Conclusion: Additions made on the basis of statement of assessee u/s 132(4) in the hands of assessee ignoring the fact that the seized material belongs to company was not justified as the same were not attributable to the Managing Director for undisclosed and unaccounted income of the Company.
Held: Assessee was the Managing Director of M/s VNR Infrastructure Ltd, having income from salary from the company and other sources. Search and seizure operations were conducted in the case of M/s VNR Infrastructures Ltd and also in the case of its Managing Directors and other Director. During the course of search certain incriminating material pertaining to the company was found at the premises of M/s. VNR Infrastructures Ltd, statement of the Managing Director and the other director and also the statements of other persons were recorded u/s 132(4) of the IT Act. During the course of statement the Managing Director Narayan Reddy. V and other Director Praveen Kumar.G had made disclosures u/s 132(4) amounting to Rs.74,27,47,257/- and Rs.3,00,00,000 Crores respectively, in the hands of company a further amount of Rs.23,80,37,378/- was made, the aggregate disclosure made was at Rs.101 Crores. Assessee admitted an aggregate amount of Rs.74,27,45,257 in his hands during the course of statement u/s 132(4). However, the seized material on which additions were obtained, belonged to the company However, AO had not taken any pain to verify whether the seized material stated in the letter submitted on 14.03.2016 to confirm whether it belonged to the company or to assessee V.Narayan Reddy. The additions were made only on the basis of statement of assessee u/s 132(4) in the hands of assessee ignoring the fact that the seized material belongs to company. It was held that no additions could be made in the assessee/individual’s hands since corresponding undisclosed and unaccounted income pertained to its company M/s. VNR Infrastructure Limited carrying out the business in its own name. ITAT clarified that Revenue had not even indicated the fact above the company’s assessment qua the very incomes.
FULL TEXT OF THE ITAT JUDGEMENT
These Revenue’s five appeals for Assessment Years 2010-11 to 2014-15 arise from the Commissioner of Income Tax (Appeals)-11, Hyderabad common order dt.27.02.2018 passed in case Nos.130 to 134/2016-17/DCIT-TC-1(3), Hyd/17-18 involving proceedings under Section 143(3) r.w.s. 153A in former four and u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’) in last assessment year; respectively.
Heard the learned department representative. Case files perused.
2. It transpires during the course of hearing that the Revenue’s identical substantive grievance(s) in all these five assessment years plead that the CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action adding unexplained expenditure of 2,55,20,578; Rs.2,22,10,994; Rs.43,94,74,187; Rs.6,53,44,000 and Rs.7,09,61,473 (assessment year-wise) and unexplained income addition of Rs.1 Crore in A.Y. 2013-14 and Rs.2.10 Crore and Rs.4,99,61,473 in A.Y. 2014-15; respectively alleged based on the assessee’s statement recorded during the course of search.
