ACIT Vs Mittal Roadways Pvt. Ltd. (ITAT Jabalpur)
From the above correspondence between the A.O. on one hand and the JCIT on the other hand and the letter addressed by the JCIT to the Commissioner clearly shows that it was at the stage of discussion and the JCIT could not able to make his mind. Ultimately he simply says that due to shortage of time as he was holding charges for six ranges, it is not possible for him to go into the material deep, therefore, he approved the proposal technically as required u/s 153D of the Act, immediately, after the AO brings to his notice that the assessment is getting time barred.
From the above communications, it is obvious that the JCIT has not applied his mind even though there was a discussion between the A.O. and JCIT, the JCIT could not make his mind. Hence, this kind of casual approval/technical approval without going to the matter and without applying his mind to the material available on record is not an approval at all. Therefore, A.O. has no jurisdiction to pass the assessment order. In other words, the assessment order passed by A.O. as confirmed by C.I.T.(A) is void, nullity, non-est, hence, cannot be stand in the eye of law.
An irregularity in the assessment order may be rectified by remitting back the matter to the assessment. In the case on hand it is not an irregularity in the assessment order, it is a jurisdictional error. The A.O. has no jurisdiction to pass the assessment order unless the JCIT granted approval. This Tribunal is of the considered opinion that this is not a rectifiable error since it is a jurisdictional error and not an irregularity in the assessment proceeding. Moreover, even if the matter is remitted back, the AO cannot do anything better, since time limit provided under the Act has already expired. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of both the authorities below were set-aside and the entire assessment order as confirmed by C.I.T.(A) are quashed.
FULL TEXT OF THE ORDER OF ITAT JABALPUR
The appeal of the revenue and Cross Objection of assessee are directed against the orders of ld. CIT(A)-1, Jabalpur [‘the CIT(A)’ hereinafter] for Assessment Year 2007-08.
2. Shri Dhiraj Ghai, the ld. representative for assessee submitted that the first ground taken by him is with regard to approval by the JCIT as required under section 153D of the Income Tax Act, 1961 ( ‘the Act’ hereinafter). According to ld. representative for the assessee, no assessment order shall be passed unless it is approved by the JCIT. Referring to Paper Book, the ld. representative for the assessee submitted that the JCIT in categorically terms says that due to shortage of time as he was holding charges of six ranges, it was not possible for him to go into deep. Therefore, the JCIT without going to the material available on record including the draft assessment order approved only for technical requirement u/s 153D of the Act. Referring to section 153D of the Act , the ld. representative for the assessee vehemently argued that unless the JCIT applies his mind to the material available on record and the draft assessment order as proposed by AO, it cannot be construed as approval as required u/s 153D of the Act. Placing reliance on the order of the Delhi Benches of this Tribunal in Sanjay Dungal & Others vs. M/s. ACIT in ITA No. 1813/Del/2019 & Ors. (copies of which available in the P.B). Submitted that approval of JCIT is not a mere formality or ritual. It is mandatory requirement of the statutory provision.
3. The ld. representative for the assessee further submitted that since the JCIT has not applied his mind to the facts of the matter and granted only a technical approval, the A.O. has no jurisdiction to pass the assessment order. Therefore, the entire assessment order as confirmed by the C.I.T.(A) is invalid, non-est and void, hence, the assessment order as confirmed by C.I.T.(A) cannot stand in the eye of law. The ld. representative for assessee also placed a copy of the order of this bench of the Tribunal in the Paper Book in case of Tarachand Khatri vs. ACIT in ITA No. 21/Jab/2019 dated 17.01.2020. The Tribunal on identical set of facts found that unless the JCIT applied his mind to the material available on record while granting approval under section 153D of the Act. The technical approval, cannot be an approved at all. The ld. counsel for the assessee has also filed the copies of the decision of the Bombay Bench of this Tribunal in ACIT vs. Shreelekha Damani and Lucknow Benches of the Tribunal in AAA Paper marketing Ltd. vs. ACIT.
4. On the contrary, Smt. Neerja Pradhan, ld. representative for the revenue submitted that no doubt, the letter of the JCIT says that he was holding the charges of six ranges, therefore, it was not possible for him to go into the deep, however, finally he approved the draft assessment order as per technical requirement u/s 153D of the Act. Before this technical approval was given, according to ld. Departmental Representative there were discussions between the A.O. and the JCIT which is evident from the correspondence between the JCIT and the A.O. Referring to the copy of the letter addressed to the A.O. by the JCIT, the ld. DR submitted that there were discussions between the A.O. and the JCIT, therefore, it cannot be said that there was no application of mind. The A.O. also has responded to the letter of the JCIT dated 21.12.2011 by this letter dated 22.12.2011. The assessee was also invited for the discussion along with the A.O. in the chambers of the JCIT. The JCIT has also written a letter to the Commissioner on 20.12.2011 in order to take the Commissioner into confidence. The A.O also by his letter dated 26.12.2011 reminded the JCIT to give approval at the earliest opportunities, since, the assessment is getting time barred.
