New Delhi v. M/S Agson Global Pvt. Ltd

NEUTRAL CITATION NO: 2022/DHC/000234 $~J-2 to 7 * IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on 09.08.2021 Judgment pronounced on 19.01.2022 + ITA 68/2021 & CM No. 9319/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr Mukul Rohatgi and Mr Sandeep Sethi, Senior Advs. with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. + ITA 69/2021 & CM No. 9322/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr Mukul Rohatgi and Mr Sandeep Sethi, Senior Advs. with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. Sethi, Senior Advs. with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. + ITA 70/2021 & CM No. 9346/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, ITA No.68/2021 & connected matters Page 1 of 53 NEUTRAL CITATION NO: 2022/DHC/000234NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr Mukul Rohatgi and Mr Sandeep Sethi, Senior Advs. with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. + ITA 71/2021 & CM No. 9352/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr Mukul Rohatgi and Mr Sandeep Sethi, Senior Advs. with Mr Mahesh Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. + ITA 72/2021 & CM No. 9355/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr Mukul Rohatgi and Mr Sandeep Sethi, Senior Advs. with Mr Mahesh ITA No.68/2021 & connected matters Page 2 of 53 Agarwal, Mr Rishi Agrawala, Mr Karan Luthra, Mr Sameer Rohatgi & Mr Ankit Banati, Advs. + ITA 73/2021 & CM No. 9356/2021 PR. COMMISSIONER OF INCOME TAX (CENTRAL)- 3, NEW DELHI ......Appellant Through: Mr Ajit Sharma, Sr. Standing Counsel. versus M/S AGSON GLOBAL PVT. LTD. .....Respondent Through: Mr B.B Gupta, Senior Adv. with Mr. Mahesh Agarwal, Mr. Rishi Agrawala, Mr. Sameer Rohatgi, Mr. Karan Luthra, and Mr. Ankit Banati, Advs. CORAM: HON'BLE MR JUSTICE RAJIV SHAKDHER HON'BLE MR JUSTICE TALWANT SINGH RAJIV SHAKDHER, J.: TABLE OF CONTENTS Preface:- ...........................................................................................................3 Background:- ...................................................................................................5 Submissions on behalf of the revenue:- ....................................................... 11 Submissions on behalf of the assessee:- ....................................................... 14 Analysis and Reasons:-................................................................................. 17 Conclusion:-.................................................................................................. 50 Preface:- 1. These appeals, which are six in number, are preferred under Section 260A of the Income Tax Act, 1961 [hereafter referred to as "the Act"] and are directed against a common order dated 31.10.2019, passed by the ITA No.68/2021 & connected matters Page 3 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 Preface:- 1. These appeals, which are six in number, are preferred under Section 260A of the Income Tax Act, 1961 [hereafter referred to as "the Act"] and are directed against a common order dated 31.10.2019, passed by the ITA No.68/2021 & connected matters Page 3 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 Income Tax Appellate Tribunal [in short "the Tribunal"]. 1.1 The Tribunal, via the impugned order, rendered a decision in twelve appeals out of which six were preferred by the respondent i.e., Agson Global Pvt. Ltd. [hereafter referred to as "assessee‖], while the remaining six appeals were preferred by the appellant [hereafter referred to as "revenue‖].1.2. The impugned order concerned six assessment years [in short ―AYs‖] i.e., 2012-2013, 2013-2014, 2014-2015, 2015-2016, 2016-2017 and 2017-2018. 2. The record shows that the Tribunal was, principally, grappling with three broad issues. These issues concerned additions/deletions made to the declared/returned income of the assessee under the following broad heads: (i) Additions qua amounts received by the assessee in the form of share capital/share premium under Sections 68 of the Act. (ii) Deletions made on account of alleged bogus purchase transactions. Under this head, the Assessing Officer ruled that 25% of the bogus purchases in value should be added to the assessee’s declared/returned income. (iii) Addition made, under Section 68 of the Act, in respect of monies deposited by the assessee with its banker during the demonetization period. 2.1. Insofar as issue nos. (i) and (ii) are concerned, they were common to all six AYs, referred to hereinabove. However, insofar as issue no. (iii) is concerned, it arises only in AY 2017-2018. In this regard, it requires to be noticed that demonetization was brought about on 08.11.2016 and the period of demonetization spanned between 09.11.2016 and 30.12.2016. 2.2. Therefore, we would be dealing with submissions and counter-submissions of parties bearing in mind the aforesaid issues and the fact as to ITA No.68/2021 & connected matters Page 4 of 53 whether or not substantial questions of law have arisen which require consideration and/or adjudication. -Background: 3. Before we proceed further, certain facts and circumstances, in the backdrop of which the above-captioned appeals have been lodged, are required to be noticed. 