MASINENI HOTELS PRIVATE LIMITED,ANANTAPUR V. ACIT, CIRCLE-1, ANANTAPUR

ITA 346/HYD/2023

AI Insights

The case revolves around the additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961, to the income of Masineni Hotels Private Limited for the Assessment Year 2016-17. The additions were based on the alleged unexplained credits in the form of share capital and share application money received from Shri M.Ramaiah, the Managing Director, and his wife, Smt. K.Lakshmi Devi. The Tribunal examined the evidence presented, including revised balance sheets and bank statements, and concluded that the assessee had adequately explained the sources of the investments. The Tribunal also noted that similar additions had been made in the hands of Shri M.Ramaiah for the same amounts, and thus, double taxation in the hands of both the company and the individual should be avoided.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 29058 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2016-2017
• Other Referred Cases: Beutex India P.Ltd. Vs. CIT, CIT Vs. Lovely Exports Pvt. Ltd., CIT Vs. Stellar Investment Ltd., CIT Vs. Creative World Telefilms Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MOHD. AFZAL
• Keywords: Set aside; Unexplained cash credit; Unexplained investment; Source of fund; Bogus
• Section: 143(3); 195; 251; 68; 13

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad Before Shri Manjunatha G., Accountant Member and Shri K. Narasimha Chary, Judicial Member आ.अपी.सं /ITA No.346/Hyd/2023 (निर्धारण वर्ा/Assessment Year: 2016-17) Masineni Hotels Private Limited Anantapur [PAN : AAHCM6211F] Vs. ACIT, Circle-1 Anantpur (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Mohd.Afzal, AR रधजस् व द्वधरध/Revenue by:: Shri Srinath Sadanala, DR सुिवधई की तधरीख/Date of hearing: 10/12/2024 घोर्णध की तधरीख/Date of Pronouncement: 30/12/2024 आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 16.05.2023 of the learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], National Faceless Appeal Centre, Delhi, pertaining to A.Y.2016-17 on the following grounds : 1. Under the facts and circumstances of the case the learned CIT(A), NFAC, New Delhi erred in confirming the addition of Rs.2,35,48,000/- being the difference in the share capital, share application and other loan subscribed / given by Managing Director Shri M.Ramaiah u/s 68 of the Income Of the Income tax Act, 1961 (“the Act”), 1961 (the Act). 2 2. Under the facts and circumstances of the case, the learned CIT(A), NFAC, New Delhi erred in confirming the addition of Rs.70,00,000/- being share application received from Smt.K.Lakshmi Devi u/s 68 of the Act. 3. Any other ground(s) that may be urged at the time of hearing. 2. The brief facts of the case are that the assessee company is engaged in the business of operating a hotel, filed its return of income for the A.Y.2016-17 on 17.10.2016, declaring loss of Rs.1,81,50,495/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that as per the balance sheet of the assessee company, the assessee has shown liabilities payable to Shri M.Ramaiah, Managing Director, under the head ‘share capital, share application money pending allotment and other short term borrowing’, aggregating to Rs.7,82,94,313/-. The Assessing Officer, further noticed that the return of income filed by Shri M.Ramaiah for the A.Y.2016-17 was verified and as per the balance sheet filed along with the return of income, he has shown advances in the name of the appellant company under the head ‘share application money, share capital and advances to the extent of Rs.5,47,46,313/-. Since there is difference of Rs.2,35,48,000/- towards amount claimed to have been received from Shri M.Ramaiah, when compared with his individual balance sheet, the Assessing Officer called upon the assessee to file relevant evidences, including evidences for the source of investment in the appellant company. In response, the assessee submitted that although in the original balance sheet filed along with the return of income by the creditor, there is a 3 difference, in respect of amount invested in appellant company, but, subsequently, a revised balance sheet has been filed during the assessment proceedings, as per which, Shri Ramaiah has availed SOD loan from Sree Sai Datta MACC Society Ltd. on 12.05.2015 and withdrawn a sum of Rs.1,50,00,000/- in cash on 12.05.2015, 13.05.2015 and 18.05.2015 and also drawn a sum of Rs.47,80,000/- by cheque through Axis bank account. Since the appellant is having sufficient source for explaining the amount invested in the appellant company, argued that the appellant has discharged the identity, creditworthiness of the creditor and also genuineness of the transaction. The Assessing Officer, after considering the submissions of the assessee and also taking note of the relevant facts, observed that although the appellant company established identity of the creditor, but failed to prove creditworthiness and genuineness of the transactions, because, as per the balance sheet filed