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Issues: Whether the addition made as unexplained cash credit under section 68 of the Income-tax Act, 1961 on account of share application money received from two investor companies was sustainable.
Analysis: The assessee placed on record confirmations, return acknowledgements, audited accounts, bank statements, PAN details, ROC particulars and other supporting documents of the investor entities. The investor entities also explained the source of the share application money. The material already on record showed the assessee's business and the existence of the investors, and the Revenue did not rebut the documentary evidence with any effective contrary material. In such matters, once the assessee establishes the identity of the share applicants, the genuineness of the transaction and the prima facie creditworthiness of the investors, the burden shifts to the Revenue. Mere non-appearance of the directors or suspicion that the investors were shell entities, without further enquiry, is not sufficient to sustain the addition.
Conclusion: The addition under section 68 was unsustainable and was deleted. The issue was decided in favour of the assessee.
Ratio Decidendi: Where share application money is supported by credible documentary evidence establishing identity, genuineness and prima facie creditworthiness, and the Revenue fails to dislodge that evidence by meaningful enquiry, an addition under section 68 cannot be sustained merely on suspicion or non-production of investors.
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