5. The ld. DR placed her reliance on the judgment of the Supreme Court in C.I.T. vs. Jai Prakash Singh (219 ITR 737) and submitted that charging sections fix the liability to tax and any violation of machinery provision will not render the assessment order void. Once the superior authority agreed to the finding of the lower authorities then it is not necessary to record reasons for so agreeing. Referring to the judgment of the Bombay High Court in C.I.T. vs. Ratanbai N.K. Dubash (230 ITR 495), the ld. DR submitted that the power to determine the income vest in the authority exercising the quasi-judicial function. It is in violation of principle of quasi-judicial function that can render the assessment invalid. The Act of Administrative Approval by Additional C.I.T. does not take away the quasi-judicial powers which still vests in A.O. Therefore, even if there is some defect in the technical approval granted by the JCIT, the same may not invalidate the order of assessment.
6. We have carefully gone through the orders of both the authorities below in the light of the arguments advanced on both the sides and the material available on record. The issue of approval u/s 153D goes to the very root of the matter. For the purpose of convenience, the provision of section 153D is reproduced herewith.
[SECTION 153D. Prior approval necessary for assessment in cases of search or requisition
No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of [sub-section (1) of section 153A] or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner.]
7. This provision clearly says that no assessment order shall be passed unless it is approved by the JCIT. In other words, the A.O. is prohibited from passing any assessment order without approval of the JCIT. The parliament in its wisdom thought it fit in cases of searches, a senior officer of the Department at the rank of the Joint Commissioner has to grant his/her approval before passing the assessment order. This requirement of approval under section 153D is not an empty formality. It has its own sanctity in the eye of law. In other words, unless the JCIT approves the proposal/draft assessment of the A.O. by applying his mind to the facts of the matter, the A.O. would not get jurisdiction to pass the assessment order. In other words, the AO will be vested with jurisdiction to pass assessment order only after the approval granted by JCIT u/s. 153D. Hence, the approval of JCIT is mandatorily requirement.
8. We have also carefully gone through the judgment of the Apex Court in Jai Prakash Singh (supra). This judgment of the Apex Court relate to service of notice on the legal heirs of deceased assessee. It is not a case of approval as required by statutory provision. Therefore, the Judgment of the Apex Court is not applicable to the facts of this case.
9. We have also gone through the judgment of the Bombay High Court in Mrs. Ratanbai N.K. Dubash (supra). In this case, the AO passed the order without obtaining direction from Inspecting assisting Commissioner. Hence, the assessment was annulled. This judgment of the Bombay High Court in fact supported the case of the assessee. Moreover, this Bench of the Tribunal in Tarachand Khatri (supra) has found that on identical circumstances, there was no approval u/s. 153D of the Act. One of us Accountant Member is party to the order.
10. Now, let us examine whether the JCIT granted approval for passing the assessment order. Under the scheme of the Act, u/s. 153D, the Commissioner has no role to play. It is not known, why the JCIT intended to take the Commissioner into confidence by addressing a letter to him. The Commissioner has all the powers u/s. 263 of the Act, in case, he/she is satisfied that the assessment order is erroneous or prejudicial to the interest of revenue. We are reproducing the correspondence between the JCIT on the one hand and A.O. on other and also a letter written by JCIT to the Commissioner.
OFFICE OF THE
JOINT COMMISSIONER OF INCOME TAX,
RANGE-I, CR BUILDING, NAPIER TOWN. JABALPUR
HOLDING ADDITIONAL CHARGE OF RANGE-11, JABALPUR,
RANGE-SATNA, KATNS, CHTIINDWARA & SAGAR
Tel: 0761-211637, 0701-2211670)
F.No. JCIT/R-KATNI/Mittal Group/11-12/
Dated 21.12.2011
To
The Assistant Commissioner of Income Tax,
Circle, Katni (MP)
Sub:- Approval of Draft Assessment order u/s 153A/ 143(3) in the ease of different assessees of Mittal Group, Katni…reg.
