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TMI Blog2009 (6) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources" without appreciating the fact that the burden that lay upon the assessee, stands discharged and the addition sustained is on irrelevant consideration, suspicion and conjectures. 3. Briefly the case of the assessing authority is that action under s. 132 of the IT Act, 1961 (hereinafter referred to as 'Act') was taken at the factory premises of the assessee as well as the residential premises of its directors on 18th Jan., 2006. Consequent to that, proceedings under s. 153A of the Act were initiated by issuing a notice dt. 19th June, 2006. In response thereto the assessee furnished return of income for the year under consideration. During the course of assessment proceedings the AO noticed that authorized share capital of the assessee as per memorandum of association of the company is Rs. 7 crores divided into seven lakh equity shares of Rs. 10 each. Originally the license for manufacture of Indian made foreign liquor was in the name of one Shri M.R. Anbukkarasu. He had floated a partnership firm in the name of Golden Distilleries along with Shri S. Nagaiyan as another partner. The company stood incorporated on 28th Oct., 2002. In terms of memorandum of association, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of search and in post-search enquiries where he admitted his association with MGDP Ltd. as a shareholder only and had denied his involvement in any day-to-day affairs of the assessee company. The question as to who is in the effective control and management of the company, remaining unanswered and finding no transparency even about the owners, the affairs of the assessee company looked like a riddle, inside a puzzle that is wrapped in mystery. He, therefore, thought it proper to go beyond the corporate veil of the assessee company and find out correct position. 6. From the seized material he found that these companies have been used as a conduit for investment in the assessee company. The share capital belonging to one M/s Mother Mira Industries Ltd. has been routed through M/s Satiate Finance Investment (P) Ltd. and the share capital belonging to Shri S. Vaikuntarajan group has been routed through M/s Aswatha Distilleries Ltd. In both these companies the directors namely S/Shri V.S. Siva Kumar and Anantharaman were common. Mr. Anantharaman was found employed with Dr. Namadhu MGR proprietary concern of V.K. Sasikala. The AO also noticed that both these companies do not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aikundrajan, the other director of M/s Aswadha Distilleries (P) Ltd. 9. There was another document in seized material inventorized as Ann/MPB/B D/S-27, dt. 23rd Dec., 2002 loose sheet No. 283 which is also an agreement entered into by M/s Aswadha Distilleries (P) Ltd. with M/s Midas Golden Distilleries (P) Ltd. It is stated therein that a sum of Rs. 5,35,00,000 was advanced to M/s Golden Distilleries (the erstwhile firm) by M/s Aswadha Ltd. and 27th Oct., 2002, the date of takeover, it was agreed that in lieu of the amount of Rs. 5,35,00,000, payable by the erstwhile firm, share of M/s Midas Golden Distilleries (P) Ltd. would be allotted to M/s Aswadha Distilleries (P) Ltd. or its nominees. The AO, thus, found an apparent contradiction between the statement of M/s Aswadha Distilleries (P) Ltd. and balance sheet of M/s Golden Distilleries as on the date of takeover i.e., 27th Oct., 2002 which reflected an unsecured loan of Rs. 3.95 crores only. 10. It was also found that the main investors in M/s Aswadha Distilleries (P) Ltd. belonged to Shri S. Vaikuntarajan and his family who had applied for allotment of shares of that company as under: -------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05. However, the addresses were not provided as they were not present shareholders of the assessee. 12. The AO also noticed that on 16th Oct., 2004, the assessee company passed resolution authorizing enhancement of authorized share capital from Rs. 7 crores to Rs. 16 crores, whereas two intermediary companies namely, M/s Aswadha Distilleries (P) Ltd. and M/s Satiate Finance Investments (P) Ltd. are shown to have received moneys from the month of August, 2002 to September, 2003 much ahead of the date of resolution authorizing enhancement of share capital by the assessee company. Thus the funds are shown available even prior to proposal for enhancement of the share capital and the resolution to pass enhancement of share capital is only to regularize the unaccounted funds. Taking note of the totality of facts, the AO was of the view that nature and relation of intermediary companies shows that the transfer of funds from them are only a sham transaction made with the purpose of accommodating the source. He then summed up his findings and inferences as under: (i) The enquiries with the past and present directors show that there is no transparency in the control and administration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made on the basis of a valuation made by an independent and reputed professional. The Supreme Court has held that under no circumstances the amount of share application money could be regarded as undisclosed income in the hands of the company as decided in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287." 