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TMI Blog2013 (2) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer is that these persons are name lenders and were used as a ploy by the director of the assessee-company to route the unaccounted money of the flagship company to the director by bringing the money in their names. It is also recorded by the Assessing Officer that these name lenders having filed their returns of income only to explain the investment so as to facilitate the conversion of unaccounted money into the assessee s company. It was also alleged that the money was routed like this as a device to explain the investments. However, the fact is that these persons who have made investments in the assessee-company are Income-tax assessees and have given the confirmation letters. Had the Assessing Officer has any doubt, it should be questioned in the hands of the investors. A similar issue was considered by the jurisdictional High Court in the case of CIT v. Lanco Industries Ltd. [1999 (12) TMI 45 - ANDHRA PRADESH High Court]. While rejecting the Revenue s appeal, the High Court observed that merely by reason of unsatisfactory explanation relating to the source of investment by the shareholders, the money invested in shares cannot be treated as income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Member).- These two appeals by the Revenue are directed against the different orders of the Commissioner of Income-tax (Appeals)-VII, Hyderabad, in respect of two different assessees for the assessment year 2009-10. 2. The issue in these appeals is with regard to deletion of addition made under section 68 of the Act at ₹ 4.7 crores in the case of M/s. AMR Hospital Services Ltd., and ₹ 2.22 crores in respect of M/s. AMR Sangam Sugar Ventures Ltd. 3. The brief facts relating to the addition in the case of M/s. AMR Hospital Services Ltd. are that in the balance-sheet as on March 31, 2009 share application money was shown at ₹ 7,90,70,000. Out of this, ₹ 2,55,70,000 was received from the directors of the company as well as from the subsidiaries of the company. The balance amount of ₹ 5.35 crores was received from the following parties : Sl. No. Name of the party Amount (Rs.) 1. Sri C. Hanumantha Reddy 83,00,000 2. Sri Damodar Reddy 2,00,00,000 3. Sri P. Muddukrishna Reddy 1,84,00,000 4. Others 68,00,000 Total 5,35,00,000 4. As per the information brought on record, the three parties mentioned above at serial Nos. (1) to (3) are shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were withdrawn from the bank as self-withdrawals are paid to Sri A. Mahesh Reddy or his family mem bers. Hence, it indicates that he is only the name lender for Sri A. Mahesh Reddy and his family members. (iii) Sri C. Hanumantha Reddy has no creditworthiness to advance/ invest such huge sums, as share application money and he is only acting as conduit of Sri A Mahesh Reddy and his family members. (iv) It is difficult to believe the creditworthiness of a person who was unable to furnish the sources and details for an amount of ₹ 2,77,000, but shown to have given as loan/invested a huge sum of ₹ 1,22,00,000. 7. The observations of the Assessing Officer in the case of the credits standing against the name of Sri P. Muddukrishna Reddy are summarised as under : (i) Most of the credits into the bank account were from M/s. AMR Constructions Ltd. and it is seen that immediately after deposits of monies Page No : 0762 were withdrawn from the bank as self-withdrawals are paid to Sri A. Mahesh Reddy or his family members. Hence, indicates that he is only the name lender for Sri A Mahesh Reddy and his family members. (ii) Sri. P. Muddukrishna Reddy has no creditworthiness to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;others", for the share application money received and addition was made by the Assessing Officer, since the assessee could not furnish the basic details at the time of assessment proceedings. 9. In treating the entire credits in the books of the assessee, during the year, except the amounts received from the directors and subsidiary companies, as unexplained credits under section 68, the Assessing Officer has made the following observations : (i) When any some credited in the books of the assessee for any pre vious year and the assessee offers no explanation about nature, source thereof or the explanation offered by the assessee, not in the opinion of the Assessing Officer satisfactorily, may be charged to Income-tax as income for the previous year. (ii) Powers of the Assessing Officer is absolute, where the assessee offers no explanation. (iii) In appropriate cases even source of sources has to be proved by the assessee under section 68. (iv) Burden of proving the cash credit entry in the assessee's books of account does not represent income of the assessee, is on the assessee only. (v) Transactions made through banks need not be considered as gen uine. 10. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share application money by the said creditors also presumed to be one of such device. Under the circumstances, it may be concluded that at no point of time, the amounts of credits that were shown are indicated as the amounts belonging to the assessee-company and the Assessing Officer was trying to explain through the incomes of directors or concerns of AMR group. This is the real issue involved in this case and instead of reaching the source of the sources as is empowered, the Assessing Officer ended up treating such credits as the income of the assessee. 13. In this case, the fact again is that creditworthiness of the creditors, shown to have been explained through the various information mainly the Income-tax returns, etc., which was not acceptable to the Assessing Officer, who in-turn is also of the opinion that the parties lack creditworthiness or it was made up with the help of the group concerns/individuals of AMR group. It was also alleged that creditors are either employee or relative of the group, where the creditors were used as conduits or ploys to route the money of the AMR group to the directors. By virtue of this opinion of the Assessing Officer, the credits in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1961 ? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their indi vidual assessments in accordance with law. Hence, we find no infir mity with the impugned judgment." 15. The ratios of the decisions of the various High Courts and the Supreme Court wherein it is held that creditworthiness of the creditors may be treated as proved once the basic information such as identity of the creditors, confirmation of transaction, etc., were made available and in case of Page No : 0766 not accepting the same, the Assessing Officer is free to make further enquiries and assess the said amounts to tax in the hands of the real owner of such money, is very much applicable to the facts of this case. Respectfully following the decisions of the hon'ble Delhi Court and the hon'ble Supreme Court in the case laws as referred above, it may be concluded that the cash credits representing the share application money from the three creditors viz. Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as such treated the said amounts as unexplained credits. But the Assessing Officer had shown them as unexplained credits in the guise of advances, in the books of the assessee-company, for which the assessee raised the objection vide ground No. (ii) of the grounds of appeal. In deciding the creditworthiness of the said three parties, the Assessing Officer has chosen to discuss the matter in detail, but limited to the credit standing in the name of Mr. C. Hanumantha Reddy alone, and arriving at the conclusions based on the findings of the search, assessment proceedings and sworn statements recorded during the assessment proceedings, whereas in the case of Sri Damodar Reddy and Smt. B. Sugunamma, the conclusions were merely based on the findings of the search proceedings in the case of AMR group. The Assessing Officer has drawn the conclusion that creditworthiness of the said three creditors is not proved to the satisfaction and treated the entire amount standing against the names of such applicants/ investors, as the unexplained credits in the books of the company and accordingly assessed it as the income of the assessee-company. 19. The observations of the Assessing Officer, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credits under section 68, the Assessing Officer has made the following observations : (i) When any sum is credited in the books of the assessee for any previous year and the assessee offers no explanation about the nature, source thereof or the explanation offered by the assessee, not in the opinion of the Assessing Officer satisfactory, the sum may be charged to Income-tax as income for the previous year. (ii) Power of the Assessing Officer is absolute, where the assessee offers no explanation. (iii) In appropriate cases even source of sources has to be proved by the assessee under section 68. (iv) Burden of proving the cash credit entry in the assessee's books of account does not represent income of the assessee, is on the asses see only. (v) Transactions made through banks need not be considered as genuine. 