Income Tax Appellate Tribunal - Ahmedabad
Priya Blue Industries Pvt.Ltd., ... vs The Dy.Cit., Central Circle-1(1),, ... on 28 June, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
AND
SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER
Sl. Asst Appeal(s) filedby :
No. IT(SS)A Nos. Years Appellant -Vs- Respondent
1. 04/Ahd/2023 2019-20 Priya Blue Industries DCIT
& & Pvt. Ltd. Central Circle-1(1),
2. 33/Ahd/2022 2020-21 504 Swara Parklane, Ahmedabad.
Opp. Joggers Park
Atabhai Road,
Bhavnagar-364001
PAN : AABCP2808B
DCIT Priya Blue Industries
3. 29/Ahd/2023 2019-20 Central Circle-1(1) Pvt. Ltd.
& & Ahmedabad 504Swara Parklane,
4. 39/Ahd/2022 2020-21 Opp. Joggers Park
Atabhai Road,
Bhavnagar-364001
PAN : AABCP2808B
5. 18/Ahd/2023 2019-20 Hoogly Ship DCIT
Breakers Ltd., Central Circle-1(1),
323 Giriraj, Iron Ahmedabad
Market Sant Tukaram
Road, Mumbai 400009
Maharashtra, India
PAN : AAACH6191C
DCIT Hoogly Ship
6. 27/Ahd/2023 2019-20 Central Circle-1(1), Breakers Ltd.,
Ahmedabad 323 Giriraj, Iron
Market Sant Tukaram
Road, Mumbai 400009
Maharashtra, India
PAN : AAACH6191C
Assessee(s) by : Shri Tushar Hemani, Sr.-Advocate
with Shri Parimalsinh B Parmar, AR
Revenue by: Shri Kamlesh Makwana, CIT-DR
Date of Hearing : 03/04/2024
Date of Pronouncement : 28/06/2024
IT[SS]A 4, 29/Ahd/2023 &
4 ors Priya Blue Ind P Ltd &
Hoogly Ship Breakers Ltd. Page 2
COMMON ORDER
PER T.R SENTHIL KUMAR, JUDICIAL MEMBER:
ITA Nos.04 & 29/Ahd/2023 and 33 & 39/Ahd/20022: These Cross Appeals are filed by the Assessee and the Revenue as against separate appellate orders dated 27.12.2022 and 27.09.2022 passed by the Commissioner of Income Tax(Appeals)-11, Ahmedabad arising out of the assessment orders passed under section 153A r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') relating to the Assessment Years 2019-20 to 2020-21. Since the issue involved in these appeals are identical, for the sake of convenience, the same are disposed of by this common order.
2. We take IT(SS)A No. 04/Ahd/2023 relating to Asst. Year 2019-20 as the lead case. The brief facts of the case are that the assessee is a Private Limited Company engaged in the business of Ship Breaking, Recycling and Sale of Scrapes. For the Asst. Year 2019-20, the assessee filed its original Return of Income on 25.12.2020 declaring total income of Rs.4,99,08,500/-. The same was processed u/s. 143[1] of the Act accepting the returned income.
3. It is thereafter a search action u/s. 132 of the Act was conducted in Priya Blue Group of Companies on 19.11.2019, in which the business premises of the assessee was also covered. Consequently in response to 153A notice, the assessee filed the Return of Income as admitted in the original Return of Rs.4,99,08,500/-. Since there were Transfer Pricing issues in respect of International Transactions or Specified Domestic Transaction or both, the case was referred to Transfer Pricing Officer u/s.92CA(1) of the Act. The TPO after making detailed enquiry u/s.92CA(2) of the Act, passed the Transfer IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 3 Pricing Order u/s. 92CA(3) of the Act making an upward adjustment of Rs.1,54,77,374/- namely [a] on benchmarking of provision of services rendered to Associate Enterprise of Rs.67,96,987/- and [b] Corporate Guarantee given to AE of Rs.86,80,387/-.
As the assessee has not chosen to challenge the TPO's order before Dispute Resolution Panel, therefore the Assessing Officer passed the final assessment order u/s. 143(3) r.w.s. 92CA(3) r.w.s. 153A of the Act determining the income as Rs.22,06,39,716/- by disallowing [c] Unexplained rental expenses of Rs. 5,00,000/= [d] Unaccounted profit of. Rs.11,29,61,022/= [e] Suppression of sale - Gas turbine Rs. 3,41,34,100/=.
4. Thus there are five issues to be adjudicated by this Tribunal, each issue of disallowance made by the Ld AO and the findings given by Ld CIT[A] are as follows:
5. Benchmarking of provision of services rendered to AE of Rs.67,96,987: During the course of Transfer Pricing Proceedings, Assessee vide submission dated 17-01-2022 stated that Mr. Ravindra Jagade and Mr. Sanchit Manglick employees of the assessee company are executing back office work of M/s. Best Oasis Limited [herein after referred as BOL]. The AO further found that Mr. Sanjay Mehta and Mr. Tripti Mehta, Directors of Assessee company are drawing remuneration are also directors of BOL. Based upon such fact, the TPO has asked the assessee to provide its explanation regarding non charging of fees, for rendering services by assessee to BOL. The explanation provided by the assessee is reproduced in TPO's order. However, the contention of the assessee was not found to be correct by the TPO on the ground that employees and directors of the assessee company are working for BOL, but No fees are recovered from BOL. The TPO has referred to statements of Ravindra IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 4 Jagade, Bhavik Harikrishnan Mody, Sanjay Mehta, Sanchit Manglick, Viral Shah, Gaurav Mehta, Employees and Directors of assessee company have admitted that various works of BOL are executed by them.
5.1. The TPO further observed that salaries pertaining to various employees are paid by the assessee, but their time and efforts are also utilized for BOL work, which is an opportunity cost of the assessee company. Each company works for profit and not for charity. The AO has referred to relevant extract of statement of Mr. Ravindra Jagade, Chief Accountant of BOL, wherein he has stated that there is no taxability of offshore company in Hong Kong and to take the advantage of this fact, BOL was registered its offshore company in Hong Kong. Considering the non-taxability of BOL, various costs associated with BOL were not charged by assessee company and based on FAR analysis given in Transfer Pricing study report, the TPO had bifurcated functions of employees as relatable to appellant company. The TPO has given weightage for the upper end and BOL at 58:42. Thereafter, he observed that for services provided to any third party would not only reclaim the expenses, but would charge markup on these expenses. The TPO has compared markup of 17 companies and Arms-length mark-up was arrived at 5.58 %. Based upon this fact, the TPO has computed upward adjustment of Rs. 67,96,987/=.
5.2. The Ld CIT[A] confirmed the addition made by the AO by observing as follows:
".... The above referred statements are already reproduced in TPO's order which conclusively proof that certain employees of Appellant company are working for BOL as well as the appellant. However, certain expenditure pertaining to there were claimed by the appellant company. Once, the associated company of the appellant is utilising the services of Employees/Directors of the Appellant Company, IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 5 expenditure need to be charged from such AE. If these employees were hired by BOL or and their payments are made by them, according to time and efforts of such employees, expenditure to that extent in the hands of appellant would have been at lower amount and profit to that extent would have been higher in the return of income. It is the Settled legal law that when AE is utilizing services of it's Indian company, such services need to be bench marked considering it to be international transaction. The contention of the appellant that no charges are required to be recovered from AE was without any basis or documentary evidences. The employees/ directors of Appellant company have categorically admitted their role in BOL in statements recorded during the course of search. The appellant in its written submission has stated that some of the employees have clarified and retracted their statements taken during the course of search, as they were under duress and under mechanical manner. However, appellant has not provided any other evidences in support of such retraction. Mere retraction of employees does not support the contention of the appellant as it had not proved that BOL had sufficient employees to look after its entire work. The contention of appellant that employees are only doing meagre back- office work, hence no allocation of expenditure is required to be made cannot be accepted as role of each employee or predetermined and BOL has utilised their services. Considering these facts, the TPO was correct in making upward adjustment relating to provisions of services given to AE.
6.3. So far, the quantum of benchmarking of such service charges from AE is concerned, it is observed that during course of transfer pricing proceedings, AO has correctly worked out weightage of expenditure to be bifurcated between appellant company and BOL and such bifurcation was based upon functions carried out by each company and based upon FAR analysis. The TPO has given the weightage for functions of various persons for executing the work, risk involved and involvement of employees for acquiring assets/ machinery. It is also observed that during the course of TP proceedings, Appellant company has provided working of weightage based upon the FAR analysis, which is part of its submissions before TPO. As per Appellant, weightage should be given 75: 25 as against TPO's weightage of 58: 42. However, this working of the appellant company is without any basis and on presumption that certain technical functions were performed in BOL only by Gerd Leopold and his consideration is paid from BOL. However, it is a matter of fact that the TPO has assigned the weightage of work required and not tried to divide salaries between the appellant and BOL. The appellant has not found any defect in such working. Considering these facts, the working provided by appellant before TPO cannot be accepted. The appellant has not disputed Arms length mark-up of 5.58%. It is pertinent to note that identical adjustment were made by TPO from IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 6 AY 2014-15 to 2018-19 wherein Undersigned vide order dated 17-08- 2022 has confirmed such adjustment. As facts of the year under consideration are similar to facts of earlier years, the upward adjustments made by TPO for Rs.67,96,987/= is upheld.
6. Corporate Guarantee given to AE of Rs.86,80,387/-: The Assessee has provided Corporate Guarantee to its foreign AE, but not charged guarantee fees on it. The AO has relied upon provisions of Section 92B of the Act along with decision of Hon'ble Madras High Court in the case of CIT -Vs- Redington India [430 ITR 298] and observed that corporate guarantee is an international transaction. The AO has also rejected the contention of the assessee that guarantee is not a shareholder activity and referred OECD Guidelines 2010. The TPO has also observed that guarantee provided by Assessee is explicit guarantee, as assessee has explicitly entered into agreement with respective banks to provide guarantees. The AO has referred to the decision of Bombay High Court in the case of CIT -Vs- Everest Kento Cylinders Limited and considered the rate of 0.5% as arm-length for charging corporate guarantees and consequently he made Upward adjustment of Rs.86,80,387/=.
6.1. The Ld CIT[A] confirmed the addition made by the AO by observing as follows:
"... 7.3 On careful consideration of relevant facts on record, it is observed that appellant has given guarantee to Bank of India and Indian Overseas Bank for BOL and for providing such service, Appellant has not charged any corporate guarantee fees. Hon'ble Madras High Court in the case of Redington India Limited. [supra] has clearly stated that Guarantee is an international transaction and guarantee fees was to be charged for the same. The provisions of section 92B of the Act are also amended by Finance Act 2012. Which also provides that guarantee fees is an international transaction. Clause[c] of explanation [i] to section 92B of the Act clearly states that the expression international transaction shall include. Capital financing, including any type of long term or short term borrowings, lending or guarantee, purchase or sale of marketable securities or IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 7 any type of advance, payments or Deferred payments or receivable or any other debt arising during the course of business. Considering such amendment, brought to the statue, contention of appellant that no adjustment is required for bank guarantee provided by appellant company for its associated enterprise is factually incorrect. The decision of Hon'ble Ahmedabad ITAT in the case of Micro Ink limited versus ACIT relied upon by appellant is for the period prior to amendment and hence it cannot be made applicable.
