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Blooming Tradelink (P) Ltd., , Kolkata v. ITO, Ward - 10(1) , Kolkata

Income Tax Appellate Tribunal

Feb 28, 2020

Judgment

Subsequent
References

CaseIQ

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Concise Analytical Summary of the Opinion: ITA No. 2691/Kol/2018 (Blooming Tradelink Pvt. Ltd., AY 2012-13)

Factual and Procedural Background

This appeal was preferred by the assessee M/s. Blooming Tradelink Pvt. Ltd. against the order of the Learned Commissioner of Income Tax (Appeals)-15, Kolkata dated 11.12.2018 for Assessment Year 2012-13. The Assessing Officer (AO) made an addition of Rs. 5,01,00,000 under section 68 of the Income-tax Act, 1961 treating share capital (including share premium) raised by the assessee as unexplained cash credit. The Ld. CIT(A) confirmed this addition. The assessee appealed to the Tribunal (ITAT), contending that no cash was received because the allotment of shares was in exchange for shares (a swap) and therefore section 68 could not be invoked. The Tribunal heard rival submissions and pronounced its order on 28th February, 2020.

Legal Issues Presented

Whether an addition under section 68 of the Income-tax Act can be sustained where share capital (including share premium) was allotted as consideration other than by cash—specifically, where shares were allotted in exchange for the assessee's own shares (a swap)?

Arguments of the Parties

Appellant's (Assessee's) Arguments

No sum of money was collected from the share subscriptions; the allotments were made in exchange for the assessee's shares (share swap), i.e., consideration other than cash.
Because no cash was received, the addition under section 68 (which addresses unexplained cash credits) could not be made.
The assessee relied on several judicial precedents in support of the proposition that section 68 is not attracted where shares are issued for non-cash consideration.
The companies which applied for allotment had filed replies under section 133(6) and the Assessing Officer, after remand, had not disputed the identity, creditworthiness and genuineness of the share subscribers and transactions (as argued before the Tribunal).

Respondent's (Revenue's) Arguments / AO's Position

The AO treated the amount of Rs. 5,01,00,000 as unexplained cash credit and added it under section 68.
The departmental representative (Ld. D/R) submitted before the Tribunal that the premium was not justified and that the Ld. CIT(A) was wrong in holding that identity, creditworthiness and genuineness had been proved; he relied on the AO's order.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jatia Investment Co. v. Commissioner of Income-tax, [1994] 206 ITR 718 (Cal.)	The opinion contains a summary of the decision: where alleged advances or entries were only notional/book entries and there was no actual passing/receipt of cash, the court found that the source of funds was not explained and amounts could be assessed as income from undisclosed sources under the principles applicable to section 68.	The Court recorded and summarized this precedent in the opinion. The Jatia decision is set out in the opinion as part of the judicial material considered when distinguishing facts involving book entries and actual cash receipts.
V. R. Global Energy Pvt. Ltd. v. Income-tax Officer, Corporate Ward 3(4), Chennai [2018] 96 taxmann.com 647 (Madras)	The opinion notes this decision holds that where cash credits towards share capital were only by way of book adjustments and no actual cash was received, the judgment favored the assessee (i.e., section 68 was not attracted where there were only book entries and no real receipt).	The Tribunal relied on the proposition in this decision that book adjustments without actual cash receipts may not attract section 68, and treated the decision as supportive of the assessee's position in appropriate factual situations.
ITO v. M/s. Sunglow Dealcom Pvt. Ltd., ITA No. 2178/Kol/2016 (Kolkata Bench), order dated 16.11.2018	The opinion reproduces and relies on the Tribunal's reasoning in that case: where shares were allotted for consideration other than cash (swap), section 68 was held not applicable and the addition under section 68 was deleted.	The present Tribunal treated the Sunglow decision as directly on point and followed its reasoning—i.e., that a share-for-share transaction (no cash consideration) does not attract section 68 and thus an addition under that section is not warranted.
ITO v. M/s. Anand Enterprises Ltd., ITA No. 1614/Kol/2016 & C.O. No.56/Kol/2016; dt. 26/09/2018 (Kolkata Bench)	The opinion records that in identical circumstances the Tribunal held (inter alia) that where shares were acquired by issuing shares as consideration and the balance sheet noted that fresh capital was raised for consideration other than cash, section 68 did not apply.	The Tribunal explicitly referenced and respectfully followed Anand Enterprises as an identical precedent to conclude that section 68 was not applicable to the facts of the instant case.
ITO v. M/s. Saffron Comtrade Pvt. Ltd. (ITAT, Kolkata Bench), order dated 28.08.2019	This specific opinion does not state the rule or principle from this precedent in detail.	The opinion lists this case among authorities relied upon by the assessee; no detailed account of how the Tribunal applied its reasoning to the present facts is provided in the text.
ITO v. M/s. Pansu Commercial Pvt. Ltd. (ITAT, Kolkata Bench), order dated 08.05.2019	This specific opinion does not state the rule or principle from this precedent in detail.	The opinion lists this case among authorities relied upon by the assessee; the provided text does not set out how this precedent was applied to the instant case.
Electro Polychem Ltd. and Steller Investment Ltd. (cases cited within V.R. Global)	The present opinion mentions these cases within the discussion of the V. R. Global decision, but does not set out the rules or principles from these cases in this text.	Mentioned as part of the judicial context within V. R. Global; no independent application to the present facts is detailed in the provided opinion.
CIT v. Lovely Export (P.) Ltd. [2008] 216 CTR 195 (SC)	The opinion records that V. R. Global distinguished the Lovely Export decision; the present text does not reproduce the principle from Lovely Export itself.	Cited in the discussion within V. R. Global as a contrasting authority; the provided opinion does not apply Lovely Export directly to the present facts.
CIT v. Focus Exports (P.) Ltd.; CIT v. Globus Securities & Finance Pvt. Ltd.; Onassis Axles (P) Ltd. v. CIT; Olwin Tiles (India) (P.) Ltd. v. DCIT; B.R. Petrochem (P.) Ltd. v. ITO; Rajmandir Estates (P.) Ltd. v. Pr. CIT	These authorities are mentioned in the opinion (through the V. R. Global discussion). The present opinion does not set out their individual rules/principles in full.	Referenced as part of the judicial material within V. R. Global; the opinion does not provide an independent exposition of how each was applied to the facts here.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in a stepwise manner as follows, drawing only on the material contained in the opinion:

