Unexplained credits under Section 68 require identity, capacity and genuineness - tribunal ignored bank tracing and addition restored.

Unexplained credits treated as share capital and premium require proof of three cumulative ingredients - investor identity, investor capacity/creditworthiness, and genuineness of the transaction - and documentary compliance alone is not conclusive; independent enquiries (bank tracing, field verification, surveys, statements) may be used to test the "source of the source" and lift the corporate veil. The tribunal erred in relying primarily on formal documents without addressing incriminating material showing routing and return of funds, non existent or name lender investors and meagre financials; accordingly the addition under Section 68 read with Sections 153A and 143(3) is restored in favour of the revenue.

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Issues: Whether the Income Tax Appellate Tribunal was justified in setting aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals) deleting the addition of Rs. 6,40,50,000/- made under Section 68 read with Section 153A and Section 143(3) of the Income-tax Act, 1961.

Analysis: The matter concerns unexplained credits shown as share capital and share premium and the extent of the assessee's burden under Section 68. Relevant legal framework requires proof of three cumulative ingredients: identity of the investor, capacity/creditworthiness of the investor, and genuineness of the transaction. Documentary compliance (incorporation certificate, PAN, ITRs, bank routing) is probative but not conclusive where surrounding facts indicate sham transactions. Independent enquiries, including bank-tracing, field verification, survey actions, and statements of connected persons, are permissible to test creditworthiness and genuineness, and may justify lifting the corporate veil. Evidence in the record includes detailed banking trail showing routing and return of funds within the group, field and survey findings that the investor was non existent or a name lender, meagre financials of the investor, and admissions by connected persons; such evidence strengthens the conclusion that the credits were accommodation entries and not genuine investments. The tribunal's reliance primarily on formal compliance documents and VSVS filings, without adequately addressing the independent incriminating material and the "source of the source," is inconsistent with the legal standard requiring cumulative satisfaction of identity, capacity and genuineness.

Conclusion: The tribunal was not justified in setting aside the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals); the addition of Rs. 6,40,50,000/- under Section 68 read with Section 153A and Section 143(3) of the Income-tax Act, 1961 is restored in favour of the Revenue.

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