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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
1 ITA No. 308/Kol/2017 Abhijeet Enterprise Ltd. , AY 2013-14
आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA (सम�) �ी ऐ. ट�. वक�, �यायीक सद�य एवं डॉ. अजु�न लाल सैनी, लेखा सद�य) [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
I.T.A. No. 308/Kol/2017 Assessment Years: 2013-14
M/s. Abhijeet Enterprise Ltd. Vs. Income-tax Officer, Wd-2(2), Kolkata (PAN: AAJCA4713C) Appellant Respondent
For the Appellant Shri M. D. Shah, AR For the Respondent Shri P. K. Srihari, CIT, DR
Date of Hearing 08.03.2019 Date of Pronouncement 27.03.2019
ORDER Per Shri A.T.Varkey, JM This appeal of the assessee, a private limited company, arises out of order of the Learned Commissioner of Income Tax (Appeals) - 1, Kolkata for AY 2013-14dated 30.12.2016.
The main grievance of the assessee is against the action of Ld. CIT(A) in confirming the addition of Rs.3,862.36 crores by way of unexplained cash credit u/s. 68 of the Income- tax Act, 1961 (hereinafter referred to as the “Act”).
Brief facts of the case noted by the AO at Page 3 of the assessment order is reproduced as under:
“Short note on the facts of the case
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It is seen from the submission of the assessee that on assessee’s instruction M/s. Abhijit Projects Ltd. gave share application money of Rs.218,00,00,000/- to M/s. Abhijeet Ventures Ltd. It is further seen from the submission of the assessee that Rs.3644,36,44,300/- was paid on assessee’s behalf by M/s. Abhijeet Projects Ltd. for the purpose of purchase of investments. It is also seen from the submission of the assessee that the cumulative amount of Rs.(218,00,00,000 + 3644,36,44,300) = Rs.3862,36,44,300/- has been shown as other payables assessee owes this money to holding company (note 5 – other current liabilities of the audited accounts). Unexplained cash credit u/s. 68 It is stated in Section 68 of the I. T. Act, 1961 “where any sum is credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. In the instant case, the summons issued to the assessee company has not been fully complied with. The verification of the source of the share application money of Rs.218,00,00,000/- given to M/s. Abhijeet Ventures during the previous year could not be made due to non compliance on the part of the assessee. Similarly the verification of the source of Rs.3644,36,44,300/- for the purpose of purchase of investments could not be made due to non compliance on the part of the assessee. Thus verification of the cumulative amount of Rs.(218,00,00,000 + 3644,36,44,300) – Rs.3862,36,44,300/- shown as other payables (note 5 – other current liabilities of the audited accounts) could not be made due to non compliance from the part of the assessee. Primarily, due to failure on part of the assessee, the identity of the sundry creditor is questionable. If the identity of the creditors had not been conclusively established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. In view of the above the entire amount of Rs.3862,36,44,300/- shown as Other payables (note 5-other current liabilities of the audited accounts) which is remained unexplained is added back u/s. 68.” 4. Aggrieved by the above addition saddled by AO u/s. 68 of the Act, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is now in appeal before us.
