Principal Commissioner Of Income Tax - 2 vs Minto Park Estates Private Limited
2025 Latest Caselaw 687 Cal/2

Calcutta High Court

Principal Commissioner Of Income Tax - 2 vs Minto Park Estates Private Limited on 1 August, 2025

Author: T.S. Sivagnanam

Bench: T.S. Sivagnanam

ITAT NO. 4 OF 2025
   REPORTABLE
                                                                             2025:CHC-OS:136-DB
            IN THE HIGH COURT OF JUDICATURE AT CALCUTTA

                      SPECIAL JURISDICTION (INCOME TAX)

                               ORIGINAL SIDE



                           RESERVED ON: 28.07.2025
                           DELIVERED ON:01.08.2025


                                   CORAM:

           THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
                                      AND
           THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)




                                ITAT/4/2025

                              (IA NO: GA/2/2025)

        PRINCIPAL COMMISSIONER OF INCOME TAX - 2, KOLKATA

                                   VERSUS

                     MINTO PARK ESTATES PRIVATE LIMITED




Appearance:-
Mr. Aryak Dutta, Sr. Standing Counsel.
Mr. Amit Sharma, Adv.
                                                     .....For the Appellant.


Mr. Abhratosh Majumder, Sr. Adv.
Mr. Avra Mazumder, Adv.
Ms. Alisha Das, Adv.
Mr. Soumen Bhowmik, Adv.
Mr. Samrat Das, Adv.
Ms. Elina Dey, Adv.
                                                   .....For the Respondent.


                                   Page 1 of 22
 ITAT NO. 4 OF 2025
   REPORTABLE
                                                                             2025:CHC-OS:136-DB
                                  JUDGMENT

(Judgment of the Court was delivered by T.S. Sivagnanam, CJ.)

1. This appeal has been filed by the revenue under Section 260A of the

Income Tax Act, 1961 (the Act) challenging the order dated April 10, 2024

passed by the Income Tax Appellate Tribunal "A" bench, Kolkata (tribunal)

in ITA No. 1276/Kol/2023 for the assessment year 2012-2013. The revenue

has raised the following substantial questions of law for consideration:-

1) Whether the Learned Tribunal has committed substantial error in law in deleting the addition of Rs. 1,10,00,000/-

made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 on account of share capital/premium as unexplained cash credit despite the respondent assesse failing to establish the genuineness of the transactions as well as identity and creditworthiness of the share subscribers?

2) Whether the Learned Tribunal has committed substantial error in law in deleting the addition made under Section 68 of the Income Tax Act, 1961 by ignoring the judicial precedents that the onus is on the assessee to explain and establish the source of funds which in the instant case, the assessee has failed to do?

3) Whether the Learned Tribunal has committed substantial error in law in deleting the addition made under Section 68 of the Income Tax Act, 1961 without giving due weightage to the unjustified receipt of high premium from seemingly unprospectively entities and ignoring the ration laid down in the case of Principal Commissioner of Income Tax (Central ) - I Kolkata Vs. NRA Iron and Steel (P)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB Ltd.reported in (2019) 103 taxmann.com 48 and in the case of PCIT (Central) - 2, Kolkata Vs. BST Infratech Ltd. In ITAT No. 67 of 2024 by the Jurisdictional High Court?

4) Whether in the facts and circumstances of the case, the Learned Tribunal has committed substantial error in law in deleting the addition made by the Assessing Officer in as much as the Learned Tribunal has ignored the facts that the creditwothiness of subscribing company and source of funds for investment were not established though the onus of proving the genuineness of transactions and the identity of the share subscribing company and its creditworthiness is on the assessee company?

2. We have heard Mr. Aryak Dutt, Learned Senior Standing Counsel

along with Mr. Amit Sharma, Learned Standing Counsel for the appellant

department and Mr. Abhratosh Majumder, learned Senior Advocate assisted

by Mr. Avra Mazumder, Ms. Alisha Das, Mr. Soumen Bhowmik, Mr. Samrat

Das, and Mr. Elina Dey learned advocates appearing for the respondent

assessee

3. The assessee filed their return of income on 25.09.2012 showing

income of Rs. 770/- which was processed under Section 143(1) of the Act.

