Unexplained cash credit in share subscriptions rejected where investors proved identity and source; amendment prospective, addition denied.

Unexplained cash credit challenges to share subscription receipts are addressed by examining evidence of identity, genuineness and source of funds; where subscribers produced ITRs, bank statements, audited financials and attended summons, the burden of proof requirement was satisfied and additions were unwarranted. The claim that share premium was unexplained was rebutted by director's statutory statement. The amendment creating a proviso limiting unexplained cash credit treatment is prospective and did not apply to the assessment year in issue, so the addition was denied.

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Issues: (i) Whether the addition of Rs. 55,00,000 made under Section 68 of the Income-tax Act, 1961 on account of share capital received as unexplained cash credit was justified.

Analysis: The issue concerns whether the assessee discharged the statutory burden under pre-amendment Section 68 by establishing (a) identity of the shareholders, (b) genuineness of the transactions and (c) the source and creditworthiness of the subscribers. Evidence on record comprised income-tax returns, bank statements, audited financials and statements recorded under Section 131. The proviso to Section 68 introduced effective from A.Y. 2013-14 is prospective and not applicable to the assessment year in question. On the facts, documentary material and recorded statements verified the source of funds for each subscriber: two individuals proved funds traceable to their proprietorship concerns, and the corporate subscriber demonstrated sufficient own funds and an immediate source (loan repayment). The appellate authority's adverse conclusion rested on suspicion and conjecture without tangible contradictory material.

Conclusion: The addition of Rs. 55,00,000 under Section 68 is not sustainable and is to be deleted; the appeal on this issue is allowed in favour of the assessee.

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