AI Insights
The case involves the Income Tax Department appealing against the decision of the CIT(A) which had deleted the additions made by the Assessing Officer under section 68 of the Income Tax Act concerning alleged unexplained share capital and premium, and an unexplained creditor. The Tribunal examined the facts, which included similar previous cases and the nature of the transactions, and concluded that the additions were not justified as the transactions were not cash credits but involved swapping of shares.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 121934 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
6 year(s) 1 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-06-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
25-04-2023
Assessment Year
2012-2013
Appeal Filed On
25-04-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B: NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND M.BALAGANESH, ACCOUNTANT MEMBER ITA No.2497/Del/2017 Assessment Year: 2012-13 ITO, Ward –8(2), New Delhi vs. M/s Elvina Real Estate Pvt. Ltd., (Formerly M/s Mangal Real Estate P Ltd.) B-729, DDA Flats, Pocket-II, Jasola Vihar, New Delhi 110025 PAN AAICM 1672 R (Appellant) (Respondent) For Assessee : Shri Sudesh Garg, CA Shri Utsav Garg, CA Shri Sahil Aggarwal, CA For Revenue : Shri T James Singson, CIT(DR) Date of Hearing : 26.04.2023 Date of Pronouncement : 16.06.2023 ORDER PER CHANDRA MOHAN GARG, J.M. This appeal has been filed against the order of CIT(A)-38 New Delhi dated 27.01.2017 for AY 2012-13. 2. The grounds raised by the revenue are as under:- 1. “Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs. 17,80,00,000/- made by the A.O. under section 68 of the I.T Act in respect of alleged share capital and premium. 2. Ld. CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 15,00,000/- made by the AO under section 68 of the I.T Act in respect of alleged creditor. 3. Apropos ground no. 1 & 2 of revenue the ld. CIT(DR) supporting the assessment order submitted that the onus to prove the identity, creditworthiness of investor and genuineness of transaction was on the assessee as the facts were within the assessee knowledge and the assessee did not respond to the notices/questionnaire and show cause issued by the Assessing Officer therefore the Assessing Officer rightly ITA No. 2497/Del/2017 2 held that mere production of incorporation details, PAN number and fact of filing of return of income by the investor company was not sufficient specially when the surrounding and attending facts predicate a cover up differently. The ld. CIT(DR) submitted that the documents indicate and reflect proper paper work but the genuineness of transaction and creditworthiness and capacity of investor was not substantiated therefore the Assessing Officer was right in making addition u/s. 68 of the Act. The ld. CIT(DR) also submitted that the ld. CIT(A) has granted relief to the assessee without any basis therefore impugned first appellate order may kindly be set aside by restoring that of the Assessing Officer. 4. Replying to the above, the ld. counsel of assessee submitted that the addition u/s. 68 of the Act was made by the Assessing Officer vide assessment order dated 02.3.2015 which was deleted by the ld. CIT(A) by passing order vide dated 27.01.2017 and now the Department is an appeal before this Tribunal. He further submitted that the identical issue under identical facts and circumstances was there and the same Assessing Officer on the same date made identical addition u/s. 68 of the Act in the case of M/s. Elative Building Solution P. Ltd. and the similar addition was deleted by the ld. CIT(A). The learned counsel submitted that the Assessing Officer made addition by observing similar findings and the ld. CIT(A) has deleted addition by recording conclusion in both the cases i.e. in the present case of assessee as well as in the case of M/s. Elative Building Solution P. Ltd. He further submitted that in the case of Elative the revenue carried matter before the ITAT as ITA No. 2498/Del/2017 and the Tribunal order dated 24.03.2021 (copy at pages 55 to 81 of assessee paper book) dismiss the appeal of revenue upholding the conclusion of ld. CIT(A) deleting the addition. The ld. counsel submitted that in view of above facts the present appeal of revenue is also covered in favour of the assessee by the order of ITAT dated 24.03.2021 in the case of M/s. Elative Building Solution P. Ltd.(supra). 5. Placing rejoinder to the above, the ld. CIT(DR) again supported the assessment order. However, he did not controvert that the facts and circumstances of present care are quite identical and similar with the case of M/s. Elative Building Solution P. Ltd.(supra). 6. In the present case the ld. CIT(A) deleted both the addition by observing as under:- 3.1.3 Assessing officer has also recorded as under:- "It is also pertinent to mention here that assessee's onus is not discharged at all merely showing that the share capital and share premium in it books of accounts when the revenue has the adverse information/ finding about the companies from whom the alleged share capital and share premium claimed to had been received. ITA No. 2497/Del/2017 3 The said companies were not carrying on any other business activity except providing accommodation entries. The assessee is a private limited company, closely held and there should be proximate relationship between the promoter directors and the shareholders. Closely held companies usually receive share capital subscriptions from friends, relatives and not from unrelated/ unknown third parties/ general public. But in the present case there is no relationship or connection between the alleged subscribers and the assessee, for subscribers to become investors In order to establish identity and availability of funds, it is necessary to have at least some idea if not complete details of the actual business undertaken by these entities and explained how and why these unrelated and unconnected third parties decided to become investors in the absence of public issue or advertisement. Reference is hereby made to the provisions of Section 68 of the Act and their applicability The word ' identity" as defined, it was observed meant the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and true identity of the person or a company was the business undertaken by them. Therefore as per legal position, identity, creditworthiness and genuineness have to be established. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining applications without act activity. PAN is a number which is allotted and helps the Revenue keep track of the transactions. PAN number is relevant but cannot be blindly and without considering surrounding circumstances treated as sufficient to discharge the onus, even when payment is through the bank account. On the question of creditworthiness and genuineness of the alleged amount of share capital and share premium, no doubt, it reflected in the books of assessee which comes without any banking channels, but did not reflect actual genuine business activity of the above corporate entities from whom the alleged amount in consideration of shares shown to had been received by the assessee company. The share subscriber did not have its own profit making apparatus and was not involved in business activity. They merely rotated money, which was coming through the bank accounts. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The assessee, did not give any share-dividend or interest to the said entry operator/ subscriber. The profit motive normal in case of investment is entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan, would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 1. The assessee has hardly responded to the notice/ questionnaires/ show cause. 2. Summon us 131 of the Income Tax Act, 1961 was issued to Director of ail the aforesaid companies from whom share capital/ share premium claimed to have been received. They were asked to personally attend this office so that questions about genuineness of the transaction can be examined with the documentary evidences. None of the Director of the aforesaid companies attended in response to summons issued. ITA No. 2497/Del/2017 4 24. Similarly, addition to Rs. 15,00,000/- in respect of alleged creditor of Rs. 15,00,000/- in the name of M/s Wamil Clothing Put. Ltd. Is also held to be unexplained creditors in the books of the assesse as the summon u/s 131 was received back unserved as pointed out above. Hence the same is also added to the income of the assesse us 68 of the Act." 3.2.1 Submissions of the appellant on the grounds of appeal are as under:- The Assessing Officer has taken note of the following relevant and unique facts to the controversy in the assessment order: 1. Appellant had no bank account; hence there is no question of any cash deposit in any of the bank account of the appellant. 2. No cash was deposited in any of the investing companies' bank accounts as well. 3. No allegation/ evidence of unaccounted income of the appellant or the investing companies or any other person related to them. 4. No allegation of any cash receipt by the appellant in lieu of the allotment of shares or any other transaction. 5. On page 3 of the assessment order, the A0 has specifically noted that the appellant filed following documents w.r.t. the investing companies:- a. Confirmations b. Affidavit of directors c. Acknowledgment of IT for the A.Y. 2012-13 d. Balance Sheet and P & L a/ c e. Form-02 filed with ROC. Vide its reply dated Nil filed on 23/06/2014 given the details of the same showing receipt of share capital and share premium from four corporate entities as under: S.No Name of allottee Address No.of shares Total amount of share capital & premium 1 M/s Artha Software Pvt. Ltd. 2C, JC Block, Hari Nagar New Delhi-110064 23200 4,64,00,000/- 2 M/s Innovist India Pvt. Ltd. -------Do------ 22200 4,44,00,000/- 3 M.s Rational Steel & Alloys Pvt. Ltd. -------Do------ 21500 4,30,00,000/- 4 M/s Oxygen Projects Pvt. Ltd. Shop No. 146, Gali No. 13,Nathu Pura, Delhi 84 22100 4,42,00,000/- Total 89000 17,80,00,000/- Along with these details the assessee has also filed their confirmations, affidavit of the directors, and acknowledgement of their IT for assessment year 2012-13, copy of their ITA No. 2497/Del/2017 5 balance sheet and P&L account and form 2 filed with ROC. Copy of their computation of income and extract of their bank statements have not been filed as asked for in the questionnaire. Vide order data sheet entry dated 23/06/2014 the assessee was asked to file confirmations of sundry creditors and debtors and the case was adjourned to 07.07.2014 but there was no compliance on the adjourned date. 2(a): M/s Artha Software Put. Ltd. In its confirmation has stated that M/s Mangal Real Estate Pvt. Ltd. has issued 23200 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Artha Software Pvt. Ltd.) and they (means Artha Software Pvt. Ltd.) have sold them 50,000 Equity shares @ 10/- each at a premium of Rs. 928%-per share of M/s Corporate Network Solutions Pvt. Ltd. The Book value of one Equity share of Corporate Network Solutions Put. Ltd. is Approx. Rs. 972.52P. 2(b) MIs Innovist India Pvt. Ltd. In its confirmation has stated that M/s Mangal Real Estate Put. Ltd. has issued 22200 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Innovist India Pvt. Ltd.) and they (means M/s Innovist India Pvt. Ltd.) have sold them 29,600 Equity shares @ 10/- each at a premium of Rs. 1500/- per share of M/s Garnet Textiles Pvt. Ltd. The Book value of one Equity share of Garnet Textile Pvt. Ltd. is Approx. Rs. 1645.97p. 2(c) M/s Rational Steels & Alloys Pvt. Ltd. in its confirmation has stated that Ms Mangal Real Estate Put. Ltd. has issued 21500 Equity shares of Rs. 10/- each at a premium of Rs. 1990/ - to it/means M/s Rational Steels & Alloys Pvt. Ltd.) and they (means M/s Rational Steels & Alloys Pvt. Ltd) have sold them 26,875 Equity shares @ 10/- each at a premium of Rs. 1600/- per share of M/s Orator Marketing Pvt. Ltd. The Book value of one Equity share of M/s Orator Marketing Pvt. Ltd. is Approx. Rs. 1600.85p. 2(d) M/s Oxygen Projects Put. Ltd. in its confirmation has stated that M/s Mangal Real Estate Put. Ltd. has issued 22100 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Oxygen Project Put. Ltd.) and they (means M/s Oxygen Project Pvt. Ltd) have sold them 34000 Equity shares @ 10/- each at a premium of Rs. 1300/ - per share of M/s Zesty Construction Pvt. Ltd. The Book value of one Equity share of Garnet Zesty Construction Put. Ltd. is Approx. Rs. 1553.10p. The investing companies were available in the Registrar of Companies data base and the A0 was able to download complete information w.r.t. the investing companies as mentioned on Page 12 of the assessment order reproduced below; (# Emphasis supplied at some places) б. "In the meantime, in order to verify the contentions of the four corporate entities as made by them in their respective confirmation, the company/LLP master data was downloaded from the MCA Website- of the four corporate entities whose shares were claimed to have been sold to the assessee company M/s Mangal Real Estate Pvt. Ltd. against alleged allotment of shares by M/s Mangal Real Estate Pvt. Ltd. and then notices dated 21.11.2014 u/s 133(6) were issued to them at the addresses as given in the MCA record by speed for calling for their ITA No. 2497/Del/2017 6 replies/ details/ documents on or before 01/12/2014 as mentioned in the said notice." The assessing officer has referred to many case laws in the assessment order. We may submit that the facts of the case laws relied upon by the AO are totally different from the facts of the case. Hence the same are not at all applicable. Summary of distinctive features are as under: Although the case laws relied upon are not applicable to the facts of the case but the AO has treated the sum of Rs. 17,80,00,000/- as income of the appellant u/s 68 of the IT Act, 1961. The AO has ultimately made additions us 68 of the Income Tax Act. Another instance of looking at one side of the transactions and making additions is the action of the assessing officer by disallowing purchase/ creditor amounting to Rs. 15,00,000/-. Here also, the AO has not appreciated the accounting in totality. It can be seen that there is just one purchase transaction and one sale transaction. The sales as well as the purchase are for the same quantity and of the same commodity. The appellant has received very small