Income Tax, Issue Update

Shares issued for shares under barter system: Applicability of section 68

Case: ITO vs Trilokpati Exim Pvt Ltd, Kolkata ITAT

The issue that arises here is whether the provisions of section 68 of the Act can be applied in case of shares issued for shares under a barter system.

Kolkata ITAT concluded that ‘any sum’ means ‘sum of money’. The provisions of section 68 of the Income Tax Act did not apply to cases of purchase of share assets and allotment of shares by the Assessee when purchase and allotment were under a barter system. Hence, it was inferred that the provisions of section 68 were not applicable in the said case. See Facts & Key Points.

Facts

  • In the assessment order passed by the Assessing Officer under section 143(3) on 25.03.2015, the Assessing Officer had made addition under section 68 of the Income Tax Act of Rs. 9.93 crore for lack of explanation and for want of satisfaction, simultaneously, in respect of: i) Identity of the persons with whom transactions took place. ii) Genuineness of transactions for which credit entries entered in the books of Accounts. iii) Capacity of the persons or their creditworthiness from whom such receipts were recorded.

Key points

  • Reliance was placed on the decision of ITO, Kolkata Vs. M/s Anand Enterprises Ltd., wherein further reliance was placed on the decision of Hon’ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT, wherein it was concluded that ‘any sum’ means ‘sum of money’. The provisions of section 68 of the Income Tax Act did not apply to cases of purchase of share assets and allotment of shares by the Assessee when purchase and allotment were under a barter system.
  • Hence, it was inferred that the provisions of section 68 were not applicable in the said case.

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