Addition of share capital and share premium under section 68: AO must produce independent evidence before making additions; deletion resulted

Addition of share capital and share premium under section 68 turns on the onus to prove identity, creditworthiness and genuineness of subscriptions. The assessee adduced source details, incometax returns and audited financials and thereby discharged the primary burden; the burden then shifted to the assessing officer to form a reasoned contrary opinion supported by investigation or independent evidence showing funds were unaccounted, routed from the assessee, or accommodation entries. Mere nonappearance of subscriber directors is not a sufficient discrepancy. On that basis the contested addition was deleted and decision favoured the assessee.

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Issues: Whether the addition of Rs. 6,22,00,000 made under section 68 of the Income-tax Act, 1961, by treating share capital and share premium as unexplained cash credits, is justified.

Analysis: Applicable law requires the assessee to offer an explanation regarding the nature and source of amounts credited (initial burden). Where the assessee furnishes documentary evidence establishing identity of investors, confirmations, financial statements and bank evidence, the initial burden is discharged and the burden shifts to the revenue to independently examine and produce material to negativate the explanation. The revenue must point out specific discrepancies or undertake further inquiries to form a reasoned adverse opinion; mere non-appearance of directors of subscriber companies does not, by itself, justify charging the amount under section 68 if documentary evidence of identity, creditworthiness and genuineness is on record. The authorities below did not place material contradicting the documentary evidence filed by the assessee and the appellate authority's confirmation was held to be not supported by such independent inquiry.

Conclusion: The addition of Rs. 6,22,00,000 under section 68 is deleted and the appeal is allowed in favour of the assessee.

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