DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -6(3), MUMBAI, MUMBAI V. SPARKLE CLEAN TECH PVT. LTD, MUMBAI

ITA 959/MUM/2024

AI Insights

The case involves the Department of Income Tax appealing against the order of the CIT(A) which had deleted the additions made by the Assessing Officer (AO) under section 68 of the Income Tax Act. The additions pertained to share application money and share capital received from foreign companies, which the AO deemed as unexplained credits. The CIT(A) found that these amounts, received during 2006-09, could not be taxed in AY 2018-19 as they were not credited in that year. The Tribunal's decision supported the CIT(A)'s findings, except for the share capital from 350 Cambridge Partners LLC, where the genuineness and creditworthiness were not satisfactorily established.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33319 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2018-2019
• Other Referred Cases: Ivan Singh v ACIT [2020] 116 taxmann.com 499 (Bombay)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.R. MAKWANA
• Assessee Lawyers: GOVIND PRASAD
• Keywords: Question of law; Unexplained cash credit; Source of fund; Competent authority; Wholly owned subsidiary
• Section: 143(3); 142(1); 250; 271(1)(c); 68; 13; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH MUMBAI BEFORE MS PADMAVATHY S, ACCOUNTANT MEMBER & SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER ITA No. 959/Mum/2024 (Assessment Year: 2018-19) DCIT, CC – 6(3) Room No. 1903, Air India Bldg, Nariman Point, Mumbai. Vs. Sparkle Clean Tech Pvt Ltd., 5C, Premkutir, 177 Marine Drive, Mumbai. PAN/GIR No. AAACU8261C (Applicant) (Respondent) Assessee by Shri Govind Prasad Revenue by Shri R.R. Makwana, Sr. DR Date of Hearing 08.11.2024 Date of Pronouncement 06.02.2025 आदेश / ORDER PER RAJ KUMAR CHAUHAN, JM: The department is in appeal before the Tribunal against the order dated 04.12.2023 passed by the Ld. Commissioner of Income Tax (Appeal), Mumbai [in short “CIT(A)”] passed u/s 250 of the Income Tax Act [in short “the Act”], wherein the addition made by the AO u/s 68 of the Act were directed to be deleted on the grounds that the capital money received in the year 2006-09 cannot be brought to tax in the A.Y 2018-19. 2 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 2. The brief facts as culled out from the order of the Ld. Lower Authorities are as under: 3. The assessee company is in the business of manufacturing and marketing of Water treatment plants and water recycling plants mainly for industrial use. The assessee Company was incorporated in the year 2005 and then in 2006, the assessee company was tied up with Acuity/Sparkle Group USA for technical collaboration and also to make the assessee company as a 100% subsidiary of that Acuity/Sparkle Group USA. After the said tied up, the assessee company started receiving remittances from the parent Company through their group companies and concerns ie. Acuity Sparkle Limited and 350 Cambridge Partners LLC. The first such remittance came on 21st June 2006 and thereafter the remittances were received as when there was a requirements of money for the business as the assessee company's business was very competitive and facing tuff competition from very well known companies like Siemens, Thermax etc. The assessee company was receiving the remittances from the above companies but due to the reasons beyond the control of the assessee company i.e. delay in getting foreign Inward Remittance Certificate (FIRC) from the Bank, the assessee company could not file requisite forms to RBI as the same has to be filed within 30 days from the date of remittance. However, in some of the cases we were getting FIRC's on time there 3 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai we were allotting the shares to parent company. This delay was happening till 13th July 2009 and after that i.e. from 24th July 2009, it was regularized and shares were allotting to them within the stipulated time and accordingly reporting to RBI on time. But for the remittances received during June 2006 to July 2009, the assessee was showing the amount as share Application money pending allotment, as shares could not be allotted due to reason cited above. By the time the assessee Company was approaching Reserve Bank of India to condone the delay and allow the assessee Company to allot the shares but RBI did not allow the assessee company for it and suggested to file compounding application for condonation of delay. Accordingly the assessee Company applied for condonation along with all the remittance details like FIRC, KYC, and other requisite details to RBI and finally in 2017, the assessee company received, permission from Reserve Bank of India to allot the shares to the allotees and accordingly the assessee companies allotted the shares in assessment year 2018-19. 