IN INCOME TAX APPELLATE TRIBUNAL B , BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM ./ITA No.501/Kol/2017 (Assessment Year:2012-13) ITO, Ward-5(2), Kolkata Vs. M/s Sarvlok Vanijya Pvt. Ltd. 78, Bentinck Street, Block-B, 4th Floor, Kolkata-700071 PAN/GIR No.: AAQCS8249C (Assessee) (Revenue) Assessee by Shri Robin Choudhury, Addl. CIT (DR) Respondent by Shri Miraj D. Shah, A.R. Date of Hearing 25/07/2019 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)-2, 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 24/03/2015. 2. Grounds of appeal raised by Revenue are as follows 1. ld. CIT(A), Kolkata erred in law as well as in fact by deleting addition of Rs. 1,29,00,000/- made u/s 68 of Income Tax Act. 2. That appellant craves leave to add, alter, modify, include or delete any ground of appeal. M/s Sarvlok Vanijya Pvt. Ltd. I TA No .5 0 1 / Ko l /2 0 1 7 s se s smen t Yea r: 2 0 1 2 - 1 3 3. We heard both parties and carefully gone through submission put forth on behalf of assessee along with documents furnished and case laws relied upon, and perused fact of case including findings of ld CIT(A) and other materials available on record. We note that this issue is squarely covered by judgment of Co-ordinate Bench of ITAT, Kolkata in case of M/s Anand Enterprises Ltd. vs ITO in ITA No.1614/Kol/2016 & C.O. No.56/Kol/2016 for A.Yr. 2012-13 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 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 weblike 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 Pa g e | 2 M/s Sarvlok Vanijya Pvt. Ltd. I TA No .5 0 1 / Ko l /2 0 1 7 s se s smen t Yea r: 2 0 1 2 - 1 3 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 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 Pa g e | 3 M/s Sarvlok Vanijya Pvt. Ltd. I TA No .5 0 1 / Ko l /2 0 1 7 s se s smen t Yea r: 2 0 1 2 - 1 3 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 Pa g e | 4 M/s Sarvlok Vanijya Pvt. Ltd. I TA No .5 0 1 / Ko l /2 0 1 7 s se s smen t Yea r: 2 0 1 2 - 1 3 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 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. 4.We note that assessee company allotted 25,800 equity shares to 3 applicant companies for Rs. 1,29,00,000/- in consideration for purchase of equity shares held by these applicant companies. Photocopies of agreements entered in this regard are enclosed in paper book. We note that shares were allotted against consideration for purchase of equity shares held by these applicant companies; hence it is barter system therefore, provisions of section 68 does not apply. We note that this issue is squarely covered by judgment of Co-ordinate Bench of ITAT Kolkata in case of M/s Anand Enterprises Ltd. vs ITO in ITA No.1614/Kol/2016 & C.O. No.56/Kol/2016 (supra). Ld DR for Revenue failed to controvert findings of Coordinate Bench (supra) therefore, respectfully following judgment of Co-ordinate Bench of ITAT, Kolkata (supra), we uphold order of ld. CIT(A) in deleting addition of Rs. 1,29,00,000/-. 5. In result, appeal filed by Revenue is dismissed. Order pronounced in Court on 28.08.2019 Sd/- Sd/- (S.S.GODARA) (A.L.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Date 28/08/2019 (SB, Sr.PS) M/s Sarvlok Vanijya Pvt. Ltd. I TA No .5 0 1 / Ko l /2 0 1 7 s se s smen t Yea r: 2 0 1 2 - 1 3 Copy of order forwarded to 1. ITO, Ward-5(2), Kolkata 2. M/s Sarvlok Vanijya 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-5(2), Kolkata v. Sarvlok Vanijya Pvt. Ltd