TMI Blog2019 (3) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... crept into the order of the AO since there was no proper compliance at the assessment stage, since the assessee had objected to the very jurisdiction of ITO- Ward 51(4) who had issued the statutory notices. Though the Ld CIT (A) has called for a remand report, and the AO had furnished his report, however the AO remained silent on the issue of receipt of actual money/ sum in his report. We set aside the impugned addition back to the AO with a limited direction to verify and ascertain the fact as to whether the assessee had actually received any money/cash pursuant to this transaction from its holding company during AY 2013-14. If it is found that there the assessee company has not received money/cash from the holding company in the relevant AY 2013-14, then in our considered view Section 68 cannot be applied and hence the impugned addition shall stand deleted. - Appeal of the assessee is allowed for statistical purpose - I.T.A. No. 308/Kol/2017 - - - Dated:- 27-3-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Appellant : Shri M. D. Shah, AR For the Respondent : Shri P. K. Srihari, CIT, DR ORDER PER SHRI A.T.VARKEY, JM This appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce from the part of the assessee. Primarily, due to failure on part of the assessee, the identity of the sundry creditor is questionable. If the identity of the creditors had not been conclusively established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. In view of the above the entire amount of ₹ 3862,36,44,300/- shown as Other payables (note 5-other current liabilities of the audited accounts) which is remained unexplained is added back u/s. 68. 4. Aggrieved by the above addition saddled by AO u/s. 68 of the Act, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is now in appeal before us. 5. The Ld. AR assailing the order of the Ld. CIT(A) drew our attention to the fact that the assessee is a Private Limited company which is engaged in the business of trading and investment in shares. The Ld. AR first drew our attention to the Note No. 21 forming part of accounts wherein the details of the associated enterprises had been set out in the annual report. It is noted that M/s. Abhijeet Ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AR therefore submitted that the initial premise of the AO that the assessee was unable to establish the identity of sundry creditor i.e. M/s. Abhijit Projects ltd. (M/s. APL) was misplaced and the action of the lower authorities holding that such transaction fell within the ken of Section 68 was also unjustified. 6. It was further pointed out by the ld. AR that the assessee was engaged in the business of trading in shares and making investments therefore the act of acquisition of shares rights in shares by the assessee company was duly reflected in the books of accounts. He thus submitted that when the AO had accepted the transaction involving purchase of shares rights in shares from M/s APL, then the AO could not question the genuineness of the amount outstanding against the ledger of the creditor i.e. M/s APL. The Ld. AR submitted that transaction of credit purchase resulting in a payable could not be equated with a credit entry of a financial transaction involving receipt of money so as to invoke the rigors of Section 68 of the Act. It this regards the Ld. AR drew our attention to the decision of the Special Bench of this Tribunal in the case of Manoj Agarwal Vs DCIT r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of the evasive conduct of the assessee during assessment proceeding. The Ld. DR brought to our attention that the AO had issued several summons / notices and allowed sufficient opportunity of hearing to the assessee, however the assessee neither complied with the requisitions nor explained the transactions in question, resulting in the impugned addition u/s 68 of the Act, the AO made the addition u/s. 68 of the Act. According to the Ld. CIT DR the averments of the assessee that during the assessment year under consideration (A.Y. 2013-14) the assessee had received shares worth of ₹ 3644.56 crores from M/s. APL on credit and that this amount was shown outstanding current liability to M/s. APL was not fully discernible from the audited financial statements as the name of M/s APL has not been specifically mentioned in Note No.5 of the annual accounts. He further drew our attention to the AO s order wherein he had take note of the fact that in Note 5 - Other Payables it was mentioned as mainly relating to purchase of investments but there was no whisper in respect to any liability of ₹ 218 crores payable in relation to acquisition of rights in share application monie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts from its holding company, M/s APL for an aggregate consideration of ₹ 3862.36 lacs. It is noted that consideration towards these shares so acquired remained outstanding as on 31.03.2013. From the details of Other Payables Note No. 5 of the annual accounts for the year ended 31.03.2013, we note that the amount of ₹ 3862.36 crores inter alia comprised of the sum of ₹ 3644.36 crores ₹ 218 crores payable by the assessee to M/s APL in respect of shares and right in share application monies respectively. We further note that the aforesaid liability which arose as a consequence of acquisition of investments, was subsequently met by way of issue of Debentures in subsequent year and thereafter no liability remained subsisting. Prima facie therefore it is apparent that there was no payment of any sum in cash or cheque involved in the entire sequence of transactions. In fact in the relevant year only book entry was passed in the Balance Sheet whereby the assessee recorded the value of investments acquired on