2019 (9) TMI 1170 - AT - Income Tax

Tribunal Orders Review: Non-Cash Transactions Exempt from Section 68 Scrutiny; Case Sent Back for Verification.

Income Tax Officer Ward-6 (1), Kolkata Versus M/s. Dhanganga Realtors Pvt. Limited

Income Tax Officer Ward-6 (1), Kolkata Versus M/s. Dhanganga Realtors Pvt. Limited - TMI 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 Rs. 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 CashThe 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, 1962The 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.