PCIT 7 Vs Zexus Air Services Pvt. Ltd. (Delhi High Court)
The Delhi High Court dismissed an appeal by the Principal Commissioner of Income Tax (PCIT) against the Income Tax Appellate Tribunal (ITAT) ruling in favor of Zexus Air Services Pvt. Ltd. The case centered on whether the issuance of shares in exchange for goodwill, without monetary consideration, should be taxed under Section 68 of the Income Tax Act, 1961. The court upheld ITAT’s decision, stating that Section 68 applies only to unexplained cash credits and not to book entries made for legitimate business transactions.
The dispute arose when the Assessing Officer (AO) added ₹20 crore to the company’s taxable income, claiming that shares allotted to Surinder Kumar Kaushik in lieu of goodwill should be considered unexplained income. The Commissioner of Income Tax (Appeals) [CIT(A)] rejected this view, noting that the company had followed all necessary procedures, including proper documentation and filings with the Registrar of Companies (ROC). Since no actual cash transaction occurred, the CIT(A) ruled that Section 68 did not apply.
ITAT upheld the CIT(A) ruling, Given that Zexus Air Services had clearly recorded the transaction as a book entry and not an actual cash receipt, the tribunal found no grounds for tax addition.
