordingly, the same cannot be considered as incriminating material for the assessee 9.20 Further, in the assessment order, AO has relied upon the statement of certain entry operators recorded u/s 131 by the Kolkata investigation wing in the post search proceedings whose statement were earlier recorded by investigation wing in year 2014 which have already been discussed in earlier paras 9.20.1 In this regard, I find that the said statement cannot be termed as incriminating material unearthed during the course of 22 & others M/s. Avaada Ventures Pvt. Ltd search since the same were recorded in the post search proceedings u/s 131 of the Act by the Kolkata Investigation wing Further. I also find that the statements themselves cannot be treated as incriminating material in the absence of any corroborative evidence found at the time of search This is supported by the decision of decision of Delhi High Court in the case of CIT Vs Harjeev Agarwal reported in 241 Taxman 199 has held that statement under section 132(4) in the itself does not constitute incriminating material. The relevant finding of the Hon'ble High Court is reproduced as under

9.20.2 Similar decision has been rendered by Delhi High Court in the case of PCIT Vs Best Infrastructure Private Limited, 397 ITR 82 wherein it was held as under

9.20.5 In such circumstances and as discussed above, I hold that such statement cannot be termed as incriminating material in the case of the assessee 9.21 Further, in the remand report AO has referred to the field enquiry conducted in the post search enquiries, in respect of various companies of the assessee group as well as the shareholder companies. As per the inspector's report the same have been reported to be non-existant.

9211 I find that the said findings are not arising out of the findings of the search action conducted at the premises of the assessee company Rather the same were enquiries conducted at the time of post search enquiries. Further, the said enquiries have not been corroborated with the evidences unearthed during the 24 & others M/s. Avaada Ventures Pvt. Ltd search conducted on the assessee Therefore such enquiries cannot be termed as incriminating evidence found at the time of search of the assessee 9.21.2 Further, the assessee has pointed out that all the shareholder companies had been merged much prior to the search action and therefore, their existence at the time of search could not be proved Also the assessee has also pointed out that the said shareholder companies were duly assessed by the department wherein the assessment order passed in their case has also been furnished I find that the shareholder companies were already merged with the assessee and the assessee has submitted the requisite details in respect of the merged companies before the investigation wing as well as AO. Therefore, the inspector's reports themselves cannot be termed as incriminating in nature 9.22 Lastly, the AO has also claimed that during the search proceedings certain seized material were found from the assessee premises in form of ledger accounts of the parties whose share application were received, which were incriminating in nature. The copies of the ledgers forming part of the seized material have been submitted vide letter dated 26 07 2022. In its rejoinder that the assessee has submitted that the documents relied upon by the AO, are part of the accounted books in the form of ledger accounts share application forms, bank statements, etc Page wise explanation for the same has been submitted by the assessee in the rejoinder 9.22.1 I have gone through the copies of the ledgers, share application forms and bank statements forming part of the seized material which have been provided by the AO and explanation for the same furnished by the appellant. It is noted that the relevant seized maternal are only supporting documents pertaining to the accounted transactions being receipt of share capital in the form of ledgers accounts, cheque receipt vouchers, bank statements share application forms etc., which would support the accounting for 25 & others M/s. Avaada Ventures Pvt. Ltd share application money received. The appellant has also pointed out that the details in respect of the share application money along with the supporting documents were also duly provided to the then AO at the time of completion of the original assessment in its case vide letter dated 11.07.2016 Such supporting documents, therefore, do not bring out any incriminating fact that reveals that the share application money received pertained to accommodation entries Accordingly, such documents cannot be termed as incriminating material unearthed during the course of search. In this regard reliance is placed on the decision of Hon'ble Delhi High Court in the case of the Param Dairy Ltd. in ITA No. 37/2021 dated 15.02.2021 wherein it was held that the seized material containing accounted ledgers cannol be termed as incriminating material. The relevant portion of the order is reproduced hereunder - "5. We have considered the aforesaid contentions and are of the view that no substantial question of law arises, as the matter is squarely covered by Kabul Chawla supra, which has been correctly applied to the facts of the case by the ITAT The ITAT, in the impugned order has held that in the audited report filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned, the me respondent assessee, was maintain books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material however, regular books of account of the assessee, by no stretch of imaginanon, could be treated animating material to form basis of framing assessment under Section 153A read with Section 143(3) of the Act 9.22.2 Thus, considering the facts and the decision relied on, it is noted that the ledger accounts and other documents found during the search proceedings, do not amount to incriminating material in the absence of any such incriminating material even the statements recorded u/s 132(4) of the Act during the course of the search cannot be said to be incriminating as these remain uncorroborated by any supporting material/evidence. There is no 26 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd material evidence whatsoever brought on record to demonstrate that any cash was routed from the assessee company or that any cash was deposited by the assessee company 9.23 In view of the above discussion I find that the additions made by the AO are not based on any incriminating material which has been found during the course of search. Since the assessment for the relevant assessment year was unabated, as per the decision of the Hon'ble Special Bench of Mumbai ITAT in the case of All Cargo Global Logistics Ltd. [2012] 23 taxmann.com 103 (Mum.) (SB) as also the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78and also the Hon'ble Supreme Court in the case of Abhisar Buildwell P Ltd [2023] 149 taxmann.com 399, completed assessment cannot be interfered while making an assessment u/s 153A of the Act unless such interference is on the basis of incriminating material gathered during the course of the search, which is not the case here. Thus, Ground No. 2 is allowed and the addition made is directed to be deleted.

