TaxTMI 
TaxTMI 
2019 (3) TMI 1543
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....6,44,300/- was paid on assessee's behalf by M/s. Abhijeet Projects Ltd. for the purpose of purchase of investments. It is also seen from the submission of the assessee that the cumulative amount of Rs.(218,00,00,000 + 3644,36,44,300) = Rs. 3862,36,44,300/- has been shown as other payables assessee owes this money to holding company (note 5 - other current liabilities of the audited accounts). Unexplained cash credit u/s. 68 It is stated in Section 68 of the I. T. Act, 1961 "where any sum is credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. In the instant case, the summons issued to the assessee company has not been fully complied with. The verification of the source of the share application money of Rs. 218,00,00,000/- given to M/s. Abhijeet Ventures during the previous year could not be made due to non compliance on the part of the assessee. Similarly the verification of the source of R....
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....ould be infused by them would not get diverted in the form of investments rather it would be utilized only in the field of Steel and Aviation. The Ld. AR submitted that in this factual background the Abhijeet Group undertook the restructuring exercise whereby the investments held by M/s. APL to the tune of Rs. 3644.36 cr. was transferred to the assessee company. The investments of Rs. 3644.36 crores was purchased by the assessee company on credit and therefore the amount payable to M/s APL was reflected in the books as on 31.03.2013 under the head "Other Payables". In addition to the foregoing the investment of Rs. 218 crores made by M/s APL in the ultimate parent company, M/s AVL in the form of share application monies pending allotment also stood transferred to the assessee company. In sum & substance therefore the assessee acquired investments in form of shares, the right in the share application given to M/s. AVL; aggregating to Rs. 3862.36 crores from its holding company M/s. APL and such amount remained due and payable at the year-end. The Ld. AR further drew our attention to Note No. 5 & 7 of the audited accounts wherein the aforesaid transactions had been duly reflected and....
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....y by way of issuance of debentures of equivalent amount to M/s APL. He pointed out that this aspect was also enquired into by the AO in the remand proceedings and in his remand report furnished before the Ld. CIT(A), even the AO had stated that the outstanding dues were settled by issuance of debentures. In this regard he drew our attention to Pages 7 of the Ld. CIT(A)'s order where this finding is available. Relying on the judgments of the Hon'ble Supreme Court in the case of H.H. Sri Rama Verma vs CIT (187 ITR 308), Hon'ble Calcutta High Court in the case of Jatia Investment Co Vs CIT (306 ITR 718) & Hon'ble Madras High Court in the case of V.R. Global Energy Pvt Ltd Vs ITO (96 taxmann.com 647) he urged that the AO's invocation of Section 68 in the given set of facts was wholly unsustainable on facts and in law. 7. The Ld. AR alternatively stressed on the fact that AO had acted on the specious plea that the identity of sundry creditor, M/s. APL could not be established and that he had wrongly invoked Section 68 to make this humungous addition, which was per-se not warranted. He submitted that admittedly the transaction in question was between group entities and that M/s APL & M/....
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....dited' also included book entries & outstanding dues. He submitted that the assessee's reliance on the judgment of Hon'ble Supreme Court in the case of H.H. Sri Rama Verma vs CIT (supra) was distinguishable since in that decision the provision in question was Section 80G and not Section 68 of the Act. The Ld. DR also tried to distinguish each of the case laws relied upon by the assessee on their respective facts. 9. The Ld. DR further submitted that the assessee had miserably failed to explain the nature and source of the sums in question, so the AO has rightly added the sums u/s. 68 of the Act. He invited our attention to the judgment of the Hon'ble Calcutta High Court in the case of J.J. Developers Pvt. Ltd. vs CIT (100 taxmann.com 101) wherein the High Court had affirmed the addition that was made by the AO u/s 68 of the Act. He further brought to our attention that the SLP filed by the assessee against the decision of the Hon'ble High Court had since been dismissed. According to him, the facts of the present case are analogous to the aforesaid judgment and therefore urged that the orders of the lower authorities did not warrant any interference. 10. We have heard the rival s....
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....he Legislature has employed the phase 'any sum' in the above provision. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT (supra) wherein it was held that 'any sum' means 'sum of money'. The relevant extracts of the judgment is as follows: "One of the dictionary meanings of the expression 'sum' means any indefinite amount of money. The context in which the expression 'sums paid by the assessee' has been used makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. The Act provides for assessment of tax on the income derived by an assessee during the assessment years; the income relates to the amount of money earned or received by an assessee. Therefore, for purposes of claiming deduction from income-tax under section 80G(2)(a), the donation must be a sum of money paid by the assessee." 12. In view of the above decision we are of the considered view that the phrase 'any sum' employed in Section 68,cannot be extended to include any book entry, notional adjustment, payment in kind etc. The Ld. AR's reliance on the finding....
