2018 (11) TMI 1821 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - assessee failed to explain the sources of funds for the share capital received by it at a premium -allotment of shares in this case was a non-cash transactions and that they were subscribed through book entries - HELD THAT - The undisputed fact is that shares were issued at a premium, as consideration for the purchase of shares from the share applicant companies. This issue is squarely covered by the decision of the Kolkata C Bench of the Tribunal in the case of ITO vs. M/s. Anand Enterprises Ltd 2018 (9) TMI 1779 - ITAT KOLKATA wherein held this is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead the consideration was settled through issuance of shares to the respective parties. In the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence we hold that provision of section 68 are not applicable. Also see JATIA INVESTMENT CO. 1992 (8) TMI 16 - CALCUTTA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
- Addition of unexplained cash credit under section 68 of the Income Tax Act, 1961.
- Applicability of section 68 in a case involving the allotment of shares for consideration other than cash.

Analysis:
1. Issue 1: Addition of unexplained cash credit under section 68
The case involved the revenue appealing against the order of the Learned Commissioner of Income Tax (Appeals)-4 regarding the addition of unexplained cash credit under section 68 of the Income Tax Act, 1961 for Assessment Year 2012-13. The Assessing Officer had made the addition based on the alleged failure of the assessee to explain the sources of funds for the share capital received at a premium. However, the First Appellate Authority held that the allotment of shares was a non-cash transaction and was subscribed through book entries. The authority found that the assessee had proved the identity, creditworthiness, and genuineness of the transactions, leading to the deletion of the addition.

2. Issue 2: Applicability of section 68 in a non-cash share allotment scenario
The primary question was whether section 68 of the Income Tax Act would be attracted in a scenario where shares were allotted for consideration other than cash. The revenue contended that the premium was unjustified and disagreed with the findings of the First Appellate Authority. However, the counsel for the assessee pointed out that the share subscriber companies had responded to the notices issued by the Assessing Officer under section 133(6) of the Act. Additionally, the authority had not disputed the identity, creditworthiness of the subscribers, or the genuineness of the transactions. The Tribunal referred to precedent cases and held that the provisions of section 68 were not applicable in cases where shares were issued at a premium as consideration for the purchase of shares from other companies. The Tribunal cited specific judgments, including those of the Kolkata 'C' Bench and the High Courts, to support the decision that non-cash transactions involving share capital do not fall under the purview of section 68.

In conclusion, the Tribunal upheld the order of the First Appellate Authority, dismissing the revenue's appeal. The decision was based on the established legal principles that in cases where share capital transactions are settled through book adjustments and no actual cash is involved, the provisions of section 68 of the Income Tax Act, 1961 do not apply. The judgment provided a detailed analysis of the facts, legal precedents, and the application of the law to the specific circumstances of the case, leading to the dismissal of the revenue's appeal.