2019 (5) TMI 1855 - AT - Income Tax

Addition u/s 68 - Bogus subscription of shares along with premium - assessee argued 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 - HELD THAT - AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. 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. Hence, we hold that provision of section 68 of the Act are not applicable in the instant case. It is a case of swapping of shares. The shares were allotted for consideration other than cash. This is kind of a barter transaction, that is, shares were issued by the assessee company to share subscribing companies, and these share subscribing companies, paid the consideration by way of paying equity shares. From journal entry, one can conclude that effect of this journal entry would be that investments in shares will be debited and the share capital and premium will be credited. The result of this journal entry clearly shows that there is no cash credit in the books of accounts i.e. there is no any sum crediting in the year under consideration and it is kind of a barter transaction, where one thing is being exchanged with other thing, hence the provisions of section 68 do not apply. A.O. has mechanically proceeded to make the addition without even appreciating whether it was a fit case for application of section 68. Moreover, the shares in the said 4 companies taken in the books of the assessee in exchange for share allotted to Gajvani Merchandize Pvt. Ltd. do provide the nature and source of the amounts of share capital allotted to Gajvani Merchandise Pvt. Ltd. In the present case, the additions have been made at the ends of the Gajvani Merchandise Pvt. Ltd. and 4 other private companies in respect of the shares raised in the said 5 companies. If addition is required to be made that can be only in the hands of the said 5 companies as have been done u/s 68 in the said companies. As regards, the assessee company there is no case of application of section 68, once it has been demonstrated by the assessee that it did not receive money and that shares were received against the allotment of shares. As application of section 68 is not correct, hence the A.O. s action, therefore cannot be sustained. AO had erroneously invoked the provisions of section 68 of the Act, to the facts of the assessee s case, which, in our considered opinion, are not at all applicable herein - Decided against revenue.

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition made under section 68 of the IT Act regarding share subscription and premium.
2. Whether the CIT(A) correctly interpreted the application of section 68 concerning double taxation in light of the decision of the Calcutta High Court in Trinetra Commerce & Trade (P) Ltd.
3. General grounds for the Department to add, modify, or alter any grounds of appeal or adduce additional evidence.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 of the IT Act
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,17,00,000/- made under section 68 of the IT Act, arguing that the essence of the Act was not appreciated as no cash was credited in the books of the assessee company. The assessee company, M/s Pansu Commercial Pvt. Ltd., had credited a total of ?2,17,00,000/- in its books, comprising share capital and share premium, without producing the directors or persons from whom the amount was received. The assessee argued that the shares were issued in exchange for shares of other companies, making it a barter transaction with no cash credit involved.

The Tribunal noted that the Assessing Officer (AO) had mechanically applied section 68 without appreciating that the assessee did not receive any money but instead engaged in a barter transaction. The Tribunal observed that section 68 applies only when a sum of money is credited in the books, and there is no satisfactory explanation from the assessee. As the transaction involved swapping of shares without any cash consideration, section 68 was deemed inapplicable.

Issue 2: Double Taxation and Interpretation of Section 68
The Revenue also argued that the CIT(A) erred in holding the view of double taxation in the hands of the assessee company and the paper companies, referencing the decision of the Calcutta High Court in Trinetra Commerce & Trade (P) Ltd. The Tribunal found that the AO had incorrectly invoked section 68, as the assessee company did not receive any money by way of share capital from Gajvani Merchandise Pvt. Ltd. or others. The Tribunal emphasized that the shares acquired by the assessee in exchange for shares allotted to Gajvani Merchandise Pvt. Ltd. provided the nature and source of the share capital amounts.

The Tribunal referenced several judicial precedents, including the Hon'ble High Court of Calcutta in Jatia Investment Co. vs. CIT and the Hon'ble Madras High Court in V R Global Energy Pvt. Ltd., which supported the view that section 68 does not apply to transactions involving the exchange of shares without cash consideration.

Issue 3: General Grounds for Appeal
The Tribunal dismissed the general grounds raised by the Revenue to add, modify, or alter any grounds of appeal or adduce additional evidence, as the primary issues had already been addressed comprehensively.

Conclusion:
The Tribunal concluded that the provisions of section 68 were erroneously invoked by the AO, as the transactions involved a barter exchange of shares without cash consideration. The appeal of the Revenue was dismissed, upholding the CIT(A)'s decision to delete the addition made under section 68. The judgment emphasized that section 68 applies only to cash credits and not to barter transactions involving the exchange of shares. The Tribunal's decision was pronounced on 08.05.2019.

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