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advertisement agents located in Cyprus and UK except with M/s Selesta Holdings Co Ltd.

16. The revenue also conducted enquiries in Ukraine through their tax division in order to examine independently the claim of marketing expenditure. The Ukraine tax authorities revealed that the companies located in Ukraine did not have transactions with the Cyprus and UK based companies during the financial years 2001-02 to 2007-08. Enquiries were also conducted in UK through the tax authorities and they reported that M/s Zyus Corporation Ltd and M/s Biologica (UK) had common address, which belonged to their accountant. Further, the directors of UK companies were found to be Mr. Binod Kumar and his wife Mrs. Sheila Singh. Further the UK companies, which had received advertisement payments, have not incurred any expenditure on salary or rent. Accordingly the AO came to the conclusion that the UK companies are only paper companies.

M / s . G e n o m B i o te c h P v t. L td .

Further, the registered office of the company is at the address of the accountant. The assessee submits that DIT (investigation) in their letter dated 20/03/2009 addressed to FT&TR had provided brief of facts of the case for onward transmission to the UK authorities. In the said letter, reference was made of marketing and advertisement expenses of Cyprus based companies and Zyus Corporation Ltd. The request was made for verifying the bank transactions and accounts of the Ukrainian companies. It is pertinent to note that the reference was made by FT&TR under Indo Cyprus, Indo UK and Indo Ukraine agreements besides others. UK tax authority had provided their interim reports dated 13.10.2008, 19.12.2008 and 30.01.2009. In both the reports UK tax authority has not provided any comments on the transactions between Zyus Corporation and Ukrainian companies. UK tax authority has confined themselves to the UK companies, i.e., Zyus Corporation and Bilologica UK Ltd. In these reports, they have simply provided the information about the directors, their offices, their accounts, etc. No comments have been made about the transactions between Zyus and Ukrainian advertising companies. The assessee submits that in absence of any adverse comments in the report of UK tax authorities, the report of Ukrainian tax authority cannot be followed."

(d) No proper explanations from the directors about the discrepancies.

(e) The statements given by Shri Sanjeev kumar and Shri Anupam prove that they were only dummy directors and were acting at the behest of Shri Binod Kumar, the CMD of the assessee company. They were also not aware of the activities of the Cyrus and UK companies.

(f) The enquiries conducted in Ukraine and UK revealed that they have not carried out actual advertisement. The Ukrainian concerns have denied any business relationship with the Cyprus and UK companies. The UK companies were having offices at the address of their accountant. Further, the directors of UK companies were Shri Binod Kumar, CMD of the assessee company and his wife. Similarly, the Cyprus companies were also having common address. All these companies did not spend any money on salary and rent. The assessee has also not furnished bank account copies of Cyprus and UK M / s . G e n o m B i o te c h P v t. L td .

43. We shall now examine as to whether the report given by Ukrainian tax authorities would serve any purpose. It is an admitted fact that the assessee did not have any direct relationship with Ukrainian entities. Only the Cyprus M / s . G e n o m B i o te c h P v t. L td .

and UK based companies were having direct relationship. The assessee has entrusted the advertisement works to Cyprus and UK based companies and it has also duly received the services from them. The Cyprus and UK based companies have, in turn, given the work to Ukrainian entities. The evidences furnished by the assessee along with advertisement bills show that the advertisement works have actually been carried out in Ukraine. Since the Ukrainian tax authorities could not locate some of the entities and since legal representatives of some of the entities have denied any foreign trade transactions, the revenue has drawn adverse inferences against the assessee. However, we are of the view that these transactions should be looked at from the point of view of the assessee, i.e., it has entrusted the work to some service providers and they have also completed the work given to them. If the work is completed by the service provider, then no further probe is usually done by anybody. Further, the transactions between the service providers and the Ukrainian companies may not also be relevant for the assessee. In this situation, we have to only infer that there is no irregularity from the side of the assessee and the irregularity, if any, is in the side of third parties, i.e., either at the end of Cyprus/UK companies or at the end of Ukrainian entities. The comments given by the Ukrainian tax authorities about the Ukrainian entities relate to the activities of those entities only. There could also a possibility that the Ukrainian entities may have committed serious irregularities of not reporting the works carried out by them as per the order placed by Cyprus and UK concerns. Hence, in the absence of clear cut evidences to show as to who was at fault, in our view, on cannot draw adverse inferences against the assessee merely on the basis of reports of foreign tax authorities. The assessing officer has also observed that the assessee has not proved that the payments made to Cyprus/UK companies have gone to the hands of Ukrainian entities. As noticed earlier, it may not be concern of the assessee and it may not also be possible to collect details. In any case, if the payments were not made as presumed by the AO, then the question that arise is as to how the advertisements of the assessee were carried out in Ukraine?.