12.1 In order to appreciate various finding of the ld. AO, allegation of the ld. AO and the finding of the ld. CIT(A) on the issue of various statements and whether they constitute incriminating material or not, same is being tabulated and can be summarized in the following manner:-

Sr. Nature of Finding Allegation of AO Findings of CIT(A) / No. contention of the assessee Pre-search inquiries 1 Statement of Dincsh Pre search enquiries Statements were Dhandhania u/s 131 conducted by recorded much prior to dated 19.11.2014 at investigation wing, search action and have ADIT (Inv.) office, Kolkata, on certain entry no link with the Kolkat a providers. These entry assessee. There is no operators were engaged mention of the assessee in providing company's name or its accommodation entries shareholders. through various entities. Therefore, such It is also alleged that independent statement such entities have cannot be termed as m provided accommodation criminating material entries to the unearthed from the shareholders companies search on the assessee of the assessee company company. from whom share capital Statements themselves has been received by the cannot be treated as assessee. incriminating material.

28 & others M/s. Avaada Ventures Pvt. Ltd 2 Statement of Naresh Pre search enquiries • Statements were Chhaparia u/s 131 conducted by recorded much prior to dated 15.09.2014 at investigation wing, search action and have ADIT(Inv.) office, Kolkata, on certain entry no link with the Kolkata providers. These entry assessee. There is no operators were engaged mention of the assessee in providing company's name or its accommodation entries shareholders. through various entities. Therefore, such It is also alleged that independent statement such entities have cannot be termed as provided accommodation incriminating material entries to the unearthed from the shareholders companies search on the assessee of the assessee company company. Statements from whom share capital themselves cannot has been received by the treated as incriminating assessee. material.

3 Statement of Rajcsh Pre search enquiries Statements were Bhuthoria u/s 131 conducted by recorded much prior to dated 14.11.2014 at investigation wing, search action and have ADlTdnv.) office, Kolkata, on certain entry no link with the Kolkata providers. These entry assessee. There is no operators were engaged mention of the assessee in providing company's name or its accommodation entries shareholders. through various entities. Therefore, such It is also alleged that independent statement such entities have cannot be termed as provided accommodation incriminating material entries to the unearthed from the shareholders companies search on the assessee of the assessee company company. from whom share capital Statements themselves has been received by the cannot be treated as assessee. incriminating material, if nothing adverse has been sated against the assessee.