Please refer to draft orders submitted by you in 14 cases till 19.12.201. After studying these draft orders, a note was prepared highlighting the issues in these orders incorporating the reasoning given by you for making additions vis a vis submissions/explanations offered by the assesse. This note was prepared in view of the fact that when opportunity was allowed to the assessed to confront the evidences brought by you on record for making addition. It was observed that explanations and submissions of the assessee have not been properly related and proper clarity has not been brought for making additions. This note was discussed with you in my chamber and later in view of the fact that neither sufficient material is being brought or making justifiable additions nor proper enquiries have been made me thus arguments of the assessee as baseless and in fructuous, it was thought necessary to bring this state of affairs in the knowledge of hon’ble CIT. The discussion on live major issues involved in the case was made in the chamber of hon’ble CT with you on 20.12.2011 at 4.00 p.m. onwards, which are as under:-
(i) Share capital in various group companies of Mittal Group
(ii) Fixed Deposit Receipts in the cases of Ankit/Novas/Nippon
(iii) Investment in Jewellery and capital gain on sale of these jewellery items linked to land purchased by the assessee in the name of on Shri Kale
(iv) Issue related to sale of land having Dolomite mines through route of sale purchase of shares of the company.
(v) Excavation and local cartage charges.
In this meeting, all the points of addition and replies of the essence were discussed in length and you were directed to proceed as per line of action laid down in the discussion. For your convenience and clarity of action to be taken the main point are discussed here below:-
i. Share capital in various group companies of Mittal Group:
Without reproducing the contents of the note, it is to observe that you have not given any basis for including some part of share capital in the hands of family members of assessee. The specimen case was of Smt. Sarla Mittal for A.Y. 2004-05 in which the proposed addition of Rs.1,3,00,000/- could not be explained by you. You were specifically asked by hon’ble CIT to explain how this working has been done and what is the basis of arriving at this figure and the particular assessment year. You have stated that this figure is worked out in the appraisal report on the basis of some loose papers but you could not produce the particular seized paper on the basis of which these calculations have been made. Clearly this type of addition, where you yourself are not confident/supported by loose paper or proper identifiable document cannot be approved.
Further, it is observed that assessee has produced so many evidences to prove the identity/existence and creditworthiness of the companies by providing their PAN, acknowledgement of I.T. return. balance sheet, confirmation, companies master data from site of Ministry of Corporate Affairs and other evidences in some cases other evidences like assessment orders, verification letters from the Income Tax Department and orders u/s. 143(3) in cases of companies of assessee group and investor companies. The assessee has also cited various case laws in his favour which are as under:-
(i) CIT vs. Lovely Exports (P) Ltd.(SC)(2008) 216 CTR(SC) 195: (2008) 6 DTR(SC)308
(ii) ACIT vs. Venkateshwar ispat (P) Ltd. (HC of Chhattisgarh (2010, 41 DTR(Chhattisgarh) 350: (2009) 319 ITR 393
(iii) CIT vs. Steller Investment Ltd. (HC of Delhi) (1991) 99 CTR (DI:L.) 10 :(1991) 192 ITR 287 (DEL): (1991) 59 Taxman 568
(iv) CIT vs. STL Extrusion (P) Ltd. (HC of MP: Indore Bench) (2011) 53 DTR(MP) 97: (2011) 333 ITR 269
(v) CIT vs. Daulat Ram Rawatmull (SC) 1972 CTR (SC) 411: (1973)87 ITR 349 (SC)
(vi) Dwarkadhish Investment (P) Ltd. (HC of Delhi) [2010] 6 taxman.com 8.1 (Delhi)
(vii) CIT vs. M/s. Jay Dee Securities & Finance Ltd. (Allahabad HC) 166 Taxmann 7
It is also learnt that you have issued section 133(6) letters to the investor companies. However, in spite of specific request to produce a chart of these companies where these letters have been issued indicating the status of response in each case, no such chart has been brought on record. On the other hand assessee has claimed that in majority of investor companies, the replies have been received in your office, which have not been incorporated in the body of assessment order. This fact has been brought in the knowledge of Hon’ble CIT. who has stated that in such cases no additions can be made.
In view of these facts, you may proceed ahead following Hon’ble apex court judgment and other High court judgment. In case you wish to differ on this matter, you may put up your view point before undersigned.
(ii) Fixed Deposit Receipts in the cases of Ankit/Novas/Nippon.
In this matter also, detailed discussion was made and Hon’ble CIT, has clearly indicated that you should examine whether any investments in purchase of share of these companies/liquidation of investments of these companies has been made by the assessee in cash. Wherever any such investment is found. it should be properly examined and may be considered for additions as undisclosed investment of these companies
(iii) Investment in Jewellery and capital gain on sale of these jewellery items linked to land purchased by the assessee in the name of on Shri Kale
On this issue, during discussion, il was found that assessee has already surrendered the amount of cash investment in the said land. Later on. the assessee paid to Shri Kale by cheque and got witthdrawn the same amount in cash as per copy of bank account furnished. It is also found that this cash was available with the assessee and he may have utilized it for the purchase of jewellery etc. as per details submitted. If this contention is found probable, no addition is required.
You may also examine and brig on record the basis of addition on account of capital gain working adopting date of acquisition as 01.04.1981.
(iv) Issue related to sale of land having Dolomite mines through route of sale/ purchase of shares of the company.
During discussion, this addition was lound to be totally baseless as assessee has already provided copies of accounts payee cheques, bank statements etc. to prove that amount has been received from Jaypee Group. You have not made any enquiries from Jaypee Group except sending a letter. In view of’ evidence furnished by assessee, no addition appears to be justified. It is also observed that asses see has already declared capital gain on this transaction in his return u/s 139(1).
(v) Excavation and local cartage charges.
During discussion. this addition was also found to be totally baseless a assessee has already provided Copies of returns of contractors and other evidence to show that these contractors were working on the site and TDS was made on their payments.
Regarding labour payment the evidence of agreement duly signed by Asst. Labour Commissioner, Labour union leader, Local MLA and Management has been seen and found to be proper evidence.
In this connection, you have not brought any cogent evidence for not accepting these evidences brought by the assessee except relying on statement of Shri Babulal Burman and other staff members. These statements should have been strengthened by further enquiries, which has not been done. You may also go through the affidavit of Shri Babulal Burman in this regard.
Similarly, no efforts have been made to counter the explanation of the assessee regarding local cartage which includes RC book of trucks utilized. their truck numbers, the payment vouchers. AS no enquires have been made, the evidence brought by the assessee has to accepted.
After discussion in the chamber of Hon’ble CIT. some further issues have been brought t0 my notice by 1he assessee where your proposed additions dose not appear to be proper viz.
a. Dividend income.
b. Gifts received by family members, which are duly received by the assessee.
c. Indira vikas patra encashed, which are duly recorded by the assessee.
d. Cash deposits in savings banks accounts, which are duly recorded by the assessee.
e. Interest on loans taken against FDRs, which are duly recorded by the assessee.
Further your may also verify correct value to be adopted for sale of property in in the case of Shri Pawan Kuamr Mittal (HUF).
On the other issues, which may come across in other draft orders, instructions will be issued separately. Copy of note addressed to Hon’ble C.I.T. is enclosed.
(Abhishek Shukla)
Joint Commissioner of Income Tax
Range-Katni
Copy to: The Commissioner of Income Tax-1, Jabalpur with reference to discussion made. With your honor in this connection.
Joint Commissioner of Income Tax,
Range-Katni.
Office of the Assistant Commissioner of income tax
Circle Katni, Katni(MP)
F.No ACIT TE/M /1530 approval/ Camp- Jabalpur, dated the 22 Dece: 2011
To,
The Joint Commissioner of income tax, Range Katni Jabalpur,
Sir,
(By name
Sub Approval of Draft assessment order u/s 153A/143(3) in the case of different Aassessees of Mittal Group Katni Regarding
Ref. Your office letter no.JCIT/R-Katni/Mittal Group/11-12 dated 20.12.2011- addressed to CIT-I Jabalpur and copy endorsed to me & dated 21/12/2011 addressed to me and copy to CITI Jabalpur clarification regarding
Please refer to the above.
It may be clarified that till 20/12/2011 in 21 cases draft orders were submitted to your office. However, from the letter address to me, I am unable to understand it is whether approval under section 153D or directions to reframe the assessments. Please clarify assessee wise and assessment year wise.
2. As regard the addition in the case of Smt. Sarfa Mittal, one of the member of mittal family, it was clearly stated before your honour and also before Shri Lalit Mittal and RN Mittal, CA that the amounts of Rs.13,00,000/- was the shares claimed to have been sold by the relevant companies to various fictitious persons of Delhi and Kolkatta, the identity of these persons (companies) could not be traced by the Investigation wing during the post search enquiry and also the fact that the letters issued by me during the assessment proceedings were received back unserved with the postal remark “No such addressee”. It is also relevant to mention that those shares were transferred back to the mittal family in later years. During the course of search, such share certificates, transfer forms, power of attorney etc were seized and all these documents are formed part of the assessment order. In view of the position, the shares sold in a particular financial year and claimed to have repurchased by the family members were treated as the investment of the family members from undisclosed sources. This is the position in respect of all HUFS & Individuals. Similar additions were made in the case of companies on protective basis as the amounts were found credited in their account. In view of the specific clarification, still you are in view of not making such additions, the same be clarified.