4. It is further stated that during the relevant assessment year the Ld. AO asked the assessee to establish the creditworthiness of the investee companies i.e Clean Water Capital LLC, 350 Cambridge Partners LLC and Sparkle Clean PTE Ltd. All the documents were submitted to the AO for the above three companies through ITRs, 4 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai wherein the Ld.AO satisfied with the creditworthiness of the Sparkle Holding PTE but was not satisfied with Clean Water Capital LLP and 350 Cambridge Partner LLC on the ground that the Clean Water Capital LLC was worth only 5,09,176 USD. However, the value of the asset owned by it equivalent to Rs. 12.50 lakhs USD and in the case of 350 Cambridge Partner LLC the response came as company shutdown. The Ld. Ld.AO accordingly made addition of the share application money amounting to Rs. 9,69,28,000/- treating the same as unexplained credit u/s 68 of the Act and subjected the same to tax u/s 115BBE of the Act and also initiated proceedings u/s 271(1)(c) of the Act. The AO further made addition on account of receiving share capital money including the premium of Rs. 48,11,820/- from USA based company 350 Cambridge Partner LLC and declared the total income of the assessee as Rs. 10,17,39,820/-. 5. Aggrieved by the order, the assessee filed appeal before the Ld. CIT(A) who has deleted the addition on both grounds by passing the impugned order on the ground that the share application money credited to the books of accounts of the assessee during the previous year 2006-09 cannot be taxed u/s 68 of the Act in the A.Y 2018-19. It was also held that the assessee has succeeded to prove the creditworthiness and genuineness of the share capital of the respective companies Clean Water LLC USA to the tune 5 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai of Rs. 9,68,28,000/-. However, the share capital including premium of Rs. 48,11,820/- received from 350 Cambridge Partner LLC remain unexplained. The Ld. CIT(A) was of the opinion that assessee has failed to prove genuineness and creditworthiness of the said company in the absence of any documents / material and liberty was given to the Ld.AO to take appropriate action u/s 147/148 of the Act for the relevant assessment year in which the said amount was credited to the books of accounts of the assessee. However, the appeal of the assessee was allowed on this ground also. The department is aggrieved by the impugned order and is in appeal before us and raised the following grounds of appeal: 1. \"Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A).erred in deleting the disallowance of Rs 9,69,28,000/- as unexplained credit u/s 68 made in the assessment order despite the fact that assessee has failed to establish the genuineness and creditworthiness of the said amount received as share capital including premium from USA based company Clean Water capital LLC?\" ii. \"Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs 9,69,28,000/- as unexplained credit u/s 68 made in the assessment order by noting that amount was received as share application money during earlier period despite the fact that: (a) The amount received on account of share premium/application was reported in the balance sheet under share capital and Reserve & Surplus of FY 2017- 18. (b) Amount received earlier as advance has been accounted as capital of the company during F.Y. 2017-18 only. Therefore, 6 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai year of credit in books of accounts in case of assessee shall be taken as F.Y. 2017-18 only and any action by the AO for any prior year will tantamount to addition of advance as income. (c) Money received as advance is credited in books only on fulfilment of certain condition for which it is received and has to be returned if condition is not fulfilled. Hence any action u/s 68 at stage of advance is not proper \"Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs 48,11,820/- as unexplained credit u/s 68 made in the assessment order despite the fact that assessee has failed to establish the genuineness and creditworthiness of the said amount received as share capital money including premium from US based company 350 Cambridge partners LLC?\" iv. \"Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the findings of the Assessing Officer after receiving reply of FT&TR that the amount received by the assessee on account of share premium/application was shown in the balance sheet of the assessee in FY 2017-18 only?\" 6. On summarizing the grounds raised in appeal the following point of determination arising before us as under: “Whether the amount received as share capital including premium during the previous years 2006-07 to 2008-09 can be considered as unexplained credit for the purpose of assessment year 2018-19”. 