INCOME TAX OFFICER, WARD-8(2), KOLKATA, KOLKATA V. SAPPHIRE TRADE ASSOCIATES PRIVATE LIMITED, KOLKATA

ITA 1115/KOL/2024

AI Insights

The case revolves around an appeal by the Income Tax Officer, Ward-8(2), Kolkata against the order of the CIT(A), NFAC, Delhi, which had deleted the addition of Rs.1,97,00,000 made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The addition pertained to share capital and share premium received by Sapphire Trade Associates Pvt. Ltd. during the assessment year 2012-13. The Assessing Officer had treated these as unexplained cash credits, suspecting the high premium on shares and non-compliance with summons. However, the CIT(A) found that the company had provided sufficient evidence to substantiate the genuineness and creditworthiness of the subscribers, and the valuation of shares was reasonable considering the business potential of the joint venture with Delsey (I) Pvt. Ltd.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126775 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINEET KUMAR
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Corroborative evidences; Unexplained cash credit; Supporting evidence; Grounds of appeal; Dismissed; Partners; Deleted; Department; Affirmed; Directors; Bona fide
• Section: 143(3); 142(1); 143(2); 68; 131; 13

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA [Before Shri Rajesh Kumar, AM & Shri Sonjoy Sarma, JM] I.T.A. No. 1115/Kol/2024 Assessment Year: 2012-13 ITO, Ward-8(2), Kolkata. Vs. Sapphire Trade Associates Pvt. Ltd. 25A, Vardaan Suite 403, Camac Street, West Bengal-700016. (PAN: AAQCS3345B) Appellant Respondent Date of conclusion of Hearing 20.02.2025 Date of Pronouncement 25.04.2025 For the Appellant Shri Vineet Kumar, Addl. CIT For the Respondent Shri Miraj D. Shah, AR ORDER Per Shri Rajesh Kumar, AM The appeal filed by the revenue is against the order of Ld. CIT(A), NFAC, Delhi dated 18.04.2024 for AY 2012-13 arising out of assessment order passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) by ITO, Ward-8(4), Kolkata dated 28.03.2015. 2. The only issue raised by the revenue is against the deletion of addition of Rs.1,97,00,000/- by Ld. CIT(A) as made by the Assessing Officer u/s. 68 of the Act. 3. The facts in brief are that the assessee filed its return of income on 26.09.2012 declaring total income of Rs. Nil. Thereafter, the case of the assessee was selected for scrutiny through CASS. Accordingly, notices u/s. 143(2) and 142(1) were issued and served on the assessee. During the course of assessment proceedings, the Assessing Officer observed that the assessee has received share capital including share premium of Rs.1,97,00,000/- comprising of fresh capital of Rs.20,60,000/- plus fresh premium of Rs.1,76,40,000/- during the impugned financial year. The assessee filed before the Assessing Officer the details/evidences as called for by the Assessing Officer in respect of the said share 2 ITA No. 1115/Kol/2024 Sapphire Trade Associates P. ltd., AY 2012-13 capital/share premium. The Assessing Officer also issued summon u/s. 131 of the Act to the directors of the share subscriber companies and one individual share subscriber in total 9 cases out of whom 6 directors of the subscriber companies and one individual subscriber appeared and their statements were recorded on oath whereas other two subscribers did not appear. Thereafter, the Assessing Officer treated the said share capital/share premium as unexplained cash credit in the books of account of the assessee by holding that assessee has issued share capital/share premium at high premium and there was no compliance to the summons issued. 4. The ld. CIT(A) in the appellate proceeding deleted the addition by observing and holding as under: “I have carefully considered the submissions made by the appellant, the facts on record and the applicable law in this regard. 6.1 The substantive grounds of appeal in Grounds No.1 to 3 are against the action of the A.O adding a sum of Rs.1,97,00,000/- being the amount of share capital/premium issued by the appellant. The appellant company had during the relevant A.Y 2012-13 issued 20,06,000 Shares amounting to Rs. 1,97,00.000/- (inclusive of Rs 20,06,000/- as Share Capital and Rs 1,76,40,000/- as Share Premium) to 9 different shareholders. In order to verify and examine the existence, genuineness and creditworthiness of the share subscribers, summons u/s 131 of the I.T. Act’1961 were issued to the Directors of the share subscriber companies. It is noted that there was compliance to these summons, as a director of six share subscribers companies and one individual subscriber appeared out of total nine (9) share subscribers whose deposition were recorded under oath. The A.O noted that the assessee company was incorporated in A.Y.2012-13 and each share was purchased by the individual subscriber /subscriber companies at the face value Rs.10/- along with the premium of Rs.90/- per share. The A.O further observed that all the share holders of the newly incorporated assessee company justified their investment in the assessee company on the rationale that the assessee company was going to invest in M/s Delsey (I) Pvt. Ltd. which was a joint venture(JV) between M/s Delsey SA(France) and M/s. Sapphire Trade Associates Pvt Ltd. (India) with 51% and 49% partnership respectively. 