CIT v. MAF Academy (P.) Ltd. - Taxpublishers.in

Case Laws Analysis
Distinguished on DCIT v. Sutlej Agro Products Ltd. 2018 TaxPub(DT) 6620 (Del-Trib)
Relied on ITO v. Sohail Financials Ltd 2018 TaxPub(DT) 6558 (Del-Trib)
Distinguished CIT v. Expo Globe India Ltd. 2014 TaxPub(DT) 0716 (Del-HC)
Followed CIT v. N.R. Portfolio (P) Ltd. 2014 TaxPub(DT) 0501 (Del-HC)
Distinguished CIT v. Gangeshwari Metal Pvt. Ltd. 2013 TaxPub(DT) 1319 (Del-HC)
Distinguished CIT v. Fair Finvest Ltd. 2013 TaxPub(DT) 0912 (Del-HC)
Distinguished CIT v. Kamdhenu Steel & Alloys Ltd. 2012 TaxPub(DT) 1644 (Del-HC)
Distinguished CIT v. Oasis Hospitalities (P) Ltd. 2011 TaxPub(DT) 0890 (Del-HC)
Distinguished CIT v. Dwarkadhish Investment (P) Ltd. 2011 TaxPub(DT) 0374 (Del-HC)
Distinguished CIT v. Victor Electrodes Ltd. 2010 TaxPub(DT) 1927 (Del-HC)
Distinguished CIT v. Value Capital Services P. Ltd. 2008 TaxPub(DT) 1946 (Del-HC)
Distinguished CIT v. Pradeep Kumar Gupta 2008 TaxPub(DT) 0417 (Del-HC)

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The Tax PublishersITA No. 341 of 2012 2014 TaxPub(DT) 0087 (Del-HC) : (2014) 361 ITR 0258 : (2014) 265 CTR 0006 : (2013) 096 DTR 0317 CIT v. MAF Academy (P.) Ltd. INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under sectioln 68Share capital--Where fact that assessee failed to produce persons who had invested towards share capital shares that there were people who were completedly un-related to the assessee and as such, all the entries were merely accommodation entries and tried to give it a colour of purchase of share capital and then slae of the same at a loss as such addition made by AO was justified. Out of the 18 affidavits filed, 9 affidavits give the number of shares which have been allotted by the assessee. The said 9 affidavits show that the face value of the share is Rs. 100 and the premium at which the shares are purchased was Rs. 100 in the month of May, 2001 and Rs. 200 for the shares purchased in the month of November, 2001. These 9 affidavits are all in seriatim and prepared on the same date i.e. 15-6-2009 and all pertain to transactions of the year May and November, 2001: The language of all these 9 affidavits is standard. [Para 30] The 9 affidavits do not give the break-up of the number of shares, face value or premium. 7 out of the 9 affidavits in the second set are all attested on 26-11-2001 and one is attested on 23-5-2001. All the nine affidavits are in the same language. [Para 31] The reason why court has referred to the date of attestation of the year 2001 is that we find it strange that the assessee in the year 2001 felt the need of obtaining affidavits from the persons investing in the shares of the company to certify the genuineness of the transaction as far back in the year 2001 when there was no suspicion or inquiry/investigation in contemplation even in the Department. We find it strange that an assessee along with share application money would obtain affidavits from the investors to confirm genuineness of the transaction. In a normal business transaction, no such certificate/affidavit would be obtained by any company from persons investing in its share capital. The fact that the assessee felt the necessity of obtaining such affidavits raises a suspicion on the genuineness of the very transaction. [Para 32] The assessee company is a private limited company and had not come out with any public issue nor made any advertisement for issuance of share capital. However, in one year there is infusion of share capital including premium of Rs. 4,35,00,000, out of which only Rs. 92,00,000 was infused from the directors/family members of the directors. The remaining share capital had been infused from parties which were completely unrelated either to the assessee or to any of its directors. In a private limited company, normally the investment of shares is from parties or persons who are friends or relatives of promoters/directors. [Para 33] It is noticed that the shares had face value of Rs. 100 and were allotted at a premium of Rs. 100 to Rs. 200 and were then subsequently purchased by the promoters/directors, who had originally transferred these shares at Rs. 35 per share. [Para 34] It is really surprising that a person who had purchased shares at a premium of Rs. 100 to Rs. 200 per share i.e. at a price of Rs. 200 to Rs. 300 per share, sold the shares at Rs. 35 per share i.e. at a substantial loss. Another surprising factor is that the entire investment happened during a short span of time and retransfer of the shares to the four promoters/directors of the company at Rs. 35 per share by different parties also happened during a short span of few days. The modus operandi and the manner in which cash is deposited in a bank and then utilized by way of an account payee cheque for purchase of shares for a premium of Rs. 100 to Rs. 200 per share and then the sale of shares at a loss clearly establishes that the said transaction was a camouflage transaction. The assessee has clearly attempted to camouflage the accommodation entries and tried to give it a colour of purchase of share capital and then sale of the same at a loss. Thus the assessee's capital increased or was enhanced by a substantial figure through these dubious transactions. This should be and has to be checked. [Para 35] Out of Rs. 4.35 crores received as share capital including premium, only Rs. 92 lacs has been received from the directors or their family members and the remaining amount has been received from parties totally unrelated to the assessee. Notices to some of the investors could not be served and even the Inspector who was deputed to serve the summons stated that none of the addresses could be found. The Authorised Representative of the assessee refused to produce the parties who had invested in the share capital on the ground that they were not in a position to produce them. The fact that the assessee failed to produce the persons who had invested towards share capital shows that these were people who were completely unrelated to the assessee and as such, all the entries were merely accommodation entries. Otherwise, in a private limited company, it would not have been difficult on the part of the assessee to produce persons who were investing substantial amount of money in the company towards share capital. [Para 36] The assessing officer in his order has as a sample referred to the entries in the account of some of the shareholders noticing that there are cash deposits of the exact amount for which cheque is subsequently issued to the assessee. Perusal of the bank statements clearly establishes that these parties were depositing cash and immediately either on the same day or in the near future withdrawing the same through a cheque which was issued in favour of the assessee. [Para 37] In the present case, the assessee is a private limited company and in the factual matrix, the assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. [Para 53] In view of the above, the assessee has not discharged the onus satisfactorily and the additions made by the AO were justified and sustainable. [Para 54] The substantial question of law is thus answered in favour of the appellant and against the respondent-assessee. The appeal is accordingly allowed with costs that are assessed at Rs. 20,000. [Para 55] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 341 of 2012
2014 TaxPub(DT) 0087 (Del-HC) : (2014) 361 ITR 0258 : (2014) 265 CTR 0006 : (2013) 096 DTR 0317

CIT v. MAF Academy (P.) Ltd.

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under sectioln 68Share capital--Where fact that assessee failed to produce persons who had invested towards share capital shares that there were people who were completedly un-related to the assessee and as such, all the entries were merely accommodation entries and tried to give it a colour of purchase of share capital and then slae of the same at a loss as such addition made by AO was justified.

Out of the 18 affidavits filed, 9 affidavits give the number of shares which have been allotted by the assessee. The said 9 affidavits show that the face value of the share is Rs. 100 and the premium at which the shares are purchased was Rs. 100 in the month of May, 2001 and Rs. 200 for the shares purchased in the month of November, 2001. These 9 affidavits are all in seriatim and prepared on the same date i.e. 15-6-2009 and all pertain to transactions of the year May and November, 2001: The language of all these 9 affidavits is standard. [Para 30] The 9 affidavits do not give the break-up of the number of shares, face value or premium. 7 out of the 9 affidavits in the second set are all attested on 26-11-2001 and one is attested on 23-5-2001. All the nine affidavits are in the same language. [Para 31] The reason why court has referred to the date of attestation of the year 2001 is that we find it strange that the assessee in the year 2001 felt the need of obtaining affidavits from the persons investing in the shares of the company to certify the genuineness of the transaction as far back in the year 2001 when there was no suspicion or inquiry/investigation in contemplation even in the Department. We find it strange that an assessee along with share application money would obtain affidavits from the investors to confirm genuineness of the transaction. In a normal business transaction, no such certificate/affidavit would be obtained by any company from persons investing in its share capital. The fact that the assessee felt the necessity of obtaining such affidavits raises a suspicion on the genuineness of the very transaction. [Para 32] The assessee company is a private limited company and had not come out with any public issue nor made any advertisement for issuance of share capital. However, in one year there is infusion of share capital including premium of Rs. 4,35,00,000, out of which only Rs. 92,00,000 was infused from the directors/family members of the directors. The remaining share capital had been infused from parties which were completely unrelated either to the assessee or to any of its directors. In a private limited company, normally the investment of shares is from parties or persons who are friends or relatives of promoters/directors. [Para 33] It is noticed that the shares had face value of Rs. 100 and were allotted at a premium of Rs. 100 to Rs. 200 and were then subsequently purchased by the promoters/directors, who had originally transferred these shares at Rs. 35 per share. [Para 34] It is really surprising that a person who had purchased shares at a premium of Rs. 100 to Rs. 200 per share i.e. at a price of Rs. 200 to Rs. 300 per share, sold the shares at Rs. 35 per share i.e. at a substantial loss. Another surprising factor is that the entire investment happened during a short span of time and retransfer of the shares to the four promoters/directors of the company at Rs. 35 per share by different parties also happened during a short span of few days. The modus operandi and the manner in which cash is deposited in a bank and then utilized by way of an account payee cheque for purchase of shares for a premium of Rs. 100 to Rs. 200 per share and then the sale of shares at a loss clearly establishes that the said transaction was a camouflage transaction. The assessee has clearly attempted to camouflage the accommodation entries and tried to give it a colour of purchase of share capital and then sale of the same at a loss. Thus the assessee's capital increased or was enhanced by a substantial figure through these dubious transactions. This should be and has to be checked. [Para 35] Out of Rs. 4.35 crores received as share capital including premium, only Rs. 92 lacs has been received from the directors or their family members and the remaining amount has been received from parties totally unrelated to the assessee. Notices to some of the investors could not be served and even the Inspector who was deputed to serve the summons stated that none of the addresses could be found. The Authorised Representative of the assessee refused to produce the parties who had invested in the share capital on the ground that they were not in a position to produce them. The fact that the assessee failed to produce the persons who had invested towards share capital shows that these were people who were completely unrelated to the assessee and as such, all the entries were merely accommodation entries. Otherwise, in a private limited company, it would not have been difficult on the part of the assessee to produce persons who were investing substantial amount of money in the company towards share capital. [Para 36] The assessing officer in his order has as a sample referred to the entries in the account of some of the shareholders noticing that there are cash deposits of the exact amount for which cheque is subsequently issued to the assessee. Perusal of the bank statements clearly establishes that these parties were depositing cash and immediately either on the same day or in the near future withdrawing the same through a cheque which was issued in favour of the assessee. [Para 37] In the present case, the assessee is a private limited company and in the factual matrix, the assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. [Para 53] In view of the above, the assessee has not discharged the onus satisfactorily and the additions made by the AO were justified and sustainable. [Para 54] The substantial question of law is thus answered in favour of the appellant and against the respondent-assessee. The appeal is accordingly allowed with costs that are assessed at Rs. 20,000. [Para 55]