IN THE ITAT DELHI BENCH ‘G’
Suresh Nanda
V/s.
Assistant Commissioner of Income-tax, Central Circle-13
IT Appeal NOS. 1428 to 1430 (DELHI) OF 2012
[ASSESSMENT YEARS 2001-02, 2002-03 & 2004-05]
JULY 24, 2012
ORDER
R.P. Tolani. Judicial Member – These are three appeals by the assessee against separate orders of CIT(A)-I, New Delhi dated, 8-2-2012 for A.Y. 2001-02 & 2002-03; dated 10-2-2012 for A.Y. 2003-04. Since common grounds are involved for adjudication in these appeals, the same are heard together and being disposed of by a consolidated order, for the sake of convenience.
2. Assessee has raised various grounds. Common grounds Nos. 1 to 4 in all these appeals are not pressed, hence dismissed.
2.1 Ground nos. 9 & 10 in A.Y. 2001-02 ground nos. 14 & 15 in A.Y. 2002-03; & ground nos. 10 & 11 in A.Y. 2003-04 are general in nature, requiring no adjudication.
3. Coming to other grounds, common ground nos. 5, 6, 6.1, 6.2 & 6.3, raised in all the appeals, are as under-
“5. That on the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in not admitting the additional evidence filed on 11-02-2011 under rule 46A of the Income-tax Rules, 1962 in spite of calling for remand report from the AO, without giving any valid reason.
6. That on the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the action of the Assessing Officer taking the status of the assessee as “resident’ as against status of ‘non’ resident’ claimed in the return and accepted in the original assessment made u/s 143(3) for A.Y. 2001-02 and in appeal by the CIT(A) which became final as no appeal was preferred in ITAT by the Department.
6.1 That on the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in holding that assessee’s residential status is governed by clause (c) and not by clause (b) of section 6 of the Income-tax Act, 1961 by saying that assessee is actually involved in managing his business in India directly or indirectly through his son, Mr. Sanjeev Nanda.
6.2 The Ld. CIT(A) has further erred in saying that clause (b) cannot override clause (c) of section 6 of the Income-tax Act, 1961.
6.3 The ld. CIT(A) has erred in law in holding the assessee as a resident of India.
3.1 Common ground nos. 8 & 8.1 in A.Y. 2001-02 & 2002-03 and ground no. 9 & 9.1 in A.Y. 2003-04 (excepting quantum), are as under:
“That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in adding a sum of Rs. 9,34,15,000/-and Rs. 65,85,000/- in A.Ys. 2001-02 and 2002-03 respectively representing share capital and Rs. 9,53,00,000/- as loan in A.Y. 2003-04 subscribed in M/s Ol India Pvt. Ltd. The amounts were actually subscribed by its holding company M/s Y2K Systems International Ltd. Mauritius and not by the assessee.
That the above addition made by the Assessing Officer and sustained by the Ld. CIT(A) is illegal as substantive addition has also been made in the case of M/s Ol India Pvt. Ltd. which tantamount to double addition not permissible under law.
3.2 Common issue raised in ground no. 9 for A.Y. 2002-03 & ground no. 8 for A.Y. 2003-04 is as under:
“That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of Rs. 2,17,57,724/- (A.Y. 2002-03) & Rs. 27,94,40,988/- (A.Y. 2003-04), on the basis of certain documents purportedly recovered by the Delhi Police on 20-02-2007 from the possession of Mr. M.V. Rao.
3.3 Common issue raised in ground no. 10 for A.Y. 2002-03 & ground no. 7 for A.Y. 2003-04 is as under:
That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in adding a sum of Rs. 24,40,000/-(A.Y. 2002-03) & Rs. 23,20,000/- (A.Y. 2003-04), on the presumption that the same was paid by the assessee to his wife Smt. Renu Nanda out of undisclosed sources towards her maintenance expenses.
3.4 That leaves the individual grounds which are raised in following years:
A.Y. 2001-02
“7. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of Rs. 10,51,20,000/- made on the basis of handwritten page allegedly containing debit and credit entries in assessee’s account with Deutsch Bank, Singapore on the ground that no explanation was given with regard to the source of the funds.
7.1 That on the facts and in the circumstances of the case the above addition made by the AO and confirmed by the CIT(A) is not correct as deposits in foreign bank account of the non-resident are not exigible to tax in India as already held by the CIT(A) in his order dated 19-11-2004 in assessee’s own case.”