7.4. So far as contention of appellant that BOL has directly paid all the legal charges to Bank of India and Indian Overseas Bank and appellant has never incurred any cost for providing guarantees is concerned, it is observed that Appellant has explicitly entered into agreement with respective banks to provide guarantee. Once the appellant has provided services to its AE, it should reasonably charges fees for such services. The loans given to BOL were based upon guarantees provided by appellant company. The decisions relied upon by Apparent at para 4.4 of its written submission are prior to amendment brought to Section 92B of the Act, hence cannot be made applicable.
7.5. So far as alternate contention of appellant that guarantee fees should be charged considering actual usage of loan and such amount is to be netted off again fixed deposit is concerned, it is observed that once the appellant has provided corporate guarantee, the transfer pricing provisions require appellant to charge reasonable amount from AE. Considering all these facts, hon'ble Bombay High Court in the case of Everest Kento Cylinders 58 Taxman Com 254 has considered 0.5% as reasonable guarantee fees. Hon'ble Ahmedabad ITAT in the case of Torrent Pharmaceuticals Limited in ITA number. 1285 and 1286/Ahd/2017 vide its order dated 22nd February 2022 has uphold 0.5% guarantee fees as reasonable fees for corporate guarantees given by assessee to its AE. As AO has already charged corporate guarantee fees at 0.5%. No further adjustment is required to be made.
7.6. In view of the above facts, upward adjustment made by TPO for Rs. 68,80,387 is Upheld."
7. Unaccounted profit from HSBL of Rs.11,29,61,022: During the course of search conducted at Bhavnagar office premises of the assessee company, seized a Joint Venture Agreement dated 16-02- 2017 between M/s. Hoogly Ship Breakers Ltd [hereinafter referred as HSBL] represented by Mr. Ramesh Agarwal and Assessee company represented by Mr. Sanjay Mehta regarding business of IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 8 recycling of vessels/ships at plot no.V-2 allotted to HSBL. The relevant Joint Venture Agreement is reproduced at page nos.3 to 8 of the assessment order. The main clause of the Agreement are that assessee company/Sanjay Metha will invest funds required to carry out business at prevailing market rate of interest, Profit and loss of Joint Venture business of ship recycling would be shared in the ratio of 50:50. Such Joint Venture will continue for 10 years and all the cheques shall be drawn under the joint signatures represented by one person from each party. During the course of search, Supplementary Agreement dated 18/12/2017 was also found, which is reproduced at page #10 of the assessment order. During the course of search, Minutes of Meetings of Board of Directors of HSBL dated 16-02-2016 was also found, which is reproduced at page nos. 13 to 16 of the assessment order, wherein Authority was granted to Mr. Sanjay Mehta and Mr. Rakesh Gupta for signing of cheques for and on behalf of HSBL. The AO has referred to the statement of Mr. Dushyant Pandya of Assessee Company recorded on 19-11-2019 wherein he has stated that Assessee Company was also carrying out ship breaking activity from the Yard V-2 of HSBL. The relevant statement of Dushan Panya is at page #17 of the assessment Order. Thereafter the AO has referred to documents found from the backup of the computer installed at Mumbai office of the assessee company, which contains brief background of company and promoters. From which it emerges that Assessee was indeed operating from shipbreaking yard V-2 of HSBL. On the basis of these digital data, the AO observed that 50% RK being Rs.11,29,61,022 is unaccounted profit of HSBL and 50% SPM payable by RK represent unaccounted profit of assessee company based on such observation, thus AO made addition of Rs.11,29,61,022/= in the hands of the assessee.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 9
7.1. The Ld CIT[A] modified the addition made by the AO by estimating the profit at 5 %by observing as follows:
"... During the course of Appellate proceedings, the assessee has reiterated its contention as was raised before the AO and stated that loose paper is mere projection as Joint Venture has never happened since Gujarat Maritime Board Regulations, 2015 prohibits any Joint Ventures at Alang Ship breaking yard. There is no reason to believe that Assessee has actually earned any profit. The appellant has also contended that loose paper found during the course of search does not contain any signature of any party, there's no admission of unaccounted income by either party in statement recorded during the course of search, there is no cash trial of exchange of funds between both the parties, hence addition cannot be made based upon rough nothings found during the course of search. The appellant has also stated that if sales, purchases and other expenses as mentioned in loose paper is summarized, there is actual loss of Rs.2,19,54,231/- as against alleged profit of Rs.23,38,26,274/= which also proves that addition made by AO based upon rough working is incorrect. The appellant has also submitted its audited annual accounts as well as accounts of HSBL in support of its contention that net profit before tax shown on a year to year basis is in the range of 1% of turnover and such book results are accepted by the Authorities in each year. Hence, there is no reason for holding that appellant has had huge unaccounted profit operations Rs.11.3 crores as presumed by the AO."
7.2. The Ld CIT[A] after verifying the net profit details of various previous years, wherein the assessee has shown the net profit between 1.5 to 3.2 % from AY 2015-16 to 2019-20. Similarly, HSBL has shown profit of 0.56 to 0.84% in relevant assessment years. Undisputed fact that while passing the assessment order under Section 153A as well as in HSBL, the AO has not disputed the book results. As loose Paper found during the course of search is not reflecting the correct figure of unaccounted income, it is reasonable to estimate net profit at 5% on the turnover and above profit shown in regular books of accounts. Based upon such facts, unaccounted net profit earned by appellant and HSBL is approximately worked IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 10 out at Rs.8,20,00,000 on turnover of Rs.164.05 crores. As appellant was having 50% share in such unaccounted profit, addition to the extent of Rs.4,10,00,000/= is confirmed in the hands of the Assessee."
8. Suppression of sale of Gas Turbine for Rs.3,41,34,100: During the course of search, item-wise sales summary shown before GST department was found which reflects sales of Rs.182.16 crores whereas sales as per Sales Register was Rs.178.75 crores. On the basis of the discrepancy, a statement of Mr. Sanjay Mehta, Director of the company was recorded, wherein he explained that Gas Turbine was sold to M/s. AI Kayam Marine on 23rdMarch 2019 but such party returned the goods as export did not materialize. He further stated that the very same Gas Turbine was sold to the same party on 15thJune 2019 for agreed value of Rs.1,55,00,000/ which was offered to tax. The assessee explained that the difference between the sales shown to GST and the sales as per books of account was on account of return of goods. The contention of the assessee was not accepted by the AO and observed the difference between the sales shown to GST department and the sales as per Sales register as suppression of sale of Gas Turbrine and he made an addition of Rs.3,41,34,100.
8.1. The Ld CIT[A] deleted the addition made by the AO since the same was taxed in the subsequent AY 2020-21 by observing as follows:
"... On perusal of relevant facts on record it is observed that Appellant has made sales of Gas Turbine for Rs.3,41,34,100/= in the year under consideration but such sales was not materialized and goods was returned by such party in same financial year. Such fact is even admitted by Mr. Sanjay Metha in his statement recorded during the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 11 post of search. It is an undisputed fact that this gas turbine was sold to the same party in AY 2020-21 for Rs.1,55,00,000/ and such sales was offered to tax. While passing the assessment order for AY 2020- 21, AO has made separate addition of Rs.1,86,34,100/ after considering the real value of the gas turbine at Rs.3,41,34,100/ and not Rs.1,55,00,000/=. This addition made by the AO has already been upheld by the undersigned in appellate order dated 27/9/2022 for AY 2020-21. It is observed that actual sale of gas turbine was made in AY 2020-21 and the real value of such gas turbine was already taxed in that year. The explanation provided by appellant that difference of sales as per details submitted to GST Department and the sales shown in sales register is on account of return of goods is correct, as a real sale was made in AY 2020-21. If goods were not returned as explained by appellant, there was no reason for making same sales to same party in subsequent year. The addition made by AO in this year has resulted in double addition in the case of appellant as part of the sale value was already offered to tax by upheld in AY 2020-21 and the remaining under-invoicing of sale value was separately taxed by AO and confirmed by undersigned in AY 2020-21. On this ground addition made by above Rs.3,41,34,100/ is deleted."
9. Unaccounted Rental income of Rs.5,00,000/: During the course of search a notarized copy of Rental Agreement dated 29/12/2018 was seized which was pertaining to property taken on rent from M/s.Savinay Developers. The agreement was for the period of 11 months and monthly rental of Rs.35,000 per month was fixed. Along with such rental agreement, a handwritten note was also found and seized which is reproduced at page #4 of the assessment order, which states that the rent of Rs.1,35,000 per month was fixed and out of which Rs.1,00,000 is required to be given in CASH and balance amount is required to be given through account payee cheque. The AO found that the assessee had paid Rs.35,000/- through cheques, which means the cash of Rs. 1 lakh is not accounted in the books of accounts. The assessee contended that loose sheet found during the course of search is a dump document as it does not contain any signatures neither of the assessee nor of the Landlord. The assessee also stated that no other evidence was IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 12 found which proved that assessee was in fact made payment in cash, hence no addition be made on this ground. However the AO has referred to the statement of Mr. Sanjay Mehta, Director of the assessee company wherein he admitted the transaction, based on the same, the AO made an addition of unexplained rent expense of Rs.5,00,000 and assessed tax to u/s.115BBE of the Act.
9.1. Ld CIT[A] confirmed the addition made by the AO by observing that the assessee has not retracted the statement made u/s.132[4] of the Act and loose paper seized cannot be treated as dump document and thereby confirmed the addition, since for the subsequent asst year 2020-21 similar addition Rs.12 lakhs is made as unexplained rental expenses in the hands of the assessee.
10. Aggrieved against the appellate orders, both the Assessee and Revenue are in Cross appeal before us. Assessee's Grounds of Appeal in IT[SS]A No.04/Ahd/2023 relating to the A.Y. 2019-20 are as follows:
1. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in rejecting the contention of the appellant that the appellant was not provided any opportunity of being heard as required u/s.127(1) and u/s. 127(2) before transfer of appellant's case from Assessing Officer, Bhavnagar to Assessing Officer at Central Circle, Ahmedabad. Further, any order u/s.127 in the matter is not received. Accordingly the transfer of case was not valid.
Consequent assessment order was also not valid.
2. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in not accepting the appellant's submission that the addition of Rs.67,96,987 made by the Assessing Officer on account of benchmarking of services to AE was not based on any incriminating material and thus upholding the addition so made.
3. In law and in the facts and circumstances of the case, the Learned CIT(A) has erred in upholding adjustment made by TPO for Rs.86,80,387 when no such adjustment is called for. The addition may please be deleted.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 13
4. On the facts and in the circumstances of the appellant's case, the Learned CIT(A) has erred in holding that profit of Rs. 4,10,00,000/- was to be estimated on account of recycling of ships in respect of Joint Venture Agreement on the basis of loose paper. Without appreciating the fact and explanation given to him, the Hon'ble ITAT may please order to delete the addition made by the Assessing Officer entirely.
5. The Learned CIT(A) has erred in upholding addition of Rs. 5,00,000/- made by Assessing Officer for unaccounted rental expenses.
6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
11. Revenue's Grounds of Appeal in IT[SS]A No.29/Ahd/2023 relating to the A.Y. 2019-20 are as follows:
1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 7,19,61,022/- out of total addition of Rs. 11,29,61,000/- made on account of unaccounted income out of ship breaking activity in the V2 Shipbreaking Year despite it was specifically recorded in the seized material (sheet named ACCOUNT SETTLED AS ON 12.07.2018 UP TO OPPORTUNITY) as the profit for AY 2019-20, due to such ship breaking activity of Rs.
11,29,61,022/- for both the parties.
2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,41,34,100/- made on account of suppression of sale of Gas Turbine considering that the sales were carried out in AY 2020-21 and not for AY 2019-20 even though the period of transaction was accepted by Sh. Sanjay Mehta, director of PBIPL as AY 2019-20, in his statement which was recorded during the search proceeding at 504, Swara Park Lane, Opp. Joggers Park, Bhavnagar.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the AO.
4. It is therefore, prayed that the order of the learned Commissioner (Appeals) be set aside and that of the A.O. be restored to the above extent.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 14
12. Since common issues are involved in the above Cross appeals, for the sake of convenience the Grounds raised by both parties are dealt with each issue-wise. At the outset Ld. Senior Counsel Shri Tushar Hemani appearing for the assessee submitted that the assessee is NOT pressing Ground No.1 namely assumption of jurisdiction u/s.127[2] of the Act. Recording the same, Ground No. 1 raised by the assessee is hereby dismissed.
13. Regarding Ground No. 2, the Ld. Senior Counsel submitted that there is no incriminating material found during the course of search, based on which it can be stated that employees of PBIL were working for BOL. Further PBIL is the holding company and BOL is the wholly owned subsidiary company. Even if adjustment is made on account of alleged services, it should be kept in mind that certain technical functions were performed only by Mr. Gerd Leopard, who is a non-resident and who has been paid consideration from the books of BOL only. No consideration has been paid to Mr. Gerd Leopard or his technical team by the assessee company. Accordingly, weightage for PBIL and BOL can only be arrived at 75 : 25 and referred to FAR analysis report.
Particulars PBIPL BOL Performed
by
FUNCTIONS
Receiving Offers from brokers for 0 Gerd Leopld
ship purchase & his team
Evaluation of the offers 0 Gerd Leopld
& his team
Finalizing the offer and purchasing the ship 0 Gerd Leopld
& his team
Arranging the delivery of vessel 0 Gerd Leopld
& his team
Custom Clearance of the vessel 1
Managing employees for operations 1
IT[SS]A 4, 29/Ahd/2023 &
4 ors Priya Blue Ind P Ltd &
Hoogly Ship Breakers Ltd. Page 15
Managing certification standards 1
Compliance with the authorities 1
Business knowhow of cash buyers 0 Gerd Leopld
segment of shipping industry & his team
Experience and presence in cash buying 0 Gerd Leopld
segment of shipping industry & his team
Worldwide connects to broker network 0 Gerd Leopld
& his team
Managing network of customers 1
ASSETS
Arrangement of necessary finance 1 1
Technical Key managerial persons/Directors 1 1
Investment in recycling equipment/machineries 1
Investment in land/yard 1
Investment in working capital 1 1
RISKS
Commercial liability risk 1 1
Financial default risk 1 1
Guarantee given to banks 1
Regulatory compliance related risks 1 1
Customers Default risk 1
Inventory risk 1
Price Risk 1
Labour/Workmen related risk 1
Total 18 6
13.1. Per contra the Ld CIT DR appearing for the Revenue supported the orders passed by the lower authorities and requested to uphold the same and confirm the additions.
14. We have heard rival submissions and perused the materials on record and adjudicate the preliminary issue that there is no incriminating material found during the course of search and statements recorded from various employees of the assessee company cannot be relied upon for assessment, this argument does not hold good since this assessment year 2019-20 was not abated IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 16 and assessment proceedings were pending during the course of search proceedings, therefore there is no question incriminating material required for the assessment, hence this argument is rejected.
14.1. It is seen from the orders of the lower authorities that the assessee company is in the ship breaking and trading of items activity. There are several operations which needs to be handled by the assessee company [PBIL] staff and their directors sitting at Mumbai office, viz.
a) Custom Clearances of the vessels
b) Managing employees and workers for the several operations,
c) Managing Certification standards,
d) Compliance with the several authorities
e) Projections and budgeting for the necessary finance
f) Identifying and deciding on the investment in recycling equipment/machineries
g) appraising the working capital need and managing it
h) Managing network of customers
i) evaluating and managing commercial liability,
j) Managing inventory,
k) handling the sales operations
1) identifying the customers and negotiating with them,
m) Instructing and allocating manpower team for Ship breaking activities
n) follow-up with bankers
o) Preparing MIS reporting for the quick review of management.
14.2. The Revenue did not dispute that BOL's cash buying segment was handled and lead by Mr. Gerd Leopold only, who was having vast experience in that field. The operations of Assessee company is totally different than that of activities carried out by the BOL. All employees including referred employees and directors were mainly working for the PBIL operations only and BOL was led by Gerd Leopold with his independent Technical Team. Directors of the assessee company were also not having any past experience and background in the cash buying segment activities as they were IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 17 mainly engaged and operating in the field of ship dismantling activities only.
14.2. Further it is undisputed fact that the alleged employees who has worked for BOL have joined the PBIL since year 2014-15 only and whereas, Best Oasis Ltd had been incorporated way back in 2010-11 and conducting its business since then, hence it can't be assumed that any of the employees were working for BOL, it was merely that certain back office residual work was getting allotted to the PBIL employees as the operations of the group started expanding. It will be manifest to state that in case of 'cash buying' activity in shipping industry the major operation pertains to the buying operations, which were getting handled by Gerd. Gerd and his team payment was duly done by BOL only. None of the Priya Blue Industries employees were technically sound to handle the complex and highly technical operations of the BOL, majority of them were just a Bachelor degree holder with no prior experience of 'Cash buying' segment experience ever, hence assuming that they were working mainly for BOL is far stretching exercise. BOL is engaged in the business of cash buying of ships and vessels which is mainly controlled by the person outside India and the referred employees of Appellant were only providing back office service and has no other relation with the business of cash buying. Therefore, the question of common employees does not arise in the case. Also, on statements been shared of employees, some of the employees has also specifically clarified and retracted their statement taken during the course of search under duress and in mechanical manner.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 18
14.3. Even if adjustment is to be made on account of alleged provision of services, then it should be considered here that as certain technical functions were only performed by Gerd Leopold who was non-resident and whose consideration was paid from the books of BOL only and there is no consideration paid to him or his Technical Team from the books of assessee company. Considering the same, weighted average worked out by appellant before TPO based on the FAR Report i.e. 75 : 25 [reproduced in para 13 above] is found to be reasonable and appropriate. Therefore the Ld AO is directed rework TP adjustment accordingly and thus the Ground No.2 raised by the assessee is partly allowed.
15. Regarding Ground No.3, the Ld. Senior Counsel reiterating the submissions made before the lower authorities that it is well settled that issuance of "Corporate Guarantee" by the assessee on behalf of its subsidiary company is in the nature of quasi-capital or share holder activity and not in the nature of 'provision of service' and therefore the said transaction is to be excluded from the scope of "international transaction" u/s.92B of the Act. Ld Senior Counsel further contended that the issue is squarely covered in favour of the assessee by referring the decisions rendered by the Co-ordinate Benches of the Tribunal, in the case of Micro Ink Ld. Vs. ACIT reported in 157 ITD 132; DCIT -Vs- Suzlon Energy Ltd. ITA 2216/ AHD/2018 and DCIT -Vs- Suzlon Energy Ltd. 153 Taxman.com 582 [Ahd].
15.1. On the other hand, the ld CIT DR submitted that the order of this Tribunal in the case of Micro Ink Ld. Vs. ACIT, reported in 63 taxmann.com 353 has been reversed by the judgment of Hon'ble Madras High Court in the case of PCIT Vs. Redington (India) Limited.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 19
Therefore, learned DR vehemently supported the order of the authorities below.
16. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the fact of the issue on hand has been elaborated in previous paragraphs, therefore, we proceed to adjudicate the same accordingly. The provisions of section 92B of the Act defines the parameters of what constitutes an 'international transaction'. Although the ambit of international transaction was wide enough, yet due to judicial interpretation, certain classes of transactions were being left out of the transfer pricing net. To tackle the same, by the Finance Act of 2012 an Explanation to Section 92B[2] of the Act was brought on the statute with retrospective effect from 1st April 2002. The explanation is clarificatory in nature and added certain categories of transactions, inter alia, the transaction as specified under clause (c) of explanation (i) to section 92B of the Act within the ambit of international transactions which is reproduced as under:
[Explanation.--For the removal of doubts, it is hereby clarified that--
(i) the expression "international transaction" shall include--
(a) ***********
(b) *************
(c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;
16.1. Thus it can be seen that the guarantee was included within the ambit of international transaction vide the Finance Act 2012 with retrospective effect. There remains no ambiguity to the fact that IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 20 corporate guarantee extended by the assessee to its AE is an international transaction and therefore the same has to be benchmarked at the arm length price. However, we note that the different benches of the ITAT have taken different view. Some of them held that the transaction of corporate guarantee is an international transaction, whereas some of them held that the transaction of corporate guarantee is outside the purview of the international transaction including the Ahmedabad tribunal in the case of Micro Ink Ltd. vs. Addl. CIT reported in [2015] taxmann.com 353, wherein it was held that the corporate guarantee is not international transaction. This decision was followed by other Benches in the case of Suzlon Energy Ltd.
16.2. However, in our considered view the above decisions has not considered the amendment in the Finance Act of 2012 and Explanation to Section 92B[2] of the Act which was brought on the statute with retrospective effect from 1st April 2002. Further we find that the Hon'ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. reported in 122 taxmann.com 136 has held that corporate guarantee is covered under the limb of international and having bearing on profit and loss account. The relevant finding of the Hon'ble court reads as under:
"... The concept of bank Guarantees and Corporate Guarantees was explained in the decision of the Hydrabad Tribunal in the case of Prolifics Corpn. Ltd v. Dy. CIT [2015] 55 taxmann.com 226/68 SOT 104 (URO). In the said case, the revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is and additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 92B does not enlarge the scope of the term 'international transaction' to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfil the liability and therefore, there is always an inherent risk IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 21 in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that his position indicates that provision of guarantee always involves risk and there is a service provided to the Associate enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on profit & loss account, but inherent risk cannot be ruled out in providing guarantees. U1 and adjustment are to be made on guarantee commissions on such guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. In the light of the above decisions, the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and the order passed by the DRP is to be restored. "
16.3. Thus in view of the above, we hold that the bank guarantee is an international transaction. Therefore, the same has to be bench marked for determining the ALP. Next question that arise for adjudication is whether such amendment is applicable retrospect tively i.e. 1-4-2002 though the same was brought the finance Act 2012. In this regard, we note that the Hon'ble Madras High Court in the case of PCIT vs. Redington (India) Ltd. [cited supra] has held that such amendment was applicable retrospectively. The relevant portion of the judgment reads as under:
"72. A new Enactment or an Amendment meant to explain the earlier Act has to be considered retrospective. The explanation inserted in section 92B by Finance Act 2012 with retrospective effect from 1-4-2002 commences with the sentence "For the removal of doubts, it is hereby clarified that -"
73. An Amendment made with the object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation.
16.4. In view of the above, we hold that the amendment as discussed above was brought by the Finance Act 2012 but the same is applicable retrospectively i.e.1-4-2002. Thus the amendment is applicable to the asst year 2019-20 under consideration. The case laws relied by the assessee company did not considered the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 22 retrospective amendment brought by the Finance Act, 2012, therefore the same are not applicable for the present case.
16.5. Next question arose what should be the ALP rate of the commission on corporate guarantee ? In this regard we find that The Tribunal in several cases has considered 0.50% (of corporate guarantee given) as ALP rate of Corporate Guarantee commission. Some of these cases are as under:
(i) Videocon Industries Ltd. v. Dy. CIT [2017] 79 taxmann.com 216 (Mumbai - Trib.), Parent company charged commission at 0.25 %.
The ALP was determined by the Tribunal at 0.50%.
(ii) Hindalco Industries Ltd. v. Addl. CIT [2015] 62 taxmann.com 181 (Mum.), Parent company charged commission at 0.50% which was considered as at ALP.
(iii) Manugraph India Ltd. v. Dy. CIT [2015] 62 taxmann.com 347 (Mum.
Trib.), the corporate guarantee was not treated as international transaction by the parent company but the Tribunal treated it as international transaction u/s 92B and upheld the ALP of 0.50%, following the order in the case of the assessee for the earlier year. The Tribunal followed Everest Kento Cylinder Ltd. v. ACIT [2015] 56 taxmann.com 361 (Mum-Trib). It seems that the decision in Bharti Airtel Ltd. (supra) was not referred to in this case.
(iv) Aditya Birla Mincas Worldwide Ltd. v. Dy. CIT [2015] 56 taxmann.
com 317 (Mum - ITAT). The assessee had not classified this transaction as international transaction. However, guarantee commission was fixed at 0.50%.
(v) Mylan Laboratories Ltd. v. Asstt. CIT [2015] 155 ITD 1123 (Hyd. -
Trib.) The assessee admitted corporate guarantee as international transaction, then as against 2% fixed by TPO the Tribunal upheld the claim of the assessee at 0.53% following the decision in Prolifics Corpn. Ltd. v. Dy. CIT [2015] 68 SOT 104 (URO)/55 taxmann.com 226 (HYD - Trib.).
(vi) Everest Kanto Cylinder Ltd. (supra) - Assessee paid guarantee commission at rate of 0.5 % for obtaining guarantee. This was accepted as ALP for all corporate guarantees given by the assessee.
(vii) Godrej Consumer Products Ltd. v. ACIT [2016] 69 taxmann.com 436 (Mumbai-Trib.) The assessee suo motu benchmarked the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 23 commission chargeable on bank guarantee @ 0.25%. It was determined at 0.50%.
(viii) Delhi Tribunal in the case of Havells India Ltd. Vs. ACIT (LTU) in ITA No.6509/Del/2018 dt. 09.05.2022 had also echoed the above said view and held that the addition of 0.5% on the amount guaranteed would be the appropriate benchmark to determine the ALP.
(ix) Similar decision was also passed by the Bangalore and Pune Benches of the Tribunals in the case of GMR Infrastructure Ltd in ITA No.344/Pun/2022 dt.25.05.2022 and Jain Irrigation Systems in ITA 822/Pun/2022 dt.22.12.2022, respectively.
16.6. Thus, in view of the above rulings by various Benches of the Tribunal, we dismiss the ground no.3 raised by the assessee and confirm the addition to the tune of 0.5% on the amount guaranteed as corporate guarantee commission.
17. Regarding Ground No.4 by the assessee and Ground No.1 by the Revenue, Unaccounted profit from HSBL as determined by the AO of Rs.11,29,61,022/= and was estimated by CIT[A] to Rs.4.10 crores.
17.1. Ld Senior Counsel Mr. Tushar Himani submitted that during the course of search u/s.132 of the Act on 19-11-2019 few documents were found and seized namely [a] Joint Venture Agreement dated 16-02-2017; [b] Supplementary Agreement dated 18-12-2017; [c] Minutes of Meeting of Board of Directors of HSBL dated 16-02-2016; [d] Digital data of shipbreaking activity carried out V2 ship breaking yard; [e] Excel sheet with heading "ACCOUNT SETTLED AS ON 12-7-2018 UP TO OPPORTUNITY". As per the excel sheet "50% share of SPM payable by RK" was Rs.11,29,61,022/=. The Ld AO presumed that such amount represented the share of the assessee company in the profit generated on account of ship IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 24 breaking activities carried out from plot V-2 pursuant to the JVA entered between PBIL and HSBL. Accordingly a show cause notice dated 22-02-2022 was issued calling upon the assessee to showcase as why the addition of Rs.11,29,61,022/= should not be made by treating it as unaccounted income of the assessee company. The assessee furnished detailed response explaining that no Joint Venture was allowed at Alang ship breaking yard as per the restriction from the Gujarat Maritime Board Regulations, 2015, Chapter-2, para 2.5 which read as follows:
"No Leasing/Sub-letting: The permission granted is for specific purpose of ship recycling by the permission holder. In no case, the permission holder shall sublet, lease, assign, sub-contract or sell the plot or transfer any right in the plot including the permissible right to use the said plot to any other person[s], nor alienate in any manner for any purpose Whatsoever."
17.2. In view of the above restriction, NO Joint Ventures are allowed at Alang Ship Breaking yard. Hence the said JV alleged by the AO was never acted upon. Therefore the allegation of the AO with respect to carrying our ship-breaking activities pursuant to alleged JVA and earning profit on account of the same are absolutely baseless and incorrect.
17.3. Further with reference to Supplement Agreement dated 18-12- 2017 on the basis of which the AO alleged that under the JVA a ship named "Ltd 42,400 MT" was purchased for recycling. For this transaction Mr.Sanjay P Metha arranged funds to the tune of Rs.35 crores for the activities of ship recycling, against which he was to receive the 100% shares of HSBL as security. In this regard the Ld Counsel submitted that since the alleged JVA was never proceeded with and no funds were provided to HSBL by the assessee. However the funds received by HSBL from the market as unsecured loans IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 25 under the guarantee provided by the assessee company by blocking of its LC in its name of HSBL. In lieu of which HSBL provided the share certificates as security. The same have been done to secure the interest of Sanjay P Mehta and the assessee company for the above funds.
17.4. Regarding the Minutes of Board Meeting that authorization as signing authority for cheques issued on behalf of HSBL was made under alleged JVA which was never executed to its objective. However, as stated above that HSBL received funds from market as unsecured loans under the guarantee provided by the assessee company and the blocking of the assessee company LC in its name for securing the interest of the company. On mutual agreement Sanjay P Metha and Rakesh Gupta were authorized as signing authority for the cheques issued on behalf of HSBL for the above referred bank accounts. This was clearly explained by Mr. Sanjay P Metha in his statement recorded on 21-11-2019, even in that statement there is no affirmation that alleged Joint Venture was in operation between the parties. However ignoring the same the Ld AO presumed that ship breaking activities carried out as per JVA between the parties.
17.5. Next one is excel sheet found from the backup of the computer namely "ACCOUNT SETTLED AS ON 12-7-2018 UP TO OPPORTUNITY". This excel sheet represents only a rough working and the sheet was prepared for an estimated basis and none of the parties has executed any transactions. No such amount has been received either by Sanjay P Mehta or the assessee company, since the sheet represents rough working of estimated amounts to be received by Sanjay P Metha or the assessee company, if the Joint Venture was to be executed, which due to the regulations of Gujarat IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 26 Maritime Board was not possible. Such sheet represents no connection with any real income which were to be earned by the assessee company or Sanjay P Metha. Therefore addition on such ground would only be based on assumption and presumptions. Further the seized excel sheet nowhere contains either of the following details * what activities have been carried out;
* who has carried out such activities;
* what is the precise period of carrying out such activities; * methodology of deriving amount payable;
* full form of 'RK' and 'SPM' * Details of actual payment (namely recipient, date, mode of payment etc.) * the sheet does not contain signature of any of the parties. * the sheet nowhere mentions that such profit has been earned from joint venture * none of the parties has actually executed such transactions as per joint venture agreement * none of the parties has even stated to have executed such transactions as per joint venture agreement * even as per the sheet amount is payable not actually paid * there is no corroborative evidence of actual distribution of profit or receipt * there's no admission of unaccounted income by either of the parties * the sheet has no connection with the real income earned by BPIL or Sanjay P Mehta and no such amount has been received by either parties * even the amount of profit appears to be a theoretical number such a number does not show any financial record.
* if profit or loss is to be worked out strictly on the basis of the sheet in question it result in a loss of Rs.2,19,54,231/ 17.6. In view of the above, Ld Senior Counsel submitted that it is clear that the excel sheet in question appears to be only a rough working, merely reflects some projections, appears to have been prepared on estimate basis. Merely because of the word 50% RK and 50% SPM as mentioned in the sheet cannot represent that such IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 27 sheet reflects quantum of profit actually earned. Therefore the ld Senior Counsel submitted it's clearly evident that the sheet is merely a 'dumb document'. The sheet is dressed up with theoretical numbers, the amount so-called profit cannot be derived from the sheet without corresponding evidence. Therefore the impugned addition made on 'dumb document' and not backed with any corroborative evidence is unstainable law and relied on the following decisions:
ACIT -Vs- Dharmendrasinh Waghela Tax Appeal 1539 of 2011 [Guj] ACIT -Vs- Manav Infrastructure P Ltd IT[SS]A 314/Ahd/2012 and ACIT -Vs- Bhagvanbhai K Ajara IT[SS]A 194/Ahd/2013 It is well settled that NO addition can be made merely on the basis of contents of seized materials. Reliance is placed on the following decisions:
CIT -Vs- Maulik Kumar K Shah - 307 ITR 137 [Guj] Common Cause -Vs- UoI - 394 ITR 220 [SC] ITO -Vs- Bharat A Metha - 60 taxmann.com 1 [Guj] 17.7. Thus Ld Senior Counsel pleaded that neither the addition by the Ld AO of Rs.11,29,61,022/= nor the estimation made by the Ld CIT[A] of Rs.4.10 crores are not sustainable in law.
18. Per contra the Ld CIT DR appearing for the Revenue supported the order passed by the AO and requested to uphold the same and the Ld CIT[A] is not correct in estimating the profit at 5% and therefore requested to uphold the addition made by the Ld AO.
19. We have heard rival submissions in detail and perused the materials on record. To appreciate the controversy on hand in correct prospective, the following vital facts in relation to Hooghly Ship Breaking Ltd are more relevant. Ship breaking yard V-2 was IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 28 owned only by HSBL and not by the assessee PBIL. Income from ship breaking activities of 'Ship Arina' and 'Ship Opportunity' were accounted for in the books of HSBL. Search action under section 132 was carried out in the premises of the assessee company and HSBL on 19-11-2019. Later notice u/s.153A were issued on HSBL on 23-12-2020 and search assessments u/s.153A were framed in the case of HSBL on 20-09-2021 and in the case of Assessee company on 07-03-2022 by the very same Deputy Commissioner of Income Tax, Central Circle 1[1], Ahmedabad. Paragraph 4 to 4.6 of both the assessment orders dealing with "Addition with respect to ships recycled under the joint venture agreement with HSBL"
which is running to 17 pages [with reproduction of JVA, Supplementary Agreement, Minutes of Board Meeting of HSBL, etc.] which are word by word and paragraph by paragraph are identical for both the assessee company and HSBL. Thus it is a cut and paste order made by the ld AO and raised addition of Rs.11,29,61,022/= being 50% each share income of the assessee company and HSBL.
19.1. By doing so the ld AO miserably failed to consider the Return of Income filed by the HSBL declaring the income on recycling of ship 'Arena' and ship 'Opportunity' and payment of statutory dues, taxes to various authorities by HSBL. But the Ld AO blindly relied on the seized documents namely JVA, Supplementary Agreement, Excel sheet without corroborative evidences.
