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2019 (4) TMI 2170 - AT - Income TaxAddition u/s 68 - unexplained cash credit following an increase in share capital due to a scheme of amalgamation approved by Hon ble Calcutta high court - HELD THAT - No share were issued during the year either by the assessee company or the companies amalgamated with it. The increase in share premium was nothing but the addition of share premium account of the amalgamating companies with the corresponding figure of the assessee company therefore there is no cash involved in this transaction hence provisions of section 68 does not apply. We note that CIT(A) erred in confirming the addition made U/s. 68 particularly when the initial onus were duly discharged by the assessee stating that it is only an adjustment entry during the amalgamation scheme. Therefore hold that the ld. AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case which in our considered opinion are not at all applicable herein. This is a simple case of acquiring shares during amalgamation scheme that is the increase in share capital is only due to scheme of amalgamation approved by Hon ble Calcutta high court hence addition under section 68 should not be made. Appeal filed by the Assessee is allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue presented in the appeal was whether the addition of Rs. 24,20,60,000/- under Section 68 of the Income Tax Act, 1961, was justified. This amount was added by the Assessing Officer (AO) as unexplained cash credit, following an increase in share capital due to a scheme of amalgamation approved by the Calcutta High Court. The core questions considered were:
ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 68 of the Income Tax Act pertains to unexplained cash credits, allowing the AO to add such credits to the taxable income if the assessee cannot satisfactorily explain the nature and source. The judgment referenced several precedents, including decisions from the Madras High Court and the Supreme Court, which clarified that Section 68 applies to actual cash receipts and not to mere book adjustments. Court's Interpretation and Reasoning The Tribunal relied heavily on the precedent set by the Madras High Court in the case of V.R. Global Energy Pvt. Ltd., which held that book adjustments do not attract Section 68. The Tribunal noted that the increase in share capital was due to a court-approved amalgamation, involving no actual receipt of cash, thus falling outside the purview of Section 68. Key Evidence and Findings The Tribunal found that the increase in share capital was due to the amalgamation scheme and involved no cash transactions. This was supported by the fact that the share premium increase was merely an adjustment of the amalgamating companies' accounts with the appellant company's accounts. Application of Law to Facts The Tribunal applied the legal principles established in the cited precedents to the facts of the case, concluding that Section 68 was inapplicable as the transactions were book adjustments without cash receipts. The Tribunal emphasized that the initial burden of proof was met by the assessee, who provided evidence of the amalgamation and the nature of the transactions. Treatment of Competing Arguments The Tribunal considered the Department's argument, which relied on the AO's and CIT(A)'s findings. However, it found these arguments unconvincing in light of the established legal precedents and the nature of the transactions. The Tribunal noted that the Department did not provide evidence to counter the assessee's claims effectively. Conclusions The Tribunal concluded that the addition under Section 68 was unjustified and should be set aside. The Tribunal found that the transactions were merely book adjustments related to the amalgamation scheme, with no cash involved. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning The Tribunal quoted the Madras High Court's decision: "The question of whether the learned Tribunal erred in confirming the valuation of shares allotted in settlement of the pre-existing liability taxable as unexplained cash credit, does not involve any question of law, far less any substantial question of law." Core Principles Established
Final Determinations on Each Issue The Tribunal determined that the addition of Rs. 24,20,60,000/- under Section 68 was unwarranted and allowed the appeal in favor of the assessee. The Tribunal emphasized the lack of cash transactions and the nature of the book adjustments as the basis for its decision.
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