2023 (5) TMI 405 - AT - Income Tax

Addition u/s 68 - Unexplained share transactions - CIT(A) allowed the appeal of the assessee by noting that there was no infusion of cash for issue of shares and that the shares were issued by the assessee company for consideration other than cash in lieu of assessee making investment in shares in some other companies - HELD THAT - From observations of CIT(A) it is difficult to decipher the details of the transaction which transpired leading to relief granted to the assessee. There are no details on facts as to what was the investment which was made by the assessee against which it has issued its share capital along with share premium by merely stating that shares were issued for consideration other than cash for making investment in some other companies and drawing a conclusion that u/s. 68 this addition cannot be sustained, if cash has not been received, is incomprehensible. We do not disagree with the contention that provisions of Sec. 68 cannot be applied if no cash/money has been received by the assessee for issue /allotment of shares. We do not find any material on record which demonstrates such a claim made by the assessee and accepted by the Ld. CIT(A) while granting relief to the assessee. There is neither a paper book nor any written submission to look at for substantiating the claim made by the assessee. We are not in agreement with the conclusion drawn by the Ld. CIT(A) on the facts of the present case, because it is devoid of due examination of the factual matrix on the claim of the assessee that shares were issued for consideration other than cash in lieu of assessee company making investment in some other companies - Decided in favour of revenue.

Summary

Issues involved:
The issues involved in this case are related to the application of Section 68 of the Income-tax Act, 1961 on unexplained cash credits, specifically regarding the addition made by the Assessing Officer (AO) for lack of explanation and satisfaction. The case also involves the interpretation of the applicability of Section 68 in the context of share capital and share premium raised by the assessee, and whether shares were issued for consideration other than cash.

Issue 1: Lack of Explanation for Unexplained Cash Credits:
The appeal filed by the revenue challenged the order of the Ld. CIT(A) granting relief to the assessee in respect of an addition made under Section 68 of the Act amounting to Rs.5,01,00,000. The grounds of appeal raised by the revenue included contentions regarding the identity of the persons involved in the transactions, the genuineness of the transactions, and the capacity or creditworthiness of the persons from whom the receipts were recorded.

The Assessing Officer noted that the substantial credit in the books of account of the assessee with a significant amount of share premium could not be explained by the assessee within the short period of existence. The AO treated the amount as unexplained cash credit and added it back to the income of the assessee. The Ld. CIT(A) allowed the appeal of the assessee by emphasizing that no cash was infused for the purchase of shares, and the shares were issued for consideration other than cash in lieu of the assessee making investments in other companies.

Issue 2: Interpretation of Section 68 in Relation to Share Capital:
The Ld. CIT(A) interpreted the applicability of Section 68 concerning the recording of receipts in the Balance Sheet of the assessee, establishing the credit of fresh capital including share premium. The Ld. CIT(A) concluded that shares were issued for consideration other than cash, based on the claim that no fresh capital was introduced in the books of the assessee company, rather shares were issued against investments made by it. However, the Revenue contended that the conclusion drawn by the Ld. CIT(A) lacked due examination and verification of facts on record, as there was insufficient evidence to substantiate the claim made by the assessee.

The Appellate Tribunal held that where cash credit towards share capital is by way of book entries/adjustment without actual cash received, no addition is warranted under Section 68. However, in this case, the Tribunal found a lack of material on record to support the claim made by the assessee and accepted by the Ld. CIT(A). Therefore, the Tribunal set aside the order of the Ld. CIT(A) and allowed the grounds taken by the revenue.

Conclusion:
In conclusion, the Appellate Tribunal allowed the appeal of the revenue, setting aside the order of the Ld. CIT(A) in granting relief to the assessee. The Tribunal emphasized the importance of due examination and verification of facts with corroborative evidence in cases involving unexplained cash credits under Section 68 of the Income-tax Act, 1961.