Referred Sections:
Section 6(3)(ii) of the I.T. Act
Section 9(1) of the I.T. Act
Section 143(3) of the Act
Section 6(3) of the IT Act.
Section 132(4) of the Act
Section 277 and 278
Section 292C of the Act.
Referred Cases / Judgments:
CIT Vs. Sri Meenakshi Mills Ltd. 63 ITR 609 (SC)
Insurance Corporation of India Vs Escorts Ltd. [(1986) 1
JuggilalKamlapat v. CIT [AIR SC 932]
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C": NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA NOs. Assessment Year
4662/Del/2015 2006-07
4663/Del/2015 2007-08
4664/Del/2015 2008-09
4665/Del/2015 2009-10
4666/Del/2015 2010-11
4667/Del/2015 2011-12
4668/Del/2015 2012-13
DCIT, Vs. Anil Aggarwal,
Central Circle-19, S-71, Greater Kailash,
New Delhi New Delhi
PAN: ACJPA8635N
(Appellant) (Respondent)
CO Nos In ITA NOs. Assessment Year
416/Del/2015 4662/Del/2015 2006-07
417/Del/2015 4663/Del/2015 2007-08
418/Del/2015 4664/Del/2015 2008-09
419/Del/2015 4665/Del/2015 2009-10
420/Del/2015 4666/Del/2015 2010-11
421/Del/2015 4667/Del/2015 2011-12
422/Del/2015 4668/Del/2015 2012-13
Anil Aggarwal, Vs. DCIT,
S-71, Greater Kailash, Central Circle-19,
New Delhi New Delhi
PAN: ACJPA8635N
(Appellant) (Respondent)
Revenue by : Shri Samar Bhadra, CIT DR
Assessee by: Shri Amit Goel, CA
Shri Nippun Mittal, CA
Date of Hearing 08/08/2019
Date of pronouncement 30/08/2019
ORDER
PER BENCH
Page | 1
1. These are the appeals pertaining to one assessee for several years involving
common issues / grounds of appeal for AY 2006-07 to Ay 2012-13 and
therefore, they are disposed off by this common order.
2. ITA No. 4662/Del/2015 is filed by the DCIT, Central Circle-19, New Delhi
(ld AO) for Assessment Year 2006-07 against the order of the ld CIT(A)-27,
New Delhi dated 28.04.2015 raising six effective grounds of appeal:-
"1. The Ld. Commissioner of Income Tax (Appeals) has erred in law as
well as on facts in holding that the overseas companies in which the
assessee is shareholder/beneficial owner is not a resident in India
under section 6(3)(ii) of the I.T. Act whereas on the basis of seized
documents/e-mails and in various statements of Sh. Ajay Kalsi/Sh.
Anil Aggarwal u/s 134(4) have admitted that the taxability of these
companies lies in India and these companies are resident for the tax
purposes u/s 6 of the IT Act.
2. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well
as on facts in ignoring that underlying assets and sources of revenue of
all the overseas companies in which assessee is shareholder/
beneficial owner are the Indian Companies.
3. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well
as on facts in ignoring the substantial evidence in form of seized
material, E-mails, Share Holding pattern showing the ultimate control
and management of Indian companies and overseas companies lies
with Sh. Ajay Kalsi, Sh Anil Aggarwal and Smt. Mala Kalsi, who have
created different verticals of corporate veil under them to avoid
taxability in India.
4. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well
as on facts in ignoring the provisions of section 9(1) of the I.T. Act as the
revenue has been earned because of underlying assets of the assessee
wholly and totally situated in India.
5. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well
as on facts in holding that once an addition on substantive basis was
made in the hands of the overseas companies treating them as
residents in India u/s 6(3) of the IT Act, there was no reason or
occasion or an issue to assess the same in the hands of the appellant
on protective basis.
6. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well
as on facts in deleting the addition of Rs. 22,74,81,323/- made by
Assessing Officer.
7. (a) The order of the Ld. CIT (Appeals) is erroneous and not tenable in
law and on facts."
3. The brief facts of the case show that the assessee is an individual. A search
and seizure operation u/s 132 of the Act was conducted on 22.03.2013 in
M/s. Focus Energy Group of cases wherein, the premises of the assessee at
Page | 2
Greater Kailash-2, New Delhi was also covered. Therefore, notice u/s 153A
of the Act was issued to the assessee. On 19.03.2013 the assessee filed his
return of income declaring income of Rs. 107339/-. The assessment u/s
153A read with section 143(3) of the Act was passed on 31.03.2014 wherein,
the total income of the assessee was assessed at Rs. 227588662/-. The
above addition consists of the income of two overseas companies amounting
to Rs. 227481323/-. The substantive addition was made in the hands of the
respective overseas companies; however, as the assessee along with three
others is the shareholder of those companies, therefore held to be beneficial
owner of the two companies, addition on the protective basis was made in
the hands of the assessee.
4. The assessee aggrieved with the order of the ld AO preferred an appeal
before the ld CIT(A) who deleted the addition as under:-
"8. Ground nos. 2, 3, 5, 5.1 to 5.4, 8 and 9 relates to an addition of
Rs.22,74,81,323/- made by the Assessing Officer on protective basis.
8.1.0 I have carefully considered the observations made by the
Assessing Officer and conclusions drawn in the assessment order. I
have also considered the facts and circumstances of the case and the
submissions and arguments of the appellant. On perusal of the details
on record, it is seen that in the assessment order, in the case of the
appellant, the Assessing Officer did not make any addition on
substantive basis. A consolidated amount aggregating to
Rs.22,74,81,323/- was added to the income of the appellant on
"protective basis" on the ground that none of the overseas companies
had admitted to be in the jurisdiction of the Indian tax laws and
therefore, in order to protect the interest of revenue income of all those
overseas companies for the assessment year 2006-07 was assessed in
the hands of the appellant on "protective basis", and an addition of the
same segregated amount was made in the hands of the respective
overseas companies on "substantive basis" in their assessments for
respective year. It is pertinent to mention here that once an addition on
"substantive basis" was made in the hands of the overseas companies
treating them as "residents" in India u/s 6(3) of the IT Act, there was no
reason or occasion or an issue to assess the same in the hands of the
appellant on "protective basis" which evidences lack of clarity and
confusion in the mind of the Assessing Officer. On perusal of the
assessment order of the appellant, I find that the contents of the
assessment orders in case of the overseas companies were reproduced
in entirety in complete form in toto, in the case of the appellant also.
There is no issue relevant to the income of the appellant which was
discussed by the Assessing Officer that resulted in addition in his
individual case. The Assessing Officer had discussed at length about
the applicability of the provisions of section 6(3) of the IT Act. 1961 in
the cases of respective overseas companies. In the assessment order of
Page | 3
the appellant. The Assessing Officer had constantly and consistently
alleged that the amounts, which were added in the case of the
appellant on protective basis, pertained to various overseas companies.
It is also pertinent to mention that in the concluding part of the
assessment order, in para 21.4, the Assessing Officer categorically
stated that substantive addition was already made in the hands of the
respective overseas companies and in order to protect the interest of
revenue, protective addition was made in respect of the amount
pertaining to some of the overseas companies where the appellant had
beneficial interest for assessment year 2006-07 in the hands of the
appellant.
8.1.1 In the aforesaid back ground of facts, the issue now for
consideration in the present appeal before me is whether the Assessing
Officer was justified and correct in making a "protective addition"
amounting to Rs.22,74,81,323/- in the hands of the appellant.
8.1.2 On perusal of the order of the appellant, I find that the Assessing
Officer made the addition on "protective basis" by holding that the
profits of the overseas companies were to be taxed in the hands of the
appellant by applying the "concept of doctrine of
lifting the corporate veil". The Assessing Officer also stated in para
21.2.8, that doctrine of lifting the corporate veil was readily applied in
cases falling within the purview of company law, law of contract and
law of taxation, when once the transaction was shown to be fraudulent,
sham, circuitous or colourable device for the purpose of tax evasion.
8.1.3 On a careful consideration of the facts, I find that the
observations or remarks made by the Assessing Officer are not only
erroneous but also out of context and self-contradictory. The Assessing
Officer himself while assessing the overseas companies had treated all
the overseas companies to be separate legal entities. The officers of the
Investigation Wing during the post search enquiries and the Assessing
Officer during the assessment proceedings of the overseas companies
had made elaborate and independent inquiries from the various
overseas Foreign Tax Authorities through FT&TR Division of CBDT
regarding the affairs of these overseas companies. From the details on
record, which were provided by the respective Foreign Tax Authority, it
was evident, that the overseas companies were incorporated according
to the prevalent laws of the respective countries and complied all
statutory provisions. I also perused the information provided by these
Foreign Tax Authorities and none of them reported any doubtful or
illegal existence of these companies. It is also relevant and pertinent to
mention here, that while assessing the overseas companies, in the
assessment orders of respective overseas companies, the Assessing
Officer had himself admitted in para 5.9 as under:
"5.9 The assessee's claim that it is registered outside India
according to law of our own country i.e.........., is not challenged
by the department and is accepted."
8.1.4 From the aforesaid admission by the Assessing Officer, it is
evident that he accepted the status of the overseas companies as "not
resident in India". In para 5.10 of the assessment order in respect of
Page | 4
overseas companies, the Assessing Officer had admitted that the
overseas companies are -
"Independent and distinct corporate legal entity is accepted
partially. "
Similarly, in para 5.15 of the said order, the Assessing Officer had
admitted that
"The head and brain i.e. board of directors is situated outside
India is partially correct."
Having admitted the afore stated position and status of the overseas
companies as residents in their respective countries and existing
outside India, I do not find any reason or ground for the Assessing
Officer to treat these companies as "sham" on a spur of a moment
without any basis while assessing the case of the appellant.
8.1.5 The Assessing Officer had drawn an adverse inference for taxing
the income of the overseas companies in the hands of the appellant by
lifting the corporate veil on the ground that various overseas companies
were incorporated for the purpose of avoiding transfer pricing audit,
which in my view is devoid of merit and contrary to the facts of the
case. During the course of assessment proceedings of various Indian
companies, the Assessing Officer made a reference to the Transfer
Pricing Officer (TPO) International Taxation, New Delhi in respect of
transactions of various overseas companies with that of the various
Indian Companies. It is certainly an established fact, that such
reference to the Transfer Pricing Officer could only be made if the
various overseas companies were considered and treated to be
separate and independent legal entities, as was rightly done by the
Assessing Officer in this case. If the overseas companies were to be
treated as "sham", then obviously, there would be no occasion or need
for the Assessing Officer to refer such transactions to Transfer Pricing
Officer for determining the "arms length price" of the transactions
between the overseas companies and the Indian companies. By making
a reference to the Transfer Pricing Officer, the Assessing Officer had
himself admitted and recognized the various overseas companies as
genuine, separate and independent legal entities. Therefore, in my
considered view there was no justification for the Assessing Officer to
state that these companies were "sham". It is also a matter of record,
that after the financial and economic analysis of these related
transactions between the Indian Companies and overseas companies,
the TPO, New-Delhi did not make any adverse inference and did not
propose any adjustments.
8.1.6 Therefore, the reference made to the Transfer Pricing Officer and
the orders passed by him in pursuance of such reference clearly
establishes the fact that:-
i) The overseas companies are separate, independent and genuine
entities
ii) The transactions between the various companies are genuine
transactions.
Page | 5
iii) That the transactions between the various companies was
carried out at an arms length price.
iv) That not a single case of diversion of profit of the Indian entities
to overseas entities was found neither by the TPO nor the
Assessing Officer.
