TaxTMI 
TaxTMI 
2013 (2) TMI 665
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....ectors of the company as well as from the subsidiaries of the company. The balance amount of Rs. 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. Muddukrishna Reddy 1,84,00,000 4. Others 68,00,000 Total 5,35,00,000 4. As per the information brought on record, 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 sub-contract 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. 5. 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....
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....inst 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 Constructions Ltd. and it is seen that immediately after deposits of monies Page No : 0762 were withdrawn from the bank as self-withdrawals are paid to Sri A. Mahesh Reddy or his family members. Hence, indicates that he is only the name lender for Sri A Mahesh Reddy and his family members. (ii) Sri. P. Muddukrishna Reddy has no creditworthiness to such huge sums of money as share application money as he is only acting as conduit of Sri A. Mahesh Reddy and his family members. Sri A. Mahesh Reddy could not explain the source for the advances received from Sri P. Mud dukrishna Reddy for an amount of Rs. 1,57,50,000 and has been admitted as undisclosed income. (iii) Projection of Sri P. Muddukrishna Reddy as sub-contractor of M/s. AMR Constructions Ltd. is only a ploy adopted to give colour of genuineness to the transaction. (iv) Mr. P. Muddukrishna Reddy failed to submit the details such as mode of payment of advances, agricultural income, copies of the bank statements, which were not furnished by him. (v) Mr. P. Muddukrishna Reddy has promised t....
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....as income for the previous year. (ii) Powers of the Assessing Officer is absolute, where the assessee offers no explanation. (iii) In appropriate cases even source of sources has to be proved by the assessee under section 68. (iv) Burden of proving the cash credit entry in the assessee's books of account does not represent income of the assessee, is on the assessee only. (v) Transactions made through banks need not be considered as gen uine. 10. Accordingly, the Assessing Officer treated Rs. 5.35 crores as unexplained credit in the hands of the assessee. 11. On appeal, the Commissioner of Income-tax (Appeals) was of the opinion that (i) No dispute as regards to the identity of three main creditors, viz., Mr. P. MudduKrishna Reddy, Sri C. Hanumantha Reddy and Sri Damodar Reddy, since confirmations and other information related to the transac tion/credits are being furnished by the assessee. (ii) Genuineness of the transactions were not in question, specially in the cases of Sri P. Muddukrishna Reddy and Sri C. Hanumantha Reddy from whom sworn statements were recorded. The transactions were explained through bank channels, with the help of Income-tax returns filed. In cas....
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....t 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 AMR group. It was also alleged that creditors are either employee or relative of the group, where the creditors were used as conduits or ploys to route the money of the AMR group to the directors. By virtue of this opinion of the Assessing Officer, the credits in the books of the assessee really do not constitute the income of the assessee. The ratios of the decisions in the following cases support the view that where the company explains the basic information such as identity of the creditor, genuineness of the transaction, the cash credits cannot be treated as income of the company. Page No : 0765 (a) CIT v. Illac Investment P. Ltd. [2006] 287 ITR 135 (Delhi), wherein it has been held that where the assessee is capable of identifying the subscriber and also place the evidence of their creditworthiness by their bank account, income tax assessment orders, audited accounts, nothing more could be expected of the company. (b) The decision of the hon'ble Delhi High Court in the case of CIT v. Value C....
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....he Assessing Officer is free to make further enquiries and assess the said amounts to tax in the hands of the real owner of such money, is very much applicable to the facts of this case. Respectfully following the decisions of the hon'ble Delhi Court and the hon'ble Supreme Court in the case laws as referred above, it may be concluded that the cash credits representing the share application money from the three creditors viz. Sri P. Muddukrishna Reddy, Sri C. Hanumantha Reddy and Sri Damodar Reddy cannot be treated as income of the assessee-company and not to be taxed in the hands of the company in whose books such credits made for the year under reference. Further, based on the ratio emanated from the observations of the Supreme Court in the case of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (FRSC) it may be further concluded that the Assessing Officer is not correct in treating the share application money as credits standing in the names of the creditors as income of the assessee-company and if the source of the sources of such credits were not explained in the opinion of the Assessing Officer, the Assessing Officer is free to hold enquiries and tax the said amo....
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....ings of the search proceedings in the case of AMR group. The Assessing Officer has drawn the conclusion that creditworthiness of the said three creditors is not proved to the satisfaction and treated the entire amount standing against the names of such applicants/ investors, as the unexplained credits in the books of the company and accordingly assessed it as the income of the assessee-company. 19. The observations of the Assessing Officer, while completing the assessment, as regards to the creditworthiness of Sri C. Hanumantha Reddy, are summarised as under : (i) Sri C. Hanumantha Reddy is an employee in the AMR group for salary. (ii) The sub-contracts were not backed by any written agreements. Projection of Sri C. Hanumantha Reddy as sub-contractor of M/s. AMR Constructions Ltd. is only a ploy adopted to give colour of genuineness to the transaction. (iii) 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 imme diately after deposits of monies were withdrawn from the bank as self withdrawals, they were paid to Sri A. Mahesh Reddy or his family members. Hence, this indicates that he is only the name l....
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....ansactions made through banks need not be considered as genuine. 22. On appeal the Commissioner of Income-tax (Appeals) observed that Sri C. Hanumantha Reddy is employee of the AMR group concern. Sri C. Hanumantha Reddy shown as the proprietor of M/s. HR Constructions operating from flat No. 319, "B" Block, Sai Krupa Apartments, Madinaguda, Hyderabad, Sri Damodar Reddy is the proprietor of M/s. Saibaba Constructions with its registered office at flat No. 22, Ground Floor, "B" Block, Saikrupa Apartments, Madinaguda, Hyderabad, and Smt. B. Sugunamma is the proprietrix of M/s. Suguna Builders, operating from B-4, Shilpa Residency, Madhapur, Hyderabad. The conclusions drawn by the Assessing Officer on the main issue of unexplained credits, revolve around the said issue as far as this case is concerned. 23. The Assessing Officer has disbelieved the creditworthiness of Sri C. Hanumantha Reddy, based on the following observations : (i) Sri C. Hanumantha Reddy is an employee of the AMR group, only a name lender for Mr. Mahesh Reddy and his family members and unac counted income of these persons routed back to them. (ii) All the credits in the bank accounts are from M/s. AMRCL and the s....
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....at have emerged are : (i) No dispute as regard to the identity of three main creditors namely Smt B. Sugunamma, Sri C. Hanumantha Reddy and Sri Damodar Reddy, since confirmations and other information related to the transaction/credits are being furnished by the assessee. (ii) Genuineness of the transactions were not in question, specially in the case of Sri C. Hanumantha Reddy from whom sworn statement was recorded. The transactions were explained through bank channels, with the help of Income-tax returns filed. In case of Sri Damodar Reddy and Smt. B. Sugunamma, there was no discussion in the assessment order. (iii) Thus, the important question arisen which is subject matter of assessment order as well as the appeal proceedings, is the "creditworthi ness" of the creditors. 26. The assessee fulfilled the obligation of furnishing the information related to such creditors and in fact the Assessing Officer has gone to the next levels wherein he examined the creditworthiness of the creditors with reference to their earning capacity and lending/investing capabilities. Accordingly the Assessing Officer has arrived at some conclusions based on his own understanding of the facts that ....
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....ng with subject of cash credits, they are also throwing more light by virtue of their ratios, on the issue involved in this case, i.e., share application money wherein it was held that share application money can also be treated as cash credits. 29. In the case of R. B. Mittal v. CIT [2000] 246 ITR 283 (AP), the hon'ble Andhra Pradesh High Court was dealing with the responsibility of the company, in establishing the identity of creditor, genuineness of transactions as well as capacity to advance such money. As far as facts of this case are concerned, the assessee appears to have fulfilled all the conditions and it is only the opinion of the Assessing Officer that the creditworthiness is not proved. In the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC), the subject matter under discussion was the nature of the source of income, and the application of human probabilities, to arrive at the creditworthiness/capacity to earn, in case of the creditor and in the present case, the facts appear to be on different ground where the probabilities have lesser role than the role of evidence/ information, in the light of the facts brought on record. In the case of Asst. CIT v. Vishwanat....
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.... the income of the assessee. The ratios of the decisions in the following cases support the view that where the company explains the basic information such as identity of the creditor and genuineness of the transaction, the cash credits cannot be treated as income of the company. (a) CIT v. Illac Investment P. Ltd. [2006] 287 ITR 135 (Delhi), wherein it has been held that where the assessee is capable of identifying the subscriber and also place the evidence of their creditworthiness by their bank accounts, Income-tax assessment orders, audited accounts, nothing more could be expected of the company. (b) The decision of the hon'ble Delhi High Court in the case of CIT v. Value Capital Services P. Ltd. [2008] 307 ITR 334 (Delhi), wherein it was held that the amounts received towards share application money cannot be assessed in the hands of the company unless the Department is able to show that the amount received towards the share capital actually emanated from the coffers of the company. 31. In this case, the Assessing Officer could not form an opinion as regards to the creditworthiness of the creditors based on the facts that have emerged and explained to him and drawn his ....
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....d from Sri C. Hanumantha Reddy. They are Income-tax assessees. In spite of this, the Assessing Officer doubted the genuineness of the transactions. The contention of the Assessing Officer is that these persons are name lenders and were used as a ploy by the director of the assessee-company 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. 34. A similar issue was considered by the jurisdictional High Court in the case of CIT v. Lanco Industries Ltd. [2000] 242 ITR 357 (AP). While rejecting the Revenue's appeal, the High Court observed that merely by reason ....