ACIT, CENTRAL CIRCLE- 13, NEW DELHI vs. LIZER CYLINDERS LTD., MUMBAI

In brief, the common facts are that it is a case of search. Search & seizure operation under section 132(1) of the Income Tax Act, 1961 (the “Act”) was conducted on 20.09.2013 in J.P. Minda Group of cases. The assessee was also covered in search action. Notice under section 153A was issued on 08.06.2015 in response to which the assessee filed a letter on 2 03.07.2015 along with copy of return declaring NIL income for AY 2011-12 and 2012-13. Notices under section 143(2)/142(1) of the Act along with questionnaire were issued on 08.09.2015 which were complied with. Requisite information/details were filed.

During the course of assessment proceedings the Ld. AO alleged that the assessee along with its other group companies had received unsecured loans through various Kolkata based entry providing companies. To counter the Ld. AO’s allegation the assessee made submissions supported by documentary evidence but the Ld. AO found them as not satisfactory for the reasons recorded by him in para 9 and 10 of his order held in para 11.1 that the amount of Rs. 16,60,00,000/- and Rs. 12,00,00,000/- received by the assessee in AY 2011-12 and 2012-13 as unsecured loan are unexplained cash credits under section 68 of the Act which he added to the income of the assessee in assessments framed by him on 30.03.2016 for both the AYs 2011-12 and 2012-13 respectively under section 143(3) r.w.s. 153A of the Act.

The assessee appealed before the Ld. CIT(A) who relying on the judgment dated 01.08.2017 in PCIT, Delhi-2 vs. Best Infrastructure India Ltd. in which according to him is on identical factual matrix deleted the impugned addition in AY 2011-12 and 2012-13 holding the same to be unsustainable on various legal grounds and on facts of the case finally concluding in last para 5.4.8 of his appellate order as under:-

The Revenue is dissatisfied and is in appeal before the Tribunal in both the years and all identical grounds relate thereto.

The Ld. CIT-DR drew our attention to para 3.1 of Ld. AO’s order wherein he mentioned about the investigation/enquiry conducted by the Investigation wing in J.P. Minda Group of cases revealing that the investing entities did not have any real income and therefore their creditworthiness was in doubt. He further submitted that the Ld. AO has clearly recorded the finding that the source of investment in the form of unsecured loan has not been explained to his satisfaction which made him to make the impugned addition in both the years.

The Ld. AR submitted that similar issue came up for consideration by the co-ordinate Bench of Delhi ITAT in a bunch of cases belonging to JP Minda Group wherein the Revenue filed appeals against the CIT(A)’s orders and the decision of the ITAT rendered on 23.12.2021 finds place at page 142-209 of the Paper book. He pointed out that the ITAT dismissed the appeals of the Revenue on merits. The Ld. AR further pointed out that the Revenue challenged the ITAT’s order (supra) before the Hon’ble Delhi High Court which dismissed the appeals of the Revenue vide decision rendered on 26.09.2022 holding that no substantial question of law arises for consideration in present batch of appeals. The copy of Hon’ble Delhi High Court’s decision (supra) is available at page 210-222 of the assessee’s Paper Book.

We have carefully considered the submissions of the parties and perused the records. It is not in dispute that the assessment in all the cases of the group is based upon the search and seizure operation conducted on 20.09.2013 under section 132(1) of the Act in J P Minda Group. It is also not in dispute that the assessee at hand belongs to J P Minda Group due to which the assessee was also subjected to search operation. Like the assessee, M/s. Jay Auto Components Ltd., is also one such J P Minda Group case and the parties have admitted before the co-ordinate bench during the course of hearing that findings of both Ld. AO/CIT(A) are similar in all the appeals (page 179 of the Paper Book). Therefore, the case of the assessee at hand is no different and the decision of the Co-ordinate bench of ITAT and the Hon’ble Delhi High Court referred to above will mutatis mutandis apply to it as well.

We have perused the order of the Co-ordinate bench of Delhi ITAT rendered on 23.12.2021 in Revenue’s appeal in the case of M/s. Jay Auto Components Ltd. & Others (copy at page 142-209 of Paper Book). In paras 25 to 28 of its order (supra) the ITAT recorded the arguments advanced by the Ld. CIT-DR on merits of the case followed by the submissions of the assessee in paras 29-34 thereof. The ITAT in its order (supra) dismissed the bunch of 16 appeals of the Revenue by observing and recording its findings as under:- “37. At the outset, we have noticed that one of the main allegation of the Assessing Officer is that the notices sent u/s 133 (6) were not received by the respective parties but still replies were received from all the subscriber companies. In fact, all the notices were ultimately duly complied by the parties who have sent all the requisite details as required by the Assessing Officer in his notices u/s.133(6). In fact, we have gone through the assessment order, and notice that all the subscribing companies were amalgamated with three companies and the said three companies have duly complied with all the notices so issued by AO under section 133(6) of the Act by filing necessary details. The said fact has also duly been noted by AO in his order of assessment at page 42 and 43 of the order.