8.1.7 In view of the material on record and discussion thereto, there is
no merit or basis for the Assessing Officer to lift the corporate veil on
any ground or to make an allegation while assessing the appellant's
case that profit of the Indian entities was transferred to the overseas
companies and that such overseas companies were incorporated with a
purpose to avoid transferring audit. The Assessing Officer did not allege
that the appellant transferred undisclosed income or undisclosed profits
of the Indian companies to the overseas companies. He focused mainly
on the purpose of incorporating the overseas companies in tax havens
which according to him was for avoiding transfer pricing audit of the
related transactions between these Indian companies and the overseas
companies, which was presumed by him was to avoid payment of
taxes also. Since these overseas companies were accepted by
Assessing Officer to be incorporated outside India to fasten the tax
liability on these overseas companies, he invoked the provisions of
section 6(3) of the IT Act, 1961 and thereafter, as an alternate argument
also suggested application of the amended provisions of section 9 of the
IT Act in case of the overseas companies and made an addition on
substantive basis in their respective hands Therefore, in my opinion,
based on the above discussion, I do not see any reason or justification
for the Assessing Officer to make an addition on "protective basis" in
the case of the appellant without bringing on record any substantial
material or concrete evidence which was detected by him suggesting
some fraud or adoption of a colourable device or method by these
companies to evade payment of taxes in India. Addition on "substantive
basis" was made by the Assessing Officer in the case of these overseas
companies treating them as "residents" under the provisions of section
6(3) of the IT Act, 1961 but not on the basis of any fraud or illegal
transactions, which was investigated by the Assessing Officer.
8.1.8 It is also a matter of record which is evident from the
assessment order that an amount of Rs.22,74,81,323/- was added to
the income of the appellant on "protective basis " did not belong to the
appellant nor pertained to the appellant. The said amount belonged to
those overseas companies where the Assessing Officer considered them
to be taxable in India u/s 6(3) of the IT Act on "substantive basis" and
brought them to tax net accordingly. Where the facts of the case of the
appellant are concerned, it is irrelevant whether such amounts were
found to be taxable or not in the case of those overseas companies as
the facts are not identical or there were any related transactions
between the appellant and those overseas companies which warranted
addition in the hands of the appellant on "protective basis". The
ownership of the income which was added in case of these overseas
companies was categorically vouched and admitted by the Assessing
Officer as belonging to the overseas companies, which was evident in
para 19 of the assessment order as under:
Page | 6
"19. Therefore in view of the aforesaid discussion, facts on
record, seized document's, statements recorded during search
proceedings u/s 132, post search proceedings and assessment
proceedings, correspondence reflected in e-mails and information
gathered during assessment proceedings including is specific
inputs received from Foreign Tax Authority in UK, BVI, Cyprus
and Mauritius as discussed in detail in the above para's it is held
that the income of overseas companies are liable to be tax in
India under the provisions of section 6(3)(ii) of the I.T.Act, 1961
since overseas companies are treated as company resident in
India for the reason that control and management of its affairs is
wholly situated in India."
8.1.9 In view of the aforesaid position concluded by the Assessing
Officer for making "substantive addition" in case of the overseas
companies, I do not find any valid reason for the Assessing Officer to
make a similar addition on "protective basis" in the hands of the
appellant without any basis.
8.1.10 The protective addition made in the case of the appellant
comprised of the amounts which were transacted between the
companies and which were treated by the Assessing Officer as a part
of the group companies. If these companies and group corporate
structure was treated as "sham" as alleged by the Assessing Officer,
then the natural corollary to the same would be cancellation to nullify
the intra group transactions and the protective addition made by him
would not have existed. Due to lack of appreciation of facts in right
perspective, the Assessing Officer is always self- contradicting his
assessment. On one hand he attempted to lift the corporate veil by
treating various companies as "sham" and on the o ther hand at the
same time, he recognized the related transactions entered between
these companies as genuine, separate and independent transactions.
From the material on record, it is evident that these overseas companies
are real and are of substance. The Assessing Officer accepted these
transactions with various Indian companies, which is evident from the
very fact that these transactions were referred to Transfer Pricing
Officer, New Delhi. The income from various overseas companies was
subjected to the provisions of Indian Income Tax Act, 1961, wherever it
was applicable with regard to these transactions and taxes were also
paid thereon.
8.1.11 The appellant Sh. Anil Aggarwal did not undertake any
kind of transactions with any of these overseas companies except an
amount of Rs.48,23,000/- received during the assessment year 2009-
10 and an amount of Rs.48,99,381/- received during the assessment
year 2010-11 from SDP Services Ltd. was been duly declared by him in
the return filed in India .
8.1.12 Further, in my considered opinion, by virtue of being a
mere share holder and having a beneficial interest in a company,
cannot be a good ground to fasten the shareholder with a non-existent
and hypothetical income tax liability. The question of taxability in the
hands of shareholder would arise only when some income is received
or accrued to the shareholder from the company. In the appellant's case
Page | 7
he had neither received any income from any overseas companies nor
any income has accrued to him from any overseas company. It is not a
case of the Assessing Officer where the appellant derived some kind of
income from these overseas companies and no payment of taxes
thereon was avoided or evaded by him in India.
8.1.13 In para 21.2.1 of the assessment order, the Assessing Officer
mentioned that real business activity was carried out only in two main
companies of the group, namely M/s Focus Energy Ltd. and M/s
Granada Services Pvt Ltd. Although, this conclusion of the Assessing
Officer is totally out of context, so far as the case of appellant is
concerned, yet It is not understood as to how, and on what basis the
addition can be made in the case of appellant without bringing any
evidence to support it. It is pertinent to mention here that the Assessing
Officer also was the Assessing Officer of the Indian entities namely
Granada Services Pvt. Ltd. and Focus Energy Ltd. and without bringing
an adverse material on record in case of the appellant, the Assessing
Officer was not justified in making such self contradictory and baseless
allegations. Further, the income from the oil and natural gas blocks and
BPO business was offered to tax by the respective companies in their
income tax returns and therefore, the allegation of the Assessing Officer
that profit from Indian companies was transferred to overseas
companies appears to be misconceived and baseless.
8.1.14 In the assessment order, the Assessing Officer referred to
various e-mails and correspondence to allege that the control and
management of the affairs of various overseas companies was situated
in India and exercised by Sh. Ajay Kalsi. Without bringing any
corroborative evidence, relying on incomplete, fragmented, plain texts
which are unauthenticated, the Assessing Officer was not justified in
making an addition in the case of the appellant on the basis of these e-
mails. These e-mails do not establish even remotely that the appellant
has earned any income. The E-mails, nowhere showed any income
being earned by the appellant. In fact, the Assessing Officer also did
not treat these e-mails to be a ground or basis for making the
"protective addition" in the case of the appellant.