by Shri M.Ramaiah, there is a difference in his individual balance sheet filed along with the return of income, when compared to the amount shown in the books of accounts of the company. Further, the amount has been received in cash. Therefore, opined that the assessee could not establish the difference in the amount received from Shri Ramaiah to the satisfaction, with relevant evidences and accordingly, has made addition of Rs.2,35,48,000/- u/s 68 of the Act. 3. Similarly, the assessee company has shown receipt of Rs.70,00,000/- from Smt.K.Lakshmi Devi, wife of Shri Ramaiah, towards share application money. The appellant explained the amount received from Smt.Lakshmi Devi with relevant 4 evidences, including confirmation from the shareholder and argued that she is a salaried employee and she has invested share application money, out of her known sources of income. The Assessing Officer, however, was not convinced with the explanation of the assessee, made addition of Rs.70,00,000/- u/s 68 of the Act. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee filed various evidences, including confirmation from the parties and argued that the appellant company has discharged the identity of the creditor and also established the genuineness of transactions and creditworthiness of the parties. Although, various evidences have been filed before the Assessing Officer, but the Assessing Officer ignored the evidences filed by the assessee and made additions, towards the amount received from the Managing Director and his wife as unexplained credit u/s 68 of the Act. 5. The Ld.CIT(A), after considering the submissions of the assessee and also by following certain judicial precedents, including the decision of Hon'ble High Court of Delhi in the case of Beutex India P.Ltd. Vs. CIT (2012) 8 Taxman.com 9(Delhi), observed that the appellant company did not submit any explanation from Shri M.Ramaiah, regarding the source of the said amount. Further, although the appellant company claims to have explained the source in the hands of the Shri M.Ramaiah, out of loan borrowed from Sree Sai Datta MACC Society Ltd and other financial institutions, but no evidences 5 have been filed and the amount has been received in cash. Therefore, opined that the appellant could not establish genuineness of transactions and creditworthiness of the parties. Therefore, held that there is no error in the findings recorded by the Assessing Officer to make additions towards amount received from the shareholder as unexplained credit u/s 68 of the Act. The Ld.CIT(A) had also upheld the additions made by the Assessing Officer towards amount received from Smt.K.Lakshmi Devi, on the ground that although the appellant company claims that Smt.K.Lakshmi Devi has invested out of chit funds, but subsequently, changed their arguments and claimed that she has received loan from her husband, Shri M.Ramaiah. Further, no evidence has been filed to prove the amount received from Shri M.Ramaiah. Since the amount has been received in cash and further, no evidence has been filed to prove the source, it can be said that the assessee is not able to prove the genuineness of the transactions and creditworthiness of the parties. Therefore, sustained the additions made by the Assessing Officer towards the amount received from Smt.K.Lakshmi Devi. 6. Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal. 7. The learned Counsel for the assessee submitted that the Ld.CIT(A) erred in sustaining the additions made by the Assessing Officer towards share application money and share capital received from Shri M.Ramaiah, Managing Director of the appellant company and Smt.K.Lakshmi Devi, his wife, without 6 appreciating the fact that the appellant company has submitted relevant details including confirmation from both the parties along with their bank statements, proof of source of income for amount contributed to the appellant company and also explained the difference in the balance sheet filed along with the original return of income. Although, the appellant has filed all the details, but the Assessing Officer and the Ld.CIT(A) made additions u/s 68 of the Act only on the ground that the appellant could not establish genuineness of transactions and also failed to prove creditworthiness of the parties. But the fact remains that the appellant company has filed relevant evidences, including a certificate from Sree Sai Datta MACC Society Ltd. for availing SOD loan and also relevant bank statements to prove that the Managing Director has drawn Rs.1,50,00,000/- cash, out of loan proceeds and invested in the appellant company. Similarly, the appellant company has filed relevant evidences in respect of amount received from Smt.K.Lakshmi Devi. The learned counsel for the assessee, further submitted that as per provisions of section 68 of the Act, once, identity is proved, then no additions can be made towards any sum received from shareholder or creditor and further, if at all, the appellant is not able to prove the genuineness of transactions and the creditworthiness of the parties, then the sum received from the creditors may be assessed in the hands of the creditor alone, but not in the hands of the appellant company. In the present case, the Assessing Officer made the additions in the hands of Shri M.Ramaiah for the A.Y.2016-17 towards amount invested in the appellant company, amounting to Rs.2,35,48,000/- as unexplained investment and once 7 addition is made in the hands of the individual shareholder, then on the very same amount, no addition can be made in the hands of the appellant company. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) and the decision of Hon'ble Bombay High Court in the case of CIT Vs. Creative World Telefilms Ltd.(2011) 333 ITR 100 (Bom.). 8. The learned DR on the other hand, supporting the order of the Ld.CIT(A), submitted that it is a matter on record, that the appellant could not explain the difference amount claimed to have been received from Shri M.Ramaiah, when compared to appellant books and books of accounts of the Director. Further, the appellant could not explain the source of investment by Smt.K.Lakshmi Devi. Although the appellant claims to have invested out of loan borrowed from Sree Sai Datta MACC Society Ltd., but no evidence has been furnished before the Assessing Officer and the Ld.CIT(A). The Ld.CIT(A), after considering relevant facts has rightly sustained the additions made by the Assessing Officer and their order should be upheld. 9. We have heard both the partis, perused the material on record and gone through the orders of the authorities below. We have also carefully considered relevant case laws referred to by both the parties in support of their contentions. Admittedly, the Assessing Officer made additions towards share capital, share application money and short term borrowings received from Shri M.Ramaiah, Managing Director of the appellant company u/s 68 of the Act, on the ground that there is difference in the 8 amount invested in the appellant company, when compared to the books of accounts of the appellant company with the books of accounts of Shri M.Ramaiah. According to the Assessing Officer, although the appellant proved identity of the shareholders, but could not prove the genuineness of transactions and creditworthiness of the parties. The Assessing Officer has given reasons for treating the amount received from Shri M.Ramaiah and Smt.K.Lakshmi Devi as unexplained credit and as per the Assessing Officer, there is difference in the amount invested in the appellant company, when compared to the balance sheet filed by Shri M.Ramaiah for the F.Y.2015-16 and further the amount has been received in cash. It was the argument of the assessee before the Assessing Officer that Shri M.Ramaiah is Managing Director of the appellant company and Smt.K.Lakshmi Devi is wife of Shri M.Ramaiah. Therefore, the identity of the parties is not in dispute. The appellant, further claimed that it has filed relevant evidences to prove the genuineness of the transactions and creditworthiness of the parties. 10. We have given our thoughtful consideration to the reasons given by the Assessing Officer to make addition towards amount received from Shri M.Ramaiah and Smt.K.Lakshmi Devi u/s 68 of the Act, in light of various averments made by the learned counsel for the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer/Ld.CIT(A), for the simple reason that the identity of both the shareholders is not in dispute, going by the observation of the Assessing Officer/Ld.CIT(A) in their orders. In fact, the Assessing Officer 9 has accepted the identity of the creditors, because Shri M.Ramaiah is Managing Director of the appellant company and Smt.K.Lakshmi Devi is wife of Shri M.Ramaiah. In so far as the genuineness of the transactions, there is no dispute, going by the evidences filed by the assessee, because the amount invested in the appellant company has been disclosed by the shareholders in their individual returns of income filed for the relevant assessment years. Although there is a difference in the amount shown as per books of accounts of the appellant company and books of accounts of Shri M.Ramaiah, but the said difference has been explained by filing revised balance sheet. As per the revised balance sheet, the shareholder is having sufficient source to explain the amount invested in the appellant company. We further note that the appellant has filed a certificate from Sree Sai Datta MACC Society Ltd., dated 26.12.2023 and as per the said certificate, Shri M.Ramaiah availed SOD loan of Rs.2,00,00,000/- from the society and has drawn a sum of Rs.1,50,00,000/- cash between 12.05.2015 to 18.05.2015, when he has made investment in the appellant company. From the details filed by the assessee, it appears that Shri M.Ramaiah is having sufficient sources to explain the investment with the appellant company. As regards genuineness of transactions, in our considered view, merely because the amount has been invested in cash, it cannot be said that the transaction is not genuine, as long as the parties are able to explain the transactions with relevant evidences. Since the appellant is able to file relevant evidences to prove the amount invested in cash with known sources of income and also corresponding evidences, in our considered view, merely for the 10 reason of payment in cash, the genuineness of transactions cannot be doubted. Therefore, we are of the considered view that the assessee could be able to explain the identity of the parties and also prove the genuineness of the transactions and creditworthiness of Shri M.Ramaiah towards the amount invested in the appellant company. 