JUDGMENT
Chitra Venkataraman, J.
1. The above appeals are at the instance of three different assessees for the same assessment year, viz., 1997-98. The facts are common in all cases. The questions of law raised are also same. They are as follows:
(1) Whether the Appellate Tribunal is correct in law in upholding the addition of Bis. 10,00,000 under Section 69 of the Act as unexplained investment in shares of M/s. Sai Television even though there was no investment by the appellant in the said company shares for the assessment year 1997-98 ?
(2) Whether the Appellate Tribunal is right in law in sustaining the addition of Rs. 10,00,000 under Section 69 of the Act as unexplained investment even after a clear finding is recorded by the Tribunal that the said company had not issued any fresh shares or capital ?
(3) Whether the Appellate Tribunal is right in law in placing the onus of proof on the appellant to establish and substantiate his plea that there was no new investment in the assessment year 1997-98 ?
(4) Whether the Income Tax Appellate Tribunal is correct in law in holding that Section 2(24)(iv) would be applicable to the facts and circumstances of the case and that the addition of Rs. 46,28,108 paid by the firm on behalf of the appellant towards the credit card expenses was justified ?
(5) Whether the Income Tax Appellate Tribunal is correct in law in holding that Section 2(24)(iv) would be applicable to the facts and circumstances of this case and that the addition of Rs. 26,668 paid by the firm on behalf of the appellant towards LIC premium was justified ?
2. The assessees are individuals assessed to tax. Since the facts are identical, for convenience, the facts in T. C. No. 848 of 2005 is referred to here.
3. In the course of the assessment proceedings for the assessment year 1997-98, the assessee was called upon to explain and give the details as regards the firms and companies in which he had interest either as a partner or director or as a shareholder and to produce the books of acccount relating to the assessment year 1996-97 to prove the copy of the accounts in 1996-97 as appearing in the books of account of the firms and companies. The assessee was also 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. Apart from this, the assessee was called upon to give the details regarding credit card operated by him. It is stated that the investigation was carried on under Section 144 of the Act to identify the various bank accounts maintained by the assessee. Since the assessee belonged to the NEPC group, the details were gathered in respect of other group concerns with a specific reference to the assessee’s case. It was found on information received from UTI Bank, Chennai-4, that one of the group companies, NEPC Agro Food Limited had loan account with UTI Bank Limited. On an examination of the details furnished by the UTI Bank, it was noted that individuals including the assessees in the NEPC pledged the shares with the bank as a collateral security to enable NEPC Agro Food Limited to avail of loan facility. It is also seen that the assessee had pledged one lakh shares of M/s. Sai Televisions Limited with the face value of Rs. 10 with UTI Bank Limited. For further investigation summons were issued to the general manager of UTI Bank Limited, Chennai, to produce the original share certificates pledged by the Individuals. It must be noted herein that the individuals who had pledged their shares with the UTI Bank Limited are the appellants before this Court. On verification of the original share certificates produced by the bank, the revenue noted that these shares were actually issued by Sai Televisions Limited 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 findings of the revenue were cornmunicated to the assessee along with a copy of the share certificates with a proposal to assess a sum of Rs. 10,00,000 as an unexplained investment under Section 69 of the Income Tax Act. The assessee was called upon to offer his objections, if any, to show the genuine source of investment made, which was not declared to the revenue. By letter 4-3-2000, the authorised representative replied that no fresh share capital was raised by Sai Televisions Limited during the relevant assessment year. As such, there was no possibility of the assessee being allotted any shares during the period under consideration. He further stated that the share certificates produced by the bank represented the 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. As such, this did not represent any additional investment. The assessing authority noted that the alleged balance-sheet belonging to Sai Television Limited carried no authentication from a responsible officer. Further, 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. 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 assessing authority further noted that as per the share certificates pledged with UTI Bank, it was clearly mentioned that the certificates were issued on 31-1-1997. There was no mentioning of the fact that the said jumbo certificate was issued in lieu of the original marketable lots issued on 18-10-1995. Noting the fact that the assessee never declared the acquisition of shares to the department during the course of assessment proceedings for the assessment year 1996-97, the assessing authority further pointed out that in none of these replies, the assessee cared to mention about the investment in shares. He also pointed out that the assessee was one of the directors in Sai Televisions Limited. He also referred to the communication received from the Joint Commissioner of Income-tax, Special Range-I, Guwahati, and came to the conclusion that the assessee tried to hide the facts of very important nature as regards his status in the company. Going by the facts and circumstances and 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, the assessing authority came to the conclusion that the amount of Rs. 10 lakhs invested was liable to be assessed as per the provisions of Section 69 of the Income Tax Act.
