SANOBAR INFRASTRUCTURE PRIVATE LIMITED,MUMBAI vs. ITO WARD 1(3)(2), MUMBAI

आदेश / ORDER PER: MAKARAND VASANT MAHADEOKAR, AM

This appeal by the assessee is directed against the order dated 02.06.2025 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [“CIT(A)”], under section 250 of the Income-tax Act, 1961 [“the Act”], for the

2 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited assessment year 2011-12. The impugned appellate order arose from the assessment order dated 18.12.2018 passed by the Income Tax Officer-1(3)(2), Mumbai [“the Assessing Officer”], under section 147 read with section 143(3) of the Act.

Facts of the Case

Particulars Amount Receipt from M/s Ratnakar Merchandise Pvt. Ltd., treated as unexplained cash Rs.1,76,50,000/- credit Amount invested in M/s Teju Estate Pvt. Ltd., treated as unexplained cash credit Rs.86,50,000/- Total additions Rs.2,63,00,000/-

3 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 3. In the first appeal, the CIT(A) deleted the addition of Rs.86,50,000/- on the ground that the said amount represented an outflow of funds and, therefore, could not be brought to tax as a cash credit under section 68 of the Act. The CIT(A), however, confirmed the addition of Rs.1,76,50,000/- relating to the amount received from M/s Ratnakar Merchandise Pvt. Ltd. The assessee is, therefore, in further appeal before us against the addition of Rs.1,76,50,000/- sustained by the CIT(A). The assessee has raised the following grounds of appeal:

1) On the facts and circumstances of the case and in law, the Authorities below have erred in making/sustaining the addition of Rs. 1,76,50,000/- u/s 68 of the Act and reasons stated for doing this, were wholly wrong, inconsistent with facts of the case and against the provisions of the Income Tax Act, 1961 and rules made thereunder and therefore the appellant prays that the entire addition made be deleted. 2) On the facts and circumstances of the case and in law, the Authorities below have erred in levying/confirming the interest u/s 234A/234B and 234C of the I T which was wholly wrong, and against the provisions of Income Tax Act, 1961 and rules made thereunder. 3) On the facts and circumstances of the case and in law, the Authorities below have erred in initiating/confirming the penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 which were wholly wrong, irrelevant, and not in accordance with the facts and circumstances of the case as no income is concealed nor any inaccurate particulars were furnished. The appellant craves leave to add, alter, modify and delete all or any of the aforesaid grounds of appeals on or before the date of hearing.

4 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 4. The detailed facts relating to addition are summarised in following paragraphs. 4.1. The reasons recorded for reopening referred to information that the assessee had received share premium of Rs.1,47,00,000/- during the financial year 2010-11 upon the issue of 30,000 equity shares having face value of Rs.10/- each. The Assessing Officer observed from the financial statements of the assessee that its financial position did not justify the receipt of such a substantial premium. He, therefore, formed a prima facie belief that the amount credited in the books in the guise of share premium represented the assessee’s own unaccounted income. During the reassessment proceedings, the Assessing Officer found from the bank statement of M/s Ratnakar Merchandise Pvt. Ltd. that the aggregate amount received by the assessee from the said company was Rs.1,76,50,000/-. Accordingly, by a show-cause notice dated 29.11.2018, the assessee was called upon to explain why the entire amount of Rs.1,76,50,000/- should not be treated as unexplained income under section 68 of the Act. 4.2. In response to the notices issued during the reassessment proceedings, the assessee furnished, inter alia, the following documents: a) extracts of its bank statements; b) particulars of the shareholder;

5 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited c) share application forms; d) share allotment letters; e) details of share application money and allotment of shares; f) copy of Form No. 2 filed with the Registrar of Companies; g) acknowledgement of the return of income of M/s Ratnakar Merchandise Pvt. Ltd.; h) extracts of the bank statements of the investor; and i) financial statements of M/s Ratnakar Merchandise Pvt. Ltd. for the financial year 2010-11. 4.3. The assessee submitted that the amount had been received from M/s Ratnakar Merchandise Pvt. Ltd., having PAN AADCR8555M and its address at 8B, Ganpat Bagla Road, 1st Floor, Kolkata-700007. It was explained that the assessee received an aggregate amount of Rs.1,76,50,000/- from the said company. Out of this amount, Rs.1,50,00,000/- was appropriated towards allotment of 30,000 equity shares at Rs.500/- per share, comprising face value of Rs.10/- per share and share premium of Rs.490/- per share. Out of the balance amount of Rs.26,50,000/-, a sum of Rs.11,50,000/- continued to be reflected as share application money in the balance sheet as on 31.03.2011, whereas the remaining amount of Rs.15,00,000/- represented consideration received upon sale of a part of the assessee’s investments at cost, without any profit or loss.

