TaxTMI 
TaxTMI 
2026 (4) TMI 487
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....e case of the assessee was selected under CASS to verify the following: a) To examine whether the capital gains on sale of securities / mutual funds have been correctly offered to tax, and to verify the source of investment. 3. Accordingly, statutory notice u/s 143(2) of the Act was issued and served on the assessee. Subsequently, notice u/s 142(1) of the Act was issued and served on the assessee in response to which the assessee filed the requisite details. During the course of assessment proceedings the Assessing Officer asked the assessee to explain the capital gain declared by him. It was submitted by the assessee that the same has arisen on account of sale of equity shares held by the assessee as a promoter shareholder and Managing Director of the company namely KP Corporate Solutions Ltd. It was further stated that the stake sale is of the entire holding of the shares by the assessee and also other promoter shareholders and is sale of 100% of the holding under the Shares Sale Agreement with the acquiring company. The acquiring company is an independent company and has no relationship with any of the promoters and is done at the negotiated price and other terms and....
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.... Account amount and recalling the whole of the amount in the Escrow Account. The amount of the consideration in para 7.1 of Rs. 160 crores is the upper limit of the consideration and the second closing of Rs. 32 crores is conditional upon the performance parameters and the amount comprising in the second closing 'have been encumbered at source' by the purchasers. The amount of the consideration of Rs. 128 crores is the legally correct amount of consideration that has been considered and offered for tax. It was further submitted that the un-accrued capital gain amounting to Rs. 16,33,99,998/- has been offered for taxation in assessment year 2024-25. 7. However, the Assessing Officer was not satisfied with the arguments of the assessee. He observed that despite repeated opportunities given to the assessee to explain the source of funds received from Qapita Fintech India Pvt Ltd of Rs. 81.71 crores and to explain the creditworthiness of the parties, the assessee could not furnish the financials and other details of the said company. He observed that in the interest of natural justice, this data was obtained from Qapita Fintech India Pvt Ltd. On going through the audited financi....
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....he assessee remained unexplained as discussed above. In view of the foregoing facts and circumstances of the case, an addition of Rs. 59,91,14,144/- is made on account of unexplained cash credits u/s 68 read with section 115BBE of the Income-tax Act, 1961." 9. Since the Assessing Officer treated the capital gain declared by the assessee as unexplained cash credit u/s 68 of the I T Act, he did not proceed to examine the claim of deduction u/s 54F of the Act. 10. Before the Ld. CIT(A) / NFAC it was submitted that the long term capital gains arose from the transfer of shares which had been held for more than twenty five years and the transaction stands duly supported by the Share Purchase Agreement, audited financial statements, valuation report, bank records, and confirmations received from the buyer company. It was argued that the amendments brought in by the Finance Act, 2022 requiring proof of "source of source" are confined to cases of share capital and loans and do not extend to bonafide share transfer transactions which are already governed by the provisions of capital gains under the Act. The assessee also emphasised that the infusion of capital by the buyer com....
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.... immediate layering. This arrangement casts doubt on the genuine creditworthiness of the purchaser at its own level. As held by the Hon'ble Supreme Court in PCIT v. NRA Iron & Steel Pvt. Ltd. (412 ITR 161), CIT v. P. Mohanakala (291 ITR 278), and Sumati Dayal v. CIT (214 ITR 801), documentary evidence such as incorporation papers, PAN or banking channels cannot, by themselves, establish genuineness when the surrounding circumstances point otherwise. The test of human probabilities and the requirement of proving creditworthiness must be satisfied in substance, not merely in form. Applying these settled principles, the documentation relied upon by the assessee, while sufficient to establish the identity of the parties, fails to demonstrate the genuine financial strength or independent capacity of the purchaser to pay the consideration. The explanation offered therefore does not meet the statutory mandate of section 68. Although ordinarily a share sale agreement would bring the transaction within the ambit of capital gains under section 45, in the present case the absence of independent capacity at the purchaser's level renders the transaction inadequately substantiat....
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....ce the addition under section 68 has been confirmed, the issue of computation under section 45 and deduction under section 54F does not survive for adjudication on merits. Nonetheless, for completeness, it is observed that the assessee's claim of deduction under section 54F would have required factual verification of the nature and extent of investment made, which was not carried out owing to the AO's re-characterisation of the receipt. Accordingly, Grounds 9 and 10 do not call for separate relief, as the substantive addition under section 68 stands confirmed. These grounds are dismissed. 14. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. Learned CIT(A)-NFAC erred in law and on facts in confirming the assessment order dated 27/3/2025 passed by learned AO-NFAC vide which, total income of the Appellant was quantified at Rs. 63,65,19,406 instead of returned income of Rs. 56,70,68,620. 2. The learned CIT(A)-NFAC erred in law and on facts in affirming the learned AO-NFAC'S action of changing the nature and quantum of income as follows: a) incorrect t....
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..... 68 do not authorize even the Income Tax Officer to Investigate into the Source of Source of a Non-Resident Investor Investing into Equity Shares of the company. 7. The learned I-T authorities also erred in misunderstanding and misinterpreting the valuation report prepared under NAV method (required for determination of Minimum Threshold Value for the limited purpose of Rule 11UA), as a comparable for arm's length transaction between unrelated parties for acquisition of a consultancy and service company, wherein, values are determined on futuristic perspective. 8. The learned I-T authorities also erred in considering the amount of Long-Term Capital Gain and further taxing u/s 68 simultaneously confirming of acceptance of non-relationship between the parties, acceptance of the genuineness of the transaction and also acknowledging of no other incriminating material available with the learned AO. However, sole reason being Creditworthiness of the Source of Source, a Non-Resident. 9. The learned I-T authorities erred in taxing the Long-Term Capital Gain as unexplained Credit u/s 68 and denial of deduction u/s 54F Capital Gain Investment consequently. App....
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.... Unlisted IT & ITES Enterprise Software (SaaS - HR) Jan-19 97.38 5.26 The Math Company Unlisted IT & ITES BPO (Analytics) Jun-20 280 7.7 47.57 53.61 KP Corporate Solutions Unliste d IT & ITES Advisory, Employee Benefits, BPO analytics 21-22 180 8.00 45.00 64.00 16. Relying on various decisions he submitted that once the assessee has proved the identity and capacity of the purchaser and the genuineness of the transaction and the source of purchasers has also been established, therefore, no addition can be made in the hands of the assessee by invoking provisions of section 68 of the Act. He accordingly submitted that the addition made by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC be deleted. 17. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. Referring to the orders of the Assessing Officer and the Ld. CIT(A) / NFAC, he submitted that both the authorities have given justifiable reasons while making addition u/s 68 of the Act in the hands of the assessee. Therefore, the order of the Ld. CIT(A) / NFAC be upheld ....
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....the provisions of section 68 r.w.s. 115BBE of the Act to the sale of shares. On a pointed query raised by the Bench regarding the treatment of sale of shares by the other co-promoters, the Ld. Counsel for the assessee submitted that the sale of shares by the other shareholders of KP Corporate Solutions has been accepted by the Assessing Officer and no such addition has been made. The above submission of the Ld. Counsel for the assessee could not be controverted by the Ld. DR. In our opinion, when Qapita Fintech India Pvt Ltd issued 195122 number of fresh shares to its holding company Qapita Fintech Pte Ltd at a premium of Rs. 160 crores, the addition, if any, on account of over valuation of shares can be made in the hands of Qapita Fintech India Pvt Ltd on account of sale of fresh shares to its holding company which is a foreign company. However, the addition in the hands of the assessee cannot be made when it sold his shares in KP Corporate Solutions which is nowhere related to Qapita Fintech India Pvt Ltd. We, therefore, are of the opinion that once the assessee explained the source of buyer company i.e. Qapita Fintech Pte Ltd and since the Assessing Officer himself has obtained ....