ITAT Kolkata Annuls Rs. 6.56 Crore Addition Under Section 68 – Documentary Evidence on Record, Revenue Failed to Conduct Independent Inquiry
Case Background and Factual Matrix
The Income Tax Appellate Tribunal, Kolkata Bench, adjudicated an appeal filed by Suprersmelt Industries Pvt. Ltd against the National Faceless Appeal Centre, Delhi's order dated 21.11.2025 pertaining to Assessment Year 2015-16. The central issue revolved around an addition amounting to Rs. 6,56,98,750/- made under Section 68 of the Income Tax Act 1961 concerning share capital and share premium receipts.
The assessee-company filed its return on 25th September 2015, reporting a business loss of Rs. 3,88,781/-. The company operated in the trading sector. Following selection for scrutiny assessment, statutory notices and detailed questionnaires were served upon the assessee, to which comprehensive responses were provided.
Share Capital Subscription Details
During the relevant financial year, the assessee-company secured share capital along with premium from three corporate entities:
- M/s Divij Mercantile Pvt. Ltd: Rs. 25,02,500/-
- KLG Tradefin Pvt. Ltd: Rs. 4,99,85,000/-
- Reality Vincom Pvt. Ltd: Rs. 1,32,11,250/-
The aggregate amount received totaled Rs. 6,56,98,750/-. Each equity share with a face value of Rs. 10 was issued at a premium of Rs. 55 per share.
Documentary Evidence Furnished by Assessee
The assessee-company placed before the Assessing Officer exhaustive documentation to establish the three fundamental requirements under Section 68 of the Income Tax Act 1961, namely:
- Identity of subscribers
- Creditworthiness of share applicants
- Genuineness of transactions
The documents submitted included:
- Confirmation letters from all three subscriber companies
- Income Tax Returns of the investing entities
- Audited financial statements and balance sheets
- Complete bank statements of subscriber companies
- Banking records of the assessee-company
- Proof of account payee cheque payments
The Assessing Officer acknowledged receipt of these documents at page 2, paragraph 1 of the assessment order.
Assessment Officer's Approach and Addition
Despite acknowledging the documentary evidence, the Assessing Officer proceeded to make the addition on the following grounds:
In paragraphs 2.5 and 2.6 of the assessment order, the AO merely observed that payments through account payee cheques do not automatically establish genuineness of transactions. The officer then relied on a general modus operandi theory suggesting that such companies function as syndicates where entity A raises share capital from B, which obtains loans from C, which invests in unlisted equity of D, which provides loans to A for share applications. The AO concluded that this creates a cyclical money rotation pattern.
Critical Observation: The Assessing Officer did not undertake any independent inquiry or investigation into the evidences submitted. No notices under Section 133(6) of the Income Tax Act 1961 were issued to the subscriber companies. No summons under Section 131 of the Income Tax Act 1961 were served on any party. The addition was made purely on presumptions and past general experiences without any specific adverse material against the assessee.
Appellate Authority's Confirmation
The Commissioner of Income Tax (Appeals) upheld the assessment order, observing that:
- The assessee failed to discharge the burden under
Section 68of the Income Tax Act 1961 - Shares were issued at excessively high premium without adequate justification
The appellate authority did not provide any independent cogent findings and simply affirmed the AO's conclusion.