IN INCOME TAX APPELLATE TRIBUNAL B , BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM ITA No.2029/Kol/2016 (Assessment Year:2012-13) ITO, Ward-10(2), Kolkata Vs. M/s Saffron Comtrade Pvt. Ltd. P-74, Ram Swaroop Kettri Road, New Alipore, Kolktata-700069 PAN/GIR No.AAMCS 5334 (Assessee) (Revenue) Assessee by Shri Robin Choudhury, Addl. CIT Sr. DR Respondent by Shri Rajeeva Kumar, AR Date of Hearing 17/06/2019 Date of Pronouncement 28/08/2019 ORDER Per Dr. A. L. Saini captioned appeal filed by Revenue, pertaining to assessment year 2012-13, is directed against order passed by Commissioner of Income Tax (Appeal)-4, Kolkata, which in turn arises out of assessment order passed by Assessing Officer u/s 143(3) of Income Tax Act, 1961 (in short Act) dated 23/03/2015. 2. Grounds of appeal raised by Revenue are as follows: 1. Whether ld. CIT(A) was correct in deleting addition made u/s 68 of Act by following decision of Hon ble Apex Court in case of CIT vs Lovely Exports P Ltd. and ignoring decision of Hon ble Delhi High Court in case of CIT vs. Nova Promoters & Finlease P ltd. (2012) 18 Taxmann.com 217 (Del) despite fact that facts of case were similar to facts case decided by Hon ble Delhi High Court? M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 2. Whether ld. CIT(A) was correct in rejecting findings of A.O. that assessee company has purposefully failed to discharge its onus of proving genuineness of transactions and identity and creditworthiness of subscribers and in not looking into circumstances as to whether shares of company really command astronomically high premium and in relying upon submission of assessee-company despite fact that onus of proving genuineness of share application money was lying on assessee company which remained un-discharge and which was essential condition set by Apex Court and also by Hon ble High Court in case of CIT vs. Roseberry Mercantile P Ltd. ? 3. Whether ld. CIT(A) was correct in not looking into surrounding circumstances which warrant that assessee company could not have been able to raise share capital with unusually high premium with despite fact that book value of such shares was negligible? 4. That appellant craves to add, delete or modify any of grounds of appeal before or at time of hearing. 3. At outset itself, ld Counsel for assessee submitted before us that section 68 of Act is not applicable on facts of assessee`s case, since no money transaction took place between assessee and share subscribing companies. It is simple case of shares being allotted in lieu of shares held by share subscribers. That is, it is just swapping of shares, i.e. shares are exchanged from another shares, therefore, section 68 does not attract in assessee s case under consideration. 4. Brief facts qua issue are that during year under consideration, company decided to raise its capital by issue of 15325 equity shares by issue of shares of Rs.10/- each at premium price of Rs. 1990/- each. share subscribing company, namely, M/s Jyotika Commercial Pvt. Ltd, who agreed to subscribe 15325 shares of Rs. 10/- each at premium of Rs. 1990/- each. As per terms of agreement assessee company agreed to allot 15325 shares of Rs. 10/- with premium of Rs.1990/- each to Jyotika commercial Pvt. Ltd. against handing over its investments in other companies as detailed below: - Name of Company Number of Shares Total value Leo Distributors Pvt. Ltd. 3000 Rs. 60,00,000/- Mayank Vintrade Pvt. Ltd. 7175 Rs. 1,43,50,000/- Tanishk Marketing Pvt. Ltd. 20600 Rs. 1,03,00,000/- Total Rs. 3,06,50,000/- Pa g e | 2 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 assessee also filed copy of agreement with Jyotika Commercial Pvt Ltd for transfer of its share holdings in three other companies as consideration for allotment of 15325 shares. 5. We have heard both parties and perused material available on record, we note that only issue involved is whether share application money with share premium aggregating to Rs.3,06,50,000/- against transfer of allotment of subscriber's investment in three other companies invite mischief of provisions of section. 68 of Act or not. We note that during year assessee company raised Share Capital of Rs. 1,53,250/- against issue of equity share of 15325 shares @ Rs.10/- each at premium of Rs.1990/- each against handing over of investments in three other companies of share applicant. Therefore, total share capital raised amounts to Rs. 3,06,50,000/-. We note that section 68 of Act is not applicable on facts of case, since no money transaction took place between assessee and share subscribing companies. It is simple case of shares being allotted in lieu of shares held by share subscribers. Therefore, we note that it is just swapping of shares, i.e. one share is exchanged from another share and therefore section 68 does not attract in assessee s case under consideration. For that we rely on judgment of Coordinate Bench in case of M/s Anand