2023 (8) TMI 1575 - AT - Income Tax

Undisclosed income - Income surrendered by director at the time of survey - undisclosed income that the directors had offered in their respective hands - right person v/s wrong person - HELD THAT - On a careful perusal of the statements of the directors of the assessee company during the assessment proceedings it transpires that income of Rs. 1.10 crore (supra) was admitted by them as their respective undisclosed income and he directors on being queried about the source of investment had in unequivocal terms stated that the same was sourced out of their respective undisclosed income. The respective directors disclosed Rs. 1.10 crore (supra) qua the undisclosed income they garnered during the year under consideration and not in the hands of the assessee company. As when the source of the investment towards unexplained stock/franchisee fee/furniture was duly explained to have been made out of the investment made by the directors as admitted by them in their respective statements though out of their undisclosed income the same cannot be held as an unexplained investment in the hands of the assessee company. Our conviction above is fortified on a perusal of Section 69 of the Act which therein contemplates that it is only when the assessee does not explain the nature and source of the investments; or the explanation offered by him is not in the opinion of the A.O satisfactory the value of the investment may be deemed to be the income of the assessee of such financial year. As the aforesaid factual position that had been canvassed by the directors of the assessee company i.e. investments towards unexplained stock/franchisee fee/furniture was sourced out of their undisclosed income had neither been controverted by the lower authorities nor anything proving to the contrary has been brought to our notice by the Ld. DR therefore we find no justification for the A.O. to have held the investments mentioned above as having been sourced out of an unexplained source in the hands of the assessee company. As observed in the case of ITO vs. Ch. Atchaiah 1995 (12) TMI 1 - SUPREME COURT Income Tax Officer can and must tax the right person and the right person alone. The Hon ble Apex Court observed that the right person means the person who is liable to be taxed according to law concerning a particular income. It was further observed that the expression wrong person is used as the opposite of the expression right person. Based on its observation above the Hon ble Apex Court had concluded that merely because a wrong person is taxed concerning a particular income the A.O. is not precluded from taxing the right person concerning that income. Thus as amount of Rs. 1.10 crorewas liable to be looked into by the A.O in the hands of individual directors for the reason that they had duly admitted the same as their undisclosed income for the year in question. Ground of Appeal No.1 raised by the assessee is allowed. Unrecorded cash found during survey proceedings - Assessee had failed to come forth with any explanation concerning the addition mentioned abovesustained by the CIT(Appeals); therefore we uphold the same. Thus the Ground of appeal No.2 raised by the assessee is dismissed.

Summary

Issues Involved:

1. Sustaining the addition of Rs. 1,10,00,000/- as undisclosed income.
2. Sustaining the addition of Rs. 9,000/- due to differences in cash found during the survey.
3. Alleged violation of the principle of natural justice by not providing a proper opportunity to the assessee.

Detailed Analysis:

1. Addition of Rs. 1,10,00,000/- as Undisclosed Income:

The primary issue in this appeal was whether the addition of Rs. 1,10,00,000/- as undisclosed income, based on the survey conducted, was justified. The survey under Section 133A of the Income-tax Act, 1961 revealed unexplained investments in stock, franchisee fees, and furniture totaling Rs. 1.10 crore. The directors of the assessee company admitted during the survey that these investments were sourced from their undisclosed income, which they agreed to offer for taxation. However, the assessee company did not reflect this amount in its tax return. The Assessing Officer (A.O.) added this amount to the company's income, which was upheld by the CIT(Appeals).

Upon appeal, it was observed that the directors had admitted the undisclosed income in their individual capacities, not on behalf of the company. The tribunal noted that the right person to be taxed was the one who admitted the income. As the directors individually admitted the income, the tribunal concluded that the addition should be made in their hands, not the company's. Consequently, the tribunal directed the A.O. to tax the undisclosed income of Rs. 1.10 crore in the hands of the individual directors, thus allowing the assessee's appeal on this ground.

2. Addition of Rs. 9,000/- Due to Cash Differences:

The second issue concerned the addition of Rs. 9,000/- due to discrepancies in cash found during the survey. The survey revealed cash in hand of Rs. 4,73,000/-, while sales up to the survey date accounted for Rs. 4,64,000/-. The assessee attributed the difference to sales returns but failed to substantiate this claim. The A.O. added the unaccounted Rs. 9,000/- to the income, and this was upheld by the CIT(Appeals).

The tribunal noted that the assessee did not provide any further explanation or evidence to support its claim regarding the cash discrepancy. Therefore, the tribunal upheld the addition of Rs. 9,000/-, dismissing the assessee's appeal on this ground.

3. Alleged Violation of Natural Justice:

The third issue raised by the assessee was that the CIT(Appeals) erred by not providing a proper opportunity to present its case, thus violating the principle of natural justice. However, during the proceedings before the tribunal, the assessee did not advance any arguments or evidence to support this claim. Consequently, this ground of appeal was dismissed as not pressed.

Conclusion:

The tribunal partly allowed the appeal. It directed the A.O. to tax the undisclosed income of Rs. 1.10 crore in the hands of the individual directors, rather than the company, recognizing the directors' admissions during the survey. However, the addition of Rs. 9,000/- due to cash discrepancies was upheld, and the claim of violation of natural justice was dismissed due to lack of prosecution. The tribunal's decision emphasizes the importance of taxing the correct entity or individual based on admissions and evidence presented.