Brief of the Case
Delhi High Court held In the case of CIT vs. Provestment Securities Pvt. Ltd. that we are inclined to agree with the Tribunal that the question whether an investment had been made or not is a matter of fact and the same cannot be presumed. In the present case, it is probable that either the Assesses or any other person related to the assesses would have paid for acquiring the vehicle in question. An investigation into the sources of the funds may perhaps have established a link between the funds used for the purchase of the vehicle and the Assesses. However, no such link has been established. In absence of any material to show that the consideration for the vehicle had not been paid by assesses, it is not possible to conclude that the Assesses had made an investment in purchase of the vehicle in question. In the facts and circumstances, we are unable to hold that the decision of the Tribunal is perverse.
Facts of the Case
The Assesses is a promoter of a public company – JCT Ltd. which belongs to the Thapar Group. Mr Sameer Thapar is the Vice-chairman-cum-Managing Director of JCT Ltd. He is also the Karta of Sameer Thapar & Sons (HUF), which is stated to own 99% of the shareholding of the Assesses. The Department of Revenue Intelligence (Customs Department)(DRI) conducted search and seizure operations on the premises of one Mr Sanjay Bhandari, in connection with the import of motor vehicles under the EPCG Scheme at a concessional rate of duty.Pursuant to the search, notices were issued by the DRI for productionof the vehicle in question, which was in possession of Mr. Sameer Thapar. The vehicle in question was produced before the DRI on 10th September, 2005 and was seized by the DRI on that date for alleged violation of duty payment.
On the basis of information received from the Assistant Director of Income Tax regarding the vehicle in question, a show cause notice was issued by the AO to the Assesses on 19th November, 2008 requiring the Assesses to explain the source of the investment of the vehicle in question. In response to the show cause notice, the Assesses filed a letter dated 22nd November, 2008. The Assesses explained that M/s V.K. Tours & Travels (VKTT) had approached the Assesses for taking the vehicle on lease and had handed over the possession of the vehicle for trial. While the vehicle was still on trial, the same was seized by the DRI. Subsequently, the vehicle was released to the Assesses on the payment of differential duty, execution of bond and submission of bank guarantee for fine and penalty. Since no consideration was shown to have been paid for the original cost of the vehicle, the AO was not convinced of the explanation offered as to the rights being exercised by the Assesses in respect of the vehicle in question. Accordingly, the AO held that the Assessee’s investment in purchasing the vehicle was liable to be taxed in its hands, as unexplained investment u/s 68.
Held by CIT (A)
The Assesses sought to produce further documents and filed an application under Rule 46A for production of additional evidence, which included an invoice in favour of M/s History Logistics; copy of the letter of credit issued by the Oriental Bank of Commerce; copy of the bank advice dated 15th April, 2005 for remittance of Rs.70,89,972/-; marine insurance policies; invoice dated 31st March, 2005 for the sale of car by M/s History Logistics to VKTT; a copy of challans /invoice for payment of insurance premium of Rs.2,96,793/, custom duty for Rs.4,89,968/-, commission for Rs.42,978/- and other charges for Rs.88,945 paid by VKTT; and confirmation from Mr Sanjay Bhandari regarding the purchase of the car and payment of the aforesaid amounts. The CIT (A) called for the comments of the AO. Although the AO opposed the production of additional evidence but the CIT (A) allowed the Assessee’s application and called for a remand report.
The Assesses also produced a letter from Sanjay Bhandari which indicated that Sanjay Bhandari had agreed to transfer the vehicle to the Assesses or its nominee in consideration of the amounts paid by the Assesses to the Authorities for release of the vehicle and without any further consideration. The letter also indicated that the duties had been paid by the Assesses on an understanding that the vehicle would be transferred to the Assesses on the final order being passed by the Settlement Commission.
After examining the application of the Assesses, the letters submitted by Mr Sanjay Bhandari as well as the order of the Settlement Commission, the CIT (A) upheld the assessment order for addition of the value of the car under Section 69. However, the CIT (A) enhanced the quantum of addition by Rs.2,92,694/- from Rs.1,37,07,306/- to Rs.1,40,00,000/-, which was the value computed by the Directorate of Revenue Intelligence.
