PCIT Vs Abhijeet Enterprise Ltd. (Calcutta High Court)
Calcutta HC: Share Allotment Against Liability Not a ‘Cash Credit’ Under Section 68
Calcutta High Court, in the case of the Principal Commissioner of Income Tax (PCIT) vs. Abhijeet Enterprise Ltd., has affirmed that the issuance of company shares to settle an existing liability does not constitute an “unexplained cash credit” under Section 68 of the Income Tax Act, 1961, when no actual cash is transacted. The court dismissed the revenue department’s appeal, upholding an earlier order from the Income Tax Appellate Tribunal (ITAT).
The case pertained to the assessment year 2013-14, where the assessee, Abhijeet Enterprise Ltd., had issued shares to another company to settle a pre-existing debt. The Income Tax Department contended that this transaction was a method to circumvent tax laws and that the value of the shares should be treated as an unexplained credit, thereby adding it to the assessee’s taxable income. The department’s appeal to the High Court raised the question of whether shares could be treated as equivalent to “money” in this context and if a credit entry representing the value of shares falls under the ambit of Section 68.
Section 68 is an income tax provision that allows an Assessing Officer to treat any sum found credited in the books of an assessee as income if the assessee fails to provide a satisfactory explanation about the nature and source of the credit.