3. One of the issue raised by you is regarding share capital in various group companies of Mittal Group – It may be made clear that till 19/12/2011, the cases which you are referring, no draft orders in cases of companies were furnished. In that situation, without going to the merit of the assessment order how a prudent person can decide what additions are to be made or otherwise. It may be mentioned here that on this issue, during the personal discussion, your honour had advised me to refer the decision of the ITAT Indore in the case of Agrawal Coal Corporation wherein the case laws suggested by the assessee and also in the present letter you had quoted have been elaborately discussed and held that merely filing of PAN, copy of return, profit and loss account is not sufficient. In view of your advise, and Following the decision of ITAT Indore bench, such additions were made.
4. Another point raised is Fixed deposit Receipts in the cases of Ankit/Novas/Nippon. It may be clarified that the case of Nippon is neither assessed at Katni nor where it is being assessed has given by Mittal. As regards this I want to say that the issue of Nippon is beyond the jurisdiction. As regards the Ankit & Novas, the draft order is yet to be finallred and the decision is still pending at my end due to the fact that on 20/12/2011 during the course of discussion, it was told to me that the matter is being referred to Dl(Inv) for clarification. Only on receipt of the clarification, the assessment order need to be finalized. It may further be stated that in the case of Ankit Tracom Pvt Ltd., the standing counsel had informed telephonically that passing of assessinent order is stayed. However, it was made clear that assessment order may be prepared and not to be released.
5. Investment in Jewellery and capital gain on sale of these Jewellery Items linked to land purchased by the assessee in the name of Shri Kale- First of all, I may made it clear that the capital gain on sale of jewellery was made on account of purity of gold l.e. the gold jewellery purchased/possessed having purity of 79.96 and when it was sold, the purity was around 90. Some of the Jewellery was claimed to have been acquired by gift from various family members. In spite of repeated opportunities given, the assessee had not given any details regarding the name of the person or the date of acquisition by those persons gifted the jewellery. In that situation, In my view except to apply the provisions of section 49(1), I have no other alternative. In view of this, It is requested that specific directions be given to exclude the capital gain on sale of jewellery particularly in view of purity and date of acquisition.
As regards the purchase of land in the name of Mr Kale, in spite of repeated opportunity, the assessee had not given any detail. In short, the point is clearified as- Mr. Kale is an Aadivasi and as per the Govt guldelines, the land of adivasis cannot be purchased any other person except adivasi (except some exceptional cases. In this case, the Mittal family purchased lands of Adivasis in the name of Mr Kale and later on got transferred as per the exceptional circumstances. It is a well settled fact that the purchase of land in benami name cannot be from known sources of income. When later on transferred into assessee’s name, the amount is being transferred to Mr Kale’s account and withdrawn and utilized by the assessee for their own purposes. In the case of assessee, neither the amount which was invested earlier out of unaccounted sources was subjected to tax nor are the persons introducing the capital by way of gift paying tax on such amount. Therefore, it was held in the assessment order that the unaccounted money which was used for purchase of land was brought on account, therefore, the investment in Jewellery was thought to be taxed in this year. If the decision of mine is wrong, please clarify.
6. Issue related to sale of land having Dolomite mines though routes of sale/purchase of shares of the company. In my knowledge, no such issue had came to any of the draft assessment orders submitted to you. It appears that all the above issues are raised by your honour as per the version of Mr. Lalit Mittal and Shri RN Mittal, CA.
7. Similar is the position regarding Excavation and cartage charges- the matter relates to unaccounted purchases and non debiting of expenses based on various seized documents, statements of various employees at the time of search and post search enquirles. The addition was made on account of unaccounted transactions.
8. From the perusal of the letter dated 21/12/2011, it is not clear, whether the assessment orders submitted to your office was approved or otherwise under sec. 153D or the instructions are under sec. 144A.
