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TMI Blog2022 (7) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... S.V.Kishore Reddy, Y. Venkatrami Reddy, Y. Surendra Kumar Reddy, S. Rama Krishna Reddy and Smt. Pushpa Latha, Y. Preethi Reddy, Manasa Reddy and Asha in extenso. With facts and figures, learned Assessing Officer disputed their financial capacity to make the investments. Absolutely there is no acceptable explanation from the assessee as to why the share application money with premium was received in cash. It is also not in dispute that Shri Y. Venkat Rami Reddy was a former member of Union Public Service Commission and it is not open for the learned AR to canvas that these people do not know that such huge amounts cannot be received in cash. Further, there is no dispute that the prospectus issued inviting the shares mandates the payment of share application money through banking channels. The grave doubt entertained by the learned Assessing Officer in the assessee issuing the shares on rights basis without informing and offering the same to the existing shareholders is not at all addressed on behalf of the assessee. The facts recorded by the learned Assessing Officer as to the discrepancies in the share application forms produced on various occasions are beyond any dispute. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(Appeals)-Kurnool, ( Ld.CIT(A) ) in the case of M/s. Saveera Hospital Private Limited ( the assessee ) for the AYs.2014-15 2015-16, Revenue preferred these appeals and the assessee preferred cross-objections. Facts involved in these assessment years are similar. So also the grounds of appeal. We, therefore, deem it just and convenient to dispose-of these appeals and cross-objections by way of this common order. 2. Brief facts of the case are that the assessee is a private Ltd company incorporated by Dr. Y.Venkata Rami Reddy and his relatives to construct a hospital by raising resources from their own sources and also with the help of financial institutions. Funds were raised to the tune of Rs.2,86,99,000/- by way of share capital at face value and Rs.67 Lacs by way of unsecured loans from kith and kin. For the assessment years 2014-15 and 2015-16 returns of income were filed on 26/11/2014 and 29/09/2015 declaring a loss of Rs.8, 546/- and the income of Rs.47,250/- respectively. 3. A survey under section 133A of the Income Tax Act, 1961 (for short the Act ) was conducted on 16/12/2015 and it was found that the assessee did not offer to tax an amount of Rs.16,89,864/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department and the Income tax returns wherever available, short-term borrowings and trade payables with supporting documents like ledger copies, bank statements evidencing received in the subsequent payment along with TDS details, invoices wherever available etc., as additional evidence. Ld. CIT(A) forwarded such documents to the learned Assessing Officer for his comments/objections. Learned Assessing Officer submitted his comments/objections on 14/08/2018 as to the admissibility of the documents and also the report dt.29/10/2018 after verification of the details relating to the documents in the light of the identity and the creditworthiness of the parties and the genuineness of the transactions. 7. After considering the material before him in the light of the submissions made on behalf of the assessee, in respect of trade payables, Ld. CIT(A) recorded that in order to invoke the provisions of section 68 of the Act, there should be a credit either in the form of cash or bank in the books of accounts and since in these trade payables, there is no credit either in the form of cash or bank and they represent labour charges payable in which the civil works, section 68 of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the share application money was received in cash from the parties who are not assessed to tax and who are said to be the farmers whose agricultural income does not support the contention of investment in the assessee company. It is further submitted by him that the learned Assessing Officer was justified in making the addition towards the unproved trade payables and also sundry creditors. 10. Per contra, it is the submission on behalf of the assessee that all the share applicants had sufficient means to invest in the assessee company and as a matter of fact, the assessing officer in his remand report admitted the identity of the parties. Ld. AR submitted that all the share applicants are deriving agricultural income which fact is well brought out with supporting documents during the remand proceedings and the Ld. CIT(A) rightly accepted the same. Both the counsel made extensive references to the contents of the remand reports in support of their arguments. 