Separate legal entities sharing common address didn’t make them sham companies: HC

Case Details: PCIT v. Surya Alloys Industries Ltd - [2022] 138 taxmann.com 342 (Calcutta)

Judiciary and Counsel Details

• • T. S. Sivagnanam & Hiranmay Bhattacharyya, JJ.
  • Debasish Chowdhury, Adv. for the Appellant.
  • J.P. Khitan, Sr. Adv. Ms Rajshree Kajaria, Pratyush Jhunjhunwala & Uttam Sharma, Advs. for the Respondent.

Facts of the Case

Assessing Officer (AO) made certain addition to the income of the assessee under section 68 on grounds that share applicants did not have the required money to subscribe assessee’s shares. AO held that said transactions were mere paper transactions and two other companies were functioning out of the same address of the assessee.

On appeal, the CIT(A) deleted the additions on the grounds that the sum of money was received by the assessee by way of account payee cheques through proper banking channels. On revenue appeal, the Tribunal upheld the order of CIT(A). Aggrieved revenue filed the instant appeal to High Court.

High Court Held

The High Court held that the CIT(A) had examined the entire facts and pointed out that the share application monies were received by way of account payee cheques through proper banking channels. There was evidence from the bank’s statement of the appellant and the share applicant and both the shareholders are regular income tax assessees.

Further, the CIT(A) rightly observed that the mere fact that three separate legal entities share a common address did not make them sham companies or paper companies especially when there were records produced to show the entire worth of these companies and the transaction done by them. Furthermore, the Tribunal also upheld the view of CIT(A).

Thus, the entire matter was factual and the facts had been analyzed by the CIT(A). Accordingly, there was no substantial question of law arising for consideration on the issue.