In so far as the source of the fund and the creditworthiness of the parties, it is seen from the financial statements so produced by learned counsel of the assessee, that these parties had sufficient own funds to invest in the form of net – worth and the finding of the learned AO that the subscribing companies have nominal income is in complete ignorance of the fact that income is not the sole criterion to make investment, even the net worth or past savings can be used to make investments, which have not been appreciated by learned AO. As stated above the learned counsel of the assessee was required to furnish the details of fund position in the respective balance sheets of the subscribing companies and to see the net worth of subscribers and the investments made by them in M/s Jay Auto Components Ltd. The details are being tabulated below (similar is the position in all the 16 assessee’s):

From the above, it is apparently clear that the subscribing companies had sufficient net worth to make investments in the assessee group companies and as such, we have no hesitation in holding that income is not the sole criterion, whereas, a holistic view needs to be taken, as to investee companies can also make investments out of its past savings or its net worth and the said fact has not been appreciated/ rebutted by AO in the impugned assessment orders. We have even gone through the remand report which was filed by AO before the CIT (A), therein; also the AO has not been able to rebut the fact that the subscribing companies had sufficient funds available in their books of account, which is evident from the net worth as emanating from the financial statements of the subscribing companies. Even the ld CIT DR has failed to rebut the finding so recorded by CIT (A) at page 61 of his order, wherein, he has recorded that the subscribing companies had sufficient net worth available in the balance sheet to make investments in the assessee companies and income is not the sole criterion to make investments. While recording the aforesaid finding, we would like to rely on the judgment of Hon’ble High Court of Delhi in the case of PCIT vs Good View Trading Pvt. Ltd. reported in 77 taxmann.com 204, wherein, it has been held as below: “8. It is quite evident from the CIT (A)'s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants' possessing substantial means to invest in the assessee's company. The AO seized certain material to say that minimal or insubstantial amounts was paid as tax by such share applicants and did not carry out a deeper analysis or rather chose to ignore it. In these circumstances, the inferences drawn by the CIT (A) are not only factual but facially accurate. 9. Having regard to these circumstances, the Court discerns no question of law, least a substantial question, having regard to the fact that the judgment in Lovely Exports (supra)was cited and applied. 10. For these reasons, there is no merit in the appeal; the same is accordingly dismissed.”

Further, the learned AO and Ld. CIT DR have also drawn heavy support from the investigation report of the Kolkata Investigation Wing and the statement of Sh. Rajesh 8

We have further, noticed that the AO in the order of assessment has relied on report and observations of the Investigation wing, which otherwise does not implicate any of the assessees, whereas, no concrete enquiry or investigation had been carried out by the assessing officer in the order of assessment to dislodge the explanation or rebut the documentary evidence placed and recorded by AO at page 14 of the order and at page 61 of CIT (A) order. Thus, when no appropriate investigation has been carried out by the learned AO and as such the burden which lay upon the learned A.O. has not been discharged, the addition so made is unsustainable and deserves to be deleted.

In view of the aforesaid facts and materials available on record, we have also noticed that that the Revenue has failed to controvert the findings so recorded by learned CIT (A) which is based on documentary evidences as have been discussed above, wherein, substantial relief on merits was provided to assessee by CIT (A). Thus, documentary evidences on record have not been rebutted by the A.O. through any evidence or material on record. No independent enquiry has been made against these documentary evidences except issuing notices under section 133(6), which were also replied by the subscribing companies. Therefore, such documentary evidences clearly support the explanation of assessee that investments made in the assessee companies are genuine.

That at this juncture, we seek to place reliance on the judgment of Hon’ble jurisdictional Delhi high court in the case of CIT vs M/s Surendra Buildtech Pvt. Ltd. in on the proposition that: “Revenue has failed to rebut the findings so recorded by learned CIT (A) by bringing any contrary material on record, as such, the finding so recorded by lower authority based on documentary evidences need be upheld”: “8. Revenue, when they preferred the appeal before the tribunal, did not file requisite papers and documents to support their contention that the finding recorded by the CIT(Appeals) was factually incorrect. In case, Revenue wanted to contend and show that payment was made by the respondent assessee to brokers etc., then evidence/material should have been filed. This was not done.

