October 2018
2 Section 68 – Cash credit (Shares, allotment of) – Where assessee allotted shares to a company in settlement of pre-existing liability of assessee to said company, since no cash was involved in transaction of said allotment of shares, conversion of these liabilities into share capital and share premium could not be treated as unexplained cash credits u/s. 68
By K. B. Bhujle, Advocate
V. R. Global Energy (P) Ltd. vs. ITO;
[2018] 96 taxmann.com 647 (Mad): Date of order:
6th August, 2018 A. Y. 2012-13
The
assessee-company allotted 1,19,000 shares with face value of Rs. 10 at a
premium of Rs. 5400 to one VR and the allotment of shares by the assessee to VR
was in settlement of the pre-existing liability of the assessee to said VR. The
Assessing Officer added the share premium and the share capital for the fresh
allotment of shares and treated the same as unexplained cash credits u/s. 68 of
the Act, while holding that the method of valuation was not acceptable and that
the share premium of Rs. 5400 was unreasonable.
In appeal,
the Commissioner (Appeals) and the Tribunal upheld the decision of the
Assessing Officer.
On appeal
by the assessee, the Madras High Court reversed the decision of the Tribunal
and held as under:
“i) The cash credits towards share capital were
admittedly only by way of book adjustment and not actual receipts which could
not be substantiated as receipts towards share subscription money.
ii) The appeal is, thus, allowed and the
judgment and order of the Tribunal is set aside, for the reasons discussed
above. Additions u/s. 68 are also set aside.”