6.2 From the facts on record it is noted that, in addition to the compliance to the summons, the appellant had submitted supporting evidence for the existence, genuineness and creditworthiness of the share subscribers in the form of share allotment details, bank statements and IT return and audited financials of the share subscribers. However, the A.O was not satisfied that sources of the fund which were introduced into the assessee’s books as share capital and the premium as found from their bank statements were genuine on the reasoning that in all these cases its sources were found to be the companies controlled by Mr. Rajiv Baheti who was the main promoter of this group. The A.O further doubted the valuation of the shares on an optimistic presumption of future growth of the Delsey brand, as “ the new assessee company was going to start its joint venture business operation on such a product which had no past record of business in the Indian market.” In this context it is relevant to note that Delsey is not an unknown entity or a start up but a well-known brand whose credentials are well established. This is reiterated in the appellant’s submissions as under: 3 ITA No. 1115/Kol/2024 Sapphire Trade Associates P. ltd., AY 2012-13 Delsey SA is a French Company, founded in the year 1946, engaged in the business of luggage and travel accessories, with around 6000 active sales outlets and having a turnover of about 130 Million Euro as of 2010. It holds second place in the global luggage market, behind Samsonite. Delsey SA had presence in India since 2001 through a distribution arrangement with Piramal- owned VLP industries. Considering the fact that the luggage market in India was registering growth rate of 12-15 percent every year and was estimated to be about Rs 2,500 crore, they felt that their brand needed a more strategic involvement to establish its premium positioning and expansion of its retail footprint in India. Consequently, in 2011 they decided to snap their 10 years long association with VIP and form a Joint Venture with local Indian Partner. So they broke their ties with VIP in 2011 and formed an alliance with Mr. Rajiv Bahety (One of the Director & Key Managerial Person in Sapphire Trade Associates Pvt Ltd. ) as their local partner in the Indian Joint Venture who had good knowledge of Retail / Distribution business in India. A company's future sustainability, growth, valuation, and investment decisions are made on the basis of the underlying assets in the company and the future business plans and prospects, which the company is going to work on. In the instance, the assessee company has held shares of M/s Delsey (I) Pvt Ltd, being 49% share in the business. The underlying company is carrying on the business of luggage bags and is growing at a rate significant in comparison to the economy. From the latest Financial Statements (Refer Page No 47 onwards) of the said company, it is evident that the company is not a sham/shell company and has actually been conducting business operations. In view of the above, it can be inferred that the subscriber’s investment at a premium of Rs.90/- per share is not at all unreasonable. 6.3 Thus, from the facts on record, it can be seen that the identity, creditworthiness and genuineness of the share subscribers as well as the basis of valuation of the share premium in the case of the appellant company have been reasonably established. It was further submitted by the appellant that in the course of scrutiny proceedings u/s 143(3) in its own case for the A. Y 2016-17 during which the AO had enquired into details of share allotment as during the said AY, it had issued shares to same allottees, and the A.O, had on investigation, considered the share allotment as genuine. Therefore, the Department has also subsequently examined and affirmed the genuineness of the transaction and identity and creditworthiness of the share applicants. Taking all the above facts and findings into consideration, it is held that treatment by the A.O of the sum of Rs. 1,97,00,000/- being the amount of share capital/premium issued by the assessee company as unexplained cash credit u/s 68 for the A.Y 2012- 13 is unjustified. Accordingly, the addition so made is deleted, and grounds 1 to 3 of appeal are allowed.” 4. After hearing both the parties and perusing the material on record we find that the Ld. CIT(A) has deleted the addition by giving a very detailed finding and by passing a speaking order to the effect that the six (6) subscribers companies’ directors as well as one individual subscriber appeared before the Assessing Officer and their statements were recorded on oath. The Ld. CIT(A) also noted on the observation of the Assessing Officer that there was no justification for issuance of share at a high premium by observing that assessee company was going to invest in M/s. Delsey (I) Pvt. Ltd. which was a joint venture between M/s. Delsey SA (France) and M/s. Sapphire Trade Associates Pvt. Ltd. (India) with 51% and 49% 4 ITA No. 1115/Kol/2024 Sapphire Trade Associates P. ltd., AY 2012-13 partnership respectively. The Ld. CIT(A) noted that Delsey SA is a French Company, founded in the year 1946 and is engaged in the business of luggage and travel accessories with around 6000 active sales outlets across the globe and having a turnover of about 130 Million Euro as of 2010 and it holds second place in the global luggage market behind Samsonite. Therefore, Ld. CIT(A) noted that the assessee has all the reasons to issue share at a high premium. Thereafter, the Ld. CIT(A) noted that in the course of scrutiny proceeding for AY 2016-17, the Assessing Officer enquired into the details of issue of share to the same allottees and considered the allotment of shares as genuine and bona fide in the order passed u/s. 143(3). The Ld. CIT(A) noted that in the subsequent year i.e. AY 2014-15 in ITA No. 709/Kol/2023 in assessee’s own case in AY 2014-15, the coordinate bench deleted the addition made by the Assessing Officer from the same subscribers. Considering these facts, we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the revenue. 5. In the result, appeal of the revenue stands dismissed. Order is pronounced in the open court on 25th April, 2025 Sd/- Sd/- (Sonjoy Sarma) (Rajesh Kumar) Judicial Member Accountant Member Dated: 25th April, 2025 JD, Sr. PS Copy of the order forwarded to: 1. Appellant–ITO, Ward-8(2), Kolkata. 2. Respondent – Sapphire Trade Associates Pvt. Ltd. 3. CIT(A), NFAC, Delhi 4. Pr. CIT 5. DR, ITAT, Kolkata, True Copy By Order Assistant Registrar ITAT, Kolkata Bench, Kolkata "