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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI SANJAY GARG, HON’BLE & SHRI GIRISH AGRAWAL, HON’BLE
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the order passed by the Learned Commissioner of Income Tax (Appeals) - 15, Kolkata, (hereinafter the “ld. CIT(A)”) dated 11/10/2018 for Assessment Year 2012-13 against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by Tax Recovery Officer – 4, Kolkata, dated 23/03/2015. 2. Grounds of appeal raised by the assessee are reproduced as under:-
1. For that in the facts and circumstances of the case, the Ld. CIT(Appeals)-15 erred in violating the principles of natural justice. As such, the order passed u/s 250 is void ab-initio. The action of the Ld. CIT(Appeals)-15 was wholly unreasonable, uncalled for and bad in law.
Assessment Years: 2012-13 M/s. Balgopal Merchants Pvt. Ltd. 2. For that the Ld. CIT(Appeal)-15, erred in making addition of entire Share Capital & Share Premium of Rs.3,65,95,490/- as unexplained cash credit u/s 68 of the Income Tax Act. 3. For that the Appellant craves to adduce additional ground and/or modify or withdraw any of the foregoing grounds before, or at the time of hearing of the appeal.”
Brief facts of the case are that assessee was incorporated on 29/06/2011 and claims to be engaged in the business of trading and dealing of land. The year under consideration i.e., Assessment Year 2012-13 is the very first year of operation of the company which is a broken year considering its date of incorporation. Assessee filed its return of income reporting total income at “Nil” on 29/03/2014. During the course of assessment, ld. Assessing Officer enquired about the equity share capital raised by the assessee for an amount of Rs.3,66,00,000/-, comprising of share capital at Rs.11,71,000/- and security premium of Rs.3,54,29,000/-. Ld. Assessing Officer issued summons u/s 131 of the Act on the Director of the assessee to produce relevant documentary evidence and explanation/justification for the large share premium raised by the assessee. Ld. Assessing Officer noticed that there was no compliance from assessee by way of which identity, genuineness of the share subscribers and creditworthiness of the transactions can be established. The details of share capital raised during the year is tabulated as under:- Share Capital as Subscription to the Memorandum (Incorporation Date i.e., 29.06.2011) Rs.1,00,000/- 1st Allotment as on 30.03.2012 (without any premium to 5 individuals as explained Rs.10,00,000/- earlier) 2nd Allotment on 31.03.2012 (With Security Premium to two companies as explained Rs.71,000/- earlier only Capital Part) 2nd Allotment on 31.03.2012 (With Security Premium to two companies as explained Rs.3,54,29,000/- earlier only Premium Part) Total of Above Rs.3,66,00,000/-
From the above table, it is noted that there are two classes of share subscribers comprising of five individuals to whom shares were issued at face Assessment Years: 2012-13 M/s. Balgopal Merchants Pvt. Ltd. value of Rs.10/- each without any premium, totaling to Rs.10,00,000/-. The details of the above five share subscribers is tabulated as under:-
The second class of share subscribers comprises of two companies to whom shares were issued at face value of Rs.10/- each and share premium of Rs.4,990/- per share was charged. Details in this respect are tabulated as under:-
5.1. In respect of the above two classes, ld. Assessing Officer analyzed the facts in the light of preponderance of probability of human behavior and observed that assessee had been recently incorporated without any proven track record which does not justify the hefty premium of Rs.4,990/- raised by the assessee from the two share subscribing companies. Since nothing was placed on record to establish the basic ingredients of identity, creditworthiness of share subscribers and the genuineness of the transactions. Ld. Assessing Officer completed the assessment by making an addition of Rs.3,65,95,419/- as unexplained cash credit u/s 68 of the Act in respect of fresh amount of share application money along with premium raised during the year. Aggrieved Assessment Years: 2012-13 M/s. Balgopal Merchants Pvt. Ltd. assessee went in appeal before ld. CIT(A), who sustained the addition made by the Assessing Officer and dismissed the appeal.
Aggrieved, assessee is in appeal before the Tribunal.
Ld. Counsel for assessee furnished written submission containing five pages along with a compilation as annexure to the written submission to corroborate the transactions of share capital and share premium for which addition has been made. On a query raised by the Bench in respect of valuation of shares arrived at for charging premium of Rs.4,990/-, more particularly in the very first year of the incorporation, ld. Counsel submitted that assessee had made its first allotment of share capital of Rs.10,00,000/- to five individuals. All these individuals were engaged in dealing of land and the capital was, therefore, proportionately divided between them. Assessee made investment in land by raising share capital for which cost of land was very low and would fetch good sale price at high profits after its development, claimed ld. Counsel. It was also stated that assessee is having investment activities in land and has reported loss because it is the first year of its operation and no activities have been noted for generating income. 7.1. On these submissions made by ld. Counsel for assessee, reference was made to object clause contained in Memorandum of Association of assessee company which is reproduced as under:- “(A) THE MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE: 1. To carry on the business as distributors, agents, traders, merchants, contractors, brokers and otherwise deal in merchandise and articles of all kinds including clearing agents, freight contractors, forwarding agents, licensing agents, general brokers, and to carry any kind of commercial business. To carry on all of any of the business as buyers, sellers, suppliers, growers, processors, traders, merchants, indentures brokers, agents, assemblers, stockiest of goods and commodities of any kind to work as commission agents, brokers, contractors, processors order suppliers and dealing agents.”
Assessment Years: 2012-13 M/s. Balgopal Merchants Pvt. Ltd. 7.2. In the said main object clause of assessee, there is no reference to the activities of development of land or dealing in land as claimed by ld. Counsel in his submissions. The main object as stated above is in respect of dealing with merchandise and articles of all kinds but has no reference to dealing/development of land activities. Further, from details of share subscribers referred by ld. Counsel in the course of hearing and details of which are tabulated above, it was questioned as to why no premium was charged on the issue of shares to five individuals to whom the shares were allotted on 30/03/2012 as compared to the two share subscribing companies from whom share premium of Rs.4,990/- was charged when shares were allotted to them on the very next day i.e., 31/03/2012. 7.3. The submissions made by ld. Counsel in this respect was in reference to land claimed to have been procured during the year for which nothing except some tabulated details were placed on record. From those details, it was submitted that assessee had acquired 690.51 decimals of land area. There is nothing on record to demonstrate as to how these lands were acquired in terms of their conveyance deeds. In the written submissions furnished by assessee it is submitted that investment of assessee is in land and at the time of transactions and in view of huge quantity of land, cost of lands was very low but after the development of same, price of the same would be very high and profitable. It is also stated that “assessee is valuing investments at books value, whereas, the intrinsic or fair market value is much more. While issuing shares, fair market value of the shares has to be taken into account and the person paying the premium has factually benefitted from the purchase of shares at premium.” 7.4. Assessee also submitted that in order to justify its fair market value had made an attempt to furnish the submissions before ld. Assessing Officer for