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TMI Blog2024 (5) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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. - Shri Rajpal Yadav, Vice-President (KZ) And Shri Rajesh Kumar, Accountant Member Shri P.P. Barman, Addl. CIT, Sr. D.R., appeared on behalf of the Revenue Shri Manoj Kataruka, Advocate, appeared on behalf of the assessee ORDER Per Rajpal Yadav, Vice-President (KZ):- The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-7, Kolkata dated 19th February, 2020 passed for A.Y. 2012-13. 2. This appeal has been presented before the Tribunal on 24.01.2022. The Registry has pointed out that the appeal is time barred by 615 days. With the assistance of ld. Representatives, we have gone through the record carefully. It is pertinent to note that this period represents COVID period, which has already been condoned by the Hon ble Supreme Court by exercising its suo motu powers. Therefore, this appeal is not to be treated as time barred. 3. The Revenue has taken nine grounds of appeal. However, its grievances revolve around two issues, namely- (1) whether ld. CIT(Appeals) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 68 of the Act. Reliance was placed on various case laws to justify his action (supra). On the other hand, the AR has drawn my attention to the fact that the transfer of impugned shares were not based on any cash transactions but by way of barter transactions as elucidated in the written submission (supra). Since this is a case of cashless transaction, section 68 of the Act cannot be applied in any manner which the AO failed to comprehend. The provisions of section 68 of the Act refers to cash credit in the accounts of an assessee which is not explained or remains unexplained before the concerned AO. The instant case is not on this ground in as much as there was no cash credit but only book adjustments. The case of the appellant is well covered by various judicial decisions in its favour as mentioned in the submission of the AR (supra). Thus in view of the foregoing, the AO is directed to delete the impugned amount of Rs.3,98,44,628/- added u/s 68 of the Act. This ground is allowed . 7. Dissatisfied with the order of ld. CIT(Appeals), the Revenue has filed the present appeal. Ld. Sr. D.R. has filed written submission, which reads as under:- The Hon ble Member, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of ambiguity or doubt the heading or sub-heading may be referred to as an aid in construing the provision but even in such a case it could not be used for cutting down the wide application of the clear words used in the provision. Those headings are not meant to control the operation of enacting the words and it may be a wrong to permit them to do so. It is in this background, we have to look at the above provision in particular opening words of the Section. What is referred to is where any sum is found credited in the books of an assessee, and in the end what is mentioned is, the sum so credited may be charged to income-tax. Therefore, in the body of the Section, the word used is either found credited or so credited, there is no indication in the Section that such a credit should be a cash credit. It may be a cash credit or it may be a credit representing the value of the supplies made by the suppliers on credit. The essence is that the credit should be shown in the account and that would satisfy the requirement of Section 68 of the Act. Once the credit so mentioned in the Section is found to be not supported by any acceptable evidence, then the sum so credited may be charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector of the assessee company. However, responses were received from 18 share subscribers (4 extra) in perfectly identically worded letters in the office of the assessing officer, between 13/2/2015 to 16/2/2015. The synchronised response provided the following particulars only, avoiding the 3 crucial details as reproduced just above. PAN copy of sale agreement copy of Income Tax Return Acknowledgement copy of balance sheet and profit loss account Each of the 18 responses included a sale agreement made on 31/3/2012 on a Rs.10 non-judicial stamp paper Notarised by Notary Public Sri P K Mitra and signed by the concerned share subscriber. All these 18 NonJudicial Stamp Papers of Rs.10, bearing identification numbers 84AA 551073 to 84AA 551090 in perfect serial were purchased and drafted in absolute precision in the same language to make the notarised sale agreements which says that the subscriber purchased shares of the assessee each worth Rs.1000, in consideration of shares held by the subscriber in other companies (as named in the sale agreement ). [PaperBook Pages: ]. The summary of the responses is given below for an overview of these 18 share subscribers who are legal entities on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork The issue of share capital is governed by the Companies Act - Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to any persons, if it is authorised by a special resolution, (whether or not those persons include the existing shareholders or employees under stock option scheme), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed. The shares of the assessee was shown to be bartered through standard uniform instruments of Agreement of Rs. 10 NJSP, executed on the 31st March 2012. While taking all the legal immunity of a Company incorporated under the Companies Act, the strict formalities required for issue of share capital was completely done away with. Thus these apparent share swap was not made in concurrence with the Rules of the Companies Act and thus are not legitimate. The only real gain achieved is credit of Rs.3,98,44,628 in the books of the assessee. By placing reliance on the interpretation of section 68 in the judgment of Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any substantial questions of law arise for consideration. Therefore, we exercise discretion and condone the delay in filing the appeal. The application is allowed. This appeal filed by the Income Tax Department is directed against the order dated 18.3.2020 passed by the Income Tax Appellate Tribunal B Bench, Kolkata in ITA No. 2244/Kol/2017 for the assessment year 2012-13. The revenue has raised the following substantial question of law for consideration :- i) Whether the Hon ble Tribunal has substantially erred in law in upholding the decision of the Learned CIT (Appeals)-9, Kolkata thereby deleting the addition of Rs.6,00,00,000/- under Section 68 of the Income Tax Act, 1961 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 ? After we have elaborately heard the learned Advocates for the parties we have no hesitation to hold that substantial question of law raised in this appeal has to be answered against the appellant/revenuer in the light of the decision of this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 68 of the Act, without appreciating the fact that section 68 not only includes cash credit but also include a credit representing the value of shares on credit? After we have elaborately heard the learned Advocate for the appellant we find learned Tribunal was right in allowing the assessee s appeal to the extent indicated by taking note of the various decisions of the High Court on the very same subject. In this regard, we refer to the decision of the High Court At Madras in V.R. Global Energy (P) Ltd. vs. ITO, Corporate Ward 3(4), Chennai 407 ITR 145 (Madras). It was held that when the assessee allotted share to a company in settlement of their existing liability of assessee to the said company, since no cash was involved in the transaction of said allotment of shares, conversion of this liability in which share capital and share premium could not be treated as unexplained cash credits under Section 68 of the Act. The Revenue filed an appeal against the said judgement and the same was dismissed by the HonTjle Supreme Court in ITO vs. V.R. Global Energy (P) Ltd. [2020] 113 taxmann.com 31 (SC). The decision of the Hon ble Division Bench of the High Court of Delhi i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Delhi High Court in the case of Pr. CIT -vs.- M/s. Era Infrastructure (India) Ltd. in ITA 204/2022 AM APPL. 31445/2022. The discussion made by the Hon ble High Court reads as under:- 3. He submits that the ITAT erred in relying on the decision of this Court in PCIT vs. IL FS Energy Development Company Ltd., 2017 SCC Online Del 9893 (wherein it has been held that no disallowance under Section 14A of the Act can be made if the assessee had not earned any exempt income), as the revenue has not been accepted the said decision and has preferred an SLP against the said decision. 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to Section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, a change in law has been brought about and consequently, the judgments relied upon by the authorities below including PCIT vs. IL FS Energy Development Company Ltd (supra) are no longer good law. The amendment to Section 14A of the Act is reproduced hereinbelow:- Amendment of section 14A. In section 14A of the Income-tax Act, - (a) in sub-section (1), for the words For the purposes of , the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of doubts cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced herein below: 9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] was followed in 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR 314 (Gau)] . It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that case was 1976-77 and said: (ITR p. 318) [It is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained pending on 1-4-1979, cannot be cogent reason to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve history of Section 9(1)(ii), we can only assume that it was deliberately introduced with effect from 1-4- 2000 and therefore intended to apply prospectively [See CIT v. Patel Bros. Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165] . It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3. 5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1-4-2000, and will accordingly, apply in relation to Assessment Year 2000-2001 and subsequent years. 16. The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under Section 119 of the Act, nevertheless affords a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts . 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word earned had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income arising or accruing in India . The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . 19. When the Explanation seeks to give an artificial meaning to earned in India and brings about a change effectively in the existing law and in addition is stated to come into force with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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