TaxTMI 
TaxTMI 
2024 (5) TMI 1495
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....ievances 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 of the Income Tax Act to the Directors of all the sharehold....
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....ent 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: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers ....
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....e 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 whose minds and balance sheets match with the assessee to indulge in this absurd barter? What is the business rationale for this share barter....
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....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 issued summons u/s 131 to some of these share subscriber companies' Directors, but nobody attended for personal examination by the assessing officer. Share Subscribers....
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.... 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 P Barman Sr. D.R. 8. On the other hand, ld. Counsel for the assessee submitted that the assessee has not filed any fresh evidence, rather it has only filed the written submission, which has been considered by the ld. CIT(Appeals). All other materials are already available before the ld. Assessing Officer. The stand of the assessee is that it has ....
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....nal 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 decision of this Court in ITAT/187/2023 dated 17.11.2023 in the case of ITAT/187/2023 PRINCIPAL COMMISSIONER OF INCOME TAX 1, KOLKATA VS. M/S ABHIJEET ENTERPRISE LTD. Thus, following the decision the appeal filed by the revenue is dismissed. (T.S. SIVAGNANAM) CHIEF JUSTICE (HIRANMAY BHATTACHARYYA, J." 10. Apart from this judgment, there is one more judgment of the Hon'ble Jurisdictional High Court, which is also in the same line. We deem it appropriate to take note of that also, which reads as und....
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....e 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 an appeal against the said judgement and the same was dismissed by the HonTjle Supreme Court in ITO vs. V.R. Global Energy (P) Ltd. [2020] 113 taxmann.com 31 (SC). The decision of the Hon'ble Division Bench of the High Court of Delhi in case of CIT vs. Ritu Anurag Agarwal, 2009(7) TMI 1247, Delhi High Court, the same also stands in aid to the case of the respondent/assessee. The decision of the Hon'ble Division Bench of this Court in Jatia Investment Co. Vs. CIT (1994) 206 ITR 78 (Cal) will also support the case of the respondent/assessee. In the said decision, the Court found that cash did not pass at any stage though entries were made in....
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....ance 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 authorities below including PCIT vs. IL & FS Energy Development Company Ltd (supra) are no longer good law. The amendment to Section 14A of the Act is reproduced hereinbelow:- "Amendment of section 14A. In section 14A of the Income-tax Act, - (a) in sub-section (1), for the words "For the purposes of", the words "Notwithstanding anything to the contrary contained in this Act, for the purposes of" shall be substituted; (b) after the proviso, the following Explanation shall be inserted, namely:- "[Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall....
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.... 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 the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR 314 (Gau)] . It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that case was 1976-77 and said: (ITR p. 318) "[It is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained pending on 1-4-1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand." 11. The reasoning of the Gauhati High Court was expressly affirmed by this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 (2000) 241 ITR 312] . These....
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....BDT 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 to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1-4-2000, and will accordingly, apply in relation to Assessment Year 2000-2001 and subsequent years." 16. The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under Section 119 of the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it. 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to be applied is that which is in force in the....
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....., (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 assessee if the assessee has earned it in India. The word "earned" had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India". 19. When the Explanation seeks to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively." (emphasis supplied) 8. Consequently, this Court is of the view that the amendment of Section....