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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI BHAVNESH SAINI, & SHRI T.S. KAPOOR,
Date of Hearing 06/08/2019 Date of Pronouncement 09/08/2019 ORDER
PER T. S. KAPOOR, ACCOUNTANT MEMBER,
This is an appeal filed by the assessee against the order of Ld.
CIT(A)-II, dated 03/11/2014. The grounds of appeal taken by the assessee are reproduced below:-
1. “The ld. CIT(A)-II both on facts and in law and also in the circumstances of the case has erred in confirming the addition of Rs.50,00,000/- u/s 68 of the I.T. Act on account of acceptance of share application money from M/s Indlon Hosiery Pvt. Ltd. based on the conjecture and surmises ignoring the fact that there was no adverse material before the AO to doubt the identity and creditworthiness of the above share applicant.” At the outset, the Ld. AR submitted that the assessee is engaged 2.
in the business of development of real estate and during the year under consideration, it had received share application money amounting to Rs.50 lakhs from M/s Indlon Hosiery (P.) Ltd. and the Assessing Officer during assessment proceedings raised a query regarding identity, genuineness and creditworthiness of the investor and therefore investor company was issued notice u/s 133(6) of the Act and was required to furnish various documents/information. The Ld. AR submitted that in respect to the notice u/s 133(6), the investor company had submitted a copy of audited balance sheet, copy of income tax return along with copy of PAN Number and name and addresses of its directors. It was submitted that the Assessing Officer wanted the assessee to explain the source of investment by the invester company and to which the assessee had filed complete reply and in this respect our attention was invited to copy of assessment order where the reply given by assessee company was reproduced by the Assessing Officer. The ld. AR submitted that the assessee had filed all the relevant documents which proved the identity, creditworthiness and genuineness of the transactions but the Assessing Officer did not agree with the contentions of the assessee. The Ld. AR in this respect submitted that the case laws relied on by the Assessing Officer are not applicable to the facts and circumstances of the case. The Ld. AR also tried to distinguish the facts of the case law in the case of NRA Iron Pvt. Ltd. decided by the Hon’ble Supreme Court and filed a chart distinguishing the facts of the present case. The Ld. AR also took us to copy of the audited accounts of the investor company placed at paper book page 9 to 13 and argued that investor company had sufficient funds of its own and had made the investment in due course of its business therefore, it was prayed that the appeal filed by the assessee allowed.
The Ld. DR on the other hand, heavily placed her reliance on the order of the authorities below and also relied on a number of case laws and filed written synopsis. The ld. DR specifically relied on the case of Hon’ble Supreme Court in the case of PCIT vs NRA Iron P. Ltd and it was argued that the transactions was not genuine and the assessee is required to prove all the ingredients such as identity, creditworthiness and genuineness of the transactions and which he has failed as the audited accounts of the invest company itself do not warrant such investment and that too a huge premium.
We have heard the rival parties and have gone through the material placed on record. We find that the assessee has received share application money from one of M/s Indlon Hosiery Pvt. Ltd. A copy of audited accounts for financial year 2010-11 is placed at paper book page 9 to 13. On examination of balance sheet, we observe that the major source of funds of the investor company is reserves and surplus which itself are on account of share premium. The examination of profit & loss account of the investor company reveals that turnover of the assessee was only Rs.8,81,675/- and net profit was only Rs.95,000/-. We further observe from the balance sheet of the investor company that most of the funds are locked up in, investment and loans and advances. The funds locked up in investment are Rs.89 lakhs whereas funds locked up in loans and advances are to the extent of Rs.2,56,45,000/-. Turnover of the assessee company is quite low as compared to the funds of the company which clearly demonstrates that the investor company is indulging into sham transactions. Further we find that the investor company has invested in the share capital of the assessee company at a premium of Rs.90 per share. The share application money for a share of Rs.10 has been received by the assessee @ Rs.100 per share. The examination of the audited accounts of the investee company demonstrates that assessee had not carried out any significant activities.
The examination of balance sheet of investee company reveals that the funds of the company are in the form of reserves and surplus and share application money and application of funds is in loans and advances.
The financials of the investee company does not warrant that it deserves share premium of Rs.90 per share, therefore, all these facts prove that the transactions of share application money is not a genuine transaction.
The Hon’ble Apex Court in the case of PCIT vs NRA Iron & Steel Pvt. Ltd. vide its order dated 05/03/2019 has held that the practice of conversion of unaccounted money through cloak of share capital/premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient and the onus to establish creditworthiness of the investor companies is on the assessee. The Hon’ble Court has held that the assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. In the present case, though the assessee has received an amount through banking channel but the analysis of the financial statements of investor company do not warrant any justification for having invested in the investee company at a huge premium of Rs.90 per share, specifically keeping in view the fact that investee company is also not engaged in significant activities. Therefore, in view of the facts and circumstances, the appeal of the assessee is dismissed.
Finally, the appeal filed by the assessee is dismissed.
The order is pronounced in the open court on 09/08/2019.