3.1. The assessee had filed its return of income qua AY 2012-2013 under Section 139 (1) of the Act on 31.10.2013. In this return, the assessee had declared its income as Rs.6,02,85,750/-. The Assessing Officer [in short ―A.O.‖] passed an assessment order under Section 143(3) of the Act, on 24.03.2015. Via the said assessment order, the A.O. made an addition of Rs.18,50,00,000/- to the declared/returned income of the assessee on account of ―unexplained share capital and share premium‖. Resultantly, the assessed income shot up to Rs.24,52,85,750/-. Being aggrieved, the assessee preferred an appeal. The CIT(A), vide order dated 31.03.2016, deleted the aforesaid addition. Pertinently, the revenue did not carry the matter further. Consequently, the assessment proceedings vis-à-vis AY 2012-2013, stood concluded. 3.2. Likewise, for AYs 2013-2014 and 2014-2015, the A.O. passed assessment orders under Section 143(3) of the Act, whereby the income declared/returned by the assessee was accepted. The assessment order quaAY 2013-2014 was passed on 31.03.2016. The assessed income, which was also the declared/returned income, was pegged at Rs.7,22,89,816/-. Similarly, for AY 2014-2015, the assessment order was passed on 28.12.2016 and the assessed income, which was also the declared/returned ITA No.68/2021 & connected matters Page 5 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 income, was pegged at Rs.3,16,41,113/-. 3.2. Likewise, for AYs 2013-2014 and 2014-2015, the A.O. passed assessment orders under Section 143(3) of the Act, whereby the income declared/returned by the assessee was accepted. The assessment order quaAY 2013-2014 was passed on 31.03.2016. The assessed income, which was also the declared/returned income, was pegged at Rs.7,22,89,816/-. Similarly, for AY 2014-2015, the assessment order was passed on 28.12.2016 and the assessed income, which was also the declared/returned ITA No.68/2021 & connected matters Page 5 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 income, was pegged at Rs.3,16,41,113/-. 3.3. Insofar as the remaining three AYs are concerned i.e., 2015-2016, 2016-2017 and 2017-2018, even while the returns filed by the assessee were pending assessment, a search and seizure operation was carried out qua the assessee on 21.03.2017. For ease of reference, as regards these three AYs, the details as to when returns were filed and the amount which was declared as income by the assessee is set forth hereafter: 3.4. Thus the position which emerged qua each of the six AYs, once additions/deletions were made by the AO, and thereafter, when some of these were deleted/scaled down by CIT(A), is set forth hereafter: ITA No.68/2021 & connected matters Page 6 of 53 ITA No.68/2021 & connected matters Page 7 of 53 4. The record shows that, during the search and seizure operations, the statement of the Managing Director, Mr Arpesh Garg was recorded under Section 132(4) of the Act. The assessment was made under Section 153A of the Act. 4.1. It is also relevant to note that the statement made by Mr Arpesh Garg i.e., the Managing Director of the assessee on 22.03.2017 (which is referred to above) was retracted by him on 24.03.2017, that is, within two days. 4.2. What is of some significance is that a deviation report dated 20.12.2018 was prepared by the AO, which was, markedly different from the assessment orders passed by him. This aspect of the matter has been adverted to at great length by the Tribunal in the impugned order and shall also be alluded to by us in the latter part of the judgment. 4.3 Suffice it to state that the Deputy Director of Investigation Wing had submitted a written appraisal report on 04.01.2018. Despite the stand taken by the Deputy Director (Investigation) in the appraisal report and the communication dated 24.12.2018, at the meeting held on 28.12.2018, the AO and the Assistant Commissioner of Income Tax (ACIT) reiterated the ITA No.68/2021 & connected matters Page 8 of 53 position taken in the deviation report. 4.4 Briefly, in the deviation report, the AO concluded that since the source of the cash movement concerning receipt of money by the assessee in the form of share capital/share premium amounting to Rs.365.28 crores was traceable directly to the assessee’s bank accounts, the addition of the said sum was not justified. 4.5 Likewise, insofar as the issue concerning addition of Rs.941.86 crores qua bogus purchases was concerned, the AO in the deviation report made the following significant observations: (i) Contrary to what the appraisal report had held, all purchases made by the assessee were not bogus. (ii) 50% of the purchases were verified by issuing notices under Section 133(6) of the Act. Qua them, confirmatory letters, as well as copies of the ledger accounts, were presented by the assessee. In respect of these, no variation was found. 