DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2, LUDHIANA, LUDHIANA vs. HEMANT JINDAL, NEW DELHI

With the consent of both the parties, the appeal of the Revenue in ITA No. 488/Chd/2023 was taken as a lead case wherein the Revenue has taken the following grounds of appeal:

Briefly the facts of the case are that the assessee belongs to Homeland Group, Mohali where a search and seizure operation u/s 132 was carried out on 26/02/2020. During the course of search operation, various incriminating documents were found and seized from the various business and residential premises of the group. Thereafter notice under section 153A dt. 28/03/2021 was issued to the assessee and in compliance, the assessee submitted that original return declaring income of Rs. 3,60,550/- filed on 26/01/2018 may be treated as return in response to notice under section 153A of the Act. Thereafter notice under section 143(2) and 142(1) was issued. During the course of assessment proceedings, the AO stated that during the course of search, a handwritten signed Memorandum of Understanding (MOU) was seized from the premises of Shri Kapil Romana. It was stated that the MOU was between the respective key persons of the Goyal group and Jindal

In response to the show cause, the assessee submitted that no transaction of Rs. 4.00 Crores has actually took place and as per mutual understanding between the Bishnu Group and Hemant Group, a fresh partnership cum retirement deed was executed which was registered with the Competent authority in the State of Jammu & Kashmir. It was further submitted that an amount of Rs. 23.73 Crores being the partner capital of Hemant Group family was paid back to them and copy of the ledger account evidencing the said transaction were submitted as part of the written submission.

The submissions so filed by the assessee were considered by the AO. As per AO, on 20/01/2017, M/s AB Chem India was reorganised and same was thereafter under full control of Bishnu Group and as per the retirement cum partnership deed dt. 20/01/2017, two persons of Jindal Group namely Shri Umang Jindal & Smt. Renu Jindal have retired and share of profit has been divided among the persons of Bishnu Goyal Group. However, the assessee in his reply submitted that the total partners capital of Hemant Jindal Group family was paid back to them amounting to Rs. 23.73 Crores. It was stated by the AO that as the restructuring of AB Chem India as envisaged in the MOU

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and various legal as well as ground on merits of the case were taken challenging the findings of the AO. And in support thereof written submission were filed during the course of appellate proceedings. Further, the Ld. CIT(A) during the appellate proceedings called for the additional information/documentation as well as explanation of the assessee. Thereafter in Para 5 of the impugned order, he has recorded his detailed findings as to why the addition so made by the AO cannot be sustained and the same were accordingly deleted.

Against the said findings and the directions of the Ld. CIT(A), the Revenue is in appeal before us.

During the course of hearing, the Ld. CIT/DR submitted that it is a matter of record that a written MOU has been found and seized during the course of search from the premises of Shri Kapil Romana. It was submitted

In his submissions, the ld AR supported the order and findings of the ld CIT(A) and submissions made before the lower authorities were reiterated. It was submitted that the alleged Memorandum of Understanding was found from the premises of Sh. Kapil Romana. It is also an admitted fact that the said MOU was a merely a draft Memorandum and in no way can be considered as actual document or any incriminating document on the basis of which any addition can be made by the Assessing Officer. There is nothing contained in the MOU which can prove or conclude that any transaction has been undertaken by the assessee or his group cases outside the books of accounts. In actual, the said MOU contains various terms and conditions for separation of Joint Business Ventures between the members of Mr. Hemant Jindal Group (H.J. Group) and Mr. Bishnu Goyal Group (B.J. Group). But it is nowhere stated that any transaction has been done in cash outside the books of accounts. So, in any case, the said MOU cannot be said to be any incriminating document in the hands of the Assessee. Further, it has been held by various Hon’ble Courts that no addition can be made in 153A proceedings, when no case is pending, unless any incriminating material has been found in the case of the Assessee. In the present case, ITR u/s 139 was filed by the assessee on 26.01.2018 and time limit for completion of assessment u/s 143(3) has already expired on 31/12/2019, therefore the present assessment is treated as a completed assessment on the date of search i.e. on dated 26/02/2020. Hence present assessment u/s 153A is required to be made on the basis of incriminating seized material as held by the Hon’ble Delhi High Court in the case of Kabul Chawla 380 ITR 573 and it was accordingly submitted that the entire basis for making the addition in the case of the Assessee is wrong as there was no incriminating material found from the premises of the Assessee or from even a third party which could really be held as in incriminating document against the assessee which can lead to any addition in the proceedings u/sec 153A of the Act undertaken on the assessee.

