2023 (1) TMI 895 - AT - Income Tax

Tribunal Upholds Revenue's Appeal on Section 68: Transactions Deemed Scandalous

ACIT, Central Circle-13, New Delhi Versus Double Plus Software P. Ltd.

The Tribunal allowed the Revenue's appeal, holding that Section 68 of the Income Tax Act applied as the transactions lacked genuineness and ... Addition u/s 68 - credit of share capital and share premium in the books of account of the assessee - CIT-A deleted the addition - HELD THAT:- Section 68 of the Act applies to the facts of this case as a sum of money was credited, in the books of the assessee and the assessee could not prove the genuineness of these credits as well as the creditworthiness of the creditor. Hence in our view the addition has rightly been made by the A.O. We find ourselves in agreement with the view expressed by the Kolkata Bench of the Tribunal in M/s. Blessings Commercial Pvt. Ltd. [2017 (6) TMI 1284 - ITAT KOLKATA] - Respectfully following the same, we hold that on the facts and in the circumstances of the case the Ld. AO was perfectly justified in making the impugned addition. Accordingly we set aside the order of the Ld. CIT(A) and restore the order of the Ld. AO. Appeal of the Revenue is allowed. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act, 1961.2. Applicability of Section 68 regarding share capital and share premium credited in the books of the assessee without actual cash transactions.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:The Revenue challenged the deletion of an addition of Rs. 190,00,00,000/- made under Section 68 of the Income Tax Act, 1961, on account of credit of share capital and share premium in the books of the assessee. The Ld. Assessing Officer (AO) had observed an increase in the authorized share capital and share premium account of the assessee company, which was not substantiated with actual cash transactions. The AO issued a notice to the assessee to show cause why Section 68 should not be invoked, considering the transactions as unexplained cash credits. The assessee contended that the transactions involved endorsements of crossed cheques among companies, which were legally valid under the Negotiable Instruments Act, 1881, and did not reflect in the bank statements.2. Applicability of Section 68 Regarding Share Capital and Share Premium Credited in the Books of the Assessee Without Actual Cash Transactions:The Ld. CIT(A) deleted the addition, holding that Section 68 of the Act is not attracted as the sum credited was not actual cash or cheque but arose from the purchase of shares. The CIT(A) observed that the transactions were legally valid endorsements of cheques, which did not result in any inflow or outflow of cash. The CIT(A) further noted that the investing companies had furnished all necessary documents confirming the transactions, and there was no evidence of operation by an accommodation entry operator or cash deposits in the bank accounts of the appellant or the investing companies.The Tribunal examined the case and noted that the CIT(A) had relied on the decision of the Delhi Bench of the Tribunal in the case of M/s. Vital Communication Ltd., which held that mere transfer of entries from one head to another cannot be treated as a sum credited in the account books for the purpose of Section 68. The Tribunal also considered the decision of the Calcutta Bench in the case of M/s. Blessings Commercial Pvt. Ltd., which held that Section 68 applies when cheques are received and credited in the books of account, even if not encashed, as they constitute 'any sum' found credited.The Tribunal concluded that the transactions undertaken by the assessee were not genuine and lacked creditworthiness. The exorbitant share premium collected was not justified, and the investing companies had no substantial business activity or financial base. The Tribunal found the transactions to be scandalous, involving round-tripping of cheques among companies to inflate share capital and reserves artificially. Consequently, the Tribunal reversed the order of the CIT(A) and restored the addition made by the AO under Section 68 of the Act.Conclusion:The appeal by the Revenue was allowed, and the Tribunal held that the provisions of Section 68 of the Income Tax Act, 1961, were applicable to the case, as the assessee could not prove the genuineness and creditworthiness of the transactions involving share capital and share premium. The order of the CIT(A) was set aside, and the addition made by the AO was restored.