margin of Rs. 10,000/ - in the transaction which he has offered as income. If the A suspects the purchases to be false or fake or unreal, then by necessary implications, the sales also have to be false/ fake/ unreal. There are innumerable case laws to this effect which hold that if in a trading concern, purchases are found to be bogus then the corresponding sales have to be necessarily bogus and the tax implication has to be seen accordingly. In that situation, again there will not be any tax impact rather the income offered of Rs. 10,000/ - will get reduced. It may also be appreciated that it is not the case of the AO that the appellant has invested unaccounted money in the purchase of goods or the creditors have been paid in cash. Section 68 of the Income tax Act, 1961 is reproduced herein below for your ready reference:- 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture ITA No. 2497/Del/2017 7 capital fund or a venture capital company as referred to in clause (23FB) of section 10. Broad reasons why the Learned Assessing Officer ("A0") made the additions:- Perusal of the assessment order indicates the following broad reasons which persuaded the AO to make additions under section 68 of the Act:- 1. High premium for issue of shares was charged from the investing companies. 2. High price at which shares were purchased by the appellant from the same investing companies. 3. Non appearance of directors of investing/ selling companies (though the A acknowledges that the relevant documents and confirmations were filed by the investing companies). 4. Apparent close connection between various companies. 3.2.2 Appellant has further submitted that- Considering the facts and circumstances of the case, it is submitted that section 68 is not applicable to the appellant's case for the following main reasons- 1. The Sum found credited in the books of the accounts of the appellant is not cash or cheque, hence, section 68 doesn't get triggered. 2. The credit in the books of the appellant arose on account of purchase of shares and not on account of receipt of any moner from the investing companies. 3. The investing companies furnished all the documents confirming the transactions. 4. There was no allegation or evidence of operation by an accommodation entry operator. 5. There is no evidence for allegation of cash deposits in either the bank accounts of the appellant or the investing companies. 6. The allegations are for purchase of share at higher than real value from the investing companies and allotting shares to the investing companies at equally high price. If the higher price is reduced to the level justified according to the assessing officer, then also there will not be any income or tax implication to the appellant. 7. Entire exercise has not resulted into earning of even a single rupee to the appellant in the revenue account or even in capital account. 8. The assessing officer has mis-directed himself in referring to various cases in the assessment order without fully appreciating the facts of the case. After explaining the facts of the case, it is clear that none of the cases referred by the AO has implications/ applications to the appellant's case. In all the cases referred ITA No. 2497/Del/2017 8 by the AO sums of money were received by the tax payer which gave rise to application of section 68. 9. Section 68 specifically carries the heading "cash credit". If there is no cash credit this section does not get triggered. 10. In the appellant's case credit worthiness of the shareholders cannot be suspected as they have in effect not advanced even a single penny to the appellant. 11. Identity of the shareholders was indisputably established. 12. Section 68 essentially addresses the situations where moneys or sums are received by the taxpayer, credited in the books of accounts but source of the moneys/sums received is not satisfactory. With due respect to the AO, We wish to submit that he has failed to appreciate the facts of the case in totality. The AO has fallen in error in not appreciating that Rs. 17,80,00,000/- which was payable to 4 investing companies on account of purchase of shares from them was actually not paid as moneys in cash/cheque but was adjusted against the issue of capital on premium to them.. The AO has erroneousl treated this amount of Rs. 17,80,00,000 as unexplained cash credits within the meaning of section 68 of the Income Tax Act, 1961 presuming this to be unexplained cash received on account of issue of shares. This has perhaps happened because the AO did not comprehensively appreciate the facts of the matter. It is also important to appreciate that the appellant company was incorporated on 20.12.2011 and there was hardly any period of business activity available to the appellant during the financial year under consideration. In fact the AO has himself noted that the appellant is not worthy of attracting capital at such high premium. We are enclosing copy of the annual report of the appellant for ready reference; (Annexure-1) We are also enclosing herewith, ledgers accounts related to all the four investing companies along with the relevant Journal Vouchers to make the ledger narrations complete and to facilitate the understanding of the accounting of actual transactions as Annexure-2 to this submission. The perusal of these documents would indicate the following: i. All the transactions have been recorded on the 31.03.2012. ii. The transactions have not resulted into any actual inflow of money by way of cheque or cash to the appellant company. As a consequence, it can be said that the appellant company has not gained anything in terms of receipt of money. iii. Substance of transactions is that consideration payable by the appellant to a set of 4 entities on purchase of shares of certain companies, at a price allegedly much higher than the market value of the shares was squared off against moneys receivable on issue of capital on allegedly high premium to those 4 entities. ITA No. 2497/Del/2017 9 iv. The transactions have not resulted into any inflow or outflow to the appellant company or any of the investing company. In that sense, the transaction is cash neutral. The assessing officer has in his zeal to make the maximum addition has been driven by only one aspect of the transaction. The AO has himself noted repeatedly in the assessment order that the premium at which shares have been allotted by the appellant is not justifiable on account of it not having any asset or business or even a bank account. The AO has also noted again repeatedly that the shares which have been purchased by the appellant from the investing companies, which was the consideration for allotment of, shares was also very high priced and disproportionate to the intrinsic value of the shares. In the simpler words, the Ad noted/ alleged that the transaction of purchase of share by the appellant was not at the Fair Market Value. To simplify it further, the allegation made by the AO is that the appellant has allotted share at a value hugely disproportionate to the real value and at the same time purchased shares at a value much higher than the real value. As the allotment has been made to the same party from whom shares have been purchased, there is no inflow or outflow of money even though the stated consideration is inflated. The AO, however, while taking cognizance of this situation from the tax perspective have looked at the one side of the transaction and totally ignored the other side of the transaction. I, for the argument sake, all the allegations are considered to be true, then the result will be that the allotment of shares should have been at face value and the purchase of the shares from the investing companies should also be at face value. If the accounts are accordingly modified, the balance sheet of the appellant will remain substantively same and there will still not be any income tax implications. It is therefore submitted that even if all the arguments/ allegations of the AO are considered to be true and sustainable, then also there should not be any addition to the income of the appellant as there is no tax implication in the case of the appellant." 3.2.3 The AO has relied upon the following judicial pronouncements:- Name of the case Facts of the case relied by AO Distinguishing facts of the appellant’s case and the reasons for the non applicability of the same Sumati Dayal Vs. CIT 214 ITR801 In this case huge amount was claimed as winnings from races. Under those exceptional and unbelievable circumstances of cash having been introduced, the Court laid down that surrounding circumstances and human probability are to be kept in mew in taxation. In the case of appellant there is only entry regarding swap of shares. No credits by way of cheque or cask u received. The facts of the appellant are entirely different from the case relied upon by AO. CIT Vs. L.N. Dalmia 207 ITR 89 Fact in this case was that loss was claimed which resulted in actual tax evasion on transfer of shares to a company controlled In the case of appellant there is only entry regarding swap of shares. No credits by way of cheque or cask u received. ITA No. 2497/Del/2017 10 by the taxpayer. The facts of the appellant are entirely different from the case relied upon by AO. Sunil Sidharatha Vs. CIT 156 ITR The fact of this matter was whether the act of bringing personal asset by a partner into partnership firm was transfer and whether The facts of the appellant are entirely different from the case relied upon by AO. 507 This transfer was taxable. Mittal Belting and Machinery Stores Vs. CIT 253 ITR 341 The fact of this matter was whether the claim of depreciation on truck could be justified when the money paid for purchase of the truck was reed back by the assessee and the truck was returned back to the seller. —do— Me Dowell & Co. 154 ITR 148 In that case the taxpayer tried to avoid payment of sales tax by adopting dubious means. In the case of appellant there is only entry regarding swap of shares. No credits by way of cheque or cask u received. The facts of the appellant are entirely different from the case relied upon by AO. CIT Vs. Biju Patnaik 160 ITR 674 Identity and creditworthiness of the subscriber" was not proved. Money was actually brought in by the taxpayer. —do— Roshan De Hatti Vs. CIT 107 ITR 938 This case was decided in favor of the assessee. The assessee explained that he got huge amount of gold jewellery etc from Lahore. Hon’ble SC allowed the appeal of the assessee looking at the facts and circumstances of the matter even though there was no evidence that the assets were declared in Lahore. —do— Shankar Industries Vs. CIT 114 ITR 689 In this case cash creditors were individuals of no means and had actually lent money and could not prove their creditworthiness. —do-— Dhanlakshmi Steel Re- Rolling Mills Money was actually introduced in the business by the assessee. Identity and creditworthiness of —do— ITA No. 2497/Del/2017 11 Vs. CIT 228 ITR the subscriber was not proved. Hon’ble Court chose not to intervene in the funding of fact. Malabar Agricultural Ltd. Vs. CIT 229 ITR 548 This case has nothing to do with section 68 of the Act. The case pertained to set off and carry forward of depreciation/ business loss etc —do— CIT Vs. Precision Finance Pvt. Ltd. 208 IT 465 Actual money was recd from the investors. Identity and creditworthiness of the subscriber was not proved as they were not companies and individuals/ firms etc. The Court noted that relevant files of the so called investors were not available. —do— K.N.C. Chande ershekhar Vs. ACIT 66 TTJ 355 Identity and creditworthiness of the subscriber was not proved. —do— CIT Vs. United Commercial and Industrial Company Put.Ltd. 187 ITR 596 Actual money was recd from the Hundi walas. Identity and creditworthiness of the Hundi walas was not proved. —do— CIT Vs. Durga Prasad More 82 ITR 540 In this case it was held that the authorities are entitled to see the surrounding circumstances as to whether the apparent is real. This case is in favour of the appellant. ITO Vs. K. Jayaraman 168 ITR 757 The issue was regarding validity or the genuineness of the document filed by the assessee. The fact of the appellant are entirely different then the case relied upon by AO. CIT Vs. Neelkanth Ispat Udyog Put. Ltd.( ITA No/ 427/2012 of Hon'ble Delhi High Court) In this case credit of share capital was received by way of cheque. The assessee failed to prove the creditworthiness of subscriber. —do— CIT Vs. Nova Promoters & Finlease Pvt.Ltd In this case credit of share capital was received by way of cheque. The assessee failed to prove the creditworthiness of subscriber. Actual money was received by —do— ITA No. 2497/Del/2017 12 the assessee. CIT Vs. Nipun Builders & Developers 350 ITR 407 The issue was regarding genuineness of the transaction. Actual money was received by the assessee. —do— CIT Vs. N.R. Portfolio Pvt. Ltd.(ITA No. 1018 & 1019 of 2011 Delhi High Court) In this case money was actually received. The assessee failed to prove the creditworthiness of the person who made actual investment of money. Actual money was received by the assessee. —do— CIT Vs. Divine Leasing and Finance Ltd. This case was decided in favor of the taxpayer. Money was actually recd but the Court held that the AO is duty bound to unearth relevant facts to support his suspicion if the assessee furnishes details about the investor. This was confirmed —do— AO has also relied on the case of Nova Promoter and Finlease (Supra) Delhi High Court, CIT vs. Nipun Builders and Developers (2013) 350 IT 407 (Del), CIT vs. N.R. Portfolio Pvt. Ltd. (ITA No. 1018 and 1019 of 2011). He has further recorded as under:- "It is pertinent to mention here the recent judicial pronouncement in which the Hon'ble Delhi High Court has discussed in length as how the identity, genuineness and creditworthiness of the transactions claimed to have been made with established entry operator can be proved. The gist of these judgements are as under:- 1. In Nova Promoters & Finlease (supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN number, acknowledgement of income tax returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus. 2. In CIT v. Nipun Builders and Developers (2013] 350 IT 407 (Del), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initiation us on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and, the relationship is/was a continuing one. In such cases, therefore, they assessee cannot, simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they ITA No. 2497/Del/2017 13 had received money, but could do nothing more and it was for the assessing officer to enforce share holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/ subscribers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies " website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 3. Similar view has been taken by the Hon'ble Delhi High Court in order dated 22-11-2013 in the case of CIT V/s N.R. Portfolio Put. Ltd (ITA No. 1018 and 1019 of 2011) In view of the above, correct position of law is that assesse has to furnish enough evidence which can convince the AO about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assesse as the facts are within the assessee's knowledge. In this case the assesse has not made even a single response to any of the notices/ questionnaires/ show cause. Moreover, mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind the company who take the decisions, controls and manage them. In view of the aforesaid facts and legal position the claim of the assesse of having received share capital and share premium amounting to Rs. 17,80,00,000/- from the aforesaid 4 corporate entities, is nothing but unexplained money of the assesse brought into its business in the guise of share capital/ share premium. Therefore the same is added into the income of the assesse u/s 68 of the Income Tax Act, 1961 as unexplained cash credit. And the same is held to be income from undisclosed sources." 3.2.4 The appellant has emphasized the following facts:- "The case in hand is a very unique kind of case and we are not burdening you with innumerable cases on section 68 which are in favour of the assessee. We would draw your kind attention to a very recent decision of jurisdictional Tribunal dated 15/06/2016. Honble ITAT, New Delhi in the case of ITO Ward 1714), New Delhi Vs. M/s Vital Communication Ltd., ITA No. 2448/ Del/2007 | (2016-TOL 1102-ITAT- DEL)]. The Hon'ble ITAT has given the findings as below:- Whether mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. - Held Yes. ITA No. 2497/Del/2017 14 Whether addition of share capital cannot be made in the hands of the company assessee - Held Yes Assessee's business was to provide consultancy service and advice in India and abroad regarding the manufacturing commercial marketing, technical and managerial aspect of the business of electronics and communication hardware. In assessment proceedings, A observed that no books of accounts were produced in spite of the repeated requisition / opportunities. The assessee has not established the credit worthiness of the shareholders. Since assessee could not prove the genuineness of transaction and credit worthiness of the said creditors, the sum of Rs.27 crores was treated a sun explained cash credit u/s 68. CIT (A) deleted the addition made by AO observing as under:- "5. 10 The aforesaid addition cannot be sustained for another legal premise also. Section 68 of the IT Act 1961 under which these additions have been made by the Assessing Officer reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year. It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section age these IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs. 15.00.00,000 were issued against the outstanding liabilities i.e. there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS. 10, 00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained." After hearing both the parties, the ITAT held that, "8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. Section 68 of the IT. Act 1961 under which these additions have been made by the Assessing Officer reads as under: _ ITA No. 2497/Del/2017 15 "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year. " 8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque, draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of sec 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15,00,00,000 were issued against the outstanding liabilities i.e. there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS:10,00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said addition made us 68 cannot be sustained on the legal grounds itself as discussed above". 3.3 I have considered the opinion and reasoning of the assessing officer and the submissions of the appellant. 3.3.1 It is undisputed that the share transactions by the appellant are only on paper and are in the nature of swapping of shares at a very high premium. 3.3.2 As submitted by the appellant, the said transactions and arrangements have not resulted in earning/ receipt of a single rupee and no cash or cheque have been received in appellant's bank or in hand. 3.3.3 The decision of Hon'ble ITAT in the case of M/s Vital Communication Ltd., ITA No. 2448/ Del/2007 [(2016-TIOL-ITAT-DEL)] relied upon by the appellant is applicable to this appeal as the transactions as well as the additions in both the cases revolve around swapping of shares, mere transfer of entries and no cash, cheque or draft has been deposited in the books of account or bank account of the appellant. 3.3.4 Being guided by the case law relied upon by the appellant; these grounds o of appeal are allowed in favour of the appellant. 7. It is pertinent to note that M/s Elative Building Solutions Pvt. Ltd. was formally known as M/s. Maiden Building Solutions P. Ltd. and the Assessing Officer under scrutiny assessment order dated 02.03.2015 made identical additions in the hands of this assessee. The said company carried the matter before ld. CIT(A) and both the ITA No. 2497/Del/2017 16 additions were deleted. Further, from the copy of the ld. CIT(A) dated 27.01.2017 in the case of Elative (supra) for AY 2012-13, we note that the ld. CIT(A) has granted relief to the said assessee with identical and similar observations and findings on both the issues and findings of ld. CIT(A) in the case of Elative (supra) has been upheld by the Tribunal. From relevant part of Tribunal order we note that while upholding the conclusion drawn by the ld. CIT(A) the Tribunal observed as follows:- 16. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has received the share capital of Rs.4,37,500/- and a share premium of Rs. 6,71,62,500/- by issue of 33750 shares to five corporate entities, the details of which are given at para 4 of this order. Although the assessee filed the confirmations, affidavit of the directors, acknowledgement of their ITRs for the assessment year 2012-13, copy of their balance sheet and P&L Account, etc., however, the assessee failed to produce the directors/principal officers of these companies for recording of their statements by the AO. According to the AO, the assessee has issued shares of certain corporate entities at a high premium and, at the same time, purchased certain shares from these companies at a high premium and all the companies to whom shares have been sold and from whom shares have been purchased are inter-related companies. He, therefore, invoking the provisions of section 68 of the Act, made addition of Rs.6,76,00,000/- to the income of the assessee. Similarly, he also made addition of Rs.8,50,000/- u/s 68 of the Act in respect of one creditor, namely, M/s Wamil Clothing Pvt. Ltd., on the ground that the summons issued u/s 131 of the Act was received back