It was further submitted that on the basis of MOU, the Assessing Officer held that the AB Chem India (which is a Partnership Firm having partners Sh. Bishnu Kumar, Sh. Deepak Goyal, Smt. Renu Jindal and Sh. Umang Jindal) stands purchased by the Bishnu Group and an amount of Rs. 4 Crores has been paid by the Assessee i.e Sh. Bishnu Goyal to Sh. Hemant Jindal from on account of sale of Goodwill of the above firm apart from the regular Partners’ capital balance of the family members of the Sh. Hemant Jindal which amount was Rs. 23.73 Crores.

It was submitted that the assessee was never shown/provided the original copy of the said Memorandum of Understanding. It is observed that a Hand written photocopy of the same MOU was seized from the premises of Sh. Kapil Romana, as part of Annexure A-4 of seized documents from his premises. It is a well settled law that presumption U/s 292-C of the I.T. Act, in respect of seized documents can be used against the person who has been subjected to search. Such search documents cannot be used against the other person unless such documents are confronted to other person along- with an opportunity to cross examine the author of the seized documents is provided to the other person. In the case of the Assessee, the original MOU was never confronted to the Assessee and the even no opportunity to cross examination of Sh Kapil Romana was given to the Assessee. Admittedly, the aforesaid document being the so called hand written MOU was not found from the premises of the assessee, hence there is no presumption u/s 132(4A) of the I.T. Act against the assessee nor there is any primary burden on the appellant to explain this document. The department has not produced any evidence which can prove that an amount of Rs. 4 Crores has been passed on between the two parties and under such circumstances, the addition is totally based on assumptions and imaginations of the Assessing Officer. It is also a matter of fact that no question regarding the said MOU was asked either from the Assessee or Mr Hemant Jindal in the irrespective statements recorded at the time of search. The copy of the statements of the Assessee and Mr Hemant Jindal as recorded at the time of search is enclosed in the paper book at Page- 117-138 and at 23-81.The department has even not given any opportunity to cross examine Mr. Kapil Romana, from whose premises the copy of alleged drafted MOU was found. Not only this, the person, Sh. Kapil Romana from whom this photocopied document has been claimed to have been found by the department has very categorically in Q.No 65,Q.No 66 and Q.No 67 of his statement dated 26.02.2020 (Copy of the statement is enclosed in the paper book at page 82-116 relevant pages-102- 103) as recorded at the time of search has stated as under: “Q.No 65. I am confronting page no 1-110 of Annexure 4 regarding settlement deed/MOU for takeover of Mgt and transfer of shares between Hemant Jindal & others and Vishnu Kumar and others which are unsigned. Please explain how it relates to you? Ans. These are draft copies of settlement between Hemant Jindal Group and Vishnu Kr group for full and final settlement of their ownership and transfer of shares in respective

It was submitted that the person from whom the said copy of the MOU has been recovered says that the MOU could not be executed. No effort is made by the Department at that point in time to raise any question about the said MOU from Sh. Bishnu Kumar or Sh. Hemant Jindal as is clear from the copies of their respective statements recorded at the time of the search. Not only this, even in the post search enquiries/ investigations, no question is raised about the said document to Sh. Kapil Romana whereas Sh. Kapil Romana has suo moto submitted his reply dated 18.12.2020 before the Investigation Wing Ludhiana (Copy of the reply is enclosed in the paper book at Page-139-140) stating as under: “iii) Regarding hand written MOU forming part of Annexure-A4, this document is not in my handwriting and neither I am a signatory to the same. However, on perusal of the same, this document appears to be a memorandum of discussion between Sh. Bishnu and SH Hemant Jindal and part of which may have been executed, but as there were various disputes, the complete settlement could not be arrived at.”

