Karnataka High Court
The Commissioner Of Income Tax vs M/S Ask Brothers Ltd on 18 February, 2010
Bench: K.L.Manjunath, B.V.Nagarathna
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 187 DAY OF FEBRUARY. S010 .
PRESENT ws
THE HON'BLE MR, JUSTICE K, L.Mé NJUNA TH 7 -
AND |
THE HON'BLE MRS. JU STIC E B.V.N SAGARA' THNA.
LT.A. NO. 2907/2005
BETWEEN:
i. THE COMMISS: ONE OF. |
'INCOME TAX. € R BUIL DING | |
QUEENS ROAD |
BANG ALOR. 560 001,
2. THE DEPUTY ¢ e MMISSIONE R OF
INCGME-TAX, CENTRAL ¢ "IRCLE-II,
CR BUILDING. QUEENS ROAD
BANGALORE. -
a * .. APPELLANTS
{By Sri: K: V. ARAVIND, ADV. FOR SRI M. V. SESHACHALA)
ANL:
M/S ASK. BROTHERS LTD.
~ NO.I/1. PALACE ROAD.
BANGALORE, ... RESPONDENT
_ (By Sri: S. PARTHASARATHI, ADV.) This ITA fled u/S.260-A of LT Act, 196] arising out of Order dated 31.3.05 passed in ITA No,25/Bang/2004 for the Assessment Years 1989-90, to 1999-2000. praying that for &..
the reasons stated therein. this Hon'ble Court may be pleased to: i) formulate the substantial questions .of law stated therein. etc., ma This IPA coming on for admissicn" this: day. Nagarathna J.. delivered the following a JUDGMENT © This appeal is filed by the revenue 'challenging the order dated 31.3.2065 passed _ by, the tribunal in ITA.No.25/Bang/2004. .
2. The Tespondent-assessec is. a hotel group running hotels | irr Bangalore. oA search was conducted at the respondent's preinises oni 22.7.1998 and a seizure mahazar was drawn on 21 10.1998, During the course of search. certain ma terial and decuments were seized. On scrutiny of the same. the Assessing Officer found that the assessee had 'undisclosed: income for the block period. The assessee filed return of income. Notice under Section 158BC was issued to = whieh the assessee filed return of income for the block period on I4.1.1999 disclosing NIL income. The Assessing ; Officer by his order dated 28.7.2000 under Section 158BC read with Section 14303) of the Act determined the undisclosed income for the said block period of by Rs.1.52.82.756/- on three heads viz. (1) unexplained investment in share capital in the names of employées of the group and their relatives as sources pot explained ter Rs.1.17.88.000/-, (2) excess unexplained cash: found on the day of search of Rs.5.79,170/- and (3) unexplained trade advances of Rs.29)} 5.586/-.6 >
3. With regard to the first tiem the Assessing Officer held that the original share capitai of the companies floated by the assessee Was quite nominal but Ai} the companies were having heavy share application pending allotment. The said monies was introduced iis he names of prornoters, names of sister concerns antl also. iit the lames of several employees and other retatin cs and.thit these were bogus credits and he mo accordingly assessed the total income at Rs.1.52,82,756/-. OL Wil regard ty the unexplained cash found on the date of search at ivi No.2 above, the Assessing Officer stated that the total cash found in the premises was Rs. ] 4.19,583/- and he accepted the explanation Rs.26.00 lakh was given to three "directors, That the total cash available with the | assessee was Rs.29,07.983/- and on the basis of the details submitted by the assessee and on going through various trial balances. the cash available as per books on the date of fe.
~ search should be Rs.23,.28.812/- and concluded that the said amount of Rs.14.19.583/- only was found and, that there was a difference of Rs.5.79.170/- which was excess unexplained cash and brought the same - io : tax' as undisclosed income. As far as 'the. unexplained trade. advances are coneerned, according to the Assessing Officer, the assessee had explained that iv had collected a sum of Rs.29.15.586/- relating io expenditure tax and luxury have from various custemers of the assessee viz.. ie occupants of the hotel. Bur the said amounts had been noted differently in the books oF accounts aid the same was translerred to a reserve account in the hiilance sheet. so that it could be deposited with the governi nent or returned to the customers, The aforesaid 'explanation given that there were trade 'advances was not accepted by the Assessing Officer and "accordingly, the suid amount was also brought to tax.
A. Being aggrieved by the order of the Assessing Olficer.
"ihe matter was carried in appeal before the Commissioner of 7 Appeals by the assessee which appeal came to be dismissed
- and being aggrieved by the said order the assessee had filed an appeal belore the Income Tax Appellate Tribunal which however by its order dated 31.3.2005 allowed the appeal. As be, against the said order, this appeal has been filed by the reveriue raising the following substantial questions of law: ~
i) ii} iv} Whether the tribunal was correct in tioldirig thai.
a sum of Rs.1,17.00,00G/- share application. money found during search cannot be. treated as undisclosed income of the assessee .on 'the - ground that the share applicants. had' peer"
identified and some of them had admitted to the said payment. _ : an Whether the tribunal was. correct, in not taking into consideration "the various ~materials considered by the Assessing Officer and upheld by the Appellate Commissioner which disclosed that most -of "the -share "applicants were employees of the: asSessee company or sister concerns or the relatives ofthe employees who are -drawing.a rheager salary of Rs.2.000/- to Rs.8.000/- and no source to purchase the ~sheres-and the bank-accounts opened by them only. trarisactéd the share application money by "irmiroauction of cash and issue of cheques and ' consequently -recorded a perverse finding. Vhether the tribunal was correct in holding that number of share applicants has been examined 'and they admitted who have contributed for nurchase of shares without taking into _ -eonsideration the fact that these persons did not "have any funds to invest in purchase of these stiares as the Assessing Officer had not only 'taken into account by income received by each of them, the expenditure incurred by them as well of the rental accommodation by which all of them were residing and consequently recorded a perverse finding.