A.Y. 2002-03
7. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of Rs. 45,95,000/- towards unexplained expenditure incurred on the wedding ceremony of daughter Sonali Nanda.
11. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in adding a sum of Rs. 18,76,165/- on the basis of certain documents purportedly recovered from the possession of Mr. Mohan Sambha Ji Jagtap.
11.1 That the above addition made by the AO and confirmed by the CIT(A) is illegal as the same was on a false presumption that assessee has a proprietary concern by the name M/s Globtech International Corporation and the amount was received by the said proprietary concern.
12. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of 1,20,000/- on the ground that during the search proceedings in the case of Shri Mohan Sambha Ji Jagtap, an imprest account was noticed which represented an unaccounted amount spent on import of Chocolates during the wedding ceremony of assessee’s daughter Sonali Nanda.
13. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of in adding a sum of Rs. 1,78,850/- on the basis of certain documents purportedly recovered by the Delhi Police on 22-02-207 from the possession of Shri Mohan Sambha Ji Jagtap saying that the same represented unaccounted expenditure on Bijwasan Farm belonging to the assessee.
4. Brief facts are- Assessee has been regularly assessed to tax in India since past so many years in the status of ‘Non-resident’ by way of assessments u/s 143(3). On the same lines, original assessment under regular provision of Sec. 143(3) for A.Y. 2001-02 was also framed on 26-3-2004, treating the assessee as Non Resident. Some additions to the tune of Rs. 1,21,93,650/- were made by the AO in the assessment.
4.1 Aggrieved assessee challenged the same in first appeal, wherein they were deleted. On second appeal, by the Revenue, the ITAT dismissed the same by upholding the order of CIT(A),
4.2 In the meanwhile, on 22nd February, 2007, Delhi Police searched the premises of one Dr. M.V. Rao who was found to be impersonating himself as Scientific Advisor to the Prime Minister of India. Delhi police accordingly informed the Directorate of Income tax (lnv.) that during the course of search action on one Dr. M.V. Rao they have found cash amounting to Rs. two Crores lying at his Green Park house along with some incriminating papers. Consequent thereto, the Director of Income Tax (Inv.)-II, Delhi issued Warrant of Authorization under section 132 of the Income tax Act, 1961 for search & seizure action at the premise of said Dr. M. V. Rao.
4.3 Subsequently, DIT (lnv) requested the Delhi Police to hand over photocopies of the documents seized by them. Search and seizure operations were also carried out at assessee’s premises by income tax department on 28-2-2007 along with one Shri Mohan Sambhaji Jagtap. Consequent to search, all these cases were centralized u/s 127(2). Notices were issued for proceedings u/s 153A and these assessments are accordingly framed u/s 153A read with Sec. 143(3).
4.4 Assessee filed his returns of income u/s 153A claiming the same status i.e. ‘Non Resident’ as claimed consistently. During the course of assessment proceedings AO found that some papers seized from Dr. D V Rao were confidential order sheet entries of the Ministry of Defence. Some of these papers are related to M/s Tadiran Communication Israel. M/s Transcom Services Ltd. was representing Tadiran in India for the servicing of communication equipment used by Indian armed force.
4.5 Among the papers received from the Delhi Police were page nos. 58 & 59 of Annexure A-10 which allegedly detail the working of commission on arms contracts and the corresponding payments. Other papers include a note on Page wirh page nos. 60 & 61 as its attachments. The contents of page no. 58 & 59 and other pages are reproduced in the assessment order.
4.6 AO was of the view that these documents were details of the commission payments related to contracts for Radio Sets of the Indian Defence establishment. According to Delhi Police. Dr. M.V. Rao did not furnish any explanation contending that he was not in a position to comment upon the documents due to his critical health condition. The contents and purported meaning of the page documented is reproduced by AO in his order.
4.7 Assessee denied any role or connection with these deals however Assessing Officer held him to be closely involved with the business of Tadiran in the Indian Defence establishment, as reflected by page no. 79 of Annexure A-10, found and seized on 22.02.2007 from residence of Dr. M.V. Rao.
4.8 Based on the above mentioned documents, Assessing Officer derived the following conclusions:
(i) Sh. Suresh Nanda is actively involved in facilitating defence deals for foreign companies in India. Tadiran is one such client.
(ii) The four contracts mentioned in the page Nos. 58 & 59 of Annexure A10 are contracts with Indian Defence establishment given to Tadiran of Israel. Commission ranging from 5 to 10 percent of the total value of the contract has been paid.