6 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 4.4. As regards the justification for charging the premium, the assessee submitted that fixation of the issue price and share premium was within the commercial prerogative of its Board of Directors, and it was for the subscriber to decide whether to subscribe to the shares at the stipulated premium. According to the assessee, there was no statutory prohibition against the issue of shares at a high premium. 4.5. The assessee further submitted that the intrinsic value of its shares as on 31.03.2010 was Rs.429/- per share and that such value had increased to Rs.462/- per share as on 31.03.2011. It was stated that the assessee was engaged in the business of private equity investment and, therefore, the absence of substantial operating turnover could not be regarded as an adverse circumstance. The investments held by the assessee had increased from Rs.2.98 crore to Rs.4.60 crore during the relevant year, and the increase was financed out of the funds raised during the year. It was accordingly contended that the premium of Rs.490/- per share was supported by the intrinsic value of the shares and could not be treated as unexplained merely because the Assessing Officer considered it to be high. 4.6. The Assessing Officer issued a notice under section 133(6) of the Act to M/s Ratnakar Merchandise Pvt. Ltd. seeking verification of the amount invested by it and the premium paid on the shares. The said notice was returned unserved by the postal authorities with the remark “Not Known”. The Assessing Officer

7 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited also noticed from the acknowledgement of the return of income furnished on behalf of the investor that its returned income was only Rs.377/-. 4.7. The Assessing Officer rejected the explanation furnished by the assessee. According to him, it was commercially improbable that a company having meagre income would invest a substantial amount in the shares of another company which was itself earning very little income. He further held that the assessee had not demonstrated any substantial business activity or underlying asset capable of supporting a premium of Rs.490/- per share. The Assessing Officer was also of the view that the assessee’s contention regarding the prerogative of the Board of Directors to determine the premium did not satisfactorily establish the genuineness of the transaction or the financial capacity of the subscriber. 4.8. The Assessing Officer referred to the decision of the Kolkata Bench of the Tribunal in Bisakha Sales P. Ltd., ITA No.1493/Kol/2013, and the decision of the Hon’ble Bombay High Court in Major Metals Ltd. v. Union of India, Writ Petition No.397 of 2011. On the basis of the non-service of notice under section 133(6), the low returned income of the investor, the financial position of the assessee, and what he considered to be the absence of justification for charging the premium, the Assessing Officer held that the entire amount of Rs.1,76,50,000/- represented unexplained cash credit. He

8 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited accordingly added the same to the total income of the assessee under section 68 of the Act and also initiated penalty proceedings under section 271(1)(c) of the Act.

4.9. Before the CIT(A), the assessee reiterated that the aggregate amount of Rs.1,76,50,000/- received from M/s Ratnakar Merchandise Pvt. Ltd. did not wholly represent share capital or share premium. It explained the composition of the receipt as under:

Nature of receipt Amount Amount appropriated towards allotment of 30,000 equity shares at Rs.500/- per Rs.1,50,00,000/- share Amount retained as share application money Rs.11,50,000/- Consideration for sale of investments at cost Rs.15,00,000/- Total Rs.1,76,50,000/-

4.10. The assessee submitted that its books of account, the ledger account of M/s Ratnakar Merchandise Pvt. Ltd., and the corresponding debit notes clearly explained the nature of each component of the receipt. It was argued that the entire amount could not have been treated as share capital or share premium without examining the separate nature of the component transactions.

4.11. The assessee further relied upon the confirmation of the investor, its PAN, bank statements, financial statements, return acknowledgement, share application forms, share allotment documents, and Form No. 2 filed with the Registrar of

9 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited Companies. It was contended that the amounts had been received through banking channels and the documentary evidence established the identity of the subscriber, the genuineness of the transactions, and their source. 4.12. The assessee reiterated that the premium was supported by the intrinsic value of its shares and that its investments had increased from Rs.2.98 crore to Rs.4.60 crore during the relevant year. It was contended that neither a low returned income nor the charging of a substantial premium could, by itself, justify an addition under section 68 of the Act when the transactions were supported by contemporaneous documentary evidence. 4.13. The assessee also submitted that notices under section 133(6) had been issued to the concerned parties and that the necessary documents had been furnished in support of the transactions. It was argued that the adverse inference drawn merely because the notice sent to the investor was returned unserved was not justified, particularly when the investor’s statutory and financial particulars were available on record. 4.14. The CIT(A) referred to section 68 of the Act as it stood prior to its amendment by the Finance Act, 2012, and observed that the initial burden was upon the assessee to establish the identity of the creditor or investor; the creditworthiness or

10 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited capacity of the creditor or investor; and the genuineness of the transaction. 5. In support of these principles, the CIT(A) referred, inter alia, to the decisions in CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal), Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC), Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC), CIT v. Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Delhi), CIT v. Kamdhenu Steel & Alloys Ltd., 206 Taxman 254 (Delhi), Sumati Dayal v. CIT (1995) 214 ITR 801 (SC), CIT v. P. Mohanakala (2007) 291 ITR 278 (SC), PCIT v. NDR Promoters Pvt. Ltd. (2019) 410 ITR 379 (Delhi), Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Gauhati), CIT v. N.R. Portfolio (P.) Ltd. (2014) 42 taxmann.com 339 (Delhi), and PCIT v. NRA Iron and Steel Pvt. Ltd. (2019) 412 ITR 161 (SC). 6. The CIT(A) held that the financial position of the assessee and that of the share applicant did not justify the substantial share premium and, therefore, the genuineness of the transaction remained unproved. He observed that the assessee had relied upon the prerogative of the company to determine the premium and the wisdom of the share applicant to subscribe to the shares, but had not brought on record any relationship or element of commercial proximity between the parties that could explain what the CIT(A) regarded as an otherwise improbable transaction.

11 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 7. The CIT(A), therefore, concurred with the findings of the Assessing Officer and confirmed the addition of Rs.1,76,50,000/- under section 68 of the Act. The corresponding ground raised by the assessee was dismissed. As regards the separate addition of Rs.86,50,000/-, the CIT(A) held that section 68 was inapplicable because the transaction represented an outflow of funds from the assessee. The Assessing Officer was consequently directed to delete that addition, and the appeal before the CIT(A) was partly allowed. 8. During the course of hearing, the learned Authorised Representative (AR) submitted that the impugned order of the CIT(A) had not been passed after proper consideration and verification of the documentary evidence furnished by the assessee. It was pointed out that the written submissions were filed before the CIT(A) on 19.06.2023, whereas the appellate order was passed on 02.06.2025, without dealing with the material documents and the specific explanations contained in those submissions. 9. The learned AR submitted that the assessee had issued 30,000 equity shares of the face value of Rs.10/- each and received share capital of Rs.3,00,000/- and share premium of Rs.1,47,00,000/- from a single subscriber, namely, M/s Ratnakar Merchandise Pvt. Ltd. In support of the transaction, the assessee had furnished the PAN, address, balance sheet, return- of-income acknowledgement and bank statements of the

12 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited subscriber. It was contended that these documents established the identity and creditworthiness of the subscriber as well as the genuineness of the transaction and that the initial onus cast upon the assessee under section 68 of the Act stood fully discharged. The CIT(A), however, sustained the addition without examining these documents. 10. The learned AR further contended that the share capital of Rs.3,00,000/- could not be added under section 68 of the Act. As regards the share premium of Rs.1,47,00,000/-, it was submitted that section 56(2)(viib) of the Act was not applicable to the assessment year under consideration, namely, assessment year 2011-12, as the said provision became applicable from assessment year 2013-14. According to the learned AR, there was no statutory restriction upon charging share premium during the relevant assessment year. It was also submitted that the valuation made by the assessee under the discounted cash flow method was sufficient to support the premium charged. 11. Elaborating upon the composition of the aggregate receipt of Rs.1,76,50,000/-, the learned AR submitted that only Rs.1,50,00,000/- represented consideration received upon allotment of shares, comprising share capital of Rs.3,00,000/- and share premium of Rs.1,47,00,000/-. Out of the remaining amount of Rs.26,50,000/-, a sum of Rs.11,50,000/- was retained as share application money and was separately reflected on the face of the balance sheet. The balance amount of Rs.15,00,000/-

13 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited represented the consideration received by the assessee upon sale of shares or investments to M/s Ratnakar Merchandise Pvt. Ltd. 12. The learned AR also submitted that the extended requirement under the proviso to section 68, requiring an assessee-company to explain the source of the funds in the hands of a resident shareholder, was inserted with effect from assessment year 2013-14 and was not applicable to assessment year 2011-12. Therefore, the assessee was not required to establish the “source of source” of the share capital or share premium received from the subscriber. 13. The learned AR submitted that the original aggregate addition made by the Assessing Officer was Rs.2,63,00,000/-. The CIT(A) had deleted the addition of Rs.86,50,000/- after accepting that the said amount represented an investment made by the assessee and, consequently, an outflow of funds. However, according to the learned AR, the remaining addition of Rs.1,76,50,000/- was sustained without properly verifying its different components and the supporting documentary evidence. 14. In view of the above, the learned AR contended that the addition had been made and sustained on an erroneous factual premise and without proper verification. He accordingly prayed that the addition be deleted. Alternatively, he requested that the matter be restored to the file of the CIT(A) for fresh adjudication

