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Facts
The assessee's appeal for assessment year 2011-12 involved proceedings under Section 143(3)/147 concerning additions of Rs. 1,20,00,000/- representing share application and premium, treated as unexplained cash credits. The assessee failed to appear, and the case proceeded ex-parte.
Held
The Tribunal held that the assessee failed to prove the genuineness and creditworthiness of the investor companies from whom share application and premium amounts were received. Relying on various judicial pronouncements, the Tribunal concluded that mere production of documents is insufficient and the onus is on the assessee to establish genuineness in light of human probabilities.
Key Issues
Whether the assessee discharged the onus to prove the genuineness and creditworthiness of share applicants for share application and premium amounts, when the evidence was found to be insufficient and not in line with human probabilities.
Sections Cited
143(3), 147, 68, 133(6), 132(4), 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
Date of hearing 03.07.2025 Date of pronouncement 03.07.2025 ORDER
PER SATBEER SINGH GODARA, JM
This assessee’s appeal for assessment year 2011-12, arises against the Commissioner of Income Tax (Appeals)-3 [in short, the “CIT(A)”], New Delhi’s order dated 05.03.2020 passed in case no. 3/10284/18-19, involving proceedings under section 143(3)/147of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Case called twice. None appears at the assessee’s behest. It is accordingly proceeded ex-parte.
Delay of 194 days in filing the assessee’s instant appeal is condoned in larger interest of justice and in light of Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC).
The Revenue vehemently argues that both the learned lower authorities herein have rightly disallowed/added the assessee’s unexplained cash credits representing share application and premium amount of Rs.1,20,00,000/- as bogus; in assessment order dated 25.12.2018 and upheld in the lower appellate discussion, as under: “6.2 I have gone through the submission of the assessee as well as the assessment order passed by the AO. The AO has made the addition u/s 68 of the Act. The provisions of the Section 68 require that, if any sum is found credited in the books of account maintained by the assessee, and the assessee either offers no explanation about the nature and source of that money or the explanation offered by him is found unsatisfactory by the AO, then that sum may be treated as income of the assessee. In this case, the AO has questioned the identity, creditworthiness and genuineness of transaction because it is observed that none of the four companies from where the assessee has taken share with share premium are doing any business. They are furnishing return of income with department either with nil income/loss of at very nominal income. There is no methodology adopted to calculate the quantum of share premium. The investor companies have invested in the assessee company without any profit motive. During the search of SK Jain Group. it established that the four companies from which assessee has taken entries are just a facilitator companies to provide entries to other companies. In this case, the AO was therefore fully justified in applying Section 68 of the Act because of the fact the assessee company only trying to produce the documents which can prove transactions as genuine though it is not a genuine transaction. In such circumstances, this ground of appeal is dismissed and addition of Rs. 1,20,00,000/- and Rs. 60,000/- are confirmed. Reliance is placed on the following case laws:
2 | P a g e 6.3 PCIT v. NRA Iron & Steel Pvt. Ltd (2019) 412 ITR 161/262 Taxman 74/ 175 DTR 289/307 CTR 353 (SC) Assessee- Mere mention of income tax-file number of an investor is not sufficient to discharge the onus -Credit worthiness of the investor companies was not discharged -Order of AO is confirmed. Allowing the appeal of the revenue the Court held that, The practice of conversion of un-accounted money through cloak of Share Capital/Premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient-The onus to establish credit worthiness of the investor companies is on the assessee. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee company at high premium of Rs 190 per share even though the face value of the share was Rs 10 per share. None of the so-called investor companies established the source of funds from which the high share premium was invested. Mere mentioning of the income tax file number of an investor is not sufficient to discharge the onus under S. 68 of the Act. Credit worthiness of the investor companies was not discharged. The Assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee (AY. 2009-10) 6,4 Royal Rich Development Pvt. Ltd. v. PCIT (Bom)(HC) Cash credits Bogus share capital-Shell company -Huge premium- Failure to produce the subscribers and based on the statement of the Director that entire invest was bogus-Addition is held to be justified.[S.132(4)] Dismissing the appeal of the assessee the Court held that, no rational person with sound mind will invest huge amount in the share subscription of a paper/shell company having no worthwhile business/project in hand at such a huge premium. The onus is on the assessee to prove the genuineness of the transaction as well credit worthiness of the share subscribers. The failure to produce the subscribers and statement of the director that the entire investment is bogus justifies the addition, (ITA No. 438 of 2017, dt. 22.07.2019) (AY.2007-08) 6.5 PCIT v. NDR Promoters Pvt. Ltd (2019) 410 ITR 379/ 175 DTR 30/261 Taxman 270/307 CTR 281 (Delhi) (HC), www.itatonline.org Cash credits Share capital- Share premium- Bogus share capital in form of accommodation entries- Directors were working as peons, receptionists etc., who have admitted that they have signed the documents as per direction of Mr. Tarun Goyal- Details were filed, however they have been not produced before the AO for examination- 3 | P a g e Deletion of addition by the Tribunal is held to be not justified.[ S.133(6)] addition by the Tribunal is held to be not justified.[ S.133(6)] Allowing the appeal of the revenue the Court held that; evidence was collected in the course of search proceedings by the Investigation Wing it was found that companies were not carrying on any genuine business activities. Directors of these companies were employees of Mr Tarun Goyal, who were working as peons, receptionists etc. Entries in the books were bogus. Modus operandi in such cases is well known, money is circulated by first depositing cash in the bank account of one such company, and thereupon it is transferred/circulated within the group companies before cheque is issued to the beneficiary. Directors in the course of search proceedings directors have admitted that they have signed the documents as per direction of Mr Tarun Goyal. In response to notice u/s 133(5) details were filed however the respondent-assessee had failed to produce Directors of the companies, though they had filed confirmations, and therefore, were in touch with the respondent- assessee. The respondent-assessee had also failed to produce the details and particulars with regard to issue of shares, notices etc. to the shareholders of AGM/EGM etc- Accordingly Court held that the transactions are clearly sham and make-believe with excellent paper work to camouflage their bogus nature. The reasoning is contrary to human probabilities. In the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment. The Tribunal's order is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. Appeal of the revenue was allowed (ITA No. 49 of 2018, dt. 17.01.2019) (ΑΥY.2008-09) 6.6 ITO v. Synergy Finlease (P.) Ltd. (2019) 177 ITD 160/ 178 DTR 145/199 TTJ 793 (Delhi) (Trib.) Cash credits- Share capital Meagre income Failure to establish from documentary evidence creditworthiness for making such huge investments and genuineness of transactions- Addition is held to be justified. [S.133(6)] Allowing the appeal of the revenue, the Tribunal held that the share applicants had very meagre income and did not have creditworthiness for making such huge investments and genuineness of transactions were also not established from documentary evidences. Tribunal also observed that the AO reported that notice under S.133(6) issued to all the ten parties were complied and a statement of the directors as on date, were also recorded and they confirmed the fact of shares applied as 4 | P a g e well as share premium amounts paid. The AO recorded two objections in respect of the documentary evidence was produced by the assessee from the shareholder's bank account it was observed that amount was received by the parties immediately before the amounts was advanced to the assessee. The director of the shareholding companies produced before the AO were directors as on the date and