The case was selected for scrutiny and notice under Section 143(2) and

Section 142(1) were issued on 26.08.2013. In compliance with those notices,

the assessee made certain submissions on 19.02.2014. Again, two notices

were issued under Section 142(1) dated 06.05.2014 and 30.06.2014 to

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB which the assessee through their authorised representative appeared before

the assessing officer and explained them their stand. The assessing officer

while completing the assessment under Section 143(3) by order dated

27.03.2015 noted that the assessee was incorporated on 22.03.2012 and

during the financial year 2011-2012 relevant to the assessment year 2012-

2013 it raised share capital by Rs. 16,40,000/- against issue of 1,64,000

equity shares of face value of Rs. 10/- each. The assessing officer noted that

24000 shares were allotted with premium of Rs. 1,17,60,000/- at the rate of

Rs. 419 per share to 9 subscribers. The total share capital including

premium that was raised was Rs. 1,34,00,000/-. The assessing officer

examined the financial stability of the share subscriber companies and

noted that all of them reported the source of investment from sale of shares.

Further the assessing officer noted that all the seven investing companies

reported NIL income from its operations. Therefore, the assessing officer

held that this would clearly lead to the inference that the share subscriber

companies which were incorporated have no visible business activity and

creditworthiness to make the investment. In order to verify the genuineness

of the transactions, summons were issued under Section 131 of the Act to

Shashi Mehta, the director for personal appearance and to produce the

investors/investor directors along with the documents which were

requisitioned. In response to the summons, Kunal Mehta and other

directors of the assessee company appeared and due to the ill health of

Shashi Mehta she was unable to attend. Statement was recorded from

Kunal Mehta. None of the directors of the subscriber companies appeared

nor any proper reason was assigned for their non-appearance. Therefore, the

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB assessing officer came to the conclusion that in the absence of personal

appearance of the directors of the subscriber companies, the genuineness

and creditworthiness remained unexplained. More so when the onus is on

the assessee to prove the genuineness, creditworthiness and the identity of

the investors. Thus, on analysis of all these facts the assessing officer

opined that the assessee company has raised share capital and/or premium

in order to route its undisclosed money to the desired end of the

beneficiaries taking recourse of the corporate veil. It was further observed

that the assessee company rotated its undisclosed money layering through

different body corporates in different structure to obfuscate enquiry. Further

the assessing officer found that the assessee is a private limited company

and share application money was received through private placement, as the

assessee failed to bring on record any evidence, the assessing officer held

that the so called share applicant were mere paper entities and did not have

the requisite capacity to advance the amounts shown to have paid for

purchase of the shares.

4. Further it was observed that merely because the share subscriber

companies are incorporated under the Companies Act, 1956 that would not

add any credibility or evidentiary value and does not prove the transaction

to be genuine. That apart, merely because transactions were entered into by

way of account payee cheque is also not conclusive and cannot be held to be

sacrosanct. In support of his conclusion, the assessing officer referred to

decision in Commissioner of Income Tax Versus Precision Finance

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB Private Limited 1 and the decision of the Hon'ble Supreme Court in

Commissioner of Income Tax Versus P. Mohanakala 2. Furthermore, the

assessing officer examined the returns of the subscriber companies and

found that all of them are basically investment companies, their return show

a nominal income/loss and the investor companies received share capital

with huge premium was in turn invested in the assessee company and

similar other companies as well. Therefore, the assessing officer came to the

conclusion that the share applicants did not have their own profit making

apparatus to make the investment and merely because the transactions

were routed through banking channel, it can be easily seen that it is a case

for rotating money or in other words the transactions are not commensurate

with the income of those companies. It was held that where the assessee

fails to prove satisfactorily, the source and nature of the amount of credit

during the accounting year, the income tax officer is entitled to draw the

inference that the receipts are often assessable nature. In this regard,

reliance was placed on the decision in A. Govindaraju Mudaliar Versus

Commissioner of Income Tax 3; Commissioner of Income Tax Versus

Devi Prasad Vishwanath Prasad 4 and the Commissioner of Income Tax

Versus Independent Media Private Limited 5. Thus, it was pointed out

that the existence of the material showing that the share subscriptions were

collected as part of the pre-meditated plan, a "smoke screen" conceived and

executed with the connivance or involvement of the assessee company has

[1994] 208 ITR 465

[2007] 291 ITR 278 (SC)

