Actual Receipt of Money by Assessee is a mandatory condition to invoke section 68 for Unexplained Cash Credit: ITAT grants relief

Actual Receipt - Money by Assessee - mandatory condition - section 68 - Unexplained Cash Credit- ITAT- Assessee - taxscan

The Income Tax Appellate Tribunal (ITAT), Delhi Bench while providing the relief to the Zexus Air Services Pvt. Ltd. ruled that Actual Receipt of Money by Assessee is a mandatory condition to invoke section 68 for Unexplained Cash Credit

The assessee company, Zexus Air Services Pvt. Ltd. was incorporated on 12th April, 2013 with the object of providing airline services. It filed its return of income on 31st October, 2015 declaring nil income. During the course of assessment proceedings, the AO noted that shares have been allotted to Shri Surinder Kumar Kaushik in lieu of goodwill and without any monetary consideration.

The AO held that the expenses and the basis of justification was not proved by the assessee and cannot be allowed. Invoking the provisions of section 68 of the Act and relying on the decision of the Supreme Court in the case of McDowell and Co. Ltd. Vs. CTO, the AO made an addition of Rs.20 crores under section 68 of the Act. However, the CIT(A) deleted the addition.

The revenue has raised the issue that the CIT(A) has erred in deleting the addition of Rs.20,00,00,000/- made under section 68 of the Act ignoring the fact that share capital of the assessee company was increased to Rs. 20,00,00,000/- with no satisfactory explanation with regard to settled accounting practices, hence the same must be added back to the income of the assessee.

The resplendent argued that the provisions of section 68 cannot be invoked unless there is a credit entry emerging out of cash or in the bank account of the assessee in the books of the company. Even otherwise transaction stands confirmed and the AO is not able to prove or bring on record that any investment worth Rs. 20 Crores has been made by the assessee which can be taken as unexplained investment under section 69 of the Income Tax Act, 1961.

The department strongly challenged the order of the CIT(A) in deleting the addition made by the AO. She submitted that the CIT(A) without any valid reasons has deleted the addition which under the facts and circumstances of the case, is not justified. She submitted that the director of the assessee company was never produced before the AO. Further, there is no basis of valuation of such goodwill. According to the department, no such valuation report was ever provided by the assessee to the AO.

The coram of Suchitra Kamble and R.K.Panda ruled that the assessee has debited goodwill account of Rs.20 crores and, credited the same to share capital of Rs.20 crores wherein the shares were allotted to Shri Surinder Kumar Kaushik towards goodwill. It has been held in various decisions that the provisions of section 68 can be applied if there is an actual receipt of money by the assessee whether by cash or cheque during the accounting year relevant to the assessment year under consideration.

The Tribunal did not find any infirmity in his order deleting the addition made by the AO invoking the provisions of section 68 of the Income Tax Act, 1961. Accordingly, the order of learned CIT(A) is upheld.

The Tribunal opined that the addition, if any, in the instant case has to be made in the hands of Shri Surinder Kumar Kaushik to whom the shares were allotted for his services rendered by debiting the goodwill account in the books of account. Therefore, the AO may take necessary steps for bringing this amount to tax in the hands of Shri Surinder Kumar Kaushik or his legal heirs in accordance with law.

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