Share capital credit treated as unexplained cash credit where identity, creditworthiness and genuineness of investor were not proved.

A share capital credit is liable to be treated as unexplained cash credit under section 68 where the assessee fails to prove the investor's identity, creditworthiness and genuineness of the transaction. The assessee here received share capital from another company but could not produce confirmation or substantiate the investor's existence or financial capacity. The fact of amalgamation did not by itself discharge the initial onus to explain the source and nature of the credit. The addition was therefore sustained and the assessee's challenge failed.

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Issues: Whether the addition of share capital received by the assessee was justified under section 68 of the Income-tax Act, 1961, when the assessee failed to establish the identity, creditworthiness and genuineness of the investor.

Analysis: The assessee received share capital of Rs. 25 lakhs from another company but could not furnish confirmation or otherwise substantiate the investor's existence, financial capacity or the genuineness of the transaction. The mere fact of amalgamation did not discharge the assessee's burden to prove the source and nature of the credit. The findings of the lower authorities that the assessee failed to discharge the initial onus were upheld.

Conclusion: The addition under section 68 was sustained and the assessee's challenge was rejected.

Final Conclusion: The assessment addition relating to share capital remained undisturbed and the appeal failed.

Ratio Decidendi: Where an assessee cannot prove the identity, creditworthiness and genuineness of a share capital credit, the amount is liable to be treated as unexplained cash credit under section 68.

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