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
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