Deeming provision u/s 68 not apply if no sum received in money i.e. cash or cheque- SC dismissed SLP

Deeming provision of section 68 not apply if no sum is received in terms of any money, i.e., in cash or cheque. credit worthiness not required to be examined in such case

In the given case, the Income Tax Department had challenged the judgment of the Hon’ble High Court whereby it set aside the of revisionary order passed by the Principal Commissioner of Income Tax  (PCIT) in his revisionary jurisdiction u/s 263 of the Income Tax Act, 1961 (the Act) holding that if the  assessee  has not received any sum in terms of any money, i.e., in cash or cheque, then deeming provision of section 68 do not apply.

ABACUS Case Law Citation
ABCAUS 3356 (2020) (08) SC ABCAUS Premium case law

supreme court

The case of assessee was selected for scrutiny through CASS for reasons of “Large Share Premium Received”.

However, form the Balance Sheet for the relevant Assessment Year, no such introduction of Share Capital, Share Premium (Reserve & Surplus), unsecured Loans, Investments were found but in the preceding Assessment Year (Assessment Year in question).

Accordingly, a notice u/s 148 was issued mainly to examine the source of introduction of share capital and share premium in the Assessment Year in question.

In the course of the assessment proceedings u/s. 147/143(3), the Assessing Officer raised various queries and issued notice to the assessee to examine the genuineness of introduction of share capital received by the assessee company from various entities.

After examination the Assessing Officer accepted the introduction of share capital and share premium vide his order passed u/s 147/143(3) of the Act.

The Assessing Officer after framing the assessment, sent a proposal to the Principal CIT to take action u/s 263 of the Act, stating that, firstly, there was non-cooperative attitude of the assessee; secondly, the details were provided at the fag-end of the proceedings; thirdly, thorough investigation could not be made.

Accordingly, Pr. CIT issued a show cause notice u/s 263 of the Act and later held that the order framed by the Assessing Officer u/s. 147/143(3) was not only erroneous in law but also prejudicial to the interest of Revenue. Accordingly, he set aside the assessment with the direction to re-frame the assessment de novo.

Aggrieved by the order of the PCIT, the assessee approached the Tribunal and explained that the assessee company had allotted its equity shares not in consideration for any money, albeit the assessee had received investments held by allottee companies as reflected in their balance sheets.

The ITAT noted that one important fact which decided the entire issue and separated the case of the assessee from other cases of share capital and share premium was that, it was not the case where the assessee had received any money in form of cash or cheque in  lieu of  share application or share premium;  rather the assessee had received investments in form of equity shares held by  these companies in their  balance sheet for a long time and duly disclosed in their income tax  particulars.

According to the Tribunal it was in a sense an exchange.

Further the Tribunal interpreted Section 68 of the Act in the light of the above facts and observed that when assessee in lieu of allotment of   shares including face value of shares as well as premium amount, had received investments in the form of equity shares of various companies,  then whether these companies had availability of cash or not may not    be very relevant factor.

The Tribunal opined that the creditworthiness which is required to be examined u/s 68 can be with regard to the transaction in form of any money either in cash or cheque. To invoke the deeming provisions of section 68, it is axiomatic that the credit appearing in the books of account maintained by the assessee should be with reference to any sum received by the assessee. If the assessee had not received any sum in terms of any money, i.e., in cash or cheque, then deeming provision of section 68 will not apply.

Accordingly, the ITAT came to the conclusion that the invocation of Section 263 of the Act was not warranted. Therefore, the Tribunal quashed the revisionary order and restored the assessment order.

Aggrieved by the order of the ITAT, the Revenue had challenged it before the Hon’ble High Court

The Hon’ble High Court had held that the interpretation placed by the ITAT on Section 68 of the Act, its reasoning and conclusions were consistent with the legal position and could not be said to be suffering from any legal infirmity.

Accordingly, the High Court dismissed the appeal of the Revenue holding that no substantial question of law arose.

Still not satisfied, the Revenue had challenged the order of the Hon’ble High Court before the Hon’ble Supreme Court by filing the special leave petition (SLP) which has been dismissed.

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