The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that the provisions of section 68 of the Income Tax Act, 1961 would not be applicable in case of swapping of company shares in lieu of shares by the shareholders.
During the assessment proceedings, the Assessing Officer noted that the assessee has raised share capital including share premium to the tune of Rs.5,01,00,000/-. The AO added back the said amount of share capital including premium raised treating the same as unexplained cash credit under section 68 of the Act.
On the first appeal, the Commissioner of Income Tax (Appeals) confirmed the said order.
We have heard rival submissions and gone through the facts and circumstances of the case. The addition u/s. 68 of the Act was reported by the AO and confirmed by the Ld. CIT(A) on the share capital and premium of Rs.5,01,00,000/-.
Before the Tribunal, the assessee contended that no sum of money has been collected for transfer of shares, whereas shares have been received by the assessee in lieu of exchange of its shares and therefore, no addition under section 68 of the Act can be made.
The Tribunal, while holding in favor of the assessee, observed that there is no cash transferred for the shares by the assessee.
“We note that the assessee had swapped shares in lieu of shares. In the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead, the consideration was settled through the issuance of shares to the respective parties. Hence we hold that provisions of section 68 of the Act are not applicable in the instant case,” the ITAT said.
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