14. The arguments of the assessee's representative and the case law cited were duly considered by the AO. The contention that onus of the assessee company gets discharged by merely filing the identity of the shareholders or share applicants and by furnishing the details of mode of receipt of the amount is not correct. Where a doubt arises as to the genuineness of the share capital introduced by the company, it would be necessary to examine the facts and circumstances of the entire issue to find out whether the amount shown as representing share application money is genuine and also to ascertain the capacity of the share applicants. If on the facts and circumstances of the case, the AO comes to a conclusion that share capital of a company is in question, the AO is at liberty to make enquiry and if the enquiry proves that the transactions are not genuine, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blished that the IT authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction. The Court has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. On the question of piercing the corporate veil, the decision rendered in the case of CIT us. Poulose Mathen (P) Ltd. (1998) 148 CTR (Ker) 247 : (1999) 236 ITR 416 (Ker) was also cited. Similar view was taken in the case of CIT vs. Meenakshi Mills Ltd. (1967) 63 ITR 609 (SC). Further, the AO stated that in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) it has been held clearly that taxpayer cannot be allowed to get away with any colourable device or artificial sham transaction. 19. In his overall analysis, the AO stated that the share capital has been routed through two companies, the existence and operation of which remains only on paper. Therefore, enquires were conducted not only to lift the corporate veil of the assessee company but also that of the intermediary companies which acted as conduits. As discussed above, the enquires clearly revealed that huge amounts have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to rebut the presumptions made by the AO prior to making the huge addition. The share application money of Rs. 13,94,15,000 stood received from seven entries including the promoter-directors Shri M.R. Anbukkarasu and Shri S. Nagaiyan. M/s Satiate Finance and Investments (P) Ltd. is assessed to tax with the same AO. Likewise, M/s Aswatha Distilleries (P) Ltd., which is also an investment company who also are assessed to income-tax with the same AO. Both these companies have confirmed of making investment as share application money with the appellant. 21. As regards Mumbai based company M/s D. Kumar Trading Co. (P) Ltd. who invested a sum of Rs. 1,50,00,000 as share application money, the assessee submitted copy of confirmation dt. 24th Feb., 2003 in relation to the above investment. The assessee also furnished confirmation from M/s Pentium Hitech (P) Ltd. for investment of Rs. 80 lakhs in the appellant company by way of share application money. The third company M/s Pooja Equiresearch (P) Ltd. who had invested a sum of Rs. 70 lakhs as share application money had given confirmation dt. 24th Feb., 2003 that also stood filed before the learned CIT(A). The present addresses, PAN of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AO had established beyond doubt that the share applicants i.e., M/s Satiate Finance and Investments (P) Ltd., M/s Aswatha Distilleries (P) Ltd., M/s Pentium Hitech (P) Ltd., M/s Pooja Equiresearch (P) Ltd., M/s D. Kumar Trading Co. (P) Ltd., Shri M.R. Anbukkarasu and Shri S. Nagaiyan did not have the requisite creditworthiness. Accordingly the AO was found legally justified in invoking provisions of s. 68 of the Act, for treating the share application money amounting to Rs. 13,94,15,000 as unexplained credit in the hands of the appellant company. Since the creditworthiness of the share application money of the applicants could not be satisfactorily explained, he upheld the entire addition of Rs. 13,94,15,000 made by the AO on account of unexplained share application money as income from other sources. 