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TMI Blog2016 (3) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 14.09.2011 was duly served on the assessee. On verification of ledger account of M/s. Farwood Industries Ltd., the Assessing Officer has noticed that there were many cash payments debited in the books of the company on various dates. When the assessee was asked to explain these cash payments, before the Assessing Officer, the assessee has submitted as under: "In the FY 2007-08, Farwood Industries Limited (wherein I am the Managing Director) went for expansion of its production capacity and availed Term Loans from State Bank of India. The company faced financial issues due to worldwide recession during 2007-2008 and could not repay the installments as agreed. State Bank of India then issued a letter to Farwood Industries Limited insisting to regularize the loan accounts. This situation made it difficult to operate the company bank accounts freely. As a token of a series correspondence from SBI at this juncture, please find attached a copy of State Bank's letter dated 21.04.2008 with the caption 'IRREGULARITY IN CONDUCT OF ACCOUNTS'. As the Managing Director of the company, I had the need to run the business the business of the company which provided employment - b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds of FIL and routed through the personal account of the assessee Mr. M. P. Farook in order to circumvent the possibility of the bank appropriating or freezing these remittances in the event they were remitted through the loan accounts of FIL" 4. In view of the above submission made by the assessee, the Assessing Officer has observed that the assessee has received Rs..1,54,45,513/- from various customers. Since the assessee is separate person from the company the amount received by the assessee must be taxed in the hands of the assessee. Regarding the expenses claimed to be made, the assessee could not produce the proof for the expenses claimed to be made, by the assessee on behalf of the company as of now. The Assessing Officer has further noticed that the company M/s. Farwood Industries Ltd., in which assessee is the Managing Director has also not filed the return on income for the A.Y.2009-10 on or before Sep.2009 or even within the time limit permissible for filling belated return. Therefore, the amount received by the assessee amounting the Rs..1 ,54,45,513/- was added to the total income of the assessee. 5. The assessee carried the matter in appeal before the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is very simple. The assessee before the Assessing Officer has clearly explained that when the company, (M/s. Farwood Industries Limited) in which he is the managing Director, was not in a position to operate its bank accounts, the assessee lent his personal bank accounts (in ICICI bank and State Bank of India) for the purpose of receiving the amounts from the clients of the company. The clients issued cheques in the name of the assessee (or remitted the amounts into the bank accounts of the assessee), as per the request of the company. The assessee, being the MD of the company, after receiving the money from the clients of the company, utilised the money for the purposes of business of the company like payments of salaries, wages, clearing creditors etc. All the receipts (credits) into the bank and their withdrawals/utilization were also reflected clearly in the books of account of the company. The receipts are accounted in the books of the company as income. The ledger extracts of the company, furnished before the Assessing Officer as well as the undersigned, clearly showed these facts. In fact, the assessee, during the course of assessment proceedings before the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basically on the ground that the assessee is legally a different person and hence the company's amounts received by the assessee are to be assessed in the hands of the assessee only. Accordingly the Assessing Officer invoked the provisions of section 68 of the Act and assessed the said credits to tax. The above contentions and conclusions of the Assessing Officer are not justified on two counts. Firstly, the assessee clearly explained that the credits into the above bank accounts are the receipts of the sale (contract) proceeds of M/s. Farwood Industries Limited and received on behalf of the said company. Further, all the credits into the above bank accounts of the assessee are actually accounted by the company in its books as income. In other words, the above credits in to the assessee's bank accounts are the income/receipts of the company and were properly reflected in the books of the company. Under such circumstances the credits into the bank accounts of the assessee cannot be considered as 'unexplained credits' u/s.68 of the Act. Secondly, in order to attract the provisions of 68 of the Act, three ingredients are to the satisfied, i.e. the assessee's fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under the purview of the unexplained credits u/s. 68 of the Act. Considering the above facts, I am of the opinion the Assessing Officer is not justified in invoking the provisions of section 68 of the Act. The addition of Rs.l,54,45,513/- made by the Assessing Officer u/s.68 of the Act, is deleted." 8. It is amply clear that if the assessee fails to establish (i) identity of the creditors, or (ii) genuineness of the transaction, or the creditworthiness of the creditors, then the assessing authority can make addition under section 68 of the Act. In the instant case, the ld. CIT(A) has observed that the names and the addresses of the persons from whom the amounts have come into the assessee's bank accounts are made available to the Assessing Officer. Further, the amounts were received by way of cheques/ bank transfers etc. and therefore, the identity and genuineness of the transactions have been established by the assessee and moreover, in the assessment order the Assessing Officer has not doubted the creditworthiness of the creditors. The Revenue has placed reliance on the decision in the case of Hindustan Tobacco Ltd. (supra), wherein, it was held that mere routing the ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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