Asst. Commissioner of Income Tax, (Central Circle-3), Hyderabad V. M/s AMR Hospitality Services Ltd., Hyderabad

ITA 275/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1334 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Income from undisclosed sources
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 275/HYD/2012 ASSESSMENT YEAR 2009-10 THE ACIT CENTRAL CIRCLE-3 HYDERABAD VS. M/S. AMR HOSPITALITY SERVICES LTD., HYDERABAD PAN: AAGCA7665J APPELLANT RESPONDENT ITA NO. 276/HYD/2012 ASSESSMENT YEAR 2009-10 THE ACIT CENTRAL CIRCLE-3 HYDERABAD VS. M/S. AMR SANGAM SUGAR VENTURES LTD., HYDERABAD PAN: AAGCA7666M APPELLANT RESPONDENT APPELLANT BY: SRI D. SUDHAKAR RAO RESPONDENT BY: SRI A.V. RAGHURAM DATE OF HEARING: 19 .12.2012 DATE OF PRONOUNCEMENT: 22.02.2013 O R D E R PER CHANDRA POOJARI, AM: THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAI NST THE DIFFERENT ORDER OF THE CIT(A)-VII, HYDERABAD IN RESPECT OF TWO DIFFERENT ASSESSEES FOR ASSESSMENT YEAR 2009-10 . 2. THE ISSUE IN THESE APPEALS IS WITH REGARD TO DELETI ON OF ADDITION MADE U/S. 68 OF THE ACT AT RS. 4.7 CRORES IN THE CASE OF M/S. AMR HOSPITAL SERVICES LTD., AND RS. 2. 22 CRORES IN RESPECT OF M/S. AMR SANGAM SUGAR VENTURES LTD. 3. BRIEF FACTS RELATING TO ADDITION IN THE CASE OF M/S . AMR HOSPITAL SERVICES LTD. ARE THAT IN THE BALANCE SHEE T AS ON 31.3.2009 SHARE APPLICATION MONEY WAS SHOWN AT RS. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 2 7,90,70,000. OUT OF THIS, RS. 2,55,70,000 WAS RECE IVED FROM THE DIRECTORS OF THE COMPANY AS WELL AS FROM THE SU BSIDIARIES OF THE COMPANY. THE BALANCE AMOUNT OF RS. 5,35 CRO RES 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 LIMITED AND FILING THE INCOME TAX RETURNS. THE CONFIRMATION LETTERS WE RE STATED TO HAVE BEEN FILED BY THE ABOVE PARTIES FOR THE SAID I NVESTMENTS AND ALL THE INVESTMENT WERE SHOWN TO HAVE BEEN MADE THR OUGH BANK ACCOUNTS. 5. WHILE PASSING THE ORDER, THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN DETAIL AND ARRIVED AT THE CONCLUSION T HAT THE CREDITWORTHINESS OF THE CREDITORS FOR THE SHARE APP LICATION MONEY MADE IN COMPANY'S NAME IS NOT BELIEVABLE AND AS SUC H TREATED THE SAID AMOUNTS AS UNEXPLAINED CREDITS. BUT THE ASSESS ING OFFICER HAD SHOWN THEM AS UNEXPLAINED CREDITS IN THE GUISE OF ADVANCES, IN THE BOOKS OF THE ASSESSEE COMPANY, FOR WHICH THE ASSESSEE RAISED OBJECTIONS. THE CREDITS REPRESENT THE AMOUN TS INVESTED BY THE CREDITORS TOWARDS THE SHARE APPLICATION MONEY. IN DECIDING THE CREDITWORTHINESS OF THE SAID THREE PARTIES, THE ASS ESSING OFFICER HAS CHOSEN TO DISCUSS THE MATTER IN DETAIL, BUT ONL Y REGARDING THE CREDITS STANDING IN THE NAMES OF MR. P. MUDDUKRISHN A REDDY AND MR. C. HANUMANTHA REDDY, AND ARRIVING AT THE CONCLU SIONS BASED ON THE FINDINGS OF THE SEARCH AND SWORN STATEMENTS RECORDED DURING THE ASSESSMENT PROCEEDINGS, WHEREAS IN THE C ASE OF SRI ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 3 DAMODAR REDDY, THE CONCLUSIONS WERE MERELY BASED ON THE FINDINGS OF THE SEARCH PROCEEDINGS IN THE CASE OF A MR GROUP. THE ASSESSING OFFICER HAS DRAWN TO THE CONCLUSION THAT CREDIT- WORTHINESS OF THE CREDITORS IS NOT PROVED TO THE SA TISFACTION OF HIM 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 INCO ME OF THE ASSESSEE COMPANY. 6. THE OBSERVATIONS OF THE ASSESSING OFFICER, WHILE CO MPLETING THE ASSESSMENT, AS REGARDS TO THE CREDITWORTHINESS OF SRI C. HANUMANTHA REDDY, ARE SUMMARIZED 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 A S SUB-CONTRACTOR OF M/S. AMR CONSTRUCTIONS LIMITED IS ONLY A PLOY ADOPTED TO GIVE COLOUR OF GENUINENESS T O THE TRANSACTION. MOST OF THE CREDITS INTO THE BANK ACCO UNT OF MR. C. HANUMANTHA REDDY WERE FROM M/S. AMR CONSTRUCTIONS LIMITED AND IT IS SEEN THAT IMMEDIATE LY AFTER DEPOSITS OF MONIES WERE WITHDRAWN FROM THE BA NK AS SELF-WITHDRAWALS ARE PAID TO SRI A. MAHESH REDDY OR HIS FAMILY MEMBERS. HENCE, IT INDICATES THAT HE IS ONLY THE NAME LENDER FOR SRI A MAHESH REDDY AND HIS FAMI LY MEMBERS. (III) SRI C. HANUMANTHA REDDY HAS NO CREDITWORTHINESS TO ADVANCE/ INVEST SUCH HUGE SUMS, AS SHARE APPLICATIO N MONEY AND HE IS ONLY ACTING AS CONDUIT OF SRI A MAH ESH REDDY AND HIS FAMILY MEMBERS. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 4 (IV) IT IS DIFFICULT TO BELIEVE THE CREDITWORTHINESS OF A PERSON WHO WAS UNABLE TO FURNISH THE SOURCES AND DETAILS F OR AN AMOUNT OF RS. 2,77,000, BUT SHOWN TO HAVE GIVEN AS LOAN/INVESTED A HUGE SUM OF RS. 1,22,00,000. 7. THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE CA SE OF THE CREDITS STANDING AGAINST THE NAME OF SRI P. MUDDUKR ISHNA REDDY ARE SUMMARIZED AS UNDER; (I) MOST OF THE CREDITS INTO THE BANK ACCOUNT WERE FROM M/S AMR CONSTRUCTIONS LIMITED 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 MEMBERS. HENCE, INDICATE S THAT HE IS ONLY THE NAME LENDER FOR SRI A MAHESH RE DDY 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 S RI P. MUDDUKRISHNA REDDY FOR AN AMOUNT OF RS. L,S7,SO,OOO AND HAS BEEN ADMITTED AS UNDISCLOSED INCOME. (III) PROJECTION OF SRI P. MUDDUKRISHNA REDDY AS SUB- CONTRACTOR OF M/S AMR CONSTRUCTIONS LIMITED IS ONLY A PLOY ADOPTED TO GIVE COLOUR OF GENUINENESS TO THE TRANSACTION. (IV) MR. P. MUDDUKRISHNA REDDY FAILED TO SUBMIT THE DETA ILS SUCH AS MODE OF PAYMENT OF ADVANCES, AGRICULTURAL INCOME, COPIES OF THE BANK STATEMENTS, WHICH WERE N OT FURNISHED BY HIM. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 5 (V) MR. P. MUDDUKRISHNA REDDY HAS PROMISED TO FURNISH T HE BOOKS OF ACCOUNTS OF M/S. PMK CONSTRUCTIONS ALONG WITH RETURN OF INCOME, AUDIT REPORT AND PAN DETAILS AS P ER THE STATEMENT DT.29.11.2010 BUT NOT FURNISHED EXCEPT TO STATE THAT MAIN SOURCE OF INCOME WERE FROM SUB-CONT RACT WORKS OF SUPPLYING LABOUR TO M/S AMR CONSTRUCTIONS LIMITED. (VI) MR. P. MUDDUKRISHNA REDDY FILED HIS RETURN OF INCOM E FOR THE FIRST TIME FOR AY 2008-09 AND PAN DETAILS WERE OBTAINED RECENTLY WHICH INDICATE THAT RETURNS OF IN COME WERE FILE ONLY WITH AN INTENTION TO IMPRESS UPON TH E DEPARTMENT THAT THE SUB-CONTRACT WORKS ARE GENUINE. (VII) MR. P. MUDDUKRISHNA REDDY IS A RELATIVE OF SRI A. M AHESH REDDY AND HIS FAMILY MEMBERS. 8. IN CASE OF OTHER CREDITOR VIZ. MR. DAMODAR REDDY, T HE ASSESSING OFFICER DID NOT ADMIT TO HAVE RECEIVED TH E CONFIRMATIONS FOR SHARE APPLICATION MONEY FROM THE CREDITOR AND C ONCLUDED ON THE CREDITWORTHINESS OF THE SAID CREDITOR, BASED ON LY ON THE FINDINGS OF THE SEARCH PROCEEDINGS IN AMR GROUP, WH EREBY IT IS FURTHER OBSERVED BY THE ASSESSING OFFICER THAT THE ADVANCES ALLEGED TO HAVE BEEN RECEIVED FROM THE TWO PARTIES VIZ. SMT . B. SUGUNAMMA AND SRI DAMODAR REDDY, BY SRI A MAHESH RE DDY, WERE TREATED AS INCOME OF MR. A. MAHESH REDDY FOR W ANT OF BASIC DETAILS LIKE IDENTITY OF THE CREDITORS, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS. ACCORDINGLY, THE ASSESSING OF FICER DRAWN THE CONCLUSION THAT CREDITWORTHINESS OF MR. DAMODAR RED DY IS ALSO NOT BELIEVABLE. FURTHER, THE ADDITION OF RS. 5,35,00,00 0 ALSO INCLUDED AN AMOUNT OF RS. 68,00,000 CREDITS STANDING IN THE NAMES AS TWELVE PERSONS SHOWN AS 'OTHERS', FOR THE SHARE APP LICATION MONEY RECEIVED AND ADDITION WAS MADE BY THE ASSESSING OFF ICER, SINCE THE ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 6 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 T HE DIRECTORS AND SUBSIDIARY COMPANIES, AS UNEXPLAINED CREDITS U/ S. 68, THE ASSESSING OFFICER HAS MADE THE FOLLOWING OBSERVATIO NS: (I) WHEN ANY SOME CREDITED IN THE BOOKS OF ASSESSEE FOR ANY PREVIOUS YEAR AND ASSESSEE OFFERS NO EXPLANATIO N 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 ASSESSEE OFFERS NO EXPLANATION. (III) IN APPROPRIATE CASES EVEN SOURCE OF SOURCES HAS TO BE PROVED BY THE ASSESSEE UNDER SEC.68. (IV) BURDEN OF PROVING THE CASH CREDIT ENTRY IN ASSESSEE 'S BOOKS OF ACCOUNTS DOES NOT REPRESENT INCOME OF ASSESSEE, IS ON THE ASSESSEE ONLY. (V) TRANSACTIONS MADE THROUGH BANKS NEED NOT BE CONSIDERED AS GENUINE. 10. ACCORDINGLY, THE ASSESSING OFFICER TREATED RS. 5.35 CRORES AS UNEXPLAINED CREDIT IN THE HANDS OF THE AS SESSEE. 11. ON APPEAL, THE CIT(A) 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 ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 7 CONFIRMATIONS AND OTHER INFORMATION RELATED TO THE TRANSACTION/CREDITS ARE BEING FURNISHED BY THE ASSESSEE. (II) GENUINENESS OF THE TRANSACTIONS WERE NOT IN QUESTIO N, 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 CASE OF SRI DAMODAR REDDY, THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER, WHEREBY IT CAN BE PRESUMED THAT ASSESSING OFFICER HAVE NO DOUBTS WITH THE IDENTITY OF THE CRE DITOR AND THE GENUINENESS OF THE TRANSACTION. (III) THUS, THE IMPORTANT QUESTION ARISEN WHICH IS SUBJEC T MATTER OF ASSESSMENT ORDER AS WELL AS THE APPEAL PROCEEDINGS, IS THE 'CREDITWORTHINESS' OF CREDITORS . 