Subscribers Affirms Investments in Equity shares of company, Explains Source of Funds: ITAT deletes addition of Rs. 57.5 crores u/s 68 [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. 57.5 Crores under Section 68 of Income Tax Act, 1961 after the subscribers affirmed their investments in equity shares of the company and explained the source of funds.

The revenue- assessee Income Tax Officer, Wd-1(4) Kolkata filed its return of income on 31.10.2015 declaring total income at Rs.10,26,215/-. The assessee is a registered NBFC with code no. 0807 and is duly registered with the Reserve Bank of India.

The case of the assessee was selected for limited scrutiny under CASS for the reason namely (i) introduction of capital in NBFC/Investment companies, (ii) substantial increase in share capital in a year and (iii) Large share premium received during the year. The statutory notices were duly issued and served upon the assessee.

The AO found from the Balance Sheet as at 31.03.2015 that the assessee company has received share application money of Rs.57,54,54,000/- during the year in question by issuing 1,74,38,000 equity shares of Rs. 10/- each at a premium of Rs.23/- each thereby raising total amount of rs.57,54,54,000/- as share application money during the year. The AO extracted the details of these two shareholders i.e. (i) L7 Vintrade Private Limited and (ii) rocket Infrastructure Private Limited at para 2.2 of the assessment order

The AO issued notices under Section 133(6) of the Income Tax Act dated 06.09.2017 to the subscribing companies for verification of these transactions. Besides, AO also called upon the assessee to justify the premium received from these companies. The share subscribing companies duly replied to the notices issued under Section 133(6) of the Act before the AO and the AO, on the basis of the replies, came to the conclusion that these companies were lacking business fundamentals and credentials in the form of accumulated profits or past history of the promoters to subscribe the shares of this magnitude in the assessee company.

Mr. Subhrajyoti Bhattacharjee representing the assessee submitted that the assessee has raised money from two companies who have literally no creditworthiness to subscribe to the share capital/share premium of the assessee company and, therefore, the genuineness of the transactions were undoubted. It was stated that the money raised in the form of share subscription is nothing but assessee’s own fund which was plowed back in the guise of share capital/share premium of Rs.57,54,54,000/- comprising of Rs.17,43,18,000/- as share capital and Rs.40,10,00,074. Further argued that subscription of share in the capital of the assessee company was also a part of the same activities of the subscriber companies. Therefore, praying for the order of CIT (A) may be reversed and that of the AO may be restored.

Per contra, strongly refuted the arguments of the DR and Mr. Miraj D. Shah representing the revenue stated that even the notices issued under Section 133(6) of the Income Tax Act to both the investors were duly responded and all the details called for were duly furnished. Further, while referring to the observations of the AO that the offices were located in the same place, stated that since all the companies are under the same management and, therefore, the addresses of these companies were the same and at the same place.

Further referred to the remand proceedings and report furnished by the AO in which the AO has called for the various evidences and also recorded statements under Section 131 of the Act of the assessee as well as of the subscriber companies and it was confirmed by the subscriber companies that they have invested in shares of assessee company

It was stated that the AO has only commented on the directors of the assessee company and that of the Rocket Infrastructure Pvt. Ltd. and observed that there was no possibility of two persons coming together and doing business together who were belonging to different communities and faith. Further stated that the CIT (A) has passed a very cogent, convincing and speaking order while deleting the addition and, therefore, the same may kindly be upheld by dismissing the appeal of the revenue.

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