Summary
The Court restored the addition of Rs 17.60 crore in share capital and premium under Section 68. Documents and banking channels did not discharge the assessee’s burden where detailed enquiries exposed non-existent investors, unexplained funding and failure to establish creditworthiness or genuine transactions.
Issues
- Whether the assessee established investor identity, creditworthiness and transaction genuineness for share capital and premium credited to its books.
Provisions considered
- Section 68, as applicable before the Finance Act, 2012, Income-tax Act, 1961The provision covered share capital and premium. The assessee had to substantiate investor identity, financial capacity and transaction genuineness; the enquiries and unexplained circumstances justified addition on these facts. (¶¶ 8.1, 8.2, 11, 12, 13, 14, 15)
Held
- The initial burden is on the assessee to produce cogent evidence of investor identity, capacity to invest and transaction genuineness. Once the relevant evidence is supplied, the assessing officer must investigate rather than act unreasonably or mechanically. (¶¶ 8.1, 8.2, 8.3, 9, 10, 11)
- Incorporation documents, income-tax particulars and payment through banking channels do not invariably establish creditworthiness or genuine investment. The assessing officer must independently verify the subscribers and the transactions. (¶¶ 10, 11)
- The detailed field enquiries disclosed non-existent companies and a failure to substantiate financial capacity and the source of large investments at a high premium. The appellate authorities erred in ignoring those findings and treating the documentary filings as sufficient. (¶¶ 12, 13)
- On these facts the assessee failed to discharge its Section 68 burden. The receipt of private-placement capital and premium required careful scrutiny because the relevant information was within its knowledge; the assessing officer’s addition was justified. (¶¶ 14, 15, 16)
Result
Revenue appeal allowed; High Court, Tribunal and appellate commissioner orders set aside. Assessing officer’s order adding Rs 17.60 crore restored; pending applications disposed of.