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REPORTABLE  

IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION  

 CIVIL APPEAL NO.               OF 2019  

(Arising out of SLP (Civil) No. 29855 of 2018)    

Principal Commissioner of  Income Tax (Central) - 1                     …Appellant  

Versus  

NRA Iron & Steel Pvt. Ltd.                   …Respondent  

J U D G M E N T  

INDU MALHOTRA, J.  

Leave granted.  

1. The present appeal arises out of the Judgment and Order  

dated 26.02.2018 passed by a division bench of the Delhi High  

Court in Income Tax Appeal No. 244 of 2018.  The Revenue  

has challenged the judgment of the High Court by way of the  

present Appeal.  

2. The issue which arises for consideration is that in a case  

where Share Capital/Premium is credited in the books of  

account of the Assessee company, the onus of proof is on the  

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assessee to establish by cogent and reliable evidence of the  

identity of the investor companies, the credit-worthiness of the  

investors, and genuineness of the transaction, to the  

satisfaction of the Assessing Officer.  

3. The facts of the case, briefly stated are as under :  

3.1. The instant case pertains to the Assessment Year of  

2009–10, for which the Respondent Company – Assessee  

had filed the original Return of Income on 29.9.2009  

declaring a total income of Rs.7,01,870.    

A Notice was issued u/S. 148 of the Act to re-open the  

assessment on 13.04.2012 for the reasons recorded therein.   

3.2. The Assessee filed submissions on 23.04.2012 to the  

Notice u/S. 148, and objections on 30.04.2012. The  

objections were rejected on 13.08.2012. A Show Cause  

Notice was issued on 13.01.2014. The Assessee filed  

detailed Written Submissions on 22.01.2014.  

3.3. The Assessee Company in its Return showed that  

money aggregating to Rs. 17,60,00,000/- had been received  

through Share Capital/Premium during the Financial Year  

2009-10 from the following companies situated at Mumbai,  

Kolkatta, and Guwahati:  

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S. No. Name of the shareholder Amount  

(A)Mumbai Based Companies  

1. Clifton Securities Pvt. Ltd. 95,00,000  

2. Lexus Infotech Ltd. 95,00,000  

3. Nicco Securities Pvt. Ltd. 95,00,000  

4. Real Gold Trading Company Pvt. Ltd. 90,00,000  

5. Hema Trading Company Pvt. Ltd. 95,00,000  

6. Eternity Multi-trade Pvt. Ltd. 90,00,000  

(B)Kolkata Based Companies  

1. Neha Cassettes Pvt. Ltd. 90,00,000  

2. Warner Multimedia Ltd. 95,00,000  

3. Gopikar Supply Pvt. Ltd. 90,00,000  

4. Ganga Builders Ltd. 90,00,000  

5. Gromore Fund Management Co. Ltd. 95,00,000  

6. Bayanwala Brothers Pvt. Ltd. 95,00,000  

7. Super Finance Ltd. 90,00,000  

8. Shivalaxmi Export Ltd. 95,00,000  

9. Natraj Vinimay Pvt. Ltd. 95,00,000  

10. Neelkanth Commodities Pvt. Ltd. 95,00,000  

11. Prominent Vyapaar Pvt. Ltd. 95,00,000  

(C) Guwahati based companies  

1. Ispat Sheets Ltd. 90,00,000  

2. Novelty Traders Ltd. 90,00,000  

Total Amount 17,60,00,000  

It is pertinent to mention that the shares had a face value  

of Rs. 10 per share, were subscribed by the investor  

companies at Rs. 190 per share.  

3.4. The issue before the Assessing Officer (hereinafter  

referred to as “AO”) was whether the amount of Rs.  

17,60,00,000/-allegedly raised by the Respondent through  

share capital/premium were genuine transactions or not.  

3.5. The Respondent Company – Assessee was called upon  

to furnish details of the amounts received, and provide  

evidence to establish the identity of the investor companies,

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credit-worthiness of the creditors, and genuineness of the  

transaction.   

The AO issued a detailed questionnaire to the Assessee to  

provide information with respect to the amount of Rs.  

17,60,00,000 shown to have been received as Share  

Capital/Premium from various legal entities.  