19.2. The assessee brought on record namely the basic purchase value of ship Arena is Rs.31,10,26,020/= as per the purchase register of HSBL. Note 23 contains reference to CIF value of purchase of ship Arena. Note 25 contains reference to purchase of ship Arena by HSBL [Which are available at page number 47 and 48 IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 29 of the paper book]. Further Ledger account of Ship Recycling/Port charges of HSBL clearly shows that HSBL paid Rs.22,45,691/= on 28-3-2017 to Gujarat Maritime Board [GMB] for the breaking up ship Arena. Similarly Ledger account of 'Gujarat Maritime Board - PLD account' shows the payment of Rs.22,45,691/ by HSBL for recycling charges. Further ledger account of 'Customs duty - raw materials [ships]', clearly shows that HSBL paid appropriate Customs duty of Rs.89,13,642/ for ship Arena. [Which are available at page number 49 and 53 of the paper book].
19.3. Similarly purchase value of ship 'Opportunity' by HSBL was for Rs.97,39,21,419/=. Import purchase register - IGST, customs duty of Rs.18,16,80,681/= paid by HSBL. Further Ledger account of Ship Recycling/Port charges of HSBL clearly shows that HSBL paid Rs.67,54,639/= to Gujarat Maritime Board [GMB] for the breaking ship Opportunity. Similarly Ledger account of 'Gujarat Maritime Board - PLD account' shows the payment of Rs.5,80,560/ by HSBL for recycling charges [which are available at page number 54 and 60 of the paper book].
19.4. The Ld AO failed to consider the reply to the statement dated 21-11-2019 of Sri Sanjay P Metha recorded at Bhavnagar office, which reads as follows:
"Q.15. I am showing you the pages 1 to 53 found and seized as Annexure A-3 from your office 504 Swarna Park Lane, opposite Joggers Park, Bhavnagar. The pages are related to your agreement with the promoters of m/s. Hoogly Shipbreakers Ltd. As per the agreement they were forming 50% - 50% JV with them in lieu of the profit sharing and in return the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 30 promoters Hoogly Shipbreakers Ltd. have handed over to you the 50% of the shares to be kept in your custody are security. Please state whether you are receiving any profit from them and if yes details of the same ?
Ans.: Sir we are having adjacent plots at Sosiya. We are having plot number V-1 and they have V-2. The company in question is in loss and severe financial crunch. I have stepped in to help him and to open his LC, blocked my LC and let them use my LC for business. In return of which I have taken the share for security. Sir we have not received any profit from this JV till date as they are making loss since Feb 2017 after signing ".
19.5. At this juncture we would further like to refer the provisions of Section 132(4A) of the Act which reads as follows:-
"132(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed-
(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
(ii) that the contents of such books of account and other documents are true; and
(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested."
19.6. From going through the above provision, we find that it uses the word "it may be presumed", which as rightly held by the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 31 Hon'ble jurisdictional High Court in the case of CIT vs. Dharmendra Sinh Waghela that the word "may presume" that such presumption is rebuttable in a situation if Revenue could not bring on record any material to prove that the seized material is corroborative for the addition. In the present case before us, the Ld AO could not corelate the sized materials with corroborative evidence and also not made sufficient enquiry so as to establish that in fact the said documents unearthed are concealed business activity of the assessee. In the absence of any such evidence, the addition so made by the AO remained un-corroborated and liable to be deleted. This view of ours is supported by Jurisdictional High Court in the case Dharmendra Sinh Waghela which was followed by the Co-ordinate Benches of the Tribunal in the case of Manav Infrastructure P Ltd and ACIT -Vs- Bhagvanbhai K Ajara [cited supra] in IT(SS)A No.194/Ahd/2013 as follows:
"... 11. We have heard the rival contentions and perused the record placed before us. The issue raised by both the parties relates to a Memorandum of Understanding (MoU) which was pertaining to a purchase of land of 15,500 sq. yards at Kalol @ Rs.4,500/- per sq. yard. This alleged document was seized in the course of search conducted in the case of Umiya Group on 04.03.2010. This document, in which matter was typed in the form of Memorandum of Understanding (MoU) between assessee-firm through its partner Dipak Prajapati and the land owner for the purchase of land bearing Survey No. 1001/18 and 1000 at Kalol admeasuring 15,500 sq. yards agreeing to purchase at Rs.4,500/- per sq. yard. Ld. Assessing Officer, during the course of assessment proceedings, observed that there is a purchase of alleged land admeasuring 15,500 sq. yards at the cost of Rs.1,70,00,000/- in the regular books of accounts. Ld. Assessing Officer was convinced that the alleged purchase of land was actually purchased at Rs.6,97,50,000/- which he calculated by applying the rate of Rs.4,500/- per sq. yard as appearing in the seized MOU. He accordingly made an addition of Rs.5,27,50,000/- and completed the assessment.
12. When the issue came up before the Id. CIT(A), he took a view that, in general parlance, in the business of real estate, there is an element IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 32 of on-money which is normally to be carried out in cash. Ld. CIT(A) adopted a ratio of 40:60, wherein 40% of the deal amount is normally paid by cheque and remaining 60% being the on-money is paid by cash. Ld. CIT(A) accordingly taking the base of cost price appearing in assessee's books of accounts at Rs.1,70,00,000/- calculated the total consideration value at Rs.4,25,00,000/- and thereafter calculated the 60% on-money value at Rs.2,55,00,000/- and sustained the addition to this extent.
13. During the course of proceedings before us, Id. Counsel has mainly contended that the alleged document, i.e., MOU and kaccha chitthi, are unsigned, undated and mere draft and is a dumb document which Id. Assessing Authority should not have taken. We notice that the alleged document MOU is filed at page No.15-21 of the paper-book and kaccha chitthi at Page Nos. 22-23 and observe that the Memorandum of Understanding is prepared on a stamp paper dated 31.10.2007 between Uma Shakti Corporation Kalol Project, being the purchaser and the selling parties and this MOU is undated and only the stamp is of November 2007. There appears no signature of either of the parties on any of the pages. Even kaccha chitthi is also unsigned which speaks about a rough draft showing a partnership firm to be incorporated and there are other notings about installments and an amount of Rs.51,00,000/- is written on the last page of the kaccha chitthi. Ld. Assessing Officer has made the impugned addition on the basis of these documents. Now, the question arises before us is whether this unsigned, undated MOU and kachha chitthi can be taken as corroborative evidence against the assessee in order to make an addition.
14. Before analyzing the facts, we find it necessary to go through the decision of the Co-ordinate Bench in the case of ACIT vs. Manav Infrastructure P. Ltd. (supra), wherein Co-ordinate Bench has dealt with similar issue relating to addition made by the Assessing Officer on the basis of seized documents and whether an addition can be sustained if the alleged seized papers are rough work and there is no clear indication as to how they will lead as a basis for the alleged addition. The Co-ordinate Bench in the case of Manav Infrastructure P. Ltd (supra) has observed as follows:-
"7. We have duly considered rival contentions and gone through the record carefully. Section 132(4A) contemplates that where any books of accounts, other documents, money, bullion, jewellery or other valuable article or thing is found in the possession or control of any person in course of a search, it can be assumed that such books of accounts other documents etc. belongs to such person, contents in the books of accounts or documents are true. No doubt such an evidence is an admissible evidence, but not a conclusive one.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 33
Presumption of belonging and its genuineness are rebuttable one. Hon'ble High Court in the case of Dharmendrasingh R. Waghela (supra) has also propounded that though section 132(4A) of the Act uses expression "may presume", meaning thereby that such presumption is rebuttable one. In the present appeal, we have been called upon to construe and interprets these pages and arrive at a conclusion whether any transaction having nexus with the business transaction of the assessee can be inferred. The assessee has placed on record details in tabular form exhibiting total shops available in Balaji Mall and how these shops have been sold in F.Y.2007-08, 2008-
09 and 2009-10. The assessee has also compiled these details floor- wise i.e. availability of shops on ground floor, second floor, third floor and fourth floor. It has placed on record date of sales, area and the amount for which these shops have been sold. Thus, complete picture of the shops, their area, their geographical location, date of sale and the amount for which they have been sold, have been placed by the assessee on page no.43 to 49 of the paper book. During the course of hearing, we have confronted the Id.CIT-DR to demonstrate nexus between narrations available on page no.7 to 10 of the paper book ie. seized material vis-à-vis alleged book results by the assessee. However, the Id.CIT-DR could point out that on page no.7 i.e. 2nd page of the seized paper, name of Ashish J. Shah was mentioned. It contemplates business of Balaji Mall. On an analytical examination of these details, we find that some narrations here and there, are having a slight connection with the shops, but it is difficult to arrive at logical conclusion. The stand of the assessee before the AO was that these papers can be divided in three parts viz. (a) typed documents, hand written documents in Gujarati pertaining to Shree Balaji Mall and other hand written documents written in English with certain numbers mentioned in it. According to the assessee these hand-written documents in English is neither of Balaji Mall nor of the company. These papers have neither been drawn by the directors or their family members. This aspect was not only explained during the course of assessment proceedings, but even during the course of search itself. Against this stand of the assessee, the department did not take any step to investigate the issue further. The AO has also not tried to supplement his reasoning by inductive method ie. he has not made reference to any other connected material exhibiting nexus between these papers with that of the assessee's transaction. He simply observed that explanation of the assessee is not acceptable. The assessee has made a disclosure of Rs.3 crores in reply to question no.10 recorded under section 132(4) of the Act. Out of this Rs.3n crores, Rs.2 crores has been offered for taxation in this year. We have been informed that rest of Rs.1 crore were offered in individual hands. We have tried our best to persuade both IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 34 the Id. representatives to show some nexus or reasonable conclusion from all the figures mentioned in these papers. By any scientific means they did not goad adjudicating authority to arrive at a conclusion that unaccounted profits have noticed in these papers. The Id.CIT(A) has appreciated these papers and arrived at a conclusion that these are rough work without any clear indication as to what the said numbers really lead to or relates to. On an analysis of complete material including statement of director recorded under section 132(4) and the explanation of the assessee extracted (supra) during the course of assessment proceedings, we are of the view that the Id.CIT(A) has appreciated the facts in right perspective way, and department is unable to goad us to arrive at any other logical conclusion. Therefore, we do not find any merit in this appeal of the Revenue. It is dismissed.
15. We further observe that Hon'ble jurisdictional High Court in the case of Dharmendrasinh R Waghela Prop M/S. Narendra Roadlines (supra) has also observed as under.-
"2. The issue arises in following factual background. During the course of search operations carried out at the residential and business premises of the respondent - assessee, certain documents were seized. On the basis of such documents, the Assessing Officer desired to make addition. The assessee, however, during the course of the assessment, contended that such documents do not belong to him. The assessee's business was of transportation. The documents contained entries regarding the oil business. In short, the assessee totally disowned such documents.
3. The Assessing Officer, principally placing reliance upon section 132(4A) of the Income Tax Act, 1961 ("the Act" for short), however, discarded such objections and ruled that the presumption against the assessee would arise. On such basis, he made addition of Rs.30,27,987/-.
