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2015 (8) TMI 44 - ITAT HYDERABAD

2015 (8) TMI 44 - ITAT HYDERABAD - TMI - Unexplained cash credit u/s 68 - addition representing share application money - Held that:- Solely on the basis of denial by some commission agents it cannot be concluded that share applicants were not having any agricultural income. More so, when AO has made enquiries with the concerned share applicants and has not found any adverse material to dispute the share applicantís claim of having agricultural land holding or the fact that they are engaged in a .....

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icantís claim of having agricultural land holding or engaged in agricultural activity, no doubt can be entertained with regard to their creditworthiness. In the aforesaid facts and circumstances, the addition being not based on proper evidence, we are not able to sustain the same - Decided in favour of assessee.

Addition on the profit on sale of land - Held that:- As could be seen, at the assessment stage, assessee has claimed that apart from the payment made to original owners, asses .....

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, whether it is an investment or stock-in-trade, payment made by assessee has to be taken into account for arriving at the cost incurred. Therefore, in either case, there cannot be any surplus to be treated as income of assessee. Since the aforesaid aspect has not been considered either by AO or by ld. CIT(A) in proper perspective, we are inclined to remit the issue back to the file of AO for deciding afresh after due opportunity of being heard to assessee.- Decided in favour of assessee for sta .....

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r due opportunity of being heard to assessee. - Decided in favour of assessee for statistical purposes. - ITA Nos. 01 and 02/Hyd/2012 - Dated:- 29-7-2015 - Shri B. Ramakotaiah and Shri Saktijit Dey, JJ. For the Petitioner : Shri K.A. Saiprasad For the Respondent : Shri B. Rajaram ORDER PER SAKTIJIT DEY, J.M.: These appeals by assessee are directed against separate orders, both, dated 25/03/2015 of ld. Commissioner of Income-tax(A) - V, Hyderabad for AYs 2003-04 and 2006-07. ITA No. 02/Hyd/2012 f .....

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ment proceeding, AO while verifying the balance sheet of assessee as at 31/03/2006 noticed that an amount of ₹ 33 lakhs has been introduced as share application money. On verifying the details of share application money furnished by assessee, AO noticed that while the Managing Director and his wife contributed ₹ 8 lakhs, and the balance amount of ₹ 25 lakhs was shown to have been contributed by various other persons, the details of which were mentioned by AO in the impugned ass .....

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s issued by one commission agent to several persons did not have the same features/details, the dates on the bills did not show a contiguous patterns, the rates varied on the same date in respect of the same agent etc. iii) None of the share applicants is assessed to income tax. iv) The entire share application money has been given and received in cash. 4.1 For further verification of authenticity of assessee s claim, AO conducted survey u/s 133A of the Act in the business premises of the commis .....

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the statements of the commission agents, AO inferred that share applicants did not sale any agricultural produce to the commission agents nor the commission agents ever issued any bills to the share applicants. On the basis of evidence brought on record, AO proposed to treat share application money of ₹ 25 lakhs as unexplained cash credit and issued show cause notice to assessee. Objecting to the proposed action of AO, assessee submitted that share application money cannot be treated as un .....

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ement of share applicants wherein it was stated that they did not take the agricultural produce to any Mandy, hence, they were not aware who issued the bills. It was submitted, since purchasers come to them for purchasing the product, they are not aware who is the actual commission agent. Assessee also submitted that incase of share application money, if AO entertains any doubt with regard to the source from where share applicants invested, then, it may be treated as unexplained income in the ha .....

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ements of some of the share applicants observed that, though, all of them claimed to have sold agricultural produce i.e. tomatoes to commission agents but the commission agents denied of having purchased such products from them. Therefore, in view of the contradicting statements of share applicants and commission agents, AO was of the view that claim of share applicants that they have sold agricultural produce and the money invested towards share application was out of such income is not believa .....

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see is under heavy obligation to explain satisfactorily the genuineness of the share application money. AO finally observed that since assessee has failed to prove the creditworthiness of share applicants, introduction of capital by way of share application money has to be treated as unexplained cash credit of assessee. Accordingly, he added the amount of ₹ 25 lakhs to the income of assessee. Being aggrieved of such addition, assessee preferred appeal before ld. CIT(A). 5. As observed by l .....

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ble due to principle laid down in various decisions referred to by him. As far as the decision of Hon ble Supreme Court in case of CIT Vs. Stellar Investments Ltd., 251 ITR 263 is concerned, ld. CIT(A) observed that facts involved in the case before the Hon ble Supreme Court is different from assessee s case as in case of Stellar Investments Ltd., assessee was a public ltd. company and shares have been subscribed by many people and moreover subscriptions were made through cheques. Ld. CIT(A) ref .....

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the same cannot be accepted. He also observed that genuineness of the transaction is also not proved as not a single transaction is routed through bank. Thus, ld. CIT(A) ultimately concluded that since assessee has failed to prove creditworthiness of share applicants and the genuineness of the transaction, addition of ₹ 25 lakhs is valid. 6. Ld. AR submitted before us, at the stage of assessment proceeding, assessee has not only submitted confirmation letters of the share applicants but ma .....

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ts Ltd., 251 ITR 263 wherein the decision of the Hon ble Delhi High Court was affirmed. It was submitted by ld. AR, in case of share application money, AO cannot make any addition at the hands of assessee , if AO has any doubt with regard to creditworthiness of the share applicants, then, addition can be considered in their hands. In this context, ld. AR relied upon a decision of the Hon ble AP High Court in case of CIT Vs. Lanco Investments Ltd., 242 ITR 357. As far as factual aspect is concern .....

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rce of source. 7. Ld. DR, on the other hand, relying upon the observations made by AO and ld. CIT(A), submitted before us, the claim of share applicants of having sold agricultural produce to commission agents have been proved to be false not only because of the fact that commission agents have denied of having purchased any agricultural produce from the share applicants, but, they have also disowned the bills submitted by share applicants. Thus, it was submitted by ld. Dr, the claim of share ap .....

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hares have been allotted to the concerned share applicants. Thus, considering the aforesaid factual position, it has to be accepted that the amount shown as share application money is in the nature of a credit till it is converted to shares. Having held so, it is to be decided whether the amount in question can be treated as unexplained cash credit u/s 68 of the Act. In this regard, it is to be noted that there is no dispute to the fact that the entire transaction is, through cash. However, it i .....

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d in the statement recorded from them not only they have accepted of having advanced money to assessee towards share application money but have also explained the source of such investment by stating that it is out of income generated from sale of agricultural produce. To prove such fact, share applicants have submitted the bills representing sale of tomatoes to commission agents. As it appears, AO to ascertain the genuineness of the share applicants claim had conducted survey operation in the b .....

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agents, but, their denial may be for various reasons, one of them being purchaser may be out of account. However, solely on the basis of denial by some commission agents it cannot be concluded that share applicants were not having any agricultural income. More so, when AO has made enquiries with the concerned share applicants and has not found any adverse material to dispute the share applicant s claim of having agricultural land holding or the fact that they are engaged in agricultural activity .....

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ing agricultural land holding or engaged in agricultural activity, no doubt can be entertained with regard to their creditworthiness. In the aforesaid facts and circumstances, the addition being not based on proper evidence, we are not able to sustain the same. Accordingly, we direct AO to delete the same. 9. In Ground No. 2, assessee has challenged the addition of an amount of ₹ 20,64,529 representing the profit on sale of land. 10. Briefly the facts are, during the assessment proceeding, .....

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xplain why the profit arising from such transaction should not be brought to tax as business income. In reply to the said show cause notice, assessee submitted that cost of land includes original cost paid to original owners as well as amounts paid to various parties, who were having possession of the land, to surrender their rights over the land. It was claimed by assessee that the amounts paid to those persons, other than the original owners, should also go to increase the cost of land. AO obs .....

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same before ld. CIT(A). Ld. CIT(A), however, confirmed the addition by observing as under: 7.2 I have considered the arguments of the appellant as well as the facts on record and I find that the contentions of the appellant is absolutely unfounded and not supported by any evidence whatsoever. No details whatsoever have been submitted regarding the persons to whom payments were made, the cheques nos., the details of bank accounts, etc. Whenever, a property is purchased with an encumbrance, the p .....

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assessee, ld. CIT(A) has confirmed the addition totally on a different ground. Ld. AR referring to the details of land purchased submitted, amounts were paid to various persons apart from original owners to secure right over the land. Thus, the amount paid being cost incurred by assessee for acquisition of property has to be allowed as deduction. It was submitted, when AO has no dispute with regard to the genuineness of the payments to various persons, deduction has to be allowed. He submitted, .....

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As it appears, AO has not disputed the aforesaid claim of assessee. The only reason, he treated the surplus as profit of assessee is, the land in question is stock-in trade and not investment. That being the case, we are unable to understand on what basis, ld. CIT(A) concluded that assessee has failed to produce any evidence with regard to payment made to various persons. As rightly submitted by ld. AR, whether it is an investment or stock-in-trade, payment made by assessee has to be taken into .....

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sessment proceeding, AO noticed that in course of survey, certain agreements were found which when verified with books, it was noticed that certain investments made as per the said agreements were not recorded in the books of account. Therefore, he issued a show cause notice to assessee to explain why the same will not be added u/s 69 of the Act. In response to the said notice, assessee submitted its reply vide letter dated 22/12/08. AO on verifying the submissions of assessee found that though .....

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