[Cites 4, Cited by 0]
Calcutta High Court
Principal Commissioner Of Income Tax 1 ... vs M/S Shipra Enclave Pvt Ltd on 4 February, 2026
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION
ORIGINAL SIDE
ITAT 94 OF 2025
IA NO: GA 2 OF 2025
PRINCIPAL COMMISSIONER OF INCOME TAX 1 KOLKATA
VS
M/S SHIPRA ENCLAVE PVT LTD
BEFORE:
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
AND
THE HON'BLE JUSTICE UDAY KUMAR
For the Appellant : Mr. Soumen Bhattacharjee, Ld. Adv.
Mr. Ankan Das, Ld. Adv.
Ms. Shradhya Ghosh, Ld. Adv.
For the Respondent : Mr. S.M Surana, Ld. Adv.
Mr. Pratyush Jhunjhunwala, Ld. Adv.
Ms. Sruti Datta, Ld. Adv.
Ms. Sakshi Singhi, Ld. Adv.
Hearing concluded on : 05.01.2026
Judgment on : 04.02.2026
Uday Kumar, J:-
1. This appeal by the Revenue, preferred under Section 260A of the Income
Tax Act, 1961 (hereinafter referred to as "the Act"), is directed against
the order passed by the Income Tax Appellate Tribunal, "B" Bench,
Kolkata, dated 29th November, 2023, in ITA No. 543/Kol/2023 for the
Assessment Year 2012-13. By the said order, the learned Tribunal
allowed the appeal filed by the assessee and deleted the addition of Rs.
6,22,00,000/- made by the Assessing Officer under Section 68 of the Act
on account of unexplained share capital and share premium. The case
brings into sharp focus the perennial conflict between the Revenue's
reliance on the "Test of Human Probability" and the Assessee's reliance
on "Cast Iron Documentary Evidence."
2. The Revenue, being aggrieved by the deletion, has proposed the following
substantial questions of law:
(a) Whether the Learned Tribunal has committed substantial error
in law in deleting the addition of Rs. 6,22,00,000/- in the form
of unexplained cash credit u/s 68 of the Income-Tax Act, 1961
without giving due weightage to the unjustified payment of high
premium to acquire share of seemingly unprospective company
and doubtful creditworthiness of share subscriber ignoring the
ratio laid down in the case of Principal Commissioner of income
Tax (Central)-1 Vs. NRA Iron & Steel (P) Ltd. reported in [2019]
103 taxmann.com 48/262 Taxman 74/412/ITR 161 (SC) and in
the case of PCIT(Central)-2, Kolkata vs. M/s. BST Infratech Ltd.
in ITAT/67/2024 (IA No. GA/2/2024) dated 23.04.2024?
(b) Whether the Learned Tribunal has committed substantial error
in law in granting relief and deleted the addition made by the
Assessing officer without examine the creditworthiness of the
capital introducer where the assessee failed to discharge its
legal obligation to prove the source of fund of Rs. 6.22,00,000/-
which is claimed as fresh share capital.?
(c) Whether the Learned Tribunal has committed substantial error
in law, by not justified to delete the addition made by the
Assessing officer without considering the fact that the source of
such fresh investment was not properly explained by the
assessee and it lacked any real profit-making business
credence?
3. The factual matrix, as can be gleaned from the records, reveals that the
respondent-assessee is a Non-Banking Financial Company (NBFC) duly
registered with the Reserve Bank of India. For the relevant Assessment
Year, its return was selected for scrutiny specifically to examine the
receipt of a large share premium. During the assessment proceedings,
the Assessing Officer (AO) noted that the assessee had raised share
capital and premium from fifteen corporate entities.
4. It is seen from the record that the assessee had placed before the AO a
voluminous "Paper Book" containing all requisite documents, including
PAN details, Income Tax Return acknowledgments, and audited financial
statements of all fifteen subscriber companies. Notwithstanding the
availability of this documentary evidence, the AO issued summons
under Section 131 of the Act to the directors of these companies. When
they failed to appear personally, the AO proceeded to brand these
companies as "shell entities" and added the entire amount of Rs.
6,22,00,000/- as unexplained cash credit. This view was subsequently
affirmed by the CIT (Appeals).
5. The learned Tribunal, however, reversed this finding, noting that the
subscribers were active taxpayers who had confirmed the transactions
in response to notices issued under Section 133(6) of the Act.
6. We have heard Mr. Soumen Bhattacharjee, learned Advocate for the
Revenue, and Mr. S.M Surana, learned Advocate for the respondent-
assessee.
7. Mr. Bhattacharjee strenuously argued that the meagre income declared
by the subscriber companies, when contrasted with the high premium
paid to acquire the shares of the assessee, leads to an irresistible
conclusion that the transactions were mere accommodation entries. He
relied heavily on the decision of the Hon'ble Supreme Court in PCIT vs.
NRA Iron & Steel (P) Ltd. and contended that the AO was justified in
looking behind the "paper trail" to ascertain the true creditworthiness of
the investors and genuineness of the transaction.
8. Per contra, Mr. Surana, learned Advocate for the assessee, submitted
that as a regulated NBFC, the assessee's financial transactions are
subject to stringent oversight by the RBI and the MCA. He pointed out
that all fifteen subscribers were active assessees on the records of the
Income Tax Department and had duly responded to the notices issued
by the AO under Section 133(6) of the Act.
9. We have carefully considered the rival submissions and perused the
materials on record. It is a settled legal position that to discharge the
initial onus under Section 68, the assessee must establish the identity of
the creditor, their creditworthiness, and the genuineness of the
transaction. In the instant case, the learned Tribunal conducted a
meticulous factual inquiry and recorded a specific finding that the
assessee provided a "Cast Iron" documentary foundation. The audited
balance sheets of the subscribers demonstrated a substantial net worth,
which was far in excess of the amounts invested.
10. Furthermore, we find that the AO's reliance on the non-appearance of
the directors is misplaced and is not supported by the statutory scheme
where robust documentary evidence is available. As held by this Court
in PCIT vs. Sreeleathers [2022] 448 ITR 332 (Cal), the AO is vested with
co-terminus powers under Section 131 of the Act to compel attendance.
If the AO fails to exercise these powers, he cannot subsequently visit the
consequences of such failure upon the assessee. Personal appearance of
a director is not a statutory substitute for documented traceability in a
corporate assessment, especially when the entities are active taxpayers.
11. Insofar as the reliance on NRA Iron & Steel is concerned, we find the
facts of that case to be clearly distinguishable. In that case, the investors
were found to be non-existent or "phantom" entities upon field inquiry.
In the case before us, the investors are identifiable taxpayers who
directly responded to notices u/s 133(6) and confirmed the transactions
through banking channels. Equating "traceable investors" with
"phantom entities" is a leap in logic that cannot be countenanced.
Furthermore, the valuation of shares is a matter of commercial wisdom.
Unless the Revenue proves a "live link" showing that the funds
originated from the assessee's own coffers, the AO cannot substitute his
judgment for that of the marketplace.
12. In view of the aforesaid discussion, we arrive at a definite conclusion
that in a corporate assessment, documented traceability (comprising ITR
acknowledgments, PAN details, and Bank Statements) through
legitimate banking channels carries greater evidentiary weight than the
subjective suspicion of an Assessing Officer. The "Test of Human
Probability" cannot be invoked as a tool to disregard a verified and
audited paper trail. We also conclude that the ratio in NRA Iron & Steel
is applicable only to "phantom" or "non-existent" entities found to be
non-traceable upon field inquiry. It cannot be extended to active,
traceable taxpayers simply because their investment decisions appear
commercially improbable to the Revenue. Equating "traceable investors"
with "phantom entities" is a leap in logic that cannot be countenanced.
Furthermore, the valuation of shares is a matter of commercial wisdom.
Unless the Revenue proves a "live link" showing that the funds
originated from the assessee's own coffers, the AO cannot substitute his
judgment for that of the marketplace.
13. Upon considering the submissions made on either side and perusing the
materials on record, we find that the learned Tribunal has conducted a
meticulous factual inquiry. The Tribunal has recorded a specific finding
that the assessee had provided "Cast Iron" documentary evidence to
establish the identity and creditworthiness of the subscribers. The
audited balance sheets of these companies reflected a substantial net
worth, which was far in excess of the amounts invested in the assessee
company.
14. We are convinced that the findings of the learned Tribunal are based on
a meticulous factual inquiry. The Revenue has failed to produce any
contrary material to disprove the documents filed. It is a settled position
that suspicion, however strong, cannot take the place of evidence. We
find no perversity in the findings of the learned Tribunal.
15. For the reasons aforementioned, we are of the view that no substantial
question of law arises for consideration in this appeal. The findings of
the learned Tribunal are based on a sound appreciation of facts and
settled legal principles.
16. In the result, the appeal being ITAT 94 of 2025, filed by the Revenue
stands dismissed.
17. The order of the learned Tribunal deleting the addition of Rs.
6,22,00,000/- is hereby, upheld.
18. All substantial questions of law are answered in favor of the Assessee
and against the Revenue.
19. There shall be no order as to costs.
20. GA 2 of 2025 stand disposed of accordingly.
21. Urgent certified copy of this judgment, if applied for, be issued to the
parties on usual terms.
I AGREE
(RAJARSHI BHARADWAJ, J.) (UDAY KUMAR, J.)
