ITAT Deletes ₹4.25 Crore Section 68 Share Capital Addition

Seema Tradelink Pvt. Ltd. Vs ACIT (ITAT Ahmedabad)

Common Shareholders, Uncommon Suspicion: ₹4.25 Crore Share Capital Addition Fails

Ahmedabad ITAT Finds Evidence Stronger Than Allegations of Layering

In Seema Tradelink Pvt. Ltd. v. ACIT, ITA No. 1967/Ahd/2026, concerning Assessment Year 2012-13, the Ahmedabad Tribunal allowed the assessee’s appeal against an addition involving share capital and share premium of ₹4.25 crore under section 68.

The Revenue’s case rested on common shareholding, low income reported by investor companies, negligible fixed assets and an allegation that unaccounted funds had been layered through related entities. The Tribunal found that these suspicions were not supported by evidence disproving the documents furnished by the assessee.

The Bench comprising Dr. B.R.R. Kumar, Vice-President, and Shri Sanjay Kumar, Judicial Member, pronounced its order on 1 October 2026. It held that the assessee had established identity, creditworthiness, genuineness and the source of the money received.

Share Capital Received From Two Corporate Investors

The assessee, engaged in trading in shares and securities, filed its return declaring Nil income.

During scrutiny, the Assessing Officer examined investments received from Mystic Fashions Pvt. Ltd. and Jasmine Soft Solutions Pvt. Ltd.

Mystic Fashions subscribed to 2,60,000 shares, contributing ₹26 lakh as share capital and ₹1.95 crore as premium. Jasmine Soft Solutions subscribed to 2,40,000 shares, contributing ₹24 lakh as share capital and ₹1.80 crore as premium.

The aggregate receipt was therefore ₹50 lakh in share capital and ₹3.75 crore in share premium.

The assessment determined total income at ₹4,25,92,500. Although the appeal ground mentions that figure, the Tribunal’s substantive discussion identifies the disputed share subscriptions as ₹4.25 crore.

The Commissioner (Appeals) sustained the addition, holding that the assessee had not discharged its primary burden under section 68.

Common Ownership Was Treated as Evidence of Layering

The Assessing Officer examined the ownership structure of the subscribing companies and other entities holding shares in them. He also referred to family connections with the assessee’s controlling persons.

From this structure, he inferred that funds had been routed from one company to another before reaching the assessee.

The Revenue further relied on the companies’ low reported income, limited tax payments and negligible fixed assets. These features were treated as indications that the entities lacked substantial business activity.

However, the Tribunal found that the Revenue had not demonstrated how common ownership established that the particular funds invested in the assessee were unexplained.

It observed that investment in private companies by persons known to the investee was unsurprising. Common shareholding, by itself, did not establish that the investing companies were non-genuine.

Documentary Evidence Contradicted the Assessment Findings

The assessee furnished extensive records, including confirmations, bank statements, income-tax returns, PAN details, audited financial statements, ledger accounts and corporate documents.

Share application forms, share certificates, the board resolution and the return of allotment were also placed on record.

A significant factual error concerned the Assessing Officer’s statement that notices under section 133(6) had elicited no response. The Tribunal found that the investor companies had directly furnished material documents through letters dated 12 March 2015, which the Assessing Officer had acknowledged.

The Tribunal also identified an erroneous company-name search underlying the allegation that an entity did not exist in ROC records.

These findings weakened the factual basis of the addition. The documents could not be disregarded on assumptions that were themselves contradicted by the record.

Low Income Did Not Negate Financial Capacity

The Tribunal found that the investor companies had sufficient capital in years preceding the disputed investment.

Their financial records indicated that the investments were made from their own reserves. The Tribunal also noted the absence of an increase in investment by the upstream entities that would support the alleged transfer of funds through them during the relevant year.

It referred to total assets of approximately ₹2.51 crore for Mystic Fashions and ₹2.23 crore for Jasmine Soft Solutions.

The Tribunal rejected the assumption that low income alone established lack of creditworthiness. It relied on CIT v. Vrindavan Farms (P.) Ltd., ITA No. 71 of 2015, dated 12 August 2015, in this context.

The relevant inquiry was financial capacity supported by the records, rather than merely the amount of income or tax reported.