29 & others M/s. Avaada Ventures Pvt. Ltd Findings / Enquiries during the course of search at the premises of the assessee 4 Statement of Shri Mrudul Kumar Shri Mridul Gehlot has employee Shri Gehlot in his statement explained that he was Mrudul Kumar has confirmed that he working with the group Gehlot u/s 131 was appointed as from 2010 and was dated 01.07.2017 director as per the entrusted with the instruction of Shri Vineet administrative work in and he is not aware the capacity of Dy. about running these GM(Admin), He has companies. confirmed that he was appointed as director considering his managerial potential. Shri Vineet Mi!lal, promoter, in his statement has confirmed that Mr. Gehlot was appointed as director as per his merits. Statement recorded of Shri Mrudul Kumar Gehlot never stated that the company was engaged in non-genuine transaction and ii does not makes any reference incriminating material. His statement is further supported by statement of another employee Shri Satish Sharma who has clearly stated that he was in-charge of updating and keeping the books of the said companies since they had subsequently merged with the assessee. 5 Statement of Shri Mr. Vineet Mittal when Mr. Mittal in his 30 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd Vineet Millal u/s confronted with the statement has 132(4) dated statements given by categorically stated that 03.07.201/ and 131 other employers, he the employees were dated 29.07.2017. could not give plausible appointed as directors explanation about based on the Merits. various answer given by Also, considering the other employees in their wide spread of the statements. business, appointing trusted employees are director cannot be regarded as an adverse arrangement. No acceptance regarding the non-genuineness of the transaction of share capital. He stated that the relevant supporting documents would be submitted in 20 days which was duly submitted before the Investigation wing on which no doubt was raised by wing. Statement recorded of Shri Vineet Mittal nowhere refers to any incriminating material. Moreover, the alleged incriminating material such as ledger mentioned by AO also have nowhere been confronted to Mr. Mittal during the search. 6 Ledger account In the assessment order The relevant documents pertaining to share and remand report, AO referred by AO are the application found at has termed the ledger supporting evidences for the search. accounts as the receipt of share incriminating material application money such as share application

Therefore, such documents can never be considered as incriminating material unearthed durinj1, 'lie search which can create a doubt on the veracity of the share capital received.

Important to note that the seized documents should be such which should clearly cast a doubt on the transaction, without a second guess. Otherwise, department was free to reopen the case with the findings which it already had prior to search. Enquiries during the course of search at third parties 7 Statement of Shri Mr. Mehta in his Mr. Mehta is not S.G. Mehta u/s statement stated that he related to the assessee 132(4) dated did not find any rational group and was an 30.06.2017 at his behind charging high erstwhile tax own office premises premium from Luxury consultant to M/s. Vinimay Pvt. Ltd. Luxury Vinimay Pvt. He also stated that he was Ltd. informed by Mr. Salish Sharma, employee of the Entire allegation in the assessee group that the statement of Mr. Mehta share capital received is related to share 32 & others M/s. Avaada Ventures Pvt. Ltd from Luxury Vinimay Pvt. capital received from Ltd. was an M/s. Luxury Vinimay accommodation entry. He Pvt. Ltd.. However, no also slated there was a share capital has been possibility that the other received from the said share capital received by company in the the group was also not assessee. genuine whose details were available with Mr. Mr. Mehta has merely Satish Sharma or Mr. expressed his opinion Amol Despande. and he has no concrete knowledge regarding the transaction and was based on hearsay. Statement of Mr. Satish Sharma and Mr. Amol Despande was recorded subsequent to Mr. S.G. Mehta statement; however, no cross question was asked to them.

