TMI Blog2019 (5) TMI 1855X X X X Extracts X X X X X X X X Extracts X X X X ..... res. From journal entry, one can conclude that effect of this journal entry would be that investments in shares will be debited and the share capital and premium will be credited. The result of this journal entry clearly shows that there is no cash credit in the books of accounts i.e. there is no any sum crediting in the year under consideration and it is kind of a barter transaction, where one thing is being exchanged with other thing, hence the provisions of section 68 do not apply. A.O. has mechanically proceeded to make the addition without even appreciating whether it was a fit case for application of section 68. Moreover, the shares in the said 4 companies taken in the books of the assessee in exchange for share allotted to Gajvani Merchandize Pvt. Ltd. do provide the nature and source of the amounts of share capital allotted to Gajvani Merchandise Pvt. Ltd. In the present case, the additions have been made at the ends of the Gajvani Merchandise Pvt. Ltd. and 4 other private companies in respect of the shares raised in the said 5 companies. If addition is required to be made that can be only in the hands of the said 5 companies as have been done u/s 68 in the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of the Act on 25.12.2012, declaring total loss to the tune of ₹ 16,772/-. The assessee company was incorporated on 09.09.2011. During the year under consideration, as total of ₹ 2,17,00,000/- (₹ 1,43,200 + ₹ 2,15,56,800) was credited in the books of accounts of the assessee company, consisting share capital at ₹ 1,43,200/- and share premium at ₹ 2,15,56,800/-. The assessee was asked to produce all the directors of companies or persons from whom amount had been received during the financial year 2011-12. However, the assessee failed to produce anyone on the stipulated date and time before the assessing officer, however, the assessee furnished a reply to the show cause notice on 20.03.2015. The assessee company has claimed to have received ₹ 1,43,200/- as share capital and ₹ 2,15,56,800/- as share premium during the financial year 2011-12 in lieu of which, shares have been allotted to the applicants. The assessee was required to furnish justifications for assigning the share premium value. In response, the assessee stated that there is no bar on share premium value,as per the instructions of Institute of Chartered Accountants or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en transacted. Ld. CIT(A) in his order (in page no. 6 para 1.11) observed that: The A.O. has glossed over the fact that the assessee company did not receive any money by way of share capital from Gajvani Merchandise Pvt. Ltd. or others. The A.O. has made the addition u/s 68 of the I.T. Act, which applies only when any sum of money or cash is credited in the books of accounts and there is no satisfactory explanation from the assessee against the said credit about thenature and source. The A.O. has mechanically proceeded to make the addition without even appreciating, whether it was a fit case for application of section 68. Moreover, the shares in the said 4 companies takenin the books of the assesseein exchange for share allotted to Gajvani Merchandize Pvt. Ltd. do provide thenature and source of the amounts of share capital allotted to Gajvani Merchandise Pvt. Ltd. In the present case, the additions have been made atthe ends of the Gajvani Merchandise Pvt. Ltd. and 4 other private companies in respect of the shares raised in the said 5 companies. I differ with the observation of the Ld. CIT(A) on the issue of making addition u/s 68 in this case relying on the observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to Gajvani Merchandise Pvt. Ltd. were allotted in exchange of shares of 4 (four) private companies being (i) M/s Aqua Vinimay P Ltd.,(ii) M/s Citron Commosale P Ltd.,(iii) M/s Ebony Deal trade P Ltd, (iv) M/s Positive Merchants P Ltd.(vide pb-33). A copy of share purchase agreement is produced by the assesseewhich demonstrates that Gajvani Merchandise Pvt. Ltd. sold or handed over its shares in the said four private companies and in return for the said shares so acquired, the assessee allotted 4320 shares having face value of ₹ 10/- at a premium of ₹ 4,990/- per share. The assessee produced copies of financial statements of the said 4 private companies. As far as the addition in the hands of the assessee company is concerned one has to go by law as laid down in section 68 of the I. T. Act, the substance or the real impact of the transactions has to be kept in consideration to decide whether any addition of the share capital has to be made or not. We note that addition made by the AO in respect of the share capital allotted to Gajvani Merchandize Pvt. Ltd. by the assesseeis mechanically made by AO without considering the provisions of section 68. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 12.The undisputed fact, in the assessee`s case 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 Coordinate Bench of Kolkata 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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