If an assessee admits certain undisclosed income of the company in which he is a Director, on the basis of incriminating material found and seized during search, since income / entries in such seized material belonged to company, impugned additions made in hands of assessee on account of such undisclosed income of company was unjustified and liable to be deleted

FACTS
During survey, a loose sheet bundle was impounded containing details of certain receipts and payments. The assessee admitted the same to be income from undisclosed sources. The same was assessed as additional income in the hands of the assessee. However, the assessee did not offer the said income to tax in his return of income. Hence, a show cause notice was issued as to why undisclosed income admitted during the search / post-search proceedings should not be added to his total income. The assessee stated that the income was inappropriately admitted in his hands instead of the company. He also furnished year-wise statements stating that these amounts do not belong to him.

However, the A.O. concluded that the assessee’s reply could not be accepted. The assessee had not retracted from his disclosure of income till filing of return. There was an almost 16-month gap from the search. In this period, he never brought his version before the DDIT (Inv.) or before the A.O. that the amounts disclosed pertained to the company.

Therefore, the A.O. concluded that the assessee adopted this device to evade taxes on admitted income by offering the same in the hands of the company and never furnished the required information such as books of accounts, receipts and payments account, etc., and submitted a reply to the show cause notice at the last minute deliberately to avoid verification of the transactions. Hence, the assessee’s reply was not considered.

On further appeal to the CIT(A), the assessee submitted that though he had admitted certain amount in his hands in the course of his statement u/s 132(4), the seized material forming the basis of the additions belonged to the company. Hence, while filing return of income he had reconciled the material and submitted a letter to the A.O. to the effect and pleaded with him to assess the said admitted income in the hands of the company. He also contended that the A.O. neither accepted his plea nor made any attempt to verify the facts set out by him in the letter. Therefore, 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 its Circular in letter F.No.286/98/20l3-lT (Inv-II), dated 18th December, 2014, instructed the A.O. not to obtain disclosures and rather focus on gathering evidences during the search. Thus, the additions in the hands of the assessee were made only on the basis of the statement made uls. 132(4) which was given by the assessee in a state of confusion and without thinking of the consequences and its impact in the future. The CIT(A) observed that the claim of the assessee was not contradicted by the A.O. The income had to be taxed in the right hands irrespective of the admission made during the search, on the basis of evidences found or gathered during the assessment proceedings. The A.O. assessed the income on substantive basis in the hands of the assessee and on protective basis in the hands of the company. As the material and the entries in the statements related to the business of the company, the CIT(A) held that income was not taxable in the individual’s hands and accordingly deleted the addition made by the A.O. Aggrieved, the Revenue filed an appeal to the Tribunal.

HELD
The Tribunal observed that there is not even an indication in the Revenue’s grounds that the impugned additions pertain to the assessee himself rather than his company. The Apex Court’s landmark decision in ITO vs. C.H. Atchaiah [1996] 84 Taxman 630/218 ITR 239 (SC) had held long back that the A.O. can and must tax the right person and the right person alone. The Tribunal also relied on another landmark decision in the case of Saloman vs. Saloman and Co. Ltd. [1897] AC 22, that in corporate parlance a company is very much a body corporate and a distinct entity apart from its Director.

Therefore, it upheld the action of the CIT(A) in deleting the additions made by the A.O.