KUNJAL SYNERGIES PVT. LTD.,KOLKATA vs. DCIT, CIRCLE - 8(1), KOLKATA , KOLKATA

This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeal)-3, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 15.03.2018 for the AY 2011-12.

Issue raised in ground no. 1 is general in nature and needs no adjudication.

Facts in brief are that the assessee filed return of income on 13.09.2011 showing total income of Rs. 2,06,04,670/-. Thereafter the case of the assessee was selected for scrutiny and notices were duly issued and duly served on the assessee. During the course of assessment proceedings, the AO observed from the balance sheet that the assessee has issued 2,80,000 equity shares of face value of 10/- each at a premium of Rs. 990/-. Accordingly the AO called upon the assessee to furnish details in respect of share capital/share premium and justify the amount of premium received from five subscribers by referring the information received from Directorate of Investigation Wing vide letter dated 28.11.2014 regarding accommodation entries provided to the assessee company. The AO issued summons u/s 131 of the Act on 03.03.2015 to all the parties however none appeared. Accordingly the AO show caused the assessee vide order sheet entry to explain why the transactions should not be treated as accommodation entries which was relied by the assessee vide letter dated 17.03.2015. The assessee submitted in his reply, which is extracted from para 2 at page 4 of assessment order, that when these parties were contacted it was learnt that summons u/s 131 of the Act were received by four parties out of five parties and were duly replied by enclosing the details as requisitioned by the AO furnishing therewith copies of balance sheets, bank statements showing the investments made in the assessee company. The assessee also filed necessary evidences before the AO in respect of share subscribers filing their ITRs, PANs, audited accounts along with bank statements. In para 3 at page 4 of the assessment order it was stated that in respect of 5th party on which the summon could not be served, the assessee filed details comprising master data , ITR, copy of Form no. 18, audited financial statements and copy of bank statement highlighting the investment made in the assessee company. In para 4 of the assessment order it was stated that the book value of share was 212/- per share whereas the premium at which the equity shares were issued was approximately

The Ld. CIT(A) simply affirmed the order of AO by observing and holding as under:

The Ld. A.R vehemently submitted that the assessee company is mainly engaged in the business of trading, storage, distribution petrochemicals, solvents ,energy related products and during the year filed return of income declaring total income of Rs. 2,06,04,670/-. During the year the assessee raised share capital/share premium by issuing equity shares to five subscribers at face value of Rs. 10/- each at a premium of Rs. 990/- per share though the book value of the share was Rs. 212/- per share. However as per the growth of the company the value of the share has increased 20 times over a period of four years. The Ld. A.R submitted that the assessee was incorporated in 2007 and during the period of 4 years ,the worth of shares has gone up 20 times. It is only on this basis , the issue price of the shares has been fixed by the assessee. The Ld. A.R also stated that Section 56(2)(viib) of the Act which provides for addition of income if the shares are issued at a price which is higher than fair

The Ld. D.R on the other hand relied on the order of authorities below and submitted that the AO as well as Ld. CIT(A) has passed a very speaking and reasoned order stating as to how the money received by the assessee from five subscribers do not satisfy the basic three conditions as provided in Section 68 of the Act. The mere fact that subscribers have sufficient funds or net worth would not automatically proved that they have creditworthiness to invest the money and transactions are genuine. The Ld. D.R therefore prayed in view of reasoning by authorities below, the appeal of the assessee may be dismissed.

We have heard rival contentions and perused the material on record, we find that during the year the assessee has raised money from five subscribers by issuing equity shares of face value of 10/- each and at a premium of Rs. 990/-. The net worth or the book value as per share as per books of account of the assessee was 212/- per share whereas the assessee was issued shares at a premium of Rs. 990/-. We also note that the assessee company was incorporated in 2007 and over a period of four years the value of shares was increased by 20 times and it is only based on this growth trajectory and potential of the assessee, The equity shares have been prised at Rs. 1,000/- each inclusive of premium of Rs.990/-. Moreover the provisions of Section 56(2)(viib) of the Act are effective from AY 2013-14 and are not applicable to the year under consideration. We also note that all these facts have been placed by the assessee before the AO as well as Ld. CIT(A).

We have also perused the chart placed by the assessee which contains the detail of share holders net worth and amount invested to the assessee and is extracted below for the sake of ready reference:

In the result, the appeal of the assessee is allowed.