credit in the Asset side and the corresponding payable was reflected in the Liability Side under the head Other Payables . It is therefore noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal had held as under: The argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on credit from the holding company M/s. APL, is shown as the sundry debtor in the books of the holding company M/s. APL and correspondingly M/s. APL is the sundry creditor in the books of the assessee company, which is yet to receive the sale consideration. It is therefore noted that the sum of ₹ 3862.36 crores represented the liability to pay the holding company M/s. APL towards the purchase consideration of the shares which it has parted with to the assessee company. Applying the observations made by the Special Bench of this Tribunal (supra) in the context of Section 68 and the meaning assigned to the term any sum by the Hon ble Supreme Court (supra); we find substantial merit in the claim of the appellant that the provisions of Section 68 was wrongly invoked in the present case in respect of the outstanding liability payable by the assessee to its holding company, M/s APL towards the investments acquired during the relevant year. 14. In this regard, we also rely on the judgment of the Hon ble Calcutta High Court in the case of Jatia Investment Co. Vs CIT (supra) which is squarely applicable to the facts of the case. In the decided case the Court held: We have pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject 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. 15. We also rely on the judgment of the Hon ble Madras High Court in the case of V R Global Energy Pvt Ltd. Vs ITO (supra) which is squarely applicable in the present case. In the decided case there was an outstanding due of ₹ 60.67 crores payable to one Mrs. VR by the assessee company. Instead of paying cash, the assessee company allotted its shares to Mrs. VR in satisfaction of the outstanding dues. The AO assessed the increase in share capital by way of unexplained cash credit u/s 68 of the Act. On appeal the Hon ble High Court observed that there was no actual involvement of money but the allotment of shares in lieu of outstanding dues was only a book adjustment and therefore held that provisions of Section 68 could not be invoked in the given facts of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case. The appeal is accordingly dismissed. 17. We also rely on the decision of the Hon'ble Allahabad High Court in the case of CIT -vs.- Pancham Das Jain (205 CTR 444) wherein it was held as under: 6. We have heard Sri Shambhoo Chopra, learned standing counsel for the revenue. 7. He submitted that as the respondent-assessee was unable to produce the alleged creditors the provisions of section 68 of the Act was squarely attracted in the present case and the assessing authority has rightly added the two amounts at the hands of the respondent-assessee. According to him section 68 of the Act also covers up the case of purchases made on credit. 8. The submission is misconceived. The Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two accounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he construction of the road. The amounts in question represented purchases made on credits. The provisions of Section 68 of the Act are clearly not attracted to amount representing purchases made on credits, as is also held in 'CIT Vs. PanchamDass Jain', 205 CTR 444 (All). The assessee raised this issue by Way of written submissions (APB 37 to 160, relevant portion at para-5, on page 43) dated 10.05.2014 filed before the CIT(A). The ld. CIT(A) has, however, not addressed this grievant at all and merely upheld the addition made under section 68 of the Act On behalf of the assessee, a comparative chart of net profit rate of the assessee for the assessment years 2005-06 to 2011-2012 has been filed before us. In the earlier years also, no such addition was made. For the assessment Year 2007-08, under scrutiny assessment, the assessment was made at 8%. The position remained much the same for the assessment year 2008-09. The year under consideration is assessment year 2009-10. The material supplied to the assessee by the concerned department is part of the assessee's turnover. The net profit rate of the assessee for the year under consideration u)as in line with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse 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 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. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ma Verma (supra), Hon ble jurisdictional High court in the case of M/s. Jatia Investment Co. (supra) and the Hon ble Madras High Court in the case of V R Global Energy Pvt Ltd (supra) is squarely applicable to the facts and circumstances of this case. We note that the AO erred in understanding the nuances of the Notes forming part of the audited accounts and proceeded on an altogether wrong footing holding that the outstanding sum reflected to be payable to M/s APL in relation to the investments purchased from was required to satisfy the rigors of Section 68 of the Act. In our considered view therefore the impugned addition made u/s 68 was wholly untenable on the given facts and in law. We however are of the view that the aforesaid error had crept into the order of the AO since there was no proper compliance at the assessment stage, since the assessee had objected to the very jurisdiction of ITO- Ward 51(4) who had issued the statutory notices. Though the Ld CIT (A) has called for a remand report, and the AO had furnished his report, however the AO remained silent on the issue of receipt of actual money/ sum in his report. Therefore, in all fairness and fitness of the matter, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