4.5 Likewise, insofar as the issue concerning addition of Rs.941.86 crores qua bogus purchases was concerned, the AO in the deviation report made the following significant observations: (i) Contrary to what the appraisal report had held, all purchases made by the assessee were not bogus. (ii) 50% of the purchases were verified by issuing notices under Section 133(6) of the Act. Qua them, confirmatory letters, as well as copies of the ledger accounts, were presented by the assessee. In respect of these, no variation was found. (iii) If the value of such purported bogus purchases, as noticed in the appraisal report, was taken into account and juxtaposed against sales booked against the very same persons- it would show that the assessee has, in fact, declared a profit. In other words, if transactions with such parties are treated as bogus purchases, the profit reflected in the books will have to be reduced. The rationale given was that one cannot disallow bogus purchases and at the same time treat the sales with the same parties as genuine and bring the same to tax. Therefore, the suggestion made in the appraisal report that an ad hoc addition of 25% should be made to the income on account of such bogus purchases, may ultimately be detrimental to the interest of the revenue, if the sale is also to be treated as bogus. ITA No.68/2021 & connected matters Page 9 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 (iv) Reference was made to the transactions arrived at with three entities by the assessee in the financial year 2016-2017. It was noticed that similar transactions made with the same or different parties that were bogus transactions, is something which obtained strength from the fact that stock worth Rs.450 crores, was found short, although the same stood recorded in the books of accounts. In sum, the conclusion reached was that the books of accounts were not genuine and were liable to be rejected under Section 145(3) of the Act and thereafter a gross profit rate had to be estimated on a reasonable basis keeping in mind the prevailing market trend. 4.6 As regards cash deposits made by the assessee during the demonetization period; against a proposal to add Rs.180.53 crores, as suggested by the Investigation Wing, for the reasons given in the deviation report, the amount was pared down to Rs.99.04 crores. Thus, the suggested addition on this score to the total income of the assessee concerning AY 2017-2018 was restricted to Rs. 99.04 crores. 5. At this juncture, it would be relevant to note that the revenue, upon queries being raised by the Tribunal concerning various issues including the basis on which the deviation report had been prepared in the instant matter, was told in no uncertain terms that preparation of a "deviation note" is part of the assessment proceedings as per the guidelines envisaged in the Income Tax Manual of Office Procedure: Vol.-II (Technical, Chapter-3, paragraph 4 at page 44) (see paragraph 51 of the impugned order passed by the Tribunal). 5.1. Furthermore, the Tribunal, in paragraph 92 of the impugned order, after perusal of the appraisal report prepared by the Investigation Wing, has made the following observations : ITA No.68/2021 & connected matters Page 10 of 53 ―Appraisal report was produced before the bench and it was found that in para no.4.3.7, the Investigation Wing has mentioned that the above addition[1] is required to be made in order to protect the interest of the revenue....” 5.2. The Tribunal, however, via the impugned order, even deleted the scaled-down addition made by the CIT(A) of Rs.73.13 crores concerning AY 2017-2018 in respect of cash deposits made with the bank during the demonetization period. Consequently, the Tribunal partially allowed the six appeals filed by the assessee while dismissing the six appeals preferred by the revenue. ITA No.68/2021 & connected matters Page 10 of 53 ―Appraisal report was produced before the bench and it was found that in para no.4.3.7, the Investigation Wing has mentioned that the above addition[1] is required to be made in order to protect the interest of the revenue....” 5.2. The Tribunal, however, via the impugned order, even deleted the scaled-down addition made by the CIT(A) of Rs.73.13 crores concerning AY 2017-2018 in respect of cash deposits made with the bank during the demonetization period. Consequently, the Tribunal partially allowed the six appeals filed by the assessee while dismissing the six appeals preferred by the revenue. 6. It is in these circumstances that the revenue has preferred the instant appeals. 7. Submissions on behalf of the revenue were advanced by Mr Ajit Sharma, learned senior standing counsel, while insofar as the assessee is concerned, arguments were advanced by Mr Mukul Rohtagi, learned senior counsel, instructed by Mr Mahesh Agarwal. Submissions on behalf of the revenue:- 8. Insofar as Mr Sharma is concerned, the arguments advanced by him can be, broadly, paraphrased as follows : (i) That the assessment orders passed in each of the aforementioned assessment years ought to have been sustained by the Tribunal. (ii) The Tribunal lost sight of the fact that most of the entities which had invested amounts in the form of share capital/share premium in the assessee had no resources of their own. All told about 50 entities had invested a huge 1 made with respect to bogus purchases ITA No.68/2021 & connected matters Page 11 of 53 amount in the form of share premium at the rate of Rs.9,990/-, while