unserved and, therefore, the provisions of section 68 of the Act are applicable. We find, the ld.CIT(A), deleted the addition by relying on the decision of the Tribunal in the case of M/s Vital Communications Ltd. (supra) on the ground that the share transactions by the assessee are only on paper and are in the nature of swapping of shares at a very high premium. Further, the said transactions and arrangements have not resulted in earning/receipt of a single rupee and no cash or cheque have been received in assessee’s bank or in hand. 17. We do not find any infirmity in the order of the ld.CIT(A) on this issue. Admittedly, the assessee does not have any bank account during the relevant assessment year, a fact brought on record by the AO himself. The provisions of section 68 of the IT Act, 1961 read as under:- “Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 79[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1-4-2013 : Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share ITA No. 2497/Del/2017 17 application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” 18. As per the above provision where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory according to the AO, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. ‘Any sum’ has not been defined in the Income-tax Act. However, the Hon’ble Supreme Court had an occasion to analyse the use of the expression: ‘any sums paid’ while deciding a case u/s 80G of the Act in the case of H.H. Sri Rama Verma vs. CIT, reported in 57 Taxman 149 (SC). The relevant observations of the Hon’ble Supreme Court at para 4 of the order reads as under:- “4. The language used in Section 80G(2)(a) is clear and unambiguous. On a plain reading of the section, it is apparent that an assessee is entitled to claim deduction from his income on the amount of money paid by him as donation to the authorities and for the causes specified therein. The use of the expression "any sums paid" contemplates payment of an amount of money. One of the dictionary meanings of the expression "sum" means any indefinite amount of money. The context in which the expression "sums paid by the assessee" has been used makes the legislative intent clear that it refers to the amount of money paid by the assessee as donation. The Act provides for assessment of tax on the income derived by an assessee during the assessment year ; the income relates to the amount of money earned or received by an assessee. Therefore, for purposes of claiming deduction from income-tax under Section 80G(2)(a), the donation must be a sum of money paid by the assessee. The plain meaning of the words used in the section does not contemplate donations in kind. .........” ............................................................................................. ............................................................................................. 5. ......... On a careful scrutiny of the two opinions in the aforesaid judgments, we are in agreement with the view taken by the High Courts of Andhra Pradesh, Allahabad and Gujarat in holding that Section 80G(2)(a) contemplates only cash amount of money as donation, for claiming relief of deduction and it does not refer to any donation made in kind.” ITA No. 2497/Del/2017 18 19. We find, the coordinate Bench of the Tribunal in the case of Vital Communication Ltd. (supra) while holding that the provisions of section 68 cannot be applicable where shares were issued against the shares received under the swapping arrangements and no fresh amount of money was brought into the books by way of cash/cheque/draft has observed as under:- “8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. Section 68 of the I.T. Act 1961 under which these additions have been made by the Assessing Officer reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year." 8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15,00,00,000 were issued against the outstanding liabilities i.e there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth Rs.10,00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said addition made u/s 68 cannot be sustained on the legal grounds itself as discussed above. 8.4 We further note that during the appellate proceedings, the Assessee's AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the assessee company were also demonstrated during the appellate proceedings on 26-2-2007 by the Director of the aaseessee company Mr. J.P.Madaan. There is no evidence brought on record the show that such transactions of purchase of softwares were sham transactions to evade the taxes nor there can be any, since there is no advantage to the appellant company to enter into such sham transactions. Assessee had neither debited such expenses on purchase of software into the P & L account nor claimed any depreciation thereon. These were only reflected in the work in progress in the balance sheet under head fixed assets. There is no tax implication of such transactions. The Appellant has also furnished the copies of agreements in ITA No. 2497/Del/2017 19 respect of shares with the other three companies. Swapping of shares is a recognized standard Assessee has also furnished the copies of agreements in respect of swapping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of Rs. 2,50,00,000/-. In view of the above, there is no question for making addition of this amount. Thus the Assessee has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the assessee. Thus the assessee has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him. 8.5 The Assessee has also furnished the copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Ld. AR before the Ld. CIT(A). It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the assessee to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the assessee is unjustified and therefore Ld. CIT(A) has rightly deleted the addition of Rs. 27 crores. 8.6 In the background of the aforesaid discussions and precedents relied upon, we do not find any infirmity in the detailed and well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by deleting the addition of Rs. 27 Crores. As a result, the ground raised by the Revenue stands dismissed.” 