Section 68 enquiry for share capital and loans must verify identity, creditworthiness and genuineness; revision upheld.

Section 68, as amended for closely held companies, requires proof of investor identity, creditworthiness, genuineness of the transaction, and the source of the source for share capital and share premium. The text states that the Assessing Officer did not make adequate verification of the investors and lenders, and that the material before the Principal Commissioner raised serious doubts about creditworthiness, bank credits, and the ability of several subscribers to make the stated investments. On that basis, the assessment was treated as having been completed without the enquiries required by law, so revision under section 263 was considered valid.

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Issues: Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 on the ground that the assessment was made without proper enquiry into share capital, share premium and unsecured loans, and whether the assessment order was erroneous and prejudicial to the interests of the Revenue.

Analysis: The assessment year involved was governed by the amended regime of section 68 applicable to closely held companies, requiring the assessee to establish the identity of investors, their creditworthiness and the genuineness of the transaction, including the source of the source in relation to share capital and share premium. The record showed that the Assessing Officer had not carried out adequate verification of the investors and lenders, while the material before the Principal Commissioner indicated significant doubts regarding creditworthiness, bank credits, and the ability of several subscribers to make the stated investments. In these circumstances, the assessment was found to have been framed without the enquiries that ought to have been made, bringing the case within section 263.

Conclusion: The revision under section 263 was valid, and the assessee's challenge failed.

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