7. We have heard the Ld. DR who has submitted that the Ld. CIT(A) has committed illegality while passing the impugned order and failed to appreciate that the capital amount including premium received earlier and shown as 7 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai share application money or share capital premium has been accounted capital of the company only in the F.Y 2017-18 and therefore the year of the credit of the said amount in the books of the assessee has to be taken as F.Y 2017-18 which liable to be assessed in the A.Y 2018-19. It is further argued that the Ld. CIT(A) further deleted the addition of Rs. 48,11,820/- as unexplained credit despite the fact that the assessee has failed to prove the genuineness and creditworthiness of the said amount received as share capital money including premium from USA based company, whose whereabouts could not be ascertained despite efforts made by the Ld.AO. It is therefore prayed that the appeal of the department should be allowed and order of the AO be restored and assessee be brought to tax accordingly. 8. The Ld. AR on behalf of the assessee vehemently opposed arguments of the department and submitted that the amount received by the assessee from 21.06.2006 till 13.07.2009 has been duly accounted in the books of the assessee as share capital money. It is further argued that the said fact is found reflected in the order of the Reserve Bank of India (RBI) dated 17.03.2019 placed at page 61 to 69 of the paper book. It is further argued that the RBI has given the permission to allow the allotment of shares to the investee companies vide letter dated 28.09.2017 and the said letter is placed at page 81 of the paper book. The Ld. 8 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai AR has therefore supported the judgment of Ld. CIT(A) stating that there is no illegality and perversity in the impugned order and prayed for dismissal of the department‟s appeal. 9. We have considered the rival submissions and examined the record in order to appreciate the facts of the case and arguments advanced on behalf of the parties, we have examined the assessment order as well as impugned order and would like to extract the relevant contents of the assessment order from para 3.2 to 6 as under: 3.2 It is observed from reply of the FT & TR authorities, the company Clean Water Capital LLC, was established for the sole purpose of submitting a bid to acquire the assets of Acuity Sparkle Limited, a Cayman Island company, in a bankruptcy auction. Further, the company Acuity Sparkle Limited sole assets of potential value is the ownership of the stocks of Sparkle Clean Tech Pvt Ltd. Further, as per reply received from FT & TR authorities, the Company Clean Water LLC has no financial to acquire the shares amounting Rs. 9,69,28,000/- The company ewc has no function other than to hold stock of Singapore based company Sparkle Holding PTE Ltd. The assessee company has not also provided satisfactory submission in respect of share premium/ capital received from US based company. In this regard the assessee was show- caused vide letter dated 17.03.2021 as to why the Rs. 9,69,28,000/- should not be added to the total income of the assessee. In response of the show cause the assessee company has submitted its submission which is considered but not tenable. The assessee, in reply to show cause notice and earlier 142(1) notices have only furnished a P & B Credit rating document of the US companies. No supporting documents to establish the sources of capital has been provided In view of clear adverse finding in FT & TR reference, the share 9 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai application money amounting at Rs. 9,69,28,000/- is being treated as unexplained credit within the meaning of provisions of section 68 and subjected to tax u/s. 115BBE of the Act. A penalty proceeding under section 271AAC of the Act is being 4. Further, The company had received share capital money including premium of Rs. 48,11,820/- from USA based company 350 Cambridge Partners LLC. A FT &TR reference was sent vide letter dated 12.03.2021 to US authority for providing the genuineness and creditworthiness of the US based company 350 Cambridge Partners LLC. The response has been received from foreign Tax authorities vide letter dated 04.05.2022. The information sought and its reply submitted the FT & TR authority are as under: The following information is requested for period 01.04.2017 to 31.03.2018 in respect of 350 Cambridge partner LLC. Response of all questions: We diligently made attempts to contact 350 Cambridge Partner LLC and was informed the President and managing Member of 350 Cambridge Partner is deceased and records are not available. Further, According to the State of California- Secretary of State Public database, the company status is forfeited. 4.1 It is crystal clear that FT & TR authorities had made various attempts to contact the company 350 Cambridge Partner LLC and were informed that president and managing member of 350 Cambridge partner LLC is deceased and records were not available. No annual report, P &L, ITRs, details of source of funds etc were available. Further, according to state of California database States Company is forfeited. Further, The assessee company has not also provided any satisfactory submission in respect of share premium/ capital received from US based company 350 Cambridge Partner LLC. In this regard the assessee was show-caused vide letter dated 17.03.2021 as to why the Rs. 48,11,820/- should not be added to the total income of the assessee. In response of the show cause the assessee company has submitted its submission which is 10 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai considered but not tenable. The assessee, in reply to show cause notice and earlier 142(1) notices have only furnished a P & B Credit rating document of the US companies. No supporting documents to establish the sources of capital has been provided. In view of the above share application money amounting at Rs. 48,11,820/-is being treated as unexplained credit within the meaning of provisions of section 68 and subjected to tax u/s.115BBE of the Act. A penalty proceeding under section 271AAC of the Act is being initiated separately. 5. The detailed submissions of the assessee have been verified with respect to the issue identified for verification. After due verification, the income of the assessee is assessed as under:- Particulars Amount Amount Total Income (As per return) 9,69,28,000 Nil Add: i) Rs. 9,69,28,000/- under Section 68 of the Act 48,11,820 Total Income 10,17,39,820/- 6 Accordingly, assessed u/s. 143(3) of the I.T. Act, 1961. Allow credit for prepaid taxes, if any, after due verification. The computation of interest u/s.234A, 2348, 234C & 234D is proposed to be as per the ITNS-150A which forms a part of this order. Issue demand notice and challan accordingly. Penalty Notice u/s 271AAC is initiated. 10. We now proceed to examine as to how Ld. CIT(A) has dealt with the issue and decided the matter while deleting the addition made by the AO and the relevant portion of the order from para 8 to 8.5.2 is extracted herein below: 8. Ground No. 1 and 2 pertain to the addition of Rs. 9,69,28,000/- and Rs. 48,11,820/- totaling to Rs. 10,17,39,820/- made by the AO u/s 68 of the Act. 8.1 The AO found that assessee company had received share capital including share premium of Rs. 9,69,28,000/- from USA based company Clean Water Capital LLC. A reference was made through the FT & TR authorities to the US authorities for 11 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai ascertaining the genuineness and creditworthiness of the transactions with the said US based company. After perusal of the reply received through FT & TR authorities, the AO observed that the Clean Water Capital LLC was established for the sole purpose of submitting a bid to acquire the assets of Acuity Sparkle Ltd, a Cayman Island Company, in a bankruptcy auction. It was also seen that the sole assets of potential value of Acuity Sparkle Limited was the ownership of the stocks of assessee company Sparkle Clean Tech Pvt Ltd. On going through the reply received in respect of the FT & TR reference, the AO observed that Clean Water Capital LLC with a net worth of USD 500,000/- had no financial standing to acquire the shares amounting to Rs. 9,69,28,000/- (approximately USD 1,250,000/-) of the assessee company Sparkle Clean Tech Pvt Ltd. According to the AO, Clean Water Capital LLC had no function other than to hold stock of Singapore based company Sparkle Holding PTE Ltd. The AO held that the assessee had not given any satisfactory explanation and no supporting documents in respect of the share premium/share capital received from the US based company. Placing reliance on the information received through the FT and TR reference, the AO added Rs. 9,69,28,000/- as unexplained credit u/s 68 of the Act. 8.1.1 Similarly, the AO also found that the assessee company had received share capital money including premium of Rs. 48,11,820/- from another USA based company 350 Cambridge Partners LLC. An FT & TR reference was also sent to US authorities for ascertaining the genuineness and creditworthiness of the transactions with the US based company 350 Cambridge Partners LLC. The AO found that several attempts were made to contact the company 350 Cambridge Partners LLC but the authorities were informed that the President and Managing Member of 350 Cambridge partner LLC was deceased and records were not available. No annual reports, P & L account, ITRs, details of source of fund etc were made available. Also, the assessee failed to provide satisfactory explanation to the AO. Hence, in view of the above facts, the AO treated the share capital including premium of Rs. 48,11,820/- as unexplained credit within the meaning of 12 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai provision of section 68 of the Act and added the same to the total income of the assessee. 8.2 The appellant on the other hand has pleaded that in the first place the foreign remittances had been received during the period June 2006 to July 2009. The assessee was showing the relevant amount as Share Application money pending allotment as shares could not be allotted in time due to delay in getting Foreign Inward Remittance Certificate (FIRC) from the Bank. Due to this delay in getting the FIRCs, the assessee company could not file requisite forms to RBI and so there was delay in the allotment of shares to the foreign companies. According to the appellant, by the time the assessee Company approached the Reserve Bank of India to condone the delay and allow the assessee Company to allot the shares, the RBI did not allo w the assessee company to do so and suggested to file compounding application for condonation of delay. Accordingly, the assessee Company applied for condonation along with all the remittance details like FIRC, KYCetc to RBI and finally in 2017, the assessee company received permission from Reserve Bank of India to allot the shares to the allotees. Accordingly, the assessee company allotted the shares in AY 2018-19. According to the appellant, this share application money was lying in the accounts of assessee company since 2006 and appearing in the books of account and shown in balance sheet as Share Application money and there were scrutiny assessments almost every year and details of the said application money were submitted during the course of assessment proceedings and always accepted by the department. It was emphasized that this share application money was appearing in the Balance Sheets of the assessee since 2006 to 2009 and was not received in AY 2018-19. So, according to the appellant section 68 could not in any case be applied in its case for AY 2018-19. The appellant has also relied on certain case laws in support of its contentions. 8.2.1 As regards the genuineness and creditworthiness of the impugned transactions, the appellant argued that the AO had erred in holding that Clean Water Capital LLC did not have the financial standing to acquire shares amounting to Rs. 13 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 9,69,28,000/- of the assessee company Sparkle Clean Tech Pvt Ltd. Infact the shares of Sparkle Clean Tech Pvt Ltd were held by one Acuity Sparkle Limited a Cayman Island company which went bankrupt and this company alongwith its assets went under open auction as per US laws. The open auction was won by Clean Water Capital LLC for a consideration of USD 500,000/-. According to the appellant, the AO took the view that Clean Water Capital LLC with a net worth of USD 500,000/- did not have the financial standing to acquire the assetsworth Rs. 9,69,28,000/- (amounting to USD 1,250,000/) being the shares of Sparkle Clean Tech Pvt Ltd. According to the appellant, by taking this view, the AO has completely ignored the fact that the said assets had been bought by Clean Water Capital LLC in a bankruptcy auction. It is common knowledge that during the acquisition of any assets under Bankruptcy, the notional value of the assets is always more than the price paid to acquire the bankrupt company. Thus, according to the appellant, the view of the AO regarding the genuineness and creditworthiness of relevant transactions was erroneous and it was prayed that the addition made be deleted. 8.2.2 As regards, the share capital including share premium of Rs. 48,11,820/- from the USA based company 350 Cambridge Partners LLC, the appellant stated that this company has since shut down and taken over by Clean Water Capital LLC. The appellant submitted a copy of the confirmation letter of take over from Clean Water Capital LLC.It was again pleaded that the transactions were genuine and the addition made be deleted. 8.3 It is seen that as regards the genuineness and creditworthiness of the transaction pertaining to theshare capital including share premium of Rs. 9,69,28,000/- from USA based company Clean Water Capital LLCis concerned, the AO has taken the view that a company with the net worth of USD 500,000/- does not have the financial standing to acquire assets worth Rs. 9,69,28,000/- (amounting to USD 1,250,000/- ). It is seen that this view has been taken ignoring the fact that the said assets had been bought by Clean Water Capital LLC in a bankruptcy auction. While the AO has acknowledged this fact 14 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai of the acquisition having taken place through a bankruptcy auction in para 3.2 of his order, the AO has not appreciated the fact that that during the acquisition of any assets under Bankruptcy, the notional value of the assets is always more than the price paid to acquire the bankrupt company. The fact that there was no direct transaction between Clean Water Capital LLC and Sparkle Clean Tech Pvt Ltd is clearly brought out in the reply received in response to the FT & TR reference and duly quoted by the AO in his order. The reply also clearly states that Clean Water Capital LLC acquired Sparkle Clean Tech Pvt Ltd stocks in a 2010 bankruptcy auction by paying USD 500,000/- to the bankruptcy trustee. Thus, it is clear that no adverse inference can be drawn regarding the genuineness and creditworthiness of the foreign company and the impugned transaction from the reply received in response to the FT & TR reference. 8.4 However, as regards genuineness and creditworthiness of the share capital money including premium of Rs. 48,11,820/- from another USA based company 350 Cambridge Partners LLC, no information was received in response to the FT & TR reference. While several attempts were made to contact the company 350 Cambridge Partners LLC, the authorities were informed that the President and Managing Member of 350 Cambridge partner LLC was deceased and records were not available. No annual reports, P & L account, ITRs, details of source of fund etc were made available. The appellant has tried to explain the same by stating that the company has since shut down and taken over by Clean Water Capital LLC. If that was so, the relevant details should have been provided in response to the FT & TR reference. Rather, the assessee has just tried to furnish before the undersigned, a copy of a letter dated 29.03.2022 on a plain piece of paper from Clean Water Capital LLC confirming that it had taken over 350 Cambridge Partners LLC. This communication has not come through official channels in response to the FT & TR reference. Thus, the authenticity of such a document cannot be accepted. In view of the above, the genuineness and creditworthiness of the share capital including premium of Rs. 48,11,820/- remains unsubstantiated. 15 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 8.5 However, in this regard, it is also seen that there is merit in the contention of the appellant that the impugned share application money was received in the period prior to the present AY 2018-19. This is evident from the Compounding Order 27.03.2019 of the RBI which was also filed before the AO. There is merit in the arguments of the appellant that the foreign remittances had been received during the period June 2006 to July 2009. The assessee was showing the relevant amount as Share Application money pending allotment as shares could not be allotted in time due to delay in getting Foreign Inward Remittance Certificate (FIRC) from the Bank. Due to this delay in getting the FIRCs, the assessee company could not file requisite forms to RBI and so there was delay in the allotment of shares to the foreign companies. By the time the assessee Company approached the Reserve Bank of India to condone the delay and allow the assessee Company to allot the shares, the RBI did not allow the assessee company to do so and suggested to file compounding application for condonation of delay. Accordingly, the assessee Company applied for condonation along with all the remittance details like FIRC, KYC etc to RBI and finally in 2017, the assessee company received permission dated 28.09.2017 from Reserve Bank of India to allot the shares to the allotees. Accordingly, the assessee company allotted the shares in AY 2018-19. This share application money was thus lying in the accounts of assessee company prior to AY 2018-19 and appearing in the books of account and shown in balance sheet as Share Application money which is also evident from the perusal of the Balance Sheet as on 31.03.2017. There is thus merit in the argument of the appellant that section 68 could not in any case be applied in its case for AY 2018-19. 8.5.1 In this regard, the Hon'ble Bombay High Court in the case of Ivan Singh v ACIT [2020] 116 taxmann.com 499 (Bombay) has also held that any sum credited in the books of accounts for any previous year, for which no proper explanation is given by the assessee, can be charged to tax in \"that\" previous year only and not in any subsequent year. The relevant extracts are as under. 16 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 9. From the plain reading of the provisions of section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum so credited can be charged to the income tax as the income of the assessee of \"that previous year\". 10. In the present case, the material on record indicates that the Assessing Officer has relied upon the credits for the financial year 2006-07. However, the sum so credited, in terms of such credit, is sought to be brought to tax as the income of the appellant-assessee, for the assessment year 2009-10, which means for the previous year 2008-09, in terms of the definition under section 3 of the IT Act. Dr. Daniel is justified in submitting that this is not permissible 11. The view taken by this Court in CIT v. Bhaichand H. Gandhi [1982] 11 Taxman 59/[1983] 141 ITR 67 and by Rajasthan High Court in CIT v. Lakshman Swaroop Gupta & Brothers [1975] 100 ITR 222, supports the contentions raised by Dr. Daniel. Similarly, we find that in Bhor Industries Ltd. v. CIT [1961] 42 ITR 57 (SC), the Hon'ble Apex Court in the context of provisions of the Merged States (Taxation Concessions) Order (1949) has interpreted the expression \"any previous year\" to mean as not referring to all the previous years but, the previous year in relation to the assessment year concerned Again, this decisions also, to some extent supports the contentions of Dr. Daniel. 12. The crucial phrase in section 68 of the IT Act, which provides that the sum so credited in the books and which is not sufficiently explained may be charged to the income tax as income of the assessee of \"that previous year\" also lends support to the contentions of Dr. Daniel. 13. For all the aforesaid reasons, we answer the first substantial question of law in favour of the appellant-assessee and against the respondent-Revenue. 8.5.2 In view of the binding judgement of the jurisdictional Hon'ble Bombay High Court, it is held that the share application money credited to the books of accounts in the case of the assessee prior to the AY 2018-19 cannot be charged to tax u/s 17 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 68 of the Act in AY 2018-19. Since, the impugned credits pertain to the period prior to AY 2018-19, the addition made u/s 68 of the Act in AY 2018-19 is directed to be deleted. However, since the genuineness and creditworthiness of the share capital including premium of Rs. 48,11,820/- received from 350 Cambridge Partners LLCremains unproved, the AO may consider taking appropriate action under section 147/148 of the Act for the relevant assessment year(s) in which such sum was credited to the books of accounts of the assessee, subject to the fulfilment of the conditions as envisaged/mentioned under section 147/148 of the Act. The grounds of appeal are accordingly allowed. 11. We have also examined the balance sheet of the assessee as on 31.03.2018 column No. 4 & 5 are extracted as under: As at 31st March 2018 As at 31st March 2017 4 Share Application Money pending allotment Share Application Money pending allotment 19289372 101763885 19289372 101763885 5 Reserves and Surplus Security Premium As per Last Balance Sheet 262933142 214038642 Addition during the year 99384750 362317892 48894500 262933142 Balance in Profit and loss statement As per last balance sheet 260634377 229107781 Add: Profit (Loss) for the year 36023166 296657544 31526596 260634377 65660348 2298765 18 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai 12. It is thus evident from the above contents of the balance sheet that the relevant amount was being shown till the period 31.03.2017 as share application money pending allotment. As per column -5 the said amount has been shown as capital as on 31.03.2018. Thus the amount was being reflected under different head till 31.03.2017 and same has been shown on 31.03.2018 as capital, which according to assessee has been done due to allotment of the shares to the investee companies after approval by the RBI vide letter dated 28.09.2017. On perusal of the order dated 27.03.2019 of the RBI, wherein the compounding application of the assessee was decided with respect to imposing the penalty or violation of Foreign Exchange Management Act (FEMA) 1998, we have noticed that in para 3 of the RBI order dated 27.03.2019 placed at page 61 of paper book from column No. 1 to column No. 74, the amount received through foreign remittances has been reflected starting from 21.06.2006 to till 13.07.2009 which has been received by the assessee as share application money and share capital including premium. The competent authority i.e RBI has thus accepted the contentions of the assessee that the share premium money was received in the previous years 2006-09 and the shares could not be allotted to the said investors due delay in getting forward inward remittance certificate (FIRC) and 19 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai the said amount was lying in share application money pending allotment account of the assessee. 13. The Ld. CIT(A) has rightly followed the Jurisdictional High Court Order in the case of Ivan Singh Vs. ACIT (supra), wherein it was held that Sec. 68 of the Act cannot be invoked to assess the amount deposited in earlier „previous years‟ than the relevant „previous years‟ for A.Y 2018-19. The point of determination is accordingly answered in negative and decided in favour of assessee. 14. In view of the above discussion and the legal position discussed, we are of the considered opinion that there is no force found in the argument raised on behalf of the revenue and appeal of the revenue is de-void of merits. For this reasons the impugned order does not suffers from any illegality and perversity and the same is accordingly confirmed. Accordingly, all the grounds raised in the appeal are dismissed. 15. In the result the appeal filed by the revenue is dismissed. Order pronounced in the open court on 06.02.2025. Sd/- Sd/- (PADMAVATHY S) (RAJ KUMAR CHAUHAN) ACCOUNTATN MEMBER JUDICIAL MEMBER 20 ITA No. 959/Mum/2024 Sparkle Clean Tech Pvt Ltd, Mumbai Mumbai, Dated 06/02/2025 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai "