Assessee failed to Prove Entries of Credit against Addition section/s 68 of Income tax Act: ITAT allows Revenue Dept's Appeal [Read Order]

In a recent ruling, the Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) confirmed the addition made under Section 68 of the Income Tax Act, 1961 while allowing the revenue department’s appeal. The Tribunal observed that addition is valid as the assessee failed to prove entries of credit against the same.

During scrutiny assessment, the AO observed that assessee, Mangalvani Commercial Pvt. Ltd has received share capital of Rs.1,35,000/- and share premium of Rs.3,49,65,000/-. The assessee was asked to explain the source of alleged sum. Since summons under Section 131 to the Director was not complied with, the AO was not able to examine the identity, creditworthiness of the share subscribers and genuineness of the transactions.

The AO did not find any merit in the claim of share capital and share premium and both were added in the hands of assessee. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition under Section 68 after finding lack of receipt of cash for issue of shares. The CIT(A) has deleted the addition by observing that no cash has been received during the year.

It was found that the assessee is a private limited company and has to maintain its books of accounts on mercantile basis. In mercantile system of accounting, the entries can be through cash book, bank book and journal book, whereas under journal entries, fresh credits can be received during the year and there is no requirement of any receipt through banking/cash mode.

The two member Bench of the ITAT comprising of Anikesh Banerjee ( Judicial Member ) and Dr. Manish Borad ( Accountant Member ) observed that once it is not specifically provided that sum should be received only through banking channels and the mention is only about the credit entry, then it entails into all the credit entries and the AO is well within his jurisdiction to examine the same.

While allowing revenues appeal, the tribunal held that “against the alleged credits in form of share capital and share premium, an equal amount of investment in equity of other entity has been made but there is no explanation about the said transactions.”

To Read the full text of the Order CLICK HERE

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