2007 (10) TMI 176 - HC - Income Tax

Bogus purchases company search AO added some amount from undisclosed sources in income of the company tribunal ought to have order deletion of that amount from the income of the director so income tax paid by director on that amount was to be refunded to him tribunal order is set aside - appellant co. may apply to CBDT for waiver of interest

Summary

Issues:
Controversy over the addition of Rs. 4,37,048 in the hands of the appellant-company and its director Mahesh Toshniwal, Taxation of the same amount in both hands, Justification of the addition in the hands of the appellant-company.

Analysis:
1. The main contention was whether the Income-tax Appellate Tribunal should have clarified that the addition of Rs. 4,37,048 in the appellant-company's hands should not be taxed in the hands of its director, Mahesh Toshniwal, as done by the Commissioner of Income-tax (Appeals).
2. The appellant-company's premises were searched, and during the search, the books of account reflected purchases from five parties. Mahesh Toshniwal, a director, could not explain the source of these purchases and expressed willingness to surrender the amount for tax.
3. The Assessing Officer observed that the purchases were not genuine, and no evidence was provided for the quantum of money spent on these purchases. Thus, the amount was added to the company's income from undisclosed sources.
4. The Commissioner of Income-tax (Appeals) deleted the amount from the company's income, directing it to be included in Mahesh Toshniwal's income for the relevant assessment year as he claimed to have made the payments from his personal funds.
5. The Tribunal, however, reversed the Commissioner's decision, stating that the surrender made by Toshniwal individually was not binding on the company, and the company had debited bogus purchases in its books.
6. The Tribunal upheld the addition of Rs. 4,37,048 in the appellant-company's income, setting aside the Commissioner's order, which led to the issue of taxation of the same amount in both the company's and Toshniwal's hands.
7. The High Court clarified that the amount should be deleted from Toshniwal's income since it was already added to the company's income. The order of the Commissioner was set aside in this regard, and Toshniwal was entitled to a refund of the tax paid on that amount.
8. The appellant-company was directed to discharge its tax liability without delay, with the option to apply for interest waiver to the Central Board of Direct Taxes, which would be considered in accordance with the law. Each party was to bear its own costs.