Section 68 Proviso Not Retrospective – ITAT Quashes Huge Share Capital Addition

Kolkata ITAT ‘D’ Bench in Rameshwar Finvest Pvt Ltd vs DCIT, Central Circle-3(3), Kolkata (ITA No.2107/Kol/2025, AY 2008-09, order dated 23-12-2025) allowed the assessee’s appeal and deleted the entire addition of ₹32.04 crore made u/s 68, holding that the assessee had duly discharged the onus of proving identity, creditworthiness and genuineness of share subscribers, and that the addition was made in gross violation of principles of natural justice.

The case involved share capital and share premium of ₹32.04 crore (₹10 face value + ₹190 premium). In the first round of reassessment u/s 147, AO had examined the issue in detail, issued notices u/s 133(6), invoked Explanation 3 to s.147, and accepted the share capital without making any addition. Subsequently, PCIT invoked section 263, leading to a second round of assessment, where AO treated the entire share capital/premium as bogus u/s 68, primarily relying on statements of two directors recorded u/s 131 and alleged non-compliance by some subscribers.

ITAT noted that:

• All primary evidences—PAN, ITRs, audited accounts, bank statements and confirmations—were filed both in first and second rounds
• 23 share subscribers complied with summons u/s 131 and others had responded to notices u/s 133(6)
• Statements relied upon were never confronted to the assessee, and no opportunity of cross-examination was granted, rendering the assessment void for breach of natural justice (relying on Andaman Timber Industries, SC)
• Non-appearance of some subscribers cannot justify 68 addition once documentary evidence is on record (Orissa Corporation, SC; Crystal Networks, Cal HC)
• Proviso to section 68 (source of source) inserted by Finance Act, 2012 is prospective and not applicable to AY 2008-09 (Gagandeep Infrastructure, Bom HC)
•  AO also violated sections 142(2) & 142(3) by using material gathered behind the assessee’s back without confrontation

Distinguishing Nipun Builders (Del HC) on facts, ITAT held that the assessee’s case stood on much stronger footing, as subscribers existed, responded to statutory notices and transactions were routed through banking channels.

Accordingly, ITAT set aside the order of CIT(A) and directed deletion of the entire addition of ₹32.04 crore, allowing the appeal in full.

Key takeaway:

For pre-2013 assessment years, once the assessee proves identity, creditworthiness & genuineness, section 68 cannot be invoked merely on suspicion or non-appearance. Statements used without cross-examination and material not confronted vitiate the entire assessment.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Kolkata-21(hereinafter referred to as the “Ld. CIT(A)”] dated 06.08.2025 for the AY 2008-09.