Section 68 additions deleted as share capital received in different financial year than assessment year

The ITAT Mumbai upheld the CIT(A)'s decision to delete additions made under section 68 regarding undisclosed share capital and share premium. The revenue alleged bogus LTCG transactions, but the tribunal found that section 68 provisions were inapplicable since the assessee received share application money and premium in FY 2006-07, not in the assessment year 2011-12. The tribunal noted that section 68 applies only when amounts are credited in the relevant financial year and explanations are unsatisfactory. The revenue failed to present new material to challenge the CIT(A)'s reasoned order, resulting in dismissal of the revenue's appeal.

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Issues involved:
Two appeals filed by the Revenue against separate orders of Commissioner of Income Tax (Appeals)-18, Mumbai under section 143(3) and 250 of the Income Tax Act, 1961.

Issue 1: Share Capital and Share Premium

The assessee company, engaged in information technology services, filed its return for A.Y. 2012-13, showing nil income. Upon scrutiny, the Assessing Officer (A.O) noted discrepancies in share capital transactions. The AO found the assessee received share application money in 2006-07, but shares were allotted in 2011-12. The AO treated Rs. 2,00,00,000/- as unexplained cash credit under section 68 of the Act, leading to an addition in total income. The CIT(A) directed deletion of this addition, stating no unexplained cash credit existed in 2011-12. The Tribunal upheld the CIT(A)'s decision, emphasizing that the share application money was received in 2006-07, not 2011-12, hence no addition was warranted.

Issue 2: Treatment of Forfeiture of Convertible Warrant

In another appeal for A.Y. 2011-12, the Revenue challenged the CIT(A)'s treatment of long-term capital loss due to the forfeiture of convertible warrants. The Revenue argued that the treatment of convertible warrants as capital assets was incorrect. During the hearing, it was noted that the tax effect fell below the threshold set by CBDT Circular No 17/2019. As per the circular, no appeal could be filed for cases below Rs. 50 lakhs. The Tribunal dismissed the appeal based on this circular, stating that unless exceptions applied, the appeal could not proceed. The appeal was ultimately dismissed, aligning with the CBDT Circular's provisions.

In conclusion, the Tribunal upheld the CIT(A)'s decision in the first issue regarding share capital and premium, noting no unexplained cash credit in 2011-12. The second issue related to the treatment of convertible warrants was dismissed due to the low tax effect falling under the CBDT Circular's guidelines. Both appeals for A.Y. 2011-12 and A.Y. 2012-13 were consequently dismissed by the Tribunal on 17.01.2024.

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