they were sold at an appreciably low premium ranging between Rs.70 to Rs.80 per share. (iii) The Tribunal also failed to take into account the true import and effect of the statement made by an accommodation entry provider i.e., one, Shri Praveen Aggarwal who had denied having made any investment in the assessee. This statement pointed in the direction that the monies which ostensibly had been invested in the assessee in the form of share capital/share premium were unaccounted funds of the assessee routed through accommodation entry providers. (iv) The Tribunal erred in not taking into account the fact that the CIT(A) had concluded that incriminating material had been recovered during the search carried out by the revenue. Therefore, the Tribunal had erred in applying the ratio of the judgment of the Division Bench of this Court rendered in Commissioner of Income Tax (Central)-III v. Kabul Chawla, 2015 SCC OnLine Del 11555,and, thus, wrongly concluded that insofar as AYs 2012-2013 to 2014-2015 was concerned, those assessments could not be disturbed. (v) The Tribunal also erred in ignoring concurrent findings returned by, both, the A.O. and the CIT(A) that the investor entities had not been able to establish their creditworthiness, and, thus, the ostensible investment made in the assessee was a sham transaction. The fact that the investor entities had returned borrowed funds, as claimed by the assessee, did not add to their creditworthiness. (vi) Although the Tribunal relied upon certain parts of the deviation report to set aside the conclusions reached by the A.O. and the CIT(A), it ITA No.68/2021 & connected matters Page 12 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 erroneously chose to ignore the conclusion arrived at in the deviation report that the assessee had not been able to account for Rs.99.04 crores which had been deposited by it, in the wake of demonetization. (vi) Although the Tribunal relied upon certain parts of the deviation report to set aside the conclusions reached by the A.O. and the CIT(A), it ITA No.68/2021 & connected matters Page 12 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 erroneously chose to ignore the conclusion arrived at in the deviation report that the assessee had not been able to account for Rs.99.04 crores which had been deposited by it, in the wake of demonetization. (vii) Likewise, the Tribunal also failed to take note of the observations made in the deviation report that instead of adding the entire share premium received by the assessee, only that share premium ought to be added under Section 68 of the Act where money was not sourced from the assessee. In support of this plea, reliance was placed on paragraph 3(ix) of the deviation report. (viii) The deviation report categorically rejected the assessee’s books of accounts while considering the issue regarding bogus purchases. In this context, the deviation report also emphasized the fact that stock worth Rs.450 crores, was short, as against that which was recorded in the assessee’s books of accounts. (ix) The Tribunal failed to consider that the CIT(A), while discussing the issue concerning bogus sales had reached the following conclusions (even while reducing the addition made by the A.O. in this respect) : (a) that the assessee had booked a loss when it traded with related parties, however, when it was trading with non-related parties, the assessee had reported a profit of approximately 9% per annum. (b) the assessee had entered into artificial transactions to suppress profit; this conclusion was reached by CIT(A) after considering the remand report and the statement of Mr Arpesh Garg i.e., the Managing Director of the assessee. (x) The Tribunal also failed to appreciate that cash deposits made to the tune of approximately Rs.180 crores post Diwali and/or after demonetization, were unexplained and excessive, as compared to the earlier ITA No.68/2021 & connected matters Page 13 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 years. In this context, reliance was placed on the following information culled out from the record : Submissions on behalf of the assessee:- 9. Insofar as Mr Rohtagi was concerned, his submissions were broadly the following : (i) This court had jurisdiction to entertain the instant appeals only if a substantial question of law, and not just any question of law, arises for consideration. The Tribunal was the final fact-finding authority. The Tribunal, having examined the material on record, has correctly concluded that the orders passed by the A.O., which were partially modified by the CIT(A), deserved to be set aside. (ii) A careful perusal of the deviation report and the assessment orders would show that the A.O. has acted under the dictate of the investigation wing, as noted by the Tribunal in paragraphs 91 and 92 of the impugned order. The additions [qua bogus purchases] were made to the assessee’s declared/returned income only to protect the interest of the revenue, as ITA No.68/2021 & connected matters Page 14 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 directed by the investigation wing. On this short ground alone, the assessment orders deserved to be set aside. The