Case Law Details
Addition to shareholder for on money paid to/by company not justified
During the survey, an agreement of sale was found in the business premises of the assessee, as per which, M/s OMDPL proposed to buy land from 11 vendors. In the above company, the assessee is holding 35% of shares. In a separate search proceedings in Delhi, similar agreement of sale was found in the premises of M/s Shiv-vani group, which is having interest in M/s Metro Management Services Pvt. Ltd. (MMSPL). M/s MMSPL is holding 65% shares in M/s OMDPL.
The AO brought to tax the on money payment which was made by M/s OMDPL to the land owners based on the shareholders in M/s OMDPL. AO failed to appreciate that company is an independent entity and distinct person. The action of the company will not have any bearing on the shareholders. AO has no jurisdiction to charge anything in the case of assessee over the dealings of any other person.
It is brought on record that on money was paid in the dealings by M/s OMDPL towards the purchase of land, if at all any addition can be made, it can be in the hands of M/s OMDPL and not in the hands of the assessee. It is misconceived idea to charge payment of ‘on money’ to the shareholders of the company, in which company entered in the transaction. We cannot accept and appreciate the action of the AO. Accordingly, the addition made by the AO in this regards are deleted.
Addition under section 69C cannot be made based on some rough papers without proving the nexus of the same with business of the assessee and without proving that the assessee had actually incurred such expenses
Assessing Officer referred to impounded material Annexure-3, page 32, wherein certain payments to various vendors/ provisions like milk, water, vegetables were noted. The total of such payments was Rs. 29,90,050/-. The Assessing Officer held that as these expenses were not recorded in the books, hence, the same were treated as unexplained expenditure under section 69C of the Act.
Assessee submitted that the notings in the impounded paper do not belong to their business and therefore the addition cannot be made in their hands.
It is observed that the Assessing Officer had not brought on record how the contents of page 32 were connected with the assessee, except stating that this was found during survey. No statement or confirmation was obtained from the assessee / its Directors about the veracity of the expenses written. Further, he observed that without proving that the assessee had actually incurred such expenses, based on some rough papers it cannot be said that the assessee had incurred expenditure on provisions, milk, water, vegetables, etc., to the tune of Rs. 29,90,050/-. It is further observed that in the assessment order also, no reason whatsoever was adduced for linking the said expenditure to the business of the assessee or for that matter that the assessee had actually incurred such expenditure on these items. Therefore, the CIT(A) directed the AO to delete the addition of Rs. 29,90,0501- treated as unexplained expenditure.
It is further observed that in the assessment order also, no reason whatsoever was adduced for linking the said expenditure to the business of the assessee or for that matter that the assessee had actually incurred such expenditure on these items. Therefore, the addition of Rs. 29,90,0501- treated as unexplained expenditure is not sustainable.
Section 14A of Income Tax Act, 1961 has relevance in the Absence of Exempted Income and nexus between loans obtained and investments made
AO observed that the assessee invested huge amounts as share capital in different companies out of borrowed funds and interest of Rs. 69,07,096/- was debited as interest on these loans. Accordingly, the Assessing Officer had worked out the disallowance under section 14A read with Rule 8D and disallowed an amount of Rs. 3,78,878/-.
Assessee submitted that (i) the said investments were not made during the year under consideration and were accumulated over a period of time, (ii) in the absence of any exempted Income, the provisions of 14A cannot be invoked, (iii) they have reserves of around 603.48 crores as against the investments of Rs. 7.27 crores made and therefore, without proving the nexus between the loans obtained and the investments made, the provisions of section 14A cannot be invoked for making disallowance of interest.
Ao n0 nexus between the funds borrowed and the funds invested by the assessee was brought out by the Assessing Officer, so addition are not sustainable.
