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M/s M.A. Projects Pvt. Ltd. BA-17A,DDA Flats, Ashok Vihar, Phase-I, Delhi-110052 Vs. DCIT, Central Circle-03, New Delhi
August, 12th 2019
                                NEW DELHI


                                   ITA No. 402/DEL/2015
                                [Assessment Year: 2011-12]

M/s M.A. Projects Pvt. Ltd.                        DCIT,
BA-17A,DDA Flats,                                  Central Circle-03,
Ashok Vihar, Phase-I,                              New Delhi
                Appellant                                            Respondent

               Assessee by                         Shri S. K. Gupta
               Revenue by                          Ms. Rinku Singh-DR

       Date of Hearing                                            06/08/2019
       Date of Pronouncement                                      09/08/2019

       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."

2.     At the outset, the Ld. AR submitted that the assessee is engaged

in the business of development of real estate and during the year under
                                   2                 ITA No.402/Del/2015

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
                                    3                 ITA No.402/Del/2015

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.

3.   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.

4.   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
                                    4                 ITA No.402/Del/2015

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
                                       5                 ITA No.402/Del/2015

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.

5.    Finally, the appeal filed by the assessee is dismissed.

      The order is pronounced in the open court on 09/08/2019.

          Sd/-                                         Sd/-
   [BHAVNESH SAINI]                             [T.S. KAPOOR]
  JUDICIAL MEMBER                             ACCOUNTANT MEMBER
Delhi; Dated: 09/08/2019.
f{x~{tÜ? fÜA P.S
                     6   ITA No.402/Del/2015

Copy forwarded to:
1.  Appellant
2.  Respondent
3.  CIT
4.  CIT(A)
5.  DR
                            Asst. Registrar,
                           ITAT, New Delhi
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