Mumbai ITAT Deletes ₹23.98 Crore Section 68 Addition: Proved Share Capital Cannot Be Taxed as Unexplained Cash Credit

Chat Computers Limited Vs DCIT (ITAT Mumbai)

Mumbai ITAT Deletes ₹23.98 Crore Section 68 Addition: Once Identity, Creditworthiness and Genuineness Are Proved, Share Capital Cannot Be Taxed as Unexplained Cash Credit

The Mumbai ITAT deleted the addition of ₹23.98 crore made under Section 68 in respect of preference share capital received from various Kolkata-based companies, holding that the assessee had discharged the initial burden of proving the identity of the investors, their creditworthiness and the genuineness of the transactions through extensive documentary evidence.

The assessee had issued cumulative redeemable preference shares and received ₹28.73 crore, comprising face value and share premium, from 37 investor companies. Pursuant to earlier Tribunal directions, an amount of ₹4.75 crore received from five companies had already been accepted as genuine. In the fresh assessment, the Assessing Officer treated the balance ₹23.98 crore as unexplained cash credit under Section 68, relying heavily on investigation reports alleging that the investor companies were accommodation entry providers.

Before the Tribunal, the assessee pointed out that identical transactions involving many of the same investor companies had already been accepted as genuine in its own case for subsequent years and also in connected group cases. Detailed records such as share application forms, board resolutions, certificates of incorporation, PAN details, income-tax returns, audited financial statements, bank instruments and financial strength of the investor companies had been furnished. The material showed that the investors possessed substantial capital, reserves and financial resources to make the investments.

The Tribunal noted that the Revenue had primarily relied on generalized investigation reports and statements without bringing any direct evidence linking the assessee to any accommodation entry arrangement. It further observed that the assessee had already produced substantial documentary evidence establishing the three essential ingredients required under Section 68, namely identity, creditworthiness and genuineness.

Following the decisions rendered in the assessee’s own cases and related matters involving similar preference share transactions, the ITAT held that the assessee had successfully discharged the burden cast upon it under Section 68. Once such evidence was produced, the addition could not be sustained merely on the basis of suspicion or general allegations regarding Kolkata-based investment companies.

Accordingly, the Tribunal held that the addition of ₹23.98 crore under Section 68 was unsustainable in law and directed its deletion, reiterating that documented share capital transactions supported by credible evidence cannot be treated as unexplained cash credits merely on the strength of investigation reports and presumptions.

FULL TEXT OF THE ORDER OF ITAT MUMBAI