The AO gave various opportunities to the A.R. of the  

Assessee to attend the proceedings, and file necessary  

clarification on the queries raised.   

3.6. The Assessee inter alia submitted that the entire Share  

Capital had been received by the Assessee through normal  

banking channels by account payee cheques/demand  

drafts, and produced documents such as income tax return  

acknowledgments to establish the identity and genuineness  

of the transaction. It was submitted that, there was no  

cause to take recourse to Section 68 of the Act, and that the  

onus on the Assessee Company stood fully discharged.  

3.7. The AO had issued summons to the representatives of  

the investor companies. Despite the summons having been  

served, nobody appeared on behalf of any of the investor  

companies. The Department only received submissions

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through dak, which created a doubt about the identity of  

the investor companies.  

3.8. The AO independently got field enquiries conducted  

with respect to the identity and credit-worthiness of the  

investor companies, and to examine the genuineness of the  

transaction.  Enquiries were made at Mumbai, Kolkatta,  

and Guwahati where these Companies were stated to be  

situated.  

The result of the enquiry is summarised by the A.O. in  

his Order as under :   

S. No.  Name of  

Investor  Company   

AO’s Enquiries  Amounts  

invested &  Tax returns  

filed  

1. Clifton  

Securities  Pvt. Ltd.-  Mumbai   

Notice Served on 29.11.2011 at  

the given address but no reply  received till date.   

95,00,000  

2. Lexus  Infotech  

Ltd.-  Mumbai   

Notice Served on 19.11.2011 at  the given address but no reply  

received till date.  

95,00,000  

3. Nicco  Securities  Pvt. Ltd. –  

Mumbai   

Notice Served on 29.11.2011 at  the given address but no reply  received till date.  

95,00,000  

4 Real Gold  

Trading Co.  Pvt. Ltd.-  Mumbai   

Address incorrect. The correct  

address is 2ndflorr, Big Three  Building where office found  closed bearing the name Hema  

Trading Co.  

90,00,000  

5. Hema  

Trading Co.  Pvt. Ltd.-  Mumbai   

Notice could not be served as  

Respondent-Assessee not  available at the address given.  The premises is owned by some  

95,00,000

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other person.  

6. Eternity  Multi Trade  Pvt. Ltd.-  

Mumbai   

Notice could not be served as  Respondent-Assessee not  available at the address given.  

The premises is owned by some  other person.  

90,00,000  

7. NehaCasset es Pvt. Ltd.-  

Kolkatta   

A submission on 15.12.2011  through dak was received  

wherein it was submitted, that  the company had applied for  45,000 equity shares of Rs. 10/-  

of NRA Iron and Steel Pvt. Ltd.  each at a premium of Rs. 190/-  each. The Company had not  

given any reason for paying  such a high premium.  

(45,00,000/- Ch. No. 039302 dt.  21.10.2008 & Rs. 45,00,000/-  Ch. No. 039315 dt. 21.10.2008  

drawn on Axis Bank.   The Company had shown a  

total income of Rs. 9,744/- in  return  for A.Y. 2009-10    

Rs. 90,00,000   invested on  21.10.2008   

Returned  income Rs.  

9744   

8. Warner  Multimedia  

Ltd.  Kolkatta   

A submission on 15.12.2011  through dak was received  

wherein it was submitted, that  the company had applied for  47,500 equity shares of Rs. 10/-  

of NRA Iron and Steel Pvt. Ltd.  each at a premium of Rs. 190/-  

each. The Company had not  given any reason for paying  such a high premium.  

(50,00,000/- Ch. No. 000084 dt.  21.10.2008 & Rs. 45,00,000/-  Ch. No. 000083 dt. 21.10.2008  

drawn on Kotak Mahindra  Bank.  

The Company had shown Nil  income for A.Y. 2009-10.  