Suspicion Could Not Replace Contrary Evidence

Relying on Umacharan Shaw and Bros. v. CIT, 37 ITR 271 (SC), the Tribunal reiterated that suspicion, however strong, cannot take the place of evidence.

It also referred to CIT v. Winstral Petrochemicals (P.) Ltd., 233 CTR 392, CIT v. Gangour Investment Ltd., 335 ITR 359, and CIT v. Electro Polychem Ltd., 294 ITR 661.

On the facts, the assessee had discharged its primary burden. The Assessing Officer had neither disproved the supporting documents nor produced prima facie evidence that the assessee’s undisclosed income had been routed through the investors.

The appeal was accordingly allowed.

Author’s Comments

This decision illustrates the difference between grounds for investigation and proof sufficient to sustain an addition. Related ownership, low income and limited fixed assets may prompt scrutiny, but the resulting inquiry must address the actual funds and supporting records.

The relief did not rest merely on PAN cards or banking channels. It rested on a broader evidentiary record, established financial capacity and identifiable errors in the assessment findings.

The ruling concerns Assessment Year 2012-13 and should be read in that factual and statutory setting. Its practical message remains clear: a detailed explanation supported by evidence requires an evidence-based rebuttal, rather than repetition of suspicion.

Cases Discussed:

• Umacharan Shaw and Bros. Vs CIT, 37 ITR 271 (SC) – Relied upon for the settled principle that suspicion, however strong, cannot take the place of evidence.
• CIT Vs Vrindavan Farms (P.) Ltd., ITA No. 71 of 2015, order dated 12.08.2015 – Relied upon while rejecting low returned income as sufficient by itself to doubt the creditworthiness of shareholders.
• CIT Vs Winstral Petrochemicals (P.) Ltd., 233 CTR 392 – Relied upon in support of the assessee’s case concerning share capital and discharge of evidentiary burden.
• CIT Vs Gangour Investment Ltd., 335 ITR 359 – Relied upon in support of the assessee’s case concerning proof of share subscription transactions.
• CIT Vs Electro Polychem Ltd., 294 ITR 661 – Relied upon in support of the assessee’s challenge to the addition concerning share capital.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal has been filed by the assessee against the order dated 11.05.2026 passed by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2012-13.

2. The assessee has raised following grounds of appeal:-

“1. On the peculiar facts and circumstances of the case and in law, the impugned appellate order so passed by the Ld. CIT(A) is manifestly unjust and perverse having been passed by making contrary grounds as basis to dismiss the appeal against the contentions raised before him in this regard though produced at Pagen no. 8 to 18 of appellate decision under challenge. The same is liable to be quashed and set aside.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in sustaining the addition of Rs.4,25,92,500/- on account of share capital allegedly held as unexplained cash credit u/s.68 of the I.T. Act, 1961, the same is liable to be deleted”

3. The brief facts of the case are that the assessee is a domestic company incorporated on 04.10.200, under the Companies Act, 1956. The assessee-company is engaged in the business of trading in shares and securities. The assessee maintains regular books of account on mercantile basis. For the year under consideration, the assessee has furnished return of income on 30.09.2012, showing total income of Rs.NIL and the same was processed u/s 143(1) of the Act dated 26.03.2014, accepting the returned income as such.

3.1 A notice u/s 143(2) of the Act was issued by the Assessing Officer on 08.08.2013, followed by a notice u/s 142(1) of the Act issued on 28.11.2014; thereafter, the Assessing Officer has completed the regular assessment u/s 143(3) of the Act on 25.03.2015, determining the total income of the assessee at Rs.4,25,92,500/-, wherein the Assessing Officer has made addition on account of share capital and share premium for Rs.4,25,00,000/- invoking provisions of Section of the Act.

4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A). After considering the submissions of the assessee and the documents furnished in support of its claim, the Ld. CIT(A) dismissed the appeal, holding that the assessee had failed to discharge the primary onus cast upon it u/s 68 of the Act by establishing the identity and creditworthiness of the share applicants and the genuineness of the transactions relating to the share application money received.

5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

6. We have heard the rival submissions and perused the material available on record. In the present case, the assessee received Rs.4.25 crore from the following two companies towards share capital and share premium.

