TaxTMI 
TaxTMI 
2009 (6) TMI 603
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....urse 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, the partnership firm M/s Goldel1 Distilleries was taken over as a going concern with its entire assets, liabilities, privileges and licenses etc. and the company was formed for the purpose of carrying on the business of manufacturing of Indian made foreign spirits. 4. As per the balance sheet filed with the return of income, the assessee admitted share application money pending allotment of shares to the tune of Rs. 13,94,15,000 as against the authorized share capital of Rs. 7 crores. The details in respect of share application money were as under: ----------------------------------------------- &n....
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.... these persons have pointed to one Shri S. Vaikuntarajan, director of Aswatha Distilleries Ltd. only. The Dy. Director of IT (Inv.) was found to have recorded statement of said Shri S. Vaikuntarajan both at the time 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....
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.... ------------------------------------------------------ Total Rs. 350 lakhs ------------------------------------------------------ 8. Likewise with regard to M/s Aswadha Distilleries (P) Ltd. the AO found that this company was incorporated during the period relevant to asst. yr. 2003-04 with authorized capital of Rs. 10 lakhs that stood increased to Rs. 7 crores during that year itself. The seized material at Ann/MPB/B&D/S-27 revealed the arrangement between M/s Aswadha Distilleries (P) Ltd. and M/s Golden Distilleries through an agreement dt. 5th July, 2002 for advancing the sum of Rs. 7.5 crores to the latter but in the inquiry proceedings. Shri V.S. Sivakumar denied knowledge of any financial transaction as such on the ground that entire share application money and funds were looked after by Shri S. Vaikundrajan, 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 adva....
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....nd Rs. 7.45 crores shown as advance for investment with Midas Golden Distilleries (P) Ltd. From further inquiries made through Asstt. Director of IT (Inv.) and from bankers, the AO gathered that share application money reflected in M/s Aswadha Distilleries (P) Ltd. in its books is not genuine, more particularly when that company was found operating in a pseudonymous address and the directors have shown ignorance about any financial transaction of the said company. Likewise the AO was not satisfied about the proper explanation with respect to the claim of investment towards share application money by M/s Satiate Finance (P) Ltd. 11. Besides investment by the aforesaid two companies, the AO also noticed that a sum of Rs. 3 crores was claimed to have been received from the following parties: ----------------------------------------------------------- 1 M/s D. Kumar Trading Company (P) Ltd. Rs. 1.50,00,000 ----------------------------------------------------------- 2 M/s Pooja Equitex Rs. 70,00....
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....transfer of funds. (vi) The signatory Shri Nagaiyan to the agreement entered into between M/s Aswadha Distilleries (P) Ltd. with M/s Midas Golden Distilleries (P) Ltd, as per which the shares of the assessee company were to be allotted to M/s Aswadha Distilleries (P) Ltd. or its nominees in lieu of the alleged advance of Rs. 5.35 crores, has totally denied any knowledge of such transaction. Besides, this transaction is not reflected by M/s Golden Distilleries, the erstwhile partnership firm. (vii) Not even the address of the share applicants M/s D. Kumar Trading and Co., M/s Pooja Equitex and M/s Pentium is furnished. (viii) All these facts clearly prove that the share application money is not properly explained and therefore, the same has to be assessed in the hands of the company accordingly. 13. When the above issues were brought to the notice of the assessee's representative, it was explained that the amounts have been received by the assessee company only through cheques and that the names and addresses of the shareholders have been furnished. Therefore, it was stated that the onus of the assessee company gets discharged with furnishing the above details. In this r....
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.... assessee has to prove the identity of his creditors and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors and only then his burden stands discharged." 16. As regards the judgment in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287, which the assessee's representative has cited, he stated that the Hon'ble Supreme Court in the case of Stellar Investment only confirmed the order of High Court and held that no interference was called for and thereby approved the order of the High Court. In other words, the Hon'ble Supreme Court has not laid down any proposition regarding the legality of the issue. No ratio decidendi was laid down by the Hon'ble Supreme Court. Therefore, the decision rendered in the said case was held not applicable to the facts of the assessee's case. 17. With regard to the AO's power to make enquiry about the nature and source of amounts credited under share application money, he referred to the decision rendered in the case of CIT us. Sophia Finance Ltd. (1993) 113 CTR (Del) 472 : (1994) 205 ITR 98 (Del) wherein it is held that the AO is not precluded from making any enquiry with regard to the s....
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....ality and the matter has to be considered as per such finding. In view of the aforesaid discussion, the entire share application money shown as pending allotment in the asst. yr. 2003-04 amounting to Rs. 13,94,15,000 has been assessed as income from other sources. 20. Before the learned CIT(A), the appellant contended that the AO erred both in law and on facts in treating the entire share application money of Rs. 13,94,15,000 as unexplained credit under s. 68 of the IT Act. He made the impugned addition on the basis of irrelevant considerations. He should have appreciated that the appellant furnished full particulars regarding the share applicants, i.e., their names and addresses, their income-tax assessment particulars, evidence for their creditworthiness and proof in respect of the fact that their investments stood duly accounted for in their books of account and the IT returns. The AO ought to have, therefore, understood that the appellant had fully discharged the onus cast upon it under the law. The AO under such circumstances could not have made the addition on mere suspicion and prejudice. The AO completed the assessment on the basis of the statements of different persons ....