 Rs. 95,00,000  

invested on  21.10.2008  

Returned  

income Rs.  Nil   

9. Gopikar  Supply Pvt.  Ltd.  

Kolkatta   

A submission on 15.12.2011  through dak was received  wherein it was submitted, that  

the company had applied for  45,000 equity shares of Rs. 10/-  of NRA Iron and Steel Pvt. Ltd.  

each at a premium of Rs. 190/-  each. The Company had not  

 Rs. 90,00,000    invested on  

21.10.2008  Return  income  

Rs.28,387

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given any reason for paying  

such a high premium.  (50,00,000/- Ch. No. 000040 dt.  21.10.2008 & Rs. 40,00,000/-  

Ch. No. 000039 dt. 21.10.2008  drawn on Kotak Mahindra  Bank.  

The Company had shown  income of Rs. 28,387/- for A.Y.  

2009-10.  

10. Ganga  

Builders  Ltd.  Kolkatta   

It was submitted, that the  

company had applied for shares  of NRA Iron and Steel Pvt.Ltd.  However, they had not specified  

how many shares, and at what  premium they had purchased.  The Company had not enclosed  

their Bank Statement showing  the source of fund for share  

application money. (50,00,000/-  Ch. No. 000001 dt. 24.10.2008  & Rs. 40,00,000/- Ch. No.  

000002 dt. 24.10.2008 drawn  on Kotak Mahindra Bank.  

The Company had shown  income of Rs. 5,850/- for A.Y.  2009-10  

Rs. 90,00,000   invested on  21.10.2008  

Return  income  

Rs.5850  

11. Gromore  Fund  

Managemen t Ltd.  Kolkatta   

It was submitted, that the  company had applied for 47,500  

equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  a premium of Rs. 190/- each.  

The Company had not given any  reason for paying such a high  

premium.   The Company had shown  income of Rs. 14,130/- for A.Y.  

2009-10  

 Rs. 95,00,000  

invested on  24.10.2008  

Return  

income  Rs.14130  

12. Bayanwala  

Brothers  Pvt. Ltd.  Kolkatta    

It was submitted, that the  

company had applied for 47,500  equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  

a premium of Rs. 190/- each.  The Company had not given any  

reason for paying such a high  premium. (50,00,000/- Ch. No.  000020 dt. 06.11.2008 & Rs.  

45,00,000/- Ch. No. 000021 dt.  06.11.2008 drawn on Kotak  Mahindra Bank  

Rs. 95,00,000   invested on  

6.11.2008  

Return  income Rs.  

10626

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The Company had shown  

income of Rs. 10,626/- for A.Y.  2009-10  

13. Super  

Finance Ltd.  Kolkatta   

It was submitted, that the  

company had applied for shares  of NRA Iron and Steel Pvt. Ltd.  

However, they had not specified  how many shares, and at what  premium they had purchased.  

The Company had not enclosed  their Bank Statement showing  

the source of fund for share  application money. (50,00,000/-  Ch. No. 069123 dt. 17.11.2008  

& Rs. 40,00,000/- Ch. No.  069124 dt. 17.11.2008 drawn  on Deutsche bank.  

The Company had shown  income of Rs. 10,730/- for A.Y.  

2009-10  

 Rs. 90,00,000  

invested on  17.11.2008  

Return  

income Rs.  10730   

14.  Shivlaxmi  

Export Ltd.  Kolkatta   

It was submitted, that the  

company had applied for 47,500  equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  

a premium of Rs. 190/- each.  The Company had not given any  reason for paying such a high  

premium. (50,00,000/- Ch. No.  121824 dt. 18.11.2008 & Rs.  

45,00,000/- Ch. No. 121825 dt.  18.11.2008 drawn on Deutsche  Bank.  

The Company had shown  income of Rs. 10,480/- for A.Y.  

2009-10  

 Rs. 95,00,000  

invested on  

18.11.2008  Return  income  

Rs.10480  

15 Natraj  Vinimay Pvt.  

Ltd.  Kolkatta   

It was submitted, that the  company had applied for 41,500  

equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  

a premium of Rs. 190/- each.  The Company had not given any  reason for paying such a high  

premium. (50,00,000/- Ch. No.  000098 dt. 19.11.2008 & Rs.  

45,00,000/- Ch. No. 000009 dt.  19.11.2008 drawn on Kotak  Mahindra Bank.  

The Company had shown  income of Rs. 42,083/- for A.Y.  2009-10  

 Rs. 95,00,000  

invested on  19.11.2008  

Return  income  

Rs.42083

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16 Neelkanth  

Commoditie s Pvt. Ltd.  Kolkatta   

It was submitted, that the  

company had applied for 47,500  equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  

a premium of Rs. 190/- each.  The Company had not given any  reason for paying such a high  

premium. (50,00,000/- Ch. No.  209681 dt. 5.12.2008 & Rs.  

45,00,000/- Ch. No. 209677 dt.  5.12.2008 drawn on Centurion  Bank of Punjab  

Rs. 95 lakhs invested on  5.12.2008  

By 2 cheques  The Company had shown  income of Rs. 9,470/- for A.Y.  

2009-10  

95,00,000  

Return  income  

Rs.9420  

17 Prominent  

Vyappar  Pvt. Ltd.  Kolkatta   

It was submitted, that the  

company had applied for 47,500  equity shares of Rs. 10/- of NRA  Iron and Steel Pvt. Ltd. each at  

a premium of Rs. 190/- each.  The Company had not given any  

reason for paying such a high  premium. (50,00,000/- Ch. No.  205185 dt. 5.12.2008 & Rs.  

45,00,000/- Ch. No. 205189 dt.  5.12.2008 drawn on HDFC  (Centurion Bank of Punjab)  

The Company had shown  income of Rs. 10,307/- for A.Y.  

2009-10  

Rs. 95,00,000   invested on  

5.12.2008  

By 2 cheques   Return  

income  Rs.10307  

TOTAL 17,60,00,000  

The AO recorded that the enquiries at Mumbai revealed  

that out of the four companies at Mumbai, two companies  

were found to be non-existent at the address furnished.   

With respect to the Kolkata companies, the response  

came through dak only. However, nobody appeared, nor did  

they produce their bank statements to substantiate the

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source of the funds from which the alleged investments were  

made.   

With respect to the Guwahati companies – Ispat Sheet  

Ltd. and Novelty Traders Ltd., enquiries revealed that they  

were non-existent at the given address.  

3.9. On the basis of the detailed enquiries conducted, the A.O.  

held that the Assessee had failed to prove the existence of  

the identity of the investor companies and genuineness of  

the transaction.   

The A.O. found that :   

i. None of the investor-companies which had invested  

amounts ranging between Rs. 90,00,000 and Rs.  

95,00,000 as share capital in the Respondent  

Company – Assessee during the A.Y. 2009-10, could  

justify making investment at such a high premium of  

Rs. 190 for each share, when the face value of the  

shares was only Rs. 10;  

ii. Some of the investor companies were found to be non-

existent;  

iii. Almost none of the companies produced the bank  

statements to establish the source of funds for making  

such a huge investment in the shares, even though

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they were declaring a very meagre income in their  

returns;  

iv. None of the investor-companies appeared before the  

A.O., but merely sent a written response through dak.  

The AO held that the Assessee had failed to discharge the  

onus by cogent evidence either of the credit worthiness of  

the so-called investor-companies, or genuineness of the  

transaction.    

As a consequence, the amount of Rs. 17,60,00,000/- was  

added back to the total income of the Assessee for the  

assessment year in question.  

4. The Respondent Company – Assessee filed an Appeal before  

the Commissioner of Income Tax (Appeals)-I, New Delhi.  

Reliance was placed on the decision of the Delhi High Court in  

CIT  v. Lovely Exports Pvt. Ltd1. wherein it was held that :  

“In the case of a company the following are  the propositions of law under section 68. The  assessee has to prima facie prove (1) the  identity of the creditor/subscriber; (2) the  genuineness of the transaction, namely,  whether it has been transmitted through  banking or other indisputable cannels; (3) the  creditworthiness or financial strength of the  creditor/subscriber; (4) if relevant details of  the address of PAN indetity of the  creditor/subscriber alongwith copies of the  

                                                           1 (2008) 299 ITR 268 (Delhi)

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shareholders register, share application  forms, share transfer register, etc, it would  constitute acceptable proof or acceptable  explanation by the assessee; (5) the  Department would not be justified in drawing  an adverse inference only because the  creditor/subscriber fails or neglects to  respond to its notice; The Assessing Officer is  duty bound to investigate the  creditworthiness of the creditor/subscriber  the genuineness of the transaction and the  veracity of the repudiation.” The SLP filed  against the judgment was dismissed.”    