The tribunal, examined the factual matrix and has upheld the findings recorded by the CIT( Appeals).

We have also noticed that the assessee apart from submitting the various documents related to receipt of share capital and share premium as listed hereinabove, also furnished 10 the workings for share valuations using discounted cash flow method and furnished explanation for issuing shares at a premium taking into account the future growth in the business of the assessee and also considering the future prospects of the assessee business coupled with the fact entire group had a turnover of over Rs. 2500 crores in financial year 2014-15. It was submitted that assessee is a leading business in automotives having various high end customers and commands significant Goodwill, excellent past performance and high investors’ confidence resulting into bright future prospects for the assessee in the long run. It was submitted that these aspects were duly appreciated by the shareholders and accordingly the shareholders had agreed to invest in the assessee company at a premium.

Before concluding, we would like to discuss the judgments so relied by learned CIT DR. He has placed reliance on the judgments of Hon’ble High Court of Delhi in the case of PCIT vs NDR Promoters Ltd. reported in 410 ITR 379, CIT vs Nova Promoters & Finlease Pvt. Ltd. reported in 342 ITR 169 and Hon’ble Supreme Court in the case of PCIT vs NRA Iron & Steel (P) Ltd. reported in 412 ITR 161. We have gone through all the aforesaid cases and rather have found that the said judgments support the case of assessee companies, as the main proposition which has been laid down in all the aforesaid judgments is that “Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries once documents are submitted by the assessee or the subscriber companies”, whereas, we have noticed in the instant set of appeals that the AO has besides issuing notices under section 133(6) of the Act, has done no enquiry or investigation whatsoever and has merely relied on the investigation report so provided by the investigation wing, thus, the judgments so relied by the learned CIT DR are clearly distinguishable on facts and in our view rather support the case of the assessee.”

Learned predecessor Division Bench of this Court in PCIT vs. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi) has held that statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material. The relevant portion of the said judgment is reproduced hereinbelow:- "36. Turning to the facts of the present case, it requires to be noted that the statements of Mr. Anu Aggarwal, portions of which have been extracted hereinbefore, make it plain that the surrender of the sum of Rs. 8 crores was only for the AY in question and not for each of the six AYs preceding the year of search. Secondly, when Mr. Anu Aggarwal was confronted with A- 1, A-4 and A-11 he explained that these documents did not pertain to any undisclosed income and had, in fact been accounted for. Even these, therefore, could not be said to be incriminating material qua each of the preceding AYS.

Fourthly, a copy of the statement of Mr. Tarun Goyal, recorded under Section 132 (4) of the Act, was not provided to the Assessees. Mr. Tarun Goyal was also not offered for the cross- examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross- examination by the Assessees, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the Assessees clearly stated that they did not know, could not have been shifted to the Assessees. The onus was on the Revenue to ensure his presence. Apart from the fact that Mr. Tarun Goyal has retracted his statement, the fact that he was not produced for cross- examination is sufficient to discard his statement.

Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore. the facts in the present case are different from the facts in Smt. Dayawanti Gupta (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non- existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.

For all the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the Assessees herein was not justified in law. (emphasis supplied) 13. In any event, in the present cases, as the Respondents-Assessees were denied the opportunity to cross-examine Mr. Rajesh Agarwal, despite a specific request, this Court is in agreement with the ITAT that his statement needs to be excluded and cannot be relied upon as a piece of evidence to make any addition. In fact the Supreme Court in the case of M/s Andaman Timber Industries vs. CCE (SC), 127 DTR 241 has held "...not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected."

Consequently, this Court is of the view that no substantial question of law arises for consideration in the present batch of appeals and accordingly, the same are dismissed along with pending applications.”

Since the facts and circumstances of the assessee’s case under consideration are identical with the bunch of cases of the other assessees decided by the Hon’ble Delhi High Court vide its decision (supra), respectfully following the decision (supra) of the Co-ordinate bench of the ITAT Delhi and the decision (supra) of the Hon’ble Delhi High Court we hold that the Ld. CIT(A) was perfectly justified in deleing the impugned addition of Rs.16,60,00,000/- and Rs. 12,00,00,000/- in AY 2011-12 and 2012-13 respectively under section 68 of the Act. Consequently both the appeals of the Revenue being devoid of any merit are hereby rejected.