Deepsikha Distributors Pvt. Ltd. Vs ITO (ITAT Kolkata)
Directors’ Non-Appearance Alone Cannot Sustain Section 68 Addition Where Share Subscription Is Substantiated
Facts of the case
The assessee challenged an addition of ₹1.15 crore under section 68 relating to share capital and share premium received from three corporate subscribers.
The company had filed its return on 8 January 2013, declaring total income of ₹279. Following scrutiny, the Assessing Officer completed the original assessment on 17 March 2015, determining income at ₹1,15,00,279.
This was the second round of litigation before the Tribunal. In the first round, the matter had been restored to the Assessing Officer for fresh examination. During the ensuing proceedings, the assessee furnished the documents and explanations sought regarding the share subscriptions.
Nevertheless, the Assessing Officer again treated the amount as unexplained. The principal reason was the absence of personal appearance in response to summons under section 131, despite documentary responses and compliance with notices under section 133(6).
Evidence furnished by the assessee and subscribers
The subscriptions were received from Nishtha Vincom Pvt. Ltd., Pleasure Merchants Pvt. Ltd. and Elegant Dealmark Pvt. Ltd.
The material furnished included bank statements, audited financial statements, PAN details, addresses, incorporation certificates, income-tax return acknowledgements, particulars of directors, share allotment forms and details concerning the source of funds, including source of source.
The Tribunal recorded that Elegant Dealmark and Pleasure Merchants responded to the summons by furnishing the information and evidence called for. All three subscribers also responded to notices issued under section 133(6).
Additionally, the subscribers had themselves undergone scrutiny assessments under section 143(3) for AY 2012-13, copies of which were included in the paper book.
The Assessing Officer considered the assessee’s explanation unsatisfactory but, as noted in the order, did not identify defects or deficiencies in the books. The CIT(A) sustained the addition, observing that filing documents alone did not establish the identity, creditworthiness and genuineness required under section 68.
Tribunal’s reasoning
The Tribunal examined the evidence and concluded that the assessee had discharged its onus under section 68.
Its finding rested on the combined documentary record, the subscribers’ direct responses to statutory notices and their scrutiny assessment orders. The Bench held that, where the relevant details and evidence had been furnished by both the assessee and the subscribers, the addition could not be sustained merely because the subscriber companies’ directors had not appeared personally.
The distinction was between failure to substantiate a credit and failure to attend personally. On the facts of this case, the latter did not justify disregarding the material establishing the transactions.
Jurisdictional High Court decisions
The Tribunal relied on PCIT v. Bright Commodeal Pvt. Ltd., ITAT No. 162 of 2025, dated 28 August 2025. In that case, the Calcutta High Court upheld the Tribunal’s factual conclusion based on the documentary evidence and responses to section 133(6) notices. The authorities had not adequately verified or investigated the material furnished.
The discussion in Bright Commodeal referred to CIT v. Orissa Corporation Ltd., (1986) 159 ITR 78 (SC), and Crystal Networks Pvt. Ltd. v. CIT, 353 ITR 171 (Cal.).
The Bench also relied on PCIT v. Shipra Enclave Pvt. Ltd., ITAT No. 94 of 2025. As reproduced in the present order, that decision emphasised documentary substantiation, identifiable subscribers, financial capacity and direct confirmations. It distinguished PCIT v. NRA Iron & Steel (P.) Ltd. on the factual circumstances discussed there.
The Tribunal further cited the Calcutta High Court decisions in Devbhumi Vinimay, Balaka Vinimay, Rajshree Integrated Cold Chain and One Point Commercial, considering the assessee’s case covered by the jurisdictional authorities.
Decision
The Tribunal set aside the CIT(A)’s order and directed the Assessing Officer to delete the entire addition of ₹1.15 crore.
The appeal was allowed on merits. Unlike the earlier round, the matter was not remanded for another examination.
Author’s comments
The decision reinforces that personal appearance cannot become a substitute for evaluating evidence. Where subscribers respond directly, furnish financial records and explain the funding, the Assessing Officer must examine that material rather than treat absence from a hearing as conclusive proof of an unexplained credit.
