Facts of the Case

The assessee company received substantial share capital along with a high share premium from several investor companies allegedly based in Kolkata. The Assessing Officer (AO) observed that:

  • The assessee had minimal business activity and negligible revenue.
  • Large funds were received at unjustified premium.
  • Notices issued to investor companies under Section 133(6) were largely returned unserved.
  • Even after fresh addresses were provided, most notices remained unserved.
  • Some investor companies were found to be non-existent or struck off from the ROC.
  • The Director of the assessee could not furnish satisfactory details regarding the investors, their business activities, or their current whereabouts.

Issues Involved

  1. Identity of the investors
  2. Creditworthiness of the investors
  3. Genuineness of the transactions

Petitioner’s Arguments (Assessee)

  • Investments were received through banking channels.
  • Certain investor companies had responded to notices issued by the department.
  • Necessary documents relating to share allotment were submitted.
  • The burden on the assessee stood discharged.

 Respondent’s Arguments (Revenue)                

  • Most notices issued to investor companies were returned undelivered.
  • Enquiries revealed that several companies were non-existent.
  • The assessee failed to produce directors or principal officers of the investor entities.
  • No satisfactory evidence of financial capacity of the investors was provided.
  • The Director of the assessee company gave evasive replies during examination.

 Court Order / Findings (ITAT)

  • Mere receipt of funds through banking channels is not sufficient.
  • The assessee failed to establish identity, creditworthiness, and genuineness of investors.
  • Non-service of notices and absence of investors indicated lack of authenticity.
  • High share premium without financial justification raised serious doubts.
  • The inability of the assessee to provide basic details about investors weakened its case.

Important Clarification

 In cases of share capital and premium, the assessee must conclusively prove all three elements — identity, creditworthiness, and genuineness.
Failure of investor companies to respond to statutory notices or their non-existence can justify addition under Section 68.
 Banking transactions alone do not establish genuineness.

Link to download the order – https://itat.gov.in/public/files/upload/1671433450-Govind%20Stone%20Prvt%20PDF.pdf

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