Loading judgment…
Facts
The assessee company issued share capital of Rs. 50,00,000 to 22 persons. The Assessing Officer (AO) treated this as unexplained cash credit under Section 68, noting that cash was deposited into the shareholders' bank accounts just before payment to the assessee. The CIT(Appeals) upheld the AO's addition.
Held
The Tribunal held that the assessee had established the identity, creditworthiness, and genuineness of the transactions by providing bank statements, ITRs, and cash books of the shareholders. The AO and CIT(Appeals) failed to conduct proper inquiry or negate the evidence provided, making the addition under Section 68 arbitrary and bad in law. The addition was directed to be deleted.
Key Issues
Whether the share capital introduced by the assessee company could be treated as unexplained cash credit under Section 68, given that shareholders deposited cash into their accounts prior to investment and the revenue authorities did not properly examine the evidence provided.
Sections Cited
Section 68, Section 44AB, Section 133(6), Section 250(4), Section 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 29.10.2025 for the assessment year 2016-17 as per the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs.50,00,000 made by the Assessing Officer u/s.68 of the Act without appreciating the evidences filed and the explanations furnished by the appellant. Hence, invoking of section 68 is uncalled for, illegal and bad in law as well as on facts.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the appellant had duly established the Identity and creditworthiness of the shareholders, genuineness of the transaction and source of funds, and therefore the provision of section 68 is not applicable in the case of the assessee. Hence, invoking of section 68 is uncalled for, illegal and bad in law as well as on facts.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the finding of the Assessing Officer that cash deposits in the bank accounts of shareholders rendered the share capital unexplained, without bringing any contrary evidence to establish that the funds belonged to the appellant. Hence, invoking of section 68 is uncalled for, illegal and bad in law as well as on facts.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that additions cannot be made merely on suspicion, conjectures and assumptions, particularly when the shareholders responded to notices issued to them u/s 133(6) and furnished bank statements, ITRs and other relevant documents with explanation to establish identity, creditworthiness and genuineness of the transaction. Hence, invoking of section 68 of the Act under the abovesaid background is uncalled for, illegal and bad in law as well as on facts.
5. The appellant craves leave to add, urge, alter, modify or withdraw any ground/s of appeal on or before hearing of the case.”
Brief facts in this case are that the assessee company derives income from manufacturing and sale of MG kraft Paper. The assessee company maintained regular books of accounts, quantity Registers for production and sales, bills and vouchers and other relevant records. The bills and vouchers are verifiable and accounts were duly audited as per Section 44AB of the Income Tax Act, 1961 (for short ‘the Act’). The assessee company during the year under consideration had issued share capital for Rs.50,00,000/- consisting of Rs.40,000/- equity shares of Rs.100/- each at a premium of Rs.25/- per share to 22 persons. The A.O held the share capital issued as unexplained cash credit u/s. 68 of the Act and added Rs.50,00,000/- in the hands of the assessee.
The facts further reveal that the assessee had allotted 40,000 equity shares to different persons during the year under consideration wherein each share had face value of Rs.100/- and premium of Rs.25/- and has been allotted at Rs.1250/- amounting to Rs.50,00,000/- which includes Rs.10 lakhs for share premium. The A.O asked the assessee to furnish complete details of share premium receipt during the year under consideration including name, PAN and address of the persons, face value of the share, share premium amount along with working of fair market value of the said shares in accordance with Rule 11U & 11UA of the I.T.
4 Umiya Board and Paper Mills Pvt. Ltd. Vs. DCIT, Circle-1(1), Raipur (C.G.)
Rules, 1962. That as discernable from the assessment records, the assessee had furnished all these documents a/w. list of shareholders, details of number of shares allotted, share premium etc. Subsequently, in order to verify the genuineness of the said investment by the listed shareholders of the assessee company, notice u/s. 133(6) of the Act was issued to all 22 shareholders requiring them to furnish nature and source of investment in shares of the assessee company. In response to the said statutory notice, the shareholders had furnished bank statements, cash books for the period 2015-16. The A.O made addition by observing that the amount invested by the shareholders in the share of the assessee company was deposited in cash in their individual bank account just before the date of payment to the assessee company.
The second reason for the impugned addition was that the A.O had issued another notice u/s. 133(6) of the Act to all these shareholders for furnishing documents substantiating the business activities during the year under consideration. Since no submissions has been furnished, the additions were made by the A.O.
The Ld. CIT(Appeals)/NFAC while upholding the findings of the A.O did not give any specific reason vide one para order and summarily dismissed the appeal of the assessee.
The fact of the matter is that the assessee company is maintaining regular books of account, quantity registers for production and sales, bills and vouchers and other relevant documents. The books of accounts were duly audited as per Section 44AB of the Act. There are no questions raised by the Department regarding validity of these documents which were produced before the A.O by the assessee during the assessment stage itself. The A.O had also issued notice u/s. 133(6) of the Act and all the shareholders who had invested in the assessee company, they have produced bank statement for the given period and filed individual return of income for the relevant year and cash book. The only ground of the A.O for making addition was that there was this particular pattern of cash deposits in the individual account of shareholders just before making payment to the assessee company. That when the assessee had provided all the relevant documents and evidences, that when books of account were duly audited as per Section 44AB of the Act, when basis of the share transaction is not questioned by the Department, there cannot be any addition u/s. 68 of the Act only because of the fact that according to the A.O since cash was deposited in the individual account of the shareholders just prior to the date of payment to the assessee company, cannot make a genuine transaction as non-genuine in absence of any corroborative evidences.
That further each of the shareholders in response to the 1st notice u/s. 133(6) of the Act had furnished their bank statement for the relevant period and they had filed individual return of income, cash book and that all these documents have been furnished by the assessee, still the A.O for reasons known to him only is not satisfied regarding identity, creditworthiness and genuineness of the transaction and just because, the shareholders had not given response to the second notice issued u/s.133(6) of the Act, the A.O had made the additions.
The identity, creditworthiness and genuineness of the transaction in the present case are well being established since on one hand, all the documents and evidences pertaining to the assessee had been duly furnished before the A.O and at the same time, all the shareholders have given their bank statements, ITR as well as cash book. The A.O had not negated or disbelieved these documents which have been furnished before him. The A.O had also not conducted any inquiry and has not brought on record any findings on facts as to why he had made the addition u/s. 68 of the Act. Similarly, the Ld. CIT(Appeals)/NFAC when mandated to pass order in terms with Section 250(4) & (6) of the Act, the said authority chooses to pass a summary and cryptic order and dismissed the appeal of the assessee without any independent application of mind or reasoning. There is no logical reasons in the order of the Ld. CIT(Appeals)/NFAC for 7 Umiya Board and Paper Mills Pvt. Ltd. Vs. DCIT, Circle-1(1), Raipur (C.G.) sustaining the said addition in the hands of the assessee. It would be relevant to extract the relevant findings of the Ld. CIT(Appeals)/NFAC which reads as follows: “I have gone through the facts of the case and the submissions of the Appellant. It is the onus of the Appellant to prove the Identity, Genuineness and Creditworthiness of the persons providing the credits. The Appellant has stated that the shares were subscribed by 22 persons introducing the share capital of Rs.50,00,000/-. The Assessing Officer has specifically given a fact finding that all the amounts were deposited in cash in the bank accounts of the 22 persons two or three days before the subscription of shares. The Appellant has not provided any proof or explanation as how the cash was uniformly deposited in the bank accounts of the 22 persons. This leads to the lack of Genuineness and Creditworthiness of those persons. As the Appellant is unable to prove the Genuineness and Creditworthiness, there is no reason to interfere in the Order of Assessment. Accordingly, the Appeals stand dismissed.
The statute mandates that the first appellate authority shall conduct independent inquiry before coming to a particular conclusion. However, as discernable from the foregoing para, the Ld. CIT(Appeals)/NFAC had summarily dismissed the appeal of the assessee in a perverse and arbitrary manner without independent application of mind vis-à-vis the facts of the case of the assessee. There is no analytical findings provided in the order of the Ld. CIT(Appeals)/NFAC regarding all the evidences and documents furnished by the assessee as well as by the shareholders. That without negating evidences placed on record by the assessee, the addition made by the A.O and sustained by the Ld. CIT(Appeals)/NFAC as quasi-judicial authority is not in accordance with 8 Umiya Board and Paper Mills Pvt. Ltd. Vs. DCIT, Circle-1(1), Raipur (C.G.)
Act. That if the additions were to be made u/s. 68 of the Act, it was mandatory for the Revenue authority to specifically spell out regarding deficiency for establishing identity, creditworthiness and genuineness of the transaction. But in this case, there is no discussion at all by the Revenue authority regarding evidences placed on record by the assessee as well as shareholders and without any examination and inquiry, the additions had been made, which therefore, obtain the character being perverse, arbitrary and bad in law, hence liable to be deleted. Considering the entire facts and circumstances of the case, I am of the considered view that the additions made u/s. 68 of the Act in the case of the assessee is misplaced and hence, the A.O is directed to delete the same while providing appeal effect of this order.
As per the aforesaid terms grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in open court on 19th day of February, 2026.