HIGH COURT OF
MADRAS
Ravi Prakash
Khemka
v.
Commissioner of
Income-tax
P.D.Dinakaran and
Chitra Venkataraman, JJ
T.C. Nos 848, 849
& 850 of 2005
February 28, 2007
I Section 69 of the Income-tax Act, 1961 - Unexplained investments - Assessment year 1997-98 - During course of assessment proceedings, on varification of original share certificate produced by assessee’s bank it was found that one lakh shares of ‘S’ with face value of Rs. 10 were actually issued in name of assessee on 31-1-1997 - Assessing Officer assessed a sum of Rs. 10 lakhs as unexplained investment under section 69 - Assessee’s case was that share certificates produced by bank represented shares allotted to them as early as 18-10-1995, in marketable lot form and that copy produced was only a jumbo certificate for one lakh shares issued on 31-1-1997 - Whether since no evidence was let in as regards fact that the jumbo certificate issued was in consolidation of shares held already, Assessing Officer was justified in making addition - Held, yes
II Section 2(24) of the Income-tax Act,
1961 - Income - Definition of - Assessment year 1997-98 - Assessee director of
company utilized his credit card and incurred huge personal expenditure -
Credit card amounts were finally settled by issue of cheques by company -
Assessing Officer treated amount incurred by assessee through credit card as
income of the assessee in terms of section 2(24)(iv) - Expenses had anything to
do with any of business activities of company and no materials were furnished
as regards activities of company which necessitated - Whether Assessing Officer
was justified - Held, yes - Whether, therefore, Assessing Officer was justified
in making addition - Held, yes
In course of assessment proceedings for the assessment year 1997-98, the assessee was called upon to furnish details regarding investment made in shares as on 1-4-1996, as on 31-3-1997, as well as the details regarding fresh investments made during the financial year 1996-97. on verification of the original share certificates produced by the bank, the revenue noted that these shares were actually issued by ‘S’ in the name of the assessee on 31-1-1997, i.e., during the financial year 1996-97 relevant to the assessment year 1997-98. The revenue proposed to assess a sum of Rs. 10 lakh as an unexplained investment under section 69. The assessee replied that the share certificates produced by bank represented shares allotted to them as early as 18-10-1995, in marketable lot form and that the copy produced was only a jumbo certificate for one lakh shares issued on 31-1-1997 and as such, this did not represent any additional investment. The Assessing Authority noted that the alleged balance-sheet belonging to ‘S’ carried no authentication from a responsible officer; the said company had not filed the return of income for the assessment year 1997-98 relevant to the assessee up to 13-3-2000. And as such, there was no material on record to prove that the said company had not issued any shares during the year 1996-97. the assessee never declared the acquisition of shares to the Department during the course of assessment proceedings for the assessment year 1996-97; that in none of these replies, the assessee cared to mention about the investment in shares. The Assessing Authority considering the fact that there was no response from the assessee to produce the original certificate said to have been allotted as early as 1995-96, came to the conclusion that that amount of Rs. 10 lakhs invested was liable to be assessed as per the provisions of section 69. On appeal, the Commissioner (Appeals) noted that the assessee could not lead any evidence to show that the share certificate dated 31-1-1997, for one lakh was a jumbo certificate which was distinct and separate from the shares acquired by the appellant. Apart from the fact that the assessee’s income-tax and other connected records did not show any purchase of shares for the assessment years 1995-96 and 1996-97 and having regard to the fact that the assessee had not come out with the required information, the Commissioner upheld the order of the assessing authority in making addition under section 69. On appeal, the Tribunal upheld the order of the Commissioner (Appeals).
On appeal:
A perusal of the certificate issued showed that the same were issued as early as 31-1-1997. No evidence was let in ss regards the fact that the jumbo certificate issued was in consolidation of shares held already. Considering the fact that the assessee was a director in ‘S’, it was too difficult to accept the case of the assessee expressing his inability to give the details. In spite of persistent requests from the authorities below to produce original certificates which were supposed to have issued in the year 1995-96, there was no response from the assessee. The alleged balance-sheet of ‘S’ was not acceptable in the absence of any authentication by an authorised signatory. In the light of these facts, the authorities below rightly came to the conclusion that a sum of Rs. 10 lakhs represented unexplained investment, thus leading to an addition under section 69. The entire inferences or findings of fact were based on materials leading to an irresistible conclusion on the aspect of the addition. Hence, the order of the Tribunal was to be confirmed. [Para 12]
The assessee, director of one of the companies belonging to ‘N’ group. During the assessment proceedings the assessee was called upon to give the details regarding credit card operated by him. The assessing authority noted that in the course of investigation conducted in the group, and an information culled out from the various credit card companies, it was revealed that the several individuals of the group including assessee utilized the credit cards and incurred huge personal expenditure and credit card amounts were ultimately settled by issue of cheques by one of the group firms, NEPC. The assessee was asked to produce nexus between the expenditure incurred by the individuals through the credit cards and the business activities of the respective companies but with no success. With the result, the assessing authority came to the conclusion that the expenditure were incurred by the assessee for meeting his personal needs and the payments were made by the defunct company NEPC. On further investigation, it was seen from the bank statements that there was transfer of funds/issue of cheques by NEPC. The assessing authority held that there had been diversion of funds from the company to the individuals through the defunct company to meet their individual needs. Hence, Assessing Officer by invoking section 2(24)(iv) held that, for the sum paid by the company, as a director, the assessee was liable to pay tax as an individual. The Assessing Officer, however, finalized the assessment by including the amount incurred by the assessee through various credit cards as income of the assessee in terms of section 2(24)(iv).
On appeal, the Commissioner (Appeals) held that the credit card expenses incurred were purely personal in nature and that only to meet the expenses, and got the funds through the firm so that the legal hurdle for the company to meet the expenses was overcome. The Commissioner (Appeals) also made addition of payment made by company on behalf of assessee to LIC. On second appeal, the Tribunal upheld the order of the Commissioner (Appeals).
On appeal:
NEPC was a defunct firm. There were no materials to show that there was any kind of business activity carried on by the said firm and that the purpose of payments were to meet the expenses of these directors. Consequently, the payment through this firm was an attempt to circumvent the provisions of the Act. What could not be done directly was sought to be achieved by indirect means expenses incurred showed that these expenses had anything to do with any of the business activities, that the paying company was a defunct company, no materials were furnished as regards the activities of the firm which necessitated this payment. Considering the nature of the personal expenses of the assessee the order of the Tribunal was to be confirmed.