The Commissioner of Income Tax (Appeals)-I, New Delhi vide  

Order dated 11.04.2014 deleted the addition made by the A.O.  

on the ground that the Respondent had filed confirmations  

from the investor companies, their Income Tax Return,  

acknowledgments with PAN numbers, copies of their bank  

account to show that the entire amount had been paid  

through normal banking channels, and hence discharged the  

initial onus under Section 68 of the Act, for establishing the  

credibility and identity of the shareholders.  

5. The Revenue filed an Appeal before the Income Tax Appellate  

Tribunal (hereinafter referred to as “ITAT”). The ITAT dismissed  

the appeal, and confirmed the order of the CIT(A) vide Order  

dated 16.10.2017 on the ground that the Assessee had  

discharged their primary onus to establish the identity and

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credit-worthiness of the investors, especially when the investor  

companies had filed their returns and were being assessed.  

6. The Revenue filed an Appeal bearing I.T.A. No. 244/2018 u/S.  

260A of the Act before the Delhi High Court to challenge the  

order of the Tribunal. The Respondent Company – Assessee  

did not appear before the High Court. Hence, the matter  

proceeded ex-parte. The High Court dismissed the Appeal filed  

by the Revenue vide the Impugned Order dated 26.02.2018,  

and affirmed the decision of the Tribunal on the ground that  

the issues raised before it, were urged on facts, and the lower  

appellate authorities had taken sufficient care to consider the  

relevant circumstances. Hence no substantial question of law  

arose for their consideration.   

7. Aggrieved by the Order passed by the High Court, the Revenue  

filed the present S.L.P. (C) No. 29855/2018 before this Court.  

This Court issued Notice on 12.11.2018 returnable in six  

weeks.  After service was effected on the Respondent Company  

– Assessee, the matter was listed on 02.01.2019.  However,  

none appeared on behalf of the Respondent Company –  

Assessee. Consequently, the matter was adjourned for two  

weeks, and posted on 18.01.2019, when it was ordered that in

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case the Respondent Company – Assessee chooses not to enter  

appearance, the matter would be disposed  of ex-parte.  

The matter was thereafter listed again on 23.01.2019, when  

the following Order was passed:  

“Notice was issued in the matter on  12.11.2018, Office report dated 22.12.2018  indicated that notice was served upon the  sole Respondent but none had entered  appearance.   By order dated 02.01.2019, last opportunity  was given to the Respondent and it was  indicated that if the Respondent chose not to  enter appearance, the matter would be  disposed of ex-parte. Even then none has  entered appearance.    Having gone through the matter, we give one  more opportunity to the Respondent to enter  appearance and make submissions with  respect to the merits of the matter. If the  Respondent still chooses not to appear, the  matter shall definitely be decided ex-parte.”    

The Respondent Company – Assessee however remained  

unrepresented even on the subsequent dates i.e. on  

31.01.2019 and 05.02.2019. The matter was finally heard on  

05.02.2019, when judgment was reserved.  

8. We have heard the Ld. Counsel for the Revenue, and examined  

the material on record.   

8.1. The issue which arises for determination is whether the  

Respondent / Assessee had discharged the primary onus to

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establish the genuineness of the transaction required under  

Section 68 of the said Act.   

Section 68 of the I.T. Act (prior to the Finance Act, 2012)  

read as follows:  

“68. Cash credits- Where any sum is found  credited in the book of an Assessee  maintained for any previous year, and the  Assessee offers no explanation about the  nature and source thereof or the explanation  offered by him is not, in the opinion of the  Assessing Officer, satisfactory, the sum so  credited may be charged to income-tax as the  income of the Assessee of that previous year”     

(emphasis supplied)    

The use of the words “any sum found credited in the  

books” in Section 68 of the Act indicates that the section is  

widely worded, and includes investments made by the  

introduction of share capital or share premium.  

8.2. As per settled law, the initial onus is on the Assessee to  

establish by cogent evidence the genuineness of the  

transaction, and credit-worthiness of the investors under  

Section 68 of the Act.    

