Share Capital Received from Previous AY Cannot Be Taxable as Unexplained Cash Credit: ITAT Deletes Addition u/s 68 [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that share capital received from previous Assessment Years could not be treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

The assessee, Jai Bhola Trading Co. Pvt. Ltd., issued shares during AY 2012–13 at ₹100 each, raising ₹1.43 crore. Of this, ₹1.33 crore was received in earlier AYs, and ₹10 lakh was received in AY 2012–13 from Para Bepar South Pvt. Ltd.

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The case was selected for scrutiny under the Computer Assisted Scrutiny Selection (CASS) system. During the assessment, the Assessing Officer (AO) sent notices and issued summonses to the directors of the investing company under section 143 of the Income Tax Act, 1961.

In response to the notices, the assessee clarified that ₹1.33 crore was not relevant to the year under consideration, having been received in prior years. For the ₹10 lakh received during AY 2012-13, the assessee furnished supporting documents including share application forms, ITRs, PANs, and bank statements.

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However, the directors failed to appear before the authorities, leading the AO to doubt the transaction and treat the entire ₹1.43 crore as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

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Aggrieved by the order of the AO and the dismissal of the appeal by the Commissioner of Income Tax (Appeal) (CIT(A)), the assessee moved before the tribunal.

Siddharth Agarwal, counsel for the assessee, argued that ₹1.33 crore, received in a previous AY, was not subject to Section 68 of the Act in AY 2012–13.

The counsel also provided supporting documents, including share application forms, income tax returns, PANs, and bank statements, for the ₹10 lakh received from Para Bepar South Pvt. Ltd., and stated that the absence of the directors did not invalidate the documentary evidence.

Meanwhile, Satyanarayan Raju, counsel representing the revenue, pointed out that the assessee failed to produce the directors in response to the summons. He argued that in the absence of oral confirmation, the AO rightly doubted the genuineness of the share capital received.

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After hearing both sides, the bench, comprising Rajesh Kumar (Accountant Member) and Sonjoy Sarma (Judicial Member), noted that for the ₹10 lakh received in AY 2012–13, the assessee had provided sufficient evidence. The bench held that non-compliance with a summons could not invalidate the submitted evidence.

The bench also observed that ₹1.33 crore was received in earlier AYs, so Section 68 of the Act did not apply. Relying on the Calcutta High Court’s decision in Jatia Investment Co. vs. CIT (1994), the bench stated that only credits for the relevant year can be examined under Section 68 of the Income Tax Act, 1961.

The bench concluded that the CIT(A) had erred in making the decision and directed the AO to delete the entire addition of ₹1.43 crore.

To Read the full text of the Order CLICK HERE

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