Re: Cash credits-S. 68- Capitalisation .

An appeal for A.Y. 2011-12 is filed by OBC Ltd, a listed company, in time before the CIT(A) against the order of AO making an addition on account of unexplained cash credits u/s 68 and for the disallowance of purchases from unregistered dealers. The assessee has filed a declaration u/s 4 to settle the dispute in appeal under the scheme. He has been advised to capitalise the additional income comprised in the scheme by passing the accounting entries in the financial year 2020-2021. You are required to advise him on the consequences of the declaration and of the accounting entries.

A declaration u/s 4 is certainly maintainable and the dispute in appeal would stand settled on passing of the order and the payment of disputed tax under the scheme. Such an order will be final in all respects. However the issues that may arise for A.Y 2021-22 out of the accounting entries will be  independent and would not be saved by the scheme. It is fair to assume that the accounting entries by itself would not attract the income tax under the regular provisions of the Income Tax Act. However the liability to MAT u/s 115JB for that year would require to be contested if such tax is levied. The issue under the Companies Act and SEBI laws and the listing agreements and of the corporate governance and also of the CSR spends would require to be deeply examined. There are no immunity as on date  under these laws.

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