Section 68 burden for share capital is met by proving investor identity, transaction genuineness and creditworthiness; source of source not required earlier.

In assessments involving share capital and share premium, the assessee discharges the burden under section 68 by producing primary evidence such as balance sheets, bank statements, confirmations, income-tax particulars, ROC records and other supporting material, together with compliance to notices under section 133(6) and examination of an investor director under section 131. On those facts, the identity of the investors, genuineness of the transactions and creditworthiness were accepted, so the section 68 addition was not sustainable. For assessment years before insertion of the proviso to section 68, a closely held company was not required to prove the source of the source in relation to share capital or premium.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961, on account of share capital and share premium received from the investor companies was justified.

Analysis: The assessee furnished the relevant primary evidence, including balance sheets, bank statements, confirmations, income-tax particulars, ROC records and supporting material for the share applicants. Notices issued under section 133(6) of the Income-tax Act, 1961, were complied with, and one of the investor-company directors appeared and was examined under section 131 of the Income-tax Act, 1961. The Tribunal held that, on the facts of the case, the assessee established the identity of the investors, the genuineness of the transactions and their creditworthiness. It further held that the proviso to section 68, requiring a closely held company to explain the source of the share capital or premium, was inserted prospectively and did not apply to assessment year 2012-13.

Conclusion: The addition under section 68 was not sustainable and was rightly deleted.

Ratio Decidendi: For assessment years prior to the insertion of the proviso to section 68, an assessee receiving share capital or share premium discharges its burden by proving the identity of the subscriber, the genuineness of the transaction and the creditworthiness of the subscriber; it is not required to prove the source of the source.

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