Paramount Dye Tec Limited challenges ₹39.95 crore additions

Paramount Dye Tec Limited is challenging ₹39.95 crore of additions for assessment year (AY) 2024-25 after assessed income was set at ₹44.27 crore, compared with returned income of ₹4.31 crore. The dispute has also produced recovery letters seeking ₹10.10 crore and a notice proposing that two shareholder-directors be treated as principal officers.

Why is Paramount Dye Tec contesting ₹39.95 crore of additions?

Paramount Dye Tec is contesting the ₹39.95 crore addition because it says the assessment treated restructuring transactions, land received against shares and recorded expenses as unexplained or inadmissible. The assessment under Section 143(3), read with Section 144B for faceless assessment, was completed on 25 March 2026 for AY 2024-25. The company declared total income of ₹4.31 crore, while the Assessing Officer assessed income at ₹44.27 crore.

The first appeal under Section 250 of the Income-tax Act, 1961, was initiated on 1 April 2026 and was shown as open when the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, New Delhi, issued a hearing notice on 2 September 2026. Compliance with that notice was due on 17 September 2026. Paramount Dye Tec has sought deletion of all three additions, restoration of returned income of ₹4.31 crore, and consequential relief on interest, Section 115BBE and penalty proceedings.

The adjustment is concentrated in two balance-sheet items rather than the ₹48.27 lakh expense disallowance. The ₹26.75 crore securities-premium addition accounts for about two-thirds of the ₹39.95 crore total, while the ₹12.71 crore land-related addition accounts for most of the remainder. The appeal therefore principally depends on whether records support the explanation for the share issue and land acquisition.

What transactions produced Paramount Dye Tec’s disputed additions?

Paramount Dye Tec says the disputed share premium arose from the 4 January 2024 conversion of the existing M/s Paramount Dye Tec partnership firm into a company, rather than from fresh unexplained credits. The company manufactures and trades recycled synthetic yarn, acrylic fibre yarn, hand-knitting yarn and fancy yarn. The case was selected for complete scrutiny primarily to examine substantial share capital introduced in the year of incorporation.

The assessment included a ₹26.75 crore addition under Section 68 read with Section 115BBE, according to the first-appeal disclosure. It related to 12,451 equity shares issued at ₹21,500 per share. Of those, 6,539 shares were issued against conversion of directors’ pre-existing unsecured loans, with corresponding premium of ₹14.05 crore, while 5,912 shares were issued against land transferred by directors, carrying premium of ₹12.70 crore.

Paramount Dye Tec says it furnished financial statements, a business transfer agreement, board resolutions, ledgers, tax records of directors and shareholders, and a registered valuer’s report supporting a fair value of ₹21,500 per share. Its position is that shares issued for existing loans and land were not fresh credits. The Section 68 addition will depend on the appellate treatment of those underlying records.

The second major adjustment is ₹12.71 crore under Section 69 read with Section 115BBE for land acquired from directors. Paramount Dye Tec says the land was recorded in its books as a fixed asset, possession was delivered under an agreement to sell, and consideration was discharged through allotment of 5,912 shares. The company also argues that separately treating the land transaction resulted in a double addition alongside the share-premium adjustment.

How does Paramount Dye Tec explain the expense disallowance?

Paramount Dye Tec is challenging ₹48.27 lakh of disallowances because it says both expense categories were recorded, documented and reflected in audited accounts. The amount comprises ₹44.78 lakh of other expenses and ₹3.48 lakh of commission expenses. The company says it supplied ledgers, vouchers and audited financial statements for the claims.

The appeal says the books were not rejected under Section 145(3), the provision concerning rejection of accounts. Paramount Dye Tec argues that recorded business expenses should not be disallowed without rejecting the accounting records or identifying deficiencies in supporting documents. Although this component is smaller than the share-capital and land additions, it forms part of the full ₹39.95 crore appeal.

Paramount Dye Tec has also opposed penalty proceedings initiated under Sections 271AAC(1) and 270A. Notices under the first provision were issued on 25 March 2026 and 23 June 2026 after income was determined in assessment, while the Section 270A notices concern alleged under-reporting. In replies dated 4 April 2026 and 24 June 2026, the company said there was no concealment or furnishing of inaccurate particulars and requested that the proceedings be dropped or held in abeyance until the appeals are decided.

What recovery does the tax department seek from Paramount Dye Tec?

The tax department sought a deposit of ₹10.10 crore from Paramount Dye Tec by 22 May 2026, combining a requested deposit for AY 2024-25 with the stated AY 2025-26 demand. In a 15 May 2026 recovery letter, the Deputy Commissioner of Income Tax, Circle-4, Ludhiana, stated that ₹39.81 crore was outstanding for AY 2024-25 under Section 143(3), despite the pending first appeal. Applying Central Board of Direct Taxes instructions cited in the letter, the department requested 20% of that demand, or ₹7.96 crore.

For AY 2025-26, the recovery letter listed ₹2.14 crore outstanding under Section 143(1)(a), a provision for return-processing adjustments, and stated that no appeal had been filed against that demand. The source states that the requested aggregate was ₹10.10 crore. A final-opportunity letter dated 12 June 2026 followed the initial recovery communication, so the AY 2024-25 appeal did not itself end the stated recovery process.

Paramount Dye Tec separately reported a pending AY 2025-26 assessment under Section 143(3), with a limitation date of 31 March 2027. In its 15 September 2026 submission, the company said the AY 2024-25 transactions were one-time events that would not recur in AY 2025-26. It reported FY 2024-25 revenue from operations of ₹77.28 crore, profit before tax of ₹9.16 crore and returned income of ₹6.65 crore.

Why were Paramount Dye Tec’s shareholder-directors named in a notice?

The department proposed to treat Kunal Arora and Palki Arora as principal officers, a statutory designation under Section 2(35), because it says they are major shareholder-directors actively involved in management and statutory financial-compliance decisions. The 15 September 2026 show-cause notice identifies Kunal Arora as holding 79% of shares and Palki Arora as holding 20%. Together, the two named directors hold 99% of Paramount Dye Tec’s shares.

The notice concerns alleged non-payment of dues for AY 2024-25 and AY 2025-26, listing outstanding demands of ₹39.81 crore and ₹2.14 crore, respectively. It refers to Sections 276CC, 276D and 278B, and proposes that the two directors be treated as principal officers and held jointly and severally responsible for the alleged default relating to non-payment of self-assessment tax. Both individuals were called upon to show cause before that proposal is determined.

The notice is a proposal rather than a stated final determination of liability. Its practical significance follows from the 99% ownership concentration, the directors’ roles and the outstanding-demand figures cited by the department. Any final result will depend on the responses to the Section 2(35) notice and the treatment of the underlying tax demands.

Conclusion

Paramount Dye Tec’s central dispute is whether ₹39.95 crore of AY 2024-25 additions correctly characterises the partnership-to-company conversion, directors’ loan conversion, land transferred for shares and recorded expenses. The appeal places documentary support, the ₹21,500 share valuation and the claim of double counting at the centre of the case, while recovery and penalty actions keep the financial consequences live.

The next disclosed matters are the open first appeal for AY 2024-25, the Section 2(35) response involving the two shareholder-directors, and the pending AY 2025-26 faceless assessment with a 31 March 2027 limitation date. Paramount Dye Tec has said the challenged conversion and land transactions were one-time events, making the authorities’ treatment of that explanation relevant to the later assessment.