14 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited after examining the written submissions and documentary evidence furnished by the assessee. 15. Per contra, the learned Departmental Representative relied upon the impugned order of the CIT(A) and supported the addition of Rs.1,76,50,000/- sustained therein under section 68 of the Act. 16. We have considered the rival submissions and carefully examined the assessment order, the impugned appellate order, the written submissions filed before the CIT(A), the audited financial statements of the assessee and M/s Ratnakar Merchandise Pvt. Ltd., the schedules forming part of their accounts, the acknowledgements of their returns of income and the bank statements placed on record. The learned DR has relied upon the order of the CIT(A). 17. The substantive controversy raised in Ground No. 1 concerns the addition of Rs.1,76,50,000/- under section 68 of the Act. The Assessing Officer treated the entire amount as unexplained share capital and share premium. The CIT(A) confirmed the addition principally on the ground that the negligible income and financial position of the assessee and the share applicant did not justify the payment of a substantial share premium. According to the CIT(A), the assessee failed to establish the creditworthiness of the investor and genuineness of the transaction.

15 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 18.1. For the assessment year under consideration, where a sum is found credited in the books of an assessee, the assessee is required to offer a satisfactory explanation regarding its nature and source. In the context of share capital and share premium, the enquiry ordinarily encompasses the identity of the investor, its financial capacity and the genuineness of the transaction. These requirements are interconnected, but each calls for an independent examination. 18.2. Corporate identity and movement of funds through banking channels constitute relevant evidence. They do not, however, invariably establish that the transaction was genuine in substance. Conversely, a transaction cannot be rejected merely because the premium appears high, the parties reported nominal taxable income, or the Assessing Officer considers the investment commercially imprudent. The conclusion must be founded upon the cumulative effect of the contemporaneous evidence and surrounding circumstances. 18.3. Section 56(2)(viib) was not applicable to assessment year 2011-12. The subsequently inserted proviso to section 68, requiring an assessee-company in the specified circumstances to explain the source of funds in the hands of a resident shareholder, was also not applicable to the year under consideration. The addition must, therefore, be examined under section 68 as applicable to assessment year 2011-12.

16 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 18.4. Nevertheless, the non-applicability of the subsequently inserted proviso does not render the immediate bank trail or surrounding financial circumstances irrelevant. The movement, availability and control of the funds in the investor’s account may be examined as evidentiary circumstances while considering its creditworthiness and whether it acted as an independent investor. Such an enquiry must not be converted into an automatic statutory requirement to prove the source of source.

19.1. The first material difficulty in accepting the findings of the authorities below is that the entire receipt of Rs.1,76,50,000/- was characterised as share capital and share premium. The audited financial statements do not support this description. The assessee has explained the amount as comprising:

Nature of receipt Amount Share capital on 30,000 equity shares of Rs.10/- each Rs.3,00,000/- Share premium on 30,000 equity shares at Rs.490/- per share Rs.1,47,00,000/- Share application money pending allotment Rs.11,50,000/- Consideration stated to have been received upon sale of an investment at cost Rs.15,00,000/- Total Rs.1,76,50,000/-

19.2. The assessee’s balance sheet records share capital of Rs.9,95,950/- as on 31.03.2011, as against Rs.6,95,950/- as on 31.03.2010. The increase of precisely Rs.3,00,000/- corresponds with the face value of 30,000 equity shares of Rs.10/- each.

17 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 19.3. The share premium account increased from Rs.2,92,01,550/- as on 31.03.2010 to Rs.4,39,01,550/- as on 31.03.2011. The increase of precisely Rs.1,47,00,000/- corresponds with the premium of Rs.490/- per share on 30,000 shares. Thus, the audited accounts reconcile the allotment consideration of Rs.1,50,00,000/-. 19.4. The assessee’s balance sheet separately records share application money of Rs.11,50,000/-. The audited accounts, therefore, support the accounting treatment of receipts aggregating to Rs.1,61,50,000/-. 19.5. The remaining amount of Rs.15,00,000/- is stated to represent consideration received upon sale of an investment at cost. The assessee has referred to a ledger account and debit note stated to be placed at page 21 of the paper book. Neither the Assessing Officer nor the CIT(A) separately examined this transaction. 19.6. The financial statements thus give rise to the following unanswered questions: a) What was the precise nature of each component of Rs.1,76,50,000/-? b) Was the amount of Rs.15,00,000/- genuinely received against a transfer of an identifiable investment? c) Which shares or securities were transferred for Rs.15,00,000/- ?

