Facts of the Case

The assessee, Kameshwar Alloys and Steels Pvt. Ltd., filed its return of income for Assessment Year 2014–15. The case was initially selected for scrutiny on the issue of share capital and share premium received during the year. The Assessing Officer completed the assessment ex parte under Section 144 and added ₹2,00,00,000 being share capital and share premium received from various companies, treating the same as unexplained under Section 68. Subsequently, a search under Section 132 and survey under Section 133A were conducted in the Devakibaivelji Group cases, pursuant to which notice under Section 153A was issued to the assessee. In response, the assessee filed its return declaring income of ₹19,59,980. During assessment under Section 153A read with Section 143(3), the Assessing Officer again examined the share capital issue and reiterated the addition of ₹2,00,00,000 under Section 68, primarily on the ground that directors of the investor companies did not appear in response to summons under Section 131 and that the share premium was unjustified. The CIT(A) sustained the addition. Aggrieved, the assessee appealed before the Tribunal.

Issues Involved

Whether the assessee had satisfactorily discharged the onus under Section 68 by establishing identity, creditworthiness and genuineness of share applicants, whether addition could be sustained merely due to non-appearance of directors of investor companies, and whether share premium received could be questioned in absence of any adverse material.

Petitioner’s Arguments

The assessee submitted that shares of face value ₹10 were issued at a premium of ₹90 and a total amount of ₹2 crore was received from nine investor companies, all of which were active companies having substantial net worth. It was contended that during assessment proceedings, the assessee furnished PAN, audited financial statements, income-tax returns, bank statements evidencing payments through banking channels, share application forms, confirmations, source letters and MCA master data of all investor companies. Notices issued under Section 133(6) were duly complied with except in one case due to change of address, though the company remained active on the MCA portal. It was argued that the investments constituted only a small percentage of the net worth of the investor companies and that the share premium was justified by growth in turnover, reduction in borrowings and improvement in financial performance. Reliance was placed on various judicial precedents holding that once the three ingredients of Section 68 are established, addition cannot be made merely on suspicion or non-appearance of directors.

Respondent’s Arguments

The Revenue supported the orders of the Assessing Officer and the CIT(A) and contended that the assessee failed to produce directors of the investor companies for examination and that the share premium charged was excessive and not commensurate with the financial position of the assessee.

Court Order / Findings

The ITAT Ranchi observed that the assessment was completed under Section 153A read with Section 143(3) and that the assessee had furnished all primary evidences in support of share capital and share premium received. The Tribunal noted that identity of the investor companies stood established through PAN, MCA records and statutory filings, creditworthiness was supported by audited balance sheets showing substantial net worth, and genuineness was evidenced by payments through banking channels and confirmations. The Tribunal held that no material was brought on record by the Assessing Officer to show that the share capital represented the assessee’s own unaccounted money or that the investor companies were shell entities. It was further held that non-appearance of directors in response to summons under Section 131, by itself, could not justify addition under Section 68 when documentary evidence was otherwise complete. Relying on decisions of the Supreme Court and various High Courts, the Tribunal held that the assessee had successfully discharged the onus under Section 68.

Important Clarification

The Tribunal clarified that once an assessee furnishes documentary evidence establishing identity, creditworthiness and genuineness of share applicants, the burden shifts to the Revenue. Mere non-appearance of directors or subjective doubts regarding share premium, without any adverse material or enquiry, are insufficient to sustain addition under Section 68.

Final Outcome

The appeal filed by the assessee was allowed, and the addition of ₹2,00,00,000 made under Section 68 of the Income-tax Act and sustained by the CIT(A) was deleted in full.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769148289_KAMESHWARALLOYSANDSTEELSPVT.LTD.KOLKATAVS.ACITCENTRALCIRCLE1RANCHI.pdf


Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.