2019 (11) TMI 1424 - AT - Income Tax

Addition u/s 56 - cheques for sale of these shares representing premium have not been encashed by the assessee - amount has not been actually received by the assessee and credited in its accounts - HELD THAT - Since assessee has not received actual consideration it has only received cheques which have not been encashed therefore the proposition laid down in the above order Bhagwat Marcom P.Ltd. 2019 (8) TMI 649 - ITAT KOLKATA is clearly applicable on the facts of the present case. We allow the appeal of the assessee and delete the addition. - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A)-2, Chandigarh for Asstt.Year 2013-14; Grounds of appeal not in consonance with Rule 8 of ITAT Rules, 1963; Addition of ?58,23,060 under section 56(2)(viib) of Income Tax Act, 1961 disputed; Dispute over recognition of share premium as income; Application of mercantile system of accounting; Interpretation of section 56(2)(viib) regarding actual receipt of consideration; Comparison with ITAT Kolkata Bench decision; Discrepancy in fair market value calculation; Assessment order upheld by CIT(A).

Analysis:
The case involves an appeal before the ITAT against the order of the CIT(A)-2, Chandigarh for the assessment year 2013-14. The initial grounds of appeal by the assessee were found to be descriptive and argumentative, not in line with Rule 8 of the ITAT Rules, 1963. The core issue revolves around the addition of ?58,23,060 under section 56(2)(viib) of the Income Tax Act, 1961, concerning the recognition of share premium as income. The Assessing Officer contended that the fair market value per share was lower than the premium charged, resulting in the addition. The assessee argued that the cheques received were not encashed, and it was a notional income, not actually credited in the books.

The dispute centers on the application of the mercantile system of accounting and the interpretation of section 56(2)(viib) regarding the actual receipt of consideration. The assessee maintained that as per the mercantile system, the actual receipt of consideration should be recognized, not a notional one. The ITAT Kolkata Bench decision in a similar case was cited to support this argument. The decision highlighted the importance of actual receipt of cash, not just journal entries, in determining income. The Tribunal found that since the assessee had not actually received the consideration, and only cheques were involved, the addition was not justified. The decision emphasized the need for actual receipt of cash to consider an amount as income under section 56(2)(viib).

In conclusion, the ITAT allowed the appeal of the assessee and deleted the addition of ?58,23,060. The judgment was pronounced on 7th November 2019, in favor of the assessee. The ruling clarified the significance of actual receipt of consideration in determining taxable income, especially in cases involving share premiums and fair market value calculations.