TaxTMI 
TaxTMI 
2025 (3) TMI 1796
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.... Act, after invoking the provisions of Rule 8D of the IT Rules, 1962. 3. Against such order, the assessee preferred appeal before the Ld. CIT(A) who vide impugned order dated 08.06.2017 has allowed the appeal of the assessee and the additions made on both the issues were deleted and on account of interest charged u/s 234B, 234C and 234D, it was partly allowed. Against such the order of Ld. CIT(A), the Revenue is in appeal before the Tribunal by taking following grounds of appeal: 1. "On the facts and in the circumstances of the case and law, whether the Ld. CIT(A) has erred in deleting the addition made u/s 68 of the I.T. Act, 1961 relying upon decision of the Hon'ble ITAT in the case of M/s Vital Communication Ltd., ITA No. 2448/Del/2007 specifically when the Ld. CIT(A) herself concluded that the assessee company is merely paper company against the ration and facts of M/s Vital Communication Ltd. 2. On the facts and in the circumstances of the case and law, where the Ld. CIT (A) has erred in relying upon the decision of Hon'ble ITAT in the case of M/s Vital Communication Ltd,. ITA No. 2448/Del/2007 while Hon'ble Delhi High Court has kept open inter....
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....case of Vital Communications (supra) and, therefore, the reliance placed by the Ld. CIT(A) in the instant case on the judgment of Vital Communication (supra) is misplaced and the addition made by AO on account of share capital and share premium deserves to be upheld. He further submit that assessee has failed to establish the creditworthiness of the subscriber companies and since they have not been found at the given address when the Inspector visited their premises, their identity is also doubtful. He, therefore, prayed that the Ld. CIT(A) has wrongly deleted the addition so made and he prayed that the reversal of the order of the Ld. CIT(A). 5. On the other hand, the Ld. AR vehemently supported the orders of the lower authorities and submit that during the course of hearing before AO, the assessee had filed all the relevant details with respect to the share subscribers which incudes their incorporation details with ROC, their PAN and Income Tax details and their financial statements which not only established the identity of the subscribers but also proved their creditworthiness. He further submit that in the instant case, assessee has purchased share from subscribers companie....
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....ank account of the assessee and it is a case of swapping of shares. We further find that the assessee during the course of assessment proceedings, have filed all the relevant details such as incorporation details of the subscribers companies and their PAN and identity details to establish their identity. 8. With regard to the creditworthiness, it is seen that all these companies have not made any payment to the assessee company rather they have transferred the shares to the assessee company and in view of such transfer the shares owned by them to the assessee company which are duly appearing in their Balance Sheet before transfer which itself prove their creditworthiness and in lieu of such transfer, they were allowed the shares of the assessee company at a premium. Therefore, when there was no payment made in the form of cheque or demand draft for subscription of the share at a premium to the assessee company, question of their creditworthiness for subscribing shares does not arise. This view is fully supported by the decision of the Co-ordinate Bench of ITAT in the case of M/s Elative Building Solutions (P) Ltd. (supra) wherein the Tribunal after considering the facts has obse....
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....ssessee 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 79[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1-4-2013 : Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose....
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.... amount of money as donation, for claiming relief of deduction and it does not refer to any donation made in kind." 19. We find, the coordinate Bench of the Tribunal in the case of Vital Communication Ltd. (supra) while holding that the provisions of section 68 cannot be applicable where shares were issued against the shares received under the swapping arrangements and no fresh amount of money was brought into the books by way of cash/cheque/draft has observed as under:- "8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. Section 68 of the I.T. Act 1961 under which these additions have been made by the Assessing Officer reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources 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." 8.3.1 It is evident from the perusal of this provision that sectio....
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....ad fixed assets. There is no tax implication of such transactions. The Appellant has also furnished the copies of agreements in respect of shares with the other three companies. Swapping of shares is a recognized standard Assessee has also furnished the copies of agreements in respect of swapping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of Rs. 2,50,00,000/-. In view of the above, there is no question for making addition of this amount. Thus the Assessee has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share ....
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....hased 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 share capital. There was no receipt of any sum as provided u/s 68 of the Act in the instant case. 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 reported in 187 ITR 308 (SC) wherein it was held that 'any sum' means 'sum of money'. We find that ld. CIT(A) had deleted the addition by observing as under: "6. On consideration of the AR's submission, especially the portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter system. The AO has not refuted the appellant's claim that....
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....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 Shri Bajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions showing the amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It was further stressed that the transactions are above board. No outsider is involved. The entries were made in the books of the concerns of the same group. The shares in question were also of the companies of the group. There was no attempt at hiding the transactions. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into ....
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.... 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 direction. Moreover, the direction of the Reserve Bank is a public document within the meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act. In our view, the effect and import of the transactions is that the assessee took....
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....ceived by the assessee in lieu of exchange of its shares, therefore, no addition u/s. 68 of the Act can be made. In support of its submission, the Ld. AR relied on the following case laws: i) Jatia Investment Co. Vs. CIT 206 ITR 718(Cal); ii) V. R. Global Energy Pvt. Ltd. Vs. ITO, 407 ITR 145 (Mad); iii) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Saffron Comtrade Pvt. Ltd. dated 28.08.2019; iv) ITAT, Kolkata bench in the case of ITO Vs. M/s. Pansu Commercial Pvt. Ltd. dated 08.05.2019 and v) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd. dated 16.11.2018. 5. We note that this issue is no longer res integra. We also find that there is no cash transferred for the shares by the assessee. We note that the assessee had swapped shares in lieu of shares. We note that this Tribunal has already held that section 68 of the Act is not attracted in such transfer and the Tribunal in the case of ITA No. 2178/Kol/2016, ITO Vs. M/s. Sunglow Dealcom private Limited for AY 2012-13 order dated 16.11.2018 has held as under: "3. We have heard rival contentions. On careful consideration of the facts and circum....
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..... Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence we hold that provision of section 68 of the Act are not applicable in the instant case and accordingly the entire addition deserves to be deleted which has rightly been done by the Id. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed." 4.2. The Hon'ble Jurisdictional High Court in the case of Jatia Investment Co .v. Commissioner of Income-tax [1994] 206 ITR 718 (CAL.) held as follows:- "Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1976- 77 - Partners of assessee-firm were members of one 'J' group running several businesses and industries - Accounts of assessee-firm showed that it had borrowed certain amount from GB, a proprietary concern of one of its partners JM, which was invested in purchase of shares - ITO found that GB had no cash balance to advance said amount to assessee - He, thus, concluded that source of funds for purchase of shares by assessee ....
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....tiated as receipts towards share subscription money." 5. Applying the propositions of law laid down in the above cases to the facts of this case, we uphold the order of the ld. First Appellate Authority and dismiss this appeal of the revenue." 6. In the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead, the consideration was settled through issuance of shares to the respective parties. Hence we hold that provisions of section 68 of the Act are not applicable in the instant case and accordingly, the entire addition deserves to be deleted and we delete the addition as confirmed by the Ld. CIT(A) and allow the appeal of the assessee. 7. In the result, appeal of assessee is allowed." 22. The various other decisions relied on by the ld. Counsel for the assessee ....