Rajani Hotels Ltd. v. Dy. CIT

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The Tax Publishers2013 TaxPub(DT) 0461 (Mad-HC) : (2013) 051 (I) ITCL 0536 : (2012) 079 DTR 0185 INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68 Share application money--A search was conducted at assessee's premises and certain documents and materials were seized on the basis of which notice under section 158BC was issued and a 'nil' return was filed by the assessee-company on the ground that there was no undisclosed income to be assessed in the hands of assessee. Assessee acquired property at certain sums and source was stated to be share capital received locally as well as from NRI and OCB. For genuineness of share capital summons were signed under section 131 and inquiry was conducted as regards to those applicants who were stated to be from Jaipur, Bangalore, Thanjavur, Coimbature and Chennai. The enquiries conducted revealed that most of them said that they had not applied to the assessee for share allotment. Those persons who were assessed to tax and had also filed proof, indicating that they had not subscribed to the share at all o some of applicant's were benami and also a out of total share application money only a small part was issued legally. *Held:* To unearth the genuineness of share application money, the enquiries made at several cities revealed that either shares were not allotted to the concern person's name (benami) or not allotted to other persons or allotted part of the total share application. Money thus, only the unexplained balance amount not standing in the name of any existing person can be treated as undisclosed income of the assessee. Only in cases where there are no existing persons shown to have had a link to the deposit, in the sense that it is not a case of benami transaction and that the very existence of such a person is in question, then the treatment of entry as an undisclosed income would arise. However, in a case of benami transaction where the shares are shown in the name of one and money might have been provided by some other persons, the treatment that one may meet out in the case of non-existent persons, however, would not arise in treating the credit entries as undisclosed income of the company. [Para 17] As far as the present case is concerned, while some of the shares were benami, as for example, in the case of enquiry made in Thanjavur as well as in Jaipur, in respect of other transactions, i.e., in Bangalore, Coimbatore and Chennai, it is difficult to accept the case of the assessee that the unexplained share application money should not be treated as unexplained income of the assessee as per section 68. [Para 18] As already seen, the assessment order shows that in respect of an enquiry made at Jaipur, some of these shares were transferred to Mr. P. The total amount found in respect of Jaipur transaction was to the tune of Rs. 6,69,000. The court does not found the details as to how many shares stood in the name of P, to hold that extent of income assessed as a capital. This requires enquiry at the hands of the officer to find out that on Rs. 6,69,000, standing in the name of the company's share application money of 34 individuals, how many shares stood transferred to P. The amount which is referable to the shares transferred to Pannalal has to be necessarily excluded from the undisclosed income of the company and the unexplained balance amount not standing in any existing person's name, could be treated as undisclosed income of the assessee. [Para 19] As far as the enquiry at Thanjavur is concerned, the share applications were in the name of M, who happened to be the brother of V.N. one of the directors of the company. It was seen that the shares were allotted to C. Considering the above said aspect, applying the decision of the Full Bench of the Delhi High Court in CIT v. Sophia Finance Ltd. there is no hesitation in holding that the sum of Rs. 75,000 could not be treated as an undisclosed income at the hands of the company. [Para 20] As far as the enquiry made in Chennai is concerned, a sum of Rs. 1,70,000 remains unexplained by the assessee. Consequently, barring this amount of Rs. 1,70,000, a sum of Rs. 1,41,000 merits to be treated as explained and hence, cannot be treated as an unexplained income at the hands of the assessee. Thus, on going through the orders is partly allowed satisfied that the assessee is entitled only to a partial relief, namely as regards Rs. 1,41,000 relating to the Chennai, Rs. 75,000 relating to Thanjavur and as far as Jaipur is concerned, subject to the verification of the records indicating the shares transfer to Mr. P, the liability has to be worked out. In the light of the above, the assessee's case. To that extent the order of the Tribunal is set aside. [Para 21] When the assessee had not substantiated its case before the assessing officer as to the persons who had contributed and as to who had made the applications for share allotment, rightly, the assessing officer took recourse to section 68 and the only available course was thus to treat the unexplained amount available at the hands of the assessee as an unexplained income. It is seen from the assessment order that till the date of passing the order of assessment, the assessee had not filed any objection to the proposed addition made. Thus, in the absence of any explanation, the only course open to the officer was to treat the amount at the hands of the assessee as an unexplained income. In the light of the order passed by the court, as indicated above, except to the extent of the relief as stated above, the assessee is not entitled to any relief and hence, the unexplained entries were rightly treated as unexplained income of the assessee. [Para 22] In the circumstances, the tax case stands partly allowed. It is open to the Department to make necessary assessment on P and others in whose names the shares stand, after verifying the records, and subject to the provisions of the Income Tax Act. [Para 23] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0461 (Mad-HC) : (2013) 051 (I) ITCL 0536 : (2012) 079 DTR 0185

