Managing director is not liable to pay tax on unaccounted income of company

Fact and Issue of the Case

These Revenue’s five appeals for Assessment Years 2010-11 to 2014-15 arise from the Commissioner of Income Tax (Appeals)-11, Hyderabad common order dt.27.02.2018 passed in case Nos.130 to 134/2016-17/DCIT-TC-1(3), Hyd/17-18 involving proceedings under Section 143(3) r.w.s. 153A in former four and u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’) in last assessment year; respectively.

The assessee is the Managing Director of M/s VNR Infrastructure Ltd, having income from salary from the company and other sources. Search and seizure operations were conducted in the case of M/s VNR Infrastructures Ltd and also in the case of its Managing Directors and other Director. During the course of search certain incriminating material pertaining to the company was found at the premises of M/s. VNR Infrastructures Ltd, statement of the Managing Director and the other director and also the statements of other persons were recorded u/s 132(4) of the IT Act. During the course of statement the Managing Director Narayan Reddy. V and other Director Praveen Kumar.G have made disclosures u/s 132(4) of the IT Act, amounting to Rs.74,27,47,257/- and Rs.3,00,00,000 Crores respectively, in the hands of company a further amount of Rs.23,80,37,378/- was made, the aggregate disclosure made is at Rs.101 Crores.

Notice uls 153A was issued in the case of assessee and also the company and G.Praveen Kumar, the details of returns of income filed by the assessee uls 139(1) and also in response to notice uls 153A are made.

As per above submission the assessee admitted an aggregate amount of Rs.74,27,45,257 in his hands during the course of statement uls 132(4) of the IT Act. However, the seized material on which the additions are obtained, belongs to the company therefore while filing the return of income the assessee reconciled the material and submitted a letter before the Assessing Officer on 14.03.2016, clarifying the issues along with nature of seized material and its description etc. the learned Assessing Officer was pleaded to assesse the income declared uls 132(4) in the hands of company after analyzing the material seized,’

Observation by the tribunal

It emerges from a perusal of CIT(A) lower appellate discussion that he has deleted all the impugned twin additions of undisclosed unaccounted expenditure and undisclosed income (supra) for the sole reason that they pertain to assessee’s company M/s. VNR Infrastructure Limited and duly stand assessed in the latter’s

The Revenue vehemently contended during the course of hearing that the CIT(A) ought to have affirmed both the impugned additions in the assessee’s hands as per the Assessing Officer’s stand. We make it clear that there is not even an indication in the Revenue’s grounds that the impugned additions pertain to the assessee himself than his company M/s. VNR Infrastructure Limited. Hon’ble apex court’s landmark decision in ITO Vs. C H Atchaiah 218 ITR 239 (SC) held long back that the Assessing Officer can and he must, tax the right person and the right person alone. By ‘right person’ it is meant the person who is liable to be taxed according to law with respect to a particular income. By the connotation of ‘right person’, it is meant the person who is liable to be taxed, according to law, with respect to a particular income. And that the expression ‘wrong person’ is obviously used as an antithesis of the expression ‘right person’ only. We observe that this assessee is the ‘Managing Director’ of M/s. VNR Infrastructure Limited. And that it is this latter entity which the fact is engaged in all the business activity(ies) and has been assessed separately throughout. There is yet another landmark decision Soleman Vs. Saloman and Co. Ltd. (1897 AC 22) hold long back in corporate parlance that a company is very a body corporate and a distinct entity apart from its Director.

We conclude in these circumstances that the CIT(A) has rightly deleted these twin additions in the assessee/individual’s hands since corresponding undisclosed and unaccounted income pertains to its company M/s. VNR Infrastructure Limited carrying out the business in its own name. We make it clear while holding so that the Revenue has not even indicated the fact above the company’s assessment qua the very income(s). We thus see no reason to reverse the CIT(A) detailed findings for these precise.