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Facts
The assessee company, incorporated as a trader, did not commence business in the assessment year 2017-18. It filed a return declaring a loss. The AO added an amount of INR 5,01,54,567, received as advance for the sale of shares, as an unexplained credit under Section 68 of the Act. The CIT(A) upheld this addition.
Held
The Tribunal held that the AO failed to doubt the identity, creditworthiness, and genuineness of the transaction, which are essential for invoking Section 68. The advance was backed by a Share Purchase Agreement and the dispute concerning the share transfer was not settled in the year under appeal. Therefore, the addition under Section 68 was deleted.
Key Issues
Whether the addition of advance received for sale of shares under Section 68 of the Income Tax Act is justified when the transaction was disputed and not concluded in the assessment year, and whether the AO properly established the conditions for invoking Section 68.
Sections Cited
68, 143(3), 250, 234A, 234B, 234C, 234D, 271AAC, 281, 271(1)(c)
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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI MANISH AGARWAL
The captioned appeal is filed by the assessee against the order dated 23.09.2024 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No.CIT (A), Delhi- 8/10497/2019-20 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 31.12.2019 passed u/s 143(3) of the Act pertaining to assessment Page | 1
S.A.No.524/Del/2024 & 2017-18 alongwith Stay Appeal No.524/Del/2024 in for Assessment Year 2017-18. Year : 2017-18] 2. Brief facts of the case are that the assessee company was incorporated to act as trader however, it has not started its business in the year under appeal. The return of income was e-filed on 12.08.2017 declaring loss of INR 11,635/- under the normal provision of Act. The case was selected for scrutiny under CASS and notice u/s 143(2) was issued on 07.09.2018 to the assessee. Thereafter, notices u/s 142(1) of the Act were issued. In response thereto, the assessee filed details from time to time. On perusal of the financials of the assessee company, it was noticed by the AO that in Note No.5 – “Other current liabilities” an amount of INR 5,01,54,567/-was shown as advance from VPS Healthcare Pvt. Ltd. against sale of shares of Rockland Hospital Limited owned by the assessee company as one of the member of promoters group. The AO asked the assessee as to why the transaction of sale of shares was disclosed in the retune of income filed nor any gain/loss was declared. The AO further observed that the said shares were subscribed by the assessee between the FY 2011-12 to 2013-14 and such investment was owned by M/s Rockland Hospital Ltd. as made by it and it is the beneficial owner thus the AO concluded that the amount received by the assessee from the sale of shares was undisclosed credit of the assessee and made the additions for the same by invoking the provisions of section 68 of the Act. Against such order, an appeal was filed before ld. CIT(A) who dismissed the appeal of the assessee thus, the present appeal is filed by the Page | 2
S.A.No.524/Del/2024 & Tribunal on the strength of the following grounds of appeal- 1. “The Order dated 23.09.2024 under section 250 of the Act passed by the National Faceless Appeals Centre ("NFAC"), Delhi confirming the Assessment order dated 31.12.2019 passed under section 143(3) of the Act is erroneous and bad in law and deserves to be set aside.
2. That the NFAC has erred on facts and in law in confirming the addition of Rs.5,01,54,567/- by invoking the provision of section 68 without appreciating the fact that the assessee has properly explained the source of the acquisition of the money.
3. The NFAC has erred, both in fact and in law, in confirming the addition of Rs. 5,01,54,567/- as cash credit within the meaning of Section 68 of the Act, despite the identity, creditworthiness, and genuineness of the transaction having been duly established.
4. The NFAC erred in law and facts and circumstances of the case in imposing interest under sections 234A, 234B, 234C and 234D of the Act.
5. The NFAC erred in law and facts and circumstances of the case in initiating penalty proceedings under section 271AAC of the Act.
6. The Assessee craves the leave to add, amend and modify the grounds of appeal.”
3 Ground Nos.1, 2 & 3 are related to one issue of addition of INR 5,01,54,567/- made u/s 68 of the Act thus, they are taken together for consideration.
Before us, Ld.AR for the assessee submits that the assessee had acquired 12,74,966 shares of Rockland Hospital Limited for a total consideration of INR 12,63,49,131/- in FY 2011-12 to 2013- 14. On 31.05.2016, an agreement (i.e. Share Purchase Agreement) was entered into with V.P.S Healthcare Pvt. Ltd. for transfer of shares in M/s. Rockland Hospital Ltd. by various shareholders including the assessee company for a total consideration of S.A.No.524/Del/2024 & INR 1,65,48,00,814/-. This agreement was with regard to the total 3,48,72,186 shares of the Rockland Hospitals Ltd. owned by the promoter group which inter-alia includes 12,74,966 shares owned by the assessee company. It is submitted by Ld.AR that during the year, in terms of the said agreement, assessee received a sum of INR 5,01,54,567/- on 04.07.2016 and a certificate u/s 281 of the Act, was obtained from ITO, Ward-24, New Delhi for such transfer. Thereafter, certain disputes arose between the promoters of Rockland Hospital Limited and promoters of V.P.S Healthcare Pvt. Ltd. with regard to the transfer of these shares and certain FIRs were lodged and thus, transaction of sale of shares was not reached to the conclusion. Ld.AR further submits that when the shares were subscribed by the assessee, the Department alleged that amount invested by the assessee company were actually made by Rockland Hospital Limited who is the actual beneficial owner of these shares and therefore, in AY 2014-15 such investments was held as unexplained. Finally, Rockland Hospital Pvt. Ltd. had accepted such investments and further accepted that it as beneficial owner of such investments and paid the taxes thereon. Ld. AR further stated that due to dispute between the parties, the transaction of sale was not completed and therefore, the assessee company had not declared any income/loss from the sale of shares under the head ‘Income from capital gain’ in the return of income filed for the year under appeal and the amount received from V.P.S Healthcare Pvt. Ltd. was shown as advance under the head “current liabilities”. In this regard, Ld.AR drew our attention to the financial statements of the assessee company wherein in the Balance Sheet under the title
S.A.No.524/Del/2024 & Note No.5, the amount received from V.P.S Healthcare Pvt. Ltd. is appearing liability and further in Note No.6, under the head ‘investments in the shares’ it was shown as asset. Ld.AR for the assessee also drew our attention to Note No.22 wherein it is stated as under:-
“In FY 2016-17, part payment as advances has been received from VPS Healthcare Pvt. Ltd. against the proposed transfer of shares of Rockland Hospitals Ltd. hold as investments as on 31.03.2017. This process of transfer of shares will be completed in due course.”
It is thus, submitted by Ld.AR that since no sales taken place during the year under appeal due to the dispute arisen from the parties and matter was referred for arbitration thus, no profit or loss was declared in the return of income filed. Ld.AR further submits that finally, the dispute was resolved in terms of arbitration award dated 01.03.2019 and accordingly, in FY 2018-19 relevant to AY 2019-20, the loss on this transaction was taken to the Balance Sheet for which the financial statement of FY 2018-19 were placed on record by the Ld. AR for the assessee. Ld. AR further submits that the AO has made the addition u/s 68 of the Act which is not at all applicable to the facts of the present case as the identity of the V.P.S Healthcare Pvt. Ltd. is not doubted. Further, the said amount was received through banking channel and it is not the case where the creditworthiness of the VPS Healthcare was doubted by the AO. Solely for the reasons that the investment was originally owned and admitted by Rockland Hospital Limited, the AO alleged that this amount of advance
S.A.No.524/Del/2024 & received against the sale of shares is unexplained in the hands of the assessee. Since all the ingredients to establish the credit of INR 5,01,54,567/- as genuine as envisaged in section 68 of the Act were satisfied, no addition could be made u/s 68 of the Act for this amount. He, therefore, prayed for the deletion of the addition made in this regard.
Ld.AR further drew our attention to the assessment orders of constituents of the promoters group companies who jointly owned the shares of Rockland Hospital Limited and also received advance during the year under appeal towards sale of shares wherein in the assessment orders passed u/s 143(3) of the Act, the Revenue has not raised any doubts with respect to such advances received by those entities from V.P.S Healthcare Pvt. Ltd. Ld. AR placed copies of such orders in the Paper Book pages 66 to 91 filed before us. In view of these facts, Ld.AR submits that due to non-finalization of transfer of shares, the income/loss was not declared in the return of income filed for the year under appeal and further, the amount was duly received from explained source thus, provision of section 68 could not be invoked. He prayed accordingly.
On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has not shown any income/loss from sale of shares in its books of accounts for the year under appeal. The agreement for transfer of shares was executed in the year under appeal and process of transfer of shares was started therefore, it cannot be said
S.A.No.524/Del/2024 & that the agreement was not acted upon. Ld. Sr.DR further submits that no evidence was filed with respect to the claim that transaction was not completed and further, since the investment made in the shares were originally accepted by Rockland Hospital Limited as its unexplained investment and claimed to the beneficial owner therefore, the amount received by the assessee company is unexplained credit and AO has rightly invoked the provision of section 68 of the Act which orders deserves to be uphold.
Heard the contentions of both the parties and perused the material available on record. From the perusal of the facts of the case, it is seen that during the year under appeal, the assessee alongwith other shareholders had entered into an agreement for transfer of shares hold by them of Rockland Hospital Limited for a total consideration of INR 1,65,48,00,814/- and all the entities had received, part amount as advance. It is further seen in terms of the said agreement the assessee company had also agreed to transfer the shares owned by it and part consideration was received at INR 5,01,54,567/- however, due to the dispute between the parties resulting into the legal cases the transaction could not be completed. Finally in terms of the Compromise Deed dated 02.02.2019 dispute was settled, and the assessee had not received any further amount of consideration from the sale of such shares. It is further seen that due to such dispute, the assessee had not offered any income/loss from the transfer of such shares in the return filed for the year under appeal. The AO has made the addition u/s 68 of the Act of the amount received as advance from S.A.No.524/Del/2024 & V.P.S Healthcare Pvt. Ltd. by holding the same as unexplained credits in the hands of the assessee. From the entire facts and circumstances of the case, we are of the considered view that once the transaction of sale of shares is in dispute and the full amount of consideration from transfer of shares was neither received nor the dispute was settled in the year under appeal, it could not be hold that the transaction of sale of shares was completed. It is further seen that in the financial statement for the year ended 31.03.2017, the amount received as advance was shown as ‘Current liability’ and no transfer entry of sale of shares was recorded in the books of account which were finally, made in FY 2018-19 when the Compromise Deed was executed by the parties. It is also seen that other shareholders have also received amounts from V.P.S Healthcare Pvt. Ltd. where the amount received was shown as advance in their respective financial statements and no income was offered on account of sale of the shares during the year under appeal and in some cases, assessments were completed u/s 143(3) of the Act without doubting the treatment done by them. Under these circumstances, we find no error in the action of the assessee of not disclosing the sale of shares in the return of income filed. It is also seen that the assessee had shown these transactions of sale in the financial statements for Financial Year 2018-19 where the net result being loss was carried forward to the balance sheet under the head “Reserve & surpluses”.
With regard to the application of provision of section 68 of the Act, we find that the AO has not doubted the identity,
S.A.No.524/Del/2024 & Rockland Hospital. Limited was admitted by the said company and further admitted as the beneficiary owner, the AO had made the addition. For invoking the provision of section 68 of the Act, the basic condition is that either of the three ingredients, should be satisfied i.e. identity of the payer, genuineness of the transactions and creditworthiness of the persons who had made such payments. In the instant case as observed above, it is not the allegation of the revenue that the assessee has failed to satisfy all these three ingredients as envisaged in section 68 of the Act. Under these circumstances in our considered view, addition cannot be made in the hands of the assessee u/s 68 of the Act for the amount received as advanced against the sale of shares which has been duly backed by Share Purchase Agreement between the assessee and the buyer company i.e. V.P.S Healthcare Pvt. Ltd. and also Rockland Hospital Limited. Under these circumstances, we hereby direct to delete the addition made u/s 68 of the Act. Accordingly, Ground of appeal Nos. 1 to 3 raised by the assessee are allowed.
10. Ground No.4 raised by the assessee is with regard to levy of interest u/s 234 A/B/C which are consequential in nature and AO is directed to charge the same in accordance with law.
11. Ground No.5 is with regard to initiation of penalty proceedings u/s 271(1)(c) of the Act which is premature at this stage hence, dismissed.
Now, we take S.A.No.524/Del/2024 in AY 2017-18. As we decide the appeal of the assessee in for AY 2017-18 in favour of the assessee thus, Stay Application filed by the assessee become infructuous hence, dismissed.
In the combined result, appeal filed by the assessee is partly allowed and stay application filed by the assessee is dismissed.
Order pronounced in the open Court on 23.07.2025.