The assessee is expected to establish to the satisfaction of  

the Assessing Officer2  :  

• Proof of Identity of the creditors;  

                                                           2 CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal)

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• Capacity of creditors to advance money; and  

• Genuineness of transaction   

This Court in the land mark case of Kale Khan  

Mohammad Hanif  v. CIT3  and, Roshan Di Hatti v. CIT4  laid  

down that the onus of proving the source of a sum of money  

found to have been received by an assessee, is on the  

assessee. Once the assessee has submitted the documents  

relating to identity, genuineness of the transaction, and  

credit-worthiness, then the AO must conduct an inquiry,  

and call for more details before invoking Section 68. If the  

Assessee is not able to provide a satisfactory explanation of   

the nature and source, of the investments made, it is open  

to the Revenue to hold that it is the income of the assesse,  

and there would be no further burden on the revenue to  

show that the income is from any particular source.  

8.3. With respect to the issue of genuineness of transaction, it is  

for the assessee to prove by cogent and credible evidence,  

that the investments made in share capital are genuine  

borrowings, since the facts are exclusively within the  

assessee’s knowledge.  

                                                           3 [1963] 50 ITR 1 (SC)  4 [1977] 107 ITR (SC)

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The Delhi High Court in CIT v. Oasis Hospitalities Pvt.  

Ltd.5, held that :  

“The initial onus is upon the assessee to  establish three things necessary to obviate  the mischief of Section 68. Those are: (i)  identity of the investors; (ii) their  creditworthiness/investments; and (iii)  genuineness of the transaction. Only when  these three ingredients are established prima  facie, the department is required to  undertake further exercise.”    

It has been held that merely proving the identity of the  

investors does not discharge the onus of the assessee, if the  

capacity or credit-worthiness has not been established.  

In Shankar Ghosh v. ITO6, the assessee failed to prove the  

financial capacity of the person from whom he had allegedly  

taken the loan. The loan amount was rightly held to be the  

assessee’s own undisclosed income.  

8.4. Reliance was also placed on the decision of CIT v.  

Kamdhenu Steel & Alloys Limited and Other7   wherein the  

Court that :  

                                                           5 333 ITR 119 (Delhi)(2011)  6 [1985] 23 TTJ (Cal.)  7 (2012) 206 Taxaman 254 (Delhi)

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“38. Even in that instant case, it is projected  by the Revenue that the Directorate of Income  Tax (Investigation) had purportedly found  such a racket of floating bogus companies  with sole purpose of lending entries. But, it is  unfortunate that all this exercise if going in  vain as few more steps which should have  been taken by the Revenue in order to find  out causal connection between the case  deposited in the bank accounts of the  applicant banks and the assessee were not  taken. It is necessary to link the assessee  with the source when that link is missing, it  is difficult to fasten the assessee with such a  liability.”     

9. The Judgments cited hold that the Assessing Officer ought to   

conduct an independent enquiry to verify the genuineness of  

the credit entries.   

In the present case, the Assessing Officer made an  

independent and detailed enquiry, including survey of the so-

called investor companies from Mumbai, Kolkata and  

Guwahati to verify the credit-worthiness of the parties, the  

source of funds invested, and the genuineness of the  

transactions.  The field reports revealed that the share-holders  

were either non-existent, or lacked credit-worthiness.  

10. On the  issue of unexplained credit entries /share capital, we  

have examined the following judgments :  

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i. In Sumati Dayal v. CIT8 this Court held that :  

“if the explanation offered by the  assessee about the nature and source  thereof is, in the opinion of the  Assessing Officer, not satisfactory, there  is prima facie evidence against the  assessee, vis., the receipt of money, and  if he fails to rebut the same, the said  evidence being unrebutted can be used  against him by holding that it is a  receipt of an income nature. While  considering the explanation of the  assessee, the department cannot,  however, act unreasonably”    

ii. In CIT v. P. Mohankala9  this Court held that:  

“A bare reading of section 68 of the Income- tax Act, 1961, suggests that (i) there has to  be credit of amounts in the books maintained  by the assessee ; (ii) such credit has to be a  sum of money during the previous year ; and  (iii) either (a) the assessee offers no  explanation about the nature and source of  such credits found in the books or (b) the  explanation offered by the assessee, in the  opinion of the Assessing Officer, is not  satisfactory. It is only then that the sum so  credited may be charged to Income-tax as the  income of the assessee of that previous year.  The expression “the assessee offers no  explanation” means the assessee offers no  proper, reasonable and acceptable  explanation as regards the sums found  credited in the books maintained by the  assessee.  

                                                           8 [1995] 214 ITR 801 (SC)  9 291 ITR 278

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The burden is on the assessee to take the  plea that, even if the explanation is not  acceptable, the material and attending  circumstances available on record do not  justify the sum found credited in the books  being treated as a receipt of income nature.”                                                    

(emphasis supplied)    

iii. The Delhi High Court in a recent judgment delivered in  

PR.CIT -6, New Delhi  v. NDR Promoters  Pvt. Ltd.10   

upheld the additions made by the Assessing Officer on  

account of introducing bogus share capital into the  

assessee company on the facts of the case.  

iv. The Courts have held that in the case of cash credit  

entries, it is necessary for the assessee to prove not  

only the identity of the creditors, but also the capacity  

of the creditors to advance money, and establish the  

genuineness of the transactions. The initial onus of  

proof lies on the assessee. This Court in Roshan Di  

Hatti v. CIT11, held that if the assessee fails to  

discharge the onus by producing cogent evidence and  

explanation, the AO would be justified in making the  

additions back into  the income of the assessee.     

                                                           10 410 ITR 379  11 (1992) 2 SCC 378

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v. The Guwahati High Court in Nemi Chand Kothari v.  

CIT12  held that merely because a transaction takes  

place by cheque is not sufficient to discharge the  

burden. The assessee has to prove the identity of the  

creditors and genuineness of the transaction. :  

“It cannot be said that a transaction,  which takes place by way of cheque, is  invariably sacrosanct. Once the  assessee has proved the identity of his  creditors, the genuineness of the  transactions which he had with his  creditors, and the creditworthiness of  his creditors vis-a-vis the transactions  which he had with the creditors, his  burden stands discharged and the  burden then shifts to the revenue to  show that though covered by cheques,  the amounts in question, actually  belonged to, or was owned by the  assessee himself”    

(emphasis supplied)    

vi. In a recent judgment the Delhi High Court13  held that  

the credit-worthiness or genuineness of a transaction  

regarding share application money depends on  

whether the two parties are related or known to each  

other, or mode by which parties approached each  

other, whether the transaction is entered into through  

                                                           12 [2003] 264 ITR 254 (Gau.)  13 CIT v. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi)

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written documentation to protect investment, whether  

the investor was an angel investor, the quantum of  

money invested, credit-worthiness of the  recipient,  

object and purpose for which payment/investment was  

made, etc. The incorporation of a company, and  

payment by banking channel, etc. cannot in all cases  

tantamount to satisfactory discharge of onus.  

vii. Other cases where the issue of share application  

money received by an assessee was examined in the  

context of Section 68 are CIT v. Divine Leasing &  

Financing Ltd.14, and CIT v. Value Capital Service (P.)  

Ltd.15    

11. The principles which emerge where sums of money are  

credited as Share Capital/Premium are :   

i. The assessee is under a legal obligation to prove the  

genuineness of the transaction, the identity of the  

creditors, and credit-worthiness of the investors who  

should have the financial capacity to make the  

investment in question, to the satisfaction of the AO,  

so as to discharge the primary onus.   

                                                           14 (2007) 158 Taxman 440  15 [2008]307 ITR 334

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ii. The Assessing Officer is duty bound to investigate the  

credit-worthiness of the creditor/ subscriber, verify the  

identity of the subscribers, and ascertain whether the  

transaction is genuine, or these are bogus entries of  

name-lenders.  

iii. If the enquiries and investigations reveal that the  

identity of the creditors to be dubious or doubtful, or  

lack credit-worthiness, then the genuineness of the  

transaction would not be established.   

In such a case, the assessee would not have  

discharged the primary onus contemplated by Section  

68 of the Act.  

12. In the present case, the A.O. had conducted detailed enquiry  

which revealed that :  

i. There was no material on record to prove, or even  

remotely suggest, that the share application money  

was received from independent legal entities. The  

survey revealed that some of the investor companies  

were non-existent, and had no office at the address  

mentioned by the assessee.   

For example:

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a. The companies Hema Trading Co. Pvt. Ltd. and  

Eternity Multi Trade Pvt. Ltd. at Mumbai, were  

found to be non-existent at the address given, and  

the premises was owned by some other person.   

b. The companies at Kolkatta did not appear before the  

A.O., nor did they produce their bank statements to  

substantiate the source of the funds from which the  

alleged investments were made.   

c. The two companies at Guwahati viz. Ispat Sheet Ltd.  

and Novelty Traders Ltd., were found to be non-

existent at the address provided.   

The genuineness of the transaction was found to be  

completely doubtful.  

ii. The enquiries revealed that the investor companies  

had filed returns for a negligible taxable income, which  

would show that the investors did not have the  

financial capacity to invest funds ranging between Rs.  

90,00,000 to Rs. 95,00,000 in the Assessment Year  

2009-10, for purchase of shares at such a high  

premium.   

For example:

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Neha Cassetes Pvt. Ltd. - Kolkatta  had disclosed a  

taxable income of Rs. 9,744/- for A.Y. 2009-10, but  

had purchased Shares worth Rs, 90,00,000 in the  

Assessee Company.   

Similarly Warner Multimedia Ltd. – Kolkatta filed a  

NIL return, but had purchased Shares worth Rs.  

95,00,000 in the Assessee Company – Respondent.   

Another example is of Ganga Builders Ltd. –  

Kolkatta which had filed a return for Rs. 5,850 but  

invested in shares to the tune of Rs. 90,00,000 in the  

Assessee Company – Respondent, etc.  

iii. There was no explanation whatsoever offered as to why  

the investor companies had applied for shares of the  

Assessee Company at a high premium of Rs. 190 per  

share, even though the face value of the share was Rs.  

10/- per share.   

iv. Furthermore, none of the so-called investor companies  

established the source of funds from which the high  

share premium was invested.  

v. The mere mention of the income tax file number of an  

investor was not sufficient to discharge the onus under  

Section 68 of the Act.  

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13. The lower appellate authorities appear to have ignored the  

detailed findings of the AO from the field enquiry and  

investigations carried out by his office. The authorities below  

have erroneously held that merely because the Respondent  

Company – Assessee had filed all the primary evidence, the  

onus on the Assessee stood discharged.   

The lower appellate authorities failed to appreciate that the  

investor companies which had filed income tax returns with a  

meagre or nil income had to explain how they had invested  

such huge sums of money in the Assesse Company -  

Respondent. Clearly the onus to establish the credit  

worthiness of the investor companies was not discharged. The  

entire transaction seemed bogus, and lacked credibility.  

The Court/Authorities below did not even advert to the field  

enquiry conducted by the AO which revealed that in several  

cases the investor companies were found to be non-existent,  

and the onus to establish the identity of the investor  

companies, was not discharged by the assessee.  

14. The practice of conversion of un-accounted money through the  

cloak of Share Capital/Premium must be subjected to careful  

scrutiny. This would be particularly so in the case of private  

placement of shares, where a higher onus is required to be

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placed on the Assessee since the information is within the  

personal knowledge of the Assessee. The Assessee is under a  

legal obligation to prove the receipt of share capital/premium  

to the satisfaction of the AO, failure of which, would justify  

addition of the said amount to the income of the Assessee.  

15. On the facts of the present case, clearly the Assessee Company  

- Respondent failed to discharge the onus required under  

Section 68 of the Act, the Assessing Officer was justified in  

adding back the amounts to the Assessee’s income.   

16. The Appeal filed by the Appellant – Revenue is allowed. In the  

aforesaid facts and circumstances, and the law laid down  

above, the judgment of the High Court, the ITAT, and the CIT  

are hereby set-aside. The Order passed by the AO is restored.  

Pending applications, if any are disposed of.  

Ordered accordingly.   

…...........................J.  (UDAY UMESH LALIT)  

…...……………………J.  (INDU MALHOTRA)  

New Delhi,  March 5, 2019.

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