18 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited d) Were those securities removed from the assessee’s investment schedule and correspondingly recorded in the investor’s accounts? e) Were the transfer forms, debit note, ledger entries and consideration mutually reconcilable? f) What subsequently happened to the share application money of Rs.11,50,000/-? 19.7. These questions cannot be answered merely from the broad finding that the entire receipt represented unexplained share premium. Each component requires an independent factual determination. 20.1. The assessee’s profit and loss account records service charges of Rs.18,000/- and profit before tax of Rs.213.02. Thus, it had negligible operational income during the relevant year. 20.2. At the same time, its balance sheet records investments of Rs.4,59,62,000/- as on 31.03.2011, as against Rs.2,97,97,500/- in the preceding year. Its reserves and surplus stood at Rs.4,39,01,825.02. Therefore, the observation that the assessee had no underlying asset does not accord with the investments appearing in its audited balance sheet. 20.3. The existence of investments at their recorded cost, however, does not establish their actual value, earning capacity or commercial potential. The value of the assessee’s shares

19 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited depended substantially upon the genuineness and value of these investments because the investment portfolio constituted almost its entire asset base. 20.4. The assessee asserted that the intrinsic value of its shares was Rs.429/- per share as on 31.03.2010 and Rs.462/- per share as on 31.03.2011. The first figure finds some prima facie support from the accounts. The shareholders’ funds as on 31.03.2010 were Rs.2,98,97,628/-, comprising share capital of Rs.6,95,950/- and reserves and surplus of Rs.2,92,01,678/-. Against 69,595 issued shares, the resultant book value was approximately Rs.429.59 per share. 20.5. Therefore, the issue price of Rs.500/- per share cannot be described as entirely arbitrary merely by comparing it with the nominal operational income. However, a book-value calculation is not conclusive of fair value or of the genuineness of the subscription. It leads to further questions: a) What valuation method was actually adopted when the shares were issued? b) Was the valuation prepared contemporaneously or subsequently? c) What financial information and valuation material were supplied to the investor? d) Were the underlying investments valued at cost, book value, fair value or on some other basis?

20 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited e) Did those investee companies possess real business, assets or earning potential capable of supporting the values assigned to them? f) Was the claimed value of Rs.462/- per share calculated by including share application money which did not form part of the issued share capital? g) What commercial factor justified fixing the issue price at Rs.500/- per share? 20.6. The record presently before us does not answer these questions. 21.1. The balance-sheet abstract also describes its principal product or service as “Trading & Investment”. However, its corporate name is “Sanobar Infrastructure Pvt. Ltd.”, suggesting an association with infrastructure activities. The Memorandum of Association and the object clause in force during financial year 2010-11 have not been placed before us. 21.2. The name of a company does not conclusively determine its authorised activities. Nevertheless, in the present circumstances, the following questions have a direct bearing upon the commercial rationale: a) Did the main objects of the assessee authorise investment and trading as its primary business? b) Was investment in shares merely an ancillary or incidental object connected with an infrastructure business?

21 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited c) If investment was only an ancillary object, what infrastructure activity was actually carried on? d) Did the assessee possess any infrastructure project, fixed assets, employees, contracts or operating establishment? e) Was the object clause amended before or during the relevant year to authorise investment activity? f) Were the investments approved by the board in accordance with the company’s authorised objects? g) Did the assessee continue to hold itself out as an investment company in the subsequent years? 21.3. If investment and trading formed part of the principal objects and were actually carried on, that circumstance would support the assessee’s explanation regarding the nature of its investment portfolio. If, on the other hand, the assessee had no infrastructure activity and investment was not its authorised or actual principal business, the asserted commercial rationale for raising funds at premium and deploying them almost entirely in unquoted shares would require closer scrutiny. The record is insufficient to reach either conclusion. 22.1. The identity of M/s Ratnakar Merchandise Pvt. Ltd. is prima facie supported by its PAN AADCR8555M, return-of- income acknowledgement, audited financial statements and bank account. Its return for assessment year 2011-12 was filed on 17.12.2011, declaring total income of Rs.377/-.

22 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 22.2. Its audited balance sheet as on 31.03.2011 disclosed:

Particulars Amount Share capital Rs.15,18,700/- Reserves and surplus Rs.9,88,28,581.82 Total shareholders’ funds Rs.10,03,47,281.82 Investments Rs.9,90,50,000/- Share application money paid Rs.11,50,000/- Cash and bank balances Rs.1,46,398.82 Current liabilities and provisions Rs.2,117/-

22.3. Its nominal returned income cannot, in isolation, determine its financial capacity. The balance sheet reflected shareholders’ funds exceeding Rs.10 crore and investments of Rs.9.90 crore. These figures could not have been disregarded merely because its taxable income was Rs.377/-.

22.4. However, the composition of those funds is material. During the relevant year, M/s Ratnakar Merchandise Pvt. Ltd. issued 72,495 equity shares of Rs.10/- each at a premium of Rs.990/- per share. Its share premium account increased from Rs.2,70,56,250/- to Rs.9,88,26,300/-, reflecting an increase of Rs.7,17,70,050/-.