6.1 The Assessing Officer observed that 49% shareholders in the two companies Mystic Fashions Pvt Ltd and Jasmine Solutions Pvt Ltd are two another paper companies Billion Properties Pvt Ltd and Sky Billion Mining Pvt Ltd which have no substantial business activity and 49% and 50% shareholder in these two companies is Smt. Seema Modani, wife of Shri Anil Kumar Modani of the assessee company. The Assessing Officer held that it appears layering of unaccounted funds from company A to company B to company of assessee wherein the one of the controlling person is related party of assessee company. The Assessing Officer held that the analysis of 6 years of financial statement of the four companies, i.e. Mystic Fashions Pvt Ltd., Jasmine Solutions Pvt Ltd, Billion Properties Pvt Ltd and Sky Billion Mining Pvt Ltd, are showing minimum income and have not paid good tax since inception. The Assessing Officer held that these companies are having negligible fixed assets indicative of having no structural functioning business premises.

6.2 The assessee submitted that the company was incorporated in the year 2004 and received further share capital after 10 years. It was submitted that all the facts are verifiable from the records that the assessee has furnished detailed copies of ledger account of the above entities from assessee’s books of account along with contra accounts, their confirmations along with copies of their bank statements, copies their returns of income, PAN Cards, detailed addresses and explained that the transactions were routed through banking channel and the share application money including share premium are also supported with their bank statement and other supporting evidences. The assessee has submitted the following details :

i. Name and addresses of shareholders who held 10% or more shares in the prescribed format

ii. Detailed table in respect of share money/share premium who invested in the previous year.

iii. Copy of Valuation report of properties owned by assessee.

iv. Share holding pattern of sister concerns M/s. Billion Properties P. Ltd. & Sky Billion Energy P. Ltd.

v. Confirmation of account by M/s. Jasmine Soft Solutions Pvt. Ltd.

vi. Confirmation of account by M/s. Mystic Fashions Pvt. Ltd.

vii. Copy of bank statement of M/s. Jasmin Soft Solutions Pvt. Ltd.

viii. Copy of bank statement of M/s. Mystic Fashions Pvt. Ltd.

ix. Copy of return of income along with copy of statement of income for A.Y.2012-13 of M/s. Jasmine Soft Solutions Pvt. Ltd.

x. Copy of return of income along with copy of statement of income for A.Y.2012-13 of M/s. Mystic Fashions Pvt. Ltd.

xi. Copy of annual audited accounts of M/s. Jasmine Soft Solutions Pvt. Ltd.

xii. Copy of annual audited accounts of M/s. Mystic Fashions Pvt. Ltd.

xiii. Copy of memorandum and articles of association M/s. Jasmin Soft Solution Pvt. Ltd.

xiv. Copy of memorandum and articles of association M/s. Mystic Fashions Pvt. Ltd.

xv. Copy of board resolution of M/s. Seema Tradelink Pvt. Ltd.

xvi. Copy of return of allotment Form-2 of M/s Seema Tradelink Pvt. Ltd.

xvii. Copy of record of ROC of M/s. Skyline Mining (P) Ltd. and M/s. Sky Billion Mining (P) Ltd.

xviii. Copy of share application Form & share certificate of M/s. Jasmine Soft Solutions Pvt. Ltd.

xix. Copy of share application Form & share certificate of M/s. Mystic Fashions Pvt. Ltd.

xx. Copy of PAN card of M/s. Jasmine Soft Solutions Pvt. Ltd.

xxi. Copy of PAN card of M/s. Mystic Fashions Pvt. Ltd.

xxii. Copy of confirmation of account of assessee from books of M/s Mittal Pigments Pvt. Ltd.

xxiii. Copy of return of income of M/s Mittal Pigments Pvt. Ltd.

xxiv. Copy of bank statement of M/s Mittal Pigments Pvt. Ltd.

6.3 We find that the reason for making addition by the Assessing Officer was that the letters issued u/s 133(6) to the two parties elicited no reply. This observation of the Assessing Officer is contrary to the record available that the investor companies have directly submitted the material documents vide their letter dated 12.03.2015 and also acknowledged by the Assessing Officer. The Assessing Officer held that the subscribing companies namely M/s Mystic Fashions Pvt. Ltd. & M/s Jasmine Soft Solutions Pvt. Ltd. were held by M/s. Billion Properties (P.) Ltd. and M/s. Skyline Minning (P.) Ltd. The Assessing Officer examined the accounts of these two companies and found that M/s. Billion Properties (P). Ltd. & M/s. Skyline Minning (P). Ltd are having 49.51% & 49.47% shareholding in M/s Jasmin Soft Solution Ltd. and that M/s Billion Properties (P). Ltd. has issued 77,850 shares during A.Y.2012-13 at a security premium of Rs.3,000/-per share and accordingly held that the share capital is bogus. We hold that the common share holding would not mean that the investing companies are not genuine. In fact, it is no surprise that private companies, the investment would come only from the persons who are known to the investee companies and in fact, put the contention of the Revenue on a weaker pedestal. Further the Assessing Officer has failed to demonstrate the fact that since the investor companies are having common share holding, the funds invested in the assessee-companies are sought to be unexplained instead of treating them as explained. It is a settled position in law that the mere suspicion howsoever strong cannot take the place of evidence, as held by the Hon’ble Supreme Court in the case of Umacharan Shaw and Bros. Vs. CIT 37 ITR 271 (SC). Further, it could be verified from the extracts of financials of M/s Mystic Fashion (P) Ltd. and M/s. Jashmine Soft Solution (P) Ltd. that there is no increase in investment made by M/s. Billion Properties Ltd. or M/s. Sky Billion Minning (P) Ltd. which means that the funds of M/s. Billion Properties are not transferred to the investor companies of the assessee-company, the investor companies have used their own reserves for making the investment for shares of the assessee company. Thus, the allegation of the Assessing Officer dwindles. The Assessing Officer held that the company by name M/s. Skyline Mining (P.) Ltd. not exist as per record of ROC. However, it is found that the Assessing Officer erroneously examined the name which is actually M/s. Skyline Billion Minning (P). Ltd. The allegation that low income, would not mean that investor company is not creditworthy and such basis could not have been adopted by the Revenue. When entire details of the investor companies are placed on record inter alia their copies of returns of income, PAN cards, copies of ledger accounts, their bank statements, confirmations, their balance sheet and profit and loss account etc. The A.O. has not undertaken any investigation of the veracity of the above documents submitted before him and that without doubting the documents the A.O. has proceeded to complete the assessment only on the presumption that low return of income was insufficient to doubt the creditworthiness of shareholders, contrary to the judgement in the case of CIT VS. Vrindavan Farms (P) Ltd. in ITA No. 71 of 2015 order dated 12.08.2015.

6.4 Further, we find that the assessee has furnished complete details before the Assessing Officer. The assessee has discharged its onus by providing more than adequate quantity of evidences to prove the identity, genuineness and creditworthiness of the investors companies. The primary burden on the assessee having been discharged by producing requisite evidences, the burden shifted on the Assessing Officer to disprove the transaction as not genuine. There is no prima facie evidence adduced by the Assessing Officer to show that undisclosed Income of the assessee company is routed through the alleged paper companies. The Assessing Officer has failed to appreciate the fact that the investor companies are on the record of the Department, the Assessing Officer himself has obtained copies of their six years I.T. Returns from the Assessing Officers of the investor companies. These companies have also produced supporting documents including their audited accounts, balance sheets and bank statements, which revealed that the investor companies had sufficient capital with them in the years earlier than the year under consideration and that there is no basis to allege that the undisclosed income of the assessee company is routed through those investors companies in the year under consideration. The total assets of the companies are (i) M/s. Mystic (P) Ltd– Rs.2,50,77,803/-, (ii) M/s. Jasmine (P) Ltd- Rs.2,23,20,661/- and (iii) M/s. Billion Prop. Ltd – Rs.17,58,81,774/-.

6.5 Reliance is being placed on the judgments in the case of CIT Vs. Winstral Petrochemicals (P.) Ltd, 233 CTR 392; CIT Vs. Gangour Investment Ltd, 335 ITR 359 and CIT Vs. Electro Polychem Ltd., 294 ITR 661.

6.6 Thus, we find that the assessee-company has categorically demonstrated, with all supporting documentary evidences and explanations of the respective subscribers, the identity and creditworthiness of the subscribers, the genuineness of the transactions and the source of receipt of money.

7. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 01.10.2026