TaxTMI 
TaxTMI 
2014 (1) TMI 1495
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....i Ram Ganga Pd. He enter into an agreement with the said HUF on 2.4.1974. The HUF owned a property situated at 51/50 Naya ganj, Kanpur. This was a tenanted property. The tenants were got vacated and the structure was demolished leaving the plot measuring 353 Sq. Yds. in the aforesaid agreement, it was stated that the assessee would be floating a company with the object of carrying on the business of hoteling and catering etc. for which the assessee would be developing the land and constructing a building on the aforesaid plot. The first party of the agreement was the HUF of M/s Sadiram Ganga Prasad and second party to the agreement was the assessee. The following clauses of this agreement are relevant for our purpose:- AND WHEREAS THE SECOND PARTY proposes to float a company Limited by shares under the Companies Act, 1956 with the subject, inter alia of carrying on the business of Hotelling and catering etc. AND WHEREAS THE SECOND PARTY represented the FIRST PARTY to allow the proposed company intended to be floated by the SECOND PARTY to develop the said premises by constructing a building thereon for the purpose of running a Hotel on the said premises in partnership with th....
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....owing resolution was passed. "Resolved that the agreement dated 2.4.1974 entered into between Sri D.P. Kanodia, promoter/Director of the company and M/s Sadiram Ganga Pd. HUF, and terms and conditions thereof shall be and are hereby adopted and approved." The Company was granted certified of commencement of business on 13.4.1976. On 27.7.1976, an agreement of partnership was executed between Sri B.N. Kanodia on behalf of the HUF of M/s Sadiram Ganga Prasad and Hotel Ganges Ltd. It was decided as per this agreement that the HUF would be contributing the plot in question as its capital while the company was to contribute the development and construction as its capital. A copy of the partnership deed dated 27.7.1974 is made as Annexure 'B' of the Statement of the case. 5. The assessee engaged itself in the construction of a property on the above mentioned plot in the accounting year 1974-75 to 1976-77 relevant for the assessment years 1975-76 to 1977-78. A total expenditure of Rs.10,04,292/- was incurred in the construction. This amount was borrowed by the assessee from the HUF of M/s Sadiram Ganga Pd. which was debited with various expenses relating to the construction of....
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....as that the building belonged to M/s Hotel Ganges Limited and, therefore, the assessee could not be called upon to explain the source of investment and if there was any excess investment that has to be considered in the assessment of the limited company. It was next contended that reference to the Valuation officer was uncalled for. It was finally contended that the expenditure as shown in the books of account was correct and required to be accepted." The Commissioner dismissed the appeal against which the assessee appealed to the Tribunal. The Tribunal vide its order dated 15th March, 1983 allowed the appeals of the assessee. The question, as noted above, was referred in view of the facts of the case. The relevant findings by the Commissioner (Appeals) have been recorded while rejecting the submission of the assessee in following words:- "So far as the first question is concerned, I have no doubt in my mind that if any such addition is called for them it has to be in the hands of Sri D.P. Kanudia in his individual status for the A.Y. 77-78. I have arrived at this conclusion on the basis of certain facts, the most important of which is the agreement dt. 2.4.74 between M/s.....
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....swered in this manner for the assessment year 1975-76 also in the case of appellant vide my appellate order dated 30.1.1980." Sri R.K. Upadhyaya, learned counsel appearing for the revenue, has submitted that certificate of commencement of business was granted to the Company on 13th April, 1976 and the expenses for construction was made by the assessee who is an individual, although after borrowing from HUF. He submits that company had neither any capital nor any amount which was utilised in the construction was paid by the Company, hence it could not have been asked to explain the sources of income and the Tribunal has wrongly relied on the judgment of this Court in Commissioner of Income Tax, U.P. vs. The Bijli Cotton Mills Ltd., Agra reported in 23 ITR 278. Even though expenses incurred by D.P. Kanodia were approved and adopted by the Company, the unaccounted investment had to be assessed at the hand of assessee who had undertaken to bear all expenses for construction of the hotel. Sri R.S. Agarwal, learned counsel for the assessee refuting the submissions of learned counsel for the revenue, submitted that the Tribunal rightly took the view that unexplained amount which was....
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....ns:- "We are of the opinion that the hotel building in question actually belonged to M/s. Hotel Ganges Ltd. and it was this company which was responsible to explain the sources of investment. Our this conclusion is based on the decisions of Allahabad High Court itself. The issue had first come up for consideration of the Hon'ble Court in the case of C.I.T. Vs. The Bijli Cotton Mills Ltd., 23 I.T.R. 278......." The judgment of this Court in Commissioner of Income Tax, U.P. vs. The Bijli Cotton Mills Ltd., Agra (supra) relied by the Tribunal needs to be noted in detail. In the said case one M/s. Shyamlal Chimanlal, a partnership firm, thought to acquire the Bijli Cotton Mills on behalf of the company which was going to be incorporated. The firm paid the stipulated price to previous owner and obtained possession on 10th December, 1942. On 11th December, 1943 the company was duly incorporated. The Bijli Cotton Mills was assessed on the income from 11th December, 1942 to 31st December, 1943. The Bijli Cotton Mills filed an appeal. When the appeal was pending, the Income Tax Officer drew attention of the Appellate Commission that actually the firm ought to have been assessed during....
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....to claim from the promoters the entire income of the property since its purchase or the entire income for the period during which the business was carried on for the benefit of the company..." In the present case, the ratio laid down by this Court in Commissioner of Income Tax, U.P. vs. The Bijli Cotton Mills Ltd., Agra (supra) is not applicable. In the present case the expenses for construction were being managed by the assessee by borrowing the funds from the HUF. The expendes made by the assessee has been adopted by the company to which there can be no dispute. The Commissioner has found that the company has not even obtained the certificate of commencement of business up to 2nd January, 1976 and up to 31st March, 1976 the company had no source of income which is a finding of fact. Present is a case of assessment of unaccounted investment. The investment was done by the assessee. In the relevant assessment year i.e. 1976-77 and 1977-78, the total investment was disclosed as Rs.10,04,292/-. The Income Tax Officer found that there was excess investment of Rs.1,33,941/- in the assessment year 1976-77 and Rs.2,10,935/- in the assessment year 1977-78. The money for carrying out....