12. THE ASSESSEE FULFILLED THE OBLIGATION OF FURNISHING THE INFORMATION RELATED TO SUCH CREDITORS AND IN FACT T HE ASSESSING OFFICER HAS GONE TO THE NEXT LEVELS WHEREIN HE EXAM INED THE CREDITWORTHINESS OF THE CREDITORS WITH REFERENCE TO THEIR EARNING CAPACITY AND LENDING/INVESTING CAPABILITIES. ACCORD INGLY THE ASSESSING OFFICER HAS ARRIVED AT SOME CONCLUSIONS B ASED ON HIS OWN UNDERSTANDING OF THE FACTS THAT EMERGED IN THE SEARCH PROCEEDINGS IN THE AMR GROUP, IN THE ASSESSMENT PRO CEEDINGS AS WELL AS THE SWORN STATEMENTS RECORDED FROM CREDITOR S. IN THE ASSESSMENT ORDER, WHILE DEALING WITH THE SUBJECT MA TTER, THE ASSESSING OFFICER AVERRED THAT TWO CREDITORS WERE A CTING AS CONDUITS TO AMR GROUP'S DIRECTORS AND WERE USED AS A PLOY BY DIRECTORS OF AMR GROUP TO ROUTE THE UNACCOUNTED MON IES OF THE FLAGSHIP COMPANY TO THE DIRECTORS, THROUGH THE CRED ITORS. IN THE PROCESS, IT WAS ALSO OBSERVED AND ALLEGED BY THE AS SESSING OFFICER ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 8 THAT THE CREDITORS HAVE STARTED FILING THE INCOME T AX RETURNS, ONLY TO EXPLAIN THE INVESTMENTS TO THE DEPARTMENT. IT WAS ALSO ALLEGED THAT BANK ACCOUNTS OF THE PARTIES REVEAL ONLY THE C REDITS FROM M/S. AMR CONSTRUCTIONS LIMITED AND THE MONEY ROUTED BACK TO FAMILY MEMBERS OF THE GROUP, AND THE INVESTMENTS IN THE FO RM OF SHARE APPLICATION MONEY BY THE SAID CREDITORS ALSO PRESUM ED TO BE ONE OF SUCH DEVICE. UNDER THE CIRCUMSTANCES, IT MAY BE CON CLUDED 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 REA L 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 CREDITWORTHINE SS OF THE CREDITORS, SHOWN TO HAVE BEEN EXPLAINED THROUGH THE VARIOUS INFORMATION MAINLY THE INCOME TAX RETURNS, ETC. WHI CH WAS NOT ACCEPTABLE TO THE ASSESSING OFFICER, WHO IN-TURN IS ALSO OF THE OPINION THAT THE PARTIES LACK CREDITWORTHINESS OR I T 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 CONDUIT S 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 ASSESSEE REALLY DO NOT CONSTITUTE THE INCOME OF THE ASSESSEE. THE RATIOS OF THE DECISIONS IN THE FOLLOWING CASES SUPP ORT THE VIEW THAT WHERE THE COMPANY EXPLAIN THE BASIC INFORMATION SUC H AS IDENTITY OF THE CREDITOR, GENUINENESS OF THE TRANSACTION, TH E CASH CREDITS CANNOT BE TREATED AS INCOME OF THE COMPANY. (A) CIT V. ILIAC INVESTMENT (P) LTD REPORTED IN 287 ITR 135 (DEL.), WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE IS CAPABLE ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 9 OF IDENTIFYING THE SUBSCRIBER AND ALSO PLACE THE EV IDENCE OF THEIR CREDITWORTHINESS BY THEIR BANK ACCOUNT, INCOM E TAX ASSESSMENT ORDERS, AUDITED ACCOUNTS, NOTHING MORE C OULD BE EXPECTED OF THE COMPANY. (B) DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CLT V. VALUE CAPITAL SERVICES PVT LTD (307 ITR 334), WHERE IN IT WAS HELD THAT THE AMOUNTS RECEIVED TOWARDS SHARE APPLIC ATION MONEY CANNOT BE ASSESSED IN THE HANDS OF THE COMPAN Y UNLESS THE DEPARTMENT IS ABLE TO SHOW THAT THE AMOU NT RECEIVED TOWARDS THE SHARE CAPITAL ACTUALLY EMANATE D FROM THE COFFERS OF THE COMPANY. 14. 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 DR AWN HIS OWN CONCLUSIONS TREATING THE SAID CREDITORS AS THE UNEX PLAINED CREDITS FOR WANT OF FURTHER MORE INFORMATION/ EVIDENCE ON T HE ISSUE OF CREDITWORTHINESS. THIS CONCLUSION DO NOT CONSTITUT E THE CORRECT DECISION BASED ON THE RATIO THAT HAVE EMANATED FROM THE DECISIONS OF SUPREME COURT IN THE CASE OF CIT V. GUJARAT HEAV Y CHEMICALS PVT. LTD REPORTED IN 256 ITR 795, WHEREIN THE HON'B LE SUPREME COURT EXPRESSED ITS OPINION THAT IN CASE WHERE THE SHARE APPLICANTS WERE TO BE CONSIDERED GENUINE, THE RIGHT COURSE FOR THE ASSESSING OFFICER IS TO IDENTIFY THE REAL PERSON TO WHOM THE MONEY BELONGS AND ASSESS HIM TO TAX INSTEAD OF ASSESSING THE COMPANY AND AS SUCH THERE WAS NO JUSTIFICATION FOR ASSESSIN G THE COMPANY. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE SUPR EME COURT WHILE DISMISSING THE SLP OF THE DEPARTMENT ON THE D ECISION OF DELHI HIGH COURT IN THE CASE OF M/S. LOVELY EXPORTS PVT. LTD. (216 CTR 195). THE SAME ARE REPRODUCED FOR READY REFERE NCE AND CLARIFICATION: 'CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER SECTION 68 OF THE INCOME-T AX ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 10 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 INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT. 15. THE RATIOS OF THE DECISIONS OF VARIOUS HIGH COURTS AND SUPREME COURT WHEREIN IT IS HELD THAT CREDITWORTHIN ESS OF CREDITORS MAY BE TREATED AS PROVED ONCE THE BASIC INFORMATION SUCH AS IDENTITY OF THE CREDITORS, CONFIRMATION OF TRANSACT ION ETC. WERE MADE AVAILABLE AND IN CASE OF NOT ACCEPTING THE SAM E, THE 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 HON'BLE SUPREME COURT IN THE CASE LAWS AS REFERRED ABOVE, I T MAY BE CONCLUDED THAT THE CASH CREDITS REPRESENTING THE SH ARE APPLICATION MONEY FROM THE THREE CREDITORS VIZ. SRI P. MUDDUKRI SHNA REDDY, SRI C. HANUMANTHA REDDY AND SRI DAMODAR REDDY CANNO T BE TREATED