ITO Vs Pansu Commercial Pvt. Ltd. (ITAT Kolkata)
We hold that the ld. AO had erroneously invoked the provisions of section 68 of the Act, to the facts of the assessee`s 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 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 ld. CIT(A), which does not require any interference. Accordingly, grounds raised by the revenue are dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the Revenue, pertaining to assessment year 2012-13, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-5, Kolkata (in short the ld. ‘CIT(A)’], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the ‘Act’), dated 21.03.2015.
2. The grievances raised by the Revenue are as follows:
1. Whether on the basis of facts and circumstances of the case and in law the ld. CIT(A), Kolkata erred in deleting the addition made u/s 68 of the IT Act of Rs.2,17,00,000/- as subscription of shares along with premium failing of appreciate the essence of the Act simply arguing that no ‘sum’ (cash) is credited in the books of the assessee company and only shares of assessee company issued in lieu of shares of some companies.
2. Whether on the basis facts and circumstances of the case and in law the ld. CIT(A), Kolkata erred in deleting the addition of Rs.2,17,00,000/- u/s 68 of the I.T. Act, holding the view of double taxation in the hands of assessee company as well as in the hands of five paper companies in the light of decision of the Hon’ble Calcutta High Court in case of Trinetra Commerce & Trade (P) Ltd., 75 taxmann.Com 70 (dt. of order 15.09.2016)
3. That the Department craves leave to add, modify or alter any of the grounds of appeal and /or adduce additional evidence at the time of hearing of the case.
3. The brief facts qua the issue are that the assessee company, M/s Pansu Commercial Pvt. Ltd, filed the return of income under section 139(4) of the Act on 25.12.2012, declaring total loss to the tune of Rs.16,772/-. The assessee company was incorporated on 09.09.2011. During the year under consideration, as total of Rs. 2,17,00,000/- (Rs.1,43,200 + Rs.2,15,56,800) was credited in the books of accounts of the assessee company, consisting share capital at Rs.1,43,200/- and share premium at Rs. 2,15,56,800/-. The assessee was asked to produce all the directors of companies or persons from whom amount had been received during the financial year 2011-12. However, the assessee failed to produce anyone on the stipulated date and time before the assessing officer, however, the assessee furnished a reply to the show cause notice on 20.03.2015.
The assessee company has claimed to have received Rs. 1,43,200/- as share capital and Rs. 2,15,56,800/- as share premium during the financial year 2011-12 in lieu of which, shares have been allotted to the applicants. The assessee was required to furnish justifications for assigning the share premium value. In response, the assessee stated that there is no bar on share premium value,as per the instructions of Institute of Chartered Accountants or the Companies Act, 1956 or the Income Tax Act, 1961, the same is a capital receipt. Moreover, acceptance of the premium is the risk, decision and prerogative of the investor and there is no role of any third party or authority in the same. Share allotment has been done on the decision of management. The convention of share premium is long set and established by the department and corporate authorities for past several assessment years.
However, the assessing officer rejected the contention of the assessee and held that the assessee failed to discharge its onus therefore he made addition under section 68 of the Act to the tune of Rs.2,17,00,000/-.
4. Aggrieved by the addition made by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the Assessing Officer.Aggrieved by the order of the Ld. CIT(A) the revenue is in appeal before us.
5. Before us, ld Counsel for the assessee, submitted in brief, that assessee company issued shares in lieu of shares of other companies, that is, barter transaction, exchange of assessee`s shares with other shares, therefore the provisions of section 68 of the Act does not apply to the assessee, as there is no cash credit during the year.
6. On the other hand, ld DR for the Revenue submitted before us written submissions, which is reproduced below:
“The assessee company was incorporated on 09.09.2011. There are three shareholder. Anital Agarwal & Suresh Agarwal are the initial shareholders of the company who were issued 5000 shares each having FV Rs.10, involving share capital of Rs.50,000 from each . In the same year assessee claimed to have issued 4320 shares to one M/s Gajavani Merchandise Pvt. Ltd on face value Rs.10 on a premium of Rs. 4,990. Thus, against share capital of Rs. 43,200 assessee claim to have received share premium of Rs.2,15,56,800/-. Assessee claimed that there was no monetary transaction with Gajvani Merchandise Pvt. Ltd. on the issue of share capital, as it is claimed that value is set-off against purchase value of shares of four unlisted company held by the share applicant as its investment.
In the appellate order Ld. CIT(A) has not gone into merit on the case and dealt with the legal issue of section 68 of the IT Act, whether any addition can be made u/s 68 where no sum of money has been transacted. Ld. CIT(A) in his order (in page no. 6 para 1.11) observed that:
“The A.O. has glossed over the fact that the assessee company did not receive any money by way of share capital from Gajvani Merchandise Pvt. Ltd. or others. The A.O. has made the addition u/s 68 of the I.T. Act, which applies only when any sum of money or cash is credited in the books of accounts and there is no satisfactory explanation from the assessee against the said credit about thenature and source. The A.O. has mechanically proceeded to make the addition without even appreciating, whether it was a fit case for application of section 68. Moreover, the shares in the said 4 companies takenin the books of the assesseein exchange for share allotted to Gajvani Merchandize Pvt. Ltd. do provide thenature and source of the amounts of share capital allotted to Gajvani Merchandise Pvt. Ltd. In the present case, the additions have been made atthe ends of the Gajvani Merchandise Pvt. Ltd. and 4 other private companies in respect of the shares raised in the said 5 companies.
I differ with the observation of the Ld. CIT(A) on the issue of making addition u/s 68 in this case relying on the observation of the different judiciaries as reproduced hereunder:
A)[2013] 33 taxmann.com 64 (Karnataka) High Court of Karnataka in the case of Smt. Rekha Krishna Raj (March 13,2013). Section 68 of the Income Tax Act, 1961-Cash Credits [scope of provision] – Assessment year 1997-98- Whether only a cash credit can be added to income under section 68, and not an unexplained credit representing value of supplies made by suppliers on credit cannot be added-Held, no [para 8] [in favour of revenue].”
7. We have heard both the parties and perused the material available on record. We note that the Id. 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 provision of section 68 of the Act are not applicable in the instant case. It is a case of swapping of shares. The shares were allotted for consideration other than cash. This is kind of a barter transaction, that is, shares were issued by the assessee company to share subscribing companies, and these share subscribing companies, paid the consideration by way of paying equity shares. The following journal entrywill help us to understand the concept of barter transaction.
