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2019 (3) TMI 1543 - AT - Income TaxUnexplained cash credit u/s. 68 - credit represented liability to be paid on account of outstanding dues towards purchase of investments - transaction in question was between group companies i.e. the holding company and the subsidiary company i.e. the assessee company - HELD THAT - There is no receipt of money rather there is a liability on the assessee company to pay outstanding purchase amount to M/s. APL. From the material on record that there was no cash involved in any stage of the transaction and that in the subsequent assessment year itself the transaction has been squared up by the assessee company by issue of debentures. AO erred in understanding the nuances of the Notes forming part of the audited accounts and proceeded on an altogether wrong footing holding that the outstanding sum reflected to be payable to M/s APL in relation to the investments purchased from was required to satisfy the rigors of Section 68 - the impugned addition made u/s 68 was wholly untenable on the given facts and in law. We however are of the view that the aforesaid error had crept into the order of the AO since there was no proper compliance at the assessment stage, since the assessee had objected to the very jurisdiction of ITO- Ward 51(4) who had issued the statutory notices. Though the Ld CIT (A) has called for a remand report, and the AO had furnished his report, however the AO remained silent on the issue of receipt of actual money/ sum in his report. We set aside the impugned addition back to the AO with a limited direction to verify and ascertain the fact as to whether the assessee had actually received any money/cash pursuant to this transaction from its holding company during AY 2013-14. If it is found that there the assessee company has not received money/cash from the holding company in the relevant AY 2013-14, then in our considered view Section 68 cannot be applied and hence the impugned addition shall stand deleted. - Appeal of the assessee is allowed for statistical purpose
Issues Involved:
1. Addition of ?3,862.36 crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961. 2. Compliance with statutory notices and jurisdictional issues. Detailed Analysis: 1. Addition of ?3,862.36 crores as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961 Facts and Arguments: - The assessee, a private limited company, faced an addition of ?3,862.36 crores by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, as unexplained cash credit. - The AO noted that the assessee received share application money of ?218 crores and ?3644.36 crores for the purchase of investments from M/s. Abhijit Projects Ltd. (APL), which was shown as other payables in the audited accounts. - The AO added the cumulative amount of ?3,862.36 crores as unexplained cash credit due to non-compliance with summons and inability to verify the source of the funds. Assessee's Defense: - The assessee argued that the transactions were intra-group, involving no actual cash but only book entries. The investments were acquired on credit, and the amount payable was reflected in the books as "Other Payables." - The assessee contended that Section 68 should not apply as there was no receipt of money, only a liability for outstanding purchase consideration. - The assessee cited judicial precedents, including the Special Bench decision in Manoj Agarwal Vs. DCIT and various High Court judgments, to support the argument that Section 68 does not apply to credit purchases. Revenue's Argument: - The Revenue argued that the assessee failed to comply with summons and did not provide satisfactory explanations for the transactions, justifying the addition under Section 68. - The Revenue contended that the term "any sum credited" in Section 68 includes book entries and outstanding dues. Tribunal's Findings: - The Tribunal noted that the transactions were between group companies and involved no actual cash. The liability was subsequently settled by issuing debentures. - The Tribunal referred to the Supreme Court's interpretation of "any sum" as "sum of money" and concluded that Section 68 does not apply to book entries or liabilities. - The Tribunal relied on various judicial precedents, including the Calcutta High Court in Jatia Investment Co. Vs. CIT and the Madras High Court in V.R. Global Energy Pvt Ltd. Vs. ITO, which held that Section 68 does not apply to credit purchases or book adjustments. Conclusion: - The Tribunal found merit in the assessee's claim that Section 68 was wrongly invoked and held that the addition of ?3,862.36 crores as unexplained cash credit was unsustainable. - The Tribunal set aside the addition and directed the AO to verify whether any actual money was received. If no money was received, Section 68 would not apply, and the addition would be deleted. 2. Compliance with Statutory Notices and Jurisdictional Issues Facts and Arguments: - The assessee raised additional grounds challenging the legal validity of the assessment order, arguing that the notices under Sections 143(2) and 142(1) were issued by an AO without jurisdiction. - The assessee claimed that the ITO Ward 51(4) issued the notices, but the jurisdiction lay with ITO Ward-2(2), Kolkata, who did not issue the notice within the permissible time limit. Tribunal's Findings: - The Tribunal did not delve into the jurisdictional issue, as it had already adjudicated the merits of the addition under Section 68. Conclusion: - The Tribunal left the jurisdictional issue open and focused on the merits of the addition under Section 68. Final Decision: - The appeal of the assessee was allowed for statistical purposes, with the addition of ?3,862.36 crores being set aside and remanded to the AO for verification of actual receipt of money. If no money was received, the addition would be deleted. The jurisdictional issue was not addressed.
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