Tribunal upholds CIT(A)'s decision to delete Section 68 addition under Income Tax Act

The Tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s decision to delete the addition made under Section 68 of the Income Tax Act. The Tribunal held that as there were no real cash transactions involved in the issuance of shares at a premium, the question of unexplained cash credit did not arise, thereby justifying the deletion of the addition made by the Assessing Officer.

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Issues Involved:
1. Deletion of addition made by the AO on account of share capital and share premium treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition Made by AO under Section 68:
The primary issue in this case revolves around the deletion of an addition of Rs. 9,85,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO treated the share capital and share premium received by the assessee as unexplained cash credit.

Background:
- The assessee, a company engaged in investment and trading of shares and securities, filed its return of income declaring a total income of Rs. 446/-.
- During the assessment year, the assessee received share application money amounting to Rs. 9,85,00,000/- against the issue of 98,500 shares at a premium of Rs. 999/- per share.
- The AO issued notices under Section 131 to the directors of the share applicant companies to appear with relevant details and documents. However, none appeared, leading the AO to treat the share application money as unexplained cash credit and made an addition of Rs. 9,85,00,000/- to the total income of the assessee.

CIT(A) Decision:
- The assessee appealed against the AO's order, and the CIT(A) deleted the addition, stating that there was no receipt of money, thus the prime condition of Section 68 was missing.
- The CIT(A) noted that the shares were allotted against the purchase of investments, involving mere journal entries with no actual cash transactions.
- The CIT(A) observed that the AO ignored the replies and confirmations filed by the share applicants and failed to provide any adverse findings about the investment made by the subscribers.
- The CIT(A) emphasized that the transactions were supported by documentary evidence, and the AO did not assert that the explanation provided by the assessee was false.
- The CIT(A) relied on the judgment of the Hon'ble jurisdictional High Court in the case of Jatia Investment Co. vs CIT (1994) 206 ITR 718 (Cal), which held that if there is no real cash entry, the question of cash credit does not arise.

Revenue's Appeal:
- The Revenue contended that the share capital and share premium represented cash credit under Section 68 and that the primary onus to establish the identity and capacity of the share applicants and the genuineness of the transactions was not satisfactorily discharged by the assessee.
- The Revenue argued that the CIT(A) wrongly concluded that Section 68 was not applicable due to the absence of cash inflow and relied on the decision of Hon'ble Calcutta High Court in the case of Jatia Investment Co., which, according to the Revenue, was not applicable to the present case.

Tribunal's Analysis:
- The Tribunal observed that the shares were issued at a premium to certain companies in lieu of shares held by those companies, with no cash involved in these transactions.
- The Tribunal noted that the transactions were recorded through journal entries without any credit to the cash amount.
- The Tribunal distinguished the facts of the present case from the cases cited by the Revenue, including V.I.S.P. (P) Ltd. vs CIT and Panna S. Khatau vs ITO, where real transactions involving cash were present.
- The Tribunal upheld the CIT(A)'s reliance on the decision of Hon'ble Calcutta High Court in Jatia Investment Co., which held that if there is no real cash entry, the question of unexplained cash credit does not arise.
- The Tribunal concluded that the CIT(A) was justified in deleting the addition made by the AO under Section 68.

Conclusion:
- The Tribunal dismissed the appeal of the Revenue, affirming the CIT(A)'s decision to delete the addition made under Section 68, as there was no real cash transaction involved.

Order Pronounced:
- The order was pronounced in the open court on 31st July, 2019.

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