2024 (5) TMI 1495 - AT - Income Tax

Addition u/s 68 - share capital treated as unexplained cash credit - as argued allotment of share by the assessee was under barter system - HELD THAT - There is no dispute with regard to the fact that the assessee has not received cash or cheque for sale of its shares. It has transacted the shares through barter system. This aspect has been considered in its recent judgment 2024 (2) TMI 1482 - CALCUTTA HIGH COURT deleting the addition u/s 68 as unexplained cash credit in the form of share capital and share premium only on the ground that no cash or cheque was actually received by the respondent assessee and the purchase of share assets and allotment of share by the assessee was under barter system. Disallowance u/s 14A r.w.r. 8D - CIT(Appeals) has deleted this disallowance by observing that there is no exempt income in this year - HELD THAT - This aspect is squarely covered by the recent decision of m/s. Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT wherein it has been held that if no exempt income is being earned by the assessee, then, no disallowance is to be made. Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the CIT(Appeals) was justified in deleting the addition of Rs.3,98,44,628/- under Section 68 of the Income Tax Act.
2. Whether the CIT(Appeals) erred in entertaining additional evidence in violation of Rule 46A of the Income Tax Rules.
3. Whether the CIT(Appeals) erred in deleting the addition of Rs.1,35,500/- under Section 14A read with Rule 8D of the Income Tax Act.

Issue-wise Analysis:

1. Deletion of Addition under Section 68:
The primary issue revolved around the addition of Rs.3,98,44,628/- made by the Assessing Officer (AO) under Section 68, treating the share capital as unexplained cash credit. The AO observed that the assessee-company issued 39,860 equity shares at a premium, receiving share capital through a barter system rather than cash transactions. The CIT(Appeals) deleted the addition, noting that Section 68 pertains to cash credits, which were not applicable here since the transactions were cashless. The Tribunal upheld this view, emphasizing that the transactions were carried out through journal entries and not cash, aligning with recent judgments from the Calcutta High Court that supported this interpretation.

2. Violation of Rule 46A:
The Revenue contended that the CIT(Appeals) entertained additional evidence in violation of Rule 46A. However, the assessee argued that no fresh evidence was submitted; rather, existing records were appraised to demonstrate that the shares were sold through journal entries. The Tribunal found no merit in the Revenue's claim, as the CIT(Appeals) had relied on materials already available before the AO, and thus, no violation of Rule 46A occurred.

3. Deletion of Addition under Section 14A read with Rule 8D:
The AO had made a disallowance of Rs.1,35,500/- under Section 14A read with Rule 8D, which the CIT(Appeals) deleted, observing that the assessee had not earned any exempt income during the year. This decision was supported by a recent Delhi High Court judgment, which held that no disallowance should be made if no exempt income is earned. The Tribunal agreed with this rationale, finding no error in the CIT(Appeals)' decision and dismissing the Revenue's appeal on this ground as well.

Conclusion:
The Tribunal concluded that the appeal by the Revenue lacked merit and upheld the CIT(Appeals)' order in its entirety. The Tribunal's decision was influenced by recent judicial precedents, particularly regarding the interpretation of Section 68 concerning cashless transactions and the applicability of Section 14A in the absence of exempt income. Consequently, the appeal was dismissed.