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.... pp. 35 to 37 of his order and after considering the arguments put forward before him as well as the remand report and impugned order, agreed with the assessing authority that M/s Satiate Finance and Investments (P) Ltd. has acted as conduit for clandestinely channelizing the funds to the appellant. Likewise, the claimed investments in M/s Aswatha Distilleries (P) Ltd. through demand draft purchased from the Tamil Nadu Mercantile Bank Ltd. was found to be fictitious or bogus and, as such, the AO was found fully justified in treating the investment of Rs. 745 lakhs made by M/s Aswatha Distilleries (P) Ltd. also as unexplained in the hands of the assessee company. He was of the considered view that the assessing authority has wide powers to make full throttled enquiry for ascertaining the true nature and source of any credit appearing in the books of account of an assessee in the light of various judgments as cited in the assessment order as under: (a) Hindusthan Tea Trading Co. Ltd. vs. CIT; (b) CIT vs. Korlay Trading Co. Ltd. (1999) 152 CTR (Cal) 17 : (1998) 232 ITR 820 (Cal); (c) Bhola Shankar Cold Storage (P) Ltd. vs. Jt. CIT (2004) 192 CTR (Cal) 625 : (2004) 270 ITR 487....
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....rther contended that dismissal of SLP with reasons is a declaration of law under Art. 141 of the Constitution of India. Reference was made to the following judgments: (i) S. Shanmugavel Nadar vs. State of Tamil Nadu & Anr. (2003) 185 CTR (SC) 593 : (2003) 263 ITR 658 (SC); (ii) Kunhayammed & Ors. vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97 : (2000) 245 ITR 360 (SC); (iii) V.M. Salgaocar & Bros. (P) Ltd. vs. CIT (2000) 160 CTR (SC) 225 : (2000) 243 ITR 383 (SC). 26. In the alternate, taking through the entire order, the learned counsel for the assessee contends that the assessing authority did not confront the appellant with the reasons and evidences collected qt its back and thus there being denial of hearing and violation of principles of natural justice, matter may be restored for fresh adjudication. 27. On the other hand, the learned Departmental Representative supporting the findings and conclusions reached by the learned CIT(A) contends that a facade of company is created by the appellant. Raising of share capital is only a make-belief arrangement. Assessing authority has pierced the corporate veil. What is apparent is not found real. There remains a myste....
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....ssessee company. The moneys received are through banking channel. They all are shown to be regularly assessed to income-tax. Assessment particulars with respect to each of them were made available to the assessing authority. Two companies namely, Satiate Finance Investment (P) Ltd. and Aswatha Distilleries Ltd. who have made contributions of Rs. 340 lakhs and Rs. 745 lakhs respectively were assessed with the same AO who assessed the appellant before us. The assessing authority himself found that both these applicants in their respective accounts, have disclosed the investment made with the appellant. The money received from three other appellants (sic-applicants) namely, D. Kumar Trading Co. (P) Ltd., Pentium Hitech (P) Ltd. and Pooja Equiresearch (P) Ltd. is also shown to have been returned to them in the subsequent period and thus their identity falls in oblivion. The rest of the two persons namely S/Shri S. Nagaiyan and Anbukkarasu are the partners of M/s Golden Distilleries from whom the business was taken over as a going concern in terms of memorandum of association of the company. Despite all such material available with the assessing authority and discreet enquiries as were ....
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....ly dismissed by saying 'dismissed' and an appeal provided under Art. 133 is dismissed also with the words 'the appeal is dismissed'. In the former case it has been laid down by this Court that when a SLP is dismissed this Court does not comment on the correctness or otherwise of the order from which leave appeal is sought. But what the Court means is that it does not consider it to be a fit case for exercise of its jurisdiction under Art. 136 of the Constitution. That certainly could not be so when an appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case the Hon'ble Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under cl. (3) of Art. 133, this doctrine of merger does not apply in the case of dismissal of a SLP under Art. 136. When an appeal is dismissed the order of the High Court is merged with that of the Supreme Court. We quote the Supreme Court Employees' Welfare Association vs. Union of India AIR 1990 SC 334 : (1989) 4 SCC 187 (at p. 344 of AIR 1990 SC). It has been already noticed that the SLP filed on behalf of the Union of India against the said judgments of the Del....
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....ed because the jurisdiction exercised was not an appellate jurisdiction but merely a discretionary jurisdiction refusing to grant leave to appeal. We have already dealt with this aspect earlier. Still the reasons stated by the Court would attract applicability of Art. 141 of the Constitution if there is a law declared by the Supreme Court which obviously would be binding on all the Courts and Tribunals in India and certainly the parties thereto. The statement contained in the order other than on points of law would be binding on the parties and the Court or Tribunal, whose order was under challenge on the principle of judicial discipline, this Court being the apex Court of the country. No Court or Tribunal or parties would have the liberty of taking or canvassing any view contrary to the one expressed by this Court." 34. Again in S. Shanmugaue1 Nadar vs. State of Tamil Nadu & Anr. at p. 684, the Hon'ble apex Court has narrated the circumstances when its decision would have a binding effect as contemplated by Art. 141 of the Constitution: "Art. 141 speaks of declaration of law by the Supreme Court. For a declaration of law "there should be a speech, i.e., a speaking order. In ....