[1958] 34 ITR 807

[1969] 72 ITR 194 (SC)

[2012] 25 Taxmann.com 276 (Delhi)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB been satisfactorily proved. In such factual circumstances, the assessing

officer came to the conclusion that the identity, creditworthiness of the

subscriber companies and the genuineness of the transaction has not been

established and the sum of Rs. 1,10,00,000/- received from 8 subscribers

out of 9 subscriber companies in the books of the assessee companies is

cash credit under Section 68 of the Act and accordingly added the amount

and completed the assessment.

5. The assessee filed appeal before the National Faceless Appeal Centre

(NFAC) contending that the observations/findings made in the assessment

order were perverse, the addition of Rs. 1,10,00,000/- is not called for and

the same is required to be deleted and that the assessing officer failed to

appreciate the evidence filed before him and the addition was made merely

on conjectures. The appellate authority had heard the assessee in person

and also took on record, the information/documents which were filed by the

assessee, apart from the written submissions which were filed by the

assessee. The assessee relied on several decisions which were taken note of

by the appellate authority.

6. Nextly, the appellate authority noted the findings recorded by the

assessing officer while completing the assessment by order dated

27.03.2015. The appellate authority held that the assessee has not

submitted any new details/documents and merely argued that they had

conclusively proved the identity and creditworthiness of the share

subscribers and the genuineness of the transactions and did not disprove

the details/supporting documentary evidence submitted in this regard.

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB Further the appellate authority noted that summon were issued under

Section 131 of the Act to the shareholders of the assessee company for

personal attendance for their justification for the investment made by them

which the shareholders failed to appear before the assessing officer and

submitted any details or documents or explanation to the satisfaction of the

assessing officer. Furthermore, it was noted that out of the 7 share

subscriber companies, the addition was made by the assessing officer, 4

companies had on its first year of its incorporation and had NIL income for

the year under consideration and the source of their income was mostly

income from other sources. Therefore, observed that this would clearly leads

to the inference that the companies had no visible business activities and

any income from business operation and thus no creditworthiness to make

such share capital with huge premium was proved. Further since the

assessee failed to produce the shareholders to justify the transactions of

receipts of share applications money and the details/documentary evidence

which was produced do not prove the creditworthiness of the share

subscribers and the burden which was cast on the assessee was not

discharged. The appellate authority took note of the decision in Principal

Commissioner of Income Tax Versus Youth Construction Private

Limited 6; Commissioner of Income Tax Versus United Commercial and

Industrial Company Private Limited 7 and Commissioner of Income Tax

Versus Precision Finance Private Limited 8. Therefore, it was held that

the onus is on the assessee to explain the nature and source of credit and it

[2013] 357 ITR (Del)

[1991] 187 ITR 596 (Cal)

[1994] 208 ITR 465 (Cal)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB does not get discharged merely by filing confirmative details or

demonstrating that the transactions are done through banking channels or

even by filing income tax assessment particulars. That the genuineness of

the transaction as a whole is a very important and critical factor in the

examination of the explanation of the assessee as required under Section 68

of the Act. Further the appellate authority noted that the assessee had

submitted details and documentary evidence from which the identity of the

shareholders was proved but the same is not sufficient to prove the nature

and genuineness of the transactions and creditworthiness of the share

subscriber companies, which can be considered to examine or verify the

nature and genuineness of the transactions and source of investment by

shareholders particularly when the investments were made with huge

premium.

7. Further the appellate authority noted that no requisite details were

submitted by the assessee during the course of the assessment proceedings

or during the appellate proceedings in respect of the share subscriber

companies. Further the appellate authority noted that the promoters of the

assessee company Shashi Mehta, Amit Mehta and Kunal Mehta were issued

shares at par without any premium while investors companies were issued

shares with huge premium of Rs. 490/- per share having a face value of Rs.

10/-. The details of the shares issued at par and at huge premium to other

subscriber companies were reproduced in a tabulated format. Therefore, the

appellate authority opined that there is no logic to issue shares to the

owners at par and to other at huge premium and this would show that the

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB share capital is introduced for bringing back the assessee's own black

money through the shell companies. Further the assessee did not submit

computation of share premium and the justification for not issuing the

shares at premium to its owners and also the share subscriber companies

did not appear in response to summon issued under Section 131 of the Act

for their justification/explanation to the satisfaction of the assessing officer

and therefore concluded that the investor companies are mere paper

entities. Further the share subscriber companies investments are in private

companies that is the assessee company with huge premium which by any

standard, most unusual in real life business situation more so when there

was no details produced to show any connection with the assessee

company. The appellate authority placed reliance on the decision of the

Hon'ble Supreme Court in Commissioner of Income Tax Versus P.

Mohanakala 9, Vijay Kumar Talwar Versus Commissioner of Income

Tax 10 N. Tarika Property Invest. Private Limited Versus Commissioner

of Income Tax 11 and various other decision of the High Courts and came

to the conclusion that the assessee has miserably failed to prove the

genuineness of the transactions to the satisfaction of the assessing officer.

With the above reasoning, the appeal was dismissed.

8. The assessee carried the matter on appeal to the learned tribunal. The

learned tribunal noted the submissions of the assessee which appears to be

reiteration of the submissions made before the appellate authority and also

heard the departmental representative and held that the assessing officer

[2007] 161 Taxman 169 (SC)

[2011] 1961 Taxman 136 (SC)

[2014] 51 Taxmann.com 387 (SC)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB without even going through and discussing the details submitted by the

subscriber companies, insisted for personal appearance to prove the

identity, creditworthiness of the subscribers and the genuineness of the

transactions. The tribunal faulted the assessing officer for having taken an

adverse view as he could have taken an adverse view only if he could point

out the discrepancies or insufficiency in the evidence and details furnished

and also to get further investigation to be done by him by way of recording

statements of the directors of the assessee and subscriber company. In

support of such conclusion, reference was made to the decision in Principal

Commissioner of Income Tax Versus Paradise Inland Shipping Private

Limited 12 and Crystal Networks Private Limited Versus Commissioner

of Income Tax 13. Further the learned tribunal held that the assessing

officer has not bothered to discuss or point out any defect or deficiency in

the document furnished by the assessee of the share subscribing companies

and these evidences have not been controverted by the assessing officer nor

anything substantive was brought on record to justify the addition.

9. The learned tribunal further held that going by the documents placed

by the assessee of all the share subscribing companies, it can be safely held

that the assessee had discharged its initial burden and the burden shifted

on the assessing officer to enquire further into the matter which he failed to

do. Furthermore, it observed that the investing companies have sufficient

own funds available with them to make the investment. Further the learned

tribunal faulted the order passed by the appellate authority by observing

[2017] 84 Taxmann.com 58 (Bom)

353 ITR 171 (Cal)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB that the appellate authority has not discussed anything about the material

facts of the case nor pointed out any defect or discrepancy in the evidence

and details furnished by the assessee but merely referred to certain case

laws without discussing the case of the assessee. With the above finding, the

learned tribunal allowed the assessee's appeal and deleted the addition.

Aggrieved by such order, the revenue is on appeal before us.

10. The learned Senior Advocate appearing for the respondent assessee

raised a preliminary objection by stating that the tax effect in the instant

case is Rs. 48,54,112/- which is below the threshold monetary limit for

filing the appeal as per the circular issued by CBDT in Circular No. 5 of

2024 dated 15.03.2024 and therefore the appeal is not maintainable.

11. We have heard the learned Senior Standing Counsels appearing for

the revenue on the above submissions.

12. The Central Board initially issued a circular in Circular No. 5 of 2024

dated 15.03.2024 prescribing monetary limit to file the appeals before the

tribunal, the High Courts and the Hon'ble Supreme Court. Another circular

was issued in Circular No. 9 of 2024 dated 17.09.2024 carving out certain

exceptions to the threshold monetary limit for filing the appeal. One such

exception is when the matter involves the organised tax evasion the

monetary limit will not be applicable and the revenue would be entitled to

file appeals before the tribunals, High Courts or the Hon'ble Supreme Court.

In the preceding paragraphs, we have set out the reasons assigned by the

assessing officer and his conclusion to hold that the entire transaction is a

part of pre-mediated plan, a "smoke-screen" conceived and executed with

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB the connivance or involvement of the assessee company and the share

capital was introduced for bringing back the assessee's own black money

through shell companies. If these are the facts as recorded by the assessing

officer as well as the appellate authority, the case on hand is required to be

examined on merits and therefore the revenue is entitled to maintain this

appeal before this Court. Accordingly, the preliminary objection raised on

behalf of the respondent assessee is rejected.

13. The expression "the assessee offers no explanation" occurring in

Section 68 of the Act was explained by Hon'ble Supreme Court in P.

Mohanakala to mean where the assessee offers no proper reasonable and

acceptable explanation as regards the sums found credited in the books

maintained by the assessee and that the opinion of the assessing officer is

required to be formed objectively with reference to the materials available on

record and application of mind is the sine qua non for forming the opinion.

Further it was held that Section 68 itself provides where any sum is found

credited in the books of the assessee for any previous year, the same may be

charged to income tax as the income of the assessee of the previous year, if

the explanation offered by the assessee about the nature and source of such

sums found credited in the books of the assessee is in the opinion of the

assessing officer not satisfactory, such opinion found itself constitutes a

prima facie evidence against the assessee namely the receipt of money, and

if the assessee fail to rebut the said evidence, the same can be used against

the assessee by holding that it was a receipt of an income nature. We note

that in the instant case, the assessing officer as well as the appellate

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB authority concurrently held that the explanation offered by the assessee was

unacceptable.

14. In Vijay Kumar Talwar (supra) it was held that when the assessee

did not produce any evidence to rebut the presumption drawn against him

under Section 68, by producing the parties in whose name the amounts in

question had been credited by the assessee in his books of accounts, the

addition was justified.

15. Thus, the legal position is very clear, that the existence of

creditworthiness of the investing companies is one of the most important

factors, as could be seen from the assessment order of the investment

company had NIL income and the source of investment was from sale of

shares and 4 of such investment companies were in the first year of

operation. When the assessee had produced certain documents regarding

the investing companies the assessing officer in order to investigate the

matter further issued summon to the directors of the investing companies

but those directors did not respond to the summons. Therefore, on facts in

the case on hand, the assessing officer was well justified in drawing an

adverse inference against the assessee. The learned tribunal committed an

serious error in observing that the assessing officer did not bother to discuss

or point out any defect or deficiency in the documents furnished by the

assessee of the share subscribing companies. The learned tribunal failed to

note that the documents and details produced by the assessee regarding the

share subscribing companies was perused and summon were issued to the

directors of the subscribing companies so as to enable the assessing officer

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB to enquire into and investigate into the creditworthiness of the investing

companies, the genuineness of the transactions and the identity of the

parties. Therefore, the learned tribunal fell in error in making such an

observation and faulting the assessing officer.

16. On the contrary, we find on perusal of the assessment order, the

assessing officer has examined the supporting documents submitted by the

assessee during the course of hearing and has dealt with each of the

subscribing companies and has noted the amount of investment made and

also the common feature that all the investing companies reported NIL

income.

17. The learned tribunal also faulted the appellate authority stating that

none of the points have been discussed. This is factually incorrect as could

be seen from the findings recorded by the appellate authority from

paragraph 8.2 of the order dated 20.10.2023. The appellate authority has

noted several decisions of the Hon'ble Supreme Court and the High Court

and in paragraph 8.7 has discussed the factual position in the assessee's

case bearing in mind, the legal principle laid down in all those decisions and

then proceeded to assign its own reasons to concur with the decision of the

assessing officer. Therefore, we find that the learned tribunal erred in

faulting the appellate authority on the ground that the appellate authority

has not discussed about the material facts of the case of the assessee, this

being the factually incorrect finding, the same requires interference.

18. The learned Senior Advocate appearing for the respondent assessee

placed reliance on the decision in Principal Commissioner of Income Tax

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB

-2, Kolkata Versus M/s. Naina Distributors Private Limited 14 to support

his submission that non-appearance of the directors cannot be made a

ground for addition in the hands of the assessee under Section 68 of the

Act. For the same proposition, reliance was placed on the decision in

Principal Commissioner of Income Tax Central - 1, Kolkata Versus

Wise Investment Private Limited in ITAT No. 238 of 2024 dated

06.05.2025 and Principal Commissioner of Income Tax - 2, Kolkata

Versus M/s. Vish Reality Solutions Private Limited ITAT No. 74 of 2025

dated 10.07.2025.

19. In Naina Distributors, the order passed by the tribunal was affirmed

noting that the assessee had produced all documents disclosed the names

and addresses and PAN numbers of the investors, copies of the share

allotment device, copies of the share application form, bank statements,

statements giving details of share application, money receipt during the

year, copy of form 2 evidencing return of allotment and copy of Form No. 5

for increase in various capital. Apart from that, the assessing officer issued

notice to the investors under Section 133(6) for carrying out the independent

verification of the transactions and those investors duly responded to the

notice and filed requisite details such as number of share subscribed, ledger

account, bank statements, explanation for the source of funds, income tax

returns and audited financial statements and also assessment orders

framed under Section 143(3) in all cases. In such factual circumstances, the

tribunal in the said case found that the only reason for making the addition

is that the directors of the assessee company did not respond to the

2023 (6) TMI 1362 (Cal HC)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB summons. The case on hand is factually different which has been

elaborately set out in the preceding paragraphs and therefore the decision in

Naina Distributors will not be of assistance to the assessee.

20. In Wise Investment Private Limited, the revenue's appeal was

dismissed after noting that the CIT(A) had elaborately considered all the

factual issues and that the assessee company was showing good returns

and was showing good prospects for his investors and it was growing

company. The factual details were taken note of and the revenue's appeal

was dismissed. We hold that the decision in Wise Investment Private

Limited is clearly distinguishable on facts. Equally the decision in Vish

Reality Solutions Private Limited (supra) also involved consideration of

the factual circumstances where the directors responded to the summons,

submitted documents to establish the identity and creditworthiness of the

shareholders and genuineness of the transactions. This not being the case

before us, the decision in Vish Reality Solutions Limited cannot be of any

assistance to the respondent assessee.

21. The Hon'ble Supreme Court in Principal Commissioner of Income

Tax (Central) -1 Versus NRA Iron and Steel Private Limited 15 pointed

out that use of words "any sum found credited in the books" in Section 68

indicates that the section is widely worded and includes investments made

by the introduction of share capital or share premium. Further it is settled

law, the initial onus is on the assessee to establish by cogent evidence the

genuineness of the transaction and creditworthiness of the investors under

[2019] 103 Taxmann.com 48 (SC)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB Section 68. The assessee is expected to establish to the satisfaction of the

assessing officer (i) prove of identity of the creditors (ii) capacity of creditors

to advance money and genuineness of transaction. The Hon'ble Supreme

Court noted the decision in Kale Khan Mohammad Hanif Versus

Commissioner of Income Tax 16 and Roshan Di Hatti Versus

Commissioner of Income Tax 17 wherein it had been laid down that the

onus of proving the source of sum of money found to have been received by

an assessee is on the assessee. Further it was held with respect to establish

the genuineness of the transaction, it is for the assessee to prove by cogent

and credible evidence that the investments made in the share capital are

genuine borrowings since the facts are exclusively within the assessee's

knowledge and merely proving the identity of the investors does not

discharge the onus of the assessee, if the capacity or the creditworthiness

has not been established. The principles which emerge were summed up in

the following terms:-

(i) The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus.

