When no cash involved in transaction, Section 68 treating it unexplained cash credit not attracted
When there was no cash involved in the transaction of allotment of shares, the provisions of Section 68 of the Act treating it as unexplained cash credit are not attracted – ITAT
In a recent judgment, ITAT has held that when there was no cash involved in the transaction of allotment of shares, the provisions of Section 68 of the Act treating it as unexplained cash credit are not attracted.
ABCAUS Case Law Citation:
ABCAUS 3936 (2024) (04) ITAT
Important Case Laws relied upon:
M/s V. R. Global Energy Pvt. Ltd.
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition of unexplained cash credit u/s 68 as made by the Assessing Officer (AO) while framing an assessment u/s 143(3) of the Income Tax Act, 1961 (the Act).
During the course of assessment proceedings, it transpired that the assessee’s capital increased substantially. The assessee explained that there was no increase in capital. For obtaining the loan from bank, the figures were reinstated and the capital account was increased correspondingly.
The AO, after comparing the Balance Sheet with the preceding financial year concurred that the assessee revalued the building without there being any new investment in the building. However, with respect to increase in value of the remaining asset, the assessee could not explain the same.
Therefore, the remaining increase in capital was added to the income of the assessee as unexplained cash credit u/s 68 of the Act.
The Tribunal observed that the assessee has reinstated its assets and liabilities and the differential in the same has been credited in the capital account. There was no finding that there is new introduction of capital through banking channels. The AO had accepted the fact that the building was revalued and the increase in the same was credited to capital account. The Tribunal further observed that the sales turnover as reflected by the assessee duly matched with the Service Tax returns and there was no suppression of sales, in any manner. The only reason to make the addition was the fact that the assessee could not explain the increase in value of the remaining assets. However, it was noted that there was also increase in the value of liabilities with corresponding increase in the value of assets.
The Tribunal opined that in the absence of any finding that there is actual introduction of new capital through cash or banking channels, no addition could have been made u/s 68 since it is the primary requirement that there should be cash credit in the books of accounts, The same was missing in the present case.
The Tribunal opined that the impugned addition as made by AO invoking the provisions of Sec.68 was not sustainable in law. The judgment of Hon’ble High Court duly supports the case of the assessee. The Hon’ble High Court has held that when there was no cash involved in the transaction of allotment of shares, the provisions of Section 68 of the Act treating it as unexplained cash credit are not attracted.
Accordingly, the Tribunal delete the impugned addition and allowed the appeal of the assessee.
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