“share capital and share premium”
The decision most relied on for share capital and share premium is CIT v. Divine Leasing & Finance Ltd. (299 ITR 268), cited in 426 judgments on BharatTax.
Leading authorities on share capital and share premium
The Assessing Officer cannot add share capital or share premium amounts if the assessee provides the identity and creditworthiness of the subscriber and establishes the genuineness of the transaction. The court may admit additional evidence under Rule 46A, such as the PAN identity of the creditor.
Under Section 68, an assessee is only required to prove the identity and creditworthiness of the immediate creditor or share subscriber and the genuineness of the transaction. The assessee is not obligated to establish the 'source of the source' of funds or the creditworthiness of sub-lenders, as this information may not be within the assessee's special knowledge.
The issue of shares and share premium is a capital account transaction, not an income-generating event, therefore Chapter X (Transfer Pricing) provisions are not attracted to deem notional or hypothetical income from such transactions.
Under Section 68 of the Income-tax Act, the initial burden is on the assessee to establish the authenticity of transactions for unexplained credits. Once authenticity is proven, this burden shifts, and the assessee is not required to prove the genuineness or source of funds of the creditor beyond this.
An addition under Section 68 for cash credits like share capital or premium cannot be sustained if the assessee provides the identity, creditworthiness, and genuineness of the transaction, and the Assessing Officer fails to conduct further enquiries into the 'source of source' or the ultimate source of funds of the investor/creditor.
For additions under Section 68 related to share capital and premium, the assessee must prove the genuineness of the transaction and the creditworthiness of the investors, beyond merely disclosing their identities. Additions are permissible for amounts attributable to investors whose particulars remain unverified or who fail to respond to inquiries.
In reassessment proceedings initiated on the ground that companies providing share capital were non-existent, if the assessee provides documentary evidence of their existence, the burden shifts to the revenue to establish reasons for reassessment.
An addition under Section 68 for unexplained cash credits cannot be made when there is no actual cash credit or flow of funds, such as in cases of share swaps or notional credits.
