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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 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/- and Rs.17,50,000/- in the original returns. In response to the notice issued under section 148 of the Act, assessee filed the returns of income on 12/11/2016 and 07/08/2017 admitting an income of Rs.16,89,864/- and Rs.17,97,250/- that escaped assessment and claim refund of Rs.1,21,540/- for the assessment year 2014-15. On verification, the learned Assessing Officer found that the assessee had received an amount of Rs.2,86,99,000/- towards the share capital during the assessment year 2014-15 and Rs.4,75,10,000/- for the assessment year 2015-16. Learned Assessing Officer further found short-term bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 not at all applicable. He further went on to record that even otherwise these trade payables are 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 to the other work contractors and since the plan of these three parties, to whom the payments were made prove their identity, the same h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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 assessment proceedings for the assessment year 2014-15, which are more or less identical to the assessment year 2015-16, that the assessee submitted the details of the persons who had contributed towards the share capital. Learned Assessing Officer further found that Learned Assessing Officer found that all the amounts towards share capital were paid in cash except an amount of Rs.13.5 Lacs and, therefore, the assessee was called upon to submit the share application forms. Assessee furnished the share applications in respect of only 58,690 shares as against 28,69,900 shares which were issued in total. The assessee submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Assessing Officer by the assessee, learned Assessing Officer found in respect of one S. Veera Kishore Reddy that during the assessment years 2012-13 to 2015- 16 for all the four years the total income of the assessee was Rs.22,52,163/- including the agricultural income of Rs.4.15 Lacs whereas during the assessment years 2014-15 and 2015-16 the assessee invested a total amount of Rs.99,39,500/-. There is no explanation as to where from the additional monies have come. Further the Balance Sheet shows that the earnings of the assessee during those years were spent entirely on various assets enumerated in the Balance Sheet. Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Sheet or bank accounts, the investment cannot be accepted. 20. Lastly, while dealing with the investment made by one Dr Venkata Rami Reddy, learned Assessing Officer found that between the assessment years 2012-13 and 2015-16 the total earnings of this person were to the tune of Rs.58,55,331/- as against which the claim of the assessee is that he invested a sum of Rs.99,39,500/-. 21. Learned Assessing Officer specifically noted that the Chartered Accountant of the assessee company is the same person who filed the returns of income of shareholders and that too in many cases after survey action, and therefore, it would be reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 inasmuch as the most of the share application money was paid in cash, no cash register was ever produced and there are so many discrepancies in the share application forms produced by the assessee, learned Assessing Officer thought it fit to examine the shareholders. Such persons were never produced before the learned Assessing Officer nor were the discrepancies in the share application forms, as pointed out the learned Assessing Officer deleted. 26. Learned Assessing Officer further stated in his remand report that at no point of time the assessee expressed his inability to produce the share applicants nor did they produce any evidence, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 be issued to new applicants, the assessee is required to issue draft prospectus and different forms of obligations as per Companies Act, as the amount received from shareholders was not actually received from such persons and therefore the assessee try to create the evidence of notice/letter of offer to show certain persons had applied for share - which evidence was not available at the time of survey, but created subsequently to substantiate the allotment of shares. 29. Basing on this, learned Assessing Officer entertained a doubt as to whether really the share applicants paid the amounts stated to have been paid by them on the dates mentioned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 evidences, Ld. CIT(A) again called the objections/comments of the learned Assessing Officer on the submissions made by the assessee as well as the additional evidences. Learned Assessing Officer again submitted his second remand report on 29/10/2018. For the reasons recorded above, we deem it just and necessary to refer to the contents of the second remand report also in detail. 34. In the remand report dated 29/10/2018, learned Assessing Officer reiterated his earlier contention that at no point of time the assessee produced the books of accounts nor the shareholders, and at the same time the assessee never pleaded any inability to produce the shareholders. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 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 would be practically impossible to believe that the said person had given average of Rs.25,000 or Rs.50,000 per person, he should have lent an amount of Rs.1.80 crores to over 500 persons and it militates against the probability. Further according to this Venkat Rami Reddy for the last 20 years the gross income was Rs.1.82 crores after deductions and the TDS and taxes were paid net income was Rs.1.33 crores even without considering expenses towards house expenses, marriage expenses of children, their education so on and so forth. According to the learned Assessing Officer in view of this financial situation of this man, he will not be in a position to invest Rs.1.83 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddy 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 Kumar Reddy. In respect of investment in 2015-16 also, Preeti Reddy shown a loan of Rs.19.4 Lacs from her husband Surendra Kumar Reddy again, which again is not to be found in the return of income or Balance Sheet of Surendra Kumar Reddy. Though this Preeti Reddy assured to file the details of the persons from whom the loans were taken, no such details were furnished. According to her affidavit an amount of Rs.30,000/- was paid in cash and balance of Rs.21,79,500/- was paid in cheque, but the share application states that an amount of Rs.1.5 Lacs was received through banking channels and the balance of Rs.21,49,500/- was received in cash thereby there is a mismatch of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late 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 Officer reiterated in the remand report that the assessee claimed that the share application forms were not available and stated that it is only a minor technical mistake. He further recorded that the only evidence produced by the assessee for establishing the creditworthiness of the share applicants is some of their affidavits and even if it is presumed that the respective persons had the said agricultural income, it would take a huge number of years for accumulation of such amount as invested by them, and that too it would be possible if such income was generated without any intervening factors or any unforeseen failures of crops or expenditure. 45. In respect of genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as the business turnover was less than Ltd required for maintenance of books of accounts, no allowance could be placed on the Balance Sheet filed with return of income. In as much as according to the assessee the said amount was considered for allotment of shares to the tune of Rs.22 lacs in the assessment year 2013-14, according to the learned Assessing Officer, assessee based on bank transaction and trying to claim credit for the same amount towards share capital and also towards loan outstanding. Learned Assessing Officer further recorded that the source for this bank transactions are to be claimed to the loans from her husband Y Surender Reddy but it was not so reflected in his acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- 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.78,400/- and recommended that the balance of addition cannot be deleted. The reason given by the learned Assessing Officer is that the amounts payable to M/s Synergy Infra Private Limited and M/s. Elite Space were paid to one Y.Surender Reddy without any authority and no reasons are forthcoming for such payment. In respect of about six persons mentioned at page No. 441 of the paper book, they were shown as the persons payable in the Ledger extract for the financial year 2015-16 as on 31/03/2016, but on verification of the list of the trade credit hours as on 31/03/2016 during the assessment proceedings for the assessment year 2016-17 no amounts were shown to be payable to them. It is, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orks, 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 to the other work contractors and since the plan of these three parties to whom the payments were made prove their identity, the same has to be accepted. On this score Ld. CIT(A) directed the deletion of Rs.76,12,000/- for the assessment year 2014-15. 54. In respect of the assessment year 2015-16 the addition under trade payables was Rs.40, 29, 502/-. According to the Ld. CIT(A) Ld. AR submitted that all these trade payables were discharged during the subsequent years through banking channels as evidenced by the Ledger copies and builds/tax invoices showing complete address and the tax registration numbers, but the learned Assessing Officer without doubting this evidences had questioned the repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee, we find it difficult to agree with the Ld. CIT(A) in his observations that the assessee had discharged its primary onus of establishing the identity, genuineness and creditworthiness of the investors. Such a finding has no basis in the facts. Absolutely there is no clinching evidence from any independent source in this matter to show that the alleged share applicants were the persons who really contributed for the share application money or that the alleged payments were made on the dates on which they are said to have been made. On the face of the discrepancies and the inherent contradictions pointed out by the learned Assessing Officer, the plea set up by the assessee has no legs to stand. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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