22.5. The investor’s operational income consisted of service charges of only Rs.15,000/-, and its profit before tax was Rs.377.07. Its substantial financial resources, therefore, arose

23 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited predominantly from the premium collected upon its own share issue and not from operational profits. 22.6. The investor raised funds by issuing its shares at Rs.1,000/- per share and thereafter subscribed to the shares of the assessee at Rs.500/- per share. Both companies had negligible operational income. This sequence raises important questions relevant to genuineness: a) What was the basis upon which the investor itself issued shares at a premium of Rs.990/- per share? b) Who subscribed to the investor’s shares and for what commercial purpose? c) Did the investor have underlying business or assets justifying its own share premium? d) Was investment in other companies authorised as its principal business? e) Why did it decide to invest Rs.1,50,00,000/- in the assessee? f) How did it identify the assessee as an investment opportunity? g) What due diligence or valuation did it undertake? h) What return or commercial benefit did it expect? i) Did it exercise an independent investment decision or merely transmit funds received from other entities? 22.7. These questions assume significance because the source of the investor’s apparent financial capacity and the

24 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited commercial substance of its investment are inseparably connected with the enquiry into genuineness. They cannot be answered from the face of the balance sheet alone. 23.1. The investment schedule of M/s Ratnakar Merchandise Pvt. Ltd. records an investment of Rs.1,50,00,000/- in the assessee. This corresponds with the share capital and premium aggregating to Rs.1,50,00,000/- recorded by the assessee. 23.2. The investor’s balance sheet also records share application money paid of Rs.11,50,000/-, corresponding with the amount disclosed by the assessee as share application money received. These matching entries constitute relevant evidence supporting the formal existence and recording of the transactions aggregating to Rs.1,61,50,000/-. 23.3. However, corresponding entries in audited accounts establish an accounting trail, not necessarily the economic substance of the transaction. The following questions remain unanswered: a) Were the shares actually allotted to and beneficially held by the investor? b) Were the allotment and share application properly reflected in the statutory records of both companies? c) Did the investor continue to hold the shares in subsequent years?

25 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited d) Did it participate in shareholder meetings or exercise any shareholder rights? e) Did it receive any dividend, bonus shares, appreciation or other economic benefit? f) Were the shares subsequently sold, transferred, cancelled, written off or otherwise disposed of? g) If disposed of, to whom, for what consideration and with what resulting profit or loss? 23.4. The subsequent conduct of the parties cannot retrospectively determine the genuineness or valuation as on the date of allotment. A genuine investment may subsequently fail. Nevertheless, the later treatment of the investment may provide corroborative evidence regarding whether it was intended and treated as a real investment.

24.1. The investor’s bank statement records the following payments to the assessee:

Date Amount 13.12.2010 Rs.50,00,000/- 23.12.2010 Rs.35,00,000/- 28.12.2010 Rs.16,50,000/- 08.01.2011 Rs.30,00,000/- 12.01.2011 Rs.45,00,000/- Total Rs.1,76,50,000/-

24.2. The corresponding credits appear in the assessee’s bank account. The banking records, therefore, establish

26 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited movement of the amount from the disclosed bank account of M/s Ratnakar Merchandise Pvt. Ltd. to the assessee. 24.3. The investor’s bank statement also shows that the payments to the assessee were preceded by corresponding or substantially corresponding credits from other entities. Its bank account reflects a wider pattern of receiving substantial amounts and transferring them shortly thereafter to various companies. 24.4. This pattern raises further questions: a) What was the nature of the immediately preceding credits? b) Under what transactions did the investor receive those amounts? c) Did the credits represent its own share capital and premium or some other receipt? d) Did the investor possess and exercise independent control over the funds? e) Were the amounts received with any understanding that they would be transferred to specified companies? f) Was there any circular or reciprocal movement of funds? g) Did the assessee or any connected person provide funds, directly or indirectly, to the entities from which the investor received the antecedent credits? h) Were the companies from which the funds were received connected with the assessee, the investor or the investee companies?