9. As per the appraisal report the proposed additions were more than 125 crores and if there is major deviation from such proposal, as per instructions of the Board, deviation report should be famished to the Investigation wing. From your above referred letter, It is not clear, whether any deviation report was furnished to the Investigation wing or not. This may also be made clear to me so that with the short time span, I could complete the search & seizure assessments,
9. It may be made clear that recently my sister in law (Bhabhl) expired on 21 Dec 2011 and due to these time barring cases, I could not even see her during her alling time or otherwise to attend the funeral which was held on 22/12/2011. At the same time, my mother was already a paralytic patient and recently suffered a second paralytic attack,
10. It may further be stated here that the valuation reports In the cases of Shri Vijay Kumar Mitital, MP Minerals and Mittal Roadways were received recently, and the assesee was given an opportunity to furnish their objections to the proposed valuation. Only on receipt of the objections, these cases could be finalized. At the end, it may be mentioned that all the assessments in Mittal group are getting barred by limitation on 31/12/2011, keeping in view the peculiar situation, may I request you to kindly issue clear instructions whether to maintain the addition or to delete the additions proposed.
Yours faithfully,
(Sanjay Kumar)
Asstt. Commissioner of income tax
Circle, Katni.
Copy to the Commissioner of Income tax-II, Jabalpur with reference to the JCIT, Katni’s letter dated 20th & 21 Dec. 2011 referred above
Asstt. Commissioner of Income tax Circle, Katni.
OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX,
RANGE-I, CR BUILDING, NAPIER TOWN, JABALPUR
HOLDING ADDITIONAL CHARGE OF RANGE-11, JABALPUR,
RANGE-SATNA KATNI, CHINDWARA & SAGAR
F.No. JCIT/R-KATNI/ Mittal Group/11-12/
Dated 20.12.2011 To
The Commissioner of Income Tax-11,
Jabalpur (MP)
Sir,
Sub: Approval of Draft Assessment order w’s 153A/ 143(3) in the case of different assessces of Mittal Group, Katni…reg..
In this connection, it is to submit that ACIT, Circle Katni, Shri Sanjay Kumar has submitted draft assessment orders in the cases of some assessees belonging to the Mittal Group, in which search was conducted by the department and block assessments orders u/s 153A / 153(3) are to be passed by 31.12.2011. It is further submit that these draft orders for companies and some other assessee of this group are yet to be submitted for perusal of this office.
Due to paucity of time available and large number of assessments pending in this Range and other Ranges, it was thought fit to discuss the issues involved in each draft assessment order with the assessee and the AO and simultaneously refer to appraisal report so that a proper and balanced view or the issues may be taken in shortest possible time. The major issues crystallized are presented below for your kind consideration and necessary directions.
1. Share capital in various group companies of Mittal Group
It is observed that some companies have subscribed to the share capital of group companies of Mittal Groups. This capital contribution by the Subject to verification by the investigation wing and it was opined by it that this was introduction of undeclared income by the Mittals in their group companies in the name of these companies. In appraisal report, year-Wise introduction of capital in the name of various companies of Mittal family has been worked out, which is the basis of proposed additions in different years in the cases of family members of Mittal group. The A0 is of the view that these transactions are sham transactions as some of the papers related to transfer of shares found in the possession of Mittal family blank and in all probability these shares were held by the family members of Mittal family in the period of 2000-2005 and were purported to have been transferred to these bogus companies and later on in the period of 2005-2010 they were again purchased by the family members of Mittal family. In fact, these were never transferred / subscribed by these bogus companies. The AO is relying on the findings/conclusions drawn by the investigation wing. which in turn based on statement of some Vijay Goyal of Gefece group of Delhi. Stated to be fake entry provider. Although, this statement is heavily relied by the investigation wing, the same is not incorporated in the Appraisal report. The AO has requested investigation wing for supply of this statement but it was not made available. Barring this, the AO has given opportunity to the assessee and the replies of the assessee have been brought on record.
It is explained by the assessee that these corporate assessees, who subscribed to the capital of group companies of Mittal Group are well established companies whose Permanent Account Number, certificate of incorporation, copies of acknowledgements of income returns and balance sheet, the evidence of banking transaction by which amount has been received etc have been submitted by the assessee. The assessee has shown in some sample cases that these companies are being assessed regularly and they were having substantial networth as on date of investment. In some cases, the companies like Gefcee Finance Ltd, Steller Investments Lid., Mahanivesh India Ltd., and Adonis Securities Pvt. Ltd., were having net-worth of Rs. 15 crores to Rs.60 crores whereas amount of Rs 7 to 30 lacs was subscribed through cheque in the case of assessee group company. It was further brought out that section 143(3) assessments have been completed in the some of group companies of assessee, where capital subscription has been verified by the then AO viz ACIT, Katni. The assessee has also brought on record some letters of verification issued by the Assessing Officers of Investor companies, which were received by the assessee in past. From the website of ROC, the assessee has drawn latest status of some of these investors companies to show that these companies are live companies and in some cases they are listed companies also. The Assessee also claims that some of the letters issued by the AO for confirmation have been duly responded by the said companies. In some other cases, the report from local income tax department at Kolkata and New Delhi have been received.