not the directors in the year in which share capital was collected. Addition is held to be justified (AY.2006-07) 6.7 ITO v. Synergy Finlease Pvt Ltd(2019) 177 ITD 160/ 178 DTR 145/ 199 TTJ 793. (Delhi) (Trib) www.jtatonline.org S. 68: Cash credits Bogus Share Capital- Merely presenting of documents & making payment through bank or appearance by director before the AO & admitting fact of share application made is in itself not sufficient to justify the genuineness of the transaction-It is against human probability that anyone will invest and pay share premium in a company without net worth or future prospectus- All applicants with common address are being controlled remotely by one person. These applicants are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries- Credit worthiness is not established - Addition is held to be justified. Allowing the appeal of the revenue the Tribunal held that, merely presenting of documents & making payment through bank or appearance by director before the AO & admitting fact of share application made is in itself not sufficient to justify the genuineness of the transaction. It is against human probability that anyone will invest and pay share premium in a company without net worth or future prospectus. All applicants with common address are being controlled remotely by one person. These applicants are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries Creditworthiness is not established. Addition is held to be justified. (Followed PCIT v. NDR Promoters Pvt Ltd (2019) 410 ITR 379 (Delhi)(HC) & PCIT v. NRA Iron & Steel Pvt Ltd) 2019) 103 Taxmann.com 48 (SC) followed) (ITA No. 4778/Del/2013, dt. 08.03.2019)(ΑΥ. 2006-07) 6.8 ITO v. Yadu Steels & Power Pvt. Ltd. (Delhi) (Trib), S. 68: Cash credits- Share capital - In the case of a Private company, onus is on assessee to prove identity, creditworthiness of subscribers and most importantly genuineness of transactions- Even if AO does not make inquiry, CIT(A) should do so-Relief cannot be given merely on basis of Ration Card, Share Application forms, Voter ID etc of the subscribers -Matter was set aside to AO to decide according to the law. [S.131] 5 | P a g e Allowing the appeal of the revenue the Tribunal held that, in the case of a Private company, onus is on assessee to prove identity, creditworthiness of subscribers and most importantly genuineness of transactions- Even if AO does not make inquiry, CIT(A) should do so-Relief cannot be given merely on basis of Ration Card, Share Application forms. Voter ID etc of the subscribers -Matter was set aside to AO to decide according to the law (ITA No. 25/Del/2014, dt. 12.12.2019) (AY.2009-10) 6.9 CIT Vs Nipun Builders & Developers (P.) Ltd Delhi High Court 2013 [2013] 30 taxmann.com 292 (Delhi)/[2013] 214 Taxman 429 (Delhi)/[2013] 350 ITR 407 (Delhi)/[2013] 256 CTR 34 (Delhi) Where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68 6.10 CIT Vs Nova Promoters & Finlease (P) Ltd Delhi High Court 2013 [2012]18 taxmann.com 217 (Delhi)/[2012] 206 Taxman 207 (Delhi)/[2012] 342 ITR 169 (Delhi)/[2012] 252 CTR 187 (Delhi) Amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68 6.11 CIT Vs Ultra Modern Exports (P.) Ltd Delhi High Court 2012[2013] 40 taxmann.com 458 (Delhi)/[2014] 220 Taxman 165 (Delhi) (MAG.) Where in order to ascertain genuineness of assessee's claim relating to receipt of share application money, Assessing Officer sent notices to share applicants which returned unserved, however, assessee still managed to secure documents such as their income tax returns as well as bank account particulars, in such circumstances, Assessing Officer was justified in drawing adverse inference and adding amount in question to assessee's taxable income under section 68 6.12 CIT Vs Empire Builtech (P.) Ltd Delhi High Court 2014 [2014] 43 taxmann.com 269 Under section 68 it is has (Delhi)/[2015] 228 Taxman 346 (Delhi) (MAG.)/[2014] 366 ITR 110 (Delhi) sufficient for assessee to merely disclose address and identities of shareholders, it has to show genuineness of such individuals or entities 6.13 Navodaya Castle Pvt Ltd Vs CIT Supreme Court 2017 [2015] 56 taxmann.com 18 (SC)/[2015] 230 Taxman 268 (SC) SLP dismissed against High Court ruling that certificate of incorporation, PAN etc., are not sufficient for purpose of identification of subscriber-company when there is material to show that subscriber was a paper company and not a genuine investor
6 | P a g e 6.14 Advance Power Infra Tech Ltd Vs DCIT ITAT Kolkata 2017 2017- TIOL-1223-ITAT-KOL Merely furnishing PAN Numbers in routine way, does not explain the source or the creditworthiness of the party. The basis on which premium has been charged for the shares has not been explained. A perusal of the financial statements do not justify the quantum of share premium charged. 6.15 JJ Development Pvt Ltd Vs CIT Supreme Court 2018 [2018] 100 taxmann.com 102 (SC)/[2018] 259 Taxman 414 (SC), 2018-TIOL-395- SC-IT, Where High Court upheld Tribunal's order confirming addition under section 68 in respect of share capital on ground that documents pertaining to share applicants produced by assessee did not demonstrate that such alleged applicants had invested in assessee's share capital, SLP filed against said decision was to be dismissed 6.16 Pee Aar Securities Ltd. Vs DCIT ITAT Delhi 2018 [2018] 96 taxmann.com 602 (Delhi Trib.) A private limited company cannot say that it has no clue about subscribers to its share capital, genuineness of transaction has to be determined by ground realities and not by documents like PAN cards, board resolutions, share certificates etc. as even shell companies have these documents. 6.17 The AR of the appellant has also relied on several case laws. I have carefully perused the same and found that they are not applicable to the facts of the present case. Also in these cases where decisions are sub silentio, or where there is another view in the field, a different view can be taken. In the present case the genuineness of the transaction has not been established.
As a result, the appeal is dismissed.” It in this factual backdrop that the assessee has filed the instant appeal before the tribunal.
We have given out thoughtful consideration to the assessee’s pleadings all along and the department’s foregoing vehement contentions against and in support of the impugned section 68 addition of unexplained cash credits. The assessee admittedly declared the above share application and premium amount as 7 | P a g e received from four parties, namely, M/s. Ecdoptica Developers Pvt. Ltd., M/s. Yuvraj Exports Pvt. Ltd., M/s. Shalini Holdings Pvt. Ltd. and M/s. Twinkle Mercantile and Credit Private Ltd. to the tune of Rs. 30 lakhs each in the relevant previous year. Our attention is invited to the learned Assessing Officer’s assessment discussion dated 25.12.2018 that he had received information from DIT(Investigation) dated 12th March, 2013 that during a search and seizure action on 19.04.2010, various incriminating documents during and post investigation revealed that Sh. Surender Kumar Jain and Sh. Virender Jain were engaged in the business of providing accommodation entries to a large number of beneficiaries companies including the assessee. He thus set into motion section 148/147 proceedings against the assessee.
We further note that from a perusal of the assessment order neither the assessee could plead and prove the genuineness and creditworthiness of its above four investor(s) parties, nor the Assessing Officer could himself verify the same in assessment proceedings. He thus invoked section 68 of the Act in the assessee’s case to treat both the above shares application/premium amount of Rs.1,20,00,000/- as unexplained
8 | P a g e cash credit but also disallowed/added commission expenditure thereupon amounting to Rs.60,000/-; respectively which stand confirmed in the CIT(A)’s detailed discussion.
We make it clear that apart from filing voluminous documentary evidences to the above four investor(s) parties including their respective return, confirmations, bank statements, etc.; the assessee has not been able to plead and prove genuineness and creditworthiness of the share application/premium in issue so as to satisfy the rigor of section 68 unexplained cash credits. Hon’ble apex court landmark decisions in Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC), CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC) and PCIT Vs. NRA Iron & Steel Co. (2019) 412 ITR 161 (SC) have settled the issue in the department’s favour that all such documentary evidences ought to be examined in the light of human probabilities after removing all blinkers and mere filing of documentary evidence in such an instance does not discharge the assessee’s onus of proving genuineness thereof. We draw strong support therefrom to reject the assessee’s instant sole substantive grievance and confirm the impugned twin additions in very terms. Ordered accordingly.