Share application money explained through documentary proof defeats unexplained cash credit addition under section 68

Where a company receiving share application money substantiates the identity of the subscribers, the genuineness of the banking transactions and their creditworthiness through PAN, returns, balance sheets, bank statements, share application forms and allotment records, an addition for unexplained cash credit cannot be sustained. The fact that the share applicants were separately assessed to tax and replies were received to notices under section 133(6) supported the assessee's explanation. The burden then shifted to the Revenue, and no adverse inference could be drawn merely because some applicants had their own additions or because no further effective enquiry was made. The deletion of the addition under section 68 was upheld.

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Issues: (i) Whether the deletion of the addition made under section 68 on account of share application money received from share applicants assessed to tax was justified.

Analysis: The assessee had furnished PAN, returns, balance sheets, bank statements, share application forms, allotment details and replies to notices issued under section 133(6). The share applicant companies were identified and had been assessed under section 143(3) in their own cases. The transactions were through banking channels and the assessee established the identity of the applicants, the genuineness of the transactions and the creditworthiness of the subscribers. In these circumstances, the burden shifted to the Department, and no adverse inference could be drawn merely because some of the applicants had their own additions or because the Assessing Officer did not conduct further effective enquiry from the respective assessing officers of the subscribers.

Conclusion: The deletion of the addition under section 68 was upheld and the Revenue's challenge failed.

Final Conclusion: The order of the first appellate authority was sustained and the Revenue's appeal was rejected.

Ratio Decidendi: Where a company receiving share application money proves the identity of the share applicants, the genuineness of the banking transactions and the applicants' creditworthiness through reliable documentary evidence, an addition under section 68 cannot be sustained without a contrary enquiry establishing that the money belonged to the assessee.

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