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68 Share application money--A search was conducted at assessee's premises and certain documents and materials were seized on the basis of which notice under section 158BC was issued and a 'nil' return was filed by the assessee-company on the ground that there was no undisclosed income to be assessed in the hands of assessee. Assessee acquired property at certain sums and source was stated to be share capital received locally as well as from NRI and OCB. For genuineness of share capital summons were signed under section 131 and inquiry was conducted as regards to those applicants who were stated to be from Jaipur, Bangalore, Thanjavur, Coimbature and Chennai. The enquiries conducted revealed that most of them said that they had not applied to the assessee for share allotment. Those persons who were assessed to tax and had also filed proof, indicating that they had not subscribed to the share at all o some of applicant's were benami and also a out of total share application money only a small part was issued legally. Held: To unearth the genuineness of share application money, the enquiries made at several cities revealed that either shares were not allotted to the concern person's name (benami) or not allotted to other persons or allotted part of the total share application. Money thus, only the unexplained balance amount not standing in the name of any existing person can be treated as undisclosed income of the assessee.

Only in cases where there are no existing persons shown to have had a link to the deposit, in the sense that it is not a case of benami transaction and that the very existence of such a person is in question, then the treatment of entry as an undisclosed income would arise. However, in a case of benami transaction where the shares are shown in the name of one and money might have been provided by some other persons, the treatment that one may meet out in the case of non-existent persons, however, would not arise in treating the credit entries as undisclosed income of the company. [Para 17] As far as the present case is concerned, while some of the shares were benami, as for example, in the case of enquiry made in Thanjavur as well as in Jaipur, in respect of other transactions, i.e., in Bangalore, Coimbatore and Chennai, it is difficult to accept the case of the assessee that the unexplained share application money should not be treated as unexplained income of the assessee as per section 68. [Para 18] As already seen, the assessment order shows that in respect of an enquiry made at Jaipur, some of these shares were transferred to Mr. P. The total amount found in respect of Jaipur transaction was to the tune of Rs. 6,69,000. The court does not found the details as to how many shares stood in the name of P, to hold that extent of income assessed as a capital. This requires enquiry at the hands of the officer to find out that on Rs. 6,69,000, standing in the name of the company's share application money of 34 individuals, how many shares stood transferred to P. The amount which is referable to the shares transferred to Pannalal has to be necessarily excluded from the undisclosed income of the company and the unexplained balance amount not standing in any existing person's name, could be treated as undisclosed income of the assessee. [Para 19] As far as the enquiry at Thanjavur is concerned, the share applications were in the name of M, who happened to be the brother of V.N. one of the directors of the company. It was seen that the shares were allotted to C. Considering the above said aspect, applying the decision of the Full Bench of the Delhi High Court in CIT v. Sophia Finance Ltd. there is no hesitation in holding that the sum of Rs. 75,000 could not be treated as an undisclosed income at the hands of the company. [Para 20] As far as the enquiry made in Chennai is concerned, a sum of Rs. 1,70,000 remains unexplained by the assessee. Consequently, barring this amount of Rs. 1,70,000, a sum of Rs. 1,41,000 merits to be treated as explained and hence, cannot be treated as an unexplained income at the hands of the assessee. Thus, on going through the orders is partly allowed satisfied that the assessee is entitled only to a partial relief, namely as regards Rs. 1,41,000 relating to the Chennai, Rs. 75,000 relating to Thanjavur and as far as Jaipur is concerned, subject to the verification of the records indicating the shares transfer to Mr. P, the liability has to be worked out. In the light of the above, the assessee's case. To that extent the order of the Tribunal is set aside. [Para 21] When the assessee had not substantiated its case before the assessing officer as to the persons who had contributed and as to who had made the applications for share allotment, rightly, the assessing officer took recourse to section 68 and the only available course was thus to treat the unexplained amount available at the hands of the assessee as an unexplained income. It is seen from the assessment order that till the date of passing the order of assessment, the assessee had not filed any objection to the proposed addition made. Thus, in the absence of any explanation, the only course open to the officer was to treat the amount at the hands of the assessee as an unexplained income. In the light of the order passed by the court, as indicated above, except to the extent of the relief as stated above, the assessee is not entitled to any relief and hence, the unexplained entries were rightly treated as unexplained income of the assessee. [Para 22] In the circumstances, the tax case stands partly allowed. It is open to the Department to make necessary assessment on P and others in whose names the shares stand, after verifying the records, and subject to the provisions of the Income Tax Act. [Para 23]