3. The learned department representatives took us to paras 2 to 5 of the CIT(A)’s common lower appellate discussion to the above effect as under :
“ 2. The facts of the case are as under. The appellant, an individual, is MD of M/s. VNR Infrastructures Ltd., derives income from salary. Search in this case was conducted on 23.10.2013. Last authorization for S& S was executed on 19/11/2013. The factual information with regard to date of filing of original return of income, details of income returned in the, etc. are tabulated below for ready reference :-
3. The Assessing Officer made most of the additions as mentioned in column 10 of the table above in the hands of the assessee on substantive basis and in the hands of M/s. VNR Infrastructure Limited on protective
4. Aggrieved over such assessments, the assessee preferred appeals against all these assessment years, viz., AYs 2008-09, 2010-11 to 2014-15 raising the grounds, assessment year-wise, as under :
|Sl.No.||Asst. Year||Ground No.1||Ground No.2||Ground No.2(a)|
|1.||2008-09||On the facts and in the circumstance of the case the order of the learned A.O. is contrary to law and facts of the case.||The learned A.O. erred in adding an amount of Rs.97,17,600 as additional income to the total income.||—|
|2.||2010-11||-do-||The learned A.O. erred in adding an amounts||Rs.4890578 on account of the page Nos.66, 67- 75 & 81 in annexure A/SSE/HYD/06|
|3.||2011-12||-do-||-do-||Rs.6121994 on account of page No.5 of A/GBR/02.|
|4.||2012-13||Do-||-do-||Rs.52467136 on account of bank transactions as well as cash in annexure A/VNRIL/HO/04.|
|5.||2013-14||-do-||-do-||Rs.65344000 on account of A/VNRIl/HO/3|
|6.||2014-15||-do-||-do-||Rs.88461473 on acocunt|
|Ground No.2(b)||Ground No.2(c)||Ground No.3||Ground No.4|
|—-||—||For the above grounds and such other grounds that may be urged at the time of hearing the appellant prays that the appeal be allowed.||The appellant crave leave to add/to substitute/ alter/ modify/ delete all or any of the grounds.|
|Rs.2,06,30,000 on account of page No.23 to 24 of A/VNR/RES/01/Nellore||Rs.32981535 on ;account of capital gains in the case of VNR Powertech Pvt Ltd shares; as additional income of the above to the extent of Rs.58502113 to total income.||-do-||-do-|
|Rs.14000000 on account of page No.5 of A/GBR/02.||Rs.2089000 on account of property purchased in the hands of K. Subba Reddy, father of the appellant; as additional income of the above to the extent of Rs.2,22,10,994 to total income.||-do-||-do-|
|Rs.387007051 on account of page No.33 of Annexure A/VNR/A/1; Therefore, the additional income offered by the company on account of this Rs.439474187 (Rs.52467136 + Rs.387007051) is considered on protective basis in the hands of company and in the hands of Shri Vakati Narayana Reddy addition is made on substantive basis.||—-||-do-||-do-|
|Rs.1 crore on account of advance received from Sri Ganga Prasad; Therefore, the additional income offered by the company on account of this Rs.75344000 (Rs.65344000 + Rs.10000000) is considered on protective basis in the hands of company and in the hands of Shri vakati Narayana Reddy addition is made on substantive basis.||—–||-do-||-do-|
|Rs.15064255 on account of difference in remuneration form VNR Infrastructure Ltd as per 26AS. Therefore the additional income offered by the company on account of Rs.103525728 (Rs.88461473 + Rs.15064255) is considered on protective basis in the hands of company and in the hands of Shri Vakati Narayana Reddy addition is made on substantive basis.||—||-do-||-do-|
5. Grounds Nos. 1, 3 and 4 are general in nature which do not require specific adjudication. The ground No. 2 is against addition made on account of the additional income admitted during the search u/s 132(4) of the LT. Act, The admission was made on the basis of material seized during the course of search and seizure operations by the assessee. Later on, it was claimed that the ‘Income/entries’ in the seized material belong to the company – M/s. VNR Infrastructure Limited and offered as income in the hands of the company.
5.1 The issue is discussed by the Assessing Officer in the order as under:
“3. Undisclosed income offered during the search:
3.1. During the survey, loose sheet bundle marked as Annexure A/SSE/HYD/02 was impounded. The page 159 of this annexure contains details of receipts and payments. When asked Sri Annamreddy Srinivasulu Reddy, he stated that these receipts were provided by Sri Vakati Narayana Reddy. Operative portion of the sworn statement of Sri A Srinivasulu Reddy, Proprietor of S&S Enterprises recorded on 27-02-2014 is reproduced here under:
“Q9 Now I am showing you the loose sheet bundle marked as Annexure -A/SSE/HYD/02 page no. 159. Please go through the contents and offer your explanation.
Ans. The page contains the details of site expenses to the tune of Rs. 97,17,600/-. The amount was given by Sri V Narayana Reddy who can explain all the details. “
3.2 The version of Sri Srinivasulu Reddy was accepted and confirmed by Sri Vakati Narayana Relevant portion of the written submission dt nil. is reproduced here under:
“Some of the transactions relating to the payments which have appeared in page no. l59 of A/ SSE/ HYDERABAD/
02. impounded from the office of S&S Enterprises. The sources for the said
expenditure ofRs.97, 17,600 relate to the financial year 2007-08, were provided by Sri VNR. Hence, the total amount of Rs.97, 17,600 is considered as additional income in the hands of Sri VNR in the financial year 2007-08. “
3.3 Finally, Rs.97, 17,600/- was admitted as additional undisclosed income in the individual status of Sri Vakati Narayana Reddy for the Y. 2008-09. Subsequently, it is observed that the assessee did not offer the above income in the return flIed in response to the notice issued u/s 153A. Therefore, he was asked to furnish financial statements/receipts and payments account and produce books of account. As the assessee did not furnish the information and produce books for verification, a show cause notice dated 11-02-2016 was issued to the assessee as to why the undisclosed income admitted during the search/post search proceedings Rs.97, 17,600/- for Asst. Year 2008- 09 should not be added to the total income. The assessee filed reply dated “NIL” in the minute i.e. on 28-03- 2016. He stated that on the day of search without knowing the after reconciling the details of income admitted and with regular books of account, it is found that the income was inappropriately admitted in the in case of Vakati Narayana Reddy instead of M/s. VNR Infrastructures Ltd, as these transactions are related to the company and he submitted year wise statement for assessment years 2008-09, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 stating that these amounts are not belonging to Shri. Vakati Narayana Reddy. The assessee’s reply is not acceptable. The assessee has not retracted from his disclosure of income till filing of return. There is almost 16 months gap approximately from search conducted. In this period, he never brought his version before DDIT(Inv.) 90r before Assessing Officer that the amounts disclosed are related to M/s. VNR Infrastructures Lui.. It is apparent that the assessee adopted devise to evasion of taxes on admitted income by offering the same in the hands of company M/s. VNR Infrastructures Limited. The assessee has never furnished the required information such as Books of Accounts, Receipts and Payments Account etc., Finally, he submitted reply to show cause notice in the last minute i.e. on 28- 032016 deliberately to avoid verification of the transactions. Therefore, the same is not considered.
3.5 The assessee’s contention that the amount admitted by assessee are now offered in the hands of company M/s VNR Infrastructure Lid., in the revised return filed on 26- 03-2016 is not tenable. During the search/post search proceedings, the additional income was offered in the hands of Shri Vakati Narayana Reddy. The assessee has not given any cogent explanation with relevant documents for not offering the admitted income in the hands of Sri Vakati Narayana Therefore, the additional income offered by the company on account of this Rs. 97,17,600/- is considered on protective basis in the hands of Company while in the hands of Shri Vakali Narayana Reddy addition is made on substantive basis.
3.6 As discussed in above paras, during the search proceedings Shri Annamreddy Srinivasu1u Reddy Proprietor of S&S Enterprises in his sworn statement dated 27-02- 2014 stated that the amount was given by Sliri Vakati Narayana The version of Annamreddy Srinivasu1u Reddy was accepted by the assessee and admitted additional income before DDIT (Inv). In view of the above Rs. 97,17,600/- was added to the total income of the Vakati Narayana Reddy.
