Section 68 applies only to the year of the credit, so earlier share application money cannot be taxed later as unexplained cash credit.

Share application money received in earlier previous years and recorded in the books as pending allotment could not be taxed as unexplained credit in a later assessment year under section 68, because that provision applies only to the year in which the credit is found in the books. Where the amounts had arisen in earlier years and were merely regularised or capitalised later after allotment of shares, they could not be brought to tax again in the subsequent year. The principle was applied to hold that the addition for the later assessment year was not sustainable.

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Issues: Whether share application money received during previous years 2006-07 to 2008-09 could be brought to tax as unexplained credit under section 68 of the Income-tax Act, 1961 in assessment year 2018-19.

Analysis: The share application money had been received in earlier years and was reflected in the books as share application money pending allotment until the shares were actually allotted after RBI permission. The amounts were shown in the balance sheet as credits of the earlier years, and the record accepted that the credits did not arise in the relevant assessment year. Applying the settled principle that section 68 reaches only the sum credited in the relevant previous year, the addition could not be sustained in assessment year 2018-19. The Tribunal also noted that the jurisdictional High Court had already held that an earlier-year credit cannot be taxed in a subsequent year under section 68.

Conclusion: The addition under section 68 for assessment year 2018-19 was rightly deleted, and the issue was decided in favour of the assessee.

Ratio Decidendi: Section 68 of the Income-tax Act, 1961 can be invoked only in the assessment year corresponding to the previous year in which the credit is found in the books, and an earlier-year credit cannot be assessed in a later year merely because the corresponding entry is regularised or capitalised later.

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