TMI Blog2013 (2) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany 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 assessee. If the ostensible shareholders failed to explain the means of investment, that should have been treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .- 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. Muddukris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The projection of Sri C. Hanumantha Reddy as sub-contractor of M/s. AMR Constructions Ltd. is only a ploy adopted to give colour of genuine ness to the transaction. Most of the credits into the bank account of Mr. C. Hanumantha Reddy were from M/s. AMR Constructions Ltd. and it is seen that immediately after deposits of monies 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 Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors, genuineness of the transaction and creditworthiness. Accordingly, the Assessing Officer has drawn the conclusion that creditworthiness of Mr. Damodar Reddy is also not believable. Further, the Page No : 0763 addition of ₹ 5,35,00,000 also included an amount of ₹ 68,00,000 credits standing in the names as twelve persons shown as 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 offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso observed and alleged by the Assessing Officer that the creditors have started filing the Income-tax returns, only to explain the investments to the Department. It was also alleged that bank accounts of the parties reveal only the credits from M/s. AMR Constructions Ltd. and the money routed back to family members of the group, and the investments in the form of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court while dismissing the special leave petition of the Department on the decision of the Delhi High Court in the case of CIT v. Lovely Exports P. Ltd. [2008] 299 ITR 268 (Delhi) ; 216 CTR 195. The same are reproduced for ready reference and clarification (page 5 of 319 ITR (St.)) : Can the amount of share money be regarded as undisclosed income under section 68 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the three parties mentioned above at serial Nos. (1) to (3) are shown to have been into business of carrying on the civil construction works, mainly subcontract works to M/s. AMR Constructions Ltd. and filing the Income-tax returns. The confirmation letters were stated to have been filed by the above parties for the said investments and all the investment were shown to have been made through bank accounts. 18. While passing the order, the Assessing Officer has discussed the issue in detail and arrived at the conclusion that the creditworthiness of the creditors for the share application money made in the company's name is not believable and 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , by Sri A. Mahesh Reddy, were treated as income of Mr. A. Mahesh Reddy for want of basic details like identity of the creditors, genuineness of the transaction and creditworthiness. Accordingly, the Assessing Officer has drawn the conclusion that creditworthiness of Mr. Damodar Reddy and Smt. B. Sugunamma are also not believable and as such the amounts of ₹ 20,00,000 and ₹ 80,00,000 respectively, were treated as the income of the assessee- company. 21. In treating the entire credits standing in the names of three parties, viz., Sri C. Hanumantha Reddy, Sri Damodar Reddy and Smt. B. Sugunamma in books of the assessee, during the year, as unexplained 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 appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the creditors was not accepted since Sri A. Mahesh Reddy and other family members surrendered some of the investments/advances shown to have flown from Sri Damodar Reddy and Smt. B. Sugunamma. It was also observed that the said parties have received some amounts as advances for purchase of properties from the directors of AMR group whose sources were not explained and as such it was accepted as the unaccounted income of the directors. There is no specific discussion in the assessment order and no enquiries were shown to have been made regarding these creditors with reference to their creditworthiness except drawing the conclusions based on the findings on search 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion money by the said creditor 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 such credit through the income of the directors or concerns of the AMR group. This is the main issue involved in this case and instead of reaching the source of the sources as is empowered, the Assessing Officer ended up treating such credit in the name of Sri C. Hanumantha Reddy, as the income of the assessee-company. 27. Regarding the creditworthiness of other two creditors, viz., 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the company. It was held that the opinion of the Assessing Officer for not accepting the explanation offered by the assessee was not satisfactory, is required to be based on proper appreciation of material and other attending circumstances available on record and application of the mind is the sine qua non, for forming such opinion. It was also held by the court that such opinion itself constitute prima facie evidence against the assessee, and if the assessee fails to rebut the said evidence, the same can be used against the assessee. Coming to the facts of this case, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Lovely Exports P. Ltd. [2008] 299 ITR 268 (Delhi) ( 216 CTR 195 ). The same are reproduced for ready reference and clarification (page 5 of 319 ITR (St.)) : Can the amount of share money be regarded as undisclosed income under section 68 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. 32. Against this the Revenue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en it can be treated as the money belonging to the assessee. Without bringing on record a finding to show that the money has moved from the assessee's hands to the alleged shareholders hands and having accepted the alleged shareholders, it is not possible to us to sustain the addition in the hands of the assessee. Further, on the basis of evidence available on record, it is not possible to hold that the transactions are stage managed and the share application money was received from bogus shareholders without bringing on record the money has moved from the assessee's hands to the shareholders. 35. As held by the Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (FRSC) that if the share application money is received by the assessee-company from the alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as unexplained income of the assessee-company. In the present case considering the facts of the case, as the Department failed to show that the share application money actually emanated from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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