Zexus Air Services Pvt. Ltd., Gurgaon V. ITO, ward- 27(4), New Dlehi

CO 121/DEL/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6084 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-04-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 11-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUSHMA SINGH
• Keywords: Unexplained cash credit; Unexplained investment; Depreciation; Cost of acquisition; Avoidance of tax
• Section: 80G; 13; 22; 69; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.2608/DEL/2018 ASSESSMENT YEAR: 2014-15 ITO, WARD-27(4), NEW DELHI. VS ZEXUS AIR SERVICES PVT. LTD., 148-149, CENTRUM PLAZA, SECTOR-53, DLF PHASE-V, GURGAON. PAN: AAACZ6541L CO NO.121/DEL/2018 (ITA NO.2608/DEL/2018) ASSESSMENT YEAR: 2014-15 ZEXUS AIR SERVICES PVT. LTD., 148-149, CENTRUM PLAZA, SECTOR-53, DLF PHASE-V, GURGAON. PAN: AAACZ6541L VS. ITO, WARD-27(4), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAURAV BANSAL, CA REVENUE BY : SMT. SUSHMA SINGH, CIT-DR DATE OF HEARING : 31.03.2021 DATE OF PRONOUNCEMENT : 23.04.2021 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 12 TH JANUARY, 2018 OF THE CIT(A)-9, NEW DELHI, RELATING TO ASSESSMENT YEAR 2014-15. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 2 THE ASSESSEE HAS FILED THE CO AGAINST THE APPEAL FI LED BY THE REVENUE. FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 20 ,00,00,000/- MADE U/S 68 OF THE ACT IGNORING THE FACT THAT SHARE CAPITAL OF THE ASSESSEE COMPANY WAS INCREASED TO RS. 20,00,00,000/- WITH NO SATISFACTOR Y EXPLANATION WITH REGARD TO SETTLED ACCOUNTING PRACTICES, HENCE THE SAME MUST B E ADDED BACK TO THE INCOME OF THE ASSESSEE. 2. THAT THE APPELLANT CRAVES, LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEA L AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE COMPANY WAS INCORPORATED ON 12 TH APRIL, 2013 WITH THE OBJECT OF PROVIDING AIRLINE S ERVICES. IT FILED ITS RETURN OF INCOME ON 31 ST OCTOBER, 2015 DECLARING NIL INCOME. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT SHARES HA VE BEEN ALLOTTED TO SHRI SURINDER KUMAR KAUSHIK IN LIEU OF GOODWILL AND WITH OUT ANY MONETARY CONSIDERATION. ON BEING QUESTIONED BY THE AO, THE ASSESSEE FILED CERTAIN SUBMISSIONS WHICH HAS BEEN REPRODUCED IN THE BODY O F THE ASSESSMENT ORDER AND WHICH READS AS UNDER:- INCREASE IN SHARE CAPITAL: AS MENTIONED IN OUR EA RLIER REPLY, SHARE HAVING FACE VALUE OF RS.20 CRORES WERE ISSUED TO SH. SURIN DER KUMAR KAUSHIK, AGAINST GOODWILL FOR ACKNOWLEDGING HIS EFFORTS FOR PROCUREM ENT OF AVIATION LICENSE. NO MONETARY TRANSACTION WAS INVOLVED IN THIS ALLOTM ENT OF SHARES. COPIES OF FORMS FILED WITH ROC FOR THIS PURPOSE ARE ENCLOSED HEREWITH. AS EQUAL AMOUNT OF GOODWILL WAS BOOKED AS ASSETS IN THE BALA NCE SHEET OF THE COMPANY. IT MAY PLEASE BE NOTED THAT THERE IS NO IMPACT ON I NCOME TAX DUE TO THIS TRANSACTION. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 3 MR. SURINDER KUMAR KAUSHIK HAS EXPIRED. THERE IS N O CHANGE IN SHAREHOLDING IN THE BOOKS OF THE COMPANY TILL NOW. 4. THE AO OBSERVED FROM FORM NO.2 OF THE ROC THAT T HE ASSESSEE HAS MENTIONED IN THE COLUMN OF THE CONSIDERATION FOR WH ICH SUCH SHARES HAVE BEEN ALLOTTED AS FOR BLESSINGS AND EFFORTS. HE, THERE FORE, ASKED THE ASSESSEE TO FURNISH THE REASONS OF SHARES ALLOTTED ON THE BASIS OF BLES SINGS AND EFFORTS AS STATED IN FORM NO.2 OF THE ROC DOCUMENTS AND ALSO ASKED TO FURNISH THE DETAILS OF RATIONALE AND JUSTIFICATION OF THE VALUE OF GOODWILL. THE ASSESS EE FILED THE FOLLOWING SUBMISSION WHICH HAS BEEN REPRODUCED BY THE AO AND WHICH READS AS UNDER:- 'JUSTIFICATION OF SHARE CAPITAL/GOODWILL: AS SUBMIT TED EARLIER, SHARES HAVING FACE VALVE RS.20CRORES WERE ISSUED TO SH SURINDER K UMAR KAUSHIK, AGAINST GOODWILL FOR ACKNOWLEDGING HIS EFFORTS FOR PROCUREM ENT OF AVIATION LICENSE. HE HAD HELPED THE COMPANY TO PROCURE THE AVIATION LICE NSE. AS A RESULT OF HIS EFFORTS, THE LICENSE WAS SUBSEQUENTLY GRANTED TO TH E COMPANY (COPY ENCLOSED). IT MAY PLEASE BE NOTED THAT THERE IS NO TAX IMPLICA TION OF THIS SHARE CAPITAL AND GOODWILL. MR. SURINDER KUMAR KAUSHIK HAS EXPIRED. THERE IS NO CHANGE IN SHAREHOLDING IN THE HOOKS OF THE COMPANY TILL NOW.' 5. THE AO, THEREAFTER ASKED THE ASSESSEE TO FURNI SH THE DETAILS OF THE SERVICES AND EFFORTS MADE BY SHRI SURINDER KUMAR KAUSHIK FOR PRO CURING THE AVIATION LICENCE. HE ASKED THE ASSESSEE TO FURNISH THE DETAILS REGARD ING INTIMATION OF DEATH TO THE INDIAN AUTHORITIES, I.E., ROC AND OTHER GOVERNMENT DEPARTMENTS. SO FAR AS THE DEATH OF SHRI KAUSHIK IS CONCERNED, IT WAS SUBMITTE D THAT THE SAME WAS INTIMATED TO THE ROC AND THE REASON FOR APPEARANCE OF THE NAM E IN THE LIST OF DIRECTORS AT THE ROC WEBSITE IS DUE TO TECHNICAL ERRORS. SO FAR AS THE SERVICES RENDERED BY MR. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 4 SURINDER KUMAR KAUSHIK IS CONCERNED, IT WAS SUBMITT ED THAT HE WAS INSTRUMENTAL IN OBTAINING THE AVIATION LICENCE AS HE AND MR. R.K. S HARMA WERE THE ONLY PERSONS ON THE BOARD OF DIRECTORS OF THE COMPANY. THE COPY OF APPROVAL FROM MINISTRY OF CIVIL AVIATION WAS SUBMITTED BEFORE THE AO. THE OBT AINING OF LICENCE IN ITSELF WAS SHOWN AS THE EVIDENCE OF HIS EFFORTS. IT WAS SUBMI TTED THAT SHRI KAUSHIK WAS A RENOWNED ADVISOR IN AVIATION INDUSTRY AND WAS INSTR UMENTAL IN OBTAINING THE ABOVE LICENCE. SO FAR AS THE VALUATION OF GOODWILL IS CO NCERNED, IT WAS SUBMITTED THAT TWO CRORES OF SHARES OF RS.10 EACH WERE ISSUED TO SHRI KAUSHIK BECAUSE DGCA HAD A CONDITION THAT ONLY THOSE COMPANIES ARE ENTITLED TO APPLY FOR AVIATION LICENCE WHO HAVE AN ISSUED CAPITAL OF RS.20 CRORES. FACE VALUE OF SHARES (RS.20 CRORES) WERE BOOKED AS GOODWILL IN THE BOOKS OF THE COMPANY WHIC H IS A COMMON PRACTICE WHERE SHARES ARE ISSUED AT A DISCOUNT WHERE THE DIF FERENCE IN ISSUE PRICE AND FACE VALUE IS CAPITALIZED IN FORM OF GOODWILL. IN THE INSTANT CASE, THE SHARES WERE ISSUED WITHOUT ANY MONETARY CONSIDERATION AND THEREFORE EN TIRE AMOUNT OF FACE VALUE HAS BEEN BOOKED AS GOODWILL. IT WAS ARGUED THAT THE I SSUE OF SHARES TO SHRI KAUSHIK WITHOUT ANY CONSIDERATION AND BOOKING OF GOODWILL I N THE BOOKS OF THE COMPANY FOR THE SAID AMOUNT HAS NO IMPACT ON TAXATION OF TH E COMPANY. ANY TAX LIABILITY ON GOODWILL WILL ARISE ONLY WHEN THE SHARES ARE ALLOTT ED AND THAT TOO IN THE HANDS OF THE SHAREHOLDERS TO WHOM SHARES HAVE BEEN ALLOTTED AND NOT IN THE HANDS OF THE COMPANY UNDER ANY CIRCUMSTANCE. 6. HOWEVER, THE AO WAS NOT SATISFIED WITH THE ARGUM ENTS ADVANCED BY THE ASSESSEE. RELYING ON VARIOUS DECISIONS, THE AO HEL D THAT THE EXPENSES AND THE ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 5 BASIS OF JUSTIFICATION WAS NOT PROVED BY THE ASSESS EE AND CANNOT BE ALLOWED. INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT AN D RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO 154 ITR 148 (SC), THE AO MADE AN ADDITION OF RS.20 CRORES U /S 68 OF THE ACT BY OBSERVING AS UNDER:- 5.2 THIS IS WORTH MENTIONING HERE THE REASONS GIVE N BELOW FOR DRAWING THE VIEW OF DISALLOWING THE SAME AND TREATING AS UN EXPLAINED CREDITS: I. THE BASIS OF GOODWILL WAS NOT PROVIDED BY THE ASSES SEE, MERELY STATING THAT 'SERVICES RENDERED BY MR. SURINDER KUMAR KAUSHIK: A S ALREADY MENTIONED MR. SURINDER KUMAR KAUSHIK WAS A RENOWNED ADVISOR IN AVIATION INDUSTRY. HE, WAS INSTRUMENTAL IN OBTAINING THE AVI ATION LICENSE. THE LICENSE IN ITSELF IS AN EVIDENCE OF HIS EFFORTS WOULD NOT ALLOW THE ASSESSEE TO GET AWAY WITH THE BURDEN OF PROVING THE GENUINENESS OF THE TRANSACTION. II. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE ITSELF HAS SUBMITTED THAT '2 CRORE SHARES OF RS.LO/- EACH WERE ISSUED TO HIM BECAUSE DGCA HAD A CONDITION THAT ONLY THOSE COMPAN IES ARE ENTITLED TO APPLY FOR AVIATION LICENCE WHO HAVE A ISSUED CAP ITAL OF RS.2O CRORE. FACE VALUE OF SHARES (RS.20 CRORES) WERE BOOKED AS GOODWILL IN THE BOOKS THE COMPANY, WHICH IS A COMMON PRACTICE WHERE SHARES ARE ISSUED AT A DISCOUNT, WHERE THE DIFFERENCE IN ISSUE PRICE AND FACE VALUE IS CAPITALIZED IN FORM OF GOODWILL IN THIS CASE,TH E SHARES WERE ISSUED WITHOUT ANY MONETARY CONSIDERATION AND THEREFORE EN TIRE AMOUNT OF FACE VALUE HAS BEEN BOOKED AS GOODWILL.' THE ASSESS EE IS NOT PERMITTED UNDER LAW TO USE OF THIS COLOURED DEVICE TO REDUCE INCIDENCE OF TAX AND ALSO CAN'T BE PART OF THE TAX PLANNING A S HELD IN THE CELEBRATED CASE OF MCDOWELL AND CO. LTD. VS. CTO 15 4 ITR 148 (SC). IT WAS OBSERVED BY THE THE HONBLE SUPREME CO URT: COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE AVOIDANCE OF TAX BY DUBIOUS METHODS. IT I S FOR THE COURT TO TAKE STOCK AND DETERMINE THE NATURE OF LEGAL DEVICE S TO AVOID TAXES, AND TO EXPOSE THESE DEVICES FOR WHAT THEY REALLY AR E III. EVEN THE ASSESSEE COULD NOT PROVIDE THE SUPPORTIVE EVIDENCE OF WORK/SERVICES RENDERED FOR WHICH THE GOODWILL WAS C REATED. IV. EVEN THE OTHER AGENCIES HAVE ALSO INFORMED TO THIS OFFICE THAT THE ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 6 ASSESSEE COMPANY IS FACING THE COMPLAINT PROCEEDING S OF CHEATING AND FRAUD. V. SINCE, AN AMOUNT OF RS.20 CRORES HAS BEEN SHOWN AS CAPITAL OF THE ASSESSEE IN THE BALANCE SHEET FOR ACCOUNTING PERIOD 01.04.2013 TO 31.03.2014 RELEVANT TO THIS ASSESSMENT YEAR AND BAL ANCES SHEET IS PART AND PARCEL OF THE BOOKS OF ACCOUNTS, IT TANTAMOUNT TO CREDIT OF RS.20 CRORES IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. TH E ASSESSEES VERSION THAT THE SHARES WERE ISSUEDTO THE DIRECTOR NAMELY S HRI SURINDER KUMAR KAUSHIK LIEU OF GOODWILL OF THE VALUE OF RS.20 CORE RAISED SH. SURINDER KUMAR KAUSHIK. IT HAS ALSO BEEN STATED BY THE COUNSEL THAT SH. SURINDER KUMAR KAUSHIK HAS EXPIRED. THUS, NEITH ER STATEMENT OF LATE SH. SURINDER KUMAR KAUSHIK COULD BE RECORDED A S TO HOW HE HAD RAISED GOODWILL EVEN WHEN THE LICENSE FOR RUNNING A IRLINE COMPANY HAD NOT BEEN ISSUED BY THE DGCA AT THE TIME OF ALLO TMENT OF SHARES, AND THEREFORE, THE COMPANY, MIGHT NOT HAVE SHARED OF ITS BUSINESS OF AVIATION. WITHOUTTHE LICENSE THE COMPANY CANNOT FUN CTION THUS THE QUESTION OF RAISING GOODWILLDOES NOT ARISE. MOREOVE R, NO SATISFACTORY REPLY OR EVIDENCE HAS BEEN FILED WHICH MAY SHOW THA T THERE WAS GOODWILL TO THE EXTENT OF RS.20 CRORES OF SHRI SH. SURINDER KUMAR KAUSHIK IN LIEU OF WHICH SHARES OF RS.20 CRORC HAVE BEEN ISSUED TO HIM AND THEREBY CAPITAL OF THE COMPANY RAISED. THE DEMENT OF PAST EXPERIENCE, TECHNICAL QUALIFICATION AVIATION KNOWLE DGE, LONGEVITY OF EXISTENCE IN BUSINESS, MARKET SHARE, QUALITY OF SE RVICES RENDERED, THE EDGE OVER ITS COMPETITIONS IN THE MARKET, BRAND PO SITION AND EFFORTS TAKEN TO ESTABLISH BRAND OF THE COMPANY AND VALUATI ON ETC. ARE MISSING IN THIS CASE FOR THE JUSTIFICATION OF THE GOODWILL. HENCE, THE GOODWILL IS NOT JUSTIFIED AND MOREOVER THERE IS NO BASIS AND AUTHENTIC EVIDENCE W.R.T. THE VALUATION OF GOODWILL OF RS.20 CRORES. FURTHER, ASSESSEES VERSION THAT NO MONEY TRANSACTION WAS INVOLVED AND THE WAY ADOPTED BY THE COMPANY TO RAISE CAPITAL HAS NO IMPACT ON IN COME TAX DUE TO THIS TRANSACTION IS NOT A SATISFACTORY REPLY. 6. IN THE LIGHT OF THE ABOVE DISCUSSION, SECTION 6 8 FULLY AND COMPLETELY APPLIES IN THE CASE. THEREFORE, AN ADDITION OF RS.20 CRORES IS MADE AND HAS BEEN ADDED BACK TO THE INCOME OF ASSESSEE. 7. BEFORE THE LD.CIT(A), IT WAS SUBMITTED THAT SHRI SURINDER KUMAR KAUSHIK HAD EXPERIENCE AND EXPERTISE TO TURN AROUND THE BUS INESS/JUMPSTART BUSINESS WHICH HAD UTILIZED FOR STARTING THE BUSINESS OF ASSESSEE COMPANY. THE DIRECTOR SHRI SURINDER KUMAR KAUSHIK WHO WAS THE MOVING FORCE BEH IND THE COMPANY, WHEN THE ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 7 COMPANY WAS INCORPORATED AND ITS ACTIVITIES WERE IN A NASCENT STAGE HE LABORED AND LATER ON SECURED AN AVIATION LICENCE FOR IT. IN CON SIDERATION OF HIS YEOMEN SERVICES THE COMPANY ISSUED SHARES, UNDER THE CATEGORY SHAR ES ISSUED OTHER THAN FOR CASH TO HIM. THIS WAS DONE BY DEBITING GOODWILL ACCOUNT IN THE COMPANY AND CREDITING THE SHARE CAPITAL ACCOUNT. THE CREATION OF GOODWIL L IN THE BOOKS OF ACCOUNT IS AT THE DISCRETION OF THE COMPANY. IT REPRESENTS MEREL Y A BOOK ENTRY. THERE IS NO LAW REGULATING THE CREATION OF THIS PROVISION. THE COMP ANY IS EMPOWERED TO EVALUATE GOODWILL AT ITS SOLE DISCRETION. THEREFORE, THE AO COULD NOT SEEK ANY EXPLANATION OR JUSTIFICATION FROM THE COMPANY FOR THE CREATION OF GOODWILL. LIKE-WISE THE COMPANY HAS THE DISCRETION TO ISSUE SHARE CAPITAL A S WELL. THAT AGAIN CANNOT BE QUESTIONED. THE AO IS IN THE WRONG FOOTING IN ASKIN G FOR A JUSTIFICATION FOR THE CREATION OF GOODWILL. HE DID NOT PERHAPS REALIZE T HAT DOING SO WAS THE ASSUMED PREROGATIVE. THERE IS NO ONUS WHICH IS CAST ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE SHARE CAPITAL INTRODUCED THROUGH RECIPROCATING ENTRIES IN THE BOOKS. 7.1 SO FAR AS THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF MCDOWELL & CO. LIMITED VS. CTO 154 ITR 448 (SC) IS CONCERNED, IT WAS ARGUED THAT THE SAID DECISION IS NOT APPLICABLE IN THE FAC TS OF THE INSTANT CASE. IN THAT CASE, IT WAS HELD THAT ANY AND EVERY METHOD USED BY THE A SSESSEE IN ORDER TO REDUCE HIS TAX LIABILITY CANNOT BE CALLED A COLORABLE DEVICE. THE REVENUE HAS FIRST TO SHOW HOW THE ASSESSEE HAS RESORTED TO A DEVICE LET ALONE A COLORABLE DEVICE. REFERRING TO ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 8 THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF NEW HOLLAND TRACTOR INDIA P. LTD., IT WAS SUBMITTED THAT THE THE HONBLE HIGH CO URT IN THE SAID DECISION HAS HELD THAT TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW AND HELD THAT THE TRIBUNAL WAS IN ERROR IN APPLYING PRI NCIPLE ENUNCIATED IN MCDOWELL & CO. LTD. VS. CTO (1985) 154 ITR 148 (SC). IT WAS AR GUED THAT IN THE INSTANT CASE THE ASSESSEE HAS NOT USED ANY DEVICE TO AVOID TAX, THEREFORE, THE SAID DECISION IS NOT AT ALL APPLICABLE. IT WAS FURTHER ARGUED THAT THE PROVISIONS OF SECTION 68 CANNOT BE INVOKED UNLESS THERE IS A CREDIT ENTRY EMERGING OUT OF CASH OR IN BANK ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY. EVEN OTH ERWISE TRANSACTION STANDS CONFIRMED AND THE AO IS NOT ABLE TO PROVE OR BRING ON RECORD THAT ANY INVESTMENT WORTH RS. 20 CRORES HAS BEEN MADE BY THE ASSESSEE W HICH CAN BE TAKEN AS UNEXPLAINED INVESTMENT U/S 69 OF THE I.T. ACT, 1961 . IT WAS ARGUED THAT THE ADDITION OF RS.20 CRORES MADE BY THE AO IS ERRONEOUS AND TOT ALLY ILLEGAL. 7.2 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD.CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- 5.3 I HAVE PERUSED THE DETAILED SUBMISSION INCLUDI NG THE COPY OF BOARD RESOLUTION TO ALLOT SHARES OF RS.20 CRORES, FORM NO .5 TO ROC (INCREASE IN SHARE CAPITAL), NOTICE CALLING EXTRAORDINARY GENERA L MEETING OF THE MEMBER OF THE COMPANY, EXTRACTS OF MINUTES OF MEETING AND OTH ER MATERIALS WHICH WERE FILED BEFORE THE AO AND HAS BEEN MADE A PART OF SUB MISSION BEFORE ME WHICH IS PLACED IN THE FILE. THESE DOCUMENTS GO TO DEMONS TRATE THAT THE APPELLANT HAS FOLLOWED DUE PROCEDURE OF INCREASING THE AUTHORIZED SHARE CAPITAL AND SUBSEQUENTLY ISSUE OF SHARES TO SH. SURENDER KUMAR KAUSHIK, ONE OF THE DIRECTORS/SHAREHOLDERS. 5.4 THE ISSUE AT HAND TO BE DECIDED IS WHETHER SH. SURENDER KUMAR KAUSHIK WAS REALLY HAVING EXPERTISE AND THE APPELLA NT HAS ACQUIRED THE SAME ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 9 FROM THE SAID DIRECTOR BY WAY OF ANY LEGAL/VALID DO CUMENTS AND WHETHER IN THE CIRCUMSTANCES PROVISION OF SECTION 68 OF THE ACT IS APPLICABLE IN THIS CASE. 5.5 TO APPRECIATE THE ISSUE AT HAND, IT IS WORTH RE FERRING TO THE PROVISION OF SECTION 68 OF THE ACT. BARE READING OF SECTION - 68, INCOME-TAX ACT, 1961 IS AS UNDER- CASH CREDITS. S.68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO E XPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HI M IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CRE DITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY (NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED), AND THE S UM SO CREDITED CONSISTS OF SHARE APPLICATION MONEY, SHARE CAPITAL, SHARE PREMI UM OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED, ANY EXPLANATION OFFERED BY SU CH ASSESSEE-COMPANY SHALL BE DEEMED TO BE NOT SATISFACTORY, UNLESS (A) THE PERSON, BEING A RESIDENT IN WHOSE NAME SUCH CRE DIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALSO OFFERS AN EXPLANATION AB OUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED; AND (B) SUCH EXPLANATION IN THE OPINION OF THE ASSESSING OF FICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY: PROVIDED FURTHER THAT NOTHING CONTAINED IN THE FIRS T PROVISO SHALL APPLY IF THE PERSON, IN WHOSE NAME THE SUM REFERRED TO THEREIN I S RECORDED, IS A VENTURE CAPITAL FUND OR A VENTURE CAPITAL COMPANY AS REFERR ED TO IN CLAUSE (23FB) OF SECTION 10. THERE ARE 4 LIMBS TO THE PROVISION OF SECTION 68 AS UNDER: FIRST IS VIS-A-VIS SUM, SECOND IS THAT SUM IS TO BE FOUND CREDITED IN THE BOOKS OF ACCOUNTS OF ASSESSEE FOR THAT YEAR, THIRD IS REG ARDING EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF AND THE LAST LIMB REGARDI NG IN THE CASE OF A COMPANY IS SUBSTANTIATING IDENTITY OF THE CREDITOR, GENUINE NESS OF THE TRANSACTION AND CREDIT WORTHINESS OF THE CREDITOR. 5.6 DURING THE YEAR UNDER CONSIDERATION, THE APPELL ANT COMPANY IS FOUND TO HAVE RAISED SHARE CAPITAL. INSTEAD OF RECEIVING THE CONSIDERATION AMOUNT THROUGH BANK, THE COMPANY HAS CLS'MED TO HAVE RECEI VED GOODWILL OF THE SHARE HOLDERS / DIRECTOR AND THE SHARE CAPITAL HAS BEEN CREDITED AGAINST THE ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 10 SAME. AS PER THE FACTS OF THE CASE THERE IS NO SUCH AMOUNT WHICH HAS BEEN ACTUALLY RECEIVED BY THE APPELLANT COMPANY. THE PROVISION RELATING TO CASH CREDIT, AS IN SECTIO N 68 OF THE ACT, WAS PROVIDED FOR THE FIRST TIME IN THE INCOME TAX ACT 1961 (ACT NO.43 OF 1961) AS THERE WAS NO CORRESPONDING PROVISION IN THE INCOME TAX ACT, 1 922. PROVISIONS OF SECTION 68 OF THE ACT COMES INTO PLAY WHEN THERE IS RECEIPT OF MONEY IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS EVEN THE NAME SUGGESTS CASH CREDITS. IN THE CASE AT HAND, THE AMOUNT CREDITED DOES NOT C ONSTITUTE ANY SUM OF MONEY RECEIVED FROM ANYONE AND THEREFORE PROVISIONS OF SE CTION 68 OF THE ACT DO NOT APPLY. IN THIS CASE NO MONEY HAS BEEN ROUTED, BEING THE PURPOSE FOR WHICH THE PROVISION WAS INTRODUCED. 5.7 SECTION 68 OF THE ACT, IS ATTRACTED WHERE AN EN TRY RELATING TO A SUM IS FOUND TO HAVE BEEN CREDITED IN THE BOOKS KEPT BY THE ASSE SSEE, WHICH THUS IMPLIES, EXISTENCE OF BOOKS AND RECORDING OF A SUM WHICH THE ASSESSING OFFICER CONSIDERS AS DOUBTFUL. THE ASSESSING OFFICER THEN S TARTS ENQUIRY, SPECIFICALLY TO SATISFY HIMSELF OF THE SOURCE OF SUCH CREDIT. IF DURING THE COURSE OF ENQUIRY, AO IS SATISFIED THAT THE ENTRIES ARE NOT GENUINE, T HEN HE WILL HAVE EVERY RIGHT TO ADD THE SAID SUM REPRESENTED BY SUCH CREDIT ENTRY A S INCOME FROM OTHER SOURCES. THE SATISFACTION OF THE ASSESSING OFFICER IS THE BASIS OF INVOCATION OF HIS POWERS UNDER SECTION 68. HOWEVER, SUCH SATISFAC TION MUST NOT BE ILLUSORY OR IMAGINATIVE BUT MUST HAVE BEEN DERIVED FROM RELE VANT FACTS AND FACTORS, AND IS ON THE BASIS OF PROPER ENQUIRY OF ALL MATERIAL B EFORE HIM BUT ALSO TO WHICH HE HAS COMMAND. 5.8 IF AT ALL THE PROVISIONS OF SECTION 68 ARE INVO KED, IT IS APPARENT THAT THE APPELLANT HAS DULY EXPLAINED THE SOURCE AND THE NAT URE OF THE TRANSACTION. THE PROVISIONS COULD HAVE BEEN APPLIED OR THE ADDITION COULD HAVE BEEN MADE IF AN UNDISCLOSED INCOME IS FOUND FROM AN UNKNOWN SOURCE OR IF THE AMOUNT REPRESENTS SOME CANCELED INCOME WHICH WAS NOT CREDI TED IN THE BOOKS KEPT BY HIM. SECTION 68 APPLIES WHEN THE SOURCE OF THE CAPI TAL CONTRIBUTION MADE BY THE SHARE HOLDERS IS NOT DISCLOSED OR DISCLOSED BUT NOT SATISFACTORILY EXPLAINED TO THE ASSESSING OFFICER. INTRODUCTION OF SHARE CAP ITAL DOES NOT ALWAYS MEAN THAT PROVISIONS OF SECTION 68 HAVE TO COME INTO PLA Y NECESSARILY. WITHOUT PREJUDICE TO ABOVE, THE AMOUNT BEFORE BEING CREDITE D TO SHARE CAPITAL ACCOUNT, IS CREDITED TO THE SHARE APPLICANT, DETAILS SUCH AS NAME, ADDRESS, PAN, ITR ARE AVAILABLE ON RECORDS. 5.9 IN THE PRESENT CASE THE SUM HAS BEEN IDENTIFI ED BY THE LD. AO AS PER THE VALUE OF THE GOODWILL CLAIMED TO BE PARTED BY T HE SHAREHOLDER (LATE. SH. SURENDER KUMAR KAUSHIK) IN FAVOUR OF RE COMPANY. TH OUGH THERE HAS BEEN NO INFUSION OF FUNDS IN THE BOOKS OF ACCOUNTS, THE LD. AO HAS TAKEN THE FIGURE OF THE GOODWILL AS IF THE AMOUNTS HAVE BEEN INFUSED BY THE SHAREHOLDER IN RE COOKS OF ACCOUNTS AND THIS FIGURE HAS BEEN TAKEN AS A SUM CREDITED. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 11 5.10 IT IS HOWEVER A NON-DISPUTED FACT THAT THE LD. AO CALLED FOR THE DUE EVIDENCE AND PRODUCTION OF THE DIRECTOR FOR EXAMINA TION SO AS TO ASCERTAIN THE EXISTENCE AND GENUINENESS OF THE EXPERTISE/ GOODWIL L. THE FACT IS THAT THE APPELLANT FAILED TO ADDUCE ANY COGENT EVIDENCE/DOCU MENTS WHICH COULD HAVE PROVED THE EXISTENCE OF THE EXPERTISE WITH THE DIRE CTOR WHO HAS BEEN ALLOTTED THE SHARE OF RS.20 CRORE AND ALSO THE FACT THAT THE SAID DIRECTOR WAS NO MORE IN EXISTENCE (PASSED AWAY) AND THEREFORE COULD NOT BE PRODUCED FOR EXAMINATION. 5.11 IN ABSENCE OF ANY OTHER COGNIZABLE REASON, TH E EXPLANATION OFFERED BY THE APPELLANT IN THIS REGARD APPEARS ACCEPTABLE WHEREIN THE APPELLANT HAS SUBMITTED THAT IN COMPANY LAW WHENEVER SHARES ARE ISSUED AT A DISCOUNT, THEN DIFFERENCE IN ISSUE PRICE AND FACE VALUE IS CAPITAL IZED IN THE FOR M OF GOODWILL. AS IN THIS CASE THE FACE VALUE WAS-RS.10 BUT ISSUE PRICE IN THE FORM OF MONEY WAS RS. NIL, SO THE ENTIRE AMOUNT WAS CAPITALIZED I N THE FORM OF GOODWILL. IT IS A JURISDICTION OF THE BUSINESSMAN TO DECIDE AND VALUE ITS GOODWILL AS HAS BEEN HELD BY HONBLE HIGH COURT OF DELHI IN MARUTI INSURANCE DISTRIBUTION SERVICES LTD VS COMMISSIONER OF INCOME TAX 47 TAXMA NN.COM 140. 5.12 THUS, THE SAID FICTITIOUS ASSET IN THE NATURE OF GOODWILL VALUED AT RS. 20 CRORES IN THE BOOKS OF ACCOUNT OF THE APPELLANT TAN TAMOUNTS TO A SELF CREATED AND REVALUED INTANGIBLE ASSET. THE VALUATION OF THE GOODWILL IS A BUSINESS DECISIONS WHICH HAS TO BE LEFT TO THE BUSINESSMEN A ND THE SAME IS PERMISSIBLE WITHIN THE PROVISION OF THE COMPANY ACT AS WELL. SU BSEQUENTLY, THE SHARES WORTH RS. 20 CRORES IS FOUND TO HAVE BEEN ISSUED TO THE SAID DIRECTORS SH. SURENDER KUMAR KAUSHIK BY CREDITING HIS ACCOUNT OF THIS VALUE IN THE BOOKS OF ACCOUNT BY MAKING THE FOLLOWING ENTRIES: GOODWILL DR. 20 CRORES SHARE CAPITAL CR. 20 CRORES 5.13 THE LIMITATION ASSOCIATED WITH SUCH KIND OF SE LF CREATED/REVALUED INTANGIBLE ASSETS IN THE NATURE OF GOODWILL IS THAT THEY CANNOT BE QUALIFIED FOR CLAIMING ANY DEPRECIATION FOR THE REASON THIS INTAN GIBLE ASSET (GOODWILL) APPEARING IN THE BOOKS OF ACCOUNT OF THE APPELLANT IS NOT AN ASSET FOR WHICH ANY PURCHASE COST HAS BEEN PAID OR IT IS ALSO NOT T HE CASE WHERE APPELLANT HAS ACQUIRED THE SAME BY INCURRING ANY EXPENDITURE. THE APPELLANT THOUGH HAS NOT CLAIMED ANY DEPRECIATION ON THIS SELF CREATED/REVAL UED GOODWILL OF RS.20 CRORE IN ITS P & L A/C FOR THE CURRENT PREVIOUS YEAR, IS NOT ENTITLED TO CLAIM THE SAME IN THE FUTURE EITHER. 5.14 A DETAILED SCRUTINY OF THE DOCUMENTS ON RECORD S INCLUDING FORM 5 SUBMITTED TO THE ROC FOR INCREASE IN THE SHARE CAPI TAL REVEALS THE REASON ADDUCED FOR ISSUING SHARE WORTH RS.20 CRORE TO ITS ONE OF THE DIRECTORS SH. SURENDER KUMAR KAUSHIK THAT SHARES WERE ISSUED FOR BLESSINGS AND EFFORTS AND HIS GOODWILL WHICH HELPED IN OBTAINING AVIATION LICENSE. UNDER THE CIRCUMSTANCES, IT AMOUNTS TO A KIND OF PAYMENT/ESOP TO THE SAID SHAREHOLDER ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 12 WITHOUT CONSIDERATION AND THIS VARY ASPECT HAS BEEN RECORDED BY THE LD. AO IN THE IMPUGNED ORDER. 5.15 SO FAR OBSERVATION OF THE LD. AO THAT THE ASSE SSEE HAS ADOPTED A COLORABLE DEVICE TO EVADE THE TAX IS CONCERNED, IN THE FACT OF THE CASE WHERE THE APPELLANT HAS CREATED A FICTITIOUS ASSET IN THE NAT URE OF GOODWILL FOR THE APPARENT OBJECTIVE OF ENHANCING ITS AUTHORIZED SHAR E CAPITAL AND ISSUING THE CORRESPONDING AMOUNT OF SHARES VALUED AT RS.20 CROR E TO ONE OF ITS SHAREHOLDER IS NOT FOUND TO BE WITHIN THE MEANING OF ANY COLORA BLE DEVICE FOR THE REASON THAT THIS MECHANISM OF TRANSACTION IS NOT DIRECTLY OR INDIRECTLY REDUCING THE TAX IMPLICATION O N THE INCOME OF THE APPELLANT. IT IS NOT THE CASE THAT THE SHARE OF RS. 20 CRORE ISSUED WITHOUT CONSIDERATION TO SH. SU RENDER KUMAR KAUSHIK, ONE OF THE DIRECTORS/SHAREHOLDER IS NOT SUSCEPTIBLE TO THE TAX INCIDENCE IN THE HANDS OF THE RECIPIENT. 5.16 BASED ON ABOVE FINDING, THE NATURE OF TRANSACT ION IN THE PRESENT CASE IS SELF CREATION/VALUATION OF A FICTITIOUS ASSETS IN T HE NATURE OF GOODWILL BY CAPITALIZING THE DIFFERENCE IN ISSUE PRICE AND FACE VALUE OF THE SHARES WHICH IS FULLY DISCLOSED / INCORPORATED IN THE BOOKS OF ACCO UNTS. SOURCE OF TRANSACTION IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THERE HA S BEEN NO INFLOW OF FUNDS AS SUCH. IT IS ALSO NOT THE CASE OF LD. AO THAT THE AP PELLANT HAS RECEIVED SOME UNDISCLOSED INCOME OR HAS MADE SOME UNEXPLAINED EXP ENDITURE OUTSIDE OF BOOKS OF ACCOUNTS THROUGH SAID DIRECTOR/SHAREHOLDER SH. SURENDER KUMAR KAUSHIK. THUS, I DO NOT FIND ANY MERIT IN THE OBSER VATION OF THE LD. AO IN THIS REGARD. A REFERENCE TO THE DECISION OF HONBLE ITAT , DELHI IN THE CASE OF ADDL. CIT VS GURSHANT ROTARY COMPRESSORS LTD. (ITAT , DEL-TM) 116 ITD 131 IS WORTH MENTIONING HERE WHEREIN, THOUGH IN A D IFFERENT FACT IT WAS HELD THAT MERE ENTRIES OF SALE IN BOOKS OF ACCOUNTS OF ASSESSEE WERE NOT ENOUGH TO JUSTIFY CASH CREDIT. 