2009 (8) TMI 53 - HC - Income Tax

Interpretation of provisions of section 69B and 69C piercing of the corporate veil - The Assessing Officer made additions to the declared income under Section 68 of the Act in respect of amount purported to have been paid to its Directors as chit money. It was held that payments were not in fact made and the amount remained available with the assessee as its income. The CIT(A) deleted the said additions ITAT reversed the order of CIT(A) Held that - The Tribunal has found that the amount representing payment to chit holders was in fact paid to Suresh Chand Gupta, a Director of the assessee, which was a private company controlled by the recipient of the amount. The amount was available with the assessee itself and payments were made representing expenditure which was never incurred. The amount was, thus, available with the assessee as undisclosed income which justified additions made by the Assessing Officer order of ITAT upheld

Summary

Issues:
1. Interpretation of provisions of section 69B, 69C regarding income treatment without piercing corporate veil.
2. Sustainability of Tribunal order on enhancement of findings.

Analysis:
1. The appeal involved the interpretation of provisions of section 69B and 69C of the Income Tax Act, 1961, concerning the treatment of income without piercing the corporate veil under section 34 of the Companies Act, 1956. The Assessing Officer had made additions to the declared income under Section 68 of the Act, alleging that payments to Directors as chit money were not actually made, resulting in the amount remaining with the assessee as income. However, the CIT(A) deleted these additions, arguing that section 68 pertains to the receipt of money, not payments. The Ld. A.R. submitted that the Assessing Officer was unjustified in making the additions, as the persons receiving the chit amounts were existing income tax assessees, and the chits had been accepted as genuine in previous assessments. The Tribunal ultimately upheld the revenue's appeal, emphasizing that the cheques were not drawn in favor of the chit holders, and the payments were not established through reliable evidence like bank records or affidavits. The Tribunal concluded that the payments were made to the Director of the assessee, resulting in undisclosed income for the Director.

2. Regarding the sustainability of the Tribunal order, the appellant contended that there was no basis for piercing the corporate veil and any additions should have been made in the hands of the Director. The appellant argued that the payments were duly made by the assessee company, and any unexplained income should be attributed to the Director. However, the Tribunal found that the amount meant for chit holders was paid to a Director of the assessee, a private company controlled by the recipient. The Tribunal determined that the payments represented expenditure that was never actually incurred, leading to the amount being treated as undisclosed income of the assessee. The Tribunal differentiated the case from the judgment in CIT v. Lovely Exports (P) Ltd., emphasizing the specific circumstances of the case and the findings of fact. Consequently, the Tribunal dismissed the appeal, stating that no substantial question of law arose and upholding the additions made by the Assessing Officer.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's findings that the payments made by the assessee represented undisclosed income, justifying the additions made by the Assessing Officer. The Court held that the findings were based on facts and did not warrant interference under Section 260A of the Income Tax Act, 1961.