In my view, the presumption of these investors companies being bogus companies is not established. On the other hand, the assessee has proved beyond doubt the existence of these companies and the fact of subscription of shares by them through banking channels. However, you honors kind directions are solicited as this issue are common in most of the companies of Mittal Group as well as family members of Mittal Groups.
2. Fixed Deposit Receipts in the cases of Ankit/Novas/Nippon
It is observed that FDRs amounting Rs. 66 crores approximately were found in the premises of the assessee during search. Initially, during search these were listed but no impounding of them was made. Later, it is claimed by the assessee that the department has attached these FDRs. The source of investment in these FDR has been treated as unexplained in appraisal report, which is the basis of AOs addition on this point However, it is claimed by the assessee that these FDRs were made out of liquidation of companies’ investments with various companies, in which the assessee has subscribed shares sometime back. The version of assessee is that these companies were having investment mostly in shares of some other companies and some minor other investments, which were not profitable investment and those companies were not having sufficient profits. However, as soon as assessee stepped-in, these company the assessee liquidated those un profitable investment and the entire sale proceeds were invested in FDRS./ Unsecured loans given.
It is observed from appraisal report that intensive enquiries were conducted by the Investigation Wing to find out the actual source of investment, presume to be Mittal’s own undisclosed money routed through chain of companies investing in each other. It is further seen that these efforts have been successful to some extent and Department has pierced the corporate veil to find out that approximately Rs.5 crores was invested in cash in third or fourth layers of companies. In my view, addition to this extent is justifiable.
However, it is explained by the assessee that there is no direct evidence in the hand of department to claim that the amount of cash has come from Mittal’s as this cash amount has been found in third or fourth layer of company to which assessee does not have any link. It is further said that this amount is very small in comparison to total amount of Rs.66 crores and further assessee has provided all necessary documents to proof the source of investment made by him.
3. Investment in Jewellery and capital gain on sale of these 3. jewellery items linked to land purchased by the assessee in the name of one Shri Kale.
It is admitted fact that assessee purchased some piece of land in the name of a tribal person, namely, Shri Kale somewhere between 2003 to 2005 nearby Katni town. Obviously, the payment was made in cash. Later, the assessee got the land in his name by paying sale consideration by cheque to Shri Kale and getting back withdrawal of the same amount from his bank account in cash. Assessee states that the some of the jewelleries found from the members of family, or sold by them, are purchased from the amount of this cash withdrawal available with the assessee. However, assessee has not been able to directly link this amount with the purchase of jewellery as no purchase bills are available with the assessee. It is claimed by the assessee that these jewelleries were already in the WT return of these lady members.
As per finding of the appraisal report, the AO has proposed investment in these jewelries to be made from undeclared income of the assessee.
The assessee has further raised objection to long-term capital gain calculation on the sale of these jewelleries taking purchase value as on 01.04.1981, while these jewelries were purchased after taking withdrawal from land transactions related to Shri Kale. No positive evidence regarding this has been brought on record either by the AO.
4. Issue related to sale of a company having Dolomite mines through route of sale / purchase of shares of the company.
The one of the company of the assessee was owner of land having Dolomite mines, which was subject matter of sale to Jaypee Group. The assessee chose the route of sale through transfer of shares of the owner company. In this transaction, the amount of capital gain received was partly invested in REC bonds to avail benefits of Section 54EC and remaining amount was offered for taxation. The assessee has shown photo-copies of cheques and MOU reached between assessee and Jaypee Group, which were impounded also during search proceedings.
The AO is of the view that this transaction is a shani transaction as it is unbelievable that the share of company would be sold at the value of 56 times of face value. Further, he found that although amount of consideration is shown to be received by cheque but no bank charges have been debited out of this sale consideration
On going through the records, it is to observe that no sustainable addition can be made on this point.
5. Excavation and local cartage charges
The assessee is having mining work of Bauxite around Katni. It is claimed by the assessee that excavation work is got done partly through contractors, who are responsible for supply of labours and also supply of mining equipment used for excavation. Similarly, it is also stated that the excavated Bauxite, laterite and Soil has to be carried to some nearby plain surface for temporary storage purposes. Later, Bauxite is further transported to Railway siding. For this local carting also, help of contractors is availed by the assessee. It is claimed by the assessed that payment for labour work has to be made as per labour rate agreement agreed among Asstt. Labour Commissioner, Labour Union, Local MLA and representative of Management. The assessee has produced copy of said agreement, which is stated to be impounded during scratch.