8.1.15 In the assessment order, the Assessing Officer relied on the
statements of the appellant and other persons recorded during the
course of search. These statements were inferred by the Assessing
Officer as a ground for treating various overseas companies as
"resident in India" u/s. 6(3) of the Income Tax Act, 1961 and
consequently "substantive additions" were made in the case of
respective overseas companies. Subsequent, to search, the appellant
had challenged the veracity of these statements on several occasions.
In the course of the assessment proceedings, vide letter dated
25.03.2014, the appellant challenged the veracity of the contents of the
said statements extracted as under:
"Firstly the allegations made and conclusions drawn in the show
cause notice are vague erroneous and self-contrary in as much as
at certain places in the notice, the undersigned is being held to be
beneficiary / ultimate beneficiary of certain companies and at
certain other places in the notice, some other person is held to be
Page | 8
the beneficiary / ultimate beneficiary of the same companies.
Similarly at various places in the notices, the undersigned is
alleged to be controlling or managing certain companies, whereas
at certain other places some other person is alleged to be
controlling or managing the same.
The undersigned has not earned any such income as mentioned
in paragraph 7.5 of your captioned letter and therefore, it is
inconceivable that any addition of any such non-existing income
can be made. It would not be out of place to highlight that the
undersigned hasn't received any benefit from any of the foreign
companies mentioned in your captioned notice, except what has
been disclosed in my return of Income. There is absolutely no
basis/material even to suggest that undersigned has received
any benefit or earned income which is not disclosed.
At the cost of reiteration, it is stated that the conclusion drawn is
factually wrong and legally unsustainable. Further, I would like
to bring on record the surrounding circumstances and the manner
in which the statements were recorded. It would be imperative to
highlight that the search operations which started on 22.03.2012
and continued for consecutive period for 3 days & nights
(wherein, it was evident that entire search operation was carried
out with pre¬determined bias that the various non-resident
foreign Companies ought to have paid taxes in India. It is a
matter of record that I was kept awaked whole night and day,
which itself suggests the constrictive environment in which the
statements were recorded). In this back drop the search team
took written from me what they wanted. However, I am still
sanguine that justice shall prevail.
It may be relevant to mention that during the course of
assessment proceedings, you had recorded my statement. In the
said statement, your good office was appraised that the
undersigned was not aware about the contents of the statements
recorded at the time of search. Moreover, at the time of recording
of statement during the course of assessment proceedings, the
undersigned did state that the contents of statement couldn't be
commented upon, unless a copy of same is made available.
However, copy of the statements have not yet been made
available to me or my authorized representative. A similar
submission had been made in the letter dt. 01.02.2014, wherein,
your good office was requested you to provide the copy of
statements. The reasons for not making available the statements
based upon which, your good office propose to draw erroneous
conclusions, are best known to you.
The fact that the statements were dictated with predetermined
bias and also that, in any case, the some contents of the
statements are factually erroneous, is evident from the instances
mentioned hereunder.
The statement of the undersigned dated 23.03.2012 is stated to
have started at 4:15 PM. In the statement there are 60 questions
Page | 9
and 60 answers. After Q. No. 60 and answer thereto, it has been
mentioned that the statement is temporarily concluded. It is not
known when this statement was further resumed and when it
was finally concluded. You are requested to inform whether the
statement was ever finally concluded and if at all concluded,
copy of same may be provided.
The purported statements of the undersigned bears signature of
two witnesses. The exercise undertaken is in gross violation of
provisions of Rule 112(6) and 112(7) of Income Tax Rules. The
nature and manner of obtaining witnesses, itself establish that
the statements were taken written as per predetermined bias.
You are requested to call upon the witnesses so that you can
yourself be satisfied that the statements were indeed taken as
per predetermined bias.
As is evident from the statement dt. 23.03.2012, the statement of
undersigned commenced with the threat of prosecution, on the
allegation that the statement dated 22.03.2012 as recorded by
some other authorized officer at the undersigned's residence i.e.
at S-71 G.K.II, was not correct. However, the copy of this
statement dated 22.03.2012 has not been provided by your good
office. You are requested to provide the copy of the same.
Even after the above mentioned statement at S-71, G.K.-ll, I was
again asked to give statement time and again; the predetermined
motive of the search party being to get written what they wanted.
Tls can be seen that the search started on 22.03.2012. The
statements were recorded on 22.03.2012 and also on
23.03.2012 and further on 24.03.2012. The search party left the
premise only on 24.03.2012 after taking written such contents as
they wanted.
The answers taken written to questions allegedly containing the
so called confession /admission of taxability of income is almost
identical to the statement recorded of the undersigned and Mr.
Ajay Kalsi. You will appreciate that it is not even remotely
probable that two persons will give similar answers in similar
language. This clearly establishes that the search party was
predetermined to get the answers what they wanted.
In your captioned notice you have reproduced the following
statement of the undersigned
STATEMENT DATED 24.03.2012 AT 9. SHIVAll MARG
Q2.) Please tell the ownership, shares holding pattern and
controlling patterns of EICR(Cyprus) Ltd. please also finish the
holding structure of iEnergizer Ltd., Guernsey from ultimate share
holder to the bottom-line entity?
Ans. I own 100% shares of Wickwood development ltd. which
has 100% owned subsidiaries geophysical substrata Ltd. which
owns two subsidiaries, E1CR Cyprus and SDP services Ltd. EICR
owns shares in iEnergizer Ltd. I own and control all these
Page | 10
companies. All the controls and management of these companies
effectively lies with me.
Q3.) Please state what part of the activities of EICR (Cyprus) Ltd.
lies outside India and who is the Director of EICR(Cyprus) Ltd. ?
Ans. I am the main director of EICR Cyprus Ltd. there are other
two directors provided by Secretarial Service provides investment
of EICR in iEnergizer Ltd is held outside India in Cyprus, Bank
A/c is held in Cyprus Secretarial and accounting records are
maintained at Cyprus. Board meetings of the company are held
at Cyprus. However, I clarify that all the decision taken in the
Board meetings are only after my approval.
Q4.) Based on the above facts, please state your opinion in
respect of Taxability of Income of EICR(Cyprus) Ltd.?
