2000 (8) TMI 249 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 22,00,000 under Section 69B of the Income-tax Act, 1961.
2. Validity of the disclosure made by the Director on behalf of the company.
3. Applicability of judicial precedents cited by both parties.
4. Double taxation concerns.

Detailed Analysis:

1. Addition of Rs. 22,00,000 under Section 69B:
The primary issue in this appeal is the addition of Rs. 22,00,000 made by the Assessing Officer under Section 69B of the Income-tax Act, 1961. The assessee-company purchased a plot of land for Rs. 50,00,000, as recorded in its books. However, during a search operation, the seller disclosed that the actual consideration was Rs. 72,00,000, with Rs. 22,00,000 paid in cash. The Assessing Officer treated this undisclosed amount as income from undisclosed sources under Section 69B, which was confirmed by the CIT (Appeals).

2. Validity of the Disclosure Made by the Director:
The assessee argued that the additional payment of Rs. 22,00,000 was made by its Director, Shri Manohar Lal Aggarwal, and was disclosed during the search under Section 132(4) read with Explanation (5) to Section 271(1)(c). However, the Tribunal held that the Director cannot make a disclosure for the benefit of the company. The company is a separate legal entity, distinct from its directors, and only the owner of the asset can make such a disclosure. The investment of Rs. 22,00,000 was not reflected in the company's books, nor was the Director shown as a creditor, making the disclosure non est.

3. Applicability of Judicial Precedents:
The assessee relied on several judicial precedents, including CIT v. Smt. P.K. Noorjahan and CIT v. Bharat Engineering & Construction Co., to argue that the addition should not be made. However, the Tribunal found these cases inapplicable. In Smt. P.K. Noorjahan, the Supreme Court held that the use of the word "may" in Section 69 confers discretion on the Assessing Officer, but this discretion does not always favor the assessee. In Bharat Engineering, the Supreme Court ruled that cash credits in the initial years of business could be considered capital receipts, but the Tribunal found that the assessee-company could have earned profits, making this precedent inapplicable.

4. Double Taxation Concerns:
The assessee contended that the addition of Rs. 22,00,000 would result in double taxation, as the Director had already disclosed this amount. The Tribunal rejected this argument, citing the Supreme Court's decision in Jamnaprasad Kanhaiyalal, which held that false declarations by creditors do not prevent the same income from being taxed in the hands of the actual owner. The Tribunal emphasized that the disclosure must relate to the income actually earned by the declarant, and immunity under the Act is available only to the declarant, not to other persons.

Conclusion:
The Tribunal upheld the addition of Rs. 22,00,000 under Section 69B, dismissing the appeal. The Tribunal concluded that the Director's disclosure could not benefit the company, and the company, as a separate legal entity, must account for the undisclosed investment. The Tribunal also clarified that judicial precedents cited by the assessee were not applicable in the present case, and concerns of double taxation were unfounded.