Capital received in earlier year can not be taxed as unexplained cash credit in later Year

Amount of share capital received in earlier year can not be taxed as unexplained cash credit in subsequent Year – ITAT

In a recent judgment, ITAT Kolkata deleted the addition made as unexplained cash credit u/s 68 for share capital received in earlier year on the pretext that it was transferred to share capital account during relevant Assessment Year

ABCAUS Case Law Citation:
4464 (2025) (03) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made by the Assessing Officer (AO) on account of share capital/ share premium being unexplained cash credit u/s 68 of the Income Tax Act, 1961 (the Act).

The appellant assessee was a Private Limited company. During the relevant Assessment Year, the company had issued share capital @ Rs. 100 per share at a premium of Rs. 900 per share. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). In response to statutory notices, the assessee complied with by filing the copies of ITR, audited accounts, bank statements, copies of the replies filed by the investors u/s 133(6) of the Act.

The AO also issued summons u/s 131 of the Act directing the assessee company for producing the directors of the share capital subscribers companies for cross examination. However, the assessee was not able to produce them.

Thereafter, the AO reached a conclusion that the assessee failed to offer any explanation on the share capital/ share premium including the source and nature of cash credits and therefore, treated the entire amount of share capital same as unexplained cash credit u/s 68 of the Act and consequently made addition to the income of the assessee in the assessment framed u/s 143(3) of the Act.

Aggrieved assessee filed an appeal before the CIT (A) who dismissed the appeal after taking into consideration the contentions/submissions of the assessee. The CIT (A) noted that out of total share capital/ share premium issued during the relevant Assessment Year, though the amount was received in earlier year, the amount moved to share capital account only during the relevant Assessment Year.

The Tribunal observed that undisputedly, the assessee had issued share capital/ share premium during the relevant Assessment Year, however majority of the amount was received in the earlier assessment years.

The Tribunal held that the order passed by the CIT (A) was completely in violation of the ratio laid by Hon’ble Calcutta High Court wherein the Hon’ble Jurisdictional High Court held that when the money is not received during the year the provisions of Section 68 of the Act cannot be invoked.

For the remaining part of the share capital which was received during the year, the Tribunal observed that the ITR, audited accounts, bank statements of subscriber company were available before the AO as well as before the Commissioner of Income-tax (Appeals). Share application form, copy of reply to notice u/s 133(6) of the Act along with source of funds were available before the lower authorities. The assessee had filed evidences before Bench too.

The Tribunal opined that when the assessee had furnished all the evidences before the lower authorities below and therefore addition was merely made on the basis that summons issued u/s 131 of the Act were not complied with by the directors of the assessee company by not producing the directors of the subscribers’ companies which was incorrect and cannot be sustained.

Accordingly, the Tribunal set aside the order of the CIT (A) and directed the AO to delete the addition.

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