AS INCOME OF THE ASSESSEE COMPANY AND NOT T O BE TAXED IN THE HANDS OF THE COMPANY IN WHOSE BOOKS SUCH CREDIT S MADE FOR THE YEAR UNDER REFERENCE. FURTHER, BASED ON THE RAT IO EMANATED FROM THE OBSERVATIONS OF SUPREME COURT IN THE CASE OF M/S LOVELY EXPORTS PVT. LTD, IT MAY BE FURTHER CONCLUDED THAT THE ASSESSING OFFICER IS NOT CORRECT IN TREATING THE SHARE APPLIC ATION MONEY AS CREDITS STANDING IN THE NAMES OF THE CREDITORS AS I NCOME OF THE ASSESSEE COMPANY AND IF THE SOURCE OF THE SOURCES O F SUCH CREDITS WERE NOT EXPLAINED IN THE OPINION OF THE ASSESSING OFFICER, THE ASSESSING OFFICER IS FREE TO HOLD ENQUIRIES AND TAX THE SAID AMOUNTS IN THE HANDS OF CORRECT PERSON. ON THIS COU NT FOR ALL THE THREE ADDITIONS MADE ON ACCOUNT OF AMOUNTS STANDING IN THE NAMES OF THREE PERSONS AMOUNTING TO RS. 4,67,00,000 , STANDS DELETED. ACCORDINGLY, THE APPEAL IS TREATED AS ALLO WED. AGAINST ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 11 THESE FINDINGS OF THE CIT(A), THE REVENUE IS IN APP EAL BEFORE US IN ITA NO. 275/HYD/2012. 16. IN THE CASE OF AMR SANGAM SUGAR VENTURES LTD.(ITA NO. 276/HYD/2012), THERE WAS A SHARE APPLICATION MO NEY SHOWN IN THE BALANCE SHEET AS ON 31.3.2009 AT RS. 10,54,51,626. OUT OF THIS RS. 8,32,51,636 WAS RECE IVED FROM THE DIRECTORS OF THE COMPANY AS WELL AS FROM T HE SUBSIDIARY COMPANIES. THE BALANCE AMOUNT OF RS. 2. 22 CRORES WAS RECEIVED FROM THE FOLLOWING PARTIES: SL. NO. NAME OF THE PARTY AMOUNT (RS.) 1. SRI C. HANUMANTHA REDDY 1,22,00,000 2. SRI DAMODAR REDDY 20,00,000 3. SMT. B. SUGUNAMMA 80,00,000 TOTAL 1,22,00,000 17. AS PER THE INFORMATION BROUGHT ON RECORD, THE THREE PARTIES MENTIONED ABOVE AT SERIAL NO. (1) TO (3) ARE SHOWN TO HAVE BEEN INTO BUSINESS OF CARRYING ON THE CIVIL CONSTRUCTION WORK S, MAINLY SUB- CONTRACT WORKS TO M/S AMR CONSTRUCTIONS LIMITED AND FILING THE INCOME TAX RETURNS. THE CONFIRMATION LETTERS WERE S TATED TO HAVE BEEN FILED BY THE ABOVE PARTIES FOR THE SAID INVEST MENTS AND ALL THE INVESTMENT WERE SHOWN TO HAVE BEEN MADE THROUGH BAN K ACCOUNTS. 18. WHILE PASSING THE ORDER, THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN DETAIL AND ARRIVED AT THE CONCLUSION T HAT THE CREDITWORTHINESS OF THE CREDITORS FOR THE SHARE APP LICATION MONEY MADE IN COMPANY'S NAME IS NOT BELIEVABLE AND AS SUC H TREATED THE SAID AMOUNTS AS UNEXPLAINED CREDITS. BUT THE ASSES SING 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 GRO UNDS OF APPEAL. IN DECIDING THE CREDITWORTHINESS OF THE SAID THREE PAR TIES, THE ASSESSING OFFICER HAS CHOSEN TO DISCUSS THE MATTER IN DETAIL, BUT ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 12 LIMITED TO THE CREDIT STANDING IN THE NAME OF MR. C . HANUMANTHA REDDY ALONE, AND ARRIVING AT THE CONCLUSIONS BASED ON THE FINDINGS OF THE SEARCH, ASSESSMENT PROCEEDINGS AND SWORN STA TEMENTS RECORDED DURING THE ASSESSMENT PROCEEDINGS, WHEREAS IN THE CASE OF SRI DAMODAR REDDY AND SMT. B. SUGUNAMMA, THE CON CLUSIONS WERE MERELY BASED ON THE FINDINGS OF THE SEARCH PRO CEEDINGS 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 A MOUNT 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 CO MPLETING THE ASSESSMENT, AS REGARDS TO THE CREDITWORTHINESS OF SRI C. HANUMANTHA REDDY, ARE SUMMARIZED 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 LIMITED IS ONLY A PLOY ADOPTED TO GIVE COLOUR OF GENUINENES S 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 IMMEDIATELY AFTER DEPOSITS OF MONIES 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. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 13 (IV) 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. (V) IT IS DIFFICULT TO BELIEVE THE CREDITWORTHINESS OF A PERSON WHO WAS UNABLE TO FURNISH THE SOURCES AND DETAILS FOR AN AMOUNT OF RS. 2,77,000, BUT SHOWN TO HAVE GIVEN AS LOAN/INVESTED A HUGE SUM OF RS. 1,22,00,000 . 20. IN THE CASE OF OTHER CREDITORS VIZ. MR. DAMODAR RED DY AND SMT. B. SUGUNAMMA, THE ASSESSING OFFICER DID NOT AD MIT TO HAVE RECEIVED THE CONFIRMATIONS FOR SHARE APPLICATION MO NEY FROM THE CREDITOR AND CONCLUDED ON THE CREDITWORTHINESS OF T HE SAID CREDITORS, BASED ONLY ON THE FINDINGS OF THE SEARCH PROCEEDINGS IN AMR GROUP, WHEREBY IT IS FURTHER OBSERVED BY THE AS SESSING OFFICER THAT THE ADVANCES ALLEGED TO HAVE BEEN RECE IVED FROM THE TWO PARTIES VIZ., SMT. B. SUGUNAMMA AND SRI DAMODAR REDDY, BY SRI A MAHESH REDDY, WERE TREATED AS INCOME OF MR. A . MAHESH REDDY FOR WANT OF BASIC DETAILS LIKE IDENTITY OF TH E CREDITORS, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS . ACCORDINGLY, THE ASSESSING OFFICER DRAWN THE CONCLUSION THAT CRE DITWORTHINESS OF MR. DAMODAR REDDY AND SMT. B. SUGUNAMMA ARE ALSO NOT BELIEVABLE AND AS SUCH THE AMOUNTS OF RS. 20,00,000 AND RS. 80,00,000 RESPECTIVELY, WERE TREATED AS THE INCOME OF THE ASSESSEE COMPANY. 21. IN TREATING THE ENTIRE CREDITS STANDING IN THE NAME S OF THREE PARTIES VIZ. SRI C. HANUMANTHA REDDY, SRI DAMODAR R EDDY AND SMT. B. SUGUNAMMA IN BOOKS OF THE ASSESSEE, DURING THE YEAR, AS UNEXPLAINED CREDITS U/S 68, THE ASSESSING OFFICER H AS MADE THE FOLLOWING OBSERVATIONS: ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 14 (I) WHEN ANY SOME CREDITED IN THE BOOKS OF ASSESSEE FOR ANY PREVIOUS YEAR AND ASSESSEE OFFERS NO EXPLANATION AB OUT NATURE, SOURCE THEREOF OR THE EXPLANATION OFFERED B Y THE ASSESSEE, NOT IN THE OPINION OF THE ASSESSING OFFIC ER SATISFACTORILY, MAY BE CHARGED TO INCOME TAX AS INC OME FOR THE PREVIOUS YEAR. (II) POWER OF THE ASSESSING OFFICER IS ABSOLUTE, WHERE ASSESSEE OFFERS NO EXPLANATION. (III) IN APPROPRIATE CASES EVEN SOURCE OF SOURCES HAS TO BE PROVED BY THE ASSESSEE UNDER SEC. 68. (IV) BURDEN OF PROVING THE CASH CREDIT ENTRY IN ASSESSEE 'S BOOKS OF ACCOUNTS DOES NOT REPRESENT INCOME OF ASSE SSEE, IS ON THE ASSESSEE ONLY. (V) TRANSACTIONS MADE THROUGH BANKS NEED NOT BE CONSIDERED AS GENUINE. 22. ON APPEAL THE CIT(A) OBSERVED THAT SRI C. HANUMANTH A 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 A PARTMENTS, MADINAGUDA, HYDERABAD, SRI DAMODAR REDDY IS THE PRO PRIETOR OF M/S. SAIBABA CONSTRUCTIONS WITH ITS REGISTERED OFFICE AT FLAT NO.22, GROUND FLOOR, 'B' BLOCK, SAIKRUPA APARTMENTS, MADIN AGUDA, HYDERABAD, AND SMT. B. SUGUNAMMA IS THE PROPRIETRIX OF M/S. SUGUNA BUILDERS, OPERATING FROM B-4, SHILPA RESIDEN CY, MADHAPUR, HYDERABAD. THE CONCLUSIONS DRAWN BY THE A SSESSING OFFICER ON THE MAIN ISSUE OF UNEXPLAINED CREDITS, R EVOLVE AROUND THE SAID ISSUE AS FAR AS THIS CASE IS CONCERNED. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 15 23. THE ASSESSING OFFICER HAS DISBELIEVED THE CREDITWOR THINESS OF SRI C. HANUMANTHA REDDY, BASED ON THE FOLLOWING OBS ERVATIONS: (I) SRI C. HANUMANTHA REDDY IS AN EMPLOYEE OF AMR GROU P, ONLY A NAME LENDER FOR MR. MAHESH REDDY AND HIS FAM ILY MEMBERS AND UNACCOUNTED INCOME OF THESE PERSONS ROUTED BACK TO THEM. (II) ALL THE CREDITS IN THE BANK ACCOUNTS ARE FROM M/S. AMRCL AND THE SAME WERE PAID BACK TO MR. A. MAHESH REDDY AND HIS FAMILY MEMBERS. (III) THE SUB-CONTRACT WORKS EXECUTED BY SRI C. HANUMANTH A REDDY ARE NOT GENUINE AND IT WAS A PLOY TO DIVERT M ONEY FROM M/S AMRCL TO ITS DIRECTORS. (IV) THERE IS NO WRITTEN AGREEMENT FOR SUB-CONTRACT BETW EEN AMRCL AND HR CONSTRUCTIONS, THE PROPRIETARY CONCERN OF SRI C. HANUMANTHA REDDY. (V) CREDITWORTHINESS OF SRI C. HANUMANTHA REDDY IS NOT PROVED WITH REFERENCE TO A TRANSACTION IN WHICH HE WAS SHOWN TO HAVE GIVEN LOAN OF RS. 2,77,000 TO SMT. A. LATHA REDDY. 24. ON THE ISSUE OF THE CREDITS OF RS. 20,00,000 STANDI NG IN THE NAME OF SRI DAMODAR REDDY AND RS. 80,00,000 STANDIN G IN THE NAME OF SMT. B. SUGUNAMMA, WHILE ACKNOWLEDGING THE CONFIRMATIONS FILED BY THE CREDITORS, THE ASSESSING OFFICER HAS COME TO THE CONCLUSION ON CREDITWORTHINESS, BASED O N THE FINDINGS OF SEARCH PROCEEDINGS IN THE CASE OF AMRCL, WHEREIN IT WAS STATED THAT CREDITWORTHINESS OF THE CREDITORS WAS NOT ACCE PTED SINCE SRI A. MAHESH REDDY AND OTHER FAMILY MEMBERS SURRENDERED S OME OF THE INVESTMENTS/ ADVANCES SHOWN TO HAVE FLOWN FROM SRI DAMODAR REDDY AND SMT. B. SUGUNAMMA. IT WAS ALSO OBSERVED T HAT THE SAID ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 16 PARTIES HAVE RECEIVED SOME AMOUNTS AS ADVANCES FOR PURCHASE OF PROPERTIES FROM THE DIRECTORS OF AMR GROUP WHOSE SO URCES WERE NOT EXPLAINED AND AS SUCH IT WAS ACCEPTED AS THE UN ACCOUNTED INCOME OF THE DIRECTORS. THERE IS NO SPECIFIC DISCU SSION IN THE ASSESSMENT ORDER AND NO ENQUIRIES WERE SHOWN TO HAV E BEEN MADE REGARDING THESE CREDITORS WITH REFERENCE TO THEIR C REDITWORTHINESS EXCEPT DRAWING THE CONCLUSIONS BASED ON THE FINDING S 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 A LSO NOT VERY CLEAR AS REGARDS TO THE FACTS INVOLVED. UNDER THE C IRCUMSTANCES, IT IS NOT POSSIBLE TO GAUGE THE CREDITWORTHINESS OF TH E CREDITORS BASED ON THE THEORETICAL FINDINGS WITHOUT BRINGING THE FA CTS ON THE RECORD. FURTHER, AS SUBMITTED BY THE ASSESSEE, THE PARTIES WHO SURRENDERED THEIR INVESTMENTS AS ADVANCES TO THE CR EDITORS UNDER REFERENCE INDICATE THE FLOW OF THE MONEY TO SUCH CR EDITORS REGARDLESS OF THE ACCOUNTING OR OTHERWISE OF THE SA ID SOURCE. HENCE, THE ARGUMENT OF THE ASSESSING OFFICER ON THI S GROUND BASED ON THE FACTS IS NOT RELIABLE, AS SUCH THE ISSUE ASS UMES MORE OF LEGAL TO NATURE AND DECIDED ACCORDINGLY. 