(ii) The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether

[1963] 50 ITR 1 (SC)

[1977] 107 ITR 938 (SC)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB the transaction is genuine, or these are bogus entries of name- lenders.

(iii) If the inquiries 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. [Para 11].

22. Further the Hon'ble Supreme Court held that the practice of the

conversion of unaccounted money through the number of share

capital/premium must be subjected to careful scrutiny and this would be

particularly show in the case of private placement of shares (as in the case

on hand), where a higher onus is required to be 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 assessing officer, failure of which

would justify addition of the said amount to the income of the assessee.

23. If the above legal principle is applied to the case on hand, the

irrestible conclusion that can be arrived is that the assessee did not

discharge the legal obligation to the satisfaction of the assessing officer.

Admittedly, in the instant case the share were by way of a private

placement. Though the investing companies might have been incorporated

under the provisions of the Company's Act that by itself will not validate the

transaction. The assessee thwarted the enquiry/investigation that was to be

done by the assessing officer by issuing summons to the directors of the

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB investing company which were not responded. In such circumstances, the

assessing officer proceeded to analyse the financial stability of the investing

company and has clearly recorded the findings that those investing

companies though might have been incorporated under the Company Act

have no visible business activity and creditworthiness to make their

investment. The assessing officer rightly observed that non compliance of

the summons issued under Section 131 shows the evasive tactics adopted

and riggle out of the difficult situation they may be put to if they had

responded to the summons.

24. In Principal Commissioner of Income Tax (Central) 2 Versus BST

Infratech Limited 18 the case of the revenue was accepted by this court

noting that the investing companies therein had NIL or negligible revenue

from its operations their returns were either of loss or insignificant income

below the taxable limit and they have been issued shares at a high premium

without having earned any revenue from business operation and they have

invested on shares at very high premium in companies who also have not

earned anything from business operations and the money which was

invested was obtained from the root of shares premium in re-rooted for

supplying sources of receipt of money to other companies. Further it was

held that the fixing of rate of premium was arbitrary and devoid of any

financial or accounting rational; the investors are not bothered to ensure

protection of their investment; the investor company did not have any

business operation worth noticing yet they have raised huge capital through

issue of shares at a premium and also made investment in shares of other

[2024] 161 Taxmann.com 668 (Calcu a)

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB companies at a premium even though the other companies like them did not

have any promising business activities. Further it was held that it is not

required to show that the money which came to the assessee is ill gotten

and what is required to be seen is whether the transactions was genuine. It

may be true that the identity of the investors companies has been

established as they are registered to the Registrar of Companies and they

are regularly assessed to income tax and in such factual situation the

doctrine of "source of source" or "origin of origin" should be made applicable.

Thus applying the above principles if the doctrine of "origin of origin" or

"source of source" is applied to the case on hand, it will be manifestly clear

that the share capital raised with huge premium was a devise adopted to

route undisclosed funds to the desired end of the beneficiary taking recourse

to the corporate veil. Thus, on facts the appellate authority as well as the

assessing officer was right in holding that the assessee did not discharge the

creditworthiness and the genuineness of the transactions. Though it can be

said that the identity of the investors were partly established as they are

shown to have been registered under the Company's Act and returns have

been filed but what is important is on analysing the financials, the assessing

officer found that all investment companies had NIL income. Thus, the

assessing officer was right in not accepting the explanation offered by the

assessee as being not satisfactory upon proper appreciation of the materials

placed before him by the assessee and the other attending circumstances

available on record.

ITAT NO. 4 OF 2025 REPORTABLE 2025:CHC-OS:136-DB

25. In the light of the above discussion, we hold that the learned tribunal

committed a serious error in reversing the findings recorded by the appellate

authority while affirming the order passed by the assessing officer.

26. In the result, the appeal is allowed and the order passed by the learned

tribunal is set aside and the assessment order dated 27.03.2015 as affirmed

by the appellate authority by order dated 20.10.2023 are stand restored.

27. The substantial questions of law raised are answered in favour of the

appellant revenue.

(T.S. SIVAGNANAM, CJ.)

I Agree.

[CHAITALI CHATTERJEE (DAS), J.]

(P.A.- SACHIN)