2019 (9) TMI 1170 - AT - Income Tax

Addition u/s 68 - treating the share capital and share premium received by the assessee during the year under consideration as unexplained cash credit - whether the transactions in question of issue of share capital with premium by the assessee-company involved any cash or not? - HELD THAT - Section 68 is not applicable when the relevant transactions do not involve any cash and there is no credit to the Cash Account. We, therefore, hold that section 68 has no application to the transactions which does not involve cash and where there is no credit to cash account. Even though the ld. CIT(Appeals) in his impugned order has recorded a finding of fact that no money was received through banking channel by the assessee and there was no cash transaction in the case of the assessee as the shares were issued against the shares of another companies, there was no such finding recorded by the Assessing Officer in the assessment order. As rightly pointed out by the ld. D.R., no such case, in fact, was specifically made out by the assessee before the Assessing Officer challenging the applicability of section 68 on the ground that the relevant transactions of the issue of shares did not involve cash and it was not a case of receipt of any money through banking channel against the issue of shares. Neither the Directors of the assessee-company nor the Directors of the investor companies appeared before the AO for examination in response to summons issued under section 131 and the relevant details and documents were furnished by the Assessing Officer in an attempt to explain the relevant transactions as if section 68 was applicable. CIT(Appeals), however, overlooked this vital fact and allowed the relief to the assessee by deleting the addition made by the Assessing Officer under section 68 by relying on a new stand taken by the assessee in the light of additional evidence without giving any opportunity to the Assessing Officer to verify the same. Restore this issue to the file of the Assessing Officer for the limited purpose of verifying the claim of the assessee that the transactions in question of issue of shares did not involve any cash and there was no credit to the cash account and to decide the same accordingly in the light of the decision of the Hon ble Jurisdictional High Court in the case of Jatia Investment Co. 1992 (8) TMI 16 - CALCUTTA HIGH COURT - Decided in favour of revenue for statistical purposes.

Issues Involved:
1. Deletion of addition under section 68 by the Commissioner of Income Tax (Appeals).
2. Applicability of section 68 to transactions not involving cash.
3. Violation of Rule 46A of Income Tax Rules, 1962.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 by CIT(A)
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-2, Kolkata, which deleted the addition of ?9.81 crores made by the Assessing Officer under section 68. The Assessing Officer had treated the share capital and share premium received by the assessee as unexplained cash credit. The Assessing Officer noted that the assessee-company had no track record or asset base and received high premiums per share, which defied commercial and financial prudence. Summons issued to the Directors of the assessee-company and investor companies were ignored, and the Assessing Officer concluded that the premium was exorbitant and unjustified, treating the entire amount as unexplained cash credit under section 68.

Issue 2: Applicability of Section 68 to Transactions Not Involving Cash
The CIT(A) deleted the addition, relying on the Hon’ble Calcutta High Court decision in Jatia Investment Company vs. CIT [206 ITR 718], stating that the share transaction did not involve cash receipts but was done through journal entries. The CIT(A) observed that no money was received through banking channels and that the transactions were merely book entries with no real cash involved. The Tribunal noted that the applicability of section 68 to transactions without cash was a key issue. The Revenue cited cases like Blessings Commercial Pvt. Limited and Vimal Organics Limited, where section 68 was applied to cheque transactions. However, the Tribunal found these cases inapplicable as they involved different facts.

The Tribunal emphasized the decision in Jatia Investment Co., where it was held that section 68 does not apply when transactions do not involve cash and no credit to the cash account exists. The Tribunal concluded that section 68 is not applicable to transactions without cash involvement.

Issue 3: Violation of Rule 46A of Income Tax Rules, 1962
The Tribunal noted that the CIT(A) recorded a finding that no money was received through banking channels by the assessee and that shares were issued against shares of other companies. However, the Assessing Officer did not find this in the assessment order, and the assessee did not specifically argue this point before the Assessing Officer. The Tribunal found that the CIT(A) allowed relief based on a new stand taken by the assessee without giving the Assessing Officer an opportunity to verify this, violating Rule 46A. Consequently, the Tribunal restored the issue to the Assessing Officer to verify the claim that the transactions did not involve cash and decide accordingly, following the decision in Jatia Investment Co.

Conclusion:
The Tribunal treated the Revenue's appeal as allowed for statistical purposes, directing the Assessing Officer to verify the claim regarding the non-involvement of cash in the transactions and decide the issue in light of the decision in Jatia Investment Co. The order was pronounced on September 25, 2019.

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