Whether the tribunal was correci in not taking into consideration the specific instances where the Assessing Officer had noted = cash introduction in bank accounts of employees of Rs. 1.00.000/-. Rs.2.00.000/- and Rs.50.000/- and subsequent payrnents for purchase of Shares when these employees could not he
v)
vi) vit) establish making such payments through any souree as the agricultural income, income, from chits funds and small savings could not. be established by adducing sufficient evidence.
Whether t the tribunal was correct in poring | that ; discovered whic h was veated AS san: snis sclos sed %, income in search proceedings could not. be. treated as undisclosed inconie of the. ASSESSEE 3S the same had been worked out based on reconciliation of books: by the. As sessing 'Olficer and not direct disc Overy during Course of f search, Whether the: T ibut val was. cer Orr ect in holding that a sum of Rs.29,15.5 585 /- received. as expenditure tax and luxury. tax.etc, which had been disaslowect under' Section, 43B. of the Act as the same had not been paid to the Government 'cannot: be allow rea as ihe same had been disc losed ra the reguiar return, however under a ; different namic as tracle advances.
: Whet her the a ssessing Officer has jurisdiction to _ treat. trade advarices declared by the assessee which was 'found to be expenditure tax and luxury. tax etc, im search proceedings as undisclosed income as per section 158B of the "Act since the expense Claimed as trade advance aas found to be false and the same was
-aitowable under Section 43B of the Act.
it is submitted on behalf of the appellant that as far as "these three items are concerned, the Assessing Officer was justified in bringing the same to tax on the basis of considering the same as undisclosed income which order was rightly upheld by the Commissioner of Income Tax, but the tribunal has not given any reason as to why the orders bs passed by the authorities below had to be reversed and thus.
ihe orders of the tribunal has to be set aside. He. further Assessing Officer had rightly brought the incomes tay ara therefore. the order of the Assessing Officer and appeliate order, by setting aside the order of the tribunal has to be upheld in the instant case.
6. Per conta, Famed counsel for (tie-respondent relying upon the decision 'of the "Apex "Court in the case of Commissioner of Income Tex Vi s. Lovel y Exports (P) Ltd, (CTR (SC} 195) subinits thal as far as the share application money is concerned, if ihe same has been received by the assessee 7 company fron the alleged bogus shareholders, whose names " are given to the 'AO, then the Department is free to proceed to reopen. their individual assessments in accordance with ~ daw, but it cannot be regarded as undisclosed income of "assessee eompany. As far as the other heads are concerned, he submits that the reason assigned by the Assessing Officer and the Commissioner of Income Tax are not just and proper. Therefore. the tribunal was justified in setting aside he the said orders.
7. Having heard the learned counsel for the parties arid on perusal of the material on record, particularly the. impugned order of the Appellate Tribunal. we find thai. on, - the question of unexplained investprent of share capital in .
the names of the employees of thie assessee is concerned, the learned counsel for the appellant is Hol able to state as to whether any investigation was carried. ont vith regard to the persons who had submitted the share application money. It is also to be noted that when the respot ident had issued the shares. the _ amounts woke. collected in terms of the assessment made 'by the respondent and even in the evidence which had been, lev in. except three persons, all other persons had admitted that they were proposed 7 shareholders. who had paid the amounts on the shares that "were. in be allotted to them pursuant to the application whieh they liad received. In this context. it would be
-relevaiit to refer to the decision of the Apex Court referred to "supra, wherein it has been stated that if the share appli ration money is received by the assessee company from the alleged bogus shareholders whose names have been given to the Assessing Officer. then the Department is free to proceed to reopen their individual assessments in k ot accordance with law. but it cannot be regarded as undisclosed income of assessee company. To the same-effect is another decision of the Apex court in the casé-of CIT Vs..
Stellar Investments Lid (2001} 251 ITR. 263(SC)In- the instant -
case, except three persons all other. persons have adnuited that they have paid towards description of Uie shares. It therefore cannot be held that there.has been -no explanation offered with regard to the investiment received by way of share capital taking inte aecounf, the fact that the persons had admitted that*payment of the ehare Subscription money except three.persons. Under the circumstances, we hold that the substaritial' questions of law raised by the revenue with regard to this aspect.of the matter has to be answered in favour of the assessee and agairist the reveriue.
; 3. = OAS far as the other two items referred to above are converned, we 'find that while considering the contentious issues: raised on both sides the tribunal has not assigned ~ any legal and valid reasons as to why the orders passed by : the Assessing Officer as well as the Commissioner of Income Tax (Appeals) require any modification or reversal. In fact, the orders passed by the tribunal is berefi of any reasoning based orn the material on record. Under the a on ain we deem it proper to remand the matter to the tribunal on the aforesaid two issues without answering the substantial questions of taw raised by the appeHant on the said issues. * 9, For the aloresaid reasons. the appeal - is ailowed. in part. The matter is remanded back to the tribunal to re-consider the second and third' issue and-pass orders in accordance with law.
oo Sd/-
oe JUDGE Sd/-
JUDGE