Company's share-for-share barter transactions don't trigger section 68 unexplained cash credit provisions since no cash involved

ITAT Kolkata held that section 68 provisions regarding unexplained cash credits do not apply to share transactions conducted through barter system without cash consideration. The assessee company acquired shares from shareholders by issuing its own shares as consideration, clearly disclosed in balance sheet notes as non-cash transactions. The tribunal upheld CIT(A)'s decision to delete the addition, finding no cash credit involved requiring explanation under section 68. Revenue's appeal was dismissed.

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The appeal filed by the Revenue was directed against the order of the Commissioner of Income Tax (Appeal) concerning the assessment year 2008-09. The primary issue for consideration was whether shares issued by the assessee company under a barter system could be treated as cash credit under section 68 of the Income Tax Act, 1961.

The Revenue's appeal was initially barred by a five-day delay, which was condoned by the Tribunal after considering the reasons for the delay and hearing both parties. The Tribunal then proceeded to examine the substantive issue raised by the Revenue.

The core issue revolved around the interpretation of section 68 of the Income Tax Act, which deals with unexplained cash credits. The Tribunal had to determine if the issuance of shares for consideration other than cash, specifically under a barter arrangement, could be classified as a cash credit requiring explanation under section 68.

The Tribunal noted that the issue was not novel and had been previously adjudicated in a similar case involving M/s Anand Enterprises Ltd. In that case, the Tribunal had concluded that section 68 did not apply to transactions where shares were issued in exchange for other shares, as no actual cash was involved. The Tribunal observed that section 68 pertains to the receipt of a "sum of money," and in the present case, there was no receipt of any sum in monetary terms.

The Tribunal referred to several legal precedents supporting this interpretation. The decision of the Hon'ble Supreme Court in Shri H.H. Rama Varma vs. CIT established that the term "any sum" in section 68 refers specifically to a sum of money. Similarly, the Allahabad High Court in CIT vs. Sohanlal Singhania and the Calcutta High Court in Jatia Investment Company vs. CIT had held that transactions not involving actual cash do not fall under the purview of section 68.

The Tribunal also considered the arguments presented by the Departmental Representative, who relied on the orders of the lower authorities. However, the Tribunal found no compelling reason to deviate from its earlier decision in the M/s Anand Enterprises Ltd. case, as the facts and legal context were identical.

In its reasoning, the Tribunal emphasized that the Assessing Officer had not disputed the investment made by the assessee company in shares, nor had there been any challenge to the number or value of shares involved. The Tribunal reiterated that the transaction was a straightforward exchange of shares without any cash component, as clearly indicated in the assessee's balance sheet.

Ultimately, the Tribunal concluded that the provisions of section 68 were erroneously invoked by the Assessing Officer. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeal) to delete the addition made under section 68, finding no basis for interference. Consequently, the Tribunal dismissed the Revenue's appeal, affirming that the issuance of shares under a barter system does not constitute a cash credit under section 68.

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