Share capital addition fails when identity, creditworthiness and genuineness are proved with supporting documents and notices complied with.

Section 68 addition on share capital and share premium was held unsustainable where the assessee furnished PAN, income-tax returns, audited financial statements, bank statements and confirmations for the share applicants, and the applicants complied with notices and summons. The directors of the subscriber companies also appeared and produced supporting material, while the cheques were issued through banking channels without immediate cash deposits. On these facts, identity, creditworthiness and genuineness were established, the onus shifted to the Assessing Officer, and the addition could not rest on suspicion or an unverified adverse inference. The addition was deleted and the assessee's challenge succeeded.

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Issues: Whether the addition made under section 68 on account of share capital and share premium was sustainable when the assessee furnished PAN, income-tax returns, audited financial statements, bank statements, confirmations, and the share applicants complied with notices and summons.

Analysis: The assessee produced complete particulars of the share applicants, including identity details, returns, balance sheets, bank statements and confirmations, and the notices under section 133(6) were complied with. The directors of the share subscriber companies also appeared in response to summons under section 131 and furnished supporting material. The share applicants had substantial net worth and the payments were made through account payee cheques without cash deposits immediately before the cheques. The factual premise on which the first appellate authority sustained the addition was found to be incorrect. Once the assessee establishes identity, genuineness and creditworthiness, the onus shifts to the Assessing Officer, who cannot make an addition merely on suspicion or by drawing adverse inferences without proper enquiry.

Conclusion: The addition under section 68 was not justified and was directed to be deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessment addition on account of share capital and share premium was set aside.

Ratio Decidendi: Where an assessee proves the identity, creditworthiness and genuineness of share applicants with primary evidence and the applicants respond to statutory notices, an addition under section 68 cannot be sustained on conjectures or an unverified adverse inference.

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