2025 (7) TMI 1508 - AT - Income Tax

Addition u/s 68 - amount received by the assessee from the sale of shares was undisclosed credit - As argued assessee has properly explained the source of the acquisition of the money HELD THAT - As in the financial statement for the year ended 31.03.2017 the amount received as advance was shown as Current liability and no transfer entry of sale of shares was recorded in the books of account which were finally made in FY 2018-19 when the Compromise Deed was executed by the parties. It is also seen that other shareholders have also received amounts from V.P.S Healthcare Pvt. Ltd. where the amount received was shown as advance in their respective financial statements and no income was offered on account of sale of the shares during the year under appeal and in some cases assessments were completed u/s 143(3) of the Act without doubting the treatment done by them. We find no error in the action of the assessee of not disclosing the sale of shares in the return of income filed. It is also seen that the assessee had shown these transactions of sale in the financial statements for Financial Year 2018-19 where the net result being loss was carried forward to the balance sheet under the head Reserve surpluses . Application of provision of section 68 - We find that the AO has not doubted the identity creditworthiness and genuineness of the transaction and solely for the reason that the investment made in the shares of Rockland Hospital Limited was admitted by the said company and further admitted as the beneficiary owner the AO had made the addition. For invoking the provision of section 68 of the Act the basic condition is that either of the three ingredients should be satisfied i.e. identity of the payer genuineness of the transactions and creditworthiness of the persons who had made such payments. In the instant case as observed above it is not the allegation of the revenue that the assessee has failed to satisfy all these three ingredients as envisaged in section 68 of the Act. Thus addition cannot be made in the hands of the assessee u/s 68 of the Act for the amount received as advanced against the sale of shares which has been duly backed by Share Purchase Agreement between the assessee and the buyer company i.e. V.P.S Healthcare Pvt. Ltd. and also Rockland Hospital Limited. We hereby direct to delete the addition made u/s 68 - Assessee appeal allowed.

Summary

ISSUES:

Whether the amount received as advance against the proposed sale of shares can be treated as unexplained cash credit under section 68 of the Income Tax Act, 1961, when the transaction was disputed and not completed during the relevant assessment year.Whether the identity, creditworthiness, and genuineness of the payer and transaction were established for the purpose of section 68.Whether interest under sections 234A, 234B, 234C, and 234D of the Act was rightly imposed.Whether penalty proceedings under section 271(1)(c) of the Act were rightly initiated.

RULINGS / HOLDINGS:

On the addition under section 68, the Court held that "once the transaction of sale of shares is in dispute and the full amount of consideration ... was neither received nor the dispute was settled in the year under appeal, it could not be hold that the transaction of sale of shares was completed." The amount received as advance was shown as a "current liability" and not as income, and the addition under section 68 was deleted as the identity, creditworthiness, and genuineness of the transaction were not doubted.The Court found no error in the assessee's non-disclosure of income/loss from the sale of shares in the return of income for the year under appeal due to the ongoing dispute and non-finalization of the transaction.Regarding interest under sections 234A/B/C/D, the Court directed the Assessing Officer to charge interest "in accordance with law," indicating that the levy was consequential and subject to proper application.The initiation of penalty proceedings under section 271(1)(c) was held to be premature and therefore dismissed at this stage.

RATIONALE:

The Court applied the statutory framework of section 68 of the Income Tax Act, which requires that for an addition to be made, one of the three ingredients-identity of the payer, genuineness of the transaction, or creditworthiness of the payer-must be unsatisfactory. Here, none of these were doubted by the Revenue.The Court relied on the factual matrix showing that the transaction was incomplete due to disputes and legal proceedings, and the amount received was treated as an advance liability in the financial statements, consistent with accounting principles.The Court noted that other shareholders similarly treated advances without declaring income, and assessments were completed without raising objections, supporting the assessee's treatment.The ruling reflects a strict adherence to the statutory requirements of section 68 and rejects additions based solely on the beneficial ownership of the shares by a third party, absent doubts on identity, creditworthiness, or genuineness.No dissent or doctrinal shift was indicated; the decision follows established principles regarding unexplained credits and evidentiary requirements under section 68.