2023 (11) TMI 1312 - HC - Income Tax

Addition u/s 68 - unexplained cash credits and share transactions - ITAT treating the transaction through shares as beyond the ambit of section 68 - HELD THAT - As decided in M/S. V.R. GLOBAL ENERGY PVT. LTD. 2018 (8) TMI 866 - MADRAS HIGH COURT when the assessee allotted share to a company in settlement of their existing liability of assessee to the said company, since no cash was involved in the transaction of said allotment of shares. conversion of this liability in which share capital and share premium could not be treated as unexplained cash credits under Section 68 - Revenue filed an appeal against the said judgement and the same was dismissed by the Hon ble Supreme Court in ITO vs. V.R. Global Energy (P) Ltd. 2020 (1) TMI 520 - SC ORDER . The decision of Ritu Anurag Agarwal 2009 (7) TMI 1247 - DELHI HIGH COURT also stands in aid to the case of the respondent/assessee. The decision in Jatia Investment Co. 1992 (8) TMI 16 - CALCUTTA HIGH COURT will also support the case of the respondent/assessee. In the said decision, the Court found that cash did not pass at any stage though entries were made in cash book showing payment and receipts; but since the entries made a complete round, no passing of cash was necessary for the purpose of making entries. Further, it was held that if there was no real cash entry on credit side of the cash book by merely an emotional or fictitious cash entry, as admitted by the Income Tax Officer, there is no real credit to cash, to its cash book the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. In the light of the above decision, the view taken by the learned Tribunal was perfectly in order and sustainable. Decided in favour of assessee.

Summary

Issues:
Delay in filing the appeal under Section 260A of the Income Tax Act, substantial questions of law raised by the revenue, interpretation of Section 68 of the Act regarding cash credits and share transactions.

Delay in Filing Appeal:
The High Court acknowledged a delay of 1042 days in filing the appeal under Section 260A of the Income Tax Act. Despite finding the reasons for the delay not fully convincing, the Court exercised its discretion and condoned the delay, considering the need to examine whether substantial questions of law were present in the case.

Substantial Questions of Law:
The revenue raised three substantial questions of law for consideration. Firstly, whether the Tribunal erred in setting aside the CIT (A) order with limited direction on invoking Section 68 of the Act regarding actual receipt of sums by the assessee. Secondly, whether the Tribunal erred in treating share transactions beyond the scope of Section 68, emphasizing that shares represent money and could be a way to circumvent the provisions. Thirdly, whether the Tribunal erred in deleting the addition under Section 68 without recognizing that it includes credits representing the value of shares on credit.

Interpretation of Section 68:
After hearing the arguments, the Court found that the Tribunal was correct in allowing the assessee's appeal based on decisions of various High Courts on similar matters. Citing the Madras High Court decision in V.R. Global Energy case and the Supreme Court's dismissal of the appeal, the Court emphasized that share allotment in settlement of liabilities without cash involvement does not constitute unexplained cash credits under Section 68. Referring to the Delhi High Court case and a previous decision of the Calcutta High Court, the Court supported the Tribunal's decision that no passing of cash was necessary for entries if a complete round of entries was made without actual cash movement.

Conclusion:
The High Court found no grounds to interfere with the Tribunal's order and dismissed the appeal, answering the substantial questions of law in favor of the revenue. The Court affirmed the Tribunal's remand for a limited purpose, closing the applications accordingly.