Equally, the ruling should not be reduced to the proposition that PAN details and banking channels automatically establish every share subscription. Here, the Tribunal considered a wider evidentiary record, including audited accounts, funding details, statutory responses and scrutiny assessment orders.
The discussion of NRA Iron & Steel should also be understood as a distinction drawn on the facts reproduced in this order, rather than a general exemption from the three requirements of section 68.
Cases Discussed
- PCIT Vs Bright Commodeal Pvt. Ltd. (Calcutta High Court) – ITAT No. 162 of 2025; dated 28/08/2025. Relied upon. The Court upheld the Tribunal’s factual findings concerning documentary evidence, responses to notices under section 133(6), and the failure of the authorities to conduct adequate verification.
- PCIT Vs Devbhumi Vinimay Pvt. Ltd. (Calcutta High Court) – ITAT/16/2025, IA No. GA/2/2025; dated 22/07/2025. Relied upon. Cited as a jurisdictional High Court decision covering the assessee’s case.
- PCIT Vs Balaka Vinimay Private Limited (Calcutta High Court) – ITAT/131/2025, IA Nos. GA/1/2025 and GA/2/2025; dated 21/07/2025. Relied upon. Cited as a jurisdictional High Court authority supporting the assessee.
- PCIT Vs Rajshree Integrated Cold Chain Pvt. Ltd. (Calcutta High Court) – ITAT/286/2024, IA No. GA/2/2024; dated 17/07/2025. Relied upon. Included among the jurisdictional authorities considered applicable.
- PCIT Vs One Point Commercial Pvt. Ltd. (Calcutta High Court) – ITAT/27/2025, IA No. GA/1/2025; dated 03/07/2025. Relied upon. Cited among the decisions covering the section 68 dispute.
- PCIT Vs Shipra Enclave Pvt. Ltd. (Calcutta High Court) – ITAT No. 94 of 2025. Relied upon. The reproduced decision examined documentary evidence, subscriber confirmations, creditworthiness, non-appearance of directors and the distinction from NRA Iron & Steel.
- PCIT Vs Sreeleathers (Calcutta High Court) – [2022] 448 ITR 332. Referred to in Shipra Enclave. Discussed the Assessing Officer’s statutory powers under section 131 to compel attendance.
- PCIT Vs NRA Iron & Steel (P.) Ltd. (Supreme Court) – Distinguished in Shipra Enclave. The reproduced judgment distinguished investors found to be non-existent or untraceable from identifiable taxpayers who confirmed their transactions.
- CIT Vs Orissa Corporation Ltd. (Supreme Court) – (1986) 159 ITR 78. Referred to in Bright Commodeal. Cited concerning the evidentiary burden and examination of credits.
- Crystal Networks Pvt. Ltd. Vs CIT (Calcutta High Court) – 353 ITR 171. Referred to in Bright Commodeal. Cited in the discussion concerning evidence furnished to establish share transactions.
- ITO Vs Cygnus Developers India Pvt. Ltd. (ITAT Kolkata) – ITA/282/Kol/2012. Referred to in Bright Commodeal. Identified as a coordinate Bench decision involving a similar factual position.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 23.06.2026 for the AY 2012-13.
2. The only issue raised in various grounds of appeal is against the order of ld. CIT (A) confirming the addition of ₹1,15,00,000/- as made by the ld. AO u/s 68 of the Act in respect of share capital/ share premium by treating the same as unexplained cash credit.
3. The facts in brief are that the assessee filed the return of income on 08.01.2013, showing total income of ₹279/-. The return was processed u/s 143(1) of the Act. The case of the assessee was selected for scrutiny and assessment was accordingly framed vide order dated 17.03.2015, assessing the income at ₹1,15,00,279/- passed u/s 143(3) of the Act. This is the second round of appeal before the Tribunal. In the first round of appeal, the issue was restored to the file of the ld. Assessing Officer. Accordingly during the set aside proceedings the ld. AO issued notice u/s 142(1) of the Act and called upon the assessee to furnish all the details and evidences qua the share capital/ share premium which were duly filed by the assessee before the AO. The ld. AO treated the share capital/ share premium as unexplained cash credit on the ground that the reply of the assessee was not satisfactory without pointing out any defects or deficiency in the books of account. The ld. AO issued summon u/s 131 of the Act. The AO also issued notices u/s 133(6) of the Act which duly complied with by submitting all the details and evidences by the share subscribers. However, there was no personal appearance. Finally, the ld. AO added the same for the reason that there was no compliance to 131 of the Act.
4. The ld. CIT (A) confirmed the order of the ld. AO by holding that the assessee has failed to discharge its onus cast u/s 68 of the Act and further observed that merely filing all the documents and detail in respect of share subscribers, is not sufficient to prove the three ingredients provided u/s 68 of the Act i.e. identity and creditworthiness of the subscribers and genuineness of the transactions.
5. After hearing the rival contentions and perusing the materials available on record, we find that this is second round of litigation before the Tribunal. In the first round, the Tribunal restored the issue to the file of the ld. AO. In the set aside proceedings, the assessee filed before the ld. AO all the details and evidences qua the three subscribers namely; Nishtha Vincom Pvt. Ltd, Pleasure Merchants Pvt. Ltd. and Elegant Dealmark Pvt. Ltd. comprising copies of bank statements, audited financials, PANs, addresses, corticates of incorporation, source of source, ITR acknowledgements, detail of directors and share allotment forms, which are available from page no.42 to 97 of the Paper Book. We note that the ld. AO issued notice u/s 131 of the Act to Elegant Dealmark Pvt. Ltd., Pleasure Merchants Pvt. Ltd. and the said entities duly complied with the said summon by filing all the details and evidences as called for by the ld. Assessing Officer. Besides, the ld. AO issued notice u/s 133(6) of the Act to all the subscribers which were complied with by the subscribers by fling all the details and evidences. We also note that three subscribers were assessed u/s 143(3) of the Act and the copies of orders for A.Y. 2012-13 are available from page no. 98 to 122 of the Paper Book. Considering the facts ,we are of the view that the assessee has discharged its onus cast upon by section 68 of the Act. In our opinion, where the assessee has filed all the details and evidences qua the share subscribers and notices u/s 133(6) as well as u/s 131 of the Act were complied with and all details/ evidences were filed by all the subscribers, then no addition can be made merely for the reason that there was no personal appearance by the directors of the subscriber companies.
6. The case of the assessee is also squarely covered by the decision of the Hon’ble Calcutta High Court in the case of PCIT vs. Bright Commodeal Pvt Ltd (ITAT No. 162 of 2025) dated 28.08.2025, wherein, it was held as under:
“We have perused the reasons assigned by the learned Tribunal for allowing the assessee’s appeal. It is seen that the assessing officer issued notice under Section 133 (6) of the Act to the investing companies and both the parties have complied with the said notice and furnished the requisite details.
Summons under Section 131 of the Act was issued to the Director of the assessee company to be personally present and also to produce the Directors of the investing company for examination of genuineness of the transaction, identity and creditworthiness of the lenders. The Tribunal noted that the Directors appeared pursuant to the summons but the assessing officer wrongly recorded that the Directors of the assessee company failed to appear in response to the summons issued under 131 of the Act.
Furthermore, the Tribunal examined the factual position and noted that the assessee has filed evidences as called for by the assessing officer in respect of the assessee as well as the investing companies. The evidences filed comprised of income tax retums, audited balance sheet, profit and loss account, audited report, bank statement and master data in respect of each of the subscribers. Furthermore, both the parties have submitted their reply pursuant to the notice issued under Section 133(6) of the Act. After noting these facts, the Learned Tribunal held that the assessing officer as well as the CIT(A) did not cause any verification or conduct any enquiry into the evidences which were filed by the assessee and merely harped on non-compliance of the summons issued under Section 131 of the Act, which is factually incorrect.
Learned Tribunal placed reliance on the decision of the Hon’ble Supreme Court in CIT-Vs- Orissa Corporation Ltd. (1986) 159 ITR 78 (SC) as well as the decision of this Court in Crystal Networks Pvt. Ltd. -Vs- CIT, (353) ITR 171 (Cal). The Tribunal also noted the decision of the Co-ordinate Bench in the case of ITO -VS- M/S Cygnus Developers India Pvt. Ltd. (ITA/282/Kol/2012) wherein the factual position was also similar to that of the case of the assessee.