The Ld. AR assailing the order of the Ld. CIT(A) drew our attention to the fact that the assessee is a Private Limited company which is engaged in the business of trading and investment in shares. The Ld. AR first drew our attention to the Note No. 21 forming part of accounts wherein the details of the associated enterprises had been set out in the annual
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report. It is noted that M/s. Abhijeet Ventures Ltd. (hereinafter M/s. AVL) was the ultimate holding company and M/s APL was the immediate holding company of the assessee company which held more than 95% stake in the assessee company. The Ld. AR thereafter explained that the holding company M/s. APL was faced with acute financial crunch and had approached Banks/FIs for loan/credit facilities. Since APL had substantial funds locked up in illiquid investments being shares & securities of group companies, the lenders of M/s APL advised that the investments be off-loaded and the APL should ensure that the Balance Sheet contains majorly business assets which reflect its main business i.e. steel and aviation. The lenders thus advised M/s. APL to transfer the entire investment holdings to its subsidiaries & group companies which would lend them assurance that the additional loan funds which would be infused by them would not get diverted in the form of investments rather it would be utilized only in the field of Steel and Aviation. The Ld. AR submitted that in this factual background the Abhijeet Group undertook the restructuring exercise whereby the investments held by M/s. APL to the tune of Rs.3644.36 cr. was transferred to the assessee company. The investments of Rs.3644.36 crores was purchased by the assessee company on credit and therefore the amount payable to M/s APL was reflected in the books as on 31.03.2013 under the head “Other Payables”. In addition to the foregoing the investment of Rs.218 crores made by M/s APL in the ultimate parent company, M/s AVL in the form of share application monies pending allotment also stood transferred to the assessee company. In sum & substance therefore the assessee acquired investments in form of shares, the right in the share application given to M/s. AVL; aggregating to Rs.3862.36 crores from its holding company M/s. APL and such amount remained due and payable at the year-end. The Ld. AR further drew our attention to Note No. 5 & 7 of the audited accounts wherein the aforesaid transactions had been duly reflected and reported by the assessee company. The Ld. AR submitted that the entire sequence of transaction in question involving transfer of shares had taken place intra-group and that neither any unrelated or outside bodies corporate were involved, nor any actual sum or cash was paid and/or transferred inter-se group companies. The Ld. AR therefore submitted that the initial premise of the AO that the assessee was unable to establish the identity of sundry creditor
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i.e. M/s. Abhijit Projects ltd. (M/s. APL) was misplaced and the action of the lower authorities holding that such transaction fell within the ken of Section 68 was also unjustified.
It was further pointed out by the ld. AR that the assessee was engaged in the business of trading in shares and making investments therefore the act of acquisition of shares & rights in shares by the assessee company was duly reflected in the books of accounts. He thus submitted that when the AO had accepted the transaction involving purchase of shares & rights in shares from M/s APL, then the AO could not question the genuineness of the amount outstanding against the ledger of the creditor i.e. M/s APL. The Ld. AR submitted that transaction of credit purchase resulting in a payable could not be equated with a credit entry of a financial transaction involving receipt of money so as to invoke the rigors of Section 68 of the Act. It this regards the Ld. AR drew our attention to the decision of the Special Bench of this Tribunal in the case of Manoj Agarwal Vs DCIT reported as 113 ITD 377 wherein the Tribunal had explained the difference between the receipt of any sum for the purpose of Section 68 of the I T Act 1961 versus the liability to pay amount representing outstanding purchase consideration. According to ld. AR therefore the AO erred in equating amount due on account of purchase i.e. outstanding purchase price with sum credited i.e. receipt of money so as to invoke Section 68 of the Act The Assessing Officer failed to appreciate the difference between the two. He submitted that there was no receipt or involvement of any sum or cash in the entire sequence of transaction and therefore urged that the provisions of Section 68 was not applicable in the given set of facts. On query from the Bench, the ld. AR clarified that the sum which remained outstanding as on 31. 03. 2013 was subsequently satisfied by the assessee company by way of issuance of debentures of equivalent amount to M/s APL. He pointed out that this aspect was also enquired into by the AO in the remand proceedings and in his remand report furnished before the Ld. CIT(A), even the AO had stated that the outstanding dues were settled by issuance of debentures. In this regard he drew our attention to Pages 7 of the Ld. CIT(A)’s order where this finding is available. Relying on the judgments of the Hon’ble Supreme Court in
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the case of H.H. Sri Rama Verma vs CIT (187 ITR 308), Hon’ble Calcutta High Court in the case of Jatia Investment Co Vs CIT (306 ITR 718) & Hon’ble Madras High Court in the case of V.R. Global Energy Pvt Ltd Vs ITO (96 taxmann.com 647) he urged that the AO’s invocation of Section 68 in the given set of facts was wholly unsustainable on facts and in law.
The Ld. AR alternatively stressed on the fact that AO had acted on the specious plea that the identity of sundry creditor, M/s. APL could not be established and that he had wrongly invoked Section 68 to make this humungous addition, which was per-se not warranted. He submitted that admittedly the transaction in question was between group entities and that M/s APL & M/s AVL was operational bodies corporate belonging to the same Abhijeet Group and which are regularly taxed. He therefore pleaded that all the ingredients of Section 68 also stood satisfied and hence prayed that the impugned addition be deleted.
Per contra, the Ld. CIT DR stated that the impugned addition was a result of the evasive conduct of the assessee during assessment proceeding. The Ld. DR brought to our attention that the AO had issued several summons / notices and allowed sufficient opportunity of hearing to the assessee, however the assessee neither complied with the requisitions nor explained the transactions in question, resulting in the impugned addition u/s 68 of the Act, the AO made the addition u/s. 68 of the Act. According to the Ld. CIT DR the averments of the assessee that during the assessment year under consideration (A.Y. 2013-14) the assessee had received shares worth of Rs. 3644.56 crores from M/s. APL on credit and that this amount was shown outstanding current liability to M/s. APL was not fully discernible from the audited financial statements as the name of ‘M/s APL’ has not been specifically mentioned in Note No.5 of the annual accounts. He further drew our attention to the AO’s order wherein he had take note of the fact that in Note 5 -“Other Payables”it was mentioned as ‘mainly relating to purchase of investments’ but there was no whisper in respect to any liability of Rs.218 crores payable in relation to acquisition of
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rights in share application monies paid by M/s APL to M/s AVL. The Ld. DR further submitted that it was also not fully clear that whether the assessee had actually received any sum or not in this entire sequence of transactions. According to the Ld. DR, the assessee had given contradictory statements by stating on one hand that the assessee received share worth Rs. 3644.36 crores from M/s. APL on credit and this amount were shown as outstanding current liability to M/s. APL and that APL had transferred rights in the share application amount of Rs.218 crores in AVL to AEL and that this amount was also shown as outstanding current liability to APL. Assailing the Ld. AR’s contention that provisions of Section 68 cannot be invoked where no actual sum or cash is received/credited in the books of accounts, the Ld. DR took us through the provisions of section 68 of the Act and submitted that the phrase ‘any sum credited’ also included book entries & outstanding dues. He submitted that the assessee’s reliance on the judgment of Hon’ble Supreme Court in the case of H.H. Sri Rama Verma vs CIT (supra) was distinguishable since in that decision the provision in question was Section 80G and not Section 68 of the Act. The Ld. DR also tried to distinguish each of the case laws relied upon by the assessee on their respective facts.
The Ld. DR further submitted that the assessee had miserably failed to explain the nature and source of the sums in question, so the AO has rightly added the sums u/s. 68 of the Act. He invited our attention to the judgment of the Hon’ble Calcutta High Court in the case of J.J. Developers Pvt. Ltd. vs CIT (100 taxmann.com 101) wherein the High Court had affirmed the addition that was made by the AO u/s 68 of the Act. He further brought to our attention that the SLP filed by the assessee against the decision of the Hon’ble High Court had since been dismissed. According to him, the facts of the present case are analogous to the aforesaid judgment and therefore urged that the orders of the lower authorities did not warrant any interference.
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We have heard the rival submissions and carefully perused the records. From the material placed before us it is noted that the assessee is engaged in the business of trading in shares & securities. During the year the assessee company had acquired shares and rights in shares pending allotment on credit by way of investments from its holding company, M/s APL for an aggregate consideration of Rs.3862.36 lacs. It is noted that consideration towards these shares so acquired remained outstanding as on 31.03.2013. From the details of ‘Other Payables’ – Note No. 5 of the annual accounts for the year ended 31.03.2013, we note that the amount of Rs. 3862.36 crores inter alia comprised of the sum of Rs.3644.36 crores & Rs.218 crores payable by the assessee to M/s APL in respect of shares and right in share application monies respectively. We further note that the aforesaid liability which arose as a consequence of acquisition of investments, was subsequently met by way of issue of ‘Debentures’ in subsequent year and thereafter no liability remained subsisting. Prima facie therefore it is apparent that there was no payment of any sum in cash or cheque involved in the entire sequence of transactions. In fact in the relevant year only book entry was passed in the Balance Sheet whereby the assessee recorded the value of investments acquired on credit in the ‘Asset’ side and the corresponding payable was reflected in the ‘Liability’ Side under the head ‘Other Payables’. It is therefore noted that the recording of the acquisition of investments from M/s APL and the corresponding accounting of the sum due to M/s APL was nothing but a journal entry passed in the books of accounts of the assessee company. On these facts the issue now before us is whether the AO could have added such outstanding balance reflected in the Balance Sheet under the head ‘Other Payables’ under Section 68 of the Act. In this regard it would first be relevant to examine the bare provisions of Section 68 of the Act which reads as under: “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
It is noted that the Legislature has employed the phase ‘any sum’ in the above provision. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in
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the case of Shri H.H. Rama Varma vs. CIT (supra) wherein it was held that 'any sum' means 'sum of money'. The relevant extracts of the judgment is as follows:
“One of the dictionary meanings of the expression 'sum' means any indefinite amount of money. The context in which the expression 'sums paid by the assessee' has been used makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. The Act provides for assessment of tax on the income derived by an assessee during the assessment years; the income relates to the amount of money earned or received by an assessee. Therefore, for purposes of claiming deduction from income-tax under section 80G(2)(a), the donation must be a sum of money paid by the assessee.”
