2025 (2) TMI 922 - HC - Income Tax

Validity of the additions made u/s 68 - whether ITAT has only considered cash credit to be taxable under the provisions of section 68 whereas the provision covers within its ambit any sum credited in the Books? - whether order of Ld. ITAT is erroneous and untenable in law as it has failed to consider that the impugned transaction is a colorable devise to avoid tax liability and the facts clearly show that the assessee party has made the credit/ debit entries in contravention of provisions laid by the Act? HELD THAT - As undisputed that the shares had been issued without any monetary consideration. The respondent appears to have debited the goodwill account of the company and made a corresponding credit to the share capital account for the purposes of allotment of shares to Mr. Kaushik. It was in the aforesaid light that it had taken the position that it was merely a book entry and thus would not have fallen within the ambit of Section 68. the view as expressed by the CIT(A) and which came to be affirmed by the Tribunal does not merit any interference bearing in mind the undisputed fact that the transaction did not represent an actual receipt of any cash in the hands of the assessee company. In absence of any such consideration having entered the books the provisions of Section 68 were clearly not attracted. The assessee had in any case satisfactorily explained the circumstances attached to the book entry in question. Decided in favour of assessee.

Summary

The High Court considered an appeal by the Principal Commissioner of Income Tax against the Income Tax Appellate Tribunal's order. The core legal questions raised were:1. Whether the Tribunal erred in considering only cash credit as taxable under Section 68 of the Income Tax Act, instead of any sum credited in the books?2. Whether the Tribunal erred in not recognizing a transaction as a colorable device to avoid tax liability?3. Whether the Tribunal erred in suggesting additions should be made in the hands of the deceased or his legal heirs, rather than the assessee company?The main issue was the validity of additions made by the Assessing Officer under Section 68 of the Income Tax Act, concerning cash credits. The Tribunal noted that the assessee company allotted shares to Mr. Surinder Kumar Kaushik without monetary consideration, leading to the dispute. The company argued that the transaction was merely a book entry and did not fall under Section 68.The Commissioner of Income Tax (Appeals) found that the company had followed due procedure in increasing authorized share capital and issuing shares to Mr. Kaushik. The Commissioner emphasized that Section 68 applies when a sum is credited in the books without satisfactory explanation, and the assessing officer must conduct a proper inquiry before making additions.The Tribunal upheld the Commissioner's decision, noting that no actual cash was received by the company for the share capital issued in lieu of goodwill to Mr. Kaushik. They held that Section 68 applies only when actual money is received, not just book entries. The Tribunal found no basis for the goodwill valuation and concluded that the provisions of Section 68 were not applicable in this case.The Court affirmed the Tribunal's decision, stating that since no cash was received by the company, Section 68 did not apply. The Court found the company had satisfactorily explained the transaction, and therefore, dismissed the appeal.In conclusion, the Court upheld the Tribunal's decision, emphasizing that Section 68 applies only when actual cash is received, not just book entries, and the company had adequately explained the transaction.