Section 68 share capital additions and ad hoc expense disallowances fail where primary details are furnished and no specific defects are shown.

A public limited company discharged its initial burden under section 68 by furnishing primary particulars of share applicants, including identities, PAN, addresses and allotment details; in the absence of any independent inquiry or subscriber verification by the revenue, the share capital could not be treated as unexplained on suspicion, so the addition was deleted. The ad hoc 25% disallowance of business expenses under section 37(1) was also deleted because the ledger-supported outgoings showed no specific defect, falsity or personal element, and a blanket estimate without item-wise inadmissibility was impermissible.

---

---

Issues: (i) Whether the addition made under section 68 of the Income-tax Act, 1961 on account of share capital received through preferential allotment was sustainable; (ii) Whether the ad hoc disallowance of 25% of other expenses was justified under section 37(1) of the Income-tax Act, 1961.

Issue (i): Whether the addition made under section 68 of the Income-tax Act, 1961 on account of share capital received through preferential allotment was sustainable.

Analysis: The assessee was a public limited company and had furnished the primary particulars of the share applicants, including names, addresses, PAN, number of shares allotted, and the return of allotment filed with the Registrar of Companies. The shares were issued under preferential allotment with regulatory oversight. In such a case, the initial burden stood discharged by production of primary details. The Assessing Officer did not conduct independent verification or summon the subscribers to test the explanation. On these facts, the credit could not be treated as unexplained merely on suspicion.

Conclusion: The addition under section 68 was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the ad hoc disallowance of 25% of other expenses was justified under section 37(1) of the Income-tax Act, 1961.

Analysis: The expenses were supported by ledger details and related to ordinary business outgoings. No specific defect, falsity, or personal element was pointed out in the vouchers or accounts. A company, as an artificial juridical person, cannot ordinarily incur personal expenditure, and a blanket disallowance without identifying particular inadmissible items was impermissible. The principle of consistency also weighed against repeating a similar disallowance when comparable claims had earlier been accepted or deleted.

Conclusion: The ad hoc disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The additions on account of share capital and the disallowance of other expenses were both set aside, resulting in complete relief to the assessee.

Ratio Decidendi: Where a public limited company furnishes complete primary details of share applicants and the revenue makes no independent inquiry, a section 68 addition cannot rest on suspicion alone; similarly, an ad hoc disallowance of business expenditure is unsustainable absent specific defects in the claim.

---