The Pune bench of Income Tax Appellate Tribunal (ITAT) has held that share capital credited through the journal entries are not unexplained share capital. The bench upheld the deletion of addition made under Section 68 of Income Tax Act, 1961.
The assessee Hindustan Breweries and Bottling Limited filed its return declaring Nil income after set off of brought forward loss of against the current year’s income.
During the proceedings, the Assessing Officer (AO) noted that the assessee received fresh share capital amounting to Rs.6 crore. In the absence of the assessee participating in the assessment proceedings or furnishing any evidence in support of the claims, the AO made the addition of Rs.6 crore under Section 68 of the Income Tax Act.
When an appeal was filed before the Commissioner of Income Tax (Appeals)[CIT(A)] , the first appellate deleted the addition by accepting the assessee’s contention that the credit to share capital was only through journal entries.
The counsel for the revenue submitted that the Auditor report mentioned that the assessee-company continued to be a sick industrial company and is already registered with BIFR since 29-09-2003.
Further it was stated that “As on 31st March, 2013 Company has issued Equity to due Shareholders & Directors against the unsecured loan available with the Company. Due to which company’s Net Worth become Positive as on 31st March, 2013 and Hence company do not remain sick as per SICA Act, 1985 as on that date”
The tribunal during the proceedings observed that the assessee transferred Rs.6.crore to the share application money account from various accounts and all the transfers were made out of respective opening balances also these shares are entered through transfer entries.
After considering the facts, the two member bench of R.S. Syal, (Vice President) and Partha Sarathi Chaudhury, (Judicial Member) allowed the appeal filed by the assessee and observed that transfer to share capital account was only by means of transfer entries, which, obviously, could not lead to addition under Section 68 of the Income Tax Act.
Keyur Patel, counsel appeared for the revenue. Jayant Pendse, counsel appeared for the assessee.
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