20. We find, the Kolkata Bench of the Tribunal in the case of ITO vs. M/s Anand Enterprises Ltd., vide ITA No.1614/Kol/2016 and CO No.56/Kol/2016, order dated 26th September, 2018, while deciding an identical issue has observed as under:- “4. We have heard the rival submissions. At the outset, we find that the assessee had not raised any share capital by receipt of cash consideration in the instant case. The shares were issued for consideration other than cash in lieu of assessee company making investment in shares in some other company. Effectively, the assessee purchased certain shares from the aforesaid six shareholders and instead of paying cash to them, the assessee company issued shares in its own company to those shareholders. ITA No. 2497/Del/2017 20 Hence the assessee had made investments in shares of another company for which consideration was settled through issuance of its shares to those shareholders. Now the crucial point is whether the provisions of section 68 could be invoked 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 the 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, especially 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 system. The AO has not refuted the appellant's claim that shares were allotted in exchange for acquisition of shares by the appellant from the companies 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. Transactions purportedly executed by entry operators involve multiple layers and other complexities, introducing delays in introduction of unaccounted cash/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, call for concerted actions on the part of the AO pinpointing utilization of unexplained/unaccounted/untaxed money and the players and the beneficiaries effectively using the weblike scheme to plunder black money. For example introduction and use of black money in the present case may be at a different point of time and in different hands. The AO's action in the present case cannot be upheld in law. I, therefore, delete the additions and grounds of appeal 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) had held in the context of allowability of donation as deduction u/s 80G of the Act that the expression 'any sum paid' used in the said section denotes ' sum of money paid' . Hence if certain shares were donated by a person, then the same 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 (Co.) vs. CIT reported in 206 ITR 718 (Cal) also supports the case of the assessee herein, wherein it was held as under: "It is finally emphasised by learned counsel for the 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. Learned 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 equivalent value of the debt taken over by it from the companies, i.e., Rs. 11.20 lakhs. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. It was contended that the fact that the entries 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 could be established before the Reserve Bank of India. But, according to Shri Bajoria, that does not mean that it amounts to an artifice employed to deceive any ITA No. 2497/Del/2017 21 authorities, because the transactions showing the amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as the question of section 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 transactions 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. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into effect merely by way of adjustments of the said loans and the share transfers. Shri A. C. Moitra, the learned advocate for the Revenue, 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 emphasised that the assessee's contention that the entries are only adjustment entries is not acceptable, because the adjustment entries are not made through the cash book. It is an accepted principle of accounting that book adjustments and the entries in effecting them are made by journal entries and not cash entries. He urged that the purported motive of the entries being the reduction of loans of the three limited companies does not explain the whole 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 the 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 cash book showing payments and receipts ; but since the entries made a complete round, no passing of cash was necessary for the purpose of making the entries. That there was no passing of cash is also admitted by the 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 receive cash nor did pay cash as none had any cash for the purpose. The only point in 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 Officer's finding that, if there was no real cash entry on the credit side of the cash book, 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 entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, 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. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice 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. The 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 ITA No. 2497/Del/2017 22 Bank is a public document within the meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act. In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid. In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue." 4.2. It would be pertinent to note that in the instant case, the ld. AO had not doubted the investment made in shares by the assessee 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 and Bros. vs. ACIT reported in 52 ITD 412 (Pune Trib.) also supports the case of the assessee. 4.3. In view of the aforesaid observations, in the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the ld. 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. Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. 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.” 21. Similar view has been taken by the Kolkata Bench of the Tribunal in ITA no.2691/Kol/2018, order dated 28th February, 2020 in the case of Blooming Tradelink Pvt. Ltd. vs. ITO by observing as under:- “4. We have heard rival submissions and gone through the facts and circumstances of the case. The addition u/s. 68 of the Act was resorted by the AO and confirmed by the Ld. CIT(A) on the share capital and premium of Rs.5,01,00,000/-. However, according to the assessee, no sum of money has been collected for transfer of shares, whereas shares have been received by the assessee in lieu of exchange of its shares, therefore, no addition u/s. 68 of the Act can be made. In support of its submission, the Ld. AR relied on the following case laws: xi) Jatia Investment Co. Vs. CIT 206 ITR 718(Cal); xii) V. R. Global Energy Pvt. Ltd. Vs. ITO, 407 ITR 145 (Mad); xiii) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Saffron Comtrade Pvt. Ltd. dated 28.08.2019; xiv) ITAT, Kolkata bench in the case of ITO Vs. M/s. Pansu Commercial Pvt. Ltd. dated 08.05.2019 and ITA No. 2497/Del/2017 23 xv) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd. dated 16.11.2018. 5. We note that this issue is no longer res integra. We also find that there is no cash transferred for the shares by the assessee. We note that the assessee had swapped shares in lieu of shares. We note that this Tribunal has already held that section 68 of the Act is not attracted in such transfer and the Tribunal in the case of ITA No. 2178/Kol/2016, ITO Vs. M/s. Sunglow Dealcom private Limited for AY 2012-13 order dated 16.11.2018 has held as under: “3. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 4. The undisputed fact in this case is that the allotment of shares were for consideration other than by way of cash. The four companies which applied for allotment of shares, have sold their investment to the assessee company and the assessee company, has as consideration for the purchase of those shares had allotted shares at a premium. It is a case of swapping of shares. The shares were allotted for consideration other than cash. The question is whether under these facts and circumstances Section 68 of the Act, would be attracted. 4.1. The ld. D/R, submits that the premium is not justified and that the ld. CIT(A) was wrong in holding that the assessee has proved the identity, creditworthiness and genuineness of the transaction. He relied on the order of the Assessing Officer. In reply the ld. Counsel for the assessee, submits that each of the above companies have filed replies before the Assessing Officer to the notice issued u/s 133(6) of the Act. He further pointed out that the ld. CIT(A) called for a remand report the Assessing Officer had not disputed the identity, creditworthiness of the share subscribers as well as the genuineness of the transactions. He relied on the order of the ld. CIT(A). 4.2. The undisputed fact is that shares were issued at a premium, as consideration for the purchase of shares from the share applicant companies. This issue is squarely covered by the decision of the Kolkata ‘C’ Bench of the Tribunal in the case of ITO vs. M/s. Anand Enterprises Ltd., ITA No. 1614/Kol/2016 & C.O. No.56/Kol/2016; dt. 26/09/2018, wherein under identical circumstances, at para 4.3. it was held as follows:- “4.3. In view of the aforesaid observations, in the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold 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. Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. 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 ITA No. 2497/Del/2017 24 deleted which has rightly been done by the Id. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed.” 4.2. The Hon’ble Jurisdictional High Court in the case of Jatia Investment Co .v. Commissioner of Income-tax [1994] 206 ITR 718 (CAL.) held as follows:- “Section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 1976- 77 – Partners of assessee-firm were members of one ‘J’ group running several businesses and industries – Accounts of assessee-firm showed that it had borrowed certain amount from GB, a proprietary concern of one of its partners JM, which was invested in purchase of shares – ITO found that GB had no cash balance to advance said amount to assessee – He, thus, concluded that source of funds for purchase of shares by assessee was not explained, and consequently, assessed that amount as income from undisclosed sources – It was contended by assessee that notional cash entries were made to reduce indebtedness of three companies of ‘J’ Group to GB in order to comply with certain directions of RBI – Assessee-firm substituted three companies of ‘J’ Group as debtor to GB – It was further stated that question of cash credit did not arise, there being no actual passing or receipt of cash but transactions were mere book entries – Whether, in aforesaid circumstances, effect and import of transaction was that assessee took over liability of aforesaid three companies to ‘GB’ in exchange for shares and, therefore, amount of loan in question could not be treated as assessee’s income from undisclosed sources – Held, yes” 4.3. Recently, the Hon’ble Madras High Court in the case of V. R. Global Energy (P.) Ltd. v. Income-tax Officer, Corporate Ward 3(4), Chennai [2018] 96 taxmann.com 647 (Madras) while dealing with a case where cash credit towards share capital were admittedly, only by way of book adjustments and no actual cash was received towards share subscription money held as follows:- “25. However, the second question is answered in favour of the assessee and against the Revenue by the judgment of the Division Bench of this Court in Electro Polychem Ltd., (supra) and Steller Investment Ltd., (supra). 26. This case is distinguishable from the case of CIT v. Lovely Export (P.) Ltd. [2008] 216 CTR 195 (SC) in that the transactions were only book transactions, and there was no cash receipt. The decisions in (i) CIT v. Focus Exports (P.) Ltd. [2014] 51 taxmann.com 46/228 Taxman 88 (Delhi) (Mag.); (ii) CIT v. Globus Securities & Finance Pvt. Ltd. [2014] 41 taxmann.com 465/224 Taxman 237 (Delhi); (iii) Onassis Axles (P.) Ltd. v. CIT [2014] 364 ITR 53/224 Taxman 80 (Mag.)/44 taxmann.com 408 (Delhi); (iv) Olwin Tiles India (P.) Ltd. v. Dy. CIT [2016] 382 ITR 291/237 Taxman 342/66 taxmann.com 8 (Guj.); (v) B.R. Petrochem (P.) Ltd. v. ITO [2017] 81 taxmann.com 424 (Mad.); and (vi) Rajmandir Estates (P.) Ltd. v. Pr. CIT [2016] 386 ITR 162/240 Taxman 306/70 taxmann.com 124 (Cal.), cited on behalf of the respondent are distinguishable, in that the cash credits towards share capital were admittedly only by way of book adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money.” 5. Applying the propositions of law laid down in the above cases to the facts of this case, we uphold the order of the ld. First Appellate Authority and dismiss this appeal of the revenue.” ITA No. 2497/Del/2017 25 6. In the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the 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 provisions of section 68 of the Act are not applicable in the instant case and accordingly, the entire addition deserves to be deleted and we delete the addition as confirmed by the Ld. CIT(A) and allow the appeal of the assessee. 7. In the result, appeal of assessee is allowed.” 22. The various other decisions relied on by the ld. Counsel for the assessee in the paper book also supports the case of the assessee that provisions of section 68 are not applicable in a case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and, instead, considerations were settled through issuance of shares to the respective parties. In other words, provisions of section 68 of the Act does not apply to cases of purchase of shares and allotment of shares when the purchase and allotment are under a barter system. In this view of the matter, we do not find any infirmity in the order of the CIT(A) in deleting the addition of Rs.6,75,00,000 /- (wrongly typed in the grounds as Rs.6,76,00,000/-). Therefore, the ground of appeal No.1 raised by the Revenue is dismissed. 8. In view of foregoing and above noted factual matrix, we clearly note that the Assessing Officer made identical additions, under identical facts and circumstances in the case of present assessee and M/s. Elative Building Solutions P. ltd. and the ld. CIT(A) deleted both the additions in both the cases in the orders dated 27.01.2017 by drawing identical observations and findings. The conclusion drawn by the ld. CIT(A) deleting both the additions have been upheld by the co-ordinate bench of Tribunal dismissing the grounds of revenue. Therefore, we have no hesitation to hold that both the issues are covered in favour of the assessee by the order of the Tribunal in the case M/s. Elative Building Solutions P. ltd. (supra), hence we are unable to see any valid reason to interfere with the findings arrived by the ld. CIT(A) and thus we uphold the same. Accordingly, ground no. 1 & 2 of revenue are dismissed. 9. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 16.06.2023. Sd/- Sd/- (M.BALAGANESH) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:16 th June, 2023. NV/- ITA No. 2497/Del/2017 26 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR // By Order // Asstt. Registrar, ITAT, New Delhi
Other Referred Cases
M/s Elative Building Solution P. Ltd. vs. ITO, Vital Communication Ltd. vs. ITO, Anand Enterprises Ltd. vs. ITO
Laws Referred To
Income Tax Act
1:1 Consultation on Business Development
₹1
360 Brand Audit (30 mins)
₹299
1:1 Consultation on SME Listing
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Assignment of Registered Trademark
Mehul₹500
Form AOC-2 - Disclosure of Related Party Transaction
Mehul₹50
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