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Facts
The assessee, Goldmoon Exports Pvt. Ltd., filed its return of income declaring a total income of Rs. 12,963/-. The case was selected for scrutiny, and the Assessing Officer (AO) made an addition of Rs. 3,79,20,000/- as unexplained cash credit on account of share capital/share premium. The AO noted that the shares were issued at a very high premium without justification and that the subscribing companies did not comply with summons issued under Section 131 of the Income Tax Act. The CIT(A) upheld the AO's order.
Held
The Tribunal held that non-compliance with summons issued under Section 131 of the Act cannot be the sole ground for making an addition under Section 68 of the Act, especially when the assessee has furnished all necessary documents proving the identity, creditworthiness of subscribers, and genuineness of transactions. The proviso to Section 68, introduced by the Finance Act 2012, was not applicable to the assessment year in question. The Tribunal relied on various judicial decisions that support this view.
Key Issues
Whether the addition under Section 68 on account of unexplained cash credit is sustainable solely on the ground of non-compliance with summons under Section 131, when the assessee has provided necessary documentary evidence?
Sections Cited
68, 131, 133(6), 250
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
vs. ITO Ward 6(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata – 700069 ................................ Respondent Appearances by: Assessee represented by : Siddharth Agarwal, Advocate Department represented by : Pankaj Pandey, Addl. CIT, Sr. DR Date of concluding the hearing : 12.11.2025 Date of pronouncing the order : 05.01.2026 O R D E R Per Rajesh Kumar, AM
The present appeal filed by the assessee arises from order dated 25.08.2025 passed u/s 250 of the Income Tax Act, 1961 (hereafter referred to as “the Act”) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter referred to as “the Ld.CIT(A)].
The issue raised in Ground No. 1 is general in nature and does not require any specific adjudication.
Goldmoon Exports Pvt. Ltd. 3. The issue raised in Ground No. 2 is against the order of Ld. CIT(A) confirming the addition of Rs. 3,79,20,000/- as made by the AO u/s 68 of the Act on account of unexplained cash credit in respect of share capital/share premium.
The facts in brief are that the assessee has filed the return of income on 30.09.2012 declaring total income at Rs. 12,963/-. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny under CASS. Notice u/s 143(2) and 142(1) of the Act along with questionnaire were issued and duly served upon the assessee. The assessee complied with the said notices by furnishing the details as called for by the AO. The AO upon perusal of the documents/details filed by the assessee observed that during the financial year, the assessee has raised share capital/share premium of Rs. 3,79,20,000/- by issuing shares at a very high premium without there being any justification for the same. The AO noted that the assessee is not having very sound financial track for issuing shares at such a high premium. The AO noted that the investing companies received funds from other private entities. The AO thereafter discussed the modus operandi of these companies and also noted that the EPS was almost ‘zero’. The AO in order to independently verify the transactions issued notices u/s 131 of the Act to the subscribing companies. The AO noted that the said notices were not complied with. Finally, the AO treated the share capital/share premium as unexplained cash credit on the ground that there was no compliance to summons u/s 131 by the assessee as well as the subscribing companies and thus added the same to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee by after taking into consideration reply and submissions of the assessee. The Ld. CIT(A) noted that though the assessee submitted the requisite documents comprising the copies of PANs, ITRs, audited financials, bank statements and confirmations to Goldmoon Exports Pvt. Ltd. prove the creditworthiness of the investigating company, genuineness of the transactions and the transactions were also done through banking channels but noted that there was no justification for issuing shares at such a higher premium. Moreover, the assessee as well as the subscribers have not replied or complied the summons issued u/s 131 of the Act. Hence the Ld. CIT(A) dismissed the appeal of the assessee and confirmed the AO’s order on this issue.
After having the rival contention and perusing the material on record, we find that undisputedly, the assessee during the year raised share capital/share premium amounting to Rs. 3,79,20,000/- by issuing equity shares to 14 entities/companies. The assessee furnished all the documents before the AO as well as the CIT(A) comprising names, addresses, copies of PANs, ITRs, audited financial statements, confirmations and bank statements etc. Besides, the assessee also produced books of accounts. We note that the AO issued summons u/s 131 of the Act which were not complied with by the assessee as well as Inspectors which was the sole reason for making the addition besides issue of shares at a very high premium. In our opinion, the non compliance of summons issued u/s 131 of the Act cannot be valid ground for making the addition u/s 68 of the Act. Ld. Counsel for the assessee vehemently submitted before the bench that the order passed by the Ld. CIT(A) is wrong and against the facts on record and various decisions given by different judicial forums. The Ld. AR, while referring to the evidences filed by the assessee as well as by the subscribers, submitted that the assessee as well as the subscribers have filed all the evidences proving the identity and creditworthiness of the subscribers as well as genuineness of the transactions. The Ld. AR referred to the replies filed in response to summons u/s. 131 of the Act by the subscribers and submitted that the AO has not pointed out any defect or deficiency in these evidences, which abundantly proved that the three conditions of section 68 of the Act were fully satisfied. The Ld. AR stated
Goldmoon Exports Pvt. Ltd. that where the assessee has filed all the evidences qua the subscribers consisting of names and addresses, PANs, audited accounts, bank statements etc. and AO has not carried out any further verification, then the addition cannot be made merely on the ground that there was no compliance to summon issued u/s. 131 of the Act by recording physical presence. The Ld. AR stated that even the information sought by the AO in the summons issued u/s. 131 of the Act were duly complied in two cases. In defense of his arguments the ld AR relied on the following decisions:
CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 l (SC); (i)
(ii) CIT Vs. Orchid Industries Ltd. 397 ITR 136 (Bom); (iii) Crystal Networks Pvt. Ltd. Vs. CIT 353 ITR 171 (Kol); (iv) ITO Vs. M/s. Cygnus Developers India Pvt. Ltd.(ITA No. 282/Kol/2012) and (v) Joy Consolidated Pvt. Ltd. Vs. ITO (ITA No. 547/Kol/2020.
We have perused the above decisions and find it has been held in all the decisions that addition u/s 68 cannot be made u/s 68 for the sole reason of non compliance to summons u/s 131 of the Act or non compliance to notices u/s 133(6) where the assessee has filed all evidences before the AO and AO has done any enquiry .
Moreover, the proviso to section 68 of the Act is inserted by Finance Act 2012 and is applicable from 01.04.2013 i.e. A.Y. 2013-14. Therefore, the said amendment is not applicable to the year under consideration. The assessee is required to prove the source and not the source of source. The case the assessee is squarely covered by the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Gagandeep “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.”
Therefore, respectfully following the above decisions, we are inclined to set aside the order of ld.CIT(A) and direct the AO to delete the addition. The appeal of the assessee is allowed.
In result, appeal of the assessee is allowed.
Order pronounced on 05.01.2026.