25. IN THE PRESENT CASE, THE RELEVANT FACTS THAT HAVE E MERGED 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 ASSE SSEE. (II) GENUINENESS OF THE TRANSACTIONS WERE NOT IN QUESTIO N, SPECIALLY IN THE CASE OF SRI C. HANUMANTHA REDDY FR OM WHOM SWORN STATEMENT RECORDED. THE TRANSACTIONS WER E EXPLAINED THROUGH BANK CHANNELS, WITH THE HELP OF INCOME TAX RETURNS FILED. IN CASE OF SRI DAMODAR REDDY ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 17 AND SMT. B. SUGUNAMMA, THERE WAS NO DISCUSSION IN T HE ASSESSMENT ORDER. (III) THUS, THE IMPORTANT QUESTION ARISEN WHICH IS SUBJEC T MATTER OF ASSESSMENT ORDER AS WELL AS THE APPEAL PROCEEDINGS, IS THE 'CREDITWORTHINESS' OF CREDITORS . 26. THE ASSESSEE FULFILLED THE OBLIGATION OF FURNISHING THE INFORMATION RELATED TO SUCH CREDITORS AND IN FACT T HE ASSESSING OFFICER HAS GONE TO THE NEXT LEVELS WHEREIN HE EXAM INED THE CREDITWORTHINESS OF THE CREDITORS WITH REFERENCE TO THEIR EARNING CAPACITY AND LENDING/INVESTING CAPABILITIES. ACCORD INGLY THE ASSESSING OFFICER HAS ARRIVED AT SOME CONCLUSIONS B ASED ON HIS OWN UNDERSTANDING OF THE FACTS THAT EMERGED IN THE SEARCH PROCEEDINGS IN THE AMR GROUP, IN THE ASSESSMENT PRO CEEDINGS AS WELL AS THE SWORN STATEMENT RECORDED FROM ONE OF TH E CREDITORS. IN THE ASSESSMENT ORDER, WHILE DEALING WITH THE SUBJEC T MATTER, THE ASSESSING OFFICER AVERRED THAT CREDITOR SRI C. HANU MANTHA REDDY WAS ACTING AS CONDUIT TO AMR GROUP'S DIRECTORS AND WAS USED AS A PLOY BY DIRECTORS OF AMR GROUP TO ROUTE THE UNACCOU NTED MONIES OF THE FLAGSHIP COMPANY TO THE DIRECTORS, THROUGH H IM. IN THE PROCESS, IT WAS ALSO OBSERVED AND ALLEGED BY THE AS SESSING OFFICER THAT THE CREDITOR I.E. SRI C. HANUMANTHA REDDY HAS STARTED FILING THE INCOME TAX RETURNS, ONLY TO EXPLAIN THE INVESTM ENTS TO THE DEPARTMENT. IT WAS ALSO ALLEGED THAT BANK ACCOUNTS OF SRI C.HANUMANTHA REDDY REVEAL ONLY THE CREDITS FROM M/S AMR CONSTRUCTIONS LIMITED AND THE MONEY ROUTED BACK TO FAMILY MEMBERS OF THE GROUP, AND THE INVESTMENTS IN THE FO RM OF SHARE APPLICATION MONEY BY THE SAID CREDITOR ALSO PRESUME D TO BE ONE OF SUCH DEVICE. UNDER THE CIRCUMSTANCES, IT MAY BE CO NCLUDED THAT AT NO POINT OF TIME, THE AMOUNTS OF CREDITS THAT WE RE SHOWN ARE INDICATED AS THE AMOUNTS BELONGING TO THE ASSESSEE COMPANY AND THE ASSESSING OFFICER WAS TRYING TO EXPLAIN SUCH CR EDIT THROUGH THE ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 18 INCOME OF DIRECTORS OR CONCERNS OF 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. HANUMANT HA REDDY, AS THE INCOME OF THE ASSESSEE COMPANY. 27. REGARDING THE CREDITWORTHINESS OF OTHER TWO CREDITO RS VIZ. SMT. B. SUGUNAMMA AND 'SRI DAMODAR REDDY, THE ASSES SING OFFICER HAS COME TO THE CONCLUSION SIMPLY BASED ON THE FEW FINDINGS OF SEARCH IN THE GROUP WHEREIN CERTAIN AMO UNTS, BOTH INVESTED AS WELL AS RECEIVED BY, THEM WERE TREATED AS MAKE BELIEVABLE TRANSACTIONS AND AS SUCH HELD THAT THE C REDITORS DO NOT HAVE CREDITWORTHINESS FOR INVESTING IN THE ASSESSEE COMPANY, AS SHARE APPLICATION MONEY. AS INDICATED ABOVE, SUCH F INDINGS LACK ANY CONCRETE INFORMATION AND IN A WAY CONTRADICTORY TO THE FINDINGS OF THE SEARCH, AS SUCH CANNOT BE THE BASIS FOR DISBELIEVING THE CREDITWORTHINESS OF THE TWO CREDITORS, GOING BY THE FACTS THAT THE BASIC INFORMATION IS FURNISHED BY THEM AS ACKNO WLEDGED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER. 28. THOUGH THE CASE LAW RELIED UPON BY THE ASSESSING OF FICER ARE MOSTLY DEALING WITH SUBJECT OF CASH CREDITS, THEY A RE ALSO THROWING MORE LIGHT BY VIRTUE OF THEIR RATIOS, ON THE ISSUE INVOLVED IN THIS CASE, I.E. SHARE APPLICATION MONEY WHEREIN IT WAS H ELD THAT SHARE APPLICATION MONEY CAN ALSO BE TREATED AS CASH CREDI TS. 29. IN THE CASE OF R.B. MITTAL V. CIT, AS REPORTED IN 2 46 ITR 283, 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 CA PACITY TO ADVANCE SUCH MONEY. AS FAR AS FACTS OF THIS CASE AR E CONCERNED, THE ASSESSEE APPEARS TO HAVE FULFILLED ALL THE COND ITIONS AND IT IS ONLY THE OPINION OF THE ASSESSING OFFICER THAT THE CREDITWORTHINESS IS NOT PROVED. IN THE CASE OF SUMATI DAYAL (214 ITR 801) (SC), THE ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 19 SUBJECT MATTER UNDER DISCUSSION WAS THE NATURE OF T HE SOURCE OF INCOME, AND THE APPLICATION OF HUMAN PROBABILITIES, TO ARRIVE AT THE CREDITWORTHINESS/CAPACITY TO EARN, IN CASE OF T HE CREDITOR AND IN PRESENT CASE, THE FACTS APPEAR TO BE ON DIFFEREN T GROUND WITH THE PROBABILITIES HAVE LESSER ROLE THAN THE ROLE OF EVI DENCE/ INFORMATION, IN LIGHT OF THE FACTS BROUGHT ON RECOR D. IN CASE OF ACIT V. VISHWANATH & CO (292 ITR 225), HON'BLE HIGH COUR T OF KARNATAKA WAS DEALING WITH SUBJECT OF CREDITS U/S 6 8 OF THE IT ACT, 1961, WHEREIN IT HAS BEEN HELD THAT ALL THAT SEC. 6 8 REQUIRES IS AN ACCEPTABLE PROOF, AND APART FROM THE IDENTITY, SATI SFACTION HAS TO BE WITH REFERENCE TO BUNDLE OF FACTS, INCLUDING THE CAPACITY TO PAY, FOR PROVING THE GENUINENESS OF THE TRANSACTION. THE RATIO OF THIS CASE LAW IS VERY MUCH APPLICABLE TO THIS CASE. BUT IT IS BEYOND THE STAGE OF EXPLAINING THE SOURCES, AND IT IS IN THE S TAGE OF ACCEPTING THE BUNCH OF FACTS BY THE ASSESSING OFFICER TO FORM HIS OPINION AND IT APPEARS THAT SUCH FACTS IN THIS REGARD ARE FALLI NG SHORT IN VIEW OF THE ASSESSING OFFICER. SIMILAR RATIO EMERGED IN THE CASE OF CIT V. MOHANAKALA (291 ITR 278), WHEREIN THE HON'BLE SUPRE ME COURT HELD THAT THE EXPLANATION MEANS WHERE THE ASSESSEE OFFER NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION AS RE GARDS THE SUM FOUND CREDITED IN THE BOOKS MAINTAINED BY THE COMPA NY. IT WAS HELD THAT THE OPINION OF THE ASSESSING OFFICER FOR NOT ACCEPTING THE EXPLANATION OFFERED BY THE ASSESSEE NOT SATISFACTOR Y, IS REQUIRED TO BE BASED ON PROPER APPRECIATION OF MATERIAL AND OFF ER ATTENDING CIRCUMSTANCES AVAILABLE ON RECORD AND APPLICATION O F THE MIND IN THE SINE QUO NON, FOR FORMING SUCH OPINION. IT WAS ALSO HELD BY THE COURT THAT, SUCH OPINION ITSELF CONSTITUTE THE PRIMA FACIE EVIDENCE AGAINST ASSESSEE, AND IF ASSESSEE FAILS TO REBUT TH E SAID EVIDENCE, THE SAME CAN BE USED AGAINST ASSESSEE. COMING TO TH E FACTS OF THIS CASE, THE ASSESSEE REBUTTED THE OPINION OF THE ASSE SSING OFFICER AND AS SUCH, THE RATIO IS NOT APPLICABLE IN THIS CA SE, IN TRUE FORM. ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 20 30. IN THIS CASE, THE FACT AGAIN IS THAT CREDITWORTHINE SS OF THE CREDITORS, SHOWN TO HAVE BEEN EXPLAINED THROUGH THE VARIOUS INFORMATION MAINLY THE INCOME TAX RETURNS, ETC. WHI CH WAS NOT ACCEPTABLE TO THE ASSESSING OFFICER, WHO IN-TURN IS ALSO OF THE OPINION THAT THE PARTIES LACK CREDITWORTHINESS OR I T 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 CONDUIT S 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 ASSESSEE REALLY DO NOT CONSTITUTE THE INCOME OF THE ASSESSEE. THE RATIOS OF THE DECISIONS IN THE FOLLOWING CASES SUPP ORT THE VIEW THAT WHERE THE COMPANY EXPLAIN THE BASIC INFORMATION SUC H AS IDENTITY OF THE CREDITOR, GENUINENESS OF THE TRANSACTION, TH E CASH CREDITS CANNOT BE TREATED AS INCOME OF THE COMPANY. (A) CIT V. ILIAC INVESTMENT (P) LTD REPORTED IN 287 ITR 135 (DEL.), WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE IS CAPABLE OF IDENTIFYING THE SUBSCRIBER AND ALSO PLACE THE EV IDENCE OF THEIR CREDITWORTHINESS BY THEIR BANK ACCOUNT, INCOM E TAX ASSESSMENT ORDERS, AUDITED ACCOUNTS, NOTHING MORE C OULD BE EXPECTED OF THE COMPANY. (B) DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. VALUE CAPITAL SERVICES PVT. LTD (307 ITR 334), WHER EIN IT WAS HELD THAT THE AMOUNTS RECEIVED TOWARDS SHARE APPLIC ATION MONEY CANNOT BE ASSESSED IN THE HANDS OF THE COMPAN Y UNLESS THE DEPARTMENT IS ABLE TO SHOW THAT THE AMOU NT RECEIVED TOWARDS THE SHARE CAPITAL ACTUALLY EMANATE D 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 DR AWN HIS OWN ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 21 CONCLUSIONS TREATING THE SAID CREDITORS AS THE UNEX PLAINED CREDITS FOR WANT OF FURTHER MORE INFORMATION/EVIDENCE ON TH E ISSUE OF CREDITWORTHINESS. THIS CONCLUSION DO NOT CONSTITUTE THE CORRECT DECISION BASED ON THE FINDINGS THAT HAVE EMANATED F ROM THE DECISIONS OF SUPREME COURT IN THE CASE OF CIT V. GU JARAT HEAVY CHEMICALS PVT. LTD. REPORTED IN 256 ITR 795, WHEREI N THE SUPREME COURT EXPRESSED ITS OPINION THAT IN CASE WHERE THE SHARE APPLICANTS WERE TO BE CONSIDERED GENUINE, THE RIGHT COURSE FOR THE ASSESSING OFFICER IS TO IDENTIFY THE REAL PERSON TO WHOM THE MONEY BELONG AND ASSESS HIM TO TAX INSTEAD OF ASSESSING T HE COMPANY AND AS SUCH THERE WAS NO JUSTIFICATION FOR ASSESSIN G THE COMPANY. THE SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE SUPR EME COURT WHILE DISMISSING THE SLP OF THE DEPARTMENT ON THE D ECISION OF DELHI HIGH COURT IN THE CASE OF M/S LOVELY EXPORTS PVT. LTD. (216 CTR 195). THE SAME ARE REPRODUCED FOR READY REFEREN CE AND CLARIFICATION: 'CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDISCLOSED INCOME UNDER SECTION 68 OF THE INCOME-T AX 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 INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW. HENCE, WE FIND NO INFIRMITY WITH THE IMPUGNED JUDGMENT.' 32. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 33. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSES SEE FURNISHED SATISFACTORY EXPLANATION THAT MONEY HAS B EEN CONTRIBUTED BY VARIOUS PERSONS VIZ., SRI P. MUDDUKR ISHNA REDDY, SRI C. HANUMANTHA REDDY, ETC., AND FILED RE SPECTIVE CONFIRMATION LETTERS IN THE CASE OF M/S. AMR HOSPIT ALITY SERVICES LTD. THE ASSESSING OFFICER ALSO RECORDED STATEMENT FROM SRI MUDDUKRISHNA REDDY AND SRI C. HANUMANTHA ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 22 REDDY. THE SAME HAS BEEN ROUTED THROUGH BANKING CHANNELS. SIMILARLY IN THE CASE OF SANGAM SUGAR VEN TURES LTD., SMT. B. SUGUNAMMA, SRI C. HANUMANTHA REDDY A ND SRI DAMODAR REDDY HAVE FILED THEIR CONFIRMATION LET TERS. SWORN STATEMENT WAS ALSO RECORDED FROM SRI C. HANUM ANTHA REDDY. THEY ARE INCOME-TAX ASSESSEES. IN SPITE OF THIS, THE ASSESSING OFFICER DOUBTED GENUINENESS OF THE TRANSA CTIONS. THE CONTENTION OF THE ASSESSING OFFICER IS THAT THE SE PERSONS ARE NAME LENDERS AND WERE USED AS A PLOY BY THE DIR ECTOR OF THE ASSESSEE COMPANY TO ROUT THE UNACCOUNTED MONEY OF THE FLAGSHIP COMPANY TO THE DIRECTOR BY BRINGING THE MO NEY 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 ASSESSEES COMPANY. IT WAS ALSO ALLEGED THAT THE MONEY WAS ROU TED LIKE THIS AS A DEVICE TO EXPLAIN THE INVESTMENTS. HOWEV ER, THE FACT IS THAT THESE PERSONS WHO HAVE MADE INVESTMENT S IN THE ASSESSEE COMPANY ARE INCOME-TAX ASSESSEES AND THE H AVE GIVEN THE CONFIRMATION LETTERS. HAD THE ASSESSING OFFICER HAS ANY DOUBT, IT SHOULD BE QUESTIONED IN THE HANDS OF INVESTORS. 34. SIMILAR ISSUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. LANCO INDUSTRIES LTD. ( 242 ITR 357) (AP). WHILE REJECTING THE REVENUE APPEAL, THE HIGH COURT OBSERVED THAT MERELY BY REASON OF UNSATISFACT ORY EXPLANATION RELATING TO THE SOURCE OF INVESTMENT BY THE SHAREHOLDERS, THE MONEY INVESTED IN SHARES CANNOT B E TREATED AS INCOME OF THE ASSESSEE. IF THE OSTENSIB LE SHAREHOLDERS FAILED TO EXPLAIN THE MEANS OF INVESTM ENT, THAT SHOULD HAVE BEEN TREATED AS UNEXPLAINED INCOME IN T HEIR HANDS. IN ORDER TO ADD IT TO THE INCOME OF THE ASS ESSEE THERE ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 23 MUST BE A FURTHER FINDING THAT IN FACT THE SHAREHOL DERS WERE NAME LENDERS AND THE MONEY ALLEGEDLY INVESTED BY TH E REALLY BELONGS TO THE DIRECTORS OF THE ASSESSEE COMPANY. IN THE PRESENT CASE, THE DEPARTMENT HAVING ACCEPTED THE RE TURNS OF INCOME FILED BY THE OSTENSIBLE SHAREHOLDERS, IT CAN NOT GO BACK WHILE MAKING THE ASSESSMENT OF THE ASSESSEE TO HOLD THAT THOSE SHAREHOLDERS ARE MONEY LENDERS AND INVES TMENTS WERE UNEXPLAINED. HAD THE DEPARTMENT DISREGARDED T HE RETURNS FILED BY THE ALLEGED SHAREHOLDERS AS THE MO NEY MOVED OUT OF THE ASSESSEES HANDS TO THE HANDS OF T HE ALLEGED SHAREHOLDERS AND THEN ONLY IT CAN BE TREATE D AS THE MONEY BELONGS TO THE ASSESSEE ONLY. WITHOUT BRINGI NG ON RECORD A FINDING TO SHOW THAT THE MONEY HAS MOVED F ROM THE ASSESSEES 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 A SSESSEE. FURTHER, ON THE BASIS OF EVIDENCE AVAILABLE ON RECO RD, IT IS NOT POSSIBLE TO HOLD THAT THE TRANSACTIONS ARE STAG E MANAGED AND THE SHARE APPLICATION MONEY WAS RECEIVED FROM B OGUS SHAREHOLDERS WITHOUT BRINGING ON RECORD THE MONEY H AS MOVED FROM THE ASSESSEES HANDS TO THE SHAREHOLDERS . 35. AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD. (216 CTR 195) THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPA NY FROM THE ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIV EN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANC E WITH LAW, BUT IT CANNOT BE REGARDED AS UNEXPLAINED INCOM E 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 COPPER S OF ITA NOS. 275 & 276/HYD/2012 M/S. AMR HOSPITALITY SERVICES LTD. & ANR. ================================= 24 THE ASSESSEE COMPANY, ADDITION WAS RIGHTLY DELETED BY THE CIT(A) AND THE ACTION OF THE CIT(A) IS CONFIRMED. 36. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTMENT A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2013. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 22 ND FEBRUARY, 2013 TPRAO COPY FORWARDED TO: 1. THE ACIT, CENTRAL CIRCLE - 3, ROOM NO. 811, 8 TH FLOOR, AAYAKAR BHAVAN, L.B. STADIUM ROAD, BASHEERBAGH, HYDERABAD-500 004. 2. M/S. AMR HOSPITALITY SERVICES LTD., 88, SARI KONDA MANSION, GROUND FLOOR, PHASE-III, KAMALAPURI COLONY, HYDERABAD. 3. M/S. AMR SANGAM SUGAR VENTURES LTD., 88, SARI KONDA MANSION, GROUND FLOOR, PHASE-III, KAMALAPURI COLONY, HYDERABAD. 4 . THE CIT(A) - VII , HYDERABAD. 5 . THE CIT (CENTRAL) , HYDERABAD. 6 . THE DR B BENCH, ITAT, HYDERABAD.