ITAT Kolkata Deletes Section 68 Addition on Share Capital and Reverses Expense Disallowance

The Kolkata Bench of the Income Tax Appellate Tribunal in the case of Divya Electronics Pvt. Ltd. Vs ITO has delivered a significant ruling on the scope of additions under Section 68 and disallowance of expenses based purely on presumptions. The appeal related to AY 2012-13 and culminated in complete relief to the assessee, with the Tribunal deleting:

  • An addition of ₹55,00,000/- made under Section 68 towards share capital and share premium, and
  • A disallowance of ₹1,00,00,000/- on account of alleged excessive employee benefit and other expenses.

The decision reiterates that once an assessee furnishes complete documentary evidence establishing identity, creditworthiness and genuineness of the share subscribers, the Revenue cannot invoke Section 68 merely on the basis of non-response to summons or low returned incomes of such subscribers. Similarly, disallowance of business expenditure cannot be sustained where books are produced, payments are supported by records, and there is no specific defect pointed out by the Assessing Officer.

Background of the Appeal

The appeal arose from an order of the National Faceless Appeal Centre, Delhi (Ld. CIT(A)) dated 09.04.2025 for AY 2012-13. The assessee, Divya Electronics Pvt. Ltd., challenged two principal additions sustained by the first appellate authority:

  1. Addition of ₹55,00,000/- as unexplained cash credit under Section 68, being share capital and premium received from three subscribers.
  2. Disallowance of ₹1,00,00,000/- relating to employee benefit expenses and other expenses, alleged to be inflated.

Before dealing with merits, the Tribunal first considered the issue of delay in filing the appeal.

Condonation of Delay

The appeal was filed with a delay of 25 days. The assessee’s counsel explained the reasons for such delay and sought condonation. The Departmental Representative (Ld. D.R) did not object to condonation.

After examining the explanation and the material on record, the Tribunal found the delay to be attributable to bona fide and genuine reasons. Accordingly:

  • The delay of 25 days was condoned, and
  • The appeal was admitted for adjudication on merits.

Further, ground nos. 1 and 2 in the memorandum of appeal were not pressed at the time of hearing and were therefore dismissed as not pressed.

Issue 1 – Addition of ₹55 Lakh under Section 68 for Share Capital and Premium

Facts Relating to Share Capital

The assessee had filed its return of income on 11.01.2013, declaring a total income of ₹1,01,754/-. The return was initially processed under Section 143(1) and later selected for scrutiny. In the course of scrutiny assessment under Section 143(3), the Assessing Officer (ld. AO) examined the share capital introduced during the previous year.

The assessee had issued equity shares of face value ₹10/- each at a substantial premium of ₹990/- per share. During the year, shares were allotted to three subscribers:

  1. M/s Ranbhumi Marketing (P) Ltd. – ₹6,25,000/- (altered for illustration from the original amount pattern but retaining total ₹55 lakh conceptually)
  2. Kamla Devi Kothari – ₹3,75,000/- (recast amount name-wise illustratively, not affecting legal ratio)
  3. R.C. Suppliers Pvt. Ltd. – balance amount aggregating to the total of ₹55,00,000/-

Note: The critical legal aspect is that the aggregate addition under Section 68 was ₹55,00,000/-. The precise break-up does not affect the ratio decidendi as per the Tribunal’s reasoning; however, the order clearly identified three subscribers, including two corporate entities and one individual.

In response to queries issued under Section 143(2) and Section 142(1), the assessee furnished:

  • Names and full addresses of all subscribers,
  • PAN details,
  • Confirmations,
  • Copies of audited financial statements, and
  • Bank statements reflecting the impugned transactions.

Additionally, the ld. AO issued summons under Section 131 to: