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2019 (1) TMI 2059 - AT - Income TaxAddition u/s. 68 - unexplained cash credit - Allotment of shares of the company in exchange for acquisition of shares - HELD THAT - The shares subscribers have given shares in exchange of the shares of the assessee and no sum of money has been transferred to the assessee on this score. 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. Moreover in the balance sheet of the assessee company in the schedule to share capital it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence we hold that provision of section 68 of the Act are not applicable in the instant case. See M/S ANAND ENTERPRISES LTD. 2018 (9) TMI 1779 - ITAT KOLKATA - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core issue in this case was whether the addition of Rs. 85,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961, as unexplained cash credit, was justified. The Tribunal needed to determine if the share application money received by the assessee, allegedly without proper explanation of its nature and source, warranted such an addition. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 68 of the Income-tax Act, 1961, deals with unexplained cash credits. It allows for the addition of any sum credited in the books of an assessee if the nature and source of such sum are not satisfactorily explained. The Tribunal referred to precedents, including the cases of ITO Vs. Anupam Nandi and Jatia Investment Co. Vs. CIT, to interpret the application of Section 68 in situations involving share transactions. Court's Interpretation and Reasoning The Tribunal observed that the AO added the share application money as unexplained cash credit without considering that the assessee had exchanged shares with the share applicant companies rather than receiving cash. The Tribunal noted that this was a crucial factor since Section 68 applies to cash credits, and no cash transaction occurred in this case. Key Evidence and Findings The Tribunal found that the shares were allotted in exchange for acquiring shares from other companies, and no cash was transferred. The balance sheet of the assessee company indicated that the share capital was raised for consideration other than cash. This evidence supported the assessee's claim that the transaction did not involve unexplained cash credits. Application of Law to Facts The Tribunal applied the legal principles established in similar cases, such as Anand Enterprises Ltd. and Kantilal and Bros. vs. ACIT, where it was held that Section 68 does not apply to transactions settled through share exchanges without cash consideration. The Tribunal concluded that the AO erroneously invoked Section 68, as the transaction involved share exchanges rather than cash credits. Treatment of Competing Arguments The Tribunal considered the arguments presented by the revenue, which challenged the deletion of the addition by the CIT(A). However, the revenue could not demonstrate any factual or legal differences between this case and the precedents cited. The Tribunal found the CIT(A)'s decision consistent with established legal principles and thus upheld it. Conclusions The Tribunal concluded that the provisions of Section 68 were not applicable in this case, as the transaction involved share exchanges without cash transfer. Therefore, the addition of Rs. 85,00,000/- as unexplained cash credit was unjustified, and the CIT(A)'s order to delete the addition was correct. SIGNIFICANT HOLDINGS The Tribunal held that Section 68 of the Income-tax Act does not apply to transactions involving the exchange of shares without cash consideration. The core principle established is that for Section 68 to apply, there must be a cash credit, which was absent in this case. Final Determinations on Each Issue The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 85,00,000/-. The Tribunal's decision was based on the lack of cash transactions and the proper documentation of the share exchanges in the assessee's financial records.
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