Ans. Since I am an Indian citizen who ultimately own EICR
through Wickwood Development and since all control and
management ultimately lies with me, It is only natural that
income of EICR is taxed in India. And fair that taxes to be paid in
India. /Is income so far has been from the profit of the sale of
share of iEnergizer Ltd on Sep 14, 2010, when EICR sold
31,930,706 shares of iEnergizer Ltd @ GBP 1.16 per share,
resulting in approx. GBP 37 million from the sales proceeds. Any
Capital Gain arising out of this transaction will be my income and
I shall pay any capital gain tax on this income.
Q5. Please state the modality through which you would bring
the income of EICR (Cyprus) Ltd in Indian Tax net? Who will be
the representative assessee of this company and how you
proposed to secure the payment of tax arising out of the above
income.
Ans. I am not an expert on this however I fully agree that the
above income should be taxed in India. Since I am the ultimate
beneficial owner of EICR through Wickwood, any tax liability
arising in any of my own company is my sole liability for the
same. I may be treated as the representative assesse of EICR &
Wickwood.
Q6. It is seen that some of the companies like M/s SDP services
Ltd., M/s Wickwood development Ltd. and M/s Rolland
Enterprises Ltd, M/s 3 phase Engineering ltd all registered in BVI
but working under your control and management. Please furnish
explanation?
Ans. I agree of first 3 companies are owned by me, Wickwood
and Rolland directly and SDP through Wickwood. I along with
Sandeep Rastogi and Rajiv Gujral are Director for these 3
companies. However, all the decisions and activities are
controlled and take exclusively by me in India. Therefore, I
confirm that any resulting tax liability on the income of these 3
companies and should be taxed in India. I may be treated as
representative assessee of these 3 companies and I stand surety
for the payment of taxes for the same.
Page | 11
Regards of 3 Phase Engineering I have to verify the facts
regarding ownership and I will revert back on the same.
Q7.) Please furnish the list of all other overseas entities along
with their nature of activities, managed and controlled wholly by
you?
Ans. In addition to M/s Wickwood Development Ltd, Rolland
Enterprises and SDP services Ltd. and other step down
subsidiaries belonging to Wickwood Development Ltd and since I
have accepted ownership of Wickwood Development Ltd, I have
also accepted wholly and exclusively control and management of
these companies and therefore of all its subsidiaries. Entire list of
the holding pattern to be provided very shortly. I do not have my
ownership of the companies outside the structure.
Q8. It appears that foreign companies controlled by you are
liable to tax in India. Please verify whether you pay the taxes?
Ans. I have considered the position of all my companies and
want to make a full statement that all these companies are
owned and controlled by me in India. This control and
management of the companies is wholly and exclusively from
India. Individual statement about each companies is as follows:
a.] M/s Wickwood Development Ltd. BV1, this company was
incorporated in 1991 in BVI by me and as I am 100% beneficial
owner,control and management is carried by me wholly and
exclusively in India. This company has no office and no employee
and no infrastructure address of the company in BVI is not
readily available but can be provided very shortly. This company
is a 100% holding company of Geophysical Substrata Ltd. BVI
which in turn owns 100% share of SDP service Ltd. and EICR
Cyprus Ltd. I will also be filing a return of this company in India
as this company is resident under Sec. 6 of Indian Income tax Act
1961. And in corporation I will pay Tax on any income arising to
this company.
b.) Geophysical Substrata Ltd. BVI-This company was started
in BVI with 100% shares being held by Wickwood Development
Ltd since its incorporation. Beneficial ownership of all the shares
is with me since the incorporation of the company . Control and
management of this company is exercised by me wholly and
exclusively for India since the since the incorporation of the
company and till date. This company holds shares of SDP
Services Ltd. and EICR(Cyprus) Ltd. I will be providing the books
of accounts, bank accounts of this company since the
incorporation of the company as the control and management
over this company is exercised from India wholly and exclusively.
I agree that this company becomes resident in India for tax
purpose under section 6 of Indian Income tax Act 1961 since
incorporation.
c. ) SDP services Ltd. BVI- This company was incorporated in
1998 in BVU with 100% shares being held by Geophysical
Page | 12
Substrata Ltd. since 2008. Control and management of this
company is exercised by me wholly and exclusively by me from
India since the incorporation of the company and till date. The
company earns income by way of lease of Drilling Rigs, Seismic
Equipments and other oil exploration equipment to Focus energy
Ltd. I will be providing the books of accounts, bank accounts of
this company since the company incorporation as the control and
management over this company is exercised in India wholly and
exclusively from India. I agree that this company becomes
resident in India for tax purpose under section 6 of Indian Income
tax Act 1961 since incorporation. The company will be liable to
tax on its income and I am liable to pay tax in India, I will be
filing the return of this company for all the A.Y. in the status of
resident and pay tax. I will be paying tax as soon as possible
and definitely within the period of 12 months. I will be submitting
the plans of installments.
d. ) EICR(Cyprus) Ltd.,BVI : The company was incorporated in
BVI, Control and management of this company is exercised by me
wholly and exclusively for India since the since the incorporation
of the company and till date. This company holds share of
iEnergizer Ltd. a company registered in Guernsey and quoted in
London Stock Exchange, I will be providing the books of accounts,
bank accounts as the control and management over this company
is exercised from India wholly and exclusively. I agree that this
company becomes resident in India for tax purpose under section
6 of Indian Income tax Act 1961 since incorporation. This
company has earned capital gains on sale of Shares of iEnergizer
Ltd. on September 14,2010 when EICR sold 31,930,706 shares
of iEnergizer Ltd @ GBP 1.16 per share resulting in approx 37
million GBP from the sale proceeds. Capital gains arising on this
sale is liable in India under the income tax act. I will be paying
tax on this capital gain , other than this transaction EICR has not
earned any income except interest on deposit in bank. I will be
filing the returns of this company for all the A.Y. in the status of
resident and pay tax. I will pay tax as soon as possible and
definitely within a period of 12 months. I will submit the
installment plan.
e. ) M/s RoIIand Enterprise Ltd., BVI: This company was
incorporated in BVI by me as a 100% beneficial owner control
and management is exercised by me wholly and exclusively from
India. This company has no office and no employee and no
infrastructure -Income by way of lease of Drilling Rigs, Seismic
Equipments and other oil exploration equipment to Focus energy
Ltd are the main source of income of this company. I will be filing
the returns of this company in India as this company is resident
under sec. 6 of Indian Income tax Act 1961 since incorporation.