5.2 During the course of appellate proceedings, while reiterating the submissions made during the assessment proceedings, the assessee has submitted as under:-
The assessee is the Managing Director of M/s VNR Infrastructure Ltd, having income from salary from the company and other sources. Search and seizure operations were conducted in the case of M/s VNR Infrastructures Ltd and also in the case of its Managing Directors and other Director. During the course of search certain incriminating material pertaining to the company was found at the premises of M/s. VNR Infrastructures Ltd, statement of the Managing Director and the other director and also the statements of other persons were recorded u/s 132(4) of the IT Act. During the course of statement the Managing Director Narayan Reddy. V and other Director Praveen Kumar.G have made disclosures u/s 132(4) of the IT Act, amounting to Rs.74,27,47,257/- and Rs.3,00,00,000 Crores respectively, in the hands of company a further amount of Rs.23,80,37,378/- was made, the aggregate disclosure made is at Rs.101 Crores. The details of disclosure made are as under:
Notice uls 153A was issued in the case of assessee and also the company and G.Praveen Kumar, the details of returns of income filed by the assessee uls 139(1) and also in response to notice uls 153A are as under:
As submitted above the assessee admitted an aggregate amount of Rs.74,27,45,257 in his hands during the course of statement uls 132(4) of the IT Act. However, the seized material on which the additions are obtained, belongs to the company therefore while filing the return of income the assessee reconciled the material and submitted a letter before the Assessing Officer on 14.03.2016, clarifying the issues along with nature of seized material and its description etc. the learned Assessing Officer was pleaded to assesse the income declared uls 132(4) in the hands of company after analyzing the material seized,’
However, the learned Assessing Officer has not accepted the pleading of the assessee and has not taken any pain to verify whether the seized material stated in the letter. submitted on 14.03.2016 to confirm whether it belongs to the company or to the assessee V.Narayan Reddy. The additions are made only on the basis of statement of the assessee uls 132(4) ignoring the fact that the seized material belongs to company Mis VNR Infrastructures Ltd. Therefore, it is submitted that in the absence of any seized material found during the course of search belonging to the assessee no addition can be made. The CBDT in their circular in letter F.No.286/98/20l3-lT (Inv-II), dt:18.12.2014, instructed the Assessing Officer not to obtain disclosures, rather focus on gathering evidences during the search. Therefore, in the case of assessee the additions are made only on the basis of statement made uls 132(4) which is given by the assessee in a state of confusion and without thinking of consequences, and its impact in the future. The company is a separate entity and the assessee is a separate entity, therefore, any discrepancies found during the course of search in respect of material seized, the company is answerable and the company has to pay the taxes on its income, determined as per the books of accounts with reference to seized material. The income cannot be assessed in the hands of assessee which is belonging to the company on the discrepancies if any. Reliance is placed on the following judicial pronouncements:
1. The Hon’ble ITAT, Hyderabad, ‘A’ Bench in the case of AC1T Vs Ajay Kumar, ITA No’s 1121/Hyd/2015, dt: 21.09.2016.
2. The Hon ‘ble High Court of Delhi in the case of Principal CIT Vs PPC Business and Products Pvt Ltd and others ITA 290/20 1 6 etc, dt: 17.07.2007.
3. The Hon’ble ITAT Jaipur in the case of Basanth Bansal Vs ACIT ITA 534/Jp/2012, dt: 29.05.2015.
Considering the rationale of the judicial pronouncements and also considering the facts that no seized material was found belonging to the assessee, therefore, the assessments originally completed u/s 143(3) in respect of assessment years 2008-09, 2010-11 & 2011-12 should not have been disturbed and for the assessment year 2012- 13, 2013-14 and 2014-15 no additions should have been made in the absence of any seized material. “
5.4 During the course of assessment proceedings, the assessee gave a detailed explanation as to the contents of the seized material and filed evidences substantiating their claim, vide Ietterfiled on 14/03/2016, which are as under:-
Kind attention is invited to the letter cited under reference wherein we are herewith submitting the following information for your kind consideration:
We bring to your kind information that there was search on the premises of VNR Infrastructure Limited and its group of companies and on its directors Mr. V.Narayana Reddyand V.Praveen Kumar and other sub contractors of the company on 23-10-2013. On the day of search without knowing the implications and to purchase peace, Mr. V.Narayana Reddy has given a statement before the Deputy Director of Income Tax Investigation, Guntur, that the discrepancies found in the group companies, sub contractors and in the case of directors has been considered and proposed to admit additional income of Rs.101 Crores. We bring to your kind notice that the assesse Mr. V.Narayana Reddy does not have any business on his own during the financial years 2007-08 to 2013-14 except being a Managing Director in VNR Infrastructure Limited and other group companies as Director. The statement given at the time of search and subsequent proceedings before the Investigation authorities that the details of additional income of Rs. 101 crores was as follows:
However, However, after verifying and reconciling the details of income admitted as per the seized material with regular books of accounts and business of the VNR Infrastructure Limited and its group companies it has been found that the income was inappropriately admitted in the case of V.Narayana Reddy instead of the company M/s VNR Infrastructure Limited ~ those transactions are related to the company or reflected in the regular books of accounts of the said company and hence they are to be admitted or to be verified in die company M/s VNR Infrastructure Limited. In view of the above, the assessee has revised the admission in the hands of assesse Mr V Narayana Reddy and in the hands of M/s VNR Infrastructure Limited and the reasons for the admission in respective heads and for the non admission in certain amounts as it was not income either in the hands of the assesse or in the hands of VNR Infrastructure Limited as they are regular transactions reflected in regular books of accounts and the transactions which are not related to the assesse or his group of companies considered assessment year wise as follows:
For the asst. year 2008-09 :
|Admitted income before investigation authority in the hands of V Narayana Reddy||9717600|
|Less: As the amount relates to site expenses of KIR-JBN Section of N. F Railway which has been reflected in books of accounts as per the statement enclosed along with the cash book of M/s VNR Infrastructure Limited in relates to the KlR-JBN Section of NF Railway.||8712600|
|Less: an amount of Rs. 10,05,000 not considered in the books of account 0 1005000 the company on the relevant dates and hence the same has been admitted as income and the same may be considered as part of additional income offered included in Rs. 13,00,000 admitted at the time of search before Inv. Authorities.||1005000|
|Net Income to be offered||NIL|
For the asst. year 2009-10 : NIL.
——-Space left intentionally—-
4. It emerges from a perusal of CIT(A) lower appellate discussion that he has deleted all the impugned twin additions of undisclosed unaccounted expenditure and undisclosed income (supra) for the sole reason that they pertain to assessee’s company M/s. VNR Infrastructure Limited and duly stand assessed in the latter’s
5. The Revenue vehemently contended during the course of hearing that the CIT(A) ought to have affirmed both the impugned additions in the assessee’s hands as per the Assessing Officer’s stand. We make it clear that there is not even an indication in the Revenue’s grounds that the impugned additions pertain to the assessee himself than his company M/s. VNR Infrastructure Limited. Hon’ble apex court’s landmark decision in ITO Vs. C H Atchaiah 218 ITR 239 (SC) held long back that the Assessing Officer can and he must, tax the right person and the right person alone. By ‘right person’ it is meant the person who is liable to be taxed according to law with respect to a particular income. By the connotation of ‘right person’, it is meant the person who is liable to be taxed, according to law, with respect to a particular income. And that the expression ‘wrong person’ is obviously used as an antithesis of the expression ‘right person’ only. We observe that this assessee is the ‘Managing Director’ of M/s. VNR Infrastructure Limited. And that it is this latter entity which the fact is engaged in all the business activity(ies) and has been assessed separately throughout. There is yet another landmark decision Soleman Vs. Saloman and Co. Ltd. (1897 AC 22) hold long back in corporate parlance that a company is very a body corporate and a distinct entity apart from its Director.
6. We conclude in these circumstances that the CIT(A) has rightly deleted these twin additions in the assessee/individual’s hands since corresponding undisclosed and unaccounted income pertains to its company M/s. VNR Infrastructure Limited carrying out the business in its own name. We make it clear while holding so that the Revenue has not even indicated the fact above the company’s assessment qua the very income(s). We thus see no reason to reverse the CIT(A) detailed findings for these precise
7. No other argument has been raised at the Revenue’s
8. These Revenue’s appeals are dismissed. A copy of this common order be placed in the respective case
Order pronounced in the open court on 21st April, 2021.