11. We have gone through the record in the light of the submissions made on either side. It could be seen from the assessment orders passed under section 143(3) read with section 147 of the Act, that during the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued in the letter of offer, it was clearly stated that the amount towards the share application was to be paid by way of cheque or demand draft, but actually a sum of Rs.13.5 Lacs alone was by way of cheque as per the bank extracts of the company and rest of the amounts were received in cash, contrary to the instructions. So also, it was found that most of the amounts received in cash were not even credited to the bank account nor any evidence was produced to prove that the amounts were received on the dates which were mentioned on the application forms. It is the specific observation of the learned Assessing Officer that the assessee did not submit any books of account to prove that necessary entries were passed on respective dates. 13. Turning to the creditworthiness of the share applicants, learned Assessing Officer observed that the assessee produced the details of only seven persons and in respect of others no details nor evidences were furnished. Learned Assessing Officer dealt with the details in respect of such seven persons at length. 14. Turning to the aspect of creditworthiness of some of the share applicants whose details were furnished before the learned Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her returns of income for the assessment years 2014-15 and 2015-16 reveals a total income of Rs.10,34,872/-. Though according to the Balance Sheet file by this person, the source for investment was unsecured loans and marriage gifts etc., no bank account nor any evidence was filed before the learned Assessing Officer. 18. According to the assessee company, Y. Preethi Reddy invested an amount of Rs.77,09,500/- out of which Rs. 50.50 Lacs was paid in cheque and the balance in cash, but according to the returns of income filed for the assessment years 2014-15 and 2015-16, her total income was only Rs.11,82, 702/-. Though she had explained the source for the balance of investment to the tune of Rs.22,09,500/- as unsecured loans, learned Assessing Officer did not believe the same because the details of the unsecured creditor were not filed. 19. According to the returns of income of S. Asha filed for the assessment years 2010-11 to 2014-15, her total income was Rs.22,98,499/- including the agricultural income of Rs.11,31,200/-, which is more than the investment made in the assessee company to the tune of Rs.21 Lacs but according to the learned Assessing Officer, since no Balance S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shareholders with addresses and the amounts invested with source thereon for the assessment years 2014-15 and 2015-16 with affidavits duly notarised, confirmation letters, certificate from Revenue departments and income tax returns for some years in respect of the share application money. In support of the short-term borrowings and trade payables, the assessee produced the ledger copies, bank statements evidencing receipt and subsequent repayment along with TDS details, invoices for certain transactions. Ld. CIT(A) send the same to the learned Assessing Officer calling for comments/objections. 24. It could be seen from the record that the learned Assessing Officer submitted his comments by letter dated 14/08/2018. Learned Assessing Officer reiterated his stand as is delineated in the assessment order. Since the assessee and also the Revenue are basing their contentions on the remand reports of the Learned Assessing Officer, we deem it just and necessary to refer to the contents of the remand report in detail. 25. In the first remand report, Learned Assessing Officer more or less reiterated his stand taken in the assessment order. However, in detail he further stated that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther stated that the thumb impressions of certain shareholders on the share application forms were not attested properly. He pointed out that Smt. N. Saraswati ethics thumb impression on the share application form but are signed on the affidavit. Learned Assessing Officer insisted that there is no reason for the assessee not to produce the share applicants. 28. Further, learned Assessing Officer pointed out another factor in support of his contention that the share applications were not received by the assessee at the time they are claimed to have been received. He had given a list of thirteen persons who are not share applicants as on 31/03/2013, but all such persons were allotted shares which were offered by the Board of Directors to existing shareholders on rights basis. On this learned Assessing Officer contends that inasmuch as the shares on rights basis could be offered only to existing shareholders, in proportion to the quantum of shares held by them and is only if any such shareholder renounces such offer, then the same could be offered to the other shareholders. However, in this case it is otherwise. On this learned Assessing Officer opined that if the shares are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee failed to produce the cash book or any other books of account either at the time of survey or at the time of assessment or at any time during the 1st appellate proceedings to verify the claim as to when the amount of cash was received by the assessee, in order to correlate the same with the period of expenditure. 32. In the remand report, learned Assessing Officer established that the identity and creditworthiness of the share applicants is highly doubtful because the cash was accepted towards share application money, shares were issued to fresh shareholders on rights basis, shares were issued without proper share application form, the issue of shares on rights basis was not intimated to all the shareholders as required under law and the amount received towards share application, though is required to be kept in escrow account till the shares are allotted, but not kept in such account. 33. Since the learned Assessing Officer stated in his first remand report that he was directed only to offer comments/objections without any direction for verification from third parties, he did not verify the additional evidence, but only offered the comments/objections on the eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om where he secured loan of Rs. 3 Lacs. 36. In respect of Manasa Reddy, learned Assessing Officer recorded that though she has been declaring the income from dress designing boutique but no details relating to such business could be produced. Further on verification of the bank statement between 01/01/2014 and 21/03/2015 the learned Assessing Officer found that the balance therein never exceeded Rs.1.6 Lacs and most of the period it was in a range of Rs.10,000 to Rs. 20,000 only. Further she accepted that her return of incomes incorrect in respect of the agricultural income. 37. In respect of Y.Venkat Rami Reddy, learned Assessing Officer recorded that the said person submitted that he has no evidence whatsoever to show the cash accumulation and even the bank account did not indicate the same. According to this Venkat Rami Reddy, the investment made by him in the assessee company was out of the cash drawings made over a period of 35 or 40 years, which was given to various relatives and was received back at the time of the investment. No details of the persons to whom the amounts were lent nor the receipt thereof could be produced. Learned Assessing Officer opined that it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the source of investment of Rs.13 lacs as credits in the bank account, such account was never produced but on the other hand stated that such loans were repaid. Learned Assessing Officer could not find any of such transactions reflected in the returns of income. This Surendra Kumar Reddy received a gift of Rs.12 lacs from his wife Preeti Reddy in the financial year 2014-15 but such a transaction is not reflected in the return of income of Preeti Reddy on the other hand she had shown in her return of income a borrowal from her husband, by taking advantage of certain entries in bank accounts to explain the source of investment. 40. Coming to the investment of Preeti Reddy she claimed her agricultural income at Rs.6 Lacs but as per the return of income there was no declared agricultural income. She claims to have made investments to the tune of Rs.22 lacs in assessment year 2014-15 and 55 Lacs in assessment year 2015-16 but as per the Balance Sheet in the assessment year 2014-15 there is a loan of Rs.15 lacs, as when an a loan of Rs.5 Lacs from M/s Surajram Hotels but the said loan was not reflected in the Balance Sheet filed along with return of income of her husband Surendra Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Assessing Officer found from the certificate issued by the MRO that the said lands owned by Ramakrishna Reddy would fetch agricultural income to the tune of Rs.2 Lacs per annum. Though he claimed to have received certain gifts, no evidence was produced nor any bank account was there. He had shown sundry creditors to the tune of Rs.58.27 Lacs in the Balance Sheet for the assessment year 2015-16, but no details like etc., of the creditors are furnished. 43. In respect of Smt. Y Lakshmi Narayanamma, Sri Y Narayana Reddy, Smt. D Narayanamma and Sri Gajapati Reddy, learned Assessing Officer recorded that they are dead and basing on the affidavit filed at the time of appellate proceedings their earnings would take more than 11 to 19 years for accumulating their investment. He further recorded that though summons were issued Smt. B Vara Lakshmi, Sri B Hari Rameswara Reddy and Sri Bal Reddy there was no response from them and the assessee also failed to produce them. On enquiries learned Assessing Officer came to know that these persons are having income from agriculture and they are not assessed to tax, but no evidence is available about their earnings. 44. Learned Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no messing up of the things by taking the names of various family members. 