A.O. performs a quasi-judicial function, which could not have been interfered with by the revenue i.e., in this case, the investigation wing. [See P. Palaniswami v. Shri Ram Popular Service (P) Ltd. & Anr., (1974) 1 SCC 197.] ITA No.68/2021 & connected matters Page 14 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 directed by the investigation wing. On this short ground alone, the assessment orders deserved to be set aside. The A.O. performs a quasi-judicial function, which could not have been interfered with by the revenue i.e., in this case, the investigation wing. [See P. Palaniswami v. Shri Ram Popular Service (P) Ltd. & Anr., (1974) 1 SCC 197.] (iii) In this context, it is important to note that the A.O. had prepared the deviation report dated 20.12.2018, after perusing the appraisal report generated by the investigation wing pursuant to the search and seizure operation carried out vis-a-vis the assessee on 21.03.2017. The deviation report prepared by the A.O. had received the approval of the ACIT, despite which the A.O. reversed its position while passing the assessment orders, as alluded to above, at the say-so of his superiors who were part of the investigation wing. In this context, reliance was placed on the letter dated 24.12.2018 addressed by the Deputy Director of Income Tax (Investigation) to the ACIT. (iv) Insofar as the merits of the matter are concerned, it was submitted that the addition made by the A.O. on account of share capital/share premium (along with supposed commissions paid by the assessee), was rightly deleted by the Tribunal as it concluded that the monies invested in the assessee were its own money, which had been advanced to the investor entities, who, in turn, had invested the same in the assessee in the form of share capital/share premium. A finding of fact has been returned by the Tribunal that these transactions were carried out, via banking channel, and involved money which was accounted for in the assessee's books of accounts and, therefore, it need not be disturbed. (v) Insofar as deletion of disallowance on account of bogus purchases ITA No.68/2021 & connected matters Page 15 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 was concerned, the Tribunal has once again reached a correct conclusion. The Tribunal, after considering the material on record, reached a finding that no evidence of bogus purchases could be found during the search and seizure action. The Tribunal noted that the statement made by the Managing Director of the assessee had been retracted within 48 hours, and, therefore, ―‖could not form the basis of addition in respect of abated years. Furthermore, the Tribunal correctly concluded that, while disallowing the purported bogus purchases, it had ignored the sales made against such purchases. According to the Tribunal, if sales were taken into account, it would be seen that the assessee had returned a profit on these transactions. Besides this, it needs to be appreciated (as noted by the Tribunal) that the purported bogus purchases were backed by bills and vouchers and details entered in the assessee’s stock register. The assessee’s books of accounts, which were duly audited, reflected these transactions. The assessee had proved the validity of these transactions by relying upon the balance sheet(s) and profit and loss account(s) of third parties. Importantly, as noted by the —Tribunal, the revenue had failed to take into accountstock worth nearly Rs.450 crores, which was lying at the assessee’s Sonipat godown. (vi) As regards deletion of addition made on account of cash deposited by the assessee with its banker post demonetization, the Tribunal, on carrying out an analysis of the transactions made during the relevant period, came to the conclusion that the cash deposited aligned with the cash sales effected by the assessee during the said period. As noted by the Tribunal, there was no evidence available on record which would persuade it to hold that the assessee had booked non-existent sales. Furthermore, as noted by the Tribunal, the A.O., while making the addition under this head, erroneously (vi) As regards deletion of addition made on account of cash deposited by the assessee with its banker post demonetization, the Tribunal, on carrying out an analysis of the transactions made during the relevant period, came to the conclusion that the cash deposited aligned with the cash sales effected by the assessee during the said period. As noted by the Tribunal, there was no evidence available on record which would persuade it to hold that the assessee had booked non-existent sales. Furthermore, as noted by the Tribunal, the A.O., while making the addition under this head, erroneously ITA No.68/2021 & connected matters Page 16 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 added Rs.63.41 crores, which included new currency notes of denomination of Rs.2,000 and Rs.500 and old currency notes bearing the denomination of Rs.100/-, Rs.50/-, Rs.20/- and Rs.10/-; which had not been demonetized. The Tribunal also noted, in this context, that the A.O. had failed to take into account that the period in issue spanned between 9.11.2016 and 30.12.2016, and, therefore, the total amount worked out to Rs.175.57 crores and not 180.53 crores, which was the sum that the A.O. sought to add to the assessee's declared/returned income. Thus, in effect, the Tribunal concluded that no addition could be made even under this head. -Analysis and Reasons: 10. We have heard the learned counsel for the parties and perused the record. 10.1. According to us (as noted at the very outset), there are three heads under which the authorities below have dealt with the assessee’s case concerning the six AYs, in issue. But before we move further, as noted by us right at the beginning of our discussion, amongst the six AYs, in three AYs i.e., 2012-2013, 2013-2014 and 2014-2015, assessment orders were passed under Section 143(3) of the Act. Insofar as AY 2012-2013 was concerned, the A.O. had sought to add Rs.18.50 crores towards unexplained share capital/share premium; an addition which was set aside by the CIT(A), vide order dated 31.03.2016. Therefore, insofar as these AYs are concerned, the assessed income of the assessee could be disturbed only if incriminating material had been found by the revenue during the search. 10.2. As noted hereinabove, the search and seizure operation was carried on 21.03.2017. During the search and seizure operation, the statement of the ITA No.68/2021 & connected matters Page 17 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 Managing Director of the assessee i.e., one Mr Arpesh Garg was recorded, under Section 132(4) of the Act. This statement was recorded on 22.03.2017. Mr Arpesh Garg retracted his statement on 24.03.2017. 10.3. It is, therefore, relevant to note, at this juncture, as to what exactly Mr Arpesh Garg stated in his statement recorded under Section 132(4) of the Act, and in the letter dated 24.03.2017, whereby he retracted his statement. A careful perusal of the extract of the statement made by Mr Arpesh Garg, Managing Director of the assessee (as recorded in the assessment orders in-issue) would show that all that he had stated was that it was the assessee’s own money, given in the form of loan and/or bogus sales or purchases, that had been routed back to the assessee in the form of share capital/share premium, albeit, through banking channels. 10.4. The Tribunal, in this context, records a finding of fact that ―no unaccounted income of the assessee‖ had been introduced in its books of accounts in the form of share capital. Based on this, the Tribunal concluded that there was ―no confession‖ made by Mr Arpesh Garg that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under Section 132(4) of the Act did not constitute incriminating material. 10.4. The Tribunal, in this context, records a finding of fact that ―no unaccounted income of the assessee‖ had been introduced in its books of accounts in the form of share capital. Based on this, the Tribunal concluded that there was ―no confession‖ made by Mr Arpesh Garg that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under Section 132(4) of the Act did not constitute incriminating material. 10.5. Likewise, insofar as the retraction (as noted above) was concerned, the Tribunal noted that in the letter dated 24.03.2017, it had only been indicated that to avail benefits under the Pradhan Mantri Garib Kalyan Yojna (PMGKY) Scheme, it had offered to pay tax on Rs.50 crores, which was later modified to Rs.30 crores. The Tribunal notes that there was no disclosure concerning share capital, and, hence, the aforementioned statement, which formed part of the letter dated 24.03.2017, could not be ITA No.68/2021 & connected matters Page 18 of 53 treated as incriminating material. 10.6. Insofar as the revenue sought to argue that photocopies of (blank) share transfer forms, (blank) signed receipts, (blank) signed power of attorney and other documents necessary for the transfer of shares was concerned- that the said documents constituted incriminating material, the Tribunal noted the following : (i) Firstly, out of the 36 shareholders, photocopies were found only qua12 shareholders. (ii) Secondly, that such transfer forms and documents even when recovered in original, as per its [i.e., the Tribunal] own precedents[2], had not been considered as incriminating material to unravel a concluded assessment. (iii) Thirdly, photocopies do not constitute primary evidence and, in the absence of any other material, it could not be treated as secondary evidence as well. Importantly, it was not the stand of the revenue that the photocopy had been made from an original document. (iv) Lastly, the revenue ought to have summoned all those investors who ostensibly had executed the documents, whose photocopies were produced, to substantiate its stand that they constituted incriminating material. 