Held by High Court
It is apparent from the letter submitted by the assesses that the Assesses claims that it had neither executed any agreement for hire of the vehicle nor paid any consideration for the vehicle in question; yet, the vehicle was registered at the address of the related entity and, indisputably, the Assesses/Sameer Thapar has been in physical possession of the vehicle from May 2005 (except for the few days that the vehicle was in possession of the DRI). Although the Assesses claims that the vehicle was to be leased to the Assesses, its actions are clearly not consistent with this position. If the vehicle was provided to the Assesses only for a trial purpose, there was no occasion for the Assesses to file an application or move the Settlement Commission for settlement of the duties with respect to the said vehicle or seek release of the vehicle. However, the Assesses acted in complete variance with this position; it paid the duty for release of the vehicle, obtained possession of the same on superdari and continued to use the vehicle.
During the relevant period, Assesses showed the payment of duty as a recoverable from VKTT even though there was no agreement with VKTT for payment of such duty at the time nor was it produced at any later stage. During the year ended 31st March, 2008, the Assesses capitalized the payments of duty under the head of ‘vehicle’ in its books of accounts and the penalty, redemption fine and interest were debited by the Assesses under the respective heads. Thus, the Assesses indicated the payment of penalty, redemption fine and interest as its liability in its books during the year ended 31st March, 2008 and not as amounts paid on behalf of VKTT. At this stage, (i.e. during the year 31st March, 2008) the Assessee’s books reflected the Assesses to be the owner of the vehicle in question. Concededly, no agreement had been entered into by the Assesses with VKTT during the interregnum period entailing the transfer of the vehicle.
The vehicle was registered on 23rd May, 2005 and it is apparent that even at the time of registration, it was known that the vehicle would be used by JCT, Sameer Thapar or any of the Thapar Group entities. The only explanation offered before the DRI for registering the car at the address of JCT is that this had been done to inspire confidence and secure the concerns of JCT. However, as per the version of the Assessee, there was no agreement in May 2005 for lease of the vehicle and the vehicle in question was handed over only for the purposes of a trial. According to the statement made by Mr Satish Kapoor (an officer of JCT) before the DRI, the vehicle continued to be in possession of Mr Sameer Thapar from May till 10th September, 2005 when it was seized by DRI. Thus, admittedly, the vehicle continued to be in possession of Mr Sameer Thapar from the month of its registration till its seizure but no agreement for lease or hire of the vehicle had been executed.
In the present case, the threshold condition of the Assesses making an investment is not satisfied. Before the CIT (A), the Assesses had produced additional evidence & a letter. It is apparent from the above that the Assesses had produced sufficient material to establish that the vehicle had been imported by the Sanjay Bhandari (in the name of VKTT) and evidence was also produced to show payment of the cost of the vehicle. The AO on the other hand, has discovered no evidence or material on the basis of which it could be concluded that the cost of the vehicle and the initial duty had not been paid by Sanjay Bhandari. The assertion that the Letter of Credit had been issued by Oriental Bank of Commerce on 21st December, 2004 and subsequently, the Bank Account of M/s History Logistics had been debited by a sum of Rs.70,77,773/- towards cost of the vehicle has not been contested by the AO or the CIT(A). Neither the AO nor the CIT (A) has any material to dispute these assertions.
In the circumstance, we are inclined to agree with the Tribunal that the question whether an investment had been made or not is a matter of fact and the same cannot be presumed. In the present case, it is probable that either the Assesses or any other person related to the Assesses, would have paid for acquiring the vehicle in question. An investigation into the sources of the funds of Sanjay Bhandari/VKTT may perhaps have established a link between the funds used for the purchase of the vehicle and JCT/Sameer Thapar /the Assesses. However, no such link has been established. In absence of any material to show that the consideration for the vehicle had not been paid by Sanjay Bhandari/M/s History Logistics, it is not possible to conclude that the Assesses had made an investment in purchase of the vehicle in question.
In the facts and circumstances, we are unable to hold that the decision of the Tribunal is perverse. The questions of law framed are answered in affirmative and in favour of the Assesses and against the Revenue
Accordingly appeal of the revenue dismissed.