Rolex Trafin Private Limited Vs ITO (ITAT Kolkata)
Kolkata ITAT: Section 68 Cannot Apply to Mere Journal Entries Where Share Capital Was Received in a Subsequent Year
The Kolkata ITAT held that no addition under section 68 can be made in respect of mere journal entries recording share capital/share premium when no money was actually received during the relevant previous year. The Tribunal observed that although the assessee had credited share capital and share premium in its books during AY 2012-13, the actual funds were received only in the subsequent assessment year (AY 2013-14), and the entries in the impugned year merely represented accounting adjustments. Relying on the decisions in CIT v. Prameshwar Bohra (Rajasthan High Court), CIT v. Usha Stud Agricultural Farms Ltd. (Delhi High Court) and DCIT v. Global Mercantiles (P.) Ltd. (Kolkata ITAT), the Tribunal reiterated that section 68 can be invoked only in respect of credits arising during the relevant previous year, and not for opening balances or journal entries where no fresh funds have been introduced. Accordingly, it directed the Assessing Officer to delete the addition of ₹6.55 crore made under section 68, while leaving the assessee’s jurisdictional grounds open for adjudication, if required, at a later stage.
Cases Discussed
- PCIT vs. Britannia Industries Ltd. (Calcutta HC), [2017] 396 ITR 677 (Cal.)
- Deputy Commissioner of Income-tax, Circle-1, Siliguri vs. Global Mercantiles (P.) Ltd. (ITAT Kolkata), [2016] 67 taxmann.com 166 (Kolkata – Trib.) / [2016] 157 ITD 924 (Kolkata – Trib.)
- Commissioner of Income-tax, Delhi-VI vs. Usha Stud Agricultural Farms Ltd. (Delhi HC), [2009] 183 Taxman 277 (Delhi) / [2008] 301 ITR 384 (Delhi)
- CIT Vs. Prameshwar Bohra (Rajasthan HC), (2008) 301 ITR 404 (Raj)
- National Thermal Power Co. Ltd. v. CIT (SC), [1998] 229 ITR 383
- Jute Corporation of India Ltd. Vs CIT (SC), 187 ITR 688
- Collector, Land Acquisition Vs Katiji & Others (SC), 167 ITR 471 (SC)
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by assessee against the order of the Commissioner of Income-tax (Appeals) Kolkata-27, (hereinafter referred to as the “Ld. CIT(A)”]dated 16.10.2025 for the AY 2012-13.
2. At the outset, we note that the appeal of the assessee is barred by limitation by 64 days. At the time of hearing, the counsel of the assessee explained the reasons for delay in filing the appeal. On the other hand, the Ld. D.R did not raise any objection in condoning the delay. The Hon’ble Apex Court in the case of Collector, Land Acquisition Vs Katiji & Others {(167 ITR 471)(SC)} has held that the courts should have pragmatic and liberal approach while considering the petion ofr condonation of delay. The Hon’ble court held that when the substantial justice and technical consideration are pitted against each other , the cause of substantial justice should be preferred. Therefore, after following the above decision and upon hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons and hence, we condone the delay and adjudicate the appeal as follows.
3. At the outset, the ld. Counsel for the assessee drew our attention to the application dated 12.05.2025, raising three additional grounds which are extracted below:-
“1. That, on facts and on circumstances of the case, the assumption of jurisdiction by the Ld.NeAC/NaFAC and passing assessment order u/s 143(3)/1448/254 of the Act dated 24.09.2021 is in violation to the decision of the Hon’ble Jurisdictional Tribunal vide order dated 25.09.2019.
2. That Ld.NeAC/NaFAC had no power to invoke jurisdiction u/s 142B of the Act for Faceless Inquiry u/s 142(1) of the Act prior to the notification of the Scheme of Faceless Inquiry or Valuation Scheme u/s 142B of the Act which was notified on 30.03.2022 and so the inquires conducted by the Ld.NeAC/NaFAC is without jurisdiction.
3. That the Ld.NeAC/NaFAC has erred in making assessment under faceless scheme without intimating the assessee about making fresh assessment as set aside by the Hon’ble ITAT in his case under Faceless Scheme.”
4. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised the above additional grounds of appeal challenging the jurisdiction of the AO to framed the assessment. In our opinion the issued raised in the additional grounds are purely legal issues qua which all the facts are available in the appeal folder and no further verification of facts is required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely coverd by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and also by the decision of Hon’ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. [2017] 396 ITR 677 (Cal). Therefore, we are inclined to admit the same for adjudication.
5. The assessee has also pressed only ground 3 and 4 as per the memorandum of appeal, which are extracted below:-
“3. That, without prejudice, the Ld. CIT(A) erred in upholding the addition of Rs.6,86,97,111/- u/s 68 of the Act on account of share premium despite the assessee having duly complied with notices u/s 142(1) of the Act and submitted comprehensive details, including the identity, creditworthiness of shareholders and genuineness of the transactions and hence the Ld. CIT(A) has wrongly alleged in a mechanical manner that the assessee failed to prove its case despite the material produced during the remand proceeding
4. That, the Ld. CIT(A) further failed to appreciate that once the assessee has discharged its initial burden of proving the identity and capacity of the subscribers and genuineness of the transactions through banking channels and the premium was received from two subscribers in the next FY 2012-13 and submitted FMV report, no addition u/s 68 is justified and the same deserves quashing.”
6. The facts in brief are that the assessee filed the return of income on 29.03.2014, declaring nil income. The case of the assessee was selected for scrutiny u/s 143(3) of the Act and accordingly, the assessment was framed on 03.2015, in which the share premium / share capital of ₹6,55,11,150/-was added as unexplained cash credit. Thereafter, the matter travelled upto Tribunal and the Tribunal restored the issue back to the file of the ld. AO. Then, the case was transferred under Faceless Assessment Scheme 2019 and notice u/s 142(1) of the Act dated 09.03.2021, was issued to the assessee to file all the documentary evidences to prove the genuineness of the transactions in respect of share capital/ share premium credited in the books of account. The assessee replied the said notice vide letter dated 16.03.2021, submitting that addition made u/s 68 of the Act is not factually correct since the assessee received share premium amount only during the subsequent assessment year i.e. 2013-14 and not in A.Y. 2012-13. The ld. AR submitted that during the impugned financial year journal entries were passed in the books of accounts and corresponding share capitals/ share premium have been credited in the books of account of the assessee. However, the plea of the assessee did not find favour with the ld. AO and he added the entire amount of share capital/ share premium of ₹6,55,11,150/- as unexplained cash credit in the assessment framed u/s 143(3) of the Act read with section 254 read with section 144B of the Act.
7. After hearing the rival contentions and perusing the materials available on record, we find that the ld. CIT (A) affirmed the order of the ld. AO on this issue. We note that the assessee has taken a plea before the AO that assessee has not received any money by way of share capital/ share premium during the impugned financial year from subscription of equity issues and the share capital and share premium was only journal entries in the books of accounts. We note that the assessee has received the money in the subsequent assessment year i.e. A.Y. 2013-14. Therefore, we find merit in the contention of the assessee that addition u/s 68 of the Act can only be made if the money is credited in the books of account during the impugned financial year, whereas in the instant case only journal entries were made in the books of accounts. The case of the assessee find support from decision in CIT Vs. Prameshwar Bohra (2008) 301 ITR 404 (Raj) vide order dated 04.01.2007, wherein it has held as under:-
“5 On the merit of the additions made in the income of the assessee, there is a clear finding and about which there is no dispute that the amount added in the income of the assessee as unexplained investment or cash credit in the assessment year 1993-94 was the same amount which was credited in the books of account of the assessee for the previous year end-ing on March 31, 1992. The Tribunal has categorically come to a finding, and that finding is not under challenge, that this is not a case of cash credit entered in the books of account of the assessee during the year but it is a case in which the assessee has invested the capital in the business and this amount was shown as a closing capital as on March 31, 1992, and on April 1, 1992, it was an opening balance. Considering this aspect, the Tribunal has come to the conclusion that what was already credited in the books of account ending on March 31, 1992, for the financial year 1991-92 relevant to the assessment year 1992-93 cannot be an unexplained cash credit or investment in the books of account maintained for the financial year 1992-93, the accounting period of which ends on March 31, 1993, so as to warrant its consideration as unexplained investment or cash credit for its relevant assessment year 1993-94.
6 It does not require any elaborate argument that a carried forward amount of the previous year does not become an investment or cash credit generated during the relevant year 1993-94. This alone is sufficient to sustain the order of the Tribunal in deleting the amount of Rs. 1,55,316 from the assessment for the assessment year 1993-94. Since the appeal succeeds.”
8. Similarly, in case of Commissioner of Income-tax, Delhi-VI vs. UshaStud Agricultural Farms [2009] 183 Taxman 277 (Delhi)/[2008] 301 ITR 384 (Delhi) dated 14-03-2008, wherein it has held as under:-
“8. Since it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the assessee, does not pertain to the year under consideration, under these circumstances, the Assessing Officer was not justified in making the impugned addition under section 68 of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision of the CIT(A).
9. The above being the position, no fault can be found with the view taken by the Tribunal.”
9. In case of Deputy Commissioner of Income-tax, Circle-1, Siliguri vs. Global Mercantiles (P.) Ltd. [2016] 67 taxmann.com 166 (Kolkata – Trib.)/[2016] 157 ITD 924 (Kolkata – Trib.) dated 13-01-2016, wherein it has held as under:-
“4.4.1 We find from the details available on record that the share application monies from 20 individuals in the sum of Rs. 57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year 2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence, we hold that the order passed by the Learned CITA in this regard does not require any interference. Accordingly, the ground no. 3 raised by the revenue is dismissed.”
10. Therefore, Considering the facts and circumstances of the case and also by following the ratio laid in the above decisions, we are inclined to set aside the order of learned CIT (A) and direct the AO delete the addition. The ground no. 3 and 4 are allowed.
11. The three additional grounds admitted herein above are not being adjudicated at this stage and are left open to be decided later on if need arises for the same.
12. In the result, the appeal of the assessee is allowed.
Order pronounced on 28.07.2026.