However, Investigation Wing has given its finding that all these payments are bogus expenditures claimed to reduced tax liabilities. It is further claimed that this amount has been invested in the FDRs already discussed in para 2. The contention of the Wing is based on the statement of Shri Babulal Burman and 2-3 clerical staff recorded by the Wing. Shri Babulal Burman is stated to be blaster at the mines and he is employee of M P State Mining Corporation. This corporation is co-owner of the company, which is managing the excavation work at site. It is stated by the assessee that excavation work is independently managed and supervised by the assessee at site. It is further explained that this mine was managed directly by this corporation and from December, 2006, it has been let out to the assessee on commission basis with understanding that existing employees and labours of corporation working at this mine will be retained by the assessee. It is claimed by the assessee by producing an affidavit of Shri Burman that he is not well educated and could not understand the contents of the statement stated to be signed by him during his examination in the Investigation Wing,
Apart from this affidavit, the assessee is supported by copies of returns filed by these contractors supplying labours and doing excavation work. On the face of these documentary evidences regarding these contractors who have received payments from the assessee after TDS and who have also filed their returns in the Income Tax Department, the claim of the assessee appears to be proper and no disallowance of expenses on the basis of statement can be made. Regarding expenses of local carting, the assessee has produced evidence in the form of truck numbers, payment vouchers, registration book of trucks, details of payments etc. The list of payments was found at the premises of the assessee during search.
6. Purchase of lands.
The additions have been proposed by the AO, on the presumption that the assessee has paid some extra money over and above the value declared in sale deed without bringing any evidence on record to support his addition.
The assessee has explained that during search no any lose paper or any other evidence has been found to reach any such conclusion regarding excess payment over and above the amount in the books accounts,
The contention of the assessee appears to be correct.
Yours faithfully
(Abhishek Shukla)
Joint Commissioner of Income Tax,
Range-Katni
OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX KATNI (MP)
F.No.ACIT/Assessment/Approval/Mittal/2011-12
Dated: 22.12.2011
To
The Joint Commissioner of Income Tax,
Range-Katni, Katni(MP)
Sub: Reply to your letter regarding approval of Draft Assessment order u/s 153A/143(3) in case of different assessee of Mittal Group, Katni- Reg.
Ref: Your letter F.No.JCIT/R-KATNI/Mittal Group/11-12, dated 21/12/2011
Sir,
Please refer to above, in this connection most respectfully and most humbly at my end, I see the following for the kind consideration of your honor that:
1. Directions as given to me, are not clear regarding to which particular case and to which particular assessment year, same are issued, for not making addition?
2. As per Manual of Office procedure, it is an established administrative procedure that in case where the additions as proposed by investigation wing, are considered unwarranted by the AO, then investigation wing has to be consulted compulsorily. It is presumed that necessary consultation has been made. If so, please provide me the copy of minutes recorded of this consultation with the Investigation Wing.
3. You are aware that as an assessing officer in this case, I have examined each and every document along with the submission and gone through all the aspects of the cases and the findings are based on concrete evidence gathered by me during the course of assessment proceedings and as gathered by investigating wing during search and seizure proceedings.
4. The copy of directions addressed by you to me is without any DAK number and the photocopy of some original letter, which has not been received by me till now. It is requested your honor to provide me original copy of the same.
5. Since the directions are not clear I am withholding the passing of assessment orders till the specific directions are received. I would also like to mention that the time barring date in said assessment orders is 31/12/2011. Hence you are requested to issue clear directions in each and every case assessment year wise.
Date: 22/12/2011
Yours Sincerely,
(Sanjay Kumar) ACIT-Katni
OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX
RANGE-1, CR BUILDING, NAPIER TOWN, JABALPUR
HOLDING ADDITIONAL CHARGE OF RANGE-II, JABALPUR
RANGE-SATNA, KATNI, CHHINDWARA AND SAGAR
F. No. JCIT/Range/Katni/Mittail/2011-12
Dated: 26.12.2011
To
The Asstt. Commissioner of Income Tax,
Circle, Katni
Sub: Statutory approval of Draft Assessment order u/s 153D in the cases of different assesses of Mittal Group, Katni- Reg.
Please refer to your letter No.ACIT/KTE/MITTAL/153D/11-12 dated 26th December, 2011 forwarding therewith draft assessment orders in Mittal Group of cases for AY 2004-05 to 2010-11:
