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Facts
The assessee company received share capital/premium of ₹4,28,70,000/-. The AO treated this as an unexplained cash credit under Section 68 of the Act, alleging lack of proper inquiry regarding the identity, creditworthiness, and genuineness of the transactions. The CIT(A) confirmed the addition.
Held
The Tribunal held that the assessee had discharged its onus by providing all necessary details and evidence to the AO. The Tribunal also noted that the proviso to Section 68, which was introduced later, was prospective. Citing various High Court decisions, it was held that mere low income of investors or non-compliance with notices does not automatically make the credit unexplained.
Key Issues
Whether the share capital/premium received by the assessee can be treated as unexplained cash credit under Section 68 of the Act, especially when the assessee provided evidence of identity, creditworthiness, and genuineness of transactions?
Sections Cited
68, 147, 143(1), 147/143(3), 142(1), 131, 132(6), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 17.02.2025 for the AY 2008-09.
The only issue raised by the assessee in the ground of appeal is against the confirmation of addition of ₹4,28,70,000/- by the ld. CIT (A) as made by the ld. AO in respect of share capital/ share premium raised by the assessee during the year by treating the same as unexplained cash credit u/s 68 of the Act.
2.1. The facts in brief are that the assessee filed the return of income on 16.05.2008, showing total income at ₹157/-. The return was 2.2. The ld. CIT (A) affirmed the order of ld. AO by holding that the assessee failed to discharge the legal obligation to prove the genuineness of the transactions and creditworthiness of the investors which have been shown to be by round tripping of funds.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that this is a second round of litigation before the Tribunal. In the first round, the Tribunal restored the issue to the file of the ld. AO for re-examination and re-verificatuin. We note that the assessee filed all the details before the ld. AO comprising the names, addresses, copies of audited balance sheets, profit and loss accounts, audited reports, ITRs, Bank statements of the subscribers, etc. The ld. AO also issued notice u/s 133(6) of the Act, which were also complied with by five subscribers and in case of 2.4. We have examined the evidences filed before us as regards these investors, which are available in the paper book from page no. 44 to 188, which were also before the authorities below. The ld. AO has treated the subscription amount as unexplained cash credit on the ground that the subscribers were having such low taxable income and shares were not issued at a very high premium. We also note that 11 out of 14 investor companies have replied to the notices issued u/s 133(6) of the Act. In our opinion, the mere low income cannot be a criteria for treating the investments as unexplained cash credit. The case of the assessee is squarely covered by the decision of Hon'ble Delhi High Courtin case of CIT vs. Ms. Mayawati 338 ITR 563 dated 03.08.2011.
2.5. Moreover, the second allegation was that the shares were issued at a very high premium. However, we note that the year involved is assessment year 2008-09 and the proviso to section 68 of the Act introduced by Finance Act, 2012, is prospective and is applicable from 01.04.2013 effective from A.Y. 2013-14. Moreover, the assessee has received share capital/ share application money from shareholders who are regularly being assessed to tax. It was for the AO to proceed by reopening the assessment of such shareholders “We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.” 2.6. The assessee also filed before us the statement showing in assessment status of all 14 subscribers, where the assessments were framed by the department u/s 143(3)/147 of the Act and it is not the case that these investors are not traceable. For the sake of ready reference the same is extracted below:-
2.7. Therefore, we are not in agreement with the conclusion drawn by the ld. CIT (A) qua the assessee failing to discharge the legal obligation to prove the genuineness of the transactions and creditworthiness of the investors. In our opinion the assessees’ onus is discharged once the assessee furnished all the details/evidences before the AO. The revenue has not done any further enquiry or pointed out any defect in the documents furnished by the assessee. Moreover the addition u/s 68 of the cannot be made merely on the ground that there was no compliance to notices issued u/s 133(6) of the Act. We find support from the decision of Hon’ble Supreme Court in the case of Orissa Corporation Ltd. (1986) 159 ITR 78 (SC):
That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a “We find considerable force of the submissions of the learned Counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the Ld. CIT(A) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or note. When it was found by the Ld. CIT(A) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact findings. Indeed the Tribunal did not really touch the aforesaid fact finding of the Ld. CIT(A) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 463, the Supreme Court has observed as follows: “The Income-Tax Appellate Tribunals performs a judicial function under the Indian Income-tax Act. It is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and records its findings on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.
The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. Taking inspiration from the Supreme Court observation we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Ld. CIT(A). We also found no single word has been spared to up set the fact finding of the Ld. CIT(A) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.
“8. We have heard the submissions of the learned D.R, who relied on the order of AO. The learned counsel for the assessee relied on the order of Ld. CIT(A) and further drew our attention to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Agarwal vide dated 17.11.2009 wherein the Hon’ble Allahabad High Court took a view that non-production of the director of a Public Limited Company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO vs. Devinder Singh Shant in vide order dated 17.04.2009.
We have considered the rival submissions. We are of the view that order of Ld. CIT(A) does not call for any interference. It may be seen from the grounds of appeal
raised by the revenue that the revenue disputed only the proof of identity of share holder. In this regard it is seen that for AY 2004
05. Shree Shyam Trexim Pvt. Ltd. was assessed by ITO, Ward-9(4), Kolkata and the order of assessment u/s 143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd. was assessed to tax u/s 143(3) for AY 2005-06 by ITO, Ward-9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd. was assessed to tax for AY 2005-06 by the very same ITO, Ward- 9(3), Kolkata assessing the assessee. In the light of the above factual position which is not disputed by the revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon’ble Allahabad High Court as well as ITAT, Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non- production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.” 2.10. Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd 397 ITR 136 (Bom) by holding that provisions of section 68 of the Act can not be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN , financial and bank statements showing share application money .
2.11. In the instant case before us also, the assessee has furnished all the evidences proving identity and creditworthiness of the investors and genuineness of the transactions but AO has not commented on these evidences filed by the assessee. Besides the
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 31.12.2025.