(iii) The foot note on page 59 mentions that pages 58 & 59 are reconciliation statement. Pages 60 & 61 confirm the receipt of the amount mentioned in page 58 & 59. Thus, the commission income has been actually received in the hands of Sh. Suresh Nanda & his Group.
4.9 On the basis of information received from Dr. M.V. Rao, similar search & seizure operations were carried out in the premises of one Shri Mohan Jagtap and assessee. It resulted in seizure of some other papers and statement on oath of Shri Jagtap.
4.10 During the course of search proceedings a document in Russian Language was found & seized as page no. 4, Annexure no. 2 from the residence of Sh. Mohan Sambhaji Jagtap on 28-2-2007. The Russian to English translation to this document was arranged during the course of assessment proceedings.
4.11 This document has been signed by Sh. Mohan Sambhaji Jacthap as the agent. The remittance has been made to the bank account of Globtech International Inc. According to the AO, a perusal of the above document it is amply clear that parts 53-65K worth US$384460 have been sold in India and on this sale the commission due of USD 38446 has to be paid to the account of Globtech International Inc. This is in accordance with an agreement dated 30.03.1998. The document bears a date stamp of 07.05.2001.
4.12 During the course of search proceedings, one profile of Sh. Suresh Nanda was found & seized marked as page nos. l to 4, Annexure A15. As per this document assessee was alleged to have formed Globtech International Corporation as partnership concern dealing in consultancy and shipping activities of a technical nature. Another profile of Sh. Suresh Nanda was found and seized at page no. 22 Annexure A7, Party R-I, mentioning assessee as owner of Globtech International Corporation. AO rejecting assessee’s explanations held that these papers represented that he had been receiving commission on supply of these goods to India, which was deposited in bank accounts situated in tax haven countries like Jersey Islands etc. as stated in the documents.
4.13 On the basis of these observations and material found during the course of search from the premises of the assessee, said M/s Dr. M.V. Rao & Mohan Jagtap, the Assessing Officer drew following inferences:-
3.1 Before year 2003 assessee had small set up in India in the form of small companies namely M/s. Crown Corporation Pvt. Ltd., M/s. Dynatron Services Pvt. Ltd., M/s C-l India Pvt. Ltd. and M/s. Transcom Services India Pvt. Ltd. etc. These companies were mostly engaged in services and spares of defence armaments. Mr. Nanda being a former Navy Man specializes in contracts for services and spares for equipment used by the Indian Navy.
3.2 In year 2003 he started investing heavily in hotel properties and lands in Delhi NCR and Mumbai. His first acquisition in India was the prestigious Hotel Claridges situated in Lutyens Delhi. After acquiring the Claridges he went on to extensively renovate the property and converted it into a boutique five star hotel. Along with this deal he also took management control of Claridges Nabha Palace, Mussorie. In year 2005 M/s Claridges Hotel Pvt. Ltd. acquired a company by name of M/s Godawari Shilpkala Ltd., which has hotel property in Surajkund, Faridabad (Haryana) by name of Hotel Hill View. In year 2005 Claridges Hotel Pvt. Ltd. also acquired the holding companies of another company by name of M/s” Elel Hotels & Investment Pvt. Ltd., which was the owner of very prime hotel property in Mumbai by name of Hotel Sea Rock.
3.3 Apart from this, in 2006 assessee went on a land buying spree on Mumbai Pune Express Highway and consolidated to big land holdings-one admeasuring about 1100 acres in Karjat, Mumbai-Pune Expressway & other about 280 acres of land in Panvel, Maharashtra. The first patch of land is owned by a company named as Claridges SEZ Pvt. Ltd. (formerly Tsunami Tech Pvt. Ltd.) and the second patch is owned by M/s Crown College & Education Institutions Pvt. Ltd. M/s Claridges SEZ Pvt. Ltd. has obtained an in principle approval from Ministry of Commerce for establishing a multi product SEZ and M/s Crown College & Education Institutions Pvt. Ltd., which is planning a multi disciplinary college or a Golf Course in the Pan vel land .
4.14 Assessing Officer inferred that on paper these companies were controlled by entities situated out side India or by the entities which were ultimately controlled by entities situated out side India. For example M/s Claridges Hotel Pvt. Ltd. is ultimately controlled by an entity situated in Mauritius by name of Universal Business Solutions, Port Louis, Mauritius, M/s Claridges Hotel Pvt. Ltd. in turn owns various subsidiary companies which own different properties.