Enterprises Ltd. in I.T.A. No. 1614/Kol/2016, order dated 26.09.2018 wherein it was held as follows: 4. We have heard rival submissions. At outset, we find that assessee had not raised any share capital by receipt of cash consideration in instant case. shares were issued for consideration other than cash in lieu of assessee company making investment in shares in some other company. Effectively, assessee purchased certain shares from aforesaid six shareholders and instead of paying cash to them, assessee company issued shares in its own company to those shareholders. Hence assessee had made investments in shares of another company for which consideration was settled through issuance of its shares to those shareholders. Now crucial point is whether provisions of section 68 could be invoked in instant case for making investment towards share capital. There was no receipt of any sum as provided u/s 68 of Act in instant case. It would be pertinent here to refer to decision of Hon ble Supreme Court in case of Shri H.H. Rama Varma vs. CIT reported in 187 ITR 308 (SC) wherein it was held that any sum means sum of money . We find that ld. CIT(A) had deleted addition by observing as under: 6. On consideration of AR s submission, especially portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by appellant when purchase and allotment are under barter Pa g e | 3 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 system. AO has not refuted appellant s claim that shares were allotted in exchange for acquisition of shares by appellant from companies which surrendered such shares to appellant. Though as per AO to apply section 68 to make said addition in appellant s hand. Transactions purportedly executed by entry operators involve multiple layers and other complexities, introducing delays in introduction of unaccounted cash/money and multiple players being incorporated entities. Measures taken by AO in course of assessment proceeding falls much short of what is required to be done in such case laws, which have evolved on this issue, call for concerted actions on part of AO pinpointing utilization of unexplained/unaccounted/untaxed money and players and beneficiaries effectively using web like scheme to plunder black money. For example introduction and use of black money in present case may be at different point of time and in different hands. AO s action in present case cannot be upheld in law. I, therefore, delete additions and grounds of appeal Nos. 3 & 4 are allowed. 4.1. We find that Hon ble Allahabad High Court in case of CIT vs. Sohanlal Singhania reported in 235 ITR 616 (All) had held in context of allowability of donation as deduction u/s 80G of Act that expression any sum paid used in said section denotes sum of money paid . Hence if certain shares were donated by person, then same would not fall eligible for deduction u/s 80G of Act. We also find that Hon ble Jurisdictional High Court in case of Jatia Investment Company (Co.) vs. CIT reported in 206 ITR 718 (Cal) also supports case of assessee herein, wherein it was held as under: It is finally emphasised by learned counsel for assessee that ultimate result is that firm becomes debtor to GB and Co. and three non-financial companies of group got discharged. Learned counsel also emphasised that, at worst, it can be said that assessee-firm has received valuable assets being said shares of equivalent value of debt taken over by it from companies, i.e., Rs. 11.20 lakhs. Therefore, question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, transactions are mere book entries. It was contended that fact that entries passed through cash book could not detract from or efface essential nature of entries. It was also urged that entries were passed through cash book so that repayment of loans by said three companies could be established before Reserve Bank of India. But, according to Shri Bajoria, that does not mean that it amounts to artifice employed to deceive any authorities, because transactions showing amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as question of section 68 is concerned, nature of transactions and entries clearly show that no cash, in fact, flowed. It was further stressed that transactions are above board. No outsider is involved. entries were made in books of concerns of same group. shares in question were also of companies of group. There was no attempt at hiding transactions. Nor is it case of any of parties to transaction that there was any passing of cash. Every party unequivocally stated that transactions were carried into effect merely by way of adjustments of said loans and share transfers. Shri A. C. Moitra, learned advocate for Revenue, reiterated grounds on which Tribunal has affirmed addition of amount of Rs. 11.20 lakhs as unexplained cash credit. He particularly emphasised that assessee's contention that entries are only adjustment entries is not acceptable, because adjustment entries are not made through cash book. It is accepted principle of accounting that book adjustments and entries in effecting them are made by journal entries and not cash entries. He urged that purported motive of entries being reduction of loans of three limited companies does not explain whole matter, because entries are cash entries. fact remains that, at every stage, parties showed payments and receipts of cash even when there Pa g e | 4 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 was no cash available for such entries. This quite justifies addition as sustained by Tribunal. We have perused assessment order carefully. We find that cash did not pass at any stage though entries were made in cash book showing payments and receipts ; but since entries made complete round, no passing of cash was necessary for purpose of making entries. That there was no passing of cash is also admitted by Income- tax Officer himself. We have already extracted observation of Income-tax Officer in paragraph 14 of his assessment order. Income- tax Officer has clearly opined that all respective parties did not receive cash nor did pay cash as none had any cash for purpose. only point in assessment order is that entries not involving passing of cash should not have found place in cash book, but in ledger account through journal entries. There is another self-contradiction in Income-tax Officer's finding that, if there was no real cash entry on credit side of cash book, but merely notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; question of inclusion of amount of entry as unexplained cash credit cannot arise. One of grounds of Tribunal for disbelieving assessee's case is that adjustment entries were made by notional cash entries with view to bringing down debt-and- capital ratio, i.e., that while being discharged of debt said companies also jettisoned their assets, i.e., shares held by them of equivalent sum without achieving avowed purpose. Here Tribunal certainly misdirected itself. ratio to be reduced is of loan in relation to share capital and reserves. Jettisoning shares had desired effect of reducing borrowed capital. Again, as regards Tribunal's refusal to take notice of directions of Reserve Bank, it is not correct for Tribunal to hold that said document was new evidence in true sense of term. assessee has been consistently pleading before lower authorities that entries had to be made in order to bring companies in conformity with said direction. Moreover, direction of Reserve Bank is public document within meaning of section 74 of Evidence Act, 1872. Documents of public nature and public authority are generally admissible in evidence subject to mode of proving them as laid down in sections 76 and 78 of Evidence Act. In our view, effect and import of transactions is that assessee took over liability of aforesaid non-financial companies to GB and Co. in exchange for shares as aforesaid. In premises, we answer all questions, in affirmative and in favour of assessee and against Revenue. 4.2. It would be pertinent to note that in instant case, ld. AO had not doubted investment made in shares by assessee company. There is no dispute raised by ld. AO with regard to number of shares; value thereon invested by assessee company. We also find that Co-ordinate Bench decision of Pune Tribunal in case of Kantilal and Bros. vs. ACIT reported in 52 ITD 412 (Pune Trib.) also supports case of assessee. 4.3. In view of aforesaid observations, in facts and circumstances of case and respectfully following aforesaid judicial precedents relied upon hereinabove, we hold that ld. AO had erroneously invoked provisions of section 68 of Act to facts of instant case, which, in our considered opinion, are not at all applicable herein. This is simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead consideration was settled through issuance of shares to respective parties. Moreover, in balance sheet of assessee company in schedule to share Pa g e | 5 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 capital, it is very clearly mentioned by way of note that fresh share capital was raised during year for consideration other than cash. Hence we hold that provision of section 68 of Act are not applicable in instant case and accordingly entire addition deserves to be deleted which has rightly been done by ld. CIT(A) which does not require any interference. Accordingly, grounds raised by revenue are dismissed. 6. Our view is also fortified by judgment of another Co-ordinate Bench of ITAT, Kolkata s decision in case of M/s Sunglow Dealcom pvt. Ltd. in I.T.A. No. 2178/Kol/2016, order dated 16.11.2018 wherein it was held as follows: 3. We have heard rival contentions. On careful consideration of facts and circumstances of case, perusal of papers on record, orders of authorities below as well as case law cited, we hold as follows:- 4. undisputed fact in this case is that allotment of shares were for consideration other than by way of cash. four companies which applied for allotment of shares, have sold their investment to assessee company and assessee company, has as consideration for purchase of those shares had allotted shares at premium. It is case of swapping of shares. shares were allotted for consideration other than cash. question is whether under these facts and circumstances Section 68 of Act, would be attracted. 4.1. ld. D/R, submits that premium is not justified and that ld. CIT(A) was wrong in holding that assessee has proved identity, creditworthiness and genuineness of transaction. He relied on order of Assessing Officer. In reply ld. Counsel for assessee, submits that each of above companies have filed replies before Assessing Officer to notice issued u/s 133(6) of Act. He further pointed out that ld. CIT(A) called for remand report Assessing Officer had not disputed identity, creditworthiness of share subscribers as well as genuineness of transactions. He relied on order of ld. CIT(A). 4.2. undisputed fact is that shares were issued at premium, as consideration for purchase of shares from share applicant companies. This issue is squarely covered by decision of Kolkata C Bench of Tribunal in 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 aforesaid observations, in facts and circumstances of case and respectfully following aforesaid judicial precedents relied upon hereinabove, we hold that Id. AO had erroneously invoked provisions of section 68 of Act to facts of instant case, which, in our considered opinion, are not at all applicable herein. This is simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead consideration was settled through issuance of shares to respective parties. Moreover, in balance sheet of assessee company in schedule to share capital, it is very clearly mentioned by way of Pa g e | 6 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 note that fresh share capital was raised during year for consideration other than cash. Hence we hold that provision of section 68 of Act are notapplicable in instant case and accordingly entire addition deserves to be deleted which has rightly been done by Id. CIT(A) which does not require any interference. Accordingly, grounds raised by revenue are dismissed. 4.2. Hon ble Jurisdictional High Court in case of Jatia Investment Co .v. Commissioner of Income-tax [1994] 206 ITR 718 (CAL.) held as follows:- Section 68 of 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, 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 assessee s income from undisclosed sources Held, yes 4.3. Recently, Hon ble Madras High Court in 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 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, second question is answered in favour of assessee and against Revenue by judgment of Division Bench of this Court in Electro Polychem Ltd., (supra) and Steller Investment Ltd., (supra). 26. This case is distinguishable from case of CIT v. Lovely Export (P.) Ltd. [2008] 216 CTR 195 (SC) in that transactions were only book transactions, and there was no cash receipt. 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.) Ltd. v. CIT [2014] 364 ITR 53/224 Taxman 80 (Mag.)/44 taxmann.com 408 (Delhi); (iv) Olwin Tiles India (P.) Ltd. v. Dy. CIT [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 respondent are distinguishable, in that cash credits towards share capital were admittedly only by way of book adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money. 5. Applying propositions of law laid down in above cases to facts of this case, we uphold order of ld. First Appellate Authority and dismiss this appeal of revenue. Pa g e | 7 M/s Saffron Comtrade Pvt. Ltd. ITA No.2029/Kol/2016 Assessment Year:2012-13 7. Considering above facts and circumstances of case and respectfully following aforesaid judicial precedents relied upon hereinabove, we hold that ld. AO had erroneously invoked provisions of section 68 of Act to facts of instant case, which, in our considered opinion, are not at all applicable herein. This is simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead consideration was settled through issuance of shares to respective parties. That is, section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by appellant when purchase and allotment are under barter system.That being so, we decline to interfere in order passed by ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by Revenue is dismissed. 8. In result, appeal of revenue is dismissed. Order pronounced in Court on 28.08.2019 Sd/- Sd/- (A.T. VARKEY) (A.L.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER / Date: 28/08/2019 (SB, Sr.PS) Copy of order forwarded to: 1. ITO, Ward-10(2), Kolkata 2. M/s Saffron Comtrade Pvt. Ltd. 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. True copy By Order Assistant Registrar ITAT, Kolkata Benches ITO, Ward-10(2), Kolkata v. Saffron Comtrade Pvt. Ltd