NAGARJUNA CERACHEM PVT.LTD., HYD,HYDERABAD vs. ITO, WARD-16(2), HYDERABAD, HYDERABAD

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ITA 1146/HYD/2015Status: DisposedITAT Hyderabad09 May 2018AY 2007-084 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal deleted additions for share application money where confirmation letters were filed and identity was not doubted, following Supreme Court and High Court precedents. However, additions for share application money from individuals who did not file confirmations were upheld. Additions for unsecured loans were also confirmed.

What were the facts?

The assessee company received share application money. The Assessing Officer made additions on the ground that the creditworthiness of some shareholders was not proven, despite identity not being doubted. The assessee also received unsecured loans.

What were the issues?

Whether additions for share application money are valid when identity of shareholders is not doubted but creditworthiness is questioned? Whether additions for unsecured loans are valid when creditworthiness of creditors cannot be established by the assessee?

Which sections of the Income-tax Act were involved?

Section 68

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, HYDERABAD BENCH “A-SMC”, HYDERABAD

Before: SHRI J. SUDHAKAR REDDY

For Appellant: Shri S. Rama Rao
For Respondent: Shri B. Suresh Babu

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A-SMC”, HYDERABAD BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA No. 1146/Hyd/2015 Assessment Year: 2007-08 M/s Nagarjuna Cerachem vs. ITO, Pvt Ltd., Ward-16(2), Hyderabad. Hyderabad. PAN- AABCN3368G (Appellant) (Respondent) Assessee by : Shri S. Rama Rao Revenue by : Shri B. Suresh Babu Date of hearing : 09-05-2018 Date of pronouncement : 09-05-2018 ORDER PER SHRI J. SUDHAKAR REDDY, AM: This appeal is filed by the assessee directed against the order of the Ld. CIT(A)-4, Hyderabad, dated 12.05.2015 for the A.Y 2007-08 passed u/s 250 of the IT Act, 1961 (the Act).

2.

After hearing rival contentions, I find that the assessee has submitted confirmation letters from all the persons who have applied for allotment of shares in the assessee company, except in the case of Shri G.S Ramaraju, Shri G. Sumanth and Smt. G. Padma. In all other cases the A.O made an addition on the sole ground that the person who

2 ITA No. 1146/Hyd/2015 M/s Nagarjuna Cerachem Pvt Ltd., Hyderabad. have applied for allotment of shares have not proved their credit worthiness. The identity has not been doubted.

3.

The Hon’ble Supreme Court in the case of CIT Vs lovely Exports Pvt Ltd., reported in 2009 319 ITR 005 is held as follows:

“Income from undisclosed sources--Addition under section 68Share application money--SLP was filed before Supreme Court and question before court was; can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961. Held: No merit is found in SLP 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 AO, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, no infirmity is found with the impugned judgment. Special Leave Petition is dismissed. It cannot be regarded as undisclosed income of assessee-company”.

4.

The Hon’ble Andhra Pradesh High Court in the case of CIT Vs Lanco Industries, reported in (2000) 242 ITR 357 is held as follows:

“If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained income in their hands. In order to add it to the income of the assessee there must be a further finding that in fact the shareholders were mere name-lenders and the money allegedly invested by them really belonged to the directors of the assessee-company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the book entries were in fact dummies or stooges of the directors of the assessee-company, the same cannot be treated as unaccounted income of the assessee. There was no such finding by the assessing authority. In this view of the matter, the ultimate conclusion of the Tribunal cannot be fault in any case”.

3 ITA No. 1146/Hyd/2015 M/s Nagarjuna Cerachem Pvt Ltd., Hyderabad. 5. Respectfully following this binding decision of the Hon’ble courts, I delete the addition made on account of share application money wherever confirmation letters have been filed and where identity of the share holder is not doubted by the A.O. As regards the amount received from Shri G.S. Ramaraju Rs. 1,20,000/-, Shri G. Sumanth Rs. 2,50,000/-, and Shri G. Padma Rs. 1,00,000/- is concerned, I find that these persons have not filed confirmation letters. Thus these amounts, in my view are rightly added u/s 68 of the Act.

6.

Coming to unsecured loans, the contentions of the assessee is in ground No. 3 that the credit worthiness of the creditors cannot be established by the assessee company. This argument is against the propositions of law laid down by various courts on the issue of additions made u/s 68 of the Act. Thus, we dismiss this ground of the assessee and confirmed the addition of Rs. 5,75,600/- u/s 68 of the Act.

7.

In the result a total addition of Rs. 10,45,600/- is confirmed and the balance addition of Rs. 20,04,085/- is hereby deleted.

4 ITA No. 1146/Hyd/2015 M/s Nagarjuna Cerachem Pvt Ltd., Hyderabad. 8. In the result this appeal of the assessee is partly allowed.

Pronounced in the open court on 09th May, 2018.

Sd/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER

Hyderabad, Dated: 09th May, 2018. KRK 1) M/s Nagarjuna Cerachem Pvt Ltd. Plot No. 128, IDA Mallapur, Hyderabad - 76 2) The ITO, Ward-16(2), Hyderabad. 3) CIT(A) -4, Hyderabad. 4) The Pr.CIT(A)-4, Hyderabad. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File

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