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....oceeds of an asset, the provisions of section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies....." 13. From a bare reading of the aforesaid dictum of law as made by the Special bench, we note that there is a difference between credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction a liability which arises as a consequence of any purchase resulting in a corresponding credit to the account of the supplier cannot be added u/s. 68 of the Act, more so, when the purchase has been accepted as genuine. In other cases involving actual receipt of money, the provisions of sec. 68 are applicable and then the onus is on the assessee to prove satisfactorily the nature and source of the monies. In the present case, we note that both the transactions between the assessee and M/s APL involving purchase of shares for Rs. 3644.36 crores and the right/title of the share application made in M/s. AVL for Rs. 218 cr has been claimed to be carried out on credit and that no sum whatsoever was received in relation thereof. It is noted that the liability....
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.... but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been consistently pleading before the lower authorities that the entries had to be made in order to bring the companies in conformity with the said di....
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....nt and not actual receipts which could not be substantiated as receipts towards share subscription money. 27. The appeal is, thus, allowed and the judgment and order of the learned Tribunal dated 1.9.2016 is set aside, for the reasons discussed above. Additions under Section 68 of the 1961 Act are also set aside. The questions of law are answered against the Revenue." 16. Similar view was also taken by the Hon'ble Delhi High Court in the case of CIT us. Ritu Anurag Agarwal reported as 2009 (7) TMI 1247wherein the Hon'ble High Court held: "This finding of AO remained undisturbed before the CIT(A) as well and has been accepted by the ITAT. Proceeding on this basis, the ITAT observed that the soles, purchases as well as gross profits as disclosed by the assessee have been accepted by the Assessing Officer. Once this is accepted, we are of the opinion that the approach of the ITAT was correct inasmuch as the Assessing Officer did not consider this aspect while making additions of sundry creditors under Section 68 of the Income Tax Act. As there was no case for disallowance for corresponding purchase, no addition could be made under Section 68 inasmuch as it is not in dispute t....
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....terial for the construction of the road. The amounts in question represented purchases made on credits. According to Section 68 of the Act, where any sum is found credited in the books of account of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. It has been categorically recorded by the Tribunal that the provisions of Section 68 of the Act u)ere clearly not attracted to the amount representing purchases made on credits. Further the trade creditors in the earlier gears i.e. assessment years 2007-08 and 2008-09 stood accepted in scrutiny assessments. Thus, the genuineness of expenses under consideration could not be doubted. The relevant findings recorded by the Tribunal in this regard read thus:- "Having heard the rival contentions in the light of the material available on record, it is seen that in para-3 of the assessment order, the AO observed that the assessee had shown numerous sundry creditors along with....
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....n 68 of the Act. We note that his argument that the provisions of Section 68 are applicable to any and every credit entry in the books of accounts inter alia including book entries, barter transactions, outstanding liability payable in respect of purchases has been specifically negated by coordinate Bench of this Tribunal in the case of Anand Enterprises Ltd (ITA-1614/Kol/2016), by observing as under: "4. We have heard the rival submissions. At the outset, we find that the assessee had not raised any share capital by receipt of cash consideration in the instant case. The shares were issued for consideration other than cash in lieu of assessee company making investment in shares in some other company. Effectively, the assessee purchased certain shares from the aforesaid six shareholders and instead of paying cash to them, the assessee company issued shares in its own company to those shareholders. Hence the assessee had made investments in shares of another company for which consideration was settled through issuance of its shares to those shareholders. Now the crucial point is whether the provisions of section 68 could be invoked in the instant case for making investment towards ....
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....IT reported in 206 ITR 718 (Cal) also supports the case of the assessee herein, wherein it was held as under: "It is finally emphasised by learned counsel for the assessee that the ultimate result is that the firm becomes a debtor to GB and Co. and the three non-financial companies of the group got discharged. Learned counsel also emphasised that, at the worst, it can be said that the assesseefirm has received valuable assets being the said shares of the equivalent value of the debt taken over by it from the companies, i.e., Rs. 11.20 lakhs. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. It was contended that the fact that the entries passed through the cash book could not detract from or efface the essential nature of the entries. It was also urged that the entries were passed through the cash book so that the repayment of loans by the said three companies could be established before the Reserve Bank of India. But, according to ShriBajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions showing the ....
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....that the entries not involving the passing of cash should not have found a place in the cash book, but in the ledger account through journal entries. There is another selfcontradiction in the Income-tax Officer's finding that, if there was no real cash entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice of the directions of th....
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....ch does not require any interference. Accordingly, grounds raised by the revenue are dismissed." 20. We also find the Ld. CIT DR's reliance on the judgment of the Hon'ble Calcutta High Court in the case of J.J. Developers (supra) is misplaced and is clearly distinguishable on facts in as much as in that case the assessee company had actually received monies from the share applicants; unlike the facts of the present case wherein the credit represented liability to be paid on account of outstanding dues towards purchase of investments. Hence the above judgement is factually distinguished and not applicable to the facts of this case. 21. In the facts of the present case the entire transaction in question was between group companies i.e. the holding company and the subsidiary company i.e. the assessee company. Also there is no receipt of money rather there is a liability on the assessee company to pay outstanding purchase amount to M/s. APL. We further note from the material on record that there was no cash involved in any stage of the transaction and that in the subsequent assessment year itself the transaction has been squared up by the assessee company by issue of debentures. I....