I will happily pay tax on any income arising to this company.
f. ) Barker shoes Ltd, UK: the company shares were
purchased by me sometime in 2010. The company is controlled
and managed from UK and pay income tax under UK regulations.
Page | 13
g. J I will submit details of any other company owned by me
shortly as far as I remember, there are no activities or income in
any of these companies . However the control and management
of all these companies are wholly and exclusively exercised by
me in India. I accordingly agree that these are resident for tax
purpose under sec. 6 of Indian Income tax Act since
incorporation. I will be filing the returns of these companies for all
the A.Ys. in the status of resident and pay tax due on any income
of these companies.
From the afore-stated extracts, it is abundantly clear that the
statement had been taken by the search party in a preemptive
manner and coloured by their own predetermined bias, in total
ignorance of correct factual positions and law. After Q.2 & Q.3,
all of a sudden, in immediately next Q.4, it has been taken
written that based on answers to Q.2 & Q.3, certain amount will
be my income. As is evident from the Q.2 & Q.3, there is no basis
to allege or infer that there is some taxable income. The
subsequent questions and answers No.4 to 8 are all stated to be
based on the contents of Q.2 & Q.3. There is nothing in answers
to Q.2 & Q.3 which can be made basis of drawing adverse
inference. Further as per answers to Q.2 & Q.3 (which is made
the basis of subsequent questions and answers) it is established
that none of the foreign companies mentioned in those questions
can be held to be controlled or managed from India. In Q.4 and
answer thereto, 1 have been depicted as if I am a tax expert and
under the guise, some factually and legally erroneous contents
have been taken written. It is not understandable as to how the
answer to Q.4, as taken written, can be the basis for drawing
adverse inference as is sought to be drawn. Further from Q.5 and
answer thereto, as is self evident, there being no factual or legal
basis for taxability under the Indian Income Tax Act (in fact the
search party itself realized/thought that amount cannot be
brought to tax in India unless brought in India), something with
regard to liability and surety etc. was taken written, which are
unsustainable both on facts and in law. In subsequent Q.6to Q.8,
as is apparent some general and sweeping contents have been
taken written as per predetermined bias which as already stated
are factually and legally erroneous. y4s already stated, I am a
non-resident Indian. It is a matter of record that I live outside
India and comes to India only on few occasions in India and
therefore any allegation / presumption that I am controlling or
managing the affairs of any company wholly from India is
factually erroneous. It would be imperative to mention at this
juncture that the provisions of section 132(4) of the Act does not
empower the authorized officer to get written, those contents
which are factually and legally unsustainable, such as obtaining
undertaking / surety etc. Such contents taken recorded in the
statement are at best, void ab initio. Your hour will appreciate
that incidence of tax does not arise on an amount, solely all by
itself or on the basis of some statements. The taxability of items
of income and assessments have to be made strictly in
Page | 14
accordance with the provisions of law. The fact of the matter that
each <5 every foreign company where I am a Director or
shareholder is being controlled and managed from outside India.
They have been incorporated according to the laws of the
respective country. The head and brain i.e. the Board of Directors
are situated outside India. The Board meetings are held outside
India. The books of accounts are maintained outside India. The
bank accounts are maintained and operated outside India. In this
regard your honour can verify these facts from the respective
companies also.
It is settled cannon of law that a public officer is required to
exercise his powers and authority which have been bestowed
upon him, in a most fair and appropriate manner. Rules of fair
hearing and reasonableness would only suggest that the factual
position regarding the control and management of foreign
companies should be verified and corroborated with the
respective foreign companies.
In addition to the above, it is indeed appalling that the adverse
conclusions have been drawn by your good office, on a wrong
and baseless construal of the undersigned's friendship with Mr.
Kalsi. Nonetheless, any adverse inference drawn in this regard
may, in the interest of justice, best be corroborated with Mr. Ajay
Kalsi.
At this juncture, it is important to mention that the connotations
used by your good office in the subject notice, such as "Control
and Management", "Beneficial Ownership", "Representative
Assessee" and other legal provisions of the Act such as Section
277 and 278, can best understood by legal experts having
extensive and vast knowledge.
Needless to mention, the statements recorded during the course
of search proceedings do require careful consideration before
reliance placed thereupon. Any such reliance upon statements
itself shall acts as prejudice if the same is not appropriately
corroborated and no credence or cognizance to the other
evidence/submissions being made from time to time during the
course of search proceedings and in the post investigation
proceedings is given. Such bald reliance would result in
miscarriage of justice and the resultant proceedings are liable to
be quashed. "
8.1.16 In case of the appellant, in the course of the assessment
proceedings, the Assessing Officer did not contradict the contents of the
letter dated 25.03.2014 nor he had re-recorded the statement of the
appellant on oath again. Therefore there is no corroboration nor
confirmation of the contents of the statements that were recorded at the
time of search. In the absence of any corroborative evidence brought on
record by the Assessing Officer to substantiate the statements in the
case of the appellant. There is no relevance regarding the details
declared in the return of the appellant to the contents of the statements
recorded in the case of the overseas companies. The Assessing Officer
Page | 15
relied on the statements of the appellant while determining the
"residential status" of the overseas companies in accordance of the
provisions of section 6(3) of the IT Act and for taxability as per Indian
Income Tax Act but not in the case of the appellant on any other matter.
8.1.17 The Assessing Officer did not make any protective addition
in the case of the appellant based on the contents of statements
recorded in the course of search pertaining to various other persons.
But he reproduced the excerpts of such statements in the orders passed
in case of the overseas companies to determine the "residential status"
of these overseas companies by invoking the provisions of section 6(3)
of the IT Act, 1961. Therefore, referring to such statements in the case
of the appellant seems out of context and irrelevant.
