Such Chain Chits Pvt. Ltd v. Commissioner Of Income Tax, Panchkula

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.489 of 2009 (O&M)Date of decision: 25.8.2009 Such Chain Chits Pvt. Ltd. Vs. Commissioner of Income Tax, Panchkula. -----Appellant -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MRS. JUSTICE DAYA CHAUDHARY Present:-Mr. Pankaj Jain, Advocatefor the appellant. for the appellant. ----- ORDER: 1. Delay condoned, subject to just exceptions. Heard on merits. 2. This appeal has been preferred by the assesseeunder Section 260A of the Income Tax Act, 1961 (for short, “theAct”) against order dated 22.9.2006 of the Income Tax AppellateTribunal, Delhi Bench-B, New Delhi in I.T.A. No.1905(Del) of2003 for the assessment year 1992-93, proposing to raise following substantial questions of law:- (i) Whether on the true and correct interpretation of theprovisions of section 69B, 69C the amount can betreated as income without piercing the corporate veilu/s 34 of the Companies Act, 1956?provisions of section 69B, 69C the amount can betreated as income without piercing the corporate veilu/s 34 of the Companies Act, 1956? (ii) Whether the Tribunal order is sustainable when thefinding has resulted into enhancement, which areunreasonable?finding has resulted into enhancement, which areunreasonable? 3. The Assessing Officer made additions to the declaredincome under Section 68 of the Act in respect of amountpurported to have been paid to its Directors as chit money. It washeld that payments were not in fact made and the amountremained available with the assessee as its income. The CIT(A)deleted the said additions. It was observed:- “5.2. The Ld. A.R. has submitted that AssessingOfficer was not at all justified in making aboveadditions by invoking the provisions of section 68 ofthe Act because section 68 is about receipt of moneyby any assessee and the same is not about anypayments. My attention has been invited to theaffidavits of all the persons receiving the chit amountswhich have been filed during appellate proceedingsand which affidavits have already been taken onrecord. It has been pointed out that all these personswho have received the chit amounts were existingincome tax assessees, their Permanent AccountNumber/G.I.R. Numbers having been given in therespective affidavits. Thus, it has been contended thaton facts as well as in law, the Assessing Officer wasnot at all justified in making the additions. Officer was not at all justified in making aboveadditions by invoking the provisions of section 68 ofthe Act because section 68 is about receipt of moneyby any assessee and the same is not about anypayments. My attention has been invited to theaffidavits of all the persons receiving the chit amountswhich have been filed during appellate proceedingsand which affidavits have already been taken onrecord. It has been pointed out that all these personswho have received the chit amounts were existingincome tax assessees, their Permanent AccountNumber/G.I.R. Numbers having been given in therespective affidavits. Thus, it has been contended thaton facts as well as in law, the Assessing Officer wasnot at all justified in making the additions. 5.3. In addition to above submissions, the Ld. A.R.has produced Photostat copy of the assessment orderpassed u/s 143(3) in the case of the appellant for theassessment year 1991-92 and has invited myattention that the chits being run by the appellant haveall been accepted by the department as genuine. Ithas further been contended that the chits arecontinuing process because the same get maturedand finally settled after substantial period of time.has produced Photostat copy of the assessment orderpassed u/s 143(3) in the case of the appellant for theassessment year 1991-92 and has invited myattention that the chits being run by the appellant haveall been accepted by the department as genuine. Ithas further been contended that the chits arecontinuing process because the same get maturedand finally settled after substantial period of time. With this background, it has been argued that thereceipt of money too from the persons who havecontributed to the chits was not in doubt.” 4. The Tribunal accepted the appeal of the revenue byobserving:- “2.10. Coming to the other payments, it is foundthat the cheques were drawn in favour of Shri SureshChand Gupta and not in favour of the respective chitholders. This did not amount to any payment to thechit holders at all. Therefore, the affidavits filed bythem are against the tenor of the evidence obtainedfrom the bank. Such an evidence by way of affidavitsis not reliable and it does not establish that thepayments were made to the concerned chit holders.We are also not able to countenance the argument ofthe ld. Counsel that in such a situation, the action liedin the hands of the recipients. They were thedirectors of the assessee company, which is a privatelimited company, controlled by them. Their acts arethe acts of the company and, therefore, payment tothem amounts to the payment to company itself.Further, money received by the assessee on chitsbelonging to it as it merges with the money lying in itstill. The money paid out to chit holders will be theexpenditure incurred by the assessee. However, ifthe money involved in the expenditure is appropriatedby its, as payment to directors has already been heldto be payment to self, then, no expenditure can besaid to have been incurred. Therefore, were are ofthe view that the ld. CIT(A) erred in deleting theaddition of Rs.06,63,650/- without discussing the matter in detail by merely mentioning that he foundsufficient force in the submissions of the ld. DR onfacts as well as in law.” 5. We have heard learned counsel for the appellant. 6. Contention raised is that case for piercing thecorporate veil was not made out and additions, if at all, shouldhave been made in the hands of the Director. As far as theassessee company is concerned, the payments had been dulymade. The amount received by the Director whose identity isknown would be unexplained income of the said Director.Reliance has been placed on judgment of Hon’ble Supreme Courtin CITv. Lovely Exports (P) Ltd.(2008) 216 CTR (SC) 195. 7.We are unable to accept the submission. The Tribunalhas found that the amount representing payment to chit holderswas in fact paid to Suresh Chand Gupta, a Director of theassessee, which was a private company controlled by therecipient of the amount. The amount was available with theassessee itself and payments were made representingexpenditure which was never incurred. The amount was, thus,available with the assessee as undisclosed income which justifiedadditions made by the Assessing Officer. In view of this finding,judgment inLovely Exports (supra) is distinguishable. 7. The finding of the Tribunal being finding of fact, we donot find any ground to interfere under Section 260A of the Act.No substantial question of law arises. 8. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE August 25, 2009CHAUDHARY )ashwani ( JUDGE DAYA