27 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 24.5. The proximity between the credits and onward transfers is a relevant circumstance giving rise to suspicion. It is not, without further enquiry, conclusive proof that M/s Ratnakar Merchandise Pvt. Ltd. was an accommodation-entry provider or that the funds belonged to the assessee. 25.1. The genuineness of the transaction cannot be confined to the existence of share application forms, allotment records, audited accounts and banking entries. Where a company having negligible business income raises substantial funds at a premium and invests those funds in another company, also having negligible business income, at a substantial premium, the commercial rationale becomes a material evidentiary consideration. 25.2. The genuineness of the transaction cannot be confined to the existence of share application forms, allotment records, audited accounts and banking entries. Where a company having negligible business income raises substantial funds at a premium and invests those funds in another company, also having negligible business income, at a substantial premium, the commercial rationale becomes a material evidentiary consideration. 25.3. The material presently before us does not disclose: a) any pre-existing business relationship between the assessee and the investor;

28 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited b) the manner in which the investor became aware of the investment opportunity; c) the commercial information furnished to the investor; d) any contemporaneous valuation or due-diligence exercise undertaken by the investor; e) the strategic or financial objective of the investment; f) the expected return or appreciation; g) the proposed period of holding; h) the basis upon which the investor accepted the premium of Rs.490/- per share; or i) the circumstances in which a company that itself raised funds at premium decided to invest those funds in another company with negligible operational income. 25.4. The Assessing Officer cannot substitute his own commercial judgment for that of the investor. However, where no discernible commercial explanation is available and the financial and banking pattern appears unusual, the absence of such explanation is a relevant circumstance. Whether an acceptable commercial rationale existed is a question of fact which has not been properly investigated. 26.1. The assessee’s investment portfolio of Rs.4,59,62,000/- constituted substantially its entire asset base and was relied upon to support the intrinsic value of its shares. The investment

29 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited schedule includes shares in several unquoted private companies. The present record does not establish: a) whether those companies were carrying on any real business when the investments were made; b) whether they owned substantial assets; c) whether the shares were actually allotted or transferred to the assessee; d) whether the assessee exercised ownership rights over those shares; e) whether the values recorded in the assessee’s books represented genuine commercial values; f) whether those companies generated any income or return for the assessee; g) whether the investments were subsequently retained, realised, impaired or written off; or h) whether the companies remained active or were subsequently struck off, dissolved, amalgamated or liquidated. 26.2. The subsequent status of the investee companies is not determinative of their value in financial year 2010-11. A company becoming inactive after several years would not, by itself, establish that the original investment was not genuine. Conversely, if an investee company had no discernible business or assets even at the time of investment and subsequently disappeared without generating any return, that circumstance

30 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited may have corroborative relevance. The present record does not enable us to make this distinction. 27.1. The record also does not contain the Memorandum of Association of either the assessee or the investor. It is, therefore, not possible to determine: a) whether investment and trading constituted their respective principal objects; b) whether the investments were merely ancillary to some other stated business; c) whether their boards were authorised to undertake the transactions; d) whether either company ever carried on the business suggested by its corporate name; e) whether the assessee and the investor had common or connected directors, shareholders, beneficial owners, addresses or professional advisers; f) whether they invested in common companies; g) whether there were reciprocal or cross-investments; or h) whether the transaction formed part of a larger interconnected movement of funds. 27.2. These facts have a direct bearing upon whether the investor independently selected the assessee as a genuine investment or merely participated in a prearranged movement of funds.

31 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 28.1. The Assessing Officer issued a notice under section 133(6) to M/s Ratnakar Merchandise Pvt. Ltd., which was returned unserved with the remark “Not Known”. However, the assessment order does not show any further attempt to verify the investor through its jurisdictional Assessing Officer, PAN particulars, return records, Registrar of Companies or the address appearing in its bank account. 28.2. Different addresses of the investor appear in the available record. Before drawing a conclusive adverse inference from the return of a single notice, the correct address and status of the investor required verification from contemporaneous statutory records. 28.3. No statement of the directors, report of the jurisdictional Assessing Officer or specific investigation material identifying the investor as an accommodation-entry provider was referred to in the assessment order. Nor was any material brought on record establishing that the funds transferred to the assessee originated from the assessee itself. 28.4. The Assessing Officer also failed to distinguish between the four components of Rs.1,76,50,000/- and did not separately examine the alleged sale of investment of Rs.15,00,000/-. The assertion that the assessee had no underlying asset was made without reconciling the investment portfolio of Rs.4,59,62,000/- disclosed in its balance sheet.

32 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 28.5. The CIT(A) reproduced general principles governing section 68 but did not answer the factual questions arising from the audited accounts and bank statements. The written submissions filed on 19.06.2023 and the documents accompanying them were not examined by recording transaction- specific findings. The corresponding entries in the books of both companies, the composition of the receipt, the investor’s own fund-raising exercise, the bank trail and the commercial rationale remained unexamined. 29.1. The evidence presently available supports certain aspects of the assessee’s case. The identity of the investor is prima facie supported by statutory and financial documents. The movement of funds through its disclosed bank account is demonstrated. The accounts of both companies contain corresponding entries regarding the investment of Rs.1,50,00,000/- and share application money of Rs. 11,50,000/-. The assessee also possessed an investment portfolio which could not have been ignored while considering the basis of its share value. 29.2. Simultaneously, the material raises substantial questions regarding genuineness. Both companies had negligible operational income. The investor’s apparent financial capacity arose predominantly from its own issue of shares at a premium of Rs.990/- per share. It thereafter invested in the assessee at a premium of Rs.490/- per share. Its payments were preceded by

