No Sec. 68 additions if assessee routed its own accounted money back via share capital/premium: Delhi HC

Case Details: PCIT v. Agson Global (P.) Ltd. - [2022] 134 taxmann.com 256 (Delhi))

Judiciary and Counsel Details

• • Rajiv Shakdher and Talwant Singh, JJ.
  • Ajit Sharma, Sr. Standing Counsel for the Appellant. 
  • Mukul Rohatgi, Sandeep Sethi, Mahesh Agarawal, Rishi Agrawala, Karan Luthra, Sameer Rohatgi and Ankit Banati, Advs. for the Respondent.

Facts of the Case

During the assessment, the Assessing Officer (AO) made additions under section 68 on account of unexplained share capital and share premium.

The assessee contended that the monies invested in the company were its own money, which had been advanced to the investor entities, who, in turn, had invested the same in the assessee in the form of share capital/share premium.

Further, all transactions were carried out via banking channel and involved money, which was accounted for in the assessee’s books of accounts. Thus, the additions made under section 68 was incorrect. The Tribunal deleted the disallowance made by AO. Aggrieved-AO filed the instant appeal before the Delhi High Court.

High Court Held 

The Delhi High Court held that the provisions of section 68 were not attracted when assessee-company routed its own accounted money back to itself, through other entities, as share capital/premium.

AO cannot make any additions under section 68. The assessee loans its funds to other entities that then invest it back in the assessee company as share capital unless the funds so routed back are unaccounted money.

As long as there was no material on record that established that unaccounted money (i.e., income generated which was not recorded in the books of account) had been funnelled in the form of investment by way of share capital/share premium, it could not be made the basis for making addition under Section 68.