5.17 IN LIGHT OF DETAILED DELIBERATION ABOVE, IT IS NOTED THAT THE APPELLANT HAS SELF CREATED/REVALUED ITS OWN GOODWILL TO THE TUNE OF RS.20 CRORES WITH THE SOLE OBJECTIVE OF INCREASING THE AUTHORIZED SHARE CAPITA L/NET WORTH OF THE COMPANY SO THAT IT CAN MEET THE CONDITIONS PRECEDENT TO ACQ UIRE AVIATION LICENSE. THE SHARES OF RS.20 CRORES HAS BEEN ISSUED TO THE DIREC TOR/SHAREHOLDER (LATE SH. SURENDER KUMAR KAUSHIK) FOR BLESSING AND EFFORTS F OR FURTHER EXPANSION OF BUSINESS OF CIVIL AVIATION BY DEBITING THE GOODWIL L ACCOUNT IN THE BOOKS OF ACCOUNT. THE SHARES HAVE BEEN ISSUED WITHOUT ANY CO NSIDERATION AND THEREFORE IN THE NATURE OF ESOP/SALARY AND MOST IMPORTANTLY T HERE HAS NOT BEEN ANY TRANSACTION/RECEIPT OF CASH OR BANK OR ANY OTHER RE ALIZABLE ASSETS AGAINST THE ALLEGED SHARE CAPITAL. IN FACTUM OF THE CASE, SECTION 68 OF THE ACT CANNOT BE INVOKED. THEREFORE, ADDITION OF RS.20 CRORE MADE U/S 68 REQUIRES TO BE DELETED. THE LD. AO IS DIRECTED ACCORDINGLY. THUS, THE APPELLANT SUCCEEDS IN THIS GROUND OF APPEAL. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 13 7.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE RE VENUE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. DR STRONGLY CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE AO. SHE SUBMITTED THAT THE LD .CIT(A) WITHOUT ANY VALID REASONS HAS DELETED THE ADDITION WHICH UNDER THE FA CTS AND CIRCUMSTANCES OF THE CASE, IS NOT JUSTIFIED. SHE SUBMITTED THAT THE DIR ECTOR OF THE ASSESSEE COMPANY WAS NEVER PRODUCED BEFORE THE AO. FURTHER, THERE IS NO BASIS OF VALUATION OF SUCH GOODWILL. ACCORDING TO THE LD. DR, NO SUCH VALUATI ON REPORT WAS EVER PROVIDED BY THE ASSESSEE TO THE AO. REFERRING TO THE COPY OF T HE ASSESSMENT ORDER, SHE SUBMITTED THAT THE AO AT PARA 5.2 OF THE ORDER HAS GIVEN A FINDING THAT OTHER AGENCIES HAVE ALSO NEVER INFORMED TO HIS OFFICE THA T THE ASSESSEE COMPANY IS FACING A COMPLAINT PROCEEDINGS OF CHEATING AND FRAUD. THE REFORE, IN ABSENCE OF PRODUCTION OF THE DIRECTOR BEFORE THE AO AND IN ABS ENCE OF THE BASIS OF VALUATION OF SUCH GOODWILL, THE LD.CIT(A) COULD NOT HAVE DELETED THE ADDITION. 9. THE LD. COUNSEL, ON THE OTHER HAND, HEAVILY RELI ED ON THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE AO. HE SUBMIT TED THAT THE PROVISIONS OF SECTION 68 OF THE ACT COMES INTO PLAY WHEN THERE IS RECEIPT OF MONEY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, IN THE INSTAN T CASE, THE AMOUNT CREDITED DOES NOT CONSTITUTE ANY SUM OF MONEY RECEIVED FROM ANY O NE AND, THEREFORE, THE PROVISIONS OF SECTION 68 ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE ASSESSEE HAS DULY EXPLAINED THE SOURCE AND THE NATURE OF THE ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 14 TRANSACTION BEFORE THE AO BY GIVING THE DETAILS SUC H AS NAME, ADDRESS, PAN, ITR, ETC., OF THE DIRECTOR TO WHOM SUCH SHARES WERE ISSU ED ON ACCOUNT OF GOODWILL. HE SUBMITTED THAT IT IS THE DECISION OF THE BUSINESSME N TO DECIDE AND VALUE ITS GOODWILL AS HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI INSURANCE DISTRIBUTION SERVICES LTD. VS. CIT, 47 TAXMANN.COM 140. HE SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION ON THE SE LF CREATED/REVALUED GOODWILL OF RS.20 CRORES IN ITS PROFIT & LOSS ACCOUNT OF THE CU RRENT PREVIOUS YEAR WHICH THE LD.CIT(A) HAS MENTIONED AT PARA 5.13 OF HIS ORDER. HE SUBMITTED THAT THE AMOUNT OF GOODWILL IS A KIND OF PAYMENT/ESOP TO THE SHAREH OLDER WITHOUT CONSIDERATION AND THIS VERY ASPECT HAS BEEN RECORDED BY THE AO IN THE IMPUGNED ORDER. HE SUBMITTED THAT THE INCREASE IN THE SHARE CAPITAL OF THE COMPANY AGAINST GOODWILL IS NOT FOUND TO BE WITHIN THE MEANING OF ANY COLOURABL E DEVICE SINCE THIS MECHANISM OF TRANSACTION IS NOT DIRECTLY OR INDIRECTLY REDUCI NG THE TAX IMPLICATION ON THE INCOME OF THE ASSESSEE. HE SUBMITTED THAT THERE IS NO MOVEMENT OF ACTUAL MONEY EITHER IN CASH OR THROUGH BANK AND THE SHARES WERE ALLOTTED TO THE SHAREHOLDERS AGAINST GOODWILL. REFERRING TO THE FOLLOWING DECIS IONS, HE SUBMITTED THAT THE PROVISIONS OF SECTION 68 CANNOT BE APPLIED TO THE I NSTANT CASE AS THERE IS NO ACTUAL RECEIPT OF MONEY BY THE ASSESSEE WHETHER BY CASH OR CHEQUE DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION. THEREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION . THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- I) V.R. GLOBAL ENERGY PVT. LTD. VS. ITO, 407 ITR 145 ( MADRAS); ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 15 II) JATIA INVESTMENT COMPANY VS. CIT, 206 ITR 718; III) ACIT VS. SHRI SUREN GOEL, ITA NO.1767/DEL/2011, OR DER DATED 1 ST DECEMBER, 2011; IV) ITO VS. ANAND ENTERPRISES LTD., ITA NO.1614/KOL/201 6; V) ACIT VS. MAHENDRA KUMAR AGARWAL, 23 TAXMANN.COM 285 ; VI) ABHIJEET ENTERPRISES LTD. VS. ITO, ITA NO.308/KOL/2 017; VII) ITO VS. BHAGAWAT MARCOM PVT. LTD., 109 TAXMAN.COM 3 50; VIII) H.H. SRI RAMA VERMA VS. CIT, 57 TAXMANN 149 (SC); A ND IX) ABHISHEK ESTATE LTD. VS. ITO, ITA NO.1585/AHM/2007. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND, THE AO, IN THE INSTANT CASE, MADE ADDITION OF RS.20 CRORES TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 OF THE IT ACT BEING THE AMOUNT OF R S.20 CRORES SHOWN AS GOODWILL AND ON WHICH SHARES WERE ISSUED IN LIEU OF THIS GOO DWILL TO MR.SURINDER KUMAR KAUSHIK. WE FIND, THE LD. CIT(A) DELETED THE ADDIT ION, THE REASONS OF WHICH ARE ALREADY REPRODUCED IN THE PRECEDING PARAGRAPH. IT IS THE SUBMISSION OF THE LD. DR THAT THE ASSESSEE COULD NOT PROVIDE THE BASIS OF SU CH GOODWILL AND, THEREFORE, THE GENUINENESS OF SUCH TRANSACTION REMAINED UNPROVED. FURTHER, THE ASSESSEE COULD NOT PROVIDE ANY SUPPORTIVE EVIDENCE OF WORK/SERVICE S RENDERED FOR WHICH THE GOODWILL WAS CREATED. ACCORDING TO THE LD. DR, THE BASIS OF SUCH VALUATION AT ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 16 RS.20 CRORES AND NOT AT A LOWER AMOUNT OR HIGHER AM OUNT HAS NOT BEEN SUBSTANTIATED. IT IS THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 68 ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE HAS NOT RECEIVED ANY ACTUAL AMOUNT OF CASH . IT IS ALSO HIS SUBMISSION THAT THE VARIOUS DOCUMENTS FILED BEFORE THE MINISTRY OF CORPORATE AFFAIRS SUCH AS FORMS NO.2, 3 AND 5 FILED WITH ROC RELATING TO ISSU E OF SHARES FOR A CONSIDERATION OTHER THAN CASH WAS NOT DISPUTED BY THE ROC. IT IS ALSO HIS SUBMISSION THAT ADDITION, IF ANY COULD HAVE BEEN MADE IN THE HANDS OF THE SHAREHOLDER AND DEFINITELY NOT IN THE HANDS OF THE ASSESSEE. 11. WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. AS MENTIONED IN THE BODY OF THE ASSESSMEN T ORDER AS WELL AS IN THE FINDING OF THE CIT(A), IT IS AN UNDISPUTED FACT THA T THERE IS NO ACTUAL RECEIPT OF ANY CASH BY THE ASSESSEE COMPANY IN THE INSTANT CASE TO WARDS ISSUE OF SHARE CAPITAL AND SUCH SHARES WERE ISSUED IN LIEU OF GOODWILL. IN TH E INSTANT CASE, THE ASSESSEE HAS DEBITED GOODWILL ACCOUNT OF RS.20 CRORES AND, CREDI TED THE SAME TO SHARE CAPITAL OF RS.20 CRORES WHEREIN THE SHARES WERE ALLOTTED TO SH RI SURINDER KUMAR KAUSHIK TOWARDS GOODWILL. IT HAS BEEN HELD IN VARIOUS DECI SIONS THAT THE PROVISIONS OF SECTION 68 CAN BE APPLIED IF THERE IS AN ACTUAL REC EIPT OF MONEY BY THE ASSESSEE WHETHER BY CASH OR CHEQUE DURING THE ACCOUNTING YEA R RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IT HAS BEEN HELD IN THES E DECISIONS THAT WHEN THE CASH DID NOT PASS AT ANY STAGE AND WHEN THE RESPECTIVE P ARTIES DID NOT RECEIVE CASH NOR ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 17 DID PAY ANY CASH, THERE WAS NO REAL CREDIT OF CASH IN THE CASH BOOK AND, THEREFORE, THE QUESTION OF INCLUSION OF THE AMOUNT OF THE ENTR Y AS UNEXPLAINED CASH CREDIT U/S 68 COULD NOT ARISE. 12. WE FIND, THE HONBLE MADRAS HIGH COURT IN THE C ASE OF VR GLOBAL ENERGY PVT. LTD. (SUPRA) HAS HELD THAT WHERE THE ASSESSEE ALLOTTED SHARES TO A COMPANY IN SETTLEMENT OF PRE-EXISTING LIABILITY OF ASSESSEE TO THE SAID COMPANY BY WAY OF ADJUSTMENT AND SINCE NO CASH WAS INVOLVED IN TRANSA CTION OF SAID ALLOTMENT OF SHARES, CONVERSION OF THESE LIABILITIES INTO SHARE CAPITAL AND SHARE PREMIUM COULD NOT BE TREATED AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. IT WAS HELD THAT SINCE THE CASH CREDITS TOWARDS SHARE CAPITAL WERE ONLY BY WAY OF BOOK ADJUSTMENT AND NOT ACTUAL RECEIPTS, THEREFORE, THE SAME COULD NOT BE TREATED AS RECEIPT TOWARDS SHARE SUBSCRIPTION MONEY. SINCE NO CASH WAS INVOLVED IN TRANSACTION OF SAID ALLOTMENT OF SHARES, CONVERSION OF THESE LIABILITIES INTO SHARE CAPITAL AND SHARE PREMIUM COULD NOT BE TREATED AS UNEXPLAINED CASH CREDITS U/S 68 O F THE IT ACT. WE FIND, THE REVENUE CHALLENGED THIS DECISION OF THE HONBLE MAD RAS HIGH COURT BEFORE THE HONBLE SUPREME COURT AND THE HONBLE SUPREME COURT DISMISSED THE SLP FILED BY THE REVENUE REPORTED IN 268 TAXMANN.COM 392. 12.1 WE FIND, THE DELHI BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT VS. SHRI SUREN GOYAL (SUPRA), HAS HELD THAT WHERE THE ASSESSEE HAS RECEIVED LOAN OF RS.20 LAKHS FROM HIS FATHER THROUGH A JOURNAL ENTRY IN THE BOOK S OF ACCOUNT AND THERE WAS NO PHYSICAL TRANSFER OF MONEY FROM THE ACCOUNT OF HIS FATHER, ADDITION OF THE SAME U/S ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 18 68 OF THE ACT IS NOT JUSTIFIED AND ACCORDINGLY THE TRIBUNAL DISMISSED THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DELETING THE ADDITION MADE BY THE AO U/S 68 OF THE IT ACT ON ACCOUNT OF THE JOURN AL ENTRY. 13. WE FIND THE KOLKATA BENCH OF THE TRIBUNAL IN TH E CASE OF ITO VS. BHAGAWAT MARCOM PVT. LTD., REPORTED IN 178 ITD 684 WHILE DE CIDING SOMEWHAT SIMILAR CASE HAS HELD THAT WHERE THE ASSESSEE COMPANY, DURING TH E YEAR UNDER CONSIDERATION ISSUED SHARES AT PREMIUM TO CERTAIN COMPANIES IN LI EU OF SHARES HELD BY THE SAID COMPANIES AND THE SAID TRANSACTIONS WERE ENTERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY BY WAY OF JOURNAL ENTRIES AND IT D ID NOT INVOLVE ANY CREDIT TO CASH ACCOUNT, THEREFORE, THE AMOUNT OF ENTRY COULD NOT BE TREATED AS UNEXPLAINED CASH CREDIT U/S 68 OF THE IT ACT. 13.1 WE FIND, THE JAIPUR BENCH OF THE TRIBUNAL IN T HE CASE OF ACIT VS. MAHENDRA KUMAR AGRAWAL (SUPRA) HAS HELD THAT IN PROVISIONS O F SECTION 68, THE WORDS USED ARE WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS O F AN ASSESSEE. IN THIS CONNECTION, THE WORD SUM IS OF PARAMOUNT IMPORTAN CE. THE WORDS ANY SUM CANNOT BE TAKEN AS PARALLEL TO ANY ENTRY. THE PR OVISIONS OF SECTION 68 ARE DEEMING PROVISIONS AND THEREFORE, ONUS IS ON THE DE PARTMENT TO PROVE THAT ANY SUM WAS CREDITED TO THE BOOKS OF THE ASSESSEE. 14. WE FIND, A SOMEWHAT SIMILAR ISSUE HAD COME UP B EFORE THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S ANAND ENTER PRISES LTD. (SUPRA). IN THAT CASE, THE ASSESSEE COMPANY PURCHASED SHARES OF ANOT HER COMPANY FROM VARIOUS ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 19 PARTIES. THE ASSESSEE COMPANY DID NOT PAY ANY CASH CONSIDERATION FOR MAKING THESE INVESTMENTS IN SHARES AND, INSTEAD, ISSUED SH ARES FROM ITS COMPANY TO THE AFORESAID SHAREHOLDERS IN LIEU OF PURCHASE CONSIDER ATION FOR INVESTMENT IN SHARES. IN OTHER WORDS, THE SHARES WERE ISSUED BY THE ASSES SEE COMPANY TO THE TUNE OF RS.20,07,60,000/- FOR CONSIDERATION OTHER THAN CASH IN LIEU OF MAKING INVESTMENT IN SHARES OF ANOTHER COMPANY. THE AO, HOWEVER, OBSERV ED THAT THERE WAS NO RECEIPT OF CASH CONSIDERATION OF SHARE CAPITAL AND THE TRAN SACTION HAD HAPPENED FOR THE SAME ONLY THROUGH BOOK ENTRIES. ACCORDING TO THE A O, THE ASSESSEE HAD ACTUALLY INTRODUCED UNACCOUNTED MONEY IN ITS COMPANY THROUGH ISSUE OF BOGUS SHARES TO VARIOUS SHAREHOLDERS. ACCORDING TO HIM, THE ENTIRE SET OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE SHAREHOLDER, THE ASSESSEE OR COMPAN Y IN WHICH THE ASSESSEE HAS INVESTED HAS A PRE-DESIGNED SET OF TRANSACTIONS EXE CUTED TO INTRODUCE UNACCOUNTED MONEY IN GARB OF SHARE CAPITAL AND SHARE PREMIUM. A PPLYING THE PROVISIONS OF SECTION 68 OF THE IT ACT, THE AO MADE ADDITION OF R S.20,07,60,000/- TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL, THE LD.CIT(A) D ELETED THE ADDITION. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL UPHELD THE ORDE R OF THE CIT(A) AND DISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UND ER:- 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUT SET, WE FIND THAT THE ASSESSEE HAD NOT RAISED ANY SHARE CAPITAL BY RECEIP T OF CASH CONSIDERATION IN THE INSTANT CASE. THE SHARES WERE ISSUED FOR CONSID ERATION OTHER THAN CASH IN LIEU OF ASSESSEE COMPANY MAKING INVESTMENT IN SHARE S IN SOME OTHER COMPANY. EFFECTIVELY, THE ASSESSEE PURCHASED CERTAIN SHARES FROM THE AFORESAID SIX SHAREHOLDERS AND INSTEAD OF PAYING CASH TO THEM, TH E ASSESSEE COMPANY ISSUED SHARES IN ITS OWN COMPANY TO THOSE SHAREHOLDERS. HE NCE THE ASSESSEE HAD MADE INVESTMENTS IN SHARES OF ANOTHER COMPANY FOR WHICH CONSIDERATION WAS SETTLED THROUGH ISSUANCE OF ITS SHARES TO THOSE SHAREHOLDER S. NOW THE CRUCIAL POINT IS ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 20 WHETHER THE PROVISIONS OF SECTION 68 COULD BE INVOK ED IN THE INSTANT CASE FOR MAKING INVESTMENT TOWARDS SHARE CAPITAL. THERE WAS NO RECEIPT OF ANY SUM AS PROVIDED U/S 68 OF THE ACT IN THE INSTANT CASE. IT WOULD BE PERTINENT HERE TO REFER TO THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF SHRI H.H. RAMA VARMA VS. CIT REPORTED IN 187 ITR 308 (SC) WHEREIN IT WAS HELD THAT 'ANY SUM' MEANS 'SUM OF MONEY'. WE FIND THAT LD. CIT(A) HAD DELETED THE ADDITION BY OBSERVING AS UNDER: '6. ON CONSIDERATION OF THE AR'S SUBMISSION, ESPECI ALLY THE PORTION REPRODUCED ABOVE, IT IS SEEN THAT SECTION 68 OF I.T . ACT, 1961 DOES NOT APPLY TO CASES OF PURCHASE OF SHARE ASSETS AND ALLOTMENT OF SHARES BY THE APPELLANT WHEN PURCHASE AND ALLOTMENT ARE UNDER A BARTER SYST EM. THE AO HAS NOT REFUTED THE APPELLANT'S CLAIM THAT SHARES WERE ALLO TTED IN EXCHANGE FOR ACQUISITION OF SHARES BY THE APPELLANT FROM THE COM PANIES WHICH SURRENDERED SUCH SHARES TO THE APPELLANT. THOUGH AS PER THE AO TO APPLY SECTION 68 TO MAKE THE SAID ADDITION IN THE APPELLANT'S HAND. TRA NSACTIONS PURPORTEDLY EXECUTED BY ENTRY OPERATORS INVOLVE MULTIPLE LAYERS AND OTHER COMPLEXITIES, INTRODUCING DELAYS IN INTRODUCTION OF UNACCOUNTED C ASH/MONEY AND MULTIPLE PLAYERS BEING INCORPORATED ENTITIES. MEASURES TAKEN BY THE AO IN THE COURSE OF THE ASSESSMENT PROCEEDING FALLS MUCH SHORT OF WHAT IS REQUIRED TO BE DONE IN SUCH CASE LAWS, WHICH HAVE EVOLVED ON THIS ISSUE, C ALL FOR CONCERTED ACTIONS ON THE PART OF THE AO PINPOINTING UTILIZATION OF UNEXP LAINED/UNACCOUNTED/UNTAXED MONEY AND THE PLAYERS AND THE BENEFICIARIES EFFECTI VELY USING THE WEBLIKE SCHEME TO PLUNDER BLACK MONEY. FOR EXAMPLE INTRODUC TION AND USE OF BLACK MONEY IN THE PRESENT CASE MAY BE AT A DIFFERENT POI NT OF TIME AND IN DIFFERENT HANDS. THE AO'S ACTION IN THE PRESENT CASE CANNOT B E UPHELD IN LAW. I, THEREFORE, DELETE THE ADDITIONS AND GROUNDS OF APPE AL NOS. 3 & 4 ARE ALLOWED.' 4.1. WE FIND THAT THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SOHANLAL SINGHANIA REPORTED IN 235 ITR 616 (ALL) HA D HELD IN THE CONTEXT OF ALLOWABILITY OF DONATION AS DEDUCTION U/S 80G OF TH E ACT THAT THE EXPRESSION 'ANY SUM PAID' USED IN THE SAID SECTION DENOTES ' S UM OF MONEY PAID' . HENCE IF CERTAIN SHARES WERE DONATED BY A PERSON, THEN THE S AME WOULD NOT FALL ELIGIBLE FOR DEDUCTION U/S 80G OF THE ACT. WE ALSO FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JATIA INVESTMENT COMPANY VS. CIT REPORTED IN 206 ITR 718 (CAL) ALSO SUPPORTS THE CASE OF THE ASSESSE E HEREIN, WHEREIN IT WAS HELD AS UNDER: 'IT IS FINALLY EMPHASISED BY LEARNED COUNSEL FOR TH E ASSESSEE THAT THE ULTIMATE RESULT IS THAT THE FIRM BECOMES A DEBTOR TO GB AND CO. AND THE THREE NON- FINANCIAL COMPANIES OF THE GROUP GOT DISCHARGED. LE ARNED COUNSEL ALSO EMPHASISED THAT, AT THE WORST, IT CAN BE SAID THAT THE ASSESSEE-FIRM HAS RECEIVED VALUABLE ASSETS BEING THE SAID SHARES OF THE EQUIVA LENT VALUE OF THE DEBT TAKEN OVER BY IT FROM THE COMPANIES, I.E., RS. 11.20 LAKH S. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 21 THEREFORE, THE QUESTION OF CASH CREDIT DOES NOT COM E IN, THERE BEING NO ACTUAL PASSING OR RECEIPT OF CASH. IN OTHER WORDS, THE TRA NSACTIONS ARE MERE BOOK ENTRIES. IT WAS CONTENDED THAT THE FACT THAT THE EN TRIES PASSED THROUGH THE CASH BOOK COULD NOT DETRACT FROM OR EFFACE THE ESSENTIAL NATURE OF THE ENTRIES. IT WAS ALSO URGED THAT THE ENTRIES WERE PASSED THROUGH THE CASH BOOK SO THAT THE REPAYMENT OF LOANS BY THE SAID THREE COMPANIES COUL D BE ESTABLISHED BEFORE THE RESERVE BANK OF INDIA. BUT, ACCORDING TO SHRI B AJORIA, THAT DOES NOT MEAN THAT IT AMOUNTS TO AN ARTIFICE EMPLOYED TO DECEIVE ANY AUTHORITIES, BECAUSE THE TRANSACTIONS SHOWING THE AMOUNT AS RECEIVED IN CASH AND PAID AWAY SPONTANEOUSLY AND SIMULTANEOUSLY WERE NOT ACTUAL BU T ONLY NOTIONAL. HE, HOWEVER, STATED THAT, AS FAR AS THE QUESTION OF SEC TION 68 IS CONCERNED, THE NATURE OF THE TRANSACTIONS AND THE ENTRIES CLEARLY SHOW THAT NO CASH, IN FACT, FLOWED. IT WAS FURTHER STRESSED THAT THE TRANSACTIO NS ARE ABOVE BOARD. NO OUTSIDER IS INVOLVED. THE ENTRIES WERE MADE IN THE BOOKS OF THE CONCERNS OF THE SAME GROUP. THE SHARES IN QUESTION WERE ALSO OF THE COMPANIES OF THE GROUP. THERE WAS NO ATTEMPT AT HIDING THE TRANSACTIONS. NO R IS IT THE CASE OF ANY OF THE PARTIES TO THE TRANSACTION THAT THERE WAS ANY PASSI NG OF CASH. EVERY PARTY UNEQUIVOCALLY STATED THAT THE TRANSACTIONS WERE CAR RIED INTO EFFECT MERELY BY WAY OF ADJUSTMENTS OF THE SAID LOANS AND THE SHARE TRANSFERS. SHRI A. C. MOITRA, THE LEARNED ADVOCATE FOR THE REV ENUE, REITERATED THE GROUNDS ON WHICH THE TRIBUNAL HAS AFFIRMED THE ADDITION OF THE AMOUNT OF RS. 11.20 LAKHS AS UNEXPLAINED CASH CREDIT. HE PARTICULARLY E MPHASISED THAT THE ASSESSEE'S CONTENTION THAT THE ENTRIES ARE ONLY ADJ USTMENT ENTRIES IS NOT ACCEPTABLE, BECAUSE THE ADJUSTMENT ENTRIES ARE NOT MADE THROUGH THE CASH BOOK. IT IS AN ACCEPTED PRINCIPLE OF ACCOUNTING THA T BOOK ADJUSTMENTS AND THE ENTRIES IN EFFECTING THEM ARE MADE BY JOURNAL ENTRI ES AND NOT CASH ENTRIES. HE URGED THAT THE PURPORTED MOTIVE OF THE ENTRIES BEIN G THE REDUCTION OF LOANS OF THE THREE LIMITED COMPANIES DOES NOT EXPLAIN THE WH OLE MATTER, BECAUSE THE ENTRIES ARE CASH ENTRIES. THE FACT REMAINS THAT, AT EVERY STAGE, THE PARTIES SHOWED THE PAYMENTS AND RECEIPTS OF CASH EVEN WHEN THERE WAS NO CASH AVAILABLE FOR SUCH ENTRIES. THIS QUITE JUSTIFIES TH E ADDITION AS SUSTAINED BY THE TRIBUNAL. WE HAVE PERUSED THE ASSESSMENT ORDER CAREFULLY. WE FIND THAT CASH DID NOT PASS AT ANY STAGE THOUGH ENTRIES WERE MADE IN THE C ASH BOOK SHOWING PAYMENTS AND RECEIPTS ; BUT SINCE THE ENTRIES MADE A COMPLETE ROUND, NO PASSING OF CASH WAS NECESSARY FOR THE PURPOSE OF MA KING THE ENTRIES. THAT THERE WAS NO PASSING OF CASH IS ALSO ADMITTED BY TH E INCOME- TAX OFFICER HIMSELF. WE HAVE ALREADY EXTRACTED THE OBSERVATION OF THE INCOME- TAX OFFICER IN PARAGRAPH 14 OF HIS ASSESSMENT ORDER. THE INCOME - TAX OFFICER HAS CLEARLY OPINED THAT ALL THE RESPECTIVE PARTIES DID NOT RECE IVE CASH NOR DID PAY CASH AS NONE HAD ANY CASH FOR THE PURPOSE. THE ONLY POINT I N THE ASSESSMENT ORDER IS THAT THE ENTRIES NOT INVOLVING THE PASSING OF CASH SHOULD NOT HAVE FOUND A PLACE IN THE CASH BOOK, BUT IN THE LEDGER ACCOUNT THROUGH JOURNAL ENTRIES. THERE IS ANOTHER SELF- CONTRADICTION IN THE INCOME-TAX OFFIC ER'S FINDING THAT, IF THERE WAS ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 22 NO REAL CASH ENTRY ON THE CREDIT SIDE OF THE CASH B OOK, BUT MERELY A NOTIONAL OR FICTITIOUS CASH ENTRY, AS ADMITTED BY HIM, THERE IS NO REAL CREDIT OF CASH TO ITS CASH BOOK ; THE QUESTION OF INCLUSION OF THE AMOUNT OF THE ENTRY AS UNEXPLAINED CASH CREDIT CANNOT ARISE. ONE OF THE GROUNDS OF THE TRIBUNAL FOR DISBELIEVING THE ASSESSEE'S CASE IS THAT THE ADJUSTMENT ENTRIES WERE MADE BY NOTIONAL CASH E NTRIES WITH A VIEW TO BRINGING DOWN THE DEBT-AND-CAPITAL RATIO, I.E., THA T WHILE BEING DISCHARGED OF THE DEBT THE SAID COMPANIES ALSO JETTISONED THEIR A SSETS, I.E., THE SHARES HELD BY THEM OF EQUIVALENT SUM WITHOUT ACHIEVING THE AVOWED PURPOSE. HERE THE TRIBUNAL CERTAINLY MISDIRECTED ITSELF. THE RATIO TO BE REDUCED IS OF THE LOAN IN RELATION TO THE SHARE CAPITAL AND THE RESERVES. JET TISONING THE SHARES HAD THE DESIRED EFFECT OF REDUCING THE BORROWED CAPITAL. AGAIN, AS REGARDS THE TRIBUNAL'S REFUSAL TO TAKE NO TICE OF THE DIRECTIONS OF THE RESERVE BANK, IT IS NOT CORRECT FOR THE TRIBUNAL TO HOLD THAT THE SAID DOCUMENT WAS A NEW EVIDENCE IN THE TRUE SENSE OF THE TERM. T HE ASSESSEE HAS BEEN CONSISTENTLY PLEADING BEFORE THE LOWER AUTHORITIES THAT THE ENTRIES HAD TO BE MADE IN ORDER TO BRING THE COMPANIES IN CONFORMITY WITH THE SAID DIRECTION. MOREOVER, THE DIRECTION OF THE RESERVE BANK IS A PU BLIC DOCUMENT WITHIN THE MEANING OF SECTION 74 OF THE EVIDENCE ACT, 1872. DO CUMENTS OF A PUBLIC NATURE AND PUBLIC AUTHORITY ARE GENERALLY ADMISSIBL E IN EVIDENCE SUBJECT TO THE MODE OF PROVING THEM AS LAID DOWN IN SECTIONS 76 AN D 78 OF THE EVIDENCE ACT. IN OUR VIEW, THE EFFECT AND IMPORT OF THE TRANSACTI ONS IS THAT THE ASSESSEE TOOK OVER THE LIABILITY OF THE AFORESAID NON-FINANCIAL C OMPANIES TO GB AND CO. IN EXCHANGE FOR THE SHARES AS AFORESAID. IN THE PREMISES, WE ANSWER ALL THE QUESTIONS, IN TH E AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 4.2. IT WOULD BE PERTINENT TO NOTE THAT IN THE INST ANT CASE, THE LD. AO HAD NOT DOUBTED THE INVESTMENT MADE IN SHARES BY THE ASSESS EE COMPANY. THERE IS NO DISPUTE RAISED BY THE LD. AO WITH REGARD TO NUMBER OF SHARES; VALUE THEREON INVESTED BY THE ASSESSEE COMPANY. WE ALSO FIND THAT THE CO-ORDINATE BENCH DECISION OF PUNE TRIBUNAL IN THE CASE OF KANTILAL A ND BROS. VS. ACIT REPORTED IN 52 ITD 412 (PUNE TRIB.) ALSO SUPPORTS THE CASE O F THE ASSESSEE. 4.3. IN VIEW OF THE AFORESAID OBSERVATIONS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE AFORESAID JUDIC IAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE LD. AO HAD ERRONEOUSL Y INVOKED THE PROVISIONS OF SECTION 68 OF THE ACT TO THE FACTS OF THE INSTAN T CASE, WHICH, IN OUR CONSIDERED OPINION, ARE NOT AT ALL APPLICABLE HEREI N. THIS IS A SIMPLE CASE OF ACQUIRING SHARES OF CERTAIN COMPANIES FROM CERTAIN SHAREHOLDERS WITHOUT PAYING ANY CASH CONSIDERATION AND INSTEAD THE CONSI DERATION WAS SETTLED THROUGH ISSUANCE OF SHARES TO THE RESPECTIVE PARTIE S. MOREOVER, IN THE BALANCE SHEET OF THE ASSESSEE COMPANY IN THE SCHEDULE TO SH ARE CAPITAL, IT IS VERY CLEARLY MENTIONED BY WAY OF NOTE THAT THE FRESH SHA RE CAPITAL WAS RAISED DURING ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 23 THE YEAR FOR CONSIDERATION OTHER THAN CASH. HENCE W E 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 HA S RIGHTLY BEEN DONE BY THE LD. CIT(A) WHICH DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 15. IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF THE DETAILED REASONING GIVEN BY LEARNED CIT(A) ON THIS ISSUE, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER DELETING THE ADDITION MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT, 1961. ACCORDINGLY, THE ORDER OF LEARNED C IT(A) IS UPHELD. 16. HOWEVER, IN OUR OPINION, THE ADDITION, IF ANY, IN THE INSTANT CASE HAS TO BE MADE IN THE HANDS OF SHRI SURINDER KUMAR KAUSHIK TO WHOM THE SHARES WERE ALLOTTED FOR HIS SERVICES RENDERED BY DEBITING THE GOODWILL ACCOUNT IN THE BOOKS OF ACCOUNT. THEREFORE, THE AO MAY TAKE NECESSARY STEP S FOR BRINGING THIS AMOUNT TO TAX IN THE HANDS OF SHRI SURINDER KUMAR KAUSHIK OR HIS LEGAL HEIRS IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. 16.1 THE GROUNDS RAISED BY THE REVENUE ARE ACCORDIN GLY DISMISSED. CO NO.121/DEL/2018 (A.Y. 2014-15) 17. THE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION READS AS UNDER:- 1. THAT THE LD. ASSESSING OFFICER HAS ERRED BOTH I N LAW & FACTS IN MAKING ILLEGAL ADDITION OF RS. 20,00,00,000/- (RUPE ES TWENTY CRORE) MADE U/S 68 OF THE ACT BY WRONGLY STATING THE FACT THE THAT SHARE CAPITAL OF THE COMPANY WAS INCREASED TO RS. 20,00,00,000/- (RUPEES TWENTY CRORE) & NO SATISFACTORY EXPLANATION WAS FURNISHED WITH THE AO. SHARE OF RS. 20,00,00,000 - (RUPEES TWENTY CRORE) WERE ISSUED TO SH. SURIENDE R KUMAR KAUSHIK AGAINST THE INTANGIBLE ASSET IN THE FORM OF GOODWILL OF THE COMPANY. ALL THE NECESSARY FORMS OF ROC & BOARD RESOLUTION CONFIRMIN G THE SAME WERE FILED BEFORE AO. NO CONSIDERATION OF CASH & BANK WAS RECE IVED FROM THE DIRECTOR. ITA NO. 2608 / DEL /201 8 CO NO.121/DEL/2018 24 THE ASSESSEE HAS DULY EXPLAINED THE SAME AND NATURE OF THE TRANSACTION. TREATING THE SAME AS UNEXPLAINED CREDIT U/S 68 IS I LLEGAL & UNWARRANTED. 2. THE CIT(A) HAS CORRECTLY ALLOWED THE APPEAL AGAI NST THE ILLEGAL ADDITION OF RS. 20,00,00,000/- (RUPEES TWENTY CRORE) U/S 68 OF THE ACT AND FURTHER CORRECTLY HELD THAT SECTION 68 OF THE ACT CANNOT BE INVOKED. 18. AFTER HEARING BOTH THE SIDES, WE FIND, THE GROU NDS RAISED BY THE CO ARE IN SUPPORT OF THE ORDER OF THE CIT(A). SINCE THE APPE AL FILED BY THE REVENUE HAS BEEN DISMISSED, THEREFORE, THE GROUNDS IN THE CO BECOME INFRUCTUOUS. ACCORDINGLY, THE SAME ARE DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE CO FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.04.2021. SD/- SD/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED: 23 RD APRIL, 2021. DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI