Section 68 of Income Tax Act, 1961
Querist :
Anonymous
(Querist) 04 March 2010
This query is : Resolved
We, a private Limted company, sold certain shares in other closely held companies which were held as investment. Sales consideration was received through cheques. The investigation deptt of I Tax, find that the purchaser companies were entry operator. The directors of the purchaser companies also accepted and given oath that no real transaction was entered into by their companies. Their denial was general in nature not to a particular transaction. Our case was opened u/s 148. We have submitted the purchaser's confirmation, their IT details but AO has added all consideration received on account of sale of shares held as investment u/s 68 of the IT Act. Now we are in appeal with CIT. Let me know what we have to do now. Is there any case law decided which will go in our favor. I appeal we taken the view that sec. 68 is not applicable in our case as we have not received any sum on account of cash credit, share capital, unsecured loan or share application money rather it is case of sale of investment.
M.V.GIRI
(Expert) 04 March 2010
In my opinion, The AO was wrong in treating this transaction as cash credit,...... Firstly you have received the considearation by cheques so that the transaction is genuine and no body cannot reject it. So the statements given by the Directors are not authenticated and reliable. Also you have submitted the letters and IT details to the AO, the addition u/s 68 is unwarranted. Also this transaction is sale of shares and not an investment in any assets.AO is wrong in the passing of asst. order
Vineet
(Expert) 05 March 2010
The provisions of section 68 can very well be invoked in this case as the amounts have been credited in the books of assessee unless the assessee is able to prove:
1. Identity of the creditor
2. Creditworthiness of the Creditor
3. Genuineness of transaction
The identity of creditor in this case is not in question as they are a private limited company. However as I understand, what has been disputed by department is Creditworthiness of the creditor and genuineness of transaction. The underlying asset is shares of closely held company and Department should have proved that the share transaction price is overvalued. Further the directors of purchaser companies have stated on oath that it was merely an hawala entry and therefore raising serious doubts on genuineness of this transaction and creditworthiness of the purchaser companies to enter into such deal. Mere receipt of consideration by cheque does not make a transaction genuine if the surrounding circumstances indicate otherwise.
The AO should have provided you the satament of directors and allowed you the opportunity to rebutt the same or cross examine the deponent. If the same was not done, you can take this plea in appeal as no third party evidence can be relied upon without according opprotunity of rebuttal.
Secondly, has the department been able to establish that the buyer companies were not worthy of such transaction and the money transferred from their bank account was deposited in cash routed from some bogus account? If these companies had funds, source of which is explaianble and their directors have retracted their statement regarding entries, you have a fair chance to defend your case.