In view of the above decision we are of the considered view that the phrase ‘any sum’ employed in Section 68,cannot be extended to include any book entry, notional adjustment, payment in kind etc. The Ld. AR’s reliance on the findings recorded in the context of the interpretation of the provisions of Section 68 in the decision of the Special Bench of this Tribunal comprising of five members in the case of Manoj Agarwal Vs. CIT (supra) is also found to be of much relevance, wherein this Tribunal had held as under:
“ The argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee, but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing aliability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefor has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies…..”
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From a bare reading of the aforesaid dictum of law as made by the Special bench, we note that there is a difference between credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction a liability which arises as a consequence of any purchase resulting in a corresponding credit to the account of the supplier cannot be added u/s. 68 of the Act, more so, when the purchase has been accepted as genuine. In other cases involving actual receipt of money, the provisions of sec. 68 are applicable and then the onus is on the assessee to prove satisfactorily the nature and source of the monies. In the present case, we note that both the transactions between the assessee and M/s APL involving purchase of shares for Rs.3644.36 crores and the right/title of the share application made in M/s. AVL for Rs.218 cr has been claimed to be carried out on credit and that no sum whatsoever was received in relation thereof. It is noted that the liability of Rs.3862.36 crores reflected under the head ‘Other Payable’ has arisen as a consequence of the aforesaid purchase transaction and that it does not represent any receipt of actual monies. The assessee company having purchased these investments on credit from the holding company M/s. APL, is shown as the sundry debtor in the books of the holding company M/s. APL and correspondingly M/s. APL is the sundry creditor in the books of the assessee company, which is yet to receive the sale consideration. It is therefore noted that the sum of Rs.3862.36 crores represented the liability to pay the holding company M/s. APL towards the purchase consideration of the shares which it has parted with to the assessee company. Applying the observations made by the Special Bench of this Tribunal (supra) in the context of Section 68 and the meaning assigned to the term ‘any sum’ by the Hon’ble Supreme Court (supra); we find substantial merit in the claim of the appellant that the provisions of Section 68 was wrongly invoked in the present case in respect of the outstanding liability payable by the assessee to its holding company, M/s APL towards the investments acquired during the relevant year.
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In this regard, we also rely on the judgment of the Hon’ble Calcutta High Court in the case of Jatia Investment Co. Vs CIT (supra) which is squarely applicable to the facts of the case. In the decided case the Court held:
“We have perused the assessment order carefully. We find that cash did not pass at any stage though entries were made in the cash book showing payments and receipts ; but since the entries made a complete round, no passing of cash was necessary for the purpose of making the entries. That there was no passing of cash is also admitted by the Income-tax Officer himself. We have already extracted the observation of the Income-tax Officer in paragraph 14 of his assessment order. The Income-tax Officer has clearly opined that all the respective parties did not receive cash nor did pay cash as none had any cash for the purpose. The only point in the assessment order is that the entries not involving the passing of cash should not have found a place in the cash book, but in the ledger account through journal entries. There is another self- contradiction in the Income-tax Officer's finding that, if there was no real cash entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise.
One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital.
Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been consistently pleading before the lower authorities that the entries had to be made in order to bring the companies in conformity with the said direction. Moreover, the direction of the Reserve Bank is a public document within the meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act.
In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid.
In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue.”
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We also rely on the judgment of the Hon’ble Madras High Court in the case of V R Global Energy Pvt Ltd. Vs ITO (supra) which is squarely applicable in the present case. In the decided case there was an outstanding due of Rs.60.67 crores payable to one Mrs. VR by the assessee company. Instead of paying cash, the assessee company allotted its shares to Mrs. VR in satisfaction of the outstanding dues. The AO assessed the increase in share capital by way of unexplained cash credit u/s 68 of the Act. On appeal the Hon’ble High Court observed that there was no actual involvement of money but the allotment of shares in lieu of outstanding dues was only a book adjustment and therefore held that provisions of Section 68 could not be invoked in the given facts of the case. The relevant extracts of the judgment are as under:
“26. This case is distinguishable from the case of CIT v. Lovely Export (P.) Ltd. [2008] 216 CTR 195 (SC) in that the transactions were only book transactions, and there was no cash receipt. The decisions in (i) CIT v. Focus Exports (P.) Ltd. [2014] 51 taxmann.com 46/228 Taxman 88 (Delhi) (Mag.); (ii) CIT v. Globus Securities & Finance Pvt. Ltd. [2014] 41 taxmann.com 465/224 Taxman 237 (Delhi); (iii) Onassis Axles (P.) Ltd. v. CIT [2014] 364 ITR 53/224 Taxman 80 (Mag.)/44 taxmann.com 408 (Delhi); (iv) Olwin Tiles India (P.) Ltd. v. Dy. CIT [2016] 382 ITR 291/237 Taxman 342/66 taxmann.com 8 (Guj.); (v) B.R. Petrochem (P.) Ltd. v. ITO [2017] 81 taxmann.com 424 (Mad.); and (vi) Rajmandir Estates (P.) Ltd. v. Pr. CIT [2016] 386 ITR 162/240 Taxman 306/70 taxmann.com 124 (Cal.), cited on behalf of the respondent are distinguishable, in that the cash credits towards share capital were admittedly only by way of book adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money.
The appeal is, thus, allowed and the judgment and order of the learned Tribunal dated 1.9.2016 is set aside, for the reasons discussed above. Additions under Section 68 of the 1961 Act are also set aside. The questions of law are answered against the Revenue.”
Similar view was also taken by the Hon'ble Delhi High Court in the case of CIT us. Ritu Anurag Agarwal reported as 2009 (7) TMI 1247wherein the Hon’ble High Court held:
"This finding of AO remained undisturbed before the CIT(A) as well and has been accepted by the ITAT. Proceeding on this basis, the ITAT observed that the soles, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this
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aspect while making additions of sundry creditors under Section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchase, no addition could be made under Section 68 inasmuch as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case. The appeal is accordingly dismissed. "
We also rely on the decision of the Hon'ble Allahabad High Court in the case of CIT -vs.- Pancham Das Jain (205 CTR 444) wherein it was held as under:
We have heard Sri Shambhoo Chopra, learned standing counsel for the revenue.
He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of section 68 of the Act was squarely attracted in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him section 68 of the Act also covers up the case of purchases made on credit.
The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two accounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue, inasmuch as, on the bo.sis of the findings recorded by it that these two amounts represented purchases made by the respondent-assessee on credit and the purchases and sales having been accepted by the department, the question of addition of the aforesaid two amounts under section 68 of the Act did not arise inasmuch as the provisions of section 68 of the Act would not be attracted on the purchases made on credit.
We, accordingly, answer the question referred to us in affirmative, i,e., in favour of the assessee and against the revenue. There will be no order as to costs.
We also rely on the findings recorded in the decision of the Hon'ble Punjab High Court in the case of PCIT Vs Sh. Kulwinder Singh 2017 (7) TMI 957 wherein the Hon’ble Court held as under:
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A perusal of the order passed by the Tribunal shows that the assessee had shown numerous sundry creditors along with details in his balance sheet. The assessee being a road Contractor received material for the construction of the road. The amounts in question represented purchases made on credits. According to Section 68 of the Act, where any sum is found credited in the books of account of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It has been categorically recorded by the Tribunal that the provisions of Section 68 of the Act u)ere clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier gears i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted. The relevant findings recorded by the Tribunal in this regard read thus:-
"Having heard the rival contentions in the light of the material available on record, it is seen that in para-3 of the assessment order, the AO observed that the assessee had shown numerous sundry creditors along with details as was available from the examination of the assessee's books of account vis-a-vis his balance sheet. The assessee is a road contractor. He received material for the construction of the road. The amounts in question represented purchases made on credits. The provisions of Section 68 of the Act are clearly not attracted to amount representing purchases made on credits, as is also held in 'CIT Vs. PanchamDass Jain', 205 CTR 444 (All). The assessee raised this issue by Way of written submissions (APB 37 to 160, relevant portion at para-5, on page 43) dated 10.05.2014 filed before the CIT(A). The ld. CIT(A) has, however, not addressed this grievant at all and merely upheld the addition made under section 68 of the Act On behalf of the assessee, a comparative chart of net profit rate of the assessee for the assessment years 2005-06 to 2011-2012 has been filed before us. In the earlier years also, no such addition was made. For the assessment Year 2007-08, under scrutiny assessment, the assessment was made at 8%. The position remained much the same for the assessment year 2008-09. The year under consideration is assessment year 2009-10. The material supplied to the assessee by the concerned department is part of the assessee's turnover. The net profit rate of the assessee for the year under consideration u)as in line with the preceding assessment year. Further, the trade creditors in the earlier years, i.e. assessment years 2007-08 and 2008-09 stands accepted in scrutiny assessments. Thus, the genuineness of the expenses under consideration cannot be doubted. Moreover, the genuineness of the expenditure was not at all called into question. It was only that no-verification thereof raised doubt of the incurrence thereof. Then, even if the credits concerning the purchases and transportation of the material are not to be accepted, as discussed, still, the provisions of Section 68 of the Act cannot be invoked to make the addition.”
Learned counsel for the appellant-revenue has not been able to show that the findings recorded by the Tribunal are illegal or perverse or based on misreading of any material
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onrecord, warranting interference by this Court. Thus, no substantial question of law arises. Consequently, the appeal stands dismissed.”
We are also unable to agree with the Ld. CIT DR’s interpretation of the provisions of Section 68 of the Act. We note that his argument that the provisions of Section 68 are applicable to any and every credit entry in the books of accounts inter alia including book entries, barter transactions, outstanding liability payable in respect of purchases has been specifically negated by coordinate Bench of this Tribunal in the case of Anand Enterprises Ltd (ITA-1614/Kol/2016), by observing as under:
“4. We have heard the rival submissions. At the outset, we find that the assessee had not raised any share capital by receipt of cash consideration in the instant case. The shares were issued for consideration other than cash in lieu of assessee company making investment in shares in some other company. Effectively, the assessee purchased certain shares from the aforesaid six shareholders and instead of paying cash to them, the assessee company issued shares in its own company to those shareholders. Hence the assessee had made investments in shares of another company for which consideration was settled through issuance of its shares to those shareholders. Now the crucial point is whether the provisions of section 68 could be invoked in the instant case for making investment towards share capital. There was no receipt of any sum as provided u/s 68 of the Act in the instant case. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT reported in 187 ITR 308 (SC) wherein it was held that 'any sum' means 'sum of money'. We find that ld. CIT(A) had deleted the addition by observing as under:
"6. On consideration of the AR's submission, especially the portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter system. The AO has not refuted the appellant's claim that shares were allotted in exchange for acquisition of shares by the appellant from the companies which surrendered such shares to the appellant. Though as per the AO to apply section 68 to make the said addition in the appellant's hand. Transactions purportedly executed by entry operators involve multiple layers and other complexities, introducing delays in introduction of unaccounted cash/money and multiple players being incorporated entities. Measures taken by the AO in the course of the assessment proceeding falls much short of what is required to be done in such case laws, which have evolved on this issue, call for concerted actions on the part of the AO pinpointing utilization of unexplained/unaccounted/untaxed money and the players and the beneficiaries effectively using the weblike scheme to plunder black money. For example introduction and use of black money in the present case may be at a different point of time and in different hands. The AO's action in
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the present case cannot be upheld in law. I, therefore, delete the additions and grounds of appeal Nos. 3 & 4 are allowed."
4.1. We find that the Hon'ble Allahabad High Court in the case of CIT vs. Sohanlal Singhania reported in 235 ITR 616 (All) had held in the context of allowability of donation as deduction u/s 80G of the Act that the expression 'any sum paid' used in the said section denotes ' sum of money paid' . Hence if certain shares were donated by a person, then the same would not fall eligible for deduction u/s 80G of the Act. We also find that the Hon'ble Jurisdictional High Court in the case of Jatia Investment Company- (Co.) vs. CIT reported in 206 ITR 718 (Cal) also supports the case of the assessee herein, wherein it was held as under:
"It is finally emphasised by learned counsel for the assessee that the ultimate result is that the firm becomes a debtor to GB and Co. and the three non-financial companies of the group got discharged. Learned counsel also emphasised that, at the worst, it can be said that the assessee- firm has received valuable assets being the said shares of the equivalent value of the debt taken over by it from the companies, i.e., Rs. 11.20 lakhs.
Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. It was contended that the fact that the entries passed through the cash book could not detract from or efface the essential nature of the entries. It was also urged that the entries were passed through the cash book so that the repayment of loans by the said three companies could be established before the Reserve Bank of India. But, according to ShriBajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions showing the amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It was further stressed that the transactions are above board. No outsider is involved. The entries were made in the books of the concerns of the same group. The shares in question were also of the companies of the group. There was no attempt at hiding the transactions. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into effect merely by way of adjustments of the said loans and the share transfers.
Shri A. C. Moitra, the learned advocate for the Revenue, reiterated the grounds on which the Tribunal has affirmed the addition of the amount of Rs.11.20 lakhs as unexplained cash credit. He particularly emphasised that the assessee's contention that the entries are only adjustment entries is not acceptable, because the adjustment entries are not made through the cash book. It is an accepted principle of accounting that book adjustments and the entries in effecting them are made by journal entries and not cash entries. He urged that the purported motive of the entries being the reduction of loans of the three limited companies does not explain the whole matter, because the entries are cash entries. The fact remains that, at every stage, the parties showed the payments and receipts of cash even when there was no cash available for such entries. This quite justifies the addition as sustained by the Tribunal.
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We have perused the assessment order carefully. We find that cash did not pass at any stage though entries were made in the cash book showing payments and receipts; but since the entries made a complete round, no passing of cash was necessary for the purpose of making the entries. That there was no passing of cash is also admitted by the Income- tax Officer himself. We have already extracted the observation of the Income- tax Officer in paragraph 14 of his assessment order. The Income- tax Officer has clearly opined that all the respective parties did not receive cash nor did pay cash as none had any cash for the purpose.The only point in the assessment order is that the entries not involving the passing of cash should not have found a place in the cash book, but in the ledger account through journal entries. There is another self- contradiction in the Income-tax Officer's finding that, if there was no real cash entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise.
One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital.
Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been consistently pleading before the lower authorities that the entries had to be made in order to bring the companies in conformity with the said direction. Moreover, the direction of the Reserve Bank is a public document within the meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act.
In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid. In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue."
4.2. It would be pertinent to note that in the instant case, the ld. AO had not doubted the investment made in shares by the assessee company. There is no dispute raised by the ld. AO with regard to number of shares; value thereon invested by the assessee company. We also find that the Co-ordinate Bench decision of Pune Tribunal in the case of Kantilal and Bros. vs. ACIT reported in 52 ITD 412 (Pune Trib.) also supports the case of the assessee.
4.3. In view of the aforesaid observations, in the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that
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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 of certain companies from certain shareholders without paying any cash consideration and instead the consideration was settled through issuance of shares to the respective parties. Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence we hold that provision of section 68 of the Act are not applicable in the instant case and accordingly the entire addition deserves to be deleted which has rightly been done by the ld. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed.”
We also find the Ld. CIT DR’s reliance on the judgment of the Hon’ble Calcutta High Court in the case of J.J. Developers (supra) is misplaced and is clearly distinguishable on facts in as much as in that case the assessee company had actually received monies from the share applicants; unlike the facts of the present case wherein the credit represented liability to be paid on account of outstanding dues towards purchase of investments. Hence the above judgement is factually distinguished and not applicable to the facts of this case.
In the facts of the present case the entire transaction in question was between group companies i.e. the holding company and the subsidiary company i.e. the assessee company. Also there is no receipt of money rather there is a liability on the assessee company to pay outstanding purchase amount to M/s. APL. We further note from the material on record that there was no cash involved in any stage of the transaction and that in the subsequent assessment year itself the transaction has been squared up by the assessee company by issue of debentures. In our considered view therefore the decision Hon’ble Apex Court in the case of H.H. Sri Rama Verma (supra), Hon’ble jurisdictional High court in the case of M/s. Jatia Investment Co. (supra) and the Hon’ble Madras High Court in the case of V R Global Energy Pvt Ltd (supra) is squarely applicable to the facts and circumstances of this case. We note that the AO erred in understanding the nuances of the Notes forming part of the audited accounts and proceeded on an altogether wrong footing holding that the outstanding sum reflected to be payable to M/s APL in relation to the investments purchased from was required to satisfy the rigors of Section 68 of the Act. In our considered view therefore the impugned addition made u/s 68 was wholly untenable on the given facts and in law. We
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however are of the view that the aforesaid error had crept into the order of the AO since there was no proper compliance at the assessment stage, since the assessee had objected to the very jurisdiction of ITO- Ward 51(4) who had issued the statutory notices. Though the Ld CIT (A) has called for a remand report, and the AO had furnished his report, however the AO remained silent on the issue of receipt of actual money/ sum in his report. Therefore, in all fairness and fitness of the matter, and in the given the facts and circumstances of the case, we set aside the impugned addition back to the AO with a limited direction to verify and ascertain the fact as to whether the assessee had actually received any money/cash pursuant to this transaction from its holding company during AY 2013-14. If it is found that there the assessee company has not received money/cash from the holding company in the relevant AY 2013-14, then in our considered view Section 68 of the Act cannot be applied and hence the impugned addition shall stand deleted. However, if any element of money/cash is found to have been received by the assessee company from M/s APL in this transaction involving acquisition of investments, then the AO is granted full liberty to ascertain whether the assessee is able to satisfy the three ingredients contained in Section 68 and thereafter make addition, if any, as per law. Accordingly the order of the Ld. CIT(A) stands set aside back on this limited aspect to the AO with the specific directions as set out in the foregoing. The AO shall limit himself to the inquiry as directed herein above. Needless to say, the AO shall allow the assessee sufficient opportunity of hearing before passing the order.
Before parting, it is relevant to mention that the assessee had raised additional grounds challenging the legal validity of the impugned order which was admitted since it purely involved question of law. Accordingly to Ld. AR of the appellant the notices u/s 143(2) & 142(1) was not issued by their jurisdictional AO and therefore the proceedings conducted u/s 143(3) stood vitiated and the impugned order was bad in law. The Ld. AR submitted that the notices u/s 143(2) & 142(1) were issued by ITO Ward 51(4) who did not enjoy the jurisdiction of corporate entities; like assessee company and when this fact was brought to his notice; he transferred the file of assessee to the ITO, Ward-2(2), Kolkata who
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never issued the notice u/s 143(2) within the permissible time limit. We are however not inclined to go into this legal issue raised by the assessee, since we have already adjudicated the merits of the addition made in the facts and circumstances by invoking sec. 68 of the Act and, therefore, the legal issue raised by the assessee company is left open.
In the result the appeal of the assessee is allowed for statistical purpose.
Order is pronounced in the open court on 27/03/2019 Sd/- Sd/- (Dr. A. L. Saini) (A. T. Varkey) Accountant Member Judicial Member Dated: 27th March, 2019 Jd.(Sr.P.S.) Copy of the order forwarded to: 1 Appellant –M/s. Abhijeet Enterprises Ltd., 10, Princep Street, 1st floor, Kolkata-700 072. 2 Respondent –ITO, Ward-2(2), Kolkata. 3 CIT(A)-1, Kolkata. (sent through e-mail) CIT , Kolkata 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5
/True Copy, By order,
Assistant Registrar