Then again vide reply dated 22.12.2020, it was again submitted before the Investigation Wing Ludhiana (Copy of the reply is enclosed in the paper book at Page-141-142) stating as under:

In the post search proceedings, when a query was raised by the Department to Sh. Bishnu Kumar (‘the assessee’) about this document then he submitted vide reply dated 18.01.2021 (Copy of the reply is enclosed in the paper book at Page-143-146) as under:

It was accordingly submitted that right from the start till the end of search and even in post search proceedings, not a single party involved in this search ever admitted the contents of this MOU in its entirety and moreover the parties purported to be executing the transaction have never been confronted about this MOU and when the Assessee was confronted, he has duly explained that there were various versions of the MOU and final settlement could not be arrived at due to multiplicity of disputes and negotiations were going on. Not only this, the AO has himself accepted these submissions for all the transactions and has somehow concluded on an imaginary basis that in respect of Ab Chem India, the transaction of 4 crores between the assessee and Sh. Hemant Jindal has taken place. Further, even

It was submitted that the Assessing Officer had issued a detailed show cause notice dated 24.09.2021 wherein the AO had tried to prove that the facts as per the MOU are true and the events had occurred as per the said MOU settlement. It is submitted that the Assessee had duly given a detailed reply to each and every point as per show cause notice and the same is reiterated as follows: Relevant Point of Show cause notice of the AO Relevant reply as given by the Assessee during the Assessment proceedings. At page-1 to 9 of the SCN it is stated that MOU

4 The first issue which has been raised on page 10 of the SCN is that contain the transfer shareholding in the since the MoU mentions an amount of Rs. 6 crores to be paid to following entities by the Hemant Jindal Group Hemant Group as goodwill, why the amount of Rs. 6 crores paid by to BishnuGoyal Group for Goodwill of Rs. 6 you should not be considered as unexplained money and added crores. to your income. GH Crop Science Pvt Ltd 4.4 1 Regarding alleged payment of Rs. 6 crores goodwill paid to Hemant Group, I wish to clarify that in respect of the company M/s AB Crops Pvt Ltd GH Crop Science Pvt. Ltd., the total number of shares belonging to Sh. Hemant Jindal and his family i.e. 4605000 shares were AB Chemicals India Pvt Ltd purchased by myself and my daughter-in-law Smt. Samita Goyal @ AB World Trade Pvt Ltd Rs. 13.85 per share and a total payment of Rs. 6,37,79,250/- was made through account payee cheques on different dates in the AB Infra Investments Pvt Ltd year 2017 and the evidence is attached herewith. Besides the above, no other payment has been made to Hemant Group. If your goodself believes that there is some additional payment of 6 Crores, please provide us the evidence for making such allegation.Annexure-I Pg-191-192. At page-10 para 2 , it has been stated by the AO

5 The second issue which has been raised on page 10 of the SCN is that the partnership Firm AB Chem India that the goodwill of Rs. 4 crores was paid for the purchase of M/s A stands purchased by Bishnu group and the B Chem India and why the amount of Rs. 4 crores should not be goodwill of Rs. 4cr was paid by Bishnu Kumar considered as my unexplained money. to Hemant Jindal. 4.5.1 Regarding the documentary evidence of purchase of the share in partnership firm namely M/S AB Chem India, wish to clarify that no transaction of Rs. 4 crores actually took place. The said firm was co- owned by Bishnu Group and Hemant Group and as per mutual understanding a fresh partnership cum retirement deed was executed on 02.01.2017 which is a duly registered deed with the competent authority in the State of J&K as per copy of the same enclosed. The total partners' capital of Hemant Group family was paid back to them total amounting to about Rs. 23.73 crores and the copies of the relevant ledger accounts evidencing the said transactions are attached herewith. Annexure-2 Pg-193-198. At Page-10 Para 3, it has been that total amount

6 Regarding the third issue which has been raised on page 10 of the of Rs. 37.51cr was receivable by Bishnu SCN is that the amount of Rs. 37.51 crore was outstanding from Kumar. Hemant Group to Bishnu Group and I have been asked to explain that why Rs. 37.51crore be not treated as my unaccounted money invested in Hemant Group. 4.6.1 Regarding documentary evidence of recoverable amount of Rs. 37.51 crores from Hemant Group, I wish to clarify that a total amount of Rs. 37.98 crores was outstanding to our various group companies from Hemant Group and his companies and the copies of the ledger accounts of the concerned period i.e. FY 2016-17 are enclosed herewith. Subsequently, part of the amount has been received by our companies; however, major portion is still outstanding as per our books of accounts. ANNEXURE-3 Pg-199-204. 4.6.2 The details of the amounts outstanding at the time of execution of MoU are as under:

It was submitted that from the facts as stated above, it is clear that the Assessing Officer has arbitrarily taken value of one transaction as stated in the drafted MOU and has assumed that the said transaction must have already been taken place outside the books of accounts. The Assessing Officer has not taken any adverse inference on the other transactions as stated in the drafted MOU. The Assessing Officer has assumed that the AB Chem India (which is a Partnership Firm having partners Sh. Bishnu Kumar, Sh. Deepak Goyal, Smt. Renu Jindal and Sh. Umang Jindal) stands purchased by the Bishnu Group and an amount of Rs. 4cr has been paid by the Assessee i.e Sh. Bishnu Kumar to Sh. Hemant Jindal on account of sale of Goodwill. It was submitted that the Assessing Officer has got completely confused while trying to decipher a document which actually is nothing but only a MOU containing various discussions while the dispute was ongoing between the parties. There are references/ discussions of many other transactions/events/ understandings to be arrived at between the parties and which kept changing from time to time and under such circumstances, the AO has simply adopted his own presumptuous theory somehow come to an erratic conclusion that Sh. Hemant Jindal has received the Rs. 4 crores odd amount from Sh. Bishnu Goyal for an entity where Hemant Jindal has no locus standi in individual capacity and thus the conclusion drawn by the AO and the addition so made is completely devoid of any logic and merits.

It was further submitted that entire capital lying credited in the capital account of partners belonging to the family of Sh. Hemant Jindal Group i.e. Smt. Renu Jindal and Sh. Umang Jindal in the firm M/s. AB Chem India, has been received back by the above partners through banking channels in due course of time (the relevant details are enclosed in the PB at Page-160-164 in the form of Audited Balance Sheet as on 31.03.2017 wherein there is Partner’s Capital account balance as on the date of retirement along with the copies of accounts wherein the balance as on the date of the retirement has been paid off to the Partners). It is a fact on record that the capital account of any partners has not been credited on account of valuation of goodwill of the said firm. As per the accounting practice, if goodwill is valued in a Partnership Firm, then capital account of all the partners are credited in proportion to their P & L ratio and simultaneously, goodwill account is debited in the Balance Sheet. So, in nutshell there is nothing in the form of goodwill which has been passed on between the two groups. Infact it was practically very difficult for the Hemant Jindal family to liquidate their entire capital from the firm, as in a running business, it is usually difficult to take out so much liquidity in a short time and still be able to run the firm in a profitable manner. Sh Hemant Jindal was only instrumental in persuading the other partners in the said firm to pay back the rightful capital of his family members locked in the business of AB Chem India and under such circumstances, there is no question of charging any goodwill when the assessee was facing difficulty in recovering his family capital and more so because of the prevailing multiplicity of disputes and negotiations between the two parties. Thus, the concept of human probability heavily relied upon by the Assessing Officer rather works in favour of the appellant and his family.

It was further submitted that the execution of Partnership Deed/ Retirement deed in the state of Jammu & Kashmir is done like a Property Registration Deed i.e. the deed happens through registration before the office of the Sub-