10.7 Based on the aforesaid, the Tribunal concluded that since for AYs 2012-2013, 2013-2014 and 2014-2015, no incriminating material concerning 2See ACIT, Central Circle-5, New Delhi vs M/s Gee Ispat Pvt. Ltd., A-28, Sector 19, Rohini, Delhi-110085, passed in ITA Nos. 4256-59/Del/2014, dated 31/5/2018; M/s Brahmaputra Realtors (P) Ltd. vs Dy. Commissioner Of Income-Tax 2018 (3) TMI 1598 - ITAT Delhi; M/s M.L. Singhi & Associates (P) Ltd. vs Deputy Commissioner Of Income Tax, Central Circle-7, New Delhi, 2018 (10) TMI 50 - ITAT Delhi; M/s Galaxy Rice Industries Pvt. Ltd. vs. D.C.I.T., Central Circle, Karnal, passed in ITA Nos.1451-53/Del/2013, dated 1/3/2018 Rohini, Delhi-110085, passed in ITA Nos. 4256-59/Del/2014, dated 31/5/2018; M/s Brahmaputra Realtors (P) Ltd. vs Dy. Commissioner Of Income-Tax 2018 (3) TMI 1598 - ITAT Delhi; M/s M.L. Singhi & Associates (P) Ltd. vs Deputy Commissioner Of Income Tax, Central Circle-7, New Delhi, 2018 (10) TMI 50 - ITAT Delhi; M/s Galaxy Rice Industries Pvt. Ltd. vs. D.C.I.T., Central Circle, Karnal, passed in ITA Nos.1451-53/Del/2013, dated 1/3/2018 ITA No.68/2021 & connected matters Page 19 of 53 the share capital was found, no additions could have been made by the revenue. 10.8 As noted above, a coordinate bench of this court in the Kabul Chawla case on the aspect concerning the jurisdiction tax authorities to disturb the concluded assessments has made the following observations: ITA No.68/2021 & connected matters Page 19 of 53 the share capital was found, no additions could have been made by the revenue. 10.8 As noted above, a coordinate bench of this court in the Kabul Chawla case on the aspect concerning the jurisdiction tax authorities to disturb the concluded assessments has made the following observations: “37…..vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.” First Issue 11. Therefore, having regard to the aforesaid observations made in the Kabul Chawla case, the only aspect that the Tribunal had to examine was whether the statement made by Mr Arpesh Garg, Managing Director of the assessee under Section 132(4) of the Act and the photocopies of the documents found during the search and seizure action constituted incriminating material. 11.1. The Tribunal, in our view, has correctly analysed the statement of Mr Arpesh Garg. The statement does not allude to the fact that the assessee had introduced ―unaccounted money‖ in the form of share capital/share premiumthrough investor entities. The retraction letter, as noted by the Tribunal, also did not advert to the introduction of investment of money in the assessee in the form of share capital/share premium. 11.2. Furthermore, as noticed above, based on past precedents, the Tribunal noted that the photocopies of documents such as blank share transfer forms, ITA No.68/2021 & connected matters Page 20 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 blank receipts and blank power of attorney did not constitute incriminating material. Mr Sharma was not able to draw our attention to any authority, which has taken a contrary view. According to the Tribunal, even in those cases where originals of such documents were found, they were not construed as incriminating material, based on which assessment could be made under Section 153(A) read with Section 143(3) of the Act. Significantly, the revenue chose not to examine those, who had ostensibly executed these documents. It was not argued before us that the finding returned by the Tribunal on this aspect of the matter was perverse. 11.3. Thus, having regard to the aforesaid, we concur with the view of the Tribunal that assessments concluded in respect of AYs 2012-2013, 2013-2014 and 2014-2015 under Section 143(3) of the Act could not be disturbed, as no incriminating material was found. 11.4. Besides this, on merits, the Tribunal, after detailing out in paragraph 76 of the impugned order the trail of the money received from various entities in the form of share capital/share application money, concluded that the assessee had been able to place before the A.O. sufficient documentary evidence which established that the money which the assessee had paid to the investor entities was routed back to it in the form of share capital/share premium. 11.5. That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of Section 68 of the Act. The relevant observations made in paragraph 86 by the Tribunal read as follows : “86. Considering the facts of the case in the light of material on record in voluminous paper books and confirmations of the parties ITA No.68/2021 & connected matters Page 21 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 11.5. That being the position, the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of Section 68 of the Act. The relevant observations made in paragraph 86 by the Tribunal read as follows : “86. Considering the facts of the case in the light of material on record in voluminous paper books and confirmations of the parties ITA No.68/2021 & connected matters Page 21 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 and the summary of transfer of funds reproduced above, it is clear that assessee produced sufficient documentary evidences before the A.O. to prove that money routed from the assessee itself which came back to the assessee in the form of share capital/premium, therefore, assessee proved identity of the Investors, their creditworthiness and genuineness of the transaction in the matter and as such have been able to prove ingredients of Section 68 of the I.T. Act. The A.O. however did not make any further enquiry on the documentary evidences filed by the assessee. The A.O. did not verify the trail of the source of funds received by assessee through various entities as explained above. We may also note that during the course of hearing of these appeals, A.O. was present in the Court, but, did not make any adverse comment upon the documentary evidences filed in the paper book filed by the assessee. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Companies and the assessee company despite the fact that in the deviation report the A.O. expressed doubts in making addition into the matter. It may also be noted here that no cash have been reported to have been deposited in the accounts of the assessee, the Investor Companies and other related parties. Considering the totality of the facts and circumstances of the case and material on record, we are of the view that assessee has been able to prove that it has received genuine amounts which is routed through various companies. Therefore, there was no justification to make any addition under section 68 of the I.T. Act.” 11.6. The moot point which the Tribunal, thus, dealt with, as noted by us hereinabove, was- that as long as there was no material on record which established that unaccounted money (i.e., income generated which was not recorded in the books of accounts) had been funnelled in the form of investment by way of share capital/share premium, it could not be made the basis for making addition under Section 68 of the Act. 11.7. It is important to bear in mind that Section 68 empowers the AO (provided all others ingredients are met) to tax credits found in the books of ITA No.68/2021 & connected matters Page 22 of 53 NEUTRAL CITATION NO: 2022/DHC/000234 accounts maintained by the assessee for any previous year, for which he offers no explanation about its nature and source. The first proviso, which was inserted by Finance Act, 2012 in the context of share application money, share capital, share premium or any other amount by whatever name called, engrafted a deeming section as to when the explanation would be considered satisfactory. Pertinently, motivation of the assessee in routing its own money (which was given to the investor entities in the form of loan, etcetera) as an investment in share capital/share premium has not been adverted to therein. That motivation is not the basis for attracting the provisions of the Income Tax Act, if otherwise, an assessee does not fall within its net, is a well-established principle. This principle, in our view, should also apply to Section 68 of the Act. [See Aruna Group of Estates, Bodinayakanur v. State of Madras, 1961 SCC OnLine Mad 252[3]; 3“……The Tribunal seems to have been considerably obsessed by the supposed motive of Subbaraj and his sons of lessening the incidence of taxation in holding that there was no partition between them. A partition cannot be vitiated by a bad motive or a mala fide object. It may be an obstacle to a creditor seeking remedies in the execution of a decree or to a taxing authority levying a tax but nonetheless it is effective and cannot be put aside. Let us assume that Subbaraj and his sons desired to lighten their tax burden by exercising their undoubted right to disrupt the joint family, and let us also assume that the giving effect to the partition will reduce their tax liability. But there is nothing wrong or illegal about it. Avoidance of tax is not tax evasion and it carries no ignominy with it for it is sound law and, certainly, not bad morality for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum......Subbaraj and his sons of lessening the incidence of taxation in holding that there was no partition between them. A partition cannot be vitiated by a bad motive or a mala fide object. It may be an obstacle to a creditor seeking remedies in the execution of a decree or to a taxing authority levying a tax but nonetheless it is effective and cannot be put aside. Let us assume that Subbaraj and his sons desired to lighten their tax burden by exercising their undoubted right to disrupt the joint family, and let us also assume that the giving effect to the partition will reduce their tax liability. But there is nothing wrong or illegal about it. Avoidance of tax is not tax evasion and it carries no ignominy with it for it is sound law and, certainly, not bad morality for anybody to so arrange his affairs as to reduce the brunt of taxation to a minimum...... xxx xxx xxx The next question for consideration is whether registration can be refused on the ground that Suppan Chettiar's sons have not validly derived their respective shares by any transfer of title from Suppan Chettiar. It is true that the only evidence on record which enables the sons of Suppan Chettiar to claim his share is the letter already referred to. It is always open to any partner to retire from the firm yielding his place to his nominee or nominees. If all the other partners of the firm agree to this retirement and substitution of the new partner or partners, a new partnership springs into existence. The absence of any valid document of transfer from Suppan Chettiar to his sons, we do not say that the letter of Suppan Chettiar is not enough, cannot really affect the question whether the sons