The Tribunal heard rival submissions and examined the facts as recorded by the AO and Ld. CIT(A).
It observed that the central factual point was undisputed: the allotment of shares had been made for consideration other than cash (i.e., the assessee had acquired certain companies' shares and paid consideration by issuing its own shares at a premium — a swap).
The Tribunal noted that the issue is no longer res integra (i.e., there exist precedents dealing with similar factual scenarios) and specifically recalled that earlier Tribunal decisions have held that section 68 is not attracted in cases of share-for-share transfers.
It examined the contentions of the departmental representative (that the premium was unjustified and that identity/creditworthiness/genuineness were not proved) and the assessee's replies (that the share applicants had replied to notices under section 133(6) and that the AO, on remand, had not disputed identity, creditworthiness or genuineness).
The Tribunal then considered and followed prior Tribunal and High Court authorities (including the Kolkata Bench decisions in Sunglow and Anand Enterprises, and the Madras High Court decision in V. R. Global) which, on comparable facts, held that section 68 does not apply when shares are allotted for consideration other than cash or where subscriptions are only book adjustments without actual cash receipts.
Applying the propositions of law from those precedents to the facts before it, the Tribunal concluded that the AO had erroneously invoked section 68 in the instant case because the facts disclosed a share swap (no cash consideration) and the balance sheet expressly noted that fresh share capital was raised for consideration other than cash (as reflected in the precedents followed).
Consequently, the Tribunal found the addition under section 68 to be unsustainable and ordered deletion of the entire addition of Rs. 5,01,00,000 as confirmed earlier by the Ld. CIT(A).

Holding and Implications

Holding: The Tribunal's final decision is: APPEAL ALLOWED. The Tribunal deleted the addition of Rs. 5,01,00,000 made under section 68 of the Income-tax Act and allowed the assessee's appeal.

Implications:

Direct effect: The addition of Rs. 5,01,00,000 under section 68 (share capital including premium) is deleted and the assessee's appeal is allowed. The order was pronounced on 28th February, 2020.
Broader implications: The Tribunal relied on and followed existing precedents for the proposition that where shares are allotted as consideration other than cash (share swap) or where share subscription entries are only book adjustments without actual cash receipts, section 68 is not attracted. The opinion does not purport to lay down a new principle of law; it applies existing authorities to the facts of this case. (The opinion does not discuss or claim to establish any new binding precedent beyond the application of the cited authorities.)

Administrative / Miscellaneous Details from the Order

Assessee: M/s. Blooming Tradelink Pvt. Ltd., represented by Subash Agarwal & Associates (address in the order recorded as Kolkata-700069).
Respondent: ITO, Ward-10(1), Kolkata.
Order pronounced in open court on 28th February, 2020. Bench signatures: (Dr. A. L. Saini) Accountant Member and (A. T. Varkey) Judicial Member.

Source: Summary prepared strictly from the provided opinion text. No information beyond what was explicitly contained in the opinion has been added.

Show all summary ...

Per Shri A.T.Varkey, JM: This is an appeal preferred by the assessee against the order of Ld. CIT(A)-15, Kolkata dated 11.12.2018 for AY 2012-13.

2. The sole issue involved in this appeal of assessee is against the action of Ld. CIT(A) in confirming the addition of Rs.5,01,00,000/- made by AO u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the Act) on account of bogus share capital including share premium.

3. Briefly stated facts as observed by the AO are that in the year under consideration, the assessee has raised share capital including share premium to the tune of Rs.5,01,00,000/-. The AO added back the entire amount of share capital including premium raised treating the same as unexplained cash credit u/s. 68 of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee is before us.

4. We have heard rival submissions and gone through the facts and circumstances of the case. The addition u/s. 68 of the Act was resorted by the AO and confirmed by the Ld. CIT(A) on the share capital and premium of Rs.5,01,00,000/-. However, according to the assessee, no sum of money has been collected for transfer of shares, whereas shares have been received by the assessee in lieu of exchange of its shares, therefore, no

I.T.A. No. 2691/Kol/2018 Blooming Tradelink Pvt. Ltd., Assessment Year: 2012-13 addition u/s. 68 of the Act can be made. In support of its submission, the Ld. AR relied on the following case laws:

i) Jatia Investment Co. Vs. CIT 206 ITR 718(Cal); ii) V. R. Global Energy Pvt. Ltd. Vs. ITO, 407 ITR 145 (Mad); iii) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Saffron Comtrade Pvt. Ltd. dated 28.08.2019; iv) ITAT, Kolkata bench in the case of ITO Vs. M/s. Pansu Commercial Pvt. Ltd. dated 08.05.2019 and

v) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd. dated 16.11.2018.

5. We note that this issue is no longer res integra. We also find that there is no cash transferred for the shares by the assessee. We note that the assessee had swapped shares in lieu of shares. We note that this Tribunal has already held that section 68 of the Act is not attracted in such transfer and the Tribunal in the case of ITA No. 2178/Kol/2016, ITO Vs. M/s. Sunglow Dealcom private Limited for AY 2012-13 order dated 16.11.2018 has held as under:

3. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:-

4. The undisputed fact in this case is that the allotment of shares were for consideration other than by way of cash. The four companies which applied for allotment of shares, have sold their investment to the 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. 4.1. The ld. D/R, submits that the premium is not justified and that the ld. CIT(A) was wrong in holding that the assessee has proved the identity, creditworthiness and genuineness of the transaction. He relied on the order of the Assessing Officer. In reply the ld. Counsel for the assessee, submits that each of the above companies have filed replies before the Assessing Officer to the notice issued u/s 133(6) of the Act. He further pointed out that the ld. CIT(A) called for a remand report the Assessing Officer had not disputed the identity, creditworthiness of the share subscribers as well as the genuineness of the transactions. He relied on the order of the ld. CIT(A). 4.2. The undisputed fact 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 Kolkata C Bench of the Tribunal 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:-

I.T.A. No. 2691/Kol/2018 Blooming Tradelink Pvt. Ltd., Assessment Year: 2012-13 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 companies from certain shareholders without paying any cash consideration and instead the consideration was settled through issuance of shares to the respective parties. Moreover, in the balance sheet of the assessee company in the schedule to share capital, it is very clearly mentioned by way of note that the fresh share capital was raised during the year for consideration other than cash. Hence we hold that provision of section 68 of the Act are not applicable in the instant case and accordingly the entire addition deserves to be deleted which has rightly been done by the Id. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed. 4.2. The Honble Jurisdictional High Court in the case of Jatia Investment Co .v. Commissioner of Income-tax [1994] 206 ITR 718 (CAL.) held as follows:- Section 68 of the Income-tax Act, 1961 Cash credits Assessment year 1976- 77 Partners of assessee-firm were members of one J group running several businesses and industries Accounts of assessee-firm showed that it had borrowed certain amount from GB, a proprietary concern of one of its partners JM, which was invested in purchase of shares ITO found that GB had no cash balance to advance said amount to assessee He, thus, concluded that source of funds for purchase of shares by assessee was not explained, and consequently, assessed that amount as income from undisclosed sources It was contended by assessee that notional cash entries were made to reduce indebtedness of three companies of J Group to GB in order to comply with certain directions of RBI Assessee-firm substituted three companies of J Group as debtor to GB It was further stated that question of cash credit did not arise, there being no actual passing or receipt of cash but transactions were mere book entries Whether, in aforesaid circumstances, effect and import of transaction was that assessee took over liability of aforesaid three companies to GB in exchange for shares and, therefore, amount of loan in question could not be treated as assessees income from undisclosed sources Held, yes 4.3. Recently, the Honble Madras High Court in the case of V. R. Global Energy (P.) Ltd.

v. Income-tax Officer, Corporate Ward 3(4), Chennai [2018] 96 taxmann.com 647 (Madras) while dealing with a case where cash credit towards share capital were admittedly, only by way of book adjustments and no actual cash was received towards share subscription money held as follows:-

25. However, the second question is answered in favour of the assessee and against the Revenue by the judgment of the Division Bench of this Court in Electro Polychem Ltd., (supra) and Steller Investment Ltd., (supra).

26. This case is distinguishable from the case of CIT v. Lovely Export (P.) Ltd. [2008] 216 CTR 195 (SC) in that the transactions were only book transactions, and there was no cash receipt. The decisions in (i) CIT v. Focus Exports (P.) Ltd. [2014] 51 taxmann.com 46/228 Taxman 88 (Delhi) (Mag.); (ii) CIT v. Globus Securities & Finance Pvt. Ltd. [2014] 41 taxmann.com 465/224 Taxman 237 (Delhi); (iii) Onassis Axles (P) Limited v. Commissioner Of Income Tax . [2014] 364 ITR 53/224 Taxman 80 (Mag.)/44 taxmann.com 408 (Delhi); (iv) Olwin Tiles (India) (P.) Ltd. v. Deputy Commissioner Of Income-Tax [2016] 382 ITR 291/237 Taxman 342/66 taxmann.com 8 (Guj.); (v) B.R. Petrochem (P.) Ltd. v. ITO [2017] 81 taxmann.com 424 (Mad.); and (vi) Rajmandir Estates (P.) Ltd. v. Pr. CIT [2016] 386 ITR 162/240 Taxman 306/70 taxmann.com 124 (Cal.), cited on behalf of the respondent are distinguishable, in that the cash credits towards share capital were admittedly only by way of book

I.T.A. No. 2691/Kol/2018 Blooming Tradelink Pvt. Ltd., Assessment Year: 2012-13 adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money.

5. Applying the propositions of law laid down in the above cases to the facts of this case, we uphold the order of the ld. First Appellate Authority and dismiss this appeal of the revenue.

6. In the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the 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 companies from certain shareholders without paying any cash consideration and instead, the consideration was settled through issuance of shares to the respective parties. Hence we hold that provisions of section 68 of the Act are not applicable in the instant case and accordingly, the entire addition deserves to be deleted and we delete the addition as confirmed by the Ld. CIT(A) and allow the appeal of the assessee.

7. In the result, appeal of assessee is allowed. Order is pronounced in the open court on 28th February, 2020. Sd/- Sd/- (Dr. A. L. Saini) (A. T. Varkey) Accountant Member Judicial Member Dated: 28th February, 2020 Jd. Sr. PS Copy of the order forwarded to:

1. Appellant M/s. Blooming Tradelink Pvt. Ltd., C/o, Subash Agarwal & Associates, Advocates, Siddha Gibson, 1, Gibson Lane, Suite 213, 2nd floor, Kolkata-700 069.

2. Respondent ITO, Ward-10(1), Kolkata.

3. CIT(A)-15, Kolkata. (sent through e-mail)

4. CIT, Kolkata.