TaxTMI 
TaxTMI 
2024 (5) TMI 1495
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....n nine grounds of appeal. However, its grievances revolve around two issues, namely- (1) whether ld. CIT(Appeals) was justified in deleting the addition of Rs.3,98,44,628/-, which was added by the ld. Assessing Officer with the aid of Section 68; (2) The ld. CIT(Appeals) has erred in entertaining the additional evidence in violation of Rule 46A of the Income Tax Rules; and (3) The ld. CIT(Appeals) has erred in deleting the addition of Rs.1,35,500/-, which was added by the ld. Assessing Officer with the aid of Section 14A read with Rule 8D. 4. First we take 1st & 2nd fold of grievances. Brief facts of the case are that the assessee has filed its return of income electronically on 13.03.2013 declaring total income of Rs.12,156/- The case of the assessee was selected for scrutiny assessment and notices under sections 143(2) and 142(1) were issued and served upon the assessee. The ld. Assessing Officer has observed that the assessee-company had issued 39,860 equity shares at the rate of Rs.10/- each and premium of Rs.990/-. It has received share capital of Rs.3,98,44,628/-. The ld. Assessing Officer has observed that he has issued notices under section 131....
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....ed with the order of ld. CIT(Appeals), the Revenue has filed the present appeal. Ld. Sr. D.R. has filed written submission, which reads as under:- "The Hon'ble Member, Income Tax Appellate Tribunal - 'B' Bench, - 225C, A J C Bose Road Kolkata-700 020 Submission of SR DR in ITA 50/Ko1/2022 : Vishnu Distributors Pvt Ltd Your Honours, The assessment was completed u/s 143(3) on 26/3/2015. A total of 39,860 shares of the assessee were shown to subscribed by and allotted to 18 entities - 10 private limited companies and 8 individuals. Each share having face value of Rs. 10 was shown to be allotted at a premium of Rs.990. In lieu of these shares priced at Rs. 1000 each the assessee received shares of other private limited companies claimed to be equally premium priced. Thus, a barter system was adopted for issue of 39,860 shares. The shares were allotted in consideration other than cash. The CIT(A) did not find merit in AO's decision to add Rs.3,98,44,628 to the income of the assessee u/s 68. Since this is a cashless transaction, CIT(A) was of the opinion that section 68 cannot be applied. Cash Credit: ....
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....dit. The essence is that the credit should be shown in the account and that would satisfy the requirement of Section 68 of the Act. Once the credit so mentioned in the Section is found to be not supported by any acceptable evidence, then the sum so credited may be charged to income-tax as the income of the assessee of that previous year.". - [ Karnataka High Court - Rekha Krishnaraj -vs.- The Income Tax Officer on 13 March, 2013] This is precisely what has been done in the instant case by the assessing officer. The assessee company issued its shares to privately solicited parties who are trustworthy and close to the assessee and had balance sheets apparently loaded with shares of private limited companies. Setting aside all norms of ROC for increasing share capital, shares of assessee were shown to be transferred out as subscribed by 18 such entities consisting of private limited companies and individuals, with apparently no credible business or creditworthiness to hold shares of such value. So what is the motive of the entire transaction? Why the churning of balance sheet was necessary by showing allotment of shares fancily priced without basis? Who are these 18 entities ....
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.... the same language to make the notarised 'sale agreements' which says that the subscriber "purchased" shares of the assessee each worth Rs.1000, in ''consideration" of shares held by the subscriber in other companies (as named in the 'sale agreement'). [PaperBook Pages: ]. The summary of the responses is given below for an overview of these 18 share subscribers who are legal entities on paper, taking advantage of the existing law of the land, but are hollow from inside when it comes to credit-worthiness for being able to hold shares for bartering the purchase of assessee's shares. 'Revenue from operations' of these share subscribers, wherever it is claimed, were from sale of shares of worthless private limited shares featuring in their books/accounts. The reserves and surplus of these share subscribers consist of share premium amount that is generated through purchase and sale of shares of other paper companies through the complex process of layering of funds for benefitting willing beneficiaries like our assessee. The assets and liabilities of these subscriber companies and individuals consists of shares and loans of private limited companies. The assesing officer issu....
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....s authorised by a special resolution, (whether or not those persons include the existing shareholders or employees under stock option scheme), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed. The shares of the assessee was shown to be bartered through standard uniform instruments of Agreement of Rs. 10 NJSP, executed on the 31st March 2012. While taking all the legal immunity of a Company incorporated under the Companies Act, the strict formalities required for issue of share capital was completely done away with. Thus these apparent share swap was not made in concurrence with the Rules of the Companies Act and thus are not legitimate. The only real gain achieved is credit of Rs.3,98,44,628 in the books of the assessee. By placing reliance on the interpretation of section 68 in the judgment of Karnataka High Court in the case of Rekha Krishnaraj vs The Income Tax Officer on 13 March, 2013, I pray of reinstatement of the order of the assessing officer by dismissing the order of the CIT(A). Yours faithfully, Partha....
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.... substantial questions of law arise for consideration. Therefore, we exercise discretion and condone the delay in filing the appeal. The application is allowed. This appeal filed by the Income Tax Department is directed against the order dated 18.3.2020 passed by the Income Tax Appellate Tribunal B Bench, Kolkata in ITA No. 2244/Kol/2017 for the assessment year 2012-13. The revenue has raised the following substantial question of law for consideration :- "i) Whether the Hon'ble Tribunal has substantially erred in law in upholding the decision of the Learned CIT (Appeals)-9, Kolkata thereby deleting the addition of Rs.6,00,00,000/- under Section 68 of the Income Tax Act, 1961 as unexplained cash credit in the form of share capital and share premium only on the ground that no cash or cheque was actually received by the respondent assessee and the purchase of share assets and allotment of share by the assessee was under barter system ? After we have elaborately heard the learned Advocates for the parties we have no hesitation to hold that substantial question of law raised in this appeal has to be answered against the appellant/revenuer in the light of the d....
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....e Act, ignoring that 'shares' tantamount 'to money' here as a medium of exchange which is a mode of circumventing the said provisions? (iii) Whether the Learned Tribunal has erred in law and fact in deleting the addition under section 68 of the Act, without appreciating the fact that section 68 not only includes cash credit but also include a credit representing the value of shares on credit? After we have elaborately heard the learned Advocate for the appellant we find learned Tribunal was right in allowing the assessee's appeal to the extent indicated by taking note of the various decisions of the High Court on the very same subject. In this regard, we refer to the decision of the High Court At Madras in V.R. Global Energy (P) Ltd. vs. ITO, Corporate Ward 3(4), Chennai 407 ITR 145 (Madras). It was held that when the assessee allotted share to a company in settlement of their existing liability of assessee to the said company, since no cash was involved in the transaction of said allotment of shares, conversion of this liability in which share capital and share premium could not be treated as unexplained cash credits under Section 68 of the Act. The Revenue filed....
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.... that there is no exempt income in this year. This aspect is squarely covered by the recent decision of the Hon'ble Delhi High Court, wherein it has been held that if no exempt income is being earned by the assessee, then, no disallowance is to be made. We take note of the decision of the Hon'ble Delhi High Court in the case of Pr. CIT -vs.- M/s. Era Infrastructure (India) Ltd. in ITA 204/2022 & AM APPL. 31445/2022. The discussion made by the Hon'ble High Court reads as under:- "3. He submits that the ITAT erred in relying on the decision of this Court in PCIT vs. IL & FS Energy Development Company Ltd., 2017 SCC Online Del 9893 (wherein it has been held that no disallowance under Section 14A of the Act can be made if the assessee had not earned any exempt income), as the revenue has not been accepted the said decision and has preferred an SLP against the said decision. 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to Section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, a change in law has been brought about and consequently, the judgments relied upon by the....
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....withstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." (emphasis supplied) 6. Furthermore, the Supreme Court in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 has held that a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced herein below: "9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] was followed in 1989 by a Division Bench of th....
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.... 1-4-1979, it could not be relied on for any purpose for an anterior period. 14. In the appeal preferred from the decision by the Revenue before this Court, the Revenue did not question this reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact viz. whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This Court dismissed the appeal holding that it was a question of fact. (CIT v. S.R. Patton [(1998) 8 SCC 608]. 15. Given this legislative history of Section 9(1)(ii), we can only assume that it was deliberately introduced with effect from 1-4- 2000 and therefore intended to apply prospectively [See CIT v. Patel Bros. & Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165] . It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3. "5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as....
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.... as follows: 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of U.P., (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an....