22. On appeal the Commissioner of Income-tax (Appeals) observed that Sri C. Hanumantha Reddy is employee of the AMR group concern. Sri C. Hanumantha Reddy shown as the proprietor of M/s. HR Constructions operating from flat No. 319, "B" Block, Sai Krupa Apartments, Madinaguda, Hyderabad, Sri Damodar Reddy is the proprietor of M/s. Saibaba Constructions wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of M/s. AMRCL and directors of the group. The reference made by the Assessing Officer on such findings is also not very clear as regards to the facts involved. Under the circumstances, it is not possible to gauge the creditworthiness of the creditors based on the theoretical findings without bringing the facts on the record. Further, as submitted by the assessee, the parties who surrendered their investments as advances to the creditors under reference indicate the flow of the money to such creditors regardless of the accounting or otherwise of the said source. Hence, the argument of the Assessing Officer on this ground based on the facts is not reliable, as such the issue assumes more of legal to nature and decided accordingly. 25. In the present case, the relevant facts that have emerged are : (i) No dispute as regard to the identity of three main creditors namely Smt B. Sugunamma, Sri C. Hanumantha Reddy and Sri Damodar Reddy, since confirmations and other information related to the transaction/credits are being furnished by the assessee. (ii) Genuineness of the transactions were not in question, specially in the case of Sri C. Hanumantha Reddy from whom sworn st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Smt. B. Sugunamma and Sri Damodar Reddy, the Assessing Officer has come to the conclusion simply based on few findings of search in the group wherein certain amounts, both invested as well as received by them were treated as make believable transactions and as such held that the creditors do not have creditworthiness for investing in the assessee-company, as share application money. As indicated above, such findings lack any concrete information and in a way contradictory to the findings of the search, as such cannot be the basis for disbelieving the creditworthiness of the two creditors, going by the facts that the basic information is furnished by them as acknowledged by the Assessing Officer in his assessment order. 28. Though the case law relied upon by the Assessing Officer are mostly dealing with subject of cash credits, they are also throwing more light by virtue of their ratios, on the issue involved in this case, i.e., share application money wherein it was held that share application money can also be treated as cash credits. 29. In the case of R. B. Mittal v. CIT [2000] 246 ITR 283 (AP), the hon'ble Andhra Pradesh High Court was dealing with the responsibility of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the assessee rebutted the opinion of the Assessing Officer and as such, the ratio is not applicable in this case, in true form. 30. In this case, the fact again is that creditworthiness of the creditors, shown to have been explained through the various information, mainly Income-tax returns, etc. was not acceptable to the Assessing Officer, who in-turn is also of the opinion that the parties lack creditworthiness or it was made up with the help of the group concerns/individuals of the AMR group. It was also alleged that creditors are either employee or relative of the group, where the creditors were used as conduits or ploys to route the money of the AMR group to the directors. By virtue of this opinion of the Assessing Officer, the credits in the books of the assessee really do not constitute the income of the assessee. The ratios of the decisions in the following cases support the view that where the company explains the basic information such as identity of the creditor and genuineness of the transaction, the cash credits cannot be treated as income of the company. (a) CIT v. Illac Investment P. Ltd. [2006] 287 ITR 135 (Delhi), wherein it has been held that where the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue is in appeal before us. 33. We have heard both parties and perused the material on record. In the present case, the assessee furnished satisfactory explanation that money has been contributed by various persons, viz., Sri P. Muddukrishna Reddy, Sri C. Hanumantha Reddy, etc., and filed respective confirmation letters in the case of M/s. AMR Hospitality Services Ltd. The Assessing Officer also recorded statement from Sri Muddukrishna Reddy and Sri C. Hanumantha Reddy. The same has been routed through banking channels. Similarly in the case of Sangam Sugar Ventures Ltd., Smt. B. Sugunamma, Sri C. Hanumantha Reddy and Sri Damodar Reddy have filed their confirmation letters. Sworn statement was also recorded from Sri C. Hanumantha Reddy. They are Income-tax assessees. In spite of this, the Assessing Officer doubted the genuineness of the transactions. The contention of the Assessing Officer is that these persons are name lenders and were used as a ploy by the director of the assessee-company to route the unaccounted money of the flagship company to the director by bringing the money in their names. It is also recorded by the Assessing Officer that these name lenders having filed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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