4. On the question of expenditure through credit cards, the assessing authority further noted that in the course of investigation conducted in the NEPC group, and on information culled out from the various credit card companies, it was revealed the several individuals of the group including the assessee utilised the credit cards and incurred huge personal expenditure. It was also seen that the credit card amounts were ultimately settled by issue of cheques by one of the group firms, viz., M/s. Natural Energy Processing Co., drawn on Canara Bank, Broadway Branch, Chennai and Karnataka bank Limited, G.T. Chennai Branch, Chennai on various dates. Admittedly, the expenditure incurred were of personal nature. The assessee contended that some of the payments were made by NEPC Micon Limited through defunct entity Natural Energy Processing Company. 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. The assessing officer noted that the assessee had not produced any nexus between the individuals and the business activities of the respective companies. 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 Natural Energy Processing Company. On further investigation, it was seen from the bank statements that there was transfer of funds/issue of cheques by NEPC Micon Limited, now known as NEPC India Limited, the flagship company of the NEPC group, which was also maintaining the bank account in the banks referred to above. The assessing authority noted the details of these transactions and held that there had been diversion of funds from the company to the individuals through the defunct company to meet their individual needs. As per Section 2(24)(iv), any benefit, perquisite obtained by the director or relative of the director from a company and any sum paid by the company on behalf of the director or relative of the director shall be deemed as income of the director or the relative of the director accordingly. Hence, by invoking Section 2(24)(iv) of the Act, for the sum paid by the company, as a director, the assessee was liable to pay tax as an individual. A notice was issued to the assessee to place his objection. The assessee replied in two of his letters dated 8-2-2000, and 24-3-2000, stating that some of the expenses were related to official purpose of NEPC Micon Limited and NEPC Agro Foods Limited and that Section 2(24)(iv) was applicable only in the case of beneficiary having substantial interest in the benefactor company. Going by the terms of Section 2(24)(iv) of the Act, the assessing authority listed four types of beneficiaries, viz.,
(a) Director of the company
(b) Person having substantial interest in the company
(c) Relative of the director
(d) Relative of any person having substantial interest in the company.
5. In the background of this provision, the assessee was specifically asked to explain the travelling expenditure incurred and to produce necessary details as regards the assignment undertaken by the individuals as well as the details of accounting of the expenditure incurred in the books of the company. The assessing officer noted that there was no response from the assessee. In the circumstances, the assessment was finalised including the amount incurred by the assessee through various credit cards as income of the assessee in terms of Section 2(24)(iv) of the Income Tax Act.
6. The assessment deals with further additions. However, for the purpose of tax case, we are concerned with the investment in Sai Televisions Limited, credit card expenses and LIC premium paid which come under the provisions of Section 2(24)(iv) of the Income Tax Act. Aggrieved the assessee preferred an appeals before the Commissioner (Appeals). The Commissioner (Appeals) by order dated December 8, 2000, dismissed the same. In the course of discussion the appellate authority noted that the assessee had steadfastly refused to give the share certificate numbers and dates of acquisition and cost thereof and shares acquired in the name of the appellant, which were surrendered in lieu of the jumbo certificate. Consequently, the appellate authority held that the appellant could not lead any evidence to show that the share certificate 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. It also pointed out that Sai Televisions Limited was one of the group companies in the Kemkha group and the assessee was one of the directors, that 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.
7. On the question of credit cards, the appellate authority noted that the NEPC firm was a defunct company and its activities in the past were shown to be a dummy concern used only for the purpose of providing convenient book entries. Hence, on facts, after going through the nature of expenses, the appellate authority 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 funds were given by NEPC India Limited. In the circumstances, the appeal stood dismissed in this regard.
8. As regards the payment to LIC, the appellate authority adopted the same line of reasoning and confirmed the same. Aggrieved the assessee went on appeal before the Tribunal. By a common order, the Tribunal considered the case of the assessees. The Tribunal directed learned Counsel appearing for the assessees to furnish the bank statement of all the assessees for the assessment years 1995-96 to 1997-98 to point out the flow of investment of shares. However, counsel could not furnish the said information to substantiate the claim of the assessees. The Tribunal pointed out that in the balance-sheet filed by the assessees, in respect of Sai Televisions Limited, the share capital was 509 lakhs for the year ending 31-3-1996, and 31-3-1997, which led to the conclusion that there were no fresh shares in the assessment year under consideration. Yet, the Tribunal held that this would not rule out the purchase of shares in the open market by the other person. Since the assessee had failed to furnish the required information to substantiate his claim, that there was no new investment in the assessment year under consideration, the Tribunal confirmed the orders of the authorities below holding that they were justified in making the addition on this account.
9. On the question of invoking the provisions of Section 2(24)(iv) of the Act, for the expenses incurred by the assessee in credit cards, the Tribunal noted that the funds flowed from the accounts maintained by NEPC Agro Foods Limited to the account maintained by NEPC firm and both the accounts were with Karnataka bank Limited. The Tribunal noted that the assessee had adopted the indirect method to clear the credit card dues by transferring the funds from NEPC Agro Foods Limited to NEPC firm. The Tribunal also noted that the payments related to hotel bills and travelling charges. If these expenses were incurred for the purpose of the business of the company, the company could have claimed the same in its books of account, but the company did not do so. Hence, distinguishing the case from the order passed by the single member of the Tribunal, on which the assessee placed reliance in the case of Ravi Prakash in I. T. A. No. 1115/Mds/03 dated 13-9-2004, the Tribunal upheld that addition. The Tribunal also upheld the order of the authorities below by invoking Section 2(24)(iv) of the Act as regards the disallowance of payment towards LIC premium. Aggrieved the assessees have come on appeal before this Court.
10. Learned Counsel appearing for the appellants submitted that the Tribunal failed to note that the certificate issued were only jumbo certificates and there were no fresh investments during the relevant assessment year. He also pointed out that the Tribunal had accepted that the capital of the Sai Television Limited remained unchanged. It totally went on the erroneous conclusion that the assessee had not proved his case. He submitted that there were no fresh investments made during the year nor fresh certificate issued. Considering the fact that the jumbo certificate issued is a consolidation of the shares held, the Tribunal ought to have allowed the appeal to delete the addition made under Section 69 of the Act.
11. Heard counsel for both sides.
12. Quite apart from the fact that the questions raised are purely questions of fact, a perusal of the certificate issued shows that the same were issued as early as 31-1-1997. It may not be out of place to point out herein that the photocopy of the certificate which is enclosed in the paper book given to the court carry different number altogether from the certificate filed in the paper book given to the revenue. Handwritten endorsement made on the certificate also raises a serious doubt regarding the claim of the assessee. Leaving aside this aspect, a perusal of the order of the authorities below shows that consistently the assessee was asked to produce the details regarding certificates held by him originally and alleged to have been allotted in the previous year. The assessee was one of the directors of the company of Sai Televisions Limited. However, no efforts were made to show any of the these details either before the assessing authority or before the appellate authority. Even before us, the assessee could not produce any details. It may also be noted that the said Sai Televisions Limited had not filed its return for the assessment year 1997-98. No evidence was let in as regards the fact that the jumbo certificate issued was in consolidation of the shares held already. Considering the fact that the assessee was a director in Sai Televisions Limited, it is 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 Sai Televisions Limited 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 of the Act. Learned Counsel appearing for the appellants however submitted that having held that there were no fresh investments in Sai Televisions Limited, it was not open to the Tribunal to reject the case of the assessee. It must be noted that while noting the said fact the Tribunal held that there was a possibility of purchase of shares in the open market and the burden was on the assessee to prove that there was no fresh investment for the assessment year under consideration, that the additions were clearly warranted in this case. The entire inferences or findings of fact are based on materials leading to an irresistible conclusion on the aspect of this addition. Hence, we confirm this order.
13. On the question of addition by invoking Section 2(24)(iv) of the Act, learned Counsel for the assessees could not deny the fact that the companies are all group concerns. Natural Energy Processing Company was a defunct firm. There are no materials to show that there was any kind of business activity carried on by the said firm and that the purpose of payments are to meet the expenses of these directors. Consequently, the payment through this firm is an attempt to circumvent the provisions of the Act. What could not be done directly was sought to be achieved by indirect means. We have gone through the kind of expenses incurred which clearly show 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 appellants, we have no hesitation in confirming the order of the Tribunal. The last question goes on the same footing as regards the other personal expenses.
14. In the light of the abovesaid discussions, the inferences being pure questions of facts drawn on the basis of the facts and materials given, we have no hesitation in confirming the order of the Tribunal and thereby dismiss the appeals. No costs.