4. The assessee carried the matter in appeal before the Commissioner. The Commissioner confirmed the view of the Assessing Officer, once again placing heavy reliance upon section 132(4A) of the Act. The assessee carried the matter in further appeal. The Tribunal reversed the view of the revenue authorities and allowed the appeal of the assessee, making following observations:
"17. We have heard both the sides. We have perused the material placed before us. As per the document placed on page No.179 of the compilation, it had reflected some business transaction in respect of oil and kerosene oil. As IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 35 per this typed document, there was a mention of parties from whom a business activity was performed. The figures have mentioned the rates applied for the said commodity and the details of the amount received. This document in fact appears to be in respect of some "oil business" but there is no denial of this admitted fact that the assessee is in the business of Transport. Hence, a vehement contention is that by the very nature of document, it did not relate to the business activity of the assessee. However, there was no finding or even an allegation of the Revenue that there was such type of business at all run by the assessee. It was not the case of the revenue that an undisclosed business was unearthed which was not found recorded in the books of account. Barring this paper, there is no material in possession of the Revenue to corroborate that the said paper had any connection with the accounted or unaccounted business activity of the assessee. From the side of the Revenue even nо such attempt was ever made to make an enquiry from those parties whose names were printed on the said paper. Because of these reasons, Id. AR Mr. Mukund Bakshi has emphasized that the said document was nothing but a bald document. For this legal proposition, case laws cited are:-
1 ACIT vs. Satyapal Vasan 295 ITR (AT) 352 [ITAT - Jabalpur] 2 CIT vs. Girish Chaudhary (2008) 296 ITR 619 (Mad.) 3 CIT us. S.M. Aggarwal (2007) 293 ITR 43 (Del.) 4 Jaya S. Shetty vs. ACIT (1999) 69 ITD 336 (Mum) 5 Bansal Strips P. Ltd. vs. ACIT (2006) 99 ITD 177 (Del.)
18. From these decisions, it transpires that if an addition is to be made on the basis of a seized document, then it must be supported by some identification having any nexus with the unaccounted business activity of the assessee. The nature of transaction should reflect some direct or indirect connection with the accounted or unaccounted activity of the assessee. If a document is silent or the ingredients could not be linked, then the said document was considered as "a dumb document". Placing reliance on these decisions, inter- alia we are of the view that the Revenue Department had not made sufficient enquiry so as to establish that in fact the said document had unearthed a concealed business activity of the assessee. In the absence of any such evidence, the addition so made by the AO remained un- corroborated, hence, we hereby reverse the findings and allow this ground."
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 36
5. Counsel for the revenue vehemently contended that the Tribunal committed an error in interfering with the concurrent findings of the revenue authorities. He submitted that the assessee's explanation that the documents seized were not found satisfactory. That presumption under section 132(4A) of the Act would apply
6. We are of the opinion that the entire issue is based on appreciation of the material on record. Section 132(4A) of the Act uses the words "may presume", meaning thereby that such presumption is rebuttable. In the present case, documents found pertain to entries related to oil business. The assessee's business at least accounted was of transportation. Revenue could not bring on record any material to suggest that the assessee was also involved in the business of dealing in oil. Additionally, the Tribunal has correctly recorded that the documents were dump documents. Revenue did not make any attempt to inquire into the matter further from the persons whose names were reflected in such entries.
7. In short, it cannot be stated that the conclusions arrived at by the Tribunal are perverse. No error is committed by the Tribunal. Tax Appeal is dismissed."
16. Going through the views expressed in the judgment of Hon'ble jurisdictional High court and decision of Co-ordinate Bench which gives fair view that if from the seized material no nexus or reasonable conclusion can be arrived, then even if the documents are seized during the course of search, they cannot be used against the assessee. Examining the facts of the case before us, we observe that assessee-company was incorporated on 28.01.2008 and its first bank transaction was entered on 19.02.2008. Assessee-firm is having six partners namely S/Shri Vikas R. Patel, Brijesh S. Patel, Dipak G. Prajapati, Kamalbhai J. Patel, Bhagvanbhai K. Aajra and Arvindbhai N. Prajapati; and the major capital has come from Shri Bhagvanbhai K. Aajra. On viewing the alleged document, we find that the unsigned MOU is dated 31.10.2007 which is almost 4 months before the incorporation of the assessee-firm. The alleged MOU also do not fulfill the basic requirement of the valid contract which needs to a written or expressed agreement between two parties to provide a product or service and for a valid contract there has to be an intention to create legal relation, offer, acceptance, consideration and capacity to fulfill the contract. However, the alleged MOU, which is unsigned and undated, do not stand for as a valid contract and the same is not enforceable by law.
17. It seems that Id. Assessing Officer has stretched a link emanating from the seized material and has formed up a complete story along IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 37 with taking a basis of impugned land which was purchased in the later part of the year and applying the conditions embedded in the alleged MOU on to the impugned land purchase transactions thereby calculating the purchase consideration of the land in question at Rs.6,97,50,000/-as against Rs. 1,70,00,000/-shown in the books. We notice that Id. Assessing Officer has completely disregarded relevant facts which includes the date of incorporation of the assessee-firm, actual date of registration of the land purchase document dated 12.03.2008 and the date of conversion of land in question, i.e., 01.02.2008; coupled with that Id. Assessing Officer also has not enquired from the alleged sellers about the value of transactions entered into for the sale of land. More so, ld. Assessing Officer has also ignored the glaring fact that proposal for purchasing the impugned land was brought by Shri Bhagvanbhai Aajra, who is also the partner of the assessee-firm.
....
.. We are, therefore, respectfully following the judgement of the Hon'ble jurisdictional High Court and decision of Co-ordinate Bench discussed above in preceding paragraph, are of the considered view that Id. Assessing Officer erred in making the addition of Rs.5,27,50,000/- and Id. CIT(A) in restricting the addition at Rs.2,55,00,000/- as it was based on undated, unsigned Memorandum of Understanding which, in our view, cannot be correlated with the assessee-firm as it was incorporated in the latter period to that of MoU stamp date nor can it be taken as corroborative evidence to make addition and also in the light of the fact that Revenue could not point out any error in the actual registered document dated 12.03.2008 entered into by the assessee-firm for the impugned land at Kalol.
19. In the result, appeal of the assessee is allowed and that of the Revenue is dismissed."
19.7. Hon'ble Gujarat High Court in the case of CIT Vs. Maulikkumar K. Shah, reported in (2008) 307 ITR 137 (Gujarat) has held that Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction. The addition as made by the AO being based on mere presumptions and assumptions and without any corroborative evidence, could not be sustained " as follows:
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 38 "...The assessee had constructed certain shops. There was a search at the assessee's premises and a diary was seized in which the assessee had estimated rates of these shops. The assessee had booked/sold 35 shops as on date of search. Because of the difference in rates as mentioned in the seized paper and the books of account, the Assessing Officer calculated the 'on-money' and made addition accordingly.
Held that notings in the seized diary found from the premises were the only material on the basis of which the Assessing Officer had made the impugned additions. The Assessing Officer had not brought any corroborative material on record to prove that such sales were made and 'on-money was received by the assessee outside the books of account. The Assessing Officer had not examined any purchaser to whom the sales of shops were effected. Onus heavily lay on the revenue to prove with corroborative evidence that the entries in the seized diary actually represented the sales made by the assessee. Such onus had not been discharged by the revenue. Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction The inference of the Assessing Officer that the assessee has received 'on-money, was merely based on suspicion and surmises and there was no material whatsoever to support the conclusion of the Assessing Officer that the assessee had in fact received any 'on-money. The addition as made by the Assessing Officer being based on mere presumptions and assumptions and without any corroborative evidence, could not be sustained..."
19.8. Hon'ble Supreme Court in the case of Common Cause (A Registered Society) Vs. Union of India, reported in (2017) 77 taxmann.com 245 (SC) held as follows:
"...Section 69A of the Income-tax Act, 1961, read with section 34 of the Indian Evidence Act, 1872 Unexplained money (Loose papers) Raids were conducted on two business groups and incriminating materials in form of random sheets and loose papers, computer prints, hard disk, pen drives etc. were found Evidence of certain highly incriminating money transactions were also found However, department had no evidence to prove that entries in these loose papers and electronic data were kept regularly during course of business of concerned business house Whether thus, these detailed documents recovered by authorities had no evidentiary values and they could not have been relied on to direct registration of FIR and investigation in case of high public functionaries occupying important offices - Held, yes Whether further, materials in question were not only irrelevant but were also legally inadmissible under section 34 of IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 39 Evidence Act - Held, yes [Paras 22, 24 & 27] [In favour of assessee]..."
19.9. Hon'ble Gujarat High Court in the case of Commissioner of Income-tax Officer Vs. Bharat A. Mehta, reported in (2015) 60 taxmann.com 31 (Gujarat).
"...Section 69 of the Income-tax Act, 1961-Unexplained investment (Investment in property) Assessment year 1992-93 Assessee purchased a bunglow in a housing scheme from a builder firm during search, partners of said firm admitted having received certain amount as 'on money from buyers of bunglows in said scheme. On basis of that material Assessing Officer made certain addition under section 69 to income of assessee on account of on money paid to builders On appeal, Tribunal deleted addition holding that revenue failed to prove that assessee had made undisclosed investment in aforesaid bunglow Whether as findings recorded by Tribunal were based on appreciation of facts, no interference was called for- Held, yes [Paras 9 and 10] [in favour of assessee]..."
19.10. In view of the above aspects in relation of the concerned two ships namely ship 'Arena' and ship 'Opportunity' become crystal clear that ship breaking activities were carried out in plot V-2 by HSBL and not pursuant to the Joint Venture Agreement entered with PBPL/the assessee company. Resultant income from such ship breaking activities were declared by HSBL and filed its Return of Income, under such circumstances the Ld AO and the Ld CIT[A] were not justified in holding that shipbreaking activities were carried out in plot V-2 pursuant to the Joint Venture Agreement entered between the assessee company and HSBL. Accordingly, the authorities were also not justified in making addition in respect of income earned by HSBL, therefore the entire addition of Rs.11,29,61,022/= is liable to be deleted in the hands of the assessee company. In the result the Ground No.4 raised by the assessee is fully allowed and Ground No.1 raised by the Revenue is fully dismissed.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 40
20. Next issue is suppression of sale of gas turbine: The Ld.CIT(A), held that the sale of gas turbine is not materialized during the Asst. Year 2019-20, whereas the same was materialized during the Asst. Year 2020-21. Hence, the addition made on the sale of gas turbine of Rs.3,41,34,000/- for the Asst. Year 2019-20 is hereby deleted and Ground No.2 raised by the Revenue is dismissed.
21. Next issue is unaccounted rental income of Rs.5,00,000/-. The Ld AO relied upon a seized notarized rental agreement dated 29.12.2018, pertaining to the property taken by the assessee- company on monthly rent from M/s. Savinay Developers. Though the rental agreement states monthly rental of Rs.35,000/- per month for the period of 11 months, but seized hand written note says rent of Rs.1,35,000/- out of which Rs.1,00,000/- is required to be paid in cash. The AO has not made any enquiry with the landlord namely M/s.Savinay Developers, to verify the cash amount of Rs.1,00,000/- as rent. However Shri Sanjay P Metha in his statement recorded u/s.132[4] of the Act and in reply to Question No.12 admitted as follows:
"Ans: Sir, it is correct slip. We are paying Rs.1.35 lakhs as rent out of which Rs.1 lakh is paid in cash and Rs.35,000 as cheque."
Therefore the addition made by the Ld AO based on the above statement is sustainable in law. Therefore, the addition of Rs.5,00,000/- made by the Assessing Officer is hereby confirmed and the Ground No.5 raised by the assessee is dismissed.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 41
22. In the result the appeal filed by the assessee in ITA No.04/ Ahd/2023 is partly allowed and the appeal filed by the Revenue in ITA No.29/Ahd/2023 is dismissed.