11. Having said so, let us come back to another aspect of the issue. Admittedly, the Assessing Officer of Shri M.Ramaiah has assessed a sum of Rs.2,35,48,000/- in the hands of Shri M.Ramaiah as unexplained investment for the A.Y.2016- 17, which is evident from the assessment order passed in the case of Shri M.Ramaiah u/s 143(3) r.w.s.147 of the Act dated 25.12.2019, where, addition has already been made in the hands of the shareholder towards amount invested in the appellant company as unexplained investment. Therefore, once amount invested in appellant company has been assessed as unexplained investment in shareholder case, then in our considered view, no additions can be made in the appellant company on the very same amount as unexplained cash credit. Further, unexplained investment made in the hands of the individual shareholders can be a source for explaining investment in the appellant company and therefore, the investment by Shri M.Ramaiah in the appellant company cannot be a unexplained credit in the hands of the appellant company. Further, it is well established principle of law by the decisions of Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (supra), where, Hon'ble Supreme Court held that if the share application money is received by the assessee 11 company from alleged bogus shareholders whose names are given to the Assessing Officer, then the department is free to open their individual assessment in accordance with law, but sum received by the appellant company cannot be regarded as unexplained credit of the assessee. Similar view has been taken by the Hon'ble Supreme Court in the case of CIT Vs. Stellar Investment Ltd.[2001] 251 ITR 263 (SC), Hon’ble Bombay High Court in the case of CIT Vs. Creative World Telefilms Ltd.(supra) has considered similar issue and held that once the identity of the shareholder is established, then, the sum received by the appellant company from the shareholder cannot be regarded as unexplained income of the appellant company. The sum and substance of the ratio laid down by various courts is that when the identity of the creditor is established, then, merely for the reason of not establishing the creditworthiness of the parties, additions cannot be made in the hands of the appellant company and further, if at all, any addition is required to be made, then the same can be considered in the hands of the shareholder, but not in the hands of the appellant company. 12. In so far as the amount received from Smt.K.Lakshmi Devi, although the appellant initially claims that she has invested out of her chit funds, but subsequently filed relevant evidences to prove that she has received sum of Rs.67,00,000/- loan from her husband, Shri M.Ramaiah, out of SOD loan taken from Sree Sai Datta MACC Ltd. In this regard, the assessee has filed revised balance sheet of Shri M.Ramaiah and also Smt.K.Lakshmi Devi. As per the details filed by the assessee, we find that the amount invested in the appellant company has 12 been explained out of loan received from Shri M.Ramaiah. Therefore, we are of the considered view that the assessee was able to explain the amount received from Smt.K.Lakshmi Devi towards share application money. In the present case, the appellant has discharged the onus cast upon it as per section 68 of the Act and proved identity of both the shareholders and also established genuineness of transactions and creditworthiness of the parties. Therefore, we are of the considered view that the Assessing Officer erred in adding the amount received from Shri M.Ramaiah and Smt.K.Lakshmi Devi as unexplained credit u/s 68 of the Act. The Ld.CIT(A) without appreciating relevant facts, simply sustained the additions made by the Assessing Officer. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards share capital, share application money and other short term borrowings from Shri M.Ramaiah and Smt. K.Lakshmi Devi u/s 68 of the Act. 13. In the result, appeal filed by the assessee is allowed. Order pronounced in the Open Court on 30th December, 2024. Sd/- Sd/- (K. NARASIMHA CHARY) JUDICIAL MEMBER (MANJUNATHA G.) ACCOUNTANT MEMBER Hyderabad, Dated 30th December, 2024 L.Rama, SPS 13 Copy to: S.No Addresses 1 M/s Masineni Hotels Private Limited, 4-3-151, Bellary Road, Near Bypass, Anantapur 2 The ACIT, Circle-1, Anantapur 3 The Pr.CIT, Kurnool 4 The DR, ITAT Hyderabad Benches 5 Guard File By Order "