ITO Vs Mangalvani Commercial Pvt. Ltd. (ITAT Kolkata)
In the case of ITO Vs Mangalvani Commercial Pvt. Ltd., the Kolkata ITAT addressed the addition under Section 68 of the Income Tax Act, 1961, regarding unexplained share capital and premium. Despite the absence of representation from the assessee, the tribunal decided to adjudicate based on available records and arguments from the revenue.
The crux of the matter lies in the nature and source of the substantial sum credited to the company’s books as share capital and premium. The Assessing Officer raised concerns regarding the lack of explanation regarding the source of these funds. The company failed to provide satisfactory evidence regarding the identity, creditworthiness of share subscribers, and the genuineness of the transactions. The company contended that no cash was received during the year, attributing the increase in investment account and share capital issuance to journal entries. However, the tribunal highlighted that under Section 68, any sum found credited in the books must be explained adequately. There’s no exemption for credits made solely through journal entries. Moreover, the tribunal emphasized that even if cash isn’t received directly, transactions recorded through journal entries are subject to scrutiny. Furthermore, the tribunal noted an equal investment in equity of another entity against the alleged credits but found no explanation for these transactions. This lack of clarity and evidence led the tribunal to uphold the addition under Section 68, amounting to Rs. 3,51,00,000.