47. Now coming to the short-term borrowings to the tune of Rs.57 lacs added during the assessment year 2014-15, during the remand proceedings, learned Assessing Officer found that this amount was due to 4 persons/entities, namely, M/s Kamadhenu then you outsourcing to the tune of Rs.2 Lacs, M/s. PVN Constructions to the tune of Rs.20 Lacs, Sri A R Reddy to the tune of Rs.25 lacs and from one Sh. Channa C Reddy to the tune of Rs.10 Lacs. However before the Ld. CIT(A) the assessee submitted that Rs.25 lacs was due to Smt. Y Preeti Reddy. 48. In respect of M/s Kamadhenu, M/s PVN constructions and Sh. Channa C Reddy, learned Assessing Officer recorded that during the second remand proceedings, that the parties confirmed the loan given and has submitted the bank statement reflecting the loan given in the paying back. In respect of the balance Rs.25 lacs, was originally assessee had debited the same to one AR Reddy but subsequently claimed that this loan was given by Smt. Preeti Reddy, which was later converted into share capital, but the same was not reflected in the Balance Sheet and assessee stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls furnished by way of Excel sheets, learned Assessing Officer called upon the assessee to submit the reasons for clubbing of amounts due when as per the Ledger account submitted by the assessee payments were made to earlier deemed subcontractors without any problem, but the assessee failed to submit any explanation. For these reasons, the learned Assessing Officer concluded that in the absence of clinching material, the identity of the persons to whom the amounts were payable, the genuineness of transfer of payments from one person t other person and the creditworthiness of the persons to whom the final payments were made are not established. 50. In respect of the amount of Rs.40,29,502/- added for the assessment year 2015-16, such amount was payable to thirteen persons. On verification of the material furnished by the assessee pursuant to their statement that these persons were paid in subsequent years, learned Assessing Officer accepted the grant of relief to the extent of Rs.97, 295/- in respect of the additions made on the basis of the amounts payable to M/s. Genuine Hvaer Spares and Tools to the tune of Rs.18, 895/- and M/s. Spark Advertising Agency to the tune of Rs.78,40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) he should have examined her on this aspect when she appeared and without doing so the learned Assessing Officer cannot doubt the genuineness of the transaction. He therefore recorded his satisfaction and directed the learned Assessing Officer to delete the addition of Rs.25 lacs for the assessment year 2014-15 under the head short-term borrowings. 53. In respect of trade payables, Ld. CIT(A) recorded that in order to invoke the provisions of section 68, there should be a credit either in the form of cash or bank in the books of accounts and since in these trade payables, there is no credit either in the form of cash or bank and they represent labour charges payable in which the civil works, section 68 is not at all applicable. He further went on to record that even otherwise these trade payables or arising out of labour work executed in the relevant year and outstanding as on 31/03/2014 and that the Ld. AR submitted that the 11 labour contractors appearing as on 31/03/2014 work labour into 3 head contractors and were paid in the subsequent years or bank channels. Ld. CIT(A) believed the submission that the payments will be made to the Mukadam/headman who will distribute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igures, learned Assessing Officer disputed their financial capacity to make the investments. 56. Absolutely there is no acceptable explanation from the assessee as to why the share application money with premium was received in cash. It is also not in dispute that Shri Y. Venkat Rami Reddy was a former member of Union Public Service Commission and it is not open for the learned AR to canvas that these people do not know that such huge amounts cannot be received in cash. Further, there is no dispute that the prospectus issued inviting the shares mandates the payment of share application money through banking channels. 57. The grave doubt entertained by the learned Assessing Officer in the assessee issuing the shares on rights basis without informing and offering the same to the existing shareholders is not at all addressed on behalf of the assessee. The facts recorded by the learned Assessing Officer as to the discrepancies in the share application forms produced on various occasions are beyond any dispute. Further the discussion made as to the capacity of the eight persons in the remand reports also remains unimpeached. 58. On the face of this voluminous material against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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