2021 (6) TMI 268 - AT - Income Tax

Undisclosed unaccounted expenditure and undisclosed income - addition of income in the hands of assessee or undisclosed and unaccounted income pertains to its company HELD THAT - The hon ble apex court s landmark decision in ITO v. Ch. Atchaiah 1995 (12) TMI 1 - SUPREME COURT held long back that the Assessing Officer can and he must tax the right person and the right person alone. By right person it is meant the person who is liable to be taxed according to law with respect to a particular income. By the connotation of right person it is meant the person who is liable to be taxed according to law with respect to a particular income. And that the expression wrong person is obviously used as an antithesis of the expression right person only. We observe that this assessee is the managing director of M/s. VNR Infrastructure Ltd. And that it is this latter entity which the fact is engaged in all the business activity(ies) and has been assessed separately throughout. A company is very a body corporate and a distinct entity apart from its director. We conclude in these circumstances that the Commissioner of Income- tax (Appeals) has rightly deleted these twin additions in the assessee/individual s hands since corresponding undisclosed and unaccounted income pertains to its company M/s. VNR Infrastructure Limited carrying out the business in its own name. We make it clear while holding so that the Revenue has not even indicated the fact above the company s assessment qua the very income(s). We thus see no reason to reverse the Commissioner of Income-tax (Appeals) detailed findings for these precise reasons.

Issues Involved:
1. Unexplained expenditure and income additions for assessment years 2010-11 to 2014-15.
2. Whether the additions should be assessed in the hands of the individual or the company.
3. Validity of the assessment based on the statements recorded during the search.

Issue-wise Analysis:

1. Unexplained Expenditure and Income Additions:
The Revenue's appeals concerned the reversal of the Assessing Officer's action by the Commissioner of Income-tax (Appeals), who deleted additions of unexplained expenditure and income for the years 2010-11 to 2014-15. The amounts were Rs. 2,55,20,578, Rs. 2,22,10,994, Rs. 43,94,74,187, Rs. 6,53,44,000, and Rs. 7,09,61,473 respectively, along with unexplained income additions of Rs. 1 crore, Rs. 2.10 crores, and Rs. 4,99,61,473 for the assessment years 2013-14 and 2014-15.

2. Assessment in Individual vs. Company:
The primary contention was whether the income and expenditure should be assessed in the hands of the individual (Managing Director) or the company (M/s. VNR Infrastructure Ltd.). The Commissioner of Income-tax (Appeals) found that the seized materials and entries related to the company's business activities and not to the individual. Therefore, the income should be taxed in the company's hands, not the individual’s.

3. Statements During Search:
The Assessing Officer made additions based on statements recorded during the search, where the individual admitted to certain incomes. However, the Commissioner of Income-tax (Appeals) noted that these admissions were later clarified, indicating that the income pertained to the company. The Commissioner of Income-tax (Appeals) emphasized that income must be taxed in the correct hands, referencing the Supreme Court decision in ITO v. Ch. Atchaiah, which mandates taxing the right person.

Detailed Analysis:

Unexplained Expenditure and Income Additions:
The Commissioner of Income-tax (Appeals) reviewed the detailed submissions and evidence provided by the assessee, which indicated that the income and expenditure in question were related to the company’s business activities. The assessee had provided a reconciliation of the seized materials with the company's books of accounts, showing that the transactions were recorded in the company's accounts.

Assessment in Individual vs. Company:
The Commissioner of Income-tax (Appeals) observed that the income and expenditure should be assessed in the hands of M/s. VNR Infrastructure Ltd. and not the individual. This was based on the principle that the right person should be taxed, as established in the Supreme Court's decision in ITO v. Ch. Atchaiah. The Commissioner also referenced the corporate law principle from Salomon v. Salomon and Co. Ltd., which treats a company as a distinct legal entity separate from its directors.

Statements During Search:
The Commissioner of Income-tax (Appeals) noted that while the individual had admitted to certain incomes during the search, these admissions were later clarified to pertain to the company. The Assessing Officer had not provided any contradictory evidence to refute this claim. The Commissioner emphasized that the assessment should be based on evidence and that the income should be taxed in the hands of the entity to which it legally belongs.

Conclusion:
The Commissioner of Income-tax (Appeals) deleted the additions made by the Assessing Officer, concluding that the income and expenditure pertained to the company and not the individual. The Tribunal upheld this decision, noting that the Revenue did not provide any evidence to indicate that the income belonged to the individual rather than the company. The appeals were dismissed, affirming that the correct entity was taxed.

Final Order:
The Revenue's appeals were dismissed, and the order of the Commissioner of Income-tax (Appeals) was upheld. The Tribunal concluded that the income and expenditure should be assessed in the hands of M/s. VNR Infrastructure Ltd. and not the individual. The decision was pronounced in the open court on April 21, 2021.

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