25. Learned counsel for the assessee assailing the impugned order contends that the appellant had brought on record documentary evidence to show that the amount received as share application money is from the applicants for allotment of shares to them in assessee company. The shareholders have been identified and source stands explained. The assessee had even filed the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or coming to a right conclusion that the source of huge amounts brought in assessee's books as share application money through the intermediary companies by the shareholders remains unexplained. The learned CIT(A) also found that the share applicants did not have the requisite creditworthiness and upheld addition as unexplained credit in the hands of the appellant. This does not require any interference. 28. As regards the dismissal of SLP in CIT vs. Lovely Exports (P) Ltd., the dismissal as such being a dismissal simplicitor would not be a declaration of law and would not be a binding precedent as observed by Hon'ble Madras High Court in CIT vs. Geetha Ramakrishna Mills (P) Ltd. (2006) 205 CTR (Mad) 365 : (2007) 288 ITR 489 (Mad) and also by Hon'ble apex Court in CIT vs. Kwality Biscuits Ltd. (2006) 205 CTR (SC) 122 : (2006) 284 ITR 434 (SC). Furthermore, in State of Orissa vs. M.D. Illyas (2006) 1 SCC 275 the Hon'ble Supreme Court at para 12 held that a judgment to be a precedent must contain three postulates. The appellant therefore, does not deserve any relief by considering the order in CIT vs. Lovely Exports (P) Ltd. as a binding precedent. The appeal, therefore, needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the garb of share capital. Merely because of his subjective satisfaction that the source of availability of money with the shareholders or their creditworthiness are not established, that fact alone would not give jurisdiction under the peculiar facts of this case, to treat the genuinely raised share capital as deemed income under s. 68 of the Act. In the event, the intermediary companies were to be taken as conduits or persons without requisite creditworthiness and even if they were to be treated as bogus shareholders, then also nothing stops the Revenue to reopen their individual assessments in accordance with law and bring to tax such unexplained money in their respective hands. 31. The appellant sought to rely on the order of Hon'ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. dismissing SLP arising out of matter connected with Divine Leasing Finance Ltd. by passing the following order: "Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P in limine by a non-speaking order does not justify any inference that, by necessary implication, the contentions raised in the SLP on the merits of the case have been rejected by the Supreme Court. It has been further held that the effect of a non-speaking order of dismissal of a SLP without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that the Supreme Court had decided only that it was not a fit case where special leave should be granted. In Union of India vs. All India Services Pensioners' Association (1988) 2 SCC 580 : AIR 1988 SC 501, this Court has given reasons for dismissing the SLP. When such reasons are given, the decision becomes one which attracts Art. 141 of the Constitution which provides that the law declared by the Supreme Court shall be binding on all the Courts within the territory of India. It, therefore, follows that when no reason is given, but a SLP is dismissed simpliciter, it cannot be said that there has been a declaration of law by this Court under Art. 141 of the Constitution." 33. Hon'ble apex Court in Kunhayammed Ors. vs. State of Kerala Anr. at p. 375 have expressed as to when re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 141 of the Constitution has also been stated by the Full Bench of the Hon'ble Patna High Court in Smt. Tej Kumari vs. CIT Ors. (2000) 164 CTR (Pat)(FB) 201, and the relevant extract is reproduced as under: "It is well settled principle of law that when a SLP is summarily dismissed under Art. 136 of the Constitution, such dismissal does not lay down any law rather it shall be deemed that the Hon'ble Supreme Court has simply held that it is no a fit case where SLPs should be granted. The same principle will not apply in a case where civil appeal is dismissed by the Hon'ble Supreme Court holding that the appeal has no merit. When once civil appeal is dismissed after hearing the parties by the Hon'ble Supreme Court holding that the appeal has no merit then such order becomes one which attracts Art. 141 of the Constitution, which provides that the law declared by the Hon'ble Supreme Court shall be binding on all the Courts within the territory of India." 36. The Revenue's reliance on the order in Kwality Biscuits Ltd. dismissing the SLP contending it to be a dismissal simpliciter runs on different footing. In that case the Hon'ble apex Court passed the order "the appeals are dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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