9. In para 21.2.1, the Assessing Officer concluded that the
appellant's case is peculiar, where an elaborate scheme was planned
and executed meticulously to shift the huge profits and capital gains
earned from India companies and their share holders to the overseas
companies. While doing so, the Assessing Officer relied on the ratio of
the various judicial pronouncements, predominantly, like MC Dowell &
Co. Ltd. [154 ITR 148 SC (1985)]. I have gone through the citations of
case laws relied upon by the Assessing Officer and find that the facts
of those cases are distinguishable to that of the appellant. On perusal, I
find that the Assessing Officer misapplied the ratio of the judgement of
MC Dowell & Co. Ltd. to the appellant's case, as the Assessing Officer
did not establish any case where the appellant adopted a colourable
device and most importantly no case of any tax evasion was
established by the Assessing Officer in case of the appellant or
overseas companies.
9.1.0 The Assessing Officer's reliance on the judgment in the case of
CIT Vs. Sri Meenakshi Mills Ltd. 63 ITR 609 (SC) is not applicable to the
facts of the appellant's case. In aforesaid case which was relied by the
Assessing Officer upon by Assessing Officer , the company borrowed an
exorbitant amount of money from the Indian branches of Bank A based
on the fixed security deposits made in other branches of Bank A in a
non-taxable territory. Further the director of the assessee-company was
also the main share holder of the Bank A. During the assessment
proceedings, the Assessing Officer treated the entire profits of the
assessee company, including interest from the non-taxable territory in
the hands of the assessee company.
9.1.1 The facts of the appellant's case are different from the facts of
the aforesaid case and such facts cannot be parallel and similar.
9.1.2 Therefore in my considered opinion, the Assessing Officer failed
to appreciate as well as distinguish the facts mentioned in the
aforesaid paras with that of the appellant. In this case relied upon by
the Assessing Officer, the assessment was completed in the hands of
the assessee company, but not in the hands of the director-founder,
even after holding him to be share holder of the assessee company as
well as Bank A.
9.1.3 The Assessing Officer further placed reliance in the ratio of the
decision of Life Insurance Corporation of India Vs Escorts Ltd. [(1986) 1
Page | 16
SCC 264] which I find is in complete ignorance of the facts of the said
case to that of the appellant. The decision in Life Insurance (supra) was
rendered in respect to Foreign Exchange Regulation Act, 1973,
Companies Act, 1956, Constitution of India and did not consider the
provisions with respect to the Income Tax Act. The Apex Court, in the
aforesaid case, merely made a reference, in context of lifting of the
corporate veil, while concluding something which was relevant to the
facts and the statute concerned in that case, which was misinterpreted
by the Assessing Officer and misapplied the judgment to the facts of the
appellant, without application of relevant law.
9.1.4 The subject matter in the case of JuggilalKamlapat v. CIT [AIR
SC 932] was a hoax transaction that was undertaken between a firm
and the company; wherein partners of the firm were also the majority
shareholders of the company.The Hon'ble Supreme Court held the
transaction to be a hoax transaction by applying the doctrine of lifting
the corporate veil. However, in the case of the appellant no such
transaction was undertaken to allege that the income of overseas
companies is taxable in the hands of the appellant firstly by lifting of
the corporate veil and secondly by way of a protective assessment. In
fact, it is pertinent to mention here that there are no transactions
between the appellant and the overseas companies for which additions
have been made by Assessing Officer.
9.1.5 In view of the aforesaid detailed discussion, the various case
laws relied upon by the Assessing Officer are not applicable to the facts
of the appellant's case. The Assessing Officer made vague references to
these case laws without pointing out and establishing as to how the
same were applicable to the facts of the appellant's case. Hence the
facts of the case laws referred by the Assessing Officer are entirely
different from that of the appellant's case. In the cases relied upon by
the Assessing Officer, it was established that the transactions were
sham, and were undertaken with a purpose to evade taxes and on
applying the doctrine of lifting the corporate veil, these transactions
were found to be fraudulent, sham, circuitous and s device to defeat the
interest of various stake holders.
10. In the instant case, the Assessing Officer did not bring on record
such adverse facts that established fraud, circuitous or sham
transactions as in the cases mentioned by Assessing Officer in the
order. The only allegation of the Assessing Officer for drawing an
adverse inference in case of the appellant is that the purpose for which
the companies were incorporated overseas in tax havens was to avoid
transfer pricing audit and consequent avoidance of tax. However, this
was merely a doubt and allegation of Assessing Officer. To ascertain
the factual position, the Assessing Officer himself referred the matter to
Transfer Pricing Officer and as discussed earlier, no case of any tax-
evasion was detected. Contrary to the allegation and doubt of the
assessing officer, all the transactions with the overseas companies
which were doubted by the Assessing Officer was found to be genuine
and carried out at an arm's length price. Moreover, in one of the
overseas companies while referring to the emails the Assessing Officer
himself accepted that it was a part of the tax-planning. Therefore, the
Page | 17
facts of the various case laws referred by the assessing officer are
distinguishable and are not applicable to the facts of the appellant's
case.
11. In the view of the above discussion, the addition of
Rs.22,74,81,323/- made by the Assessing Officer for the year under
consideration is hereby deleted. These Grounds of appeal are allowed."
5. Therefore, the revenue is aggrieved with the above order and has preferred
this appeal.
6. The ld DR vehemently supported the order of the ld AO and submitted that
the assessee is the beneficial owner and therefore, the above addition has
rightly been made.
7. The ld AR vehemently submitted that the addition has been made in the
hands of the company and he extensively referred to the order of the ld
CIT(A) and stated that the total addition made by the ld AO is on the basis
of conjectures and surmises. It was further submitted that the identical
additions made in the hands of the other persons has already been deleted
by the coordinate bench and therefore, in the case of the assessee the above
addition cannot be sustained.
8. We have carefully considered the rival contentions and also perused the
orders of the lower authorities. The brief facts of the case shows that in the
hands of the assessee the addition is made on the protective basis of Rs.
