Share capital and share premium cannot be treated as unexplained cash credit when primary evidence proves genuine investor transactions.

Share capital and share premium could not be added as unexplained cash credit under section 68 merely because directors of the shareholder companies did not appear to summons when the assessee had produced PAN, returns, bank statements, audited financials, board resolutions, address proofs and confirmations. Payments were made by account payee cheque, no cash deposits were found in the investors' accounts before issuance of the cheques, and the subscribers were tax assessed. The initial burden on the assessee was treated as discharged; any further doubt about investor capacity or source of funds required inquiry at the investor level, and the assessee was not obliged to prove source of source beyond the applicable legal burden. The share premium explanation was also supported by commercial justification.

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Issues: Whether share capital and share premium received by the assessee could be added as unexplained cash credit under section 68 merely because the directors of the shareholder companies did not appear in response to summons, and whether the assessee had discharged the burden of proving identity, creditworthiness and genuineness of the share subscriptions.

Analysis: The assessee furnished PAN, income-tax returns, bank statements, audited financials, board resolutions, address proofs and confirmations of the share applicants. The investments were made through account payee cheques, no cash deposits were found in the investors' bank accounts before issuance of the cheques, and the share applicants were themselves assessed to tax. The mere non-appearance of directors in response to summons did not, by itself, justify an addition where primary evidence establishing the transaction was on record. The burden initially cast on the assessee stood discharged, and if the revenue still doubted the investors' capacity or the source of funds, further inquiry should have been pursued at the level of the investors. The assessee was not required to prove the source of source beyond the legal burden applicable for the year under consideration. The explanation regarding share premium was also supported by commercial justification and was not shown to be false.

Conclusion: The addition under section 68 was not sustainable; the assessee succeeded on merits and the revenue's challenge failed.

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