Statement recorded of Shri S.G. Mehla does not makes any reference to any incriminating material and such third party statement per se cannot be termed as incriminating material found/recovered from the premises of the appellant. 8 Statement of Saroj Saroj Swaika & Renu The said persons were Swaika and Renu Swaika were ex-directors directors as early as Swaika u/s 131 in Nimbus Dealers Pvt. AY2011-12 which was dated 30.06.2017 at Ltd. & Luxury Agencies much earlier to which DDIT(Inv.) office, Pvt. Ltd. Both these the share capital were Kolkata person in their statement received by assessee 33 & others M/s. Avaada Ventures Pvt. Ltd have accepted that they group. Mr. Swaika in are dummy directors and his statement denied of their role was restricted to having known to the mere signing the papers. assessee company Important to note that they were ex-directors in M/s. Nimbus Dealers Pvt. Ltd. and M/s. Luxury Agencies Pvt. Ltd. and Assessee Company has not received any funds from these two companies. Therefore, these statements are not relevant in the assessee's ease, in any case. Statement recorded of these persons docs not makes any reference to any incriminating material and such third party statement per se cannot be termed as incriminating material found/recovered from the premises of the appellant. 9 Inspector The inspector had given a The said findings are report 'Not Found report'. The not arising out of the dated 30.6.2017 inspector in its report findings of the search stated that Shri Vishal conducted at the Agarwal and Shri premises of the search. Subhradeep Chhaterjee The said findings are was not found at the not corroborated with address available in evidences unearthed records. during search. In case of Mr. Vishal Agarwal, the enquiries reveal that the person 34 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd found at the address was residing on behalf of Mr. Vishal Agarwal and used to collect mail for him. The premises belonged to Mr. Vishal Agarwal only. Further, with respect to Mr. Chaterjee, the premises was found to be locked and it was not the case of non-existence. Also, the said shareholder companies had already merged and therefore, it was possible that said ex- directors had changed addresses. Post Search Inquiries 10 Inspector report The enquiries were made These Companies had dated 25.08.2017 by the Inspector at the been merged much relating to Kolkata address of the prior to the search shareholder shareholder companies. action and therefore, companies The Inspector report their existence at the states that the companies time of search was were not existing at the legally not there. The given address/premises. findings/inspector report cannot by itself be termed as incriminating since the same do not arise from the search action at the appellant. The shareholder companies namely M/s Marina Commercial Pvt. Ltd. and M/s. Nimbus Dealers Pvt. Ltd. were assessed u/s 143(3) in earlier period at the 35 & others M/s. Avaada Ventures Pvt. Ltd same address wherein the notices issued by department were duly served and assessed. Therefore, the allegation of department is not correct and contradictory. 11 Statement recorded Statement recorded u/s The statement s have of Shri Rajesh 131 of the Act Shri Rajesh been recorded post Kumar Bhutoria Kumar Bhutoria Naresh search without any and Naresh Kumar Kumar Chhaparia in their reference to any Chhaparia u/s 131 statement have material found during dated 24.08.2017 at categorically admitted the search at the DDIT(Inv.) office, that the entities run by assessee. Kolkata them are for The statement of accommodation entries Naresh Chapparia has only. been specifically rejected by the Hon'ble Tribunal in the case of Adhumk Gases Ltd (lTA No. 47/Kol/2015) Statement of I heir party cannot be considered as incriminating material unearthed during the search conducted on the assessee.

36 & others M/s. Avaada Ventures Pvt. Ltd 14. There are certain statements which had taken much before the search, i.e., pre-search enquiries and there is reference of pre-search enquiries conducted by Investigation Wing, Kolkata, which has nothing to do with the assessee nor has any such material relating to or pertaining to assessee been referred in the statement, except that they were found to be dubious because of various reasons. From the perusal of these statements as recorded in the assessment order, first of all, these statements were recorded much prior to the date of search action and nowhere there is mention about the assessee’s company or its shareholders and therefore, qua the assessee, it cannot be reckoned as incriminating material unearthed from the search from the assessee company. In so far as enquiries during the course of search in the premises of the assessee there is a reference to the statement of an employee and statement of Shri Vineet Mittal, but from bare reading of these statements nowhere there is any acceptance or admission about the non-genuineness of the transaction of the share capital. He has only stated that he would file all the relevant supporting documents within 20 days which was in fact he did submitted before the Investigation Wing. Even in his statement there is no such incriminating material or any pre-search enquiry information has been confronted to him, based on which he has given any statement which can be inferred remotely as incriminating leading to some kind of inference that the credits which had come up in the form of share application money are bogus or non-genuine. Thus 37 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd statement also does not lead to inference of any incriminating material. 14.1 One very important fact which has also been highlighted by the ld. DR and also by the ld. AO in his remand report that there was a ledger account pertaining to share application which was found at the time of search which can been treated as incriminating material. First of all this, is the part of ledger account forming part of regular books of accounts of the assessee and it is only supporting document that assessee has received share application money in the books duly supported by the share application forms, bank receipts, vouchers and bank statements which was already subject to scrutiny during the original assessment proceedings u/s 143(3) and was also produced before the ld. AO at that time. Further, these are part of regular books of accounts which had been duly disclosed and scrutinized in the first round of assessment proceedings u/s.143(3). Hence, books of accounts which have already been scrutinized cannot be treated as incriminating material found during the course of search albeit it just gives the details of entries incorporated in the balance sheet.

by the Revenue are dismissed.

21. Since we upheld the order of the ld. CIT (A), the issue on merits has raised by the assessee in the cross objection for both the assessment years have become purely academic and same is dismissed as infructuous.

A.Y.2016-17 22. In this year The Revenue has raised the following grounds of appeal:-

1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition made u/s 68 of the income tax Act, 1961 even though the assessee could not prove the genuineness of the transaction and creditworthiness of the M/s. Integral Distributors LLP (Earlier Integral Distributors Pvt. Ltd.)"? 2. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition made u/s 69C of the income tax Act, 1961 on account of undisclosed commission paid in cash being 1% of bogus unsecured loan taken from M/s. Integral Distributors LLP? 3. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance made u/s. 14A of the Income Tax Act, 1961 to the book profit of the assessee without appreciating the provisions of clause (f) of explanation 1 to section 115JB(2) of the Income Tax Act, 1961 and the decision of 43 & others M/s. Avaada Ventures Pvt. Ltd the Hon'ble ITAT Mumbai 'F' Bench in the case of Deputy Commissioner of Income Tax, Central Circle-18 & 19, Mumbai vs. Viraj Profiles Ltd. in ITA No. 4439/ (Mum.) of 2013."

23. The brief facts are that assessee had filed return of income u/s.139(1) on 28/09/2016 declaring total income of Rs.1,06,12,840/-. A search and seizure action u/s.132 was carried out in the case of the assessee on 30/06/2016 and the at the time of search, the time limit for issuing notice u/s.143(2) was still available and therefore, assessment proceedings got abated. During the course of assessment proceedings, ld. AO noted that assessee has taken loan from M/s. Integral Distributors Pvt. Ltd. and upto A.Y.2015-16 it has filed the return of income from Kolkata and field inquiry was carried out in respect of the above company on the address, 51/4, Strand Road, Kolkata of the said company that the premises was an old building and no company in the name of M/s. Integral Distributors Pvt. Ltd. was existing at the above premises. Further, he noted that this company had very meager turn over. Thus, it was inferred that, this company did not carry out any substantial business. He further, noted that the shareholder of these companies was M/s. Olive Vincom Pvt. Ltd. and M/s. Doyen Vintrade Pvt.Ltd. and both these companies were filing return of income from the same addresses at Kolkata i.e. 51/4, Strand Road, Kolkata and these two shareholders were also non- existing. He further observed that assessee did not furnish any response to show-cause notice and accordingly, assessee has failed to establish the creditworthiness of assessee M/s. Integral 44 & others M/s. Avaada Ventures Pvt. Ltd Distributors LLP for advancing such a huge loan. Accordingly, he upheld the addition u/s.68 for Rs.28 Crores.

24. During the course of the appellate proceedings, the assessee filed detailed submissions as well as additional evidences running into 296 pages which related to M/s. Integral Distributors Pvt. Ltd. Thus, additional evidences were forwarded to the Assessing Officer to examine and to give his report. The comment of the ld. AO has been dealt and incorporated in the appellate order. The relevant extract of ld. AO’s comment in the remand report is as under:- “4.1 The AO has made the following additions to the income declared in the return of income filed against notice issued under section 153A of the Act: a. Disallowance under section 14A- Rs. 8,49,459/- b. Difference in 26AS- unreconciled amount Rs. 4,01,299 c. Unexplained cash credit u/s 68-Rs. 28,00,00,000/- During the assessment the documents which were produced before the AO are: Ledger confirmation from the M/s Integral Distributors LLP, and table containing name and PAN of the unsecured loan providers during AY 2016-17. 4.2 The following documents were submitted by the assessee as additional evidence in support of the claim a. Copy of ITR and financials of Integral Distributors. b. Copy of bank statement of M/s Integral Distributors LLP reflecting the transaction with the appellant.

45 & others M/s. Avaada Ventures Pvt. Ltd c. Copy of documents showing source in the hands of M/s Integral Distributors LLP. d. Copy of supporting evidence in respect of source of credits in the hands of details showing source in the hands of M/s Integral Distributors LLP. e. Copy of details of usage of funds by the appellant along with the copy of agreement entered into between the appellant and M/s Welspun Energy Pvt.Ltd. made u/s 68 of the Income-tax Act in the assessment order. The document and issue wise comments are presented below: a. The returned total income of the Lender is Rs.NIL for AY 2016- 17. The bank of funds from various entities Fusequently transferred to Sirius Media Pvt. Ltd. (the erstwhile entity that existed before amalgamation) There are no fixed assets in the balance sheet apart from Capital work-in-progress of Rs. 18,74,938/-. The investments in unlisted equities are worth Rs. 37,26,49,088/- h. On page 76 of the paper book submitted, source of the funds received by M/ Integral Distributors LLP, has been shown to be from sale of unquoted shares of certain private limited companies to 10 different companies. But, the schedule Capital Gains of the ITR of the Lender does not show any details of the transfer of unquoted shares. Further, the documents in support of the compliances of the Companies Act, with respect to transfer of shares have not been submitted. c. The assessee has also submitted documents such as ITR, financials and bank account statements of these 10 companies to show the source of the lender M/s Integral Distributors LLP 4.4 The entity wise details, as given in page 76 of the paper book submitted, were studied and it was found that these companies have inter-related directorships making some of them related parties. For example- Sanjib K Shaw is director in Helpful Commodities Pvt. Ltd., Moonstar Commodities Pvt. Ltd., Overtop Tradelink Pvt. Ltd., Everrise Commotrade Pvt.Ltd. and Bhumilaxmi 46 & others M/s. Avaada Ventures Pvt. Ltd Distributors Pvt. Ltd. Some of the entities mentioned in the table have also been struck off as per the data available on MCA website 4.5 The other evidence provided by the assessee is the bank account statement and financial statement of the above-mentioned entities. The bank statements clearly show that the funds were received from other parties and then transferred through banking channel to the lender. Certain observations derived from the account statements are as follows- a. There are some common companies whose names appear multiple times in the bank account statements provided, such as, Allmost Tradelink Pvt. Limited, Bhumilaxmi Distributors Pvt. Ltd, Finelink Suppliers Pvt. Ltd, Subhlabh Fiscal Services Private Limited, Everrise Commotrade Pvt. Ltd., Moonstar Commodities Pvt. Limited etc. The first and second are at present struck off by RoC Kolkata. Whether the funds were received in lieu of sale of shares cannot be confirmed from these documents. b. The shares bought by these companies were sold within the same financial year, st par with purchase value. Hence, there is no declaration of STCL/STCO in the ITR. c. The common features of these entities can be summarised as follows: Their entire Investments lie in unquoted shares of private limited companies from which no income has been earned. The shares have been sold at cost of acquisition. Hence, no Information is available under capital gains schedule. Some of them have overlapping Directorships. They have bulky balance sheets in contrast to their P&L accounts. Their reserves and surplus are more than 20-30 times their share capital, which shows that they have raised share capital on substantial premium.

47 & others M/s. Avaada Ventures Pvt. Ltd 4.6 The assessee in its additional evidence has also submitted the utilization proof of the funds received from the lender. Most of the funds i.e. Rs. 21,00,00,000/- have been used to extend a loan to another company Welspun Energy Private Limited.

5. Conclusion: The documents submitted have shown the source of funds at the hands of the lender M/s Integral Distributors LLP. However, the source of source cannot be conclusively justified in the light of the above observations. The creditworthiness and genuineness of the "source of source" companies is also doubtful. The sale of share has not been supported with proper contracts and compliances with Company law. The additional evidence is not contributing towards substantiating the creditworthiness of the lender, which remains doubtful.” 24.1 The ld. CIT (A) noted that assessee was given show-cause notice at the very fag end of the assessment proceedings and had just two days to reply to the said notice. Accordingly, he held that there was a reasonable cause by the assessee to file the additional evidences and accordingly, same were admitted by him. On merits, ld.CIT(A) after analyzing the documents and material furnished during the course of appellate proceedings which was also forwarded to the ld. AO, and after considering the the remand report of the ld. AO and rejoinder submissions had observed and held as under:- 14.20 Now coming to the facts of the case, it is observed that the appellant has submitted the confirmation, ITR, financials, bank statement of the lender to support the transaction. It is observed that the identity is proved by the ITR and the fact that the said party was assessed by the same AO. It is also noted that the assessment was also completed in the case of the lender u/s 143(3) and no addition for any unexplained cash credits has been made. Further, the genuineness of the transaction can also be 48 & others M/s. Avaada Ventures Pvt. Ltd safely concluded since the entire transaction has been done through the banking channels, duly recorded in the books of accounts of the assessee and duly reflected in the financial statements of the assessee. Also, the assessee has also explained that the said loan has been taken for the commercial purpose of investment in Welspun group for energy business and the same was repaid in subsequent period before the search action. Further, the creditworthiness or financial strength of the lender is proved from the bank statement of the lender wherein it is observed that it had sufficient balance in its accounts to enable it to advance the unsecured loans. Also, the lender had sufficient own funds of Rs.91 Croreright from AY 2012-13 out of which the loan of Rs.28 Crore has been advanced to the assessee. The assessee has also pointed out that the source in the hands of the lender was also assessed by the AO wherein the funds were verified by the then AO and accepted as genuine in AY 2012-13 itself. 14.21 In the assessment order, AO has stated that the lender and its shareholders were not found at the address at Kolkata. In the appellate proceedings, the assessee has explained that the address of the lender was changed to Mumbai and therefore, the verification at the old address was incorrect. Also, the appellant has pointed out that the said party was already assessed u/s 143(3) by the AO at Kolkata at the very same address wherein the notices were served and the assessment was completed. It is also pointed out that the lender was also assessed post search by the very same AO at Mumbai wherein the notices were duly served. I find that the above facts pointed out by the assessee clearly show that the lender was existing. Therefore, the said allegation of the AO cannot be accepted. With respect to low income, the appellant has explained that the said lender had made major investment in the unquoted shares whose income would arise over the period of time. Also, the lender had own funds since AY 2012-13 which were also assessed by the then AO and this further establishes its creditworthiness. 14.22 In view of the above, I find that the assessee has proved the identity, creditworthiness and genuineness of the lender by producing the relevant documents.

49 & others M/s. Avaada Ventures Pvt. Ltd 14.23 Further, in the assessment order, AO has alleged that the lender M/s. Integral Distributor Pvt. Ltd. and its shareholders are a paper company. The appellant has pointed out that while making the said allegation, no evidence to prove the same has been bought on record which was found during the search or otherwise. I agree with the submission of the assessee since the AO has failed to bring on record any evidence to support the said contention. 14.24 Further, in the appellate proceedings, the assessee has also attempted to prove the source of the source in respect of the lender to show that the source in the hands of the lender is also genuine. In the said submission, the assessee has submitted that the immediate source in the hands of the lender is funds received from sale of unquoted shares to various parties. In support of the same, the assessee has submitted the ITR, financials, bank statement and confirmation of the parties who have paid consideration to the lender for purchase of unquoted shares. 14.25 In the remand report, AO has alleged that the assessee has not been able to substantiate the source of the source. The various contentions of the AO have already been mentioned in above paras. The assessee has explained that the allegations of the AO are unfounded and incorrect and the judicial precedents make it clear that the assessee is not required in the first place to substantiate the “source of the source” in the case of the loan transaction for the relevant assessment year. However, according to the assessee, while not being legally bound to do so, it has still explained the source of the source as well. 14.26 I have gone through the remand report and the rejoinder of the assessee. AO has mentioned that the shares have been purchased and sold in the same year and no capital gain have been earned on the same and so no capital gain has been shown in the ITR. I find that the decision of purchase and sale is a prerogative of the assessee and the same cannot be rejected merely on the ground that no capital gain has been earned on the same. I find that the transaction of sale by the lender has been confirmed by the third parties. I also find that the lender was assessed by the same AO and no addition regarding the said transaction has been made by the AO in the hands of the lender 50 & others M/s. Avaada Ventures Pvt. Ltd entity. Accordingly, I do not find that any substance in the allegation of the AO. 14.27 Further, AO has also pointed out that the parties to whom the lender has sold the unquoted shares are inter related and share common addresses. It has also been pointed out that the said entities have received funds from certain entities who have been struck off from ROC records. I find that the said allegation nowhere shows that the transaction entered by the lender is not genuine. The common address of the purchase parties doesn’t lead to any negative inference. Similarly, the appellant has explained that the parties from whom funds have been received by the purchase parties have been struck off by ROC much after the funds have been received by the lender. Such action of the ROC cannot lead to an inference that the transaction is not genuine. Accordingly, I do not find any substance in the above allegation of the AO. 14.28 In view of the above, I find that AO has not been able to bring on record any concrete evidence to disprove the source of the source of the unsecured loans. 14.29 As already stated above, the assessee has discharged its onus to prove the source in its hands and no doubt has been raised by the AO in the remand report on the said evidences. Further, I also find that except relying upon the enquiry made by the investigation wing, no independent enquiry has been conducted by the AO and no concrete evidence has been brought on record by the AO to show that the unsecured loans received of Rs. 28 crore were not genuine. 14.30 In view of the above, I hold that the unsecured loan received by the assessee cannot be said to be not genuine and so the addition of Rs. 28 crore made u/s 68 of the Act is directed to be deleted. Accordingly, grounds no. 1 and 2 are allowed.

54 & others M/s. Avaada Ventures Pvt. Ltd A.Y.2017-18 30. In A.Y.2017-18, Revenue has taken the following grounds:- 1. "i.On facts and in circumstances of the case, the Id. CIT(A) has erred in restricting disallowance made under section 14A to the extent of tax exempt income earned during the year by overlooking the clarification of legislative intent provided by the CBDT vide Circular No. 5/2014 dated 11.02.2014 and to this effect even an amendment was made by Finance Act, 2022 by way of insertion of Explanation to Section 14A”. 2 ii. "On the facts and in the circumstances of the case, the Hon'ble ITAT is correct in law, in directing to delete the disallowance made u/s 14A of the Income Tax Act, 1961 to the book profit of the assessee without appreciating the provisions of clause (f) of explanation 1 to section 115JB(2) of the Income Tax Act, 1961 and the decision of the Hon'ble ITAT Mumbai 'F' Bench in the case of Deputy Commissioner of Income-tax, Central Circle-18 & 19, Mumbai vs. Viraj Profiles Ltd. in ITA No. 4439/ (Mum.) of 2013”.

31. The only issue involved is that ld. AO has made disallowance u/s.14A r.w.r.8D of Rs.1,60,37,492/-. It is an admitted fact that assessee has not earned any exempt income during the year under consideration and ld. AO has wrongly mentioned that assessee had earned dividend income. The ld. CIT (A) had deleted the disallowance after observing as under:- “11.2 I have gone through the submission of the assessee and contention of the AO. The assessee has submitted that for the purpose of computing disallowance u/s 14A, the amount of disallowance shall be restricted to the amount of exempt income earned by the assessee. This is as per the ratio of the decisions laid out by the Hon’ble Courts in the case of CIT vs. Ballarpur Industries Limited vide of 2016 and Hon’ble Mumbai Tribunal in the case of Assistant Commissioner of 55 ITA No. 2749/Mum/2023 & others M/s. Avaada Ventures Pvt. Ltd Income-tax v. Bajaj Capital Ventures (P.) Ltd reported in [2022] 140 taxmann.com 1 (Mumbai - Trib.). In the submission, the assessee has contended that it has not received any dividend income during the year. I observe on going through the financials that no dividend income has been reported by the assessee. Also, I find that the amount of dividend income of Rs.73,77,315/- as mentioned by the AO in the assessment order is identical to the figure mentioned in the assessment order for AY 2016-17. Accordingly, AO is directed to verify the amount of the dividend income actually earned during the year, which according to the appellant is NIL, and restrict the disallowance to the correct dividend income earned by the assessee as per the financials.”