227481323/- with respect to the income of the two overseas companies
namely Wickwood Development Ltd and Rolland Enterprises Ltd. Both the
companies have alleged to have earned the lease rental income for
Assessment Year 2006-07 . In one of the other share holders Mr. Ajay Kalsi
in whose case in earlier year identical additions were made on protective
basis. Furthermore, another beneficiary Smt Mala Kalsi, Such additions
were also made being the share holder of those companies. All these
additions were made on protective basis in their hands. In case of Smt Mala
Kalshi the coordinate bench has already decided the issue deleting the
above addition on protective basis as per order dated 1st December 2017
reported in 90 Taxmann.com 175 (Delhi). Further, in case of Shri Ajay Kalsi
the coordinate bench has deleted the above addition as per order dated
05.12.2018 for Assessment Year 2006-07 to 2012-13. Therefore, the issue is
now squarely covered in favour of the assessee by the above addition. The ld
Page | 18
DR could not cotrovert the above fact that the issue is squarely covered by
the decision of the coordinate bench in case of other share holders. In view
of this fact respectfully following the decision of the coordinate bench where
identical additions were deleted, we also direct the ld AO to delete the above
protective additions of Rs. 227481323/- in the hands of the assessee for
Assessment Year 2006-07. Therefore, the appeal filed by the assessee for
Assessment Year 2006-07 is allowed.
9. The assessee is also raised cross objection in the above appeal. In the cross
objection the assessee has challenged certain jurisdictional issues and
further additions made u/s 153A of the Act by the ld AO are beyond the
scope of the law. As we have already deleted the appeals of the revenue the
cross objection supporting the impugned order passed by the ld CIT(A)
becomes infractuous and hence cross objections is also dismissed.
10. The appeal for Assessment Year 2007-08 filed by the revenue also involves
the identical additions of Rs. 495316627/- and the assessee has filed the
cross objections supporting the order of the ld CIT(A). The appeal for
Assessment Year 2008-09 filed by the revenue also involves the identical
additions of Rs. 529475798/- the assessee has filed the cross objections
supporting the order of the ld CIT(A). The appeal for Assessment Year 2009-
10 filed by the revenue also involves the identical additions of Rs.
2447420629/- the assessee has filed the cross objections supporting the
order of the ld CIT(A). The appeal for Assessment Year 2010-11 filed by the
revenue also involves the identical additions of Rs. 888,10,18,345/- the
assessee has filed the cross objections supporting the order of the ld CIT(A).
The appeal for Assessment Year 2011-12 filed by the revenue also involves
the identical additions of Rs. 5082087156/- the assessee has filed the cross
objections supporting the order of the ld CIT(A).
11. In view of our finding for Assessment Year 2006-07, wherein, we have
respectfully followed the decision of the coordinate benches in case of Ms.
Mala Kalsi and Shri Ajay Kalsi (supra), for the similar reasons, we also
dismiss appeals of the revenue and the cross objections of the assessee.
12. Now we come to the appeal of the revenue for Assessment Year 2012-13 and
the cross objection of the assessee supporting the order of the ld CIT(A). As
Ground Nos. 1 to 6 of the appeal the ld AO challenged the deletion of the
Page | 19
addition of Rs. 2273802044/- in the hands of the assessee on protective
basis. Both the parties have confirmed that this ground of appeal is
squarely covered by the issues in the appeal of the revenue for Assessment
Year 2006-07 to 2011-12.
13. As we have already deleted the above addition respectfully following the
decision of the order of the coordinate benches in case of Ms Mala Kalsi and
Mr. Ajay Kalsi (supra), we do not find any merit in the appeal of the revenue
for the reasons given by us while deleting the addition for Assessment Year
2006-07. Accordingly, ground Nos 1 to 6 of the appeal of the ld AO are
dismissed.
14. Ground No. 7 of the appeal is with respect to the deletion of the addition of
Rs. 6950000/- on account of unexplained cash. The ld AO has made the
above addition as during the course of search u/s 132 at the premises of
Shri Anil Agarwal, cash of Rs. 69.50 lakhs and jewellery of Rs. 2546789/-
were found. At the time of search, Shri Anil Agarwal admittedly owned the
cash and jewellery both. However, regarding the source of cash and
jewellery nothing was explained by Shri Anil Aggarwal addition was made in
the hands of the assessee by applying the provisions of section 292C of the
Act. Thus, the ld AO made the addition of Rs. 6950000/- and jewellery of
Rs. 2546789/-. The assessee challenged the same before the ld CIT(A). The
ld CIT(A) deleted the addition on account of cash found of Rs. 6950000/- as
Shri Atul Aggarwal brother of the appellant surrendered the above cash in
his hands and declared the same in the return of income filed by him for
Assessment Year 2012-13 which was assessed u/s 143(3) dated
18.04.2014. As the above amount was already taxed, it amounted to double
addition in the hands of the assessee as well as Mr. Atul Aggarwal. Further,
addition on account of jewellery also, Mr. Atul Aggarwal explained the
source in his own case and no addition was made by the ld AO in the hands
of Shri Atul Aggarwal as the jewellery worth the of Rs. 1682400/- was
within the limited as prescribed by CBDT in Instruction dated 11.05.1994
and the balance jewellery of Rs. 1088351/- was already offered by him in
his hands as other income. The ld CIT(A) also noted that the above addition
has already been taken care of in assessment of Shri Atul Aggarwal.
Page | 20
Therefore, the addition of same sum cannot be made in the hands of the
assessee.
15. The ld AO aggrieved by the order of the ld CIT(A) has preferred this appeal
on ground No. 7 and 8.
16. The ld DR relied upon the order of the ld AO.
17. We have carefully considered the rival contentions and also perused the
orders of the lower authorities. As the sum of Rs. 6950000/- has already
been offered by Shri Atul Aggarwal in his hands out of cash seized and
further the jewellery worth of Rs. 1088351/- was also disclosed as income
in his return of income, further, jewellery worth Rs. 1682400/- was treated
as explained in view of the CBDT Instruction dated 11.05.1994, we do not
find any merit in the ground No. 7 and 8 of the appeal of the ld AO.
Accordingly, they are dismissed. The cross objection of the assessee also
dismissed.
18. Accordingly, all the appeals for Assessment Year 2006-07 to 2012-13 of the
ld AO and the cross objections of the assessee are dismissed.
Order pronounced in the open court on 30/08/2019.
-Sd/- -Sd/-
(SUCHITRA KAMBLE) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30/08/2019
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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