23. Assessee's Grounds of Appeal in IT[SS]A No.33/Ahd/2022 relating to the A.Y. 2020-21 are as follows:
1. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in rejecting the contention of the appellant that the appellant was not provided any opportunity of being heard as required u/s.127(1) and u/s. 127(2) before transfer of appellant's case from Assessing Officer, Bhavnagar to Assessing Officer at Central Circle, Ahmedabad. Further, any order u/s.127 in the matter is not received. Accordingly the transfer of case was not valid.
Consequent assessment order was also not valid.
2. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition of Rs.1,86,34,100/- being alleged suppression of sale of Gas Turbine. He ought to have deleted such addition.
3. In law and in the facts and circumstances of the case, the Learned CIT(A) has erred in upholding addition of unaccounted rental expenses of Rs. 12,00,000/-. He ought to have deleted such addition.
4. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition of unaccounted salary expenses for Rs 4,30,000/-. He ought to have deleted such addition.
4.1 In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition of Rs. 4,30,000/- even though documents were not seized during the course of search at appellant's premises.
5. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition on unaccounted sale of Generator of Rs 8,28,000. He ought to have deleted such addition.
6. In law and in the facts and circumstances of the case, the learned CIT(A) has erred in upholding addition of Rs. 95,00,000/- being cash loan on account of land transaction. He ought to have deleted such addition.
7. In law and in the facts and circumstances of the case, the learned CIT(A) ought to have allowed application of alleged IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 42 unaccounted income against addition made for alleged unaccounted investment/expenditure made by AO. He ought to have deleted such addition.
8. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
24. At the outset Ld. Senior Counsel Shri Tushar Hemani appearing for the assessee submitted that the assessee is NOT pressing Ground No.1 namely assumption of jurisdiction u/s.127[2] of the Act. Recording the same, Ground No. 1 raised by the assessee is hereby dismissed.
25. Regarding Ground No. 2, the Ld. Senior Counsel submitted that That the statement of Sanjay P Mehta recorded u/s.132(4) of the Act, wherein he has sated that the Gas Turbine was originally sold to Al Kayam Marine on 23.03.2019 for Rs.3,41,34,100/-. The Assessing Officer (AO) discarded the aforesaid statement as well as submission furnished by the assessee, thereby differential sum of Rs.1,86,34,100/- is treated as the suppressed sales of gas turbine. Thus, the AO has no corroborative evidence brought on record to make the addition of Rs.1.86 crores. The AO further has not made independent inquiry that Al Kayam Marine on the above sale transaction. The AO conveniently overlooked the statement of Sanjay P Mehta recorded u/s.132(4) of the Act, and has made pick and choose approach which is not permissible in law and the addition made is not justified.
26. We have given our thoughtful consideration and perused the materials available on record. The statement of Sanjay P Mehta IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 43 recorded u/s.132(4) of the Act, of the Act relating to this issue read as follows:
Q.16. During the course of search proceedings at factory premise of the company at Alang, an item-wise sales summary sheet is found wherein total sales before GST during FY 2018-19 comes to Rs.182.16 crore whereas sales before GST in the sales register as extracted from the books of accounts maintained at office shows Rs.178.75 crore. Thus, sales in the books of accounts is shown less by Rs.3.41 crore i.e. Please explain. [attached as Annexure S5-page nos. 1 to 8] Ans. Sir, the difference of Rs.3.41 crore was due to the fact that Gas Turbine was sold to M/s. Al Kayam Marine vide bill No. T1/3254 dated 23.03.2019 for export purpose. Thereafter, the said party returned the goods as the export did not materialize. During the year, again the same party purchased the said goods vide Invoice No.T1/1030 dated 15.06.2019 for Rs.1,55,00,000/-. We have sold these goods at Rs.1,55,00,000/- as our costing is only Rs.25,000/- per tonne.
26.1 From the above statement it is clear that Sajay P Mehta has confirmed the original sale of Gas Turbine in March 2019. Since, the export did not materialized, the same Gas Turbine was sold to the same party in June 2019 for Rs.1.5 crores by the assessee-company.
In support of the same, the assessee filed the original invoice bill of Al Kayam Marine and E-way Bill for the original sale and canceled of E-way bill 24.03.2019 and the invoice copies of the sale of gas turbine on 15.06.2019 wherein the appropriate CGST and SGST amounts where being collected by the assessee-company which are available at page no.18 to 26 of the paper book. The AO has not made any enquiry that purchaser of the Gas Turbine namely Al Kayam Marine and simply added the difference of Rs.1,86,34,000/- as the suppressed sale. Thus, the AO conveniently ignored the statement made under oath u/s.132(4) of the Act. In other words the Ld.AO has adopted the approach of choose and pick in terms of relating to aforesaid statement, which is impermissible under the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 44 law. Therefore, the addition made by the AO is un-sustainable under law and the same is hereby deleted. In the result, this ground no.2 raised by the assessee is hereby allowed.
27. Ground no. 3 is the addition of Rs.12,00,000/- in respect of alleged unaccounted rental expenses. Shri Sanjay P Mehta in his statement recorded under section 132(4) of the Act, in reply, to question no.12 admitted having paid 1,00,000/- per month in cash towards rental expenses. However, the seized rental agreement is for a period of 11 months and expired on 31.10.2019 and for the present AY there were 7 months only from 01.04.2019 to 31.10.2019 as rent paid. Thus, the addition be restricted only to 7 months and balance 5 months addition is liable to be deleted. In the result, this ground no.3 raised by the assesee is partly allowed.
28. Ground no.4 is that he Ld.CIT(A) have been confirmed addition of Rs.4,30,000/- in respect of alleged unaccounted salary expenses. During the course of search proceedings in the case of Hoogly Ship Breaker Ltd., it was found that the assessee-company was carrying out cutting of its ship "MT BELL" from the yard belonging to HSBL. The AO has relied on the statement of Sanjay P Mehta and Ramesh Agrawal wherein claimed that the ship MT Bell was originally beached at yard V-1 and then was drifted to yard V-2 of HSBL. It was held the workers and the labourer working there belonging to assesee-company and cash payment were made to them thereby the AO made addition of Rs, 4,30,000 as unaccounted salary expenses. It is seen from the assessment order, the AO has reproduced the statement recorded by the employees and having received part payment in cash and part payment by cheque. The so called Employees are not third parties to the assessee, so the question of IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 45 giving cross examination does not arise in this case. Thus, the contention of the assessee no independent inquiry made by the AO is not correct. Therefore, the impugned addition made by the AO does not require any interference and the ground no.4 raised by the assessee is hereby dismissed.
29. Ground no.5 addition of Rs.8,28,000/- on alleged unaccounted sales of Generator. The brief fact of the case is that the assesee- company has sold DG set generator from Ramesh Nagpur for power generation because of personal relation no amount was paid to Ramesh Nagpur. The AO presumed that the assessee has received an amount of Rs.8,28,000/- in cash for sale of DG set and added in the hands of the assessee under section 69A of the Act. The relevant statement of Sanjay P Mehta is reproduced as follows:
Q.54 Please continue explaining the contents of Page no.6 to 8 of the red diary, inventorized AR.
Ans: On page no. 6 also, date and expenses made in cash are recorded in continuation of page no. 5. 1 cannot remember the exact nature of transactions recorded in page no. 7 and page no. 8. I shall explain these transactions after recalling later.
On page no. 8, the details of a DG set of 400 kVA are entered. We have taken this DG set from Ramesh (Nagpur) on 30.09.2019 for power generation for operating crane on the vessel, which is currently beached in one of our Alang yards. We have not paid any consideration or any rent for using the DG set, because of my personal relations.
I cannot remember the meaning of "8.280". The numbers "1475" written in green may mean the amount to be paid per kVA, if we are not able to return the DG set in good condition."
29.1 It is seen from the assessment record the AO has not made any verification with so called Ramesh of Nagpur before making addition of Rs.8,28,000/- thus, the addition made by the AO is IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 46 based on presumption without corroborative evidences and independent enquiry. Therefore, the addition is not justified and we hereby deleted the same. Thus, ground no.5 filed by the assessee is allowed.
30. Ground nos. 6 & 7 raised by the assessee is Addition of Rs.95,00,000/- made in respect of alleged cash loan on land transactions. The AO made impugned addition on the basis of un- dated cheques during the course of search on the presumption that the assessee would have paid cash of equal sum to Dinesh Batua. The Ld.AO has referred to the agreement of sale (banakath) dated 08.07.2014, between the assessee and Dinesh Batua with respect to land transaction, for which the sum of Rs.5,00,000/- was paid by the assessee to Dinesh Batua through cheque. During the assessment stage, the assessee placed on record an affidavit of Dinesh Batua to clarify that the transaction mentioned in Banakhat dated 08.07.2014, did not materialized. However, the AO ignored the affidavit filed by the Dinesh Batua, and made additions in the hands of the assessee-company. The Ld.Counsel submission that the AO ought to have appreciated.
(i) Agreement to sale pertains to FY 2014, hence in any case it cannot be presumed that appellant has received cash during the year under consideration.
(ii) There is no evidence to prove that market value of land is higher than the value mentioned in the banakhat.
(iii) No cash trail is found during the course of search which substantiates the argument of Assessing Officer.
(iv) No loose paper found during the course of search which proves that cash was to be given by the seller to the buyer.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 47
(v) Proposed buyer has already confirmed that no cash payment is made.
30.1 It is seen that the Ld.AO made the addition based on cheque found during the course of search. The Ld.AO cannot assume that the assessee had received or paid in lieu of cheque. Moreover, when there is no other evidence to prove the same. The assessee also placed on record the notarized affidavit of Shri Dinesh Batua, however, without consideration the same has made addition which is not permissible in law. In similar situation the Co-ordinate Bench of the ITAT in the case of Laxmi Narayan Agarwal in ITA No.1392/Ahd/2010 dated 17.06.2015 held as follows:
"All the above persons have confirmed that cheques have been handed over to the appellant only as a measure of security for supply of scrap or for the purpose of obtaining the loan, but all of them have denied having obtained any loan from the appellant. The statements given by those people remains uncontroverted. Though the AO is justified in entertaining doubt that the appellant is engaged in the business of money lending and the cheques have been obtained, only after the amounts were advanced since in the absence of any positive evidence in support of the appellant having lent money to the above persons, we are not in a position to confirm the addition. Accordingly, the additions are deleted."
30.2 In view of the above, what is found during the course of search is not conclusively prove that the assessee-company has paid or received cash. Hence, the addition is liable to be deleted. In the result, the ground no.6 & 7 filed by the assessee are partly allowed.
31. In the result, the appeal filed by the assessee in ITA No.33/Ahd/2022 is partly allowed.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 48
32. Revenue's Grounds of Appeal in IT[SS]A No. 39/Ahd/2022 for the A.Y. 2020-21 are as follows:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.11,05,94,000/-
made on account of unaccounted cash loan on the basis of undated cheques seized during the course of search, despite the assessee could not explain the nature and source thereof.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.18,05,94,000/- made on account of unaccounted cash loan on the basis of undated cheques seized during the course of search, despite the assessee could not explain the nature and source thereof.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 4,00,00,000/- made on account of unaccounted cash loan on the basis of undated cheques seized during the course of search, despite the assessee could not explain the nature and source thereof.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.
5. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.
32.1 Ground No.1 is deletion of addition of Rs.11.05 crores made on account of unaccounted cash loan on the basis of un-dated cheques seized during the search.
32.2 Brief facts of the case are that during the course of search 7 undated cheques pertaining to Axis Bank amounting to Rs.7 crores issued by VHCL Industries Limited were found. Further, 4 more undated cheques pertaining to Axis Bank issued from VHCL Industries Limited for Rs.4,05,94,000/- were found. Thus, aggregating undated cheques of Rs.11,05,94,000/- was found pertains to VHCL Industries Limited.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 49
The AO held the 11 cheques deposited by ULC Corporation that the assessee has clearly inferred security deposits in respect of loan in cash availed by them from the assessee-company. Similarly, 7 cheques issued by PMS Export Pvt. Ltd. were deposited for security purpose. Thus, the AO concluded that the cash loan of Rs.18,05,94,000/- is advance by assessee-company from its undisclosed source of Income and assessed as income u/s.69 r.w.s 115BBE of the Act.
33. On appeal, the Ld.CIT(A), deleted the additions by observing as follows:
"...12. To conclude following uncontroverted facts have been observed from the record with regard to alleged addition discussed in para 11 herein above.
(i) No cash trail is found during the course of search, which substantiates the arguments of Assessing Officer that cash has been given.
(ii) No loose paper found during the course of search which proves that cash was received/paid in lieu of cheques.
(iii) Even the other party has not been confronted/confirmed of making or receiving cash from the Appellant.
(iv) Reason for making alleged addition in the current FY on the basis of undated cheque is not explained by the AO.
(v) It is apparent that AO has not made any enquiries with the parties referred supra either by issuing notice under Section 133(6) of the Act or 131 of the Act. The AO has not recorded any statement of concerned parties to support his contention that Appellant has given cash loan or the other party(s) have taken cash.
(vi) No addition can be made for cheques which are issued without name of payee. In present case, cheques of Rs 25 crore are without any name of payee. It is also observed that one of the cheques for which AO has made addition in present case is already subject matter of addition in the case of another case.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 50 The remaining cheques are in the name of wrong person and not in the name of the appellant.
(vii) As held by various courts as discussed herein above, It is settled law that suspicion, however strong cannot take the place of legal proof.."
12.1 Considering facts discussed herein above and relying upon decisions referred supra, all the three additions made by AO for Rs.11,05,94,000/- (Ground No. 7), Rs.18,05,94,000/- (Ground No. 8) and Rs.4,00,00,000/- (Ground No. 9) are deleted. Thus, the grounds of appeal no. 7, 8 & 9 are allowed..."
34. We have heard the rival submission and perused the materials available on record. The Ld.AO has made additions of Rs.11,05,94,000/-, Rs.18,05,94,000/- and Rs.4,00,00,000/- based on the undated cheques found during the course of search. The AO made the entire addition on presumption, as the AO has not establish any nexus between his presumption of giving cash loan with such cheques. During the course of search, no incriminating evidences were found which prove that the assessee-company has given cash loans to the above referred parties namely VHCL Industries Ltd., ULC Corporation & PMS Export Ltd. Further, no cash trial loose paper were found by the Revenue which support contention of the AO. Further, the cheques found during the course of search are un-dated and corroborated by the Ld.AO that his presumption of giving cash loan by the assessee-company. Further, the AO has not made any inquiries with the above said parties nor has recorded any statement of such parties before making such additions. The Ld.CIT(A), has considered the submission of the assessee and also reproduced the blank cheques without name of the assessee-company in his order thereby deleted the addition made by the AO which is based on mere presumption. Further, the Ld.DR could not site any infirmity in the order passed by the IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 51 Ld.CIT(A). Thus, the ground nos. 1 to 3 raised by the Revenue is devoid of any merit and same is liable to be rejected.
35. In the result, the appeal filed by the Revenue in ITA No.39/Ahd/2022 is hereby dismissed.
36. Hoogly Ship Breakers Ltd. Assessee's Grounds of Appeal in IT[SS]A No.18/Ahd/2023 are as follows:
1. The learned CIT(A) has erred in law and on facts of the case in upholding invocation of s. 153A of the Act despite the fact that no incriminating material was made the ground for issuance of such notice u/s 153A of the Act. As a result of which notice issued u/s.
153A of the Act is illegal, without jurisdiction and bad in law.
2. The learned CIT(A) has erred in law and on facts of the case in upholding assessment order framed u/s 143(3) r.w.s. 153A(1)(b) of the Act despite the fact that no incriminating material found and seized during the search at the appellant's premises was made the ground for framing such assessment. As a result of which assessment framed u/s. 143(3) r.w.s. 153A(1)(b) of the Act is illegal, without jurisdiction and bad in law.
3. The learned CIT(A) has erred in law and on facts of the case in not holding that assessment was completed without providing copy of material, documents, statements, etc. relied upon by him for making additions. Hence, it is in violation of principles of natural justice and law.
4. No opportunity for cross examination of person whose statements have been relied upon for making additions had been afforded to the appellant which is violative of principles of natural justice.
5. Even otherwise, the assessment order is illegal and without jurisdiction.
6. The learned CIT(A) has erred in law and on the facts of the case in confirming the addition of Rs.4,10,00,000/- by applying the rate of net profit at the rate of 5% on the alleged unaccounted turnover. In the facts and circumstances of the case no such unaccounted business was carried out by the appellant and even otherwise, rate of net profit adopted by learned CIT(A) is unwarranted and highly excessive.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 52
7. The learned CIT(A) has also erred in law and on the facts of the case in partly disallowing the addition without bringing any corroborative and cogent evidence, material, etc. on record and merely based on assumption.
8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in charging interest u/s.234A/B/C/D of the Act.
9. The Ld. CIT(A) has erred in law and on the facts in confirming the action of Ld. AO in initiating penalty u/s 270A of the Act.
10. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
37. Hoogly Ship Breakers Ltd. Revenue's Grounds of Appeal in IT[SS]A No. 27/Ahd/2023 relating to A.Y. 2019-20 are as follows:
i. In the facts and on the circumstances of the case and in law, Ld. CIT(A) erred in deleting the addition of Rs. 7,19,61,022/- out of total addition of Rs. 11,29,61,000/- made on account of unaccounted income out of ship breaking activity in the V2 Shipbreaking Yard despite it was specifically recorded in the seized material (sheet named ACCOUNT SETTLED AS ON 12.07.2018 UP TO OPPORTUNITY) as the profit for A.Y. 2019-20, due to such ship breaking activity of Rs. 11,29,61,022/- for both the parties.
ii. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. iii. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.
38. Since common issues are involved in the above Cross appeals, for the sake of convenience the Grounds raised by both parties are dealt with each issue-wise. At the outset Ld. Senior Counsel Shri Tushar Hemani appearing for the assessee submitted that the assessee is NOT pressing Ground No.1 namely assumption of jurisdiction u/s.127[2] of the Act. Recording the same, Ground No. 1 raised by the assessee is hereby dismissed.
IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 53
39. Regarding Ground No. 2, the Ld. Senior Counsel submitted that there is no incriminating material found during the course of search and statements recorded from various employees of the assessee company cannot be relied upon for assessment, this argument does not hold good since this assessment year 2019-20 was not abated and assessment proceedings were pending during the course of search proceedings, therefore there is no question incriminating material required for the assessment, hence this Ground No.2 is devoid of merit and liable to be rejected.
40. Next effective ground by rival parties are Unaccounted profit from HSBL as determined by the AO of Rs.11,29,61,022/= and was estimated by CIT[A] to Rs.4.10 crores.
40.1 This issue was considered by us in Paragraph 19 to 19.10 of this common order in the case of Priya Blue Industries Pvt Ltd, wherein we held that Ship breaking yard V-2 was owned only by HSBL and not by the assessee PBIL. Income from ship breaking activities of 'Ship Arina' and 'Ship Opportunity' were accounted for in the books of HSBL. Search action under section 132 was carried out in the premises of the assessee company and HSBL on 19-11- 2019. Later notice u/s.153A were issued on HSBL on 23-12-2020 and search assessments u/s.153A were framed in the case of HSBL on 20-09-2021 and in the case of PBIL on 07-03-2022 by the very same Deputy Commissioner of Income Tax, Central Circle 1[1], Ahmedabad. Paragraph 4 to 4.6 of both the assessment orders dealing with "Addition with respect to ships recycled under the joint venture agreement with HSBL" which is running to 17 pages [with reproduction of JVA, Supplementary Agreement, Minutes of Board Meeting of HSBL, etc.] which are word by word and paragraph IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 54 by paragraph are identical for both the HSBL and PBPL. Thus it is a cut and paste order made by the ld AO and raised addition of Rs.11,29,61,022/= being 50% each share income of HSBL and PBPL. The only difference is the assessee's reply is NOT reproduced in the HSBL assessment order.
40.2. By doing so the ld AO miserably failed to consider the Return of Income filed by the HSBL declaring the income on recycling of ship 'Arena' and ship 'Opportunity' and payment of statutory dues, taxes to various authorities by HSBL. But the Ld AO blindly relied on the seized documents namely JVA, Supplementary Agreement, Excel sheet without corroborative evidences.
40.3. The assessee brought on record the basic purchase value of ship Arena is Rs.31,10,26,020/= as per the purchase register of HSBL, Ship Recycling/Port charges of Rs.22,45,691/= paid on 28-3- 2017 to Gujarat Maritime Board [GMB] for the breaking up ship Arena and Customs duty of Rs.89,13,642/ for ship Arena. Similarly purchase value of ship 'Opportunity' by HSBL was for Rs.97,39,21,419/=. Import purchase register - IGST, customs duty of Rs.18,16,80,681/= paid by HSBL. Further Ship Recycling/ Port charges of Rs.67,54,639/= paid to Gujarat Maritime Board [GMB] for the breaking ship Opportunity.
40.4. In view of the above aspects in relation of the concerned two ships namely ship 'Arena' and ship 'Opportunity' become crystal clear that ship breaking activities were carried out in plot V-2 by HSBL and not pursuant to the Joint Venture Agreement entered with PBPL. Therefore the entire addition of Rs.11,29,61,022/= is liable to be deleted in the hands of the HSBL and assessment order is set aside. Since resultant income from such ship breaking IT[SS]A 4, 29/Ahd/2023 & 4 ors Priya Blue Ind P Ltd & Hoogly Ship Breakers Ltd. Page 55 activities were declared by HSBL and filed its Return of Income, in the above circumstances the Ld AO directed to verify the Return of Income with relevant materials on record and frame fresh assessment in accordance with law by giving opportunity of hearing to the assessee. In the result the Ground No.6 raised by the assessee is partly allowed and Ground No.1 raised by the Revenue is partly allowed.
41. Since the assessment is setaside to the file of Jurisdictional Assessing Officer for passing fresh order, the other Grounds raised by the assessee does not require separate adjudication. However the JAO should provide a fair hearing to the assessee for framing fresh assessment order.
42. In the combined result the appeal filed by the assessee in IT[SS]A No.18/Ahd/2023 and appeal filed by the Revenue in IT[SS]A No.27/Ahd/2023 are partly allowed.
Order pronounced in the Court on 28th June, 2024 at Ahmedabad.
Sd/- Sd/-
(WASEEM AHMED) (T.R. SENTHIL KUMAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
(True Copy)
Ahmedabad, Dated 28/06/2024