4.15 On papers, though there appeared to be no connection between assessee and concerned Indian companies but their Board of Directors went on appointing assessee as Chairman and his son Sh. Sanjeev Nanda as Managing Director of these companies. Thus, it was presumed that these companies were owned by assessee.
4.16 According to Assessing Officer the assessee has failed to disclose his exact and true relationship and interest in the foreign entities controlling the Indian companies on the pretext of assessee being a non resident and these companies being foreign entities.
4.17 Assessing Officer was of the view that the assessee had been working as middlemen for looking after various defense deals involving tedious procedure, documentation, persuasions and liaisoning in clandestine manner. These services were rendered in India by the assessee. The resultant commission income arising from these were received abroad. AO alleged that this income has been brought into India in form of F.D.I, and external commercial borrowings and by floating various entities abroad. Thus, all these incorporated foreign entities and their Indian investments were held to be assessee’s front organizations.
4.18 It was held that Dr. M.V. Rao is a close associate of assessee, who operated from the office building of the companies of Nanda group at D-5. Defence Colony, New Delhi. Dr. M.V. Rao was a Director in C1 India Pvt. Ltd. and M/s Transcom Services Pvt. Ltd. Therefore, these companies were held to be benami entities including C 1 India Pvt. Ltd. It was thus held that assessee holds large stake through Mauritius based entity Y2K Systems International Ltd. The main investor in Transcom India Pvt. Ltd. was one Inet Communications Pvt. Ltd., which is controlled by one Sh. Bipin B. Shah. He was also a close associate of Sh. Suresh Nanda and was a Director in almost all the major companies of the group. In fine it was held that assessee owned and controlled these Benami concerns, though on papers they were shown to be controlled by other persons. Thus the funds for investments came from clandestine arms deals, which were routed by assessee.
4.19 On the basis of the above, Assessing Officer drew various conclusions including that assessee was earning income from brokerage of clandestine arms deals and Dr. M. V. Rao and Mohan Jagtap were working together.
4.20 Assessee’s statement recorded on 8.03.2007 before the DDIT, was construed by AO as implied admission of having various business interests in India. The relevant portion of the statement is reproduced the below for ready reference”
Q.10. Please disclose your all movable assets including Bank accounts. FDRs, investment in banking, investment in capital market, investment in (P) Ltd. Company/firm/AOP etc.
Ans. Jly bank accounts are as follows-
Deutsche Bank, New Delhi NRO & NRE ale
Some FDRs in the State Bank of India, branch I don’t remember
Demat a/c with the ICICI Bank
I have interest in following companies as a share holder:
Crown Corporation (P) Ltd.
Dynatron Services (P) Ltd.
Cl India (P) Lt-Investment through Y2K Ltd., Mauritius
Claridges Hotels (P) Lt-Investment made through Mauritius based company UBS.
4.21 Apropos C 1 India Pvt. Ltd, it was inferred that assessee controls the day to day functioning of the company. An e-mail from one Shri Vivek Aggarwal, President and CEO of C-l India Pvt. Ltd. was found and seized addressing his resignation to Sh. Suresh Nanda citing his inadequate compensation. This was construed to be indicting that assessee controlled the affairs of Cl India Pvt. Ltd.
4.22 Apropos the balance sheet and the Profit and Loss accounts of M/s. Y2K Systems International Limited, AO inferred that the company does not have any significant income. It has been used as mere conduit to channelize assessee’s unaccounted money in the guise of loans and other borrowings.
4.23 Based on the above facts, it is was observed that the assessee has been bringing in unaccounted money through Mauritius based entity Y2K Systems International Limited due to weak exchange control norms there.
4.24 The e-mail of Shri Vivek Agrawal established that assessee was controlling C-l India and was the ultimate source of investment in C-l India Pvt. Ltd. through YK2 Systems and controlled its affairs. Hence, the capital received by Cl India Pvt. Ltd. was treated as unexplained investment of the assessee and added to his taxable income. Thus Assessing Officer held that-
(i) Assessee was engaged in the business of arms dealings along with Dr. M.V. Rao & Mohan Jagtap.
(ii) Y2K was benami company of the assessee.
(iii) Capital introduced by Y2K in C-l India was assessee’s money.
4.25 Assessing Officer also proposed to assessee to show cause, as to why he should not be treated as ‘Resident’ assessee instead of ‘Non-Resident’ as held earlier and taxed accordingly in India. The passport entries about assessee’s stay over a period in India were found to be as under-