Thus, we find that the facts have been examined by the Tribunal and the conclusion has been arrived at and therefore, no question of law, much less substantial questions of law, arises for consideration in this appeal.”
7. The decision of the jurisdictional Hon’ble Calcutta High Court in the case of Principal Commissioner Of Income Tax 1 vs M/S Shipra Enclave Pvt Ltd ITAT 94 OF 2025 also squarely applies to the assessee. In this case the facts were that the assessee had raised share capital and premium from fifteen corporate entities. During scrutiny assessment, the assessee produced comprehensive documentary evidences including PAN details, Income-tax return acknowledgements, bank records, and audited financial statements of all subscriber companies. Despite the availability of such material, the Assessing Officer issued summons under Section 131 to the directors of the subscriber companies and, upon their non-appearance, treated the entities as “shell companies” and added 26.22 crore as unexplained cash credit under Section 68, which was affirmed by the CIT(A). The Tribunal reversed the addition after noting that all subscriber companies were active taxpayers who had responded to notices issued under Section 133(6) and confirmed the transactions which were conducted through banking channels. Before the High Court, the Revenue argued that the low income declared by the investors compared to the high share premium suggested accommodation entries, relying on the Supreme Court judgment in PCIT v. NRA Iron & Steel (P) Ltd. However, the Court held that the assessee had discharged its burden under Section 68 by establishing the identity, creditworthiness, and genuineness of the investors through strong documentary evidence. The Court further held that the non-appearance of directors could not invalidate documented transactions, especially when the AO had powers under Section 131 to enforce attendance. Distinguishing NRA Iron & Steel, the Court observed that the said judgment applies to phantom or non-existent entities, whereas the present investors were identifiable taxpayers who confirmed the transactions. Emphasizing that suspicion cannot replace evidence, the Court upheld the Tribunal’s findings and dismissed the Revenue’s appeal, holding that no substantial question of law arose. The Hon’ble’ble Court held as under:
3. The factual matrix, as can be gleaned from the records, reveals that the respondent-assessee is a Non-Banking Financial Company (NBFC) duly registered with the Reserve Bank of India. For the relevant Assessment Year, its retum was selected for scrutiny specifically to examine the receipt of a large share premium. During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had raised share capital and premium from fifteen corporate entities.
4. It is seen from the record that the assessee had placed before the AO a voluminous “Paper Book” containing all requisite documents, including PAN details, Income Tax Retum acknowledgments, and audited financial statements of all fifteen subscriber companies. Notwithstanding the availability of this documentary evidence, the AO issued summons under Section 131 of the Act to the directors of these companies. When they failed to appear personally, the AO proceeded to brand these companies as “shell entities” and added the entire amount of Rs 6,22,00,000/- as unexplained cash credit. This view was subsequently affirmed by the CIT (Appeals).
5. The leamed Tribunal, however, reversed this finding, noting that the subscribers were active taxpayers who had confirmed the transactions in response to notices issued under Section 133(6) of the Act.
6. We have heard Mr. Soumen Bhattacharjee, learned Advocate for the Revenue, and Mr. S.M Surana, learned Advocate for the respondent-assessee.
7. Mr. Bhattacharjee strenuously argued that the meagre income declared by the subscriber companies, when contrasted with the high premium paid to acquire the shares of the assessee, leads to an irresistible conclusion that the transactions were mere accommodation entries. He relied heavily on the decision of the Hon’ble Supreme Court in PCIT vs. NRA Iron & Steel (P) Ltd. and contended that the AO was justified in looking behind the “paper trail” to ascertain the true creditworthiness of the investors and genuineness of the transaction.
8. Per contra, Mr. Surana, learned Advocate for the assessee, submitted that as a regulated NBFC, the assessee’s financial transactions are subject to stringent oversight by the RBI and the MCA. He pointed out that all fifteen subscribers were active assessees on the records of the Income Tax Department and had duly responded to the notices issued by the AO under Section 133(6) of the Act.
9. We have carefully considered the rival submissions and perused the materials on record. It is a settled legal position that to discharge the initial onus under Section 68, the assessee must establish the identity of the creditor, their creditworthiness, and the genuineness of the transaction. In the instant case, the leamed Tribunal conducted a meticulous factual inquiry and recorded a specific finding that the assessee provided a “Cast Iron” documentary foundation. The audited balance sheets of the subscribers demonstrated a substantial net worth, which was far in excess of the amounts invested.
10. Furthermore, we find that the AO’s reliance on the non-appearance of the directors is misplaced and is not supported by the statutory scheme where robust documentary evidence isavailable. As held by this Court in PCIT vs. Sreeleathers [2022] 448 ITR 332 (Cal), the AO is vested with co-terminus powers under Section 131 of the Act to compel attendance. If the AO fails to exercise these powers, he cannot subsequently visit the consequences of such failure upon the assessee. Personal appearance of a director is not a statutory substitute for documented traceability in a corporate assessment, especially when the entities are active taxpayers.
11. Insofar as the reliance on NRA Iron & Steel is concerned, we find the facts of that case to be clearly distinguishable. In that case, the investors were found to be non-existent or “phantom” entities upon field inquiry. In the case before us, the investors are identifiable taxpayers who directly responded to notices u/s 133(6) and confirmed the transactions through banking channels. Equating “traceable investors” with “phantom entities” is a leap in logic that cannot be countenanced. Furthermore, the valuation of shares is a matter of commercial wisdom. Unless the Revenue proves a “live link” showing that the funds originated from the assessee’s own coffers, the AO cannot substitute his judgment for that of the marketplace.
12. In view of the aforesaid discussion, we arrive at a definite conclusion that in a corporate assessment, documented traceability (comprising ITR acknowledgments, PAN details, and Bank Statements) through legitimate banking channels carries greater evidentiary weight than the subjective suspicion of an Assessing Officer. The “Test of Human Probability” cannot be invoked as a tool to disregard a verified and audited paper trail. We also conclude that the ratio in NRA Iron & Steel is applicable only to “phantom” or “non-existent” entities found to be non-traceable upon field inquiry. It cannot be extended to active, traceable taxpayers simply because their investment decisions appear commercially improbable to the Revenue. Equating “traceable investors”with “phantom entities” is a leap in logic that cannot be countenanced. Furthermore, the valuation of shares is a matter of commercial wisdom. Unless the Revenue proves a “live link” showing that the funds originated from the assessee’s own coffers, the AO cannot substitute his judgment for that of the marketplace.
13. Upon considering the submissions made on either side and perusing the materials on record, we find that the learned Tribunal has conducted a meticulous factual inquiry. The Tribunal has recorded a specific finding that the assessee had provided “Cast Iron” documentary evidence to establish the identity and creditworthiness of the subscribers. The audited balance sheets of these companies reflected a substantial net worth, which was far in excess of the amounts invested in the assessee company.
14. We are convinced that the findings of the learned Tribunal are based on a meticulous factual inquiry. The Revenue has failed to produce any contrary material to disprove the documents filed. It is a settled position that suspicion, however strong, cannot take the place of evidence. We find no perversity in the findings of the learned Tribunal.
15. For the reasons aforementioned, we are of the view that no substantial question of law arises for consideration in this appeal. The findings of the learned Tribunal are based on a sound appreciation of facts and settled legal principles.
8. The case of the assessee is squarely covered by the decisions of Hon’ble Jurisdictional High Court in the cases of PCIT Vs. Devbhumi Vinimay Pvt. Ltd. in ITAT/16/2025, IA No.GA/2/2025, vide order dated 22.07.2025, PCIT Vs. Balaka Vinimay Private Limited in ITAT/131/2025, IA no. GA/1/2025, GA/2/2025 vide order dated 21.07.2025, PCIT Vs. Rajshree Integrated Cold Chain Pvt. Ltd., ITAT/286/2024, IA No.GA/2/2024, vide order dated 17.07.2025 and PCIT Vs. One Point Commercial Pvt. Ltd., ITAT/27/2025, IA no.GA/1/2025, vide order dated 3.07.2025.
9. Considering the facts of the case and above decisions, we are inclined to set aside the order of ld. CIT (A) and direct the AO to delete the addition.
10. In the result, the appeal of the assessee is allowed.
Order pronounced on 07.10.2026.