33 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited credits from other entities. No contemporaneous evidence explaining its independent commercial decision, due diligence, expected return or connection with the assessee has been examined. The nature and value of the assessee’s underlying investments are also unverified. 29.3. The evidence, therefore, cannot be viewed as conclusively proving the transaction merely because corporate documents and bank statements were produced. Equally, the transaction cannot be held to be non-genuine merely because it appears unusual or suspicious. Suspicion, however grave, cannot substitute a finding founded upon verified facts. 29.4. The questions identified above lie at the heart of the issue under section 68. They cannot be answered by us from the existing record without undertaking an investigation into third- party records, corporate filings, bank accounts, the objects and conduct of both companies and the financial condition of the underlying investee companies. 30.1. We are conscious that the transaction pertains to financial year 2010-11 and that considerable time has elapsed. Restoration should not be ordered merely to afford the Revenue an opportunity to improve an otherwise unsustainable case. However, the present matter is not being restored to supply reasons which were absent from a completed factual enquiry. The difficulty is that the foundational facts necessary to decide

34 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited genuineness were not determined by either authority, while the material produced by the assessee itself gives rise to questions which cannot responsibly be answered without further verification. 30.2. The learned AR has also made an alternative request for restoration. Although the request was for restoration to the CIT(A), the questions involved require the exercise of investigative powers, including obtaining information from banks, jurisdictional Assessing Officers, the Registrar of Companies, the investor and the underlying investee companies. Such an exercise is more appropriately undertaken by the Assessing Officer. 30.3. The restoration is neutral in its scope. It is neither intended to build a fresh case for the Revenue nor to presume the correctness of the assessee’s explanation. Its purpose is to enable a proper determination of the questions already arising from the evidence on record. The Assessing Officer shall examine the matter afresh in the light of these questions and record clear findings on: a) the nature and source of each component of Rs.1,76,50,000/-; b) the identity, real financial capacity and independent commercial role of M/s Ratnakar Merchandise Pvt. Ltd.; c) the commercial rationale and contemporaneous valuation supporting the subscription;

35 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited d) the relevance of the immediate antecedent credits in the investor’s bank account; e) the objects and actual business activities of the assessee and the investor; f) the genuineness and value of the material investments underlying the assessee’s asserted share value; g) the status and conduct of the underlying investee companies at the relevant time; h) the subsequent treatment of the shares and investments, only as corroborative evidence; and i) whether the investor acted pursuant to an independent investment decision or merely as a conduit for routing funds. 30.4. The considerable lapse of time shall be kept in view. The assessee shall not be called upon to perform an impossible act or produce documents which are no longer statutorily required to be retained, provided their non-availability is satisfactorily explained. Authenticated statutory records, certified copies, bank records and reliable secondary evidence may be considered. 30.5. The present status of an investee company shall not be treated as conclusive of its position in financial year 2010-11. Its state of affairs at the time of investment shall remain the primary consideration. Subsequent continuity, business activity, return on investment, disposal or cessation may be considered only for their corroborative value.

36 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 30.6. Any adverse material proposed to be relied upon shall be furnished to the assessee, and an effective opportunity of explanation and rebuttal shall be afforded. The Assessing Officer shall deal separately with each component of the receipt and pass a speaking order in accordance with section 68 as applicable to assessment year 2011-12, without applying section 56(2)(viib) or the subsequently inserted proviso to section 68 retrospectively. 30.7. Our observations are intended to identify the questions requiring examination and the reasons why the appeal cannot be finally decided on the present record. They shall not be construed as expressing a concluded opinion either on the genuineness of the transaction or on the merits of the addition. 30.8. Accordingly, the finding of the CIT(A) sustaining the addition of Rs.1,76,50,000/- is set aside, and Ground No. 1 is restored to the file of the Assessing Officer for fresh adjudication. Ground No. 1 is allowed for statistical purposes. 31. Ground No. 2 relating to the levy of interest under sections 234A, 234B and 234C is consequential and shall be determined in accordance with the final assessment. Ground No. 3 challenging initiation of penalty proceedings is premature and does not require separate adjudication at this stage. Ground No. 4 is general in nature.

37 ITA No. 4923/Mum/2025 Sanobar Infrastructure Private Limited 32. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 02.09.2026.

Sd/- Sd/- (AMIT SHUKLA) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 02.09.2026 ANKIT, PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file.

आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai